**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




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


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the quarterly period ended September 30, 2008**




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


**EXCHANGE
      ACT**




**For
      the Transition Period from _______ to _________**




**001-34123**


(Commission
      File Number)




**CHINA-BIOTICS,
      INC.**


(Exact
      Name of registrant as specified in its charter)





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





**No.
      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**


(Registrant’s
      Telephone Number, Including Area Code)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes  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 ̈(Do not check if a smaller reporting company)
            Smaller
                reporting companyx


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 November 10, 2008, 17,080,000 shares of the Issuer's common stock were
      outstanding.**












**TABLE
      OF CONTENTS**





Page**Part
                I - Financial Information**ITEM
                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
            
            26ITEM
                4T.
            
            CONTROLS
                AND PROCEDURES
            
            26**Part
                II - Other Information**ITEM
                1.
            
            LEGAL
                PROCEEDINGS
            
            26ITEM
                2.
            
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            26ITEM
                3.
            
            DEFAULTS
                UPON SENIOR SECURITIES
            
            26ITEM
                4.
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            26ITEM
                5.
            
            OTHER
                INFORMATION
            
            27ITEM
                6.
            
            EXHIBITS
            
            28SIGNATURES
            
            30





2





**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





CHINA-BIOTICS,
      INC. AND SUBSIDIARIES


UNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEETS


(Amounts
      expressed in US Dollars)




September 30,
              2008
            
            March 31,
              2008**ASSETS****Current
                assets**Cash
                and cash equivalents
            
            $
            65,633,495
            
            $
            64,310,448Accounts
                receivable
            
            
            10,447,251
            
            
            13,214,531Other
                receivables
            
            
            243,497
            
            
            238,835Inventories
            
            
            765,640
            
            
            408,358Prepayment
            
            
            1,828,612
            
            
            1,806,605**Total
                current assets**
            
            $
            78,918,495
            
            $
            79,978,777**Property,
                plant and equipment and land use right**
            
            
            27,309,641
            
            
            13,812,749**Total
                assets**
            
            $
            106,228,136
            
            $
            93,791,526**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                liabilities**Accounts
                payable
            
            $
            3,448,485
            
            $
            2,786,180Tax
                payables
            
            
            24,094,685
            
            
            22,317,982Other
                payables and accruals
            
            
            2,127,050
            
            
            1,792,156**Total
                current liabilities**
            
            $
            29,670,220
            
            $
            26,896,318**Non-current
                liabilities**Convertible
                note, with embedded derivatives of $5,087,000, net of discount of
                $7,341,762 as of September 30, 2008
            
            $
            22,745,238
            
            $
            22,197,635Interest
                payable
            
            
            740,628
            
            
            302,306**Total
                non-current liabilities**
            
            $
            23,485,866
            
            $
            22,499,941**Commitments and
                contingencies****Stockholders'
                equity:**Common
                stock (par value of $0.0001, 100,000,000 shares authorized, 41,461,004
                shares issued and outstanding as of September 30, 2008)
            
            $
            4,146
            
            $
            4,146Additional
                paid-in capital
            
            
            7,863,031
            
            
            7,863,031Retained
                earnings
            
            
            37,536,014
            
            
            29,827,144Treasury
                stock at cost (24,381,004 shares)
            
            
            (2,438
            )
            
            (2,438
            )Accumulated
                other comprehensive income
            
            
            4,645,503
            
            
            3,677,590Capital
                and statutory reserves
            
            
            3,025,794
            
            
            3,025,794**Total
                stockholders' equity**
            
            $
            53,072,050
            
            $
            44,395,267**Total
                liabilities and stockholders' equity**
            
            $
            106,228,136
            
            $
            93,791,526




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
              September 30,
            
            Six months ended
              September 30,2008
            
            2007
            
            2008
            
            2007**Net
                sales**
            
            $
            11,495,249
            
            $
            7,820,163
            
            $
            22,865,906
            
            $
            17,335,496Cost
                of sales
            
            
            (3,462,853
            )
            
            (2,205,623
            )
            
            (6,721,522
            )
            
            (4,856,595
            )**Gross
                profit**
            
            $
            8,032,396
            
            $
            5,614,540
            
            $
            16,144,384
            
            $
            12,478,901Operating
                expenses:Selling
                expenses
            
            $
            (2,813,563
            )
            $
            (1,561,936
            )
            $
            (5,183,422
            )
            $
            (2,878,280
            )General
                and administrative expenses
            
            
            (1,438,137
            )
            
            (1,087,053
            )
            
            (2,864,933
            )
            
            (1,896,617
            )Total
                operating expenses
            
            $
            (4,251,700
            )
            $
            (2,648,989
            )
            $
            (8,048,355
            )
            $
            (4,774,897
            )**Income
                from operations**
            
            $
            3,780,696
            
            $
            2,965,551
            
            $
            8,096,029
            
            $
            7,704,004Other
                income and expenses:Changes
                in the fair value of embedded derivatives
            
            $
            1,904,000
            
            $
            -
            
            $
            665,000
            
            $
            -Other
                income
            
            
            157,468
            
            
            282
            
            
            1,862,988
            
            
            71,942Other
                expenses
            
            
            (50,947
            )
            
            (13,011
            )
            
            (217,579
            )
            
            (19,935
            )Total
                other income (expenses)
            
            $
            2,010,521
            
            $
            (12,729
            )
            $
            2,310,409
            
            $
            52,007**Income
                before taxes**
            
            $
            5,791,217
            
            $
            2,952,822
            
            $
            10,406,438
            
            $
            7,756,011Provision
                for income taxes
            
            
            (1,319,097
            )
            
            (982,689
            )
            
            (2,697,568
            )
            
            (2,245,645
            )**Net
                income**
            
            $
            4,472,120
            
            $
            1,970,133
            
            $
            7,708,870
            
            $
            5,510,366**Earnings
                per share:**Basic
            
            $
            0.26
            
            $
            0.11
            
            $
            0.45
            
            $
            0.32Diluted
            
            $
            0.13
            
            $
            0.11
            
            $
            0.37
            
            $
            0.32**Weighted
                average shares outstanding**Basic
            
            
            17,080,000
            
            
            17,080,000
            
            
            17,080,000
            
            
            17,080,000Diluted
            
            
            19,163,333
            
            
            17,080,000
            
            
            19,163,333
            
            
            17,080,000




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 Stock
              
              
              
              
              
              
              
              Accumulated
              
              Capital &Shares
              
              Par value
                $0.0001
              
              Additional
                Paid-in Capital
              
              Retained
                Earnings
              
              Treasury
                Stock
              
              Comprehensive
                Income
              
              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
              
              
              
              
              
              
              
              
              
              
              
              7,708,870
              
              
              
              
              
              
              
              
              
              
              
              7,708,870Other
                  comprehensive income:Foreign
                  currency translation adjustments, net of taxes of $0
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              967,913
              
              
              
              
              
              967,913Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,676,783Balance-
                  September 30, 2008
              
              
              41,461,004
              
              $
              4,146
              
              $
              7,863,031
              
              $
              37,536,014
              
              $
              (2,438
              )
              $
              4,645,503
              
              $
              3,025,794
              
              $
              53,072,050




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)




Six months ended
              September 30,2008
            
            2007**CASH
                FLOW FROM OPERATING ACTIVITIES**Net
                income
            
            $
            7,708,870
            
            $
            5,510,366Adjustment
                for:Changes
                in the fair value of embedded derivatives
            
            
            (665,000
            )
            
            -Depreciation
            
            
            863,740
            
            
            349,111(Increase)/Decrease
                in accounts receivable
            
            
            3,044,946
            
            
            5,992,036(Increase)/Decrease
                in inventories
            
            
            (344,093
            )
            
            (383,380
            )(Increase)/Decrease
                in prepayments
            
            
            19,822
            
            
            (1,693,248
            )Increase/(Decrease)
                in accounts payable
            
            
            586,894
            
            
            239,274Increase/(Decrease)
                in income tax, surcharge tax and dividends withholding tax
            
            
            1,249,548
            
            
            828,172Increase/(Decrease)
                in other payables and accruals, and value added tax
                payable
            
            
            205,230
            
            
            348,841**NET
                CASH PROVIDED BY OPERATING ACTIVITIES**
            
            $
            12,669,957
            
            $
            11,191,172**CASH
                FLOWS USED IN INVESTING ACTIVITIES**Purchases
                of fixed assets
            
            $
            (11,662,222
            )
            $
            (4,027,160
            )**CASH
                FLOWS USED IN FINANCING ACTIVITIES**Interest
                paid
            
            $
            (556,164
            )
            $
            -Effect
                of exchange rate changes on cash
            
            $
            871,476
            
            $
            1,065,937**NET
                INCREASE IN CASH AND CASH EQUIVALENTS BALANCES**
            
            $
            1,323,047
            
            $
            8,229,949**CASH
                AND CASH EQUIVALENTS BALANCES AT BEGINNING OF
                PERIOD**
            
            
            64,310,448
            
            
            26,992,025**CASH
                AND CASH EQUIVALENTS BALANCES AT END OF PERIOD**
            
            $
            65,633,495
            
            $
            35,221,974




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 condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial information and with the
        instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
        they do
        not include all of the information and footnotes required by accounting
        principles generally accepted in the United States of America for complete
        financial statements. The accompanying condensed consolidated financial
        statements do reflect all the adjustments that, in the opinion of management,
        are necessary to present fairly the financial position, results of operations
        and cash flows for he the interim periods reported. Such adjustments are
        of a
        normal, recurring nature. Our operating results for the three and six month
        periods ended September 30, 2008 are not necessarily indicative of the results
        that may be expected for the year ending March 31, 2009.
  These
        condensed consolidated financial statements should be read in conjunction
        with
        the audited consolidated financial statements and notes to consolidated
        financial statements included in our Annual Report on Form 10-K for the year
        ended March 31, 2008. There have been no material changes in the significant
        accounting policies followed by us during the three and six month periods
        ended
        September 30, 2008.





7





CHINA-BIOTICS,
      INC. AND SUBSIDIARIES


NOTES
      TO
      UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
      expressed in US Dollars)




2.
            EARNINGS
                PER SHARE




Basic
      earnings per share is computed by dividing the net income for each reporting
      period by the weighted average number of outstanding common stock for the same
      reporting 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**
                **September 30,**
              
              **Six months ended**
                **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Earnings
                  per share - Basic**Income
                  for the period
              
              $
              4,472,120
              
              $
              1,970,133
              
              $
              7,708,870
              
              $
              5,510,366Basic
                  average common stock outstanding
              
              
              17,080,000
              
              
              17,080,000
              
              
              17,080,000
              
              
              17,080,000Net
                  earnings per share
              
              $
              0.26
              
              $
              0.11
              
              $
              0.45
              
              $
              0.32**Earnings
                  per share - Diluted**Income
                  for the period
              
              $
              4,472,120
              
              $
              1,970,133
              
              $
              7,708,870
              
              $
              5,510,366Change
                  in fair value of embedded derivatives
              
              
              (1,904,000
              )
              
              -
              
              
              (665,000
              )
              
              -$
              2,568,120
              
              $
              1,970,133
              
              $
              7,043,870
              
              $
              5,510,366Basic
                  average common stock outstanding
              
              
              17,080,000
              
              
              17,080,000
              
              
              17,080,000
              
              
              17,080,000Diluted
                  effect from embedded derivatives
              
              
              2,083,333
              
              
              -
              
              
              2,083,333
              
              
              -Diluted
                  average common stock
              
              
              19,163,333
              
              
              17,080,000
              
              
              19,163,333
              
              
              17,080,000Net
                  earnings per share
              
              $
              0.13
              
              $
              0.11
              
              $
              0.37
              
              $
              0.32




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
      September 30, 2008 the Group had cash deposits of $65.6 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 and six months ended September 30, 2007 and 2008, all of the
      Group's sales arose in the PRC. In addition, all accounts receivable as at
      September 30, 2008 also arose in the PRC.




(c)  
      Concentration of Customers





For
      the
      period ended September 30, 2008, there is a customer that accounted for 12%of
      our sales revenue. For the period ended September 30, 2007, there is a customer
      accounted for 17% 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:




September 30,
              2008
            
            March 31,
              2008Trade
                receivables
            
            $
            10,447,251
            
            $
            13,214,531Less
                : Allowances for doubtful debt
            
            
            -
            
            
            -$
            10,447,251
            
            $
            13,214,531




5.
            INVENTORIES




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




September 30,
              2008
            
            March 31,
              2008Raw
                materials
            
            $
            264,554
            
            $
            254,648Work-in-progress
            
            
            169,827
            
            
            9,943Finished
                goods
            
            
            331,259
            
            
            143,767$
            765,640
            
            $
            408,358





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 right as of the balance
      sheet
      date as presented in these financial statements are summarized as
      follows:




September 30,
              2008
            
            March 31,
              2008Land
                use right
            
            $
            1,876,078
            
            $
            1,777,860Plant
                and machinery
            
            
            7,383,837
            
            
            6,493,190Office
                equipment
            
            
            3,374,323
            
            
            3,293,598Motor
                vehicles
            
            
            245,653
            
            
            109,186Leasehold
                improvements
            
            
            2,394,485
            
            
            1,817,62315,274,376
            
            
            13,491,457Less:
                Accumulated depreciation
            
            $
            (5,566,705
            )
            
            (4,585,976
            )9,707,671
            
            
            8,905,481Construction
                in progress
            
            $
            17,601,970
            
            $
            4,907,268$
            27,309,641
            
            $
            13,812,749




7.
            TAX
                PAYABLES




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




September 30,
              2008
            
            March 31,
              2008Value
                added tax and other taxes
            
            $
            5,540,379
            
            $
            5,436,331Income
                tax
            
            
            4,181,744
            
            
            3,714,102Surcharge
                tax
            
            
            10,434,063
            
            
            9,323,273Dividends
                withholding tax
            
            
            3,938,499
            
            
            3,844,27624,094,685
            
            $
            22,317,982





11





CHINA-BIOTICS,
      INC. AND SUBSIDIARIES


NOTES
      TO
      UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
      expressed in US Dollars)




8.
            TREASURY
                STOCK




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 September
                30,
            
            Six months ended September 30,2008
            
            2007
            
            2008
            
            2007Income
                in the United States before income taxes
            
            $
            1,760,181
            
            $
            -
            
            $
            488,302
            
            $
            -(Loss)/
                Income in the British Virgin Islands before income taxes
            
            
            55,987
            
            
            (271,765
            )
            
            467,918
            
            
            (501,959
            )Income
                in the PRC before income taxes
            
            
            3,975,049
            
            
            3,224,587
            
            
            9,450,218
            
            
            8,257,970$
            5,791,217
            
            $
            2,952,822
            
            $
            10,406,438
            
            $
            7,756,011




The
      Company, which is incorporated in the United States and subject to the U.S.
      tax
      law, is subject to a statutory tax rate is 34%.





Effective
      April 1, 2007, the Group adopted the Financial Accounting Standards Board
      (“FASB”) Interpretation No.48, “Accounting for Uncertainty in Income Taxes - An
      Interpretation of FASB Statement No. 109”, (“FIN48”) which clarifies the
      accounting for uncertainty income taxes recognized in an enterprise’s financial
      statements. The interpretation prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. FIN 48 also
      provides accounting guidance on de-recognition, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. The Group
      classifies interest and/or penalties related to unrecognized tax benefits as
      a
      component of income tax provisions. There is no material impact of FIN 48 on
      the
      Group’s consolidated financial statements.





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 September 30,
              
              Six months ended September 30,2008
              
              2007
              
              2008
              
              2007Current
              
              $
              1,319,097
              
              $
              982,689
              
              $
              2,697,568
              
              $
              2,245,645Deferred
              
              
              -
              
              
              -
              
              
              -
              
              
              -$
              1,319,097
              
              $
              982,689
              
              $
              2,697,568
              
              $
              2,245,645





As
      of
      September 30, 2007 and 2008, the Group had no deferred tax assets and
      liabilities.





The
      Group
      has its principal operations in the People’s Republic of China (“PRC”) in the
      Shanghai Jinqiao special economic zone and hence enjoys a preferential income
      tax rate of 15%. Pursuant to the new People’s Republic of China (“PRC”)
      Corporate Income Tax Law passed by the Tenth National People’s Congress on 16
      March 2007, the new Corporate Income Tax rates for almost all enterprises
      established in the PRC shall be subject to a unified rate of 25% over a five
      year transition period and will be effective from 1 January 2008. The State
      Council of the PRC issued an implementation guideline on 26 December 2007 and
      the Ministry of Finance and the State Administration of Taxation of the PRC
      further issued another implementation guideline on 20 February 2008
      (collectively, “Implementation Guidances”) which set out the details of how the
      existing preferential income tax rate will be adjusted to the standard rate
      of
      25%. According to the Implementation Guidances, foreign investment manufacturing
      enterprises which have not fully utilized their tax holiday and concession
      will
      be allowed to continue to receive the benefits of the full exemption and
      concession in the transitional income tax rate during the five-year transition
      period. The new rates were considered to measure the Group’s deferred tax assets
      and deferred tax liabilities as at 31 December 2007. The enactment of the new
      PRC Corporate Income Tax Law is not expected to have any financial effect on
      the
      amounts accrued in the balance sheet in respect of current tax
      payable.




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 September 30,
              
              Six months ended September 30,2008
              
              2007
              
              2008
              
              2007Computed
                  tax at the local PRC statutory rate (2007:33%, 2008:25%)
              
              $
              1,447,804
              
              $
              974,432
              
              $
              2,601,609
              
              $
              2,559,484Non-deductible
                  items
              
              
              12,228
              
              
              89,682
              
              
              444,667
              
              
              165,646Non-taxable
                  items
              
              
              (624,686
              )
              
              (61,228
              )
              
              (727,669
              )
              
              (61,228
              )Effect
                  of different tax rate in other jurisdiction
              
              
              158,416
              
              
              -
              
              
              43,947
              
              
              -Valuation
                  allowance
              
              
              74,575
              
              
              17,704
              
              
              (126,376
              )
              
              26,719Tax
                  concession
              
              
              (299,134
              )
              
              (556,686
              )
              
              (626,129
              )
              
              (1,467,612
              )Surcharge
                  at 0.5% per day on accrued taxes
              
              
              549,894
              
              
              518,785
              
              
              1,087,519
              
              
              1,022,636Total
                  provision for income at effective rate
              
              $
              1,319,097
              
              $
              982,689
              
              $
              2,697,568
              
              $
              2,245,645




As
      at
      September 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$697,142 (2007: US$215,814).





The
      valuation allowance was primarily the result of the tax losses carry forwards
      that management believes may not be fully utilizable because of the uncertainty
      regarding the tax deductibility of expenses incurred by certain subsidiaries
      of
      the Company. There are no other material temporary differences.





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, the Group may
      be
      subject to potential penalties for the late payment of taxes calculated on
      the
      basis of 0.5 times to 5 times amount of taxes, which amounted from $4.9 million
      to $49 million as of September 30, 2007 and 2008. No provision for the potential
      tax penalties has been made in the Group’s financial statements as management of
      the Group believes that the probability of penalties being assessed is low
      because the Company’s PRC subsidiary has timely paid all taxes
      due.





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 through 2007 and 2008. 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:




September 30,
            
            March 31,2008
            
            2008Payable
                withinthe
                next twelve months
            
            $
            540,118
            
            $
            556,907the
                next 13th to 24th months
            
            
            24,132
            
            
            111,670the
                next 25th to 36th months
            
            
            -
            
            
            -the
                next 37th to 48th months
            
            
            -
            
            
            -the
                next 49th to 60th months
            
            
            -
            
            
            -Thereafter
            
            
            -
            
            
            -$
            564,250
            
            $
            668,577




(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 the room for expansion to 300 tons per year. This
      agreement contemplates a land deposit of $210,083 and was paid on April 5,
      2006.
      This deposit is to be refunded when both the land use right is fully paid
      and the approval documents are released by the Shanghai Qingpu local
      government authorities. There are no future lease payments under this land
      lease.





(c)  
      Capital commitments





During
      the period ended of September 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
      $7,928,369 which was contracted, but not provided for as of September 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.




15




CHINA-BIOTICS,
      INC. AND SUBSIDIARIES


NOTES
      TO
      UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amount
      expressed in US Dollars)




The
      estimated fair value of the embedded derivatives as of March 31, 2008 and
      September 30, 2008 was $5,752,000 and $5,087,000 respectively. The change in
      the
      fair value of the embedded derivatives amounted to $665,000 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**
              
              **September 30,
                  2008**Risk-free
                  rate of return
              
              
              1.70
              %
              
              2.29
              %Time
                  to expiration
              
              
              2.66
              years
              
              2.17
              yearsVolatility
                  rate
              
              
              65
              %
              
              53
              %Dividend
                  yield
              
              
              -
              
              
              -





At
      as
      September 30, 2008, the Note interest amounted to $3,325,085 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
      and
      six months ended September 30, 2008, approximately 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). 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.




In
      recent
      months, milk samples (including samples of infant formula) from several Chinese
      dairy companies, including the three largest producers, were found to have
      been
      tainted with melamine, an industrial chemical. In September 2008, China’s State
      Council, officiated by Premier Wen Jiabao, elected to take steps to conduct
      comprehensive testing of dairy products and carry out other industry reforms.
      Although sales of Chinese dairy products have fallen significantly as a result
      of the melamine scandal, there has not been a significant impact on our business
      to date as our current sales to the dairy industry are minimal. We believe
      that
      the strengthening of product quality and testing standards in the dairy industry
      are a positive development for domestic suppliers that operate to high
      international standards. We are engaged in discussion and qualification
      processes with several large global suppliers of infant formula and dairy
      products to the China market, and believe that we are well-positioned to benefit
      as more stringent requirements are implemented in the industry. We are also
      in
      discussions with a number of suppliers of bakery, dairy and pharmaceutical
      products in preparation for the opening of our new plant. Therefore, although
      the full scope of the melamine problem remains unknown, we do not foresee that
      it will have a material negative effect on our business and results of
      operations.





We
      expect
      our 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 73,157 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.




17




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 September 30, 2008, we have already signed up 5
      customers for this business. 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.





In
      connection with the expansion of our retail business, we originally intended
      to
      open 300 outlets by the end of fiscal year 2009. As at September 30, 2008,
      we
      have opened 110 outlets in Shanghai and 12 other cities in China (as of
      September 30, 2007, we had 22 retail outlets in Shanghai and Changchun). In
      the
      last two quarters, we have accelerated customer acquisition efforts and
      dedicated a significant amount of management efforts and production capacity
      for
      this purpose. With the limited production capacity that we have in our existing
      production facility, management believes that it is prudent to slow the pace
      of
      opening new retail outlets so that we can focus on completing the new plant
      on
      time and signing on customers to take up the capacity of our new plant when
      it
      is up and running. We now intend to open 300 outlets during fiscal year
      2010.





18





**Results
      of Operations**





**Quarter
      Ended September 30, 2007 Compared with the Quarter Ended September 30,
      2008**





Our
      net
      income was $4.47 million in the quarter ended September 30, 2008. This included
      $1.90 million surplus arising from the revaluation of the conversion feature
      embedded in the convertible notes issued in December 2007 as required by FAS133.
      Excluding this revaluation surplus, our net income was $2.57 million, which
      was
      30.5% higher than our net income of $1.97 million for the quarter ended
      September 30, 2007. The increase of net income before the revaluation surplus,
      resulted from a combination of volume and price increases. Shining Essence
      continued to be our best selling product, accounting for 38% of our sales
      revenue in the quarter ended September 30, 2008 (63% in the quarter ended
      September 30, 2007).




Our
      results for the three months and six months ended September 30, 2007 and 2008
      are summarized below:




Three months ended
              September 30, 2008
            
            Three months ended
              September 30, 2007Amount
            
            % of Net sales
            
            Amount
            
            % of Net sales**Net
                sales**
            
            $
            11,495,249
            
            
            100.00
            %
            $
            7,820,163
            
            
            100.00
            %Cost
                of sales
            
            
            (3,462,853
            )
            
            -30.12
            %
            
            (2,205,623
            )
            
            -28.20
            %**Gross
                profit**
            
            $
            8,032,396
            
            
            69.88
            %
            $
            5,614,540
            
            
            71.80
            %Operating
                expenses:Selling
                expenses
            
            $
            (2,813,563
            )
            
            -24,48
            %
            $
            (1,561,936
            )
            
            -19.97
            %General
                and administrative expenses
            
            
            (1,438,137
            )
            
            -12.51
            %
            
            (1,087,053
            )
            
            -13.90
            %Total
                operating expenses
            
            $
            (4,251,700
            )
            
            -36.99
            %
            $
            (2,648,989
            )
            
            -33.87
            %**Income
                from operations**
            
            $
            3,780,696
            
            
            32.89
            %
            $
            2,965,551
            
            
            37.93
            %Other
                income and expenses:Change
                in the fair value of embedded derivatives
            
            $
            1,904,000
            
            
            16.56
            %
            $
            -
            
            
            -
            %Other
                income
            
            
            157,468
            
            
            1.37
            %
            
            282
            
            
            0
            %Other
                expenses
            
            
            (50,947
            )
            
            -0.44
            %
            
            (13,011
            )
            
            -0.17
            %Total
                other income (expenses)
            
            $
            2,010,521
            
            
            17.49
            %
            $
            (12,729
            )
            
            -0.17
            %**Income
                before taxes**
            
            $
            5,791,217
            
            
            50.38
            %
            $
            2,952,822
            
            
            37.76
            %Provision
                for income taxes
            
            
            (1,319,097
            )
            
            -11.48
            %
            
            (982,689
            )
            
            -12.57
            %**Net
                income**
            
            $
            4,472,120
            
            
            38.90
            %
            $
            1,970,133
            
            
            25.19
            %





Six months ended
              September 30, 2008
            
            Six months ended
              September 30, 2007Amount
            
            % of Net sales
            
            Amount
            
            % of Net sales**Net
                sales**
            
            $
            22,865,906
            
            
            100.00
            %
            $
            17,335,496
            
            
            100.00
            %Cost
                of sales
            
            
            (6,721,522
            )
            
            -29.40
            %
            
            (4,856,595
            )
            
            -28.02
            %**Gross
                profit**
            
            $
            16,144,384
            
            
            70.60
            %
            $
            12,478,901
            
            
            71.98
            %Operating
                expenses:Selling
                expenses
            
            $
            (5,183,422
            )
            
            -22.67
            %
            $
            (2,878,280
            )
            
            -16.60
            %General
                and administrative expenses
            
            
            (2,864,933
            )
            
            -12.53
            %
            
            (1,896,617
            )
            
            -10.94
            %Total
                operating expenses
            
            $
            (8,048,355
            )
            
            -35.20
            %
            $
            (4,774,897
            )
            
            -27.54
            %**Income
                from operations**
            
            $
            8,096,029
            
            
            35.40
            %
            $
            7,704,004
            
            
            44.44
            %Other
                income and expenses:Change
                in the fair value of embedded derivatives
            
            $
            665,000
            
            
            2.91
            %
            $
            -
            
            
            -
            %Other
                income
            
            
            1,862,988
            
            
            8.15
            %
            
            71,942
            
            
            0.41
            %Other
                expenses
            
            
            (217,579
            )
            
            -0.95
            %
            
            (19,935
            )
            
            -0.11
            %Total
                other income (expenses)
            
            $
            2,310,409
            
            
            10.11
            %
            $
            52,007
            
            
            0.30
            %**Income
                before taxes**
            
            $
            10,406,438
            
            
            45.51
            %
            $
            7,756,011
            
            
            44,74
            %Provision
                for income taxes
            
            
            (2,697,568
            )
            
            -11.80
            %
            
            (2,245,645
            )
            
            -12.95
            %**Net
                income**
            
            $
            7,708,870
            
            
            33.71
            %
            $
            5,510,366
            
            
            31.79
            %




19




**Reconciliation
      of Non-GAAP Net Income**




Three months ended September 30,2008
            
            2007Net
                Income
            
            
            4,472,120
            
            
            1,970,133AdjustmentsNon-cash
                surplus arising from change in the fair value of embedded
                derivatives
            
            
            (1,904,000
            )
            
            -Amount
                per consolidated statement of operations
            
            
            2,568,120
            
            
            1,970,133





Six months ended September 30,2008
            
            2007Net
                Income
            
            
            7,708,870
            
            
            5,510,366AdjustmentsNon-cash
                surplus arising from change in the fair value of embedded
                derivatives
            
            
            (665,000
            )
            
            -Amount
                per consolidated statement of operations
            
            
            7,043,870
            
            
            5,510,366





*Net
      sales*





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





Three months ended September
                30,
            
            Six months ended September 30,2008
            
            2007
            
            2008
            
            2007Invoiced
                value on sales
            
            $
            11,963,213
            
            $
            8,235,126
            
            $
            23,774,115
            
            $
            17,811,850Less:
                sales discount
            
            
            (393,086
            )
            
            (364,820
            )
            
            (758,576
            )
            
            (360,820
            )Less
                : sales tax
            
            
            (74,878
            )
            
            (50,143
            )
            
            (149,633
            )
            
            (111,534
            )$
            11,495,249
            
            $
            7,820,163
            
            $
            22,865,906
            
            $
            17,335,496





Net
      sales
      of $11,495,249 for the quarter ended September 30, 2008 were 47.0% above the
      net
      sales of $7,820,163 for the quarter ended September 30, 2007. Net sales of
      $22,865,906 for the six months ended September 30, 2008 were 31.9% above the
      net
      sales of $17,335,496 for the six months ended September 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 the total value on sales for
      the three months and six months ended September 30, 2007 and 2008 are summarized
      below:





Three months ended September
                30,
            
            Six months ended September 30,2008
            
            2007
            
            2008
            
            2007Shining
                Essence Capsules
            
            
            38.29
            %
            
            46.96
            %
            
            38.99
            %
            
            50.95
            %Shining
                Signal Capsules
            
            
            9.14
            %
            
            14.49
            %
            
            9.74
            %
            
            14.41
            %Shining
                Golden Shield Capsules
            
            
            13.60
            %
            
            14.37
            %
            
            13.82
            %
            
            14.16
            %Shining
                Energy Capsules
            
            
            10.51
            %
            
            11.82
            %
            
            11.03
            %
            
            11.98
            %Shining
                Essence Stomach Protection Capsules
            
            
            5.96
            %
            
            6.13
            %
            
            5.91
            %
            
            4.86
            %Shining
                Probiotics Protein Powder
            
            
            3.52
            %
            
            2.67
            %
            
            3.66
            %
            
            1.22
            %Other
                products
            
            
            6.80
            %
            
            3.54
            %
            
            6.35
            %
            
            2.42
            %87.82
            %
            
            100.00
            %
            
            89.50
            %
            
            100.00
            %Bulk
                additives
            
            
            12.18
            %
            
            -
            %
            
            10.50
            %
            
            -
            %100.00
            %
            
            100.00
            %
            
            100.00
            %
            
            100.00
            %





Certain
      comparative figures have been reclassified to conform with current year’s
      presentation.




20




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


Percentage increase (decrease) from the prior yearThree months ended September 30,2008
              
              2007Unit
                volume
              
              Selling
                prices
              
              Overall
                increase /
                (decrease)
              
              Unit
                volume
              
              Selling
                prices
              
              Overall
                increase /
                (decrease)Shining
                  Essence Capsules
              
              
              8
              %
              
              -1
              %
              
              7
              %
              
              44
              %
              
              4
              %
              
              50
              %Shining
                  Signal Capsules
              
              
              -27
              %
              
              14
              %
              
              -17
              %
              
              23
              %
              
              -16
              %
              
              3
              %Shining
                  Golden Shield Capsules
              
              
              21
              %
              
              3
              %
              
              24
              %
              
              109
              %
              
              -23
              %
              
              61
              %Shining
                  Energy Capsules
              
              
              19
              %
              
              -2
              %
              
              17
              %
              
              63
              %
              
              -16
              %
              
              37
              %Shining
                  Essence Stomach Protection Capsules
              
              
              82
              %
              
              -30
              %
              
              28
              %
              
              N/A
              %
              
              N/A
              %
              
              N/A
              %Shining
                  Probiotics Protein Powder
              
              
              72
              %
              
              1
              %
              
              73
              %
              
              N/A
              %
              
              N/A
              %
              
              N/A
              %Other
                  products
              
              
              172
              %
              
              -7
              %
              
              153
              %
              
              100
              %
              
              N/A
              %
              
              100
              %Bulk
                  additives
              
              
              100
              %
              
              100
              %
              
              100
              %
              
              N/A
              %
              
              N/A
              %
              
              N/A
              %
  Percentage increase (decrease) from the prior yearSix months ended September 30,2008
              
              2007Unit
                volume
              
              Selling
                prices
              
              Overall
                increase /
                (decrease)
              
              Unit
                volume
              
              Selling
                prices
              
              Overall
                increase /
                (decrease)Shining
                  Essence Capsules
              
              
              -10
              %
              
              3
              %
              
              -7
              %
              
              18
              %
              
              1
              %
              
              19
              %Shining
                  Signal Capsules
              
              
              -27
              %
              
              11
              %
              
              -19
              %
              
              1
              %
              
              -10
              %
              
              -9
              %Shining
                  Golden Shield Capsules
              
              
              2
              %
              
              15
              %
              
              17
              %
              
              81
              %
              
              -6
              %
              
              70
              %Shining
                  Energy Capsules
              
              
              -
              %
              
              11
              %
              
              11
              %
              
              56
              %
              
              -3
              %
              
              51
              %Shining
                  Essence Stomach Protection Capsules
              
              
              98
              %
              
              -26
              %
              
              47
              %
              
              N/A
              %
              
              N/A
              %
              
              N/A
              %Shining
                  Probiotics Protein Powder
              
              
              261
              %
              
              -
              %
              
              261
              %
              
              N/A
              %
              
              N/A
              %
              
              N/A
              %Other
                  products
              
              
              236
              %
              
              -6
              %
              
              216
              %
              
              2205
              %
              
              15
              
              
              2551
              %Bulk
                  additives
              
              
              100
              %
              
              100
              %
              
              100
              %
              
              N/A
              %
              
              N/A
              %
              
              N/A
              %





21




*Cost
      of sales*





Cost
      of
      sales for the three months ended September 30, 2008 was $3,462,853 compared
      with
      $2,205,623 for the three months ended September 30, 2007. Cost of sales for
      the
      six months ended September 30, 2008 was $6,721,522 compared with $4,856,595
      for
      the six months ended September 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 three months and six months ended
      September 30, 2007 and 2008 are summarized below:





Percentage increase (decrease) from the prior yearThree months ended September 30,2008
            
            2007Unit
              volume
            
            Unit
              costs
            
            Overall
              increase /
              (decrease)
            
            Unit
              volume
            
            Unit
              costs
            
            Overall
              increase /
              (decrease)Shining
                Essence Capsules
            
            
            8
            %
            
            19
            %
            
            28
            %
            
            44
            %
            
            4
            %
            
            50
            %Shining
                Signal Capsules
            
            
            -27
            %
            
            15
            %
            
            -16
            %
            
            23
            %
            
            -27
            %
            
            -10
            %Shining
                Golden Shield Capsules
            
            
            21
            %
            
            -2
            %
            
            18
            %
            
            109
            %
            
            -40
            %
            
            25
            %Shining
                Energy Capsules
            
            
            19
            %
            
            13
            %
            
            34
            %
            
            63
            %
            
            -25
            %
            
            22
            %Shining
                Essence Stomach Protection Capsules
            
            
            82
            %
            
            -35
            %
            
            18
            %
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %Shining
                Probiotics Protein Powder
            
            
            72
            %
            
            49
            %
            
            156
            %
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %Other
                products
            
            
            172
            %
            
            19
            %
            
            224
            %
            
            100
            %
            
            N/A
            %
            
            100
            %Bulk
                additives
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %





Percentage increase (decrease) from the prior yearSix months ended September 30,2008
            
            2007Unit
              volume
            
            Unit
              costs
            
            Overall
              increase /
              (decrease)
            
            Unit
              volume
            
            Unit
              costs
            
            Overall
              increase /
              (decrease)Shining
                Essence Capsules
            
            
            -10
            %
            
            19
            %
            
            7
            %
            
            18
            %
            
            -2
            %
            
            15
            %Shining
                Signal Capsules
            
            
            -27
            %
            
            13
            %
            
            -17
            %
            
            1
            %
            
            -17
            %
            
            -16
            %Shining
                Golden Shield Capsules
            
            
            2
            %
            
            5
            %
            
            7
            %
            
            81
            %
            
            -20
            %
            
            45
            %Shining
                Energy Capsules
            
            
            -
            %
            
            27
            %
            
            27
            %
            
            56
            %
            
            -4
            %
            
            50
            %Shining
                Essence Stomach Protection Capsules
            
            
            98
            %
            
            -31
            %
            
            37
            %
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %Shining
                Probiotics Protein Powder
            
            
            261
            %
            
            35
            %
            
            387
            %
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %Other
                products
            
            
            236
            %
            
            3
            %
            
            246
            %
            
            2205
            %
            
            101
            %
            
            2228
            %Bulk
                additives
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            N/A
            %
            
            N/A
            %
            
            N/A
            %





*Gross
      profit*





Gross
      profit for the three months ended September 30, 2008 was $8,032,396 compared
      with $5,614,540 for the three months ended September 30, 2007.Gross profit
      for
      the six months ended September 30, 2008 was $16,144,384 compared with
      $12,478,901 for the six months ended September 30, 2007. The increase in gross
      profit was primarily due to an increase in overall sales volume.




The
      average gross profit percentage for all of our products for the three months
      and
      six months ended September 30, 2007 and 2008 are summarized below:




22


Three months ended September 30,
              
              Six months ended September 30,2008
              
              2007
              
              2008
              
              2007Average
                  for all products
              
              
              70
              %
              
              72
              %
              
              71
              %
              
              72
              %




Gross
      profit margin slightly decreased from 72% in the quarter ended September 30,
      2007 to 70% this quarter as a result of increases in cost of packaging materials
      and electricity largely offset by increase in sales prices.





*Selling
      expenses*





Selling
      expenses were $2,813,563 or 24.48% of net sales for the three months ended
      September 30, 2008 compared with $1,561,936 or 19.97% of net sales for the
      three
      months ended September 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 September 30, 2008, we had
      a
      total of 110 retail outlets in operation compared with 22 outlets as of
      September 30, 2007.





*General
      and administrative expenses*





General
      and administrative expenses were $1,438,137 or 12.51% of net sales for the
      three
      months ended September 30, 2008 compared with $1,087,053 or 13.90% of net sales
      for the three months ended September 30, 2007. The increase of $351,084 was
      primarily due to the additional research cost of $272,410 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 September
      30, 2008, we had a total of 339 employees, compared with 266 as of September
      30,
      2007.





*Provision
      for income taxes*





Provision
      for income taxes was $1.32 million and $0.98 million for the quarters ended
      September 30, 2008 and 2007, respectively. Excluding the $1.90 million surplus
      on revaluation of the convertible note, income before taxes was $3.89 million
      for the second quarter of fiscal year 2009 compared with $2.95 million for
      2008.
      The increase in income tax payable is attributable to an increase in operating
      profit.





*Segment
      reporting*





We
      have
      adopted the “products” approach for segment reporting. For the three and six
      months ended September 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 $65.63 million and working capital of $49.25 million as of
      September 30, 2008. Cash generated from operations was $12.67 million in the
      six
      months ended September 30, 2008 and $11.19 million in the six months
      ended September 30, 2007. The cash generated from operations of $12.67 million
      was higher than the net income of $7.71 million due to the non-cash surplus
      of
      revaluation of convertible notes of $0.66 million and lower working capital
      needs resulting from better working capital management.





We
      had
      capital expenditures totaling $11.66 million in the six months ended September
      30, 2008, mainly in connection with the construction of the new plant. We spent
      $4.0 million on fixed assets in the six months ended September 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 expected demands
      for probiotics exceed the production capacity of the Phase 1
      facility.





We
      did
      not have any changes related to financing activities for the six months ended
      September 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. Should we need to raise external financing for whatever reason, 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.




23




**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.





**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.





**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 $765,816
      and
      $493,406 in the three months ended September 30, 2008 and September 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 and six months ended September 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
      caste 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 $10,447,251 as of September 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-10Q 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 China. Business enterprises established in China
      are
      subject to income taxes and value added taxes under Chinese tax laws and
      regulations unless they have exemptions. We have made tax payments to the
      Chinese tax authorities since 2005. We believe that our operations in China
      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
      China. As a result, there is no way to ascertain the position which may be
      taken
      by the relevant Chinese 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.




24




According
      to Chinese tax regulations, our outstanding tax payable in China 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, which amount 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 September 30, 2007 and 2008. Following
      the adoption of FIN48, the Group has reserved for the surcharges payable for
      the
      fiscal year 2008. We consider it is more likely than not that the associated
      penalty will not need to be paid.





**Recent
      Accounting Pronouncements**





In
      October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair
      Value of a Financial Asset When the Market for That Asset is Not Active.” This
      FSP clarifies the application of SFAS No. 157 in a market for that is not active
      and provides an example to illustrate key considerations in determining the
      fair
      value of a financial asset when the market for that financial asset is not
      active. This FSP was effective for the Company upon issuance, including prior
      periods for which financial statements have nt been issued; and, therefore
      was
      effective for the Company’s financial statements as of and for the three and six
      month periods ended September 30, 2008. Adoption of FSP No. FAS 157-3 did not
      have a significant impact on the Company’s financial position, results of
      operations or cash flows.




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 February 1, 2009. Management is currently evaluating the potential impact,
      if
      any, on the Company’s disclosures in its consolidated financial
      statements.




25




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**





As
      a
      smaller reporting company, we are not required to provide the information
      required by this Item.





**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 significant changes
      in the Company’s internal control over financial reporting during the Company’s
      most recent fiscal quarter that have materially affected, or are reasonably
      likely to 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
      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**





On
      September 12, 2008, an Annual Meeting of Stockholders was held.





Proxies
      for the election of directors were solicited. There was no solicitation in
      opposition to management’s nominees, and all such nominees were elected. The
      entire board as previously reported to the SEC was re-elected in its
      entirety.





There
      were 17,080,000 shares of common stock eligible to vote at the Annual Meeting,
      of which 12,164,017 shares were present at the Annual Meeting in person or
      by
      proxy, which constituted a quorum. The following is a summary of the results
      of
      the voting.




26


**Number
                  of Votes****Nominees
                  for 1-year terms**
                **ending
                  in 2009**
              
              For
              
              Against
              
              Withheld
              
              Abstain
              
              Broker
                Non-VotesMr.
                  Jinan Song
              
              
              12,164,017
              
              
              -
              
              
              -
              
              
              -
              
              
              -Dr.
                  Ji Wei Chin
              
              
              12,164,017
              
              
              -
              
              
              -
              
              
              -
              
              
              -Dr.
                  Wen Min Du
              
              
              12,164,017
              
              
              -
              
              
              -
              
              
              -
              
              
              -Mr.
                  Simon Yick
              
              
              12,164,017
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Ratified
                  the appointment of BDO McCabe Lo Limited as independent auditors
                  for the
                  fiscal year ending March 31, 2009**
              
              
              12,164,017
              
              
              -
              
              
              -
              
              
              -
              
              
              -





**ITEM
      5.**  **OTHER
      INFORMATION**





None.





27





**ITEM
      6.**  **EXHIBITS**





**Number**
            
            **Exhibit**3.1
            
            Amended
                and Restated Certificate of Incorporation (incorporated by reference
                to
                Exhibit 3.1 to China-Biotics, Inc.'s Form 8-K filed on March 23,
                2006).3.2
            
            Amended
                and Restated Bylaws dated March 22, 2006, as amended September 22,
                2008.
                *10.1
            
            Securities
                Exchange Agreement dated March 22, 2006 (incorporated by reference to
                Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on March 23,
                2006).10.2
            
            Form
                of Lockup Agreement dated March 22, 2006 (incorporated by reference
                to Exhibit 10.2 to China-Biotics, Inc.’s Form 8-K filed on March 23,
                2006).10.3
            
            Put
                Agreement dated March 22, 2006 (incorporated by reference to Exhibit
                10.3 to China-Biotics, Inc.’s Form 8-K filed on March 23,
                2006).10.4
            
            Registration
                Rights Agreement dated March 22, 2006 (incorporated by reference to
                Exhibit 10.4 to China-Biotics, Inc.’s Form 8-K filed on March 23,
                2006).10.5
            
            Investors’
                Rights Agreement dated March 22, 2006 (incorporated by reference to
                Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on March 23,
                2006).10.6
            
            Stan
                Ford Agreement dated March 22, 2006 (incorporated by reference to
                Exhibit 10.6 to China-Biotics, Inc.’s Form 8-K filed on March 23,
                2006).10.7
            
            Summary
                of English translation of Investment Agreement for lease of land
                dated
                March 21, 2006 (incorporated by reference to Exhibit 10.7 to
                China-Biotics, Inc.’s Form 8-K filed on March 23,
                2006).10.8
            
            Escrow
                Agreement dated March 22, 2006 (incorporated by reference to Exhibit
                10.8 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
                2006).





10.9
            
            Stock
                Purchase Agreement with Fred Cooper dated February 6, 2006
                (incorporated by reference to Exhibit 10.9 to China-Biotics, Inc.’s Form
                10-KSB filed on June 30, 2006).10.10
            
            Loan
                agreement dated as of September 22, 2005 (incorporated by reference
                to
                Exhibit 10.10 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
                2006).10.11
            
            Convertible
                Bond dated as of September 22, 2005 (incorporated by reference to
                Exhibit
                10.11 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
                2006).10.12
            
            Subscription
                Agreement dated as of September 22, 2005 (incorporated by reference
                to
                Exhibit 10.12 to China-Biotics, Inc.’s Form 10-KSB filed on June 30,
                2006).10.13
            
            English
                Translation of Equity Transfer Agreement dated August 11, 2005
                (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s Form
                SB-2/A filed on April 27, 2007).10.14
            
            English
                Translation of Subscription Agreement dated August 11, 2005
                (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s Form
                SB-2/A filed on April 27, 2007).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/A filed on November 13,
                2006).




28




31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002*31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002*32.1
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002**32.2
            
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002**





*
      Filed
      herewith


**
      Furnished herewith




*
      * * *
      *




29





**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/
                  Raymond Li*Date:
                  November 10, 2008
              Raymond
                  LiChief
                  Financial Officer




30