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Investor Presentation

Investor Presentation

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Investor Presentation

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  1. Investor Presentation March, 2011

  2. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth in this presentation that are not historical facts may be forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company’s ability to market existing and new products, ability to access capital for expansion, and changes from anticipated levels of sales, future national or regional economic and competitive conditions, changes in relationships with customers, dependence on our flagship product’s profits and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation was developed by the Company, is intended solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy the Company’s stock. This presentation is based upon information available to the public, as well as other information from sources which management believes to be reliable, but is not guaranteed by CHBT as being accurate nor does it purport to be complete. Opinions expressed herein are those of management as of the date of publication and are subject to change without notice. Safe Harbor Statement

  3. Investment Highlights The leading producer of probiotics in China • Strong R&D with highly efficient professional service team • Safe, stable and highly effective product solutions • Over 10 years probiotics production history & proven record of profitability and growth • Rising demand for probiotics products driven by increasing consumption of dairy products, health food and rapid growth in the animal feed, cosmetics and pharma market • Established large-scale production capacity and quality control to penetrate an expanding bulk additives market • Strong revenue and profit growth with high margins • Revenue growth 39% CAGR FY06-FY10 • FY10 revenue $81M and adjusted net income $28M • Guidance for 50% top line growth in FY2011 • Proven blended gross margin above 65% • Consistent positive free cash-flow in recent 3 years

  4. Nutritional Products Food Additives Dairy Products Shining Probiotics Animal Feed Additives Pharma-ceuticals What are Probiotics? “Live microorganisms which when administered in adequate amounts confer a health benefit on the host.”– FAO/WHO (2001) Live microorganisms, through sufficient intake, confer one or more types of unique and verifiable functional health benefits. – EFFCA (2002) Historical Context • Pasteur announced certain bacteria are necessary for human health • Metchnikoff received 1908 Nobel Prize for work linking the immune system and intestinal bacteria • “Good” bacteria helps not only to stimulate digestive health, but may stimulate a healthy immune system. – Gary Huffnagle, Ph.D., University of Michigan Health System. Benefits of Probiotics • Improves health of G.I. tract • Stimulates immune system • Helps break down nutrients properly • Reduces creation of toxins • Reduces symptoms of lactose intolerance • Decreases prevalence of allergies in susceptible individuals • Reduces some risks associated with certain cancers Source: www.usprobiotics.org

  5. Global Probiotics Market • New markets are posting faster growth • Probiotics supplement sales in North America and Eastern Europe are currently reporting a growth rate of 25% • Significant increase in mainstream research on probiotics in recent years • Digestive health is ‘mainstream’ • In 2008, nearly 59.9 million Americans complained of heartburn, and this figure is expected to rise to almost 73 million by 2013, amounting to nearly a quarter of the population • Global animal feed additives mkt expected to have reached US$15.4 B by 2010 • Probiotics have been demonstrated to have an equivalent efficacy to synthetic antimicrobial growth promoters (AGP), which were banned completely in Europe since January 2006 History of Global Research Publications on Probiotics Source: Marketsandmarkets, nutraingredients-usa.com DataMonitor, FoodNavigator.com, ap-foodtechnology.com Pubmed.org, and Mgmt estimate

  6. US Probiotics Awareness Probiotics was the fasting-growing category of dietary supplements in the US in 2004-08 Proportion of US population familiar with probiotics Source: AC Nielsen, Survey by Natural Marketing Institute 6

  7. Chinese Market • Chinese affluence drives demand for health food • Demand for health-food expected to hit $9.7 Billion by 2010 (Pacific Bridge Medical) • In 2009, China overtook Japan as the heaviest consumer of probiotic cultures, exceeding 10,000 tons with potential to reach 18,000 tons in 2014, 30% global market (Euromonitor) • Demand for Bulk Additive Probiotics increasing significantly • Chinese Bureau of Statistics forecasts tenfold increase in domestic dairy consumption between 2007-2015, more demand for yogurt and baby formula product • Estimated $58 Billion animal feed market in China • Favorable Government Policies on both food safety and antibiotics safety • Requires Good Manufacturing Practice (GMP) and a step-by-step Hazard Analysis Critical Control Point (HACCP) quality control system • Government is encouraging probiotics supplements to combat antibiotics abuse • China has limited probiotics production capacity • Current demand relies on imports from European manufacturers • 3 dairy majors – Mengniu (HKSE: 2319), Yili (SHSE: 600887) and Bright (SHSE: 600597), are actively and substantially introducing probiotics in their value-add dairy products

  8. Segment Analysis Chinese Probiotic Usage and Growth (Metric Tons) Source: Domestic Probiotics Market Analysis and Forecast Report by Beijing Leadership Management Consulting Co. Limited

  9. China-Biotics Overview • Founded in 1999 and headquartered in Shanghai • The largest domestic probiotics supplier • Shining is one of the most recognized brands in Shanghai • Launched commercial production in the new 150 ton manufacturing facility in Feb. 2010 to target bulk market in both diary industry and animal feed industry • Proprietary technology powered by over 40 R&D staff with advanced academic degrees • More than 40 signed bulk additive customers FY10 Revenue ($Mil) FY10 Net Income* ($Mil) Bank Debt ($Mil) 81.0 27.8 0.0 FY11 9M Revenue ($Mil) Bulk Customer FY10 R&D Spend ($Mil) 80.9 49 3.7 FY11 Q3 Revenue ($Mil) Retail Distributor Retail Product 32.4 34 14 *Adjustment to exclude gain/loss related to the change in fair value of convertible notes

  10. Strong R&D Capabilities Probiotics R&D Center • Research Areas: Advanced bacteria culturing and protection, genetically engineered drugs, drug delivery solutions • Over 40 members with Masters or Ph.D. degrees • Close R&D partnerships with China’s top research programs in dairy science and technology at the Northeast Agricultural University • Long term cooperation with International Probiotic Association (IPA)

  11. Strong R&D Capabilities High-Caliber R&D Professionals • Dr. Hui S. Chang, Chief Operating Officer, – Ph.D. in vaccine development focusing on biochemistry and immunology as well as an MBA in finance and vaccine logistics from Johns Hopkins University;15 years of biopharmaceutical project management experience and research capabilities • Dr. Shuguang Fang, Vice President – Ph.D. in chemical bio-engineering from East China University of Science and Technology and a team member of the No. 863 State Hi-Tech Program and national 9th & 10th 5-year project • Dr. Chunchang Tao, Director of R&D – PhD in Biological & Agricultural Engineering from the University of Idaho and a formerly with Coca-Cola’s Global Innovation & Technology Center in Shanghai

  12. Strong R&D Capabilities High-Caliber R&D Professionals • Dr. Dengru Liu – Ph.D. in fermentation engineering from Jiangnan University and Ph.D. in bioengineering from Wagningen UR in Netherland; Visiting Researcher at TNO Research and Food Institute; In charge of R&D for probiotics application in agriculture such as starter culture for animal feed and organic fertilizer as well as application in water treatment and soil improvement • Dr. Xia Zhao – Ph.D. in Bioengineering from East Normal University; Post-Doctoral research in biotechnology and pharmaceutical engineering at Sun Moon University in Korea; MBA from Coburg University of Applied Science in Germany. Decades of quality assurance and biotechnology R&D project experience.

  13. Strong R&D Capabilities IP, Capability & Publication • 12 approved patents and 15 pending in total • 5 recent patent applications filed in new market areas such as baby care • 1000 types of bacteria strains - China’s largest Enterprise Bacteria Center • China-Biotics currently carries all of the 21 probiotics strains in the list recently approved by the Ministry of Health. These strains are widely used in the Company's bulk additive products • 6 registered brands and 10 published paper in major Chinese health journals

  14. Strong R&D Capabilities R&D Center Strain Screening & Research Strain Production Process Development Core Technology Development Probiotics Application Development Sensory Test Physics–Chemical & Biological Analysis

  15. New Industry-Leading Facility • The largest probiotics production plant in China • GMP certified, highly automated production line with maximum 60 workers even at full capacity utilization • Proprietary fermentation technology • Phase I = 150 MT annual production capacity • Commenced commercial productionin Feb. 2010 • Currently producing at 5-7 MT per month depending on concentration of probiotics • Phase II = 150 MT annual capacity • Coming online in 2011 • Large scalability to lower production cost per unit and achieve high gross margin MT = metric tons

  16. Bulk Business Strategy • Focus on dairy and animal feed industries, with extension to baby care, nutritional and pharmaceutical products • Provide customized solutions and comprehensive support, i.e., co-develop new yogurt formulas • Leverage our proprietary fermentation technology to offer large volume, high-quality bulk powder • Extend business to international markets • Phase II capacity expansion: to increase total annual capacity to 300 MT in Qingpu in 2012 • To build a new bulk facility for animal feed-related products within 2 years

  17. Operation and Productivity Marketing + Application + Sales Total Quality System (QA/QC) Business Customers Research + Process Development, Engineering Core + Production Bulk Business Strategy

  18. Bulk Additive Products Additives for Dairy Product • Essential to yogurt-based drinks • CAGR of 31% for yogurt segment growth from ’05 to ’10 in China (estimated by McKinsey Research) • Commonly added to infant formula milk powder • Improves digestion Animal feeds • Mgmt estimates $58 Bil/Yr animal feed market in China • Large global market Other Products • Pharmaceuticals • Nutritional products • Other food additives

  19. Expanded Bulk Customer Base 19

  20. Products in Retail Business Total 41 products with 14 active products in market

  21. Retail Network • Continue to develop and introduce new products to the marketplace • 15 retail outlets with improved operating efficiency • Strengthen and broaden distribution network by partnering with large wholesalers • Continue to improve brand name and recognition

  22. Strong Financials Strong Organic Revenue Growth Proven Earning Growth CAGR=39% CAGR=35% (Millions USD) (Millions USD) *Adjustment to exclude gain/loss related to the change in fair value of convertible notes Gross Profit (millions $) & Gross Margin

  23. Financial Statements FY11 Q3 Highlights • Net sales increased by 39% yoy to a quarterly record of $32.4 Mil • Sales of bulk additive products increased 133% yoy to $14.7 Mil • Produced over 20MT of bulk probiotic products • Had 49 bulk customers • R&D expense increased to $1.9 million, 5.8% of revenue compared with $0.9 million and 3.8% the previous year * non-cash gain or loss related to the change in fair value of convertible notes is not included

  24. Financial Statements FY11 Q3 Highlights • Cash balance of $132.3 Mil • Convertible Promissory Notes were redeemed for $29.7 Mil - $25 Mil principal and $4.68 Mil accrued and unpaid interest; considerably decreased shares outstanding and created immediate accretion of earnings per share to investors • Stockholder’s equity increased to an all time high of $200.3 Mil

  25. Key Management Mr. Jinan Song, Founder, Chairman and CEO • Founder and CEO since 1999 • Bachelor’s degree in Polymers; Masters degree in politics and economics Mr. Travis Cai,Chief Financial Officer • Over 10 years of management experience in financial institutions and US-listed companies • MS from Stern School of Business at New York University and BS from Tsinghua University Ms. Eva Yan, Chief Administration Officer • Management team member since 1999 with participation in formulating corporate development plans, implementing internal control procedures and business negotiations • Master’s degree in Economic Law from Capital University of Economics and Business Dr. Hui S. Chang, Chief Operating Officer • 15 years of biopharmaceutical project management experience and research capabilities • Ph.D. in vaccine development focusing on biochemistry and immunology as well as an MBA in finance and vaccine logistics from Johns Hopkins University

  26. Investment Highlights The leading producer of probiotics in China • Strong R&D with highly efficient professional service team • Safe, stable and highly effective product solutions • Over 10 years probiotics production history & proven record of profitability and growth • Rising demand for probiotics products driven by increasing consumption of dairy products, health food and rapid growth in the animal feed, cosmetics and pharma market • Established large-scale production capacity and quality control to penetrate an expanding bulk additives market • Strong revenue and profit growth with high margins • Revenue growth 39% CAGR FY06-FY10 • FY10 revenue $81M and adjusted net income $28M • Guidance for 50% top line growth in FY2011 • Proven blended gross margin above 65% • Consistent positive free cash-flow in recent 3 years

  27. Appendix: Reconciliation of Non-GAAP Financial Data

  28. Thank You China-Biotics Inc. Travis Cai, Chief Financial Officer traviscai@chn-biotics.com ir@chn-biotics.com Grayling Shiwei Yin/Dixon Chen (646) 284-9474 shiwei.yin@grayling.com dixon.chen@grayling.com March 2011