TNBI 10-Q Quarterly Report June 30, 2012

TANKE BIOSCIENCES CORP

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10-Q 1 f10q0612_tanke.htm QUARTERLY REPORT f10q0612_tanke.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended June 30, 2012

	or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Transition Period from ___________ to _____________

Commission File Number: 000-53529

TANKE BIOSCIENCES CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	26-3853855
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


Room 2801, East Tower of Hui Hao Building, No. 519 Machang Road Pearl River New City, Guangzhou, P. R. China	510627
(Address of principal executive offices)	(Zip Code)

+86 (20) 3885-9025

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

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

Yes o No x

As of August 14, 2012, there were 13,324,083 outstanding shares of common stock of the registrant, par value $.001 per share.

TANKE BIOSCIENCES CORPORATION

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.	3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	28

Item 4. Controls and Procedures.	28

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.	29

Item 1A. Risk Factors.	29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	29

Item 3. Defaults Upon Senior Securities.	29

Item 4. Mine Safety Disclosures.	29

Item 5. Other Information.	29

Item 6. Exhibits.	29

Signatures	30

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TANKE BIOSCIENCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	June 30,		December 31,
	2012		2011


Current assets:
Cash and cash equivalents	$	10,032,346	$	7,700,156
Restricted cash		583,214		706,802
Accounts receivable, net		1,815,485		1,917,699
Inventory		1,257,031		1,187,895
Note receivable-related parties, current portion		-		239,476
Loans to customers and suppliers		2,889,492		2,513,460
Other receivables		157,616		53,936
Prepayment		3,325,391		3,633,674
Other current assets		542,953		914,594
Deferred tax assets		46,532		46,042
Total current assets		20,650,060		18,913,734

Property, plant and equipment, net		4,871,577		4,771,299
Construction in progress		79,382		35,878
Intangible asset, net		1,320,313		838,089
Other non-current assets		368,258		328,006
Total assets	$	27,289,590	$	24,887,006

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	582,052	$	784,777
Other payable and accrued liabilities		1,048,362		758,907
Income tax payable		1,476,642		1,216,841
Convertible notes, net		5,870,686		-
Current portion of long-term borrowing		793,817		785,456
Total current liabilities		9,771,559		3,545,981

Convertible notes, net		-		4,488,881
Note payable - related party		13,722		13,722
Advance from government grant		249,979		355,754
Long term borrowing		1,587,633		628,365
Total liabilities		11,622,893		9,032,703

Commitments and contingencies

Stockholders' equity:
Common stock, $0.001 par value, 50,000,000 shares authorized, 13,324,083 issued and outstanding as of June 30, 2012 (unaudited) and December 31, 2011, respectively		13,324		13,324
Additional paid-in capital		12,220,181		12,220,181
Retained earnings		2,297,420		2,695,983
Statutory reserve		373,406		373,406
Accumulated other comprehensive income		762,366		551,409
Total stockholders' equity		15,666,697		15,854,303
Total liabilities and stockholders' equity	$	27,289,590	$	24,887,006

See accompanying notes to the condensed consolidated financial statements

TANKE BIOSCIENCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011


Net sales	$	7,431,486		$	4,989,843		$	11,971,928		$	10,931,313
Costs of sales		(4,690,963	)		(3,217,801	)		(7,644,174	)		(6,732,867	)
Gross profit		2,740,523			1,772,042			4,327,754			4,198,446
Selling expenses		(548,179	)		(618,806	)		(1,094,232	)		(1,204,056	)
Administrative expenses		(680,232	)		(780,518	)		(1,221,236	)		(3,324,905	)
Other operating expenses		-			(91,689	)		-			(91,689	)
Depreciation and amortization		(14,763	)		(51,460	)		(26,429	)		(63,179	)
Income (loss) from operations		1,497,349			229,569			1,985,857			(485,383	)
Other income/expense
Interest income		148,252			2,220			169,453			3,610
Interest expense		(368,782	)		(423,495	)		(741,869	)		(682,949	)
Amortization of discount on notes		(690,903	)		(1,381,806	)		(1,381,806	)		(2,141,040	)
Foreign exchange losses, net		-			26,646			-			(52,400	)
Income (loss) before income taxes		585,916			(1,546,866	)		31,635			(3,358,162	)
Income tax expense		(313,502	)		(106,953	)		(430,198	)		(320,308	)
Net income (loss)	$	272,414		$	(1,653,819	)		(398,563	)	$	(3,678,470	)
Other comprehensive income, net of tax:
Effects of foreign currency conversion		98,471			649,101			210,957			240,768
Translation attributable to non-controlling interest		-			-			-			-
Comprehensive income (loss)	$	370,885		$	(1,004,718	)		(187,606	)	$	(3,437,702	)

Net income (loss) available to common shareholders per share:
Basic	$	0.02		$	(0.12	)		(0.03	)	$	(0.29	)
Diluted	$	0.02		$	(0.12	)		(0.03	)	$	(0.29	)

Weighted average shares outstanding:
Basic		13,324,083			13,324,083			13,324,083			12,756,993
Diluted		13,324,083			13,324,083			13,324,083			12,756,993

See accompanying notes to the condensed consolidated financial statements

TANKE BIOSCIENCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2012			2011


Operating activities:
Net loss	$	(398,563	)	$	(3,678,470	)
Adjustments to reconcile net income to net cash
used in operating activities:
Change in allowance for doubtful accounts					3,341
Depreciation and amortization		244,564			63,179
Common stock issued for services		-			2,491,938
Amortization of discount on convertible notes payable		1,381,805			2,141,040
Amortization of capitalized offering costs		397,271			615,549
Changes in operating assets and liabilities:
Accounts receivable		102,214			98,710
Inventories		(69,136	)		172,608
Note receivables - related parties		239,476			1,288,062
Deferred tax asset		(490	)		15,822
Prepayment		308,283			-
Other current assets		(25,630	)		(565,838	)
Other non-current assets		(40,252	)		-
Government grant		(105,775	)		(63,425	)
Accounts payable		(202,725	)		(3,282	)
Other payables and accrued liabilities		289,455			22,023
Income tax payable		259,801			297,978
Advance from customer		-			(3,213	)
Net cash provided by operating activities		2,380,298			2,896,022

Investing activities:
Increase in loans to customers and suppliers		(376,032	)		-
Increase in other receivables		(103,680	)		(740,433	)
Purchase of property and equipment		(388,346	)		(100,179	)
Purchase of intangible assets		(482,224	)		-
Increase in cash due to acquisition of China Flying		-			76,075
Net cash used in investing activities		(1,350,282	)		(764,537	)

Financing activities:
Change in restricted cash		123,588			(698,646	)
Net proceeds from issue of convertible notes		-			6,522,563
Increase (decrease) in bank borrowings		967,629			458,215
Net cash provided by (used in) financing activities		1,091,217			6,282,132

Effect of foreign currency translation		210,957			(116,250	)

Net increase (decrease) in cash		2,332,190			8,297,367
Cash and cash equivalents, beginning of period		7,700,156			2,222,025
Cash and cash equivalents, end of period	$	10,032,346		$	10,519,392

Supplemental disclosures of cash flow information:
Cash paid for interest	$	37,797		$	67,405
Cash paid for income taxes	$	184,227		$	31,562

See accompanying notes to the condensed consolidated financial statements

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

In these condensed consolidated financial statements, unless the context requires otherwise, the terms “we”, “our”, “us” and the “Company” refer to Tanke Biosciences Corporation, a Nevada corporation formerly known as Greyhound Commissary, Inc. (“Greyhound”), as well as our direct and indirect subsidiaries, and our principal operating business, Guangzhou Tanke Industry Co., Ltd. (“Guangzhou Tanke”), a company organized under the laws of the People’s Republic of China (“China” or the “PRC”), which we control via a series of variable interest entity contractual agreements (the “VIE Agreements”) more fully described below.

We conduct our business through our subsidiaries, principally our wholly-owned subsidiary China Flying Development Limited (“China Flying”), a Hong Kong incorporated company, and its wholly-owned subsidiary Guangzhou Kanghui Agricultural Technology Co., Ltd. (“Kanghui Agricultural” or the “WFOE”), a wholly foreign owned enterprise incorporated as a limited liability company under the laws of the PRC. The Company operates and controls Guangzhou Tanke through Kanghui Agricultural and China Flying and in connection with the VIE Agreements.

On January 3, 2011, Guangzhou Tanke entered into a series of agreements with Kanghui Agricultural, pursuant to which Kanghui Agricultural effectively assumed management of the business activities of Guangzhou Tanke. Kanghui Agricultural is entitled to 100% of the net income of Guangzhou Tanke and is able to direct Guangzhou Tanke’s actions.

Also on January 3, 2011, our board of directors unanimously approved a resolution to enter into a Share Exchange Agreement with China Flying, and Golden Genesis Limited, a British Virgin Islands company ("Golden Genesis"), the sole stockholder of China Flying. Under the terms of the Share Exchange, Golden Genesis exchanged 100% of its capital stock in China Flying for 10,758,000 shares of authorized, but previously unissued Greyhound common stock, post-split as described below. Also, at the closing, we issued an aggregate of 2,166,903 shares (post split) of our authorized, but previously unissued common stock to a U.S. advisor. Following the closing of the agreement on February 9, 2011, China Flying became our wholly owned subsidiary.

Our board of directors further approved unanimously on January 3, 2011, a one share for 8.512 shares reverse split of our issued and outstanding common stock. The effective date of the split was established by our board on a date prior to the closing of the acquisition of China Flying.

The acquisition of China Flying was contingent upon the completion of our planned private placement in which we sold 6,669,627 units (the “Units”), with net proceeds of $6,522,563. Each Unit consisted of a $1.15 principal amount convertible note and a three year warrant to purchase one share of Greyhound common stock. On February 9, 2011, the Company entered into a Securities Purchase Agreement with individual investors relating to the private placement and completed the private placement transaction (see Note 9 below). The proceeds from such sale will be used to finance the operations and growth of Guangzhou Tanke.

At the time of the Share Exchange Agreement, Greyhound had 3,397,787 shares of common stock issued and outstanding. Following the reverse split, but prior to the issuance of shares pursuant to the acquisition of China Flying, the outstanding shares were reduced to 399,180 shares. Split shares issued in connection with the reverse stock split were fully paid and non-assessable. The number of stockholders will remain unchanged as a result of the reverse split. The par value of our common stock remained unchanged.

As management of Guangzhou Tanke obtained control of the Company, the Share Exchange was treated as a reverse merger. Accordingly, for accounting purposes Guangzhou Tanke was the acquirer so historical financial information presented herewith is that of Guangzhou Tanke. Consequently, there was no step-up in the basis of the assets of Guangzhou Tanke, as Guangzhou Tanke was the acquirer for accounting purposes.

Pursuant to the VIE Agreements, Kanghui Agricultural has the right to advise, consult, manage and operate Guangzhou Tanke for a quarterly fee equal to Guangzhou Tanke’s net income. Additionally, the Tanke Shareholders pledged their rights, titles and equity interest in Guangzhou Tanke as security for Kanghui Agricultural to collect consulting and services fees provided to Guangzhou Tanke through an Equity Pledge Agreement. In order to further reinforce Kanghui Agricultural’s rights to control and operate Guangzhou Tanke, the Tanke Shareholders granted Kanghui Agricultural an exclusive right and option to acquire all of their equity interests in Guangzhou Tanke through an Option Agreement. Neither Tanke Biosciences nor Kangui Agricultural own the assets or are responsible for the liabilities of Guangzhou Tanke.

The VIE Agreements were necessary because without them, the shareholders of Tanke Biosciences would not have control of Guangzhou Tanke. With these in place, however, Guangzhou Tanke is contractually equivalent to a subsidiary of Tanke Biosciences.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

Guangzhou Tanke has historically self financed, and has been a profitable enterprise. However, on February 9, 2011, Tanke Biosciences sold convertible notes payable (see Note 9 below) with net proceeds of $6,522,563. Such proceeds will be used to finance the operations and growth of Guangzhou Tanke.

As Tanke Biosciences has complete control over Guangzhou Tanke, all assets presented on the balance sheet of Tanke Biosciences are available to settle obligations of Tanke Biosciences. Furthermore, there are no liabilities on the balance sheets of Guangzhou Tanke that do not have recourse against the assets of Tanke Biosciences. As Guangzhou Tanke is our sole operating entity, nearly all operating assets and liabilities are those of Guangzhou Tanke.

“RMB” and “Renminbi” refer to the legal currency of China and “$”, “US dollar” and “US$” refer to the legal currency of the United States.

Overview of Our Business

Through Guangzhou Tanke, our principal operating business, we are one of the leading animal nutrition and innovative feed additive providers in China. Our products are distinguished from traditional artificial feed additives in that they are environmentally-friendly and are designed to optimize the growth and health of livestock such as pigs and cattle, as well as farmed fish.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The Company’s consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 have been stated in US dollars and prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Article 8-03 of Regulation S-X under the Exchange Act. In the opinion of our management, we have included all adjustments (consisting only of normal recurring adjustments) considered necessary in order to make the financial statements not misleading. Operating results for the three and six months ended June 30, 2012 are not indicative of the results that may be expected for the fiscal year ending December 31, 2012. The condensed consolidated balance sheet information as of December 31, 2011 was derived from the audited consolidated financial statements included in the Form 10-K. These unaudited financial statements and related notes should be read in conjunction with our audited annual financial statements for the year ended December 31, 2011 included in our Form 10-K filed with the Securities and Exchange Commission on April 16, 2012.

(b) Basis of consolidation

These consolidated financial statements include the financial statements of the Company and its subsidiaries (the “Group''). All inter-company balances and transactions within the Group have been eliminated.

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of the amount due from related parties, the net realizable value of inventories, the estimation of useful lives of property and equipment and intangible assets, and the value of warrants. Actual results could differ from those estimates.

(d) Concentrations of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable and amounts due from related parties. The Company places its cash with financial institutions with high-credit ratings and quality. The Company maintains bank accounts in the PRC only. In addition, the Company conducts periodic reviews of the related party financial conditions and payment practices. The Company has not experienced losses related to these concentrations in the past.

Approximately 99% of the Company’s revenue is generated from buyers in mainland China.

(e) Concentrations of Suppliers

All the Company’s suppliers are located in mainland China.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

(f) Cash and Cash Equivalents

The Company considers all highly liquid investments with initial maturities of three months or less to be cash equivalents.

(g) Restricted Cash

Deposits that are restricted in use are classified as restricted cash. The Company has restricted cash in an escrow account and represents one year of interest (approximately $300,000) on the convertible notes payable. When the notes mature or are converted into stock, the cash in this account will be released from restriction. Another escrow account holds the fund set aside for use on Investor Relations activities (approximately $280,000.)

(h) Trade and Other Receivables

The Company periodically assesses its accounts receivable for collectability on a specific identification basis. If collectability of an account becomes unlikely, an allowance is recorded for that doubtful account. Once collection efforts have been exhausted, the account receivable is written off against the allowance. The Company does not require collateral for trade or other accounts receivable.

(i) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The cost of inventories includes the purchase cost and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

As of June 30, 2012 and December 31, 2011, the Company’s provision for slow-moving or defective inventories amounted to $42,028 and $41,585, respectively.

(j) Prepayments

Prepayments represent cash paid in advance to suppliers for purchases of raw materials.

(k) Property, Plant and Equipment

Property and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.

Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives. The estimated useful lives are as follows:

Buildings	15-20 years
Plant and machinery	3-20 years
Motor vehicle	10 years
Office equipment	3-10 years

Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred.

Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less the proceeds from disposal is charged or credited to income.

(l) Intangible Asset

The intangible asset primarily represented two land use rights and purchased developed technology, and they are recorded at cost less accumulated amortization.

According to the laws of China, land in the PRC is owned by the government and cannot be sold to an individual or company. However, the government grants the users a land use right to use the land. The land use rights granted to the Company are being amortized using the straight-line method over the lease term of fifty years.

During the second quarter of 2012, we purchased from an agricultural research institute the right of commercializing and applying for a patent for a new product technology developed by that research institute.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

(m) Impairment of Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company recognizes impairment of long-lived assets in the event that the net book values of such assets exceed the future undiscounted cash flows attributable to such assets.

(n) Statutory Reserves

In accordance with the relevant laws and regulations of the PRC and the articles of associations of the Company, Guangzhou Tanke is required to allocate 10% of their net income reported in the PRC statutory accounts, after offsetting any prior years’ losses, to statutory reserve, on an annual basis. When the balance of such reserve reaches 50% of the respective registered capital of the subsidiaries, any further allocation is optional.

As of June 30, 2012 and December 31, 2011, the statutory reserves of the subsidiary already reached 50% of the registered capital of the subsidiary and the Company did not have any further allocation on it.

The statutory surplus reserves can be used to offset prior years’ losses, if any, and may be converted into registered capital, provided that the remaining balances of the reserve after such conversion is not less than 25% of registered capital. The statutory surplus reserve is non-distributable.

(o) Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition, and SEC Staff Accounting Bulletin No.104. Pursuant to these pronouncements, revenue is recognized when all of the following criteria are met:

- Persuasive evidence of an arrangement exists;

- Delivery has occurred or services have been rendered;

- The seller's price to the buyer is fixed or determinable; and

- Collectability is reasonably assured.

The Company’s revenue is generated through the wholesale and retail sale of livestock feed including organic trace mineral additives, functional regulation additives, herbal medicinal additives and raw materials. Before the Company recognizes revenue on these product sales, written purchase orders and contracts are received in advance of all shipments of goods to customers. For sales within the Company’s own province, delivery is made by Company employees. Such delivery occurs on the same day as shipment. For delivery outside the province, shipment is made through a separate logistics company that assumes the risk of loss. Revenue is recognized upon shipment of goods to the customers. The Company typically does not incur bad debt losses because this type of loss is deducted from the salesperson’s compensation, thereby mitigating the loss to the Company. Therefore, collectability is reasonably assured.

Revenue is presented net of sales returns, which are not significant. However, the Company continually performs analyses of returns and records a provision at the time of sale if necessary. As of June 30, 2012 and December 31, 2011, it was determined that potential returns and allowances were not material so the Company did not record a provision for returns. The Company revisits this estimate regularly and adjusts it if conditions change.

(p) Cost of Goods Sold

Cost of revenue consists primarily of material cost, labor cost, rent of land allocated to production, overhead associated with the manufacturing process and directly related expenses.

(q) Research and Development Costs

Research and development costs are charged to expense as incurred and are included in operating expenses.

(r) Value Added Tax

In accordance with the relevant tax laws in the PRC, VAT is levied on the invoiced value of sales and is payable by the purchaser. The Company is required to remit the VAT it collects to the tax authority, but may deduct the VAT it has paid on eligible purchases. The difference between the amounts collected and paid is presented as VAT recoverable or payable balance on the balance sheet.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

(s) Income Taxes

The Company uses the asset and liability method of accounting for income taxes pursuant to ASC 740, ”Income Tax”. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company is not subject to United States income tax. Furthermore, the Company is audited every year by an agency of the Chinese tax authority. Consequently, there are no uncertain tax positions requiring accrual or disclosure in accordance with ASC 740-10, Income Taxes.

(t) Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from net income or loss, investments by owners and distributions to owners. The Company’s only component of other comprehensive income is the foreign currency translation adjustment.

(u) Earnings per share (EPS)

Earnings per share is calculated in accordance with ASC 260-10 which requires the Company to calculate net income (loss) per share based on basic and diluted net income (loss) per share, as defined. Basic EPS excludes dilution and is computed by dividing net income (loss) by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

(v) Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

(w) Foreign Currency Translation

The Company, its subsidiaries and VIE maintain financial statements in the functional currency of each entity. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

The financial statements of each entity are prepared using the functional currency, and have been translated into United States dollars (“US$” or “$”). Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates for the period. Stockholders’ equity is translated at historical exchange rates. Any translation adjustments are included as a foreign exchange adjustment in other comprehensive income, a component of stockholders’ equity.

Exchange rates used (RMB to USD)		2011		2012
Assets and liabilities	Balance sheet date (6/30)		0.1547		0.1588
	Balance sheet date (12/31)		0.1571
Revenue and expenses	Period average (1/1to 3/31)		0.1518		0.1588
	Period average (1/1to 6/30)		0.1527		0.1584

RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

(x) Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, due to/from related parties, notes payable, other payable and accrued liabilities and income tax payable approximate their fair values due to the short-term nature of these items. The carrying amounts of long-term borrowings approximate the fair value based on the Company’s expected borrowing rate for debt with similar remaining maturities and comparable risk.

Convertible notes are not carried at fair value due to the discounts for warrants and the beneficial conversion feature. As the interest on these notes approximates market interest, the fair value is their face value of $7,670,071.

It is management’s opinion that the Company is not exposed to significant interest, price or credit risks arising from these financial instruments.

(y) Recent Accounting Updates

In June 2011, the FASB issued ASC Topic 220 “Comprehensive Income” that amends the presentation of comprehensive income in the financial statements by requiring an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The update also eliminates the option to present the components of other comprehensive income as part of the statement of equity. The guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04 amends ASC Topic 820 to require additional disclosures regarding fair value measurements. One of the areas concerned is to add disclosures about the sensitivity of fair value measurements categorized within Level 3 of the fair value hierarchy, which require the most judgment in determining fair value. The provisions of ASU 2011-04 will be effective for years beginning after December 15, 2011 for both public and nonpublic entities. Public entities will begin adoption in the first interim period beginning after December 15, 2011. Early adoption is not permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.

3. INVENTORIES

Inventories as of June 30, 2012 and December 31, 2011 consisted of the following.

	June 30,			December 31,
	2012			2011

Raw materials	$	720,274		$	538,465
Finished goods		337,425			402,458
Work in pogress		199,983			242,748
Packaging material		41,377			45,809
Inventory allowance		(42,028	)		(41,585	)
	$	1,257,031		$	1,187,895

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

4. ACCOUNTS RECEIVABLE

Accounts receivable as of June 30, 2012 and December 31, 2011 consisted of the following.

	June 30,			December 31,
	2012			2011

Account receivables	$	2,051,250		$	2,150,981
Less: Allowance for doubtful accounts		(235,765	)		(233,282	)
	$	1,815,485		$	1,917,699

5. DUE FROM RELATED PARTIES

Due from related parties consisted of the following.

	June 30,		December 31,
	2012		2011

Advance to director	$	-	$	239,149
Others		-		327
	$	-	$	239,476

Advance to directors represents advance payment made to directors for business development activities and will normally be repaid within one year.

6. OTHER RECEIVABLES

Other receivables consisted of the following.

	June 30,		December 31,
	2012		2011

Deposit and others	$	11,557	$	13,425
Advance to staff		146,059		40,511
	$	157,616	$	53,936

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

Loans to customers and suppliers represent 8% interest bearing advances to one of the Company’s customers and one supplier, both of which are effective in December 2011 and expected to be repaid within one year.

	June 30,		December 31,
	2012		2011


Loan to customers and suppliers		2,889,492		2,513,460
	$	2,889,492	$	2,513,460

7. PREPAYMENT AND OTHER CURRENT ASSETS

In order to secure key raw materials and supplies and to lock in rising purchase prices, the Company paid substantial amounts of cash in advance on purchase orders. In addition, a few major R&D projects were paid in advance for developers’ work.

	June 30,		December 31,
	2012		2011


Prepayment to suppliers	$	3,325,391	$	3,633,674

Other current assets as of June 30, 2012 and December 31, 2011 consisted of the following.

	June 30,		December 31,
	2012		2011


Deferred expenses		25,630		-
Offering costs, net		517,323		914,594
	$	542,953	$	914,594

In connection with the private placement, the Company incurred $1,624,002 of offering costs. These costs have been reflected as other current assets and are being amortized using the interest method over the expected life of the related convertible notes payable. Amortization of these costs is recorded as interest expense. As of June 30, 2012, the remaining book value of these offering costs amounted to $517,323.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

8. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment as of June 30, 2012 and December 31, 2011 consisted of the following.

	June 30, 2012		December 31, 2011


Buildings and leasehold improvements	$	4,568,872	$	4,518,397
Plant and equipment		1,154,445		1,024,245
Motor vehicles		169,250		166,884
Office equipment		326,708		164,907
Total property, plant and equipment		6,219,275		5,874,433

Accumulated depreciation		1,347,698		1,103,134
Property, plant and equipment, net	$	4,871,577	$	4,771,299
Construction in progress		79,382		35,878
	$	4,950,959	$	4,807,177

The Company has buildings on the site it occupies, including factory buildings. Due to the lack of a Land Use Right Certificate, the Company is unable to apply for the Property Ownership Certificate for the buildings. However, as the buildings are in use, the Company depreciates them over their expected useful lives. During the quarter ended June 30, 2011, the Company’s factory campus construction project was completed and the costs were moved from construction in process to the buildings account. Upon placement in service, the Company began depreciating them.

9. INTANGIBLE ASSET, NET

The intangible asset as of June 30, 2012 and December 31, 2011 consisted of the following.

	June 30,		December 31,
	2012		2011


Deposit for land use right	$	842,659	$	835,985
New product technology		476,290
Other		1,364		2,104
	$	1,320,313	$	838,089

On November 21, 2003, the Company applied to the Government of Huaqiao Town, Huadu District, Guangzhou, for the land use right of No. 2 Industry Area of Huaqiao Town (i.e., Laohutou Lot, Wangongtang) covering an area of around 430,000 square feet.

On October 22, 2010, the Company applied to the Administration Committee of Qingyuan Huaqiao Industrial District for the land use right covering an area of around 60 acres. The Company has paid $576,211 as consideration for the land use right and started the construction project during the year.

The Company plans to start amortizing the land use right as soon as the official certificate is issued on Huadu facility. The amortization of the land use right for the Qingyuan facility should begin in the 3 rd quarter of 2012.

The amount included in new product technology represents the right to commercialize and apply for a patent a new product developed by an agricultural research institute, that was sold to the Company during the quarter ended June 30, 2012. Patent protection applied will last for five years and amortization of this intangible asset will start when production of the new product begins.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

10. OTHER NON-CURRENT ASSETS

Other non-current assets consisted of the following.

	June 30,		December 31,
	2012		2011


Staff loan	$	325,465	$	265,167
Others		42,793		62,839
	$	368,258	$	328,006

Staff loans are made to employees under terms that call for repayment of the amounts within two years.

11. OTHER PAYABLE AND ACCRUED LIABILITIES

Other payable and accrued liabilities as of June 30, 2012 and December 31, 2011 consisted of the following.

	June 30, 2012		December 31, 2011


Other payables	$	110,388	$	67,751
Staff welfare payable		68,686		68,057
Accrued payroll		112		46,294
Value added tax payable		72,435		93,140
Registration rights penalties		460,206		460,206
Accrued Interest		315,691		-
Other tax payable		20,844		23,459
	$	1,048,362	$	758,907

Other payables represent loans from third parties, which are interest free, unsecured and repayable on demand. Registration rights penalties associated with the registration rights agreement. Accrued interest for the 8% convertible note payable, paid semi-annually.

12. CONVERTIBLE NOTES PAYABLE

On February 9, 2011, the Company entered into a Securities Purchase Agreement with individual investors relating to a private placement transaction by the Company (the “Private Placement”) of 6,669,627 units. Each unit consisted of a $1.15 principal amount 8% Senior Convertible Note (the “Notes”) and a Common Stock Purchase Warrant (the “Warrants”) to purchase one share of the Company’s common stock at an exercise price of $1.40 per share.

As a result of the Private Placement, the Company offered and sold $7,670,071 worth of Notes convertible into 6,669,627 shares of common stock. The Notes are payable 24 months from February 9, 2011 with an interest rate of 8% per annum payable semiannually in arrears. The Company placed in escrow an amount of the proceeds of the Private Placement equal to one semi-annual interest payment on the Notes to secure prompt interest payments. Until such time as 75% of the Notes are converted into shares of Common Stock, if such escrow is depleted in order to make interest payments, the Company will replenish such escrow amount. At the option of the holder, the Notes may be converted into Common Stock at a price of $1.15 per share, which is subject to customary weighted average and stock based anti-dilution protection. The issuance of the Notes was not registered under the Securities Act as such issuance was exempt from registration under Section 4(2) of the Securities Act and Regulation D.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

The Notes contain customary events of default and affirmative and negative covenants of the Company, including negative covenants which restrict the Company’s ability to do the following (among other things) without the consent of the investors: (i) incur, or permit to exist, any indebtedness for borrowed money in excess of (A) US$3,000,000 during the twelve (12) month period beginning on February 9, 2011, or (B) US$5,000,000 during the two-year period beginning on February 9, 2011 and ending on February 9, 2013 (the maturity date of the Notes), except in the ordinary course of the Company’s business; (ii) lend or advance money, credit or property to or invest in (by capital contribution, loan, purchase or otherwise) any person or entity in excess of US$1,000,000 except: (A) investments in United States Government obligations, certificates of deposit of any banking institution with combined capital and surplus of at least $200,000,000; (B) accounts receivable arising out of sales in the ordinary course of business; and (C) inter-company loans between and among the Company and its subsidiaries; (iii) pay dividends or make any other distribution on shares of the capital stock of the Company; (iv) create, assume or permit to exist, any lien on any of the Company’s property or assets now owned or hereafter acquired, subject to existing liens and certain exceptions; (v) assume guarantees, subject to certain exceptions; (vi) engage in “sale-leaseback” transactions, subject to certain exceptions; (vii) make capital expenditures in excess of US$5,000,000 in any fiscal year, subject to certain exceptions; and (viii) materially alter the Company’s business.

In connection with the issuance of the Notes, we entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the investors which sets forth the rights of the investors to have the shares of common stock underlying the Notes and Warrants registered with the SEC for public resale. Pursuant to the Registration Rights Agreement, we agreed to file, no later than April 11, 2011, a registration statement to register the shares underlying the Notes and the Warrants and to have such registration statement effective no later than September 18, 2011. If the registration statement was not filed by April 11, 2011 (the “Filing Failure”), was not effective by September 18, 2011 (the “Effectiveness Failure”) or if, after the effective date, sales of securities included in the registration statement cannot be made (including, without limitation, because of a failure to keep the registration statement effective, to disclose such information as is necessary for sales to be made pursuant to the registration statement, to register a sufficient number of shares of Common Stock or to maintain the listing of the Common Stock) (a “Maintenance Failure”) then, as liquidated damages (and in complete satisfaction and to the exclusion of any claims or remedies inuring to any holder of the securities) the Company is required to pay an amount in cash equal to 1% of the aggregate purchase price paid by the Investors on each of the following dates: (i) 20 days following the date of a Filing Failure; (ii) 30 days following the initial day of a Maintenance Failure; (iii) on every thirtieth day thereafter (pro-rated for periods totaling less than thirty days) until such failure is cured; (iv) on every thirtieth day after the day of an Effectiveness Failure and thereafter (pro rated for periods totaling less than thirty days) until such Effectiveness Failure is cured; (v) on every thirtieth day after the initial day of a Maintenance Failure and thereafter (pro rated for periods totaling less than thirty days) until such Maintenance Failure is cured. The payments to be made by the Company are limited to a maximum of 6% of the aggregate amount paid by the Investors ($460,204.29). The registration statement was not declared effective by December 31, 2011, as such an Effectiveness Failure occurred and the Company accrued the full $460,204. The Company will continue to assess the likelihood of payments under this arrangement.

The warrants issued as a component of the units were valued using the Black-Scholes method using the following assumptions: (1) life of warrants of 3 years, (2) annualized volatility of 100%, (3) fair value of stock as of grant date of $1.15, (4) exercise price of $1.40, (5) annual dividend rate of 0%, and (6) discount rate of 1.34%. Such calculation resulted in a warrant value of $4,470,536.

The proceeds of the unit offering were allocated to the Notes and warrants based on their relative fair values on a weighted average basis, with the resulting allocated value of the warrants of $2,824,350 being classified to additional paid in capital. Such discount to the Notes is being amortized over their expected life.

The beneficial conversion feature associated with the issuance of the above Notes, amounted to $2,824,350, which has also been recorded as a discount to the convertible notes payable and is being amortized over the life of the Notes. The Notes do not contain any embedded derivatives which require liability classification.

As of June 30, 2012, the book value of the Notes amounted to $5,870,686, which consisted of the aggregate face value of $7,670,071, less the remaining discount of $1,799,385.

13. INCOME TAX

The Company’s operating subsidiary, Guangzhou Tanke, is a “domestic enterprise” that is registered and operated in Guangzhou, the PRC. Income tax expense for the six months ended June 30, 2012 and 2011 of $430,198 and $320,308 respectively, represents the provision for current income tax expenses in the PRC. The statutory income tax rate in PRC is 25%.

Tanke Bio-Tech, a subsidiary of Guangzhou Tanke, is a joint venture with a foreign entity that received a full exemption from income taxes in 2007 and 2008 and half rate reduction (12.5%) for years 2009, 2010 and 2011 in accordance with the Law of the People's Republic of China on Income Tax of Enterprises with Foreign Investment and Foreign Enterprises and Notification of the State Council on Carrying out the Transitional Preferential Policies concerning Enterprise Income Tax (Guofa (2007) No. 39). Beginning in 2012, Tanke Bio-Tech starts benefiting from a different reduced tax rate of 15% due to its status of an official new, high-tech company.

As of June 30, 2012 and December 31, 2011, the income tax payable for the Company amounted to $1,476,642 and $1,216,841, respectively. All of the Company’s U.S. net operating loss carry forward was fully reserved.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

Significant components of the Company’s deferred tax asset are as follows.

	June 30,		December 31,
	2012		2011

Deferred tax asset
Allowance for doubtful accounts	$	46,532	$	46,042

14. LONG-TERM LOANS

The details of the Company’s long-term borrowings are as follows:

	June 30,			December 31,
	2012			2011

Bank loans bearing interest at 5.85% and 7.36% per annum, maturing on January 30, 2013 and April 30, 2015.
The loans are uncollateralized other than restricted cash deposited at the bank.	$	2,381,450		$	1,413,821
Less: Current portion		(1,270,107	)		(785,456	)
	$	1,111,343		$	628,365

The bank loans consist of $793,817 (RMB 5,000,000) and $1,587,633 (RMB 10,000,000), bearing interest at 5.85% and 7.36% per annum, maturing on January 30, 2013 and April 30, 2015, respectively. Interest is calculated and paid on the 20 th of each month. Principle payments are made on a quarterly basis.

Payment Schedule
2012		2013		2014		2015		2016
$	529,211	$	617,413	$	617,413	$	617,413	$	-

15. GOVERNMENT GRANT

The government grant liability represents an advance from the Chinese government for research and development projects. The Company has recorded the grants received as a government grant liability, and ratably recognizes the amount as a reduction of research and development expense when the related research and development activities are performed. As of June 30, 2012 and December 31, 2011, government grant balances are $249,979 and $355,754, respectively.

16. SEGMENT INFORMATION

The Company operates in four segments: organic trace mineral additives, functional regulation additives, herbal medicinal additives and other revenues. Management oversees each of these operations separately.

Property, equipment and other assets are shared and not tracked separately by segment. Administrative expenses are also not tracked by segment. Following is a breakdown of revenue, costs of sales and gross profit by segment.

TANKE BIOSCIENCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Segment revenues
Organic Trace Mineral Additives	$	6,512,375		$	3,939,129		$	9,898,283		$	8,801,243
Functional Regulation Additives		844,638			948,663			1,746,539			1,658,775
Herbal Medicinal Additives		54,254			83,016			96,839			84,268
Other		20,219			19,035			230,267			387,027
		7,431,486			4,989,843		$	11,971,928		$	10,931,313
Segment costs of sales
Organic Trace Mineral Additives		4,030,699			2,520,275		$	6,151,155		$	5,399,720
Functional Regulation Additives		576,489			601,392			1,159,312			1,025,072
Herbal Medicinal Additives		64,179			74,878			115,244			75,674
Other		19,596			21,256			218,463			232,401
		4,690,963			3,217,801		$	7,644,174		$	6,732,867
Segment gross profit
Organic Trace Mineral Additives		2,481,676			1,418,854		$	3,747,128		$	3,401,523
Functional Regulation Additives		268,149			347,271			587,227			633,703
Herbal Medicinal Additives		(9,925	)		8,138			(18,405	)		8,594
Other		623			(2,221	)		11,804			154,626
		2,740,523			1,772,042		$	4,327,754		$	4,198,446

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements. As a result of the Share Exchange and the VIE Agreements, the Company, through Kanghui Agricultural, its indirect wholly owned subsidiary, assumed management of the business activities of Guangzhou Tanke and has the right to appoint all executives and senior management and the members of the board of directors of Guangzhou Tanke. As used in this section, the terms “we”, “our”, “us” and the “Company” refer to the Company, our direct and indirect subsidiaries and Guangzhou Tanke, our principal operating business.

Overview

We are one of the leading animal nutrition and feed additive providers in China and in 2001 were designated a certified high-tech company by the Guangzhou City Commission of Science and Technology as recognition for new technology developed by us in the agriculture industry. Our products optimize the growth and health of livestock such as pigs and cattle, as well as farmed fish, and seek to capitalize on China’s growing demand for safe and reasonably priced food. Feed additives are utilized in China at less than half the rate of the United States and Europe, and we have a significant growth opportunity as Chinese farmers and ranchers include a greater amount of increasingly sophisticated additive to their feed.

We have more than 165 employees, with 40 engaged in sale or sales-related activities. Our headquarters and manufacturing facilities are in a state-of-the-art 34,000 square-meter facility in the capital city of Guangzhou, in Guangdong province. We currently produce 22 branded feed additives, with each brand available in seven different mixes that correspond to different states of an animal’s life cycle.

Our major products address most key market categories within China’s animal feed additive industry including: Organic Trace Mineral Additives, which account for approximately 83% of our revenue, Functional regulation, which account for approximately 15% of our revenue, and Herbal Medicinal Additives, which account for approximately 1% of our revenue. Our extensive distribution network reaches China’s top 10 feed producers and the 500 largest animal farming operations. We currently market 22 different brands of feed additives at various price points to meet the demands of existing and prospective customers. Within each brand there are seven different mixes that correspond to the different growth stages of an animal’s life cycle. While the majority of our sales are domestic, international sales, mainly in Southeast Asia, Latin American and other developing countries, currently account for approximately 1% of our total sales.

Critical Accounting Policies

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Basis of Preparation

The Company’s consolidated financial statements have been stated in US dollars and prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Article 8-03 of Regulation S-X under the Exchange Act. In the opinion of our management, we have included all adjustments considered necessary in order to make the financial statements not misleading. Operating results for the three and six months ended June 30, 2012 are not indicative of the results that may be expected for the fiscal year ending December 31, 2012.

Use of Estimates

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition, and SEC Staff Accounting Bulletin No. 104. Pursuant to these pronouncements, revenue is recognized when all of the following criteria are met:

- Persuasive evidence of an arrangement exists;

- Delivery has occurred or services have been rendered;

- The seller's price to the buyer is fixed or determinable; and

- Collectability is reasonably assured.

The Company’s revenue is generated through the wholesale and retail sale of livestock feed additives, including organic trace mineral additives, functional regulation additives, herbal medicinal additives and raw materials. Before the Company recognizes revenue on these product sales, written purchase orders and contracts are received in advance of all shipments of goods to customers. For sales within the Company’s own province, delivery is made by Company employees. Such delivery occurs on the same day as shipment. For delivery outside the province, shipment is made through a separate logistics company that assumes the risk of loss. Revenue is recognized upon shipment of goods to the customers. The Company typically does not incur bad debt losses because this type of loss is deducted from the salesperson’s compensation, thereby mitigating the loss to the Company. Therefore, collectability is reasonably assured.

Revenue is presented net of sales returns, which are not significant. However, the Company continually performs analyses of returns and records a provision at the time of sale if necessary. As of June 30, 2012, it was determined that potential returns and allowances were not material so the Company did not record a provision for returns. The Company revisits this estimate regularly and adjusts it if conditions change.

Research and Development Costs

Research and development costs are charged as expense when incurred and included in operating expenses.

Foreign Currency Translation

The Company and its subsidiaries maintain financial statements in the functional currency of each entity. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

Results of Operations for the Three Months Ended June 30, 2012 as Compared to the Three Months Ended June 30, 2011

The following is a comparison of our revenue, costs of sales and gross profit by segment for the three months ended June 30, 2012 and 2011.

Revenue and Costs of Sales

The Company operates in four segments: (1) Organic Trace Mineral Additives, (2) Functional Regulation Additives, (3) Herbal Medicinal Additives and (4) Other. Management tracks each of these operations separately. The Company evaluates the performance of its operating segments based on segment revenue and gross profit, and management uses aggregate segment gross profit as a measure of the overall performance of the business. The Company believes that information about aggregate segment gross profit assists investors by allowing them to evaluate changes in the gross profit of the Company’s various offerings separate from factors other than product offerings that affect net income.

	2012			2011			$ Change			% Change

Segment revenues
Organic Trace Mineral Additives	$	6,512,375		$	3,939,129		$	2,573,246			65.3	%
Functional Regulation Additives		844,638			948,663			(104,025	)		-11.0	%
Herbal Medicinal Additives		54,254			83,016			(28,762	)		-34.6	%
Other		20,219			19,035			1,184			6.2	%
	$	7,431,486		$	4,989,843		$	2,441,643			48.9	%

Segment costs of sales
Organic Trace Mineral Additives	$	4,030,699		$	2,520,275		$	1,510,424			59.9	%
Functional Regulation Additives		576,489			601,392			(24,903	)		-4.1	%
Herbal Medicinal Additives		64,179			74,878			(10,699	)		-14.3	%
Other		19,596			21,256			(1,660	)		-7.8	%
	$	4,690,963		$	3,217,801		$	1,473,162			45.8	%

Segment gross profit
Organic Trace Mineral Additives	$	2,481,676		$	1,418,854		$	1,062,822			74.9	%
Functional Regulation Additives		268,149			347,271			(79,122	)		-22.8	%
Herbal Medicinal Additives		(9,925	)		8,138			(18,063	)		-222.0	%
Other		623			(2,221	)		2,844			-128.1	%
	$	2,740,523		$	1,772,042		$	968,481			54.7	%

Organic Trace Mineral Additives

Organic trace mineral additives constitute the largest and fastest growing area of our business. We are one of China’s largest domestic providers of organic trace mineral additives, specializing in the development and production of chelated organic trace mineral additives. Our current trace mineral manufacturing facility is the largest chelating facilities in China and has the capacity to produce approximately 350 metric tons of organic trace minerals per week.

Revenue from organic trace mineral additives in the second quarter of 2012 increased by $2,573,246, or 65.3%, as compared to 2011. During the second quarter of 2012, demand for organic trace mineral additives rebounded after a slower first quarter due to the Chinese New Year holiday and soft overall economic growth. Our revenue in the second quarter of 2012 increased due in part to strict food safety rules and regulations enforced by the State Council of China regarding the animal feed and feed additive industries. We have benefited from these new industry standards, as smaller companies who produce sub-standard feed additives will not be able to operate. In addition, pig diseases began to seriously impact the pig farming industry in the second quarter of 2011, lowering demand for feed and feed additives, and driving pork prices to a record level. This did not occur in 2012. In 2012, this revenue accounted for approximately 88% of our revenues for the three months ended June 30, 2012 as compared to 79% for the three months ended June 30, 2011. Our gross profit percentage for the organic trace mineral additive sales amounted to 38.1% and 36.0% for the quarter ended June 30, 2012 and 2011, respectively, as our prices have increased in 2012 as compared to 2011.

Functional Regulation Additives

Functional feed additives are widely used to enhance the properties of other products, improve feed efficiency and stimulate the rapid maturation of the immune system. We currently produce two types of functional regulation additives: feed acidifiers and flavor enhancers. Feed acidifiers are used to prevent microbial degradation of raw materials or finished feeds and to maintain the quality of feed. Flavor enhancers are used to improve feed palatability, enhance animal appetite and stimulate saliva, gastric and pancreatic juices and other digestive juice secretion and gastrointestinal motility and ultimately feed consumption and yield from production animals.

Revenue from functional regulation additives for the quarter ended June 30, 2012 decreased by $104,025, or 11.0%, as compared to the second quarter of 2011. The decrease in sales is primarily due to the segment being less emphasized during the second quarter of 2012, as more attention was placed pushing the growth of the organic trace mineral additive market.

Herbal Medicinal Additives

Chinese herbal feed additives utilize traditional Chinese medicine theory to improve an animal’s digestion and appetite and to regulate the yin and yang balance of an animal’s health. Herbal medicines come from plants, plant extracts, fungal and bee products, minerals, shells and certain animal parts. Compared to synthetic antibiotics or inorganic chemicals, these naturally-derived products are less toxic, residue free and thought to be ideal feed additives in food animal production.

Revenue from herbal medicinal additives for the quarter ended June 30, 2012 decreased by $28,762, or 34.6%, as compared to the quarter ended June 30, 2011.

Herbal Medicinal Additives are still in a development and introductory stage. Material cost has been rising and customers are reluctant to pay higher prices. We have been developing new products and production processes to lower costs and offer more affordable products in this category, as well as new marketing strategy to grow sales. While customers are adapting to the usage, Tanke is making minor modifications to products. Prices and costs will continue to fluctuate in the near future until the right balance is reached.

Other

Other revenue mainly consists of buying and then reselling raw materials. Revenue from raw material sales accounted for 0.3% of our revenue for the three months ended June 30, 2012 and remained consistent with the second quarter of 2011. Going forward, we do not expect this to be a significant source of revenue.

Operating Expenses and Other Income / Expenses

The following table reconciles aggregate segment gross profit to net income for the three months ended June 30, 2012 and 2011.

	Three Months Ended
	June 30,
	2012			2011			$ Change			% Change

Gross profit	$	2,740,523		$	1,772,042		$	968,481			54.7	%
Selling expenses		(548,179	)		(618,806	)		(70,627	)		-11.4	%
Administrative expenses		(680,232	)		(780,518	)		(100,286	)		-12.8	%
Other operating expenses		-			(91,689	)		(91,689	)		-100.0	%
Depreciation and amortization		(14,763	)		(51,460	)		(36,697	)		-71.3	%
Income from operations		1,497,349			229,569			1,267,780			-552.2	%
Other income/expense
Interest income		148,252			2,220			146,032			6578.0	%
Interest expense		(368,782	)		(423,495	)		(54,713	)		-12.9	%
Amortization of discount on notes		(690,903	)		(1,381,806	)		(690,903	)		-50.0	%
Foreign exchange losses, net		-			26,646			26,646			-100.0	%
Income (loss) before income taxes		585,916			(1,546,866	)		2,132,782			137.9	%
Income taxexpense		(313,502	)		(106,953	)		206,549			193.1	%
Net income (loss)	$	272,414		$	(1,653,819	)	$	1,926,233			116.5	%

Selling, General and Administrative Expenses

Selling expenses for the three months ended June 30, 2012 decreased by $70,627 and 11.4% as compared to 2011. The selling expenses decreased despite the increase in sales for the quarter, as the number of sales people did not increase and have been closely monitored due to the lower sales results experienced in the first quarter of 2012.

General and administrative expenses for the three months ended June 30, 2012 decreased by $100,286 and 12.8% as compared to 2011. This was due to higher accounting and legal expenses associated with our public filings in 2011, which did not occur in 2012.

Other Income/Expenses

Interest income for the three months ended June 30, 2012 increased by $146,032 as compared with the three months ended June 30, 2011. This increase is due primarily to interest income received during the second quarter of 2012 resulting from loans we made to a customer and a supplier in the fourth quarter of 2011.

Interest expense for the three months ended June 30, 2012 decreased by $54,713 as compared to 2011. The primary reason for this decrease was due to lower amortization of capitalized offering costs recorded in 2012 resulting from a change in estimate for the life of the offering costs. The offering costs were being amortized over a one year period in the first half of 2011, and a 2 year period in 2012.

The expense associated with the amortization of discounts on our convertible notes payable for the three months ended June 30, 2012 amounted to $690,903 as compared to $1,381,806 in 2011. As discussed above with the amortization of the capitalized offering costs, the convertible notes payable were issued in February 2011 and were being amortized over a period of one year in the first half of 2011. In 2012 we revised our estimate to amortize the amounts over a 2 year period. These amounts are expected to be amortized through February 2013.

Income Tax Expense

Our income tax expense increased by $206,549 for the three month ended June 30, 2012 as compared to 2011. The increase was attributable to an increase in taxable income during the quarter.

Pursuant to Section 26 of the Inland Revenue Ordinance (“IRO”), the governing statute of Hong Kong taxation, any dividend income received by any entity subject to IRO would not be taxable in Hong Kong. Furthermore, foreign (non-Hong Kong) investment income that is repatriated to Hong Kong is not subject to Hong Kong profits (income) tax.

Results of Operations for the Six Months Ended June 30, 2012 as Compared to the Six Months Ended June 30, 2011

The following is a comparison of our revenue, costs of sales and gross profit by segment for the six months ended June 30, 2012 and 2011.

Revenue and Costs of Sales

	Six Months Ended
	June 30,
Segment revenues	2012			2011		$ Change			% Change
Segment revenues
Organic Trace Mineral Additives	$	9,898,283		$	8,801,243	$	1,097,040			12.5	%
Functional Regulation Additives		1,746,539			1,658,775		87,764			5.3	%
Herbal Medicinal Additives		96,839			84,268		12,571			14.9	%
Other		230,267			387,027		(156,760	)		-40.5	%
	$	11,971,928		$	10,931,313	$	1,040,615			9.5	%
Segment costs of sales
Organic Trace Mineral Additives	$	6,151,155		$	5,399,720	$	751,435			13.9	%
Functional Regulation Additives		1,159,312			1,025,072		134,240			13.1	%
Herbal Medicinal Additives		115,244			75,674		39,570			52.3	%
Other		218,463			232,401		(13,938	)		-6.0	%
	$	7,644,174		$	6,732,867	$	911,307			13.5	%
Segment gross profit
Organic Trace Mineral Additives	$	3,747,128		$	3,401,523	$	345,605			10.2	%
Functional Regulation Additives		587,227			633,703		(46,476	)		-7.3	%
Herbal Medicinal Additives		(18,405	)		8,594		(26,999	)		-314.2	%
Other		11,804			154,626		(142,822	)		-92.4	%
	$	4,327,754		$	4,198,446	$	129,308			3.1	%

Organic Trace Mineral Additives

Revenue from organic trace mineral additives for the six months ended June 30, 2012 increased by $1,097,040, or 12.5%, as compared to 2011. During the second quarter of 2012, demand for organic trace mineral additives rebounded after a slower first quarter due to the Chinese New Year holiday and soft overall economic growth. Our revenue in the second quarter of 2012 increased due in part to strict food safety rules and regulations enforced by the State Council of China regarding the animal feed and feed additive industries. We have benefited from these new industry standards, as smaller companies who produce sub-standard feed additives will not be able to operate. In 2012, this revenue accounted for approximately 83% of our revenues for the six months ended June 30, 2012 as compared to 81% for the six months ended June 30, 2011. Our gross profit percentage for the organic trace mineral additive sales amounted to 37.9% and 38.6% for the six months ended June 30, 2012 and 2011, respectively.

Functional Regulation Additives

Revenue from functional regulation additives for the six months ended June 30, 2012 increased by $87,764, or 5.3%, as compared to the six months ended June 30, 2011. The increase in sales is primarily due to increased sales from the successful introduction of two new products in the 2 nd half of 2011. However, the gross profit percentage for the six months ended June 30, 2012 decreased to 33.6%, as compared to 38.2% in the six months ended June 30, 2011 due to higher material and labor costs.

Herbal Medicinal Additives

Revenue from herbal medicinal additives for the six months ended June 30, 2012 increased by $12,571, or 14.9%, as compared to the six months ended June 30, 2011. However, gross profit was negative due to significant increase in material cost.

Herbal Medicinal Additives are still in a development and introductory stage when customers are adapting to the usage and we have been developing new products and production processes to lower costs and offer more affordable products in this category, as well as new marketing strategy to grow sales. Prices and costs will continue to fluctuate in the near future until the right balance is reached.

Other

Other revenue mainly consists of buying and then reselling raw materials. Revenue from raw material sales accounted for 2% of our revenue for the six months ended June 30, 2012 and decreased by $156,760 as compared to 2011. This revenue is very price sensitive, and since our costs increased to the point that selling raw materials actually lost money, we plan on curtailing this activity. Going forward, we do not expect this to be a significant source of revenue.

Operating Expenses and Other Income / Expenses

The following table reconciles aggregate segment gross profit to net income for the six months ended June 30, 2012 and 2011.

	Six Months Ended
	June 30,
	2012			2011			$ Change			% Change

Gross profit	$	4,327,754		$	4,198,446		$	129,308			3.1	%
Selling expenses		(1,094,232	)		(1,204,056	)		(109,824	)		-9.1	%
Administrative expenses		(1,221,236	)		(3,324,905	)		(2,103,669	)		-63.3	%
Other operating expenses		-			(91,689	)		(91,689	)		-100.0	%
Depreciation and amortization		(26,429	)		(63,179	)		(36,750	)		-58.2	%
Income (loss) from operations		1,985,857			(485,383	)		2,471,240			509.1	%
Other income/expense
Interest income		169,453			3,610			165,843			4594.0	%
Interest expense		(741,869	)		(682,949	)		58,920			8.6	%
Amortization of discount on notes		(1,381,806	)		(2,141,040	)		(759,234	)		-35.5	%
Foreign exchange losses, net		-			(52,400	)		(52,400	)		-100.0	%
Income (loss) before income taxes		31,635			(3,358,162	)		3,389,797			100.9	%
Income tax expense		(430,198	)		(320,308	)		109,890			34.3	%
Net loss	$	(398,563	)	$	(3,678,470	)	$	3,279,907			89.2	%

Selling, General and Administrative Expenses

Selling expenses for the six months ended June 30, 2012 decreased by $109,824, or 9.1%, as compared to 2011. The amount represents primarily travel and meeting expenses for sales department staff to develop new customers and expand the market. The amounts for the six months ended June 30, 2012 decreased as compared to 2011 despite the increase in sales for the same period of 9.5%, as we have more closely controlled our expenses due to the reduced amount of sales experienced in the first quarter of 2012.

General and administrative expenses for six months ended June 30, 2012 decreased by $2,103,669 as compared to 2011. This was due to higher accounting and legal expenses associated with our public filings in 2011, which did not occur in 2012. In particular, we issued shares of common stock to a consultant as compensation in the first quarter of 2011, which accounted for $2,116,000 of the total administrative expenses. There were no such expenses in 2012.

Other Income/Expenses

Interest income for the six months ended June 30, 2012 increased by $165,843 as compared with the three months ended June 30, 2011. This increase is due primarily to interest income received during the second quarter of 2012 resulting from loans we made to a customer and a supplier in the fourth quarter of 2011.

Interest expense for the six months ended June 30, 2012 increased by $58,920 as compared to 2011. The primary reason for the increase in interest expense was due to new borrowings during the second quarter of 2012.

The expense associated with the amortization of discounts on our convertible notes payable for the six months ended June 30, 2012 amounted to $1,381,806 as compared to $2,141,040 in 2011. The convertible notes payable were issued in February 2011 and were being amortized over a period of one year in the first half of 2011. In 2012 we revised our estimate to amortize the amounts over a 2 year period. These amounts are expected to be amortized through February 2013.

Income Tax Expense

Our income tax expense increased by $109,890 for the six month ended June 30, 2012 as compared to 2011. The increase was attributable to an increase in taxable income during the quarter.

Liquidity and Capital Resources

As of June 30, 2012 and 2011 we had cash balances of $10,032,346 and $10,519,392, respectively. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report. To date, we have financed our operations primarily by cash from operations, issuance of convertible notes and capital contribution by our stockholders.

The following table sets forth a summary of our cash flows for the periods indicated.

	Six Months Ended
	June 30,						$			%
	2012			2011			Change			Change

Net cash provided by operating activities	$	2,380,298		$	2,896,022		$	(515,724	)		-17.81	%
Net cash used in investing activities		(1,350,282	)		(764,537	)		(585,745	)		76.61	%
Net cash provided by financing activities		1,091,217			6,282,132			(5,190,915	)		-82.63	%
Effect of foreign currency conversion on cash		210,957			(116,250	)		327,207			-281.47	%
Net increase in cash	$	2,332,190		$	8,297,367		$	(5,965,177	)		-71.89	%

Operating Activities

Net cash provided by operating activities was $2,380,298 for the six months ended June 30, 2012 compared to cash provided of $2,896,022 for the six months ended June 30, 2011. Although we had a net loss of $398,563 during the six months ended June 30, 2012, a significant amount of our expenses were non-cash related such as $1,381,805 for the amortization of the discounts recorded on our convertible notes payable, as well as $397,271 of offering cost amortization. These non-cash expenses offset the loss and allowed us to continue generating positive cash from operations of $2,380,298. During the same period in 2011, our net loss of $3,678,470 included non-cash expenses of $2,141,040 for the amortization of the discounts on the convertible notes payable, $2,491,938 for common stock issued for services, as well as $615,549 in capitalized offering cost amortization. As a result of these non-cash expenses, and a scheduled payment from the shareholders of $1,288,062 from an outstanding receivable, we generated positive cash flows from operations of $2,896,022 during the six months ended June 30, 2011.

Investing Activities

Net cash used in investing activities was $1,350,282 for the six months ended June 30, 2012, which was the result of an increase in loans to customers and suppliers and other receivables of $479,712, spending for the acquisition of property and equipment of $388,346 and the purchase of intangible assets of $482,224. During the six months ended June 30, 2011, we had net cash used in investing activities of $764,537 due to an increase in other receivables of $740,433 and spending for the acquisition of property and equipment of $100,179, offset by cash of $76,075 acquired as a result of the VIE agreement with China Flying in the first quarter of 2011.

Financing Activities

Net cash provided by financing activities was $1,091,217 for the six months ended June 30, 2012 due to an additional loan of approximately $1.6 million received in the second quarter of 2012, offset by paydown of bank borrowings of approximately $631,000. During the six months ended June 30, 2011, we had net cash provided by financing activities of $6,282,132, resulting primarily from the net proceeds from the issuance of convertible notes of $6,522,563, and net proceeds from bank borrowings of $458,215, offset by an increase of restricted cash of $698,646.

We have historically funded our operation primarily through cash generated from operations. Over the next twelve months, we intend to pursue organic and acquisitive growth and increase our market share in mainland China. We believe that our cash on hand and cash flow from operations will meet our present operating cash needs for the next 12 months. However, we will require additional cash resources to meet the cash requirements of our planned growth.

Additionally, we may require additional cash resources due to changed business conditions, implementation of our strategy to ramp up our marketing efforts and increase brand awareness, or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity, securities, convertible notes or warrants in the future.

Effect of Changes in the Foreign Exchange Rate

Upon translation of the Company’s financial statements into US Dollars for the purpose of financial reporting in the United States, the exchange rate between the Chinese Renminbi and the US Dollar can have an impact on the amount of reported cash on hand.

However all of the Company’s revenue is generated in China, and currently over 90% of its cost is within China. As a result, from an operational standpoint, a change in the exchange rate has relatively little impact on the Company. Such change is not expected to affect the Company’s liquidity in any significant way.

Economy and Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

We have not experienced any significant cancellation in orders due to the downturn in the economy. Furthermore, we have also had only a small number of customer-requested delays in delivery or production.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have, or are reasonably likely to have a current or future effect on our financial statements.

Seasonality

Our operating results and operating cash flows historically have not been subject to significant seasonal variations. However, sales around Chinese New Year are typically comparatively lower than other months. This pattern may change as a result of new market opportunities or new product introduction.

Recent Accounting Pronouncements

See Note 2 of the accompanying consolidated financial statements for a description of recent accounting pronouncements. We do not anticipate that the adoption of these recent accounting pronouncements will have a material impact on our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable because we are a smaller reporting company.

Item 4 . Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures as required under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2012, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures.

Based on that assessment, management identified material weaknesses in internal control over financial reporting related to the maintenance of our books and records in accordance with GAAP used in the Peoples’ Republic of China, and the conversion of those books and records to GAAP used in the United States of America. Specifically, the material weaknesses related to (1) our process for periodic financial reporting, including documentation of procedures and timely review of financial reports and statements, particularly as it relates to the conversion from Chinese to US GAAP, (2) adequate qualified staff necessary to effectively apply the process, and (3) methods and practices employed to report unusual transactions such as our reverse merger. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Based on this assessment, management concluded that the Company's internal control over financial reporting was not effective as of June 30, 2012. Our management has discussed the material weakness described above with our audit committee.

In an effort to remediate the identified material weaknesses, we have hired a new Chief Financial Officer. We also plan to document our process and procedures governing our internal reporting. Furthermore, we plan to implement additional changes to our internal control over financial reporting, including (1) timely review of reports prior to issuance, (2) a re-evaluation of our staffing needs, and (3) analysis of unusual transactions as they are occurring to allow adequate time for multiple levels of review.

Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. There is no assurance that our disclosure controls or our internal controls over financial reporting can prevent all errors. An internal control system, no matter how well designed and operated, has inherent limitations, including the possibility of human error. Because of the inherent limitations in a cost-effective control system, misstatements due to error may occur and not be detected. We monitor our disclosure controls and internal controls and make modifications as necessary. Our intent in this regard is that our disclosure controls and our internal controls will improve as systems change and conditions warrant.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The nature of our business exposes us to the potential for legal proceedings related to labor and employment, personal injury, property damage, and environmental matters. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of each particular claim, as well as our current reserves and insurance coverage, we do not expect that any known legal proceeding will in the foreseeable future have a material adverse impact on our financial condition or the results of our operations.

Item 1A. Risk Factors.

There has been no material change to our risk factors from those presented in our Form 10-K for the fiscal year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No.		Description

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1		Certification of Principal Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
32.2		Certification of Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
101.INS		XBRL Instance Document †
101.SCH		XBRL Taxonomy Extension Schema Document †
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document †
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document †
101.LAB		XBRL Taxonomy Extension Label Linkbase Document †
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document †

*	Filed herewith.
**	In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.
†	Pursuant to Rule 405(a)(2) of Regulation S-T, the registrant is relying upon the applicable 30-day grace period for the initial filing of its first Interactive Data File required to contain detail-tagged footnotes or schedules. The registrant intends to file the required detail-tagged footnotes or schedules by filing of an amendment to this Quarterly Report on Form 10-Q within the 30-day period.

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, there unto duly authorized.

	TANKE BIOSCIENCES CORPORATION

Date: August 14, 2012	By:	/s/ Guixiong Qiu
		Guixiong Qiu
		Chief Executive Officer
		(Duly Authorized Officer and Principal Executive Officer)

Date: August 14, 2012	By:	/s/ Gilbert Lee
		Gilbert Lee
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

TABLE OF CONTENTS

Part I Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

TNBI 10-Q Quarter ended June 30, 2012