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Boyuan Capital feasibility Report20081209

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Boyuan Capital feasibility Report20081209

     Creating More Values for

     Each Customer

    Boyuan Capital Management Co.,Ltd.

    Preparatory Office

    12-08-2008

The materials for reference only, legal documents shall prevail.

    Part1

    ; Invitation Letter of Boyuan PE

    Part2

    ; Feasibility Report and Advantages of Boyuan PE

    1

    Part1

    Invitation Letter of Boyuan PE

Dear Sir or Madam,

    Its my pleasure to introduce Boyuan Capital Management Co.,Ltd to you. It is specialized in PE investment in Zhejiang province and mainly structured by local industrialists. Taking the local advantages, we are confident on what we do. This letter is to invite you to join in Boyuan, we always looking for strategic partners to power it in some aspects which we dont expert. Also we hope the cooperation between us will get an unexpected nice result.

Boyuan has a beautiful blueprint. It needs us to realize it. We have four advantages in PE

    investing in Zhejiang province simply listed as below,

    1. Industrial Backgrounds: We know what a company really needs. Having rich

    management experience enables us to provide added-value services for invested

    companies.

2. Fund resources are broad: Through extensive social relationship, its easy for us to

    raise a big fund from civil capital, enterprises and institutions capital, commerce

    banks and others.

    3. Convenient exit ways: The process of IPO will be easy and provide many other exit

    ways which ensure investors high profit.

    4. Project resources: Our directors are well known in industrial circles, they have

    established a large industrial relationship with many good quality companies which

    make us choose projects accurately.

    Boyuan Capital Management Co.,Ltd will be established in Hangzhou, Zhejiang province, and its “Boyuan Venture Capital Fund” (short for “the Fund” bellow) will be

    dedicated in investing in Pre-IPO enterprises in Zhejiang. The capital commitment of the fund is 500 million to 1 billion US dollars. The fund will focus on expansion and late stage companies to help them IPO in China mainland, Hong Kong and United States, providing capital for business expansion and merge and acquisition .The geography is preferred to the Yangtze River Delta of China or other regions of China recently.

    Mr.Chen Rong,as the founder and one of general partners of Boyuan, he has rich experience at angel investment and invest in healthcare industry for a long time. He is the Director of Zhejiang Cell Biomedical Research Co.,Ltd. and as an angel investor to invest in the company in 1998. Also, he has taken as CEO of Zhejiang Bokun Technologies Co.,Ltd. since 2005.

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    The management team of Boyuan has a strong industrial background which consists of several industrialists and experts in different industries as management directors such as pharmacy, communication, information technology. In the aspect of investment and finance area, it also has national excellent financiers and investors work for it. To take the advantage of nice reputation in industries, the general partners can attract many rich individuals and private organizations from Zhejiang region to join in the fund.

    Apart from that the general partners have deep social backgrounds and extensive relationship with Chinese Security Regulatory Commission which is the authority to regulate the financial products selling in public market. So the first exit wayIPO will be

    convenient. If IPO cannot realize, we will choose to buy in the equity at premium price. Also we keep long term relationship with some famous entrust institutions which will be designer for our financial productions.

    The Yangtze River Delta as the foreland of Chinese economic development includes Zhejiang, Shanghai and Jiangsu which are the most famous coastal provinces and city of China. After 30 years of reform and opening up policy, the area has become one of the most competitive areas in all-around of China even in the world. Establishing Boyuan Capital Management aims to put right money on right companies to create bigger economy value. There are many middle and small sized private companies with high speed growth especially in those following fields, healthcare (pharmaceutical factory, health product company, pharmaceutical logistics company, drugstore chain, hospital, mouth cavity clinic, gymnasium and so on), real estate investment (real estate property, shipbuilding, heavy machine, lorry production, mine prospecting and coal mine investment and so on), TMT and so on.

    As Boyuan Capital Management has convenient way to fundraise and sell the financial product, what we need is a joint relationship with you to co-build a stronger company and bring in much more capital from outside. The details of cooperation can be negotiated by two sides in further communication. If you need more information about the company, please let us know and we will answer timely. And you are welcome to visit us at anytime.

    Looking forward to your early and favorable reply!

Best Regards!

Yours sincerely,

    Chen Rong (CEO)

    Email: boyuanchina@hotmail.com

    Assistant: Lynn Huang

    Email: boyuanchina006@gmail.com

    Tel: 0571-28922515

    Fax: 0571-87294282

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    Part2

    Feasibility Report and Advantages of Boyuan PE

    1. Development of Private Equity in China and Zhejiang

    1.1. Chinese Private Offered Fund Development

    After rapid development for several years, the global private offered fund is growing into a rather large scale. In recent, as the improvement in open-up economic policy and maturity in financial market, China has become an important market of global private offered fund. Meanwhile Chinese private offered fund also appears a strong developing potential. Private offered fund has a great influence on financial resources allocation, financial security, market steady and investee profit in the world and in China.

    In view of international experience, traditional private offered fund places the private equity investment first, and the security investment as supplement. However, in process of private Fund evolvement and international expansion, businesses range of PE Fund is becoming more and more comprehensive. Private offered fund investment focus on private equity investment, security investment, real estate investment and all-round investment.

    Private offered fund appeared in later 80ths of last century in China, its rudiment was leaded by the government to investment in high technology companies as venture capitals. The real private offered fund was delayed in development compared to the venture capital leaded by the government. Since the 90ths of the 20th century, private security investment as the represent of the informal private offered fund has developed rapidly in China and certain parts of venture capital companies has entered into private security fund. According to a survey issued by People of China Bank in 2005, the total amount of private offered fund invested in Chinese security market reached 700 to 900 billion RMB. Since 2006 private equity investment has appeared active. Chinese private equity investment report in 2006 issued by Qingke Group stated that China has become the most active PE investment market in Asia in that year.

    Through investing in Pre-IPO companies, PE investment fund can provide the companies a new channel of fundraising to reduce funding cost and improve efficiency and enterprise public image. It’s predicted that development in PE will speed up continuously. At meanwhile time private security is going step by step to standardization. Private offered funds are mainly structured as limited partnership and entrust basis. Private offered fund takes up more and more proportion in the fund market. Private Equity investment funds will become an important existing way for private offered funds. Many private companies and small and middle-sized companies will become important objects of PE investment.

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    Chinese native private offered funds are developing healthily and the functions of government capital and folk capital have a clear position .Supervision on private offered funds are going on standard way.

    1. 2. The Parameter of Zhejiang Economy

    In past five years, the total production value of non-public economy and export consignment value increased by above 45% per year in Zhejiang province. Currently, there are 1,814,000 individual businesses and 452,000 private companies. All the registration capital reaches 920.13billion RMB, separately increased by 18.6%, 83% and 327% compared to those of 2002.In 2002, total value of non-public economy production was 490.6 billion and accounted for 61.3% of Zhejiang GDP. In 2006, total value of non-public economy production was 1124.6 billion and accounted for 71.4% of Zhejiang GDP. Individual businesses and private companies production value and sales amount,

    consumable retail amount, export exchange earning and comprehensive competition index are continually ranked ahead of overall nation.

    By the end of 2007, Zhejiang province had 452,000 private companies accounting for 80% of all enterprises, and the number of individual industrialists reached 181,400,000. Private companies and individual businesses took up 95 % of the whole market entities. There was one businessman out of 25 Zhejiang people. Zhejiang has become an accelerator of creating businessmen. In this year, total registration capital of overall province amount to 920.13billion RMB. And total non-public economy production value is 70% of Zhejiang GDP.

    The development of non-public economy has accumulated a great mount of civil capital. From the end of the 80ths to early 90ths of last century Zhejiang fundamentally completed the original capital accumulation. As valued, currently total Zhejiang civil capital has accessed 700 billion. In 2002, civil capital had finished non-public investment about 231.7 billion yuan which was 126 times than that of in 1981and accounted for 67% of overall society investment, increased by 27% per year. There is an increasing rate of civil capital investment in the future.

1.3 The PE development in Zhejiang Province.

    In general, Private Equity investment development is relatively slower than the local civil capital investment because of the government policy immaturity and lacking a good financial environment to grow. The traditional funding ways are distinguished but the private equity investment is ignored. In current years, many civil capital leaded by government policies to developing investment on the companies credit basis. Many

    private enterprises got loans by the traditional way and develop business well. But the new financial crisis has made a big blow at the traditional investment way, many private companies cannot survive from the crisis to face bankruptcy. Civil capital is enforced to

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    draw back from investment and go back to banks. It's a winter for many enterprise which need capital support. Also for many civil capitals, to find a safer and profitable way to investment is a problem.

    Zhejiang Boyuan Capital Management is specialized in private equity. Its strong social relationship determines three ways to fundraise a large mount of civil capital. First, the Board of Directors is structured by industrialists, and they have big market networks which contain many industrial partners.

2. Introduction of Boyuan PE investment

    2.1 Management team of Boyuan

    Major shareholders and Management Team:

    ; Board Chairman and Managing Director, Chen Rong

    Mr. Chen is a Bachelor of Computer Technology and Application in Zhejiang

    University. He has been CEO of Zhejiang Bokun Technologies Co.,Ltd. since

    2005.He has invested health industry and health IT for a long time. He also was the

    founder of Sino-US Cell Biomedical Research Institute in 1998 and occupies a board

    member. Zhejiang Cell is also one of companies invited to have roadshow on this

    ChinaBio investor forum in Beijing.

; Board Member: Li-zuan Chen

    Mr. Chen is the senior agricultural technician, the member of National Committee of

    the Chinese People's Political Consultative Conference (CPPCC). He was awarded

    with Outstanding Chinese Private Entrepreneurs in 2006. He had researched in

    cultivating the precious herb dendrobium for long time and gained great success. He

    setup Zhejiang Tianhuang Pharmaceutical Corporation in 1980s and as the board

    chairman Lizuan Chen. The company was awarded with Outstanding Chinese

    Private Enterprise in 2002. In 2005, the sales volume of dendrobium was the first one

    of Chinese medicine sales volume. Meanwhile, Tiantai branch had been one Top 100

    Chinese medical enterprise.

; Board Member: Guo-zhen Chen

    Mrs. Chen has invested mobile communication service industry for long time and

    found Hangzhou East China Communication Market and Household Appliance

    Market of Zhejiang Province in 1990s. Now she is also the board chairman of

    Shanghai Qiantong Telecommunication Co., Ltd. The company is a leading

    telecommunication and mobile service company in China.

    2.2;Investment Strategy of Boyuan

     Stability is the core philosophy of value investment and precedent venture control is the greatest reaction to investees choice and reliance.

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    ; Safety is first-----1. Try to avoid risks; 2. Try best to avoid risks 3.To keep tightly the

    two terms above.

    ; Value investment-----1.Not buy for IPO.

    ; Risk Control------1.Controling risks should be rather reached in advance than done

    after they happen.

    ; Cheap enough-----1.opportunity; Price; Insurance articles.

    Around the investment philosophy and the feature of Pre-IPO, we have established a set of investment standards.

    1. With outstanding financial indexes:

    a) ROE/Profit Margin on Net Assets15%

    b) Rate of profit increasing in next three years30%

    c) Net profit after tax50million

    2. With a simple transaction structure:

    a) Complete IPO in 2-3 years, after fundraising it can initiate the process of IPO at

    once.

    b) Investment focuses on increasing capital and the transaction structure hasnt

    legal questions.

    3. According to the feature of urbanization, industrialization and privatization in China,

    we choice our invested companies on basis of industry. Currently we focus on

    healthcare (pharmaceutical factory, health product company, pharmaceutical logistics

    company, drugstore chain, hospital, mouth cavity clinic, gymnasium and so on), real

    estate investment (real estate property, shipbuilding, heavy machine, lorry production,

    mine prospecting and coal mine investment and so on), TMT and so on.

    a) Competitive meansDont rely on cost and equipment investment as the major

    competitive means.

    b) Competitive pressure: No oligarch monopoly exists in upward position and

    backward position

    c) Market feature: No frequency in technology advance and great breakthrough in

    technology. In short term, no substitute for the products which has great

    influence on the industry.

    4. In order to ensure each investment to have high rate of success, we will take due

    diligent investigation on each invested company.

    a) Due diligent investigation on finance: Price Waterhouse Coopers; KPMG;

    Deloitte & WEF and Ernest & Young the four international famous accountant

    offices to implement.

    b) Due diligent investigation on tax: Price Waterhouse Coopers; KPMG; Deloitte

    & WEF and Ernest & Young the four international famous accountant offices to

    implement.

    c) Due diligent investigation on law: Six national famous lawyer office to execute

    details

    d) Due diligent investigation on business: entrust on the third party to execute for us

    when its necessary.

    5. Through the strict investigation, the invested company should be filtered and analyzed

    layer upon layer by the inter management of Boyuan Capital.

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    Rate of passing is about 3%.

    Trail by Board The Initial Trial Second Trail Third Trail by of Investment by Committeeby CommitteeCommittee Directors

    100

    20

    1053

    First RoundSecond RoundDue Diligency NegotiationTransaction

    Investigation

2.3 Market Model of Boyuan:

     Underwriter: Investment Banks

     Entrust companies;

     Commerce banks;

     Private banks

     High ROI Customers in richer clubs;

    2.4 Business model of Boyuan PE investment:

    Through raising civil capital, capital of enterprises and institutions and commerce banks to found a venture capital fund to invest in some private companies with good quality which are not IPO companies and are undervalued in market. We are familiar with theirs industries. After due diligent investigation we will buy a part of equity from invested companies at a low price. Meanwhile we will provide related added value services such as Consultation, Management, Advertising, Marketing, Internationalization supports to improve the companies management and public image. Returns of investment are

    through the ideal way of IPO, then merge and acquisition, designed by financial products to sell.

Its the right time to invest and buy in companies capital and shares because the same

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    quantity capital or shares compared with early time can be bought in at a lower price. And if the project is going to IPO, it needs at least 2-3years for operation. At the moment Chinese market becomes better and share price will go high, it will be suitable for exiting from IPO. Boyuan Fund is established at the time of bad market, after 2-3years operation we can sell it at high price. It happened that there is a cycle right, and LPs capital wont be

    put aside for a long time.

    Chart 1 Business model of Boyuan PE

    InvestmentBuying equity at low price

    Investee 1Invested Company 1

    Investee 2Invested Company 2Boyuan PE

    FUND

    Invested Company XInvestee X

    Returns Selling equity at a high price

2.5 Risks existing in Boyuan PE

    2.5.1Risks

    Diagram1

    Incidental risks:

    ;Can not List On PublicNecessary risks: ;Company bankruptcy;Wars;Enterprise breaks faith;Politic Crisis;Low price premium and ;Economy Crisiseven loss;Natural Disasters;Exit hard leaded by policy

2.5.2 Solutions for risks

    ; To design investment portfolios and take diversified investment to disperse risks. ; Buyback at price premium.

    ; Insurance of buyback or guaranty.

    ; Financial supervision.

    ; Choose high quality enterprise.

    ; Strictly control buying the ROI.

    ; 5+2 model

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