China-Biotics (PINK:CHBT)

On September 15, 2011, the staff of the U.S. Securities and Exchange Commission (the “SEC”) informed China-Biotics, Inc. (the “Company”) that it intended to recommend that the Commission institute a public administrative proceeding against the Company for alleged violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 or 13a-16 promulgated thereunder. In connection with the contemplated administrative proceeding, the staff may seek to suspend or revoke the registration of each class of the Company’s securities and issue an order suspending for ten days the trading in the Company’s securities. In accordance with Rule 5(c) of the Commission’s Rules on Informal and Other Procedures, the staff has offered the Company the opportunity to make a Wells submission.

On June 23, 2011, the Board of Directors (the “Board”) of China-Biotics, Inc. (the “Company”) unanimously voted to voluntarily delist the Company’s common stock from the Nasdaq Global Stock Market (“Nasdaq”). The Board has determined that maintaining the listing of the Company’s common stock on Nasdaq has imposed difficult burdens on the Company. These burdens have been compounded by the recent resignations of the Company’s former auditor, BDO Limited, and the Company’s Chief Financial Officer, Travis Cai, as disclosed by the Company in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on June 23, 2011, as well as the resignation of Mr. Simon Yick, the former Chairman of the Audit Committee of the Board, as disclosed by the Company in a Current Report on Form 8-K filed with the SEC on June 28, 2011.

On June 22, 2011, China-Biotics, Inc. (the “Company”) received a letter of resignation from BDO Limited (“BDO”) stating that it had resigned as the Company’s independent auditor, effective immediately. In its letter of resignation (the “Resignation Letter”), BDO informed the Company that its resignation is based on

(i) its determination that certain irregularities (identified in a letter dated June 10, 2011 from BDO to the Company (the “June 10 Letter”) and described more fully below) likely constitute illegal acts that could have a material effect on the financial statements of the Company for the purposes of Section 10A of the Securities Exchange Act of 1934, as amended; and

(ii) its conclusion that the Company’s Board of Directors and Audit Committee have not taken timely and appropriate remedial actions in respect of the alleged illegal acts.

The Resignation Letter further states that, as a result of such failure to take appropriate remedial actions, it is impossible for BDO to gather evidence to assess whether the Company’s accounting records have been falsified and whether there are other issues that could have a material effect on the financial statements of the Company.

The irregularities identified by BDO in the June 10 Letter consisted of the following:

• In a Company sales contract, the purchaser’s chop (i.e., the official signature or seal) affixed on the signature page of the sales contract belongs to a different company than the one named in the sales contract;
• In connection with BDO’s review of the Company’s bank account through the Company’s e-banking system using the Company’s computer, BDO was directed by the Company to access a suspected fake website for the bank;
• A bank advice dated March 21, 2011 documenting a portion of the Company’s interest income contained mathematical errors that the Company’s management dismissed as clerical mistakes made by the bank; the Company later replaced it with a “corrected” advice from the bank; and
• The aforementioned bank advice dated March 21, 2011 used a deposit interest rate to calculate the interest income earned by the Company, which differed from the interest rate announced by the People’s Bank of China for the relevant deposit period as referred to in an undated deposit agreement that was presented to BDO to corroborate the Company’s interest income.

SHANGHAI, June 23, 2011—China-Biotics, Inc. (“China-Biotics” or the “Company”) (NASDAQ: CHBT), a leading developer, manufacturer, and distributor of probiotics products in China, today announces that on June 20, 2011, the Company received a letter from the NASDAQ Listing Qualification staff (the “NASDAQ Letter”) asserting that, because the Company has not yet filed its Annual Report on Form 10-K for the fiscal year ended March 31, 2011, and based upon disclosures made by the Company in its recently filed Form 12b-25 and additional information provided to NASDAQ, the Company no longer complies with the NASDAQ Listing Rules for continued listing.  In addition, the NASDAQ Letter requested that the Company provide to NASDAQ a formal “plan of compliance” setting forth the steps that the Company proposes to take to regain compliance for continued listing of the Company’s common stock on the NASDAQ, as well as certain other information relevant to NASDAQ’s evaluation of the plan of compliance.
 
NASDAQ has established an expedited schedule for the Company to submit its plan of compliance and related information.  The Company’s response is due no later than July 5, 2011.
 
The Company will use its best efforts to submit a plan of compliance to NASDAQ, together with the other information requested, on or before July 5, 2011.  There can be no assurance that the Company will be able to meet this deadline or that the Company’s plan of compliance and other related information will sufficiently satisfy NASDAQ to avoid delisting.

China-Biotics, Inc. (the “Company”) was unable to timely file its Annual Report on Form 10-K for the period ended March 31, 2011 (the “Form 10-K”) by the prescribed due date of June 14, 2011. On June 10, 2011, the Company’s auditor, BDO Limited (“BDO”), notified the Company and the Company’s Audit Committee that it had identified certain serious issues as part of its ongoing audit work and would need the Company to take certain actions and provide additional information. The Company’s Audit Committee is investigating the issues raised in BDO’s June 10 letter, as well as other matters. The Company has been discussing these issues with BDO and is working to take all of the actions and to provide the requested information to BDO as promptly as reasonably practicable. The Company cannot predict at this time when it will be in a position to take all of the actions and provide all of the information requested by BDO. The Company intends to file the Form 10-K as soon as reasonably practicable.