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Weikang Bio-Technology Group Co., Inc. – ‘10-K’ for 12/31/11

On:  Friday, 3/30/12, at 3:12pm ET   ·   For:  12/31/11   ·   Accession #:  1144204-12-18721   ·   File #:  333-165684

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/30/12  Weikang Bio-Tech Group Co., Inc.  10-K       12/31/11   44:2.3M                                   Toppan Merrill/FA

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2011

For the Transition Period from _______ to _______

Commission File Number 000-52350

WEIKANG BIO-TECHNOLOGY GROUP CO., INC.

(Exact name of small business issuer as specified in its charter)

No. 365 Chengde Street, Daowai District, Harbin

Heilongjiang Province, PRC 150020

(Address of principal executive offices and zip code)

(86) 451-8835-5530

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:

Securities registered under Section 12(g) of the Act:

Common Stock, $.00001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes                      x No

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes ¨                      No x

Note —Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act from their obligations under those Sections.

Indicate by checkmark whether the registrant (1) has 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.

x Yes                      ¨ No

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

x Yes                      ¨ No

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.   ¨

Indicate by checkmark 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.

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

¨ Yes                      x No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Note. —If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

The aggregate market value of the voting and non-voting stock on June 30, 2011 (consisting of Common Stock, $0.00001 par value per share) held by non-affiliates was approximately $9,050,346 based upon the most recent sales price ($0.95) for such Common Stock on said date. As of June 30, 2011, there were 32,491,880 shares of our Common Stock issued and outstanding, of which approximately 9,526,680 shares were held by non-affiliates.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by checkmark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   ¨  Yes                      ¨ No

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Number of shares of common stock, par value $.00001, outstanding as of March 29, 2012: 34,451,880. 

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

The discussion contained in this 10-K under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-K. 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-K that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

TABLE OF CONTENTS

PART I

Overview

We are principally engaged in developing, manufacturing and distributing health and nutritional supplements in China. The Company has also expanded its business scope to develop, manufacture and distribute Chinese herbal extract products and Good Manufacturing Practice (“GMP”) certified western prescriptive medicine.

History

As used herein the terms "We", the "Company", "WKBT", the "Registrant," or the "Issuer" refers to Weikang Bio-Technology Group Co., Inc., its subsidiaries and predecessors, unless indicated otherwise. The Company was originally incorporated on May 12, 2004 in Florida as Expedition Leasing, Inc. On July 12, 2008, the Company redomiciled from Florida to Nevada and changed its name to Weikang Bio-Technology Group Co., Inc. pursuant to an acquisition of Sinary Bio-Technology Holdings Group, Inc. (“Sinary”), a Nevada corporation and Sinary’s wholly owned subsidiary, Heilongjiang Weikang Biotechnology Group Co., Ltd. (“Heilongjiang Weikang”), a limited liability company organized and existing under the laws of the People’s Republic of China (“PRC”). Upon completion of the transaction on December 7, 2007, Sinary and Heilongjiang Weikang became our wholly-owned subsidiaries. The transaction was treated for accounting purposes as a capital transaction and recapitalization by the accounting acquirer and as a re-organization by the accounting acquiree.

Overview of Sinary

Sinary was incorporated under the laws of the State of Nevada on August 31, 2007. On October 25, 2007, Sinary entered into an equity interest transfer agreement with the owners of Heilongjiang Weikang to acquire 100% of the equity interest of Heilongjiang Weikang for 57 million Renminbi (“RMB”), or approximately $ 7.6 million. In connection with this acquisition, on November 6, 2007, Heilongjiang Weikang was approved by the Heilongjiang Provincial Government as a foreign invested enterprise (“FIE” ), and the acquisition of Heilongjiang Weikang was deemed completed on November 9, 2007, the date when the Heilongjiang Office of the State Administration for Industry and Commerce (“Heilongjiang SAIC”) issued a FIE business license to Heilongjiang Weikang, and registered Sinary as the 100% owner of Heilongjiang Weikang’s registered capital.  Pursuant to the terms of the equity interest transfer agreement and the requirements of applicable PRC laws and regulations, Sinary had a grace period to remit the acquisition price by June 30, 2010. On August 6, 2010, Sinary and the former owners of Heilongjiang Weikang entered into a Settlement Agreement and Release pursuant to which the former owners waived all of their rights that they have to payment of the acquisition price and contributed the acquisition price to the Company’s capital.   Other than the 100% equity interest in Heilongjiang Weikang, Sinary has no other assets. Sinary conducts all of its business operations through Heilongjiang Weikang.

Overview of Heilongjiang Weikang

Heilongjiang Weikang was incorporated in Heilongjiang Province, PRC on March 29, 2005, formerly known as Heilongjiang Province Weikang Bio-Engineering Co., Ltd. Heilongjiang Weikang had an initial registered capital of RMB 5 million. On November 21, 2006, Heilongjiang Weikang changed its corporate name to “Heilongjiang Weikang Bio-Technology Group Co., Ltd.” and increased its registered capital to RMB 40 million. On October 25, 2007, the owners of Heilongjiang  Weikang sold and transferred 100% of Heilongjiang  Weikang ’ s equity interests to Sinary pursuant to an equity interest transfer agreement.  Upon completion of the transaction on November 9, 2007, Sinary became the 100% owner of Heilongjiang  Weikang’s registered capital; and Heilongjiang  Weikang was subsequently approved as an FIE by Heilongjiang Provincial Government.  Heilongjiang Weikang is primarily engaged in the development, manufacture, marketing and distribution of health and nutritional supplements in the PRC.

On June 30, 2008, Heilongjiang Weikang entered into a stock transfer agreement with Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a limited liability company organized and existing under the laws of the PRC, and Tianfang’s two shareholders: Beijing Shiji Qisheng Trading Co., Ltd., a limited liability company organized and existing under the laws of PRC, and Tri-H Trade (U.S.A.) Co., Ltd., a California corporation.  Pursuant to the terms of the Agreement, Heilongjiang Weikang acquired 100% of the equity interests of Tianfang for $15,000,000. The transaction was completed on July 22, 2008. Heilongjiang Weikang paid $15,000,000 as of the end of 2009.  We believe the acquisition of Tianfang strengthened our distribution channels and improved our production capacity. As a result of the acquisition we now not only sell Chinese herbal extract products, but also sell “Western” pharmaceuticals.

Overview of Tianfang

Tianfang was incorporated in Guizhou Province, China in 1998 with a registered capital of RMB 5,900,000 ($891,000). Tianfang is located within the Zhazuo Medicine Industry Area of Xiuwen country, Guiyang City, Guizhou Province, PRC where it engages in the development, manufacture and distribution of Chinese herbal extract products and GMP certified western prescription pharmaceuticals.  Tianfang operates on 71,907 square meters with 14,675 square meters of factory facilities. Tianfang has a well-established business that benefits greatly from economies of scale and cost. Tianfang, as an independent subsidiary, currently has 244 employees, including 68 full-time administrators, 126 full-time production workers and 50 full-time sales representatives. Tianfang has three production lines and all of its products have received Good Manufacturing Practices (“GMP”) certification. For the fiscal years 2009, 2010 and 2011, Tianfang had sales revenues of $34 million, $44 million and 55 million, and net income of $10 million, $16 million and $20 million, respectively.

On January 6, 2010, Weili Wang,  the holder of 24,725,200 shares of our Common Stock (approximately 88% of our then issued and outstanding Common Stock), formed Lucky Wheel Limited (“LWL”), a British Virgin Islands corporation and issued to herself 10,000 ordinary shares, on 100% of the issued and outstanding share capital of LWL.  In June 2010, Ms. Weili Wang transferred 22,925,200 of her shares of our Common Stock (82% of our then issued and outstanding Common Stock) to LWL.  On May 5, 2010, Ms. Weili Wang and Yin Wang, our Chief Executive Officer and Chairman of the Board entered into a Call Option Agreement (the “Option Agreement”), pursuant to which Weili Wang granted Yin Wang an irrevocable and unconditional option to purchase all of her ordinary shares of LWL (the “Option Shares”) at $0.10 per ordinary share for a total purchase price of $1,000.  Mr. Wang has the right to purchase 34% of the Option Shares on December 31, 2010 and 33% of the Option Shares on December 31, 2011 and December 31, 2012, respectively.  The Option Agreement expires on June 29, 2015.  If and when the option is fully exercised, Yin Wang will become the sole shareholder of LWL whose sole asset is 22,925,200 shares of our Common Stock.

Private Placements

Private Placement in January 2010

On January 20, 2010, the Company entered into Subscription Agreements with "accredited" investors (or “the Investors”). Pursuant to the Subscription Agreements, the Investors purchased 1,470,588 shares of Company common stock at $1.70 per share. The Company raised $2,500,000 in gross proceeds and received net proceeds of $2,047,500.

The Investors received one Series A Warrant and one Series B Warrant for every $8.00 invested in the Company under the Purchase Agreement. Series A Warrants grant the holder the right to purchase shares of Common Stock at $3.00 per share. Series B Warrants grant the holder the right to purchase shares of Common Stock at $5.00 per share. At the closing the Investors received Series A Warrants to purchase 312,500 shares of Common Stock and Series B Warrants to purchase 312,500 shares of Common Stock.

In addition the Company issued the following securities: (i) Series A Warrants to purchase 73,528 shares of Common Stock to placement agents, (ii) Series B Warrants to purchase 73,528 shares of Common Stock to placement agents, (iii) 180,000 shares of Common Stock to an investor relations firm, (iv) 600,000 shares of Common Stock to a consultant for business development and capital markets advice, and (v) 7,000 shares of Common Stock for legal services.

In connection with the financing, the Company also issued 27,000 shares to several legal counsels and 200,000 shares to a consultant, First Trust China Ltd.

Private Placement in December 2010

In December, 2010, the Company sold in a series of private placement a total of 286,249 Units, each unit comprised (i) four shares of common stock,  (ii) a three-year warrant to purchase one share of common stock at an exercise price of $3.60 per share (the “Series C Warrant”), and (iii) a three-year warrant to purchase one share of common stock at an exercise price of $4.80 per share (the “Series D Warrant”),  for $2,747,973. The Company received net proceeds of $1,976,413.

In connection with the private placement transactions, the Company issued placement agents three-year warrants to purchase an aggregate of 93,232 shares of common stock at $2.40 per share, immediately exercisable, as consideration of services.

Private Placement in January 2011

On January 28, 2011, the Company sold in a private placement 234,582 Units, each unit comprised of (i) four shares of common stock, (ii) a three-year warrant to purchase one share of common stock at $3.60 per share (the “Series C Warrant”), and (iii) a three-year warrant to purchase one share of common stock at $4.80 per share (The “Series D Warrant”), for $2,252,000. The Company received net proceeds of $2,016,900.

In connection with the private placement transaction, the Company issued placement agents three-year warrants to purchase an aggregate of 75,000 shares of common stock at an exercise price of $2.40 per share, immediately exercisable, as consideration of services.

Business Description of the Company

Since the reverse merger with Sinary and Heilongjiang Weikang, we have continued operations of Heilongjiang Weikang, which is principally engaged in developing, manufacturing and distributing health and nutritional supplements in PRC, in compliance with requisite PRC licenses and approvals. We are also expanding our business scope to develop, manufacture and distribute Chinese herbal extract products and GMP certified western prescription pharmaceuticals through the acquisition of Tianfang.

Principal Products or Services

Heilongjiang Weikang is located in Heilongjiang Province in northeastern PRC, with its 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. Heilongjiang Weikang’s primary products are Chinese herbal-based health and nutritional supplements. Heilongjiang Weikang actively seeks to maintain and improve the quality of its products, and since April 2006, Heilongjiang Weikang has implemented the “GB/T 1900-2000 idt ISO 9001:2000” quality assurance management system into all of its manufacturing processes.

Heilongjiang Weikang currently manufactures and distributes a series of internally developed health supplements under the trademark “Rongrun”. The “Rongrun” line of products presently includes:

Rongrun Youth Keeping Capsules

Rongrun Youth Keeping Capsules contain kudzu vine root, soybean isoflavone, oil extract from Chinese forest frog, jequirity fruit, and Vitamin E. These capsules may promote the restoration of the natural balance of female hormones reduce symptoms of irritability, depression, headache, vomiting, high blood pressure, and other conditions related to menopause. Balancing female hormones may lower the risk of arteriosclerosis by utilizing the body’s natural protection against heart diseases before menopause. These capsules are also intended to increase the absorption of calcium, which may deter the onset of osteoporosis, and to enhance the body’s immune system in order to counter negative health conditions associated with aging beyond menopause. We stopped producing this product in 2011 due to lower demand. This product accounted for approximately 3.78% and 1.71% of our total sales in 2009 and 2010, respectively.

Rongrun Energy Keeping Capsules

The key component of the Rongrun Energy Keeping Capsules is grape seed extract, which is harvested for its high content of oligomeric proacnthocyanidins (or OPC). OPC is being studied for its antioxidant properties in reducing free radicals and oxidative stress, which may be effective in reducing the risk of cardiovascular disease by promoting blood vessel elasticity and countering inflammation, and promote a slower and healthier aging process by increasing skin elasticity and smoothness, joint flexibility and heightening immunity. Other ingredients of the Energy Keeping Capsules include Barbary wolfberry fruit, which may improve eyesight and promote liver function by reducing lipid accumulation in the liver, Vitamin E and oil extracted from corn endosperm, which is the albumin tissue produced in the seeds during fertilization and is rich in nutrients. This product accounted for approximately 3.75%, 4.68% and 4.18% of our total sales in 2009, 2010 and 2011, respectively.

Rongrun Vitamin Sugar Capsules

The Rongrun Vitamin Sugar Capsules contain bitter melon, hawthorne fruit, propolis, cactus, Vitamin E, and oil extract from corn endosperm, and aims to reduce the onset of cardiovascular disease and fatigue, and promote healthy aging. Propolis, which is a resinous substance that bees collect from tree buds or other botanical sources and used as a sealant in the hive, has long been used in Chinese traditional medicine for the relief of inflammations, viral diseases, ulcers, and superficial burns or scalding. This product accounted for approximately 4.11%, 5.22%, and 4.67% of our total sales in 2009, 2010 and 2011, respectively.

Rongrun Intestine Cleansing Capsules

The Rongrun Intestine Cleansing Capsules contain shisonin, black currant, Vitamin E, and oil extract from corn endosperm. Shisonin ( perilla frutescens ), or wild red basil, has long been harvested in China for its medicinal properties. These capsules are intended to lower blood lipid levels in order to reduce the likelihood of brain and heart vessel related diseases, to provide nutrition for the brain and the optic nerve, to strengthen the immune system, and to promote a healthy aging process. This product accounted for approximately 3.84%, 4.72% and 4.07% of our total sales in 2009, 2010 and 2011, respectively.

Rongrun Artery Cleansing Capsules

The constituent ingredients of the Rongrun Artery Cleansing Capsules are gingko, hawthorn fruit, Vitamin E, and oil extract from corn endosperm. Ginkgo extract may have three effects on the human body: it may improve blood flow (including microcirculation in small capillaries) to most tissues and organs; it may protect against oxidative cell damage from free radicals; and it may block many of the effects of platelet-activating factor (platelet aggregation, blood clotting) that have been related to the development of a number of cardiovascular, renal, respiratory and central nervous system diseases are intended to reduce the level of cholesterol built-up in the arteries in order promote healthier heart and brain functions and to decrease the likelihood of heart attacks and strokes. This product accounted for approximately 3.95%, 4.75%, and 4.25% of our total sales in 2009, 2010 and 2011, respectively.

Rongrun Royal Jelly Extract

Royal Jelly is a honey bee secretion that is used in the nutrition of the bee larvae, and has been used as part of traditional Chinese medicine since the early first century. Royal Jelly is a rich source of complete protein, containing all the essential amino acids, as well as essential fatty acids, minerals and vitamins, particularly pantothenic acid (B-5) and pyridoxine (B-6). Royal Jelly also contains collagen; lecithin; and vitamins A, C, D and E. Additionally, Royal Jelly contains several other compounds that have been shown to help lower cholesterol. Another component in Royal Jelly, 10-Hydroxy-2-Decenoic Acid (10-HDA), is being studied for its immuno-regulatory and anti-cancer properties. While Royal Jelly is widely available commercially, Weikang’s Rongrun Royal Jelly Extract is distinguished from the competition by its enhanced concentration of 10-HDA. Weikang introduced its Royal Jelly product in 2007. This product accounted for approximately 4.63%, 4.91%, and 4.45% of our total sales in 2009, 2010 and 2011, respectively.

Rongrun Kidney Boost Tonic

Rongrun Kidney Boost Tonic contains various traditional Chinese herbs including ginseng, dioscorea and cistanche salsa. All of the components in our tonic have been used for centuries in China to strengthen and promote healthy kidney functions. A tenet of traditional Chinese medicine is that a strong kidney attributes to strong “qi”, which translates into strong bones, sharp vision, clarity of hearing, and healthy organs, while unhealthy kidneys are responsible for weak “qi” as manifested by physical weakness, low energy level, mental deficiency, high blood pressure and reduced sex drive. This product accounted for approximately 4.06%, 3.57% and 3.52% of our total sales in 2009, 2010 and 2011, respectively.

Sha Bai Shuanghuai

Sha Bai Shuanghuai contains Ginkgo, sea buckthorn, and flower and bud of Sophora japonica. It is used to prevent and treat coronary heart disease, angina, hyperlipemia, hypertension and cerebral arteriosclerosis. We started to produce this product in October, 2010 and this product accounted for approximately 1.55% and 2.81% of our total sales in 2010 and 2011, respectively.

Gouqi Xi Pu

Gouqi Xi Pu contains goji berries, grape seeds (OPC) and Kappa-Selenocarrageenan. It is used to prevent and treat ailments associated with aging. We started to produce this product in October, 2010 and this product accounted for approximately 1.50% and 2.81% of our total sales in 2010 and 2011, respectively.

Rongrun Perilla Seed

Rongrun Perilla Seed contains perilla seed oil, hawthorn, lotus leaf, cassia seed and black currant. It is used for preventing and treating cardiovascular disease as well as symptoms associated with menopause. We started to produce this product in August, 2010 and this product accounted for approximately 3.02% and 2.81% of our total sales in 2010 and 2011, respectively.

Rongrun Yangshen Dan

RongrunYangshen Dan contains deer blood, deer pizzle, donkey pizzle, medlar, mulberry, rappini and polygonatum. It is used to treat symptoms of prostatic hypertrophy, improves circulation of aging cells, enhances libido and reduces fatigue. We started to produce this product in August, 2010 and his product accounted for approximately 2.77% and 2.57% of our total sales in 2010 and 2011, respectively.

Rongrun Forest Frog Oil Soft Capsule

Rongrun Forest Frog Oil Soft Capsule contains Chinese Forest Frog Oil. It is used to strengthen immune system and energy, boosts sperm production, treats symptoms associated with cardiovascular and cerebrovascular disease and enhances libido. We started to produce this product in August, 2010 and this product accounted for approximately 2.63% and 2.13% of our total sales in 2010 and 2011, respectively.

Rongrun Ha Ge Jiao Lan

Rongrun Ha Ge Jiao Lan is used to treat symptoms associated with menopause as well as increases youthful vitality and balances hormones. We started to produce this product in February, 2011. This product accounted for approximately 2.07% of our total sales in 2011.

Tianfang’s products are sold under trademark “Tianfang”, which presently include:

Ferrous Fumarate Granule

Ferrous Fumarate Granule contains Ferrous Fumarate. It is used for iron deficiency anemia caused by various reasons, such as, chronic blood loss, malnutrition, pregnancy, or child development period.  This product accounted for approximately 24.24%, 15.28% and 10.32% of our total sales in 2009, 2010 and 2011, respectively.

Eucommia Ulmoides Oliv Granule

The key components of Eucommia Ulmoides Oliv Granule are Eucommiae ulmoides Oliv, Eucommiae ulmoides Oliv leaves, which is nourishing liver and kidney, strengthening muscles and bones. This product accounted for approximately 23.26%, 15.40% and 10.75% of our total sales in 2009, 2010 and 2011, respectively.

Bushen Qiangshen Tablet

Bushen Qiangshen Tablet contains Epimedium, dodder, Rosa laevigata, glossy privet fruit and cibot rhizome, which may be effective in nourishing the liver and kidney, enriching yin, strengthening yang, and enhancing health and brain function. This product accounted for approximately 7.85%, 9.06% and 8.97% of our total sales in 2009, 2010 and 2011, respectively.

Tinidazole Vaginal Effervescent Tablet

The key component of Tinidazole Vaginal Effervescent Tablet is Tinidazole.  It is intended to fight infections caused by anaerobe, especially for anaerobic infection of female reproductive systems.  This product accounted for approximately 14.87%, 13.20% and 9.58% of our total sales in 2009, 2010 and 2011, respectively.

Ranitidine Hydrochloride Capsule

Ranitidine Hydrochloride Capsule, a prescription-strength generic formulation of Zantac, is formulated to treat duodenal ulcers, gastric ulcers, gastroesophageal reflux disease and other gastric conditions. This product accounted for approximately 2.06%, 2.69% and 9.64% of our total sales in 2009, 2010 and 2011, respectively.

Shouwu Long Life

Shouwu Long Life is used to nourish liver and kidney, strengthen energy and blood and is used for treating liver and kidney problems. We started to produce this product in January, 2011. This product accounted for approximately 3.41% of our total sales in 2011.

Lysozyme Buccal

Lysozyme Buccal is used for acute or chronic pharyngolaryngitis, oral cavity ulcer and dys-expectoration. We started to product his product in January, 2011. This product accounted for approximately 2.19% of our total sales in 2011.

Product Development

Our products currently under development as of December 31, 2011 include: 10-hydroxy-2-decylenic acid, commonly known as 10-HDA, in gel capsule and in powder form. 10-HDA has been promoted as having anti-cancer properties and used in the treatment of radiation sickness and angiocardiopathy. Our products have been approved by the Heilongjiang Department of Health, although we have not yet begun production, as of the date of this report, we expect production to begin in 2012.

In cooperation with the Forest Ecology Department of Northeast Forestry University, in 2008 we began developing new product lines involving the planting of “ShuangBaoGu”( a variety of mushroom) on “Saline-alkali Soil”.  By combining the saline-alkali soil cultivated “ShuangBaoGu” mushroom, sweet corn, and beet we can produce sweet corn bamboo juice, sweet corn straw juice, and beet juice.  These juices are thought to have several positive health benefits including the prevention and treatment of cardiovascular disease.  Through the development of these products we hope to help customers reduce the level of cholesterol built-up in arteries, and promote healthier heart and brain functions. We have not yet begun production on this project as of the date of this report, but we anticipate that production should commence in 2012.

As a result of the acquisition of Tianfang, we are developing a new product known as Dofetilide.  Dofetilide is a medicine given to patients with atrial fibrillation (irregular heartbeats). Atrial fibrillation occurs when certain parts of the heart (the chambers known as atria) beat too fast or irregularly, causing an uncomfortable chest pain and “fluttering” or “palpitations.” Dofetilide may help the heart to beat more regularly and stay beating regularly for a longer period of time. This medicine is currently undergoing the second-phase clinical test.

Our Distribution Methods

Since Heilongjiang Weikang launched its products from its home base of Heilongjiang Province in May 2006, we have extended our sales and distribution network to the national capital of Beijing as well as to six provinces, namely: Anhui, Hebei, Henan, Guangxi, Hunan and Jiangsu. Currently, we only sell to wholesale dealers, who then distribute our products to their customers such as local retail stores and pharmacies. Heilongjiang Weikang will continue to identify and establish business relationships with more wholesale vendors across China in order to strengthen our distribution network.

The acquisition of Tianfang helped to expand our distribution network and increase our sales channels.  Tianfang has more than 60 retail sales locations throughout China in many of the major cities. Tianfang was acquired by Heilongjiang Weikang in July 2008, and since then both companies have operated together on only a trial basis while adjusting to the acquisition.  We hope to expand Heilongjiang Weikang’s distribution network through the channels that Tianfang provides.  We see this strategy as an excellent opportunity for corporate growth of both organizations.

We recognize the importance of branding as well as packaging. All of our products bear a uniform brand but have specialized designs to differentiate the different categories. We conducts promotional marketing activities to publicize and enhance our image as well as to reinforce the recognition of our brand names, which includes: (1) organizing cooperative promotional activities with distributors; (2) conducting product informational meetings with distributors; and (3) creating sales incentive programs such as rebates for distributors.

Major Customers

There were no customers who accounted for over 10% of the Company’s sales for 2009, 2010 and 2011. Set forth below is a breakdown of our revenues based on region for the years ended December 31, 2011, 2010 and 2009.

Competition

Although we presently do not have any direct competitors in the PRC due to the uniqueness of most of our products, competitive products are available on the marketplace that offer features similar to those of our products. For example, Jinwanxia Technology Development Co., Ltd.(or Jinwanxia), a subsidiary of the state-owned pharmaceutical conglomerate Heilongjiang Pharmaceutical Group Holding Co., Ltd., distributes a line of bee-derived products which potentially compete with our  Royal Jelly Extract. China’s health supplements industry is highly fragmented and competitive, and companies such as Jinwanxia have greater financial, marketing and technical resources than us. Additionally, there can be no assurance that one or more of these companies will not develop products that compete directly with, and are equal or superior to, our products. Nevertheless, we believe that we can maintain and increase our market position through our strong research and development capability, unique products, growing sales network and competitive prices.

Principal Suppliers

Set forth below were our major suppliers in 2009, 2010 and 2011:

The prices for these raw materials are subject to market forces largely beyond our control, including energy costs, market demand, and freight costs. We have no long term agreements with our suppliers, and purchase raw materials on a purchase order basis. Our management recognizes that this strategy also carries with it the potential disadvantages and risks of shortages and supply interruptions. Our suppliers are meeting our supply requirements, and we believe our relationships with our suppliers are stable.

Intellectual Property

We rely on a combination of trademark, copyright and trade secret protection laws in PRC and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect our intellectual property and brand. As a part of their employment, each of our employees agrees to abide by the confidentiality provisions set forth in our employee procedure guide.

Health and nutritional supplements manufacturers may at times be involved in litigation based on allegations of infringement or other violations of intellectual property rights. Furthermore, the application of laws governing intellectual property rights in the PRC is uncertain and evolving and could involve substantial risks to us.

Set forth below is a detailed description of our trademarks.

Mark		Registration No.		Class		Effective Date		Expiration Date		Owner
		5219378		Class 30. Coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard; vinegar, sauces (condiments); spices; ice.		March 28, 2009		March 27, 2019		Heilongjiang Weikang
		1367751		Class 5. Pharmaceutical and veterinary preparations; sanitary preparations for medical purposes; dietetic substances adapted for medical use, food for babies; plasters, materials for dressings; material for stopping teeth, dental wax; disinfectants; preparations for destroying vermin; fungicides, herbicides.		February 28, 2010		February 27, 2020		Tianfang

Government Approval and Regulation of Our Principal Products

General PRC Government Approval

Heilongjiang Weikang currently has the requisite approval and licenses from the Heilongjiang Provincial Government and the Heilongjiang Office of the State Administration for Industry and Commerce to manufacture, process and distribute health supplements in pill and tonic forms.

Tianfang currently has the requisite approval and licenses from the Guizhou Provincial Government and the Guizhou Office of the State Administration for Industry and Commerce to manufacture and sell pharmaceuticals in tablet, capsule, and granule forms (including traditional Chinese medicine extract).

Compliance with Circular 106 and the 2006 M&A Regulations

On May 31, 2007, China’s State Administration of Foreign Exchange (or SAFE) issued an official notice known as “Circular 106”, which requires the owners of Chinese companies to obtain SAFE’s approval before establishing any offshore holding company structure in so-called “round-trip” investment transactions for foreign financing as well as subsequent acquisition matters in China. Likewise, the “Provisions on Acquisition of Domestic Enterprises by Foreign Investors” (known as the 2006 M&A Regulations), issued jointly by Ministry of Commerce (or MOFCOM), State-owned Assets Supervision and Administration Commission, State Taxation Bureau, State Administration for Industry and Commerce, China Securities Regulatory Commission and SAFE in September 2006, impose approval requirements from MOFCOM for “round-trip” investment transactions, including acquisitions in which equity is used as consideration.

Because Sinary was not established by the owners of Heilongjiang Weikang and because Sinary and Heilongjiang Weikang are owned by unrelated parties, the two companies did not have any direct or indirect connection until Sinary’s acquisition of Heilongjiang Weikang. Sinary acquired Heilongjiang Weikang for cash, rather than equity consideration. Sinary’s sole stockholder (immediately prior to the share exchange transaction with Expedition Leasing) is not a “domestic person” as defined under Circular 106. Accordingly, Sinary is not a “special purpose company” as defined in Circular 106 and Sinary’s acquisition of Heilongjiang Weikang is not a “round trip” investment transaction. As such, Circular 106 and the provisions of the 2006 M&A Regulations relating to special purpose companies are not implicated. Sinary’s acquisition of Heilongjiang Weikang is a pure cross-border merger and acquisition transaction governed by and permitted under the 2006 M&A Regulations, and Heilongjiang Weikang was accordingly approved and issued a business license as a FIE by the Heilongjiang Provincial Government and the Heilongjiang Office of the State Administration for Industry and Commerce, respectively.

Costs and Effects of Compliance with Environmental Laws

We are subject to certain requirements and potential liabilities under national, regional and municipal environmental laws, ordinances and regulations in the PRC. We may generate certain wastes that may be deemed hazardous or toxic under applicable environmental laws, and we from time to time have incurred, and in the future may incur, costs relating to compliance with the environmental laws. Although we may incur remediation and other environmental-related costs during the ordinary course of operations, management anticipates that such costs will not have a material adverse effect on our operations or financial condition.

Research and Development

We are committed to quality research and development (or “R&D”). We focus on the development of new products and the improvement of existing products. Our R&D team is led by Dr. Zhengbin Xu, M.D., who has over 40 years of clinical and research experience with traditional Chinese herbs and in nutrition.  Dr. Xu has published 56 scientific articles in international and domestic journals and has prior professional affiliations with the Chinese Medicine Research Bureau (as Vice Director of Research and Development), Heilongjiang Province Chinese Medicine Co., Ltd. (as General Manager), and the Chinese Medical Association (as Vice President).

Other members of our R&D team include: (i) Mr. Hongbin Cui, who is an Executive of Harbin Medical School’s Public Health Institute with over 20 years of research experience in dermatology and nutrition; (ii) Mr. Zuo Zhang, Vice President and Chief Pharmacist of Harbin Medical School Hospital, and an executive of Heilongjiang Province Medical Association; (iii) Mr. Hua Shi, Vice Administrator of Heilongjiang Province Health Quality Control Bureau and a health supplements expert; (iv) Mr. Bingchun Wu , who is a former Executive of Heilongjiang Province Chinese Medicine Research Association; and (v) Mr. Huisheng Qin, M.D., Ph.D.,   who has over 20 years’ experience as a surgeon, professor and scientist and knowledge in neurobiology, molecular cell biology, pathology, pharmacology and nutritional science.

For 2010 and 2011, we had $2,537,854 and $22,102 in R&D expenses, respectively.

Our Employees

As of March 29, 2012, the Company had 425 full-time employees.  Of our 425 employees 124 are involved in our administration, 246 are involved in production and 55 are part-time sales representatives.  We have not experienced any significant work stoppage or production shutdown since inception and we do not anticipate any in the near future.  Our management believes we have a strong relationship with our workers.

Our Principal Executive Offices

Our principal executive offices are located at No. 365 Chengde Street, Daowai District, Harbin, Heilongjiang Province, PRC 150020. Our telephone number is (86) 451-88355530.

Not applicable.

Not applicable.

Heilongjiang Weikang’s principal executive offices and manufacturing facility are located approximately 42 kilometers south of the provincial capital Harbin, in the “Economic and Technology Development Zone” in the City of Shuangcheng.  We acquired the land use rights for 50 years for this property in 2005 and the land underlying the facility is approximately 9.63 acres in size. The facility includes two workshops, an administrative office building, a warehouse and cafeteria building, all of which are owned by us. We acquired the land use rights and the buildings of the facility from the Shuangcheng Municipal Government pursuant to a lease, under which we agreed to renovate and utilize the site and existing buildings and structures for our health supplements business. In return, we were exempted from certain municipal fees during our renovation efforts, and we are also exempted from income tax from 2005 to 2008.

In November 2009, the Company signed a new lease for the right to use an additional 143,688 square meters of property located in the “Shuangcheng Economic Development Zone” in the City of Shuangcheng.  We paid approximately $3,530,000 for the use of this additional land from November 2009 until November 2059. There is no tax exemption or other arrangements for this lease.

Our subsidiary Tianfang leases property located within the Zhazuo Medicine Industry Area of Xiuwen county, Guiyang City, Guizhou Province, China, where it engages in the development, manufacture and distribution of Chinese herbal extract products and GMP certified western prescription pharmaceuticals.  Tianfang’s operations comprise 71,907 square meters with 14,675 square meters of factory facilities.  Tianfang has four workshops, one administration building, four warehouses, and one staff building, all of which are owned by Tianfang including the land use rights for 50 years, starting from 2001.

On September 20, 2011, the Company entered into an agreement to acquire an office building located at No. 365 Chengde Street Daowai District, Harbin, Heilongjiang Province, PRC 150020 for RMB 96,000,000 (approximately $15 million). The office building has an area of 4,012 square meters. The Company previously rented two floors of the building as its offices. As of the date of this report, the Company has not completed the transfer of ownership of the building with relevant authorities.

On February 1, 2012, Alpha Capital Anstalt (“Plaintiff”) filed a civil suit (the “Complaint”) against the Company in the United States District Court for the Central District Court of California. In the Complaint, Plaintiff asserts breach of contract claims against the Company based upon the Company’s purported breach of certain anti-dilution provisions of a subscription agreement (the “Subscription Agreement”). In the Complaint, Plaintiff seeks unspecified damages, together with injunctive relief from the Court ordering the Company to issue to it at least 100,832 shares of its common stock and also to reduce the exercise price on certain warrants owned by Plaintiff. The Company’s time to answer or otherwise respond to the Complaint has not yet expired. The Company will vigorously defend the lawsuit. On February 21, 2012, the Court dismissed the case on the ground that it does not have subject matter jurisdiction over the parties. The parties have reached an agreement to settle this suit.

Not applicable.

PART II

Item 5.           Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Trading Market for Common Equity 

Our Common Stock is quoted on the Pink Sheet under the symbol, WKBT. Our Common Stock was previously quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “WKBT.OB” till February 22, 2011. Trading in the common stock in the over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. The following tables set forth the high and low sale prices for our Common Stock as reported on the OTCBB for the periods indicated.

Dividends

We have not paid dividends on our Common Stock and do not anticipate paying such dividends in the foreseeable future. We will rely on dividends from our PRC Subsidiaries for our funds and PRC regulations may limit the amount of funds distributed to us from our PRC Subsidiaries, which will affect our ability to declare any dividends.

Number of Holders

As of March 29, 2012, there were 372 holders of record of our Common Stock. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock.

Securities Authorized for Issuance under Equity Compensation Plans

2008 Stock Incentive Plan

On June 24, 2008, our board of directors approved a 2008 Stock Incentive Plan for our employees, officers, and directors, and our consultants and advisors. We also filed a related Form S-8 with the SEC. As of March 29, 2012, we had 1,797,000 shares issued to our consultants pursuant to the 2008 Stock Incentive Plan.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers

None.

Transfer Agent

Our transfer agent is Pacific Stock Transfer Company located at 4045 South Spencer Street, Suite 403, Las Vegas, NV 89119.

Not applicable.

Cautionary Notice Regarding Forward-Looking Statements

The following discussion of the financial condition and results of operation of the Company for the years ended December 31, 2011 and 2010 should be read in conjunction with the selected financial data, the financial statements, and the notes to those statements that are included elsewhere in this Annual Report.

We make certain forward-looking statements in this report, including information with respect to our plans and strategy for our business and related financing and include forward-looking statements that involve risks and uncertainties. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.

In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash. Please refer to the section entitled “Liquidity and Capital Resources” contained in this Report for additional discussion. Please also refer to our other filings with the Securities and Exchange Commission. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.

Overview

Weikang Bio-Technology Group 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 (“LLC”) in the People’s Republic of China (“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 the PRC. Heilongjiang Weikang is located in Heilongjiang Province in Northeastern PRC, with its principal office and manufacturing facility located in the Economic and Technology Development Zone in the city of Shuangcheng, 42 kilometers south of the provincial capital Harbin. Heilongjiang Weikang’s products are primarily Chinese herbal-based health and nutritional supplements. Heilongjiang Weikang seeks to maintain and improve the quality of its products, and as of April 2006, implemented the “GB/T19001-2000 idt ISO9001:2000” quality assurance management system to all of its manufacturing processes. Heilongjiang Weikang was issued a Certificate of Good Manufacturing Practices for Health Food by the Health Department of Heilongjiang Province on November 24, 2008.

On July 22, 2008, Heilongjiang Weikang acquired 100% of the equity interest of Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a PRC LLC, for $15,000,000, pursuant to a Stock Transfer Agreement dated and entered into on June 30, 2008 by and among Heilongjiang Weikang, Tianfang, and Tianfang’s two shareholders, Beijing Shiji Qisheng Trading Co., Ltd. and Tri-H Trade (U.S.A.) Co., Ltd.

Tianfang was incorporated in Guizhou Province, PRC in 1998.  Tianfang is engaged in the development, manufacture and distribution of over-the-counter (“OTC”) pharmaceuticals. Tianfang was issued a Certificate of Good Manufacturing Practices for Pharmaceutical Products by Food and Drug Administration of Guizhou Province on August 20, 2010.

On January 20, 2010, the Company entered into Subscription Agreements to sell to accredited investors an aggregate of 1,470,588 shares of its common stock at $1.70 per share. The Company raised $2,500,000 in gross proceeds and received net proceeds of $2,047,500. The investors received one Series A Warrant and one Series B Warrant for every $8.00 invested in the Company under the Subscription Agreement. In connection with the private placement, the Company filed a registration statement on Form S-1, as amended, covering 2,095,588 shares of common stock, including shares of common stock issuable upon the exercise of warrants, The registration statement was declared effective on April 21, 2010.

In and around December 2010 and January 2011, the Company sold in a series of private placements 520,831 Units, each unit comprised (i) four shares of common stock, (ii) a three-year warrant to purchase one share of common stock at $3.60 per share, and (iii) a three-year warrant to purchase one share of common stock at $4.80 per share, for an aggregate purchase price of $4,999,973.60. In connection with the private placements, the company filed a registration statement, covering the 3,293,219 shares of common stock, including shares of common stock issuable upon the exercise of warrants. The registration statement was declared effective on February 18, 2011.

We, through Sinary, and indirectly through Heilongjiang Weikang and Tianfang, manufacture and distribute a series of health supplements under the trademark "Rongrun" and OTC pharmaceuticals under the trademark “Tianfang”. The "Rongrun" line of products presently includes: (1) Rongrun Energy Keeping Capsules, (2) Rongrun Vitamin Sugar Capsules, (3) Rongrun Intestine Cleansing Capsules, (4) Rongrun Artery Cleansing Capsules, (5) Rongrun Royal Jelly Extract, (6) Rongrun Kidney Boost Tonic, (7) Sha Bai Shuanghuai, (8) Gouqi Xi Pu, (9) Rongrun Perilla Seed, (10) Rongrun Yangshen Dan, (11) Rongrun Forest Frog Oil Soft Capsule and (12) Rongrun Ha Ge Jiao Lan. The “Tianfang” line of products currently includes:  (1) Ferrous Fumarate Granule, (2) Eucommia Ulmoides Oliv Granule, (3) Bushen Qiangshen Tablet, (4) Tinidazole Vaginal Effervescent Tablet, (5) Ranitidine Hydrochloride Capsule, (6) Shouwu Long Life and  (7) Lysozyme Buccal.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Basis of presentation

These accompanying consolidated financial statements have been prepared in accordance with US GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for annual or quarterly financial statements.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sinary, and the results of operations of Heilongjiang Weikang, Sinary’s wholly-owned subsidiary; and Tianfang, Heilongjiang Weikang’s wholly-owned subsidiary. All significant inter-company accounts and transactions were eliminated in consolidation.

Accounts Receivable

The Company maintains 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.

Revenue Recognition

The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104, codified in FASB ASC Topic 480. Revenue is recognized at the date 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.

Revenue represents the invoiced value of goods, net of value-added tax (or VAT). All of the Company’s products sold in the PRC are subject to Chinese value-added tax of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. The Company recorded VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company adopted the disclosure requirements for the business combinations in 2011.

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which is not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220):  Presentation of Comprehensive Income.  Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.  The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the effect that the adoption of this pronouncement will have on its financial statements.

In September 2011, FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (ASC Topic 350): Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU No. 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011. The Company does not intend to adopt this ASU No. 2011-08 before September 15, 2011, and does not expect it to have a material impact on the Company’s consolidated financial position and results of operations.

Results of Operations

Comparison of the Years Ended December 30, 2011 and 2010

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

Net sales. Net sales for the year ended December 31, 2011 were $101.68 million, compared to $74.55 million for the year ended December 31, 2010, an increase of $27.13 million or 36%.  Increase in units of products sold for the year ended December 31, 2011 accounted for approximately 75% of increase in sales primarily due to 1) the production and sales of new products starting in the third quarter of 2010, which brought us approximately $7.80 million sales revenue during the year of 2011; and 2) a six-month promotion plan starting from the fourth quarter of 2010 to the end of first quarter of 2011, which is the peak season for sales of health care products in the PRC due to the Chinese New Year Holiday and Chinese tradition of having tonic in winter. The remaining 25% increase in sales was attributable to the increase in unit sales price for certain highly demand products, such as Ferrous Fumarate Granule, Eucommia Ulmoides Oliv Granule, Tinidazole Vaginal Effervescent Tablet, Bushen Qiangshen Tablet, and Ranitidine Hydrochloride Capsule.

A break-down of our sales by product for each of the years ended December 31, 2011 and 2010 is as follows: 

Cost of goods sold. Cost of goods sold increased $12.55 million or 42%, from $29.54 million for the year ended December 31, 2010 to $42.09 million for the comparable period of 2011. The increase in cost of goods sold was mainly due to increase in sales contributed by sales of newly introduced products and additional taxes such as city construction tax and education surcharge tax for cost of goods sold in 2011. The cost of goods sold as a percentage of sales for the year ended December 31, 2011, was 41% compared to 40% for the same period of 2010, which was attributable to increase in cost of goods sold for Tianfang, from 45.28% to 45.96% of its sales and increase in the cost of goods sold for Heilongjiang Weikang of 4.35% from 35.83% of its sales for the year ended December 31, 2010, as compared to 31.48% for the same period of 2010. The increase in cost of goods sold for Tianfang and Heilongjiang Weikang in 2011 was mainly due to increase in city construction tax and education surcharge tax. For the year ended December 31, 2011, Tianfang and Heilongjiang Weikang paid these taxes for a full year while for the year ended December 31, 2010, they only paid these taxes for December 2010 pursuant to the requirements of the tax authorities.

Gross profit. Gross profit was $59.59 million for the year ended December 31, 2011, compared to $45.02 million for the comparable period of 2010, our gross margin was 59% and 60% of sales for the year ended December 31, 2011 and 2010, respectively. The decrease in our gross profit margin for the year ended December 31, 2011 was mainly due to increase in cost of goods sold resulting from increase taxes for cost of goods sold.

Operating expenses. Total operating expenses were $17.30 million for the year ended December 31, 2011 compared to $11.34 million for the same period of 2010, an increase of $5.96 million or 53%. This increase in operating expenses was mainly attributable to the increased marketing, entertainment and travelling expenses for promoting activities including a series of commercial advertisements, the increased freight resulting from the increased sales, and stock related compensation expenses of $10.03 million for stocks issued to consultants for various purposes including new product development, business development, financial services, which were non-cash expenses while stock related compensation expenses were $3.84 million for 2010.  Operating expenses as a percentage of sales were 17% for the year ended December 31, 2011 compared to 15% for the same period of 2010. The increase in operating expenses as a percentage of sales was mainly due to significant increase in stock related compensation for consultants in the year ended December 31, 2011.

Net other income. Net other income was $0.82 million in the year ended December 31, 2011 compared to $0.56 million in the comparable period of 2010.  Other income for the year ended December 31, 2011 mainly consisted of lease income of $0.54 million from leasing a workshop and interest income of $0.28 million from our deposits in the PRC banks.

Net income. Net income for the year ended December 31, 2011 was $29.63 million compared to $24.44 million for the same period of 2010, an increase of $5.19 million or 21%.  The increase was mainly attributable to increase in net sales. Our management believes net income will increase as we continue to offer products of better quality and greater variety and continue to improve our manufacturing efficiency.

We do not believe inflation had a significant negative impact on our results of operations during the year of 2011.

Liquidity and Capital Resources

At December 31, 2011, the Company had cash and equivalents of $70.78 million, other current assets of $11.06 million, and current liabilities of $7.56 million. In addition, at December 31, 2011, working capital was $40.50 million and the ratio of current assets to current liabilities was 19.79-to-1.

The following is a summary of cash provided by or used in each of the indicated types of activities during twelve months ended December 31, 2011 and 2010, respectively:

Net cash provided by operating activities was $30.45 million for the year ended December 31, 2011, compared to $34.19 million for the same period of 2010. The decrease in net cash inflow from operating activities was mainly due to a significant increase in accounts receivable outstanding as a result of the increase in sales, prepayment to suppliers and inventory, despite of the increase in net income.

The working capital of certain customers was tight as a result of tightened fiscal policy in China, which has contributed to a general slowdown in many sectors of the Chinese economy. We are facing increasing competition in the healthcare products industry. Accordingly, starting from 2011, we decided to grant credit terms of up to 60 days to our customers to maintain long-term relationships with existing customers and attract new customers. However, we do not provide our customer credit terms of more than 60 days.

As of December 31, 2011, all of the account receivables were within 60 days, which was due to an increase of $27.13 million or 36% in sales for the year ended December 31, 2011 compared to the comparable period of 2010 as well as our new credit terms granted to our customers. As a result, our accounts receivable increased from $652,000 at December 30, 2010 to $5.6 million at December 31, 2011.

The age of accounts receivable (net of bad debt allowance) as of December 31, 2011 is as follows: 

Most of our customers have long-term and reliable relationships with us and our salespeople visit the clients to collect payment on a regular basis. Thus far we have not had any bad debts nor delinquent accounts receivable. However, we still provided provisions for bad debt allowance since our accounts receivable significantly increased as a result of increased sales and the credit terms extended to our customers.

Our bad debt allowance on accounts receivable was calculated based on 5% of the outstanding balance of the accounts receivable of our subsidiaries –Tianfang and Heilongjiang Weikang at December 31, 2011. This estimate was on the basis of the historical collection period of Tianfang, which was around 30 days, while the other Chinese subsidiary – Heilongjiang Weikang has a shorter payment collection period, which was around 10 to 20 days. Comparing the potential risk, we decided to make bad debt allowance on accounts receivable of Tianfang and Heilongjiang Weikang based on Tianfang and Heilongjiang Weikang’s accounts receivable as of December 31, 2011. We do not have any bad debt as of December 31, 2011.

Advances to suppliers represent the prepayment for raw materials purchase. Our suppliers continuously provide us good quality raw materials at a reasonable price. As a necessary action, we made payments in advance to certain suppliers to secure the current price of the raw materials to mitigate the adverse impact of continuous inflation in China. In December 2011, we purchased approximately $4.2 million raw materials in Bozhou City, Anhui Province, which has the largest medicinal raw material distribution center.

We made payments in advance to purchase raw materials at a lower price in order to control our production costs. Whether we will make more prepayments for raw materials in the future is based on the prevailing market price of raw materials.

Net cash used in investing activities was $15.03 million for the year ended December 31, 2011, compared to cash used in investing activities of $0.73 million for the year ended December 31, 2010.  The cash outflow during the year ended December 31, 2011 was mainly due to purchase of a new workshop building and acquisition of manufacturing equipment.

Net cash provided by financing activities was $2.02 million for the year ended December 31, 2011 compared to $4.35 million cash inflow for the comparable period of 2010. The cash inflow in financing activities during the year of 2011 mainly consisted of proceeds of $2.02 million from common stock and warrants issued in a series of private placements. The net cash inflow in financing activities during the year of 2010 mainly consisted of proceeds of $4.32 million from common stock and warrants issued in another private placement.

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.

Not applicable.

Weikang Bio-Technology Group Co., Inc.

Consolidated Financial Statements

December 31, 2011 and December 31, 2010

(Stated in US Dollars)

Weikang Bio-Technology Group Co., Inc.

REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM

Weikang Bio-Technology Group Co., Inc.

We have audited the accompanying consolidated balance sheets of Weikang Bio-Technology Group Co., Inc. as of December 31, 2011 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Weikang Bio-Technology Group Co., Inc. as of December 31, 2011 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders

Weikang Bio-Technology Group Co., Inc

We have audited the consolidated balance sheet of Weikang Bio-Technology Group Co., Inc. and subsidiaries (the “Company”) as of December 31, 2010, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2010, and the consolidated results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

Goldman Kurland and Mohidin LLP

Encino, California

March 11, 2011

Weikang Bio-Technology Group Co., Inc.

Consolidated Balance Sheets

As of December 31, 2011 and 2010

(Stated in US Dollars)

See Accompanying Notes to the Consolidated Financial Statements and Accountant’s Report

Weikang Bio-Technology Group Co., Inc.

Consolidated Balance Sheets

As of December 31, 2011 and 2010

(Stated in US Dollars)

See Accompanying Notes to the Consolidated Financial Statements and Accountant’s Report

Weikang Bio-Technology Group Co., Inc.

Consolidated Statements of Income and Comprehensive Income

For the years ended December 31, 2011 and 2010

(Stated in US Dollars)

See Accompanying Notes to the Consolidated Financial Statements and Accountant’s Report

Weikang Bio-Technology Group Co., Inc.

Consolidated Statements of Cash Flows

For the years ended December 31, 2011 and 2010

(Stated in US Dollars)

See Accompanying Notes to the Consolidated Financial Statements and Accountant’s Report

Weikang Bio-Technology Group Co., Inc.

Consolidated Statements of Stockholders’ Equity

For the years ended December 31, 2011 and 2010

(Stated in US Dollars)

See Accompanying Notes to the Consolidated Financial Statements and Accountant’s Report

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

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 in Nevada and changed to its present name on July 12, 2008, pursuant to an acquisition of Sinary Bio-Technology Holdings Group, Inc. (“Sinary”), a Nevada corporation and Sinary’s wholly owned subsidiary, Heilongjiang Weikang Biotechnology Group Co., Ltd. (“Heilongjiang Weikang”), a limited liability company organized and existing under the laws of the People’s Republic of China (“PRC”). Upon completion of the transaction on December 7, 2007, Sinary and Heilongjiang Weikang became our wholly-owned subsidiaries. The Company develops, manufactures and distributes Traditional Chinese Medicine ("TCM") through Heilongjiang Weikang in the PRC.

On December 7, 2007, the Company (as Expedition) entered into a Share Exchange Agreement (the “Exchange Agreement”) with Sinary Bio-Technology Holdings Group, Inc., a Nevada corporation (“Sinary”) and Weili Wang, its sole shareholder, pursuant to which the Company issued 24,725,200 shares of common stock to Weili Wang for all of the common shares of Sinary. Concurrently, Sinary paid $650,000 to certain former shareholders of the Company, who surrendered 24,725,200 shares of the Company’s common stock held by them to the Company for cancellation. This payment was advanced to Sinary by Yin Wang (the “Advance”). As a result, Weili Wang owned 98% of the Company after the share exchange. On the Closing Date, Sinary became a wholly-owned subsidiary of the Company and Mr. Yin Wang was appointed the Company’s Chief Executive Officer and Chairman of the Board.

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, rather than a business combination. Accordingly, for accounting purposes, the transaction was treated as a reverse acquisition and recapitalization, and pro forma information is not presented. Transaction costs incurred in the reverse acquisition were expensed.

Sinary was incorporated under the laws of the State of Nevada on August 31, 2007. On October 25, 2007, Sinary entered into an Equity Interests Transfer Agreement (the “Transfer Agreement”) with Yin Wang and Wei Wang, the stockholders of Heilongjiang Weikang, a limited liability company in the PRC, (the “Heilongjiang Shareholders”) to acquire 100% of the equity interests of Heilongjiang Weikang for 57 million Renminbi (“RMB”), or approximately $7.6 million (the “Acquisition Price”).

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

On August 6, 2010, Sinary and Yin Wang and Wei Wang, entered into a Settlement Agreement and Release pursuant to which Yin Wang and Wei Wang waived their rights to payment of both the Acquisition Price of approximately $7.6 million and the Advance of $650,000 and contributed the Acquisition Price and the Advance to the Company's capital.

Heilongjiang Weikang was incorporated in Heilongjiang Province, PRC, on March 29, 2005, and was formerly known as Heilongjiang Province Weikang Bio-Engineering Co., Ltd. Heilongjiang Weikang develops, manufactures and distributes 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 LLC, for $15,000,000, pursuant to a stock transfer agreement entered into on June 30, 2008 by and among Heilongjiang Weikang, Tianfang, and Tianfang’s two shareholders: Beijing Shiji Qisheng Trading Co., Ltd., a Chinese LLC (“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 Guizhou Province, PRC, in 1998. Tianfang is engaged in the development, manufacture and distribution of over the counter (“OTC”) pharmaceuticals. The Company has expanded its market share to the southern part of China through the acquisition of Tianfang.

On January 6, 2010, Weili Wang formed Lucky Wheel Limited (“Lucky Wheel”), a British Virgin Islands corporation and issued to herself 10,000 ordinary shares or 100% of the issued and outstanding share capital of Lucky Wheel. In June 2010 Ms. Weili Wang transferred 22,925,200 of her shares of the Company’s common stock (82% of the Company’s issued and outstanding common stock) to Lucky Wheel. On May 5, 2010, Ms. Weili Wang and Ying Wang entered into a Call Option Agreement (the “Option Agreement”), pursuant to which Weili Wang granted Yin Wang an irrevocable and unconditional option to purchase all of her ordinary shares of Lucky Wheel (the “Option Shares”) for U.S. $0.10 per ordinary share for a total of $1,000. Mr. Wang has the right to purchase 34% of the Option Shares on December 31, 2010 and 33% on December 31, 2011 and December 31, 2012, respectively. The Option Agreement expires June 29, 2015. If and when the option is fully exercised, Yin Wang will become the sole shareholder of Lucky Wheel whose sole asset is 22,925,200 shares of the Company’s common stock. Mr. Wang is expected to use his personal funds to pay for the Option Shares.

In connection with the transactions described in the Transfer Agreement, on November 9, 2007, the Heilongjiang Office of the State Administration for Industry and Commerce registered Sinary as the 100% owner of Heilongjiang Weikang’s registered capital and issued a foreign invested enterprise business license (the “FIE Business License”) to Heilongjiang Weikang. The initial FIE Business License was valid until June 30, 2010. On March 12, 2010, the Harbin City of Administration for Industry and Commerce extended the FIE Business License until November 9, 2027.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

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; and Tianfang. All significant inter-company accounts and transactions were eliminated in consolidation.

In preparing financial statements in conformity with United States Generally Accepted Accounting Principles (“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.

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.

The Company maintains 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. Based on management’s analysis noted above, the Company made allowance for bad debts of $293,493 and $0 at December 31, 2011 and 2010, respectively.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

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

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, as follows:

Right to use land is stated at cost less accumulated amortization. Amortization is provided using the straight-line method over 50 years.

We evaluate the recoverability of long-lived assets with finite lives in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 360-10-35, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When events or changes in circumstances indicate the carrying amount of an asset may not be recoverable based on estimated undiscounted cash flows, the impairment loss would be measured as the difference between the carrying amount of the asset and its fair value based on the present value of estimated future cash flows. 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 December 31, 2011 and 2010, there were no significant impairments of its long-lived assets.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

The Company uses FASB ASC Topic 740, “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.

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 December 31, 2011 and 2010, the Company did not take any uncertain positions that would necessitate recording of tax related liability.

The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (SAB) 104 (codified in FASB ASC Topic 480). Sales revenue is recognized 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.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

Sales revenue consists of the invoiced value of goods, which is net of value-added tax (“VAT”). All of the Company’s products are sold in the PRC and are subject to Chinese VAT 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. VAT taxes are not affected by the income tax holiday.

Sales returns and allowances was $0 for the years ended December 31, 2011 and 2010. 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 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 the lower of cost or market is also recorded in cost of goods sold.

Cash includes cash on hand and demand deposits in accounts maintained within the PRC and the US. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits for the banks located in the US. Balances at financial institutions within the PRC are not covered by insurance. As of December 31, 2011 and 2010, the Company had approximately $0 and $194,000 deposits in the bank located in US which was in excess of federally insured limits; the Company had $70,743,843 and $49,969,700 deposits in the banks in China, respectively. The Company’s financial institutions in China are reputable banks and majority owned by the Chinese government. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

Financial instruments that potentially subject the Company to credit risk consist primarily of cash, accounts 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.

In accordance with FASB ASC Topic 230, “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.

For certain of the Company’s financial instruments, including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.

As of December 31, 2011 and 2010, the Company did not identify any assets and liabilities that were required to be presented on the balance sheet at fair value.

The Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United States Dollars ("USD" or “$”) 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 FASB ASC Topic 220, “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 years ended December 31, 2011 and 2010 included net income and foreign currency translation adjustments.

The Company accounts for its stock-based compensation in accordance with FASB ASC Topic 718 and 505, “Share Based Payment”. 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.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

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 year ended December 31, 2011, there were no dilutive shares outstanding due to anti-dilutive feature. The following table presents a reconciliation of basic and diluted earnings per share for the years ended December 31, 2011 and 2010:

FASB ASC Topic 280, "Disclosures about Segments of an Enterprise and Related Information" requires 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.

FASB ASC Topic 280 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

Research and development costs are primarily for the development of new drugs, nutritional and health supplement products. Research and development costs are expensed as incurred.

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 (“R&D”) 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 the total expense to the University and will own the rights to the research findings. The Company is required to pay the remaining 15% upon successful registration and approval of the research findings from the 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 any 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). On June 30, 2009, the R&D 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.

On March 20, 2010, the Company entered into a one-year contract with a professional R&D team to research and develop licorice flavonoids extraction technology for industrialization of use in therapeutics. The Company is responsible for all the research and development expense with the total payment expected to be approximately $2.95 million. As of December 31, 2010, the Company paid research and development expenses of approximately $2.54 million under this agreement and is committed to pay the remaining $0.41 million upon the successful development of the technology. The Company will own the research and development results and related intellectual property.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company adopted the disclosure requirements for the business combinations in 2011.

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which is not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220):  Presentation of Comprehensive Income.  Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.  The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the effect that the adoption of this pronouncement will have on its financial statements.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

In September 2011, FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (ASC Topic 350): Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU No. 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011. The Company does not intend to adopt this ASU No. 2011-08 before September 15, 2011, and does not expect it to have a material impact on the Company’s consolidated financial position and results of operations.

The Company offers credit terms of between 30 to 60 days to most of their customers.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

Advances to suppliers and other receivables at December 31, 2011 and 2010 were as follows:

Inventory at December 31, 2011 and 2010 was as follows:

Property and equipment consisted of the following at December 31, 2011 and 2010:

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

During the year ended December 31, 2011, the Company purchased an office building in Harbin City, Heilongjiang Province for RMB 96,000,000 (US$15,235,900) for operation purposes.

Depreciation for the years ended December 31, 2011 and 2010 was $1,116,825 and $911,600, respectively.

At December 31, 2011, construction in progress consisted of the payment for constructing a manufacturing line for producing licorice flavonoids. The construction was substantially completed at the end of September 2011. However, the manufacturing line is in the process of final inspection before put in use.

Intangible assets consisted of the following at December 31, 2011 and 2010:

All land in the PRC is government owned and cannot be sold to any individual or company. However, the government grants users a “land use right” to use the land. The Company has the right to use the land for 50 years and amortizes the right on a straight-line basis over 50 years.

Amortization for 2011 and 2010 was $288,814 and $281,453, respectively. Amortization for the next five years from December 31, 2011 is expected to be $310,000, $295,000, $295,000, $295,000 and $295,000, respectively.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

Dues to Related Party

At December31, 2011 and 2010, due to related party represented Company’s expenses of $0 and $25,669 paid by a related party company owned by one of the Company’s officers. This advance bears no interest and is payable upon demand.

There were no customers who accounted for over 10% of the Company’s total sales for 2011 and 2010.

One and two vendors collectively provided 21% and 34% of the Company’s purchases of raw materials for 2011 and 2010, respectively. For 2011, the vendor accounted for 21% of total purchase; for 2010, each vendor accounted for 21% and 13% of total purchase, respectively. Accounts payable to these vendors are $82,354 and $0 at December 31, 2011 and 2010, respectively.

On June 30, 2010, the Company entered into an agreement with a medicine manufacturing company for leasing them the use right of a product manufacturing technology and related workshop for a period of one year. The total lease payment was RMB 7 million ($1.06 million), RMB 4 million ($606,000) was for the technology use right and RMB 3 million ($454,000) was for the workshop rental. For 2010, RMB 3.5 million ($0.53 million) was recognized as other income, and RMB 3.5 million ($0.53 million) was recognized as unearned revenue as of December 31, 2010. During the year ended December 31, 2011, the unearned revenue of RMB 3.5 million ($0.53 million) was recognized as other income.

Taxes payable consisted of the following at December 31, 2011 and 2010:

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

Accrued expenses consisted of the following at December 31, 2011 and 2010:

Deferred tax represented differences between the tax basis and book basis of property, equipment and land use right.

At December 31, 2011 and 2010, deferred tax asset (liability) consisted of the following:

Weikang and Sinary were incorporated in the US and have net operating losses (NOL) for income tax purposes. Weikang and Sinary had NOL carry forwards for income taxes $14,259,915 and $1,150,884 at December 31, 2011, respectively, which may be available to reduce future years’ taxable income as NOL; NOLs can be carried forward up to 20 years from the year the loss is incurred. Management believes the realization of benefits from these losses is uncertain due to Weikang and Sinary’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

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% on income reported in the statutory financial statements after appropriate tax adjustments.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2011 and 2010:

The provisions for income taxes for the years ended December 2011 and 2010 consisted of the following:

Common Stock with Warrants Issued for Cash

Private Placement in January 2010

On January 20, 2010, the Company entered into Subscription Agreements with "accredited" investors (or “the Investors”). Pursuant to the Subscription Agreements, the Investors purchased 1,470,588 shares of Company common stock at $1.70 per share. The Company raised $2,500,000 in gross proceeds and received net proceeds of $2,047,500. In connection with the Financing the Company paid the following: (i) $150,000 to an Investment Relations escrow account, (ii) $250,000 in placement agent fees, and (iii) $52,500 in offering expenses, including legal fees.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

The Investors received one Series A Warrant and one Series B Warrant for every $8.00 invested in the Company under the Purchase Agreement. Series A Warrants grant the holder the right to purchase shares of Common Stock at $3.00 per share. Series B Warrants grant the holder the right to purchase shares of Common Stock at $5.00 per share. At the closing the Investors received Series A Warrants to purchase 312,500 shares of Common Stock and Series B Warrants to purchase 312,500 shares of Common Stock.

The Series A and Series B Warrants expire January 20, 2013. The Warrants provide for antidilution adjustments to the exercise price for certain convertible securities issued with conversion prices lower than the Warrants' exercise price. The warrants are exercisable into a fixed number of shares. Accordingly, the warrants are classified as equity instruments. The Company accounted for the warrants issued to the investors and placement agents based on the fair value method under ASC Topic 505.The value of warrants was determined by using the Black-Scholes pricing model with the following assumptions: discount rate – 2.76%; dividend yield – 0%; expected volatility – 100% and term of 3 years. The value of the Warrants was $1,212,000.

In connection with the Financing, the Company entered into an Investor Relations Escrow Agreement, pursuant to which the Company established an escrow account of $150,000 which may be allocated and released to investor relations firms for marketing purposes at the sole discretion of a representative of the Investors. The Company paid $150,000 to an IR firm for it to provide IR services over two years. For 2010, the Company recorded $71,096 as an IR expense. During the year ended December 31, 2011, the Company recorded the remaining portion of $78,904 as an IR expense.

In addition the Company issued the following securities: (i) Series A Warrants to purchase 73,528 shares of Common Stock to placement agents, (ii) Series B Warrants to purchase 73,528 shares of Common Stock to placement agents, (iii) 180,000 shares of Common Stock to an investor relations firm, (iv) 600,000 shares of Common Stock to a consultant for business development and capital markets advice, and (v) 7,000 shares of Common Stock for legal services. The value of warrants was determined by using the Black-Scholes pricing model with the following assumptions: discount rate – 2.76%; dividend yield – 0%; expected volatility – 100% and term of 3 years. The value of the Warrants was $285,000.

In connection with the financing, the Company also issued 27,000 shares to several legal counsels and 200,000 shares to a consultant, First Trust China Ltd. The fair value of the shares based on the market price at the date of the financing of $397,000, was recorded as financing expense of the issuance of equity as a charge to additional paid in capital.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

Private Placement in December 2010

In December, 2010, the Company sold in a series of private placement a total of 286,249 Units, each unit comprised (i) four shares of common stock,  (ii) a three-year warrant to purchase one share of common stock at an exercise price of $3.60 per share (the “Series C Warrant”), and (iii) a three-year warrant to purchase one share of common stock at an exercise price of $4.80 per share (The “Series D Warrant”), for $2,747,973. The Company received net proceeds of $1,976,413. In connection with the Financing the Company paid the following: (i) $299,777 in placement agents’ fees, (ii) $150,000 to an Investment Relations escrow account, and (iii) $321,783 offering expenses, including legal fees, financing consultant fees and bank account management fees. The Company recorded $77,500 as IR expense during the year ended December 31, 2011.

The Series C and Series D Warrants described above which expire at December 2013 issued to the investors are immediately exercisable and have a term of three years. Such warrants may be exercised cashless in the event that there is no effective registration statement providing for the resale of the common stock. The exercise prices of the Warrants are subject to customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.  Additionally, for a period of three years following the final closing of the private placement, anti-dilution protection shall be afforded the investors,  The value of warrants was determined by using the Black-Scholes pricing model with the following assumptions: discount rate – 2.76%; dividend yield – 0%; expected volatility – 100% and term of 3 years. The fair value of the Warrants was $974,322.

In connection with the private placement transactions, the Company issued placement agents three-year warrants to purchase an aggregate of 93,232 shares of common stock at $2.40 per share, immediately exercisable, as consideration of services. The value of warrants was determined by using the Black-Scholes pricing model with the following assumptions: discount rate – 2.76%; dividend yield – 0%; expected volatility – 100% and term of 3 years. The fair value of the Warrants was $187,979.

Private Placement in January 2011

On January 28, 2011, the Company sold in a private placement 234,582 Units, each unit comprised of (i) four shares of common stock, (ii) a three-year warrant to purchase one share of common stock at $3.60 per share (the “Series C Warrant”), and (iii) a three-year warrant to purchase one share of common stock at $4.80 per share (The “Series D Warrant”), for $2,252,000. The Company received net proceeds of $2,016,900. In connection with the financing, the Company paid $225,000 in placement agents’ fees.

Weikang Bio-Technology Group Co., Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Stated in US Dollars)

The Series C and Series D Warrants issued to the investors and the placement agents are immediately exercisable and have a term of three years. The value of warrants was determined by using the Black-Scholes pricing model with the following assumptions: discount rate – 2.76%; dividend yield – 0%; expected volatility – 100% and term of 3 years. The fair value of the Warrants was $889,764.

In connection with the private placement transaction, the Company issued placement agents three-year warrants to purchase an aggregate of 75,000 shares of common stock at an exercise price of $2.40 per share, immediately exercisable, as consideration of services. The value of warrants was determined by using the Black-Scholes pricing model with the following assumptions: discount rate – 2.76%; dividend yield – 0%; expected volatility – 100% and term of 3 years. The fair value of the Warrants was $167,619.

Following is a summary of the warrant activity: