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The Reverse Merger Process

The Reverse Merger Process. The Fastest Lowest Cost Highest Valuation and Most Liquid ... ...Process for going public. Prepared April, 2004. Presentation Liability Statement.

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The Reverse Merger Process

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  1. The Reverse Merger Process The Fastest Lowest Cost Highest Valuation and Most Liquid ... ...Process for going public Prepared April, 2004

  2. Presentation Liability Statement Liability Statement: This proposal has been assembled based upon information provided by the MacLellan Group, Inc., TriPoint Capital Advisors, LLC and Amaroq Capital, LLC. Significant work product and intellectual property held by these three firms is disclosed in this presentation and any of their advisors, affiliates, subsidiaries, subcontractors and or its contents are subject to an acknowledged confidentiality, nondisclosure and non-circumvention agreement. Any use of the information enclosed without the written permission of and compensation to the MacLellan Group, Inc., TriPoint Capital Advisors, LLC and Amaroq Capital, LLC. will be considered a significant breach of this acknowledged confidentiality, nondisclosure and non-circumvention agreement. In the event of a breach, the firms named above may together or separately seek fines, penalties, damages remedies and relief in U.S. Federal or state courts where they are organized. Confidential. Not for Public Distribution

  3. Why Complete an RTO? • Increase your Company’s ability to raise capital • Expands the scope of your Investor base; • Provides a liquidity path for your shareholders and creates the opportunity for greater diversification of shareholder wealth; • Private equity investors are difficult to attract to the your Company as long as it is private; • A typical IPO is extremely difficult for smaller companies (under 100M in revenues); • Typical small-cap IPO cost averages up to US$1-3 million in expenses and professional fees, plus commissions on the capital that is raised; • The RTO process for a small-cap company typically runs approximately US$350,000 in fees and expenses, plus approximately 12-15 percent of the shares issued; and Confidential. Not for Public Distribution

  4. Market Comparisons Confidential. Not for Public Distribution

  5. Our Reverse Merger Approach • Members of our team have advised and been actively involved in numerous reverse mergers over the past 11 years • Our RTO process relies on a team of professionals possessing the required talents in critical areas of the transaction. These specialized area’s include: • Transaction management • Contract & SEC legal work, • Target shell company sourcing, • Investor relations, • Business planning, research • Investment banking / capital raising • We assumes an role on the Board of Directors and actively promotes the strategic vision of the Company. • We typically focuses on 2-3 transactions per year. One such success in 2003 was AXM Pharma currently operating with a +100M Market Capitalization. Confidential. Not for Public Distribution

  6. Professional Advisory Process - A Two-Stage Approach A more detailed description of our process is outlined in our Professional Advisory Agreement. • Our aim is to position your Company to raise significant capital at a high valuation with maximum liquidity. • The costs associated related to our advisory work are spread out over a 6-months and is approximately $250,000. • Stage 1 - Commences immediately following the execution of our Professional Advisory Agreement. During this stage we will work with the Company and its international auditors, construct the deal structure, begin drafting all relevant documents, conduct due diligence, write the business plan, undertake a preliminary valuation, speak with potential investors. • Stage 2 - We execute the transaction including the share swap agreement and all US SEC filings, the completion of private equity or debt financings, the writing of a Research report and the beginning of the Investor relations program and the eventual listing on a major stock exchange. Confidential. Not for Public Distribution

  7. Our Reverse Merger Team • Mr. Douglas MacLellan: Team Leader, CEO, of the MacLellan Group,Inc. (Los Angeles) • Mr. Joe Cunningham: Financial Advisor, Origination and Execution Specialist, Business Plan & Research Coordinator, President, Amaroq Capital,LLP (Minneapolis) • Mr. Curtis Hollister:Adviser and Origination specialist - based in Canada. • Mr. Mark Elenowitz: Financial Advisor & Equity Structure, Managing Director, TriPoint Capital Advisors, LLC (NYC) • Mr. Louis Taubman, Esq.: Securities and Exchange Commission (“SEC”) Lawyer, General Counsel of TriPoint Capital Advisors, LLC(New York) • Tom Madden: Key Investor Relations Specialist, President, Madden Consulting, LLP (Seattle) • John Steinmetz:Investment Banking, TerraNova Capital Inc., New York • Andre Schwegler:Sales, TerraNova Capital, New York • Charles li:China Attorney, T&C Law Offices, Beijing • Lifeng Zhang:China based transaction specialist Confidential. Not for Public Distribution

  8. The Five Pillars of a Successful RTO 1). Develop a growth focused Business Plan. - We will assist in the development of the business plan and financial model 2). Ensure profitability is reached in the year preceding the RTO. - It needs to be US GAPP based accounting profit 3). Follow the process outlined of the advisory team. - We have executed this process many several times before - You are paying us, please listen to our advice - We have worked with many company’s in their first overseas venture 4). The Board of Directors and most importantly the CEO must be 100% behind the transaction - Assign a dedicated “Transaction manager” with a team he / she can rely upon - The demands on management’s time can be intensive - Document and process control are critical 5). Plan to become one of the leading businesses in your industry - The RTO will transform your business, be prepared for the changes that will take place Our aim is to provide the company with the money it needs to execute it’s strategy. Confidential. Not for Public Distribution

  9. Your Company’s Reverse Merger Process Follow our Proven Reverse Merger Process and together we will create and enhanced path to new equity investment. Our unique process provides a channel for your Company to receive a premium valuation on raising capital, through a tiered multi-round financing strategy. Confidential. Not for Public Distribution

  10. RTO Timetable (Sample Transaction) • April 2004: Sign Advisory Agreement. Shell Company review & negotiations. New Business Plan drafting is commenced. Auditors are retained & they commence audit process. • June 2004: Definitive Agreement between Xian Film Group & Shell Company is executed. Audit is completed. Business Plan is Completed. Initial Research Report is drafted. • July, 2004: The Merger is completed. Drafting of the Private Placement Memorandum. Initial Research Report is published. The Stock starts trading & your Company is a publicly listed company! • August, 2004: PPM is completed & the Offering commences. • September, 2004: PPM is closed US$15 million is raised. • October, 2004: SB-2 Registration Statement is drafted and filed with the SEC and Xian Film Group files for AMEX or NASDAQ listing. • December 2004: SB-2 is approved by the SEC and XFG gains listing on AMEX or NASDAQ . Confidential. Not for Public Distribution

  11. USA China AMEX Shell Company Chinese Company Effective ownership OTC Share Swap US New Company Share Swap JV WOFE Potential RTO Structure Variations of this structure are possible where circumstances permit Confidential. Not for Public Distribution

  12. Reverse Merger Process: The Shell • Step One: Locating suitable Shell merger candidate • We have many sources for shell companies and can have a transaction ready in a matter of weeks. • Undertake due diligence on the Shell (i.e. SEC filings, audit, legal records) • Step Two: Due Diligence Deal Structuring with your Company • Due Diligence: legal records, accounts, articles of incorporation and legal records. • Negotiations: Structuring transaction, defining terms and conditions • Complete US GAAP Audit of your Company. • Step Three: The Merger • The “official” merger: Share Exchange, Share Purchase and/or Asset Purchase Agreements, issuance of new shares, etc. • Step Four: Public Company • SEC Filings: Form 8K, Form 14C, Form 14F, Form 3 and others as required • Maintain SEC Filings: Quarterly and Annual Reports, other filings as required. Confidential. Not for Public Distribution

  13. “Typical” Transaction Overview • Employ our methodology to create a publicly traded company that will facilitate raising capital and will drive higher valuation multiples. • Create new business plan based upon public merger and possible acquisition strategy. • Merge your Company with existing Public Company. • Assist with initial SEC filings and corporate compliance requirements. • Deploy comprehensive Investor Relations & Public Relations campaigns in order to stimulate active trading of the your Company Company’s stock. • Raise additional capital through a private placement (typically convertible preferred shares) to facilitate the growth and expansion of the business. • Provide initial research coverage & assist with investor relations and support services • Apply for a senior listing on the American Stock Exchange (“AMEX”) or the NASDAQ SC. Confidential. Not for Public Distribution

  14. Original Company Public Shell Your Company shares are purchased or “swapped” by the public shell company Convertible Securities issued for US$15 million Public Shell The ultimate amount of capital raised and the value of the offering could adjust down the total amount of dilution, wherein the china shareholders maintain a higher percentage ownership in the business. Capitalization: Industry Valuation18 X 2004P/E. Stock issued to Investors @ a minimum of a $36M pre- investment valuation for 30% of the Company. US$250,000 in fees & expenses and 15% of the stock will go to pay for Public Shell, Merchant Banking, Investor Relations, Legal and Accounting services. Reverse Merger Highlights • Merger of your Company and the Shell Company will take approximately 90 days. • New Financing within 180 days. • China Shareholders would own approximately up to 80% or more of the Company post merger & pre-financing. • Example • The total share pool would likely be kept at approximately 15 million shares (post merger & financing) in order to try and maintain a per share price US$3.50 or higher. • Based upon existing cash assets and expected private placement the Company would immediate moved to an Amex or NASDAQ. (ie:4th Qtr03). Confidential. Not for Public Distribution

  15. Shareholder Structure Post Merger The following is an example of a capital structure • Based upon a total of 10 million shares outstanding immediately after the merger between your Company & the Shell Company. The initial target trading price is anticipated to be approximately US$3.50 per share. • Shell Company Shareholders: 0.45 million shares • Your Company:8.5 million shares • Advisory Interests: 1.05 million shares • It’s anticipated that an additional 5 million shares would be issued in the private placement for raising US$15 million less fees and expenses associated with the underwriting. These fees are typically 7 - 10 percent plus underwriters warrants of the amount raised. Confidential. Not for Public Distribution

  16. Raising Capital with Direct Investors • Raising capital through a PIPE (Private Investment in a Public Equity) based on the following issues: • Market Capitalization • Share Price • Liquidity • Float • Our Investor Relations program will stimulate demand and drive the market capitalization and liquidity of your Company • We can expect to raise approximately 10% - 15% of the market capitalization of the company during the first round of financing Confidential. Not for Public Distribution

  17. US Exchanges and Markets Confidential. Not for Public Distribution

  18. AMEX Listing Requirements for US Companies Note: Companies must also comply with other listing requirements such as having a majority (50% for SB filers) of independent directors, independent audit committee, and others. Confidential. Not for Public Distribution

  19. AMEX Listing Requirements for International Companies Confidential. Not for Public Distribution

  20. AMEX Listing Process Notes: 1) Company must comply with all listing guidelines. 2) Company’s application is approved by AMEX Listing Department Confidential. Not for Public Distribution

  21. Nasdaq National Market Listing Requirements Confidential. Not for Public Distribution

  22. Nasdaq SMALLCAP Market Listing Requirements • Companies must meet minimum initial and continued financial requirements Confidential. Not for Public Distribution

  23. AXM – A Recent RTO Experience Confidential. Not for Public Distribution

  24. Can You Picture Yourself ? AXM Pharma’s Inc., Chairperson, Madam Wang Wei Shi, rings the opening bell At the American Stock Exchange (AMEX) 27 April 2004. Confidential. Not for Public Distribution

  25. AXM Pharma Experience • Pharmaceutical company based in the Shenyang, PRC • Wholly-owned subsidiary Shenyang Tianwei Werke Pharmaceuticals, Co. Ltd. • OTC and prescription pharmaceutical products • Currently trading on American Stock Exchange under symbol “AXJ” • Recent traded as high as $7.50 per share • Average daily volume of 110,000 Confidential. Not for Public Distribution

  26. 2003- 2004 Highlights • Record sales of US$10.4 million • Operating income of US$2.25 million • Initial listing on Company’s Stock • Raised US$8.0 million • Groundbreaking of new US cGMP manufacturing plant • In-licensing of Sunkist brand of vitamin & supplement products • Expanding sales into three new markets • Gained senior listing on Amex • Attracted experience senior management Confidential. Not for Public Distribution

  27. AXM Pharma – Trading History Confidential. Not for Public Distribution

  28. Mr. Douglas C. MacLellan CEO The MacLellan Group, Inc. 8324 Delgany Avenue Playa del Rey, California 90293 e-mail: maclellangroup@cs.com tel: 310-301-7728 fax: 310-301-7748 US cel: 310-283-4201 China cel: 011-861-369-121-3337 Mr. Joseph T. CunninghamPresident Amaroq Capital, LLC18 Pheasant Lane North Oaks, Minnesota 55127 ÙSAe-mail: joe.cunningham@amaroqcapital.com tel: 651-204-2048 tel 2: 651-490-0038 cel: 612-306-0527 Contact Information Confidential. Not for Public Distribution

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