U.S.
Securities and Exchange Commission
 Washington,
D.C. 20549
 
 FORM
10-Q
  [X]           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 
 For the Quarterly Period Ended
September 30, 2009
 
 
 [   ]            TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 
 For
the Transition Period From ____to _____
 
 Commission
File Number
 000-52350
 
 WEIKANG
BIO-TECHNOLOGY GROUP COMPANY, INC.
  Nevada
                (State
      or other jurisdiction of
                incorporation
      or organization)
              26-2816569
                (I.R.S.
      employer
                identification
      number)No.
      365 Chengde Street, Daowai District, Harbin
                Heilongjiang Province, PRC
      150020
                (Address
      of principal executive offices and zip code)
                
                (86)
      0451-88355530
                (Registrant’s
      telephone number, including area
code)
 
 Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Date File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes [ ] No [ ]
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer
               ̈Non-accelerated
      filer
               ̈(Do
      not check if a smaller reporting company)Accelerated
      filer
               ̈Smaller
      reporting company
              þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [  ] No [X]
 
 Number of
shares of common stock outstanding as of November 18,
2009:      25,479,800
  CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
 The
discussion contained in this 10-Q under the Securities Exchange Act of 1934, as
amended, contains forward-looking statements that involve risks and
uncertainties. The issuer's actual results could differ significantly from those
discussed herein. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the
Company believes," "management believes" and similar language, including those
set forth in the discussions under "Notes to Consolidated Financial Statements"
and "Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-Q. We base our forward-looking statements on
information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.
 
 
 
 
 TABLE OF
      CONTENTSPART
      I. FINANCIAL INFORMATIONITEM
      1. CONSOLIDATED FINANCIAL STATEMENTS
              3ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS
              12ITEM
      3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
              15ITEM
      4. CONTROLS AND PROCEDURES
                
                ITEM
      4T. CONTROLS AND PROCEDURES
              15
                
                15PART
      II. OTHER INFORMATIONITEM
      1. LEGAL PROCEEDINGS
              16ITEM
      1A. RISK FACTORS
              16ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS
              16ITEM
      3. DEFAULTS UPON SENIOR SECURITIES
              16ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              16ITEM
      5. OTHER INFORMATION
              16ITEM
      6. EXHIBITS
              16SIGNATURES
              17
  2
 Table of Contents
 
 ITEM 1.CONSOLIDATED FINANCIAL
STATEMENTS
 
 INDEX TO
WEIKANG BIO-TECHNOLOGY GROUP CO, INC. UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
 
 WEIKANG BIO-TECHNOLOGY GROUP
CO, INC.
 
 PageUnaudited
      Condensed Consolidated Balance Sheets as of September 30, 2009 and
      December 31, 2008
              4Unaudited
      Condensed Consolidated Statements of Operations - For the Three and Nine
      Months Ended September 30, 2009 and 2008
              5Unaudited
      Condensed Consolidated Statements of Cash Flows - For the Nine Months
      Ended September 30, 2009 and 2008
              6Notes
      to Unaudited Condensed Consolidated Financial Statements
              7
  3
 Table of Contents
   WEIKANG
      BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSSEPTEMBER
      30,
                
                DECEMBER
      31,2009
                
                
                2008ASSETS
                
                (UNAUDITED)
                
                
                (AUDITED)CURRENT
      ASSETSCash
      & cash equivalents
                
                $
                8,708,443
                
                
                $
                16,927Accounts
      receivable
                
                
                329,477
                
                
                
                -Advances
      to suppliers and other receivables
                
                
                126,248
                
                
                
                41,697Inventory
                
                
                498,491
                
                
                
                151,942Due
      from management
                
                
                65,417
                
                
                
                1,243,672Total
      current assets
                
                
                9,728,076
                
                
                
                1,454,238NONCURRENT
      ASSETSProperty
      and equipment, net
                
                
                10,404,658
                
                
                
                11,098,046Intangible
      assets
                
                
                12,072,638
                
                
                
                12,214,405Total
      noncurrent assets
                
                
                22,477,296
                
                
                
                23,312,451TOTAL
      ASSETS
                
                $
                32,205,371
                
                
                $
                24,766,689LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                
                $
                13,948
                
                
                $
                12,996Unearned
      revenue
                
                
                4,803
                
                
                
                224,271Taxes
      payable
                
                
                1,471,158
                
                
                
                1,250,087Accrued
      liabilities and other payables
                
                
                7,634,384
                
                
                
                11,434,937Advance
      from officer
                
                
                650,000
                
                
                
                650,000Total
      current liabilities
                
                
                9,774,293
                
                
                
                13,572,291CONTINGENCIES
      AND COMMITMENTSDEFERRED
      TAX LIABILITY, NET
                
                
                3,475,868
                
                
                
                3,551,025STOCKHOLDERS'
      EQUITYCommon
      stock,  $.00001 par value;  authorized
      shares100,000,000;  issued
      and outstanding 25,479,800 and
                  25,479,800
      shares at September 30, 2009 and December
                  31,
      2008, respectively
                
                
                255
                
                
                
                252Additional
      paid in capital
                
                
                127,245
                
                
                
                (252
                )Statutory
      reserve
                
                
                923,235
                
                
                
                512,637Accumulated
      other comprehensive income
                
                
                841,326
                
                
                
                823,151Retained
      earnings
                
                
                17,063,150
                
                
                
                6,307,585Total
      stockholders' equity
                
                
                18,955,211
                
                
                
                7,643,373TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                32,205,371
                
                
                $
                24,766,689
  4
 Table of Contents
  WEIKANG
      BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(UNAUDITED)NINE
      MONTHS ENDED
                
                
                THREE
      MONTHS ENDEDSEPTEMBER
      30, 2009
                
                SEPTEMBER
      30, 2008
                
                SEPTEMBER
      30, 2009
                
                SEPTEMBER
      30, 2008Net
      sales
                
                $
                34,534,249
                
                
                $
                6,651,947
                
                
                $
                11,227,275
                
                
                $
                3,452,049Cost
      of goods sold
                
                
                15,803,400
                
                
                
                2,214,935
                
                
                
                5,238,634
                
                
                
                1,048,897Gross
      profit
                
                
                18,730,849
                
                
                
                4,437,012
                
                
                
                5,988,642
                
                
                
                2,403,152Operating
      expensesSelling
      expenses
                
                
                1,569,270
                
                
                
                18,242
                
                
                
                651,056
                
                
                
                12,683General
      and administrative expenses
                
                
                939,378
                
                
                
                569,472
                
                
                
                191,622
                
                
                
                201,609Research
      and development expense
                
                
                1,937,928
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      operating expenses
                
                
                4,446,576
                
                
                
                587,714
                
                
                
                842,678
                
                
                
                214,292Income
      from operations
                
                
                14,284,274
                
                
                
                3,849,298
                
                
                
                5,145,964
                
                
                
                2,188,860Non-operating
      income (expenses)Interest
      income
                
                
                5,584
                
                
                
                198
                
                
                
                3,968
                
                
                
                31Financial
      expense
                
                
                (1,275
                )
                
                
                (4,473
                )
                
                
                (403
                )
                
                
                (3,868
                )Other
      income
                
                
                778,094
                
                
                
                343
                
                
                
                256,181
                
                
                
                343Other
      expenses
                
                
                (47,204
                )
                
                
                (716
                )
                
                
                (12,643
                )
                
                
                (8
                )Total
      non-operating income (expenses)
                
                
                735,200
                
                
                
                (4,648
                )
                
                
                247,104
                
                
                
                (3,502
                )Income
      before income tax
                
                
                15,019,473
                
                
                
                3,844,650
                
                
                
                5,393,068
                
                
                
                2,185,358Income
      tax
                
                
                3,853,312
                
                
                
                352,255
                
                
                
                1,414,837
                
                
                
                352,255Net
      income
                
                
                11,166,161
                
                
                
                3,492,395
                
                
                
                3,978,231
                
                
                
                1,833,103Other
      comprehensive incomeForeign
      currency translation gain
                
                
                18,175
                
                
                
                633,512
                
                
                
                11,030
                
                
                
                76,268Comprehensive
      Income
                
                $
                11,184,336
                
                
                $
                4,125,907
                
                
                $
                3,989,261
                
                
                $
                1,909,371Basic
      and diluted weighted average shares outstanding
                
                
                25,339,690
                
                
                
                25,479,800
                
                
                
                25,339,690
                
                
                
                25,229,800Basic
      and diluted net earnings per share
                
                $
                0.44
                
                
                $
                0.14
                
                
                $
                0.16
                
                
                $
                0.07
   5
 Table of Contents
  WEIKANG
      BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(UNAUDITED)NINE
      MONTHS ENDEDSEPTEMBER
      30, 2009
                
                SEPTEMBER
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                11,166,161
                
                
                $
                3,492,395Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                
                
                881,636
                
                
                
                333,702Stock
      issued for consulting expenses
                
                
                127,500
                
                
                
                -Changes
      in deferred tax
                
                
                (78,033
                )
                
                
                -(Increase)
      decrease in current assets:Accounts
      receivable
                
                
                (329,328
                )
                
                
                (612,712
                )Advances
      to suppliers and other receivables
                
                
                (103,775
                )
                
                
                14,097Inventory
                
                
                (346,268
                )
                
                
                20,751Increase
      (decrease) in current liabilities:Accounts
      payable
                
                
                942
                
                
                
                12,138Unearned
      revenue
                
                
                (219,552
                )
                
                
                4,697Accrued
      liabilities and other payables
                
                
                6,024
                
                
                
                3,897Taxes
      payable
                
                
                219,946
                
                
                
                429,827Net
      cash provided by operating activities
                
                
                11,325,254
                
                
                
                3,698,792CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property & equipment
                
                
                (27,751
                )
                
                
                (34,616
                )Construction
      in progress
                
                
                -
                
                
                
                (44,022
                )Net
      cash used in investing activities
                
                
                (27,751
                )
                
                
                (78,638
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Purchase
      of business
                
                
                (3,812,466
                )
                
                
                (4,868,967
                )Cash
      acquired at purchase of business
                
                
                -
                
                
                
                10,176Changes
      in due from management
                
                
                1,198,035
                
                
                
                2,459,922Changes
      in due from related party
                
                
                -
                
                
                
                (234,408
                )Net
      cash used in financing activities
                
                
                (2,614,430
                )
                
                
                (2,633,277
                )EFFECT
      OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
                
                
                8,443
                
                
                
                31,880INCREASE
      IN CASH & CASH EQUIVALENTS
                
                
                8,691,516
                
                
                
                1,018,757CASH
      & CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                16,927
                
                
                
                117,240CASH
      & CASH EQUIVALENTS, END OF PERIOD
                
                $
                8,708,443
                
                
                $
                1,135,997Supplemental
      Cash flow data:Income
      tax paid
                
                $
                3,318,514
                
                
                $
                -Interest
      paid
                
                $
                -
                
                
                $
                -
  6
 Table of Contents
 
 WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES
TO FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
 
 Weikang
Bio-Technology Group Co., Inc., a Nevada corporation (“Weikang” or “the Company)
was incorporated on May 12, 2004 in Florida as Expedition Leasing, Inc.
(“Expedition”). The Company reincorporated to Nevada and changed to its present
name on July 12, 2008, pursuant to a merger with Weikang, a wholly-owned
subsidiary, with Weikang as the surviving entity. The Company is engaged in
the development, manufacture and distribution of Traditional Chinese Medicine
("TCM") through its indirect wholly-owned operating subsidiary,
Heilongjiang Weikang Biotechnology Group Co., Ltd. (“Heilongjiang Weikang”) in
the People’s Republic of China (“PRC” or “China”).
 
 On
December 7, 2007, the Company (as Expedition) entered into an exchange agreement
with Sinary Bio-Technology Holdings Group, Inc., a Nevada corporation (“Sinary”)
and its sole shareholder (the “Sinary Stockholder”), pursuant to which the
Company issued 24,725,200 shares of its common stock to the Sinary Stockholder
for all of the issued and outstanding common shares of Sinary. Concurrently,
Sinary paid $650,000 to certain former shareholders of the Company, who
surrendered 24,725,200 shares of the Company’s common stock held by them to the
Company for cancellation. As a result, the Sinary Stockholder currently owns 98%
of the Company. On the Closing Date, Sinary became a wholly-owned
subsidiary of the Company.
 
 Prior to
the acquisition of Sinary, the Company was a non-operating public shell
corporation. Pursuant to Securities and Exchange Commission (“SEC”) rules, the
merger or acquisition of a private operating company into a non-operating public
shell corporation with nominal net assets is considered a capital transaction in
substance, rather than a business combination. Accordingly, for accounting
purposes, the transaction was treated as a reverse acquisition and
recapitalization, and pro forma information is not presented. Transaction costs
incurred in the reverse acquisition were expensed.
 
 Sinary
was incorporated under the laws of the State of Nevada on August 31, 2007. On
October 25, 2007, Sinary entered into an equity interests transfer agreement
with the stockholders of Heilongjiang Weikang, a limited liability company in
the PRC, to acquire 100% of the equity interests of Heilongjiang Weikang for 57
million Renminbi (“RMB”), or approximately 7.6 million US dollars.
 
 Heilongjiang
Weikang was incorporated in the Heilongjiang Province, PRC on March 29,
2005, and was formerly known as Heilongjiang Province Weikang Bio-Engineering
Co., Ltd. Heilongjiang Weikang is engaged in development, manufacture and
distribution of Traditional Chinese Medicine ("TCM") in the
PRC.
 
 On July
22, 2008, Heilongjiang Weikang completed the acquisition of 100% of the issued
and outstanding equity interests of Tianfang (Guizhou) Pharmaceutical Co., Ltd.
(“Tianfang”), a Chinese limited liability company, for $15,000,000 (the
“Consideration”), pursuant to a stock transfer agreement entered into on June
30, 2008 by and among the Heilongjiang Weikang, Tianfang, and Tianfang’s two
shareholders: Beijing Shiji Qisheng Trading Co., Ltd., a Chinese limited
liability company (“Shiji Qisheng”) and Tri-H Trade (U.S.A.) Co., Ltd., a
California corporation (“Tri-H”, and together with Shiji Qisheng collectively as
the “Selling Shareholders”).
 
 Tianfang
was incorporated in the Guizhou Province, PRC in 1998. Tianfang is
engaged in the development, manufacture and distribution of OTC
Pharmaceuticals.  The Company believes its market share can be
expanded to the southern part of China through the acquisition of
Tianfang.
 
 The
unaudited financial statements were prepared by the Company pursuant
to the rules and regulations of the SEC. The information furnished herein
reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods. Certain information
and footnote disclosures normally presented in annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America were omitted pursuant to such rules and regulations.
These financial statements should be read in conjunction with the
audited financial statements and footnotes included in the
Company’s 2008 audited financial statements. The results for the nine
months ended September 30, 2009 do not necessarily indicate the results for the
full year ended December 31, 2009.
 
 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
 
 Principles
of Consolidation
 
 The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Sinary, and the results of operations
of Weikang, Sinary’s wholly-owned subsidiary;, Tianfang, Weikang’s wholly-owned
subsidiary from the date of acquisition (August 1, 2008). All significant
inter-company accounts and transactions were eliminated in
consolidation.
 
 Use
of Estimates
 
 In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”), 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 year. Significant estimates, required by
management, include the recoverability of long-lived assets, allowance for
doubtful accounts, and the reserve for obsolete and slow-moving inventories.
Actual results could differ from those estimates.
 
 Cash
and Cash Equivalents
 
 For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with an original maturity of three months or less as cash
equivalents.
 
 Accounts
Receivable
 
 The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. There was no bad debt allowance
recorded based on the Company’s past payment collection experience.
 
 Inventory
 
 Inventories
are valued at a lower cost or market with cost determined on a moving weighted
average basis. Costs of work in progress and finished goods comprise direct
material, direct production cost and an allocated portion of production
overheads.
 
 Property
and Equipment
 
 Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in
operations. Depreciation of property and equipment is provided using the
straight-line method for all assets with estimated lives ranging from 3 to 20
years as follows:
 
 Building
                20
      yearsVehicle
                5
      yearsOffice
      Equipment
                3-7
      yearsProduction
      Equipment
                3-10
      years
 
 Land
Use Right
 
 Right to
use land is stated at cost less accumulated amortization. Amortization is
provided using the straight-line method over 50 years.
 
 Impairment
of Long-Lived Assets
 
 Long-lived
assets, which include property, plant and equipment and intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
 
 Recoverability
of long-lived assets to be held and used is measured by a comparison between the
carrying amount of an asset and the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge is
the amount that the carrying amount of the asset exceeds the fair value of the
assets. Fair value is generally determined by the asset’s expected future
discounted cash flows or market value, if readily determinable. Based on its
review, the Company believes that, as of September 30, 2009 and December 31,
2008, there were no significant impairments of its long-lived
assets.
 
 Income
Taxes
 
 The
Company uses Statement of Financial Accounting Standards (“SFAS”) No. 109,
“Accounting for Income Taxes,” codified in FASB ASC Topic 740,  which
requires recognition of deferred tax assets and liabilities for expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are considered as the
tax consequences in future years for differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
 
 The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes at inception of the business (codified in FASB ASC
Topic 740) on August 31, 2007.  Based on FIN 48, the Company made a
comprehensive review of its portfolio of tax positions in accordance with
recognition standards established by FIN 48. Based on FIN 48, the Company
recognized no material adjustments to liabilities or stockholders’ equity. When
tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the positions taken or the amount of the
positions that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50 percent likely to be realized upon settlement
with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above is
reflected as a liability for unrecognized tax benefits in the accompanying
balance sheets along with any associated interest and penalties that would be
payable to the taxing authorities upon examination.  Interests
associated with unrecognized tax benefits are classified as interest expenses
and penalties are classified in selling, general and administrative expenses in
the statements of income.  At September 30, 2009 and December 31,
2008, the Company did not take any uncertain positions that would necessitate
recording of tax related liability.
 
 7
 Table of Contents
 WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES
TO FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 Revenue
Recognition
 
 The
Company's revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (“SAB”) 104, codified in FASB ASC Topic
480.  Sales revenue is recognized at the date of shipment to customers
when a formal arrangement exists, the price is fixed or determinable, the
delivery is completed, no other significant obligations of the Company exist and
collectability is reasonably assured. Payments received before all the relevant
criteria for revenue recognition is met are recorded as unearned
revenue.
 
 Sales
revenue represents the invoiced value of goods, which is subject to net of
value-added tax (“VAT”). All of the Company’s products are sold in the PRC and
are subject to Chinese value-added tax of 17% of the gross sales price. This VAT
may be offset by VAT paid by the Company on raw materials and other materials
included in the cost of producing their end product. The Company recorded VAT
payable and VAT receivable net of payments in the financial statements. The VAT
tax return is filed offsetting the payables against the
receivables.
 
 Sales and
purchases are recorded net of VAT collected and paid as the Company acts as an
agent for the government.  VAT taxes are not affected by the income
tax holiday.
 
 Sales
returns and allowances was $0 for the nine and three months ended September
30, 2009 and 2008. The Company does not provide unconditional right of
return, price protection or any other concessions to its dealers or other
customers.
 
 Cost
of Goods Sold
 
 Cost of
goods sold consists primarily of material costs, employee compensation,
depreciation and related expenses, which are directly attributable to the
production of products. Write-down of inventory to lower cost or market is
also recorded in cost of goods sold.
 
 Concentration
of Credit Risk
 
 Financial
instruments that potentially subject the Company to credit risk consist
primarily of accounts receivable and other receivables. The Company does not
require collateral or other security to support these receivables. The Company
conducts periodic reviews of its clients' financial condition and customer
payment practices to minimize collecting risk on accounts
receivable.
 
 The
operations of the Company are located in the PRC. Accordingly, the Company's
business, financial condition, and results of operations may be influenced by
the political, economic, and legal environments in the PRC, as well as by the
overall performance of the PRC’s economy.
 
 Statement
of Cash Flows
 
 In
accordance with SFAS No. 95, “Statement of Cash Flows,” codified in FASB ASC
Topic 230, cash flows from the Company's operations are calculated based upon
local currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows may not necessarily agree with changes
in the corresponding balances on the balance sheet. Cash flows from operating,
investing and financing activities exclude the effect of the acquisition of
Tianfang in 2008.
 
 
 Fair
Value of Financial Instruments
 
 SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” codified in FASB
ASC Financial Instruments, Topic 825, requires the Company disclose estimated
fair values of financial instruments. The carrying amounts reported in the
statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimate of fair
value.
 
 Fair
Value Measurements
 
 On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,”
codified in FASB ASC Financial Instruments, Topic 820. SFAS 157 defines fair
value, establishes a three-level valuation hierarchy for disclosures of fair
value measurement and enhances disclosures requirements for fair value
measures.  The three levels are defined as follow:
 
 ·
                Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active markets.·
                Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
instrument.·
                Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.
 
 As of
September 30, 2009, the Company did not identify any assets and liabilities that
are required to be presented on the balance sheet at fair value.
 
 Foreign
Currency Translation and Comprehensive Income (Loss)
 
 The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting
purposes, RMB were translated into United States Dollars ("USD") as the
reporting currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Revenues and expenses are translated at the
average rate of exchange prevailing during the reporting period. Translation
adjustments arising from the use of different exchange rates from period to
period are included as a component of stockholders' equity as "Accumulated other
comprehensive income".
 
 Gains and
losses resulting from foreign currency transactions are included in income.
There has been no significant fluctuation in exchange rate for the conversion of
RMB to USD after the balance sheet date.
 
 The
Company uses SFAS No 130, “Reporting Comprehensive Income,” codified in FASB ASC
Topic 220. Comprehensive income is comprised of net income and all changes to
the statements of stockholders’ equity, except the changes in paid-in capital
and distributions to stockholders due to investments by stockholders.
Comprehensive income for the nine and three months ended September 30, 2009 and
2008 included net income and foreign currency translation
adjustments.
 
 Stock-Based
Compensation
 
 The
Company accounts for its stock-based compensation in accordance with SFAS No.
123R, “Share-Based Payment, an Amendment of FASB Statement No.
123,” codified in FASB ASC Topic 718. The Company recognizes in the
statement of operations the grant-date fair value of stock options and other
equity-based compensation issued to employees and
non-employees.
 
 Basic
and Diluted Earnings per Share (EPS)
 
 Basic EPS
is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to basic net income per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Diluted net earnings per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period. For the nine and three months ended September 30, 2009 and
2008, the Company did not have any dilutive securities.
 
 Segment
Reporting
 
 SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
requires a use of the “management approach” model for segment reporting,
codified in FASB ASC Topic 280. The management approach model is based on the
way a company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or
any other manners in which management disaggregates a company.
 
 SFAS
131 has no effect on the Company's financial statements as substantially all of
the Company's operations are conducted in one industry segment. The Company has
one reportable business segment. All of the Company's assets are located in the
PRC.
  8
 Table of Contents
 WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES
TO FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 Research
and Development
 
 Research
and development costs are related primarily to the development of new
nutritional and health supplements products. Research and development costs are
expensed as incurred. For the nine and three months ended September 30, 2009,
the research and development expense was $1,939,000. For the nine and three
months ended September 30, 2008, research and development expense was
$0.
 
 On
January 20, 2009, the Company made an agreement with Botany medicine research
center of Northeast Forestry University (“the University”) to develop
certain new medicine and health supplemental products.  The Company is
responsible for funding the research and development expense and project
examination and registration fee of RMB 15,000,000 (or $2,195,000). According to
the contract, upon successful completion of the research by the University, the
Company is required to pay 85% of total fund to the University and will own the
rights to the research findings, and is required to pay the remaining 15% upon
registration and approval of the researching findings from State Food and Drug
Administration and Department of Public Health of Heilongjiang Province. 
The Company is responsible for registration of the research findings and getting
approval from related authorities.  In case the registration
application is not approved by the authorities, the Company will not be entitled
to the refund of the amount it already paid and will not be required to pay the
remaining 15% or RMB 2,300,000 ($336,000). During the second quarter of
2009, the research and development of the new medicine and health supplemental
products was completed successfully. During the term of the contract, the
Company paid RMB 12,700,000 (or $1,859,000) to the University and obtained the
ownership rights of the research findings.  The Company is registering the
research findings with the related authorities. The Company recorded
the payment for the R&D project as R&D expense.
 
 Reclassifications
 
 Certain
prior year amounts were reclassified to conform to the manner of presentation in
the current year.
 
 New
Accounting Pronouncements
 
 On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “The FASB
Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”).  ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards CodificationTM (“Codification”) and, for SEC
registrants, guidance issued by the SEC.  The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC.  The
Codification is amended to effect non-SEC changes to authoritative
GAAP.  Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Consolidated Financial
Statements.
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.
 
 In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS 165 requires that public entities evaluate subsequent
events through the date that the financial statements are issued. The Company
has evaluated subsequent events through November 18, 2009.
 
 In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009. This FSP had no
material impact on the Company’s financial position, results of operations or
cash flows.
 
 In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulate other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on the
Company’s financial position, results of operations or cash flows.
 
 In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP
No. SFAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (“FSP No. SFAS 157-4”). FSP
No. SFAS 157-4, which is codified in FASB ASC Topics 820-10-35-51 and
820-10-50-2, provides additional guidance for estimating fair value and
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
The Company adopted FSP No. SFAS 157-4 beginning April 1, 2009.
This FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
 
 9
 Table of Contents
 WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES
TO FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 3.
INVENTORY
 
 Inventory
at September 30, 2009 and December 31, 2008 was as follows:
 
 2009
                
                
                2008Raw
      materials
                
                $
                153,475
                
                
                $
                33,676Packing
      materials
                
                
                62,676
                
                
                
                22,409Finished
      goods
                
                
                282,340
                
                
                
                95,857Total
                
                $
                498,491
                
                
                $
                151,942
 
 4.
PROPERTY AND EQUIPMENT, NET
 
 Property
and equipment consisted of the following at September 30, 2009 and December 31,
2008:
 
 2009
                
                
                2008Building
                
                $
                8,250,431
                
                
                $
                8,244,669Building
      improvements
                
                
                912,208
                
                
                
                911,462Production
      equipment
                
                
                2,332,685
                
                
                
                2,319,654Office
      furniture and equipment
                
                
                183,088
                
                
                
                179,752Vehicles
                
                
                118,545
                
                
                
                118,44811,796,957
                
                
                
                11,773,985Less:
      Accumulated depreciation
                
                
                (1,392,299
                )
                
                
                (675,939
                )$
                10,404,658
                
                
                $
                11,098,046
 
 Depreciation
for the nine months ended September 30, 2009 and 2008 was $730,000 and
$291,000, respectively; and for the three months ended September 30, 2009 and
2008 was $244,000 and $153,000, respectively.
 
 5.
ADVANCES TO SUPPLIERS AND OTHER RECEIVABLES
 
 Advances
to suppliers represented prepayment for the raw material.  Other
receivables represented cash advances to employees and sales representatives for
normal business purposes such as advances for traveling
expense.
  6.
RELATED PARTY TRANSACTIONS
 
 Due
from Management
 
 At
September 30, 2009, due from management represented advance payment of $65,417
to one of the Company’s officers for his paying certain expenses relating to the
Company’s daily operations.
 
 At
December 31, 2008, due from management represented lease payments received by
Weikang’s CEO on behalf of Weikang for leasing out to a third party the workshop
of manufacturing the royal jelly and the right to use its technology for
manufacturing the royal jelly for the period from January 1, 2008 through June
30, 2010.  During 2008, Weikang’s CEO received lease income of
approximately $1,008,000 (RMB 7,000,000) and prepaid lease payment of
approximately $219,000 (RMB 1,500,000) on behalf of the Company.
  Advance
from Officer
 
 Advance
from officer represented the payment of $650,000 made by an officer of
Heilongjiang Weikang on behalf of Sinary to certain former shareholders of
the Company in connection with the reverse acquisition between the Company
and Sinary on December 7, 2007. The advance from officer bears no
interest and payable on demand.
 
 7.INTANGIBLE
ASSETS
 
 Intangible
assets consisted of the following at September 30, 2009 and December 31,
2008:
 
 2009
                
                
                2008Land
      use right
                
                $
                8,730,564
                
                
                $
                8,723,411Goodwill
      arising from acquisition of Tianfang
                
                
                3,581,294
                
                
                
                3,578,359Software
                
                
                7,215
                
                
                
                7,20912,319,073
                
                
                
                12,308,979Less:
      Accumulated amortization
                
                
                (246,435
                )
                
                
                (94,574
                )$
                12,072,638
                
                
                $
                12,214,405
 
 All land
in the PRC is government owned and cannot be sold to any individual or company.
However, the government grants the user a “land use right” to use the land. The
Company has the right to use the land for 50 years and amortizes the right on a
straight-line basis for 50 years.
 
 Amortization
for the nine months ended September 30, 2009 and 2008 was $152,000 and $41,000,
respectively. Amortization for the three months ended September 30, 2009
and 2008 was $51,000 and $35,000, respectively. Amortization for the next five
years from September 30, 2009 is expected to be $204,000, $204,000, $204,000,
$204,000 and $204,000 respectively.
 
 8. MAJOR CUSTOMERSAND
VENDORS
 
 There
were no customers which accounted for over 10% of the Company’s sales for the
nine and three months ended September 30, 2009.
 
 Five and
three customers which are dealers for the Company collectively
accounted for 70% and 32% of the Company’s sales for the nine and three
months ended September 30, 2008, respectively.  These customers accounted
for about 18%, 16%, 13%, 12% & 11% of the sales for the nine months ended
September 30, 2008, respectively. Three customers accounted for about 11%, 11%,
and 10% of the sales for the three months ended September 30, 2008,
respectively. At September 30, 2008, the total receivable balance due from these
five customers was $0.
 
 Three
vendors collectively provided approximately 41% and 49% of the Company’s
purchase of raw materials for the nine and three months ended September 30,
2009, respectively.  Each vendor accounted for 19%, 12%, and 10% of
the purchases for the nine months ended September 30, 2009, and 26%, 12%, and
12% for the three months ended September 30, 2009, respectively. The Company did
not have accounts payable to these vendors at September 30, 2009.
 
 Five and
one vendor collectively provided 57% and 10% of the Company’s purchase of
raw materials for the nine and three months ended September 30, 2008,
respectively. These vendors counted for about 13%, 12%, 11%, 11%, and 10% of the
purchases for the nine months ended September 30, 2008, respectively. The
Company did not have accounts payable to these vendors at September 30,
2008.
 
 
 10
 Table of Contents
 WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES
TO FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 9.
TAXES PAYABLE
 
 Taxes
payable consisted of the following at September 30, 2009 and December 31,
2008:
 
 2009
                
                
                2008Income
      tax payable
                
                $
                995,065
                
                
                $
                381,659Value
      added tax payable
                
                
                445,579
                
                
                
                306,012Individual
      income tax withholding payable
                
                
                23
                
                
                
                504,123Sales
      tax payable
                
                
                16,474
                
                
                
                51,210Other
      taxes
                
                
                14,017
                
                
                
                7,083$
                1,471,158
                
                
                $
                1,250,087
 
 10.
OTHER PAYABLES
 
 At
September 30, 2009, other payables mainly consisted of approximately $7.62
million that Sinary was obligated to pay to Heilongjiang Weikang’s former owners
within one year from the closing of the acquisition of Heilongjiang Weikang.
This payable does not bear any interest, and has been renewed to June 30,
2010.
 
 At
December 31, 2008, other payables consisted of $7.62 million purchase price of
Heilongjiang Weikang and the unpaid portion of the purchase price of
approximately $3.8 million Heilongjiang Weikang was obligated to pay to
Tianfang’s former owners within one year from the closing of acquisition
date.  The $3.8 million was paid during the first quarter of
2009.
 
 11.
DEFFERED TAX LIABILITY, NET
 
 Deferred
tax represented differences between the tax bases and book bases of property,
equipment and land use right.
 
 At
September 30, 2009 and December 31, 2008, deferred tax asset (liability)
consisted of the following:
 
 2009
                
                
                2008Deferred
      tax asset on property and equipment for bases differences
                
                $
                115,857
                
                
                $
                37,758Deferred
      tax asset arising from the acquisition of Heilongjiang
    Weikang
                
                
                29,616
                
                
                
                29,591Deferred
      tax liability arising from the acquisition of Tianfang
                
                
                (3,621,341)
                
                
                
                (3,618,374)Deferred
      tax liability, net
                
                $
                (3,475,868)
                
                
                $
                (3,551,025)
 
 12.
INCOME TAXES
 
 Heilongjiang
Weikang and Tianfang are governed by the Income Tax Law of the PRC concerning
the private enterprises that are generally subject to tax at a statutory rate of
25% (33% prior to 2008) on income reported in the statutory financial statements
after appropriate tax adjustments. Heilongjiang Weikang was exempt
from income tax for three years from 2006 to 2008. Tianfang is subject to 25%
income tax rate.
 Sinary
had no operations for the nine months ended September 30, 2009 and
2008.
 
 Foreign
pretax earnings approximated $14,892,000 and $3,845,000 for the nine months
ended September 30, 2009 and 2008 respectively. Pretax earnings of a foreign
subsidiary are subject to U.S. taxation when effectively repatriated. The
Company provides income taxes on the undistributed earnings of non-U.S.
subsidiaries except to the extent that such earnings are indefinitely invested
outside the United States. At September 30, 2009, $17,841,000 of accumulated
undistributed earnings of non-U.S. subsidiaries was indefinitely invested. At
the existing U.S. federal income tax rate, additional taxes of $1,606,000 would
have to be provided if such earnings were remitted currently.
 
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the nine and three months ended September 30, 2009 and
2008:
 
 Nine
      Months Ended September 30,
                
                
                Three
      Months Ended September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008US
      statutory rates
                
                
                34
                %
                
                
                34
                %
                
                
                34
                %
                
                
                34
                %Tax
      rate difference
                
                
                (9
                )%
                
                
                (9
                )%
                
                
                (9
                )%
                
                
                (9
                )%Effect
      of tax holiday
                
                
                -
                %
                
                
                (16
                )%
                
                
                -
                %
                
                
                (9
                )%Other
                
                
                
                
                
                
                
                
                
                
                
                1%Tax
      per financial statements
                
                
                25
                %
                
                
                9
                %
                
                
                26
                %
                
                
                16
                %
 
 13.
STATUTORY RESERVES
 
 Pursuant
to the new corporate law of the PRC effective on January 1, 2006, the Company is
now only required to maintain one statutory reserve by appropriating from its
after-tax profit before declaration or payment of dividends. The statutory
reserve represents restricted retained earnings.
 
 Surplus
Reserve Fund
 
 The
Company is now only required to transfer 10% of its net income, as determined
under the PRC accounting rules and regulations, to a statutory surplus reserve
fund until such reserve balance reaches 50% of the Company’s registered
capital.
 
 The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholding or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.
 
 Common
Welfare Fund
 
 Common
welfare fund is a voluntary fund that the Company can elect to transfer 5% to
10% of its net income to this fund. This fund can only be utilized on capital
items for the collective benefit of the Company’s employees, such as
construction of dormitories, cafeteria facilities, and other staff welfare
facilities. This fund is non-distributable other than upon
liquidation.
 
 14.
CONTINGENCIES
 
 The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’ s operations may be adversely affected by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation,
among other things.
 
 The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be conducted only by
authorized financial institutions. Remittances in currencies other than RMB may
require certain supporting documentation in order to affect the
remittance.
 
 15.
ACQUISITION OF TIANFANG AND UNAUDITED PRO FORMA INFORMATION
 
 On July
22, 2008, Heilongjiang Weikang completed the acquisition of 100% of the issued
and outstanding equity interests of Tianfang for $15,000,000 (RMB
102,886,500).  For convenience of reporting the acquisition for
accounting purposes, August 1, 2008 was designated as the acquisition
date.
 
 The
following table summarizes the fair values of the assets acquired and
liabilities assumed of Tianfang, at the date of acquisition.   The
total consideration for acquisition exceeded fair value of the net assets
acquired by $3,565,578. The excess was recorded as goodwill.
 
 Cash
                
                $
                10,146Accounts
      receivable
                
                
                388,641Other
      receivables
                
                
                3,988Inventory
                
                
                45,161Property
      and equipment
                
                
                7,194,302Land
      use right
                
                
                8,117,686Goodwill
                
                
                3,565,578Tax
      payable
                
                
                (498,259
                )Advances
      from shareholder
                
                
                (221,794
                )Deferred
      tax liability
                
                
                (3,605,449
                )Purchase
      price
                
                $
                15,000,000
 
 The
intangible asset, which is principally land use rights, is being amortized over
50 years.
 
 The
following unaudited pro forma consolidated results of continuing operations for
Heilongjiang Weikang and Tianfang for the nine months ended September 30, 2008
presents the operations of Heilongjiang Weikang and Tianfang as if the
acquisitions occurred on January 1, 2008.  The pro forma results are
not necessarily indicative of the actual results that would have occurred had
the acquisitions been completed as of the beginning of the periods presented,
nor are they necessarily indicative of future consolidated results.
 
 
 Pro
      formaNet
      Revenue
                
                $
                7,765,940Cost
      of Revenue
                
                
                2,833,037Gross
      Profit
                
                
                4,932,903Operating
      expenses:Selling
      expenses
                
                
                22,182General
      and administrative expenses
                
                
                880,168Total
      operating expenses
                
                
                902,350Income
      from operations
                
                
                4,030,553Total
      non-operating expenses
                
                
                (5,361
                )Income
      before income tax
                
                
                4,025,192Income
      tax
                
                
                397,547Net
      income
                
                $
                3,627,645Basic
      and diluted weighted average shares outstanding
                
                
                25,229,800Basic
      and diluted net earnings per share
                
                $
                0.14
 11
 Table of Contents
 
 ITEM 2.  
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 Note
Regarding Forward-Looking Statements
 
 This
quarterly report on Form 10-Q and other reports filed by the Company from time
to time with the Securities and Exchange Commission (collectively the “Filings”)
contain or may contain forward-looking statements and information that are based
upon beliefs of, and information currently available to, Company’s management as
well as estimates and assumptions made by Company’s management. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
are only predictions and speak only as of the date hereof. When used in the
filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”,
“intend”, “plan”, or the negative of these terms and similar expressions as they
relate to Company or Company’s management identify forward-looking statements.
Such statements reflect the current view of Company with respect to future
events and are subject to risks, uncertainties, assumptions, and other factors
(including the risks contained in the section of operations and results of
operations, and any businesses that Company may acquire. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended, or planned.
 
 Although
Company believes that the expectations reflected in the forward-looking
statements are reasonable, Company cannot guarantee future results, levels of
activity, performance, or achievements. Except as required by applicable law,
including the securities laws of the United States, the Company does not intend
to update any of the forward-looking statements to conform these statements to
actual results. Readers are urged to carefully review and consider the various
disclosures made throughout the entirety of this quarterly report, which attempt
to advise interested parties of the risks and factors that may affect our
business, financial condition, results of operations, and
prospects.
 
 Overview
 
 Weikang
Bio-Technology Company, Inc. (“we”, “us”, the “Company”) was incorporated in
Florida on May 12, 2004 as Expedition Leasing, Inc. On December 7, 2007, we
acquired Sinary Bio-Technology Holdings Group, Inc. (“Sinary”), a Nevada
corporation and, as a result, Sinary’s wholly-owned subsidiary Heilongjiang
Weikang Bio-Technology Group Co., Ltd. (“Heilongjiang Weikang”), a limited
liability company in the People’s Republic of China (“China” or “PRC”), by
exchanging 24,725,200 shares of our common stock for 100% of the issued and
outstanding common stock of Sinary.
 
 Having no
substantive operation of its own, Sinary, through Heilongjiang Weikang, engages
in the research, development, manufacturing, marketing, and sales
of Traditional Chinese Medicine ("TCM") in China. Heilongjiang Weikang
is located in Heilongjiang Province in Northeastern China, with our principal
office and manufacturing facility located in the Economic and Technology
Development Zone in the city of Shuangcheng, approximately 42 kilometers south
of the provincial capital Harbin. All of our products are Chinese herbal-based
health and nutritional supplements. We actively seek to maintain and improve the
quality of our products, and as of April 2006, we have implemented the
“GB/T19001-2000 idt ISO9001:2000” quality assurance management system to all of
our manufacturing processes.
 
 Through
our subsidiary Heilongjiang Weikang, we manufacture and distribute throughout
China a series of internally developed TCM under a Chinese trade name,
“Rongrun”. The “Rongrun”line presently includes seven products. We also
developed two new products during 2007, which were approved by the Heilongjiang
Department of Health.
 
 On July
22, 2008, Heilongjiang Weikang acquired 100% of the issued and outstanding
equity interest of Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a
Chinese limited liability company, for $15,000,000, pursuant to a Stock Transfer
Agreement dated and entered into on June 30, 2008 by and among Heilongjiang
Weikang, Tianfang, and Tianfang’s two shareholders, Beijing Shiji Qisheng
Trading Co., Ltd. and Tri-H Trade (U.S.A.) Co., Ltd.
 
 Tianfang
was incorporated in Guizhou Province, PRC in 1998.  Tianfang is
engaged in the development, manufacture and distribution of OTC
Pharmaceuticals.
 
 Critical
Accounting Policies and Estimates
 
 Our
management's discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which were
prepared in accordance with accounting principles generally accepted in the
United States (“US GAAP”). The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported net
sales and expenses during the reporting periods. On an ongoing basis, we
evaluate our estimates and assumptions. We base our estimates on historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
 
 While our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements, we believe the following accounting policies
are the most critical to aid you in fully understanding and evaluating this
management discussion and analysis.
 
 Basis
of presentation
 
 These
accompanying consolidated financial statements have been prepared in accordance
with US GAAP and pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) for annual or quarterly financial
statements.
 
 Principles
of Consolidation
 
 The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Sinary, and the results of operations
of Heilongjiang Weikang, Sinary’s wholly-owned subsidiary; and Tianfang,
Heilongjiang Weikang’s wholly-owned subsidiary. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
 
 Accounts
Receivable
 
 The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves.
 
 Inventories
 
 Inventories
are valued at the lower of cost or market with cost determined on a moving
weighted average basis. Cost of work in progress and finished goods comprises
direct material, direct production cost and an allocated portion of production
overheads.
 
 Property
and Equipment
 
 Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for all assets with estimated lives ranging from 3 to 20 years as
follows:
 
 Building
              20
      yearsVehicle
              5
      yearsOffice
      Equipment
              3-7
      yearsProduction
      Equipment
              3-10
      years
 
 
 Revenue
Recognition
 
 The
Company's revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (“SAB”) 104, codified in FASB ASC Topic 480. Sales revenue
is recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectability is
reasonably assured. Payments received before all of the relevant criteria for
revenue recognition are recorded as unearned revenue.
 
 Sales
revenue represents the invoiced value of goods, net of value-added tax (“VAT”).
All of the Company’s products sold in the PRC are subject to Chinese value-added
tax of 17% of the gross sales price. This VAT may be offset by VAT paid by the
Company on raw materials and other materials included in the cost of producing
their finished product. The Company recorded VAT payable and VAT receivable net
of payments in the financial statements. The VAT tax return is filed offsetting
the payables against the receivables.
 
 Foreign
Currency Translation and Comprehensive Income (Loss)
 
 The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting
purposes, RMB were translated into United States dollars ("USD") as the
reporting currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Revenues and expenses are translated at the
average rate of exchange prevailing during the reporting period. Translation
adjustments arising from the use of different exchange rates from period to
period are included as a component of stockholders' equity as "Accumulated other
comprehensive income". Gains and losses resulting from foreign currency
transactions are included in income. There has been no significant fluctuation
in exchange rate for the conversion of RMB to USD after the balance sheet
date.
 
 The
Company uses SFAS No 130, “Reporting Comprehensive Income”, codified in FASB ASC
Topic 220. Comprehensive income is comprised of net income and all changes to
the statements of stockholders’ equity, except those due to investments by
stockholders, changes in paid-in capital and distributions to
stockholders.
 
 12
 Table of Contents
 
 NEW
ACCOUNTING PRONOUNCEMENTS
 
 On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “The FASB
Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”).  ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards CodificationTM (“Codification”) and, for SEC
registrants, guidance issued by the SEC.  The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC.  The
Codification is amended to effect non-SEC changes to authoritative
GAAP.  Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Consolidated Financial
Statements.
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.
 
 In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS 165 requires that public entities evaluate subsequent
events through the date that the financial statements are issued. The Company
has evaluated subsequent events through November 18, 2009.
 
 In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009. This FSP had no
material impact on the Company’s financial position, results of operations or
cash flows.
 
 In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulate other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on the
Company’s financial position, results of operations or cash flows.
 
 In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP
No. SFAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (“FSP No. SFAS 157-4”). FSP
No. SFAS 157-4, which is codified in FASB ASC Topics 820-10-35-51 and
820-10-50-2, provides additional guidance for estimating fair value and
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
The Company adopted FSP No. SFAS 157-4 beginning April 1, 2009.
This FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
  Results
of Operations
 
 Comparison
of the Nine Months Ended September 30, 2009 and 2008
 
 The
following table summarizes our results of operations. The table and the
discussion below should be read in conjunction with the unaudited financial
statements and the notes thereto appearing elsewhere in this
report.
 
 2009
              
              
              2008(in
      U.S. Dollars, except for percentages)Sales
              
              $
              34,534,249
              
              
              
              
              
              
              $
              6,651,947Cost
      of Sales
              
              
              15,803,400
              
              
              
              46
              %
              
              
              2,214,935
              
              
              
              33
              %Gross
      Profit
              
              
              18,730,849
              
              
              
              54
              %
              
              
              4,437,012
              
              
              
              67
              %Operating
      Expense
              
              
              4,446,576
              
              
              
              13
              %
              
              
              587,714
              
              
              
              9
              %Income
      from Operations
              
              
              14,284,273
              
              
              
              41
              %
              
              
              3,849,298
              
              
              
              58
              %Other
      Income (Expenses), net
              
              
              735,200
              
              
              
              2
              %
              
              
              (4,648)
              
              
              
              0
              %Income
      Tax Expenses
              
              
              3,853,312
              
              
              
              11
              %
              
              
              352,255
              
              
              
              5
              %Net
      Income
              
              $
              11,166,161
              
              
              
              32
              %
              
              $
              3,492,395
              
              
              
              53
              %
 
 Sales. During the nine months
ended September 30, 2009, we had sales of $34.53 million, compared to $6.65
million for the comparable period of 2008, an increase of $27.88 million or
419%. The increase in sales was primarily a result of our acquisition of
Tianfang, which brought us about $24.14 million sales or 70% of our sales during
the nine months of 2009.  This increase in sales was also attributable
to 1) increased demand from our dealers and distributors as a result of
increased acceptance and trust in our products from end users which increased
Weikang’s sales by 115% during the nine months ended September 30, 2009 compared
with comparable period of 2008.  2) Since July 2008, Tianfang’s
sale has been continuously growing due to Weikang’s existing market
channel. We believe our sales will continue to grow as we develop new
products and continue to improve the quality of our existing
products.
 
 Cost of Sales.Cost of
sales increased $13.59 million or 613%, from $2.21 million in the nine months
ended September 30, 2008 to $15.80 million for the nine months ended September
30, 2009. The increase was
mainly due to increased production as a result of our acquisition of
Tianfang and increased demand from the end users. The cost of sales as a
percentage of sales for the nine months ended September 30, 2009, approximated
46% as compared to 33% for the comparable period of 2008, which was attributable
to relatively higher cost of sales of Tianfang, approximating 51% of sales,
while the cost of sales was approximately 33% of the sales for Heilongjiang
Weikang, this was mainly due to Tianfang focusing on manufacturing popular
products with relatively higher cost to meet customers’ demand and expanding its
market share in the new regions with popular products. When the market becomes
stable, we will launch new products to replace the low profit margin
products.
 
 Gross Profit. Gross profit
was $18.73 million for the nine months ended September 30, 2009, compared to
$4.44 million for the comparable period of 2008, representing margins of 54% and
67% of sales, respectively. The decrease in our margin was mainly due to
increase in cost of sales as a percentage of sales as a result of relatively
high cost of sales from Tianfang’s operations during the nine months of
2009.
 
 Operating Expenses. Total
operating expenses consisted of selling, general and administrative expenses of
$4.45 million for the nine months ended September 30, 2009 compared to $0.59
million for the nine months ended September 30, 2008, an increase of $3.86
million or 657%. Operating expenses as a percentage of sales was 13% for the
nine months ended September 30, 2009 while it was 9% for the comparable period
of 2008. This increase was attributable to the combined expenses of Heilongjiang
Weikang and Tianfang due to the acquisition of Tianfang in July 2008. In
addition, we had R&D expense of approximately $1.9 million in 2009 for
developing certain new medicine and health supplemental products with the Botany
medicine research center of Northeast Forestry University.
 
 Net Other Income
(Expenses).Other income was $0.74 million in the nine months ended
September 30, 2009 compared to other expense of $4,648 in the nine months ended
September 30, 2008.  Other income in the nine months of 2009 mainly
consisted of lease income received from leasing a workshop and right to use our
technology for manufacturing the royal jelly.
 
 Net Income. Our net income
for the nine months ended September 30, 2009 was $11.17 million compared to
$3.49 million for the nine months ended September 30, 2008, an increase of $7.67
million or 220%.   The increase was mainly attributed to growth
in revenue and efficiency of operations. Our management believes net income will
continue to increase as we continue to offer better quality and variety of
products and continue to improve our manufacturing efficiency.
 
 13
 Table of Contents
 
 
 Comparison
of the Three Months Ended September 30, 2009 and 2008
 
 The
following table summarizes our results of operations. The table and the
discussion below should be read in conjunction with the unaudited financial
statements and the notes thereto appearing elsewhere in this
report.
 
 2009
              
              
              2008(in
      U.S. Dollars, except for percentages)Sales
              
              $
              11,227,275
              
              
              
              
              
              
              $
              3,452,049Cost
      of Sales
              
              
              5,238,634
              
              
              
              47
              %
              
              
              1,048,897
              
              
              
              30
              %Gross
      Profit
              
              
              5,988,642
              
              
              
              53
              %
              
              
              2,403,152
              
              
              
              70
              %Operating
      Expense
              
              
              842,678
              
              
              
              7
              %
              
              
              214,292
              
              
              
              6
              %Income
      from Operations
              
              
              5,145,964
              
              
              
              46
              %
              
              
              2,188,860
              
              
              
              63
              %Other
      Income (Expenses), net
              
              
              247,104
              
              
              
              2
              %
              
              
              (3,502)
              
              
              
              0
              %Income
      Tax Expenses
              
              
              1,414,837
              
              
              
              13
              %
              
              
              352,255
              
              
              
              10
              %Net
      Income
              
              $
              3,978,232
              
              
              
              35
              %
              
              $
              1,833,103
              
              
              
              53
              %
 
 Sales. During the three
months ended September 30, 2009, we had sales of $11.22 million, compared to
$3.45 million for the comparable period of 2008, an increase of $7.78 million or
225%. This increase was attributable to 1) increased demand from our
dealers and distributors as a result of increased acceptance and trust in our
products from end users. 2) increased selling price to dealers and distributors
of Heilongjiang Weikang as a result of increased demand from end users 3)
increased sales from Tianfang as a result of its successful expansion on the
market share in the new regions. We believe our sales will continue to grow as
we develop new products and continue to improve the quality of our existing
products.
 
 Cost of Sales.Cost of
sales increased $4.19 million or 399%, from $1.05 million in the three months
ended September 30, 2008 to $5.24 million for the three months ended September
30, 2009. The increase was mainly due to increased sales. The cost of sales
as a percentage of sales for the three months ended September 30, 2009, was 47%
compared to 30% for the comparable period of 2008, which was attributable to
relatively higher cost of sales of Tianfang, approximately 51% of sales, this
was mainly due to sale of high cost products to meet customers’ demand for
expanding the market share in the new regions of China; while the cost of sales
was 33% of the sales for Heilongjiang Weikang, a decrease of 4% compared with
the comparable period of 2008, which was mainly due to economies of scale with
increased production volume while fixed costs remain constant.
 
 Gross Profit. Gross profit
was $5.99 million for the three months ended September 30, 2009, compared to
$2.40 million for the comparable period of 2008, representing margins of 53% and
70% of sales, respectively. The decrease in our margin was mainly due to
increase in cost of sales as a percentage of sales as a result of relatively
high cost of sales from Tianfang’s operations during the third quarter of
2009.
 
 Operating Expenses. Total
operating expenses consisted of selling, general and administrative expenses of
$0.84 million for the three months ended September 30, 2009 compared to $0.21
million for the three months ended September 30, 2008, an increase of $0.63
million or 293%. This increase was attributable to the combined expenses of
Heilongjiang Weikang and Tianfang due to the acquisition of Tianfang in July of
2008.  Operating expenses as a percentage of sales was 7% for the
three months ended September 30, 2009 while it was 6% for the comparable period
of 2008. The increase was mainly due increased marketing expense of Tianfang for
expanding its market share in the new regions of China.
 
 Net Other Income
(Expenses).Other income was $0.25 million in the three months ended
September 30, 2009 compared to other expense of $3,502 in the three months ended
September 30, 2008.  Other income in the third quarter of 2009 mainly
consisted of lease income received from leasing a workshop and right to use our
technology for manufacturing the royal jelly.
 
 Net Income. Our net income
for the three months ended September 30, 2009 was $3.98 million compared to net
income of $1.83 million for the three months ended September 30, 2008, an
increase of $2.15 million or 117%. The increase was mainly attributed to
growth in revenue and efficiency of operations. Our management believes net
income will continue to increase as we continue to offer better quality and
variety of products and continue to improve our manufacturing
efficiency.
 
 Liquidity
and Capital Resources
 
 As of
September 30, 2009, the Company had cash and cash equivalents of $8.71 million,
other current assets of $1.02 million, and current liabilities of $9.77 million.
Negative working capital was $46,218 at September 30, 2009. The ratio of current
assets to current liabilities was 0.99-to-1 as of September
30, 2009.
 
 The
negative working capital and the ratio of current assets to current liabilities
are primarily due to other payables of $7.62 million that Sinary is obligated to
pay to the prior owners of Heilongjiang Weikang within one year from the closing
of the acquisition of Heilongjiang Weikang. This payable does not bear any
interest, and has been renewed to June 30, 2010.
 
 The
following is a summary of cash provided by or used in each of the indicated
types of activities during the nine months ended September 30, 2009 and 2008,
respectively:
 
 2009
              
              
              2008Cash
      provided by (used in):Operating
      Activities
              
              $
              11,325,255
              
              
              $
              3,698,792Investing
      Activities
              
              $
              (27,751
              )
              
              $
              (78,638
              )Financing
      Activities
              
              $
              (2,614,430)
              
              
              $
              (2,633,277
              )
 
 Net
cash provided by operating activities was $11.33 million for the nine months
ended September 30, 2009, compared to net cash provided by operating activities
of $3.70 million for the comparable period of 2008. The increase in net cash
inflow from operating activities was mainly due to an increase in our net income
with faster collection on accounts receivable.
 
 Net
cash used in investing activities was $27,751 for the nine months ended
September 30, 2009, as compared to net cash used in investing activities of
$78,638 for the nine months ended September 30, 2008.  The cash
outflow during the nine months ended September 30, 2009 was mainly due to the
acquisition of additional office equipment.
 
 Net cash
used in financing activities was $2.61 million for the nine months ended
September 30, 2009 compared to net cash used in financing activities of
$2.63 million for the nine months ended September 30, 2008. The net cash outflow
in financing activities for the nine months ended September 30, 2009 mainly
consisted of payment of $3.81 million for the remaining portion of the
acquisition price of Tianfang, net of repayment of sales receipts of $1.20
million from the management that was previously deposited into a personal
bankcard owned by the Company’s officer mainly for the purpose of convenience on
payment collection.  While in the comparable period of 2008, we paid
$4.87 million for the first and second installment for the acquisition price of
Tianfang, net of $2.46 million repayment of Weikang’s management for the sales
receipts that was originally received by Weikang’s management on behalf of
Weikang; and a repayment of $0.23 million to a related party.
 
 We
do not believe inflation had a significant negative impact on our results of
operations during 2009.
 
 Off-Balance
Sheet Arrangements
 
 We
have not made any other financial guarantees or other commitments to guarantee
the payment obligations of any third party. We have not entered into any
derivative contracts that are indexed to our shares and classified as
stockholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit,
liquidity or market risk support to such entity. We do not have any variable
interest in any unconsolidated entity that provides financing, liquidity, market
risk or credit support to us or engages in leasing, hedging or research and
development services with us.
 
 14
 Table of Contents
 
 ITEM 3.  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK
 
 The
information to be reported under this item is not required of smaller reporting
companies.
 
 ITEM 4. CONTROLS AND
PROCEDURES
 
 We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 (“Exchange Act”) is recorded, processed, summarized and reported within the
specified time periods. Our Chief Executive Officer and its Chief Financial
Officer (collectively, the “Certifying Officers”) are responsible for
maintaining our disclosure controls and procedures. The controls and procedures
established by us are designed to provide reasonable assurance that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commission’s rules and forms.
 
 As of the
end of the period covered by this report, the Certifying Officers evaluated the
effectiveness of our disclosure controls and procedures. Based on the
evaluation, the Certifying Officers concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required
disclosure.
 
 The
Certifying Officers have also concluded, based on their evaluation of our
controls and procedures that as of September 30, 2009, our internal controls
over financial reporting are effective and provide a reasonable assurance of
achieving their objective.
 
 The
Certifying Officers have also concluded that there was no change in our internal
controls over financial reporting identified in connection with the evaluation
that occurred during our fourth fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
 
 ITEM 4T. CONTROLS AND
PROCEDURES
 
 (a) Conclusions
regarding disclosure controls and procedures. Disclosure controls and
procedures are the Company’s controls and other procedures that are designed to
ensure that information required to be disclosed by the Company in the reports
that the Company files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
under the Exchange Act is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting.
 
 Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) promulgated under the Exchange Act as of September 30,
2009, and, based on their evaluation, as of the end of such period, the our
disclosure controls and procedures were effective as of the end of the period
covered by the Quarterly Report,
 
 (b) Management’s
Report On Internal Control Over Financial Reporting. It is management’s
responsibilities to establish and maintain adequate internal controls over the
Company’s financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a
process designed by, or under the supervision of, the issuer’s principal
executive and principal financial officers and effected by the issuer’s
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of Consolidated Financial
Statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
 
 •           Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the issuer;
and
 
 •           Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of Consolidated Financial Statements in accordance with generally
accepted accounting principles and that receipts and expenditures of the issuer
are being made only in accordance with authorizations of management of the
issuer; and
 
 •           Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer’s assets that could have a
material effect on the Consolidated Financial Statements.
 
 As of the
end of the period covered by the Quarterly Report, an evaluation was carried out
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our internal control over financial reporting.
 
 Management
assessed the effectiveness of our internal control over financial reporting as
of September 30, 2009. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework.
 
 Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, internal controls over financial
reporting were effective as of the end of the period covered by the
Report.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
 
 This
Quarterly Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Quarterly
Report.
 
 (c) Changes in
internal control over financial reporting. There were no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 
 15
 Table of Contents
 
 PART II.  OTHER
INFORMATION
 
 ITEM
1.      LEGAL PROCEEDINGS
 
 As of the
date of this report, we are not a party to any pending legal proceeding and are
not aware of any threatened legal proceeding.
 
 ITEM
1A.   RISK FACTORS
 
 The information to be reported under this item has not
changed since the previously filed 10K, for the year ended December 31,
2008.
 
 ITEM
2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
 
 We have
not issued any unregistered securities.
 
 ITEM
3.      DEFAULTS UPON SENIOR SECURITIES
 
 We have
not had any default upon senior securities.
 
 ITEM
4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 We have
not had any submission of matters to a vote of security holders for the second
quarter 2009.
 
 ITEM
5.      OTHER INFORMATION
 
 Subsequent
Events
 
 On August
11, 2009, we entered into a Securities Purchase Agreement with ARC China, Inc.
(“ARC”). Pursuant to the terms of the Securities Purchase Agreement, ARC agreed
that it will purchase up to an aggregate of 4,768,877 Units at a purchase price
of $1.75 per Unit for an aggregate purchase price of $8,345,535.  Each
"Unit" consists of (i) one share of the Company's newly-designated Series A
preferred stock, par value $0.01 per share ("Series A Preferred
Stock"), and (ii) one-half warrant ("Warrant") to purchase
one share of the Company's common stock, par value $0.00001 per share ("Common Stock"), at a
price of $2.75 per share, pursuant to one or more closings on such dates and in
such amounts as determined by ARC upon three days notice provided to the Company
(the "Series A
Purchase Transaction"). We expect that the issuance of shares of Series A
Preferred Stock and the Warrants pursuant to the terms of the Securities
Purchase Agreement will be exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), and
Regulation D promulgated thereunder, based upon our compliance with such rules
and regulations.
 
 The
Securities Purchase Agreement was cancelled due to the termination of the
services rendered by ARC. No shares were issued pursuant to this Securities
Purchase Agreement.
 
 ITEM
6.      EXHIBITS
 
 31.1 CEO Certification Pursuant to Section
302
 31.2
CFO Certification Pursuant to Section 302
 32.1 CEO Certification Pursuant to Section
906
 32.2 CFO Certification Pursuant to Section
906
 
 Reports on Form8-K
 
 The Current Report on Form
8-K, filed with the SEC on August 12, 2009 states that in accordance with
the terms of the Equity Interest Transfer Agreement dated October 25, 2007,
Sinary Bio-Technology Holdings Group, Inc.’s (“Sinary”) grace period ended to
remit the acquisition price of 7.6 million dollars (“Acquisition Price”) to
Weikang Bio-Technology Group Co., Ltd (“Weikang”). As a result of Sinary and
Weikang renegotiation the Equity Interest Transfer Agreement, Weikang has
applied for and received PRC government approval for an extension on the
remittance date of the Acquisition Price. Sinary received PRC government
approval on August 7, 2009 for an extension of the remittance date until June
30, 2010. The Form 8-K filed on August 12, 2009 and the Form 8-K filed on
December 10, 2007 are hereby incorporated by reference.
 
 The
Current Report on Form 8-K, filed with the SEC on August 17, 2009 states that
Weikang entered into a Securities Purchase Agreement with ARC China, Inc.
(“ARC”). Pursuant to the terms of the Securities Purchase Agreement, ARC agreed
that it will purchase up to an aggregate of 4,768,877 Units at a purchase price
of $1.75 per Unit for an aggregate purchase price of $8,345,535.  Each
"Unit" consists of (i) one share of the Company's newly-designated Series A
preferred stock, par value $0.01 per share ("Series A Preferred
Stock"), and (ii) one-half warrant ("Warrant") to purchase
one share of the Company's common stock, par value $0.00001 per share ("Common Stock"), at a
price of $2.75 per share, pursuant to one or more closings on such dates and in
such amounts as determined by ARC upon three days notice provided to the Company
(the "Series A
Purchase Transaction"). The Company expects that the issuance of shares
of Series A Preferred Stock and the Warrants pursuant to the terms of the
Securities Purchase Agreement will be exempt from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and
Regulation D promulgated thereunder, based upon the Company's compliance with
such rules and regulations. The Form 8-K and the Securities Purchase Agreement
filed on August 17, 2009 are hereby incorporated by reference.
 
 16
 Table of Contents
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 WEIKANG
      BIO-TECHNOLOGY GROUP CO., INC.
                (Registrant)Date:
      November 18, 2009
              By:
              /s/
      Yin WangYin
      Wang
                Chief
      Executive Officer and
                Chairman
      of the Board