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,~~June ~~2011~~30, 2013

¨ 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 ¨þ No þ ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted 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 ¨ þ 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 August ~~December 31~~9, ~~2011~~2013, 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	2221
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3934
ITEM 4.	CONTROLS AND PROCEDURES	3934
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	4135
ITEM 1A.	RISK FACTORS	4236
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5837
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5837
ITEM 4.	~~[REMOVED~~MINE ~~AND~~SAFETY ~~RESERVED.]~~DISCLOSURE	5837
ITEM 5.	OTHER INFORMATION	5837
ITEM 6.	EXHIBITS	5837
SIGNATURES		6138

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~~JUNE 30, ~~2011~~ 2013 AND ~~2010~~2012

TABLE OF CONTENTS

Unaudited Condensed Consolidated Financial Statements	4
Condensed Consolidated Balance Sheets as of December 31, 2011 (Unaudited) and March 31, 2011	5
Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and March 31, 2013	4
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 Operations and Other Comprehensive Income for the three months ended June 30, 2013 and 2012	5
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the nine months ended December 31, 2011	7
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity for the three months ended June 30, 2013	6
Unaudited Condensed Consolidated Statements of Cash Flow for the nine months ended December 31, 2011 and 2010	8
Unaudited Condensed Consolidated Statements of Cash Flow for the three months ended June 30, 2013 and 2012	7
Notes to the Unaudited Condensed Consolidated Financial Statements	98

CHINA-BIOTICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US Dollars)

	December 31, 2011 (Unaudited)			March 31, 2011
	June 30, 2013			March 31, 2013
ASSETS
Current assets
Cash and cash equivalents	$	~~121~~78,~~998~~021,~~122~~755		$	~~143~~75,~~988~~866,~~348~~328
Accounts receivable, net		23,518,371			26,194,313
Accounts receivable, net of allowance for doubtful accounts of $4,292,750 and $4,228,769 as of June 30, 2013 and March 31, 2013, respectively		24,329,442			27,071,080
Inventories		3,914,903			1,772,321
Investment income receivable, net of fees payable		2,121,428			2,877,218
Deposits - short term		-			85,546
Inventories		3,340,077			2,227,355
Prepayments		-980,604			1,~~245~~203,~~565~~958
Other receivables		361,708			276,047
Refundable deposit for terminated acquisition		24,298,581			23,936,425
Total current assets		149,793,104			173,562,140
Loan receivable		21,241,819			-
Loan receivable		20,622,788			-
Deferred tax asset		1,547,009			1,535,921
Prepayments for equipment and land use rights		5,924,945			3,146,229
Other current assets		142,030			141,428
Property, plant and equipment, net		60,389,993			59,142,556
Total current assets		156,022,745			134,859,713
Land use rights		1,804,632			1,780,354
Loan receivable		-			20,925,223
Total assets	$	238,535,462		$	237,631,279
Prepayments - long term		14,964,778			20,005,186
Property, plant and equipment, net		105,167,013			97,227,027
Land use rights		5,043,424			4,994,639
Total assets	$	281,197,960		$	278,011,788
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	41,~~841~~604,~~357~~967		$	51,~~532~~374,~~443~~787
Other payables and accruals		45,~~025~~240,~~613~~002			46,~~439~~654,~~986~~085
Tax payables		3132,~~664~~143,~~542~~902			3032,~~942~~244,~~752~~385
Amount due to director		4,881,177			371,623
Short term loans		16,199,054			15,957,617
Total current liabilities		45,412,689			41,286,804
Amount due to director		1,098,847			751,791
Total current liabilities		56,286,772			56,982,665
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, 2011 and March 31, 2011, 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 June 30, 2013 and March 31, 2013, respectively		4,237			4,237
Additional paid-in capital		8486,~~390~~749,~~669~~293			8386,~~242~~243,~~926~~874
Retained earnings		97120,~~568~~691,~~157~~016			~~102~~120,~~377~~537,~~471~~096
Treasury stock at cost, 20,219,800 shares as of December 31, 2011 and March 31, 2011, respectively		(2,741,634	)		(2,741,634	)
Treasury stock at cost, 20,219,800 shares as of June 30, 2013 and March 31, 2013, respectively		(2,741,634	)		(2,741,634	)
Accumulated other comprehensive income		1017,~~875~~182,~~550~~482			1013,~~435~~959,~~681~~756
Capital and statutory reserve		3,025,794			3,025,794
Capital and statutory reserves		3,025,794			3,025,794
Total stockholders’ equity		~~193~~224,~~122~~911,~~773~~188			~~196~~221,~~344~~029,~~475~~123
Total liabilities and stockholders' equity	$	~~238~~281,~~535~~197,~~462~~960		$	~~237~~278,~~631~~011,~~279~~788

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,
	Three months ended June 30,
	2011			2010			2011			2010
	2013			2012
Net sales	$	2213,~~401~~136,~~455~~530		$	3217,~~384~~382,~~645~~483		$	~~35,510,781~~		$	~~80,909,011~~
Cost of sales		86,~~933~~308,~~894~~168			117,~~198~~278,~~703~~378			~~16,656,068~~			~~27,317,786~~
Cost of product returns		-			-			7,143,914			-
Gross profit		6,828,362			10,104,105
Gross profit		13,467,561			21,185,942			11,710,799			53,591,225
Operating expenses:
Operating expenses:
Selling expenses		2,206,452			4,036,365
Selling expenses		328,459			3,861,261			4,316,810			9,478,797
General and administrative expenses		2,951,526			2,354,571
General and administrative expenses		3,439,934			5,074,625			11,826,124			10,429,910
Research and development expenses		1,573,637			1,304,525
Total operating expenses		36,~~768~~731,~~393~~615			87,~~935~~695,~~886~~461			~~16,142,934~~			~~19,908,707~~
Income (loss) from operations		9,699,168			12,250,056			(4,432,135	)		33,682,518
Income from operations		96,747			2,408,644
Other income and expenses:
Interest expense		(16271,933	)		-(145,460	)		~~(352~~	)		-
Interest income		~~372~~184,~~918~~665			~~103~~194,~~495~~973			~~1,158,779~~			~~288,665~~
Change in the fair value of embedded derivatives		-			2,847,000			-			14,797,000
Investment income, net of fees		789,869			776,683
Other income (expenses)		(90,695	)		539,451			(545,424	)		894,538
Exchange (loss) gain, net		(2,264	)		8,987
Exchange gain (losses), net		(15,964	)		-			(91,007	)		-
Miscellaneous		3,693			(102,892	)
Total other income		~~266~~704,~~243~~030			3732,~~489,946~~291			~~521,996~~			~~15,980,203~~
Income (loss) before taxes		9,965,411			15,740,002			(3,910,139	)		49,662,721
Income before taxes		800,777			3,140,935
Income taxes		~~857~~646,~~267~~857			21,~~476~~068,~~772~~972			~~899,175~~			~~6,704,028~~
Net income (loss)		9,108,144			13,263,230			(4,809,314	)		42,958,693
Net income		153,920			2,071,963
Other comprehensive income
Foreign currency translation adjustment		13,~~021~~222,~~657~~726			1298,~~837,146~~763			~~439,869~~			~~3,907,362~~
Comprehensive income (loss)	$	10,129,801		$	15,100,376		$	(4,369,445	)	$	46,866,055
Comprehensive income	$	3,376,646		$	2,370,726
Weighted average number of shares
Basic		22,150,200			22,150,200			~~22,150,200~~			~~22,275,758~~
Diluted		22,150,200			2322,~~712~~326,~~700~~563			~~22,150,200~~			~~24,184,848~~
Income (loss) per common stock
Income per common stock
Basic	$	0.4101		$	0.6009		$	~~(0.22~~	)	$	~~1.93~~
Diluted	$	0.4101		$	0.4409		$	~~(0.22~~	)	$	~~1.16~~

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

CHINA-BIOTICS, INC. AND SUBSIDIARIES

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

FOR THE THREE MONTHS ENDED JUNE 30, 2013

(Amounts expressed in US Dollars)

	Common Stock												Accumulated
	Shares		Par value $0.0001		Additional Paid-in Capital		Retained Earnings			Treasury Stock			~~Accumulated~~ Other Comprehensive Income		Capital ~~and~~& Statutory ~~Reserve~~Reserves		Total
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
Balance- April 1, 2013		42,370,000	$	4,237	$	86,243,874	$	120,537,096		$	(2,741,634	)	$	13,959,756	$	3,025,794	$	221,029,123
Fair value of vested options		-		-		1505,~~147,743~~419		-			-			-		-		1505,~~147,743~~419
Net loss		-		-		-		(4,809,314	)		-			-		-		(4,809,314	)
Net income		-		-		-		153,920			-			-		-		153,920
Foreign currency translation adjustments		-		-		-		-			-			~~439~~3,~~869~~222,726		-		~~439~~3,~~869~~222,726
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
Balance- June 30, 2013		42,370,000	$	4,237	$	86,749,293	$	120,691,016		$	(2,741,634	)	$	17,182,482	$	3,025,794	$	224,911,188

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,
	Three months ended June 30,
	2011			2010
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(4,809,314	)	$	42,958,693
Net income	$	153,920		$	2,071,963
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Adjustments to reconcile net income to cash provided by operating activities:
Amortization		2926,~~064~~656			2826,~~385~~206
Depreciation		21,~~554~~562,~~575~~096			21,~~655~~177,~~372~~403
Provision of allowance for doubtful accounts		1,228,064			-
Fair value of vested options		505,419			336,946
Fair value of vested options		1,147,743			-
Change in deferred taxes		(11,088	)		-
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		23,~~221~~136,~~843~~335			~~(17~~2,~~176~~836,~~185~~504	)
- Inventories		(2,086,945	)		(376,618	)
- Interest income receivable, net of fee payable		795,546			(1,258,703	)
- Deposits		88,030			-
- Inventories		(1,073,925	)		(236,697	)
- Prepayments		~~(306~~240,~~960~~429	)		(~~412~~107,~~593~~363	)
- Other receivables		(77,260	)		(260,616	)
- Other current assets		1,530			(34,351	)
- Accounts payable		~~(856~~208,~~878~~390	)		~~714~~(1,~~883~~132,783	)
- Other payables and accruals		(~~539~~1,~~792~~476,519	)		~~(424~~494,~~120~~378	)
- Taxes payable		(~~210~~579,~~380~~114	)		2(1,~~854~~936,~~776~~093	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(1,618,210	)		16,336,616
- Amount due to director		165,000			-
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,654,675			2,237,410
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of loan receivable		(20,622,788	)		-
Prepayments for equipment		(2,647,608	)		(12,197,260	)
Prepayments for long-term capital expenditures		(1,092,357	)		-
Purchase of property, plant and equipment		(176,582	)		(8,734,151	)
Proceeds from sales of property, plant and equipment		-			976
NET CASH USED IN INVESTING ACTIVITIES		(2,824,190	)		(20,931,411	)
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
Advances from director		4,509,554			5,409,787
Repayment of bank loan		-			(792,670	)
Repayments to director		-			(3,250,000	)
Advance from director		150,000			111,228
Redemption of convertible note		-			(25,000,000
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		150,000			(681,442	)
Treasury stock acquired		-			(2,739,634	)
Effect of exchange rate changes on cash and cash equivalents		1,174,942			(41,315	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		4,509,554			(25,579,847	)
NET CHANGES IN CASH AND CASH EQUIVALENTS BALANCES		2,155,427			(19,416,758	)
Effect of exchange rate changes on cash and cash equivalents		(1,172,532	)		2,316,795
CASH AND CASH EQUIVALENTS BALANCES, beginning of period		75,866,328			70,086,074
NET CHANGES IN CASH AND CASH EQUIVALENTS BALANCES		(21,990,226	)		(23,288,789	)
CASH AND CASH EQUIVALENTS BALANCES, end of period	$	78,021,755		$	50,669,316
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	$	~~352~~271,933		$	5145,~~148,983~~460
Income taxes paid	$	2630,~~601,595~~657		$	72,~~549~~622,~~505~~353
Non cash investing and financing activities:
Transfer of prepayments to property, plant and equipment	$	7,965,453		$	-

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~~THREE MONTHS ENDED ~~DECEMBER~~JUNE 3130, ~~2011~~2013 AND ~~2011~~2012

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~~June 3130, ~~2011~~2013 and ~~2010~~2012 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~~June 3130, ~~2011~~2013 and for all periods presented. Information as of March 31, ~~2011~~2013 was derived from the audited consolidated financial statements of the Company for the year ended March 31, ~~2011~~ 2013.

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 ~~May~~July 2112, 2013 for the year ended March 31, ~~2011~~2013. The results of operations for the three ~~and nine~~ months ended ~~December 31~~June 30, ~~2011~~ 2013 are not necessarily indicative of the operating results to be expected for the full year ending March 31, ~~2012~~2014.

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”); 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”). Intercompany accounts and transactions have been eliminated in consolidation.

9Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. Those estimates and assumptions include estimates for allowance for doubtful accounts, inventory valuation, impairment consideration, and assumptions used in the valuation of equity instruments.

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

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~~June 30, 2013 and March 31, ~~2011~~2013:

Fair Value Measurements as of December 31, 2011

Fair Value Measurements as at June 30, 2013

Balance at December 31, 2011

Quoted Prices in Active Markets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Balance at June 30, 2013

Quoted Prices in Active Markets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Loan receivable

2021,~~622~~241,~~788~~819

	Fair Value Measurements as at March 31, 2013
	Balance at March 31, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Loan receivable	$	20,925,223	$	-	$	20,925,223	$	-

Recent Accounting Pronouncements

In ~~May~~March ~~2011~~2013, the FASB issued ASU ~~No. 2011~~2013-~~04 “Amendments~~05 toTopic ~~achieve~~830, ~~common~~“Foreign ~~fair~~Currency ~~value~~Matters” ~~measurement~~(“ASU ~~and~~2013-05”). ~~disclosure~~ASU ~~requirements~~2013-05 resolves the diversity in USpractice ~~GAAP~~about ~~and~~whether ~~IFRSs”~~Subtopic ~~(“ASU~~810-10, ~~2011~~Consolidation—Overall, or Subtopic 830-~~04”)~~30, ~~which~~ ~~clarify~~ASU ~~how~~2013-05 applies to ~~measure~~the release ~~and~~of ~~disclose~~the ~~fair~~cumulative ~~value.~~translation ~~The~~adjustment ~~amendment~~into ~~clarifies~~net ~~the~~income ~~intent~~when ~~behind~~a ~~the~~parent ~~application~~either sells a part or all of ~~existing~~its ~~fair~~investment in ~~value~~a ~~measurements~~foreign ~~and~~entity ~~disclosures~~or ~~and~~no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other ~~amendments~~than ~~which~~a ~~change~~sale ~~principles~~of in substance real estate or ~~requirements~~conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amendments in this Update resolve the diversity in practice for ~~fair~~the ~~value~~treatment ~~measurements~~of orbusiness combinations ~~disclosures~~achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. ~~The~~ASU ~~amendment~~2013-02 ~~becomes~~became effective for the company prospectively for ~~the~~fiscal ~~Company’s~~years (and interim ~~period~~reporting ~~ending~~periods ~~March 31,~~within ~~2012.~~those ~~Early application~~years) isbeginning ~~not~~after ~~permitted.~~December 15, 2013. The Company does not expect the ~~amendment~~adoption of this guidance to have a material ~~impact~~effect on ~~its~~the ~~financial~~Company’s ~~position,~~unaudited ~~result~~condensed ofconsolidated ~~operations~~financial ~~or cash flows~~statements.

InThe ~~June~~FASB ~~2011,~~has ~~the~~issued Accounting ~~FASB~~Standards ~~issued~~Update (ASU) No. ~~2011~~2013-05 04, Liabilities (Topic 405), “~~Presentation~~Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of ~~Comprehensive~~the ~~Income~~Obligation Is Fixed at the Reporting Date.” (“ASU ~~2011~~2013-~~05”)~~04 toprovides ~~amend~~guidance for ~~ASC~~the ~~220~~recognition, ~~“Comprehensive~~measurement, ~~Income”. The~~and ~~amendments~~disclosure ~~require~~of ~~comprehensive~~obligations ~~income~~resulting tofrom bejoint ~~presented~~and asseveral ~~either~~liability aarrangements ~~continuous~~for ~~statement~~which the total amount of ~~comprehensive~~the ~~income~~obligation orwithin ~~two~~the ~~separate~~scope of this ASU is fixed at the reporting date, except for obligations addressed ~~but~~within ~~consecutive~~existing ~~statements~~guidance in U.S. GAAP. The ~~amendments~~guidance dorequires ~~not~~an ~~affect~~entity ~~the~~to ~~disclosures~~measure ~~required~~those ~~regarding~~obligations ~~comprehensive~~as ~~income.~~the ~~These~~sum ~~amendments~~of the amount the ~~are~~reporting entity agreed to bepay ~~applied~~on ~~retrospectively~~the ~~for~~basis ~~interim~~of ~~and~~its ~~fiscal~~arrangement ~~year~~among ~~periods~~its ~~beginning~~co-obligors ~~after~~and ~~December 15,~~any ~~2011.~~additional ~~The~~amount ~~Company~~the ~~believes~~reporting entity ~~that~~expects ~~its~~to ~~current~~pay ~~presentation~~on behalf of ~~comprehensive~~its ~~income~~co-obligors. ~~has~~The ~~already~~amendments ~~complied~~in ~~with~~this ~~the~~ASU ~~amendments~~are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of ~~such amendments~~this ~~does~~guidance ~~not~~to have a material impact on ~~its~~the ~~financial~~Company’s ~~results~~unaudited ~~and~~condensed ~~disclosures~~consolidated financial statements.

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.9

10In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carrforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years. The company does not expect the adoption of this standard to have a material impact on the Company’s unaudited condensed consolidated financial position and results of operations.

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,
	Three months ended June 30,
	2011		2010		2011			2010
	2013 (Unaudited)		2012 (Unaudited)
Income (loss) per share – Basic
Income per share – Basic
Income (loss) for the period	$	9,108,144	$	13,263,230	$	(4,809,314	)	$	42,958,693
Income for the period	$	153,920	$	2,071,963
Basic average common stock outstanding		22,150,200		22,150,200		~~22,150,200~~			~~22,275,758~~
Net income (loss) per share	$	0.41	$	0.60	$	(0.22	)	$	1.93
Net income per share	$	0.01	$	0.09

	Three months ended December 31,					Nine months ended December 31,
	Three months ended June 30,
	2011		2010			2011			2010
	2013		2012
Income (loss) per share –Diluted
Income per share – Diluted
Income (loss) for the period	$	9,108,144	$	13,263,230		$	(4,809,314	)	$	42,958,693
Income for the period	$	153,920	$	2,071,963
Change in fair value of embedded derivates		-		(2,847,000	)		-			(14,797,000	)
Basic average common stock outstanding		22,150,200		22,150,200
		9,108,144		10,416,230			(4,809,314	)		28,161,693
Diluted effect from vested stock options		-		176,363
Basic average common stock outstanding		22,150,200		22,150,200			22,150,200			22,275,758
Diluted average common stock outstanding		22,150,200		22,326,563
Diluted effect from stock options and conversion shares		-		1,562,500			-			1,909,090
Net income per share	$	0.01	$	0.09
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~~income per ~~share~~ share is computed by dividing the net income ~~available to common stockholders~~ by the weighted average number of outstanding common ~~shares~~stock ~~outstanding~~ during the period. The diluted ~~Diluted~~income ~~earnings~~ per share ~~reflects~~calculation ~~the~~includes ~~potential dilution, using~~ the ~~treasury~~impact ~~stock~~of ~~method~~dilutive ~~that~~convertible ~~could~~securities, ~~occur~~ if ~~securities~~applicable. The orweighted average ~~other~~number ~~contracts~~of tooutstanding ~~issue~~ common stock ~~were~~is ~~exercised~~determined orby ~~converted~~relating ~~into~~the ~~common~~portion ~~stock,~~of ortime ~~resulted~~within ina ~~the~~reporting ~~issuance~~period that a particular number of shares of common stock ~~that~~has ~~then~~been ~~shared~~outstanding into the ~~earnings~~total ~~(loss)~~time ofin ~~the~~that ~~Company~~period. InThe ~~computing~~Company ~~diluted~~had ~~loss per share~~660,000 ~~the~~common ~~treasury~~ stock equivalents ~~method~~related ~~assumes~~to ~~that~~the ~~outstanding~~stock options ~~and~~at ~~warrants~~June ~~are~~30, ~~exercised~~2013 and ~~the~~June ~~proceeds~~30, ~~are~~2012, ~~used~~respectively. toFor ~~purchase common stock at~~ the ~~average market~~three ~~price~~months ~~during~~ended ~~the~~June ~~period.~~30, ~~Options~~2013 and ~~warrants~~2012, 660,000 ~~may~~and ~~have~~483,637, arespectively, ~~dilutive~~of ~~effect~~these ~~under~~common ~~the~~stock ~~treasury~~equivalents ~~stock~~have ~~method~~been ~~only~~excluded ~~when~~for the ~~average market~~calculation ~~price~~ of ~~the~~diluted ~~common~~earnings per ~~stock~~share ~~during~~as the ~~period~~effect ~~exceeds~~of ~~the~~these ~~exercise~~common ~~price~~stock ofequivalents ~~the~~is ~~options and warrants~~anti-dilutive.

For 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”.10

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 ~~December~~June 3130, ~~2011~~2013 and March 31, ~~2011~~2013, the Company had cash deposits of $~~121~~78.70 million and $~~140~~75.38 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~~June 3130, ~~2011~~2013 and ~~2010~~2012, all of the Company’s sales arose in the PRC. In addition, all accounts receivable as at ~~December~~June 3130, ~~2011~~2013 and March 31, ~~2011 were~~2013 are from customers in the PRC.

Concentration of Customers

The Company had no sales to a single customer that accounted for more than 10% of total gross sales. For the three ~~and nine~~ months ended ~~December~~June 3130, ~~2011~~ 2013 and ~~2010~~2013, there was no customer that accounted for over 5% of our sales revenue. As of ~~December 31~~June 30, ~~2011~~2013, there is was one customer that accounted for 43.83% of our accounts receivable. As of March 31, ~~2011~~2013, there was one customer that accounted for 2 4.98% of our accounts receivable.

5.	ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at:

	December 31, 2011 (Unaudited)			March 31, 2011
	June 30, 2013 (Unaudited)			March 31, 2013
Accounts receivable	$	2428,~~759~~622,~~404~~192		$	2631,~~194~~299,~~313~~849
Less: Allowance for doubtful accounts		(14,~~241~~292,~~033~~750	)		-(4,228,769	)
	$	2324,~~518~~329,~~371~~442		$	2627,~~194~~071,~~313~~080

6.	INVENTORIES

Inventories consisted of the following at:

	December 31, 2011 (Unaudited)		March 31, 2011
	June 30, 2013 (Unaudited)		March 31, 2013
Raw materials	$	1861,~~866,647~~315	$	~~744~~527,~~667~~690
Work-in-progress		~~102~~194,~~300~~518		94198,~~756~~330
Finished goods		12,~~945~~284,~~956~~244		~~932~~1,~~898~~501,335
	$	3,~~914~~340,~~903~~077	$	12,~~772~~227,~~321~~355

7.	LOAN RECEIVABLE

On December 19, 2011, the Company entered into an agreement with Jiangxi International Trust Co., Ltd. (“Jiangxi”) to loan $2021,~~622~~241,~~788~~819 (RMB 131,100,000) to the Jiangxi International Trust of Yinhe #7 Property, an investment fund sponsored by Jiangxi. 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. Investment income is due annually while investment management fee is due quarterly. Jiangxi is a major trust and investment company that is executing different investment projects in the PRC, including real estate projects, listed company ~~restructurings~~restructuring, 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.~~ 11

8Interest income (net of fees) totaled $789,869 and $776,683 for the three months ended June 30, 2013 and 2012, respectively. ~~LAND~~ Interest income receivable, ~~USE~~net ~~RIGHTS~~of fees payable totaled $2,121,428 and $2,877,218 as of June 30, 2013 and 2012, respectively.

8.	DEPOSITS

On March 27, 2012, the Company made a deposit of $24,298,581 (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. On June 28, 2013, the Company and the government of Yangling verbally agreed to terminate this potential acquisition. The acquisition deposit will be refunded to the Company within 90 days from the date of the termination, and as such, has been reflected as a current asset in the June 30, 2013 and March 31, 2013 condensed consolidated balance sheets.

9.	LAND USE RIGHTS

The land use rights consisted of the following:

	December 31, 2011 (Unaudited)			March 31, 2011
	June 30, 2013 (Unaudited)			March 31, 2013
Land use rights	$	15,~~958~~356,~~009~~530		$	15,~~900~~276,~~734~~695
Less: Accumulated amortization		(~~153~~313,~~377~~106	)		(~~120~~282,~~380~~056	)
	$	15,~~804~~043,~~632~~424		$	14,~~780~~994,~~354~~639

On March 21, 2006, GSL, our subsidiary, entered into an agreement, as amended, with Shanghai Qingpu Industrial Park District Development (Group) Company Limited for the lease of 36,075 square meters of land in the Shanghai Qingpu Industrial Park District on, which we constructed ~~our~~ our 300-metric ton capacity production plant, for a term of 50 years beginning January 15, 2008. The agreement provides for the ~~payment~~ 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. At ~~December~~June 30, 2013 and March 31, ~~2011~~2013, the net book value of ~~such~~the Qingpu land use right was $1,~~804~~798,~~632~~297 and $1,781,429, respectively.

~~Amortization~~In ~~expense~~2012, our Growing ~~amounted~~Yangling, tosubsidiary $9of the Company that operates in Yangling,~~780~~ ~~and~~the $9PRC,~~488~~ ~~for~~has ~~the~~acquired ~~three~~a ~~months~~land ~~ended~~use ~~December~~right ~~31,~~for ~~2011~~a period of 50 years, beginning ~~and~~January ~~2010~~18, ~~respectively~~2012. ~~Amortization~~At ~~expense~~June ~~amounted to $29~~30,~~064~~ 2013 and ~~$28~~March 31,~~385~~ ~~for~~2013, the ~~nine~~net ~~months~~book ~~ended~~value ~~December~~of ~~31,~~the ~~2011~~land use right was $3,245,127 and ~~2010~~$3, 213,210, respectively.

~~9. PROPERTY,~~Amortization expense ~~PLANT~~amounted ~~AND~~to ~~EQUIPMENT~~$26,656 and $26,206 for the three months ended June 30, 2013, and 2012, respectively.

10.

PROPERTY, PLANT AND EQUIPMENT

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

	December 31, 2011 (Unaudited)			March 31, 2011
	June 30, 2013 (Unaudited)			March 31, 2013
Building	$	4473,~~480~~538,~~956~~614		$	1272,~~047~~616,~~068~~957
Plant and machinery		2318,~~207~~416,~~170~~898			5117,~~430~~487,~~868~~734
Leasehold improvements		12,~~803~~149,~~367~~936			12,~~750~~117,~~615~~892
Office equipment		48,~~818~~259,~~666~~070			47,~~007~~620,~~571~~859
Motor vehicles		~~540~~824,~~150~~983			~~445~~812,~~632~~687
Construction in progress		~~743~~25,~~276~~610,025			118,~~762~~339,~~970~~357
		75,593,585			71,444,724
		128,799,526			118,995,486
Less: Accumulated depreciation		(1523,~~203~~632,~~592~~513	)		(1221,~~302~~768,~~168~~459	)
	$	60105,~~389~~167,~~993~~013		$	5997,~~142~~227,~~556~~027

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.12

AsFor ofthe ~~December~~three ~~31, 2011,~~months ~~the~~ended ~~Company~~June ~~has~~30, ~~the~~2013 and ~~following~~2012, ~~construction~~depreciation ~~projects~~expense amounted into $1,562,096 ~~process:~~and $1,177,403, respectively.

As of June 30, 2013 and March 31, 2013, the corporate headquarters office building and the Qingpu facilities were pledged to banks as a guarantee for loans of a total of $16,199,054 (RMB 100,000,000) (see Note 12). As of June 30, 2013 and March 31, 2013, the net book value of these properties totaled approximately $56.0 million and $55.7 million, respectively.

As of June 30, 2013 and March 31, 2013, the Company has the following construction projects in process:

The Company is currently in the process of improving the two production lines and a research and development center to support the operations of its Qingpu facility. At June 30, 2013 and March 31, 2013, construction in progress related to these improvements included $1,500,675 and $2,485,440, respectively, related to the construction of this facility.

The Company is in construction of a facility in Yangling that is expected to involve investment of over $58 million over two years. 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 June 30, 2013 and March 31, 2013, construction in progress included $24,109,350 and $15,853,917, respectively, related to the construction of this facility. The remaining unfunded contribution commitment for the completion of this facility was $24,575,235 as of June 30, 2013.

As of June 30, 2013 and March 31, 2013, the Company had outstanding deposits and prepayments of $14,964,778 and $20,005,186, respectively, relating to delivery of equipment to be used at these facilities.

11.

AMOUNT DUE TO DIRECTOR

As of June 30, 2013 and March 31, 2013, the amount due to our director and Chief Executive Officer , Mr. Song Jinan, represented advances to the Company which are unsecured, interest-free and repayable on demand. The advances from such director were made by Mr. Song due to 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 under foreign exchange controls.

As of June 30, 2013 and March 31, 2013, the amount due to Mr. Song also included certain unpaid compensation due to him.

~~· The Company is currently in Phase 2 construction of a research and development center and other ancillary facilities in Qingpu~~12. AtLOANS ~~December 31, 2011, construction in progress included $540,818 related to the construction of this facility.~~PAYABLE

·On ~~The~~September ~~Company~~24, is2012, the inCompany ~~construction~~obtained of a ~~facility~~bank inloan ~~Yangling~~facility ~~that~~from isBank ~~expected to involve investment~~ of ~~over~~Jiangsu ~~$58 million over two years. The facility will produce probiotics and probiotics-related biological additives~~ for ~~the animal feed industry. During the year ended March 31~~$16, ~~2011~~199,054 ~~the Company made total payment of approximately $3.25 million~~ (RMB 20100,~~608~~000,~~112~~000) to(“Bank ~~acquire~~Loan ~~the~~Facility”), secured ~~land~~by ~~use~~the ~~right~~assets of ~~approximately 122~~Growing,~~600~~ ~~square~~including ~~meters~~the ~~(183.94~~corporate ~~mu)~~headquarters ~~which~~office isbuilding ~~included in prepayments for equipment~~ and ~~land~~facility ~~use~~buildings ~~rights~~ in ~~the~~Qingpu ~~accompanying~~of ~~unaudited~~Growing (see ~~condensed consolidated balance sheets~~Note10).. WeThe ~~received~~loan ~~the~~consisted ~~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, construction in progress included $202,458 related to~~ the ~~construction~~following ~~of this facility.~~advances:

10· On October 31, 2012, the Company borrowed $8,099,527 (RMB 50,000,000), under the Bank Loan Facility, due October 30, 2013. ~~AMOUNT DUE~~ TOInterest ~~DIRECTOR~~is 6.60% per annum, based on 110% of the one year’s 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 August 9, 2013, there was no notice for change of the interest rate.

As· ofOn ~~March~~December 3128, ~~2011~~2012, the ~~amounts~~Company ~~due~~borrowed ~~to a director~~$2, ~~Mr. Song Jinan~~429,858 of(RMB ~~$371~~15,~~623~~000,000), ~~represented~~under ~~advances to~~ the ~~Company~~Bank ~~which~~Loan ~~are unsecured~~Facility, ~~interest-free and~~due ~~repayable~~December on27, ~~demand~~2013. ~~The~~Interest ~~advances~~is ~~from~~6.60% ~~such~~per ~~director~~annum, ~~were~~based ~~entered~~on ~~into~~110% ~~because~~ of the ~~difficulty~~one ~~the~~year’s ~~Company~~RMB ~~faced~~borrowing inprime ~~paying expenses~~rate ~~incurred~~established ~~outside~~by ~~China in non-PRC currency due to~~ the ~~difficulties~~People’s ~~the~~Bank ~~Company had in converting currency because~~ of ~~foreign exchange~~China ~~controls.~~at ~~During~~ the ~~nine~~time ~~months~~of ~~ended December 31~~funding, ~~2011,~~and ~~the~~is ~~director~~due ~~advanced~~at anthe ~~additional~~end ~~$4,509,554. As~~ of ~~December 31,~~each ~~2011,~~calendar ~~the amount due to Mr~~quarter. ~~Song Jinan totaled $4,881,177.~~

11· On December 31, 2012, the Company borrowed $5,669,669 (RMB 35,000,000), under the Bank Loan Facility, due December 30, 2013. ~~INCOME TAXES~~ Interest is 6.60% per annum, based on 110% of the one year’s 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.

~~For~~13. ~~the~~INCOME ~~nine months ended December 31, 2011 and 2010, the components of income (loss) before income taxes were:~~TAXES

	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

For the three months ended June 30, 2013 and 2012, the components of income (loss) before income taxes were:

For the three and nine months ended December 31, 2011 and 2010, 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, 2011 and 2010, the provision for income taxes relating to income generated in the PRC consists of the following:

	Three months ended June 30,
	2013 (Unaudited)			2012 (Unaudited)
Income before income taxes generated in the PRC	$	1,728,778		$	3,980,519
Loss before income taxes generated in the United States of America		(826,594	)		(740,526	)
Loss before income taxes generated in the British Virgin Islands		(101,407	)		(99,057	)
Loss before income taxes generated in Hong Kong		-			(2	)
	$	800,777		$	3,140,935

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

For the three months ended June 30, 2013 and 2012, 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 three months ended June 30, 2013 and 2012, the provision for income taxes relating to income generated in the PRC consists of the following:

	Three months ended June 30,
	2013 (Unaudited)		2012 (Unaudited)
Current-PRC	$	634,765	$	1,068,972
Deferred-PRC		12,092		-
	$	646,857	$	1,068,972

For the ~~nine~~three months ended ~~December~~June 3130, ~~2011~~2013 and ~~2010~~2012, the reconciliation between the PRC statutory tax rate and effective tax rate are as follows:

	Nine months ended December 31,
	Three months ended June 30,
	2011 (Unaudited)			2010 (Unaudited)
	2013 (Unaudited)			2012 (Unaudited)
Statutory rate		25.000	%		25.000	%
Preferential tax rate		317.770	%		(822.150	)%
Effect of different tax rates in other jurisdictions		(116.012	)%		-4.60	%
Effect of taxable temporary difference		(27.4	)%		-	%
Expenses not deductible for tax purpose		23.30	%		-	%
Change in the fair value of embedded derivatives not subject to tax		-	%		(7.4	)%
Effect of taxable temporary difference		-	%		19.70	%
Expenses not deductible for tax purpose		-	%		0.9	%
Under provision of income tax in prior year		-	%		4.20	%
Tax surcharge		-	%		3.3	%
Change of valuation allowance		16.25	%		-	%
Tax losses not recognized		(13.3	)%		(0.1	)%
Other		4.66	%		3.00	%
Effective tax rate		~~(23~~80.079	)%		1334.600	%

As of ~~December~~June 3130, ~~2011~~ 2013 and March 31, ~~2011~~2013, the Company had incurred tax losses of approximately $417.381 million and $217.21 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.~~

~~The~~As ~~components~~ of June 30, 2013 and March 31, 2013, deferred ~~taxes~~tax ~~are~~assets ~~summarized~~consist asof ~~follows~~the following:

	December 31, 2011 (Unaudited)			March 31, 2011
	June 30, 2013			March 31, 2013
Deferred tax assets
Net operating loss carryforwards
- PRC	$	5620,~~559~~944		$	~~63,970~~-
- United States of America		~~741~~5,~~890~~924,222			-5,815,023
- Hong Kong		81,~~816~~041			51,~~714~~040
Less: Valuation allowance		(807,265	)		(69,684	)
Total net operating loss carryforwards		5,946,207			5,816,063
Net deferred tax assets	$	-		$	-
Allowance for doubtful accounts		1,073,187			1,057,193
Acquired production technology		473,822			478,728
		7,493,216			7,351,984
Less: Valuation allowance		(5,946,207	)		(5,816,063	)
Net deferred tax assets	$	1,547,009		$	1,535,921

The Company is incorporated in Delaware and is subject to U.S. 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.

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~~All ~~Company~~of ~~has~~the ~~its~~Company’s ~~principal~~ operations are conducted in the PRC. ~~and~~At isJune ~~subject~~30, to2013, athe Company’s unremitted foreign earnings of its PRC ~~Enterprise~~subsidiaries totaled ~~Income~~approximately ~~Tax~~$157.8 ~~(“EIT”)~~million ~~rate~~and the Company held approximately $78.0 million of ~~25%~~cash and cash equivalents in ~~calendar~~the ~~years~~PRC. ~~2011~~These ~~and~~unremitted ~~2010,~~earnings ~~subject~~are planned to ~~certain~~be ~~rate~~reinvested ~~reductions.~~indefinitely ~~The~~into the operations of the Company’s ~~subsidiary~~in ~~Shining~~the isPRC. While repatriation ~~located~~of some cash held in the ~~Shanghai~~PRC ~~Jinqiao~~may ~~Special Economic~~be ~~Zone~~restricted ~~and~~by ~~was~~local ~~awarded~~PRC ~~the~~laws, ~~status~~most of ~~“high~~the ~~technology”~~Company's ~~enterprise~~foreign ~~for~~cash balances could be repatriated to the ~~calendar~~United ~~years~~States ~~2007~~but, ~~until~~under ~~2011~~current U.S. ~~Therefore~~income tax laws, ~~Shining~~ ~~enjoyed~~could abe ~~preferential~~subject to U.S. federal income taxes less applicable foreign tax ~~rate~~credits. Determination of ~~15%~~the inamount ~~2007~~of tounrecognized ~~2011~~deferred U.S. ~~Beginning~~income ~~January~~tax 1liability on the unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation, ~~2012~~and as the Company does not plan to repatriate any cash in the PRC to the United States, ~~Shining’s~~no ~~EIT~~deferred ~~rate~~tax isliability ~~25%~~has been accrued for cash to be repatriated.

The Company’s has its ~~subsidiary~~principal ~~Growing~~operations in the PRC and is ~~located~~subject into ~~Shanghai~~a ~~Qingpu~~PRC ~~Industrial~~Enterprise ~~Park~~Income ~~and has~~Tax ~~similar business~~(“EIT”) ~~operations~~rate asof ~~Shining,~~25% ~~but~~in calendar years ~~with~~2012 aand ~~larger~~2011, ~~production~~subject ~~scale~~to certain rate reductions. ~~Growing~~ The Company’s subsidiary Shining is located in the Shanghai Jinqiao special economic zone and was ~~exempted~~awarded ~~from~~the ~~PRC~~status ~~Enterprise~~of ~~Income~~“high ~~Tax~~technology” inenterprise for the calendar ~~years~~year ~~2008~~2007 ~~and~~until ~~2009,~~2011. ~~followed~~Therefore, byShining ~~50%~~enjoyed a preferential income tax ~~exemption~~rate ~~for~~of 15% in the calendar years ~~2010~~from 2007 to 2011. Beginning January 1, 2012, Shining’s EIT rate is 25%.

The Company’s subsidiary, Growing ~~Yangling,~~ is located in ~~Yangling~~Qingpu and, has assimilar business ofoperations ~~December~~as 31Shining, ~~2011,~~but ~~its manufacturing plant was under construction. According to the investment agreement~~ with ~~the~~a ~~local~~larger ~~government,~~ production scale. Growing ~~Yangling~~was isexempted ~~entitled~~from toPRC ~~have~~Enterprise aIncome ~~tax~~Tax ~~incentive~~in ~~that exempts the local portion of EIT for three~~ calendar years ~~from~~2008 ~~the~~and ~~commencement of production~~2009, followed by 50% tax exemption ~~of local portion~~ for the ~~next~~calendar ~~year.~~years ~~There~~2010 isto no2012. ~~financial~~Beginning ~~effect~~January ~~from~~1, ~~the~~2013, ~~tax holiday as~~ Growing’s ~~Yangling~~EIT ~~did~~rate ~~not~~is ~~generate any assessable income for the three and nine months ended December 31, 2011 or 2010~~25%.

AtThe ~~December~~Company’s subsidiary, 31Growing Yangling, ~~2011~~is located in Yangling and as of June 30, 2013 and March 31, ~~2011~~2013, its manufacturing plant was ~~taxes~~under ~~payable~~construction. ~~consisted~~ 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 following: year. There is no financial effect from the tax holiday as Growing Yangling did not generate any assessable profit in the three months ended June 30, 2013 and 2012.

	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

At June 30, 2013 and March 31, 2013, taxes payable consisted of the following:

	June 30, 2013		March 31, 2013
Taxes arising prior to 2005:
Value added tax and other taxes	$	5,220,091	$	5,142,289
Income taxes		4,133,814		4,072,202
Dividends withholding tax		4,359,201		4,294,230
Total taxes prior to 2005		13,713,106		13,508,721

Value added tax and other taxes		288,926		1,242,419
Income taxes		634,489		246,801
Accrued interest on taxes		17,507,381		17,246,444
	$	32,143,902	$	32,244,385

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 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~~713,~~478~~106, 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~~three months ended ~~December~~June 3130, ~~2011~~2013 and 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.

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,
	Three months ended June 30,
	2011 (Unaudited)			2010 (Unaudited)
	2013			2012
Income (loss) per common share-basic	$	(0.22	)	$	1.93
Income per common share-basic	$	0.01		$	0.09
Effect of tax holiday		~~0.01~~-			(0.1801	)
Pro forma income (loss) per common share-basic	$	(0.21	)	$	1.75
Pro forma income per common share-basic	$	0.01		$	0.10

1214. 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%. As of June 30, 2013 and March 31, 2013, the total vested options were 363,000 shares and 313,500 shares, respectively.

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 ended ~~from~~June ~~the date of their termination. According to the option agreement~~30, ~~their~~2013 ~~options were forfeited~~ and ~~cancelled.~~2012, ~~The~~no ~~total~~vested ~~number of forfeited and cancelled~~ options ~~was~~were ~~250,000~~exercised.

At ~~December~~June 3130, ~~2011~~2013, outstanding options ~~were~~ were as follows:

	Number of Shares under Options			Weighted Average Exercise Price
Options outstanding at March 31, 2011		910,000		$	14.81
Options outstanding at April 1, 2013		660,000		$	14.81
Options granted		-			-
Options expired or forfeited		~~(250,000~~-	)		~~14.81~~-
Options exercised		-			-
Options exercised.		-			-
Options outstanding at December 31, 2011		660,000		$	14.81
Options outstanding at June 30, 2013		660,000		$	14.81

The following table summarizes information about options outstanding at ~~December~~June 3130, ~~2011~~2013:

		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		76.5090	$	14.81		~~132~~363,000	$	14.81

AsAt ofJune ~~December 31~~30, ~~2011 and March 31~~3013, ~~2011,~~ the ~~total vested~~ options ~~were~~outstanding and ~~132,000~~exercisable ~~shares~~had ~~and~~no ~~45,500~~intrinsic ~~shares, respectively~~value.

AtFor ~~December~~the 31three months ended June 30, ~~2011~~2013 and ~~March 31~~2012, ~~2011,~~ the ~~options~~Company ~~outstanding~~has recorded $505,419 and ~~exercisable~~$336,946, ~~had~~respectively, noas ~~intrinsic~~the fair value of the vested options.

~~For~~As ~~the~~of ~~three~~June ~~months ended December 31~~30, ~~2011 and 2010~~2013, total ~~the~~compensation ~~Company~~cost ~~has~~related ~~recorded~~to ~~$$336,946 and $0, respectively, as the fair value of the~~ non-vested stock options~~. For~~ ~~the~~and ~~nine~~restricted ~~months~~stock ~~ended~~not ~~December~~yet ~~31,~~recognized ~~2011~~was ~~and~~approximately ~~2010, the Company has recorded~~ $13,~~147~~032,~~743 and $0~~516, which ~~respectively,~~is asexpected ~~the~~to ~~fair~~be ~~value of~~recognized over the ~~vested~~next ~~options~~18 months.

As15. ofCOMMITMENTS ~~December~~AND ~~31, 2011, total compensation cost related to non-vested stock options and restricted stock not yet recognized was approximately $5,391,139, which is expected to be recognized over the next 36 months.~~CONTINGENCIES

13. PRODUCT RETURN CONCESSIONS

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 unaudited condensed consolidated financial statements.

14. 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 probiotics products in the Yangling Agricultural High-tech Industries Demonstration Zone in Shaanxi Province of China. In furtherance of such agreements, BDH incorporated a ~~foreign,~~ wholly foreign owned subsidiary, Growing Yangling, with a registered capital of $50 million. As of ~~March~~June 3130, ~~2012~~2013, 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 Company obtained a one-year extension from the government agency which gives the Company until July 13, 2014 to inject the remaining capital.

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. Weand expect to complete construction by June 2014. As of ~~December~~June 3130, ~~2011~~2013, Growing Yangling entered into agreements with contractors related to the construction of the plant and manufacturing facilities ~~for~~and production equipment with remaining future payments of $224,~~917~~575,~~101~~235 and $6,398,626, respectively.

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. As of ~~December~~June 3130, ~~2011~~2013, the amount of future payments was ~~related to these obligations is~~ $916,~~474~~613,~~688~~412.

Other obligations

~~Growing~~The ~~entered~~Company ~~into~~entered aninto ~~agreement~~agreements with a university ~~in the PRC~~ to perform research and development. ~~The~~for an annual aggregate ~~amount~~fee of ~~future~~$1,457,915 ~~payments~~(RMB ~~per year~~9,000,000). isFee ~~approximately~~commitment for the remaining terms through October 31, 2014, the end of the term, totaled $1,~~407~~943,~~327~~886 (~~RMB9~~RMB ~~million~~12,000,000) as of June 30, 2013.

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

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

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

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

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 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 SEC had scheduled oral argument ~~for~~ for July 10, 2013, but it later adjourned that date and rescheduled the oral argument for October 8, 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.

16.

BUSINESS SEGMENTS

The Company operates two business segments for the three months ended June 30, 2013 and 2012, which are retail probiotics products as a health supplement and bulk additives for institutional customers in the PRC. The following is the summary information by segment as of June 30, 2013 and 2012, and for the three months ended June 30, 2013 and 2012:

Three months ended June 30, 2013	Retail products			Bulk additives		Segment Total		Corporate			Total

Net revenue	$	2,271,777		$	10,864,753	$	13,136,530	$			$	13,136,530
Income (loss) from operations		(1,142,904	)		3,153,627		2,010,723		(1,913,976	)		96,747
Income taxes		-			646,857		646,857		-			646,857
Total assets		150,306,384			97,590,957		247,897,341		33,300,619			281,197,960
Depreciation and amortization		301,852			1,075,633		1,377,485		211,267			1,588,752

15. BUSINESS SEGMENTS

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

Net revenue	$	2,504,098		$	14,878,385	$	17,382,483	$	-		$	17,382,483
Income (loss) from operations		(798,110	)		4,177,147		3,379,037		(970,393	)		2,408,644
Income taxes		232,504			836,468		1,068,972		-			1,068,972
Total assets		101,639,937			105,876,492		207,516,429		48,703,716			256,220,145
Depreciation and amortization		264,545			728,440		928,985		210,624			1,203,609

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

Three months ended December 31, 2011	Retail products		Bulk additives		Segment Total		Corporate			Total
Net revenue	$	14,269,805	$	8,131,650	$	22,401,455	$	-		$	22,401,455
Income (loss) from operations		6,675,272		3,882,732		10,558,004		(858,836	)		9,699,168
Income taxes		380,347		476,920		857,267		-			857,267
Total assets		134,859,813		84,508,123		219,367,936		19,167,526			238,535,462
Depreciation and amortization		259,049		561,551		820,600		196,964			1,017,564

Three months ended December 31, 2010	Retail products		Bulk additives		Segment Total		Corporate			Total
Net revenue	$	17,669,562	$	14,715,083	$	32,384,645	$	-		$	32,384,645
Income (loss) from operations		7,510,322		6,315,119		13,825,441		(1,575,385	)		12,250,056
Income taxes		1,691,938		784,834		2,476,772		-			2,476,772
Total assets		139,198,992		48,940,880		188,139,872		57,463,931			245,603,803
Depreciation and amortization		233,896		989,151		1,223,047		-			1,223,047

Nine months ended December 31, 2011	Retail products			Bulk additives		Segment Total			Corporate			Total
Net revenue	$	19,556,575		$	15,954,206	$	35,510,781		$	-		$	35,510,781
Income (loss) from operations		(4,509,625	)		2,838,585		(1,671,040	)		(2,761,095	)		(4,432,135	)
Income taxes		380,347			518,828		899,175			-			899,175
Total assets		134,859,813			84,508,123		219,367,936			19,167,526			238,535,462
Depreciation and amortization		830,047			1,168,490		1,998,537			585,102			2,583,639

Nine months ended December 31, 2010	Retail products		Bulk additives		Segment Total		Corporate			Total
Net revenue	$	45,830,039	$	35,078,972	$	80,909,011	$	-		$	80,909,011
Income (loss) from operations		18,200,305		18,065,640		36,265,945		(2,583,427	)		33,682,518
Income taxes		4,341,055		2,362,973		6,704,028		-			6,704,028
Total assets		139,198,992		48,940,880		188,139,872		57,463,931			245,603,803
Depreciation and amortization		996,980		1,686,777		2,683,757		-			2,683,757

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,
	Three months ended June 30,
Reconciliation	~~2011~~2013			~~2010~~2012			~~2011~~			~~2010~~
Total segment operating income	$	102,~~558~~010,~~004~~723		$	133,~~825~~379,~~441~~037		$	~~(1,671,040~~	)	$	~~36,265,945~~
Corporate overhead expenses		(~~858~~1,~~836~~913,976	)		(1970,~~575,385~~393	)		~~(2,761,095~~	)		~~(2,583,427~~	)
Other income, net		~~266~~704,~~243~~030			3732,~~489,946~~291			~~521,996~~			~~15,980,203~~
Income tax expense		(~~857~~646,~~267~~857	)		(21,~~476~~068,~~772~~972	)		~~(899,175~~	)		~~(6,704,028~~	)
Total consolidated net income (loss)	$	9,108,144		$	13,263,230		$	(4,809,314	)	$	42,958,693
Total consolidated net income	$	153,920		$	2,071,963

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 primarily through our distributors’ or their associates’ operating websites. Our management believes that as China ~~has~~becomes ~~become~~ more affluent, and the number of Chinese internet users ~~has~~increases, ~~increased and~~ Chinese citizens ~~have~~are ~~become~~becoming more health conscious, ~~resulting~~which inhas led to higher demand for healthy and functional foods such as probiotics and yogurt.

Our first retail product, Shining Essence, was launched in April 2001 and remains one of our best-selling retail products. Sales of Shining ~~comprise~~Essence ~~mainly~~represented ~~live~~approximately ~~bacteria~~30%, and 26% of our total sales of our retail products for the three months ended June 30, 2013 and 2012, respectively. In addition to Shining Essence, our research and development team has successfully developed other new retail products, such as Shining Probiotics Protein Powder, which ~~are~~represented ~~reproduced~~approximately by40% ~~fermentation~~and 34% of our total sales of our retail products for the three months ended June 30, 2013 and 2012, respectively. WeAs ~~have~~of ~~historically~~June 30, 2013, we had a ~~low~~retail ~~cost~~product portfolio of ~~production~~50 products, and we are currently selling 30 of ~~which~~them in the market. The percentage ~~packaging~~contribution ~~costs,~~of ~~including~~Shining ~~the~~Essence ~~cost~~to our total retail sales has decreased as a result of ~~capsules,~~significant ~~represent~~interruptions in our operations resulting from frequent examination of our retail production facilities and products by the ~~largest~~China ~~cost~~Food ~~item~~and Drug Administration as a result of strict rules and regulations on health care products imposed by the PRC government.

2221

~~Shining~~As ~~Probiotics Protein~~our ~~Powder~~retail ~~has~~products comprise ~~become~~mainly ~~our~~live ~~best-selling~~bacteria, ~~product~~which asare ofreproduced ~~December~~by 31fermentation, ~~2011,~~we ~~representing~~have ~~approximately~~historically ~~38%~~had ~~and~~a ~~22%~~low cost of ~~our~~production ~~total sales~~ of ~~our~~which packaging ~~retail~~costs ~~products~~represent ~~for~~ the ~~nine~~largest ~~months~~cost ~~ended~~item. ~~December~~Based ~~31,~~on ~~2011~~sales ~~and~~invoiced ~~2010~~value, ~~respectively.~~our Asbulk weproducts ~~have~~had ~~released~~a ~~new~~revenue ~~products, the percentage~~ contribution of 77% ~~Shining~~in ~~Essence~~fiscal year 2013, ~~for~~an ~~many~~increase ~~years~~from ~~our~~53% ~~biggest-selling~~in ~~retail~~fiscal ~~product,~~year to2012 and contributed 83% of our total ~~retail~~net ~~sales~~revenue ~~has~~for the three months ~~decreased,~~ended ~~representing~~June ~~approximately~~30, ~~21%~~2013. ~~and~~The 8%significant ~~for~~increase reflects the ~~nine~~stability ~~months~~of ~~ended~~the ~~December~~additive ~~31,~~market ~~2011~~as ~~and~~compared ~~2010,~~to ~~respectively.~~the ~~Shining~~retail ~~Essence~~products ismarket ~~still~~in ~~within~~ the ~~top~~current ~~three~~adverse ofeconomic environment. In February 2010, our ~~best-selling~~new ~~products~~bulk production facility in Qingpu commenced commercial production. AsThe state of ~~December~~art ~~31,~~bulk ~~2011,~~additives weproduction ~~had~~facility has a ~~retail~~full ~~product~~capacity ~~portfolio~~ of ~~approximately 100~~300 ~~products,~~metric ~~and~~tons. weManagement ~~are~~believes ~~currently~~our new ~~selling~~facility 35will ofhelp ~~them~~us into continue to meet the increasing market demand for high quality and low cost products.

~~Sales~~We ofmanufacture ~~our~~and sell ~~bulk~~three ~~products contributed~~major ~~45%~~categories of ~~our~~bulk ~~gross~~additive ~~revenue~~products: ~~for~~Yoghurt ~~the~~Culture ~~nine~~Starter, ~~months~~Probiotic ~~ended~~Powder ~~December~~and 31Strains, ~~2011~~which asaccounted ~~compared~~for approximately to44%, 4333% and 23% of our ~~gross~~bulk ~~revenue~~additive sales for the ~~six~~ three months ended ~~December~~June 3130, ~~2010~~2013, respectively.

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~~will 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~~:

· WeIntroduction ~~are~~of ~~currently~~bulk ~~focused~~additives onprobiotics ~~two~~products ~~fast-growing~~through ~~industries~~our inQingpu ~~China:~~Facility ~~the~~- ~~dairy~~We ~~and~~have ~~animal~~expanded ~~feed sectors. As of December 31, 2011, we had entered~~ into ~~contracts with 70 customers, up from 60 customers at March 31, 2011, for~~ the bulk additives business. ~~In this regard, we have created a number of formulations~~ for ~~testing~~institutional ~~by many potential~~ customers. Wethrough ~~have~~the ~~established~~completion ~~business relationships with a variety~~ of ~~commercial~~our ~~customers~~project ~~located in major cities, including Beijing, Tianjin, Chongqing, and Shanghai. We are planning~~ to ~~develop~~build ~~sales~~a ~~plans~~300-metric ~~for~~ton ~~new~~capacity ~~customers~~plant in ~~four additional provinces: Gansu~~Qingpu, ~~Hebei, Heilongjiang and Shanxi. Besides the major cities mentioned above in~~ which wewas docompleted ~~business, our customers are now~~ in 20calendar ~~provinces,~~year ~~including Guangdong, Jiangsu and Jiangxi, among others~~2010. ~~These growing companies are among the leaders in the dairy, animal feed, baked foods, and pharmaceutical industries.~~

We currently focus on two fast-growing industries in China: the dairy and animal feed sectors. As of June 30, 2013, we had entered into sales contracts with 140 customers for the bulk additives business. In this regard, we have created a number of formulations for testing by many potential customers. We have established business relationships with a variety of commercial customers located in major cities, including Beijing, Tianjin, Chongqing, and Shanghai, and 16 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 has commenced construction of a new facility in the Yangling Zone in the Shaanxi Province of China. 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 development 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.

Closure of retail outlets and expansion to 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 (sales to our distributors), 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. Comparatively, direct selling through retail outlets involves increasing leasing expenses and staffing costs. By selecting six new distributors, we have expanded our distribution network into the greater Beijing area to sell the Company’s retail products. The local distributors sell the Company’s retail probiotics products through established distribution networks, including malls, supermarkets, and functional food stores. We had a total of 29 distributors for retail products as of June 30, 2013. In light of increasing online sales of health food and supplements in China and to maintain our existing retail customer base, “Community Network,” we established an in-house e-commerce department during the quarter ended March 31, 2011, which is dedicated to promoting and selling our retail products online through the Company’s website at http://www.shiningbt.com/Product/ (currently under construction and is temporarily used for information only). 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 competency 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 344 people as of June 30, 2013. With production ramping up in the Phase 1 facility and the construction of Phase 2 in Qingpu, we expect significant increases in our number of employees over the next two years. We have been recruiting senior executives to strengthen our management team. However, as wages in China are relatively inexpensive, we expect that labor costs will remain insignificant.

Results of Operations for the Three Months Ended June 30, 2013 Compared with the Three Months Ended June 30, 2012

Our results for the three months ended June 30, 2013 and 2012 are summarized below:

	Three months ended June 30,
	2013 Amount			% of Net sales			2012 Amount			% of Net sales
Net sales	$	13,136,530			100.00	%	$	17,382,483			100.00	%
Cost of sales		6,308,168			48.02	%		7,278,378			41.87	%
Gross profit		6,828,362			51.98	%		10,104,105			58.13	%
Operating expenses:
Selling expenses		2,206,452			16.80	%		4,036,365			23.22	%
General and administrative expenses		2,951,526			22.47	%		2,354,571			13.55	%
Research and development		1,573,637			11.97	%		1,304,525			7.50	%
Total operating expenses		6,731,615			51.24	%		7,695,461			44.27	%
Income from operations		96,747			0.74	%		2,408,644			13.86	%
Other income and expense:
Interest expense		(271,933	)		(2.07	)%		(145,460	)		(0.84	)%
Interest income		184,665			1.41	%		194,973			1.12	%
Investment income, net of fee expenses		789,869			6.01	%		776,683			4.47	%
Exchange (loss) gain, net		(2,264	)		(0.02	)%		8,987			0.05	%
Miscellaneous		3,693			0.03	%		(102,892	)		(0.59	)%
Total other income		704,030			5.36	%		732,291			4.21	%
Income before taxes		800,777			6.10	%		3,140,935			18.07	%
Income taxes		646,857			4.93	%		1,068,972			6.15	%
Net income	$	153,920			1.17	%	$	2,071,963			11.92	%

· 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.

· 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.

· 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 395 people as of December 31, 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 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.

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

Our results for the three months ended December 31, 2011 and 2010 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	%

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~~June 3130, ~~2011~~ 2013 and ~~2010~~2012 comprised the following:

	Three months ended December 31,
	Three months ended June 30,
	2011			2010
	2013			2012
Invoiced value of sales	$	2313,~~346~~319,~~810~~066		$	3317,~~446~~779,~~875~~164
Less: Sales discount		(~~779~~106,~~239~~489	)		(~~870~~261,~~128~~896	)
Less: Sales tax		(~~166~~76,~~116~~047	)		(~~192~~134,~~102~~785	)
	$	2213,~~401~~136,~~455~~530		$	3217,~~384~~382,~~645~~483

Net sales decreased by $94,~~983~~245,~~190~~953 or 3024.8343% to $2213,~~401~~136,~~455~~530 for the three months ended ~~December~~June 3130, ~~2011~~2013 from $3217,~~384~~382,~~645~~483 for the three months ended ~~December~~ 31June 30, ~~2010~~2012. The decrease was mainly attributable to the ~~implementation~~decrease byof the ~~PRC~~sales ~~government~~ of ~~new~~both ~~rules~~bulk ~~and~~additive ~~regulations on~~products ~~health~~and ~~care~~retail products, most ~~including~~notably ~~our~~bulk ~~probiotics~~additive products,. ~~during~~Due ~~2011.~~to ~~Certain~~the slow economy and challenging environment for health care products, ~~including~~in ~~our~~order ~~probiotics~~to ~~products~~stay competitive, ~~have~~we ~~been~~did ~~repositioned~~not asincrease ~~food~~the selling prices for both of our bulk additive products and soretail ~~are~~products. ~~now~~Our ~~governed~~retail sales continued to decline caused by the ~~PRC’s~~strict ~~Food~~rules ~~Safety~~and ~~Law,~~regulations ~~resulting~~on inhealth care products imposed by the ~~Company~~PRC ~~and~~government. The ~~its~~China ~~competitors~~Food ~~having~~and toDrug ~~adapt~~Administration toperformed ~~the~~frequent ~~new~~examinations ~~rules~~of our production facility and ~~regulations~~products which significantly affected our operations.

The contributions of our products as a percentage of invoiced value on sales for the three months ended ~~December~~June 3130, ~~2011~~2013 and ~~2010~~2012, respectively, are ~~summarized~~ summarized below.

	Three months ended December 31,
	Three months ended June 30,
	2011			2010
	2013			2012
Retail products		6317.7029	%		5414.6441	%
Bulk additives		3682.3071	%		4585.3659	%
		100.00	%		100.00	%

Based on the invoiced value of sales, the ~~bulk~~retail ~~additive~~ products invoiced sales ~~contribution~~contributions ~~decreased~~increased to 3617.3029% in the three months ended ~~December~~June 3130, ~~2011~~ ~~from~~2013 45from 14.3641% in the three months ended ~~December~~June 3130, ~~2010~~2011. ~~After~~Our ~~a substantial decrease in our~~ retail sales ~~during~~continued ~~the~~to ~~first two~~decline ~~quarters of this fiscal year~~ as a result of the ~~new~~strict rules and regulations on health care products, imposed by the PRC government while our ~~retail~~bulk ~~sales~~additive ~~rebounded during~~products ~~the~~were ~~three~~not ~~months~~directly ~~ended~~impacted ~~December~~by ~~31,~~these ~~2011~~regulations.

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.24

Cost of sales

Cost of sales for the three months ended ~~December~~June 3130, ~~2011~~2013 was $86,~~933~~308,~~894~~168, a decrease of $970,210, or 13.33% as compared with $117,~~198~~278,~~703~~378 for the three months ended ~~December~~June 3130, ~~2010~~2012. The decrease in cost of sales was primarily caused by the decrease in sales for the three months ended ~~December 31~~June 30, ~~2011~~2013.

Gross profit

Gross profit decreased by $73,~~718~~275,~~381~~743 or 3632.4342% to $136,~~467~~828,~~561~~362 for the three months ended ~~December~~June 3130, ~~2011,~~2013 from $2110,~~185~~104,~~942~~105 for the three months ended ~~December~~ 31June 30, ~~2010~~2012. The ~~increase~~decrease was mainly attributable to the decrease in sales volume of both bulk additive products and retail products for the three months ended ~~December~~June 3130, ~~2011~~2013. Our gross margin decreased to 51.98% for the three months ended June 30, 2013 from 58.13% during the three months ended June 30, 2012, primarily because the increase in manufacturing costs outpaced the increase in our average selling prices. Due to the slower economy in China and increased competition, our average selling prices remained flat to stay competitive but the manufacturing costs including raw materials and labor costs continued to increase.

Selling expenses

Selling expenses decreased by $31,~~532~~829,~~802~~913 or 9145.4934% to $~~328~~2,~~459~~206,452 or 116.4780% of net sales for the three months ended ~~December~~June 3130, ~~2011~~2013, compared with $34,~~861~~036,~~261~~365 or 1123.9222% of net sales for the three months ended ~~December~~June 3130, ~~2010~~2012. The decrease was mainly attributable to ~~decrease~~lower in sales ~~commission~~ commission to sales staff as a result of lower sales ~~and~~for ~~cash collection of outstanding balances from our customers. In addition, we incurred substantially less advertising and promotion expenses during~~ the three months ended ~~December~~June 3130, ~~2011~~2013.

General and administrative expenses

General and administrative expenses ~~decreased~~increased by $1596,~~634,691~~955 or 3225.2135% to $32,~~439~~951,~~934~~526 or 1522.3647% of net sales for the three months ended ~~December~~June 3130, ~~2011~~2013, compared with $52,~~074~~354,~~625~~571 or 1513.6755% of net sales for the three months ended ~~December~~June 3130, ~~2010~~2012. The ~~decrease~~increase in general and administrative ~~expenses~~ expenses was mainly attributable to ~~decrease in research and development expenses from $1,876,000 for~~ the ~~three~~professional ~~months~~fees ~~ended~~incurred ~~December 31, 2010~~ to ~~$1,183,000~~complete ~~for~~our ~~the~~prior ~~three~~unfiled ~~months ended December 31, 2011~~S.E.C. Weperiodical ~~paid~~reports aduring ~~bonus in~~ the ~~amount of $900,000 to a director during the~~ three months ended ~~December~~June 3130, ~~2010~~2013.

Research and development expenses

Our research and development cost increased $269,112 or 20.63% to $1,573,637 for the three months ended June 30, 2013 from $1,304,525 for three months ended June 30, 2012. Our research and development cost fluctuates from time to time depending on the research projects we have in progress.

Income from operations

Income from operations decreased by $2,~~550~~311,~~888~~897 ~~or 20.82%~~ to $996,~~699,168~~747 for the three months ended ~~December~~June 3130, ~~2011~~2013, from $122,~~250~~408,~~056~~644 for the three months ended ~~December~~June 3130, ~~2010~~ 2012. The decrease was mainly attributable to the decrease in sales and ~~decrease~~relatively ofmodest ~~gross profit which was partially offset by the~~ decrease in operating expenses for the three months ended ~~December~~June 3130, ~~2011~~2013.

Total other income

Total other income decreased by $328,~~223,703~~261 or 923.3786% to $~~266~~704,~~243~~030 for the three months ended ~~December~~June 3130, ~~2011~~2013, from $3732,~~489,946~~291for ~~for~~ the three months ended ~~December 31~~June 30, ~~2010~~2012. WeThe ~~recognized~~decrease ~~income~~was ofmainly ~~$2,847,000~~attributable ~~for~~to the ~~changes~~increase inof ~~the~~interest ~~fair~~expense ~~value~~as ofwe ~~embedded~~had ~~derivatives~~higher ~~during~~outstanding ~~the~~loan balance during the three months ended ~~December~~June 3130, ~~2010.~~2013 Wecompared ~~did~~to ~~not recognize such income in~~ the three months ended ~~December~~June 3130, ~~2011~~2012.

Income taxes

Provision for income taxes was $~~857~~646,~~267~~857 and $21,~~476~~068,~~772~~972 for the three months ended ~~December~~June 3130, ~~2011~~2013 and ~~2010~~2012, respectively. The decrease in the provision for income taxes is primarily attributable to the decrease in operating profit ~~for the three months ended December 31, 2011~~.

Net income

Net income decreased by $41,~~155~~918,~~086~~043 ~~or 40.96%~~ to $9153,~~108,144~~920 for the three months ended ~~December~~June 3130, ~~2011~~2013 from $132,~~263~~071,~~230~~963 for the three months ended ~~December~~ 31June 30, ~~2010~~2012. The decrease of net income is mainly attributable to the decrease of ~~operating~~ income from ~~$12,250,056~~operations ~~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~~311,~~000 in the changes in the fair value of embedded derivatives during the three months ended December 31, 2010~~897. ~~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~~fiscal ~~months~~years ~~ended~~2013 ~~December 31, 2011~~ and ~~2010~~2012, the management considers there to be two reporting segments: retail products and bulk additive products, as the new bulk production plant commenced ~~operations~~ 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~~June 3130, ~~2011~~2013 and ~~2010~~2012 are summarized as below:

	Three months ended December 31,
	Three months ended June 30,
	2011			% of			2010			% of
	2013 Amount			% of Net sales			2012 Amount			% of Net sales
	Amount			Net sales			Amount			Net sales
Net sales, retail products	$	2,271,777			100.00	%	$	2,504,098			100.00	%
Net sales, retail products	$	14,269,805			100.00	%	$	17,669,562			100.00	%
Cost of sales		1,480,382			65.16	%		1,281,644			51.18	%
Cost of sales		5,800,233			40.65	%		6,093,535			34.49	%
Gross profit, retail products		791,395			34.84	%		1,222,454			48.82	%
Gross profit, retail products		8,469,572			59.35	%		11,576,027			65.51	%
Operating expenses:
Selling expenses		~~710~~820,~~231~~575			436.9812	%		2905,~~686,728~~989			1536.2118	%
General and administrative expenses		1322,~~084,069~~353			714.6019	%		1513,~~378,977~~819			720.8052	%
Total operating expenses		1,794,300			12.57	%		4,065,705			23.01	%
Research and development expenses		791,371			34.84	%		600,756			23.99	%
Income from operations, retail products	$	6,675,272			46.78	%	$	7,510,322			42.50	%
Total operating expenses		1,934,299			85.15	%		2,020,564			80.69	%
Losses from operations, retail products	$	(1,142,904	)		(50.31	)%	$	(798,110	)		(31.87	)%

Net sales

	Three months ended December 31,
	Three months ended June 30,
	2011			2010
	2013			2012
Invoiced value on sales	$	152,~~167~~387,~~950~~217		$	182,~~653~~787,~~507~~346
Less: Sales discount		(~~779~~106,~~239~~489	)		(~~870~~261,~~128~~896	)
Less: Sales tax		(~~118~~8,~~906~~951	)		(~~113~~21,~~817~~352	)
	$	142,~~269~~271,~~805~~777		$	172,~~669~~504,~~562~~098

Net sales decreased by $3232,~~399,757~~321 or 199.2428% to $142,~~269~~271,~~805~~777 for the three months ended ~~December~~June 3130, ~~2011~~2013 from $172,~~669~~504,~~562~~098 for the three months ended ~~December~~ ~~31,~~June ~~2010~~30, 2012. ~~The~~Our ~~decrease~~retail ~~was~~sales ~~mainly~~continued ~~attributable~~ to ~~the~~decline ~~implementation~~as bya ~~the~~result ~~PRC government~~ of ~~new~~the strict rules and regulations on health care products, ~~including~~imposed ~~our~~by the ~~probiotics~~PRC ~~products, during 2011~~government. ~~Certain~~We ~~health~~also ~~care~~experienced ~~products,~~frequent ~~including~~examination ~~our~~by ~~probiotics products,~~the ~~have~~China ~~been~~Food ~~repositioned~~and asDrug ~~food~~Administration ~~and~~on soour ~~are~~facility ~~now~~and ~~governed~~products, which bycreated ~~the~~significant ~~PRC’s~~interruptions ~~Food~~on ~~Safety~~our ~~Law,~~day ~~resulting~~to inday ~~the~~operations ~~Company~~ and ~~its~~ ~~competitors~~our ~~having~~growth toplan ~~adapt~~in to the ~~new~~near ~~rules and regulations~~term.

Cost of sales

Cost of sales ~~decreased~~increased by $~~293~~198,~~302~~738 or 415.8151% to $51,~~800~~480,~~233~~382 for the three months ended ~~December~~June 3130, ~~2011~~2013 from $61,~~093~~281,~~535~~644 for the three months ended ~~December 31,~~June ~~2010~~30, 2012. The ~~decrease~~increase in cost of sales was primarily caused by the ~~decrease~~increase inof ~~sales~~certain manufacturing costs. The material, labor and overhead costs continue to increase but we were unable to increase our selling prices for our products as we tried to keep our price competitive under the ~~three~~overall ~~months~~challenging ~~ended~~environment ~~December~~of ~~31,~~the ~~2011~~health care industry.

Gross profit

Gross profit decreased by $3431,~~106,455~~059 or 2635.8426% to $8791,~~469,572~~395 for the three months ended ~~December~~June 3130, ~~2011~~2013 from $111,~~576~~222,~~027~~454 for the three months ended ~~December~~ ~~31,~~June ~~2010~~30, 2012. The decrease in gross profit was primarily caused by the decrease of products sold ~~for~~and ~~the~~continuous ~~three~~increase ~~months~~in ~~ended December~~our ~~31, 2011~~manufacturing costs.

Selling expenses

Selling expenses ~~were~~mainly include salary and advertising expenses. Selling expenses were $~~710~~820,~~231~~575 or 436.9812% of net sales for the three months ended ~~December 31~~June 30, ~~2011~~2013, compared with $2905,~~686,728~~989 or 1536.2118% of net sales for the three months ended ~~December~~June 3130, ~~2010~~2012. The decrease ~~was mainly attributable to decrease~~ in ~~sales~~selling ~~commission to staff as a result~~expenses ofwas ~~lower~~in ~~sales~~line ~~and~~with ~~cash~~the ~~collection~~decrease ofin ~~outstanding balances from~~ our ~~customers.~~net ~~In addition, we incurred substantially less advertising expenses during the three months ended December 31, 2011~~sales.

General and administrative expenses

General and administrative expenses decreased by $~~294~~191,~~908~~466 or 2137.3926% to $1322,~~084,069~~353 or 714.6019% of net sales for the three months ended ~~December~~June 3130, ~~2011~~2013 compared ~~with~~ with $1513,~~378,977~~819 or 720.8052% of net sales for the three months ended ~~December~~June 3130, ~~2010~~2012. ~~The~~We ~~decrease~~incurred inconsultation ~~general~~fees ~~and~~in ~~administrative expenses~~the ~~was~~amount ~~mainly~~of ~~attributable to a decrease~~ $124,000 in ~~research~~regards ~~and~~with ~~development~~developing ~~cost~~new toproducts ~~$563,000~~during ~~for~~ the three months ended ~~December 31~~June 30, ~~2011~~2012 ~~from~~whereas ~~$997,000~~we ~~for~~did not incur such expenses during the three months ended ~~December~~June 30, ~~2010~~2013.

~~Income~~Research ~~from~~and ~~operations~~development expenses

~~Income~~Our ~~from~~research ~~operations~~and development ~~decreased~~cost byincreased $~~835~~190,~~050~~615 or 1134.1283% to $6791,~~675,272~~371 for the three months ended ~~December~~June 3130, ~~2011~~2013 ~~from~~as compared to $7600,~~510,322~~756 for ~~the~~ three months ended ~~December~~June 3130, ~~2010~~2012. ~~The~~Even ~~decrease~~though isthe ~~mainly~~environment ~~attributable~~for toretail aproducts ~~decrease~~have been challenging, we continue to invest in ~~sales~~research ~~for~~and development ~~the~~which ~~three~~we ~~months~~believe ~~ended~~will ~~December~~benefit ~~31,~~our ~~2011~~long term growth. Our research and development cost fluctuates from time to time ~~compared~~depending ~~with~~on the ~~three~~research ~~months~~projects ~~ended~~we ~~December~~have ~~31,~~in ~~2010~~progress.

Losses from operations

Losses from operations increased by $344,794 to $1,142,904 for the three months ended June 30, 2013 from $798,110 for the three months ended June 30, 2012. The increase in losses from operations was mainly attributable to the decrease in sales and overall flat operating expenses for the three months ended June 30, 2013.

Bulk products

The results of bulk additives products segment for the three months ended ~~December~~June 3130, ~~2011~~2013 and ~~2010~~2012 are summarized as below:

	Three months ended December 31,
	Three months ended June 30,
	2011 Amount			% of Net sales			2010 Amount		% of Net sales
	2013 Amount			% of Net sales			2012 Amount		% of Net sales
Net sales, bulk additives products	$	810,~~131~~864,~~650~~753			100.00	%	$	14,~~715~~878,~~083~~385		100.00	%
Cost of sales		34,~~133~~827,~~661~~786			3844.5444	%		5,~~105~~996,~~167~~734		3440.6931	%
Gross profit, bulk additives products		46,~~997~~036,~~989~~967			6155.4656	%		98,~~609~~881,~~916~~651		6559.3169	%
Operating expenses:
Selling expenses		~~(381~~1,~~772~~385,877	)		(412.6976	)%		13,~~174~~130,~~533~~376		721.9804	%
General and administrative expenses		1715,~~497,029~~197			186.4158	%		2870,~~120,264~~358		145.4185	%
Total operating expenses		1,115,257			13.72	%		3,294,797		22.39	%
Research and development expenses		782,266			7.19	%		703,769		4.71	%
Income from operations, bulk additives products	$	3,882,732			47.75	%	$	6,315,119		42.92	%
Total operating expenses		2,883,340			26.53	%		4,704,503		31.61	%
Income from operations, bulk additives products	$	3,153,627			29.03	%	$	4,177,147		28.08	%

Net sales

	Three months ended December 31,
	Three months ended June 30,
	2011			2010
	2013			2012
Invoiced value on sales	$	810,~~178~~931,~~860~~849		$	14,~~793~~991,~~368~~818
Less: Sales tax		(4767,~~210~~096	)		(78113,~~285~~433	)
	$	810,~~131~~864,~~650~~753		$	14,~~715~~878,~~083~~385

Net sales decreased by $64,~~583~~013,~~433~~632 or 4426.7498% to $810,~~131~~864,~~650~~753 for the three months ended ~~December~~June 3130, ~~2011~~2013, from $14,~~715~~878,~~083~~385 for the three months ended ~~December~~ 31June 30, ~~2010~~2012. The decrease in sales of bulk additive products was primarily attributable to ~~the~~effects ~~implementation by the government~~ of the ~~PRC~~general ofeconomy ~~new rules and regulations on health care products during 2011~~slowdown.

Cost of sales

Cost of sales decreased by $1,~~971~~168,~~506~~948 or 3819.6249% to $34,~~133~~827,~~661~~786 for the three months ended ~~December~~June 3130, ~~2011~~2013, from $5,~~105~~996,~~167~~ 734 for the three months ended ~~December 31~~June 30, ~~2010~~2012. The decrease in cost of sales was primarily caused by the decrease in products sold ~~during~~for the three months ended ~~December~~June 3130, ~~2011~~ 2013.

Gross profit

Gross profit decreased by $42,~~611~~844,~~927~~684 or 4732.9903% to $46,~~997~~036,~~989~~967 for the three months ended ~~December~~June 3130, ~~2011~~2013, from $98,~~609~~881,~~916~~ 651 for the three months ended ~~December 31~~June 30, ~~2010~~2012. The decrease of gross profit was primarily caused by the decrease in products sold for the three months ended ~~December~~June 3130, 2013. ~~2011~~Our average selling prices were not able to keep up with the increases of our manufacturing costs which resulted in a decrease in our gross margin to 55.56% for the three months ended June 30, 2013 from $59.69% for the three months ended June 30, 2012.

Selling expenses

Selling expenses were ~~negative~~ $~~381~~1,~~772~~385,877 or -412.6976% of net sales for the three months ended ~~December~~June 3130, ~~2011~~2013, compared with $13,~~174~~130,~~533~~376 ~~for~~or 21.04% of net sales for the three months ended ~~December~~June 3130, ~~2010~~2012. The selling expenses mainly included advertising expenses, promotion expenses, commission and salary. ~~The~~ ~~negative~~This increase in selling expenses ~~for~~was ~~the~~primarily ~~three~~attributable ~~months~~to ~~ended~~decrease ~~December~~of ~~31,~~commission ~~2011~~expense ~~included~~as a ~~reversal~~result of andecline in ~~over~~sales. ~~provision~~In ~~of $1~~addition,~~194,981 for~~ we paid extra commission ~~expenses~~to ~~for~~the sales team in the three months ended ~~December~~June 3130, ~~2011~~2012 as an extra incentive for the sales team to generate sales.

General and administrative expenses

General and administrative expenses were $1715,~~497,029~~197 or 186.4158% of net sales for the three months ended ~~December~~June 3130, ~~2011~~2013, compared with $2870,~~120,264~~ 358 or 145.4185% of net sales for the three months ended ~~December~~June 3130, ~~2010~~2012. The decrease in general and administrative expenses was mainly attributable to the a decrease in ~~research~~the ~~and~~depreciation ~~development~~expense ~~expenses~~ to $~~619~~243,~~321~~000 for the three months ended ~~December~~June 3130, ~~2011~~ 2013 from $~~878~~284,~~881~~000 for the three months ended ~~December~~June 3130, ~~2010~~2012.

Research and development expenses

Our research and development cost increased $78,497 or 11.15% to $782,266 for the three months ended June 30, 2013 as compared to $703,769 or 4.73% for three months ended June 30, 2012. Our research and development cost fluctuates from time to time depending on the research projects we have in progress.

Income from operations

Income from operations decreased by $21,~~432~~023,~~387~~521 or 3824.525% to $3,~~882~~153,~~732~~627 for the three months ended ~~December~~June 3130, ~~2011~~2013, from $64,~~315~~177,~~119~~148 for the three months ended June ~~December 31~~30, ~~2010~~2012. The decrease was mainly attributable to the decrease of gross profit of $2,844,684 from the decrease in sales ~~partially~~which was partially offset by the ~~decrease~~decreases in selling expenses, and and general and administrative expenses for the three months ended June ~~December 31~~30, ~~2011~~2013.

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

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

	Nine months ended December 31,
	2011 Amount			% of Net sales			2010 Amount		% of Net sales
Net sales	$	35,510,781			100.00	%	$	80,909,011		100.00	%
Cost of sales		16,656,068			46.90	%		27,317,786		33.76	%
Cost of product returns		7,143,914			20.12	%		-		-	%
Gross profit		11,710,799			32.98	%		53,591,225		66.24	%
Operating expenses:
Selling expenses		4,316,810			12.16	%		9,478,797		11.72	%
General and administrative expenses		11,826,124			33.30	%		10,429,910		12.89	%
Total operating expenses		16,142,934			45.46	%		19,908,707		24.61	%
Income (loss) from operations		(4,432,135	)		(12.48	)%		33,682,518		41.63	%
Other income and expense:
Interest expense		(352	)		(0.00	)%		-		-	%
Interest income		1,158,779			3.26	%		288,665		0.36	%
Change in the fair value of embedded derivatives		-			-	%		14,797,000		18.29	%
Other income (expenses)		(545,424	)		(1.54	)%		894,538		1.10	%
Exchange gain (loss), net		(91,007	)		(0.25	)%		-		-	%
Total other income		521,996			1.47	%		15,980,203		19.75	%
Income (loss) before taxes		(3,910,139	)		(11.01	)%		49,662,721		61.38	%
Income taxes		899,175			2.53	%		6,704,028		8.28	%
Net income (loss)	$	(4,809,314	)		(13.54	)%	$	42,958,693		53.10	%

Net sales

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

	Nine months ended December 31,
	2011			2010
Invoiced value of sales	$	37,083,791		$	83,935,719
Less: Sales discount		(1,349,479	)		(2,361,521	)
Less: Sales tax		(223,531	)		(665,187	)
	$	35,510,781		$	80,909,011

Net sales decreased by $45,398,230 or 56.11% to $35,510,781for the nine months ended December 31, 2011 from $80,909,011 for the nine 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 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, 2011 was $16,656,068 compared with $27,317,786 for the nine months ended December 31, 2010. The decrease in cost of sales was primarily caused by decrease in sales for the nine 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 nine months ended December 31, 2010.

Gross profit

Gross profit decreased by $41,880,426 or 78.15% to $11,710,799 for the nine months ended December 31, 2011, from $53,591,225 for the nine months ended December 31, 2010. The decrease was mainly attributable to the decrease in sales volume of both retail and bulk additive products for the nine months ended December 31, 2011.

Selling expenses

Selling expenses decreased by $5,161,987 or 54.46% to $4,316,810 or 12.16% of net sales for the nine months ended December 31, 2011, compared with $9,478,797 or 11.72% of net sales for the nine months ended December 31, 2010. The decrease was mainly attributable to the decrease of sales commission which was based on collection on outstanding balances from the customers.

General and administrative expenses

General and administrative expenses increased by $1,396,214 or 13.39% to $11,826,124 or 33.30% of net sales for the nine months ended December 31, 2011, compared with $10,429,910 or 12.89% of net sales for the nine months ended December 31, 2010. The increase in general and administrative expenses was mainly attributable to the write off of returned products of $865,871 and allowance for doubtful accounts and write-off of accounts receivable totaling $1,039,853 during the nine months ended December 31, 2011. We did not incur such costs during the nine months ended December 31, 2010.

Income (loss) from operations

Loss from operations increased by $38,114,653 to $4,432,135 18 for the nine months ended December 31, 2011, from income from operations of $33,682,518 for the nine months ended December 31, 2010. The increase was mainly attributable to the decrease in sales and decrease of gross profit for the nine months ended December 31, 2011.

Total other income

Total other income decreased by $15,458,207 or 96.73% to $521,996 for the nine months ended December 31, 2011, from $15,980,203 for the nine months ended December 31, 2010. The decrease was mainly attributable to the change in the fair value of embedded derivatives for $14,797,000 during the nine months ended December 31, 2010.

Income taxes

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

Net income (loss)

Net loss increased by $47,768,007 to $4,809,314 for the nine months ended December 31, 2011 from net income of $42,958,693 for the nine months ended December 31, 2010. The increase of net loss was mainly attributable to the increase of loss from operations of $38,114,653.

Segment reporting

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

	Nine months ended December 31,
	2011			% of				2010	% of
	Amount			Net sales				Amount	Net sales
Net sales, retail products	$	19,556,575			100.00	%	$	45,830,039		100.00	%
Cost of sales		10,067,324			51.48	%		15,825,029		34.53	%
Cost of product returns		7,143,914			36.53	%		-		-	%
Gross profit, retail products		2,345,337			11.99	%		30,005,010		65.47	%
Operating expenses:
Selling expenses		2,405,691			12.30	%		7,782,083		16.98	%
General and administrative expenses		4,449,271			22.75	%		4,022,622		8.78	%
Total operating expenses		6,854,962			35.05	%		11,804,705		25.76	%
Income (loss) from operations, retail products	$	(4,509,625	)		(23.06	)%	$	18,200,305		39.71	%

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, 2011 and 2010 comprised the following:

	Nine months ended December 31,
	2011			2010
Invoiced value on sales	$	21,054,755		$	48,659,775
Less: Sales discount		(1,349,479	)		(2,361,521	)
Less: Sales tax		(148,701	)		(468,215	)
	$	19,556,575		$	45,830,039

Net sales decreased by $26,273,464 or 57.33% to $19,556,575 for the nine months ended December 31, 2011 from $45,830,039 for the nine 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. In addition, during the three months ended December 31, 2011, the Company suspended production due to the implementation by the government of the PRC of new 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 $5,757,705 or 36.38% to $10,067,324 for the nine months ended December 31, 2011 from $15,825,029 for the nine months ended December 31, 2010. The decrease in cost of sales was primarily caused by the decrease in sales during the nine months ended December 31, 2011, as compared to the same period in the prior year.

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 such credits were made available for the nine months ended December 31, 2010.

Gross profit

Gross profit decreased by $27,659,673 or 92.18% to $2,345,337 for the nine months ended December 31, 2011 from $30,005,010 for the nine months ended December 31, 2010. The decrease in gross profit was primarily caused by the decrease of products sold and write-off of a special payment to distributors during the nine months ended December 31, 2011.

Selling expenses

Selling expenses were $2,405,691 or 12.30% of net sales for the nine months ended December 31, 2011, compared with $7,782,083 or 16.98% of net sales for the nine months ended December 31, 2010. The selling expenses mainly included salary and advertising expenses. The decrease was mainly attributable to decrease in sales commission to staff as a result of lower sales and 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 increased by $426,649 or 10.61% to $4,449,271 or 22.75% of net sales for the nine months ended December 31, 2011 compared with $4,022,622 or 8.78% of net sales for the nine months ended December 31, 2010. The increase in general and administrative expenses was mainly attributable to the write off of returned products of $865,871 and allowance for doubtful accounts and write-off of accounts receivable totaling $656,907. We did not incur such costs during the nine months ended December 31, 2010. These increases were partially offset by the decrease of 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.

Income (loss) from operations

Loss from operations increased by $22,709,930 to $4,509,625 for the nine months ended December 31, 2011 from an income from operations of $18,200,305 for the nine months ended December 31, 2010. The decrease was mainly attributable to decreases in revenues and payments to our distributors as deposits which were partially offset by the decrease of our selling expenses as a result of decrease in sales during the nine months ended December 31, 2011.

Bulk products

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

	Nine months ended December 31,
	2011 Amount		% of Net sales			2010 Amount		% of Net sales
Net sales, bulk additives products	$	15,954,206		100.00	%	$	35,078,972		100.00	%
Cost of sales		6,588,744		41.30	%		11,492,757		32.76	%
Gross profit, bulk additives products		9,365,463		58.70	%		23,586,215		67.24	%
Operating expenses:
Selling expenses		1,911,120		11.98	%		1,696,713		4.84	%
General and administrative expenses		4,615,758		28.93	%		3,823,862		10.90	%
Total operating expenses		6,526,878		40.91	%		5,520,575		15.74	%
Income from operations, bulk additives products	$	2,838,585		17.79	%	$	18,065,640		51.50	%

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, 2011 and 2010 comprised the following:

	Nine months ended December 31,
	2011			2010
Invoiced value on sales	$	16,029,036		$	35,275,944
Less: Sales tax		(74,829	)		(196,972	)
	$	15,954,207		$	35,078,972

Net sales decreased by $19,124,765 or 54.52% to $15,954,207 for the nine months ended December 31, 2011, from $35,078,972 for the nine months ended December 31, 2010. The decrease in sales of bulk additive products was primarily attributable to the declines of the 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 decreased by $4,904,013 or 42.67% to $6,588,744 for the nine months ended December 31, 2011, from $11,492,757 for the nine months ended December 31, 2010. The decrease in cost of sales was primarily caused by the decrease in products sold for the nine months ended December 31, 2011.

Gross profit

Gross profit decreased by $14,220,752 or 60.29% to $6,588,744 for the nine months ended December 31, 2011, from $23,586,215 for the nine months ended December 31, 2010. The decrease of gross profit was primarily caused by the decrease in products sold for the nine months ended December 31, 2011.

Selling expenses

Selling expenses were $1,911,120 or 11.98% of net sales for the nine months ended December 31, 2011, compared with $1,696,713 or 4.84% of net sales for the nine months ended December 31, 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, 2011.

General and administrative expenses

General and administrative expenses were $4,615,758 or 28.93% of net sales for the nine months ended December 31, 2011, compared with $3,823,861 or 10.90% of net sales for the nine months ended December 31, 2010. The increase in general and administrative expenses was mainly attributable to an increase of research and development expense to $1,999,456 for the nine months ended December 31, 2011 from $1,574,001 for the nine months ended December 31, 2010.

Income from operations

Income from operations decreased by $15,227,055 or 84.29% to $2,838,585 for the nine months ended December 31, 2011, from $18,065,640 for the nine months ended December 31, 2010. The decrease was mainly attributable to the decrease of gross profit and increase of operating expenses for the nine months ended December 31, 2011.

Liquidity and Capital Resources

Liquidity

We had cash of $~~122~~78.0 million and working capital of $~~104~~99.47 million as of ~~December~~June 3130, ~~2011~~2013 and cash of $~~144~~75.09 million and working capital of $~~132~~77.~~3 million~~9 million as of March 31, ~~2011~~2013.

Our statements of cash flow for the ~~nine~~three months ended ~~December~~June 3130, ~~2011~~2013 and ~~2010~~2012 are summarized as below:

	Nine months ended
	Three months ended June 30,
	December 31,
	2013			2012
	2011			2010
Net cash provided by operating activities	$	3,654,675		$	2,237,410
Net cash provided by (used in) operating activities	$	(1,618,210	)	$	16,336,616
Net cash used in investing activities		(2,824,190	)		(20,931,411	)
Net cash used in investing activities		(23,709,038	)		(16,362,353	)
Net cash provided by (used in) financing activities		150,000			(681,442	)
Net cash provided by (used in) financing activities		4,509,554			(25,579,847	)
Effect of exchange rate changes on cash		1,174,942			(41,315	)
Effect of exchange rate changes on cash		(1,172,532	)		2,316,795
Net increase (decrease) in cash and cash equivalents balances		2,155,427			(19,416,758	)
Net change in cash and cash equivalents balances	$	(21,990,226	)	$	(23,288,789	)
Cash and cash equivalent balances, beginning of period		75,866,328			70,086,074
Cash and cash equivalent balances, end of period	$	78,021,755		$	50,669,316

Operating activities

~~Net~~During ~~cash~~the ~~used~~three ~~in operating~~months ~~activities~~ended ~~was~~June $130,~~618~~ 2013,~~000~~ ~~and~~we had net cash provided by operating activities ~~was~~of $~~16.~~3,654,675 ~~million~~as ~~for~~compared ~~the~~to ~~nine months ended December 31~~$2, ~~2011 and 2010~~237,410 ~~respectively.~~during ~~During~~ the ~~nine~~ three months ended ~~December~~June 3130, ~~2011,~~2013. ~~net~~Net cash provided by operating activities ~~primarily consisted~~during ofthree ~~the~~months ~~net~~ended ~~loss~~June ~~of $4.8 million~~30, ~~provision~~2013 consisted primarily of ~~allowance~~net ~~for~~income ~~doubtful~~of ~~accounts~~$153,920, depreciation expense of $1~~.2 million~~,562,096, ~~fair~~a ~~value~~decrease ofin ~~vested~~accounts ~~options~~ receivable of $~~1.1 million~~3,136,335 ~~decrease~~primarily indue to substantially lower accounts receivable as a result of ~~$2.2~~lower ~~million~~net sales during the quarter, which were partially offset by the increase in inventories of $2.1,073,925 ~~million. During~~due ~~the~~to ~~nine~~slow ~~months~~sales ~~ended~~during ~~December~~the 31quarter, ~~2010,~~and ~~net~~decrease ~~cash~~in ~~provided~~other bypayables ~~operating~~and ~~activities~~accruals of $1,476,519 primarily due ~~consisted~~to oflower ~~net~~sales ~~income~~commission ~~of $43.0~~incurred ~~million,~~in ~~which~~the ~~was~~quarter. ~~offset~~Net cash provided by ~~the~~operating ~~change~~activities induring the ~~fair~~three ~~value~~months ended June 30, 2012 consisted primarily of ~~embedded~~net ~~derivatives~~income of $~~14.8~~2,071,963, ~~million~~depreciation expense of $1,177,403, ~~increase~~and a decrease in accounts ~~receivable~~ receivable of $~~17.~~2,836,504, ~~million.~~which ~~Our~~were ~~overall~~partially ~~net~~offset ~~cash~~by ~~flow~~the ~~generated~~increase byin ~~operating~~interest ~~activities~~income ~~decreased~~receivable, ~~due~~net toof ~~the~~fee ~~downturn~~payable, of ~~our~~$1,258,703, ~~business~~a ~~during~~decrease ~~the~~in ~~nine~~accounts ~~months~~payable ~~ended~~of ~~December 31~~$1,132, ~~2011~~783 and a decrease in taxes payable of $1,936,093.

35Our business is not capital or labor intensive. Typically, 60% of our sales take place in the second half of the fiscal year. Since our customers have historically been large distributors with whom we have done business for a number of years, our cash flows from our existing business have been, and we expect them to continue to be, fairly reliable.

Investing activities

WeDuring ~~had capital expenditures totaling $3.1 million for~~ the ~~nine~~three months ended ~~December~~June 3130, ~~2011,~~2013 ~~related~~and to2012, ~~the~~we ~~prepayment~~made prepayments of $12.16 million and $12.2 million, respectively, for ~~certain~~the capital ~~expenditures~~ expenditures with respect to our ~~facility in~~ Yangling and Qingpu ~~and~~facilities ~~$2.0~~to ~~million in the acquisition of property, plant and equipment in Yangling, Qingpu and Shining~~contractors.

InWe ~~addition,~~incurred ~~we entered~~$177,000 ~~into~~and ~~an agreement with Jiangxi International Trust Co~~$8.,7 ~~Ltd.~~million ~~(“Jiangxi”)~~capital toexpenditure ~~loan~~related ~~$20,622,788 (RMB 131,100,000)~~ to the ~~Jiangxi~~ ~~International~~acquisitions ~~Trust~~ of ~~Yinhe #7 Property~~property, anplant ~~investment~~and ~~fund~~equipment ~~sponsored~~and byconstruction ~~Jiangxi.~~in ~~Jiangxi is a major trust and investment~~progress ~~company~~related ~~that~~to ~~is executing different investment projects in~~ the ~~PRC,~~Yangling ~~including real estate projects, listed company restructurings,~~ and ~~other~~Qingpu ~~financial~~facilities ~~services.~~during ~~The~~the ~~loan~~three ~~principal~~months isended ~~due~~June ~~on December 26~~30, 2013, ~~is unsecured,~~ and ~~according to the loan agreement~~2012, ~~the~~ ~~Company is to earn 20% interest per annum, less a 5% investment management fee per annum~~respectively.

Financing activities

~~Cash~~During ~~provided~~the bythree ~~financing~~months ~~activities~~ended ~~was~~June ~~$4.5~~30, ~~million~~2013 and 2012, we had net cash ~~used~~provided inby financing activities ~~was~~of $~~25.6~~150,000 ~~million~~and ~~for~~net ~~the~~cash ~~nine~~used ~~months~~in ~~ended~~financing ~~December 31, 2011~~activities ~~and~~of ~~2010~~$681,442, respectively.

During the ~~nine~~three months ended ~~December~~June 3130, ~~2011~~2013 and 2012, we received advances ~~of $4,509,554~~ from Mr. Song Jinan, aour Chief Executive Officer and director, totaling $150,000 and ~~stockholder~~$111,228, ~~Jinan~~respectively. As the Company experienced difficult converting RMB into non-PRC currency to pay for expenses incurred outside China due to foreign exchange controls, ~~and~~Mr. Song advanced the expenses in non-PRC currency for the Company. We repaid $0these advances toin ~~him~~RMB.

During the ~~nine~~three months ended ~~December~~June 3130, ~~2010~~2012, we ~~received advances of $5,409,787 from Mr. Song Jinan and~~ repaid ~~$3,250,000~~bank toloans ~~him. In addition, we repaid the outstanding balance~~ of ~~the convertible note in the amount of~~ $25792,~~000,000 and paid $2,739,634 to acquire treasury stock during the nine months ended December 31, 2010~~670.

During the periods ended December 31, 2011 and 2010, the advance from a director, Mr. Song Jinan, was entered into because of the difficulty the Company faced in paying expenses incurred outside China in non-PRC currency due to the difficulties the Company had in converting currency because of foreign exchange controls.

Commitments

Capital commitments

On August 12, 2010, BDH, a subsidiary of the Company, entered into the agreements with a government agency to establish manufacturing facilities for animal probiotics products in the Yangling Agricultural High-tech Industries Demonstration Zone in Shaanxi Province of China. In furtherance of such agreements, BDH incorporated a foreign, wholly owned subsidiary, Growing Yangling, with a registered capital of $50 million. As of ~~March~~June 3130, ~~2012~~2013, 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 Company obtained a one-year extension from the government agency which gives the Company until July 13, 2014 to inject the remaining capital.

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~~June 3130, ~~2011~~2013, Growing Yangling entered into agreements with contractors related to the construction of the plant, and manufacturing facilities ~~for~~and production equipment with remaining future payments of $224,~~917~~575,~~101~~235 and $6,398,626, respectively.

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

The Company entered into ~~the~~ agreements with ~~its~~ suppliers to purchase raw materials and packing materials. As of ~~December~~June 3130, ~~2011~~2013, the amount of future payments ~~related to these obligations~~ was $916,~~474~~613,~~688~~412.

Other obligations

Pending litigation

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 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 SEC had scheduled oral argument for July 10, 2013, but it later adjourned that date and rescheduled the oral argument for October 8, 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.

Inflation

We believe that inflation has not had a material impact on our results of operations for the ~~nine~~three months ended ~~December~~June 3130, ~~2011~~2013 and ~~2010~~2012.

Seasonality

Regarding our retail products, many of our customers purchase our products as gifts during the Chinese festivals and holidays, and the seasonal effect is correlated to these holidays during the year. For the first two fiscal quarters, there are no major Chinese festivals or holidays, except for the Dragon Boat Festival (June) and mid-Autumn Festival (September). However, in the last two fiscal quarters, there are some major Chinese festivals and holidays, including National Day (October), Christmas (December), New Year’s Day (January), ~~and~~ 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, 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~~quarters ~~months and nine months~~ ended ~~December~~June 3130, ~~2011~~2013 and ~~2010~~2012. These financial statements have been prepared in accordance with ~~generally accepted~~ accounting principles generally accepted in the United States of America. 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.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of our customers to make required payments. Such allowances are based upon several factors including, but not limited to, historical experience and the current and projected financial condition of specific customers. Since our inception of business, we have never experienced any material unrecoverable receivables. We had trade receivables totaling $28,622,192 and $31,299,849 as of June 30, 2013 and March 31, 2013, respectively, and an allowance for doubtful accounts of $4,292,750 and $4,228,769 as of June 30, 2013 and March 31, 2013, respectively. We have considered all relevant factors, including the financial conditions, affecting the payment abilities of customers comprising these receivables up to the date of this 10-Q, and we believe these customers are able to make required payments. We, however, cannot give assurance that these factors, including the financial conditions of these customers, will not change adversely in the future. We will continue to evaluate the ability of all our customers to make required payments. Were the financial condition of a customer to deteriorate, resulting in an impairment of its ability to make payments, allowances may be required.

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~~grants 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.

Income taxes

In the process of preparing consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. The Registrant and its subsidiaries, with the exception of Growing and Shining, generated no taxable income. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

We account for income taxes using an asset and liability approach for financial accounting and reporting for income tax purposes. Under the asset and liability method, deferred income taxes are recognized for temporary differences, net operating loss carry-forwards and credits by applying enacted statutory tax rates applicable to future years.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We conduct this analysis on a quarterly basis.

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 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.

38For the three months ended June 30, 2013 and 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.

~~For~~The ~~the~~Company ~~nine~~has ~~months~~no ~~ended~~other ~~December~~material ~~31,~~uncertain ~~2011,~~tax ~~management~~positions ~~made~~as anof ~~assessment~~June of30, ~~whether~~2013 itor ~~was~~unrecognized ~~necessary~~tax tobenefit ~~provide~~which awould ~~further~~favorably ~~provision~~affect ~~for~~the ~~interest~~effective ~~and~~income ~~penalties~~tax onrate ~~these~~in ~~unpaid~~future ~~amounts~~periods. ~~Management~~The ~~determined~~Company ~~that~~classifies ~~no further provision for~~ interest and/or penalties ~~was~~related ~~necessary given~~to ~~the~~income ~~unlikelihood~~tax ofmatters ~~payment~~as ~~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~~ income tax ~~expert~~expense. ~~that~~As ~~the amount~~ of ~~taxes~~June ~~prior~~30, ~~to 2005 may not be payable~~2013, ~~the~~ ~~length~~there ofis ~~time~~no ~~the~~other ~~amount~~interest ~~has been outstanding,~~ and ~~that~~penalties ~~there~~related ~~have~~to ~~been~~uncertain ~~no requests from PRC~~ tax ~~authorities~~positions. ~~for~~The ~~payment~~Company ofdoes ~~the~~not ~~unpaid~~anticipate ~~taxes~~any ~~outstanding~~significant ~~amounts.~~increases Asor ~~such,~~decreases ~~management~~to ~~believes~~its ~~that~~liability ~~the~~for ~~previously~~unrecognized ~~recorded~~tax ~~amounts~~benefits ~~are~~within ~~sufficient~~the tonext ~~cover any~~12 ~~settlement of this liability~~months.

Recent Accounting Pronouncements

See Note 2 to the ~~Notes to the~~ Unaudited Condensed Consolidated Financial Statements for the Three ~~and~~Months ~~Nine months~~ Ended ~~December~~June 3130, ~~2011~~2013 and 2012.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~Interest~~ Not ~~Rates Risk~~applicable

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~~A. ~~Controls~~Material ~~and Procedures~~Weaknesses

InAs adiscussed ~~letter~~in ~~to the~~Item ~~Company~~9A of our Annual Report on ~~January~~Form 910-K for the year ended March 31, ~~2012~~2013, we identified the ~~SEC~~material ~~concluded~~weaknesses ~~that~~in the ~~Company’s~~design and operation of our internal controls including: (i) a lack of senior management personnel who have the requisite U.S. GAAP experience to isprepare afinancial ~~material~~statements ~~weakness~~ in ~~our disclosure~~accordance ~~controls~~with ~~and procedures~~U.S. ~~The~~GAAP; ~~SEC~~and ~~required~~(ii) the Company todid ~~include~~not ~~disclosure~~maintain ~~about~~an ~~this~~adequate ~~material~~financial ~~weakness in subsequent~~reporting ~~filings.~~organizational ~~For~~structure ~~information~~to onsupport the ~~Company’s~~complexity ~~correspondence~~and ~~with~~operating ~~the~~activities ~~SEC~~of ~~with respect to~~ the Company’s ~~internal~~resulting ~~controls over~~in ~~financial~~a ~~reporting,~~weakness ~~see~~in “–efficiency and ~~Management’s~~controls ~~Quarterly~~related ~~Report~~to onthe ~~Internal~~financial ~~Control~~statement ~~over~~closing ~~Financial Reporting” below~~process.

~~Since~~To ~~the~~remediate ~~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~~weaknesses ~~procedures.~~identified ~~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~~control ~~and~~over ~~assist~~financial ~~with~~reporting ~~SEC compliance for purposes~~ of ~~all future reporting. Management believes that these remediation measures have improved and will materially improve~~ the Company’s, ~~disclosure~~we ~~controls~~have ~~and~~implemented ~~procedures for~~or ~~periods~~plan ~~subsequent~~ to ~~March~~implement ~~31, 2012, and that~~ the ~~corresponding material weaknesses are being addressed with respect to periods~~ ~~subsequent to March 31, 2012.~~following:

39· hired a Vice President of Finance-China division in December 2012 to oversees the China subsidiaries’ accounting and finance, budgeting, and internal control system in order to improve our efficiency and controls related to the financial statement closing process for our China operating subsidiaries.

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.34

~~Management~~· hired an external consultant in April 2013 with extensive experience in US GAAP and SEC reporting who is responsible for assisting the Company with (i) the preparation of its financial statements in accordance with US GAAP, (ii) its periodic SEC reporting process and (iii) providing on-going training to the Company’s ~~Quarterly~~accounting ~~Report on~~staff ~~Internal~~to ~~Control~~enhance ~~over~~their ~~Financial~~knowledge ~~Reporting~~in US GAAP;

~~The~~· ~~Company’s management~~continued isour ~~responsible~~efforts 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~~recruit ~~reasonable~~additional ~~assurance~~personnel ~~regarding the reliability of its financial reporting and the preparation of published financial statements in accordance~~ with ~~generally~~sufficient ~~accepted~~knowledge 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.~~experience ~~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,~~US orGAAP; ~~the degree of compliance with policies may deteriorate.~~and

In· acontinued 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~~efforts ~~controls over financial reporting. The Company replied~~ to ~~the~~provide ~~SEC’s~~ongoing ~~comment~~training ~~letter on~~courses ~~February~~in ~~16,~~US 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~~existing ~~Company’s disclosure controls and procedures, see “Disclosure Controls and Procedures” above~~personnel.

InManagement ~~reaching such decision,~~believes ~~the SEC concluded~~ that ~~those~~these ~~primarily~~remediation ~~responsible~~measures ~~for~~have ~~the~~materially ~~preparation~~improved of the Company’s ~~books~~internal ~~and~~control ~~records~~over ~~and~~ financial ~~statements do not have the requisite U~~reporting.S. ~~GAAP~~However we ~~experience~~believed ~~to prepare financial statements in accordance with U.S. GAAP. The SEC noted~~ that ~~the~~ ~~Company’s~~these ~~former~~material ~~and~~weaknesses ~~interim~~remained ~~Chief Financial Officers do not hold a license such~~ as ~~that~~ of aJune 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 experience30, ~~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~~2013.~~S. GAAP~~ ~~financial~~We ~~statements~~will ofcontinue ~~parent registrants. The SEC also noted that the Company’s retention of a consultant~~ to ~~assist with~~monitor ~~the preparation~~ and ~~fulfillment~~assess ~~of all SEC and U.S. GAAP reporting requirements was further evidence that~~ our ~~accounting department~~remediation ~~does~~initiatives ~~not possess the requisite U.S. GAAP knowledge~~ to ~~prepare~~ensure ~~financial~~that ~~statements in accordance with U.S. GAAP. The SEC required~~ the ~~Company~~aforementioned ~~to file an amended Annual Report on Form 10-K for the year ended March 31, 2010 disclosing such~~ material ~~weakness, which~~weaknesses ~~the~~stated ~~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~~remediated.

~~Since the SEC’s letter of January 9, 2012, the Company has endeavored to address the concerns raised by the SEC~~B. ~~The~~Evaluation 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 anDisclosure ~~accounting~~Controls ~~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.Procedures

40The Company maintains disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in the Company’s filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s management, with the participation of its principal executive and financial officers, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation and solely due to the unremediated material weaknesses described above, the Company’s principal executive and financial officers have concluded that such disclosure controls and procedures were not effective for the purpose for which they were designed as of the end of such period. As a result of this conclusion, the financial statements for the period covered by this report were prepared with particular attention to the unremediated material weaknesses previously disclosed. Accordingly, management believes that the condensed consolidated financial statements included in this report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows as of and for the periods presented, in accordance with accounting principles generally accepted in the U.S, notwithstanding the unremediated weaknesses.

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 UC.S. ~~GAAP~~Changes ~~experience to prepare financial statements~~ in ~~accordance~~ ~~with~~Internal ~~U.S.~~Control ~~GAAP;~~over ~~(ii)~~Financial 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. Reporting

~~Inherent~~There ~~Limitations~~was onno change in the ~~Effectiveness~~Company’s internal control over financial reporting that was identified in connection with such evaluation that occurred ofduring ~~Controls~~the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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~~ 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. 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.

ITEM 1A. RISK FACTORS.

IfNot ~~the~~required ~~SEC revokes the registration of our common stock, the trading market~~ for ~~our~~a smaller ~~common~~reporting ~~stock may cease to exist~~company.

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 quarterly 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~~its disclosure controls and procedures and in ~~our internal~~its 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~~its disclosure controls and procedures and in ~~our~~its 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).
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.

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10.1		Securities Exchange Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.2		Form of Lockup Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.2 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.3		Put Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.3 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.4		Registration Rights Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.4 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.5		Investors’ Rights Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.6		Stan Ford Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.6 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.7		Summary of English translation of Investment Agreement for lease of land dated March 21, 2006 (incorporated by reference to Exhibit 10.7 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.8		Escrow Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.8 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.9		Stock Purchase Agreement with Fred Cooper dated February 6, 2006 (incorporated by reference to Exhibit 10.9 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.10		Loan agreement dated as of September 22, 2005 (incorporated by reference to Exhibit 10.10 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).

10.11		Convertible Bond dated as of September 22, 2005 (incorporated by reference to Exhibit 10.11 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.12		Subscription Agreement dated as of September 22, 2005 (incorporated by reference to Exhibit 10.12 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.13		English Translation of Equity Transfer Agreement dated August 11, 2005 (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s Form SB-2/A filed on April 27, 2007).
10.14		English Translation of Subscription Agreement dated August 11, 2005 (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s Form SB-2/A filed on April 27, 2007).
10.15		Investment Agreement dated December 11, 2007 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc’s Form 8-K filed on December 12, 2007).
10.16		Registration Rights Agreement dated December 11, 2007 (incorporated by reference to Exhibit 10.2 to China-Biotics, Inc.’s Form 8-K on December 12, 2007).
10.17		4% Senior Convertible Promissory Note dated December 11, 2007 (incorporated by reference to Exhibit 10.3 to China-Biotics, Inc.’s Form 8-K filed on December 12, 2007).
10.18		Guaranty by Song Jinan in favor of Pope Investments II LLC dated December 11, 2007 (incorporated by reference to Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on December 12, 2007).

10.19		Pledge Agreement between Song Jinan and Pope Investments II LLC dated December 11, 2007 (incorporated by reference to Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on December 12, 2007).
10.20		Form of Purchase Agreement dated January 21, 2009 (incorporated by reference to Exhibit 10.15 to China-Biotics, Inc.’s Form 10-Q filed on February 13, 2009).
10.21		Form of Purchase Agreement dated May 19, 2009 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on May 20, 2009).
10.22		Share Charge dated September 21, 2009 (effective as of January 24, 2008) (incorporated by reference to Exhibit 10.22 to China-Biotics, Inc.’s Form 10-Q filed on November 16, 2009).
10.23		Underwriting Agreement dated September 29, 2009 (incorporated by reference to Exhibit 1.1 to China-Biotics, Inc.’s Form 8-K filed on September 30, 2009).
10.24		District Entrance Project Agreement dated August 12, 2010 (incorporated by reference to Exhibit 10.19 to China-Biotics, Inc.’s Form 10-Q filed on February 14, 2011).
10.25		2010 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to China-Biotics, Inc.’s Registration Statement on Form S-8 filed on March 11, 2011).
14.1		Code of Ethics (incorporated by reference to Exhibit 14.1 to China-Biotics, Inc.’s Form 10-KSB for the year ended March 31, 2006).
16.1		Letter dated April 13, 2006 from Malone & Bailey PC to the United States Securities and Exchange Commission (incorporated by reference to Exhibit 16.1 to China-Biotics, Inc.’s Form 8-K filed on May 31, 2006).
16.2		Resignation Letter of BDO Limited, dated June 22, 2011 (incorporated by reference to Exhibit 16.1 to China-Biotics, Inc.’s Form 8-K filed on June 23, 2011).
23.1		Letter from BDO Limited, dated June 23, 2011, to the United States Securities and Exchange Commission (incorporated by reference to Exhibit 16.2 to China-Biotics, Inc.’s Form 8-K filed on June 23, 2011).
23.2		Letter from Thornhill Capital LLC to the United States Securities and Exchange Commission, dated September 10, 2012.
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/ Mr. Song Jinan Mr. Song Jinan Chairman of the Board, Chief Executive Officer, Treasurer and Secretary (Principal Executive Officer)

~~Pursuant~~By: to/s/ ~~the~~Yan ~~requirements~~Yihong ofChief ~~Securities Exchange~~Financial ~~Act~~Officer of(Principal ~~1934,~~Financial ~~this report has been signed below by the following persons on behalf of the registrant~~ and inAccounting ~~the capacities indicated on June 24, 2013.~~Officer)

~~/s/~~Date: August ~~Song~~14, 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 Chu2013

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