Weikang Bio Tech Co (GREY:WKBT)

WKBT Exhibits less transparency in its 2011 10K: Omits the risk factors section from the 2011 10K. This section was present in its 2010 10K.

Full Year 2011 Results

• 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%.
• 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%
• Earnings per diluted share were $0.90 for the fiscal year 2011, as compared to $0.87 for the same period of 2010.

Mr. Yin Wang, Chairman and CEO of Weikang stated: "We are thrilled by the financial results of fiscal year of 2011. Our growth strategy continues to prove successful, as evidenced by our strong performance in the fiscal year of 2011. Although we are facing severe competition within TCM industry and slowdown of the Chinese economy, we still achieved the best performance in our company's history. In the next few years," Mr. Wang continued, "we will continue to execute our organic growth strategy while pursuing expansion through acquisition. As a matter of fact the slowdown of the Chinese economy gives us more opportunities in selecting acquisition targets, which we believe will put us on strong footing to continue our growth."

HARBIN, China, Feb. 27, 2012 /PRNewswire-Asia-FirstCall/ --  Weikang Bio-Technology Group Co., Inc. (WKBT.PK)("Weikang" or the "Company"), a leading developer, manufacturer and marketer of Traditional Chinese Medicine (TCM), Western prescription and OTC pharmaceuticals and other health and nutritional products in the People's Republic of China, today announced that the Company is expected to report its fiscal 2011 net profit of between $26 million to $28 million with EPS between $0.78 and $0.84 and revenue between $100 million and $102 millions.

"We are excited and confident about our results for 2011 and growth prospects beyond. The economy in China as we feel in general is slowing down, however we believe that the market for our high-quality therapeutics and health enhancement will continue to expand as China is expected to become the second largest pharmaceutical market by 2020," commented Mr. Yin Wang, Chairman and CEO of Weikang. "Moreover, our pipeline products on which our research team is focused address a large number of health problems and have a broad consumer appeal."

Item 8.01     Other Events.

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.

HARBIN, China, December 28, 2011 /PRNewswire-Asia-FirstCall/ -- Weikang Bio-technology Group, Inc. (the "Company," "Weikang" or WKBT.PK) today announced that the Company has completed moving all of its management departments into the building it purchased last quarter for $14 million. Located at No.365Chengde Street in the Daowai District of Harbin, the hub of northeast China, Weikang previously rented two floors of the building.

Mr. Yin Wang, the Chairman and CEO of Weikang commented, "We are very glad that finally we have our own headquarters building, which can accommodate all of our departments, instead of having to rent different places for different departments."

On a conference call on December 15, 2011, Mr. Wang explained to investors about the WKBT HQ building and its purchase. "The building has ten floors with 7,000 square meters (approximately 70,000 square feet) and I believe it will improve our management efficiency. Although the $14 million price tag of the building is a big number, it already came down from its peak asking price by its previous owner, which is a local credit union. We believe it is necessary to include this building at this moment as part of our business expansion plan for the next few years."

Mr. Wang also answered some additional investor questions regarding WKBT's third quarter financial statements from the list below:

Question:

Why did Net Sales increase 11% from the prior year yet Accounts Receivable increased 10 times from$650,000 to $6.5 million?

Answer:

"The market for our products has been affected by the slowing down of the economy in China in the recent months. To cope with that, we extended credit terms to some large customers from 30 days to 60 days. As result, the AR increased to $6.5 million, the collection of which has been very good with no delays. Despite the increase in AR, percentage-wise, the amount is still under control," said Chairman Wang.

Question:

Advances to Suppliers and Other Receivable increased more than 20 times from $241,000 to $5.2 million. Please explain.

Answer:

"The raw material price has been increased significantly during the last few months affected by the inflation of the whole economy in China. We believed the prices of raw materials would continue to increase. Therefore, we entered a large contract with a large supplier to lock down the price of raw material, for which we paid about $5 million as a down payment. We believe this is necessary to control the cost," Mr Wang said.

Question:

Income before tax was $8.4 million last year, but only $3.5 million this year. Yet, the income tax expense increased despite an almost 60% decline in taxable income. Please explain.

Answer:

"This is because there was about $4.3 million in one-time, non-cash expenses in the G&A Expenses in the last quarter, which resulted from stock issuance to some consultants and a consulting firm, which we believe are necessary and critical for our long term business development. So the income before tax was $3.5 milliondown from $8.4 million but since the non-cash expenses was not deductible from the taxable income for tax purposes, the income tax expense still increased along with our revenue increase," clarified Mr. Wang.

The increase in cost of goods sold for Tianfang and Heilongjiang Weikang between the corresponding periods was mainly due to the increase in price of raw materials and direct labor costs as a result of overall inflation in the PRC.

The decrease in our gross profit margin in the three months ended September 30, 2011 was mainly due to increased cost of goods sold.

HARBIN, China, Jun. 7, 2011 /PRNewswire-Asia/ -- The Audit Committee of the Board of Directors of Weikang Bio-Technology Group Co., Inc. (OTC Markets: WKBT.PK - News) (“WKBT,” "Weikang" or the "Company"), a leading developer, manufacturer and marketer of Traditional Chinese Medicine (TCM), Western prescription and OTC pharmaceuticals and other health and nutritional products in the People's Republic of China, today announced that Grant Thornton (“GT”), one of the world’s leading organizations of independently owned and managed accounting and consulting firms, has verified that the cash amounts listed on the Company’s SEC filings for 2010 and the first quarter of 2011 are consistent with account statements obtained from WKBT’s banks directly by GT.

“Given the recent change in auditors and my new chairmanship of the WKBT Audit Committee, we authorized the Grant Thornton review to take place last week, and are now releasing the results,” said Jeffery Chuang, independent director and Chairman of the Audit Committee of WKBT. “Weikang continues to advance as a US publicly-traded company and we are committed to high standards in the thoroughness of our financial information,” said Mr. Chuang, a U.S. CPA who is based in Southern California.

Please note the following statement in WKBT 2010 10KNet cash provided by financing activities was $4.35 million for 2010 compared to $2.55 million cash outflow for 2009. The cash inflow in financing activities for 2010 mainly consisted of proceeds of $4.32 million from stock issued in a private placement. The net cash outflow in financing activities for 2009 mainly consisted of payment of $3.81 million for the remaining portion of the acquisition price of Tianfang; net of a repayment of sales receipts of $1.26 million from management previously deposited into a personal bank debit card owned by the Company’s officer mainly for the purpose of convenience on payment collection.

On May 9, 2011, Weikang Bio-Technology Group Company, Inc. notified Goldman Kurland and Mohidin LLP (“GKM”) that it was being dismissed as the Company’s registered independent public accounting firm.

On May 9, 2011, the Audit Committee of the Company’s Board of Directors approved the engagement of Samuel H. Wong & Co., LLP (“SHW & Co”) as the Company’s independent registered public accounting firm.

Fiscal 2010 Results:

• Revenues generated in fiscal 2010 increased 57.0% to $74.6 million, up from $47.5 million in 2009.
• Gross profit was $45.0 million, an increase of 74.2% compared to $25.8 million in fiscal 2009. Gross margin was 60.4% and 54.4% in fiscal 2010 and 2009, respectively.
• Operating income in fiscal 2010 was $33.7 million, an increase of 68.5% compared to $20.0 million in 2009. Operating margin was 45.2% and 42.1% in fiscal 2010 and 2009, respectively.
• Adjusted* net income for fiscal 2010 was $28.3 million, an increase of 81.3% from GAAP net income of $15.6 million in 2009.
• GAAP net income for fiscal 2010 increased 56.5% to $24.4 million, compared to $15.6 million in 2009.
• Adjusted* fully diluted earnings per share ("EPS") for fiscal 2010 was $0.95, an increase of 53.2% from fully diluted EPS of $0.62 in 2009.

"Our business strategy was very successful this year, as evidenced by strong double-digit annual growth in both our top and bottom lines and an especially strong fourth quarter," commented Mr. Yin Wang, Chairman and CEO of Weikang. "Our market share continues to improve with our successful new product launches and expanded sales channels. The five new products we launched during 2010 contributed roughly $11 million to our total sales, and we plan to launch four new products during 2011, three of which we expect to roll out during the first quarter."

Mr. Wang continued, "We are committed to implementing improved marketing and promotional strategies as well as aggressive R&D, both of which contributed to our strong performance this year. Furthermore, we have streamlined our cost structure in order to provide the highest quality product at the best value, and we look forward to continued growth of this nature as we continue to pursue additional US investor support and interaction in 2011."

On January 28, 2011, Weikang Bio-Technology Group Company, Inc., a Nevada corporation, sold in a private placement a total of 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 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 an aggregate purchase price of $2,252,000.00.

GeoTeam® Note:  This deal works out to an additional 1,452,492 shares:

• 983,328 from common shares
• 469,164 from warrants

HARBIN, China, Jan. 11, 2011 /PRNewswire-Asia/ -- Weikang Bio-Technology Group Co., Inc. today announced an update regarding sales of its Rongrun Good Health Package, a bundled product launched in the third quarter of 2010. The Good Health Package includes four SFDA-approved products produced by Heilongjiang Weikang: Perilla Seed Soft Capsule, Yangshen Dan, Forest Frog Oil, and Kidney Boost Tonic.

• Perilla Seed Soft Capsule, a functional food supplement containing pure natural perilla seed oil, contributed approximately $2.31 million to the Company's revenue from its launch through the end of 2010.
• The Company's Kidney Boost Tonic, which has new packaging and is intended to improve kidney function and boost the immune system, contributed approximately $2.73 million to total revenues over the same period.
• Yangshen Dan, which is designed to reduce the symptoms of prostatic hypertrophy and improve blood flow to the small capillaries and arteries, contributed roughly $2.12 million in revenue through the end of 2010.
• Forest Frog Oil, which is formulated to improve overall immune function and serve as a preventative therapeutic for a variety of ailments, contributed approximately $2.01 million in revenue from its launch through the end of 2010.

"We are pleased by the positive response our Rongrun Good Health Package has received thus far in the market," commented Dr. Yin Wang, Chairman and CEO of Weikang Bio-Technology Group. "Since we announced the launch of this bundled product at the end of the third quarter, it has contributed a total of $9.17 million to our fiscal 2010 revenues. We continue to market our proprietary products aggressively to gain brand recognition and market share, and we expect the Good Health Package and other new products to contribute significantly to our business in 2011."

On December 22, 2010, Weikang Bio-Technology Group Company, Inc., a Nevada corporation , sold in a private placement a total of 25,833 Units, each unit comprised of (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 an aggregate purchase price of $247,980.00.

In connection with the private placement transactions, the Company engaged Hunter Wise Securities, LLC (“Hunter Wise”) as exclusive placement agent, with Pacific Summit Capital serving as an authorized participating agent. As consideration for Hunter Wise’s placement agent services, the Company paid Hunter Wise $11,778.00, and issued Hunter Wise and/or its designees three-year warrants to purchase an aggregate of 2,433 shares of common stock at an exercise price of $2.40 per share. As consideration for Pacific Summit Capital’s services, the Company paid Pacific Summit Capital $13,000.00 and issued Pacific Summit Capital three-year warrants to purchase an aggregate of 5,833 shares of common stock at an exercise price of $2.40 per share.

The Series C and Series D Warrants (collectively, the “Warrants”) issued to the investors and the placement agents are immediately exercisable and have a term of three years. Such warrants may be exercised cashlessly in the event that there is no effective registration statement providing for the resale of the common stock underlying the warrants pursuant to the time frame described in more detail below. 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, as described in more detail below.

In connection with the private placement and pursuant to the financing transaction to which this private placement as a part the Company agreed to list and trade its shares of common stock on the Nasdaq Capital Market, Nasdaq Global Market, or the NYSE Amex and shall take all commercially reasonable actions to file an application to trade its shares on a National Stock Exchange within 90 days after the final closing date of the Offering. In the event the shares of common stock are not approved for trading on a National Stock Exchange within 120 days from the final closing date of the private placement and commercially reasonable actions have not been taken to meet such requirement, the Company shall pay cash liquidated damages to the Subscriber in the amount equal to 0.5% of the purchase price paid by each investor, to be paid each month until the listing of the Company’s shares on a National Stock Exchange is completed.

GeoTeam® Note:  This deal works out to an additional 163,264 shares:

• 103,332 from common shares
• 59,932 from warrants

Pursuant to a make good escrow agreement dated December 2, 2010, Lucky Wheel Limited, the principal shareholder of the Company, whose shares in the Company Yin Wang, the Company’s chief executive officer, has dispositive and voting power, agreed to deposit into escrow 2,083,333 shares of common stock, which are to be held in escrow to be returned to Lucky Wheel Limited or delivered to the investors of a private placement on a pro-rata basis, depending on whether the Company meets certain financial performance targets for the years ending December 31, 2010 and December 31, 2011. 

• The performance target for 2010 is after-tax net income, as defined, of at least $21,000,000.
• The performance target for 2011 is after-tax net income of at least $25,000,000. 

If the performance target for either 2010 or 2011 is not met, the Company shall allocate to the investors that number of escrowed shares as equals the shortfall for such year, based on each investor’s actual investment, on a pro-rata basis.

On December 2 and December 6, 2010, Weikang Bio-Technology Group Company, Inc., a Nevada corporation (the “Company”), sold in a private placement a total of 226,042 Units, each unit comprised of (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 an aggregate purchase price of $2,170,003.20.  

In connection with the private placement transactions, the Company engaged Hunter Wise Securities, LLC (“Hunter Wise”) as exclusive placement agent for the private placement, with National Securities Corporation (“NSC”) serving as an authorized participating agent.  As consideration for Hunter Wise’s services, the Company paid Hunter Wise $168,380.11 and issued Hunter Wise three-year warrants to purchase an aggregate of 51,450 shares of common stock at an exercise price of $2.40 per share.  As consideration for NSC’s services, the Company paid NSC $48,620.21 and issued NSC three-year warrants to purchase an aggregate of 22,517 shares of common stock at an exercise price of $2.40 per share.

The Series C and Series D Warrants (collectively, the “Warrants”) issued to the investors and the placement agents are immediately exercisable and have a term of three years.  Such warrants may be exercised cashlessly in the event that there is no effective registration statement providing for the resale of the common stock underlying the warrants pursuant to the time frame described in more detail below. 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, as described in more detail below.
 
In connection with the private placement and pursuant to the transaction agreements:

• The Company agreed to list and trade its shares of common stock on the Nasdaq Capital Market, Nasdaq Global Market, or the NYSE Amex (each, a “National Stock Exchange”) and shall take all commercially reasonable actions to file an application to trade its shares on a National Stock Exchange within 90 days after the final closing date of the Offering. In the event the shares of common stock are not approved for trading on a National Stock Exchange within 120 days from the final closing date of the private placement and commercially reasonable actions have not been taken to meet such requirement, the Company shall pay cash liquidated damages to the investors in the amount equal to 0.5% of the purchase price paid by each investor, to be paid each month until the listing of the Company’s shares on a National Stock Exchange is completed.

• The Company agreed to file a registration statement covering the shares of common stock issued as part of the Units and issuable upon exercise of the warrants issued to the investors and the placement agent.  The Company is to file the registration statement within 45 days following the final closing of the private placement and have the registration statement declared effective within 120 days after such closing, except that the effective date shall be extended by 30 days in the event that the SEC undertakes a full review of the registration statement.  If the registration statement is not filed or declared effective within the above-mentioned periods, the Company shall pay cash liquidated damages to each investor in the amount equal to 0.5% of the amount subscribed for by such investor, to be paid each month from the required effectiveness date until the registration statement is filed or declared effective, as applicable.

• Pursuant to a make good escrow agreement dated December 2, 2010, Lucky Wheel Limited, the principal shareholder of the Company, whose shares in the Company Yin Wang, the Company’s chief executive officer, has dispositive and voting power, agreed to deposit into escrow 2,083,333 shares of common stock, which are to be held in escrow to be returned to Lucky Wheel Limited or delivered to the investors on a pro-rata basis, depending on whether the Company meets certain financial performance targets for the years ending December 31, 2010 and December 31, 2011.  The performance target for 2010 is after-tax net income, as defined, of at least $21,000,000. The performance target for 2011 is after-tax net income of at least $25,000,000.  If the performance target for either 2010 or 2011 is not met, the Company shall allocate to the investors that number of escrowed shares as equals the shortfall for such year, based on each investor’s actual investment, on a pro-rata basis.

GeoTeam® Note:  This deal works out to an additional 1,430,219 shares:

• 904,168 from common shares
• 526,051 from warrants

Per the GeoTeam's request, WKBT has issued 2011 EPS guidance:

Third Quarter Highlights

• Revenue increased 55.2% year-over-year to a record $17.4 million

• Gross profit increased 74.7% year-over-year to a record $10.4 million

• Gross margin was 60.0%

• Net income increased 52.5% to a record $6.1 millionwith fully diluted earnings per share of $0.22 vs. $0.16

• Adjusting for non-cash, stock-based compensation of $0.4 million, non-GAAP net income was $6.5 million and non-GAAP fully diluted earnings per share was $0.23
  

"We are highly pleased with our record revenue and net income for the quarter," commented Mr. Yin Wang, Chairman and CEO of Weikang.  "Our increase in sales was due to an strong positive response from consumers for our new therapeutics launch this year, which represented 12.6% of our total sales for the quarter, combined with the delivery of products that were postponed during the first and second quarter due to weather problems.  We anticipate our revenue and net income will continue to increase as we regularly launch new and exciting therapeutics that have a broad market potential."

Business Outlook

Weikang Bio-Technology expects to complete the construction of its manufacturing line for producing licorice flavonoids by the end of 2010.  The total estimated cost for the production line is $0.75 million of which the Company has already spent $0.47 million and is committed to pay an additional $0.28 million by the end of 2010. The Company expects to start production of licorice flavonoid extraction in 2011.  Once full production is achieved in 2012, the project is expected to add over $13 million to annual revenue and approximately $5.7 million in annual net income.  In addition, Weikang Bio-Technology plans to launch two new therapeutics by the end of 2010 and three new therapeutics during the first quarter of 2011. Combined, the new therapeutics are expected to add approximately $8.8 million in revenue and up to approximately $3.3 million in net income in 2011.

Weikang maintains its fiscal 2010 revenue guidance of $55 million, net profit of $21 million and earnings per share of $0.75. The Company also expects stockholders' equity to be $48 million or $1.71 per share. For fiscal year 2011, Weikang Bio-Technology is targeting revenue growth to be in the range of 30% to 50% over 2010 revenue.

"We believe that our growth opportunities remain robust as we are actively expanding our product portfolio and distribution network," Mr. Wang continued.  "During the quarter we added a new distributor in Changsha, Hunan Province and Nanning, Guangxi Provinces.  In addition, this December, we are presenting at the 64th National Medicine Trade Conference where we will have the opportunity to introduce our new therapeutics to a large number of distributors and retailers."

GeoTeam® September 2010 Rodman & Renshaw notes:

Weikang Bio-Tech Group (OTC BB:WKBT)

• Growth coming from new product lines. Should have 7 new products begin by the end of first quarter 2011
• There are three phases to launch a new product. Phase one is getting approval of product. Phase two is applying and getting license for product. Phase 3 is product launch.
• Time frame to get a product from phase 1 to 3 varies, but usually takes several years.
• New products reach maturity within 2 to 3 years. Most products have a 5 to 7 year life span. When demand slows we lower price to increase demand.
• May look to raise capital to fund our growth needs, mainly for acquisitions and to address capital funding requirements dealing with its reverse merger. (The GeoTeam had originally surmised that no near term funding arrangement would be on the horizon).
• Weather disruption in the second quarter of 2010 which effected top and bottom line growth for the quarter. It was a one time event, which effected most businesses in the area. We had delays in shipping which effected revenue for the quarter. However, the orders were filled and should be reflected in the third quarter.
• Main risk factor is our competition. Our research and development team and our founder is what separate us from our competitors. He is very well respected in the industry.
• We sell through 6 major distributors in 5 different provinces. We also have 60 smaller city distributors.

Note: We have suggested to management to provide 2011 EPS guidance upon the third quarter press release.

Weikang Bio-Tech Group reiterating its fiscal 2010 guidance:

• Revenue of $55 million.
• Net profit of $21 million.
• Earnings per share of $0.75.
• The company also expects stockholders' equity to be $48 million or $1.71 per share.

For fiscal year 2011, Weikang Bio-Technology is targeting revenue growth to be in the range of 30% to 50% over 2010 revenue.

Weikang Bio-Technology plans to launch two new therapeutics in the fourth quarter of 2010 and an additional three new therapeutics in the first quarter of 2011.  Combined, the new therapeutics are expected to add approximately $8.8 million in revenue and up to approximately $3.3 million in net income in 2011.  

In addition, the recent launch of its new Rongrun Good Health Package has the potential to add approximately $8.5 million in revenue and $3.1 million in net income in 2011.

In total,  for 2011, the new therapeutics and Good Health Package are expected to add up to

• $17.3 million in revenue. 
• $6.4 million in net income.

"We are extremely excited about our growth prospects for 2011 and beyond.  We believe that the market for our high-quality therapeutics will continue to expand as China is expected to become the second largest pharmaceutical market by 2020," commented Mr. Yin Wang, Chairman and CEO of Weikang Bio-Technology Group. "Moreover, our research team is focused on developing new therapeutics that address a large number of health problems and have a broad consumer appeal."

GeoTeam® Note: We have taken away a few points from this mornings news:

• WKBT was willing to issue EPS guidance. We had drilled this into management during the 2010 Rodman Conference. This implies that an equity raise should be off the table for the remainder of the year. 
  
• Issuing EPS guidance also shows a commitment to enhance shareholder value.
  
• 2010 EPS guidance implies EPS of $0.25 for the 2010 third and fourth quarter or growth of about 50.0%.
  
• Since WKBT did not issue 2011 EPS guidance, we still believe an equity raise is possible in 2011.

Weikang Bio-Technology Group Co., Inc. today announced that the Company has recently launched its new Rongrun Good Health Package.  Total contribution to 2011 revenue and net income is expected to be $8.5 million and $3.1 million, respectively.  

"The Rongrun Good Health Package is our first bundled product which we believe offers consumers enhanced value and will accelerate the market acceptance of our new products," commented Dr. Ying Wang, Chairman & CEO of Weikang Bio-Technology Group Co., Inc.  "We intend to continue expanding our market share through regularly launching proprietary, high-quality, and high margin, new products that enhance consumers' health and overall wellbeing. We are also supporting our new products by continually building brand recognition through aggressive marketing campaigns and sales incentives."

The GeoTeam®­ listened to the WKBT 2010 second quarter conference call to determine if the company could meet its full year $17 million make good target despite a weak quarterly performance, resulting from

"harsh weather, which disrupted business operations and impacted our sales."

• Operations are back to normal and normal rate of growth is intact.
  
• Weather disruption should not result in a loss of customers.
  
• Acquisition strategy will be employed as part of overall growth strategy.
  
• Sufficient capacity to fund growth. We hope this means that an equity offering is not in the cards, unless for the purpose of an accretive acquisition.
  
• Upbeat for rest of 2010.
  
• 2010 results will exceed $17.0 million make good target.
  
• Will update outlook soon.

Second Quarter Highlights

• Revenue for the second quarter of 2010 was $10.5 million, down 20.5% from revenue of $13.2 million.
  
• Gross profit was $6.1 million with gross margin of 58.3%.
  
• Net income was $1.9 million in the second quarter of 2010, down 42.5% from $3.3 million, with fully diluted earnings per share of $0.07 vs $0.13.
  
• Non- GAAP net income was $2.8 million and non-GAAP fully diluted earnings per share was $0.10.

"During the second quarter we experienced severely harsh weather which disrupted business operations and impacted our sales. In early May, 2010, the southern and central region of China experienced an unusual amount of heavy rainfall resulting in extreme flooding and high humidity. This extreme weather caused disruption to transportation in the region which in turn prompted a portion of our sales to be postponed," commented Dr. Ying Wang, Chairman & CEO of Weikang Bio-Technology Group Co., Inc. "However, we are pleased to note that the majority of the problems caused by the extreme weather have been resolved and with our strong product offering as well as new therapeutics to be launched this year, we are looking forward to return to healthy revenue and net income growth for the rest of 2010."

Business Outlook

Weikang Bio-Technology intends to increase its sales by expanding its product offering as well as offering consumers value packages by bundling its therapeutics. At the end of August, 2010, the Company intends to launch a new value-add bundled package of its Rongrun Kidney Boost Tonic combined with newly launched therapeutics: Perilla Seed Soft Capsule, Forest Frog Oil Soft Capsule and Yangshen Pill. In the fourth quarter of 2010, Weikang Bio-Technology plans to launch two additional therapeutics, Sha Bai Shuanghuai Soft Capsules and Gouqi Xi Pu Soft Capsules which have the potential to add up to approximately $5.7 million in revenue and up to approximately $2.2 million in net income combined on an annual basis when it reaches full production.

"While the second quarter of 2010 was off due to events outside of managements' control, we are very positive about our outlook for the rest of 2010 as we have several exciting new products that we plan to launch by the end of the year," Mr. Wang continued. "Moreover, we believe our long-term growth opportunities are strong as we remain committed to expanding our distribution network and developing new high quality therapeutics. For example, a project that we believe has an exciting commercial potential is the development of licorice flavonoids for use in therapeutics which we anticipate has the possibility to contribute to over $13 million in annual sales when it reaches full production."

Recall from our recent WKBT article:

Second, we cannot rule out a capital raise as the company has yet to complete a major raise as a public company. Regardless, with the low capital requirement needs of WKBT's model, we are speculating that a raise would only be required to make an accretive acquisition and hopefully at higher valuations. With $18 million in cash and an extremely low valuation, we believe a raise at current price levels would not be a great show of faith to WKBT shareholders. Then again, we must be mindful that the ChinaHybrid space has been known to blind side us with irrational equity raises.

Third and most importantly, there are minimal funding requirements that have to be met to satisfy the original conditions of the reverse merger. As part of the original reverse merger agreement on July 22, 2008 Sinary, the public shell that Weikang merged into and 98% owner of WKBT, was obligated to pay Weikang $7.6 million (RMB 57 million). So far no money has been applied to this liability.

The following passages from the most recent 10Q sums up where WKBT currently stands on this issue:

"Sinary was incorporated under the laws of the State of Nevada on August 31, 2007. On October 25, 2007, Sinary entered into an equity interests transfer agreement with the stockholders of Heilongjiang Weikang, a limited liability company in the PRC, to acquire 100% of the equity interests of Heilongjiang Weikang for 57 million Renminbi (“RMB”), or approximately $7.6 million."

"Under applicable PRC regulations, the acquisition is deemed completed as of November 9, 2007. 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 of RMB 57 million by August 6, 2009, which was extended to June 30, 2010 pursuant to an approval letter issued by PRC government on August 7, 2009. In the event that we are unable to timely remit the Acquisition Price by June 30, 2010, the Heilongjiang Provincial Government and Heilongjiang Office of the State Administration for Industry and Commerce may revoke the approval and license of Weikang as a foreign invested enterprise, and Sinary as the 100% owner of Weikang, thereby unwinding the acquisition. In the event that the acquisition is unwound, we will not be the owner of any equity interest in Weikang, and as a result, Weikang will no longer be our operating business. Should this occur, it would have an absolutely detrimental effect on our business; the Company would most likely fail and YOUR INVESTMENT IN OUR STOCK WOULD BECOME WORTHLESS. If we are unable to timely remit the purchase price for the acquisition of Weikang, the approval and designation of Weikang as a foreign investment enterprise and Sinary as the 100% owner of Weikang may be revoked, and the acquisition of Weikang may be deemed void. Although we may seek to acquire the equity interest of Weikang through other means , we cannot guarantee that we will do so, nor can we guarantee that we will be successful if we do."

The issue that exists here is that, unfortunately, this liability cannot be legally funded via operations.. To rectify this situation, we would suggest that the company utilize debt or a combination of debt and stock, as well as urge management to buy back stock if it completes a raise. This would show a strong commitment to its shareholders.

We have asked the company to respond to this matter as it leads to the perception of a threat to the company's survival.

We also indicated in our report that we were relatively confident that WKBT would rectify this issue.

On August 10, 2010, the company issued a press release announcing that it has indeed put this issue to rest. Even more positive is that due to the structure of the agreement, no stock will be issued to meet capital formation obligations.

Our intent over the short-term is to build a check list to assess the risk position of firms in the ChinaHybrid space. For the time being this will consist of the following: (this list is likely to grow substantially)

Began actively tracking on August 19, 2009 when stock was below $1.00 and traded virtually no volume.

Added to the GeoSpecial list on November 20, 2009 @ $2.90

Catalyst: Solved liquidity issues; Increased capacity; Attained several quarters of respectable EPS growth.
Peak performance: Reached a high of $6.99 on April 5, 2010
Current Price: $3.25

Current road block: Lack of investor awareness; Shares are quite illiquid; Make good net income target of $17.0 million implies growth of just 12.2%; Could not find verbiage in the 2010 first quarter regarding liquidity needs; Funding requirements surrounding original reverse merger transaction still exist.

Remains on the GeoSpecial list. Adjusted EPS for the 2010 first quarter increased 33.3% to $0.20, which would normally qualify a stock as a GeoBargain. However, the weak 2010 growth implied by existing net income targets creates a dilemma for us. The positive news is that the first quarter net income annual run rate is tracking at $22.0 million, which would imply a growth rate of 41.1%. Combine this observation with the company's typically weak first quarter in terms of sales and earnings and we have reason to postulate that the company can handily exceed its target. If we apply the first quarter outstanding share count of 27.4 million and $22.0 in net income, 2010 EPS translates to $0.80, implying EPS growth of 29.0%. Still, investors need to be aware that WKBT may have to deal with some sub par EPS comparisons in the third and fourth quarter depending on how net income is spread out.

Also consider

1. Comments from the 2010 first quarter press release:
   
    "The market opportunity for Traditional Chinese Medicine and Western medicine continues to expand in China as consumers' medical expenditure is estimated to double annually over the next two decades."
   
   "Weikang intends to continue developing new products and expanding its distribution network throughout 2010. The Company has 10 therapeutics in various stages of the SFDA approval process and expects to launch its 10-HDA in the third quarter of 2010 and ShuangBaoGu by the end of 2010."
   
2. The company has openly stated goals to enhance shareholder value.
   
3. Solved liquidity problems we highlighted in our original note.

One stock on our list that may fit this bill is Weikang Bio-Tech Group.

1. Liquidity standing has improved. We have followed Weikang since April 26, 2009 when it had a negative working capital of $8.0 million. Over the past year the company has consistently improved its working capital position, which now stands at positive $1.15 million.
   
2. Need for expansion capital may not be a number one priority. Combined with its $18.1 million cash position and ample production capacity, the company should be able to grow EPS without having to dilute it shares. During a brief conversation with company management, it indicated that tapping the equity markets would mainly occur to take advantage of an accretive acquisition. (As we will discuss later, we would not be in total agreement with such a move at current prices).
   
3. Acquisition opportunities are abound. China's health and nutritional supplements industry is fragmented and characterized by many small players. Weikang believes that it can gobble up a few companies with complimentary product lines that need access to capital, technology and distribution channels that WKBT possesses.
   
4. Impressive growth track record. With healthy pre-tax margins of over 50%, the company has been able to grow EPS for five straight quarters in which only one quarter was below 30%.  Still, at its current price of $3.05 WKBT sports a meager P/E of 4.6
   
   

   Mar Rev (t) EPS	2010 13,959 0.20	Chg 38.1% 33.3%	2009 10,111 0.15	Chg 782% 650%	2008 1,146 0.02
   Jun Rev (t) EPS	- -	- -	13,196 0.13	543% 225%	2,051 0.04
   Sep Rev (t) EPS	- -	- -	11,227 0.16	225% 129%	3,452 0.07
   Dec Rev (t) EPS	- -	-  -	12,950 0.17	109% 6.30%	6,204 0.16
   Totals Rev (t) EPS	- -	- -	47,484 0.62	269% 114%	12,853 0.29

   
   
5. Healthy Product Pipeline. WKBT has a more robust line than usual. Typically the company would like to introduce about 2 to 4 products a year. Currently, WKBT has nine more products that could see preliminary launches during the 2010 third and fourth quarters.

Lack of investor awareness and a small float could make for a limited trading market in WKBT shares. However, the company has recently hired an IR firm and other than price qualifies for NASDAQ listing; two factors that should eventually help increase awareness. Also, the company has aggressively communicated its goal to maximize shareholder value. The validity of this goal is reinforced by the fact that insiders own 88.0% of the stock.

Another potential "psychological" road block is the existence of a 2010 Make good net income target of $17.0 million, associated with a recent private placement, that implies growth of just 12.2%. This creates a dilemma for us, as we normally seek EPS growth rates of at least 30%.

The positive news is that the first quarter's adjusted net income of $5.5 million translates into an annual run rate of $22.0 million which would imply a growth rate of 41.1%. Adjusted EPS for the 2010 first quarter rose 33.3% to $0.20. Combine these observations with the fact that the first quarter has historically been WKBT's low quarter in terms of sales and earnings, gives us added reason to postulate that the company can handily exceed its target. If we apply the first quarter outstanding share count of 27.4 million and $22.0 million in net income, 2010 EPS would come in at $0.80 implying a growth of 29.0%.

Still, investors need to be aware that WKBT may have to deal with some less desirable EPS growth rates in the third and fourth quarters, when comparisons become more challenging, depending on how net income falls.

Dilution:

Investors need to be aware of three issues with respect to dilution.

First, 772,000 in the money warrants exist which translates into only about 3% dilution.

Second, we cannot rule out a capital raise as the company has yet to complete a major raise as a public company. Regardless, with the low capital requirement needs of WKBT's model, we are speculating that a raise would only be required to make an accretive acquisition and hopefully at higher valuations. With $18 million in cash and an extremely low valuation, we believe a raise at current price levels would not be a great show of faith to WKBT shareholders. Then again, we must be mindful that the ChinaHybrid space has been known to blind side us with irrational equity raises.

Third and most importantly, there are minimal funding requirements that have to be met to satisfy the original conditions of the reverse merger. As part of the original reverse merger agreement on July 22, 2008 Sinary, the public shell that Weikang merged into and 98% owner of WKBT, was obligated to pay Weikang $7.6 million (RMB 57 million). So far no money has been applied to this liability.

The following passages from the most recent 10Q sums up where WKBT currently stands on this issue:

"Sinary was incorporated under the laws of the State of Nevada on August 31, 2007. On October 25, 2007, Sinary entered into an equity interests transfer agreement with the stockholders of Heilongjiang Weikang, a limited liability company in the PRC, to acquire 100% of the equity interests of Heilongjiang Weikang for 57 million Renminbi (“RMB”), or approximately $7.6 million."

"Under applicable PRC regulations, the acquisition is deemed completed as of November 9, 2007. 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 of RMB 57 million by August 6, 2009, which was extended to June 30, 2010 pursuant to an approval letter issued by PRC government on August 7, 2009. In the event that we are unable to timely remit the Acquisition Price by June 30, 2010, the Heilongjiang Provincial Government and Heilongjiang Office of the State Administration for Industry and Commerce may revoke the approval and license of Weikang as a foreign invested enterprise, and Sinary as the 100% owner of Weikang, thereby unwinding the acquisition. In the event that the acquisition is unwound, we will not be the owner of any equity interest in Weikang, and as a result, Weikang will no longer be our operating business. Should this occur, it would have an absolutely detrimental effect on our business; the Company would most likely fail and YOUR INVESTMENT IN OUR STOCK WOULD BECOME WORTHLESS. If we are unable to timely remit the purchase price for the acquisition of Weikang, the approval and designation of Weikang as a foreign investment enterprise and Sinary as the 100% owner of Weikang may be revoked, and the acquisition of Weikang may be deemed void. Although we may seek to acquire the equity interest of Weikang through other means , we cannot guarantee that we will do so, nor can we guarantee that we will be successful if we do."

The issue that exists here is that, unfortunately, this liability cannot be legally funded via operations.. To rectify this situation, we would suggest that the company utilize debt or a combination of debt and stock, as well as urge management to buy back stock if it completes a raise. This would show a strong commitment to its shareholders.

We have asked the company to respond to this matter as it leads to the perception of a threat to the company's survival.

Overall we are impressed with WKBT's accomplishments. If the company can put to rest its capital formation issues, which we believe it will, and confirm that the 2010 net income target is conservative, which is often the case with make good targets, we are speculating that its shares can achieve P/E expansion.

Important Note: The financial table and verbiage included in the 2010 first quarter press release seems to contain errors.

The following statement appears incorrect:

Operating income for the first quarter was $6.4 million, up 27.1% from $5.0 million in the first quarter of 2009. Operating margin was 45.6% compared to 49.6% in the same period a year ago. Adjusting for the previously mentioned non-cash, stock-based compensation charge of $912 thousand, non-GAAP operating income was $5.5 million in the first quarter of 2010. Obviously non-GAAP should be higher than GAAP.

The 2010 Non-GAAP pre-tax number should be $7.3 million. Instead of adding back the compensation charge WKBT subtracted it. This is likely no big deal, but right now Chinese firms have to make sure they are impeccable with respect to financial reporting.

The non-GAAP adjusted net income figure of $5.5 million is correct.

"We are pleased to have achieved a record quarter in terms of revenue and net income. Moreover, we believe the strong quarter demonstrates our solid competitive position with our portfolio of proprietary therapeutics and ability to consistently expand our market penetration," commented Mr. Yin Wang, Chairman & CEO of Weikang Bio-Technology Group Co., Inc. "Both Tianfang and Weikang had strong sales growth as a result of our increased distribution network and market coverage."

Weikang intends to continue developing new products and expanding its distribution network throughout 2010. The Company has 10 therapeutics in various stages of the SFDA approval process and expects to launch its 10-HDA in the third quarter of 2010 and ShuangBaoGu by the end of 2010.

"The market opportunity for Traditional Chinese Medicine and Western medicine continues to expand in China as consumers' medical expenditure is estimated to double annually over the next two decades. We remain focused on our long-term growth and expanding our distribution network by increasing our wholesale network and dedicated sales force," Mr. Wang continued. "We also welcome Mr. Hu to the Weikang Bio-Technology executive team who will assist us in increasing our visibility in the investment community and enhancing our shareholder value as we continue to expand our market penetration."

WKBT reported 2009 net income of $15.6 million, which exceeded its 2009 net income target figure of $13.0 million. The 2010 net income target is $17.0 million.

More due diligence is required to determine if 2010 EPS can grow at least 30%, which seems like a tall task:

• The 2010 net income target is calling for 8.7% growth.
• Dilution from recent private placement.

However, the company did handily beat its 2009 target. Furthermore, with trailing EPS of $0.62 WKBT shares are trading at a meager P/E of 6.82. Combine this with:

Mr. Wang concludes, "Looking ahead, we will continue our growth strategy of developing newer and higher margin pharmaceutical and nutriceutical products, while expanding our sales and distribution network in China. In 2010, we will also deploy more time and resources towards the U.S. capital markets by increasing our investor relations efforts and potentially uplifting to a senior stock exchange. The management team is fully committed to build long term value for all of our stakeholders."

Gives us hope that investors will bid up WKBT shares to a more appropriate P/E multiple.

Mr. Wang concludes, "Looking ahead, we will continue our growth strategy of developing newer and higher margin pharmaceutical and nutriceutical products, while expanding our sales and distribution network in China. In 2010, we will also deploy more time and resources towards the U.S. capital markets by increasing our investor relations efforts and potentially uplifting to a senior stock exchange. The management team is fully committed to build long term value for all of our stakeholders."

Source: MarketWire (April 5,  2009)

Net income targets in connection with private placement on January 20, 2010:  

• Fiscal Year ending December 31, 2009: $13,000,000 
• Fiscal year ending December 31, 2010: $17,000,000 

Formula to be applied to issue shares to investors if targets are not attained:

• The percentage of variation of the Actual 2009 Net Income from the 2009 Targeted Net Income times the number of Purchased Shares acquired by such Subscriber pursuant to the private placement.
• The percentage of variation of the Actual 2010 Net Income from the 2010 Targeted Net Income times the number of Purchased Shares acquired by such Subscriber pursuant to the private placement.

Example..

if the Actual 2009 Net Income is $11,700,000, which is a variation of 10% of the 2009 Targeted Net Income, then the Company shall issue to each Subscriber, shares of the Company’s Common Stock, equal to a total of 10% of the Purchased Shares acquired by such Subscriber hereunder.

New Share Structure due to a private placement transaction on January 20, 2010:

Post Merger Share Calculation:

• 25,479,800: Pre transaction outstanding shares
•  1,470,588 : Newly issued shares of Common Stock 
•      180,000: Shares issued to investor relations firm
•      600,000: Shares issued consultant
•          7,000: Shares to legal firm 
•      312,500: Shares from series A warrants associated with private placement
•      312,500: Shares from series B warrants associated with private placement
•        73,528: Series A warrants to placement agents
•        73,528: Series B warrants to placement agents 

GeoTeam® best effort calculation of total post transaction fully diluted shares assuming full conversions:  28,509,444

We have mentioned Weikang Bio-Tech twice over the past year and a half, indicating that it may qualify as a GeoSpecial if it could rectify some outstanding liquidity issues.

At eh outset of tracking Weikang, the Company had negative working capital of $8 million due to a rather large financial obligation of approximately $7.6 million that it was supposed to satisfy by October of 2009. A financing arrangement to remedy this situation has yet to occur.

The good news is that the date to meet its financial obligation has been extended to June 30, 2010. Also, the negative working capital situation is much improved, having been reduced to $46,218 from $4.27 million in its 2009 second quarter. This coupled with Weikang's low valuation has prompted us to code WKBT as a low tier GeoSpecial. We must realize that the risk of a dilutive capital raising event still exists. We also need information on whether or not the Company is operating at full capacity, a factor that could impact near term growth as EPS comparisons will be more challenging.

Valuation Parameters:
Price as of November 20, 2009: $2.75
Trailing EPS: $0.59
Trailing P/E: 4.7
Nine months EPS growth rate: 238.5%
PEG Ratio (P/E divided by EPS growth rate): 0.02

Weikang Bio-Tech Group reported strong 2009 second quarter results after the close today.  Once again, the company was able to post solid growth in sales and earnings per share.

• Revenues increased 544% to $13.20 million.
• Earning per share increased 225% to $0.13.

Comments about future prospects were encouraging:

Our business will continue to accelerate as we enter the second half of 2009. We are seeing strong demand for our OTC pharmaceuticals and TCM products especially in the midst of China's new healthcare reform initiatives, which will secure our future growth.'

Unfortunately, as we highlighted on May 8, 2009, the company still has issues regarding its liquidity position.  Thus, an  investment decision here is a tough call.   On the flip side, the stock has a tax adjusted P/E of 7.3 and a peg ratio of 1.4.  Given the compelling valuation proposition the GeoTeam® will establish a position in WKBT realizing that there may be substantial dilution risk as management grapples with ways to cure the company's negative working capital position.   If not for the this issue WKBT would be a classic GeoBargain selection.

We have requested an interview with management.  The stock remains on the GeoBargain on the Radar list and is also an ideal candidate for consideration as a GeoSpecial.

As of September 30, 2009, the Company had cash and cash equivalents of $8.71 million, other current assets of $1.02 million, and current liabilities of $9.77 million. Negative working capital was $46,218 at September 30, 2009. The ratio of current assets to current liabilities was 0.99-to-1 as of September 30, 2009.
 
The negative working capital and the ratio of current assets to current liabilities are primarily due to other payables of $7.62 million that Sinary is obligated to pay to the prior owners of Heilongjiang Weikang within one year from the closing of the acquisition of Heilongjiang Weikang. This payable does not bear any interest, and has been renewed to June 30, 2010.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2009 and 2008, respectively:
 
            
      2009       2008   
Cash provided by (used in):                
Operating Activities     $ 11,325,255       $ 3,698,792   
Investing Activities     $ (27,751 )     $ (78,638 )
Financing Activities     $ (2,614,430)       $ (2,633,277 ) 

 
    Net cash provided by operating activities was $11.33 million for the nine months ended September 30, 2009, compared to net cash provided by operating activities of $3.70 million for the comparable period of 2008. The increase in net cash inflow from operating activities was mainly due to an increase in our net income with faster collection on accounts receivable.
 
    Net cash used in investing activities was $27,751 for the nine months ended September 30, 2009, as compared to net cash used in investing activities of $78,638 for the nine months ended September 30, 2008.  The cash outflow during the nine months ended September 30, 2009 was mainly due to the acquisition of additional office equipment.
 
Net cash used in financing activities was $2.61 million for the nine months ended September 30, 2009 compared to net cash used in financing activities of $2.63 million for the nine months ended September 30, 2008. The net cash outflow in financing activities for the nine months ended September 30, 2009 mainly consisted of payment of $3.81 million for the remaining portion of the acquisition price of Tianfang, net of repayment of sales receipts of $1.20 million from the management that was previously deposited into a personal bankcard owned by the Company’s officer mainly for the purpose of convenience on payment collection.  While in the comparable period of 2008, we paid $4.87 million for the first and second installment for the acquisition price of Tianfang, net of $2.46 million repayment of Weikang’s management for the sales receipts that was originally received by Weikang’s management on behalf of Weikang; and a repayment of $0.23 million to a related party.
 
    We do not believe inflation had a significant negative impact on our results of operations during 2009