**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
  **FORM
        10-QSB**
  **x QUARTERLY
        REPORT
        UNDER SECTION 13 OR 15(d) OF THE**
 **SECURITIES
        EXCHANGE ACT OF 1934**
  **For
        the quarterly period ended February 28, 2006**
  **o TRANSITION
        REPORT
        UNDER SECTION 13 OR 15(d) OF THE**
 **EXCHANGE
        ACT**
   **For
        the Transition Period From _______ to _________**
  **333-110733**
 (Commission
        File Number)
  **CHINA-BIOTICS,
        INC.**
 (Exact
        Name of Small Business Issuer as Specified in Its Charter)
 
 **Delaware**
              **98-0393071**(State
                  or Other Jurisdiction of
                Incorporation
                  or Organization)
              (I.R.S.
                  Employer Identification No.)
  **No.
                    999 Ningqiao Road****Jinqiao
                    Export Processing
                    Zone****Pudong,
                    Shanghai
                    201206****People’s
                    Republic of
                    China****Telephone
                    number: (86 21) 5834
                    9748**(Address
                    of Principal Executive Offices)(Issuer’s
                    Telephone Number, Including Area
                    Code)
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to the filing requirements for at least the past 90 days. x Yes o
        No
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 o Yes x
        No (on the date of
        filing of this report)
 As
        of
        April 3, 2006, 17,080,000 shares of the Issuer’s common stock were outstanding.
 
 Transitional
        Small Business Disclosure Format (check one): o Yes x
        No
  
  **TABLE
        OF CONTENTS**
 
 Page**Part
                  I - Financial Information**ITEM
                  1.
              FINANCIAL
                  STATEMENTS
              1ITEM
                  2.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS
              5ITEM
                  3.
              CONTROLS
                  AND PROCEDURES
              7**Part
                  II - Other Information**ITEM
                  6.
              EXHIBITS
              14SIGNATURES
              15
  
 **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
        1. FINANCIAL STATEMENTS**
 
 CHINA-BITOICS,
        INC.
 (FORMERLY
        OTISH RESOURCES, INC.)
 (AN
        EXPLORATION STAGE COMPANY)
 UNAUDITED
        BALANCE SHEET
 February
        28, 2006
  ASSETSCurrent
                    assetsCash
                
                $
                736LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    liabilities
                
                $
                -Commitments
                
                $
                -Stockholders'
                    equityPreferred
                    stock, $.01 par value, 10,000,000 sharesauthorized,
                    none issued and outstanding
                
                $
                -Class
                    A common stock, $.0001 par value, 90,000,000 sharesauthorized,
                    21,100,000 shares issued and outstanding
                
                
                2,548Class
                    B common stock, $.0001 par value, 10,000,000 sharesauthorized,
                    none issued and outstanding
                
                
                -Additional
                    paid in capital
                
                
                256,540Deficit
                    accumulated during the exploration stage
                
                
                (257,914
                )Treasury
                    stock
                
                
                (438
                )Total
                    Stockholders' Equity
                
                $
                736TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                736
  **The
        accompanying notes are an integral part of these financial
        statements.**
  1
  CHINA-BITOICS,
        INC.
 (FORMERLY
        OTISH RESOURCES, INC.)
 (AN
        EXPLORATION STAGE COMPANY)
 UNAUDITED
        STATEMENTS OF EXPENSES
 Three
        Months and Six Months Ended February 28, 2006 and 2005, and Period
        from
 February
        20, 2003 (Inception) Through February 28, 2006
  InceptionThree
                    months ended
                
                Six
                    months ended
                
                ThroughFebruary
                    28,
                
                February
                    28,
                
                February
                    28,2006
                
                2005
                
                2006
                
                2005
                
                2006General
                    and administrative:Operating
                
                $
                (29
                )
                $
                (3,714
                )
                $
                (54
                )
                $
                (5,856
                )
                $
                (36,177
                )Professional
                
                
                165
                
                
                (5,405
                )
                
                (675
                )
                
                (5,430
                )
                
                (19,737
                )Compensation
                    paid with stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (202,000
                )Net
                    income (loss)
                
                $
                136
                
                $
                (9,119
                )
                $
                (729
                )
                $
                (11,286
                )
                $
                (257,914
                )Net
                    loss per share:Basic
                    and diluted
                
                
                0.00
                
                
                (0.00
                )
                
                (0.00
                )
                
                (0.00
                )Weighted
                    average shares outstanding:Basic
                    and diluted
                
                
                24,687,336
                
                
                26,481,004
                
                
                25,584,170
                
                
                26,481,004
  **The
        accompanying notes are an integral part of these financial
        statements.**
  2
 CHINA-BITOICS,
        INC.
 (FORMERLY
        OTISH RESOURCES, INC.)
 (AN
        EXPLORATION STAGE COMPANY)
 UNAUDITED
        STATEMENTS OF CASH FLOWS
 Three
        Months ended February 28, 2006 and 2005, and Period from
 February
        20, 2003 (Inception) Through February 28, 2006
  InceptionThree
                    months ended
                
                ThroughFebruary
                    28,
                
                February
                    28,2006
                
                
                2005
                
                
                2006CASH
                    FLOWS FROM (USED IN) OPERATING ACTIVITIESNet
                    income (loss)
                
                $
                136
                
                $
                (11,286
                )
                $
                (257,914
                )Adjustments
                    to reconcile net loss to netcash
                    used in operating activities:Stock
                    issued for services
                
                
                -
                
                
                -
                
                
                202,000NET
                    CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES
                
                $
                136
                
                $
                (11,286
                )
                $
                (55,914
                )CASH
                    FLOWS FROM FINANCING ACTIVITIESSale
                    of stock
                
                $
                -
                
                $
                -
                
                $
                57,400Payment
                    on purchase of the Company's common stock
                
                
                (750
                )
                
                -
                
                
                (750
                )(750
                )
                
                -
                
                
                56,650NET
                    CHANGE IN CASH
                
                $
                (614
                )
                $
                (11,286
                )
                $
                736Cash
                    balance, beginning
                
                
                1,350
                
                
                14,858
                
                
                -Cash
                    balance, ending
                
                $
                736
                
                $
                3,572
                
                $
                736
 
 **The
        accompanying notes are an integral part of these financial
        statements.**
  3
  CHINA-BITOICS,
        INC.
 (FORMERLY
        OTISH RESOURCES, INC.)
 (A
        EXPLORATION STAGE COMPANY)
 NOTE
        TO
        UNAUDITED FINANCIAL STATEMENTS
  NOTE
        1 -
        BASIS OF PRESENTATION
 
 The
        accompanying unaudited interim financial statements of China-Biotics, Inc.
        (formerly Otish Resources, Inc.) (an exploration stage company)
        (“China-Biotics”) have been prepared in accordance with accounting principles
        generally accepted in the United States of America and the rules of the
        Securities and Exchange Commission (“SEC”), and should be read in conjunction
        with the audited financial statements and notes thereto contained in
        China-Biotics’s Annual Report filed with the SEC on Form 10-KSB.  In the
        opinion of management, all adjustments, consisting of normal recurring
        adjustments, necessary for a fair presentation of financial position and
        the
        results of operations for the interim periods presented have been reflected
        herein.  The results of operations for the interim periods are not
        necessarily indicative of the results to be expected for the full year.
 Notes to the financial statements which would substantially duplicate the
        disclosure contained in the audited financial statements for fiscal year
        ended
        August 31, 2005 as reported in the Form 10-KSB have been omitted.
  NOTE
        2 -
        CLASS A COMMON STOCK
  (A)
                In
                    late January and early February 2006, China-Biotics received
                    a total of
                    4,381,004 shares of its Class A common stock from three shareholders
                    for
                    cancellation free of any consideration from the Company. These
                    shares are
                    treated as Treasury Stock pending for
                    cancellation.
 (B)
                In
                    late January and early February 2006, China-Biotics purchased
                    1,000,000
                    shares of its Class A common stock from a shareholder/officer
                    for a cash
                    consideration of $750. These shares have been canceled after
                    their
                    purchase.
 NOTE
        3 -
        SUBSEQUENT EVENTS
  (A)
                On
                    March 22, 2006, China-Biotics issued 15,980,000 shares of restricted
                    common stock in exchange for 100% equity interest in Sinosmart
                    Group, Inc.
                    ("Sinosmart"), making Sinosmart a wholly-owned subsidiary of
                    China-Biotics. This stock exchange transaction, together with
                    the
                    transaction described in (B) below, resulted in the shareholders
                    of
                    Sinosmart obtaining a majority voting interest in China-Biotics.
                    Accounting principles generally accepted in the United States
                    of America
                    require that the company whose shareholders retain the majority
                    interest
                    in a combined business be treated as the acquirer for accounting
                    purposes,
                    resulting in a reverse acquisition. Accordingly, the stock exchange
                    transaction will be accounted for as recapitalization of
                    Sinosmart.
  (B)
                As
                    part of the reverse acquisition, China-Biotics sold certain marketable
                    securities valued at $5,363 to its former President in exchange
                    for
                    20,000,000 shares of its “Class A” common stock. These 20,000,000 shares
                    of “Class A” common stock are treated as Treasury Stock pending for
                    cancellation.
 
 (C)
              On
                  March 21, 2006, China-Biotics amended and restated its certificate
                  of
                  incorporation to, among other things, change its name from “Otish
                  Resources, Inc.” to “China-Biotics, Inc.” and provide that its common
                  stock, which had previously been divided into Class A and Class
                  B common
                  stock (of which no Class B common stock was outstanding), would
                  become one
                  class of common stock.
 
 (D)
              On
                  March 14, 2006 all mining claims previously owned by China-Biotics
                  related
                  to the Lac Laparre property were
                  relinquished.
  4
 **ITEM
        2.** **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**
 **AND
        RESULTS OF OPERATIONS**
 
 NOTE
        REGARDING FORWARD-LOOKING STATEMENTS
  The
        information in Management’s Discussion and Analysis and elsewhere in this
        document 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 prospectus 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.
 
 OVERVIEW
        AND BUSINESS OF CHINA-BIOTICS, INC. (FORMERLY OTISH RESOURCES,
        INC.)
 
 We
        were
        incorporated under the name Otish Resources, Inc. in Delaware in February
        2003.
        Until March 2006 we were a mineral exploration stage company specializing
        in
        acquiring and consolidating mineral properties with potential for commercial
        ore
        bodies. Although we conducted some preliminary exploration work with respect
        to
        our mineral properties, we never achieved full operations with respect to
        our
        mineral properties. We had never generated any revenue from our mineral
        exploration operations. We incurred a total of expenses of $257,914 from
        inception to February 28, 2006.
 
 On
        March
        22, 2006, we entered into and completed a securities exchange transaction
        with
        Sinosmart Group Inc., or SGI, and the shareholders of SGI, pursuant to which
        the
        SGI shareholders transferred all of the equity securities of SGI to us in
        exchange for an aggregate of 15,980,000 shares of our common stock. This
        transaction is hereafter referred to as the share exchange. At the closing
        of
        the share exchange, SGI became our wholly-owned subsidiary. As part of the
        share
        exchange, we sold certain marketable securities valued at $5,363 to our former
        President in exchange for 20,000,000 shares of our “Class A”common stock.
        Immediately after the share exchange and related transactions, the former
        SGI
        shareholders and their designees collectively owned 98.7% of our common stock.
        Upon consummation of the share exchange, we changed our fiscal year end from
        August 31 to March 31.
 
 As
        a
        result of the share exchange, we are no longer a mineral exploration stage
        company, and SGI’s business operations become our primary operations. We are
        currently engaged in the research, development, production, marketing and
        distribution of probiotics products. These products contain live microbial
        food
        supplements which beneficially affect the host by improving its intestinal
        microbial balance.
 
 We
        are
        reporting on this Form 10-QSB our operating results for the quarter ended
        February 28, 2006, during which we were still a mineral exploration stage
        company. In our future filings with the SEC, we will report our business
        activities as a manufacturer and distributor of probiotics products.
 
 RESULTS
        OF OPERATION
 
 We
        did
        not have any revenue from our mineral exploratory activities for all periods
        presented in the financial statements covered in this Form 10-QSB. Since
        our
        inception (February 20, 2003), we only incurred expenses which were primarily
        professional fees and general and administrative expenses. Our cumulative
        net
        loss from inception to February 28, 2006 was $257,914.
  
 
 LIQUIDITY
        AND CAPITAL RESOURCES
 
 We
        had
        cash of $  736
        as of
        February 28, 2006, compared to $3,572 as of February 28, 2005. We had working
        capital of $736 as of February 28, 2006, compared to $3,572 as of February
        28,
        2005.
 
 Our
        liquidity and capital resources were substantially increased upon the
        consummation of the share exchange. As we acquired 100% of the equity interests
        in SGI on March 22, 2006, we also established access to the liquidity and
        capital resources of SGI. SGI had cash of $12,412,715 and working capital
        of
        $743,736 as of December 31, 2005. In March 2006, SGI received full cash
        settlement of $9,000 on stock subscription receivables, and $3,338,167 from
        repayment of advances to related parties. As of December 31, 2005, SGI had
        a
        Hong Kong Dollar denominated convertible bond in the face amount of $2,580,000
        (HKD20,000,000) outstanding, which was fully converted prior to the share
        exchange. Also in March 2006, certain SGI stockholders advanced a cash loan
        of
        $2,287,269 to SGI to demonstrate their support for its expansion plan. This
        cash
        loan is interest free and repayable in September 2006. On March 22, 2006,
        immediately prior to the share exchange, SGI completed a private placement
        and
        issued 2,858 ordinary shares to a group of accredited investors for a total
        cash
        consideration of approximately $5,067,700. As a result of these transactions
        and
        before accounting for changes resulting from operations, our cash balance
        and
        working capital increased to $23,114,851 and to $8,400,436,
        respectively, on March 23, 2006.
 
 Management
        estimates that we will have positive cash flow provided by operating activities
        in the remaining fiscal year ending March 31, 2006, and for the fiscal year
        ending March 31, 2007.
 
 The
        estimated total capital expenditures for the period from January 2006 to
        March
        2007 under our planned expansion amounts to approximately $18 million,
        comprising $16 million for the construction of a new plant and $2 million
        for
        the establishment of a retail sales network. Management expects to finance
        these
        capital expenditures with the existing cash balance and cash generated from
        operating activities.
 
 No
        assurance, however, can be given that our business plan will succeed. In
        the
        event that the business plan does not materialize as predicted, we may need
        to
        seek for external financing to fund our expansion plan. There can be no
        assurance that we will be able to raise needed capital on favorable terms,
        if at
        all. In addition, there is no assurance that our estimate of our liquidity
        needs
        is accurate or that new business development or other unforeseen events will
        not
        occur, resulting in the need to raise additional funds.
 
 RESEARCH
        AND DEVELOPMENT EXPENDITURES
 
 Prior
        to
        the share exchange, we did not incur any research or development expenditures.
        Because of the share exchange, we now have a research and development team
        which
        is supported by a technical advisory board of experts. In addition to having
        advanced technology in bacteria culturing and protection, this team also
        conducts research and development into complimentary technology, including
        genetically engineered drugs, drug delivery solutions and Chinese medicine,
        in
        an effort formulate solutions to address specific health problems and expand
        our
        product line.
 
 NEW
        ACCOUNTING PRONOUNCEMENTS
 
 In
        November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an Amendment
        of
        ARB No. 43, Chapter 4". The amendments made by SFAS No. 151 are intended
        to
        improve financial reporting by clarifying that abnormal amounts of idle facility
        expense, freight, handling costs, and wasted materials (spoilage) should
        be
        recognized as current-period charges and by requiring the allocation of fixed
        production overheads to inventory based on the normal capacity of the production
        facilities. The guidance is effective for inventory costs incurred during
        fiscal
        years beginning after June 15, 2005. Earlier application is permitted for
        inventory costs incurred during fiscal years beginning after November 23,
        2004.
        The provisions of SFAS No. 151 will be applied prospectively. We do not expect
        the adoption of SFAS No. 151 to have a material impact on our consolidated
        financial position, results of operations or cash flows.
 
 In
        December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment, an Amendment
        of SFAS No. 123". SFAS No. 123R requires companies to recognize in the statement
        of operations the grant-date fair value of stock options and other equity-based
        compensation issued to employees. SFAS No. 123R is effective beginning in
        our
        second quarter of fiscal 2006. We do not expect the adoption of SFAS No.
        123R to
        have any impact on our consolidated financial position, results of operations
        or
        cash flows.
 
 
 In
        December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary Assets."
        The Statement is an amendment of Accounting Principle Board Opinion No. 29
        to
        eliminate the exception for non-monetary exchanges of similar productive
        assets
        and replaces it with a general exception for exchanges of non-monetary assets
        that do not have commercial substance. SFAS 153 is effective for non-monetary
        asset exchanges occurring in the fiscal periods beginning after June 15,
        2005.
        We believe that the adoption of this standard will have no impact on our
        financial statements.
 
 In
        May
        2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”,
        replacement of APB Opinion No. 20, “Accounting Changes”, and Statement No. 3,
“Reporting Accounting Changes in Interim Financial Statements” (“SFAS 154”).
        SFAS 154 will require companies to account for and apply changes in accounting
        principles retrospectively to prior periods’ financial statements, instead of
        recording a cumulative effect adjustment within the period of the change,
        unless
        it is impracticable to determine the effects of the change to each period
        being
        presented. SFAS 154 is effective for accounting changes made in annual periods
        beginning after December 15, 2005, and accordingly, adoption of this statement
        for new accounting provisions is required for our fiscal year beginning July
        1,
        2006. The adoption of this statement is not expected to have any effect on
        our
        financial condition or results of operations.
 
 CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES
 
 Our
        critical accounting policies for the periods prior to the share exchange
        are
        described in the Notes to the Financial Statements in Part I of this report,
        and
        in the Notes to the Financial Statements included in our Annual Report filed
        with the SEC on Form 10-KSB for the period ending 8/31/05, and this Form
        10-QSB
        should be read in conjunction with that Annual Report.  The financial
        statements and notes are representations of management, which is responsible
        for
        their integrity and objectivity.  These accounting policies conform to
        accounting principles generally accepted in the United States of America,
        and
        have been consistently applied in the preparation of the financial
        statements.
 
 RISK
        FACTORS
 
 **Risks
        Related to our Business**
 
 *We
        depend on the services of our director and key employees, the loss of which
        could harm our business.*
 
 We
        believe our success relies on the strategies, vision, efforts and technical
        expertise of our director and key management personnel, including Mr. Song
        Jinan, Dr. Huang Weida and Dr. Du Wen Min. The resignation or departure of
        any
        of these key people could have a material adverse impact on our operations
        and
        future prospects. In addition, if any of these key people join a competitor
        or
        form a competing company, we could lose customers and incur additional expenses
        to recruit replacements and train personnel. We have entered into standard
        form
        confidentiality agreements with our technical employees with the exception
        of
        our director and our key executives which contain non-competition clauses.
        We do
        not maintain key-man life insurance for any of our key executives.
 
 *Failure
        to attract and retain qualified employees may adversely affect our
        business.*
 
 Our
        continued success depends largely on our ability to attract and retain highly
        skilled executive, managerial and technical employees. We may face difficulties
        in recruiting skilled personnel in our industry due to its specialized nature.
        If we are unable to attract and retain a sufficient number of suitably skilled
        and qualified personnel, our business would be materially and adversely
        affected. We may also have to pay substantial wages to attract sufficient
        numbers of skilled employees and professionals, which may adversely affect
        our
        operating margins.
 
 *We
        are not insured against potential losses and could be seriously harmed by
        natural disasters, catastrophes or acts of war.*
 
 Our
        facilities and inventories could be materially damaged by hurricanes, floods
        and
        other natural disasters, catastrophes, acts of war or other catastrophic
        circumstances. We do not maintain insurance covering such events. If any
        of
        these events occur, we could incur material losses and liabilities, which
        could
        negatively affect our operating results.
 
 
 *We
        may incur material product liability claims, which could increase our costs
        and
        adversely affect our reputation, revenues and operating income.*
 
 As
        a
        manufacturer of products designed for human consumption, we are subject to
        product liability claims that the use of our products has resulted in injury.
        Our products contain three types of live bacteria, lactobacillus acidophilus,
        bifidobacterium bifidum and bifidobacterium adolescentis, which fall within
        the
        nine types of “good” live bacteria that are approved for direct sale to the
        public in China as health food. We obtain our bacteria from human sources.
        Although we believe this reduces the risk that it will be rejected by the
        human
        body, there can be no assurance that consumption of such bacteria could not
        result in adverse health effects. We do not maintain any product liability
        insurance. A product liability claim against us could result in costly
        litigation and could adversely affect our reputation with our customers,
        which
        in turn could adversely affect our revenues and operating income.
 
 *Our
        failure to develop products that are compatible with market needs could have
        an
        adverse effect on our sales and earnings.*
 
 Our
        business is particularly subject to changing consumer trends and preferences.
        Our continued success depends in part on our ability to anticipate and respond
        to these changes. We may not respond in a timely or commercially appropriate
        manner to such changes. Because markets for our products differentiate
        geographically, we must accurately assess demand in each specific market
        into
        which we wish to make sales. If we fail to invest in extensive market research
        on consumer health needs in each market we target, we may face limited market
        acceptance of our products, which could have a material adverse effect on
        our
        sales and revenues.
 
 *If
        our products fail to keep pace with advances in the industry, they may be
        displaced by competitors' newly developed products.*
 
 Other
        companies in our industry may gain significant competitive advantages by
        introducing new products to the market, delivering constant innovation in
        products and techniques and offering competitive prices. Our future growth
        partially depends on our ability to develop products that are more effective
        in
        meeting consumer needs. In addition, we must be able to manufacture and
        effectively market those products. The sales of our existing products may
        decline if a competing product is introduced by other companies.
 
 *We
        may have difficulty competing with larger and better financed companies in
        our
        industry, which could require us, among other things, to lower our prices
        and
        could result in the loss of our customers.*
 
 Some
        of
        our existing and future competitors may have greater technical and financial
        resources than we do and may use these resources to pursue a competitive
        position that threatens our products. Our products could be rendered obsolete
        or
        uneconomical by the development of new products to treat conditions addressed
        by
        our products, as a result of technological advances affecting the cost of
        production, or as a result of marketing or pricing action by one or more
        of our
        competitors.
 
 Additionally,
        with China’s accession to the World Trade Organization, the Chinese government
        has undertaken to open up the Chinese market to foreign companies. China
        reduced
        its average import tariff rate overall to 11.50% in 2003 and has further
        reduced
        it to 9.90% in 2005. As a result, foreign competitors may form alliances
        with or
        acquire companies in our industry in China. Intensified competition from
        these
        foreign competitors may lead to lower profit margins due to price competition,
        loss of customers and slower than anticipated growth.
 
 *Unfavorable
        publicity or research reports casting a negative light on our industry or
        our
        products could change consumer perceptions and have an adverse affect on
        our
        ability to market and sell our products.*
 
 We
        believe that our industry is affected by media attention. Future research
        reports or publicity about the quality of products in our industry generally,
        or
        our products in particular, could have a material adverse effect on our
        business. Scientific research to date is preliminary and there can be no
        assurance that future scientific research or publicity will be favorable
        to our
        industry or any particular product or consistent with earlier favorable research
        or publicity. Adverse publicity could arise even if the adverse effects
        associated with such products resulted from consumers’ failure to consume such
        products appropriately. Given our dependence upon consumer perceptions, adverse
        publicity, whether or not accurate, associated with illness or other adverse
        effects resulting from the consumption of our products or any similar products
        distributed by other companies could have a material adverse effect on our
        business.
 
 
  *Our
        planned expansion into the bulk additive business may not generate sufficient
        revenues and the construction of our new facility to accommodate this business
        may result in increased costs and losses.*
  We
        intend
        to expand our operations into the bulk additive business through the supply
        of
        high quality probiotics to be used as additives in dairy products to
        manufacturers in China. We plan to construct a new production plant with
        a
        150-ton capacity which can accommodate our new bulk additive business. This
        will
        expose us to many risks, including the following:
 
 •
              there
                  may not be sufficient market demand for bulk probiotics additives
                  or our
                  products in particular;
  •
              we
                  may experience delays and cost overruns during construction of
                  our new
                  facility which may result in losses;
                  and
 
 •
              we
                  may experience substantial start up losses when the plant is first
                  commissioned.
 
 *Our
        plans to geographically expand our marketing and sales efforts and directly
        sell
        our products directly to retail consumers may fail.*
 
 To
        date,
        we have only sold our products in the greater Shanghai area. We currently
        intend
        to expand our marketing and sales efforts to the rest of China. There is
        no
        assurance that we will receive the same level of public demand for our products
        in other parts of China.
 
 In
        addition, we have been selling through distributors since our first product,
        Shining Essence, was launched in the market in April 2001. We intend to expand
        our operations by opening new retail stores or introducing a franchise structure
        to facilitate direct sales of our products to customers. We have hired
        consultants who have many years of experience in the direct selling industry
        to
        develop this new line of business, but there is no assurance that we can
        successfully implement our direct selling model.
 
 As
        we
        increase the geographic area of our selling efforts and implement a direct
        selling model, there is a risk that our current systems may not be able to
        accommodate the increased volume or the complexity of the future business.
        Our
        short term operating results may be adversely affected as additional capital
        investments will have to be made for system upgrades, replacements or
        improvements.
 
 *We
        face potential tax exposure.*
 
 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 for 2005. Our management believes 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,
        plus surcharge, for all prior calendar years. Such provisions for tax
        liabilities and surcharge will be reversed out of the financial statements
        at
        the appropriate point in the future.
 
 According
        to Chinese tax regulations, 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 $4.88 million (if calculated based on 0.5
        times of taxes payable) to $48.84 million (if calculated based on five times
        of
        the amount of taxes payable) as of December 31, 2005. No provision for the
        potential tax penalties has been made in our financial statements as our
        management believes that the possibility of having to pay the penalties is
        unlikely.
  *We
        may not be able to protect our intellectual property against claims by other
        parties or enforce our rights with respect to our intellectual
        property.*
 
 Although
        we have three registered Chinese patents in respect of the packaging processes
        and technologies we use in our production process and have applied for
        registration of a patent regarding the production of one of our products
        in June
        2004, we have not purchased or applied for any patents other than these as
        we
        are of the view that it would not be cost-effective to do so at this time.
        Except with respect to the processes and technologies for which we have been
        granted patents, we may have no legal recourse in the event that our processes
        and technologies are replicated by other parties. If our competitors are
        able to
        replicate our processes, technologies and systems at lower costs, we may
        lose
        our competitive advantage and our profitability will be adversely
        affected.
 
 
  In
        addition, over the last five years, our “Shining” brand has become a highly
        recognizable brand in our industry in Shanghai. To protect this brand, which
        we
        consider important to our continued success, we have registered four trademarks
        in China. If our competitors introduce products of inferior qualities to
        the
        market using trademarks that are confusingly similar to the “Shining”
trademarks, our reputation and operating results will be adversely affected.
 
 From
        time
        to time, we may have to resort to litigation to enforce our rights with respect
        to our intellectual property. This type of litigation could result in
        substantial costs and diversion of our resources, which would adversely affect
        our results of operations.
 
 **Risks
        Related to Government Regulations**
 
 *We
        are subject to government regulation in China, and changes in Chinese
        regulations may substantially increase the cost of manufacturing and selling
        our
        products.*
 
 The
        manufacturing and marketing of our products are subject to various governmental
        regulations in China. Government regulation includes inspection of and controls
        over manufacturing, safety and environmental controls, efficacy, labeling
        and
        the sale and distribution of wellness products.
 
 As
        a
        company which produces probiotics supplements, we are subject to the Law
        on the
        Food Conditions of the PRC which became effective on October 30, 1995, the
        Administrative Rules for Healthy Food promulgated by the Ministry of Health
        on
        March 15, 1996 which became effective on June 1, 1996, the Notice of Circulating
        the Appraisal Standard of Fungal and Good-Live-Bacterial Healthy Food and
        its
        appendixes-Appraisal Standard of Fungal and Good-Live-Bacterial Healthy Food,
        and List of Good-Live-Bacteria Applicable for Healthy Food, promulgated by
        the
        Ministry of Health which became effective on March 23, 2001, the Administration
        Rules for the Registration of Healthy Food (experimental) promulgated by
        the
        State Food and Drug Administration on April 30, 2005 which became effective
        on
        July 1, 2005, and other relevant rules and regulations issued by the Ministry
        of
        Health and the State Food and Drug Administration. In addition, Shining is
        a
        Chinese corporation and therefore is subject to the Company Law of China
        and
        more specifically to the Foreign Company provisions of the Company Law and
        the
        Law on Foreign Capital Enterprises of China. We are also subject to government
        regulations with respect to the prices we charge, the rebates we may offer
        to
        customers and our marketing methods.
 
 Our
        industry is relatively new in China, and the manner and extent to which it
        is
        regulated is evolving. Changes in existing laws or new interpretations of
        such
        laws may have a significant impact on our methods and costs of doing business.
        For example, new legislative proposals that affect our product pricing,
        reimbursement levels, approval criteria and manufacturing requirements may
        be
        proposed and adopted. Such new legislation or regulatory requirements may
        have a
        material adverse effect on our financial condition, results of operations
        or
        cash flows.
 
 *We
        may not be able to obtain regulatory approvals for our products or reimbursement
        from the sale of our products.*
 
 The
        manufacture and sale of our products in China is highly regulated by a number
        of
        state, regional and local authorities. These regulations significantly increase
        the difficulty and costs involved in obtaining and maintaining regulatory
        approval for marketing new and existing products. In addition, our future
        growth
        and profitability are, to a significant extent, dependent upon our ability
        to
        obtain timely regulatory approvals from the relevant authorities.
 
 **Risks
        Related to Doing Business in China**
 
 *Adverse
        changes in China’s economic, political and social conditions and government
        policies could have a material adverse effect on the overall economic growth
        of
        China, which could adversely affect our results of operations and financial
        condition.*
 
 
  We
        currently conduct our business solely in China. Changes in the economic and
        political situation in China and the economic, financial, fiscal and other
        policies adopted by the Chinese government may affect our operations,
        performance and profitability. The economy of China differs from the economies
        of most developed countries in many respects, including:
 
 •
              structure;
 
 •
              extent
                  of government involvement;
 
 •
              level
                  of development;
 
 •
              growth
                  rate;
 
 •
              control
                  of foreign exchange; and
 
 •
              allocation
                  of resources.
 
 China’s
        economy has traditionally been subject to central planning, with a series
        of
        economic plans promulgated and implemented by the Chinese government. Over
        the
        past 25 years, the Chinese government has been reforming the economic and
        political systems in China. These reforms have resulted in significant economic
        and social advancements. Many of these reforms were unprecedented and are
        expected to continue while political, economic and social factors may also
        lead
        to further adjustments to China’s reform measures. These reforms and adjustments
        may not always have a positive effect on our operations. Accordingly, we
        cannot
        assure you that our performance and profitability will not be adversely affected
        from these measures. In addition, there is no assurance that the Chinese
        government will continue to pursue economic liberalization and other
        reforms.
 
 *Macroeconomic
        measures taken by the Chinese government may cause the Chinese economy to
        slow
        down.*
 
 In
        response to concerns relating to China’s high rate of growth in industrial
        production, bank credit, fixed investment and money supply and growing
        inflationary pressures, the Chinese government has taken measures to slow
        economic growth to a more manageable level. Among the measures that the Chinese
        government has taken are restrictions on bank loans in certain sectors and
        the
        increase of interest rates. We cannot assure you that those measures will
        not
        result in a slowdown in economic growth and hence a reduction in demand for
        consumer products in China. These measures and any additional measures could
        contribute to a slowdown in the Chinese economy and could potentially cause
        the
        economy to enter a recession, which could have an adverse impact on demand
        for a
        wide range of products in China, including our products.
 
 *There
        are uncertainties regarding interpretation and enforcement of Chinese laws
        and
        regulations.*
 
 China’s
        legal system is a civil law system based on statutory law. Prior legal decisions
        and judgments have little precedential value. China is still in the process
        of
        developing a comprehensive statutory framework and its legal system is still
        considered to be underdeveloped in comparison with the legal systems in some
        western countries. Since 1979, the Chinese government has formulated and
        enacted
        a large number of laws and regulations governing economic matters, securities
        activities and foreign investments.
  Despite
        significant development in its legal system, China does not have a comprehensive
        system of laws. The interpretation of Chinese law by courts and tribunals
        may be
        inconsistent and influenced by government policies and other considerations.
        In
        addition, the enforcement of existing laws and regulations can be uncertain
        and
        unpredictable. Judgments and arbitration rulings may be unenforceable. The
        promulgation of new laws, changes to existing laws and inconsistent
        interpretation of laws could have a negative impact on our
        business.
 
 *A
        majority of our officers and directors, and substantially all of our assets,
        are
        located in China, thus it may be extremely difficult to acquire jurisdiction
        and
        enforce liabilities against our officers, directors and assets.*
 
 Because
        our sole executive officer and director is a Chinese citizen it may be
        difficult, if not impossible, to acquire jurisdiction over him in the event
        a
        lawsuit is initiated against us or our officer and director by a stockholder
        or
        group of stockholders in the United States. We anticipate that our future
        officers and directors will also be Chinese citizens. Because the majority
        of
        our assets are located in China, it would also be extremely difficult to
        access
        those assets to satisfy an award entered against us in U.S. court.
 
 
  *Restrictions
        on currency exchange may limit our ability to receive and use our revenues
        effectively.*
 
 Since
        almost all of our future revenues may be in the form of Renminbi, any future
        restrictions on currency exchanges may limit our ability to use revenue
        generated in Renminbi to fund any future business activities outside China
        or to
        make dividend or other payments in U.S. dollars. Although the existing foreign
        exchange regulations allow greater convertibility of the Renminbi for current
        account transactions, significant restrictions still remain, including primarily
        the restriction that foreign invested enterprises may only buy, sell or remit
        foreign currencies, after providing valid commercial documents, at those
        banks
        authorized to conduct foreign exchange business. In addition, conversion
        of
        Renminbi for capital account items, including direct investment and loans,
        is
        subject to governmental approval in China, and companies are required to
        open
        and maintain separate foreign exchange accounts for capital account items.
        We
        cannot be certain that the Chinese regulatory authorities will not impose
        more
        stringent restrictions on the convertibility of the Renminbi, especially
        with
        respect to foreign exchange transactions.
 
 **Risks
        Related to our Common Stock**
 
 *Shares
        of our common stock which are eligible for immediate sale by our stockholders
        may decrease the market price of our common stock.*
 
 We
        had
        17,080,000 shares outstanding as of March 22, 2006, including approximately
        230,000 shares which are free trading and may be sold immediately by our
        stockholders and 5,664,833 shares which are covered under a registration
        statement which we have filed with the SEC. If our stockholders sell substantial
        amounts of our common stock, or there is a perception in the market that
        such
        sales may occur, then the market price of our common stock could
        decrease.
 
 *Concentration
        of our ownership by our sole executive officer and director and his family
        may
        dissuade new investors from purchasing our securities which could result
        in a
        lower trading price for our securities than if our ownership was less
        concentrated.*
 
 As
        of
        March 22, 2006, Mr. Song, our sole officer and director, owned 29.8% of our
        outstanding common stock, and members of his family owned an additional 20.3%
        of
        our common stock. As a result, Mr. Song has the ability to exert substantial
        influence or absolute control over all matters requiring approval by our
        stockholders, including the election and removal of directors, any proposed
        merger, consolidation or sale of all or substantially all of our assets and
        other corporate transactions. This concentration of control could be
        disadvantageous to other stockholders with interests different from those
        of Mr.
        Song. For example, Mr. Song could delay or prevent an acquisition or merger
        even
        if the transaction would benefit other stockholders. In addition, this
        concentration of share ownership may adversely affect the trading price for
        our
        common stock because investors often perceive disadvantages in owning stock
        in
        companies with a significant concentration of ownership among a limited number
        of stockholders.
 
 *Our
        common stock price has been volatile, and you may not be able to sell your
        shares at or above the price that you pay for the shares.*
 
 Our
        common stock is currently quoted on the OTC Bulletin Board. Securities quoted
        on
        the OTC Bulletin Board tend to be highly illiquid, in part because there
        is no
        national quotation system by which potential investors can track the market
        price of shares except through information received or generated by a limited
        number of broker-dealers that make markets in particular stocks. There is
        a
        greater chance of market volatility for securities that trade on the OTC
        Bulletin Board as opposed to a national exchange or quotation system. This
        volatility may be caused by a variety of factors including:
 
 •
              the
                  lack of readily available price
                  quotations;
 
 •
              the
                  absence of consistent administrative supervision of "bid" and "ask"
                  quotations;
 
 •
              lower
                  trading volume; and
 
 •
              market
                  conditions.
 
 
  The
        price
        of our common stock has historically been volatile and our investors experience
        wide fluctuations in the market price of our securities. These fluctuations
        may
        have an extremely negative effect on the market price of our securities and
        may
        prevent you from obtaining a market price equal to your purchase price when
        you
        attempt to sell our securities in the open market. In these situations, you
        may
        be required to either sell our securities at a market price which is lower
        than
        your purchase price, or to hold our securities for a longer period of time
        than
        you planned.
 
 *Because
        our common stock will be classified as penny stock, trading will be limited
        and
        our stock price could decline.*
 
 Because
        our common stock will fall under the SEC definition of “penny stock”, we expect
        trading in our common stock, if any, to be limited because broker-dealers
        are
        required to provide their customers with disclosure documents prior to allowing
        them to participate in transactions involving our common stock. These disclosure
        requirements are burdensome to broker-dealers and may discourage them from
        allowing their customers to participate in transactions involving our common
        stock.
 
 Rules
        promulgated by the SEC under Section 15(g) of the U.S. Securities Exchange
        Act of 1934, or Exchange Act, require broker-dealers engaging in transactions
        in
        penny stocks, to first provide to their customers a series of disclosures
        and
        documents, including:
 
 •
              a
                  standardized risk disclosure document identifying the risks inherent
                  in
                  investment in penny stocks;
 
 •
              all
                  compensation received by the broker-dealer in connection with the
                  transaction;
 
 •
              current
                  quotation prices and other relevant market data;
                  and
 
 •
              monthly
                  account statements reflecting the fair market value of the securities.
 
 In
        addition, these rules require that a broker-dealer obtain financial and other
        information from a customer, determine that transactions in penny stocks
        are
        suitable for such customer and deliver a written statement to such customer
        setting forth the basis for this determination.
 
 *Our
        preferred stock may make a third-party acquisition of our company more difficult
        which in turn would make a purchase of our shares less desirable, thereby
        potentially reducing our stock price or the liquidity of our
        shares.*
 
 Our
        certificate of incorporation authorizes our board of directors to issue up
        to
        10,000,000 shares of preferred stock having such rights as may be designated
        by
        our board of directors, without stockholder approval. However, pursuant to
        the
        terms of the Investors’ Rights Agreement we entered into in connection with the
        share exchange, we are restricted from issuing preferred stock for a period
        of
        two years from the date of such agreement without first obtaining the approval
        of the holders of at least 75% of our outstanding shares of common stock.
        The
        issuance of preferred stock could inhibit a change in our control by making
        it
        more difficult to acquire the majority of our voting stock and thereby making
        the purchase of our shares by new investors less likely. A lesser interest
        in
        the purchase of our shares could reduce our market price or make it more
        difficult for stockholders to sell their shares. No shares of preferred stock
        are currently outstanding.
 
 *We
        do
        not anticipate paying dividends.*
 
 We
        do not
        anticipate paying dividends in the foreseeable future. Also, pursuant to
        the
        terms of the Investors’ Rights Agreement we entered into in connection with the
        share exchange, we are restricted from authorizing the payment of dividends
        for
        a period of two years from the date of such agreement without the approval
        of
        the holders of at least 75% of our outstanding shares of common stock. Any
        dividends which we may pay in the future will be at the discretion of our
        board
        of directors and will depend on our future earnings, any applicable regulatory
        considerations, our financial requirements and other similarly unpredictable
        factors. For the foreseeable future, we anticipate that we will retain any
        earnings which we may generate from our operations to finance and develop
        our
        growth.
 
 
  **ITEM
        3.**  **CONTROLS
        AND PROCEDURES**
 
 As
        of the
        end of the period covered by this report, our principal executive officer
        and
        principal financial officer evaluated the effectiveness of the design and
        operation of our disclosure controls and procedures.  Based upon, and as of
        the date of that evaluation, our principal executive officer and principal
        financial officer concluded that, our disclosure controls and procedures
        are
        effective to assure that information required to be disclosed in the reports
        that we file or submit under the Securities and Exchange Act of 1934 is
        recorded, processed, summarized and reported within the time periods specified
        by the Securities and Exchange Commission’s rules and forms and accumulated and
        communicated to our management to allow timely decisions regarding disclosure.
 
 There
        were no changes in our internal control over financial reporting during the
        quarter ended February 28, 2006 that have materially affected, or are reasonably
        likely to materially affect, our internal control over financial
        reporting.
 
 **PART
        II - OTHER INFORMATION**
 
 **ITEM
        6.**  **EXHIBITS**
 
 Exhibit
        31.1 - Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 Exhibit
        32.1 - Certification of Chief Executive Officer and Chief Financial Officer
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 *
        * * * *
  
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly authorized.
  **CHINA-BIOTICS,
                  INC.**(Registrant)Date: April
                  14, 2006
                By:
                /s/ Song
                  JinanSong,
                  Chief Executive Officer, Chief Financial Officer,
                  Controller, Director and Secretary