INCOME TAXES

12 Months Ended

Dec. 31, 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.

The Company and Linkwell Tech were incorporated in the U.S. and have net operating losses (NOL) for income tax purposes. The Company and Linkwell Tech had net operating loss carry forwards for income taxes of approximately $2.92 million as of December 31, 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 $1.11 million.

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 2010 and 15% for 2011 as its high-tech tax status; Likang Biological is subject to an income tax rate of 25% since 2010.

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

	2011			2010
US statutory rates		34.0	%		34.0	%
State income tax, net of federal benefit		4.0	%		4.0	%
Tax rate difference between China and U.S.		(16.3	)%		(17.1	)%
Effect of tax holiday on PRC taxable income		(11.9	)%		(18.3	)%
Other		(0.8	)%		6.9	%
Valuation allowance on US NOL		9.5	%		16.2	%
Tax per financial statements		18.5	%		25.7	%