-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WXK360k1UAgdP3i/6k9L9B11SSnSrVTRSiSQLG6ifJ+uY60na7VMtagOgCCzY2JB 4C17Y9p6e0P5EW+1lDEG0A== 0001144204-09-043482.txt : 20090814 0001144204-09-043482.hdr.sgml : 20090814 20090814143039 ACCESSION NUMBER: 0001144204-09-043482 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090814 DATE AS OF CHANGE: 20090814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Linkwell CORP CENTRAL INDEX KEY: 0001042463 STANDARD INDUSTRIAL CLASSIFICATION: SPECIALTY CLEANING, POLISHING AND SANITATION PREPARATIONS [2842] IRS NUMBER: 651053546 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24977 FILM NUMBER: 091014739 BUSINESS ADDRESS: STREET 1: NO. 476 HUTAI BRANCH ROAD STREET 2: BAOSHAN DISTRICT CITY: SHANGHAI STATE: F4 ZIP: 200436 BUSINESS PHONE: (86) 21-56689332 MAIL ADDRESS: STREET 1: NO. 476 HUTAI BRANCH ROAD STREET 2: BAOSHAN DISTRICT CITY: SHANGHAI STATE: F4 ZIP: 200436 FORMER COMPANY: FORMER CONFORMED NAME: KIRSHNER ENTERTAINMENT & TECHNOLOGIES INC DATE OF NAME CHANGE: 20030818 FORMER COMPANY: FORMER CONFORMED NAME: HBOA HOLDINGS INC DATE OF NAME CHANGE: 20001116 FORMER COMPANY: FORMER CONFORMED NAME: MIZAR ENERGY CO DATE OF NAME CHANGE: 19980923 10-Q 1 v158093_10q.htm

B&L COMMENTS 08/11/09

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly report ended June 30, 2009

o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from ________ to __________

Commission File Number: 000-24977

LINKWELL CORPORATION

(Exact name of registrant as specified in charter)

FLORIDA
  
65-1053546
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
1104 Jiatong Road, Jiading District, Shanghai, China 201807
(Address of principal executive offices)
(86) 21-5566-6258
(Registrant’stelephone number)
not applicable
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark 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.     Yes  o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 for such shorter period that the registrant was required to submit and post such files).     Yeso Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

        Large accelerated filer  o                                                                                                           Accelerated filer  o

Non-accelerated filer  o (Do not check if a smaller reporting company)         Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: At August 14th, 2009 there were 77,955,475  shares of common stock issued and outstanding.

 
 
 

LINKWELL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2009

INDEX

 
Page
PART I - FINANCIAL INFORMATION
  
　
　
  
Item 1. 
Consolidated Financial Statements.
4
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
26
　
    
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
33
　
　
  
Item 4.
Controls and Procedures.
33
　
　
  
PART II - OTHER INFORMATION
  
　
　
  
Item 1.
Legal Proceedings.
35
     
Item 1A.
Risk Factors.
35
　
　
  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
35
　
　
  
Item 3.
Default Upon Senior Securities.
35
　
　
  
Item 4.
Submission of Matters to a Vote of Security Holders.
35
　
　
  
Item 5.
Other Information.
35
　
　
  
Item 6.
Exhibits.
35
     
Signature
37

 
2
 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, the risk of doing business in the People's Republic of China, or the PRC, our ability to implement our strategic initiatives, our access to sufficient capital, the effective integration of our subsidiaries in the PRC into a U.S. public company structure, economic, political and market conditions and fluctuations, government and industry regulation, Chinese and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

When used in this quarterly report, the terms:

“Linkwell”, the “Company”, “we” and “us” refers to Linkwell Corporation,
a Florida corporation, our subsidiaries,

“Linkwell Tech” refers to our formerly wholly-owned subsidiary Linkwell Tech Group, Inc.,
a Florida corporation, now 90% owned after May 31, 2008,

“LiKang Disinfectant” refers to Shanghai LiKang Disinfectant High-Tech Company, Limited,
a wholly-owned subsidiary of Linkwell Tech,

“LiKang Biological” refers to Shanghai LiKang Biological High-Tech Co., Ltd.,
a wholly owned subsidiary of LiKang Disinfectant on March 5, 2009 and.

“LiKang International” refers to Shanghai LiKang International Trade Co., Ltd.,
formerly a wholly owned subsidiary of LiKang Disinfectant that was sold to Linkwell International Trading Co., Limited on May 31, 2008.

We also use the following terms when referring to certain related parties:

“Shanhai” refers to Shanghai Shanhai Group,
a Chinese company which was formerly the minority owner of LiKang Disinfectant.

“Meirui” refers to Shanghai LiKang Meirui Pharmaceuticals High-Tech Co., Ltd.,
a company of which Shanhai is a majority shareholder,

“ZhongYou” refers to Shanghai ZhongYou Pharmaceutical High-Tech Co., Ltd.,
 
a company owned by Shanghai Jiuqing Pharmaceuticals Company, Ltd., whose 100% owner is Shanghai Ajiao Shiye Co. Ltd. Our officer Xuelian Bia is a 60% shareholder of Shanghai Ajiao Shiye Co. Ltd.
 
The information which appears on our web site at www.linkwell.us is not part of this report.

 
3
 

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
  LINKWELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
   
June 30,
    
December 31,
  
   
2009
    
2008
  
   
(Unaudited)
        
ASSETS
            
Current Assets:
            
Cash and cash equivalent
   $ 1,676,537     $ 2,072,687  
Accounts receivable (net of allowance for doubtful accounts of $819,421 and $801,895 at June 30, 2009 and December 31, 2008 respectively)
     4,036,524       3,526,440  
Accounts receivable-related parties (net of allowance for doubtful accounts of $376,956 and $376,437 at June 30, 2009 and December 31, 2008 respectively)
     3,120,614       3,470,553  
Other receivables
     338,278       204,480  
Inventories (net of reserve for obsolete inventory of $145,231 and $145,031 at June 30, 2009 and December 31, 2008 respectively)
     1,583,094       1,207,352  
Prepaid expenses and other current assets
     692,205       339,378  
Due from related parties
     1,176,958       2,158,077  
                 
 Total current assets
     12,624,210       12,978,967  
                 
 Goodwill
     468,501    
　
  
 Property, plant and equipment - net
     2,477,331       703,935  
                 
 Total assets
   $ 15,570,042     $ 13,682,902  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current Liabilities:
                
Loans payable
   $ 745,096    
$
 744,069  
Accounts payable and accrued expenses
     1,795,374       1,508,271  
Taxes payable
     187,575       220,103  
Other payables
     374,599       368,690  
Due to related parties
     358,668       94,583  
Advances from customers
     94,615       91,326  
                  
 Total current liabilities
     3,555,927       3,027,042  
                 
 Fair value of derivative instrument
     104,192       281,030  
　
  
　
    
　
  
 Minority interest
     2,295,808       2,118,970  

 
4
 

LINKWELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
（Continued）
 
   
June 30,
    
December 31,
  
   
2009
    
2008
  
   
(Unaudited)
        
             
Stockholders' Equity:
            
Preferred Stock: (No par value; 10,000,000 authorized, no shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively)
            
Common Stock: ($.0005 par value, 150,000,000 authorized, 77,955,475  and  77,955,475 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively)
     38,978       38,978  
Common stock issuable
     250       -  
 Additional paid-in capital
     6,537,096       6,512,346  
Statutory surplus reserve
     561,222       561,222  
Retained earnings
     1,925,105       430,849  
Deferred compensation
     (180,142 )     (318,556 )
Accumulated other comprehensive income
     731,607       1,031,021  
Total stockholders' equity
     9,614,116       8,255,860  
                 
Total liabilities and stockholders' equity
   $ 15,570,042     $ 13,682,902  

See notes to unaudited consolidated financial statements.

 
5
 
 
LINKWELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
（Unaudited）
 
   
For the Three months
    
For the Six months
  
   
Ended March 31,
    
Ended June 30,
  
   
2009
    
2008
    
2009
    
2008
  
                         
NET REVENUES
                        
Non-affiliated companies
   $ 1,837,274     $ 1,879,690     $ 4,195,296     $ 3,710,946  
Affiliated companies
     986,670       631,919       2,179,724       1,052,169  
Total Net Revenues
     2,823,944       2,511,609       6,375,020       4,763,115  
                                 
COST OF SALES
     536,986       1,256,934       2,574,614       2,384,732  
GROSS PROFIT
     2,286,958       1,254,675       3,800,406       2,378,383  
                                 
OPERATING EXPENSES:
                                
Selling expenses
     457,276       254,977       923,566       546,701  
General and administrative
     564,434       464,503       1,071,897       920,869  
Total operatingExpenses
     1,021,710       719,480       1,995,463       1,467,570  
                                 
INCOME FROM OPERATIONS
     1,265,247       535,195       1,804,943       910,813  
                                 
OTHER (EXPENSE) INCOME:
  
　
    
　
    
　
    
　
  
Other (expense) income
     655       (384,754 )     16,257       (384,602 )
Put option expenses
     118,002               176,838          
Interest income
     2,116       1,597       2,216       2,310  
Interest expense- related party
  
　
       (6,619 )     -       (11,441 )
Interest expense
     (15,429 )     (15,595 )     (29,738 )     (31,006 )
Total Other (Expense) Income
     105,345       (405,371 )     165,573    
(424,739)
  

 
6
 

LINKWELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
（Unaudited）
（Continued）
 
   
For the Three months 
    
For the Six months
  
   
 Ended March 31, 
    
 Ended June 30,
  
   
2009
    
2008
    
2009
    
2008
  
INCOME FROM CONTINUING OPERATION BEFORE INCOME TAXES
                        
AND MINORITY INTEREST
     1,370,592    
129,824
       1,970,516    
486,074
  
                             
INCOME TAXES
     (202,320 )     (100,189 )     (299,165 )     (146,298 )
                             
INCOME FROM CONTINUING OPERATION BEFORE MINORITY INTEREST
                            
AND DISCONTINUED OPERATION
     1,168,272      
29,635
       1,671,352      
339,776
  
MINORITY INTEREST 
     (118,001 )     (16,774 )     (176,838 )     (47,309 )
                                 
INCOME FROM CONTINUING OPERATION
     1,050,271    
12,861
       1,494,514    
292,467
  
DISCONTINUED OPERATIONS:
  
　
    
　
    
　
    
　
  
Gain from discontinued operation (including gain on disposal of $25,905 at June 30, 2008 )
  
　
    
25,905　
    
　
    
74,606　
  
                                 
NET INCOME
   $ 1,050,271     $ 38,766     $ 1,494,514     $ 367,073  
                                 
Basic earnings per share   　
  
　
    
　
    
　
    
　
  
Diluted earnings per share
                                
                                 
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
                                
 Basic earnings per shares
   $ 0.01     $ 0.00     $ 0.02     $ 0.00  
 Diluted earnings per shares
   $ 0.01     $ 0.00     $ 0.02     $ 0.00  
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
                                
    Basic
     77,955,475       73,973,342       77,955,475       73,869,051  
    Diluted
     77,955,475       76,268,185       77,955,475       75,109,226  

See notes to unaudited consolidated financial statements

 
7
 

LINKWELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
（Unaudited）
 
   
For the Six months
  
   
Ended June 30,
  
   
2009
    
2008
  
CASH FLOWS FROM OPERATING ACTIVITIES:
        
 
  
Income from continuing operations
     -       292,467  
Income from discontinuing operations
     -    
74,606
  
Net income
   $ 1,494,514     $  367,073  
Adjustments to reconcile net income from operations to 　
          
　
  
net cash provided by (used in) operating activities:
                
                 
Depreciation
     175,388       60,612  
Minority interest 　
     176,837       47,309  
Allowance for doubtful accounts
     17,526       55,687  
Allowance for doubtful accounts-related party 　
     519       106,830  
Gain from disposal of discontinued operation
             (74,606 )
Stock-based compensation 　
     138,414       77,193  
Derivative liabilities
     (176,838 )        
Changes in assets and liabilities: 　
          
　
  
Accounts receivable
     (659,111 )     (648,784 )
Accounts receivable - related party 　
     349,420       (1,059,264 )
Other receivable
     (12,418 )     12,231  
Inventories 　
     608,735       (969,265 )
Prepaid and other current assets
     (352,827 )     (566,476 )
  Derivative payable
            383,227  
Accounts payable and accrued expenses
     (681,590 )     292,061  
Goodwill 　
     (468,501 )  
　
  
Tax payable
     (32,528 )     54,497  
Other payable 　
     (1,469,690 )  
　
  
Advances from customers
     3,289       177,285  
NET CASH (USED IN) OPERATIONS ACTIVITIES
     (888,861 )  
(1,684,390)
  

 
8
 

LINKWELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
（Unaudited）
 
   
For the Six months
  
   
Ended June 30,
  
   
2009
    
2008
  
CASH FLOWS FROM INVESTING ACTIVITIES:
            
             
Increase in due from related party
             (114,542  )
Purchase of property, plant and equipment
     (775,707 )     (78,897 )
Cash assumed from acquisition
     145,517       (399,057 )
Cash paid for minority interest
                
NET CASH USED IN INVESTING ACTIVITIES
     (630,190 )     (592,496 )
CASH FLOWS FROM FINANCING ACTIVITIES:
                
                 
Proceeds from issuance of common stocks
             2,000,000  
Increase in due from related parties
     902,438    
-　
  
Proceed from due to related party
     264,085       261,934  
Proceeds from Warrants Exercised
  
-　
       20,000  
NET CASH PROVIDED BY FINANCING ACTIVITIES
     1,166,523       2,281,934  
EFFECT OF EXCHANGE RATE ON CASH
     (43,622 )     480,565  
NET INCREASE (DECREASE) IN CASH
     (396,150 )     485,614  
CASH  - beginning of period
     2,072,687       782,727  
CASH - end of period
   $ 1,676,537     $ 1,268,341  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
          
Cash paid for:
                
Interest
   $ 29,403     $ 42,447  
Income taxes
   $ 299,165     $ 146,298  

See notes to unaudited consolidated financial statements

 
9
 
 
LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Linkwell Corporation (formerly Kirshner Entertainment & Technologies, Inc.) (the “Company”) was incorporated in the state of Colorado on December 11, 1996. On May 31, 2000, the Company acquired 100% of HBOA.Com, Inc. The Company focused on development of an Internet portal through which home based business owners, as well as commercial private label businesses, obtain the products, services, and information necessary to start, expand and profitably run their businesses. On December 28, 2000, the Company formed a new subsidiary, Aerisys Incorporated (“Aerisys”), a Florida corporation, to handle commercial private business. In June 2003, the Company formed its entertainment division and changed its name to reflect this new division. Effective as of March 31, 2003, we discontinued our entertainment division and our technology division, except for the Aerisys operations that continue on a limited basis.

On May 2, 2005, the Company entered into and consummated a share exchange with all of the shareholders of Linkwell Tech Group, Inc. (“Linkwell Tech”). Pursuant to the share exchange, the Company acquired 100% of the issued and outstanding shares of Linkwell Tech's common stock, in exchange for 36,273,470 shares of our common stock, which at closing represented approximately 87.5% of the issued and outstanding shares of our common stock. As a result of the transaction, Linkwell Tech became our wholly-owned subsidiary. For financial accounting purposes, the exchange of stock was treated as a recapitalization of Kirshner with the former shareholders of the Company retaining 7,030,669 or approximately 12.5% of the outstanding stock. The consolidated financials statements reflect the change in the capital structure of the Company due to the recapitalization and the consolidated financial statements reflect the operations of the Company and its subsidiaries for the periods presented.

Linkwell Tech was founded on June 22, 2004, as a Florida corporation. On June 30, 2004, Linkwell Tech acquired 90% of Shanghai LiKang Disinfectant High-Tech Company, Ltd. (“LiKang Disinfectant”) through a stock exchange. The transaction on which Linkwell Tech acquired its 90% interest in LiKang Disinfectant resulted in the formation of a U.S. holding company by the shareholders of LiKang as it did not result in a change in the underlying ownership interest of LiKang Disinfectant. LiKang Disinfectant is a science and technology enterprise founded in 1988. LiKang Disinfectant is involved in the development, production, marketing and sale, and distribution of disinfectant health care products.

LiKang Disinfectant's products are utilized by the hospital and medical industry in China. LiKang Disinfectant has developed a line of disinfectant product offerings. LiKang Disinfectant regards hospital disinfectant products as the primary segment of its business. LiKang Disinfectant has developed and manufactured several series of products in the field of skin mucous disinfection, hand disinfection, surrounding articles disinfection, medical instruments disinfection and air disinfection.

On June 30, 2005, the Company's Board of Directors approved an amendment of its Articles of Incorporation to change the name of the Company to Linkwell Corporation. The effective date of the name change was after close of business on August 16, 2005.

In August 2006, LiKang Disinfectant incorporated a new subsidiary, Shanghai LiKang International Trade Co., Ltd (“LiKang International”), a PRC company. The primary business of LiKang International involves import and export activities relating to computer, computer components, instruments and meters, electromechanical devices, constructional materials, metallic material, hardware, handiwork, knitting textile, furniture, chemical raw materials, and business consulting service, investment consulting, graphics design, conference services, exhibition services, equipment lease and the import and export of technology.

 
10
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

On April 6, 2007, our subsidiary, Linkwell Tech, entered into two material stock purchase agreements as follows:

i) Linkwell Tech entered into an agreement (the “Biological Stock Purchase Agreement”) to acquire a 100% equity interest in Shanghai LiKang Biological High-Tech Company, Ltd. (“LiKang Biological”), a Chinese company, in a related party transaction with Mr. Xuelian Bian, the Company’s Chief Executive Officer, Mr. Wei Guan, the Company’s Vice-President and Secretary, and Shanghai Likang Pharmaceuticals Technology Co., Ltd. (“LiKang Pharmaceutical”). Before the Biological Stock Purchase Agreement, Mr. Bian and Mr. Guan owned 90% and 10% of LiKang Pharmaceutical, respectively. Mr. Bian and LiKang Pharmaceutical owned 60% and 40% of LiKang Biological, respectively. Pursuant to the terms of the Biological Stock Purchase Agreement, Mr. Bian and LiKang Pharmaceutical were to receive 1,000,000 shares of Linkwell Corporation restricted common stock.
 
Due to restrictions under PRC law that prohibited the consideration contemplated by the Biological Stock Purchase Agreement, the agreement did not close. As a result, on March 25, 2008, the parties agreed to enter into an amendment to the Biological Stock Purchase Agreement (“Biological Amendment”) in an effort to complete the stock purchase transaction. Pursuant to the terms of the Biological Amendment, the only material change to the Biological Stock Purchase Agreement related to the consideration paid by Linkwell Tech to Xuelian Bian and LiKang Pharmaceutical, which was changed from 1,000,000 shares of the Company’s common stock to $200,000 and 500,000 shares of common stock. As of December 31, 2008, the Biological Stock Purchase Agreement was pending and required further approval from the PRC Ministry of Commerce. Due to the time consuming and complicated nature of the approval procedure, the parties agreed to enter into a second amendment   to the Biological Stock Purchase Agreement in order to complete the purchase transactions timely and properly. Pursuant to the terms of the Biological Amendment, the purchaser was changed from Linkwell Tech to LiKang Disinfectant, in addition, the consideration changed to RMB2,000,000, approximately $291,792 and 500,000 shares of common stock. Approval from Ministry of Commerce, in the People’s Republic of China will not be necessary if LiKang Disinfectant acquires 100% of the equity interest in LiKang Biological, because both companies are companies regiested in PRC. This transaction closed on March 5, 2009.

ii) Linkwell Tech, which already owned a 90% equity interest in LiKang Disinfectant, was to purchase the remaining 10% equity interest of LiKang Disinfectant from Shanghai Shanhai Group, a non-affiliated Chinese entity (the “Disinfectant Stock Purchase Agreement”). Pursuant to the terms of the Disinfectant Stock Purchase Agreement, Shanghai Shanhai Group was to receive 3,000,000 shares of Linkwell Corporation restricted common stock.

Due to restrictions under PRC law that prohibited the consideration then contemplated by the Disinfectant Stock Purchase Agreement, the agreement did not close. As a result of this, on March 25, 2008, the parties agreed to enter into an amendment to the Disinfectant Stock Purchase Agreement (“Disinfectant Amendment”) in an effort to complete the stock purchase transaction. Pursuant to the terms of the Disinfectant Amendment, the only material change to the Disinfectant Stock Purchase Agreement related to the consideration paid by Linkwell Tech to the Shanghai Shanhai Group for the remaining 10% equity interest, which was changed from 3,000,000 shares of Common Stock, to $380,000 and 1,500,000 shares of Common Stock. Due to the fluctuation of the applicable exchange rate, the cash consideration was increased to $399,057. The other terms of the Disinfectant Stock Purchase Agreement remained in full force and effective.

 
11
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
 (UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Linkwell Tech paid $395,800 to the Shanghai Shanhai Group on February 21, 2008 and paid $3,257 on April 18, 2008. A total of 1,500,000 shares were expected to be issued before the end of May, 2008. The parties agreed to extend the share issuance date until October 20, 2008. The Company valued the acquisition using the fair value of common shares at $0.19 per share and recorded an investment of $285,000. Including the cash payment of $399,057, the total investment for acquiring 10% equity interest in LiKang Disinfectant was $684,057. The cumulative minority interest of 10% equity interest in LiKang Disinfectant at March 25, 2008, was approximately $557,779. The difference between the total investment and the cumulative minority interest of $126,278 was deducted from retained earnings as dividends to the 10% minority shareholder, Shanghai Shanhai Group. As a result of the closing of the Disinfectant Stock Purchase Agreement, as amended, as of March 25, 2008, our 90% owned subsidiary Linkwell Tech owns 100% of the equity interest in LiKang Disinfectant.

On February 15, 2008, we entered into a stock purchase agreement with Ecolab Inc., a Delaware corporation (“Ecolab”), pursuant to which Ecolab agreed to purchase 888,889 of shares of Linkwell Tech, or 10% of the issued and outstanding capital stock of Linkwell Tech, for $2,000,000. On March 28, 2008 and June 4, 2008, Linkwell Tech received $200,000 and $1,388,559, respectively from Ecolab. Including a $400,000 loan that Linkwell Tech received from Ecolab and accrued interest thereon of $11,441, Linkwell Tech received a total investment of $2,000,000 from Ecolab. On May 31, 2008, the Company, Linkwell Tech and Ecolab entered into a Linkwell Tech Group Inc. Stockholders Agreement (“Stockholders Agreement”), whereby both the Company and Ecolab are subject to, and beneficiaries of, certain pre-emptive rights, transfer restrictions and take along rights relating to the shares of Linkwell Tech that the Company and Ecolab each hold. As of May 31, 2008, the principal and accrued interest of $11,441 on the short-term $400,000 loan became part of Ecolab’s investment and does not need to be repaid.

On May 31, 2008, LiKang Disinfectant entered into a stock purchase agreement under which it sold 100% of the capital stock of its wholly-owned subsidiary, LiKang International, to Linkwell International Trading Co., Ltd, a company registered in Hong Kong which is 100% owned by Mr. Wei Guan, the Company’s Vice President, Secretary and Director.  Pursuant to the terms of the agreement, LiKang Disinfectant received $291,754 (RMB 2,000,000) once the agreement was approved by the PRC Ministry of Commerce with such approval occurring on March 27, 2008.
 
BASIS OF PRESENTATION

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed in US dollars.  All material intercompany transactions and balances have been eliminated in the consolidation.

The Company has included all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented.  Interim results are not necessarily indicative of results for a full year.  The information included in this Form 10-Q should be read in conjunction with information included in the 2008 annual report filed on Form 10-K.

Certain reclassifications have been made to the prior year to conform to current year presentation. The unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The unaudited consolidated financial statements of the Company include the accounts of its 90% owned subsidiaries, Linkwell Tech, and LiKang Disinfectant. All significant inter-company balances and transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates in the three and six month period ended June 30, 2009 and 2008 include the allowance for doubtful accounts, stock-based compensation, the useful life of property and equipment, the inventory reserve and option value.

FAIR VAULE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the unaudited consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, advances from customers, loans payable and amounts due from or to related parties approximate their fair market value based on the short-term maturity of these instruments.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents.

 
12
 
 
LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTS RECEIVABLE

The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. At June 30, 2009 and December 31, 2008, the Company had established, based on a review of its third party accounts receivable outstanding balances, allowances for doubtful accounts in the amounts of $819,421 and $801,895 respectively. At June 30, 2009 and December 31, 2008, the Company had established, based on a review of its related party accounts receivable outstanding balances, allowances for doubtful accounts in the amounts of $376,956 and $376,437 respectively.

INVENTORIES

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method.  The valuation of inventory requires the Company to estimate obsolete or excess inventory based on analysis of future demand for our products. Due to the nature of the Company’s business and our target market, levels of inventory in the distribution channel, changes in demand due to price changes from competitors and introduction of new products are not significant factors when estimating the Company’s excess or obsolete inventory. If inventory costs exceed expected market value due to obsolescence or lack of demand, inventory write-downs may be recorded as deemed necessary by management for the difference between the cost and the market value in the period that impairment is first recognized. As of June 30, 2009 and December 31, 2008, the reserve for obsolete inventory was $145,231and $145,031.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which are from five (5) to twenty (20) years. The cost of repairs and maintenance are expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charges during the six months ended June 30, 2009 and 2008.

 
13
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVANCES FROM CUSTOMERS

As of June 30, 2009 and December 31, 2008, advances from customers were $94,615 and $91,326 respectively, which consisted of prepayments from third party customers to the Company for merchandise that had not yet been shipped by the company. The Company will recognize the prepayments as revenue as customers take delivery of the goods, in compliance with its revenue recognition policy.

DISCONTINUED OPERATIONS

The Company records discontinued operations if both of the following conditions are met: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the Company as a result of the disposal transaction and (b) the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction. In a period in which a component of the Company either has been disposed of or is classified as held for sale, the income statement of the Company for current and prior periods shall report the results of operations of the component, including any gain or loss recognized in accordance with  “Disposal of Long-Lived Assets,” in discontinued operations. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur. The results of discontinued operations, less applicable income taxes (benefit), shall be reported as a separate component of income before extraordinary items and the cumulative effect of accounting changes (if applicable).

On May 31, 2008, LiKang Disinfectant entered into an stock sale agreement under which it sold 100% shares of its wholly-owned subsidiary, LiKang International to Linkwell International Trading Co., Ltd, a company registered in Hong Kong. For the period before May 31, 2008, the income statement of the Company reported the results of operations of LiKang international as discontinued operations.

INCOME TAXES

The Company files federal and state income tax returns in the United States for its domestic operations, and files separate foreign tax returns for the Company's Chinese subsidiaries. Income taxes are accounted for under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns.

INCOME (LOSS) PER COMMON SHARE

The Company presents net income (loss) per share (“EPS”) in accordance with SFAS No. 128, “Earnings per Share”. Accordingly, basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares outstanding, without consideration for common stock equivalents. Diluted net income per share is computed by dividing the net income by the weighted-average number of common shares outstanding as well as common share equivalents outstanding for the period determined using the treasury-stock method for stock options and warrants and the if-converted method for convertible notes. The Company has made an accounting policy election to use the if-converted method for convertible securities that are eligible to participate in common stock dividends, if declared. If the if-converted method was anti-dilutive (that is, the if-converted method resulted in a higher net income per common share amount than basic net income per share calculated under the two-class method), then the two-class method was used to compute diluted net income per common share, including the effect of common share equivalents. Diluted earnings per share reflects the potential dilution that could occur based on the exercise of stock options or warrants, unless such exercise would be anti-dilutive, with an exercise price of less than the average market price of the Company’s common stock.  

 
14
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company’ outstanding warrants as of June 30, 2009 and December 31, 2008 include the following:

   
June 30,
  
December 31,
   
2009
  
2008
         
Warrants  
    
33,469,795
  
33,469,795

Earnings Per Share

The Company reports earnings per share in accordance with the provisions of SFAS 128, "Earnings Per Share." SFAS 128 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.

Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation date.

REVENUE RECOGNITION

The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin 104 for revenue recognition. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectibility is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company. The Company's revenues from the sale of products are recorded when the goods are shipped, title passes, and collectibility is reasonably assured.

The Company's revenues from the sale of products to related parties are recorded when the goods are shipped to the customers from our related parties. Upon shipment, title passes, and collectibility is reasonably assured. The Company receives purchase orders from our related parties on an as need basis from the related party customers. Generally, the related party does not hold the Company’s inventory. If the related party has inventory on hand at the end of a reporting period, the sale is reversed and the inventory is included on the Company’s balance sheet.

Prior to October 1, 2006, LiKang International followed the guidance of EITF 99-19 “Reporting Revenue Gross as a Principal versus Net as an agent.” LiKang International recorded the net revenue when the supplier is the primary obligor in the arrangement. Since October 1, 2006, LiKang International has become the primarily obligor for providing products to its customers and takes ownership of its inventory. Accordingly, effective October 1, 2006, LiKang International records gross revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determined, and collectibility is reasonable assured.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions in the U.S. and in China. Almost all of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally wide distribution of our products and shorter payment terms than customary in the PRC. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. For the six months ended June 30, 2009 and 2008, sales to related parties accounted for 23% and 22% of net revenues, respectively.

COMPREHENSIVE INCOME

The Company uses Statement of Financial Accounting Standards No.130 (“SFAS 130”) “Reporting Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

 
15
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SHIPPING COSTS

Shipping costs are included in selling expenses and totaled $147,413 and $117,128 for the six months ended June 30, 2009 and 2008, respectively

ADVERTISING

Advertising is expensed as incurred and included in selling expenses. For the six months ended June 30, 2009 and 2008, advertising expenses amounted to $56,164 and $1,703, respectively.

STOCK-BASED COMPENSATION

Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standards No.123 (revised 2004), Share Based Payment (“SFAS No. 123R”). SFAS No. 123R establishes the financial accounting and reporting standards for stock-based compensation plans. As required by SFAS No. 123R, the Company recognized the cost resulting from all stock-based payment transactions including shares issued under its stock option plans in the financial statements.

NON-EMPLOYEE STOCK BASED COMPENSATION

The cost of stock-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Emerging Issues Task Force Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”).

REGISTRATION RIGHTS AGREEMENTS

The Company has adopted View C of EITF 05-4 “Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF 00-19” (“EITF 05-4”). Accordingly, the Company classifies as liability instruments, the fair value of registration rights agreements when such agreements (i) require it to file, and cause to be declared effective under the Securities Act, a registration statement with the SEC within contractually fixed time periods, and (ii) provide for the payment of liquidating damages in the event of its failure to comply with such agreements. Under View C of EITF 05-4, (i) registration rights with these characteristics are accounted for as derivative financial instruments at fair value and (ii) contracts that are (a) indexed to and potentially settled in an issuer's own stock and (b) permit gross physical or net share settlement with no net cash settlement alternative are classified as equity instruments.

FOREIGN CURRENCY TRANSLATION

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, “Foreign Currency Translation” and are included in determining net income or loss.

 
16
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The functional and reporting currency is the U.S. dollar. The functional currency of the Company's Chinese subsidiary is Renminbi, the local currency, or sometimes referred to as the Chinese Yuan (“RMB”). The financial statements of the subsidiary are translated into United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not material during the periods presented. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment was $731.607 and $1,031,021,as of June 30, 2009 and December 31, 2008, respectively. On June 30, 2009 and December 31, 2008, the exchange rate was 6.8448 and 6.8542, respectively.

RESEARCH AND DEVELOPMENT COST

Research and development costs are expensed as incurred. These costs primarily consist of cost of materials used and salaries paid for the development department of the Company and fees paid to third parties. Research and development costs for the six months ended June 30, 2009 and 2008 were approximately $120,172 and$17,462 , respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company’s fiscal year beginning October 1, 2009. Management is currently evaluating the effect of this pronouncement on financial statements.

In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations”. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company’s fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.

 
17
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, The Hierarchy of Generally Accepted Accounting Principles. This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS No. 162 is effective 60 days following approval by the U.S. Securities and Exchange Commission (“SEC”) of the Public Company Accounting Oversight Board’s amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect SFAS No. 162 to have a material impact on the preparation of its consolidated financial statements. 

On April 9, 2009 the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Values of Financial Instruments, which amends SFAS 107, Disclosures about Fair Values of Financial Instruments, and requires that companies also disclose the fair value of financial instruments during interim reporting similar to those that are currently provided annually. FSP No.FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009 and it will have no impact on the Company’s statement of financial position or results of operations.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 2 – INVENTORIES

A summary of inventories by major category as of June 30, 2009 and December 31, 2008 are as follows:

   
June 30,
    
December 31,
  
   
2009 (Unaudited)
    
2008
  
Raw materials
   $ 597,497     $ 592,380  
Consumable
                
Work-in-process
     77,444       47,621  
Finished goods
     1,053,384       712,382  
                 
Less: Reserve for obsolescence
     (145,231 )     (145.031 )
Net inventories
   $ 1,583,093     $ 1,207,352  

The increase of reserve for obsolescence for the quarterly period ended June 30, 2009 was generated from fluctuation of the exchange rate.

 
18
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 3 – PROPERTY AND EQUIPMENT

At June 30, 2009 and December 31, 2008, property and equipment consisted of the following:

   
Estimated
              
   
Useful Life
    
June 30,
    
December 31,
  
   
(In years)
    
2009
    
2008
  
                   
Office equipment and furniture
     3-7     $ 251,696     $ 158,187  
Autos and trucks
     5       285,189       201,723  
Manufacturing equipment
     2-10       1,394,462       346,420  
Construction in progress
             760,194       -  
Building
     5-20       422,325       458,752  
              3,113,866       1,165,082  
Less: Accumulated depreciation
             (636,535 )     (461,147 )
Property and equipment, net
           $ 2,477,331     $ 703,935  

For the six months ended June 30, 2009 and 2008, depreciation expenses amounted to $175,388 and $60,612, respectively.

NOTE 4 – LOANS PAYABLE

Loans payable consisted of the following at June 30, 2009 and December 31, 2008:

   
June 30,
    
December 31,
  
   
2009
    
2008
  
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on June 16, 2010  with interest rate at 6.90% per annum, Guaranteed by Shanhai Group (RMB 2,600,000)
   $ 379,853     $ 379,329  
                 
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on December 10, 2009 and December 11, 2008 with interest rate 7.29% per annum. Guaranteed by Shanhai Group and Mr. Bian, Chairman of the Company (RMB 2,500,000)
     365,243       364,740  
                 
    $ 745,096     $ 744,069  

 
19
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 5 – RELATED PARTY TRANSACTIONS

Linkwell Tech's 90% owned subsidiary, LiKang Disinfectant, is engaged in business activities with five related parties: Shanghai LiKang Meirui Pharmaceuticals High-Tech Company, Ltd. (“Meirui”), Shanghai ZhongYou Pharmaceutical High-Tech Co., Ltd., (“ZhongYou”), Shanghai LiKang Biological High-Tech Co., Ltd. (“Biological”), Shanghai Jiuqing Pharmaceuticals Company, Ltd (“Shanghai Jiuqing”) and Linkwell International Trading Co., Ltd (“Linkwell Trading ”).

Meirui, a company of which prior to the consummation of the Disinfectant Stock Purchase Agreement, Shanghai Shanhai Group, LiKang Disinfectant's minority shareholder, owned 68%, provides certain contract manufacturing of two products for LiKang Disinfectant. Specifically, Meirui provides LiKang Disinfectant with ozone producing equipment and ultraviolet radiation lamp lights. In addition, under the terms of a two year agreement entered into in January 2005, Meirui produces the Lvshaxing Air Disinfectant Machine and LiKang Surgery hand-washing table for LiKang Disinfectant. For the six months ended June 30, 2009 and 2008, the Company recorded net revenues of $1,114 and $27,607 to Meirui, respectively. As of June 30, 2009 and December 31, 2008, Meirui owed LiKang Disinfectant $102,811 and $47,104. In general, accounts receivable due from Meirui are payable in cash and are due within 4 to 6 months, which approximate normal business terms with independent third parties.

ZhongYou, which was formerly LiKang Pharmaceuticals until October 16, 2007, was owned by Xuelian Bian (90%) and Wei Guan (10%). In March 2007, Wei Guan sold his 10% shares to Bing Chen, President of Likang Disinfectant. In August 2007, Xuelian Bian sold his 90% shares to his mother, Xiuyue Xing. In October, 2007, the two new shareholders, Bing Chen (10%) and Xiuyue Xing (90%) sold all of their shares in ZhongYou to Shanghai Jiuqing Pharmaceuticals Company, Ltd., whose 100% owner is Shanghai Ajiao Shiye Co. Ltd. Mr. Bian is a 60% shareholder of Shanghai Ajiao Shiye Co. Ltd. For the six months ended June 30, 2009 and 2008, the Company recorded net revenues of $1,834,329 and $1,017,679 to ZhongYou respectively. At June 30, 2009 and December 31, 2008, accounts receivable from sales to ZhongYou were $2,587,105 and $3,457,165, respectively and accounts payable were $0 and $1,670, respectively. In general, accounts receivable due from ZhongYou are payable in cash and are due within 4 to 6 months, which approximate normal business terms with independent third parties.

Shanghai Jiuqing Pharmaceuticals Company, Ltd (“Shanghai Jiuqing”), whose 100% owner is Shanghai Ajiao Shiye Co. Ltd. Mr. Bian is a 60% shareholder of Shanghai Ajiao Shiye Co. Ltd. For the six months ended June 30, 2009 and 2008, the Company recorded revenue of $4,380 and of $6,883 to Shanghai Jiuqing, respectively. At June 30, 2009 and December 31, 2008, accounts receivable from sales to Jiuqing were $83,733 and $81,240, respectively and accounts payable were $505 and $0, respectively.

 
20
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)
 
NOTE 5 – RELATED PARTY TRANSACTIONS (Continued)

On May 31, 2008, LiKang Disinfectant entered into a stock purchase agreement under which it sold 100% of the capital stock of its wholly-owned subsidiary,LiKang International to Linkwell International Trading Co., Ltd. (“Linkwell trading”), a company registered in Hong Kong. Pursuant to the terms of the agreement, LiKang Disinfectant will receive $282,885 (RMB 2,000,000) once the agreement is approved by the Ministry of Commerce, the People’s Republic of China.

As of May 31, 2008, Linkwell Tech owed LiKang International $120,000. On May 31, 2008, LiKang International was sold to Linkwell Trading, which is 100% owned by Mr. Wei Guan, the Company’s Vice President, Secretary and Director. Linkwell Trading will take all assets and liability of LiKang International. As of June 30, 2008, LiKang Tech owed Linkwell Trading $120,000.

NOTE 6 – DERIVATIVE PAYABLE

On February 15, 2008, we entered into a stock purchase agreement with Ecolab Inc., a Delaware corporation (“Ecolab”), pursuant to which Ecolab agreed to purchase and Linkwell Tech agreed to sell 888,889 of its shares, or 10% of the issued and outstanding capital stock of Linkwell Tech, for $2,000,000. On May 31, 2008, the Company, Linkwell Tech and Ecolab entered into a Stockholders Agreement (“Stockholders Agreement”), whereby both the Company and Ecolab are subject to, and benefit from, certain pre-emptive rights, transfer restrictions and take along rights relating to the shares of Linkwell Tech the Company and Ecolab each hold.

Pursuant to the terms of the Stockholders Agreement, Ecolab has an option (“Put Option”) to sell the 888,889 shares (“Shares”) of common stock, par value $0.001, of Linkwell Tech Ecolab purchased under the Stock Purchase Agreement, back to Linkwell Tech in exchange for, as determined by Linkwell Corp., cash in the amount of $2,400,000 or the lesser of (a) 10,000,000 shares of Linkwell Corp. common stock, or (b) such number of shares of Linkwell Corp. common stock as is determined by dividing (i) 3,500,000 by (ii) the average daily closing price of Linkwell Corp. common stock for the twenty days on which Linkwell Corp. shares of common stock were traded on the OTC Bulletin Board prior to the date the Put Option is exercised (“Put Shares”). The Put Option is exercisable during the period between the second and fourth anniversaries of May 30, 2008, or upon the occurrence of certain events including material breach by Linkwell Tech or its subsidiaries, of the Consulting Agreement, Distributor Agreements or Sales Representative Agreement entered into in connection with the Stock Purchase Agreement.

Under the Stockholders Agreement, Ecolab also has a call option (“Call Option”), exercisable if Linkwell Corp. is subject to a change of control transaction, to require Linkwell Corp. to sell to Ecolab all of the equity interests in Linkwell Tech, or any of Linkwell Tech’s subsidiaries, then owned by Linkwell Corp.

The Company recognized maximal expenses of put option and call option described above as $400,000. Deducting the minority interest in June 2009 of $176,838, the long time liability of derivative payable shown in the unaudited Balance Sheet is $104,192.

NOTE 7 - DISCONTINUED OPERATION

Due to losses and uncertainty about future profitability, on May 31, 2008, LiKang Disinfectant entered into a stock purchase agreement pursuant to which it sold 100% of the equity interest of its wholly-owned subsidiary, LiKang International to Linkwell International Trading Co., Ltd, a company registered in Hong Kong. Such agreement is currently awaiting approval from the Ministry of Commerce, the People’s Republic of China.

 
21
 

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 7 - DISCONTINUED OPERATION (Continued)

As of May 31, 2008, the Company had classified the LiKang International business as a discontinued operation. The initial investment to LiKang International was $282,885 (RMB 2,000,000). During the six months ended June 30, 2008, total gain from discontinued operation, including gain from disposal of $43,123 was $74,606. The Company will receive $282,885 (RMB 2,000,000) from Linkwell International Trading Co., Ltd.

NOTE 8 – SHAREHOLDER’S EQUITY

STOCK OPTIONS

Common Stock

In September 2006, the Company entered into a three-year agreement with a consultant to provide business development and management services. In connection with this agreement, the Company issued 500,000 shares of the Company’s common stock. The Company valued these services using the fair value of common shares on the grant date at $0.185 per share and recorded deferred consulting expense of $92,500 to be amortized over the service period. For the six months ended June 30, 2009, amortization of consulting compensation amounted to $15,417.

On November 20, 2007, the Company entered into an agreement with Segue Ventures LLC to provide various informal advisory and consulting services, including U.S. business methods and compliance with SEC disclosure requirements. In connection with this agreement, Segue Ventures LLC received $4,000 in cash and was to have received 16,000 shares of common stock per month. The Contract was effective from November 20, 2007 to June 30, 2008. On February 27, 2008, a total of 70,000 shares of the Company’s common stock were issued to Segue Ventures LLC. The Company valued these 70,000 shares using the fair value of common shares on the contract date of $0.19 per share and recorded consulting expense of $13,311, of which, $3,938 and $9,373, was amortized for the years ended December 31, 2007 and 2008, respectively. With regards to these 70,000 shares the Company recorded 21,280 as common shares issuable at December 31, 2007. On August 13, 2008, a total of 68,800 shares of the Company’s common stock were issued to Segue Ventures LLC. The Company valued these 68,800 shares using the fair value of common shares on the grant date at $0.19 per share and recorded consulting expenses of $13,072 during the year ended December 31, 2008. As of December 31, 2008, zero shares remained unissued as the Company had terminated its services agreement with Segue Ventures LLC on September 11, 2008.

In March 2008, the Company entered into a two month agreement with SmallCapVoice.Com, Inc. to provide the Company with financial public relations services. In connection with this agreement, the Company paid $3,500 per month and issued a total of 35,000 shares of the Company’s common stock. On March 11, 2008, the Company issued 35,000 shares to SmallCapVoice.Com, Inc. The Company valued these services using the fair value of common shares on the grant date at $0.19 per share.

On June 27, 2008, Monarch Capital Fund, Ltd. exercised a warrant to purchase 100,000 shares of Common Stock with price of $0.20 per share. The Company received proceeds from these warrant exercises of $20,000 on June 24, 2008.

COMMON STOCK WARRANTS

During the six months ended June 30, 2009, there were no warrants granted or exercised.

The following table summarizes the Company's Common Stock warrants outstanding at June 30, 2009:

 
22
 
 
LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 8 – SHAREHOLDER’S EQUITY (CONTINUED)
 
       
Warrants Outstanding and Exercisable
  
Range of
  
Number
  
Weighted Average
  
Weighted Average
  
Exercise
  
Of
  
Remaining
  
Exercise
  
Price
  
Warrants
  
Exercise Life
  
Price
  
$
0.10
  
540,130
  
1.24
  
$
0.10
  
$
0.20
  
17,055,000
  
1.49
  
$
0.20
  
$
0.30
  
15,866,665
  
1.74
  
$
0.30
  
$
0.75-1.00
  
8,000
  
3.52
  
$
0.96
  
     
33,469,795
            
 
NOTE 9 - FOREIGN OPERATIONS

For the six months ended June 30, 2009 and 2008, the Company derived all of its revenue from its subsidiaries located in the People's Republic of China. Identifiable assets by geographic areas as of June 30, 2009 and December 31, 2008 are as follows:

   
Identifiable Assets
  
   
June 30,
    
December 31,
  
   
2009
    
2008
  
United States
   $ 905     $ 905  
People's Republic of China
     15,100,636       13,681,997  
Total
   $ 15,101,541     $ 13,682,902  
 
23

LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 10 – SEGMENT INFORMATION

The following information is presented in accordance with SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. For the six months ended June 30, 2009 and 2008, the Company operated in two reportable business segments (1) the sale of commercial disinfectant products; and (2) import and export activities. The Company's reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations. Condensed information with respect to these reportable business segments for the six months ended June 30, 2009 and 2008 is as follows:

Six months ended June 30, 2009:

         
Corporate
        
   
Disinfectant
    
And
        
   
Products
    
Other
    
Consolidated
  
            
 
   
 
 
Net revenue - Non-affiliated companies
   $ 4,195,296     $ -     $ 4,195,296  
Net revenue - Affiliated companies
   $ 2,179,724     $ -     $ 2,179,724  
Interest income (expenses)
   $ (27,494 )   $ (28 )   $ (27,522 )
Depreciation and Amortization
   $ 15,490     $ 159,898     $ 175,388  
Net income (loss)
   $ 1,304,460     $ 190,054     $ 1,494,514  
Long-lived asset expenditures
   $         $ -     $      
Segment Assets
   $ 10,618,820     $ 4,951,223     $ 15,570,042  
 
Net revenues for the Six months ended June 30, 2009 were $6,375,020. Included in our net revenues for the six months ended June 30, 2009 are $2,179,724 in related party sales and $4,195,296 in sales to independent third parties.

Six months ended June 30, 2008 (Pro-forma):

         
Corporate
        
   
Disinfectant
    
And
        
   
Products
    
Other
    
Consolidated
  
            
 
   
 
 
Net revenue - Non-affiliated companies
   $ 3,710,946     $  -     $ 3,710,946  
Net revenue - Affiliated companies
   $ 1,052,169     $ -     $ 1,052,169  
Interest income (expenses)
   $ (28,916 )   $ (11,221 )   $ (40,137 )
Depreciation and Amortization
   $ 60,612     $ -     $ 60,612  
Net income (loss)
   $ 912,908     $ (545,835 )   $ 367,073  
Long-lived asset expenditures
   $ 76,976     $ -     $ 76,976  
Segment Assets
   $ 11,504,526     $ 757,460     $ 12,261,986  
 
24
 
LINKWELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 11 – OPERATING RISK
 
(a) 
Country risk

Currently, the Company’s revenues are primarily derived from the sale of a line of disinfectant product offerings to customers in the People’s Republic of China (PRC). The Company hopes to expand its operations to countries outside the PRC, however, such expansion has not been commenced and there are no assurances that the Company will be able to achieve such an expansion successfully. Therefore, a downturn or stagnation in the economic environment of the PRC could have a material adverse effect on the Company’s financial condition.

(b) 
Products risk

In addition to competing with other domestic manufacturers of disinfectant product offerings, the Company competes with larger U.S. companies who have greater funds available for expansion, marketing, research and development and the ability to attract more qualified personnel. These U.S. companies may be able to offer products at a lower price. There can be no assurance that the Company will remain competitive should this occur.

(c) 
Exchange risk

The Company can not guarantee that the current exchange rate will remain steady, therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of a fluctuating exchange rate actually post higher or lower profit depending on exchange rate of Renminbi converted to US dollars on that date. The exchange rate could fluctuate depending on changes in the political and economic environments without notice.

(d) 
Political risk

Currently, the PRC is in a period of growth and is openly promoting business development in order to bring more business into the PRC. Additionally the PRC currently allows a Chinese corporation to be owned by a United States corporation. If the laws or regulations relating to ownership of a Chinese corporation are changed by the PRC government, the Company's ability to operate the PRC subsidiaries could be affected.
 
25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    

The following discussion contains forward-looking statements. Forward looking statements are identified by words and phrases such as “anticipate”, “intend”, “expect” and words and phrases of similar import. We caution investors that forward-looking statements are only predictions based on our current expectations about future events and are not guarantees of future performance. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements due to risks, uncertainties and assumptions that are difficult to predict, including those set forth in Item 1A below. We encourage you to read those risk factors carefully along with the other information provided in this Report and in our other filings with the SEC before deciding to invest in our stock or to maintain or change your investment. We undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law.

You should read this MD&A in conjunction with the Consolidated Financial Statements and Related Notes in Item 1.

In August 2006, the Company incorporated a new subsidiary, Shanghai LiKang International Trade Co., Ltd. (“LiKang International”). Since its inception, LiKang International has primarily served as an agent for third parties who desire to export goods from China, including computers, computer components, small medical equipment and instruments, meters, scales electromechanical devices. In October 2006, LiKang International expanded its business to include light weight construction materials, textile crafts, furniture, and raw chemical materials.

On May 31, 2008, LiKang Disinfectant entered into a stock purchase agreement under which it sold 100% of the capital stock of its wholly-owned subsidiary, LiKang International to Linkwell International Trading Co., Ltd, a company registered in Hong Kong. Pursuant to the terms of the agreement, LiKang Disinfectant will receive $282,885 (RMB 2,000,000) once the agreement is approved by the Ministry of Commerce, the People’s Republic of China.

On March 5, 2009, LiKang Disinfectant entered into a stock purchase agreement under which it acquired 100% of the equity interest of LiKang Biological with the consideration of RMB 2,000,000 and 500,000 shares of the Company’s common stock. The transaction was completed on March 5, 2009.

OVERVIEW

Since 1988 we have developed, manufactured and distributed disinfectant health care products primarily to the medical industry in China. In the last few years, China has witnessed a variety of public health crises, such as the outbreak of SARS, which demonstrated the need for increased health standards in China. In response, beginning in 2002, the Chinese government has undertaken various initiatives to improve public health and living standards, including continuing efforts to educate the public about the need for proper sanitation procedures and the establishment of production standards for the disinfectant industry in China. As a result of this heightened license and permit system, all disinfectant manufacturers must comply with “qualified disinfection product manufacturing enterprise requirements” established by the Ministry of Public Health. The requirements include standards for hardware, such as facilities and machinery, and software, including the technology to monitor the facilities, as well as the heightened knowledge and capability of the production staff regarding quality control procedures. Following the adoption of the industry standards in 2002, we have been granted thirty-one hygiene licenses by the Ministry of Public Health.

We believe that the government standards adopted in July 2002 have increased the barriers to entry for competitors in the disinfectant industry in China. The implementation of these improved production standards and license requirements has effectively decreased the competitive landscape as it pertains to small to medium size manufacturers, since the new standards are especially difficult for companies with limited product offerings and inferior technical content. In addition, prior to the adoption of industry standards, disinfectant products were generally marketed and sold based on price as opposed to quality. We believe that as a result of the adoption of industry standards, the marketplace is evolving with a more stringent focus on product quality, which we believe will enable us to increase our base of commercial customers thereby increasing our revenues.

Historically, our focus has been on the commercial distribution of our products. Our customers include hospitals, medical suppliers and distribution companies throughout China. We have made efforts to expand our distribution reach to the retail market. We have repackaged certain of our commercial disinfectant products for sale to the consumer market and have commenced expanding our customer base to include hotels, schools, supermarkets and pharmacies. By virtue of the Chinese government's continuing focus on educating the Chinese population about the benefits of proper sanitation procedures, we believe that another key to increasing our revenues is the continued expansion of the retail distribution of our products.
 
26

The disinfectant industry in China is an emerging industry that is populated with small, regional companies. We estimate that there are in excess of 1,000 manufacturers and distributors of disinfectant products in China; however, most domestic competitors offer a limited line of products and there are only a few domestic companies with a nationwide presence. We believe that our national marketing and sales presence throughout all 22 provinces, as well as four autonomous regions, and four municipalities in China, gives us a competitive advantage over many other disinfectant companies in China, and will enable us to leverage the brand awareness for our products with commercial customers to the retail marketplace.
 
Our present manufacturing facilities and production capacities are sufficient for the foreseeable future, and we believe that we otherwise have the assets and capital available to us necessary to enable us to increase our revenues in future periods as the market for disinfectant products in China continues to increase. During the remaining six months of 2009, we will continue to focus our efforts on the retail market for our products, as well as expanding our traditional base of commercial customers. In addition, we may also consider the possible acquisition of independent sales networks, which could be used to increase our product distribution capacity and align our company with small, regional companies in the industry.

RESULTS OF OPERATIONS

The table below sets forth the results of operations for the six months ended June 30, 2009 as compared to the same period ended June 30, 2008, accompanied by the change amount and percentage of changes. We used pro forma number for the six month ended June 30, 2008.
 
27
 
   
For the Six months
    
Change
        
   
Ended June30,
    
2009 vs
    
Variance
  
   
2009
    
2008
    
2008
    
%
  
NET REVENUES
              
　
    
　 　
  
Non-affiliated companies
   $ 4,195,296     $ 3,710,946       484,350       13 %
Affiliated companies
     2,179,724       1,052,169       1,127,555       107 %
Total Net Revenues
     6,375,020       4,763,115       1,611,905       34 %
COST OF SALES
     2,574,614       2,384,732       189,882       8 %
GROSS PROFIT
     3,800,406       2,378,383       1,422,023       60 %
OPERATING EXPENSES:
                     -          
Selling expenses
     923,566       546,701       376,865       69 %
General and administrative
     1,071,897       920,869       151,028       16 %
Total Operating Expenses
     1,995,463       1,467,570       527,893       36 %
                      -          
INCOME FROM OPERATIONS
     1,804,943       910,813       894,130       98 %
                      -          
OTHER (EXPENSE) INCOME:
                     -          
Other (expense) income
     16,257       (384,602 )     400,859       -104 %
Put option expenses
     176,838       74,606       102,232       137 %
Interest income
     2,216       2,310       (94 )     -4 %
Interest expense - related party
             (11,441 )     11,441       -100 %
Interest expense
     (29,738 )     (31,006 )     1,268       -4 %
Total Other (Expense) Income
     165,573       (350,133 )     515,706       -147 %
                      -          
INCOME FROM CONTINUING OPERATION BEFORE INCOME TAXES AND MINORITY INTEREST
     1,970,516       560,680       1,409,836       251 %
INCOME TAXES
     (299,165 )     (146,298 )     (152,867 )     104 %
INCOME FROM CONTINUING OPERATION BEFORE MINORITY INTEREST AND DISCONTINUED OPERATION
     1,671,352       414,382       1,256,969       303 %
 
                     -          
MINORITY INTEREST
     (176,838 )     (47,309 )     (129,529 )     274 %
                      -          
INCOME FROM CONTINUING OPERATION
     1,494,514       367,073       1,127,441       307 %
                      -          
DISCONTINUED OPERATIONS:
                     -          
Gain from discontinued operation (including gain on disposal of $25,322 at June 30, 2008 )
                     -          
Gain from discontinued operations
             -       -          
NET INCOME
   $ 1,494,514     $ 367,073       1,127,441       307 %
 
28

Other Key Indicators:
Six months ended
        
 
June 30,
        
(Percent of Net Revenues) 
2009
    
2008
    
Change
  
                 
Cost Of Revenues
     40 %     50 %     (10 )%
Selling Expenses
     15 %     11 %     4 %
General and Administrative Expenses
     17 %     19 %     (2 )%
Income From Operations
     28 %     19 %     9 %

NET REVENUES

Net revenues for the six months ended June 30, 2009 were $6,375,020 as compared to net revenues of $4,763,115 for the six months ended June 30, 2008, an increase of $1,611,905 or approximately 34%. Of our total net revenues for the six months ended June 30, 2009, $2,179,724, or approximately 34%, were attributable to related parties as compared to net revenues of $1,052,169, or approximately 22%, of our total net revenues for the comparable period in fiscal 2008. We believe this increase in demand was due to an increase in our sales staff and customer recognition of our high-quality, competitively priced disinfectant products.

Of the $2,179,724 of revenues derived from related parties during the six months ended June 30, 2009, $1,834,329, or approximately 84%, was from ZhongYou, compared to $1,017,679, or approximately 97%. for the same period of fiscal 2008, an increase of $816,650 or a decrease approximately 13%, from the same period in fiscal 2008.

The revenue associated with third parties increased $484,350, or approximately 13% for the six months ended June 30, 2009 from the comparable period in fiscal 2008.

COST OF REVENUES

Cost of revenues includes raw materials and manufacturing costs, which includes labor, rent and an allocated portion of overhead expenses such as utilities directly related to product production. For the six months ended June 30, 2009, cost of revenues amounted to $2,574,614, or approximately 40%, of net revenues as compared to cost of revenues of $2,384,732, or approximately 50%, of net revenues for the same period in fiscal 2008.

The cost of revenues is from LiKang Disinfectant ,LiKang Disinfectant's cost of sales is comprised of approximately 65% for raw material costs and approximately 35% for manufacturing costs. The increase in cost of revenues for the six months ended June 30, 2009 as compared to the period ended June 30, 2008 is attributable, partially, to price increases of raw materials during the six months ended June 30, 2009. We also experienced an increase in overhead costs, including utilities and rent during the six months ended June 30, 2009 as compared to the six months ended June 30, 2008. We absorbed the majority of these increased costs in order to increase our market share in the disinfectant industry. We purchase raw materials from several primary suppliers and we have purchase contracts with these suppliers in an effort to ensure a steady supply of raw materials. We also purchase raw materials and finished products from Meirui, a related party.

GROSS PROFIT

Gross profit for the six months ended June 30, 2009 was $3,800,406, or approximately 60% of net revenues, as compared to $2,378,383, or approximately 50% of revenues, for the six months ended June 30, 2008.

OPERATING EXPENSES

Total operating expenses for the six months ended June 30, 2009 were $1,995,463, an increase of $527,893, or approximately 36%, from total operating expenses for the six months ended June 30, 2008 of $1,467,570; This increase included the following:
 
29
 
Selling Expenses

For the six months ended June 30, 2009, selling expenses were $923,566 as compared to $546,701 for the same period in 2008, an increase of $376,865, or approximately 69%.

General and Administrative Expenses

For the six months ended June 30, 2009, general and administrative expenses were $1,071,897 as compared to $920,869 for the same period in 2008, an increase of $151,028, or approximately 16%.

We incurred non-cash consulting fees during the six months ended June 30, 2009 of $138,414 as compared to $77,193 for the six months ended June 30, 2008, a decrease of $61,221, or approximately 79%. Non-cash consulting fees represent the amortization of fees to consultants under agreements entered into during the six month period ended June 30, 2009, which we pay in shares of our common stock.

OTHER INCOME (EXPENSE)

For the six months ended June 30, 2009, total other income amounted to $165,573 as compared to other expenses of $ 350,133 for the six months ended June 30, 2008. For 6 months ended June 30,09, the Company has 176,838 other income from put optionj.

DISCONTINUED OPERATION

On May 31, 2008, LiKang Disinfectant entered into a stock purchase agreement under which it sold 100% of the capital stock of its wholly-owned subsidiary, LiKang International to Linkwell International Trading Co., Ltd, a company registered in Hong Kong. Pursuant to the terms of the agreement, LiKang Disinfectant will receive $282,885 (RMB 2,000,000) once the agreement is approved by the Ministry of Commerce, the People’s Republic of China.

As of May 31, 2007, the Company had classified LiKang International business as a discontinued operation. For the six months ended June 30, 2008, total gain from discontinued operations was $74,606 compared to $157,940 for the same period in 2007.

MINORITY INTEREST

On February 15, 2008, we entered into a stock purchase agreement with Ecolab Inc., a Delaware corporation, pursuant to which Ecolab agreed to purchase and Linkwell Tech agreed to sell 888,889 of its shares, or 10% of the issued and outstanding capital stock of Linkwell Tech, for $2,000,000. On March 28, 2008 and June 4, 2008, Linkwell Tech received $200,000 and $1,388,559, respectively, from Ecolab. Linkwell Tech received the entire investment of $2,000,000 from Ecolab, including the $400,000 loan that Ecolab released to Linkwell Tech and accrued interest of $11,441. On May 31, 2008, the Company, Linkwell Tech and Ecolab entered into a Linkwell Tech Group Inc. Stockholders Agreement (“Stockholders Agreement”), whereby both the Company and Ecolab are subject to, and benefit from, certain pre-emptive rights, transfer restrictions and take along rights relating to the shares of Linkwell Tech that the Company and Ecolab each hold. From that day, the loan from Ecolab of $400,000 and accrued interest of $11,441 became investment and need not to be paid back. After this transaction, Ecolab became the 10% minority interest holder of Linkwell Tech. Because LiKang Disinfectant is the wholly-owned subsidiary of Linkwell Tech, Ecolab is also 10% minority interest holder of LiKang Disinfectant.
 
30
 
For the six months ended June 30, 2009, we reported a minority interest expense of $176,838 as compared to $47,309 for the three months ended June 30, 2008. The minority interest expense is attributable to LiKang Disinfectant’s minority shareholder, and had the effect of reducing our net income. However, on March 5, 2009, Linkwell Tech completed the Biological Stock Purchase Agreement and acquired the remaining 100% equity interest of LiKang Biological. Now the Company owns a 90% equity interest in LiKang Biological.

LIQUIDITY AND CAPITAL RESOURCES

As shown in the accompanying financial statements, our working capital decreased $883,642 or approximately 9% from $9,951,925 on December 31, 2008 to $9,068,283 on June 30, 2009. With the expansion of our businesses, we anticipate a strong demand on our capital resources in the near future. In addition to our working capital, we intend to obtain required capital through a combination of bank loans and the sale of our equity securities. Although there are no commitments or agreements on the part of anyone at this time to provide us with additional bank financing or to purchase our securities, we are optimistic that we will be able to obtain additional capital resources to fund our business expansions.

We currently have no material commitments for capital expenditures. At June 30, 2009, we had total $745,096 in short term loan. Among which, $379,853 will mature before June 17, 2010 and $365,243 will mature before December 11, 2009. Other than our working capital and loans, we presently have no other alternative capital resources available to us. We plan to build additional product lines and upgrade our manufacturing facilities in order to expand our production capacity and improve the quality of our products. Based on our preliminary estimates, upgrades and expansion will require additional capital of approximately $1 million.

We need to raise additional capital resources to meet the demands described above. We may raise additional capital through the sale of equity securities. There can be no assurances that any additional debt or equity financing will be available to us on acceptable terms, if at all. The inability to obtain debt or equity financing could have a material adverse effect on our operating results, and as a result we could be required to cease or significantly reduce our operations, seek a merger partner or sell additional securities on terms that may be disadvantageous to shareholders.

NET CASH FROM OPERATING ACTIVITES

Net cash used in operating activities for the six months ended June 30, 2009 was $888,861 as compared to $1,684,390 for the same period ended June 30, 2008, a decrease of $795,529 or approximately 47%. For the six months ended June 30, 2009, we used cash to fund a net increase in accounts receivable of $309,691, including a decrease of $349,420 in accounts receivables from related parties, a decrease of $608,735 in inventories, an increase of $12,418 in other receivables, an increase of $352,827 in prepaid expenses and other current assets. These increases were offset by our net income, an increase in advances from customers of $3,289, a decrease of $681,590 in accounts payable, a decrease of $1,469,690  other payables and a decrease of  $32,528 in taxes payable.

NET CASH FROM INVESTING ACTIVITIES

Net cash used in investing activities for the six months ended June 30, 2009 was $630,190 as compared to net cash used in investing activities of $592,496 for the same period in 2008, an increase of $37,694,or approximately 6%. This change is attributable to an increase of $145,517 cash assumed from acquisition of LiKang Biological, and payment of $775,707 in purchases of property, plant and equipment.

NET CASH FROM FINANCING ACTIVITIES:

Net cash provided by financing activities was $1,166,523 for the six months ended June 30, 2009, as compared to net cash provided by financing activities of $ 2,281,934 for the six months ended June 30, 2008, a decrease of $1,115,411 or approximately 49%.
 
31

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities.

We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments: allowance for doubtful accounts; income taxes; stock-based compensation; asset impairment and option value.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We maintain an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider: (i) the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable; (iv) our historical provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customer's industry as well as general economic conditions, among other factors.

INCOME TAXES

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, or increase or decrease this allowance in a period, we increase or decrease our income tax provision in our statement of operations. If any of our estimates of our prior period taxable income or loss prove to be incorrect, material differences could impact the amount and timing of income tax benefits or payments for any period. In addition, as a result of the significant change in the Company's ownership, the Company's future use of its existing net operating losses may be limited.

The Company currently operates in the PRC, however, our operations could change in the near future and we could be subject to tax liability involving a consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across operations in other countries.

We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carry forwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary.

Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.
 
32

STOCK- BASED COMPENSATION

We account for share-based payments in accordance with SFAS No. 123(R), Share-Based Payment. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating expected volatility. In addition, judgment is also required in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

ASSET IMPAIRMENT

We periodically evaluate the carrying value of other long-lived assets, including, but not limited to, property and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates are utilized to calculate expected future cash flows utilized in impairment analyses. We also utilize judgment to determine other factors within fair value analyses, including the applicable discount rate

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that are material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.
 
ITEM 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of June 30, 2009, the end of the period covered by this quarterly report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this quarterly report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer who also serves as our principal financial and accounting officer, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
33

All of our employees and accounting staff are located in the PRC and we do not presently have a Chief Financial Officer, comptroller or similarly titled senior financial officer who is bilingual and experienced in the application of U.S. GAAP. Currently, we are searching for an appropriate candidate who can fill such a position; however, we are unable to predict when such a person will be hired. We have also begun providing additional training to our accounting staff in the application of U.S. GAAP. As a result of these matters, our management believes that a deficiency in our internal controls continues to exist. Based upon historical accounting errors and lack of a Chief Financial Officer and sufficient trained accounting staff, our management has determined that there is a deficiency in our internal controls over financial reporting and that our disclosure controls and procedures were ineffective at June 30, 2009. Until we expand our staff to include a bilingual senior financial officer who has the requisite experience necessary, as well as supplement the accounting knowledge of our staff, it is likely that we will continue to have material weaknesses in our disclosure controls.

There have been no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
34
 
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K is not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

  None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

  None.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS 

  None.

ITEM 5. OTHER INFORMATION

  None.

ITEM 6. EXHIBITS

The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
 
Exhibit No.   Description 
 
3.1 
Articles of Incorporation (1) 
 
3.2 
Articles of Amendment to Articles of Incorporation (2) 
 
3.3 
Articles of Amendment to Articles of Incorporation (3) 
 
3.4 
Articles of Amendment to Articles of Incorporation (4) 
 
3.5 
Articles of Amendment to the Articles of Incorporation (5) 
 
3.6 
Bylaws (1) 
 
3.7 
Articles of Amendment to the Articles of Incorporation (6) 
 
31.1 
Section 302 Certificate of Chief Executive Officer * 
 
31.2 
Section 302 Certificate of principal financial and accounting officer * 
 
32.1 
Section 906 Certificate of Chief Executive Officer * 
 
35
 
* filed herewith
 
(1) 
Incorporated by reference to the Report on Form 8-K as filed on December 8, 1999. 
 
(2) 
Incorporated by reference to the Report on Form 8-K as filed on December 27, 2001. 
 
(3) 
Incorporated by reference to the annual report on Form 10-KSB for the fiscal year ended December 31, 2002. 
 
(4) 
Incorporated by reference to the Report on Form 8-K as filed on March 17, 2005. 
 
(5) 
Incorporated by reference to the Report on Form 8-K as filed on August 22, 2006. 
 
(6) 
Incorporated by reference to the Report on Form 8-K as filed on September 15, 2006. 
 
36

LINKWELL CORPORATION

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Linkwell Corporation

Date: August 14, 2009
By:
  
/s/ Xuelian Bian
  
       
    Xuelian Bian,  
    Chief Executive Officer  
    President and Principal  
    Executive Officer  
 
37
 
 EX-31.1 2 v158093_ex31-1.htm
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Xuelian Bian, certify that:

1.
I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2009 of Linkwell Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions after the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2009
By: /s/ Xuelian Bian
  
   
 
Xuelian Bian,
 
Chief Executive Officer,
 
President and Principal
 
Executive Officer
 

 EX-31.2 3 v158093_ex31-2.htm
EXHIBIT 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Xuelian Bian, certify that:

1.
I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2009 of Linkwell Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions after the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2009
By: /s/ Xuelian Bian
  
 
Xuelian Bian,
 
Principal Financial Officer
 
 
 EX-32.1 4 v158093_ex32-1.htm
EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Linkwell Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2009 as filed with the Securities and Exchange Commission (the “Report”), I, Xuelian Bian, CEO and President of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of the Sarbanes-Oxley Act of 2002, that:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
Date: August 14, 2009
By: /s/ Xuelian Bian
  
 
Xuelian Bian
 
Chief Executive Officer,
 
Principal Financial Officer
 
 
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