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 March
31, 2009
 
  [
]            TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
1934
  For
the Transition Period From ____to _____
 
 Commission
File Number
 000-1365354
  
 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 May 12,
2009:      25,229,800
  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 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.
  
 
 
  INDEX TO FORM 10-Q
  PART
I                                                                                                                                                                                                                                                                                                    
    Page No.
 
 Item
1.  Financial
Statements                                                                                                                                                                                                                                                                            3
 
 Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of
Operations                                                                                                                                                 13
  Item
3.  Quantitative and Qualitative Disclosures About Market
Risk                                                                                                                                                                                                    
16
 
 Item
4.  Controls and
Procedures                                                                                                                                                                                                                                                                    16
  Item 4T.
Controls and
Procedures                                                                                                                                                                                                                                                                 
16
  PART
II
  Item
1.  Legal
Proceedings                                                                                                                                                                                                                                                                               
17
  Item 1A.
Risk
Factors                                                                                                                                                                                                                                                                                       
17
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds                                                                                                                                                                                                      17
  Item
3.  Defaults Upon Senior
Securities                                                                                                                                                                                                                                                       
17
  Item
4.  Submission of Matters to a Vote of Security
Holders                                                                                                                                                                                                                    17
  Item
5.  Other
Information                                                                                                                                                                                                                                                                                
17
  Item
6.  Exhibits                                                                                                                                                                                                                                                                                                   17
 
 2
 Table of Contents
 
 ITEM 1.FINANCIAL
STATEMENTS
  INDEX TO
WEIKANG BIO-TECHNOLOGY GROUP CO, INC. FINANCIAL STATEMENTS
 
 WEIKANG BIO-TECHNOLOGY GROUP
CO, INC.PAGE
 
 Consolidated Balance
Sheets                                                                                                                                                                                                                                                           4
 
 Consolidated Statement of
Operations                                                                                                                                                                                                                                           5
 
 Consolidated Statement of Cash
Flows                                                                                                                                                                                                                                         
6
 
 Notes
toConsolidated Financial
Statements                                                                                                                                                                                                                                7
  3
 Table of Contents
  WEIKANG
BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 AS OF
MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
  MARCH
      31,
                    
                    
                    DECEMBER
      31,2009
                    
                    
                    2008ASSETSCURRENT
      ASSETSCash
      & cash equivalents
                    
                    $
                    974,790
                    
                    
                    $
                    16,927Advances
      to suppliers and other receivables
                    
                    
                    24,166
                    
                    
                    
                    41,697Inventory
                    
                    
                    448,856
                    
                    
                    
                    151,942Due
      from management
                    
                    
                    1,021,376
                    
                    
                    
                    1,243,672Total
      current assets
                    
                    
                    2,469,188
                    
                    
                    
                    1,454,238NONCURRENT
      ASSETSProperty
      and equipment, net
                    
                    
                    10,853,035
                    
                    
                    
                    11,098,046Intangible
      assets
                    
                    
                    12,161,539
                    
                    
                    
                    12,214,405Total
      noncurrent assets
                    
                    
                    23,014,574
                    
                    
                    
                    23,312,451TOTAL
      ASSETS
                    
                    $
                    25,483,762
                    
                    
                    $
                    24,766,689LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                    
                    $
                    12,994
                    
                    
                    $
                    12,996Unearned
      revenue
                    
                    
                    187,656
                    
                    
                    
                    224,271Taxes
      payable
                    
                    
                    1,977,259
                    
                    
                    
                    1,250,087Accrued
      liabilities and other payables
                    
                    
                    7,636,867
                    
                    
                    
                    11,434,937Advance
      from officer
                    
                    
                    650,000
                    
                    
                    
                    650,000Total
      current liabilities
                    
                    
                    10,464,776
                    
                    
                    
                    13,572,291CONTINGENCIES
      AND COMMITMENTSDEFERRED
      TAX LIABILITY
                    
                    
                    3,525,146
                    
                    
                    
                    3,551,025STOCKHOLDERS'
      EQUITYCommon
      stock,  $.00001 par value;  authorized
      shares100,000,000;  issued
      and outstanding 25,229,800 shares
                    
                    
                    252
                    
                    
                    
                    252Additional
      paid in capital
                    
                    
                    (252
                    )
                    
                    
                    (252
                    )Statutory
      reserve
                    
                    
                    703,349
                    
                    
                    
                    512,637Accumulated
      other comprehensive income
                    
                    
                    820,011
                    
                    
                    
                    823,151Retained
      earnings
                    
                    
                    9,970,480
                    
                    
                    
                    6,307,585Total
      stockholders' equity
                    
                    
                    11,493,840
                    
                    
                    
                    7,643,373TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                    $
                    25,483,762
                    
                    
                    $
                    24,766,689
  The
accompanying notes are an integral part of these consolidated financial
statements.
  4
 Table of Contents
  WEIKANG
BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF OPERATIONS
 FOR THE
THREE MONTHS ENDED MARCH 31, 2009 and 2008 (UNAUDITED)
  FOR
      THE THREE MONTHS ENDEDMARCH 31, 2009
                  
                  
                  MARCH 31, 2008Net
      sales
                  
                  $
                  10,111,207
                  
                  
                  $
                  1,146,218Cost
      of goods sold
                  
                  
                  4,461,585
                  
                  
                  
                  454,673Gross
      profit
                  
                  
                  5,649,622
                  
                  
                  
                  691,545Operating
      expensesSelling
      expenses
                  
                  
                  432,843
                  
                  
                  
                  5,200General
      and administrative expenses
                  
                  
                  206,469
                  
                  
                  
                  127,912Total
      operating expenses
                  
                  
                  639,312
                  
                  
                  
                  133,112Income
      from operations
                  
                  
                  5,010,310
                  
                  
                  
                  558,433Non-operating
      income (expenses)Interest
      income
                  
                  
                  245
                  
                  
                  
                  102Financial
      expense
                  
                  
                  (110
                  )
                  
                  
                  (491
                  )Other
      income
                  
                  
                  256,278
                  
                  
                  
                  -Other
      expenses
                  
                  
                  (12,859
                  )
                  
                  
                  -Total
      non-operating income (expenses)
                  
                  
                  243,554
                  
                  
                  
                  (389
                  )Income
      before income tax
                  
                  
                  5,253,864
                  
                  
                  
                  558,044Income
      tax
                  
                  
                  1,400,259
                  
                  
                  
                  -Net
      income
                  
                  
                  3,853,605
                  
                  
                  
                  558,044Other
      comprehensive income (loss)Foreign
      currency translation (loss) gain
                  
                  
                  (3,140
                  )
                  
                  
                  326,179Comprehensive
      Income
                  
                  $
                  3,850,465
                  
                  
                  $
                  884,223Basic
      and diluted weighted average shares outstanding
                  
                  
                  25,229,800
                  
                  
                  
                  25,229,800Basic
      and diluted net earnings per share
                  
                  $
                  0.15
                  
                  
                  $
                  0.02
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  5
 Table of Contents
  WEIKANG
BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OFCASH FLOWS
 FOR THE
THREE MONTHS ENDED MARCH 31, 2009 and 2008 (UNAUDITED)
  FOR
      THE THREE MONTHS ENDEDMARCH
      31, 2009
                  
                  
                  MARCH
      31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                  
                  $
                  3,853,605
                  
                  
                  $
                  558,044Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                  
                  
                  293,452
                  
                  
                  
                  71,033Changes
      in deferred tax
                  
                  
                  (25,204
                  )
                  
                  
                  -(Increase)
      decrease in current assets:Accounts
      receivable
                  
                  
                  -
                  
                  
                  
                  26,185Advances
      to suppliers and other receivables
                  
                  
                  (6,195
                  )
                  
                  
                  (258,609
                  )Inventory
                  
                  
                  (296,952
                  )
                  
                  
                  59,378Increase
      (decrease) in current liabilities:Accounts
      payable
                  
                  
                  -
                  
                  
                  
                  1,232Unearned
      revenue
                  
                  
                  (36,573
                  )
                  
                  
                  -Accrued
      liabilities and other payables
                  
                  
                  8,519
                  
                  
                  
                  3,584Taxes
      payable
                  
                  
                  727,431
                  
                  
                  
                  (11,263
                  )Net
      cash provided by operating activities
                  
                  
                  4,518,083
                  
                  
                  
                  449,584CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property & equipment
                  
                  
                  -
                  
                  
                  
                  (20,905
                  )Construction
      in progress
                  
                  
                  -
                  
                  
                  
                  (42,919
                  )Net
      cash used in investing activities
                  
                  
                  -
                  
                  
                  
                  (63,824
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payment
      on payable of acquisition of business
                  
                  
                  (3,811,898
                  )
                  
                  
                  -Changes
      in due from management
                  
                  
                  245,785
                  
                  
                  
                  (432,804
                  )Changes
      in due from related party
                  
                  
                  -
                  
                  
                  
                  (21,921
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  (3,566,113
                  )
                  
                  
                  (454,725
                  )EFFECT
      OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
                  
                  
                  5,893
                  
                  
                  
                  3,194INCREASE
      (DECREASE) IN CASH & CASH EQUIVALENTS
                  
                  
                  957,863
                  
                  
                  
                  (65,771
                  )CASH
      & CASH EQUIVALENTS, BEGINNING OF PERIOD
                  
                  
                  16,927
                  
                  
                  
                  117,240CASH
      & CASH EQUIVALENTS, END OF PERIOD
                  
                  $
                  974,790
                  
                  
                  $
                  51,469Supplemental
      Cash flow data:Income
      tax paid
                  
                  $
                  411,008
                  
                  
                  $
                  -Interest
      paid
                  
                  $
                  -
                  
                  
                  $
                  -
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  6
 Table of Contents
  WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES TO
FINANCIAL STATEMENTS
 MARCH 31,
2009 (UNAUDITED) AND DECEMBER 31, 2008
  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 health and nutritional
supplements 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
in exchange 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 an aggregate of 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 a
recapitalization, and pro forma information is not presented. Transaction costs
incurred in the reverse acquisition were charged to expense.
  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 health and nutritional supplements 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 dated and 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 Chinese herbal
extract products and GMP certified western prescriptive medicine.  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 have been 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 three
months ended March 31, 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 have been eliminated in
consolidation.
 
 Use
of Estimates
 
 In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting 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 accounts receivable at
March 31, 2009 and December 31, 2008.
 
 7
 Table of Contents
 
 WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES TO
FINANCIAL STATEMENTS
 MARCH 31,
2009 (UNAUDITED) AND DECEMBER 31, 2008
  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 March 31, 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,” 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, 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.
 
 Revenue
Recognition
 
 The
Company's revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (“SAB”) 104.  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 three months ended March 31, 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, other receivables, accounts payable and other
payables. 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,” 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.
 
 Fair
Value of Financial Instruments
 
 SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” 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.”
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.
  8
 Table of Contents
 
 WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES TO
FINANCIAL STATEMENTS
 MARCH 31,
2009 (UNAUDITED) AND DECEMBER 31, 2008
  As of
March 31, 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 has been 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”. 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 three months
ended March 31, 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.”  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 Earning 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 earning 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 three months ended March 31, 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. 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.
 
 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
expenses as incurred. For the three months ended March 31, 2009 and 2008, the
research and development expense were $0.
 
 Start-up
Costs
  In
accordance with the American Institute of Certified Public Accountants Statement
of Position 98-5, “Reporting on the Costs of Start-up Activities”, the Company
expenses all costs incurred in connection with the start-up and organization of
the Company.
 
 Reclassifications
 
 Certain
prior year amounts have been reclassified to conform to the manner of
presentation in the current year.
  New
Accounting Pronouncements
 
 Employer’s Disclosures about
Postretirement Benefit Plan Assets
 
 In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures
about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). FSP
FAS 132(R)-1 applies to an employer that is subject to the disclosure
requirements of SFAS No. 132 (revised 2003), “Employers’ Disclosures
about Pensions and Other Postretirement Benefits” (“SFAS 132R”) and amends
SFAS 132R to provide guidance on an employer’s disclosures about plan
assets of a defined benefit pension or other postretirement plan. The
disclosures about plan assets required by FSP FAS 132(R)-1 shall be
provided for fiscal years ending after December 15, 2009. Earlier
application is permitted. The adoption of FSP FAS 132(R)-1did not have a
material impact on the Company’s financial statements.
 
 Accounting for Defensive
Intangible Assets
 
 In
November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for
Defensive Intangible Assets” (“EITF 08-7”). EITF 08-7 applies to all
acquired intangible assets in situations in which the acquirer does not intend
to actively use the asset but intends to hold the asset to prevent its
competitors from obtaining access to the asset (a defensive intangible
asset). Defensive intangible assets could include assets that the acquirer will
never actively use, as well as assets that will be used by the acquirer during a
transition period when the intention of the acquirer is to discontinue the use
of those assets. EITF 08-7 concluded that a defensive intangible asset
should be accounted for as a separate unit of accounting and should be amortized
over the period that the defensive intangible asset directly or indirectly
contributes to the future cash flows of the entity. EITF 08-7 is effective
prospectively for intangible assets acquired on or after the beginning
of the first annual reporting period beginning on or after December 15,
2008. Earlier application is not permitted.  The adoption of EITF 08-7
did not have a material impact on the Company’s financial
statements.
 
 Accounting for Financial
Guarantee Insurance Contracts
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.”  The
scope of this Statement is limited to financial guarantee insurance (and
reinsurance) contracts, as described in this Statement, issued by enterprises
included within the scope of Statement 60. Accordingly, this Statement does not
apply to financial guarantee contracts issued by enterprises excluded from the
scope of Statement 60 or to some insurance contracts that seem similar to
financial guarantee insurance contracts issued by insurance enterprises (such as
mortgage guaranty insurance or credit insurance on trade receivables). This
Statement also does not apply to financial guarantee insurance contracts that
are derivative instruments included within the scope of FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” SFAS 163
adoption did not have an impact on the Company’s financial
statements.
 
 The Hierarchy of Generally
Accepted Accounting Principles
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States (the GAAP
hierarchy).  SFAS 162 adoption did not have an impact on the Company’s
financial statements.
 
 Determination of the Useful
Life of Intangible Assets
 
 In
April 2008, the FASB issued FASB Staff Position FAS 142-3, “Determination
of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),
and requires additional disclosures. The objective of FSP FAS 142-3 is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (R), “Business Combinations” (“SFAS
141(R)”), and other accounting principles generally accepted in the USA. FSP FAS
142-3 applies to all intangible assets, whether acquired in a business
combination or otherwise and shall be effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The guidance for determining the useful life of
intangible assets shall be applied prospectively to intangible assets acquired
after the effective date. The disclosure requirements apply prospectively
to all intangible assets recognized as of, and subsequent to, the effective
date. Early adoption is prohibited. The adoption of FSP FAS 142-3 did not have a
material impact on the Company’s financial statements.
  9
 Table of Contents
  WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES TO
FINANCIAL STATEMENTS
 MARCH 31,
2009 (UNAUDITED) AND DECEMBER 31, 2008
  Disclosures about Derivative
Instruments and Hedging Activities
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities an amendment of FASB Statement No. 133.”  This
Statement changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS 161 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or
after November 15, 2008.  The adoption of SFAS 161 did not
have a significant impact on the Company’s financial statements.
 
 Noncontrolling Interests in
Consolidated Financial Statements–An Amendment of ARB No.
51
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS
160”). SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The amount of net
income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS 160 clarifies
that changes in a parent’s ownership interest in a subsidiary that do not result
in deconsolidation are equity transactions if the parent retains its controlling
financial interest. In addition, this statement requires that a parent recognize
a gain or loss in net income when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. SFAS 160 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. The Company expects SFAS 160 will have an impact on accounting for
business combinations, but the effect is dependent upon acquisitions at that
time. The Company adopted the provisions of SFAS 160 on January 1,
2009.
 
 Business
Combinations
  SFAS 141
(Revised 2007), Business Combinations (SFAS 141(R)), is effective for the
Company for business combinations for which the acquisition date is on or after
January 1, 2009. SFAS 141(R) changes how the acquisition method is applied in
accordance with SFAS 141. The primary revisions to this Statement require an
acquirer in a business combination to measure assets acquired, liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, at their fair values as of that date, with limited exceptions specified in
the Statement. This Statement also requires the acquirer in a business
combination achieved in stages to recognize the identifiable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full
amounts of their fair values (or other amounts determined in accordance with the
Statement). Assets acquired and liabilities assumed arising from contractual
contingencies as of the acquisition date are to be measured at their
acquisition-date fair values, and assets or liabilities arising from
all other contingencies as of the acquisition date are to be measured at
their acquisition-date fair value, only if it is more likely than not that they
meet the definition of an asset or a liability in FASB Concepts Statement No. 6,
Elements of Financial Statements. This Statement significantly amends other
Statements and authoritative guidance, including FASB Interpretation No. 4, Applicability
of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase
Method, and now requires the capitalization of research and development assets
acquired in a business combination at their acquisition-date fair values,
separately from goodwill. FASB Statement No. 109, Accounting for Income
Taxes, was also amended by this Statement to require the acquirer to recognize
changes in the amount of its deferred tax benefits that are recognizable because
of a business combination either in income from continuing operations in the
period of the combination or directly in contributed capital, depending on the
circumstances. The Company expects SFAS 141R will have a significant impact on
accounting for business combinations, but the effect is dependent upon
acquisitions at that time. The Company adopted the provisions of SFAS
141(R) on January 1, 2009.
 
 Accounting for Nonrefundable
Advance Payments for Goods or Services Received for use in Future Research and
Development Activities
 
 In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered
for research and development activities should be expensed when the advance
payment is made or when the research and development activity has been
performed.  EITF 07-03 is effective for fiscal years beginning after
December 15, 2008. The adoption of EITF 07-03 did not have a significant
impact on the Company’s financial statements.
 
 3.
INVENTORY
 
 Inventory
at March 31, 2009 and December 31, 2008 was as follows:
 
 2009
                      
                      
                      2008
      (audited)Raw
      materials
                      
                      $
                      123,748
                      
                      
                      $
                      33,676Packing
      materials
                      
                      
                      152,749
                      
                      
                      
                      22,409Finished
      goods
                      
                      
                      172,359
                      
                      
                      
                      95,857Total
                      
                      $
                      448,856
                      
                      
                      $
                      151,942
 
 4.
PROPERTY AND EQUIPMENT, NET
 
 Property
and equipment consisted of the following at March 31, 2009 and December 31,
2008:
 
 2009
                        
                        
                        2008
      (audited)Building
                        
                        $
                        8,243,103
                        
                        
                        $
                        8,244,669Building
      improvements
                        
                        
                        911,288
                        
                        
                        
                        911,462Production
      equipment
                        
                        
                        2,319,213
                        
                        
                        
                        2,319,654Office
      furniture and equipment
                        
                        
                        179,717
                        
                        
                        
                        179,752Vehicles
                        
                        
                        118,425
                        
                        
                        
                        118,44811,771,746
                        
                        
                        
                        11,773,985Less:
      Accumulated depreciation
                        
                        
                        (918,711
                        )
                        
                        
                        (675,939
                        )$
                        10,853,035
                        
                        
                        $
                        11,098,046
 
 Depreciation
expense for the three months ended March 31, 2009 and 2008 was $242,908 and
$68,137, respectively.
 
 5.
ADVANCES TO SUPPLIERS AND OTHER RECEIVABLES
 
 Advances
to suppliers represented prepayment for the raw material.  At March
31, 2009 and December 31, 2008, advances to suppliers amounted $14,609 and
$9,925 (audited), respectively.  Other receivables represented cash
advances to employees and sales representatives for normal business purposes
such as advances for traveling expense.  At March 31, 2009 and
December 31, 2008, other receivables amounted to $9,557 and $31,772 (audited),
respectively.
  6.
RELATED PARTY TRANSACTIONS
  Due
from Management
 
 At March
31, 2009, due from management represented payments received by the Company’s
management on behalf of the Company from the Company’s dealers, net of payments
made for purchases by the management on behalf of the Company. The payments
were received and purchases were made through a bank card owned by one of the
Company’s officer solely for the business purpose of convenience on payment
collection, the bank card is under the control of the Company’s accounting
department. The transactions were recorded in the officer’s personal bank
account.  During the three months ended March 31, 2009 and 2008,
$1,470,000 and $0 sales receipts were deposited into the officer’s personal bank
cards, and $500,000 and $0 purchase payments were made from the same bank
cards.
 
 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
$1,007,919 (RMB 7,000,000) and prepaid lease payment of $219,472 (RMB 1,500,000)
on behalf of the Company.
 
 Sales
to Related Party
 
 During
the three months ended March 31, 2009 and 2008, the Company sold goods for
approximately $29,000 and $351,000, respectively, to another related
company owned by the Company’s chief executive officer. The receivables from
this related party was $0 as of March 31, 2009 and December 31, 2008
(audited).
 
 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.
 
 10
 Table of Contents
  WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES TO
FINANCIAL STATEMENTS
 MARCH 31,
2009 (UNAUDITED) AND DECEMBER 31, 2008
  7.
INTANGIBLE ASSETS
 
 Intangible
assets consisted of the following at March 31, 2009 and December 31,
2008:
 
 2009
                        
                        
                        2008
      (audited)Land
      use right
                        
                        $
                        8,721,751
                        
                        
                        $
                        8,723,411Goodwill
      arising from acquisition of Tianfang
                        
                        
                        3,577,679
                        
                        
                        
                        3,578,359Software
                        
                        
                        7,208
                        
                        
                        
                        7,20912,306,638
                        
                        
                        
                        12,308,979Less:
      Accumulated amortization
                        
                        
                        (145,099
                        )
                        
                        
                        (94,574
                        )$
                        12,161,539
                        
                        
                        $
                        12,214,405
  All land
in the PRC is government owned and can not 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 is amortizing the right
on a straight-line basis for 50 years.
  Amortization
expense for the three months ended March 31, 2009 and 2008 was approximately
$50,500 and $2,800, respectively.  Amortization expense for the next
five years is expected to be $204,000, $204,000, $204,000, $204,000 and $204,000
respectively.
  8. MAJOR CUSTOMERS AND VENDORS
  Five
major customers who are dealers of the Company accounted for 39% of the
Company’s net revenue for the three months ended March 31, 2009.  Each
customer accounted for about 9%, 8%, 8%, 8% & 6% of the sales. At March 31,
2009, the total receivable balance due from these five customers was
$0.
 
 Five
major customers who are dealers of the Company accounted for 97% of the
Company’s net revenue for the three months ended March 31, 2008.  Each
customer accounted for about 30%, 25%, 18%, 13% & 11% of the sales, of
which, one was the related party owned by the CEO of Weikang accounted for about
30% of the total sales.  At March 31, 2008, the total receivable
balance due from these five customers was $0.
 
 Six
vendors provided 47% of the Company’s purchase of raw materials for the three
months ended March 31, 2009.  Each vendor accounted for 19%, 7%, 6%,
5%, 5%& 5% of the purchase. The Company did not have accounts payable to
these vendors at March 31, 2009.
 
 Six
vendors provided 70% of the Company’s purchase of raw materials for the three
months ended March 31, 2008.  Each vendor accounted for 14%, 12%, 12%,
11%, 11% & 10% of the purchase. The Company did not have accounts payable to
these vendors at March 31, 2008.
  9.
TAXES PAYABLE
 
 Taxes
payable consisted of the following at March 31, 2009 and December 31,
2008:
 
 2009
                        
                        
                        2008
      (audited)Income
      tax payable
                        
                        $
                        1,396,012
                        
                        
                        $
                        381,659Value
      added tax payable
                        
                        
                        574,163
                        
                        
                        
                        306,012Individual
      income tax withholding payable
                        
                        
                        23
                        
                        
                        
                        504,123Sales
      tax payable (receivable)
                        
                        
                        (9,143
                        )
                        
                        
                        51,210Other
      taxes
                        
                        
                        16,204
                        
                        
                        
                        7,083$
                        1,977,259
                        
                        
                        $
                        1,250,087
  10.
OTHER PAYABLES
 
 At March
31, 2009, other payables mainly consisted of the purchase price 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 October 25, 2009.
 
 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 that 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 March
31, 2009 and December 31, 2008, deferred tax asset (liability) consisted of the
following:
 
 2009
                      
                      
                      2008
      (audited)Deferred
      tax asset on property and equipment for bases differences
                      
                      $
                      62,954
                      
                      
                      $
                      37,742Deferred
      tax asset arising from the acquisition of Heilongjiang
    Weikang
                      
                      
                      29,586
                      
                      
                      
                      29,592Deferred
      tax liability arising from the acquisition of Tianfang
                      
                      
                      (3,617,686)
                      
                      
                      
                      (3,578,359)Deferred
      tax liability, net
                      
                      $
                      (3,525,146)
                      
                      
                      $
                      (3,551,025)
 Table of Contents
  WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
 NOTES TO
FINANCIAL STATEMENTS
 MARCH 31,
2009 (UNAUDITED) AND DECEMBER 31, 2008
  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. Net income for the three months ended March
31, 2008 would have been lower by approximately $139,500 or $0.01 earnings per
share, if Heilongjiang Weikang was not subject an income tax
holiday.
 
 Sinary
had no operations for the three months ended March 31, 2009 and
2008.
 
 For the
three months ended March 31, 2009 and 2008, the Company’s effective income tax
rate differs from the US statutory rate due to tax rate difference and effect of
tax holiday.
 
 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.
  There
were no operations for Tianfang for the three months ended March 31, 2008,
therefore, pro forma consolidated results of operations of the Company for the
three months ended March 31, 2008 is not presented as if the acquisition of
Tianfang had occurred on January 1, 2008.
  12
 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 way
of the exchange of 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 health and
nutritional supplements 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
its products, and since April 2006, Weikang has implemented the “GB/T19001-2000
idt ISO9001:2000” quality assurance management system to all of its
manufacturing processes.
 
 Through
Heilongjiang Weikang, we manufacture and distribute in China a series of
internally developed health supplements under a Chinese trade name which English
transliteration is “Rongrun”. The “Rongrun”-line presently includes seven
products. We also developed two new products during 2007, which have been
approved by the Heilongjiang Department of Health.
 
 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, pursuant to
a Stock Transfer Agreement dated and entered into on June 30, 2008 by and among
the 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 Chinese herbal
extract products and GMP certified western prescriptive
medicine.
 
 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 have been
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 that 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; 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.
 
 13
 Table of Contents
  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. 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 that are 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 has been 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”. 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.
  NEW
ACCOUNTING PRONOUNCEMENTS
 
 Employer’s Disclosures about
Postretirement Benefit Plan Assets
 
 In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures
about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). FSP
FAS 132(R)-1 applies to an employer that is subject to the disclosure
requirements of SFAS No. 132 (revised 2003), “Employers’ Disclosures
about Pensions and Other Postretirement Benefits” (“SFAS 132R”) and amends
SFAS 132R to provide guidance on an employer’s disclosures about plan
assets of a defined benefit pension or other postretirement plan. The
disclosures about plan assets required by FSP FAS 132(R)-1 shall be
provided for fiscal years ending after December 15, 2009. Earlier
application is permitted. The adoption of FSP FAS 132(R)-1did not have a
material impact on the Company’s financial statements.
 
 Accounting for Defensive
Intangible Assets
 
 In
November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for
Defensive Intangible Assets” (“EITF 08-7”). EITF 08-7 applies to all
acquired intangible assets in situations in which the acquirer does not intend
to actively use the asset but intends to hold the asset to prevent its
competitors from obtaining access to the asset (a defensive intangible
asset). Defensive intangible assets could include assets that the acquirer will
never actively use, as well as assets that will be used by the acquirer during a
transition period when the intention of the acquirer is to discontinue the use
of those assets. EITF 08-7 concluded that a defensive intangible asset
should be accounted for as a separate unit of accounting and should be amortized
over the period that the defensive intangible asset directly or indirectly
contributes to the future cash flows of the entity. EITF 08-7 is effective
prospectively for intangible assets acquired on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Earlier application is not permitted.  The adoption of EITF 08-7 did
not have a material impact on the Company’s financial statements.
 
 Accounting for Financial
Guarantee Insurance Contracts
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.”  The
scope of this Statement is limited to financial guarantee insurance (and
reinsurance) contracts, as described in this Statement, issued by enterprises
included within the scope of Statement 60. Accordingly, this Statement does not
apply to financial guarantee contracts issued by enterprises excluded from
the scope of Statement 60 or to some insurance contracts that seem similar to
financial guarantee insurance contracts issued by insurance enterprises (such as
mortgage guaranty insurance or credit insurance on trade receivables). This
Statement also does not apply to financial guarantee insurance contracts that
are derivative instruments included within the scope of FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” SFAS
163 adoption did not have an impact on the Company’s financial
statements.
 
 The Hierarchy of Generally
Accepted Accounting Principles
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States (the GAAP
hierarchy).  SFAS 162 adoption did not have an impact on the Company’s
financial statements.
 
 Determination of the Useful
Life of Intangible Assets
 
 In
April 2008, the FASB issued FASB Staff Position FAS 142-3, “Determination
of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),
and requires additional disclosures. The objective of FSP FAS 142-3 is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (R), “Business Combinations”
(“SFAS 141(R)”), and other accounting principles generally accepted in the USA.
FSP FAS 142-3 applies to all intangible assets, whether acquired in a business
combination or otherwise and shall be effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The guidance for determining the useful life of
intangible assets shall be applied prospectively to intangible assets acquired
after the effective date. The disclosure requirements apply prospectively to all
intangible assets recognized as of, and subsequent to, the effective date. Early
adoption is prohibited. The adoption of FSP FAS 142-3 did not have a material
impact on the Company’s financial statements.
  Disclosures about Derivative
Instruments and Hedging Activities
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities an amendment of FASB Statement No. 133.”  This
Statement changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS 161 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or
after November 15, 2008.  The adoption of SFAS 161 did not
have a significant impact on the Company’s financial statements.
 
 Noncontrolling Interests in
Consolidated Financial Statements – An Amendment of ARB No.
51
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS
160”). SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The amount of
net income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS 160 clarifies
that changes in a parent’s ownership interest in a subsidiary that do not result
in deconsolidation are equity transactions if the parent retains its controlling
financial interest. In addition, this statement requires that a parent recognize
a gain or loss in net income when a subsidiary is deconsolidated. Such gain
or loss will be measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. SFAS 160 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. The Company expects SFAS 160 will have an impact on accounting for
business combinations, but the effect is dependent upon acquisitions at that
time. The Company adopted the provisions of SFAS 160 on January 1,
2009.
 
 14
 Table of Contents
  Business
Combinations
  SFAS 141
(Revised 2007), Business Combinations (SFAS 141(R)), is effective for the
Company for business combinations for which the acquisition date is on or after
January 1, 2009. SFAS 141(R) changes how the acquisition method is applied in
accordance with SFAS 141. The primary revisions to this Statement require an
acquirer in a business combination to measure assets acquired, liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, at their fair values as of that date, with limited exceptions specified in
the Statement. This Statement also requires the acquirer in a business
combination achieved in stages to recognize the identifiable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full
amounts of their fair values (or other amounts determined in accordance with the
Statement). Assets acquired and liabilities assumed arising from contractual
contingencies as of the acquisition date are to be measured at their
acquisition-date fair values, and assets or liabilities arising from all other
contingencies as of the acquisition date are to be measured at their
acquisition-date fair value, only if it is more likely than not that they
meet the definition of an asset or a liability in FASB Concepts Statement No. 6,
Elements of Financial Statements. This Statement significantly amends other
Statements and authoritative guidance, including FASB Interpretation No. 4,
Applicability of FASB Statement No. 2 to Business Combinations Accounted for by
the Purchase Method, and now requires the capitalization of research and
development assets acquired in a business combination at their acquisition-date
fair values, separately from goodwill. FASB Statement No. 109, Accounting for
Income Taxes, was also amended by this Statement to require the acquirer to
recognize changes in the amount of its deferred tax benefits that are
recognizable because of a business combination either in income from continuing
operations in the period of the combination or directly in contributed capital,
depending on the circumstances. The Company expects SFAS 141R will have a
significant impact on accounting for business combinations, but the effect
is dependent upon acquisitions at that time. The Company adopted the
provisions of SFAS 141(R) on January 1, 2009.
 
 Accounting for Nonrefundable
Advance Payments for Goods or Services Received for use in Future Research and
Development Activities
 
 In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been
performed.  EITF 07-03 is effective for fiscal years beginning after
December 15, 2008. The adoption of EITF 07-03 did not have a significant
impact on the Company’s financial statements.
 
 Results
of Operations
  Comparison
of the Three Months Ended March 31, 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
                
                $
                10,111207
                
                
                
                
                
                
                $
                1,146,218Cost
      of Sales
                
                
                4,461,585
                
                
                
                44
                %
                
                
                454,673
                
                
                
                40
                %Gross
      Profit
                
                
                5,649,622
                
                
                
                56
                %
                
                
                691,545
                
                
                
                60
                %Operating
      Expense
                
                
                639,312
                
                
                
                6
                %
                
                
                133,1112
                
                
                
                11
                %Income
      from Operations
                
                
                5,010,310
                
                
                
                50
                %
                
                
                558,433
                
                
                
                49
                %Other
      Income (Expenses), net
                
                
                243,554
                
                
                
                2
                %
                
                
                (389)
                
                
                
                -
                %Income
      Tax Expenses
                
                
                1,400,259
                
                
                
                14
                %
                
                
                -
                
                
                
                -
                %Net
      Income
                
                $
                3,853,605
                
                
                
                38
                %
                
                $
                558,044
                
                
                
                49
                %
 
 Sales. During the three
months ended March 31, 2009, we had sales of $10.11 million, compared to $1.15
million for the comparable period of 2008, an increase of approximately $8.96
million or 782%. 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 by 22% to dealers and
distributors of Heilongjiang Weikang as a result of increased demand from end
users 3) sales from Tianfang, a subsidiary we acquired on July 22, 2008. Sales
of Tianfang accounted for 62% of our sales during the first quarter of
2009.  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 million or 881%, from $0.45 million in the three months ended
March 31, 2008 to $4.46 million for the three months ended March 31, 2009. The
increase was mainly due to increased production activities.  The cost
of sales as a percentage of sales for the three months ended March 31, 2009,
approximate 44% as compared to approximately 40% for the comparable period of
2008, which was attributable to relatively higher cost of sales of Tianfang,
approximate 49% of the sales; while the cost of sales was approximately 35% of
the sales for Heilongjiang Weikang, a decrease of 5% when compared with the
comparable period of 2008, which was mainly due to the economies of scale with
increased production volume while the fixed costs remain constant.
  Gross Profit. Gross profit
was $5.65 million for the three months ended March 31, 2009, compared to $0.69
million for the comparable period of 2008, representing gross margin of
approximate 56% and 60% of sales, respectively. The decrease in our gross profit
percentage 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 first quarter of 2009 compared to Heilongjiang Weikang’s relatively low cost
of sales for the comparable period of 2008.
 
 Operating Expenses. Total
operating expenses consists of selling, general and administrative expenses of
$0.64 million for the three months ended March 31, 2009 as compared to $0.13
million for the three months ended March 31, 2008, an increase of $0.51 million
or 380%. This increase was attributable to the combined expenses of Heilongjiang
Weikang and Tianfang due to the acquisition of Tianfang in July 2008, while only
Heilongjiang Weikang’s expenses were recorded for the three months ended March
31, 2008.  Operating expenses as a percentage of sales was 6% for
three months ended March 31, 2009 while it was 11% for the comparable period of
2008, primarily due to the economy of scale and increased efficiencies in
control over expenses by management.
 
 Net Other Income (Expenses).Other income was $0.24 million in the three months ended March 31, 2009
compared to other expense of $389 in the three months ended March 31,
2008.  Other income in the first quarter of 2009 mainly consisted of
lease income received from leasing out a workshop and use right of our
technology used in the manufacturing the royal jelly.
 
 Net Income. Our net income
for the three months ended March 31, 2009 was $3.85 million as compared to net
income of $0.56 million for the three months ended March 31, 2008, an increase
of $3.29 million or 591%.   The increase was mainly attributed to
economy of scale combined with growth in revenue and efficiency of operations as
a result of our acquisition of Tianfang. Our management believes that 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
March 31, 2009, the Company had cash and cash equivalents of approximately $0.97
million, other current assets of approximately $1.49 million, and current
liabilities of approximately $10.46 million. Negative working capital was $8
million at March 31, 2009. The ratio of current assets to current liabilities
was 0.24-to-1 as of March 31, 2009.
  The
negative working capital and the ratio of current assets to current liabilities
are primarily due to other payables of approximately $7.62 million that Sinary
is obligated to pay to the prior owners of Heilongjiang Weikang on or before
October 25, 2009, which is non-interest bearing.
 
 The
following is a summary of cash provided by or used in each of the indicated
types of activities during the three months ended March 31, 2009 and 2008,
respectively:
  2009
                      
                      
                      2008Cash provided by (used
      in):Operating
      Activities
                      
                      $
                      4,518,083
                      
                      
                      $
                      449,584Investing
      Activities
                      
                      $
                      -
                      
                      
                      $
                      (63,824
                      )Financing
      Activities
                      
                      $
                      (3,566,113
                      )
                      
                      $
                      (454,725
                      )
  Net
cash provided by operating activities was $4.51 million for the three months
ended March 31, 2009, as compared to net cash provided by operating activities
of $0.45 million for the comparable period of 2008. The increase in net cash
inflow from operating activities was mainly due to a significant increase in our
net income with quick collection on accounts receivable.
  Net
cash used in investing activities was $0 for the three months ended March 31,
2009, as compared to net cash used in investing activities of $63,824 for the
three months ended March 31, 2008.  We did not have any investing
activities during the first quarter of 2009 while we paid $63,824 for
acquisition of equipment and construction of a workshop during the comparable
period of 2008.
  Net cash
used in financing activities was $3.57 million for the three months ended March
31, 2009 compared to net cash used in financing activities of $0.45 million
for the three months ended March 31, 2008. The increase of net cash used in
financing activities was mainly due to our payment in full for the remaining
balance of $3.81 million for the acquisition of Tianfang during the first
quarter of 2009.
  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.
  15
 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
 
 Management’s
Report on Internal Control over Financial Reporting
  Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with US GAAP. The Company’s internal control over
financial reporting includes those policies and procedures that: (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with US GAAP, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.
 
 Any
system of internal control, no matter how well designed, has inherent
limitations, including the possibility that a control can be circumvented or
overridden and misstatements due to error or fraud may occur and not be detected
in a timely manner. Also, because of changes in conditions, internal control
effectiveness may vary over time. Accordingly, even an effective system of
internal control will provide only reasonable assurance with respect to
financial statement preparation.
 
 Management
carried out an assessment, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2009, pursuant to Exchange Act Rule
13(a)-14(c). We carried out this evaluation using criteria similar to that
proscribed by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control — Integrated Framework. Based on this
assessment, management concluded that the Company’s disclosure controls and
procedures were adequate to ensure that information required to be disclosed in
reports that the Company files or submits under the Exchange Act would be
recorded, processed, summarized and reported in accordance with the rules and
forms of the SEC.
 
 While
management concluded that no material weaknesses existed, management also
determined that there were two significant deficiencies:
 
 ·
              a
      need for additional controls and procedures to improve the recordkeeping
      systems at the Company; and
 
 ·
              a
      need for additional financial personnel, particularly at the executive
      level, with experience with U.S. public companies and an appropriate level
      of knowledge, experience and training in the application of US
      GAAP.
 
 To
address these concerns, we intend to retain a consultant to evaluate our
internal controls and procedures and to assist us in making improvements to the
quality of our controls, policies and procedures. In addition, we are in search
for more qualified financial personnel with experience with U.S. GAAP and U.S.
public company reporting and compliance obligations, while we are in efforts to
remediate these deficiencies through improving supervision, education, and
training of our accounting staff.
  This
quarterly report on Form 10-Q does not include an attestation of the
Company’s registered public accounting firm regarding internal control over
financial reporting.  Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to the
temporary rules of the SEC that permit the Company to provide only management’s
report in this quarterly report on Form 10-Q.
 
 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.
 
 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 SEC’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 March 31, 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
responsibility 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 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 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 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 March 31, 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 SEC 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.
 
 16
 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 is not
required of smaller reporting companies.
 
 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 first
quarter 2009.
 
 ITEM
5.      OTHER INFORMATION
 
 We do not
have any other information to report.
 
 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
 
 None
 
 17
 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:
      May 12, 2009
              By:
              /s/
      Yin WangYin
      Wang
                Chief
      Executive Officer and
                Chairman
      of the Board