-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcbYjsCWxz2upXzhqAusdr7p7VkjrRgN9jMc1uJ+7kAJinyy0qHn1tpFlsApf0FG cKotiJaKT3ni9lLhzROk1g== 0001282826-05-000115.txt : 20051121 0001282826-05-000115.hdr.sgml : 20051121 20051121171221 ACCESSION NUMBER: 0001282826-05-000115 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051121 DATE AS OF CHANGE: 20051121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Linkwell CORP CENTRAL INDEX KEY: 0001042463 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 651053546 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24977 FILM NUMBER: 051218810 BUSINESS ADDRESS: STREET 1: NO. 476 HUTAI BRANCH ROAD STREET 2: BAOSHAN DISTRICT CITY: SHANGHAI STATE: F4 ZIP: 200436 BUSINESS PHONE: (86) 21-56689332 MAIL ADDRESS: STREET 1: NO. 476 HUTAI BRANCH ROAD STREET 2: BAOSHAN DISTRICT CITY: SHANGHAI STATE: F4 ZIP: 200436 FORMER COMPANY: FORMER CONFORMED NAME: KIRSHNER ENTERTAINMENT & TECHNOLOGIES INC DATE OF NAME CHANGE: 20030818 FORMER COMPANY: FORMER CONFORMED NAME: HBOA HOLDINGS INC DATE OF NAME CHANGE: 20001116 FORMER COMPANY: FORMER CONFORMED NAME: MIZAR ENERGY CO DATE OF NAME CHANGE: 19980923 10QSB 1 lnlkwl9300510q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from ________ to __________ Commission File Number: 000-24977 LINKWELL CORPORATION (Exact name of small business issuer as specified in charter) FLORIDA 65-1053546 ------- ---------- (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) No. 476 Hutai Branch Road, Baoshan District Shanghai, China 200436 - ------------------------------------------------ ------------- (Address of principal executive offices) (Zip Code) (86) 21-56689332 (Issuer's telephone number, including area code) KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. (Former name or former address, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[ ] No [x] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 45,304,139 shares at November 14, 2005 Transitional Small Business Disclosure Format (Check one): Yes[ ] No [x] LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) FORM 10-QSB QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005 INDEX Page PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements Consolidated Balance Sheet (Unaudited) As of September 30, 2005...........................................3 Consolidated Statements of Operations (Unaudited) For the Three and Nine Months Ended September 30, 2005 and 2004 ...4 Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2005 and 2004..............5 Notes to Unaudited Consolidated Financial Statements...................6-12 Item 2 - Management's Discussion and Analysis or Plan of operations...12-16 Item 3 - Controls and Procedures.........................................17 PART II - OTHER INFORMATION Item 1 - Legal Proceedings...............................................17 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.....17 Item 3 - Default Upon Senior Securities..................................18 Item 4 - Submission of Matters to a Vote of Security Holders.............18 Item 5 - Other Information...............................................18 Item 6 - Exhibits........................................................18 Signatures...............................................................18 -2- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) CONSOLIDATED BALANCE SHEET September 30, 2005 (Unaudited)
ASSETS CURRENT ASSETS: Cash $ 257,590 Accounts receivable, net of allowance for doubtful accounts of $155,670 1,496,832 Inventories 761,183 Prepaid expenses and other 85,270 Due from related party 1,011,920 -------------------- Total Current Assets 3,612,795 PROPERTY AND EQUIPMENT - Net 338,506 -------------------- Total Assets $ 3,951,301 ==================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Loans Payable $ 628,853 Accounts payable and accrued expenses 1,036,203 Deferred revenues 16,334 Due to related party 19,667 Income Tax Payable 105,362 Advances from customers 644,203 -------------------- Total Current Liabilities 2,450,622 OTHER PAYABLE 225,850 -------------------- Total Liabilities 2,676,472 -------------------- MINORITY INTEREST 194,013 -------------------- STOCKHOLDERS' EQUITY: Preferred stock (No Par Value; 10,000,000 Shares Authorized; No shares issued and outstanding) - Series A convertible preferred stock (No Par Value; 500,000 Shares Authorized; 375,345 shares issued and outstanding) 234,240 Common Stock ($0.0005 Par Value; 150,000,000 Shares Authorized; 45,304,139 shares issued and outstanding) 22,652 Additional paid-in capital 1,072,062 Retained earnings (117,977) Deferred compensation (146,667) Other comprehensive gain - foreign currency 16,506 -------------------- Total Stockholders' Equity 1,080,816 -------------------- Total Liabilities and Stockholders' Equity $ 3,951,301 ====================
See notes to unaudited consolidated financial statements -3- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months For the Nine Months Ended September 30, Ended September 30, -------------------------------- -------------------------------- 2005 2004 2005 2004 --------------- --------------- --------------- --------------- NET REVENUES $ 1,690,922 $ 1,202,497 $ 3,826,067 $ 3,300,022 COST OF SALES 1,057,987 919,235 2,553,646 2,266,392 --------------- --------------- --------------- --------------- GROSS PROFIT 632,935 283,262 1,272,421 1,033,630 --------------- --------------- --------------- --------------- OPERATING EXPENSES: Selling expenses 82,625 66,596 191,144 165,442 General and administrative 249,739 232,792 670,004 401,141 --------------- --------------- --------------- --------------- Total Operating Expenses 332,364 299,388 861,148 566,583 --------------- --------------- --------------- --------------- INCOME (LOSS) FROM OPERATIONS 300,571 (16,126) 411,273 467,047 --------------- --------------- --------------- --------------- OTHER INCOME (EXPENSE): Other income (expense) - 7,608 (1,805) 7,608 Interest income 350 380 789 1,029 Interest expense (10,592) (7,988) (32,046) (21,827) --------------- --------------- --------------- --------------- Total Other Expense (10,242) - (33,062) (20,798) --------------- --------------- --------------- --------------- INCOME (LOSS) BEFORE INCOME TAXES 290,329 (16,126) 378,211 453,857 INCOME TAXES (52,316) (3,173) (82,716) (80,729) --------------- --------------- --------------- --------------- INCOME (LOSS) BEFORE MINORITY INTEREST 238,013 (19,299) 295,495 373,128 MINORITY INTEREST (19,518) 9,685 (37,647) (37,313) --------------- --------------- --------------- --------------- NET INCOME (LOSS) 218,495 (9,614) 257,848 335,815 BENEFICIAL CONVERSION FEATURE - PREFERRED STOCK (300,276) - (300,276) - --------------- --------------- --------------- --------------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (81,781) $ (9,614) $ (42,428) $ 335,815 =============== =============== =============== =============== NET INCOME (LOSS) PER COMMON SHARE: Basic $ 0.00 $ 0.00 $ 0.00 $ 0.01 =============== =============== =============== =============== Diluted $ 0.00 $ 0.00 $ 0.00 $ 0.01 =============== =============== =============== =============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 43,934,574 36,273,470 40,374,683 36,273,470 =============== =============== =============== =============== Diluted 43,934,574 36,273,470 40,374,683 36,273,470 =============== =============== =============== ===============
See notes to unaudited consolidated financial statements -4- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, ------------------------------------- 2005 2004 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 257,848 $ 335,815 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 20,083 26,187 Minority interest 41,449 37,313 Allowance for doubtful accounts 118,620 - Stock-based compensation 13,333 - Changes in assets and liabilities: Accounts receivable (510,867) (739,759) Inventories 180,128 (172,705) Prepaid and other current assets (7,028) 70,603 Accounts payable and accrued expenses (117,801) 812,164 Due to related party (238,575) (103,136) Deferred revenues 1,466 - Tax Payable 105,362 29,977 Advances from customers 397,366 (140,309) Other payables (196,855) - ----------------- ----------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 64,529 156,150 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash received in acquisition 2,460 - Purchase of property, plant and equipment (104,308) (96,086) ----------------- ----------------- NET CASH USED IN INVESTING ACTIVITIES (101,848) (96,086) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on loans payable 326,920 - Proceeds from sale of preferred stock 234,240 - Increase in amount due from related party (750,616) (283,206) ----------------- ----------------- NET CASH USED IN FINANCING ACTIVITIES (189,456) (283,206) ----------------- ----------------- EFFECT OF EXCHANGE RATE ON CASH 16,506 - ----------------- ----------------- NET DECREASE IN CASH (210,269) (223,142) CASH - beginning of year 467,859 397,177 ----------------- ----------------- CASH - end of period $ 257,590 $ 174,035 ================= ================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 32,046 $ 21,827 ================= ================= Income taxes $ 82,716 $ 80,729 ================= =================
See notes to unaudited consolidated financial statements. -5- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments have been included and all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the financial statements for the year ended December 31, 2004 and notes thereto contained in the Report on Form 10-KSB of Kirshner Entertainment & Technologies, Inc. and with the financial statements for the year ended December 31, 2004 and notes thereto contained in the Report on Form 8-K of Linkwell Tech Group, Inc. and Subsidiary as filed with the Securities and Exchange Commission (the "Commission"). The results of operations for the nine months ended September 30, 2005 are not necessarily indicative of the results for the full fiscal year ending December 31, 2005. The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The consolidated financials statements of the Company include the accounts of its wholly-owned subsidiary, Linkwell Tech Group, Inc., and its 90% owned subsidiary. All significant inter-company balances and transactions have been eliminated. Organization Kirshner Entertainment & Technologies, Inc. (the Company) was incorporated in the state of Colorado on December 11, 1996. On May 31, 2000, the Company acquired 100% of HBOA.Com, Inc. The Company focused on development of an Internet portal through which home based business owners, as well as commercial private label businesses, obtain the products, services, and information necessary to start, expand and profitably run their businesses. On December 28, 2000, the Company formed a new subsidiary, Aerisys Incorporated ("Aerisys"), a Florida corporation, to handle commercial private business. In March 2003, the Company formed its entertainment division and changed its name to reflect this new division. Effective as of March 31, 2003, we decided to discontinue our entertainment division and our technology division, except for the Aerisys operations that continue on a limited basis. On May 2, 2005, the Company entered into and consummated a share exchange with all of the shareholders of Linkwell Tech Group, Inc. ("Linkwell"). Pursuant to the share exchange, the Company acquired 100% of the issued and outstanding shares of Linkwell's common stock, in exchange for 36,273,470 shares of our common stock, which at closing represented approximately 87.5% of the issued and outstanding shares of our common stock. As a result of the transaction, Linkwell 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 3,775,669 or approximately 12.5% of the outstanding stock. The consolidated financials statements reflect the change in the capital structure of the Company due to the recapitalization and the consolidated financial statements reflect the operations of the Company and its subsidiaries for the periods presented. Linkwell was founded on June 22, 2004, as a Florida corporation. On June 30, 2004, Linkwell acquired 90% of Shanghai Likang Disinfectant Co., Ltd. ("Likang") through a stock exchange. Likang is a science and technology enterprise founded in 1993. Likang is involved in the development, production, marketing and sale, and distribution of disinfectant health care products. -6- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Organization (continued) Likang's products are utilized by the hospital and medical industry in China. Likang has developed a line of disinfectant product offerings. Likang regards the hospital disinfecting products as the primary segment of its business. Relying on the research and development strength, unique technology and the competitive advantages of the numerous professional staff rooms of Second Military Medical University, Likang has developed and manufactured multiple products series in the field of skin mucous disinfection, hand disinfection, surrounding articles disinfection, medical instruments disinfection and air disinfection. The Aerisys Intelligent Community(TM ) is a web-based software program and private, browser-based intranet that allows schools to collaborate with parents and faculty each day on classroom homework, assignments, critical dates, team priorities and school news in a private forum. The network is branded to a private logo and color scheme for each school and Aerisys hosts the community for the schools. Parents can receive private or group messages from teachers and administrators, and schools are able to reduce paper costs. 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. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 2005 and 2004 include the allowance for doubtful accounts. Inventories Inventories, consisting of raw materials and finished goods related to the Company's products are stated at the lower of cost or market utilizing the first-in, first-out method. Revenue recognition The Company follows the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin 104 for revenue recognition. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectibility is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company: Revenues of Aerisys Inc. are recognized at the time the services are rendered to customers. Services are rendered when the Company's representatives receive the customers' requests and complete the customers' orders. For contacts over a period of time, Aerisys recognizes the revenue on a straight-line basis over the period that the services are provided. The Company's revenues from the sale of products are recorded when the goods are shipped, title passes, and collectibility is reasonably assured. -7- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Loss per common share Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Not included in basic shares are 3,753,450 common shares issuable upon conversion of preferred stock and 3,753,450 stock warrants because they are anti-dilutive in 2005. In the 2004 period, the Company did not have any common stock equivalents. Stock-based compensation The Company accounts for stock options issued to employees in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation cost is measured on the date of grant as the excess of the current market price of the underlying stock over the exercise price. Such compensation amounts are amortized over the respective vesting periods of the option grant. The Company adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for Stock-Based Compensation -Transition and Disclosure", which permits entities to provide pro forma net income (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants as if the fair-valued based method defined in SFAS No. 123 had been applied. The Company accounts for stock options and stock issued to non-employees for goods or services in accordance with the fair value method of SFAS 123. Foreign currency translation Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," and are included in determining net income or loss. The functional and reporting currency is the U.S. dollar. The functional currency of the Company's Chinese subsidiary is the local currency. The financial statements of the subsidiary are translated into United States dollars using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not material during the periods presented because the Chinese dollar (RMB) fluctuates with the United States dollar. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment and effect of exchange rate changes on cash at September 30, 2005 was not material. On July 21, 2005, China allowed the Chinese RMB to fluctuate, ending its decade-old valuation peg to the U.S. dollar. The new RMB rate reflects an approximately 2% increase in value against the U.S. dollar. Historically, the Chinese government has benchmarked the RMB exchange ratio against the U.S. dollar, thereby mitigating the associated foreign currency exchange rate fluctuation risk. The Company does not believe that its foreign currency exchange rate fluctuation risk is significant, especially if the Chinese government continues to benchmark the RMB against the U.S. dollar. -8- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent accounting pronouncements (continued) In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant- date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective for the first fiscal year beginning after December 15, 2005. The Company is in process of evaluating the impact of this pronouncement on its financial position. In April 2005, the Securities and Exchange Commission's Office of the Chief Accountant and its Division of Corporation Finance has released Staff Accounting Bulletin (SAB) No.107 to provide guidance regarding the application of FASB Statement No.123 (revised 2004), Share-Based Payment. Statement No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SAB 107 provides interpretative guidance related to the interaction between Statement No. 123R and certain SEC rules and regulations, as well as the staff's views regarding the valuation of share-based payment arrangements for public companies. SAB 107 also reminds public companies of the importance of including disclosures within filings made with the SEC relating to the accounting for share-based payment transactions, particularly during the transition to Statement No. 123R. In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"). This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, this Statement requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, this Statement requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. This Statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not believe that the adoption of SFAS 154 will have a significant effect on its financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. -9- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 2 - INVENTORIES At September 30, 2005, inventories consisted of the following: Raw materials $ 210,816 Finished goods 672,941 -------------- 883,757 Les: reserve for obsolescence (122,574) -------------- $ 761,183 ============== NOTE 3 - RELATED PARTY TRANSACTIONS The Company's 90% owned subsidiary, Likang, is engaged in business activities with two affiliated entities. Shanghai Likang Machinery and Medicine Company, Limited, which is owned by Messrs. Xuelian Bian and Wei Guan, our officers and directors, sells our products to third parties. Additionally, Shanghai Likang Machinery and Medicine Company, Limited advanced the Company funds for working capital purposes. At September 30, 2005, the amount owed to the Company by Shanghai Likang Machinery and Medicine Company Limited was $1,011,920. Shanghai Likang Meirui Pharmaceuticals High-Tech Company, a company of which Shanghai Shanhai Group, Likang's minority shareholder, owns 68%, provides certain contract manufacturing of two products for Likang. At September 30, 2005, Likang owed Shanghai Likang Meirui Pharmaceuticals High-Tech Company $4,667. At September 30, 2005, the Company owed $15,000 to a shareholder of the Company for working capital advanced to the Company's subsidiary, Aerisys, The advanced are non-interest bearing and are payable on demand. NOTE 4 - STOCKHOLDERS' EQUITY Preferred Stock On May 11, 2005, the Company's Board of Directors approved the creation of 500,000 shares of Series A Convertible Preferred Stock having the following rights, preferences and limitations: (a) each share has a stated value of $.80 per share and no par value; (b) each share ranks equally with any other series of preferred stock designated by the Company and not designated as senior securities or subordinate to the Series A Convertible Preferred Stock,; (c) each share entitles the holder to receive a six percent (6%) per annum cumulative dividend when, as and if, declared by the Board of Directors of the Company; (d) these shares are convertible into shares of the company's Common Stock at a per share value of $.08 per share,; (e) the shares have no voting rights, and (f) the shares are not subject to redemption. On June 30, 2005, the Company completed an approximate $234,240 (net of costs of $65,760) financing consisting of 375,345 shares of its 6% Series A Preferred Stock, and common stock purchase warrants to purchase an additional 3,753,450 shares. Each warrant entitles the holder to purchase one share of common stock for a period of five years, at an exercise price of $.10 per share, subject to adjustment. The net proceeds from the transaction will be used for general working capital purposes. -10- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 3 - STOCKHOLDERS' EQUITY (continued) Preferred Stock (continued) To the extent that the investors continue to own the 6% Series A Preferred Stock or warrants, the Company has agreed to issue the investors additional shares and/or warrants to protect against the Company's future issuance of common stock or securities convertible into common stock at less than the $.08 per share conversion price of the preferred stock and/or $.10 per share exercise price of the warrants, respectively. In addition, the Company also granted the holders piggy-back registration rights covering the shares of its common stock underlying the preferred stock and warrants. On the date of issuance of the Series A Preferred Stock, the effective conversion price was at a discount to the price of the common stock into which it was convertible. The Company recorded a $300,276 preferred stock dividend related to the beneficial conversion feature and the fair value of the warrants granted in connection with the preferred stock. Common Stock On March 24, 2005, the Company effected a 1 for 10 reverse split of its issued and outstanding shares of common stock resulting in a decrease in the number of shares outstanding as a result of such split from 36,256,669 to 3,625,669. In addition the Company amended its Articles of Incorporation to provide that any division or combination of the Company's capital stock shall not result in a change, reduction or increase in the authorized capital stock of the Company. The Articles were amended on March 23, 2005. All share and per-shares information has been restated to reflect this reverse stock split. In April 2005, the Company issued 150,000 shares of common stock to a former employee for services rendered. In connection with the share exchange agreement, in order to satisfy all outstanding obligations and indebtedness owed by the Company to Mr. Verdier and certain third parties, certain parties related to Linkwell provided the Company with cash of $175,000 which the Company provided to Verdier to be used by Verdier to pay the Company's third party creditors (including Mr. Verdier), and the Company issued to Mr. Verdier 1,400,000 shares of our common stock. On May 2, 2005, the Company issued 36,273,470 shares of its common stock to two individuals under the terms of a Share Exchange Agreement dated May 2, 2005. This transaction, which resulted in Linkwell becoming a wholly owned subsidiary of the Company, was exempt from registration under the Securities Act of 1933, as amended in reliance on an exemption provided by Section 4(2) of that Act. The participants were either accredited investors or non-accredited investors who had such knowledge and experience in financial, investment and business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. Additionally, in connection with the share exchange agreement, the Company issued 1,855,000 shares of common stock to a China Direct Investments, Inc. for services related to the share exchange agreement. On August 24, 2005 and effective September 1, 2005, the Company entered into a one-year agreement with China Direct Investments, Inc. to provide business development and management services. In connection with this agreement, the Company issued 2,000,000 shares of the Company's common stock. The Company valued these services using the air value of common shares on grant date at $.08 per share and recorded deferred consulting expense of $160,000 to be amortized over the service period. For the nine months ended September 30, 2005, amortization of deferred consulting expense amounted to $13,333. -11- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 3 - STOCKHOLDERS' EQUITY (continued) Common Stock Warrants In connection with the preferred stock funding, the Company granted warrants to purchase 731,034 shares of its common stock at $0.3045. The Warrants shall be exercisable for five years after the issue dates of the Warrants. Stock warrant activity for the nine months ended September 30, 2005 is summarized as follows: Number of Weighted average shares exercise price ------------ ---------------- Outstanding at December 31, 2004 - $ - Granted 3,753,450 .10 Exercised - - ----------- --------------- Outstanding at September 30, 2005 3,753,450 $ 0.10 ============ ============== The following table summarizes the Company's stock warrants outstanding at September 30, 2005: Options outstanding and exercisable -------------------------------------------------- Weighted Weighted average average Range of remaining exercise exercise price Number life price ---------------- ----------- --------- -------- $ 0.10 3,753,450 4.75 0.10 Stock Option Plan Effective June 28, 2005, the Company's Board of Directors authorized, approved and adopted its 2005 Equity Compensation Plan. The purpose of the plan is to encourage stock ownership by our officers, directors, key employees and consultants, and to give these persons a greater personal interest in the success of our business and an added incentive to continue to advance and contribute to us. The Company has currently reserved 5,000,000 of its authorized but unissued shares of common stock for issuance under the plan, and a maximum of 5,000,000 shares may be issued, unless the plan is subsequently amended (subject to adjustment in the event of certain changes in our capitalization), without further action by its Board of Directors and stockholders, as required. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and unissued shares or shares reacquired by the Company, including shares purchased in the open market. Shares covered by plan options which terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares issuable under the plan, although such shares may also be used by the Company for other purposes. The plan is administered by the Company's Board of Directors or an underlying committee. The Board of Directors or the committee determines from time to time those officers, directors, key employees and consultants to whom stock grants or plan options are to be granted, the terms and provisions of the respective option agreements, the time or times at which such options shall be granted, the type of options to be granted, the dates such plan options become exercisable, the number of shares subject to each option, the purchase price of such shares and the form of payment of such purchase price. All other questions relating to the administration of the plan, and the interpretation of the provisions thereof and of the related option agreements, are resolved by the Board or committee. -12- LINKWELL CORPORATION AND SUBSIDIARIES (FORMERLY KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 NOTE 3 - STOCKHOLDERS' EQUITY (continued) Stock Option Plan (continued) Plan options may either be options qualifying as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, or non-qualified options. The Company's officers, directors, key employees and consultants are eligible to receive stock grants and non-qualified options under the plan; only the Company's employees are eligible to receive incentive options. In addition, the plan allows for the inclusion of a reload option provision which permits an eligible person to pay the exercise price of the option with shares of common stock owned by the eligible person and receive a new option to purchase shares of common stock equal in number to the tendered shares. Furthermore, compensatory stock grants may also be issued. Any incentive option granted under the plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any incentive option granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The term of each plan option and the manner in which it may be exercised is determined by the Board of Directors or the committee, provided that no option may be exercisable more than ten years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. The exercise price of non-qualified options shall be determined by the Board of Directors or the Committee, but shall not be less than the par value on the date the option is granted. The per share purchase price of shares issuable upon exercise of a Plan option may be adjusted in the event of certain changes in our capitalization, but no such adjustment shall change the total purchase price payable upon the exercise in full of options granted under the Plan. Unless the plan has been previously suspended or terminated by the Board of Directors, the plan, as it relates to grants of incentive stock options, terminates on June 28, 2015. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS This report on Form 10-QSB contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements and from historical results of operations. Among the risks and uncertainties which could cause such a difference are those relating to our dependence upon certain key personnel, our ability to manage our growth, our success in implementing the business strategy, our success in arranging financing where required, and the risk of economic and market factors affecting us or our customers. Many of such risk factors are beyond the control of the Company and its management. OVERVIEW Kirshner Entertainment & Technologies, Inc. (the Company), was incorporated in the state of Colorado on December 11, 1996. On May 31, 2000, the Company acquired 100% of HBOA.Com, Inc. The Company focused on development of a premier Internet portal through which home based business owners, as well as commercial private label businesses, obtain the products, services, and information necessary to start, expand and profitably run their businesses. On December 28, 2000, the Company formed a new subsidiary, Aerisys Incorporated, a Florida corporation, to handle commercial private business. In March 2003, the Company formed its entertainment division and changed its name to reflect this new division. Effective as of March 31, 2003, we decided to discontinue our entertainment division and our technology division, except for the Aerisys operations that continue on a limited basis. -13- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (continued) On May 2, 2005, we entered into and consummated a share exchange with all of the shareholders of Linkwell Tech Group, Inc. ("Linkwell"). Pursuant to the share exchange, we acquired 100% of the issued and outstanding shares of Linkwell's common stock, in exchange for 36,273,470 shares of our common stock, which at closing represented approximately 87.5% of the issued and outstanding shares of our common stock. As a result of the transaction, Linkwell became our wholly owned subsidiary. Linkwell was founded on June 22, 2004, as a Florida corporation. On June 30, 2004, Linkwell acquired 90% of Shanghai Likang Disinfectant Co., Ltd. ("Likang") through a stock exchange. Likang is a science and technology enterprise founded in 1988. Likang is involved in the development, production, marketing and sale, and distribution of disinfectant health care products. Likang's products are utilized by the hospital and medical industry in China. Likang has developed a line of disinfectant product offerings. Likang regards the hospital disinfecting products as the primary segment of its business. Relying on the research and development strength, unique technology and the competitive advantages of the numerous professional staff rooms of Second Military Medical University, it has developed and manufactured several dozen kinds of series products in the field of skin mucous disinfection, hand disinfection, surrounding articles disinfection, medical instruments disinfection and air disinfection. On June 30, 2005, our Board of Directors approved an amendment of our 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. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004 Revenues Net revenues for nine months ended September 30, 2005 were $3,826,067 as compared to net revenues of $3,300,022 for nine months ended September 30, 2004, an increase of $526,045 or approximately 16%. For the period from May 2, 2005,(acquisition date) to September 30, 2005, we included in revenues $22,871 generated from our subsidiary, Aerisys Inc. For the nine months ended September 30, 2005 and 2004, revenues from our Likang subsidiary, located in China, amounted to $3,803,196 and $3,300,022, respectively. Our increase in revenue was attributable to a recent surge in demand for disinfectant products. Recent health scares such as SARS and the Avian Flu have increased the public awareness of health standards in China. In response the Chinese government has implemented a series of initiatives to establish minimum health standards. As a result public demand for disinfectant products have increased. We cannot be assured that demand will continue to increase. Additionally Linkwell introduced new products such as Jifro 4% Chlorhexidine Gluconate, Dianerkang, 2% glutaraldehyde disinfectant, and the revised 84' disinfectant. Initially, these products have been received favorably by the public. There is no assurance that these products will continue to witness increased public demand. Cost of sales and gross profits For the nine months ended September 30, 2005, cost of sales amounted to $2,553,646 or 67% of net revenues as compared to cost of sales of $2,266,392 or 68.7% of net revenues for the nine months ended September 30, 2004, a small percentage increase. We experienced an increase in overhead costs such as utilities during the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004. However, the increase in these expenses were offset by an increase in net revenues in the current period. Gross profit for the nine months ended September 30, 2005 was $1,272,421 or 33% of net revenues, as compared to $1,033,630 or 31.3% of revenues for the nine months ended September 30, 2004. -14- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (continued) RESULTS OF OPERATIONS (continued) NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004 Operating Expenses Operating expenses for nine months ended September 30, 2005 were $861,148, an increase of $294,565, or approximately 52%, from operating expenses in nine months ended September 30, 2004 of $566,583. This change from the nine months ended September 30, 2004 to the nine months ended September 30, 2005 included the following: o For the nine months ended September 30, 2005, selling expenses amounted to $191,144 as compared to $165,442 for the nine months ended September 30, 2004, an increase of $25,702 or 15.5%. This increase is attributable to increased local tax costs and commissions associated with our increased revenues. Additionally, in 2005, we incurred costs of approximately $14,000 in connection with sales training conferences. We expect out selling expenses to increase as our revenues increase and expect to spend increased funds on adverting and promotion of our products. o For the nine months ended September 30, 2005, general and administrative expenses were $670,004 as compared to $401,141 for the nine months ended September 30, 2004, an increase of $268,863, or 67% and included the following: a) We incurred professional fees approximately $55,262 in connection with the audit of our financials statements. Additionally, we experienced an increase in professional fees related to our corporate SEC filings b) For the period from May 2, 2005 (date of acquisition) to September 30, 2005, we incurred expenses of $34,123 related to our subsidiary Aerysis, Inc. This included items such as rent, phone and utilities. c) In 2005, salaries and wages and related benefits increased by approximately $69,500 due to hiring additional employees. Additionally, labor-related insurance increased by approximately $48,000. d) We incurred additional operating expenses associated with overall price increases, increased telephone and communications usage, and increase travel and entertainment. We reported income from operations of $411,273 for nine months ended September 30, 2005 as compared to income from operations of $467,047 for nine months ended September 30, 2004, a decrease of $55,774 or 11.9%. This figure was impacted due to our higher general and administrative costs. Total other expenses increased by $12,264, or approximately 59%, for nine months ended September 30, 2005 as compared to nine months ended September 30, 2004. Included in this change is: o Interest expense was $32,046 as compared to $21,827 for the nine months ended September 30, 2004, an increase of $10,219 due to increased borrowings. Our income before minority interest decreased by $77,633 or 20.8% to $295,495 for the nine months ended September 30, 2005 as compared to $373,128 for the nine months ended September 30, 2004 primarily as a result of a decrease in our gross profit margins for the nine months ended September 30, 2005 from 2004 period, together with the increase in total operating expense as described above. For the nine months ended September 30, 2005, we reported a minority interest in income of subsidiary (Likang) of $37,647 as compared to $37,313 for the nine months ended September 30, 2004. The minority interest in income of subsidiary is attributable to Likang, which we allocate to our minority stockholders, and had the effect of reducing our net income. -15- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (continued) RESULTS OF OPERATIONS (continued) NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004 As a result of these factors, we reported net income of $257,848 for the nine months ended September 30, 2005 as compared to net income of $335,815 for the nine months ended September 30, 2004. During the nine months ended September 30, 2005, we recorded a preferred stock dividend of $300,276 related to the beneficial conversion feature of our Series A Preferred Stock. This translates to an overall per-share loss available to shareholders of ($.00) for the nine months ended September 30, 2005 compared to per-share income of $.01 for the nine months ended September 30, 2004. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2005, we had a cash balance of $257,590. As of September 30, 2005, our cash position by geographic area is as follows: United States $ 35,841 China 221,749 ------------- Total $ 257,590 ============= On June 30, 2005, we completed an approximate $300,000 financing consisting of 375,345 shares of its 6% Series A Preferred Stock, and common stock purchase warrants to purchase an additional 3,753,450 shares. Each share of 6% Series A Preferred Stock is convertible into 10 shares of common stock. Each warrant entitles the holder to purchase one share of common stock for a period of five years, at an exercise price of $.10 per share, subject to adjustment. The net proceeds from the transaction of $234,240 ware being used for general working capital purposes. Net cash flows used in operating activities for the nine months ended September 30, 2005 was $(352,412) as compared to net cash provided by operating activities of $156,150 for the nine months ended September 30, 2004. For the nine months ended September 30, 2005, we used cash in operations to fund an increase in accounts receivable of $510,867, increases in amounts due from a related party of $416,941, repayments of accounts payable and accrued expenses of $117,801, and repayments in amounts due to a related party of $238,575 offset by our net income of $257,848, the add back of non-cash items of $193,485, increases in inventories of $180,128, and increases in advanced from customers of $397,366. For the nine months ended September 30, 2004, we received cash from operations from our net income of $335,815, the add back of non-cash items of $63,500, increases in accounts payable of $812,164, and increases in prepaid expenses and other current assets of $70,603 offset by cash used in operations to fund an increase in accounts receivable of $739,759, increases in inventory of $172,705, repayments in amounts due to a related party of $103,136, and decreases in advances from customers of $140,309. Net cash used in investing activities for the nine months ended September 30, 2005 was $101,848 as compared to net cash used in investing activities of $96,086 for the nine months ended September 30, 2004, an increase of $5,762 primarily related to capital expenditures for the acquisition of manufacturing equipment. Net cash flows provided by financing activities was $227,485 for the nine months ended September 30, 2005 as compared to net cash used in financing activities of $283,206 for the nine months ended September 30, 2004. For the nine months ended September 30, 2005, we received proceeds from a preferred stock offering of $234,240 and proceeds from loans payable of $326,920 offset by increases in amounts due from a related party of $333,675. For the nine months ended September 30, 2004, we used cash of $283,206 related to increase in amounts due from a related party. We reported a net decrease in cash for the nine months ended September 30, 2005 of $210,269 as compared to a net decrease in cash of $223,142 for the nine months ended September 30, 2004. We currently have no material commitments for capital expenditures,however during the quarter ended September 30, 2005 we acquired approximately $80,000 of property and equipment to upgrade our production line. -16- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (continued) LIQUIDITY AND CAPITAL RESOURCES (continued) As of September 30, 2005, we had approximately $629,000 in short term loans maturing at or prior to April 2006. We plan on renewing these loans when they become due at term comparable to current terms. If we fail to repay these obligations with revenues from operations or obtain debt or equity financing to meet these obligations or fail to obtain extensions of the maturity dates of these debt obligations, our overall liquidity and capital resources will be adversely affected as a result of our efforts to satisfy these obligations. Other than working capital, loans and proceeds from the sale of preferred stock, we presently have no other alternative source of working capital. We seek to raise additional capital through the sale of equity securities. No assurances can be given that the Company will be successful in obtaining additional capital, or that such capital will be available in terms acceptable to the Company. At this time, we have no commitments or plans to obtain additional capital. Further, there can be no assurances that even if such additional capital is obtained that we will sustain profitability or positive cash flow. CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management's applications of accounting policies. Critical accounting policies for Kirshner Entertainment & Technologies, Inc. include revenue recognition and the useful lives of property, plant and equipment. Revenue Recognition - We follow the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin 104 for revenue recognition. In general, 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 collectibility is reasonably assured. The Company assesses whether the fee associated with its revenue transactions is fixed or determinable based on the payment terms associated with the transaction. If a significant portion of the fee is due after the Company's normal payment terms , we access if the fee is not fixed or determinable. In these cases, the Company may recognize revenue as the fees become due. The Company assesses collectibility based on the credit worthiness of the customer and past transaction history. The Company performs initial credit evaluations of its customers and does not require collateral from its customers. If the Company determines that collection of a fee is not reasonably assured, it defers the fee and recognizes the revenue at the time that collection becomes reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company: o Revenues of Aerisys Inc. are recognized at the time the services are rendered to customers. Services are rendered when the Company's representatives receive the customers' requests and complete the customers' orders. For contacts over a period of time, Aerisys recognizes the revenue on a straight-line basis over the period that the services are provided. o Our revenues from the sale of products are recorded when the goods are shipped, title passes, and collectibility is reasonably assured. We record property and equipment at cost. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. We review these long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the undiscounted future cash flows of the long-lived assets are less than the carrying amount, their carrying amount is reduced to fair value and an impairment loss is recognized. To date, we have not recognized any impairment losses. -17- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (continued) CRITICAL ACCOUNTING POLICIES (continued) Accounting for Stock Based Compensation - We account for stock based compensation utilizing Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. We have chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the estimated fair market value of our stock at the date of the grant over the amount an employee must pay to acquire the stock. We have adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148 (See Recent Accounting Pronouncements), which require pro forma disclosures of net income and earnings per share as if the fair value method of accounting had been applied. Because of this election, we continue to account for our employee stock-based compensation plans under Accounting Principles Board (APB) Opinion No. 25 and the related interpretations. We are required to comply with SFAS No. 123 (revised 2004) starting on the first day of our fiscal year 2006. We are currently evaluating the effect that the adoption of SFAS No. 123 (revised 2004) will have on our consolidated operating results and financial condition. No stock-based compensation cost is currently reflected in net income for employee and director option grants as all options granted under the 2005 Incentive Stock Plan and the Non-Employee Directors Stock Plan had an exercise price equal to the market value of the underlying common stock on the date of grant. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No.123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant- date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective for the first fiscal year beginning after December 15, 2005. We are in process of evaluating the impact of this pronouncement on its financial position. In April 2005, the Securities and Exchange Commission's Office of the Chief Accountant and its Division of Corporation Finance has released Staff Accounting Bulletin (SAB) No.107 to provide guidance regarding the application of FASB Statement No.123 (revised 2004), Share-Based Payment. Statement No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SAB 107 provides interpretative guidance related to the interaction between Statement No. 123R and certain SEC rules and regulations, as well as the staff's views regarding the valuation of share-based payment arrangements for public companies. SAB 107 also reminds public companies of the importance of including disclosures within filings made with the SEC relating to the accounting for share-based payment transactions, particularly during the transition to Statement No. 123R. In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"). This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. -18- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (continued) APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, this Statement requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, this Statement requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. This Statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not believe that the adoption of SFAS 154 will have a significant effect on its financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. ITEM 3. CONTROLS AND PROCEDURES Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our controls and procedures are effective. There was no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934), that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. PART II - OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds On August 24, 2005, we engaged China Direct Investments, Inc., whose staff includes Chinese-speaking individuals with experience in operation and regulatory framework applicable to U.S. public companies, as a consultant to advise the our management in areas related to marketing and operational support in the U.S., media and public relations, mergers and acquisitions, financial advisory and SEC disclosure compliance, and pursuant thereto issue 2,000,000 shares of the our common stock to China Direct Investments, Inc. as compensation therefore. Each of the issuance of shares described above was exempt from the registration requirements of the Securities Act by reason of Section 4(2) of the Securities Act and the rules and regulations, including Regulation D there under, as a transaction by an issuer not involving a public offering. -19- Item 3 - Defaults Upon Senior Securities None. Item 4 - Submissions of Matters to a Vote of Security Holders In July 2005, we filed an information statement to provide our stockholders with information and a description of an action taken by our Board of Directors and by the written consent of the holders of a majority in interest of our issued and outstanding voting stock. On June 30, 2005, our Board of Directors unanimously approved the following action, subject to authorization by consent of a majority in interest of our stockholders and fulfillment of our statutory obligations: Proposal: To approve an amendment to our Articles of Incorporation changing the name of our company to Linkwell Corporation, to be effective after the close of business on August 16, 2005. On June 30, 2005 in accordance with the relevant sections of the Florida Business Corporation Act, Xuelian Bian, our Chief Executive Officer, President and Chairman, and Wei Guan, our Vice President, Secretary and director, who collectively own approximately 84% of our voting stock, approved the Amendment by written consent in lieu of a special meeting of our stockholders. Item 5. Other Information None Item 6. Exhibits Exhibits. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 10.1 Consulting agreement with China Direct Investments, Inc. dated August 24, 2005 * Filed herein SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Linkwell Corporation Date:November 21, 2005 By: /s/ Xuelian Bian ------------------- Xuelian Bian Chief Executive Officer and Principal Accounting Officer -20- EX-10 2 ex101.txt Exhibit 10.1 CONSULTING AGREEMENT THIS AGREEMENT is entered into as of August 24, 2005 by Linkwell Corp., organized and existing under the laws of Florida State ("Linkwell or Company") and China Direct Investments, Inc. existing under the laws of Florida State ("CDI or Consultant"), WITNESSETH: In consideration of the premises and mutual covenants hereinafter contained, the parties hereto agree as follows: 1. THE SERVICES Consultant will provide Company consulting services in capital markets including, but not limited to, a. Screening candidates for merger and acquisition b. Providing due diligence on candidates for merger and acquisition c. Providing translation for both English and Chinese documents d. Providing all necessary assistance in accounting, auditing and legal services e. Providing general business consulting services f. Providing marketing plan 2. WORK FOR HIRE It is the intention of the parties hereto that all rights, including without limitation copyright in any reports, surveys, marketing promotional and collateral materials prepared by the Consultant pursuant to the terms of this Agreement, or otherwise for Company (hereinafter "the Work") vest in Company. The parties expressly acknowledge that the Work was specially ordered or commissioned by Company, and further agree that it shall be considered a "Work Made for Hire" within the meaning of the copyright laws of the United States and that Company is entitled as author to the copyright and all other rights therein, throughout the world, including, but not limited to, the right to make such changes therein and such uses thereof, as it may determine in its sole and absolute discretion. 3. PROPRIETARY INFORMATION a. For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of Company or any entity in which Company has a controlling interest and shall include (but shall not be limited to) information encompassed in all drawings, designs, programs, plans, formulas, proposals, marketing and sales plans, financial information, costs, pricing information, customer information, and all methods, concepts or ideas in or reasonably related to the business of Company. b. Consultant agrees to regard and preserve as confidential, all proprietary information, whether Consultant has such information in memory or in writing or other physical form. Consultant shall not, without written authority from Company to do so, directly or indirectly, use for the benefit or purposes, nor disclose to others, either during the term of its engagement hereunder or thereafter, except as required by the conditions of Consultant's engagement hereunder, any proprietary information. c. Consultant shall not disclose any reports, recommendations, conclusions or other results of the Services or the existence or the subject matter of this contract without the prior written consent of Company. In Consultant's performance hereunder, Consultant shall comply with all legal obligations it may now or hereafter have respecting the information or other property of any other person, firm or corporation. d. The Consultant expressly agrees that the covenants set forth in this Paragraph are being given to Company in connection with the engagement of the Consultant by Company and that such covenants are intended to protect Company against the competition by the Consultant, within the terms stated, to the fullest extent deemed reasonable and permitted in law and equity. In the event that the foregoing limitations upon the conduct of the Consultant are beyond those permitted by law, such limitations, both as to time and geographical area, shall be, and be deemed to be, reduced in scope and effect to the maximum extent permitted by law. e. The foregoing obligations of this Paragraph shall not apply to any part of the information that (i) has been disclosed in publicly available sources of information, (ii) is, through no fault of the Consultant, hereafter disclosed in publicly available sources of information, (iii) is now in the possession of Consultant without any obligation or confidentiality, or (iv) has been or is hereafter lawfully disclosed to Consultant by any third party, but only to the extent that the use or disclosure there of has been or is rightfully authorized by that third party. 4. FEES AND REIMBURSEMENT OF CERTAIN EXPENSES Linkwell Corporation shall pay the following compensation to China Direct Investments, Inc. and/or its designees in consideration for the services to be rendered hereunder: There shall be issued to China Direct Investments, Inc. and/or its designees 2,000,000 shares of Common Stock, $.0005 par value (the "Shares"), of Linkwell Corporation at the inception of the agreement in consideration for the agreement to provide services to be performed hereunder. Award Fees. This agreement provides for the payment of cash fees to be paid to China Direct Investments, Inc. and/or its designees. At the mutual agreement of Linkwell Corporation and China Direct Investments, Inc. and/or its designees, Linkwell Corporation can pay to Consultant fees in readily available funds. 5. BENEFITS The Consultant, as an independent contractor, shall not be entitled to any other benefits. 6. DUTY TO REPORT INCOME The Consultant acknowledges and agrees that it is an independent contractor and not an employee of the Company and that it is Consultant's sole obligation to report as income all compensation received from Company pursuant to this Agreement. The Consultant further agrees that the Company shall not be obligated to pay withholding taxes, social security, unemployment taxes, disability insurance premiums, or similar items, in connection with any payments made to the Consultant pursuant to the terms of this Agreement. 7. TERM This Agreement shall be effective beginning as of first day of September 1, 2005, and shall end on August 31, 2006. 8. NOTICES All notices and billings shall be in writing and sent via first class mail to the respective addresses of the parties set forth at the beginning of this Agreement or to such other address as any party may designate by notice delivered hereunder to the other party. 9. GENERAL a. The terms and conditions of Paragraphs 3, 4 and 5 hereof shall survive the termination of this Agreement or completion of the Services as the case may be. b. Neither the Company nor Consultant shall assign this Agreement or delegate its duties hereunder and shall not subcontract any of the Services to be performed hereunder without the prior written consent of the other party hereto. c. Consultant shall perform the Services as an independent contractor and shall not be considered an employee of Company or Partner, joint venture or otherwise related to Company for any purpose. d. This Agreement shall be governed by the laws of the State of Florida. e. This Agreement constitutes the entire understanding between Consultant and Company respecting the Services described herein. The terms and conditions of any purchase order shall have no effect upon this Agreement and shall be used for accounting purposes only. f. The failure of either party to exercise its rights under this Agreement shall not be deemed to be a waiver of such rights or a waiver of any subsequent breach. g. Any delay or nonperformance of any provision of this Agreement caused by conditions beyond the reasonable control of the performing party shall not constitute a breach of this Agreement, provided that the delayed party has taken reasonable measures to notify the other of the delay in writing. The delayed party's time for performance shall be deemed to be extended for a period equal to the duration of the conditions beyond its control. "Conditions beyond a party's reasonable control" include, but are not limited to, natural disasters, acts of government after the date of the Agreement, power failure, fire, flood, acts of God, labor disputes, riots, acts of war and epidemics. Failure of subcontractors and inability to obtain materials shall not be considered a condition beyond a party's reasonable control. h. Non-Solicitation of Consultant's Employees: Company agrees not to knowingly hire or solicit Consultant's employees during performance of this Agreement and for a period of two years after termination of this Agreement without Consultant's written consent. i. Mediation and Arbitration: If a dispute arises under this Agreement, the parties agree to first try to resolve the dispute with the help of a mutually agreed-upon mediator in Palm Beach County, FL. Any costs and fees other than attorney fees associated with the mediation shall be shared equally by the parties. If the dispute is not resolved through mediation, the parties agree to submit the dispute to binding arbitration in Florida under the rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court with jurisdiction to do so. j. Attorney Fees: If any legal action is necessary to enforce this Agreement, the prevailing party shall be entitled to reasonable attorney fees, costs and expenses. k. Complete Agreement: This Agreement together with all exhibits, appendices or other attachments, which are incorporated herein by reference, is the sole and entire Agreement between the parties. This Agreement supersedes all prior understandings, agreements and documentation relating to such subject matter. In the event of a conflict between the provisions of the main body of the Agreement and any attached exhibits, appendices or other materials, the Agreement shall take precedence. Modifications and amendments to this Agreement, including any exhibit or appendix hereto, shall be enforceable only if they are in writing and are signed by authorized representatives of both parties. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. Linkwell Corporation China Direct Investments, Inc. /s/ Xuelian Bian 8/24/05 /s/ James Wang 8/24/05 - ---------------- --------- -------------- --------- Sign Date Sign Date Xuelian Bian, President Dr. James Wang, CEO EX-31 3 ex311.txt Exhibit 31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Xuelian Bian , certify that: 1. I have reviewed this Form 10-QSB for the quarter ended September 30, 2005, 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer'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)) for the small business issuer 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 small business issuer, 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) evaluated the effectiveness of the small business issuer'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 (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting. Date: November 21, 2005 /s/ Xuelian Bian Xuelian Bian Chief (Principal) Executive Officer EX-31 4 ex312.txt Exhibit 31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Xuelian Bian, certify that: 1. I have reviewed this Form 10-QSB for the quarter ended September 30, 2005, 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer'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)) for the small business issuer 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 small business issuer, 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) evaluated the effectiveness of the small business issuer'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 (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting. Date: November 21, 2005 /s/ Xuelian Bian Xuelian Bian Principal Financial and Accounting Officer EX-32 5 ex321.txt 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 Form 10-QSB of Linkwell Corporation (the "Company") on Form 10-QSB for the quarter ending September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Xuelian Bian, Chief (Principal) Executive Officer and Principal Financial and Accounting 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, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Xuelian Bian Xuelian Bian Chief (Principal) Executive Officer, and Principal Financial and Accounting Officer November 21, 2005 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----