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 June 30, 2009
 
 
 [ ]            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 
 For the Transition Period From ____to _____
 
 Commission File Number
 000-1365354
 
 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 June 30, 2009:      25,479,800
 
 
 CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
 The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for
the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation
to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.
 
 1
 
 INDEX TO FORM 10-Q
 
 
 PART I                                                                                                                                                                                                                                                                                       Page
No.
 
 Item 1.  Consolidated 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                                                                                                                                                                                            17
 
 Item 4.  Controls and Procedures                                                                                                                                                                                                                                                       17
 
 Item 4T. Controls and Procedures                                                                                                                                                                                                                                                      17
  PART II
 
 Item 1.  Legal Proceedings                                                                                                                                                                                                                                                                 
18
  I tem 1A. Risk Factors                                                                                                                                                                                                                                                                          18
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                          18
 
 Item 3.  Defaults Upon Senior Securities                                                                                                                                                                                                                                          18
  Item 4.  Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                       18
  Item 5.  Other Information                                                                                                                                                                                                                                                                  18
  Item 6.  Exhibits                                                                                                                                                                                                                                                                                   18
 
 2
 Table of Contents
 
 ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS
 
 INDEX TO WEIKANG BIO-TECHNOLOGY GROUP CO, INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC.
 
 PageUnaudited Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
4Unaudited Condensed Consolidated Statements of Operations - For the Three and Six Months Ended June 30, 2009 and 2008
5Unaudited Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2009 and 2008
6Notes to Unaudited Condensed Consolidated Financial Statements
7
 
 3
 Table of Contents
 
  WEIKANG BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSJUNE 30,


DECEMBER 31,2009


2008ASSETS

(UNAUDITED)


(AUDITED)CURRENT ASSETSCash & cash equivalents

$
4,936,695


$
16,927Accounts receivable


73,186



-Advances to suppliers and other receivables


67,489



41,697Inventory


427,916



151,942Due from management


24,966



1,243,672Due from related party


117,643



-Total current assets


5,647,895



1,454,238NONCURRENT ASSETSProperty and equipment, net


10,618,534



11,098,046Intangible assets


12,118,086



12,214,405Total noncurrent assets


22,736,620



23,312,451TOTAL ASSETS

$
28,384,515


$
24,766,689LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable

$
13,001


$
12,996Unearned revenue


4,800



224,271Taxes payable


1,615,364



1,250,087Accrued liabilities and other payables


7,633,650



11,434,937Advance from officer


650,000



650,000Total current liabilities


9,916,815



13,572,291CONTINGENCIES AND COMMITMENTSDEFERRED TAX LIABILITY, NET


3,501,751



3,551,025STOCKHOLDERS' EQUITYCommon stock,  $.00001 par value;  authorized shares100,000,000;  issued and outstanding 25,479,800 and
25,229,800 shares at June 30, 2009 and December 31,
2008, respectively


255



252Additional paid in capital


127,245



(252
)Statutory reserve


750,581



512,637Accumulated other comprehensive income


830,296



823,151Retained earnings


13,257,572



6,307,585Total stockholders' equity


14,965,949



7,643,373TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
28,384,515


$
24,766,689
 
 4
 Table of Contents
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)FOR THE SIX MONTHS
ENDED


FOR THE THREE MONTHS ENDEDJUNE 30, 2009


JUNE 30, 2008


JUNE 30, 2009


JUNE 30, 2008Net sales

$
23,306,974


$
3,199,898


$
13,195,767


$
2,053,680Cost of goods sold


10,564,767



1,166,038



6,103,182



711,365Gross profit


12,742,207



2,033,860



7,092,585



1,342,315Operating expensesSelling expenses


918,214



5,559



485,371



359General and administrative expenses


747,756



367,863



541,287



239,951Research and development expense


1,937,928



-



1,937,928



-Total operating expenses


3,603,898



373,422



2,964,586



240,310Income from operations


9,138,309



1,660,438



4,127,999



1,102,005Non-operating income (expenses)Interest income


1,616



167



1,371



65Financial expense


(872
)


(605
)


(762
)


(114
)Other income


521,913



-



265,635



-Other expenses


(34,561
)


(708
)


(21,702
)


(708
)Total non-operating income (expenses)


488,096



(1,146
)


244,542



(757
)Income before income tax


9,626,405



1,659,292



4,372,541



1,101,248Income tax


2,438,475



-



1,038,216



-Net income


7,187,930



1,659,292



3,334,325



1,101,248Other comprehensive incomeForeign currency translation gain


7,145



557,244



10,285



231,065Comprehensive Income

$
7,195,075


$
2,216,536


$
3,344,610


$
1,332,313Basic and diluted weighted average shares outstanding


25,268,474



25,229,800



25,306,723



25,229,800Basic and diluted net earnings per share

$
0.28


$
0.07


$
0.13


$
0.04
  5
 Table of Contents
  WEIKANG BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)FOR THE SIX MONTHS ENDED


FOR THE SIX MONTHS ENDEDJUNE 30, 2009


JUNE 30, 2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
7,187,930


$
1,659,292Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization


587,162



144,584Stock issued for consulting expenses


127,500



-Changes in deferred tax


(50,671
)


-(Increase) decrease in current assets:Accounts receivable


(73,178
)


(47,224
)Advances to suppliers and other receivables


(49,501
)


23,429Inventory


(275,882
)


58,520Increase (decrease) in current liabilities:Accounts payable


-



12,585Unearned revenue


(219,533
)


-Accrued liabilities and other payables


5,296



(245
)Taxes payable


364,740



40,253Net cash provided by operating activities


7,603,863



1,891,194CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property & equipment


(2,187
)


(21,215
)Construction in progress


-



(43,555
)Net cash used in investing activities


(2,187
)


(64,770
)CASH FLOWS FROM FINANCING ACTIVITIES:Purchase of business


(3,812,283
)


-Changes in due from management


1,242,783



(1,887,347
)Changes in due from related party


(117,628
)


(36,240
)Net cash used in financing activities


(2,687,128
)


(1,923,587
)EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS


5,220



4,627INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS


4,919,768



(92,536
)CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD


16,927



117,240CASH & CASH EQUIVALENTS, END OF PERIOD

$
4,936,695


$
24,704Supplemental Cash flow data:Income tax paid

$
1,764,405


$
-Interest paid

$
744


$
-
  6
 Table of Contents
 
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC.
 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
  1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 
 Weikang Bio-Technology Group Co., Inc., a Nevada corporation (“Weikang” or “the Company) was incorporated on May 12, 2004 in Florida as Expedition Leasing, Inc. (“Expedition”). The Company reincorporated to Nevada and changed to its present name on July 12, 2008, pursuant to a merger with Weikang, a wholly-owned
subsidiary, with Weikang as the surviving entity. The Company is engaged in the development, manufacture and distribution of Traditional Chinese Medicine ("TCM") through its indirect wholly-owned operating subsidiary, Heilongjiang Weikang Biotechnology Group Co., Ltd. (“Heilongjiang Weikang”) in the People’s Republic of China (“PRC” or “China”).
 
 On December 7, 2007, the Company (as Expedition) entered into an exchange agreement with Sinary Bio-Technology Holdings Group, Inc., a Nevada corporation (“Sinary”) and its sole shareholder (the “Sinary Stockholder”), pursuant to which the Company issued 24,725,200 shares of its common stock to the Sinary Stockholder
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 Traditional Chinese Medicine ("TCM") in the PRC.
 
 On July 22, 2008, Heilongjiang Weikang completed the acquisition of 100% of the issued and outstanding equity interests of Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a Chinese limited liability company, for $15,000,000 (the “Consideration”), pursuant to a stock transfer agreement 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 OTC Pharmaceuticals.  The Company believes its market share can be expanded to the southern part of China through the acquisition of Tianfang.
 
 The unaudited financial statements were prepared by the Company pursuant to the rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for
the respective periods. Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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 six months ended June 30,
2009 do not necessarily indicate the results for the full year ended December 31, 2009.
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
 
 Principles of Consolidation
 
 The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sinary, and the results of operations of Weikang, Sinary’s wholly-owned subsidiary;, Tianfang, Weikang’s wholly-owned subsidiary from the date of acquisition (August 1, 2008). All significant inter-company
accounts and transactions 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 (“US GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
 For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.
 
 Accounts Receivable
 
 The Company’s policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy
of these reserves. There was $73,186 and $0 accounts receivable at June 30, 2009 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.
 
 7
 Table of Contents
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
  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 June 30, 2009 and December 31, 2008, there were no significant impairments of its long-lived assets.
 
 Income Taxes
 
 The Company uses Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” 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.  At June 30, 2009 and December
31, 2008, the Company did not take any uncertain positions that would necessitate recording of tax related liability.
  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 six and three months ended June 30, 2009 and 2008. The Company does not provide unconditional right of return, price protection or any other concessions to its dealers or other customers.
 
 Cost of Goods Sold
 
 Cost of goods sold consists primarily of material costs, employee compensation, depreciation and related expenses, which are directly attributable to the production of products. Write-down of inventory to lower cost or market is also recorded in cost of goods sold.
 
 Concentration of Credit Risk
 
 Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize
collecting risk on accounts receivable.
 
 The operations of the Company are located in the PRC. Accordingly, the Company's business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the overall performance of the PRC’s economy.
 
 Statement of Cash Flows
 
 In accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the Company's operations are calculated based upon local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Cash flows from operating, investing and financing activities exclude the effect of the acquisition of Tianfang in 2008.
 
 8
 Table of Contents
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 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.
 
 As of June 30, 2009, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
 
 Foreign Currency Translation and Comprehensive Income (Loss)
 
 The Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB 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 six and three
months ended June 30, 2009 and 2008 included net income and foreign currency translation adjustments.
 
 Stock-Based Compensation
 
 The Company accounts for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.”  The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
 
 Basic and Diluted Earnings per Share (EPS)
 
 Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive. Diluted net earnings per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the
average market price during the period. For the six and three months ended June 30, 2009 and 2008, the Company did not have any dilutive securities.
 
 Segment Reporting
 
 SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires a use of the “management approach” model for segment reporting. 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 expensed as incurred. For the six and three months ended June 30, 2009, the research and development expense was $1,939,000. For the six and three months ended June 30, 2008, 
research and development expense was $0.
 
 On January 20, 2009, the Company entered an agreement with Botany medicine research center of Northeast Forestry University (“the University”) to develop certain new medicine and health supplemental products.  The Company is responsible for funding the research and development expense and project examination and registration
fee of RMB 15,000,000 (or $2,195,000). According to the contract, upon successful completion of the research work by the University, the Company is required to pay 85% of total fund to the University and will own the rights to the research findings, and is required to pay the remaining 15% upon successful registration and approval of the researching findings from State Food and Drug Administration and Department of Public Health of Heilongjiang Province. 
The Company is responsible for registration of the research findings and getting approval from related authorities.  In case the registration application is not approved by the authorities, the Company will not be entitled to the refund of the amount it already paid and will not be required to pay the remaining 15% of RMB 2,300,000 (or $336,000).  At June 30, 2009, the research and development of the new medicine and health supplemental products was completed successfully. During the term of the
contract, the Company paid RMB 12,700,000 (or $1,859,000) to the University and obtained the ownership rights of the research findings.  The Company is in the process of registering the research findings with the related authorities. The Company recorded the payment for the R&D project as R&D expense.
 
 9
 Table of Contents
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 Reclassifications
 
 Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year.
 
 New Accounting Pronouncements
 
 The FASB Accounting Standards Codifications
 
 In June 2009, the FASB issued SFAS No. 168, the FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a Replacement of FASB Statement No. 162 (“SFAS 168”). This Standard establishes the FASB Accounting Standards CodificationTM (the “codification”) as the
source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. The codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date,
all existing accounting standard documents will be superseded. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature.
 
 Consolidation of Variable Interest Entities
 
 In June 2009, the FASB issued SFAS No. 167, a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under SFAS No. 167, determining whether
a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SFAS 167 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.
 
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 
 In June 2009, the FASB issued SFAS No. 166, a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transferred of financial assets and where companies have continuing exposure to the risks related to transferred financial assets.
SFAS 166 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.
 
 Subsequent Events
 
 In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165 is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis
for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The Company adopted SFAS No. 165 for the quarter ended June 30, 2009, and has evaluated subsequent events through August 17, 2009.
 The Hierarchy of Generally Accepted Accounting Principles
 
 In May 2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  SFAS 162 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
US 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 material
impact on the Company’s financial statements.
 
 Non-Controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51
 
 In December 2007, FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51." SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires
the recognition of a non-controlling 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 non-controlling 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 non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling 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.
 
 10
 Table of Contents
 
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)

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 160 on January 1, 2009.
 
 Accounting for Non-Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities
 
 In June 2007, 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,” which addresses whether non-refundable 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 June 30, 2009 and December 31, 2008 was as follows:
 
 2009


2008 (audited)Raw materials

$
118,915


$
33,676Packing materials


75,113



22,409Finished goods


233,888



95,857Total

$
427,916


$
151,942
 
 4. PROPERTY AND EQUIPMENT, NET
 
 Property and equipment consisted of the following at June 30, 2009 and December 31, 2008:
 
 2009


2008 (audited)Building

$
8,247,928


$
8,244,669Building improvements


911,822



911,462Production equipment


2,320,571



2,319,654Office furniture and equipment


182,010



179,752Vehicles


118,495



118,44811,780,826



11,773,985Less: Accumulated depreciation


(1,162,292
)


(675,939
)$
10,618,534


$
11,098,046
 
 Depreciation for the six months ended June 30, 2009 and 2008 was $486,028 and $137,962, respectively; and for the three months ended June 30, 2009 and 2008 was $243,120 and $69,825, respectively.
 
 5. ADVANCES TO SUPPLIERS AND OTHER RECEIVABLES
 
 Advances to suppliers represented prepayment for the raw material.  Other receivables represented cash advances to employees and sales representatives for normal business purposes such as advances for traveling expense.
 
 6. RELATED PARTY TRANSACTIONS
 
 Due from Management
 
 At June 30, 2009, due from management represented advance payment of $24,966 to one of the Company’s officers for his paying certain expenses relating to the Company’s daily operations.
 
 At December 31, 2008, due from management represented lease payments received by Weikang’s CEO on behalf of Weikang for leasing out to a third party the workshop of manufacturing the royal jelly and the right to use its technology for manufacturing the royal jelly for the period from January 1, 2008 through June 30, 2010.  During
2008, Weikang’s CEO received lease income of approximately $1,008,000 (RMB 7,000,000) and prepaid lease payment of approximately $219,000 (RMB 1,500,000) on behalf of the Company.
 
 Sales to Related Party
 
 Due from related party represented accounts receivable from the sales to a company that is owned by the Company’s CEO.  Sales to this company were approximately $317,000 and $283,000 for the six months ended June 30, 2009 and 2008, respectively.  Sales to this company were approximately $83,000 and $52,000 for
the three months ended June 30, 2009 and 2008, respectively.  The accounts receivable from this company was $117,643 and $0 at June 30, 2009 and December 31, 2008, respectively.
 
 Advance from Officer
 
 Advance from officer represented the payment of $650,000 made by an officer of Heilongjiang Weikang on behalf of Sinary to certain former shareholders of the Company in connection with the reverse acquisition between the Company and Sinary on December 7, 2007. The advance from officer bears no interest and payable on
demand.
 
 7.INTANGIBLE ASSETS
 
 Intangible assets consisted of the following at June 30, 2009 and December 31, 2008:
 
 2009


2008 (audited)Land use right

$
8,726,858


$
8,723,411Goodwill arising from acquisition of Tianfang


3,579,774



3,578,359Software


7,212



7,20912,313,844



12,308,979Less: Accumulated amortization


(195,758
)


(94,574
)$
12,118,086


$
12,214,405
 
 All land in the PRC is government owned and cannot be sold to any individual or company. However, the government grants the user a “land use right” to use the land. The Company has the right to use the land for 50 years and is amortizing the right on a straight-line basis for 50 years.
 
 Amortization for the six months ended June 30, 2009 and 2008 was approximately $101,000 and $5,800, respectively. Amortization for the three months ended June 30, 2009 and 2008 was approximately $50,500 and $2,900, respectively. Amortization for the next five years is expected to be $204,000, $204,000, $204,000, $204,000 and $204,000
respectively.
 
 8. MAJOR CUSTOMERSAND VENDORS
 
 There were no customers who accounted for over 10% of the Company’s total sales for the six and three months ended June 30, 2009.
 
 Five customers who are dealers for the Company collectively accounted for 95% and 93% of the Company’s sales for the six and three months ended June 30, 2008, respectively.  These customers accounted for about 24%, 21%, 18%, 17% & 15% of the sales for the six months ended June 30, 2008, respectively, including a related
party owned by the Company's chief executive officer,  which accounted for about 18% of the total sales. These customers accounted for about 24%, 23%, 19%, 17% & 10% of the sales for the three months ended June 30, 2008, respectively, including the related party owned by the Company's chief executive officer which accounted for about 10% of the total sales. At June 30, 2008, the total receivable balance due from these five customers was $0.
 
 Three vendors collectively provided 66% and 74% of the Company’s purchase of raw materials for the six and three months ended June 30, 2009, respectively.  Each vendor accounted for 50%, 10%, and 6% of the purchase for the six months ended June 30, 2009, and 57%, 10% and 7% for the three months ended June 30, 2009, respectively.
The Company did not have accounts payable to these vendors at June 30, 2009.
 
 
 Six vendors collectively provided 74% of the Company’s purchase of raw materials for the six and three months ended June 30, 2008, respectively. These vendors counted for about 14%, 14%, 12%, 12%, 12% and 10% of the purchases for the six and three months ended June 30, 2008, respectively. The Company did not have accounts payable
to these vendors at June 30, 2008.
 
  11
 Table of Contents
 WEIKANG BIO-TECHNOLOGY GROUP CO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 (AUDITED)
 
 9. TAXES PAYABLE
 
 Taxes payable consisted of the following at June 30, 2009 and December 31, 2008:
 
 2009


2008 (audited)Income tax payable

$
1,106,636


$
381,659Value added tax payable


490,767



306,012Individual income tax withholding payable


23



504,123Sales tax payable (receivable)


3,659



51,210Other taxes


14,279



7,083$
1,615,364


$
1,250,087
 
 10. OTHER PAYABLES
 
 At June 30, 2009, other payables mainly consisted of approximately $7.62 million that Sinary was obligated to pay to Heilongjiang Weikang’s former owners within one year from the closing of the acquisition of Heilongjiang Weikang. This payable does not bear any interest, and has been renewed to June 30, 2010.
 
 At December 31, 2008, other payables consisted of $7.62 million purchase price of Heilongjiang Weikang and the unpaid portion of the purchase price of approximately $3.8 million Heilongjiang Weikang was obligated to pay to Tianfang’s former owners within one year from the closing of acquisition date.  The $3.8 million was
paid during the first quarter of 2009.
 
 11. DEFFERED TAX LIABILITY, NET
 
 Deferred tax represented differences between the tax bases and book bases of property, equipment and land use right.
 
 At June 30, 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

$
88,449


$
37,758Deferred tax asset arising from the acquisition of Heilongjiang Weikang


29,604



29,591Deferred tax liability arising from the acquisition of Tianfang


(3,619,804)



(3,618,374)Deferred tax liability, net

$
(3,501,751)


$
(3,551,025)
 
 12. INCOME TAXES
 
 Heilongjiang Weikang and Tianfang are governed by the Income Tax Law of the PRC concerning the private enterprises that are generally subject to tax at a statutory rate of 25% (33% prior to 2008) on income reported in the statutory financial statements after appropriate tax adjustments. Heilongjiang Weikang was exempt from income
tax for three years from 2006 to 2008. Tianfang is subject to 25% income tax rate. Net income for the six months ended June 30, 2008 would have been lower by approximately $414,800 or $0.016 earnings per common share, if Heilongjiang Weikang was not subject an income tax holiday.
 
 Sinary had no operations for the six months ended June 30, 2009 and 2008.
 
 Foreign pretax earnings approximated $11,612,000 and $1,659,000 for the six months ended June 30, 2009 and 2008 respectively. Pretax earnings of a foreign subsidiary are subject to U.S. taxation when effectively repatriated. The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent that
such earnings are indefinitely invested outside the United States. At June 30, 2009, $15,289,700 of accumulated undistributed earnings of non-U.S. subsidiaries was indefinitely invested. At the existing U.S. federal income tax rate, additional taxes of $1,376,000 would have to be provided if such earnings were remitted currently.
 
 
 The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six and three months ended June 30, 2009 and 2008:
 
 For the Six Months Ended June 30,


For the Three Months Ended June 30,2009


2008


2009


2008US statutory rates


34.0
%


34.0
%


34.0
%


34.0
%Tax rate difference


(9.0
)%


(9.0
)%


(10.9
)%


(9.0
)%Effect of tax holiday


-
%


(25.0
)%


-
%


(25.0
)%Tax per financial statements


25.0
%


-
%


23.1
%


-
%
 
 13. STATUTORY RESERVES
 
 Pursuant to the new corporate law of the PRC effective on January 1, 2006, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
 
 Surplus Reserve Fund
 
 The Company is now only required to transfer 10% of its net income, as determined under the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.
 
 The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares
currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.
 
 Common Welfare Fund
 
 Common welfare fund is a voluntary fund that the Company can elect to transfer 5% to 10% of its net income to this fund. This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is
non-distributable other than upon liquidation.
 
 14. CONTINGENCIES
 
 The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’ s operations
may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
 
 The Company’s sales, purchases and expenses transactions are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be conducted only by authorized
financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.
 
 15. ACQUISITION OF TIANFANG AND UNAUDITED PRO FORMA INFORMATION
 
 On July 22, 2008, Heilongjiang Weikang completed the acquisition of 100% of the issued and outstanding equity interests of Tianfang for $15,000,000 (RMB 102,886,500).  For convenience of reporting the acquisition for accounting purposes, August 1, 2008 was designated as the acquisition date.
 
 The following table summarizes the fair values of the assets acquired and liabilities assumed of Tianfang, at the date of acquisition.   The total consideration for acquisition exceeded fair value of the net assets acquired by $3,565,578. The excess was recorded as goodwill.
 
 Cash

$
10,146Accounts receivable


388,641Other receivables


3,988Inventory


45,161Property and equipment


7,194,302Land use right


8,117,686Goodwill


3,565,578Tax payable


(498,259
)Advances from shareholder


(221,794
)Deferred tax liability


(3,605,449
)Purchase price

$
15,000,000
 
 The intangible asset, which is principally land use rights, is being amortized over 50 years.
 
 The following unaudited pro forma consolidated results of continuing operations for Heilongjiang Weikang and Tianfang for the six months ended June 30, 2008 presents the operations of Heilongjiang Weikang and Tianfang as if the acquisitions occurred on January 1, 2008.  The pro forma results are not necessarily indicative of the
actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.
 
 
 For the six months ended June 30, 2008

Pro formaConsolidatedNet revenue

$
4,065,185Cost of revenue


2,154,333Gross profit


1,910,852Total operating expenses


1,063,276Income from operations


847,576Total non-operating expenses, net


(1,146
)Income before income tax


846,430Income tax


(203,216
)Net income

$
1,049,645Basic weighted average shares outstanding


25,229,800Diluted weighted average shares outstanding


25,229,800Basic net earnings per share

$
0.04Diluted net earnings per share

$
0.04
 
 16. SUBSEQUENT EVENTS


Weikang has applied for and received PRC government approval on August 7, 2009 for an extension on the remittance date of the Acquisition Price ($7.6 million) of Heilongjiang Weikang by Sinary until June 30, 2010.
  OnAugust 11, 2009, the Company entered into a Securities Purchase Agreement with ARC China, Inc. (“ARC”).
Pursuant to the terms of the Securities Purchase Agreement, ARC agreed that it will purchase up to an aggregate of 4,768,877 Units at a purchase price of $1.75 per Unit for an aggregate purchase price of $8,345,535. Each "Unit" consists of (i) one share of the Company's newly-designated Series A preferred stock, par value $0.01 per share ("Series A Preferred Stock"), and (ii) one-half warrant ("Warrant") to purchase one share of the Company's common stock, par value $0.00001 per share ("Common Stock"), at a price
of $2.75 per share. The Company expects that the issuance of shares of Series A Preferred Stock and the Warrants pursuant to the terms of the Securities Purchase Agreement will be exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Regulation D promulgated thereunder, based upon the Company's compliance with such rules and regulations.
  The Security Purchase Agreement associates with the Registration Rights Agreement. The Company shall use its commercially reasonable efforts to cause the registration statement to become effective no later than the earlier of 90 calendar days after the Trigger
Date (or, in the event of a "full review" of the Registration Statement by the SEC, 150 calendar days after the Trigger Date) or five days after the SEC declares the Registration Statement effective.  If the registration statement has not been filed or declared effective as aforesaid, the Company shall be liable for late registration payments, equal to one percent of the purchase price paid for the Series A Preferred Stock purchased and not previously sold until the Registration Statement is filed
or declared effective, as the case may be.  However, such late registration payment shall not exceed in the aggregate 10% of the price.


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 exchanging 24,725,200 shares of our common stock for 100% of the issued and outstanding common stock of Sinary.
 
 Having no substantive operation of its own, Sinary, through Heilongjiang Weikang, engages in the research, development, manufacturing, marketing, and sales of Traditional Chinese Medicine ("TCM") in China. Heilongjiang Weikang is located in Heilongjiang Province in Northeastern China, with our principal office and manufacturing
facility located in the Economic and Technology Development Zone in the city of Shuangcheng, approximately 42 kilometers south of the provincial capital Harbin. All of our products are Chinese herbal-based health and nutritional supplements. We actively seek to maintain and improve the quality of our products, and as ofApril 2006, we have implemented the “GB/T19001-2000 idt ISO9001:2000” quality assurance management system to all of our manufacturing processes.
 
 Through our subsidiary Heilongjiang Weikang, we manufacture and distribute throughout China a series of internally developed Traditional Chinese Medicine ("TCM") under a Chinese trade name known as “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 acquired  100% of the issued and outstanding equity interest of Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a Chinese limited liability company, for the purchase price of $15,000,000, pursuant to a Stock Transfer Agreement dated and entered into on June 30, 2008
by and among Heilongjiang Weikang, Tianfang, and Tianfang’s two shareholders, Beijing Shiji Qisheng Trading Co., Ltd. and Tri-H Trade (U.S.A.) Co., Ltd.
 
 Tianfang was incorporated in Guizhou Province, PRC in 1998.  Tianfang is engaged in the development, manufacture and distribution of OTC Pharmaceuticals.


Critical Accounting Policies and Estimates





Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which 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; and Tianfang, Heilongjiang Weikang’s wholly-owned subsidiary. All significant inter-company accounts
and transactions have been eliminated in consolidation.





Accounts Receivable





The Company’s policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy
of these reserves.





Inventories





Inventories are valued at the lower of cost or market with cost determined on a moving weighted average basis. Cost of work in progress and finished goods comprises direct material, direct production cost and an allocated portion of production overheads.





Property and Equipment





Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for all assets with estimated lives ranging from 3 to 20 years as follows:





Building
20 yearsVehicle
5 yearsOffice Equipment
3-7 yearsProduction Equipment
3-10 years





13
 Table of Contents





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





The FASB Accounting Standards Codifications





In June 2009, the FASB issued SFAS No. 168, the FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a Replacement of FASB Statement No. 162 (“SFAS 168”). This Standard establishes the FASB Accounting Standards CodificationTM (the “codification”)
as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. The codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective
date, all existing accounting standard documents will be superseded. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature.





Consolidation of Variable Interest Entities





In June 2009, the FASB issued SFAS No. 167, a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under SFAS No. 167, determining
whether a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SFAS 167 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.





Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities





In June 2009, the FASB issued SFAS No. 166, a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transferred of financial assets and where companies have continuing exposure to the risks related to transferred financial assets.
SFAS 166 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.





Subsequent Events





In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165 is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. SFAS 165 adoption did not have an impact on the Company’s financial statements.





The Hierarchy of Generally Accepted Accounting Principles





In May 2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  SFAS 162 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 US 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.





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 Table of Contents





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 material
impact on the Company’s financial statements.





Non-Controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51





In December 2007, FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51." SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires
the recognition of a non-controlling 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 non-controlling 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 non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling 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 160 on January 1, 2009.





Accounting for Non-Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities





In June 2007, 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,” which addresses whether non-refundable 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 Six Months Ended June 30, 2009 and 2008





The following table summarizes our results of operations. The table and the discussion below should be read in conjunction with the unaudited financial statements and the notes thereto appearing elsewhere in this report.





2009


2008(in U.S. Dollars, except for percentages)Sales

$
23,306,974






$
3,199,898Cost of Sales


10,564,767



45
%


1,166,038



36
%Gross Profit


12,742,207



55
%


2,033,860



64
%Operating Expense


3,603,898



15
%


373,422



12
%Income from Operations


9,138,309



40
%


1,660,438



52
%Other Income (Expenses), net


488,096



2
%


(1,146)



-
%Income Tax Expenses


2,438,475



11
%


-



-
%Net Income

$
7,187,930



31
%

$
1,659,292



52
%





Sales. During the six months ended June 30, 2009, we had sales of $23.31 million, compared to $3.20 million for the comparable period of 2008, an increase of $20.11 million or 628%. The difference between these two periods is primarily due to our recent acquisition of Tianfang.  This
increase was also attributable to 1) increased demand from our dealers and distributors as a result of increased acceptance and trust in our products from end users which increased Weikang’s sales by 128% during the six months ended June 30, 2009 compared with comparable period of 2008.  2) increased selling price by 23% to dealers and distributors of Heilongjiang Weikang as a result of increased demand from end users.  3) sales of approximately $15.79 million from Tianfang, a subsidiary
we acquired on July 22, 2008. Sales of Tianfang accounted for 68% of our sales during the first six months 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 $9.40 million or 806%, from $1.17 million in the six months ended June 30, 2008 to $10.56 million for the six months ended June 30, 2009. The increase was mainly due to increased production as a result of our acquisition of Tianfang. The
cost of sales as a percentage of sales for the six months ended June 30, 2009, approximate 45% as compared to 36% for the comparable period of 2008, which was attributable to relatively higher cost of sales of Tianfang, approximating 51% of sales; while the cost of sales was approximately 33% of the sales for Heilongjiang Weikang, a decrease of 4% when compared with the comparable period of 2008, which was mainly due to the economies of scale with increased production volume while fixed costs remained constant.


Gross Profit. Gross profit was $12.74 million for the six months ended June 30, 2009, compared to $2.03 million for the comparable period of 2008, representing gross margin of 55% and 64% of sales, respectively. The decrease in our gross profit margin was mainly due to increase
in cost of sales as a percentage of sales as a result of relatively high cost of sales from Tianfang’s operations during the first six months of 2009 as a result of acquisition of Tianfang in July of 2008 compared to only Heilongjiang Weikang’s cost of sales for the comparable period of 2008.





Operating Expenses. Total operating expenses consisted of selling, general and administrative expenses and R&D expense of $3.60 million for the six months ended June 30, 2009 compared to $0.37 million for the six months ended June 30, 2008, an increase of $3.23 million or
865%. Operating expenses as a percentage of sales was 15% for the six months ended June 30, 2009 while it was 12% for the comparable period of 2008. This increase was attributable to the combined expenses of Heilongjiang Weikang and Tianfang due to the acquisition of Tianfang in July 2008, while only Heilongjiang Weikang’s expenses were recorded for the six months ended June 30, 2008.    In addition, we had R&D expense of approximately $1.9 million in 2009 for developing certain
new medicine and health supplemental products with the Botany medicine research center of Northeast Forestry University.





Net Other Income (Expenses).Other income was $0.49 million in the six months ended June 30, 2009 compared to other expense of $1,146 in the six months ended June 30, 2008.  Other income in the first six
months of 2009 mainly consisted of lease income received from leasing a workshop and right to use our technology for manufacturing the royal jelly.





Net Income. Our net income for the six months ended June 30, 2009 was $7.19 million compared to net income of $1.66 million for the six months ended June 30, 2008, an increase of $5.53 million or 333%.   The increase was mainly attributed to scale economies combined
with growth in revenue and efficiency of operations as a result of our acquisition of Tianfang. Our management believes net income will continue to increase as we continue to offer better quality and variety of products and continue to improve our manufacturing efficiency.





15
 Table of Contents





Comparison of the Three Months Ended June 30, 2009 and 2008





The following table summarizes our results of operations. The table and the discussion below should be read in conjunction with the unaudited financial statements and the notes thereto appearing elsewhere in this report.





2009


2008(in U.S. Dollars, except for percentages)Sales

$
13,195,767






$
2,053,680Cost of Sales


6,103,182



46
%


711,365



35
%Gross Profit


7,092,585



54
%


1,342,315



65
%Operating Expense


2,964,586



22
%


240,310



12
%Income from Operations


4,127,999



31
%


1,102,005



53
%Other Income (Expenses), net


244,542



2
%


(757)



-
%Income Tax Expenses


1,038,216



8
%


-



-
%Net Income

$
3,334,325



25
%

$
1,101,248



54
%





Sales. During the three months ended June 30, 2009, we had sales of $13.20 million, compared to $2.05 million for the comparable period of 2008, an increase of $11.14 million or 543%. The difference between these two periods is primarily due to our recent acquisition of Tianfang.  This
increase was also attributable to 1) increased demand from our dealers and distributors as a result of increased acceptance and trust in our products from end users 2) increased selling price to dealers and distributors of Heilongjiang Weikang as a result of increased demand from end users 3) sales from Tianfangwhich occurred on July 22, 2008. Sales of Tianfang accounted for 73% of our sales during the second 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 $5.39 million or 758%, from $0.71 million in the three months ended June 30, 2008 to $6.10 million for the three months ended June 30, 2009. The increase was mainly due to increased sales. The cost of sales as a percentage of
sales for the three months ended June 30, 2009, was 46% compared to 35% for the comparable period of 2008, which was attributable to relatively higher cost of sales of Tianfang, approximate 50% of the sales; while the cost of sales was 31% of the sales for Heilongjiang Weikang, a decrease of 4% when compared with the comparable period of 2008, which was mainly due to economies of scale with increased production volume while fixed costs remain constant.





Gross Profit. Gross profit was $7.09 million for the three months ended June 30, 2009, compared to $1.34 million for the comparable period of 2008, representing gross margin of 54% and 65% of sales, respectively. The decrease in our gross profit margin was mainly due to increase
in cost of sales as a percentage of sales as a result of relatively high cost of sales from Tianfang’s operations during the second quarter of 2009 compared to only Heilongjiang Weikang’s cost of sales for the comparable period of 2008.





Operating Expenses. Total operating expenses consisted of selling, general and administrative expenses  and R&D expense of $2.96 million for the three months ended June 30, 2009 compared to $0.24 million for the three months ended June 30, 2008, an increase of
$2.72 million or 1134%. This increase was attributable to the combined expenses of Heilongjiang Weikang and Tianfang due to the acquisition of Tianfang in July of 2008, while only Heilongjiang Weikang’s expenses were recorded for the three months ended June 30, 2008.  Operating expenses as a percentage of sales was 21% for the three months ended June 30, 2009 while it was 12% for the comparable period of 2008, primarily due to R&D expense of $1.9 million during the second quarter of 2009 for
developing certain new medicine and health supplemental products with the Botany medicine research center of Northeast Forestry University.





Net Other Income (Expenses).Other income was $0.24 million in the three months ended June 30, 2009 compared to other expense of $757 in the three months ended June 30, 2008.  Other income in the
second quarter of 2009 mainly consisted of lease income received from leasing a workshop and right to use our technology for manufacturing the royal jelly.





Net Income. Our net income for the three months ended June 30, 2009 was $3.33 million compared to net income of $1.10 million for the three months ended June 30, 2008, an increase of $2.23 million or 203%.   The increase was mainly attributed to economies of scale
combined with growth in revenue and efficiency of operations as a result of our acquisition of Tianfang. Our management believes net income will continue to increase as we continue to offer better quality and variety of products and continue to improve our manufacturing efficiency.





Liquidity and Capital Resources





As of June 30, 2009, the Company had cash and cash equivalents of $4.94 million, other current assets of $0.71 million, and current liabilities of $9.92 million. Negative working capital was $4.27 million at June 30, 2009. The ratio of current assets to current liabilities was 0.57-to-1 as of June 30, 2009.





The negative working capital and the ratio of current assets to current liabilities are primarily due to other payables of $7.62 million that Sinary is obligated to pay to the prior owners of Heilongjiang Weikang 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 six months ended June 30, 2009 and 2008, respectively:





2009


2008Cash provided by (used in):Operating Activities

$
7,603,803


$
1,891,194Investing Activities

$
(2,187
)

$
(64,770
)Financing Activities

$
(2,687,128)


$
(1,923,587
)





Net cash provided by operating activities was $7.60 million for the six months ended June 30, 2009, compared to net cash provided by operating activities of $1.89 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 faster collection on accounts receivable.





Net cash used in investing activities was $2,187 for the six months ended June 30, 2009, as compared to net cash used in investing activities of $64,770 for the six months ended June 30, 2008.  The cash outflow during the six months ended June 30, 2009 was mainly due to the acquisition of additional
office equipment.





Net cash used in financing activities was $2.69 million for the six months ended June 30, 2009 compared to net cash used in financing activities of $1.92 million for the six months ended June 30, 2008. The increase of net cash used in financing activities was mainly due to payment
of $3.81 million for a  portion of the acquisition price of Tianfang, net of repayment of sales receipts of $1.24 million that was previously deposited into a personal bankcard owned by the Company’s officer mainly for the purpose of convenience on payment collection.




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.
 
 16
 Table of Contents
 
 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK
 
 We do not use derivative financial instruments in our investment portfolio and has no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable and long-term obligations. We consider investments in highly liquid instruments purchased with a remaining maturity
of 90 days or less at the date of purchase to be cash equivalents. However, in order to manage the foreign exchange risks, we may engage in hedging activities to manage our financial exposure related to currency exchange fluctuation. In these hedging activities, we might use fixed-price, forward, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges, as well as long-term structured transactions when feasible.
 
 ITEM 4. CONTROLS AND PROCEDURES
 
 We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and its Chief Financial Officer
(collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.
 
 As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
 
 The Certifying Officers have also concluded, based on their evaluation of our controls and procedures that as of June 30, 2009, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.
 
 The Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 ITEM 4T. CONTROLS AND PROCEDURES
 
 (a) Conclusions regarding disclosure controls and procedures. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the
Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.
 
 Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Exchange Act as of June 30, 2009, and, based on their evaluation,
as of the end of such period, the our disclosure controls and procedures were effective as of the end of the period covered by the Quarterly Report,
 
 (b) Management’s Report On Internal Control Over Financial Reporting. It is management’s responsibilities to establish and maintain adequate internal controls over the Company’s financial reporting. Internal control over financial reporting
is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial Statements for external purposes in accordance with generally accepted accounting principles and includes those policies
and procedures that:
 
 •           Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and
 
 •           Provide reasonable assurance that transactions are recorded as necessary to permit preparation of Consolidated Financial Statements in accordance with generally accepted accounting principles and that receipts and expenditures of the issuer are being made only in accordance
with authorizations of management of the issuer; and
 
 •           Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the Consolidated Financial Statements.
 
 As of the end of the period covered by the Quarterly Report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting.
 
 Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
 
 Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, internal controls over financial reporting were effective as of the end of the period covered by the Report.
 
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features
of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
 
 This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us
to provide only management’s report in this Quarterly Report.
 
 (c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during
our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 17
 Table of Contents
 
 PART II.  OTHER INFORMATION
 
 ITEM 1.      LEGAL PROCEEDINGS
 
 As of the date of this report, we are not a party to any pending legal proceeding and are not aware of any threatened legal proceeding.
 
 ITEM 1A.   RISK FACTORS
 
 The information to be reported under this item has not changed since the previously filed 10K, for the year ended December 31, 2008.
 
 ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 We have not issued any unregistered securities.
 
 ITEM 3.      DEFAULTS UPON SENIOR SECURITIES
 
 We have not had any default upon senior securities.
 
 ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 We have not had any submission of matters to a vote of security holders for the second quarter 2009.
 
 ITEM 5.      OTHER INFORMATION
 
 Subsequent Events
 
 On August 17, 2009, we entered into a Securities Purchase Agreement with ARC China, Inc. (“ARC”). Pursuant to the terms of the Securities Purchase Agreement, ARC agreed that it will purchase up to an aggregate of 4,768,877 Units at a purchase price of $1.75 per Unit for an aggregate purchase price of $8,345,535.  Each
"Unit" consists of (i) one share of the Company's newly-designated Series A preferred stock, par value $0.01 per share ("Series A Preferred Stock"), and (ii) one-half warrant ("Warrant") to purchase one share of the Company's common stock, par value $0.00001 per share ("Common Stock"), at a price of $2.75 per share,
pursuant to one or more closings on such dates and in such amounts as determined by ARC upon three days notice provided to the Company (the "Series A Purchase Transaction"). We expect that the issuance of shares of Series A Preferred Stock and the Warrants pursuant to the terms of the Securities Purchase Agreement will be exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), and Regulation D promulgated thereunder, based upon our compliance with such rules and regulations.
 
 ITEM 6.      EXHIBITS
 
 31.1 CEO Certification Pursuant to Section 302
 31.2 CFO Certification Pursuant to Section 302
 32.1 CEO Certification Pursuant to Section 906
 32.2 CFO Certification Pursuant to Section 906
 
 Reports on Form8-K
 
 The Current Report on Form 8-K, filed with the SEC on August 12, 2009 states that in accordance with the terms of the Equity Interest Transfer Agreement dated October 25, 2007, Sinary Bio-Technology Holdings Group, Inc.’s (“Sinary”) grace period ended to remit
the acquisition price of 7.6 million dollars (“Acquisition Price”) to Weikang Bio-Technology Group Co., Ltd (“Weikang”). As a result of Sinary and Weikang renegotiation the Equity Interest Transfer Agreement, Weikang has applied for and received PRC government approval for an extension on the remittance date of the Acquisition Price. Sinary received PRC government approval on August 7, 2009 for an extension of the remittance date until June 30, 2010. The Form 8-K filed on August 12, 2009
and the Form 8-K filed on December 10, 2007 are hereby incorporated by reference.
 
 The Current Report on Form 8-K, filed with the SEC on August 17, 2009 states that Weikang entered into a Securities Purchase Agreement with ARC China, Inc. (“ARC”). Pursuant to the terms of the Securities Purchase Agreement, ARC agreed that it will purchase up to an aggregate of 4,768,877 Units at a purchase price of $1.75 per
Unit for an aggregate purchase price of $8,345,535.  Each "Unit" consists of (i) one share of the Company's newly-designated Series A preferred stock, par value $0.01 per share ("Series A Preferred Stock"), and (ii) one-half warrant ("Warrant") to purchase one share of the Company's common stock, par value $0.00001 per share ("Common
Stock"), at a price of $2.75 per share, pursuant to one or more closings on such dates and in such amounts as determined by ARC upon three days notice provided to the Company (the "Series A Purchase Transaction"). The Company expects that the issuance of shares of Series A Preferred Stock and the Warrants pursuant to the terms of the Securities Purchase Agreement will be exempt from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), and Regulation D promulgated thereunder, based upon the Company's compliance with such rules and regulations. The Form 8-K and the Securities Purchase Agreement filed on August 17, 2009 are hereby incorporated by reference.
 
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 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: August 18, 2009
By:
/s/ Yin WangYin Wang
Chief Executive Officer and
Chairman of the Board