SALES NETWORK

We sell our products substantially on a wholesale basis to our distributors who are responsible for distribution to retail outlets which sell our products to consumers. Through our distributors, the sales network of our products has covered 24 Chinese provinces and administrative regions in various modes, such as retail outlets, counters in department stores and shopping malls, and wall racks in large supermarkets. In addition, our products, including our branded products and ODM products, sold in the South America account for 25.18 % of the total sales amount for the period ended June 30, 2009.

Prior to February of 2009, we employed a wholesale business model in the Chinese market. We entered into annual distributorship agreements with our distributors which set out key terms, such as the geographic area within which they are authorized to sell our products, credit and payment terms and annual sales and network expansion targets. As of June 30, 2009, we had a total of 26 distributors including 22 independent distributors in 22 provinces and regions and 4 authorized distributors in 2 provinces. We do not directly own or operate any retail outlets and do not enter into any contractual relationship with third party retail outlet operators.

We set guidelines for our authorized distributors in respect of the location and decoration of the outlets with the aim of increasing their sales opportunities and improving the recognition of our Baopiao branded products. We believe our business model enables us to achieve growth by leveraging the resources of our distributors, as well as the expertise in retail distribution and retail management and local relationship of our distributors. In addition to our traditional wholesale model, we have started to employ “On-line Sales” model as a supplementary sale approach since February 2009.

We have established a customer service system which deals with the feedback from customers in time. We have set up a 400-8823-899 toll-free telephone for customer communication and to handle complaint and dispute and quality arbitration. Customers can dial the toll free telephone number to report quality complaint very conveniently. All problems and complaints reported by customers are thoroughly studied to reach a proper settlement.

We generally grant line of credit to our distributors based on their creditworthiness and credit history. We grant credit periods, normally for six months, to some agents with good sales performance.