Weikang third quarter revenue increases 55.2% to record $17.4 million

Weikang Bio-Technology Group Co., Inc. (OTC Bulletin Board: 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 record fiscal 2010 third quarter results for period ended September 30, 2010.

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 million with fully diluted earnings per share of $0.22
• 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."

Revenue for the third quarter of 2010 was $17.4 million, up 55.2% from revenue of $11.2 million in the third quarter of 2009.  Revenue from the Company's operating entity Tianfang Pharmaceutical Co., Ltd was $10.3 million, or 59% of total sales, and revenue from the Company's other operating entity Heilongjiang WeiKang was $7.1 million, or 41% of total sales.  Revenue for the quarter benefitted from delivery of products that were postponed during the first and second quarter of 2010 as well the introduction of new products.  The new products launched during the year accounted for $2.2 million or 12.6% of total revenue.  

Gross profit for the quarter increased 74.7% to $10.5 million from $6.0 million in the same period of 2009.  Gross margin for the third quarter of 2010 was 60.0% compared to 53.3% in the third quarter of 2009.  The increase in gross margin over the previous year period is the result of an increase of the percent of total sales of the Company's higher margin products as well as management's continuous efforts to control costs related to purchasing, manufacturing, storage and transportation.

Operating expenses were $2.3 million or 13.4% of sales, compared to $0.8 million or 7.5% of sales in the third quarter of 2009.  The increase in operating expenses was attributable to an increase in marketing and promotion expense.  The Company also recognized $401,273 in non-cash, stock-based compensation expenses that it did not incur in the comparable period a year ago.  Adjusting for the non-cash, stock-based compensation, operating expenses were $1.9 million or 11.1% of total sales.  The non-cash, stock-based compensation relates to the private placement closed on January 20, 2010 and associated investor relation expense as well as compensation to four directors and a key employee.

Operating income for the third quarter was $8.1 million, up 57.9% from $5.1 million in the third quarter of 2009.  Operating margin was 46.6% compared to 45.8% in the same period a year ago.  Adjusting for the previously mentioned non-cash, stock-based compensation, non-GAAP operating income was $8.5 million in the third quarter of 2010 and operating margin was 48.9%.

Net income was $6.1 million in the third quarter of 2010, up 52.5% from $4.0 million in net income from the same period a year ago.  Fully diluted earnings per share were $0.22 compared to fully diluted earnings per share of $0.16 in the third quarter of 2009.  Excluding the non-cash, stock-based compensation, non-GAAP net income and fully diluted earnings per share for the third quarter of 2010 was $6.5 million and $0.23, respectively.

Financial Condition

As of September 30, 2010, Weikang Bio-Technology Group Co., Inc. had $30.0 million in cash and cash equivalents, $27.2 million in working capital and $7.7 million in total liabilities. Net cash provided by operating activities for the first nine months of 2010 was $16.3 million. Shareholders' equity stood at $49.6 million, up from $23.4 million at year end 2009.

Nine Months Financial Results

Revenue for the first nine months of fiscal 2010 was $41.9 million, up 21.3% from $34.5 million in the same period a year ago.  Gross profit was $24.9 million, up 32.9% from gross profit of $18.7 million for the first nine months of fiscal 2009.  Gross margin was 59.5% compared to 54.2% for the comparable period a year ago.  Operating income was $17.4 million, up 21.5% from $14.3 million in the first nine months of fiscal 2009.  Adjusting for $2.3 million in non-cash, stock-based compensation, non-GAAP operating income was $19.6 million.  Net income was $12.5 million, up 12.2% from $11.2 million in the same period a year ago.  Fully diluted earnings per share were $0.45 compared to $0.44 in the first nine months of fiscal 2009.  Excluding the non-cash, stock-based compensation, non-GAAP net income and fully diluted earnings per share for the first nine months of 2010 was $14.8 million and $0.53.  

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."