10-Q

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 period ended September 30, 2011

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission File Number: 000-24977

LINKWELL CORPORATION

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

FLORIDA	65-1053546
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1104 Jiatong Road, Jiading District, Shanghai, China 201807

(Address of principal executive offices)

(86) 21-5566-6258

(Issuer's telephone 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes  xNo   o

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¨	Accelerated filer¨
Non-accelerated filer¨ (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¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of November 14, 2011, there were 94,605,475 shares of our common stock issued and outstanding.

LINKWELL CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	36
Item 4.	Controls and Procedures.	36
PART II - OTHER INFORMATION
Item 6.	Exhibits.	37
Signature		38

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, 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

As used herein, unless the context indicates otherwise, the terms:

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

“Linkwell Tech” refers to our 90% owned subsidiary Linkwell Tech Group, Inc., a Florida corporation;

“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; and

“LiKang International” refers to Shanghai LiKang International Trade Co., Ltd., formerly a wholly owned subsidiary of LiKang Disinfectant which 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 used to be 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; and

“ZhongYou” refers to Shanghai ZhongYou Pharmaceutical High-Tech Co., Ltd., a company owned by Shanghai Jiuqing Pharmaceuticals Company, Ltd., whose 65% owner is Shanghai Ajiao Shiye Co. Ltd. Our Chairman and Chief Executive Officer Xuelian Bian is a 60% shareholder of Shanghai Ajiao Shiye Co. Ltd.

The People's Republic of China is herein referred to as China or the PRC.

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PART I- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

LINKWELL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2011 (Unaudited)		December 31, 2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,059,446	$	3,170,529
Accounts receivable, net		3,125,354		2,949,855
Accounts receivable - related parties, net		8,555,660		7,376,366
Due from related party		689,007		2,100,204
Other receivables		5,560,849		152,337
Inventories, net		2,959,141		2,072,976
Prepaid expenses and other current assets		990,481		957,633
Total current assets		22,939,938		18,779,900
NON-CURRENT ASSETS
Property, plant and equipment, net		2,090,826		2,192,295
Deposit		554,000		554,000
Construction in progress		176,156		-
Intangible assets		333,871		410,918
Total non-current assets		3,154,853		3,157,213
TOTAL ASSETS	$	26,094,791	$	21,937,113
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable	$	1,573,589	$	1,132,469
Accounts payable		3,075,157		1,992,228
Accrued expenses		292,759		346,381
Advances from customers		448,614		286,914
Taxes payable		278,918		365,375
Other payables		-		61,247
Due to related parties		1,376,678		1,380,628
Total current liabilities		7,045,715		5,565,242
Put option liability		2,400,000		2,400,000
Total liability		9,445,715		7,965,242
COMMITMENT AND CONTINGENCY
STOCKHOLDERS' EQUITY
Preferred Stock, No par value; 10,000,000 authorized, no shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		-		-
Common Stock, $.0005 par value, 150,000,000 authorized, 94,605,475  shares issued and 86,605,475 outstanding at September 30, 2011 and December 31, 2010, respectively		47,302		43,303
Additional paid-in capital		7,870,020		7,474,021
Statutory surplus reserve		802,749		802,749
Deferred compensation		-		(109,042	)
Retained earnings		5,472,439		4,188,519
Accumulated other comprehensive income		1,738,315		1,066,622
Total Linkwell Corporation stockholder's equity		15,930,825		13,466,172
NONCONTROLLING INTEREST		718,251		505,699
TOTAL STOCKHOLDERS' EQUITY		16,649,076		13,971,871
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	26,094,791	$	21,937,113

See accompanying notes to these consolidated financial statements.

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LINKWELL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	NINE MONTHS ENDED SEPTEMBER 30,						THREE MONTHS ENDED SEPTEMBER 30,
	2011			2010			2011			2010
NET SALES
Non-related companies	$	5,452,839		$	4,776,102		$	1,998,740		$	1,734,770
Related companies		5,857,573			4,659,090			2,290,577			1,835,574
Total Net Sales		11,310,412			9,435,192			4,289,317			3,570,344
COST OF SALES		6,105,273			4,861,480			2,324,049			1,867,584
GROSS PROFIT		5,205,139			4,573,712			1,965,268			1,702,760
OPERATING EXPENSES
Selling		846,833			977,336			325,774			286,453
General and administrative		2,462,773			2,306,356			602,092			724,230
Total Operating Expenses		3,309,606			3,283,692			927,867			1,010,683
INCOME FROM OPERATIONS		1,895,533			1,290,020			1,037,401			692,077
OTHER INCOME (EXPENSES)
Other income		38,629			47,715			58,410			20,962
Interest expense		(60,444	)		(61,777	)		(26,537	)		(24,910	)
Total Other Expenses, net		(21,815	)		(14,062	)		31,873			(3,948	)
INCOME BEFORE INCOME TAX		1,873,718			1,275,958			1,069,274			688,129
INCOME TAX EXPENSE		(377,247	)		(241,376	)		(142,132	)		(98,491	)
NET INCOME INCLUDING NONCONTROLLING INTEREST		1,496,471			1,034,582			927,142			589,638
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(212,551	)		(119,596	)		(93,693	)		(59,418	)
NET INCOME ATTRIBUTABLE TO LINKWELL CORP		1,283,920			914,986			833,449			530,220
OTHER COMPREHENSIVE INCOME
Foreign currency translation		671,693			249,634			300,082			178,336
COMPREHENSIVE INCOME	$	1,955,613		$	1,164,620		$	1,133,531		$	708,556
BASIC AND DILUTED INCOME PER COMMON SHARE:
Basic earnings per shares	$	0.01		$	0.01		$	0.01		$	0.01
Diluted earnings per shares	$	0.01		$	0.01		$	0.01		$	0.01
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		90,385,695			86,605,475			94,605,475			86,605,475
Diluted		90,385,695			86,605,475			94,605,475			86,605,475

See accompanying notes to these consolidated financial statements.

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LINKWELL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	NINE MONTHS ENDED SEPTEMBER 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Income including noncontrolling interest	$	1,496,471		$	1,034,582
Adjustments to reconcile income including noncontrolling interest to net cash used in operating activities:
Stock compensation expense		400,000			-
Deferred compensation		109,042			148,875
Depreciation and amortization		305,384			268,242
Loss from disposal of property		42,438			1,092
Increase(decrease) in current assets
Accounts receivable		(50,066	)		224,027
Accounts receivable - related party		(858,004	)		(1,968,200	)
Other receivables		(3,558,583	)		(874,484	)
Inventories		(781,277	)		(134,157	)
Deposits, prepaid expenses and other current assets		7,346			(23,057	)
Increase(decrease) in current liabilities
Accounts payable		977,050			517,357
Other payables, accrued expenses		(474,824	)		(76,160	)
Advances from customers		146,326			-
Taxes payable		(99,620	)		19,357
NET CASH USED IN OPERATING ACTIVITIES		(2,338,317	)		(862,526	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in progress		(172,290	)		(47,894	)
Purchase of property, plant and equipment		(81,176	)		(171,874	)
NET CASH USED IN INVESTING ACTIVITIES		(253,466	)		(219,768	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in due to related parties		176,666			(199,484	)
Change in due from related parties		(175,529	)		680,062
Repayment of short-term loans		-			(381,971	)
Proceeds from loans payable		384,763			1,469,135
NET CASH PROVIDED BY FINANCING ACTIVITIES		385,900			1,567,742
EFFECT OF EXCHANGE RATE ON CASH		94,800			47,745
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(2,111,083	)		533,193
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		3,170,529			2,144,360
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,059,446		$	2,677,553
SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:
Cash paid for:
Interest	$	55,896		$	31,806
Income taxes	$	375,999		$	262,552

See accompanying notes to these consolidated financial statements.

6

LINKWELL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 (Unaudited) AND DECEMBER 31, 2010

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. 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, the Company discontinued its entertainment division and its 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 the Company’s 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 financial statements reflect the change in the capital structure of the Company due to the recapitalization and in 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”), a PRC company, through a stock exchange. This transaction resulted in the formation of a U.S. holding company by the shareholders of LiKang Disinfectant 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.

On March 25, 2008, the Company’s subsidiary, Linkwell Tech acquired the remaining 10% of Likang Disinfectant that it did not own.  The purchase price for the remaining 10% interest in Likang Disinfectant was $684,057, consisting of $399,057 in cash and 1,500,000 shares of the Company’s common stock valued at $285,000. The 10% interest in Likang Disinfectant had a value of $577,779 prior to the Company’s purchase. The $126,278 difference between purchase price and its value was deemed a dividend and deducted from retained earnings upon closing of the acquisition.

LiKang Disinfectant has developed a line of disinfectant product offerings which 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 and 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.

7

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.

On February 15, 2008, the Company 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, 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 March 5, 2009, the Company’s subsidiary, Likang Disinfectant acquired 100% of Likang Biological, a company owned by related parties.

The unaudited financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2010 Annual Report on Form 10-K.  The results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011. 

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 (“U.S. GAAP”) and are expressed in US dollars.  All material intercompany transactions and balances have been eliminated in the consolidation.

Certain reclassifications have been made to the prior year to conform to current year’s presentation.  The consolidated financial statements of the Company include the accounts of its 90% owned subsidiary, Linkwell Tech, and 100% owned subsidiaries LiKang Disinfectant and Likang Biological. 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 nine and three months ended September 30, 2011 and 2010 include the allowance for doubtful accounts, useful life of property and equipment, and inventory reserve.

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NON-CONTROLLING INTEREST

Effective January 1, 2009, the Company adopted Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” which established new standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case), that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires changes to certain presentation and disclosure requirements. Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results in a deficit NCI balance.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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

As of September 30, 2011 and December 31, 2010, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

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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.

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. As of September 30, 2011 and December 31, 2010, the Company established, based on a review of its third party accounts receivable outstanding balances, allowances for doubtful accounts in the amounts of $974,465 and $952,232, respectively. As of September 30, 2011 and December 31, 2010, the Company established , based on a review of its related party accounts receivable outstanding balances, allowances for doubtful accounts in the amounts of $623,235 and $598,034, respectively. Majority of the allowances is on accounts receivable from Shanghai Zhongyou Pharmaceutical High Tech Co., LTD.

As is customary in the PRC, the Company extends relatively long payment terms to our customers as compared with those customary in the United States, with sales to both third parties and related parties generally requiring payment within four to six months. For nine months ended September 30, 2011, the average time of payment on accounts receivable from related parties was about nine months. Based upon the Company’s long-standing relationship with these related parties and their respective principals, the Company believes that related party receivables are collectible. To the best of the Company’s knowledge, there is no company-related issue with respect to any related party that might be delaying payment, nor are there any negative issues impacting its relationship with any related party.

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 September 30, 2011 and December 31, 2010, the reserve for obsolete inventory amounted to $0.

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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 range from five to twenty 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 the income statement in the year of disposition.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, during the nine and three months ended September 30, 2011 and 2010, there were no significant impairment of its long lived assets.

ADVANCES FROM CUSTOMERS

As of September 30, 2011 and December 31, 2010, advances from customers were $448,614 and $286,914, respectively. These advances 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.

INCOME TAXES

The Company utilizes Statement of Financial Accounting Standards ("SFAS") No. 109, “Accounting for Income Taxes,” (codified in Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC” Topic 740), which requires recognition of deferred tax assets and liabilities for expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company adopted the provisions of the Financial Accounting Standards Board's ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740). When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.  The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expenses and penalties are classified in other expenses in the statements of income. At September 30, 2011 and December 31, 2010, the Company did not take any uncertain positions that would necessitate recording of tax related liability.

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BASIC AND DILUTED EARNINGS PER SHARE

The Company presents net income (loss) per share (“EPS”) in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share” (codified in FASB ASC Topic 740). 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 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.  

            The following table presents a reconciliation of basic and diluted earnings per share for the nine months ended September 30, 2011 and 2010:

	2011		2010
Net income	$	1,283,920	$	914,986
Weighted average shares outstanding - basic		90,385,695		86,605,475
Effect of dilutive securities:
Unexercised warrants		-		-
Weighted average shares outstanding - diluted		90,385,695		86,605,475
Earnings per share - basic	$	0.01	$	0.01
Earnings per share - diluted	$	0.01	$	0.01

            The following table presents a reconciliation of basic and diluted earnings per share for the three months ended September 30, 2011 and 2010:

	2011		2010
Net income	$	833,449	$	530,220
Weighted average shares outstanding - basic		94,605,475		86,605,475
Effect of dilutive securities:
Unexercised warrants		-
Weighted average shares outstanding - diluted		94,605,475		86,605,475
Earnings per share - basic	$	0.01	$	0.01
Earnings per share - diluted	$	0.01	$	0.01

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REVENUE RECOGNITION

The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). The Company records revenue when an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenue streams of the Company. The Company's revenues from the sale of products are recorded when the goods are shipped, title passes, and collectability 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 collectability 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.

STATEMENT OF CASH FLOWS

In accordance with SFAS No. 95, “Statement of Cash Flows,” codified in FASB ASC Topic 230, cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheets.  

CONCENTRATION OF BUSINESS AND 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. The majority of the Company’s bank accounts in banks located in the PRC are not covered by any type of protection similar to that provided by the FDIC on funds held in U.S banks. As of September 30, 2011 and December 31, 2010, the Company maintained cash in the U.S. in a financial institution insured by the FDIC in the approximate amounts of $5,430 and $2,315, respectively. 

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 are limited due to the 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 nine months ended September 30, 2011 and 2010, sales to related parties accounted for 52% and 49% of net revenue, respectively.  For the three months ended September 30, 2011 and 2010, sales to related parties accounted for 53% and 51% of net revenue, respectively.

The Company is operating in the People’s Republic of China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the U.S. dollar and the RMB.

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Payments of dividends may be subject to some restrictions.

FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME

The Company primarily operates in the PRC. The financial position and results of operations of the subsidiaries are determined using the local currency (“Renminbi” or “RMB”) as the functional currency.

Translation from RMB into United States dollars (“USD” or “$”) for reporting purposes is performed by translating the results of operations denominated in foreign currency at the weighted average rates of exchange during the reporting periods. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated at the market rate of exchange in effect at that date. The registered equity capital denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. All translation adjustments resulting from the translation of the financial statements into USD are reported as a component of accumulated other comprehensive income in shareholders’ equity. The exchange rates used in translation from RMB to USD amount were published by People’s Bank of the People’s Republic of China.

	September 30, 2011	December 31, 2010
	(Unaudited)
Balance sheet items, except for the registered and paid-up capital and retained earnings as of September 30, 2011 and December 31, 2010.	US$1=RMB6.3549	US$1=RMB6.6227

	Nine Months Ended September 30,
	2011	2010
	(Unaudited)	(Unaudited)
Amounts included in the statements of operations, and statements of cash flow for the nine months ended September 30, 2011 and 2010.	US$1=RMB6.4975	US$1=RMB6.8068

SHIPPING COSTS

Shipping costs are included in selling expenses and totaled $439,706 and $304,301 for the nine months ended September 30, 2011 and 2010, respectively.  Shipping costs were $170,869 and $92,789, respectively for the three months ended September 30, 2011 and 2010.

ADVERTISING

Advertising is expensed as incurred and included in selling expenses. For the nine months ended September 30, 2011 and 2010, advertising expenses amounted to $39,843 and $51,577, respectively.  For the three months ended September 30, 2011 and 2010, advertising expenses amounted to $15,462 and $18,355, respectively.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (codified in FASB ASC Topics 718 & 505). The Company recognizes in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

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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, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

REGISTRATION RIGHTS AGREEMENTS

The Company accounts for payment arrangements under registration rights agreement in accordance with FASB Staff Position EITF 00-19-2 (codified in FASB ASC Topic 815), which requires the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies (codified in FASB ASC Topic 450).

The Company has adopted EITF 05-4, “Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument. ” 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. Accordingly, (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.

RESEARCH AND DEVELOPMENT COST

Research and development costs are expensed as incurred and included in general and administrative expenses. 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 nine months ended September 30, 2011 and 2010 were $147,930 and $164,300, respectively.  Research and development costs for the three months ended September 30, 2011 and 2010 were $82,646 and $60,794, respectively.

SEGMENT REPORTING

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (codified in FASB ASC Topic 280) requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

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SFAS 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment. All of the Company's assets are located in the PRC.

RECLASSIFICATIONS

Certain prior year amounts were reclassified to conform to the manner of presentation in the current period.

RECENT ACCOUNTING PRONOUNCEMENTS

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

In December 2010, FASB issued ASU No. 2010-28, Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to retained earnings beginning in the period of an adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

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

In April 2010 the FASB issued Accounting Standards Update (ASU) No. 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to Accounting Standards Codification (ASC) Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

NOTE 2 – INVENTORIES

A summary of inventories by major category as of September 30, 2011 and December 31, 2010 were as follows:

	2011		2010
	(Unaudited)
Raw materials	$	1,140,076	$	820,293
Work-in-process		38,363		31,398
Finished goods		1,780,702		1,221,285
Net inventories	$	2,959,141	$	2,072,976

NOTE 3 – PROPERTY AND EQUIPMENT

At September 30, 2011 and December 31, 2010, property and equipment consisted of the following:

	Estimated Useful Life (In years)	2011			2010
		(Unaudited)
Office equipment and furniture	3-7	$	448,256		$	404,130
Autos and trucks	5		374,052			327,479
Manufacturing equipment	2-10		863,735			826,136
Building	5-20		1,687,740			1,643,684
Subtotal			3,373,782			3,201,429
Less: Accumulated depreciation			(1,282,956	)		(1,009,134	)
Property and equipment, net		$	2,090,826		$	2,192,295

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           For the nine months ended September 30, 2011 and 2010, depreciation expenses amounted to approximately $228,000 and $191,000, respectively.For the three months ended September 30, 2011 and 2010, depreciation expenses amounted to approximately $56,000 and $66,000, respectively.

NOTE 4 – CONSTRUCTION IN PROGRESS

The Company had construction in progress of $176,156 for constructing a warehouse for storage of the finished products, a workshop and research and development center.  The estimated total cost for the construction is approximately $360,000, and the Company is required to pay an additional $190,000 to finish the construction by the end of the 2011.

NOTE 5 - INTANGIBLE ASSETS

At September 30, 2011 and December 31, 2010, intangible assets consisted of customers’ lists arising from the acquisition of Likang Biological, amortized over 5 years. Net intangible assets as of September 30, 2011 and December 31, 2010 totaled $333,871 and $410,918, respectively.  Amortization expenses for the nine months ended September 30, 2011 and 2010 were $77,047 and $77,047, respectively.  Amortization expenses for the three months ended September 30, 2011 and 2010 were $25,682 and $25,682. Annual amortization expenses for the next five years from September 30, 2011 are expected to be: $102,730, $102,730, $102,730, $25,681 and $0.

NOTE 6 - DEPOSITS

At September 30, 2011 and December 31, 2010, deposits mainly represented prepaid application fee of $544,000 for the deposit of purchasing an acquisition target, Inner Mongolia Wuhai Likang Biological Hi-Tech Co., Ltd (“Wuhai LiKang”).

NOTE 7 - OTHER RECEIVABLES

At September 30, 2011 and December 31, 2010, the Company had other receivables of $5,560,849 and $152,337, respectively. Other receivables at September 30, 2011 primarily included short-term advances to Wuhai Likang of approximately $5,160,000. This short-term advance accrues interest at an annual rate of 4%, and is payable upon demand.

Wuhai Likang was a related party of the Company in 2010 due to the Company being in the process of acquiring a controlling position in Wuhai Likang. On December 30, 2009, the Company issued 4,000,000 shares of common stock in exchange for acquiring a 51% equity interest in Wuhai Likang in China for $544,000 which was accounted for as a deposit as of March 31, 2011. However, the acquisition target has increased its registered capital to RMB 50 million by the contribution of new investors in April 2010, which resulted in a decrease of the equity interest owned by Linkwell to 7.65%. With this reduction in ownership, and reduction in influence over Wuhai Likang, the Company’s management has determined that Wuhai Likang is not deemed a related party.

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Wuhai Likang is a major supplier and strategic partner to the Company. The Company has a large demand for a raw material which is produced from Wuhai Likang’s waste recycling project. Due to the need for this raw material, the Company made advances to Wuhai LiKang’s to support their waste recycling project which ultimately benefits the Company. As of December 31, 2010, the Company has made advances totaling $1,567,337 to provide operating funds to Wuhai Likang. The portion of such advances toprovide operating funds to Wuhai Likang was classified as due from related party as of December 31, 2010 pending approval of the acquisition. As of September 30, 2011, government approval for this acquisition had not occurred and is unable to be completed. During the nine months ended September 30, 2011, the existing shareholders of Wuhai Likang contributed additional capital into Wuhai Likang, which resulted in a reduction of the Company’s ownership position in Wuhai Likang to approximately 7.65% as of September 30, 2011. With this reduction in ownership, and reduction in influence over Wuhai Likang, the Company’s management has determined that Wuhai Likang is not deemed a related party. Accordingly, the due from related party of $1,567,337 as of December 31, 2010 and the approximate additional $3,600,000 advances made during the nine months ended September 30, 2011, have been classified as other receivables as of September 30, 2011.

NOTE 8 - LOANS PAYABLE

Loans payable consisted of the following at September 30, 2011 and December 31, 2010:

	2011		2010
	(Unaudited)
Loan from Shanghai Rural Commercial Bank, Dachang Branch due on May 10, 2012 with interest rate of 6.94% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 7,400,000).	$	1,164,456	$	-
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on March 15, 2011 with interest rate 5.31% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 4,900,000).The Company paid off in full when it was mature.		-		739,880
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on July 13, 2011 with interest rate 5.31% per annum. Guaranteed by Shanhai Group and Mr. Bian, Chairman of the Company (RMB   2,600,000). The Company paid off in full when it was mature.		-		392,589
Loan from Shanghai Rural Commercial Bank, Dachang Branch due on July 10, 2012 with interest rate of 8.53% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 2,600,000)		409,133		-
	$	1,573,589	$	1,132,469

NOTE 9 – RELATED PARTY TRANSACTIONS

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

The Company’s Chairman and Chief Executive Officer, Xuelian Bian, and Vice President and Director, Wei Guan, own 90% and 10% respectively, of the capital stock of ZhongYou. In March 2007, Wei Guan sold his 10% ownership to Bing Chen, the President of LiKang Disinfectant. In August 2007, Xuelian Bian sold his 90% ownership 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, whose 100% owner is Shanghai Ajiao Shiye Co. Ltd. Mr. Bian is currently a 60% shareholder of Shanghai Ajiao Shiye Co. Ltd.

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For the nine months ended September 30, 2011 and 2010, the Company recorded sales of $5,857,573 and $4,657,289 to ZhongYou, respectively.  For the three months ended September 30, 2011 and 2010, the Company recorded sales of $2,290,577 and $1,835,257 to ZhongYou, respectively.  At September 30, 2011 and December 31, 2010, accounts receivables from sales to ZhongYou (net of bad debt allowance) were $8,463,722 and $7,288,088, respectively.

 During the nine months ended September 30, 2011 and 2010, the Company recorded sales of $0 and $1,801 to Shanghai Jiuqing, respectively.  During the three months ended September 30, 2011 and 2010, the Company recorded sales of $0 and $300 to Shanghai Jiuqing, respectively.  At September 30, 2011 and December 31, 2010, accounts receivable from sales to Shanghai Jiuqing were $91,938 and $88,278, respectively. 

As of September 30, 2011 and December 31, 2010, $689,007 and $2,100,204 were due from related parties such as Shanghai Zhongyou Delivery Co., Ltd, Shanghai Likang Pharmaceutical Co., Ltd., and Shanghai Likang International Trading Co., Ltd (“Likang Trading”), respectively, representing short-term advances and other receivables not including the receivables from sales. As of September 30, 2011, the Company owed its management $54,000 and other related parties such as Likang Trading, Zhongyou, and Shanghai Jiuqing, $1,322,678.  As of December 31, 2010, the Company owed its management $54,000 and other related parties $1,326,628. Wuhai Likang was a related party of the Company at December 31, 2010 due to being in the process of acquiring a controlling position in Wuhai Likang (see Note 7).

NOTE 10 – TAXES PAYABLE

Taxes payable consisted of the following at September 30, 2011 and December 31, 2010, respectively:

	2011		2010
	(Unaudited)
Income tax payable	$	179,792	$	132,140
Value added tax payable		92,682		225,810
Other taxes payable		6,444		7,425
	$	278,918	$	365,375

NOTE 11 –PUT OPTION LIABILITY

On February 15, 2008, the Company entered into a stock purchase agreement with 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 the beneficiaries of, certain pre-emptive rights, transfer restrictions and take along rights relating to the shares of Linkwell Tech, the Company and Ecolab each hold.

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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 that Ecolab purchased under the Stock Purchase Agreement back to Linkwell Tech in exchange for, as determined by Linkwell Tech, cash in the amount of $2,400,000 or the lesser of (a) 10,000,000 shares of Linkwell common stock, or (b) such number of shares of Linkwell common stock as is determined by dividing 3,500,000 by the average daily closing price of Linkwell common stock for the twenty days on which Linkwell 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 is subject to a change of control transaction, to require the Company to sell to Ecolab all of the equity interests in Linkwell Tech, or any of Linkwell Tech’s subsidiaries, then owned by the Company. The Company recognized the maximum expenses of the Put Option and the Call Option described above as $2,400,000 put option liability.

NOTE 12 - INCOME TAXES

The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

Linkwell Corp and Linkwell Tech were incorporated in the U.S. and have net operating losses (NOL) for income tax purposes.  Linkwell Corp and Linkwell Tech had net operating loss carry forwards for income taxes of approximately $2,809,000 at September 30, 2011, which may be available to reduce future years’ taxable income as NOL’s can be carried forward up to 20 years from the year the loss is incurred. Under IRC Section 382, certain of these loss carry-forward amounts may be limited due to the more than 50% change in ownership which took place during 2004. The Company’s management believes that the realization of benefits from these losses are uncertain due to the Company’s limited operating history and continuing losses. Accordingly, a 100% valuation allowance has been provided on the deferred tax asset of approximately $1,066,000.

Likang Disinfectant and Likang Biological are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.  Likang Disinfectant is subject to a preferential income tax rate of 12.5% for 2011 and 2010; Likang Biological is subject to an income tax rate of 25% since 2010.

NOTE 13 - STATUTORY RESERVES

Pursuant to the PRC’s corporate law effective as of January 1, 2006, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.

Surplus Reserve Fund

The Company’s Chinese subsidiaries are now only required to transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. The Company’s Chinese subsidiaries are not required to make appropriations to other reserve funds and do not have any intention to make appropriations to any other reserve funds. There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Company’s Chinese subsidiaries do not do so.

21

The surplus reserve fund is non-distributable other than during liquidation, can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Common Welfare Fund

The common welfare fund is a voluntary fund that provides that the Company can elect to transfer 5% to 10% of its net income to this fund. This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.  The Company did not make any transfer to this fund during nine months ended September 30, 2011 and 2010.

NOTE 14 – STOCKHOLDERS’ EQUITY

Common Stock 

On July 1, 2009, the Company entered into a two year consulting agreement with FirsTrust Group, Inc. for business development and capital markets advisory services. In connection with this agreement, the Company issued 1,800,000 shares of common stock valued at $0.09 per share to FirsTrust Group, Inc. and recorded $162,000 as deferred compensation. The Company had accumulated amortization of $162,000 for stock-based compensation as of September 30, 2011. This agreement has a penalty to FirsTrust Group, Inc. for non-compliance with its terms. The Company recorded stock based compensation of $40,500 and $60,750 during the nine months ended September 30, 2011 and 2010,respectively, with respect to this agreement. The stock-based compensation expense was fully expensed in June 2011.

On August 1, 2009, the Company entered into a two year agreement with Shanghai Hai Mai Law Firm for legal services. In connection with this agreement, the Company issued 2,350,000 shares of common stock valued at $0.10 per share to Shanghai Hai Mai Law Firm and recorded $235,000 as deferred compensation. This agreement has a penalty to Shanghai Hai Mai Law Firm for non-compliance with its terms. The Company recorded stock based compensation of $68,542 and $88,125 during the nine months ended September 30, 2011 and 2010, respectively, with respect to this agreement. The stock-based compensation expense was fully expensed in July 2011.

On May 25, 2011, the Company issued 8,000,000 shares of common stock to two directors and two employees under the Company’s 2005 Equity Compensation Plan, as amended, for the services they provided to the Company. The stock was valued at stock issuance date at $0.05 per share, and $400,000 was recorded as stock based compensation. 

NOTE 15 - COMMITMENTS

           On July 16, 2008, the Company entered a two-year lease agreement for its administrative office with expiration date on July 15, 2010, for monthly rent of $4,400 (RMB 30,237) until April 2009, the monthly rent increased to $9,470 (RMB 64,669) after April 2009.  The Company renewed this lease after the expiration and monthly rent increased to $11,000 (RMB 73,173). The lease will expire on December 31, 2011. 

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On November 1, 2008, the Company entered another two-year lease agreement for its branch office with expiration date on October 31, 2010, for monthly rent of $3,500 (RMB 24,000). The Company renewed this lease with the same amount of rent after the expiration. The lease expired on October 31, 2011 and has recently been renewed.

Future minimum rental payments required under these operating leases are as follows:

As of  September 30, 2011
Remainder of Fiscal 2011	$	38,000

NOTE 16 – CONTINGENCY

On May 23, 2011, the Company entered into a Settlement Agreement (“Settlement Agreement”) with Alpha Capital Aktiengesellschaft (“Alpha”) and Osher Capital Inc. (“Osher”) (Alpha and Osher collectively the “Plaintiffs”) for the lawsuit the Plaintiffs filed against us in the Supreme Court of the State of New York, County of New York, as previously disclosed in the Quarterly Report on Form 10-Q, filed with the SEC on May 16, 2011. In satisfaction of all the obligations stated under the terms of the Settlement Agreement, the Company agreed to pay Alpha Eighty Thousand Dollars ($80,000) and Osher Forty Thousand Dollars ($40,000). Upon the execution of the Settlement Agreement and in consideration of the terms and conditions in the Agreement, both parties will mutually release and forever discharge any and all claims, whether known or unknown, that the parties may now have or may hereafter have against each other from the beginning of time through the date of the Settlement Agreement. The Company recorded $120,000 as expense accordingly.

NOTE 17 – OPERATING RISK

(a) Country risk

Currently, the Company’s revenues are primarily derived from the sale of a line of disinfectant products to customers in the 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 products, 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 cannot 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. This is because a fluctuating exchange rate may post a higher or lower profit depending on exchange rate of Renminbi converted to US dollars on that day. The exchange rate could fluctuate depending on changes in the political and economic environments without notice.

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(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 country. Additionally, the PRC currently allows a Chinese corporation to be owned by a United States corporation. If the PRC government changes laws or regulations relating to the ownership of a Chinese corporation, then the Company's ability to operate its PRC subsidiaries could be affected.

Note 18 – SUBSEQUENT EVENTS

           For the nine months ended September 30, 2011, the Company has evaluated subsequent events for potential recognition and disclosure through the date of the financial statement issuance.

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

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions.  Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our other Securities and Exchange Commission filings.  The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Throughout this Quarterly Report, we will refer to Linkwell Corporation. as "Linkwell," the "Company," "we," "us," and "our."

The Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements in Item 1.

OVERVIEW

We operate under a holding company structure and currently have one direct 90% owned operating subsidiary, Linkwell Tech Group Inc. (“Linkwell Tech”), a Florida corporation.  Linkwell Tech owns 100% of Shanghai LiKang Disinfectant High-Tech Company, Limited (“LiKang Disinfectant”). On February 15, 2008, Linkwell Tech sold 10% of its issued and outstanding capital stock to Ecolab Inc., a Delaware corporation (“Ecolab”).  On March 5, 2009, LiKang Disinfectant purchased 100% of LiKang Biological Company for approximately $292,500 (RMB 2,000,000) and 500,000 shares of our common stock.

We, through Linkwell Tech’s wholly-owned subsidiaries, LiKang Disinfectant and Likang Biological,  and since our incorporation in 1988, are engaged in the development, manufacture, sale and distribution of disinfectant health care products primarily in the medical industry in China.

In recent years, China has experienced a variety of public health crises, such as the outbreak of SARS, which demonstrated the need for increased health standards in China. In response, since the 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 PRC’s Ministry of Public Health (“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 were granted thirty-one hygiene licenses by the Ministry of Public Health.

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We believe that government standards adopted in July 2002 have increased the barriers for competitors to enter into 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 to meet 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 market  for disinfect products is evolving with a more stringent focus on product quality, which we believe will enable us to increase our commercial customer base and thereby increase our revenues.

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

The disinfectant industry in China is an emerging industry that is populated with small, regional companies. We estimate that there are more than 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 twenty-two provinces, as well as four autonomous regions and four municipalities in China, give 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 market.

Our present manufacturing facilities and production capacities are sufficient for the foreseeable future, and we believe that we have the assets and the capital necessary to enable the increase of our revenue as the market for disinfectant products in China continues to increase.  We will continue to focus our efforts on the retail market for our products, as well as on expanding our traditional base of commercial customers. In addition, we may also consider the possible acquisition of independent sales networks, which may be used to increase our product distribution capacity and align us with small, regional companies in the industry.

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RESULTS OF OPERATIONS

Comparison of the nine months ended September 30, 2011 and 2010

The table below sets forth the results of operations for the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010, accompanied by the percentage changes.

	2011						2010
	$			% of Sales			$			% of Sales
Net Sales
Non-related companies	$	5,452,839			48.2	%	$	4,776,102			50.6	%
Related companies		5,857,573			51.8	%		4,659,090			49.4	%
Total Net Sales		11,310,412			100	%		9,435,192			100	%
Cost of Sales		6,105,273			54.0	%		4,861,480			51.5	%
Gross Profit		5,205,139			46.0	%		4,573,712			48.5	%
Selling Expense		846,833			7.5	%		977,336			10.4	%
General and Administrative		2,462,773			21.8	%		2,306,356			24.4	%
Total Operating Expenses		3,309,606			29.3	%		3,283,692			34.8	%
Income from Operations		1,895,533			16.7	%		1,290,020			13.7	%
Other Income (Expenses), net		(21,815)			(0.2)	%		(14,062)			(0.1)	%
Income tax expense		(377,247	)		(3.3	)%		(241,376	)		(2.6	)%
Net Income including non-controlling interest		1,496,471			13.2	%		1,034,582			11.0	%
Less: net income attributable non-controlling interest		(212,551	)		(1.9	)%		(119,596	)		(1.3	)%
Net Income attributable to Linkwell Corp		1,283,920			11.3	%		914,986			9.7	%

NET SALES

Net sales for the nine months ended September 30, 2011 were $11,310,412 as compared to net sales of $9,435,192 for the same period in 2010, an increase of $1,875,220, or approximately 19.9%. This increase in net sales was due to our efforts in developing new customer base and diversity of our products, as well as increased demand from our existing customers.  Of our total net sales for the nine months ended September 30, 2011, $5,857,573, or approximately 52%, was attributable to related parties as compared to net sales of $4,659,090, or approximately 49%, for the same period in 2010.

Our sales to unrelated parties are only in Shanghai, Jiangsu, Zhejiang and Anhui provinces. The sales in other provinces in China are through our largest related party customer, Shanghai Zhongyou Medical Hi-tech Co., Ltd (“Zhongyou”). Since 2009, Zhongyou has been a large and reputable medical supply and distribution company, and through our sales to Zhongyou, we were able to increase our sales by utilizing Zhongyou’s marketing and sales resources.

COST OF SALES

Cost of sales includes raw materials and manufacturing costs, which include labor, rent and an allocated portion of overhead expenses, such as utilities, directly related to product production. For the nine months ended September 30, 2011, cost of sales amounted to $6,105,273, or approximately 54.0% of net sales, as compared to the cost of sales of $4,861,480, or approximately 51.5% of net sales for the same period in 2010.  The increase in cost of sales as a percentage of sales was mainly due to new levied city construction tax and education surcharge tax, which started from December 2010, as well as increase in the price of raw materials.

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GROSS PROFIT

Gross profit for the nine months ended September 30, 2011 was $5,205,139, or approximately 46.0% of net revenue, as compared to $4,573,712, or approximately 48.5% of net revenue for the same period in 2010. The decrease in gross profit margin was mainly due to the increased cost of revenue as a percentage of revenue.

OPERATING EXPENSES

Total operating expenses consisted of selling, general and administrative expenses. For the nine months ended September 30, 2011, total operating expenses were $3,309,606, an increase of $25,914, or approximately 0.8%, from total operating expenses of $3,283,692 for the same period in 2010.

NONCONTROLLING INTEREST

  On February 15, 2008, we entered into a stock purchase agreement with Ecolab, pursuant to which Ecolab purchased and Linkwell Tech sold 888,889 of its shares, or 10% of the issued and outstanding capital stock of Linkwell Tech, for a total of $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 a total of $2,000,000 from Ecolab, inclusive of a $400,000 loan that Ecolab released to Linkwell Tech and accrued interest of $11,441. On May 31, 2008, Linkwell Tech and Ecolab entered into the Linkwell Tech Group Inc. Stockholders Agreement, whereby both our Company and Ecolab are subject to, and are the beneficiaries of, certain pre-emptive rights, transfer restrictions and take-along rights relating to the shares of Linkwell Tech that we 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 no longer needed to be repaid. After this transaction, Ecolab became a 10% minority interest holder of Linkwell Tech. For the nine months ended September 30, 2011, we had a minority interest expense of $212,551 as compared to $119,596 in 2010.

NET INCOME 

Our net income for the nine months ended September 30, 2011 was $1,283,920 compared to $914,986 for the same period in 2010, an increase of $368,934 or 40.3%.  Net income as a percentage of revenue was 11.3% for the nine months ended September 30, 2011, while it was 9.7% for the same period in 2010. This increase in net income was attributable to an increase in sales.

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Comparison of the three months ended September 30, 2011 and 2010

The table below sets forth the results of operations for the three months ended September 30, 2011, as compared to the three months ended September 30, 2010, accompanied by the percentage of changes.

	2011						2010
	$			% of Sales			$			% of Sales
Net Sales
Non-related companies	$	1,998,740			46.6	%	$	1,734,770			48.6	%
Related companies		2,290,577			53.4	%		1,835,574			51.4	%
Total Net Sales		4,289,317			100	%		3,570,344			100	%
Cost of Sales		2,324,049			54.2	%		1,867,584			52.3	%
Gross Profit		1,965,268			45.8	%		1,702,760			47.7	%
Selling Expense		325,774			7.6	%		286,453			8.0	%
General and Administrative		602,092			14.0	%		724,230			20.3	%
Total Operating Expenses		927,867			21.6	%		1,010,683			28.3	%
Income from Operations		1,037,401			24.2	%		692,077			19.4	%
Other Income (Expenses), net		31,873			0.7	%		(3,948)			(0.1	)%
Income tax expense		(142,132	)		(3.3	)%		(98,491	)		(2.8	)%
Net Income including non-controlling interest		927,142			21.6	%		589,638			16.5	%
Less: net income attributable non-controlling interest		(93,693	)		(2.2	)%		(59,418	)		(1.7	)%
Net Income attributable to Linkwell Corp		833,449			19.4	%		530,220			14.8	%

NET SALES

Net sales for the three months ended September 30, 2011 were $4,289,317 as compared to net sales of $3,570,344 for the same period in 2010, an increase of $718,973, or approximately 20.1%. This increase in net sales was due to our efforts in developing new customer base and diversity of our products, as well as the increased demand from our existing customers.  Of our total net sales for the three months ended September 30, 2011, $2,290,577, or approximately 53.4%, was attributable to related parties as compared to net sales of $1,835,574, or approximately 51.4%, in 2010.

Our sales to unrelated parties are only in Shanghai, Jiangsu, Zhejiang and Anhui provinces. The sales in other provinces in China are through our largest related party customer, Zhongyou. Since 2009, Zhongyou has been a large and reputable medical supply and distribution company, and through our sales to Zhongyou, we were able to increase our sales by utilizing Zhongyou’s marketing and sales resources.

 COST OF SALES

Cost of sales includes raw materials and manufacturing costs, which include labor, rent and an allocated portion of overhead expenses, such as utilities, directly related to product production. For the three months ended September 30, 2011, cost of sales amounted to $2,324,049, or approximately 54.2% of net sales, as compared to the cost of sales of $1,867,584, or approximately 52.3% of net sales for the same period in 2010.   The increase in cost of sales as a percentage of sales was mainly due to new levied city construction tax and education surcharge tax for Likang Disinfectant starting from December 2010, which was previously exempted by the tax authority, as well as the increase in the price of raw materials.

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GROSS PROFIT

Gross profit for the three months ended September 30, 2011 was $1,965,268, or approximately 45.8% of net revenue, as compared to $1,702,760, or approximately 47.7% of net revenue for the same period in 2010. The decrease in gross profit margin was mainly due to the increased cost of revenue as a percentage of revenue.

OPERATING EXPENSES

Total operating expenses consisted of selling, general and administrative expenses. For the three months ended September 30, 2011, total operating expenses were $927,867, a decrease of $82,816, or approximately 8.2%, from total operating expenses of $1,010,683 for the same period in 2010.

NONCONTROLLING INTEREST

On February 15, 2008, we entered into a stock purchase agreement with Ecolab, pursuant to which Ecolab purchased and Linkwell Tech sold 888,889 of its shares, or 10% of the issued and outstanding capital stock of Linkwell Tech, for a total of $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 a total of $2,000,000 from Ecolab, inclusive of a $400,000 loan that Ecolab released to Linkwell Tech and accrued interest of $11,441. On May 31, 2008, Linkwell Tech and Ecolab entered into the Linkwell Tech Group Inc. Stockholders Agreement, whereby both our Company and Ecolab are subject to, and are the beneficiaries of, certain pre-emptive rights, transfer restrictions and take-along rights relating to the shares of Linkwell Tech that we 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 no longer needed to be repaid. After this transaction, Ecolab became a 10% minority interest holder of Linkwell Tech. For the three months ended September 30, 2011, we had a minority interest expense of $93,693 as compared to $59,418 in 2010.

NET INCOME 

Our net income for the three months ended September 30, 2011 was $833,449 compared to $530,220 for the same period in 2010, an increase of $303,229 or 57.28%.  Net income as a percentage of revenue was 19.4% for the three months ended September 30, 2011, while it was 14.8% for the same period in 2010. This increase in net income was attributable to increased sales and the decreased operating expense resulted from effectiveness of cost and expenses control.

LIQUIDITY AND CAPITAL RESOURCES

As shown in the accompanying financial statements, our working capital increased $2,679,565, or approximately 20%, from $13,214,658 on December 31, 2010 to $15,894,223 on September 30, 2011. With the expansion of our businesses, we anticipate the need to utilize 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.

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We currently have no material commitments for capital expenditures. As of September 30, 2011, we had a total of $1,573,589 in outstanding short-term loans, which will mature in July 2012. Other than these 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 $1,000,000.

We need to raise additional capital 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.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2011 and 2010:

	2011		2010
Cash provided by (used in):
Operating Activities	$	(2,338,317)	$	(862,526)
Investing Activities		(253,466)		(219,768)
Financing Activities		385,900		1,567,742

NET CASH FROM OPERATING ACTIVITES

Net cash used in operating activities for the nine months ended September 30, 2011 was $2,338,317, as compared to net cash used in operating activities of $862,526 for the same period in 2010, an increase of cash outflow of $1,475,791. The increase in cash outflow in the nine months ended September 30, 2011 was mainly a result of an increase in other receivables outstanding as a result of additional advance to Wuhai Likang, a decrease of other payables, and payment for inventory, despite increased net income compared to the same period in 2010.

NET CASH FROM INVESTING ACTIVITIES

Net cash used in investing activities for the nine months ended September 30, 2011 was $253,466 as compared to net cash used in investing activities of $219,768 in the same period in 2010, an increase of $33,698. Cash used in investing activities in the nine months ended September 30, 2011 mainly consisted of $172,290 increase of construction in progress and $81,176 for the purchase of equipment, while in 2010, we spent $171,874 for purchase of fixed assets and $47,894 for construction in progress.

NET CASH FROM FINANCING ACTIVITIES

Net cash provided by financing activities was $385,900 for the nine months ended September 30, 2011 compared to net cash provided by financing activities of $1,567,742 in the same period of 2010. This cash inflow was primarily a result of an increase of $176,666 for due to related parties, and $384,763 proceeds from short-term loan. In comparison to the nine months ended September 30, 2010, we had a $1,469,135 cash inflow from short-term loans, and a $680,062 decrease in due from related parties.

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CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)  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 experiences 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.

While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements, we believe the following accounting policies are the most critical to help develop a full understanding and evaluation of our management discussion and analysis.

ACCOUNTS RECEIVABLE

As of September 30, 2011, our total accounts receivable balances (net) amounted to $11,681,014, including $3,125,354 from third parties and $8,555,660 from related parties. A detailed aging table for these accounts receivable is presented below:

IN USD	<90 days		91-180 days		181-270 days		271-365 days		>365 days		Total
AR - third parties	$	1,613,931	$	567,418	$	351,017	$	256,337	$	1,329,011	$	4,117,714
Less: bad debt allowance		-		-		-		-		-	$	992,360
AR, net		-		-		-		-		-	$	3,125,354
AR - related parties	$	2,471,345	$	2,346,863	$	2,018,702	$	804,049	$	1,537,936	$	9,178,895
Less: bad debt allowance		-		-		-		-		-	$	623,235
AR, net		-		-		-		-		-	$	8,555,660
Total		-		-		-		-		-	$	11,681,014

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As is customary in the PRC, we extend relatively long payment terms to our customers as compared with those customary in the United States, with sales to both third parties and related parties generally requiring payment within four to six months.  For the nine months ended September 30, 2011, the average time of payment on accounts receivable from related parties was about nine months.  Based upon our long-standing relationship with these related parties and their respective principals, we believe that related party receivables are collectible.  To the best of our knowledge, there is no company-related issue with respect to any related party that might be delaying payment, nor are there any negative issues impacting our relationship with any related party.

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 experiences, and we then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivables and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider, among other factors: (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.

REVENUE RECOGNITION

Our revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 480). We record 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 collectability is reasonably assured. The following policies reflect specific criteria for our various revenue streams.

Our revenue 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 collectability is reasonably assured. We receive purchase orders from our related parties on an as needed basis from the related party customers. Generally, the related party does not hold our 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 in our balance sheet.

INCOME TAXES

We account for income taxes in accordance with Accounting for Income Taxes, which 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 our ownership, our future use of its existing net operating losses may be limited.

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We currently operate 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 a 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.

FOREIGN CURRENTY TRANSLATION AND COMPREHENSIVE INCOME (LOSS)

Our functional currency is the Chinese Yuan - Renminbi (“RMB”). For financial reporting purposes, RMB was translated into United States dollars ("USD") as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of shareholders' equity as "Accumulated other comprehensive income." Gains and losses resulting from foreign currency transactions are included in income. There has been no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.

RECENT ACCOUNTING PRONOUNCEMENTS

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

34

In December 2010, FASB issued ASU No. 2010-28, Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to retained earnings beginning in the period of an adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. The adoption of this ASU did not have a material impact on our consolidated financial statements.

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

In April 2010 the FASB issued Accounting Standards Update (ASU) No. 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to Accounting Standards Codification (ASC) Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this ASU did not have a material impact on our Company’s consolidated financial statements.

35

CONTRACTUAL OBLIGATION

Loans payable consisted of the following at September 30, 2011 and December 31, 2010:

	2011		2010
	(Unaudited)
Loan from Shanghai Rural Commercial Bank, Dachang Branch due on May 10, 2012 with interest rate of 6.94% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 7,400,000).	$	1,164,456
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on March 15, 2011 with interest rate 5.31% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 4,900,000).The Company paid off in full when it was mature.				739,880
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on July 13, 2011 with interest rate 5.31% per annum. Guaranteed by Shanhai Group and Mr. Bian, Chairman of the Company (RMB   2,600,000). The Company paid off in full when it was mature.				392,589
Loan from Shanghai Rural Commercial Bank, Dachang Branch due on July 10, 2012 with interest rate of 8.53% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 2,600,000)		409,133
	$	1,573,589	$	1,132,469

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties.  We have not entered into any derivative contracts that are indexed to our stocks and classified as shareholder’s equity or that are not reflected in our consolidated financial statements.  Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.  We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a “smaller reporting company” (as defined by Rule 12b-2 of the Exchange Act) and are not required to provide the information requested under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Our management, with the participation of our principal executive officer, conducted an evaluation of the design and operation of our disclosure controls and procedures, as defined under Rule 13a-15(e) under the Exchange Act, as of September 30, 2011.  Our disclosure controls and procedures are designed (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed,  summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, who also serves as our principal financial officer and principal accounting officer, to allow timely decisions regarding required disclosure.

36

Based on the evaluation of our disclosure controls and procedures as of September 30, 2011, our chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective to ensure that (i) information required to be disclosed by our Company in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our Company’s management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure by our Company; and (ii) information required to be disclosed by our Company in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specific in the Securities and Exchange Act rules and forms.

 There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) that occurred during the third quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

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	Certification of President and Chief Executive Officer (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002*
32.1	Certification of President and Chief Executive Officer (Principal Executive Officer) and Principal Financial Officer Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document**

* filed herewith

** XBRL (Extensive Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

(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.

37

LINKWELL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Linkwell Corporation
Date: November 14, 2011	By:	/s/ Xuelian Bian
		Xuelian Bian
		Chief Executive Officer
		President and Principal Executive Officer

38

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Xuelian Bian, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 under which such statements were made, not misleading with respect to the period covered by this 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 and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 about 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: November 14, 2011	By: /s/ Xuelian Bian
	Xuelian Bian,
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Xuelian Bian, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 under which such statements were made, not misleading with respect to the period covered by this 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 and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 about 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: November 14, 2011	By: /s/ Xuelian Bian
	Xuelian Bian,
	President, Chief Executive Officer,
	and Principal Financial Officer

EX-32.1

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 quarter ended September 30, 2011 as filed with the Securities and Exchange Commission (the “Report”), I, Xuelian Bian, CEO, President, and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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 results of operations of the Company.

Date: November 14, 2011	By:	/s/ Xuelian Bian
		Xuelian Bian
		Chief Executive Officer
		(Principal Executive Officer and Principal Financial Officer)

XML

CONSOLIDATED BALANCE SHEETS Unaudited September 30, 2011 (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Preferred Stock, No par value	$ 0	$ 0
Preferred Stock, authorized	10,000,000	10,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, par value	$ 0.0005	$ 0.0005
Common Stock, authorized	150,000,000	150,000,000
Common Stock, shares issued	94,605,475	86,605,475
Common Stock, shares outstanding	94,605,475	86,605,475

XML

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(UNAUDITED) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
NET SALES
Net Sales	$ 4,289,317	$ 3,570,344	$ 11,310,412	$ 9,435,192
COST OF SALES	2,324,049	1,867,584	6,105,273	4,861,480
GROSS PROFIT	1,965,268	1,702,760	5,205,139	4,573,712
OPERATING EXPENSES
Selling	325,774	286,453	846,833	977,336
General and administrative	602,092	724,230	2,462,773	2,306,356
Total Operating Expenses	927,867	1,010,683	3,309,606	3,283,692
INCOME FROM OPERATIONS	1,037,401	692,077	1,895,533	1,290,020
OTHER INCOME (EXPENSES)
Other income	58,410	20,962	38,629	47,715
Interest expense	(26,537)	(24,910)	(60,444)	(61,777)
Total Other Expenses, net	31,873	(3,948)	(21,815)	(14,062)
INCOME BEFORE INCOME TAX	1,069,274	688,129	1,873,718	1,275,958
INCOME TAX EXPENSE	(142,132)	(98,491)	(377,247)	(241,376)
NET INCOME INCLUDING NONCONTROLLING INTEREST	927,142	589,638	1,496,471	1,034,582
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST	(93,693)	(59,418)	(212,551)	(119,596)
NET INCOME ATTRIBUTABLE TO LINKWELL CORP	833,449	530,220	1,283,920	914,986
OTHER COMPREHENSIVE INCOME
Foreign currency translation	300,082	178,336	671,693	249,634
COMPREHENSIVE INCOME	1,133,531	708,556	1,955,613	1,164,620
BASIC AND DILUTED INCOME PER COMMON SHARE:
Basic earnings per shares	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Diluted earnings per shares	$ 0.01	$ 0.01	$ 0.01	$ 0.01
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	94,605,475	86,605,475	90,385,695	86,605,475
Diluted	94,605,475	86,605,475	90,385,695	86,605,475
All Other
NET SALES
Net Sales	1,998,740	1,734,770	5,452,839	4,776,102
Affiliated Entity
NET SALES
Net Sales	$ 2,290,577	$ 1,835,574	$ 5,857,573	$ 4,659,090

XML

SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2011

SUBSEQUENT EVENTS

Note 18 – SUBSEQUENT EVENTS

           For the nine months ended September 30, 2011, the Company has evaluated subsequent events for potential recognition and disclosure through the date of the financial statement issuance.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Nov. 14, 2011
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Trading Symbol	LWLL
Entity Registrant Name	Linkwell CORP
Entity Central Index Key	0001042463
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		94,605,475

XML

OTHER RECEIVABLES

9 Months Ended

Sep. 30, 2011

OTHER RECEIVABLES

NOTE 7 - OTHER RECEIVABLES

At September 30, 2011 and December 31, 2010, the Company had other receivables of $5,560,849 and $152,337, respectively. Other receivables at September 30, 2011 primarily included short-term advances to Wuhai Likang of approximately $5,160,000. This short-term advance accrues interest at an annual rate of 4%, and is payable upon demand.

Wuhai Likang was a related party of the Company in 2010 due to the Company being in the process of acquiring a controlling position in Wuhai Likang. On December 30, 2009, the Company issued 4,000,000 shares of common stock in exchange for acquiring a 51% equity interest in Wuhai Likang in China for $544,000 which was accounted for as a deposit as of March 31, 2011. However, the acquisition target has increased its registered capital to RMB 50 million by the contribution of new investors in April 2010, which resulted in a decrease of the equity interest owned by Linkwell to 7.65%. With this reduction in ownership, and reduction in influence over Wuhai Likang, the Company’s management has determined that Wuhai Likang is not deemed a related party.

Wuhai Likang is a major supplier and strategic partner to the Company. The Company has a large demand for a raw material which is produced from Wuhai Likang’s waste recycling project. Due to the need for this raw material, the Company made advances to Wuhai LiKang’s to support their waste recycling project which ultimately benefits the Company. As of December 31, 2010, the Company has made advances totaling $1,567,337 to provide operating funds to Wuhai Likang. The portion of such advances toprovide operating funds to Wuhai Likang was classified as due from related party as of December 31, 2010 pending approval of the acquisition. As of September 30, 2011, government approval for this acquisition had not occurred and is unable to be completed. During the nine months ended September 30, 2011, the existing shareholders of Wuhai Likang contributed additional capital into Wuhai Likang, which resulted in a reduction of the Company’s ownership position in Wuhai Likang to approximately 7.65% as of September 30, 2011. With this reduction in ownership, and reduction in influence over Wuhai Likang, the Company’s management has determined that Wuhai Likang is not deemed a related party. Accordingly, the due from related party of $1,567,337 as of December 31, 2010 and the approximate additional $3,600,000 advances made during the nine months ended September 30, 2011, have been classified as other receivables as of September 30, 2011.

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INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES

NOTE 12 - INCOME TAXES

The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

Linkwell Corp and Linkwell Tech were incorporated in the U.S. and have net operating losses (NOL) for income tax purposes.  Linkwell Corp and Linkwell Tech had net operating loss carry forwards for income taxes of approximately $2,809,000 at September 30, 2011, which may be available to reduce future years’ taxable income as NOL’s can be carried forward up to 20 years from the year the loss is incurred. Under IRC Section 382, certain of these loss carry-forward amounts may be limited due to the more than 50% change in ownership which took place during 2004. The Company’s management believes that the realization of benefits from these losses are uncertain due to the Company’s limited operating history and continuing losses. Accordingly, a 100% valuation allowance has been provided on the deferred tax asset of approximately $1,066,000.

Likang Disinfectant and Likang Biological are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.  Likang Disinfectant is subject to a preferential income tax rate of 12.5% for 2011 and 2010; Likang Biological is subject to an income tax rate of 25% since 2010.

XML

PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2011

PROPERTY AND EQUIPMENT

NOTE 3 – PROPERTY AND EQUIPMENT

At September 30, 2011 and December 31, 2010, property and equipment consisted of the following:

	Estimated Useful Life (In years)	2011			2010
		(Unaudited)
Office equipment and furniture	3-7	$	448,256		$	404,130
Autos and trucks	5		374,052			327,479
Manufacturing equipment	2-10		863,735			826,136
Building	5-20		1,687,740			1,643,684
Subtotal			3,373,782			3,201,429
Less: Accumulated depreciation			(1,282,956	)		(1,009,134	)
Property and equipment, net		$	2,090,826		$	2,192,295

           For the nine months ended September 30, 2011 and 2010, depreciation expenses amounted to approximately $228,000 and $191,000, respectively.For the three months ended September 30, 2011 and 2010, depreciation expenses amounted to approximately $56,000 and $66,000, respectively.

XML

RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2011

RELATED PARTY TRANSACTIONS

NOTE 9 – RELATED PARTY TRANSACTIONS

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

The Company’s Chairman and Chief Executive Officer, Xuelian Bian, and Vice President and Director, Wei Guan, own 90% and 10% respectively, of the capital stock of ZhongYou. In March 2007, Wei Guan sold his 10% ownership to Bing Chen, the President of LiKang Disinfectant. In August 2007, Xuelian Bian sold his 90% ownership 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, whose 100% owner is Shanghai Ajiao Shiye Co. Ltd. Mr. Bian is currently a 60% shareholder of Shanghai Ajiao Shiye Co. Ltd.

For the nine months ended September 30, 2011 and 2010, the Company recorded sales of $5,857,573 and $4,657,289 to ZhongYou, respectively.  For the three months ended September 30, 2011 and 2010, the Company recorded sales of $2,290,577 and $1,835,257 to ZhongYou, respectively.  At September 30, 2011 and December 31, 2010, accounts receivables from sales to ZhongYou (net of bad debt allowance) were $8,463,722 and $7,288,088, respectively.

 During the nine months ended September 30, 2011 and 2010, the Company recorded sales of $0 and $1,801 to Shanghai Jiuqing, respectively.  During the three months ended September 30, 2011 and 2010, the Company recorded sales of $0 and $300 to Shanghai Jiuqing, respectively.  At September 30, 2011 and December 31, 2010, accounts receivable from sales to Shanghai Jiuqing were $91,938 and $88,278, respectively. 

As of September 30, 2011 and December 31, 2010, $689,007 and $2,100,204 were due from related parties such as Shanghai Zhongyou Delivery Co., Ltd, Shanghai Likang Pharmaceutical Co., Ltd., and Shanghai Likang International Trading Co., Ltd (“Likang Trading”), respectively, representing short-term advances and other receivables not including the receivables from sales. As of September 30, 2011, the Company owed its management $54,000 and other related parties such as Likang Trading, Zhongyou, and Shanghai Jiuqing, $1,322,678.  As of December 31, 2010, the Company owed its management $54,000 and other related parties $1,326,628. Wuhai Likang was a related party of the Company at December 31, 2010 due to being in the process of acquiring a controlling position in Wuhai Likang (see Note 7).

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2011

STOCKHOLDERS' EQUITY

NOTE 14 – STOCKHOLDERS’ EQUITY

Common Stock 

On July 1, 2009, the Company entered into a two year consulting agreement with FirsTrust Group, Inc. for business development and capital markets advisory services. In connection with this agreement, the Company issued 1,800,000 shares of common stock valued at $0.09 per share to FirsTrust Group, Inc. and recorded $162,000 as deferred compensation. The Company had accumulated amortization of $162,000 for stock-based compensation as of September 30, 2011. This agreement has a penalty to FirsTrust Group, Inc. for non-compliance with its terms. The Company recorded stock based compensation of $40,500 and $60,750 during the nine months ended September 30, 2011 and 2010,respectively, with respect to this agreement. The stock-based compensation expense was fully expensed in June 2011.

On August 1, 2009, the Company entered into a two year agreement with Shanghai Hai Mai Law Firm for legal services. In connection with this agreement, the Company issued 2,350,000 shares of common stock valued at $0.10 per share to Shanghai Hai Mai Law Firm and recorded $235,000 as deferred compensation. This agreement has a penalty to Shanghai Hai Mai Law Firm for non-compliance with its terms. The Company recorded stock based compensation of $68,542 and $88,125 during the nine months ended September 30, 2011 and 2010, respectively, with respect to this agreement. The stock-based compensation expense was fully expensed in July 2011.

On May 25, 2011, the Company issued 8,000,000 shares of common stock to two directors and two employees under the Company’s 2005 Equity Compensation Plan, as amended, for the services they provided to the Company. The stock was valued at stock issuance date at $0.05 per share, and $400,000 was recorded as stock based compensation.

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TAXES PAYABLE

9 Months Ended

Sep. 30, 2011

TAXES PAYABLE

NOTE 10 – TAXES PAYABLE

Taxes payable consisted of the following at September 30, 2011 and December 31, 2010, respectively:

	2011		2010
	(Unaudited)
Income tax payable	$	179,792	$	132,140
Value added tax payable		92,682		225,810
Other taxes payable		6,444		7,425
	$	278,918	$	365,375

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LOANS PAYABLE

9 Months Ended

Sep. 30, 2011

LOANS PAYABLE

NOTE 8 - LOANS PAYABLE

Loans payable consisted of the following at September 30, 2011 and December 31, 2010:

	2011		2010
	(Unaudited)
Loan from Shanghai Rural Commercial Bank, Dachang Branch due on May 10, 2012 with interest rate of 6.94% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 7,400,000).	$	1,164,456	$	-
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on March 15, 2011 with interest rate 5.31% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 4,900,000).The Company paid off in full when it was mature.		-		739,880
Loans from Shanghai Rural Commercial Bank, Dachang Branch due on July 13, 2011 with interest rate 5.31% per annum. Guaranteed by Shanhai Group and Mr. Bian, Chairman of the Company (RMB   2,600,000). The Company paid off in full when it was mature.		-		392,589
Loan from Shanghai Rural Commercial Bank, Dachang Branch due on July 10, 2012 with interest rate of 8.53% per annum. Guaranteed by Shanhai Group (a strategic partner of the Company), and Mr. Bian, Chairman of the Company (RMB 2,600,000)		409,133		-
	$	1,573,589	$	1,132,469

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2011

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. 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, the Company discontinued its entertainment division and its 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 the Company’s 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 financial statements reflect the change in the capital structure of the Company due to the recapitalization and in 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”), a PRC company, through a stock exchange. This transaction resulted in the formation of a U.S. holding company by the shareholders of LiKang Disinfectant 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.

On March 25, 2008, the Company’s subsidiary, Linkwell Tech acquired the remaining 10% of Likang Disinfectant that it did not own.  The purchase price for the remaining 10% interest in Likang Disinfectant was $684,057, consisting of $399,057 in cash and 1,500,000 shares of the Company’s common stock valued at $285,000. The 10% interest in Likang Disinfectant had a value of $577,779 prior to the Company’s purchase. The $126,278 difference between purchase price and its value was deemed a dividend and deducted from retained earnings upon closing of the acquisition.

LiKang Disinfectant has developed a line of disinfectant product offerings which 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 and 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.

On February 15, 2008, the Company 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, 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 March 5, 2009, the Company’s subsidiary, Likang Disinfectant acquired 100% of Likang Biological, a company owned by related parties.

The unaudited financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2010 Annual Report on Form 10-K.  The results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011. 

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 (“U.S. GAAP”) and are expressed in US dollars.  All material intercompany transactions and balances have been eliminated in the consolidation.

Certain reclassifications have been made to the prior year to conform to current year’s presentation.  The consolidated financial statements of the Company include the accounts of its 90% owned subsidiary, Linkwell Tech, and 100% owned subsidiaries LiKang Disinfectant and Likang Biological. 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 nine and three months ended September 30, 2011 and 2010 include the allowance for doubtful accounts, useful life of property and equipment, and inventory reserve.

NON-CONTROLLING INTEREST

Effective January 1, 2009, the Company adopted Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” which established new standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case), that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires changes to certain presentation and disclosure requirements. Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results in a deficit NCI balance.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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

As of September 30, 2011 and December 31, 2010, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

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.

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. As of September 30, 2011 and December 31, 2010, the Company established, based on a review of its third party accounts receivable outstanding balances, allowances for doubtful accounts in the amounts of $974,465 and $952,232, respectively. As of September 30, 2011 and December 31, 2010, the Company established , based on a review of its related party accounts receivable outstanding balances, allowances for doubtful accounts in the amounts of $623,235 and $598,034, respectively. Majority of the allowances is on accounts receivable from Shanghai Zhongyou Pharmaceutical High Tech Co., LTD.

As is customary in the PRC, the Company extends relatively long payment terms to our customers as compared with those customary in the United States, with sales to both third parties and related parties generally requiring payment within four to six months. For nine months ended September 30, 2011, the average time of payment on accounts receivable from related parties was about nine months. Based upon the Company’s long-standing relationship with these related parties and their respective principals, the Company believes that related party receivables are collectible. To the best of the Company’s knowledge, there is no company-related issue with respect to any related party that might be delaying payment, nor are there any negative issues impacting its relationship with any related party.

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 September 30, 2011 and December 31, 2010, the reserve for obsolete inventory amounted to $0.

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 range from five to twenty 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 the income statement in the year of disposition.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, during the nine and three months ended September 30, 2011 and 2010, there were no significant impairment of its long lived assets.

ADVANCES FROM CUSTOMERS

As of September 30, 2011 and December 31, 2010, advances from customers were $448,614 and $286,914, respectively. These advances 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.

INCOME TAXES

The Company utilizes Statement of Financial Accounting Standards ("SFAS") No. 109, “Accounting for Income Taxes,” (codified in Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC” Topic 740), which requires recognition of deferred tax assets and liabilities for expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company adopted the provisions of the Financial Accounting Standards Board's ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740). When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.  The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expenses and penalties are classified in other expenses in the statements of income. At September 30, 2011 and December 31, 2010, the Company did not take any uncertain positions that would necessitate recording of tax related liability.

BASIC AND DILUTED EARNINGS PER SHARE

The Company presents net income (loss) per share (“EPS”) in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share” (codified in FASB ASC Topic 740). 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 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.  

            The following table presents a reconciliation of basic and diluted earnings per share for the nine months ended September 30, 2011 and 2010:

	2011		2010
Net income	$	1,283,920	$	914,986
Weighted average shares outstanding - basic		90,385,695		86,605,475
Effect of dilutive securities:
Unexercised warrants		-		-
Weighted average shares outstanding - diluted		90,385,695		86,605,475
Earnings per share - basic	$	0.01	$	0.01
Earnings per share - diluted	$	0.01	$	0.01

            The following table presents a reconciliation of basic and diluted earnings per share for the three months ended September 30, 2011 and 2010:

	2011		2010
Net income	$	833,449	$	530,220
Weighted average shares outstanding - basic		94,605,475		86,605,475
Effect of dilutive securities:
Unexercised warrants		-
Weighted average shares outstanding - diluted		94,605,475		86,605,475
Earnings per share - basic	$	0.01	$	0.01
Earnings per share - diluted	$	0.01	$	0.01

REVENUE RECOGNITION

The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). The Company records revenue when an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenue streams of the Company. The Company's revenues from the sale of products are recorded when the goods are shipped, title passes, and collectability 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 collectability 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.

STATEMENT OF CASH FLOWS

In accordance with SFAS No. 95, “Statement of Cash Flows,” codified in FASB ASC Topic 230, cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheets.  

CONCENTRATION OF BUSINESS AND 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. The majority of the Company’s bank accounts in banks located in the PRC are not covered by any type of protection similar to that provided by the FDIC on funds held in U.S banks. As of September 30, 2011 and December 31, 2010, the Company maintained cash in the U.S. in a financial institution insured by the FDIC in the approximate amounts of $5,430 and $2,315, respectively. 

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 are limited due to the 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 nine months ended September 30, 2011 and 2010, sales to related parties accounted for 52% and 49% of net revenue, respectively.  For the three months ended September 30, 2011 and 2010, sales to related parties accounted for 53% and 51% of net revenue, respectively.

The Company is operating in the People’s Republic of China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the U.S. dollar and the RMB.

Payments of dividends may be subject to some restrictions.

FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME

The Company primarily operates in the PRC. The financial position and results of operations of the subsidiaries are determined using the local currency (“Renminbi” or “RMB”) as the functional currency.

Translation from RMB into United States dollars (“USD” or “$”) for reporting purposes is performed by translating the results of operations denominated in foreign currency at the weighted average rates of exchange during the reporting periods. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated at the market rate of exchange in effect at that date. The registered equity capital denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. All translation adjustments resulting from the translation of the financial statements into USD are reported as a component of accumulated other comprehensive income in shareholders’ equity. The exchange rates used in translation from RMB to USD amount were published by People’s Bank of the People’s Republic of China.

	September 30, 2011	December 31, 2010
	(Unaudited)
Balance sheet items, except for the registered and paid-up capital and retained earnings as of September 30, 2011 and December 31, 2010.	US$1=RMB6.3549	US$1=RMB6.6227

	Nine Months Ended September 30,
	2011	2010
	(Unaudited)	(Unaudited)
Amounts included in the statements of operations, and statements of cash flow for the nine months ended September 30, 2011 and 2010.	US$1=RMB6.4975	US$1=RMB6.8068

SHIPPING COSTS

Shipping costs are included in selling expenses and totaled $439,706 and $304,301 for the nine months ended September 30, 2011 and 2010, respectively.  Shipping costs were $170,869 and $92,789, respectively for the three months ended September 30, 2011 and 2010.

ADVERTISING

Advertising is expensed as incurred and included in selling expenses. For the nine months ended September 30, 2011 and 2010, advertising expenses amounted to $39,843 and $51,577, respectively.  For the three months ended September 30, 2011 and 2010, advertising expenses amounted to $15,462 and $18,355, respectively.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (codified in FASB ASC Topics 718 & 505). The Company recognizes in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

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, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

REGISTRATION RIGHTS AGREEMENTS

The Company accounts for payment arrangements under registration rights agreement in accordance with FASB Staff Position EITF 00-19-2 (codified in FASB ASC Topic 815), which requires the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies (codified in FASB ASC Topic 450).

The Company has adopted EITF 05-4, “Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument. ” 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. Accordingly, (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.

RESEARCH AND DEVELOPMENT COST

Research and development costs are expensed as incurred and included in general and administrative expenses. 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 nine months ended September 30, 2011 and 2010 were $147,930 and $164,300, respectively.  Research and development costs for the three months ended September 30, 2011 and 2010 were $82,646 and $60,794, respectively.

SEGMENT REPORTING

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (codified in FASB ASC Topic 280) requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

SFAS 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment. All of the Company's assets are located in the PRC.

RECLASSIFICATIONS

Certain prior year amounts were reclassified to conform to the manner of presentation in the current period.

RECENT ACCOUNTING PRONOUNCEMENTS

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

In December 2010, FASB issued ASU No. 2010-28, Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to retained earnings beginning in the period of an adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

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

In April 2010 the FASB issued Accounting Standards Update (ASU) No. 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to Accounting Standards Codification (ASC) Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

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CONSTRUCTION IN PROGRESS

9 Months Ended

Sep. 30, 2011

CONSTRUCTION IN PROGRESS

NOTE 4 – CONSTRUCTION IN PROGRESS

The Company had construction in progress of $176,156 for constructing a warehouse for storage of the finished products, a workshop and research and development center.  The estimated total cost for the construction is approximately $360,000, and the Company is required to pay an additional $190,000 to finish the construction by the end of the 2011.

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INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2011

INTANGIBLE ASSETS

NOTE 5 - INTANGIBLE ASSETS

At September 30, 2011 and December 31, 2010, intangible assets consisted of customers’ lists arising from the acquisition of Likang Biological, amortized over 5 years. Net intangible assets as of September 30, 2011 and December 31, 2010 totaled $333,871 and $410,918, respectively.  Amortization expenses for the nine months ended September 30, 2011 and 2010 were $77,047 and $77,047, respectively.  Amortization expenses for the three months ended September 30, 2011 and 2010 were $25,682 and $25,682. Annual amortization expenses for the next five years from September 30, 2011 are expected to be: $102,730, $102,730, $102,730, $25,681 and $0.

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STATUTORY RESERVES

9 Months Ended

Sep. 30, 2011

STATUTORY RESERVES

NOTE 13 - STATUTORY RESERVES

Pursuant to the PRC’s corporate law effective as of January 1, 2006, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.

Surplus Reserve Fund

The Company’s Chinese subsidiaries are now only required to transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. The Company’s Chinese subsidiaries are not required to make appropriations to other reserve funds and do not have any intention to make appropriations to any other reserve funds. There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Company’s Chinese subsidiaries do not do so.

The surplus reserve fund is non-distributable other than during liquidation, can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Common Welfare Fund

The common welfare fund is a voluntary fund that provides that the Company can elect to transfer 5% to 10% of its net income to this fund. This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.  The Company did not make any transfer to this fund during nine months ended September 30, 2011 and 2010.

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DEPOSITS

9 Months Ended

Sep. 30, 2011

DEPOSITS

NOTE 6 - DEPOSITS

At September 30, 2011 and December 31, 2010, deposits mainly represented prepaid application fee of $544,000 for the deposit of purchasing an acquisition target, Inner Mongolia Wuhai Likang Biological Hi-Tech Co., Ltd (“Wuhai LiKang”).

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CONTINGENCY

9 Months Ended

Sep. 30, 2011

CONTINGENCY

NOTE 16 – CONTINGENCY

On May 23, 2011, the Company entered into a Settlement Agreement (“Settlement Agreement”) with Alpha Capital Aktiengesellschaft (“Alpha”) and Osher Capital Inc. (“Osher”) (Alpha and Osher collectively the “Plaintiffs”) for the lawsuit the Plaintiffs filed against us in the Supreme Court of the State of New York, County of New York, as previously disclosed in the Quarterly Report on Form 10-Q, filed with the SEC on May 16, 2011. In satisfaction of all the obligations stated under the terms of the Settlement Agreement, the Company agreed to pay Alpha Eighty Thousand Dollars ($80,000) and Osher Forty Thousand Dollars ($40,000). Upon the execution of the Settlement Agreement and in consideration of the terms and conditions in the Agreement, both parties will mutually release and forever discharge any and all claims, whether known or unknown, that the parties may now have or may hereafter have against each other from the beginning of time through the date of the Settlement Agreement. The Company recorded $120,000 as expense accordingly.

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CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED) (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Income including noncontrolling interest	$ 1,496,471	$ 1,034,582
Adjustments to reconcile income including noncontrolling interest to net cash used in operating activities:
Stock compensation expense	400,000
Deferred compensation	109,042	148,875
Depreciation and amortization	305,384	268,242
Loss from disposal of property	42,438	1,092
Increase(decrease) in current assets
Accounts receivable	(50,066)	224,027
Accounts receivable - related party	(858,004)	(1,968,200)
Other receivables	(3,558,583)	(874,484)
Inventories	(781,277)	(134,157)
Deposits, prepaid expenses and other current assets	7,346	(23,057)
Increase(decrease) in current liabilities
Accounts payable	977,050	517,357
Other payables, accrued expenses	(474,824)	(76,160)
Advances from customers	146,326
Taxes payable	(99,620)	19,357
NET CASH USED IN OPERATING ACTIVITIES	(2,338,317)	(862,526)
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in progress	(172,290)	(47,894)
Purchase of property, plant and equipment	(81,176)	(171,874)
NET CASH USED IN INVESTING ACTIVITIES	(253,466)	(219,768)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in due to related parties	176,666	(199,484)
Change in due from related parties	(175,529)	680,062
Repayment of short-term loans		(381,971)
Proceeds from loans payable	384,763	1,469,135
NET CASH PROVIDED BY FINANCING ACTIVITIES	385,900	1,567,742
EFFECT OF EXCHANGE RATE ON CASH	94,800	47,745
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(2,111,083)	533,193
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	3,170,529	2,144,360
CASH AND CASH EQUIVALENTS, END OF PERIOD	1,059,446	2,677,553
Cash paid for:
Interest	55,896	31,806
Income taxes	$ 375,999	$ 262,552

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OPERATING RISK

9 Months Ended

Sep. 30, 2011

OPERATING RISK

NOTE 17 – OPERATING RISK

(a) Country risk

Currently, the Company’s revenues are primarily derived from the sale of a line of disinfectant products to customers in the 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 products, 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 cannot 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. This is because a fluctuating exchange rate may post a higher or lower profit depending on exchange rate of Renminbi converted to US dollars on that day. 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 country. Additionally, the PRC currently allows a Chinese corporation to be owned by a United States corporation. If the PRC government changes laws or regulations relating to the ownership of a Chinese corporation, then the Company's ability to operate its PRC subsidiaries could be affected.

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INVENTORIES

9 Months Ended

Sep. 30, 2011

INVENTORIES

NOTE 2 – INVENTORIES

A summary of inventories by major category as of September 30, 2011 and December 31, 2010 were as follows:

	2011		2010
	(Unaudited)
Raw materials	$	1,140,076	$	820,293
Work-in-process		38,363		31,398
Finished goods		1,780,702		1,221,285
Net inventories	$	2,959,141	$	2,072,976

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PUT OPTION LIABILITY

9 Months Ended

Sep. 30, 2011

PUT OPTION LIABILITY

NOTE 11 –PUT OPTION LIABILITY

On February 15, 2008, the Company entered into a stock purchase agreement with 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 the beneficiaries of, 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 that Ecolab purchased under the Stock Purchase Agreement back to Linkwell Tech in exchange for, as determined by Linkwell Tech, cash in the amount of $2,400,000 or the lesser of (a) 10,000,000 shares of Linkwell common stock, or (b) such number of shares of Linkwell common stock as is determined by dividing 3,500,000 by the average daily closing price of Linkwell common stock for the twenty days on which Linkwell 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 is subject to a change of control transaction, to require the Company to sell to Ecolab all of the equity interests in Linkwell Tech, or any of Linkwell Tech’s subsidiaries, then owned by the Company. The Company recognized the maximum expenses of the Put Option and the Call Option described above as $2,400,000 put option liability.

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COMMITMENTS

9 Months Ended

Sep. 30, 2011

COMMITMENTS

NOTE 15 - COMMITMENTS

           On July 16, 2008, the Company entered a two-year lease agreement for its administrative office with expiration date on July 15, 2010, for monthly rent of $4,400 (RMB 30,237) until April 2009, the monthly rent increased to $9,470 (RMB 64,669) after April 2009.  The Company renewed this lease after the expiration and monthly rent increased to $11,000 (RMB 73,173). The lease will expire on December 31, 2011. 

On November 1, 2008, the Company entered another two-year lease agreement for its branch office with expiration date on October 31, 2010, for monthly rent of $3,500 (RMB 24,000). The Company renewed this lease with the same amount of rent after the expiration. The lease expired on October 31, 2011 and has recently been renewed.

Future minimum rental payments required under these operating leases are as follows:

As of  September 30, 2011
Remainder of Fiscal 2011	$	38,000

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CONSOLIDATED BALANCE SHEETS Unaudited September 30, 2011 (USD $)	Sep. 30, 2011	Dec. 31, 2010
CURRENT ASSETS
Cash and cash equivalents	$ 1,059,446	$ 3,170,529
Accounts receivable, net	3,125,354	2,949,855
Accounts receivable - related parties, net	8,555,660	7,376,366
Due from related party	689,007	2,100,204
Other receivables	5,560,849	152,337
Inventories, net	2,959,141	2,072,976
Prepaid expenses and other current assets	990,481	957,633
Total current assets	22,939,938	18,779,900
NON-CURRENT ASSETS
Property, plant and equipment, net	2,090,826	2,192,295
Deposit	554,000	554,000
Construction in progress	176,156
Intangible assets	333,871	410,918
Total non-current assets	3,154,853	3,157,213
TOTAL ASSETS	26,094,791	21,937,113
CURRENT LIABILITIES
Loans payable	1,573,589	1,132,469
Accounts payable	3,075,157	1,992,228
Accrued expenses	292,759	346,381
Advances from customers	448,614	286,914
Taxes payable	278,918	365,375
Other payables		61,247
Due to related parties	1,376,678	1,380,628
Total current liabilities	7,045,715	5,565,242
Put option liability	2,400,000	2,400,000
Total liability	9,445,715	7,965,242
COMMITMENT AND CONTINGENCY
STOCKHOLDERS' EQUITY
Preferred Stock, No par value; 10,000,000 authorized, no shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
Common Stock, $.0005 par value, 150,000,000 authorized, 94,605,475 shares issued and 86,605,475 outstanding at September 30, 2011 and December 31, 2010, respectively	47,302	43,303
Additional paid-in capital	7,870,020	7,474,021
Statutory surplus reserve	802,749	802,749
Deferred compensation		(109,042)
Retained earnings	5,472,439	4,188,519
Accumulated other comprehensive income	1,738,315	1,066,622
Total Linkwell Corporation stockholder's equity	15,930,825	13,466,172
NONCONTROLLING INTEREST	718,251	505,699
TOTAL STOCKHOLDERS' EQUITY	16,649,076	13,971,871
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$ 26,094,791	$ 21,937,113