SHANGHAI, China, Aug. 27 /Xinhua-PRNewswire-FirstCall/ -- Linkwell Corporation (Linkwell or the Company) (OTC Bulletin Board: LWLL), a leading developer, manufacturer and distributor of healthcare related disinfectants in China, announced today its unaudited financial results for second quarter ended June 30, 2008 and key recent events.
Recent Events
On May 1, 2008, the Company entered into a two year agreement with China Health Capital Group, Inc. ("CHC") to provide the Company with financial and investment services. In connection with this agreement, on June 24, 2008, the Company issued 2,000,000 shares of Common Stock valued at $0.21 per share to CHC and recorded $420,000 as deferred compensation. The Company amortized $35,000 as stock-based compensation for the six months ended June 30, 2008.
On May 31, 2008, the Company, Linkwell Tech and Ecolab signed a "Stockholders Agreement" setting the date that Ecolab owns 10% of Linkwell Tech from that day. As a result, the previous $600,000 short-term loan became an investment from Ecolab. Deducting the interest of the short-time loan, which is $11,441, as of June 30, 2008, Linkwell received the rest of the investment amount of $1,388,559 from Ecolab.
Discontinued Operations
Due to losses and uncertainty about future profitability, On May 31, 2008, Likang Disinfectant entered into a stock purchase agreement to sell 100% of the capital stock of its wholly-owned subsidiary, Shanghai LiKang International Trade Co., Ltd. (Likang International) to Linkwell International Trading Co., Ltd ("Linkwell trading"), a company registered in Hong Kong and 100% owned by Mr. Wei Guan, an officer and director of Linkwell Corporation. According to the agreement, Linkwell Trading becomes the owner of all assets and liabilities of Likang International. As of May 31, 2008, Linkwell Tech owed Likang International $120,000. Consequently as of June 30, 2008, Likang Tech owes Linkwell Trading $120,000. Pursuant to the terms of the agreement, Likang Disinfectant will receive RMB 2,000 000 once the agreement is approved by the Ministry of Commerce, the People’s Republic of China.
Financials
For the period before May 31, 2008, the income statement of the Company reported the results of operations of Likang international as discontinued operations.
As of June 30, 2008 Linkwell’s cash position improved $485,000 or 62%, to $1.3M compared to $783,000 at year end 2007, while total current assets improved $3.96M or 52%, to $11.5M from $7.56M at year end 2007. Total Liabilities and Stockholders’ Equity increased $3.75M or 44% to $12.M from $8.5M at year end 2007.
Based on a third party review, allowances for doubtful accounts increased $55,687 or 12% to $516,000 as of June 30, 2008 compared to $460,000 at December 31, 2007. Of these amounts, allowances for doubtful accounts from related party accounts increased $107,000 or 48% to $328,000 from $221,000 during the same time period.
Under the Stockholders Agreement, Ecolab has a call option ("Call Option"), exercisable if Linkwell Corp. is subject to a change of control transaction, to require Linkwell Corp. to sell to Ecolab all of the equity interests in Linkwell Tech, or any of Linkwell Tech’s subsidiaries then owned by Linkwell Corp. As a result, the Company has recognized maximal expenses of put option and call option at $400,000. Deducting the minority interest in June of $16,773, long time liability of derivative payable shown in the unaudited Balance Sheet is $383,227.
Total net revenues for the 3 months ended June 30, 2008 increased $583,000 or 30% to $2.5M as compared to $1.9M for the same period in 2007. Likewise, total net revenues for the first 6 months of 2008 increased $1.14M or 31% to $4.8M compared to $3.6M for the first 6 months in 2007. For the six months ended June 30, 2008 and 2007, sales to related parties accounted for 22% and 29% of net revenues, respectively. Linkwell management believes this increase in demand was due to an increase in its sales staff and customer recognition of high-quality, competitively priced disinfectant products.
The cost of sales for the first 6 months 2008 increased $474,310 or 25% to $2.4M as compared to $1.9 for the same period in 2007. Gross profit rose $664,395 or 39% to $2.4M during the first 6 months 2008, as compared to $1.7M in 2007. Income from operations rose $217,000 or 31% to $911,000 as compared to $694,000 for the same period in 2007.
Total other income decreased ($513,000) or minus (582)% to minus ($425,000) during the first 6 months 2008, as compared to $88,123 for the same period in 2007. Consequently, net income decreased ($481,000) or minus (57)% to $367,000 during the first 6 months 2008, as compared to $ 848,000 for the same period in 2007. Included in these expenses is $383,000 for Ecolab’s put option and call option. This accounting measure was necessary in the event that Ecolab exercises its right to sell back its shares in Linkwell Tech to Linkwell Corporation; no money has been paid to Ecolab.
Total operating expenses for the six months ended June 30, 2008 were $1.47M, an increase of $448,000 or approximately 44%, from total operating expenses for the six months ended June 30, 2007 of $1.02M. For the six months ended June 30, 2008, selling expenses were $547,000 as compared to $468,000 for the same period in 2007, an increase of $78,668 or approximate 17%. For the six months ended June 30, 2008, general and administrative expenses were $921,000 as compared to $552,000 for the same period in 2007, an increase of $369,000 or approximate 67%.
Shipping costs are included in selling expenses and totaled $117,000 and $10,754 for the six months ended June 30, 2008 and 2007, respectively. For the six months ended June 30, 2008 and 2007, advertising expenses amounted to $1,703 and $47,491 respectively.
The effect of monetary exchange rate changes on cash for the six months ended June 30, 2008 and 2007 was $480,566 and $119,986, respectively. On June 30, 2008 and December 31, 2007, the exchange rate was 6.87 and 7.00, respectively.
Research and development costs for the six months ended June 30, 2008 and 2007 were approximately $17,462 and $8,006, respectively.
Net cash provided by financing activities for 6 months ended 2008 was $2.28M compared to $835,000 for the same period in 2007. The increased cash flow from financing activities primarily the result from proceeds from the issuance of common stocks of Linkwell Tech of $2,000,000 and a decrease in due to related parties of $262,000 and proceeds from warrants exercised of $20,000.
Net cash used in operating activities for the six months ended June 30, 2008 was $1.68M as compared to $1.27M for the same period ended June 30, 2007, an increase of $416,000 or approximately 33%. For the six months ended June 30, 2008, Linkwell used cash to fund a net increase in accounts receivable of $1.70M, including an increase of $649,000 in accounts receivables from related parties, an increase of $969,000 in inventories, an increase of $566,000 in prepaid expenses and other current assets. These increases were offset by net income, an increase in advances from customers of $177,000, an increase of $12,231 in other receivables, an increase of $292,000 in accounts payable, accrued expenses and other payables and an increase of $54,497 in taxes payable.
Working capital increased $3.14M or 59% to $8.47 as of June 30, 2008 compared to $5.34M as of December 31, 2007. At June 30, 2008, the Company had a total of $742,000 in short term loans. Of which, $378,000 will mature before June 18, 2009 and $364,000 will mature before December 10, 2008.
"The growth in our core business was very strong in 2nd quarter and we have positioned ourselves for continued strong growth and improved margins going forward," commented Linkwell Chairman and CEO, Mr. Xuelian Bian. "The sale of our trading company and closure of financing from EcoLab puts in a strong position to implement growth initiatives in the second have of this year. From a fiscal perspective, we respect the advice from our auditor and have expensed Ecolab’s put option and call option at $383,227. Furthermore, following the completion of our earthquake relief efforts and related matters we have initiated a stringent policy to improve our collection on doubtful accounts and improve our accounts receivable position."
Subsequent Events
In 2007, the wholly-owned subsidiary, Linkwell Tech, entered into a stock purchase agreement pursuant to which, Linkwell Tech was to acquire 100% equity interest in Shanghai LiKang Biological High-Tech Company, Limited, a Chinese company. This agreement is still pending and requires further approval from the Ministry of Commerce, the People’s Republic of China. Due to the time consuming and complicated nature of the approval procedure, the parties agreed to enter into another amendment to the Biological Stock Purchase Agreement in order to complete the purchase transactions in a timely and proper manner. The only material change to the Biological Stock Purchase Agreement in the Biological Amendment relates to the purchaser, which was changed from Linkwell Tech, to Likang Disinfectant. Approval from the Ministry of Commerce, the People’s Republic of China, will not be necessary if LiKang Disinfectant acquires 100% of the equity interest in Shanghai LiKang Biological. This transaction is expected to close before the end of September 2008.
About Linkwell Corporation
Linkwell develops, manufactures and distributes disinfectant healthcare products in China through its subsidiary LiKang Disinfectant. Linkwell’s disinfectant healthcare products are a nationally recognized domestic Chinese brand in this market segment. Linkwell products include disinfectants in liquid, tablet, powder and aerosol form. Through LiKang, Linkwell has a national marketing and sales presence throughout all 22 provinces, 5 autonomous regions, and 4 special municipalities of China. For more information, visit us at http://www.linkwell.us .
Safe Harbor Statement
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning the Company’s operations, financial performance and condition. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. The Company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, but not limited to, the impact of competitive products; pricing and new technology; changes in consumer preferences and tastes; effectiveness of marketing; changes in laws and regulations; fluctuations in costs of production; and other factors as those discussed in the Company’s reports filed with the Securities and Exchange Commission from time to time. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
