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Executives of Shanghai-based Linkwell Corporation (OTCPK:LWLL) presented at the Arch Small-Cap Investment Conference in New York earlier today. The following is a transcript of their presentation:

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Linkwell Corporation (OTCPK:LWLL)
Presentation to Arch Investment Conference
November 15, 2006 9:30 am ET

Executives

Germán de la Roche – CEO, Arch Investment Conference
Mark Siegel – President, China Direct
Dr. James Wang – Chairman, China Direct

Presentation

Germán de la Roche

Let me introduce our first presenting company, which is Linkwell, bulletin board company LWLL. Presenting for Linkwell will be Mark Siegel, he is the President of China Direct, also a public company, CHND. They are the U.S. representative for Linkwell. To Mark.

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China Direct (ticker: CHND.OB) is a diversified management and consulting company. Our mission is to create a platform to empower medium sized Chinese entities to effectively compete in the global economy. As your direct link to China, our organization serves as a vehicle to allow investors to participate directly in the rapid growth of the Chinese economy.

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Mark Siegel

Thanks, I appreciate it. Good morning. My name is Mark Siegel, I am President of a company called China Direct. What China Direct does is we take companies that are private in China and we help to bring them public in the United States. We have done six such companies. Last year at Arch, we presented a company called Sunwin Nutraceuticals (OTCPK:SUWN). When we presented here, the stock was $0.20. Within nine weeks, the stock went to $1.69. So I am hoping Arch will be lucky for us today.

Linkwell’s management is here from Shanghai: Chairman Xue Lian Bian who has been with the company for 18 years; and his Chief Operating Officer, Arthur [Guan]. Let me go into Linkwell real quick.

Linkwell develops, manufactures and sells disinfectants throughout China. They are the only publicly traded company in the U.S. that does disinfectants in China. The company is a recognized international brand throughout China. They have 20 patents on the products that they sell, and they have their own internal sales force, which is a very, very important point. They have 150 sales reps that cover all of the provinces of China.

The company has been around since 1988. It was owned by the state until 1998. The Chairman bought it back from the government about eight years ago and has been running it himself. They have a partnership with the Shanghai Second Military Medical University and they are their R&D arm. They spend about $500,000 a year on R&D.

The company went public in May of 2005. The stock went public at $0.10 a share. Right now it is trading at $0.20. They came public for one specific reason: they want to consolidate and dominate the disinfectant market in China. They want to expand their business not just in health care, but also into the civil, the agricultural and the livestock disinfectant market.

These are their facilities. They are called GMP facilities in China. GMP stands for Good Manufacturing Practice. In China, starting in January of 2007, you will not be able to sell products to any hospital unless you have a GMP facility. The government of China is estimating that only one-third of the companies will comply, which means that two-thirds of the companies are going to have to either manufacture at a GMP facility or merge with a company that has a GMP facility. That is very important. GMP facilities, if you don’t know, are like clean room environments. You have to wear the hat and the smock and covers on your shoes, so that is a safe environment. Here are some more pictures of the facility.

Here is what Linkwell does. They have patents on 20 products in the health care arena in the disinfectant business. Basically, six categories: topical disinfectants for the skin, where the doctors actually wash their hands in the operating room; hand sanitation; environmental sanitation; medical instrument disinfectants –

I want to tell you something real quick. Olympus sells their endoscopes in China. Olympus had a contract with J&J about five years ago that J&J was actually making the disinfectants to disinfect the endoscopes. J&J was unable to get into the hospitals because in China, all of the hospitals are owned by the government; either they be state or municipalities. The problem is, if you don’t have a connection, if you don’t have a relationship with the doctors, you can’t sell into the hospitals.

Because Linkwell has had their sales force in place for so long, J&J was trying to compete on price. You can’t compete on price with a Chinese company, which is why the American flags are made in China now. So they actually pulled out of China, Linkwell has the contract with Olympus now. J&J actually went to acquire Linkwell, they offered $10 million three-and-a-half years ago, and the Chairman would not sell the company.

They make antiseptic disinfectants as well as air disinfectants. These are some of the products, some of the other products that they manufacture. Here is the sales force. The sales force works on a straight commission. The sales force has been in place for, like I said, about nine years. I have been told by three Fortune 500 companies that they would take at least $10 million and three years to duplicate the sales force of Linkwell. It is probably the biggest asset the company has. They are in over 4,000 locations, 2,000 hospitals. They have 500 distributors throughout China, 303 clinics, 215 drug stores carry their products.

Some quick market data. The company closed yesterday at $0.205. The 52-week low is $0.14, the 52-week high is $0.43. It actually was $0.70 on November 1st of last year. The market cap is $13 million, with 65 million shares outstanding. The float right now is 12 million, but the SB-2 was approved on Thursday of last week, so there will be probably be 8 million more shares coming to market right now. [Inaudible] shares were sold at $0.10 per share. The average 90-day volume is only 20,000. The company has not made a press release, because of their SB-2, in eight months. They have a lot of pent-up information, which is why they asked me to come out and present to get people’s eyeballs on the stock between now and the end of the year. Management owns 70% of the company. A very unique situation happened with this, and I will get into it in a little bit.

Numbers. 2005 audited GAAP numbers. The company did $5.5 million, they made $544,000; 10% net-net after taxes. 2006 so far, numbers come out this morning, as a matter of fact, for the nine months. For the six months they earned $0.01 a share. They earned $407,000 so they are on track for about a 50% increase year over year. They have about $6 million in assets, $3.5 million in shareholder equity.

The 12-month chart. You can see one day here, on a rumor of a Bird Flu product, the stock went to $0.40 on about 4 million shares. Very, very news-susceptible type of company because of all of the pandemics or problems that they are having in the Far East with the various diseases. Over the counter bulletin board stocks do not trade based on what is going on with oil or what is going on with interest rates or what is going on with the Dow Jones or the S&P. They are news-driven companies, primarily. This company is very, very susceptible, if I can use that word in a disinfectant company, to news.

Let me go over some of the diseases that plagued the Far East: Mad Cow Disease, Bird Flu infections in Shanghai; Foot and Mouth; SARS; the Bird Flu again in 2003 and E-Coli now, Popeye can’t even eat spinach.

So the point is that disinfectants do not cure diseases. What they do is they stop the spread. In China, as many of you are aware, what is happening is the rural areas are moving to the cities very, very quickly. What happens is these cities become big cities, really fast. As a matter of fact, there are 160 cities in China with over 2 million people. In contrast to that, there are only 17 in the U.S.

People live in close quarters. Because the middle class in China is growing faster than any place else in the world – and just a quick fact for you – the middle class in China, there were 9 million people considered in the middle class in 1979. Middle class in China today is $25,000 household income. Today, there are 90 million people in the middle class in China. It is estimated that by 2008, right after the Beijing Olympics, they think there will be 200 million people in the China middle class. These people are becoming more educated and they are more concerned about diseases and everything else that you would be concerned about as you become more educated and live in closer quarters.

Again, what Linkwell does is because of their active R&D program, whenever there is some type of disease, they go out and they try to come up with something that will stop the spread of the disease. One example, when we had the Bird Flu pandemic in China, which really had originated in South China, they got an order from Wal-Mart for a product they had called Disinfectant 84. It was a $2 million order. They were not able to fill the order because of cash flow constraints of the company. The problem with Wal-Mart is that Wal-Mart can buy your product and give it back to you, and you have no recourse. So the company did not fill it. But we believe going forward the company will have the capacity to fill these types of orders. Linkwell, again, they believe disinfectants are the first line of defense.

Financial performance. The company has grown very, very rapidly since they really went to be a private company in China and a public company here; $3.6 million to $5.4 million in revenues. Net income, I think, is most impressive. Net income more than doubled in the last three years. Operating income tripled. Their annual growth in operating income is 106% per annum.

In terms of assets, they went from $2.1 million in 2003, $5.5 million in 2005. The cash position is the best in the Company’s history. They went from $256,000 to $1.4 million. The return on equity of this Company is 235%. The industry average is only 20%.

How are they going to grow in the future? They want to increase the sales among their current clients. That would be by merging or doing something with a Fortune 500 company to allow their sales force to distribute more products. These salesmen are going in and selling the disinfectants that they manufacture themselves. With the U.S. alliance of a company that the Company has been talking to, but is not allowed to really move forward in their talks because of the SB-2, they would have a very easy way to get new products into the market by doing some kind of distribution alignment with a U.S. or an international company.

They want to increase their points of sale, they want to expand the use of disinfectants, not just to the hospitals but to the patients themselves after they leave the hospital. They want to go into the veterinary disinfectant business, as well as they want to buy their smaller competitors because, again, the company has the cash, the company has the stock now because it is the only publicly traded company, and because of the GMP – the Good Manufacturing Practice – starting two months from now, many of their competitors will not be able to compete any longer.

The company will continue to launch three to five new products a year, as they do out of their R&D facility. They are talking with a Fortune 500 company to gain more resources, more expansion in China. They have formed their own importing/exporting division. The numbers for that division will be reported in the fourth quarter. Again, I believe this morning, third quarter was released. They want to expand externally by acquisitions of other health care businesses in China.

The financial forecasts. These are driven by the Company. As I said, last year audited $5.4 million, they are looking for $10 million this year. Operating income up from $544,000 to approximately $1.6 million. It is a big increase, I know. But again, the Company has the plans, they have been waiting for eight months for the SB-2 to be approved and they have been working on a lot of different things that they have never formalized because they weren’t allowed to. Looking for about 50% growth, net income, net revenues going from $10 million, $24 million, $40 million. I know those sound like crazy numbers, but they have already put everything in place to make those numbers happen.

Valuation-wise. On a going forward P/E of this year, we think we have about $0.017 for the first nine months of the year. The Company is looking, let’s just say $0.025. It is trading at 6.7 times this year’s earnings. P/E going forward, estimated three times. The industry, health care, trades at about 25 times here in the U.S. The Company works on a 45% gross profit margin. It is a very large margin and it is because, again, everything is proprietary to them; the sales force as well as the products.

To summarize. Has anybody done business in China before? In China, it is very, very easy to get a company that you are consulting with to give you shares in their company. The reason why is they don’t believe they are going to be worth anything; but they won’t give you cash. They are much like Jewish guys. They will not give cash.

So this company, of all of the companies I have dealt with in China, this company put up $1.5 million of their own money, the Chairman and a group of his friends, the raise we did at $0.10. The raise we did at $0.10 in December of 2005 management bought back over one-third. It was 18 million shares at $0.10. They bought back 7.2 million shares at $0.24 per share in July of this year. The stock is $0.20 now. I couldn’t believe the phone call myself.

Anyway, that is a very unusual event in China. The sales network, again, over 2,000 hospitals, 150 reps. We have a huge population, the largest population in the world moving very rapidly into tighter quarters and you have a very, very strong R&D effort.

A very fragmented health care business, and the reason it is so fragmented is that if you are in a small area of China and your brother or cousin or sister, brother-in-law is a doctor in a hospital, he says if you make some disinfectants, you can sell them to me. That is not going to stay that way anymore because of the GMP laws that were put in place.

Again, we completed the GMP facility, the macro economic picture in China is the strongest of any place in the world; management has been in place 18 years, the same management. Triple-digit growth is expected in sales and revenues, and the Company is looking – they qualified for AMEX or NASDAQ small cap in terms of everything except, obviously, stock price.

I am finished, so I will take questions from the panel. Yes, sir?

Question-and-Answer Session

Unidentified Audience Member

What are the reasons they would make an investment in China Direct instead of Linkwell, how much Linkwell [inaudible].

Mark Siegel

Good question. We own, in China Direct, about 1.5% of Linkwell. We did the Linkwell transaction before China Direct was actually a formal company. So my partner James and I have a lot of Linkwell personally, but it is not in China Direct. We do, though, have an ongoing three-year contract with them where we receive, to be their U.S. representative – and that is a turnkey solution. That is their Q’s, their K’s, dealing with their transfer agent, helping them with their IR, their PR, everything the Company needs. We get $1 million worth of stock per annum in Linkwell, in China Direct. It is a three-year contract.

Unidentified Audience Member

Two questions. Is the stock trading in Hong Kong or Shenzhen?

Mark Siegel

No, only in the U.S.

Unidentified Audience Member

Because to trade here, does it come under the SOX regulations and –

Mark Siegel

No. SOX has not extended yet to the bulletin board companies. I believe it is going to, but so far right now Sarbanes Oxley does not apply to the bulletin board stocks.

Unidentified Audience Member

So if it does, the management [inaudible].

Mark Siegel

Yes, then they will have to.

Unidentified Audience Member

And that is going to be in ’07?

Mark Siegel

The end of ’07. That is what we are thinking.

Unidentified Audience Member

For application or for acceptance?

Mark Siegel

For application.

Unidentified Audience Member

Okay. Of the 20 patents, are they all issued in China or are they U.S. patents?

Mark Siegel

No, they are Chinese patents.

Unidentified Audience Member

Would you consider filing in the U.S., any patents in the future?

Mark Siegel

James, do you want to ask the Chairman real quick?

James Wang

I don’t think so, because they are not going to sell in the U.S. so it is not necessary to spend the money.

Unidentified Audience Member

And you don’t plan on going into the U.S. market in the future?

James Wang

No.

Unidentified Audience Member

So the import/export business, I didn’t quite understand –

Mark Siegel

They are all over Europe, the Far East. They are selling mostly equipment; actually just equipment.

Unidentified Audience Member

And that equipment is also sold in China?

Mark Siegel

Yes.

Unidentified Audience Member

The facilities, are they owned and operated by the Company?

Mark Siegel

They own the facility, the facilities are on their own property, which they own as well. The facility has the capacity, by the way, to do about $60 million a year. Right now we are running one shift. We can run up to three shifts. Labor is not one of our issues.

Unidentified Audience Member

As far as the industry, you talked about consolidation. Roughly what does the landscape look like?

Mark Siegel

That is a good question. I would ask the Chairman, but in lack of time, I have heard him answer this question before. The answer is, there are about 5,000 companies throughout China that make disinfectants. Most of them do between $200,000 and $800,000 a year in revenue. They are considered either the second or third-largest player in terms of number of patents they have, in terms of amount of sales they do, even though it is a small company doing only $5.5 million. They have already probably had discussions with over 30 different companies doing between $200,000 and $800,000 and they will buy them for a combination of cash and stock, mostly stock.

Unidentified Audience Member

Would you be acquiring them to get the sales force?

Mark Siegel

We do not want their products. We only want their distribution.

Unidentified Audience Member

The two bigger competitors, are they already GMP?

Mark Siegel

Yes, one of them is 3M.

Unidentified Audience Member

That’s pretty big.

Mark Siegel

Yes, very big. But again, their price points are higher than ours. Who is the other one, James, do you know? It is a Chinese company that competes.

James Wang

I think they are both GMP facilities.

Unidentified Audience Member

What is your R&D budget?

Mark Siegel

About $500,000 a year.

Unidentified Audience Member

And you are coming up with 12 to 18 new products per year?

Mark Siegel

Three to five.

Unidentified Audience Member

Three to five, you are going to take to market, 12 to 18 is what? Just things that you are spitballing?

Mark Siegel

We have 18 patents now, there are other products in the pipeline. But we come up with three to five new products that we commercialize every year.

Unidentified Audience Member

And that R&D budget, you expect it to remain at around that level going forward each year?

Mark Siegel

Yes. It is really a joint venture with the Second Military Army and it has been that way for a very, very long time. We use their facility. All we do is we pay for the cost of labor.

Unidentified Audience Member

Now, there is 70% management ownership?

Mark Siegel

Right, of 65 million, 48 million to the management.

Unidentified Audience Member

Are you looking to get that number to come down a little bit? I mean, that’s a pretty big management ownership position.

Mark Siegel

It was actually a little smaller until they bought back the 7 million shares. I am not sure if management’s view of going public was the greatest thing in the world for him. A lot of Chinese companies go quicker than they thought they were going to; a lot to go into when you go to the U.S., cultural differences, et cetera. He bought the stock back. I don’t think he is looking to sell much of the Company. As a matter of fact, they won’t do a raise now until the stock is at least $0.40 because they bought back stock at $0.24.

Unidentified Audience Member

Right, so that management ownership position will decrease through dilution?

Mark Siegel

Yes, but not because they are selling.

Unidentified Audience Member

When does the GMP legislation come into effect, officially?

Mark Siegel

January 2007.

Unidentified Audience Member

Thank you.

Unidentified Audience Member

[Inaudible]

James Wang

Because we just finished the execution statement so we can operate two more in the coming months, and we are looking at 20 to 30 companies already. We just need to make the transaction. We already own [inaudible]. But we have not signed anything yet.

Unidentified Audience Member

Do you expect that management is willing to buy that stock, or you are willing to use stock from the position [inaudible].

James Wang

The Company is willing to use stock to acquire companies, yes. It is willing to use stock and cash, both.

Unidentified Audience Participant

Could you tell me what kind of market penetration you have in the hospital business? What is your strategy with regard to expanding those revenues into the Chinese equivalent of adult care, acute care, and other manufacturing facilities? Could you just comment more on the strategy and market share initially?

James Wang

Right now, there is about a $600 million market for health care related to disinfectants, so Linkwell will only take up 1%. If we can acquire these 20 to 30 smaller companies, that will contribute another $20 million in revenue to us. We will increase our internal sales to $10 million to $12 million, so we are looking at next year, $20 million to $30 million in sales. The following year we are looking at $50 million to $60 million. At that time, we will have 10% of the market share.

What is happening in China is so huge, and they are all very small local players. It is tough to get in because these small businesses have the relationship with the local hospitals.

We expect to get a 20% market share in this particular hospital disinfectants within the next two or three years. If one goes to the supermarket, or an industry hotel, restaurant, we will probably get more resources and capital. We are thinking about it, but we see how we proceed in terms of partnership with another major U.S. corporation. Or maybe we will get more capital from the markets, and after that we can do more.

Unidentified Audience Participant

I just think there are more opportunities in health care, perhaps. The follow-on question I have is, are you compelled to develop products in China for the Chinese market, or can you just end-license products from elsewhere in the world? That goes to my associate’s question: do we need to incur an R&D expense, or can we just have a foreign company give us a formulation and we can manufacture and package that formulation?

Why do we have to develop so many products? It seems to me that 10, 20, 30 products should cover the gamut of the length and the breadth of the product requirements. I do not know how many different kinds of products we need for a hospital or a healthcare facility, but it does not seem to me that we need to be growing that by four or six a year.

James Wang

I think that you have a fair point. What we are looking at right now is because the share we have right now is so small, sometimes we want to develop our product to make sure we keep it growing. You are right. We are looking for some company that has products already. We just need it as a distributor to our sales network. That is true. Right now, we are working on it. We will probably get it done within the next two months.

Unidentified Audience Participant

Do you have time for one more question? I noticed that you have close to 60 million shares outstanding, 65 million with this last management transaction. Do you think in preparation for moving the stock price that we should be considering a reverse split of some type, now that the stock is low? It seems to me it is going to be hard to move 65 million to 100 million shares once this company really cranks on the revenues and the incomes, so perhaps at this time, a reverse split would be an efficacious transaction?

Mark Siegel

You know, it is a penny stock world. We are not going to reverse split the stock now. The only time we would do a reverse split is simultaneous with an application approval from the AMEX. We have spoken to the AMEX already, and we know what we have to do to get there. We need a $2 stock price. We are not going to do a 10-for-1 reverse split. No way.

By the way, in my opinion, it is a lot easier to take a stock from $0.20 to $2 than it is from $2 to $20. This is very, very low market cap. The whole float on this thing is $2.5 million right now, you know? It is nothing.

Unidentified Audience Participant

I do not really understand. The company does not trade in Shenzhen or Hong Kong, where it would be more well-known than here. It is not going for any patents in this country, since they don’t expect to be doing business in this country. So why do they trade here as opposed to Hong Kong?

Mark Siegel

Good question. Here is the answer: there is much less liquidity in Hong Kong. There is even less liquidity on the Shenzhen. It is much harder to raise money over there. We raise money in the U.S.

James Wang

Only big companies that bring $200 million will be able to be [inaudible] in Hong Kong or Shenzhen. [inaudible] or AMEX market [inaudible].

Unidentified Audience Participant

So in other words, if a company has a small market capitalization, it is not listed in Shenzhen or Hong Kong.

James Wang

Exactly, with small assets and small sales. You need $200 million in sales, $20 million in assets. They do not have the a small cap, they do not have the AMEX, they don’t have an OTC. Do you follow me?

Unidentified Audience Participant

Yes, I understand. What does the name of the company mean? Is that a translation from Chinese? Linkwell -- what does that mean?

Xue Lian Bian

Nothing. It means nothing. It is just a name.

Mark Siegel

Lian, tell him what the name was in China when you found the company.

Xue Lian Bian

We called it Shanghai Disinfectant Company Limited.

Unidentified Audience Participant

Was it not also, previous to doing this line of business, was not this a shell from a company that did Internet services in China?

Mark Siegel

No. The company did Internet services here in the U.S., the shell that we purchased. It did not work, like a lot of Internet companies. That is why it became a shell. Last question.

Unidentified Audience Participant

(Speaking off mic)

Are staph infections as popular in China as they are in New York?

Mark Siegel

Staph infections, James?

James Wang

I don’t know.

Mark Siegel

Are staph infections as popular? Ask the Chairman if staph infections are as popular in China as the U.S.

Xue Lian Bian

No.

Mark Siegel

Not as popular in China as the U.S., no, sir.

Unidentified Audience Participant

We have an epidemic here.

Mark Siegel

I know.

Unidentified Audience Participant

What is China doing differently?

Mark Siegel

Why are there fewer staph infections? We will get to you after the meeting, all right? I gotta be done. Thank you very much. I appreciate it.

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China Direct (ticker: CHND.OB) is a diversified management and consulting company. Our mission is to create a platform to empower medium sized Chinese entities to effectively compete in the global economy. As your direct link to China, our organization serves as a vehicle to allow investors to participate directly in the rapid growth of the Chinese economy.

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Source: Linkwell Corp's Presentation at the Arch Small-Cap Investment Conference