UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549




FORM 10-Q/A


AMENDMENT NO.
1




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


SECURITIES EXCHANGE ACT OF
1934




For the quarterly period ended June
30, 2008




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


EXCHANGE ACT




For the Transition Period from
_______ to _________




333-110733


(Commission
File Number)




CHINA-BIOTICS,
INC.


(Exact
Name of Small Business Issuer as Specified in Its Charter)





Delaware
            
            98-0393071(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer Identification No.)





No. 999 Ningqiao
Road


Jinqiao Export Processing
Zone


Pudong, Shanghai
201206


People's Republic of
China


(Address
of Principal Executive Offices)





Telephone number: (86 21) 5834
9748


(Issuer'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 x No ࿠




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.


Large
      accelerated filer ࿠
              Accelerated
      filer ࿠Non-accelerated
      filer x(Do
      not check if a smaller reporting company)
              Smaller
      reporting companyo


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


Yes ࿠ No x




As of March 20, 2009, 17,080,000
shares of the Issuer's common stock were outstanding.




Explanatory
Note:





China-Biotics,
Inc. (the “Company”) filed its Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2008 on August 14, 2008.









TABLE OF CONTENTS





PagePart I - Financial
      InformationITEM
      1.
                  
                  FINANCIAL
      STATEMENTS
                  
                  3ITEM
      2.
                  
                  MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                  
                  17ITEM
      3.
                  
                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                  
                  24ITEM
      4T.
                  
                  CONTROLS
      AND PROCEDURES
                  
                  25Part II - Other
      InformationITEM
      1.
                  
                  LEGAL
      PROCEEDINGS
                  
                  25ITEM
      1A.
                  
                  RISK
      FACTORS
                  
                  25ITEM
      2.
                  
                  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                  
                  25ITEM
      3.
                  
                  DEFAULTS
      UPON SENIOR SECURITIES
                  
                  25ITEM
      4.
                  
                  SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  
                  25ITEM
      5.
                  
                  OTHER
      INFORMATION
                  
                  25ITEM
      6.
                  
                  EXHIBITS
                  
                  26SIGNATURES


2





PART I - FINANCIAL
INFORMATION





ITEM 1. FINANCIAL
STATEMENTS





CHINA-BIOTICS,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS


(Amounts
expressed in US Dollars)





March
      31, 2008
            
            June
      30, 2008ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            64,310,448
            
            $
            66,204,703Accounts
      receivable
            
            
            13,214,531
            
            
            10,669,699Other
      receivables
            
            
            238,835
            
            
            241,083Inventories
            
            
            408,358
            
            
            617,260Prepayment
            
            
            1,806,605
            
            
            1,634,253Total current
      assets
            
            $
            79,978,777
            
            $
            79,366,998Property, plant and equipment
      and land use right
            
            
            13,812,749
            
            
            22,186,275Total
    assets
            
            $
            93,791,526
            
            $
            101,553,273LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            2,786,180
            
            $
            3,287,603Tax
      payables
            
            
            22,317,982
            
            
            23,321,183Other
      payables and accruals
            
            
            1,792,156
            
            
            2,012,365Total current
      liabilities
            
            $
            26,896,318
            
            $
            28,621,151Non-current
      liabilitiesConvertible
      note, with embedded
      derivatives of $6,991,000,net of discount of $7,963,557 as of June
      30, 2008
            
            $
            22,197,635
            
            $
            24,027,443Interest
      payable
            
            
            302,306
            
            
            446,763Total non-current
      liabilities
            
            $
            22,499,941
            
            $
            24,474,206Commitments and
      contingenciesStockholders'
    equity:Common
      stock (par
      value of $0.0001, 100,000,000 shares authorized, 41,461,004 shares issued
      and outstanding as of June 30, 2008)
            
            $
            4,146
            
            $
            4,146Additional
      paid-in capital
            
            
            7,863,031
            
            
            7,863,031Retained
      earnings
            
            
            29,827,144
            
            
            33,063,894Treasury
      stockat
      cost (24,381,004 shares)
            
            
            (2,438
            )
            
            (2,438
            )Accumulated
      other comprehensive income
            
            
            3,677,590
            
            
            4,503,489Capital
      and statutory reserves
            
            
            3,025,794
            
            
            3,025,794Total stockholders'
      equity
            
            $
            44,395,267
            
            $
            48,457,916Total liabilities and
      stockholders' equity
            
            $
            93,791,526
            
            $
            101,553,273




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




3





CHINA-BIOTICS,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts
expressed in US Dollars)





Three
      months ended June 30,Note
            
            2007
            
            2008Net
sales
            
            
            
            
            $
            9,515,333
            
            $
            11,370,657Cost
      of sales
            
            
            
            
            
            (2,650,972
            )
            
            (3,258,669
            )Gross
    profit
            
            
            
            
            $
            6,864,361
            
            $
            8,111,988Operating
      expenses:Selling
      expenses
            
            
            
            
            $
            (1,316,344
            )
            $
            (2,369,859
            )General
      and administrative expenses
            
            
            
            
            
            (809,564
            )
            
            (1,426,797
            )Total
      operating expenses
            
            
            
            
            $
            (2,125,908
            )
            $
            (3,796,656
            )Income from
      operations
            
            
            
            
            $
            4,738,453
            
            $
            4,315,332Other
      income and expenses:Changes
      in the fair value of embedded derivatives
            
            
            
            
            $
            -
            
            $
            (1,239,000
            )Other
      income
            
            
            
            
            
            71,660
            
            
            1,538,889Other
      expenses
            
            
            
            
            
            (6,924
            )
            
            -Total
      other income (expenses)
            
            
            
            
            $
            64,736
            
            $
            299,889Income before
      taxes
            
            
            
            
            $
            4,803,189
            
            $
            4,615,221Provision
      for income taxes
            
            
            
            
            
            (1,262,956
            )
            
            (1,378,471
            )Net
    income
            
            
            
            
            $
            3,540,233
            
            $
            3,236,750Earnings per
      share:Basic
            
            
            
            
            $
            0.21
            
            $
            0.19Diluted
            
            
            
            
            $
            0.21
            
            $
            0.23Weighted average shares
      outstandingBasic
            
            
            
            
            
            17,080,000
            
            
            17,080,000Diluted
            
            
            
            
            
            17,080,000
            
            
            19,163,333




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





4





CHINA-BIOTICS,
INC. AND SUBSIDIARIES


UNAUDITED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


(Amounts
expressed in US Dollars)





Common
      StockShares
                
                Par
      value $0.0001
                
                Additional
                  Paid-in
      Capital
                
                Retained
                  Earnings
                
                Treasury
                  Stock
                
                Accumulated
                  Comprehensive
      Income
                
                Capital
      &
                  Statutory
      Reserves
                
                TotalBalance-
      March 31, 2008
                
                
                41,461,004
                
                $
                4,146
                
                $
                7,863,031
                
                $
                29,827,144
                
                $
                (2,438
                )
                $
                3,677,590
                
                $
                3,025,794
                
                $
                44,395,267Comprehensive
      income:Net
      income
                
                
                
                
                
                
                
                
                
                
                
                3,236,750
                
                
                
                
                
                
                
                
                
                
                
                3,236,750Other
      comprehensive income:Foreign
      currency translation adjustments, net of taxes of $-0-
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                825,899
                
                
                
                
                
                825,899Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,062,649Balance-
      June 30, 2008
                
                
                41,461,004
                
                $
                4,146
                
                $
                7,863,031
                
                $
                33,063,894
                
                $
                (2,438
                )
                $
                4,503,489
                
                $
                3,025,794
                
                $
                48,457,916


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





5




CHINA-BIOTICS,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW


(Amounts
expressed in US Dollars)




Three
      months ended
              June
      30,2007
            
            2008CASH FLOW FROM OPERATING
      ACTIVITIESNet
      income
            
            $
            3,540,233
            
            $
            3,236,750Adjustment
      for:Changes
      in the fair value of embedded
      derivatives
            
            
            -
            
            
            1,239,000Depreciation
            
            
            142,310
            
            
            298,691(Increase)/Decrease
      in accounts receivable
            
            
            2,786,747
            
            
            2,793,079(Increase)/Decrease
      in inventories
            
            
            6,318
            
            
            (197,308
            )(Increase)/Decrease
      in prepayments
            
            
            (57,156
            )
            
            211,580Increase/(Decrease)
      in accounts payable
            
            
            590,026
            
            
            434,924Increase/(Decrease)
      in income tax, surcharge and dividends withholding tax
            
            
            622,305
            
            
            588,686Increase/(Decrease)
      in other payables and accruals, and value added tax
payable
            
            
            130,688
            
            
            (136,326
            )Increase/(Decrease)
      in interest payables
            
            
            -
            
            
            (121,402
            )NET CASH PROVIDED BY OPERATING
      ACTIVITIES
            
            $
            7,761,471
            
            $
            8,347,674CASH FLOWS USED IN INVESTING
      ACTIVITIESPurchases
      of fixed assets
            
            
            (533,080
            )
            
            (7,193,855
            )CASH FLOWS FROM FINANCING
      ACTIVITIESEffect
      of exchange rate changes on cash
            
            $
            474,448
            
            $
            740,436NET INCREASE IN CASH AND CASH
      EQUIVALENTS BALANCES
            
            $
            7,702,839
            
            $
            1,894,255CASH AND CASH EQUIVALENTS
      BALANCES AT BEGINNING OF PERIOD
            
            
            26,992,025
            
            
            64,310,448CASH AND CASH EQUIVALENTS
      BALANCES AT END OF PERIOD
            
            $
            34,694,864
            
            $
            66,204,703




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





6




CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
expressed in US Dollars)




1.
                    BASIS
      OF PRESENTATION AND PRINCIPLES OF
  CONSOLIDATION


The
accompanying unaudited interim financial statements of China-Biotics, Inc. (the
“Company” or “we”) have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission (“SEC”), and should be read in conjunction
with the audited financial statements and notes thereto contained in our Annual
Report filed with the SEC on Form 10-KSB. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the full year. Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for
fiscal year ended March 31, 2008 as reported in the Form 10-KSB have been
omitted.





As
disclosed in Note 1 to our audited financial statements for fiscal year ended
March 31, 2008, the share exchange between us and the shareholders of Sinosmart
Group Inc. (“SGI”) had been accounted for in accordance with the accounting and
financial reporting interpretations and guidance set out by the Securities and
Exchange Commission (“SEC Interpretations and Guidance”) and accounting
principles generally accepted in the United States of America (“US GAAP”). The
share exchange was treated as a recapitalization of SGI, accompanied by a
reverse acquisition of our company with SGI as the accounting acquirer. The
unaudited interim financial statements presented herewith have been prepared on
the following basis:





(a)
            The
      Unaudited Condensed Consolidated Balance Sheet as of June 30, 2008
      includes the accounts of SGI, Shining, Growing State Limited (“GSL”),
      Growing Bioengineering (Shanghai) Co. Limited (“GBS”) and our
      company.




(b)
            The
      Unaudited Condensed Consolidated Statements of Operations for the three
      months ended June 30, 2008 and 2007 reflect the result of operations of
      SGI, Shining, GSL, GBS and our company. The earnings per share as shown on
      the Unaudited Condensed Consolidated Statements of Operations were
      computed based on the weighted average number of shares of our outstanding
      common stock after giving effect to the recapitalization and reverse
      acquisition accounting treatment as set out in Note 1 to our audited
      financial statements for fiscal year ended March 31,
  2008.(c)
            The
      Unaudited Condensed Consolidated Statement of Changes in Stockholders'
      Equity and the Unaudited Condensed Consolidated Statements of Cash Flow
      for the three months ended June 30, 2008 include the accounts of SGI,
      Shining, GSL, GBS and our company.(d)
            The
      Company adopted the provision of Financial Accounting Standards Board
      (“FASB”) Interpretation No.48, “Accounting for Uncertainty in Income
      Taxes - An Interpretation of FASB Statement No. 109”, (“FIN48”) as of
      the first day of the first quarter of fiscal 2008. The Company has not
      otherwise materially changed its significant accounting
      policies.




7





CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
expressed in US Dollars)


1.
                  BASIS
      OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
      (continued)


In
preparing the unaudited interim financial statements presented herewith, all
significant intercompany balances and transactions have been eliminated on
consolidation.





The
term “Group”, as used in these unaudited interim financial statements, refers to
a group of companies comprising SGI, Shining and GSL for any period prior to
March 22, 2006; and to a group of companies comprising the Company, SGI,
Shining, GSL and GBS for any period from March 23, 2006.




2.
                    EARNINGS
      PER SHARE


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


The
following table sets forth the computation of basic and diluted earnings per
share:




Three months ended June 30,2007
            
            2008Earnings per share -
      BasicIncome
      for the period
            
            $
            3,540,233
            
            $
            3,236,750Basic
      average common stock outstanding
            
            
            17,080,000
            
            
            17,080,000Net
      earnings per share
            
            $
            0.21
            
            $
            0.19Earnings per share -
      DilutedIncome
      for the period
            
            $
            3,540,233
            
            $
            3,236,750Change
      in fair value of embedded derivatives
            
            
            -
            
            
            1,239,000$
            3,540,233
            
            $
            4,475,750Diluted
      average common stock
            
            
            17,080,000
            
            
            19,163,333Net
      earnings per share
            
            $
            0.21
            
            $
            0.23




8




CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
expressed in US Dollars)




3.
                      RISKS,
      UNCERTAINTIES, AND
  CONCENTRATIONS


(a)  
Nature of Operations





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





(b)  
Concentration of Credit Risk





Financial
instruments that potentially subject the Group to concentrations of credit risk
consist principally of cash and accounts receivable.





As
of June 30, 2008 the Group had cash deposits of $66 million placed with several
banks in the People's Republic of China (“PRC”), which includes the Special
Administrative Region of Hong Kong, where there is currently no rules or
regulations in place for obligatory insurance of bank accounts.





For
the three months ended June 30, 2007 and 2008, all of the Group's sales arose in
the PRC. In addition, all accounts receivable as at June 30, 2008 also arose in
the PRC.




(c)  
Concentration of Customers





For the
period ended June 30, 2008, there is a customer that accounted for 15.3% of our
sales revenue. For the period ended June 30, 2007, no single customer accounted
for more than 10% of our total sales.


9




CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
expressed in US Dollars)




4.
                        ACCOUNTS
      RECEIVABLE


The
Group's accounts receivable as of the balance sheet date as presented in these
financial statements are summarized as follows:




March
      31,
              2008
            
            June
      30,
              2008Trade
      receivables
            
            $
            13,214,531
            
            $
            10,669,699Less
      : Allowances for doubtful debt
            
            
            -
            
            
            -$
            13,214,531
            
            $
            10,669,699




5.
                          INVENTORIES


The
Group's inventories as of the balance sheet date as presented in these financial
statements are summarized as follows:




March
      31,
              2008
            
            June
      30,
              2008Raw
      materials
            
            $
            254,648
            
            $
            243,310Work-in-progress
            
            
            9,943
            
            
            48,893Finished
      goods
            
            
            143,767
            
            
            325,057$
            408,358
            
            $
            617,260





10




CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
expressed in US Dollars)




6.
                          PROPERTY,
      PLANT AND EQUIPMENT AND LAND USE
      RIGHT


The
Group's property,
plant and equipment and land use rightas of the balance sheet date as
presented in these financial statements are summarized as follows:




March
      31,
              2008
            
            June
      30,
              2008Land
      use right
            
            $
            1,777,860
            
            $
            1,816,455Plant
      and machinery
            
            
            6,493,190
            
            
            7,363,649Office
      equipment
            
            
            3,293,598
            
            
            3,365,098Motor
      vehicles
            
            
            109,186
            
            
            201,284Leasehold
      improvements
            
            
            1,817,623
            
            
            2,126,48513,491,457
            
            
            14,872,971Less:
      Accumulated depreciation
            
            $
            (4,585,976
            )
            
            (4,988,352
            )8,905,481
            
            
            9,884,619Construction
      in progress
            
            $
            4,907,268
            
            $
            12,301,656$
            13,812,749
            
            $
            22,186,275




7.
                          TAX
      PAYABLES


The
Group's tax payables as of the balance sheet date as presented in these
financial statements are summarized as follows:




March
      31,
                2008
              
              June
      30,
                2008Value
      added tax and other taxes
              
              $
              5,436,331
              
              $
              5,476,227Income
      tax
              
              
              3,714,102
              
              
              4,059,719Surcharge
              
              
              9,323,273
              
              
              9,857,507Dividends
      withholding tax
              
              
              3,844,276
              
              
              3,927,73022,317,982
              
              $
              23,321,183


Pursuant
to the Provisional Regulation of PRC on Value Added Tax, or VAT, and their
implementing rules, all entities and individuals that are engaged in the sale of
goods are generally required to pay VAT at a rate of 17% of the gross sales
proceeds received, less any deductible VAT already paid or borne by the
taxpayer.


The Group has its principal operations
in the People's Republic of China ("PRC"). Business enterprises are subject to
income taxes and value added taxes under PRC tax laws and regulations unless
they have exemptions. It has been the belief of the Group's management that its
PRC operations were exempted from 1999 to 2004 from income taxes and value added
taxes as these operations were considered by the local government as an
advanced technology. The Group, however, has never received a written
confirmation from the appropriate tax authorities for the tax exemption status
of its PRC operations. In January 2006, management of the Group took the
initiative to make tax payments to the PRC tax authorities for the calendar year
2005 and subsequent years and accrued for all applicable tax
liabilities, plus surcharge, which is calculated as 0.05% per day on the overdue
tax liabilities in accordance with PRC tax laws and regulations, for all prior
fiscal years were reflected in the Group's financial statements.


Provision for the PRC enterprise income
tax is calculated at the prevailing rate based on the estimated assessable
profits.  On March
1, 2007, the Fifth Plenary Session of the Tenth National People's Congress
passed the Corporate Income Tax Law of the PRC ("new tax law") which will take
effect on January 1, 2008.  As a result of the new tax law, the
statutory income tax rate will change from 33% to 25% with effect from January
1, 2008.  The preferential tax rate currently enjoyed by the Company
will be gradually transitioned to the new standard rate of 25% over a five-year
transitional period.  In addition, article 28 of the new tax law
stated that the income tax rate of a "high technology" company will remain at
15%, and such "high technology" company could still enjoy the existing tax
holiday.  As most of the subsidiaries operating in the PRC are
currently recognized as "high technology" companies under the existing Income
Tax Law of the PRC, the management reasonably believed that these subsidiaries
can transit this status under the new tax law.




Dividends
withholding tax in the PRC is charged at a rate of 20% on the dividend payable
to the shareholders.




11





CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
expressed in US Dollars)






8.
                          TREASURYSTOCK
 The Group
treated common stock repurchased but not yet canceled as treasury stock.
Treasury stock is reported in the balance sheets and statements of changes in
stockholders’ equity with its par value charged to common stock, and with the
excess of the purchase price over par, if any, first charged against any
available additional paid-in capital and the balance charged to retained
earnings.


9.
                            INCOME
      TAXES


The
income (loss) generated in the United States, the British Virgin Islands
and the People's Republic of China (“PRC”) before income taxes during the
periods as presented in these financial statements is summarized as
follows:




Three
      months ended
              June
      30,2007
            
            2008Loss
      in the United States before income taxes
            
            $
            -
            
            $
            (1,271,879
            )(Loss)/income
      in the British Virgin Islands before income taxes
            
            
            (230,194
            )
            
            411,931Income
      in the PRC before income taxes
            
            
            5,033,383
            
            
            5,475,169$
            4,803,189
            
            $
            4,615,221











12





CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
expressed in US Dollars)




9.
                          INCOME
      TAXES
(continued)


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





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





Three
      months ended
              June
      30,2007
            
            2008Current
            
            $
            1,262,956
            
            $
            1,378,471Deferred
            
            
            -
            
            
            -$
            1,262,956
            
            $
            1,378,471




The Group
has its principal operations in the People’s Republic of China (“PRC”) and is
subject to a PRC Enterprise Income Tax rate of 33% in 2007 and 25% in
2008.




However,
one of the PRC subsidiaries of the Group located in the Shanghai Jinqiao special
economic zone (“Jinqiao subsidiary”) is awarded the status of “high technology”
enterprise for the year 2007 till 2010.  Hence the Jinqiao subsidiary
enjoys a preferential income tax of 15%, which represents a tax concession of
18% and 10% in the year 2007 and 2008.  The benefit of the tax
concession on net income per share (diluted) was approximately $0.053 and $0.017
for the three months ended June 30, 2007 and 2008.




Another
newly set up subsidiary of the Group, which is located in Qingpu (“Qingpu
subsidiary”), will have the same business and operation as the Jinqiao
subsidiary but with a larger production scale, is believed by the management to
be qualified for the application for the status of being a “high technology”
enterprise once operation is commenced.  If the “high technology”
status is awarded, the Qingpu subsidiary would then be fully exempted from PRC
Enterprise Income Tax for two years starting from 2008, followed by 50% tax
exemption for the next three years, period from 2010 to 2012. There is no
financial effect from the tax holiday as the Qingpu subsidiary did not generate
any assessable profit in 2007 and 2008.




On March
1, 2007, the Fifth Plenary Session of the Tenth National People's Congress
passed a new tax law which took effect on January 1, 2008. As a result of the
new tax law, the statutory income tax rate changed from 33% to 25%, effective
January 1, 2008. The preferential tax rate currently enjoyed by the Company will
gradually transition to the new standard rate of 25% over a five-year
transitional period. In addition, article 28 of the new tax law states that the
income tax rate of a "high technology" company will remain at 15%, and such
"high technology" company may continue to use any existing tax holiday. As the
subsidiaries operating in the PRC are currently recognized as "high technology"
companies under the existing Income Tax Law of the PRC, the management
reasonably believes that these subsidiaries may use this status under the new
tax law.




The
principal reconciling items from income tax computed at the statutory rates and
at the effective income tax rates are as follows:




Three
      months ended
              June
      30,2007
            
            2008Computed
      tax at the local PRC statutory rate (2007:33%, 2008:25%)
            
            $
            1,585,053
            
            $
            1,153,805Non-deductible
      items
            
            
            75,964
            
            
            432,439Non-taxable
      items
            
            
            -
            
            
            (303,934
            )Effect
      of different tax rate in other jurisdiction
            
            
            -
            
            
            (114,469
            )Valuation
      allowance
            
            
            9,014
            
            
            -Tax
      concession
            
            
            (910,926
            )
            
            (326,995
            )Surcharge
      at 0.05% per day on accrued taxes
            
            
            503,851
            
            
            537,625Total
      provision for income at effective rate
            
            $
            1,262,956
            
            $
            1,378,471




As at
June 30, 2008, one of the Company’s PRC subsidiaries has incurred tax losses
which can be carried forward to a maximum of 5 years of approximately
US$1,001,698 (2007: US$143,863).
  Three
      months ended June 30,2007
                                        
                                        2008Deferred
      tax assets:Net
      operating loss carryforward
                                        
                                        $
                                        9,014
                                        
                                        
                                        $
                                        -Less:
      Valuation allowance
                                        
                                        
                                        (9,014
                                        )
                                        
                                        
                                        -Net
      deferred tax assets
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
 Deferred
tax assets were primarily raised from the tax losses carry forwards, and a
valuation allowance has been established for the entire deferred tax assets, as
the management believes that the PRC subsidiary may not be fully utilized the
deferred tax assets because of the uncertainly regarding the tax deductibility
of expenses incurred.


The
Group has its principal operations in the People's Republic of China (“PRC”).
Business enterprises are subject to income taxes and value added taxes under PRC
tax laws and regulations unless they have exemptions. It had been the belief of
the Group's management that its PRC operations were exempt from income taxes and
value added taxes as these operations were recognized by the local government as
an advanced technology enterprise. The Group, however, has never received a
written confirmation from the appropriate tax authorities regarding the tax
exempt status of its PRC operations. In January 2006, management of the Group's
PRC operations took initiative to make tax payments to the PRC tax authorities
for the Calendar year 2005, and has made accrual for all applicable tax
liabilities, plus surcharge, for all prior Calendar years were reflected in the
Group's financial statements.




According
to PRC tax regulations, overdue tax liabilities in the
PRC for the calendar years prior to 2005 may be subject to 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. This amounts to $4.9 million
(if calculated based on 0.5 timzes the taxes payable) to $49 million (if
calculated based on five times the amount of overdue tax liabilities) as of June
30, 2007 and 2008. The Group has reserved for the payment of taxes that may be
owed for calendar years prior to 2005 and any associated interest surcharges
(which are calculated at 0.05% per day
on the accrued tax liabilities)in its financial statements until
the matter is fully resolved. Following
the adoption of FIN48, the Group has reserved for the surcharges payable for
this reporting period.  We consider it more likely than not that the
associated penalty will not need to be paid.


13




CHINA-BIOTICS,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amount
expressed in US Dollars)




10.
                            COMMITMENTS
 (a)  
Operating Leases


The
Group leases office space, warehouse facilities and retail shops under
non-cancelable operating agreements that expire at various dates from 2008 to
2010. As of the balance sheet dates as presented in these financial statements,
the amount of future minimum lease payment under the above-mentioned operating
leases were as follows:




March
      31,
            
            June
      30,2008
            
            2008Payable
      withinthe
      next twelve months
            
            $
            556,907
            
            $
            554,086the
      next 13th to 24th months
            
            
            111,670
            
            
            58,514the
      next 25th to 36th months
            
            
            -
            
            
            -the
      next 37th to 48th months
            
            
            -
            
            
            -the
      next 49th to 60th months
            
            
            -
            
            
            -Thereafter
            
            
            -
            
            
            -$
            668,577
            
            $
            612,600




(b)
  Land lease




On March
21, 2006, the Company's wholly-owned subsidiary, GSL, entered into an agreement
with Shanghai Qingpu Industrial Park District Development (Group) Company
Limited for the lease of 73,157 square meters of land in the Shanghai Qingpu
Industrial Park District on which the Company will construct a plant consisting
bulk manufacturing facilities that will have an initial capacity of 150 tons per
year of bulk product with room for expansion to 300 tons per
year.  This agreement contemplates a one-time leasing fee of
$2,100,828.  The leasing fee was later reduced to $1,777,860 because
the size of the leased land was reduced to 36,075 square meters.  10%
of the leasing fee was due and paid on April 5, 2006 as a
deposit.  This deposit is to be refunded upon payment in full of the
aggregate lease amount, which is due and payable immediately before the issue of
the approval documents for the land lease by the Shanghai Qingpu local
government authorities.  There are no future lease payments under the
land lease.





(c) Capital
commitments





During
the year ended of June 30, 2008, GSL entered into the agreements with the
contractors to construct a plant consisting bulk manufacturing facilities in the
Shanghai Qingpu Industrial Park District. The amount of future payment is
$9,634,101 which was contracted, but not provided for as of June 30, 2008.




14


CHINA-BIOTICS,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Amount
expressed in US Dollars)


11.
                CONVERTIBLE
      NOTES
  On
December 11, 2007, the Company sold a 4% Senior Convertible Promissory Note in
the amount of $25,000,000 (the “Note”) with a maturity date of December 11, 2010
to Pope Investments II LLC, an affiliate of Pope Investments, LLC, in a private
placement. In connection with the sale, the Company entered into an Investment
Agreement and a Registration Rights Agreement. In addition, Mr. Song Jinan, the
Company’s Chief Executive Officer, Chairman, and largest stockholder, entered
into a Guaranty Agreement and a Pledge Agreement pursuant to which Mr. Song
agreed to guaranty the Company’s obligations under the Note and to secure such
guaranty with a pledge of 4,000,000 shares of China-Biotics common stock owned
by Mr. Song. The principal amount of the Note is convertible into shares of the
Company’s common stock at an exercise price of $12.00 per share at any time
until the maturity date subject to adjustment for subdivision or combination of
the Company’s common stock and similar events. If the Note is not converted at
maturity, the Company will redeem the Note to provide Pope Investments II LLC
with a total yield of 10% per annum inclusive of the annual interest. The Note
also provides for mandatory conversion into the Company’s common stock
if the Group achieves a net income of $60 million in fiscal year 2010. Pope
Investments II LLC may declare the outstanding principal amount and any accrued
but unpaid interest, calculated at a rate of 10% per annum, to be immediately
due and payable upon an event of default, including non-payment of obligations
under the Note, bankruptcy or insolvency, or failure to perform any covenant set
forth in the Note or Investment Agreement. Pursuant to the Investment Agreement
the Company has secured payment of obligations under the Note with a pledge
of 100% of the stock of  SGI to Pope Investments II LLC.
  Net
proceeds of the Note are expected to be used to fund the construction of a
proposed 150-metric-ton-per-year manufacturing facility and for other capital
expenditures.
 
 The
Company accounted for the net proceeds from the issuance of the Note as two
separate components; an embedded derivative component (conversion option with
mandatory conversion feature) and a debt component. The Company determined the
initial carrying value of the debt component by subtracting the fair value of
embedded derivatives amounted to US$9,118,000 from the net proceeds received
from the issuance of the Note. This resulted in US$15,882,000 initial carrying
amount of the debt component.
 
 On
January 1, 2008, the Company adopted SFAS No.157, “Fair Value Measurements”,
(“SFAS 157”) which defines fair value, establishes a framework for measuring
fair value in GAAP, and expands disclosures about fair value measurements. SFAS
157 does not require any new fair value measurements, but provides guidance on
how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. In February 2008, the FASB deferred the effective
date of SFAS 157 by one year for certain non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). The Company
adopted the provisions of SFAS 157, except as it applies to those non-financial
assets and non-financial liabilities for which the effective date has been
delayed by one year.
 
 SFAS 157
establishes a three-level valuation hierarchy of valuation techniques based on
observable and unobservable inputs, which may be used to measure fair value and
include the following:
 
 Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
  Level 2 -
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.
  Level 3 -
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
 
 Classification
within the hierarchy is determined based on the lowest level of input that is
significant to the fair value measurement.
 
 As of
June 30, 2008, the Company held certain assets and liabilities that are required
to be measured at fair value on a recurring basis, including its derivative
instruments related to its 2007 Notes. The fair value of these assets and
liabilities was determined using the following inputs in accordance with SFAS
157 at June 30, 2008:
  Fair Value Measurements as at
      June 30, 2008Balance
      atJune
      30, 2008
                
                Quoted Prices in Active Markets
      (Level 1)
                
                Significant Other Observable
      Inputs (Level 2)
                
                Significant Unobservable Inputs
      (Level 3)Derivative
      liability - conversion rights (1)
                
                $
                6,991,000
                
                $
                -
                
                $
                -
                
                $
                6,991,000
  (1)
              Represents
      the conversion rights included in the Company’s 2007 Notes. Included in
      non-current liabilities on the accompanying condensed consolidated balance
      sheet.
 
 15
 CHINA-BIOTICS,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Amount
expressed in US Dollars)
  The
following table presents a reconciliation of the assets and liabilities measured
at fair value on a recurring basis using significant unobservable inputs (Level
3) from January 1, 2008 to June 30, 2008:
 
 Derivative Liability -
      Conversion RightsBalance
      at January 1, 2008
              
              $
              9,118,000Adjustment
      to fair value included in earnings (1)
              
              
              (2,127,000
              )Balance
      at June 30, 2008
              
              $
              6,991,000
 
 (1)
              The
      derivative conversion option is revalued at the end of each reporting
      period and the resulting difference is included in the results of
      operations. For the six months ended June 30, 2008, the net adjustment to
      fair value resulted in a gain of $2.13 million and is included in “Changes
      in the fair value of embedded derivatives” on the accompanying condensed
      consolidated statement of
operations.
 
 
 The
estimated fair value of the embedded derivatives as of March 31, 2008 and June
30, 2008 was $5,752,000 and $6,991,000 respectively. The change in the fair
value of the embedded derivatives amounted to $1,239,000 was charged to the
consolidated statement of operations.
 
 The fair
values of the embedded derivatives was determined using the Binomal Model based
on the following assumptions:
 
 March 31,
      2008
              
              June 30,
      2008Risk-free
      rate of return
              
              
              1.70
              %
              
              2.92
              %Time
      to expiration
              
              
              2.66
              years
              
              2.45
              yearsVolatility
      rate
              
              
              65
              %
              
              50
              %Dividend
      yield
              
              
              -
              
              
              -
 
 At the
period ended June 30, 2008, the Note interest amounted to $2,157,370 was
capitalized under construction in progress.


16





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,” or “our” are to the combined business of China-Biotics,
Inc. (“the Company”) and its wholly-owned direct subsidiaries, Sinosmart Group
Inc. (“SGI”) and Growing State Limited (“GSL”), and SGI's wholly-owned
subsidiary, Shanghai Shining Biotechnology Co. Ltd. (“Shining”), and GSL's
wholly-owned subsidiary, Growing Bioengineering (Shanghai) Co. Ltd. (“GBS”).
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 mainly sold in the Greater Shanghai
region.





The
products are mainly sold to distributors, which then distribute them to various
retail outlets such as drug stores and supermarkets. During the three months
ended June 30, 2008, over 80% of our sales revenue comprises amounts receivable
from the distributors for the sale of these products. Typically, 60 to 90 days'
credits are given to the distributors.





We
intend to expand our sales to other cities in China through a combination of
distributors and our outlets (training and logistics centers). In this regard,
we intend to open over 300 outlets by the end of fiscal year 2009. As at
June 30, 2008, we have opened 83 outlets in Shanghai and 8 other cities in China
(as of June 30, 2007, we had 14 retail outlets).Our management believes
that as China becomes more affluent, its citizens are becoming more health
conscious. This has led to higher demand for health and functional food such as
probiotics and yogurt.




In
addition, probiotics are increasingly used as additives in the production of
infant formula. According to statements made by the Nutrition Development Centre
of National Development and Reform Commission in China, effective April 1, 2007,
probiotics will be added to baby milk powders produced in China. Currently, the
probiotics used in China for such purposes are imported. To capitalize on what
we believe is a significant opportunity in this area, we are constructing a new
plant that will enable us to capture the anticipated demand for food additives.




We
expect the new plant will commence production in the fourth quarter of calendar
year 2008 and start to make contribution to our earnings in fiscal year 2009.
The cost of the new plant, which is expected to be approximately $27.5 million
for the first phase, will be funded by cash received from the convertible
promissory notes issued in December 2007 and internal sources of funds. In
this regard, we have leased 36,075 square meters of land in the Shanghai Qingpu
Industrial Park District, on which we will construct the new bulk manufacturing
facilities. The new plant will have an initial capacity of 150 tons per year
with room for expansion to 300 tons per year.




In
preparation for the new plant commencing operations later this year, we have
been in discussions with a large number of potential customers for our food
additive products. As at June 30, 2008, we have already signed up 4 customers
for this business, including Bright Dairy, one of the largest dairy product
suppliers in China. During the last quarter, we have accelerated the pace of
customer acquisition efforts. We have created formulations for testing by many
potential customers. The need to create a large number of new products for
potential customers is pushing the capacity of our current production facility.
In this regard, we have been carefully managing the use of our production
capacity and selectively increasing the price of our products to make sure that
we strike a balance between achieving current and future
sales.


17







Results of
Operations





Quarter Ended June 30, 2007 Compared
with the Quarter Ended June 30, 2008


Our net
income was $3.24 million in the quarter ended June 30, 2008. This
included $1.24 million deficit arising from the revaluation of the conversion
feature embedded in the convertible notes issued in December 2007 as required by
FAS133. Excluding this revaluation deficit, our net income was $4.48 million,
which was 26.55% above our net income of $3.54 million for the quarter ended
June 30, 2007. The
increase of net income before the revaluation deficit, resulted from a
combination of volume and price increases. Shining Essence continued to be our
best selling product, accounting for 40% of our sales revenue in the quarter
ended June 30, 2008 (55% in the quarter ended June 30, 2007).




Our
results for the quarters ended June 30, 2007 and 2008 are summarized
below:





Three
      months ended June 30, 2007
              
              Three
      months ended June 30, 2008Amount
              
              %
      of Net sales
              
              Amount
              
              %
      of Net salesNet
sales
              
              $
              9,515,333
              
              
              100.00
              %
              $
              11,370,657
              
              
              100.00
              %Cost
      of sales
              
              
              (2,650,972
              )
              
              (27.86
              )%
              
              (3,258,669
              )
              
              (28.66
              )%Gross
    profit
              
              $
              6,864,361
              
              
              72.14
              %
              $
              8,111,988
              
              
              71.34
              %Operating
      expenses:Selling
      expenses
              
              $
              (1,316,344
              )
              
              (13.83
              )%
              $
              (2,369,859
              )
              
              (20.84
              )%General
      and administrative expenses
              
              
              (809,564
              )
              
              (8.51
              )%
              
              (1,426,797
              )
              
              (12.55
              )%Total
      operating expenses
              
              $
              (2,125,908
              )
              
              (22.34
              )%
              $
              (3,796,656
              )
              
              (33.39
              )%Income from
      operations
              
              $
              4,738,453
              
              
              49.80
              %
              $
              4,315,332
              
              
              37.95
              %Other
      income and expenses:Changes
      in the fair value of embedded derivatives
              
              $
              -
              
              
              0.00
              %
              $
              (1,239,000
              )
              
              (10.90
              )%Other
      income
              
              
              71,660
              
              
              0.75
              %
              
              1,538,889
              
              
              13.53
              %Other
      expenses
              
              
              (6,924
              )
              
              (0.07
              )%
              
              -
              
              
              0.00
              %Total
      other income (expenses)
              
              $
              64,736
              
              
              0.68
              %
              $
              299,889
              
              
              2.64
              %Income before
      taxes
              
              $
              4,803,189
              
              
              50.48
              %
              $
              4,615,221
              
              
              40.59
              %Provision
      for income taxes
              
              
              (1,262,956
              )
              
              (13.27
              )%
              
              (1,378,471
              )
              
              (12.12
              )%Net
    income
              
              $
              3,540,233
              
              
              37.21
              %
              $
              3,236,750
              
              
              28.47
              %
 18





Net sales





Net
sales in our financial statements are stated at invoiced value less sales
discount and sales tax. Our net sales for the quarters ended June 30, 2007 and
2008 comprised of the following:




Three
      months ended June 30,2007
            
            2008Invoiced
      value on sales
            
            
            9,576,723
            
            
            11,810,902Less:
      sales discount
            
            
            -
            
            
            (365,489
            )Less
      : sales tax
            
            
            (61,390
            )
            
            (74,756
            )9,515,333
            
            
            11,370,657





Net
sales of $11,370,657 for the quarter ended June 30, 2008 were 19.5% above the
net sales of $9,515,333 for the quarter ended June 30, 2007. The increase was
mainly because of an increase in overall sales volume arising
from new product sales (offsetting decrease in sales volume of existing
products) and increases in the sales price of selected
products.





The
contributions of each product as a percentage of invoiced value on sales for the
quarters ended June 30, 2007 and 2008 are summarized below:




Three
      months ended June 30,2007
            
            2008Shining
      Essence Capsules
            
            
            54.53
            %
            
            40.45
            %Shining
      Signal Capsules
            
            
            14.35
            %
            
            10.34
            %Shining
      Golden Shield Capsules
            
            
            13.99
            %
            
            12.19
            %Shining
      Energy Capsules
            
            
            12.11
            %
            
            11.56
            %Shining
      Essence Stomach Protection Capsules
            
            
            -
            %
            
            3.82
            %Shining
      Probiotics Protein Powder
            
            
            -
            %
            
            5.86
            %Other
      products
            
            
            5.03
            %
            
            6.95
            %100.00
            %
            
            91.17
            %Bulk
      additives
            
            
            -
            %
            
            8.83
            %100.00
            %
            
            100.00
            %





Unit
volume and unit prices comparatives (on the invoiced value of sales) for the
quarters ended June 30, 2007 and 2008 are summarized below:




Percentages
      increase (decrease) from the prior yearThree
      months ended June 30,2007
            
            
            2008Unit
      volume
            
            
            Selling
      prices
            
            
            Overall
      increase / (decrease)
            
            
            Unit
      volume
            
            
            Selling
      prices
            
            
            Overall
      increase / (decrease)Shining
      Essence Capsules
            
            
            2
            %
            
            (1
            )%
            
            1
            %
            
            (22
            )%
            
            6
            %
            
            (17
            )%Shining
      Signal Capsules
            
            
            (14
            )%
            
            (4
            )%
            
            (17
            )%
            
            (27
            )%
            
            9
            %
            
            (20
            )%Shining
      Golden Shield Capsules
            
            
            65
            %
            
            6
            %
            
            75
            %
            
            (15
            )%
            
            18
            %
            
            0
            %Shining
      Energy Capsules
            
            
            52
            %
            
            6
            %
            
            61
            %
            
            (13
            )%
            
            23
            %
            
            7
            %Shining
      Essence Stomach Protection Capsules
            
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %
            
            100
            %
            
            100
            %
            
            100
            %Shining
      Probiotics Protein Powder
            
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %
            
            100
            %
            
            100
            %
            
            100
            %Other
      products
            
            
            855
            %
            
            57
            %
            
            1,399
            %
            
            214
            %
            
            39
            %
            
            336
            %





Bulk
      additives
            
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %
            
            100
            %
            
            100
            %
            
            100
            %





19




Cost of sales





Cost
of sales for the quarter ended June 30, 2008 was $3,258,669 compared with
$2,650,972 for the quarter ended June 30, 2007. The increase in cost of sales
was primarily because of increases in the cost of packaging materials and the
overall sales volume.




Unit
volume and unit costs comparatives for the quarters ended June 30, 2007 and 2008
are summarized below:




Percentages
      increase (decrease) from the prior yearThree
      months ended June 30,2007
            
            
            2008Unit
      volume
            
            
            Unit
      costs
            
            
            Overall
      increase / (decrease)
            
            
            Unit
      volume
            
            
            Unit
      costs
            
            
            Overall
      increase / (decrease)Shining
      Essence Capsules
            
            
            2
            %
            
            (8
            )%
            
            (6
            )%
            
            (22
            )%
            
            16
            %
            
            (10
            )%Shining
      Signal Capsules
            
            
            (14
            )%
            
            (6
            )%
            
            (19
            )%
            
            (27
            )%
            
            5
            %
            
            (23
            )%Shining
      Golden Shield Capsules
            
            
            65
            %
            
            (5
            )%
            
            57
            %
            
            (15
            )%
            
            11
            %
            
            (6
            )%Shining
      Energy Capsules
            
            
            52
            %
            
            11
            %
            
            69
            %
            
            (13
            )%
            
            34
            %
            
            16
            %Shining
      Essence Stomach Protection Capsules
            
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %
            
            100
            %
            
            100
            %
            
            100
            %Shining
      Probiotics Protein Powder
            
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %
            
            100
            %
            
            100
            %
            
            100
            %Other
      products
            
            
            855
            %
            
            241
            
            
            3,156
            %
            
            214
            %
            
            (95
            )%
            
            (84
            )%




Bulk
      additives
            
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %
            
            100
            %
            
            100
            %
            
            100
            %


20




Gross profit





Gross
profit for the quarter ended June 30, 2008 was $8,111,988 compared with
$6,864,361 for the quarter ended June 30, 2007. The increase in gross profit was
primarily due to an
increase in overall sales volume and increases in sales price of selected
products.




The
average gross profit percentage for all of our products for the quarters ended
June 30, 2007 and 2008 is summarized below:





Three
      months ended June 30,2007
            
            2008Average
      for all products
            
            
            72.14
            %
            
            71.34
            %




Gross
profit margin increased from 66.6% in the quarter ended March 31, 2008 to 71.3%
this quarter as a result of increases in sales price of selected
products.
 21




Selling expenses





Selling
expenses were $2,369,859 or 20.84% of net sales for the quarter ended June 30,
2008 compared with $1,316,344 or 13.83% of net sales for the quarter ended June
30, 2007. The
operating costs of the retail outlets are included as selling expenses. The
increase in selling expenses was primarily caused by the roll out of retail
outlets. As of June 30, 2008, we had a total of 83 retail outlets in operation
compared with 14 outlets as of June 30, 2007.





General and administrative
expenses





General
and administrative expenses were $1,426,797 or 12.55% of net sales for the
quarter ended June 30, 2008 compared with 809,564 or 8.51% of net sales for the
quarter ended June 30, 2007. The increase of $617,233 was primarily due to the
additional research cost of $401,607 related
to the development and launching of new products, and staff and administrative
costs incurred in connection with the construction of the new plant. As of
June 30, 2008, we had a total of 339 employees, compared with 208 as of June 30,
2007.


Other Income
 
 Other
income of $1.54 million for the quarter ended June 30, 2008, comprised foreign
currency gains arising from the conversion of US dollars and Hong Kong dollars
to Renminbi.
  Provision for income
taxes





Provision
for income taxes was $1.26 million and $1.38 million for the quarters
ended June 30, 2007 and 2008 ,
respectively. Excluding the $1.24 million deficit on revaluation of the
convertible note, income before taxes was $5.85 million for the first quarter of
fiscal year 2009 compared with $4.8 million for 2008. The increase in income tax
payable is attributable to an increase in operating profit.




Income
tax payable increased despite a decrease in operating profit because of
pre-operating expenses incurred in connection with the construction of the new
plant. The new plant is held by a PRC subsidiary set up for the purpose and the
pre-operating expenses have given rise to tax losses in that subsidiary. These
losses will offset income generated in that subsidiary when the new plant
commences operations.




Segment
reporting





We
have adopted the “products” approach for segment reporting. For the quarters
ended June 30, 2007 and 2008, we had only one reporting segment--the probiotic
products as health supplement. We manufactured and sold the probiotic products
solely in China and delivered all shipments to destinations within China, and
all of our long-lived assets were physically located in China. We made all sales
to external customers.





Liquidity and Capital
Resources




We
had cash of $66.20 million and working capital of $50.75 million as of
June 30, 2008, and cash of $34.69 million and working capital
of $24.77 million as of June 30, 2007. Cash generated from operations was
$8.35 million in the quarter ended June 30, 2008 and $7.76 million in
the quarter ended June 30, 2007. The cash generated from operations of $8.35
million was higher than the net income of $3.24 million due to the non-cash
deficit of revaluation of convertible notes of $1.24 million and lower
working capital needs resulting from better working capital
management.





We
had capital expenditures totaling $7.2 million in the quarter ended June 30,
2008, mainly in connection with the construction of the new plant. We spent $0.5
million on fixed assets in the quarter ended June 30, 2007.





Our
current facility commenced operations in 2000. With the increases in sales
volume in the last couple of years, we are reaching our production capacity. We
have started to construct a new plant with an overall project size of $45.5
million. Phase 1 of the project involves constructing a facility capable of
producing 150 tons of probiotics per annum and is estimated to cost $27.50
million, $25 million of which is expected to be paid in the fourth quarter of
calendar year 2008 and the balance by the end of second quarter of calendar year
2009. Subsequent phases of this project will only commence when demands for
probiotics have exceeded the production capacity of the Phase 1
facility.





We
did not have any changes related to financing activities for the quarters ended
June 30, 2007 and 2008.




Taking
into account our current cash position and our anticipated cash flows from
operations, we expect we will be able to meet all our funding needs, including
payments required in the next twelve months to settle our contractual
obligations, for the construction of our new plant and for our opening of new
outlets. No assurance, however, can be given that our business plan will
succeed. In the event that our business plan does not materialize as predicted,
we may need to seek for external financing to fund our expansion plan. There can
be no assurance that we will be able to raise needed capital on favorable terms,
if at all. In addition, there is no assurance that our estimate of our liquidity
needs is accurate or that new business development or other unforeseen events
will not occur, resulting in the need to raise additional funds.





Inflation


In the
fourth quarter of 2008 fiscal year, there had been significant increases in pulp
and paper costs. As a result, our cost of production increased which led to a
decrease in our gross profit margin in the quarter ended March 31, 2008. There
had also been significant increases in steel costs which led to increases in the
cost of construction of our new plant. These costs appear to have stabilized in
the current quarter.
  22




Seasonality




Typically,
60% of our sales take place in the second half of the fiscal year because many
of our customers purchase our products to give as gifts during the Chinese
festivals that occur during this time of the year. While it is still too early
to tell, we expect that our bulk additive sales will not be seasonal
in nature because the bulk products are purchased by food manufacturers
consistently over the year.





Off-Balance Sheet
Arrangements





We
do not have any off-balance sheet arrangements.




Contractual
Obligations




The
following table summarizes our principal contractual obligations and commercial
commitments over various future periods as of June 30, 2008.
 
 Payment due by period (as of June 30, 2008)ContractualObligations
                      
                      Total
                      
                      
                      Less than
                        1 year
                      
                      
                      1-3 years
                      
                      
                      3-5 years
                      
                      
                      Morethan
                        5 yearsCapital Lease Obligations
                      
                      $
                      9,634,101
                      
                      
                      $
                      9,634,101
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Operating
      Lease Obligations
                      
                      $
                      612,600
                      
                      
                      $
                      554,086
                      
                      
                      
                      58,514
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      10,246,701
                      
                      
                      $
                      10,188,187
                      
                      
                      
                      58,514
                      
                      
                      
                      -
                      
                      
                      
                      -





Research and Development
Expenditures





We
have a strong research and development team supported by a technical advisory
board of experts. In addition to having advanced technology in bacteria
culturing and protection, we also conduct research to develop products that
address specific health problems using our core technology and Chinese medicine
to create genetically engineered drugs and drug delivery solutions and expand
our product line. We incurred research and development costs of approximately
$709,919 and $308,312 in the three months ended June 30, 2008 and June 30, 2007,
respectively.




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-KSB for
the fiscal year ended March 31, 2008, and this Form 10-Q should be read in
conjunction with that Annual Report. This MD&A discusses our consolidated
financial statements for the three months ended June 30, 2007 and 2008. These
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States. In preparing these financial
statements, we are required to make estimates and assumptions affecting the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an ongoing
basis, we evaluate our estimates and judgments. We base our estimates and
judgments on historical experience and on various other factors we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.




We
consider accounting policies related to (a) allowance for doubtful accounts, and
(b) use of estimates as applied to potential penalties for the late payment of
taxes, to be critical accounting policies due to the estimation process involved
in each.





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
unrecoverable receivables. We have not experienced situations causing us to cast
doubt on the ability of our customers to make required payments. The balance of
our allowance for doubtful account has always been zero. We had trade
receivables totaling $10,669,699 as of June 30, 2008, and a zero balance for
allowance for doubtful accounts. We have considered all relevant factors,
including the financial conditions, affecting the payment abilities of customers
comprising these receivables up to the date of this Form 10-Q and we believe
these customers are able to make required payments. We, however, cannot give
assurance that these factors, including the financial conditions of these
customers, will not change adversely in the future. We will continue to evaluate
the ability of all our customers to make required payments. Were the financial
condition of a customer to deteriorate, resulting in an impairment of its
ability to make payments, allowances may be required.





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





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




According
to PRC tax regulations, our overdue tax liabilities in the PRC
for the calendar years prior to 2005 may be subject to potential penalties for
the late payment of taxes which is calculated on the basis of 0.5 times to five
times the amount of overdue tax liabilities, which amounts to $4.9 million (if
calculated based on 0.5 times of taxes payable) to $49 million (if calculated
based on five times of the amount of taxes payable) as of June 30, 2007 and
2008. The Group
has reserved for the payment of taxes that may be owed for calendar years prior
to 2005 and any associated interest surcharges (which are calculated at 0.05%
per day on the accrued tax liabilities) in its financial statements until the
matter is fully resolved.Following the adoption of FIN48, the
Group has reserved for the surcharges payable for this reporting period. We
consider it is more likely than not that the associated penalty will not need to
be paid.


23


Recent Accounting
Pronouncements




In
June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) No. Emerging Issues Task Force (“EITF”) 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that
unvested share-based payment awards with nonforfeitable rights to dividends or
dividend equivalents are considered participating securities and should be
included in the calculation of earnings per share pursuant to the two-class
method. FSP EITF 03-6-1 is effective for financial statements issued for periods
beginning after December 15, 2008 with early adoption prohibited. FSP EITF
03-6-1 requires that all prior-period earnings per share data be adjusted
retrospectively to conform with the FSP provisions. The management is currently
evaluating the impact of FSP EITF 03-6-1 on its consolidated results of
operations and financial condition.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles (“GAAP”) for
nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. Management does not anticipate that the
provisions of SFAS No. 162 will have an impact on the Company’s consolidated
results of operations or consolidated financial position.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities - an amendment of FASB Statement No. 133.” SFAS No. 161
requires enhanced disclosures about an entity’s derivative and hedging
activities to improve the transparency of financial reporting. SFAS No. 161 is
effective for financial statements issued for periods beginning after November
15, 2008. SFAS No. 161 is effective for the Company’s fiscal quarter that begins
on January 1, 2009. Management is currently evaluating the potential
impact, if any, on the Company’s disclosures in its consolidated financial
statements.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51.” SFAS No. 160
amends ARB No. 51 to establish accounting and reporting standards for
noncontrolling interests in subsidiaries and for the deconsolidation of
subsidiaries. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest that should be reported as equity in the consolidated
financial statements. The provisions of SFAS No. 160 are effective for fiscal
years beginning on or after December 15, 2008, and interim periods within those
fiscal years on a prospective basis except for the presentation and disclosure
requirements which apply retrospectively. Earlier application of SFAS No. 160 is
prohibited. SFAS No. 160 is effective for the Company’s fiscal year that begins
on April 1, 2009. Management is currently evaluating the potential impact,
if any, on the Company’s consolidated financial statements.




In
December 2007, the FASB amended SFAS No. 141 (revised 2007), “Business
Combinations.” SFAS No. 141R, establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. SFAS No. 141R applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first reporting period
for fiscal years beginning on or after December 15, 2008. Earlier application of
SFAS 141R is prohibited. SFAS No. 141R is effective for the Company’s fiscal
year that begins on April 1, 2009 and will be applied to future
acquisitions.




In June
2007, the FASB ratified the consensus reached by the Emerging Issues Task Force
(“EITF”) in EITF Issue No. 06-11, “Accounting for Income Tax Benefits of
Dividends on Share-Based Payment Awards.” Under the provisions of EITF 06-11, a
realized income tax benefit from dividends or dividend equivalents that are
charged to retained earnings and are paid to employees for equity classified
nonvested equity shares, nonvested equity share units, and outstanding equity
share options should be recognized as an increase to additional paid-in capital.
The amount recognized in additional paid-in capital for the realized income tax
benefit from dividends on those awards should be included in the pool of excess
tax benefits available to absorb tax deficiencies on share-based payment awards.
EITF 06-11 should be applied prospectively to the income tax benefits that
result from dividends on equity-classified employee share-based payment awards
that are declared in fiscal years beginning after December 15, 2007, and interim
periods within those fiscal years. EITF 06-11 is effective for the Company’s
fiscal year that begins on April 1, 2008. Management is currently
evaluating the potential impact of EITF 06-11, if any, on the Company’s
consolidated financial statements.




On
February 15, 2007 the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities: Including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 permits all entities to elect to
measure many financial instruments and certain other items at fair value with
changes in fair value reported in earnings. SFAS 159 is effective as of the
beginning of the first fiscal year that begins after November 15, 2007, with
earlier adoption permitted. The Company does not anticipate that the adoption of
this statement will have a material effect on the Company’s financial condition
and result of operations. The Company does not believe that any of the other
recently issued and adopted, but yet effective, accounting standards would have
a material effect on the accompanying financial statements.




ITEM 3.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





We are
exposed to various market risks, including changes in foreign currency exchange
rates and fair value. We do not enter into derivatives or other financial
instruments for trading or speculative purposes in the normal course of
business.
 
 Foreign
Currency Exchange Rate Risk
 
 Our operations are conducted mainly in
the PRC. As such, our earnings are subject to movements in foreign currency
exchange rates when transactions are denominated in RMB, which is our functional
currency.
 
 Therefore, changes in the rate of
exchange between the U.S. dollar and the RMB, in which the financial statements
of our operations are maintained, affect our results of operations and financial
position as reported in our consolidated financial statements. We have
consolidated the balance sheets of our RMB-denominated operations into U.S.
dollars at the exchange rates prevailing at the balance sheet date. Revenues and
expenses are translated at the average exchange rates for the
period.
 
 These changes result in cumulative
translation adjustments, which are included in "Accumulated other comprehensive
income", and potentially result in transaction gains or losses, which are
included in our earnings.
 
 Fair
Value Risk
 
 We record an adjustment on our
convertible notes adjusting the fair value of the embedded conversion options.
The change in the value of these instruments is primarily impacted by the price
of our stock at the end of each reporting period. This adjustment creates a
non-cash effect on our statement of operations which may have a significant
impact.





24







ITEM 4T.  CONTROLS AND
PROCEDURES




Evaluation of
Disclosure Controls and Procedures




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




Changes in Internal Controls over
Financial Reporting


The Company's internal control over
financial reporting is designed to provide reasonable assurances regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.  There
have been no changes in the Company’s internal control over financial reporting
identified in connection with the evaluation required by Rules 13a-15(d) or
15d-15(d) under the Securities Exchange Act of 1934 that occurred during the
Company’s most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting. However, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues within the Company have been detected.




PART II - OTHER
INFORMATION





ITEM 1.  LEGAL PROCEEDINGS





None.


ITEM
1A. RISK FACTORS
 
 The
information set forth in this report should be read in conjunction with the risk
factors discussed in Item 1 of our Annual Report on Form 10-KSB for the year
ended March 31, 2008, which could materially impact our business, financial
condition or future results. The risks described in the Annual Report on Form
10-KSB are not the only risks facing the company. Additional risks and
uncertainties not currently known by the company or that are currently deemed to
be immaterial also may materially adversely affect our business, financial
condition and/or operating results.




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





Please
refer to the Current Report on Form 8-K filed on December 12, 2007.





ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES





None.





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS





None.





ITEM 5.  OTHER INFORMATION





None.


25




ITEM 6.  EXHIBITS




Number
                
                Exhibit3.1
                
                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 10-Q filed on November 10,
    2008).10.1
                
                Securities
      Exchange Agreement dated March 22, 2006 (incorporated by reference to
      Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on March 23,
      2006).10.2
                
                Form
      of Lockup Agreement dated March 22, 2006 (incorporated by reference
      to Exhibit 10.2 to China-Biotics, Inc.’s Form 8-K filed on March 23,
      2006).10.3
                
                Put
      Agreement dated March 22, 20066 (incorporated by reference to Exhibit
      10.3 to China-Biotics, Inc.’s Form 8-K filed on March 23,
      2006).10.4
                
                Registration
      Rights Agreement dated March 22, 2006 (incorporated by reference to
      Exhibit 10.4 to China-Biotics, Inc.’s Form 8-K filed on March 23,
      2006).10.5
                
                Investors’
      Rights Agreement dated March 22, 2006 (incorporated by reference to
      Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on March 23,
      2006).10.6
                
                Stan
      Ford Agreement dated March 22, 2006 (incorporated by reference to
      Exhibit 10.6 to China-Biotics, Inc.’s Form 8-K filed on March 23,
      2006).10.7
                
                Summary
      of English translation of Investment Agreement for lease of land dated
      March 21, 2006 (incorporated by reference to Exhibit 10.7 to
      China-Biotics, Inc.’s Form 8-K filed on March 23,
    2006).10.8
                
                Escrow
      Agreement dated March 22, 2006 (incorporated by reference to Exhibit
      10.8 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
      2006).10.9
                
                Stock
      Purchase Agreement with Fred Cooper dated February 6, 2006
      (incorporated by reference to Exhibit 10.9 to China-Biotics, Inc.’s Form
      10-KSB filed on June 30, 2006).10.10
                
                Loan
      agreement dated as of September 22, 2005 (incorporated by reference to
      Exhibit 10.10 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
      2006).10.11
                
                Convertible
      Bond dated as of September 22, 2005 (incorporated by reference to Exhibit
      10.11 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
      2006).10.12
                
                Subscription
      Agreement dated as of September 22, 2005 (incorporated by reference to
      Exhibit 10.12 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
      2006).10.13
                
                English
      Translation of Equity Transfer Agreement dated August 11, 2005
      (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s
      Amendment No. 2 to Form SB-2 filed on November 13,
  2006).10.14
                
                English
      Translation of Subscription Agreement dated August 11, 2005
      (incorporated by reference to Exhibit 10.14 to China-Biotics, Inc.’s
      Amendment No. 2 to Form SB-2 filed on November 13,
  2006).10.15
                
                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 (incorporation 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).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).21.1
                                                              
                                                              List
      of subsidiaries (incorporated by reference to Exhibit 21.1 to
      China-Biotics, Inc.’s Form SB-2 filed on March 24,
  2006).31.1
                                                              
                                                              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
                                                              
                                                              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
                                                              
                                                              Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
                                                              
                                                              Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002




26




*
* * * *





SIGNATURES





Pursuant
to the requirements 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.
              (Registrant)/s/ Song
      JinanDate:
      March 20, 2009
            Song
      Jinan
              Chief Executive
      Officer




27