Kingworld Medicines Group Limited - Proxy Solicitation & Information Statement 2010

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Web Proof Information Pack of

KINGWORLD MEDICINES GROUP LIMITED 金活醫藥集團有限公司

(incorporated in the Cayman Islands with limited liability)

WARNING

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This Web Proof Information Pack contains the following information relating to the Company extracted from the Bulk-Print Proof of the draft document:

Summary
Definitions
Forward-looking Statements
Risk factors
Waivers from Compliance with the [●]
Directors
Corporate information
Industry overview
Regulatory overview
History and development
Business
Directors, senior management and staff
Share capital
Relationship with Controlling Shareholders
Persons having notifiable interests under [●]
Financial information
Future plans
Appendix I Accountants’ report
Appendix III Property valuation
Appendix IV Summary of the constitution of the Company and Cayman Islands Company Law
Appendix V Statutory and general information

YOU SHOULD READ THE SECTION HEADED “WARNING” ON THE COVER OF THIS WEB PROOF INFORMATION PACK.

SUMMARY

This summary aims to give you an overview of the information contained in this document. As this is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to invest in [●].

There are risks associated with any investment. Some of the particular risks in investing in [●] are set out in the section headed “Risk factors” of this document. You should read that section carefully before you decide to invest in [●].

OVERVIEW OF BUSINESS

The Group is principally engaged in the distribution of branded imported pharmaceutical and healthcare products in the PRC. During the Track Record Period, a substantial proportion of the Group’s revenue was derived from the sale of [●] Pei Pa Koa, which is a product manufactured by [●] Medicine and supplied directly by Great Pleasure. During the Track Record Period, the Group’s turnover generated from the sales of [●] Pei Pa Koa was approximately RMB[353.8] million, RMB[357.1] million, RMB[373.7] million and RMB[229.2] million respectively, representing approximately [67.1]%, [66.6]%, [67.1]% and [73.0]% of the Group’s total turnover respectively. SZ Kingworld is not the sole and exclusive distributor of [●] Pei Pa Koa in the PRC.

To the best of the Directors’ knowledge, as at the Latest Practicable Date, there were three regional distributors, namely, SZ Kingworld, Guangdong Minglin and Zhuhai Jinming, distributing the [●] Product Series in the PRC without any overlapping regions. To the best of the Directors’ knowledge, since 1997 and up to the Latest Practicable Date, the Directors were not aware of other regional distributors distributing the [●] Product Series in the PRC, apart from the above three regional distributors.

According to the Top 100 Importers of Pharmaceutical and Healthcare Products Report published by CCCMHPIE which was based on the statistics provided by the PRC Customs, SZ Kingworld ranked 76th among the importers of pharmaceutical and healthcare products in the PRC based on an imported value of US$47.3 million in 2009, as compared to the average imported value of approximately US$292.8 million amongst the top 10 ranking importers and the total imported value of US$9.53 billion of the top 100 importers in 2009. As at the Latest Practicable Date, the Group managed a portfolio of 48 pharmaceutical and healthcare products, general foodstuffs and a medical product which are manufactured in Japan, the USA, Canada, Hong Kong, Taiwan, Thailand and the PRC and sourced from 13 different suppliers and/or manufacturers.

— 1 —

SUMMARY

Currently, the Group managed a total of 12 pharmaceutical products, seven healthcare product ranges, 28 general foodstuffs and a medical product. These products can be grouped under seven different functional categories, namely cough and phlegm relieving, gastrointestinal, vitamin, orthopedics, cardiovascular, influenza and others. The turnover by the products which the Group distributed and the corresponding amount as a percentage of the Group’s total turnover during the Track Record Period are set out below:

		Year	ended 31	December	December			Six months ended 30 June	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2007		2008			2009		2009		2010
	RMB’000	_% _	RMB’000	_% _	RMB’000		_% _	RMB’000	_% _	RMB’000		%
Pharmaceutical
products
[●] Pei Pa Koa	353,775	67.0%	357,121	66.6%	373,720		67.1%	186,728	67.9%	229,196	73.0%
Taiko Seirogan	53,755	10.2%	61,623	11.5%		42,325	7.6%	26,002	9.4%	11,034		3.5%
Flying Eagle Wood Lok
Medicated Oil	4,345	0.8%	10,130	1.9%		28,591	5.1%	10,388	3.8%	12,587		4.0%
Imada Red Flower Oil	28,259	5.4%	28,573	5.3%		26,131	4.7%	12,289	4.5%	4,363		1.4%
Mentholatum Product
Range_(Note 1)_	37,026	7.0%	20,432	3.8%		27,519	4.9%	16,611	6.0%	15,201		4.8%
[●]	7,886	1.5%	16,918	3.2%		1,202	0.2%	1,159	0.4%	9,921		3.2%
Kingworld Product
Range 1_(Note 3)_	3,810	0.7%	221	0.1%		2,879	0.5%	740	0.3%	2,384		0.8%
Min Tong Chisionhom	580	0.1%	128	—%		549	0.1%	484	0.2%	101		—%
Fengbao Jianfu Capsule	833	0.2%	312	0.1%		1,329	0.2%	23	—%	—		—%
Healthcare products,
foodstuffs and
medical product
[●] Herbal Candy	12,692	2.4%	14,266	2.6%		22,387	4.0%	8,276	3.0%	16,741		5.3%
[[●] Product Range]	23,910	4.5%	25,842	4.8%		29,127	5.2%	11,893	4.3%	10,442		3.3%
Kingworld Product
Range 2_(Note 3)_	366	0.1%	—	—%		216	—%	19	—%	164		0.1%
Other products_(Note 2)_	361	0.1%	980	0.1%		992	0.4%	545	0.2%	1,855		0.6%
Gross sales	527,598	100.0%	536,546	100.0%	556,967		100.0%	275,157	100.0%	313,989	100.0%
Less: Sales tax	(271)		(525)			(550)		(362)		(279)
Net sales	527,327		536,021		556,417			274,795		313,710

Notes:

SZ Kingworld has not distributed the Mentholatum Eye Drop Range since 1 January 2010.
Other products include Golden 100 [●] Range, Bifina Probiotic Capsule, [Jamieson Product Range] and DIA Instant Cooling Gel Sheet. Golden 100 [●] Range, Bifina Probiotic Capsule and Jamieson Product Range are under the category of general foodstuffs distributed by the Group. DIA Instant Cooling Gel Sheet is a medical product.
Kingworld Product Range 1 includes Kingworld Gan Mao Qing Capsule and Kingworld Gen-seng Capsule. Kingworld Product Range 2 includes Kingworld American Ginseng Capsule and Kingworld American Ginseng Tablets.

— 2 —

SUMMARY

Over years of development, the Group adhered to its tradition of only distributing reputable products, many of which are established brand names including [●] Pei Pa Koa ([●]蜜煉川貝枇杷膏), Taiko Seirogan (喇叭牌正露丸), [[●] Product Range] ([●]系列), Flying Eagle Wood Lok Medicated Oil (飛鷹活絡油), [●] ([●]), Min Tong Chisionhon Granules (明通治傷風顆粒) and Mentholatum Product Range (曼秀雷敦系列). Amongst these brands, “[●]” was awarded with the Chinese Well-known Mark under the fifth category by the PRC Trademark Office in 2006.

[ ● ] Product Series

[●] Pei Pa Koa was introduced into the Group by Mr. Zhao as he was of the view that there was a potential market for such product in the PRC. Mr. Zhao took the initiative to negotiate with [●] Medicine through normal commercial channels and successfully secured the distribution rights of the [●] Pei Pa Koa for SZ Kingworld in 1997.

Authorisation for the distribution of [ ● ] Product Series

In June 1997, SZ Kingworld and Guangdong Minglin were appointed as the distributors of [●] Pei Pa Koa in their respective regions in the PRC market by [●] Medicine and Great Pleasure. There were no overlapping regions between SZ Kingworld and Guangdong Minglin, except for the Guangdong province, where both were appointed as distributors. SZ Kingworld is not the sole and exclusive distributor of [●] Pei Pa Koa in the PRC. In July 2002, [●] Medicine appointed SZ Kingworld as the distributor of [●] Herbal Candy in certain regions in the PRC. In order to avoid competition for distribution of the [●] Product Series in the Guangdong province, [[●] Medicine introduced Guangdong Minglin to SZ Kingworld and after negotiation among SZ Kingworld, Guangdong Minglin, Great Pleasure and [●] Medicine,] a jointly controlled entity in the name of Zhuhai Jinming was jointly established by SZ Kingworld and Guangdong Minglin in 2004 for the distribution of the [●] Product Series in the Guangdong province. Since then, to the best of the Directors’ knowledge, there has been no geographical overlap of authorised sales regions among SZ Kingworld, Zhuhai Jinming and Guangdong Minglin.

Distribution Agreement for [ ● ] Pei Pa Koa

In April 2010, the non-exclusive Distribution Agreement was entered into among [●] Medicine, Great Pleasure, SZ Kingworld and HK Kingworld, pursuant to which SZ Kingworld was appointed as regional distributor of the [●] Pei Pa Koa in 14 regions in the PRC for a term of three years. Details of the terms of the Distribution Agreement are set out in the sub-section headed “Business Model” in the “Business” section of this document.

Revenue generated from the [ ● ] Product Series

According to the Speedroad Report, the Group’s sales of [●] Pei Pa Koa during the Track Record Period accounted for approximately [42.6]%, [41.1]%, [42.8]% and [●]% of the total turnover of [●] Pei Pa Koa in the PRC market for the three financial years ended 31 December 2007, 2008, 2009 and the six months ended 30 June 2010, respectively.

— 3 —

SUMMARY

The Group’s gross profit attributable to [●] Pei Pa Koa for each of the three financial year ended 31 December 2009 and six months ended 30 June 2010 accounted for 71.0%, 63.2%, 54.3% and 57.0% of the Group’s gross profit respectively.

Products of [ ● ] Medicine

According to the website of [●] Medicine, its products are categorized into three series, namely, pei pa koa, herbal candy and traditional Chinese medicine granules. The table below shows the number of products in each of these series and the series to which the products distributed by the Group belong:

	Category of products as	Number of products as
	shown on the website of	shown on the website of	Products which
	[●] Medicine	[●] Medicine	the Group distributes
1.	Pei pa koa	Three different kinds of	Bottle sizes of 300ml, 150ml
		packaging	and 75ml
2.	Herbal candy	Three flavors with two	One flavor in 20g and 45g
		different kinds of
		packaging
3.	Traditional Chinese	Four kinds for flu, cough,	N/A
	medicine granules	cold and health
		enhancement

Details of the specific specifications of the [●] Product Series which the Group distributes are set out under the sub-section headed “Brands and Products” of the “Business” section of this document. As confirmed by [●] Medicine, [●] Pei Pa Koa is the principal product of [●] Medicine and [●] Medicine has declined to confirm the number of products it produces and sells to its distributors and the number of distributors it engages to distribute its various products.

Relationship among [ ● ] Medicine, Great Pleasure, China Capital, Guangdong Minglin, and the Group

[●] Medicine, Great Pleasure and China Capital are Independent Third Parties. [According to the latest public search records, [●] Medicine, Great Pleasure and China Capital have two common shareholders and two common directors. For details, please refer to the sub-section headed “Distribution of [●] Product Series” under the “Business” section in this document.

— 4 —

SUMMARY

Supply of [ ● ] Product Series

The Group relies on Great Pleasure and China Capital for the supply of the [●] Pei Pa Koa and [●] Herbal Candy respectively. [●] Medicine has authorised Great Pleasure and China Capital to distribute the [●] Product Series to the regional distributors in the PRC. The Group does not source the [●] Product Series directly from [●] Medicine but from these two authorised distributors. SZ Kingworld does not have the right to choose whether to source the products directly from the manufacturers or from their authorised agents. As such, SZ Kingworld sources [●] Pei Pa Kao directly from Great Pleasure and [●] Herbal Candy directly from China Capital.

— 5 —

SUMMARY

Distribution of [ ● ] Product Series

The following diagram sets out the distribution flow of the [●] Product Series:—

==> picture [450 x 539] intentionally omitted <==

----- Start of picture text -----

[•] Medicine
(manufacturer of [•] Product Series)
Great Pleasure China Capital
(authorized distributor of ([authorized agent] of [•]
[•] Pei Pa Koa) Herbal Candy)
SZ Kingworld [(Note 1)] Zhuhai Jinming [(Note 1)] Guangdong Minglin
(regional distributor) (regional distributor) (regional distributor) [(Notes 1&2)]
Guangdong Province (prior Beijing, Tianjin,
Twelve Subsidiaries [(Note 3)] Other representativeoffices [(Note 3)] to 2004, SZ Kingworld and Chongqing, Hebei Province,
Guangdong Minglin Shandong Province,
distributed [•] Pei Pa Heilongjiang Province,
Hubei Province Hainan Province Koa in Guangdong Jilin, Liaolin Province,
Heilongjiang Province Ningbo and Zhoushan of Province on a several basis.) Hubei Province,
Jilin Province Zhejiang Province Hunan Province,
Liaoning Province Wenzhou, Taizhou Sichuan Province,
Wuxi, Changzhou Jinhua, Quzhou, Lishui Yunnan Province,
and Jiangyang of Shanghai Guizhong Province,
Jiangsu Province Guangxi Autonomous
Suzhou, Nantong
Shanxi Province Region,
Xuzhou, Suqian, Huai’an,
Jiangxi Province Xinjiang Autonomous
Gansu Province Yancheng and Lianyunggang Region and Tibet Province
Shaanxi Province of Jiangsu Province
Henan Province Nanjing, Yangzhou,
Fujian Province Taizhou and Zhenjiang of
Anhui Province Qinghai Province
Hangzhou, Jiaxing, Huzhou Mongol Autonomous
and Shouxing of Zhejiang Region
Province Ningxia Hui Autonomous
Guangxi Zhuang Region
Autonomous Region
("TheAuthorized Regions")
Distributor Customers Distributor Customers
Sub-distributor Customers Sub-distributor Customers
Retail Outlets Retail Outlets
End users End users
----- End of picture text -----

Notes:

To the best of the Directors’ knowledge, as at the Latest Practicable Date, there were three regional distributors, namely, SZ Kingworld, Guangdong Minglin and Zhuhai Jinming, distributing the [●] Product Series in the PRC without any

— 6 —

SUMMARY

overlapping regions. To the best of the Directors’ knowledge, since 1997 and up to the Latest Practicable Date, the Directors were not aware of other regional distributors distributing the [●] Product Series in the PRC, apart from the above three regional distributors. To the best of the Directors’ knowledge, other than the three regional distributors, [●] Medicine, Great Pleasure and China Capital had not engaged in any direct distribution of [●] Product Series in the PRC.

Other than Guangdong Minglin’s interests in Zhuhai Jinming, SZ Kingworld and Guangdong Minglin are independent in terms of their shareholders, directors and senior management. There is no public information showing the distribution structure of Guangdong Minglin.
According to the policy of SZ Kingworld, the Twelve Subsidiaries have been set up in regions in the PRC with a more established customer base. Apart from handling a larger amount of sales of the Group, each of the Twelve Subsidiaries also has personnel dedicated to the implementation of the Group’s marketing and promotional activities. On the other hand, the regional representative offices are set up in regions in the PRC with a developing customer base and are responsible for conducting the sales activities of the Group.

The Group’s operation in relation to [ ● ] Product Series

SZ Kingworld has been engaging in the pharmaceutical business for 14 years and has been assisting [●] Medicine in obtaining the registration certificate and relevant permits in relation to [●] Product Series. Over the past years, SZ Kingworld had established a sales network covering various kinds of customers in different regions in the PRC for distributing the healthcare and pharmaceutical products. Accordingly, [●] Medicine and Great Pleasure can take advantage of the established sales network of SZ Kingworld by engaging SZ Kingworld as one of the distributors and it is not necessary for [●] Medicine and Great Pleasure to incur costs and deploy human resources to develop their own sales network in the PRC.

SZ Kingworld does not bear any of the promotional expenses in relation to the distribution of [●] Pei Pa Koa but it is responsible for part of the promotional expenses for the distribution of [●] Herbal Candy. Details of breakdown of the relevant advertising expenses are set out in sub-section headed “Facilitation of Sales of Products” under the “Business” section of this document. According to the Speedroad Report, the sales of [●] Pei Pa Koa, a cough and phlegm relieving product manufactured by [●] Medicine, amounted to approximately RMB1.03 billion, which accounted for approximately 24.09% of the proprietary Chinese medical Cough Relieving Products market in the PRC in 2009. According to the Speedroad Report, as of June 2010, there were four licensed imported proprietary Chinese medical Cough Relieving Products in the PRC OTC market, and amongst those, [●] Pei Pa Koa was the leading product with over 95% share of the market for imported proprietary Chinese medical Cough Relieving Products in the PRC. [●] Pei Pa Koa was also the Group’s all-time best-seller during the Track Record Period.

— 7 —

SUMMARY

Distribution Network

Since the commencement of its business in September 1996, the Group has established an extensive distribution network in the PRC, which as at the Latest Practicable Date, consisted of approximately 190 Distributor Customers [having a network of] 400 Sub-distributor Customers, which are not direct customers of the Group, and 1,500 Product Display Booths at the retail outlets in the PRC. It is estimated that the current distribution network of the Group covers a total number of more than 17,000 retail outlets throughout the PRC. The Group only distributes products directly to the Distributor Customers and will monitor their performances by making monthly visits and reviewing reports on the distribution flow and inventory levels of the Distributor Customers to ensure their compliance with the distribution agreements. Other than the aforesaid, the Distributor Customers operate independently from the Group. The Group has no control over the retail outlets (other than for the setting up of the Product Display Booths, details of which are set out in the sub-section headed “Product Display Booth Scheme” under the “Business” section in this document) and the Sub-distributor Customers (other than those who had entered into tripartite distribution agreements with SZ Kingworld and the Distributor Customers, details of which are set out in the subsection headed “Agreements with the Sub-distributor Customers” under the “Business” section in this document).

The agreements between the Group and the Distributor Customers generally include, among other things, the following terms:

1. Credit term

A credit period ranges from 30 to 90 days (except for Flying Eagle Wood Lok Medicated Oil where a 12-month credit period is offered) is offered to the Distributor Customers.

2. Sales rebate

[●]

3. Pricing

The pricing of the [●] Pei Pa Koa distributed by the Group to its Distributor Customers is determined by [●] Medicine and Great Pleasure. The pricing of [●] Herbal Candy distributed by the Group to its Distributor Customers is subject to negotiation between the Group, [●] Medicine and China Capital.

— 8 —

SUMMARY

Other than the [●] Product Series, pricing of the products distributed by the Group is determined based on arm’s length negotiations with the suppliers and Distributors Customers, subject to relevant price control regulations under PRC law.

4. Sales Region

The agreements between the Group and the Distributor Customers would specify the regions where the products are to be distributed.

5. Product Return Policy

The Distributor Customers may return products that are damaged, with incomplete packaging or inconsistent with the specifications as set out in the purchase order subject to the decision of SZ Kingworld.

6. Exclusivity

The agreements between the Group and the Distributor Customers do not contain provisions on exclusive distribution rights for such customers.

The revenue contributed by the top five Distributor Customers accounted for [20.1]%, [23.6]%, [23.2]% and [●]% of the Group’s turnover respectively during the Track Record Period. Details of Distributor Customers, Sub-distributor Customers and the Product Display Booths are set out in the “Business” section of this document.

Management of the Group’s distribution network by market segmentation

For more effective management and co-ordination, the Group has strategically devised a management hierarchy across the PRC market by dividing it into 34 Regions, each overseen by one of the Twelve Subsidiaries or a regional representative office. Details of the roles and responsibilities of the Twelve Subsidiaries and the regional representative offices are set out in the sub-section headed “Segmentation of distribution network” under the “Business” section of this document. As at the Latest Practicable Date, SZ Kingworld had a total of [378] staff, [308] of whom were deployed to work in the 34 Regions to perform sales and marketing work.

Each year the Group issues an Annual Sales Guideline and other seasonal marketing strategies. The Group’s experienced managerial team, including sales directors and product managers, are responsible for co-ordinating the frontline sales and marketing team to meet the annual sales target. Moreover, the Group also seeks to broaden its product portfolio through its international sourcing department, to introduce new products from the international markets.

— 9 —

SUMMARY

Products distributed by the Group

Other than [●] Pei Pa Koa, the Group has also entered into distribution agreements with various distributors or manufacturers for the distribution of products including Taiko Seirogan, [●] Product Range, Eagle Flying Wood Lok Medicated Oil, Imada Red Flower Oil, Min Tong Chisionhon Granules, Fenbao Jianfu Capsule, Mentholatum Product Range, Kingworld Product Range, DIA Instant Cooling Get Sheet, Jamieson Product Range. The term of these distribution agreements ranges from [one] year to [five] years.

[●] Medicine issued an authorisation letter dated 1 January 2010 to SZ Kingworld, pursuant to which the Group has the right to distribute [●] Herbal Candy in certain regions in the PRC specified in the said authorisation letter for a term of one year, which may be renewable on a yearly basis. The Group has no exclusive distribution right for [●] Herbal Candy. As confirmed by the PRC Lawyer, the authorisation letter issued by [●] Medicine to SZ Kingworld for the distribution of [●] Herbal Candy was legally binding.

With respect to [●], the Group also entered into an authorisation letter dated 29 August 2008 with Tai San, the exclusive agent of [●] in the PRC, pursuant to which the Group has the right to distribute [●] in the PRC for a term of three years. The Group has no exclusive distribution right for [●]. As confirmed by the PRC Lawyer, the authorisation letter entered into between the Group and Tai San for the distribution of [●] was legally binding.

Details of the distribution agreements, authorisation letters and purchase orders entered into between the Group and its suppliers are disclosed in the sub-section headed “Overview” in the “Business” section in the document.

For each of the three years ended 31 December 2009 and six months ended 30 June 2010, the products (excluding [●] Pei Pa Koa) distributed by the Group contributed to approximately 32.9%, 33.5%, 32.9% and 27% of the Group’s turnover for the same period. For the six months ended 30 June 2010, each of the products (excluding [●] Pei Pa Koa) distributed by the Group contributed to less than 5.4% of the Group’s turnover for the same period.

Renewal of expired/expiring distribution rights and registration certificates

Although the Group has experienced delays in renewing the distribution rights and registration certificates, the Group did not encounter any refusals of non-renewal of such distribution rights and registration certificates during the Track Record Period.

— 10 —

SUMMARY

OBJECTIVE AND STRATEGIES

The Group’s principal objective is to become a distributor in a selected portfolio of established pharmaceutical and healthcare products and general foodstuffs. To achieve this, the Directors intend to apply the following strategies:

maintaining and increasing the market share of the existing products;
prospects of new products;
continuing expansion of distribution network;
consolidation of Distributor Customers and/or Sub-distributor Customers; and
active exploration of new markets.

COMPETITIVE STRENGTHS

With its years of establishment, the Directors believe that the Group has established its name in the pharmaceutical and healthcare products distribution sector. The Directors also consider that the Company has established a competitive foothold with a well-established customer base where a majority of them have a wide distribution network in the PRC.

The Directors are of the opinion that the Group possesses the following competitive strengths in the industry:

well-established distribution network and strong sales and marketing team;
product portfolio with well-known brands;
SZ Kingworld has growth potential for the distribution of pharmaceutical and healthcare products;
proven historical business relationships with key manufacturers/suppliers and customers; and
well-educated and loyal workforce.

— 11 —

SUMMARY

SUMMARY OF FINANCIAL INFORMATION

The following table summarises the Group’s combined income statements, combined statements of comprehensive income for the three financial years ended 31 December 2007, 2008, 2009 and the six months ended 30 June 2010 and combined balance sheet as at 31 December, 2007, 2008, 2009 and 30 June 2010. The figures are extracted from the accountants’ report, the text of which is set out in Appendix I to this document.

Combined income statements

Year ended 31 December
2007
2008
2009
RMB’000
RMB’000
RMB’000
Turnover (Note 1)
527,327
536,021
556,417
Cost of sales
(431,022)
(406,630)
(435,764)
Gross profit
96,305
129,391
120,653
Valuation (loss)/gain on
investment property
—
(1,891)
600
Other revenue (Note 2)
3,591
7,220
6,786
Other net income (Note 3)
9,068
10,978
7,143
Selling and distribution costs
(51,748)
(62,357)
(58,378)
Administrative expenses
(12,688)
(21,330)
(20,441)
Profit from operations
44,528
62,011
56,363
Finance costs
(8,958)
(16,570)
(9,610)
Profit before taxation
35,570
45,441
46,753
Income tax
(6,335)
(11,044)
(9,509)
Profit for the year/period
29,235
34,397
37,244
Attributable to:
Equity shareholder of the
Company
29,235
34,397
37,244
Dividends
—
47,700
26,400
Earnings per share (RMB)
(Note 4)
Basic and diluted
[6.50 cents]
[7.64 cents] [8.28 cents]

Six months
ended 30 June
2009
2010
RMB’000
RMB’000
274,795
313,710
(221,969)
(250,357)
52,826
63,353
—
—
4,509
3,738
3,305
33
(33,991)
(37,485)
(10,274)
(11,605)
16,375
18,034
(6,067)
(3,568)
10,308
14,466
(1,747)
(3,854)
8,561
10,612
8,561
10,612
—
5,637
[1.90 cents] [2.36 cents]

— 12 —

SUMMARY

Notes:

The Directors consider that the key revenue driver for the financial year ended 2009 was the effect of (i) the Product Display Booths Scheme which was launched in May 2009 and (ii) the special 12-month credit term for Flying Eagle Wood Lok Medicated Oil, sales of the product increased from RMB10.1 million in 2008 to RMB28.6 million in 2009.
Other revenue primarily consists of interest income on financial assets not at fair value through profit or loss, commission income and rental income.
Other net income primarily consists of net realised and unrealised gain on forward foreign exchange contracts and net foreign exchange gain. Such forward foreign exchange contracts are entered into by the Group with certain banks in the PRC for the purpose of managing the risks in relation to future exchange rate movements.
The calculation of basic earnings per share is based on the net profit attributable to equity holders of the Company for the three financial years ended 31 December 2009 and the six months ended 30 June 2010 and on the assumption that [450,000,000] shares in issue or to be issued as at the date of this document and pursuant to the Capitalisation Issue occurred on the first day of the Track Record Period.

Gross profit margin analysis

Gross profit margin was 18.3% for the year ended 2007, 24.1% for the year ended 2008, 21.7% for the year ended 31 December 2009 and 20.2% for the six months ended 30 June 2010. The increase in the Group’s gross profit margin from 18.3% in 2007 to 24.1% in 2008 was mainly due to the increase in sales for higher profit margin products like Flying Eagle Wood Lok Medicated Oil on one hand and decrease in sales quantity of lower margin products like eye-drop medicines on the other hand. The drop in gross profit margin from 24.1% in 2008 to 21.7% in 2009 and 20.2% in the six months ended 30 June 2010 was mainly due to the increase in average unit cost of [●] Pei Pa Koa products by 8.3% which could not be fully passed on to customers by correspondingly increasing the selling price of the [●] Pei Pa Koa.

— 13 —

SUMMARY

Combined statements of comprehensive income

				Six months	Six months
	Year	ended 31 December		ended	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Profit for the year	29,235	34,397	37,244	8,561	10,612
Other comprehensive income
for the year/period
Exchange differences on
translation of financial
statements of foreign
subsidiaries	8	78	(152)	(412)	106
	8	78	(152)	(412)	106
Total comprehensive income for
the year/period	29,243	34,475	37,092	8,149	10,718

— 14 —

SUMMARY

Combined balance sheets

		At 31 December		At 30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Non-current assets
Property, plant and equipment	4,406	3,451	3,633	3,434
Investment property	—	45,400	46,000	46,000
Prepaid lease payments	—	—	7,502	7,380
	4,406	48,851	57,135	56,814
Current assets
Inventories	99,136	98,620	75,862	35,041
Trade and other receivables	278,404	265,746	178,513	170,422
Pledged bank deposits	69,049	103,396	246,619	197,537
Cash and cash equivalents	48,444	31,240	83,562	49,433
	495,033	499,002	584,556	452,433
Current liabilities
Trade and other payables	177,930	164,729	172,882	113,852
Bank loans	187,333	159,595	246,606	195,766
Current taxation	2,016	3,414	4,637	2,896
	367,279	327,738	424,125	311,514
Net current assets	127,754	171,264	160,431	139,919
Total assets less current liabilities	132,160	220,115	217,566	196,733
Non-current liabilities
Bank loans	—	100,000	60,000	60,000
Deferred tax liabilities	—	1,180	1,538	2,024
	—	101,180	61,538	62,024
NET ASSETS	132,160	118,935	156,028	134,709
CAPITAL AND RESERVES
Share capital	—	—	1	1
Reserves	43,160	29,935	156,027	134,708
Shareholders’ equity loans	89,000	89,000	—	—
TOTAL EQUITY	132,160	118,935	156,028	134,709

— 15 —

SUMMARY

DIVIDEND POLICY

Dividend of approximately RMB47.7 million was paid for the year ended 31 December 2008. In January 2010, dividend amounting to RMB26.4 million was paid for the year ended 31 December 2009. Another dividend of approximately RMB5.6 million was paid for the six months ended 30 June 2010.

After completion of [●], the Company may distribute dividends as the Directors consider appropriate. A decision to distribute any interim dividend or recommend any final dividend would require the approval of the Board and will be at its discretion. In addition, any final dividend for a financial year will be subject to the Shareholders’ approval. The Board will review the dividend policy from time to time in light of the following factors in determining whether dividends are to be declared and paid:

financial results of the Company;
shareholders’ interest;
general business conditions, strategies and future expansion needs;
the Company’s capital requirements;
the payment by its subsidiaries of cash dividends to the Company;
possible effects on the liquidity and financial position of the Company; and
other factors the Board may deem relevant.

Dividends may be paid only out of the Company’s distributable profits as permitted under the relevant laws. The Company’s dividend distribution record in the past may not be used as a reference or basis to determine the level of dividends that may be declared or paid by the Company in the future.

The Directors currently intend that not less than 50% of the Company’s profit after taxation may be distributed as dividends for the applicable financial year subject to the approval of the Board after considering the above factors and by the then Shareholders. Such intention does not amount to any guarantee or representation or indication that the Company must or will declare and pay dividend in such manner or declare and pay any dividend at all.

RISK FACTORS

The Directors consider that the business of the Group is subject to a number of risk factors which can be divided into the following categories:

(i) Risks relating to the business of the Group
Risk relating to [●] Pei Pa Koa

— 16 —

SUMMARY

Reliance on other major suppliers and/or manufacturers
Violation of laws and regulations by contracted suppliers and manufacturers
The Group’s reputation and operation may suffer as the products’ quality is not under its control
Any failure to introduce new products, and any failure to gain market acceptance of the Group’s new products, could have a negative effect on its business
The Group’s efforts to expand into new markets may not be successful
There is no assurance that the Group will be able to successfully implement its business plans
Possible failure to integrate future acquired businesses successfully into the existing operations of the Group
Seasonality of demand for [●] Pei Pa Koa and Taiko Seirogan
The Group may be susceptible to, among other things, product liability claims and payment of compensation of the products in relation to their representation of attributes or intended effects
The Group’s marketing and promotional activities are critical to the success of the products which the Group distributes
Violation of PRC advertising laws by the Group
Product counterfeiting and/or parallel importing may occur
Customers do not give long-term purchase commitments
The Group may experience delays in collecting trade and bills receivables from customers
Reliance on independent delivery agents
Difficulties encountered by the Group in expanding its distribution network
Uncertainty in obtaining external financing and significant level of borrowing of the Group
The Group’s information technology system failure or breakdown may cause interruptions to its business
Loss or withdrawal of licences, permits and all other necessary approvals for the Group to operate

— 17 —

SUMMARY

The Group may not be able to pass the increase in purchase price of its major products to the Distributor Customers
Insurance coverage may not be sufficient to cover the risks relating to the Group’s operations
Reliance on the experience of the key executives and management personnel
Any change in the Group’s tax treatment could have a material adverse effect on the results of its operations
Dividends payable from the Company’s PRC subsidiaries may become subject to withholding taxes under the PRC tax laws
The Company is a holding company that relies on dividend payments from its subsidiaries for funding
Wrongdoings by employees of the Group and by other third parties
The land use right of a piece of land acquired by Zhuhai Jinming may be subject to a fine or be withdrawn

(ii) Risks relating to the industry

Change in price control policy in the PRC which may restrict the freedom for setting the prices of certain products which the Group distributes
Compliance with new regulations on supervision of product quality and safety imposed by the PRC Government
Effect of the PRC healthcare reform on the PRC pharmaceutical industry
The PRC pharmaceutical distribution industry is highly competitive
Successful launch of competitive or substitutable lines to the products the Group distributes may adversely affect the Group’s profitability
Disruptions in the global financial markets and the resulting governmental action in the PRC and in other parts of the world could have a material adverse impact on the Group’s results of operations, financial condition and cash flow
Rapid changes in the pharmaceutical industry may render the products distributed by the Group obsolete

— 18 —

SUMMARY

(iii) Risks relating to conducting business in the PRC

Regulatory requirements for the sale and distribution of pharmaceutical and healthcare products in the PRC
The enforcement of the Labour Contract Law in the PRC may adversely affect the business of the Group
Changes in the economic, political and regulatory environment in the PRC may adversely affect the business, operating results and financial condition of the Group
Future outbreaks of contagious diseases in the PRC may have a material adverse effect on the Group’s business, financial condition and results of operations
Government control of currency and future movements in exchange rates may adversely affect the ability of the Group to remit dividends
The PRC legal system is not fully developed and has inherent uncertainties that could limit the legal protections available to the Group

— 19 —

DEFINITIONS

“Annual Sales Guideline”	the internal annual sales guideline issued by the marketing
	department of SZ Kingworld at the beginning of each
	financial year
“Articles”	the articles of association adopted by the Company pursuant
	to the [written resolutions] passed by the Shareholders on [●]
“associate(s)”	has the meaning ascribed to it in the [●]
“Beijing Consultancy”	北京市金活信息諮詢服務有限責任公司 (Beijing City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in Beijing,
	the PRC
“Bifina Probiotic Capsule”	a general foodstuff manufactured in Japan and supplied by
	Remeje
“BMI”	Business Monitor International Limited
“Board”	the board of Directors of the Company
“BVI”	the British Virgin Islands
“BVI Kingworld”	Kingworld Medicine and Healthcare Group Limited (金活醫
	藥保健集團有限公司), formerly known as Kingworld
	Medicine Group Limited (金活醫藥集團有限公司), a limited
	company incorporated under the laws of BVI on 7 February
	2005
“CCCMHPIE”	中國醫藥保健品進出口商會(China Chamber of Commerce
	for Import and Export of Medicines and Health Products)
“Certificate of Approval”	[中華人民共和國進出口企業資格證書] (the Certificate of
	Approval for Enterprises with Foreign Trade Rights in the
	PRC)
“China Capital”	China Capital Industries Limited (華健實業有限公司), a
	company incorporated in Hong Kong with limited liability
	and an Independent Third Party supplying [●] Herbal Candy
	to SZ Kingworld and Zhuhai Jinming. According to the latest
	public search records, China Capital, [●] Medicine and Great
	Pleasure, have two common shareholders and two common
	directors while China Capital and Great Pleasure have three
	common directors and three common shareholders

“Companies Law” the Companies Law (2010 Revision) of the Cayman Islands, as amended, supplemented or otherwise modified from time to time

— 20 —

	DEFINITIONS
“Companies Ordinance”	the Companies Ordinance (Chapter 32 of the Laws of Hong
	Kong), as amended, supplemented or otherwise modified from
	time to time
“Company”	Kingworld Medicines Group Limited (金活醫藥集團有限公
	司), a company incorporated in the Cayman Islands with
	limited liability on 10 July 2008 under the Companies Law
“connected person(s)” and	has the meaning ascribed thereto under the [●]
“connected transaction(s)”
“Controlling Shareholder(s)”	has the meaning ascribed to it under the [●], in the context of
	the Company, means [Golden Land, Golden Morning, Mr.
	Zhao and Ms. Chan]
“Cough Relieving Product(s)”	medicinal product(s) for cough and phlegm relieving
“Deed of Non-Competition”	a deed of non-competition entered into by the Controlling
	Shareholders in favour of the Company dated [●]
“DIA Instant Cooling Gel Sheet”	(“大樹腳”即時退熱貼(8小時)), a medical product
	manufactured in Japan and registered in the PRC
“Director(s)”	the director(s) of the Company
[“[●]”	[●] Enterprises, Inc., a corporation organized and existing
	under the laws of the State of Delaware, the USA, and an
	Independent Third Party]
“[●] Licensed Product Range”	collectively, the Golden 100 [●] Range and the Golden A+ [●]
	Range
“Distribution Agreement”	the regional distribution agreement dated 22 April 2010
	entered into among [●] Medicine, Great Pleasure, SZ
	Kingworld and HK Kingworld, pursuant to which SZ
	Kingworld was appointed as the regional distributor of [●] Pei
	Pa Koa in 14 regions in the PRC
“Distributor Customer”	sub-distributor which has a contractual relationship with SZ
	Kingworld for the purchase of the products distributed by the
	Group
“Dual-Specification”	a classification of pharmaceutical product which can be sold
	pursuant to the requirement as for either prescription or OTC
	pharmaceutical products

— 21 —

	DEFINITIONS
“ERP System”	enterprise resources planning system of SZ Kingworld,
	details of which are set out under “Computer software
	systems” of the sub-section headed “Intellectual Property
	Rights of the Group” under the section headed “Business” of
	this document
“Fengbao Jianfu Capsule”	(鳳寶牌健婦膠囊), a Dual-Specification pharmaceutical
	product manufactured in Hong Kong and imported from Yuen
	Tai
“FISD”	中華人民共和國深圳出入境檢驗檢疫局食品檢驗監督處 (Food
	Inspection and Supervision Department, Shenzhen Entry-exit
	Inspection and Quarantine Bureau)
“Flying Eagle Wood Lok	(飛鷹活絡油), a prescription pharmaceutical product
Medicated Oil”	manufactured in Hong Kong and imported from Europharm
	Laboratories Company Limited (歐化藥業有限公司), a
	company incorporated in Hong Kong with limited liability
	and an Independent Third Party
“Flying Success”	Flying Success Investments Limited, a limited company
	incorporated under the laws of BVI and held as to 80% by Mr.
	Zhao and 20% by Ms. Chan. Flying Success is a connected
	person of the Company
“Fuzhou Consultancy”	福州金活企業信息諮詢服務有限公司 (Fuzhou City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in Fuzhou,
	Fujian Province, the PRC
“GDFA”	中華人民共和國廣東省食品藥品監督管理局 (Guangdong
	Food and Drug Administration, the PRC)
“GDIDC”	中華人民共和國廣東省食品藥品監督管理局廣東省藥品檢驗
	所(Guangdong Institute for Drug Control, GDFA)
“Golden 100 [●] Range”	a range of chewable tablets being general foodstuffs
	manufactured and supplied by Sirio Pharma in the PRC
“Golden A+ [●] Range”	a range of dietary supplements being general foodstuffs
	manufactured and supplied by NBTY in USA and imported
	[by SZ Kingworld]
“Golden Land”	Golden Land International Limited (金國國際有限公司), a
	limited company incorporated under the laws of BVI on 27
	May 2008 and wholly owned by Mr. Zhao. Golden Land is one
	of the Controlling Shareholders

— 22 —

DEFINITIONS

“Golden Morning” Golden Morning International Limited (金辰國際有限公司), a limited company incorporated under the laws of BVI on 27 May 2008 and wholly owned by Ms. Chan. Golden Morning is one of the Controlling Shareholders
“Great Pleasure” Great Pleasure Company Limited (偉沂企業有限公司), a company incorporated in Hong Kong with limited liability and an Independent Third Party supplying [●] Pei Pa Koa to SZ Kingworld and Zhuhai Jinming. According to the latest public search records, Great Pleasure, [●] Medicine and China Capital have two common shareholders and two common directors while Great Pleasure and China Capital have three common directors and three common shareholders
“Green application form(s)” the application form(s) to be completed by the HK eIPO White Form Service Provider
“Group” the Company and its subsidiaries or, where the context requires, in respect of the period before the Company becoming the holding company of its present subsidiaries, such subsidiaries or the businesses which have since been acquired or carried on by them or (as the case may be) their predecessors
“GSP” or “Good Supply guidelines and regulations issued from time to time pursuant Practices” to the Law of the PRC on the Administration of Pharmaceuticals (中華人民共和國藥品管理法) to provide quality assurance and ensure that pharmaceutical distribution enterprises distribute pharmaceutical products in compliance with the guidelines and regulations
“GSP Certificate” 中華人民共和國藥品經營質量管理規範認證證書 (Certificate for Good Supply Practice), issued by SFDA or its affiliates pursuant to the Law of the PRC on the Administration of Pharmaceuticals, which is mandatory for the operation of the business of distribution of pharmaceutical products in the PRC
“Guangdong Minglin” 廣東明林藥業有限公司 (Guangdong Minglin Medicine Company Limited), a company established in the PRC with limited liability which holds 50% equity interest in Zhuhai Jinming. Guangdong Minglin’s nature of business includes the distribution of pharmaceutical and healthcare products
Guangzhou Yuehai 廣州巿粵海視覺設計有限公司 (Guangzhou Yuehai Visual Designing Limited), a company established in the PRC which is responsible for producing the plastic bottles for the Golden 100 [●] Range, and an Independent Third Party

— 23 —

DEFINITIONS

“Guotai Junan Capital” or “[●]”	Guotai Junan Capital Limited, a licensed corporation to
	conduct type 6 (advising on corporate finance) regulated
	activity as defined under the SFO, acting as [●]
“Guotai Junan Securities” or	Guotai Junan Securities (Hong Kong) Limited, a licensed
“[●]”	corporation to conduct type 1 (dealing in securities) and type
	4 (advising on securities) the regulated activities as defined
	under the SFO, acting as [●]
“Hangzhou Consultancy”	杭州金活信息諮詢服務有限公司(Hangzhou City Kingworld
	Information Consultancy Services Company Limited), a
	company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in
	Hangzhou, Zhejiang Province, the PRC
“Hefei Consultancy”	合肥巿金活信息諮詢服務有限責任公司 (Hefei City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in Hefei,
	Anhui Province, the PRC
“HK Kingworld”	Kingworld Medicine Healthcare Limited (金活藥業健康發展
	有限公司), a limited company incorporated under the laws of
	Hong Kong on 14 May 2008
“HKFRS”	Hong Kong Financial Reporting Standards
“Hong Kong” or “HK”	The Hong Kong Special Administrative Region of the PRC
“Hong Kong dollar(s)” or “HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“Imada Golden Dragon Oil”	a prescription pharmaceutical product manufactured in Hong
	Kong and imported from Luen Wah. It ceased to be distributed
	by SZ Kingworld in December 2005
“Imada Product Range”	all products under the brand name of “Imada” which are
	and/or were distributed by the Group
“Imada Red Flower Oil”	(依馬打正紅花油) a prescription pharmaceutical product
	distributed by the Group
“Imada Seasons Safe Oil”	a prescription pharmaceutical product manufactured in Hong
	Kong and imported from Luen Wah. It ceased to be distributed
	by SZ Kingworld in October 2007

— 24 —

DEFINITIONS

“Import Drugs Approval Notice”
“Imported Drug Registration Certificate”

進口藥品批件, a one-off permit granted by the SFDA for the importation of pharmaceutical product(s) into the PRC during the re-registration of the (i) Imported Drug Registration Certificate or (ii) Pharmaceutical Products Registration Certificate of pharmaceutical product(s). Each Import Drugs Approval Notice is only valid for a specific period, for a specific quantity and may only be issued not more than twice after expiry of the relevant import registration certificate of such pharmaceutical product(s) 進口藥品註冊證, a registration certificate issued and approved by the SFDA for the importation of pharmaceutical product produced by a foreign manufacturer in to the PRC with a valid period of five years

“IMS Health” [IMS Health Incorporated, a corporation organized and existing under the laws of the State of [Connecticut], the USA, which is market intelligence to the pharmaceutical and healthcare industries]
“Independent Third Party” or person(s) or company(ies) who or which is/are not connected “Independent Third Parties” with any of the Directors, chief executive of the Company and the substantial shareholder(s) (has the meaning ascribed to it under the [●]) of the Company
“Jamieson Product Range”
products under the brand name of “[Jamieson]” which are distributed by the Group and imported from Nanjing IDS
“Jinbaoli”
Guangdong Jinbaoli Medicine Company Limited (廣東金保利醫藥有限公司), a company incorporated under the laws of the PRC on [10 November 2006] and [an Independent Third Party as at the Latest Practicable Date]
“Jiuzhou Customs”
中華人民共和國九洲海關 (Jiuzhou Customs House, the PRC)
“Jiuzhou IEEQB”
中華人民共和國珠海出入境檢驗檢疫局九洲辦事處 (Jiuzhou Entry-exit Inspection and Quarantine Bureau, the PRC)
“Kamcorp” Kamcorp Limited (金國有限公司), a company incorporated under the laws of Hong Kong and held as to 55% by Mr. Zhao and 45% by Ms. Chan. Kamcorp is a connected person of the Company
“[[●] Product Range]” ([●]系列) all products under the brand name of “[●]” which are distributed by the Group and imported from Tai San

— 25 —

DEFINITIONS

“King Gibson Hong Kong” King Gibson International Development Co., Limited (肯吉遜國際發展有限公司), a company incorporated under the laws of Hong Kong and [wholly owned] by Ms. Chan. King Gibson Hong Kong is a connected person of the Company
“King Gibson PRC” 深圳市金活吉遜高爾夫用品有限公司 (Shenzhen King Gibson Golf Company Limited), a company established under the laws of the PRC held as to 90% by Ms. Chan and 10% by Mr. Chan Weixiong. King Gibson PRC is a connected person of the Company
“Kingkok International Kingkok International Enterprises Limited (金國國際企業有 Enterprises” 限公司), a company incorporated under the laws of Hong Kong and wholly owned by Kingkok Investment Holdings. Kingkok International Enterprises is a connected person of the Company
“Kingkok Investment Holdings” Kingkok Investment Holdings Limited (金國投資控股有限公司), a company incorporated under the laws of BVI and held as to 80% by Mr. Zhao and 20% by Ms. Chan. Kingkok Investment Holdings is a connected person of the Company
“Kingworld Bright Future” Kingworld Bright Future Company Limited (金活美好未來發展有限公司), a company incorporated under the laws of BVI on 16 June 2009 and wholly owned by Mr. Zhao. Kingworld Bright Future is a connected person of the Company
“Kingworld Medicine” Kingworld Medicine (Hong Kong) Company Limited (金活醫藥（香港）有限公司), a company incorporated under the laws of Hong Kong and held as to 80% by Mr. Zhao and 20% by Ms. Chan. Kingworld Medicine is a connected person of the Company
“Kingworld Department Store Property Management”
深圳市金世界百貨物業管理有限公司 (Shenzhen Kingworld Department Store Property Management Company Limited), a company established in the PRC and held as to 50% by Ms. Chan, [45%] by Ms. Huang and [5%] by Mr. Chan Weixiong. Kingworld Department Store Property Management is a connected person of the Company
“Kingworld Product Range”
all products under the brand name of “Kingworld” which are manufactured and supplied by SZ Kingworld Lifeshine and distributed by the Group
“[●]”
([●]) a prescription pharmaceutical product manufactured in Japan and imported from Tai San

— 26 —

DEFINITIONS

“Lanzhou Consultancy”

蘭州巿金活信息諮詢服務有限責任公司 (Lanzhou City Kingworld Information Consultancy Services Company Limited), a company established in the PRC and an indirect wholly-owned subsidiary of the Company located in Lanzhou, Gansu Province, the PRC

“Latest Practicable Date” [●], being the latest practicable date for ascertaining certain information in this document prior to its publication
“Licensed Material (as licensed to HK Kingworld)”
the representations of such characters and depictions of such characters and such still scenes and accompanying design elements as may be designated by [●] (Asia Pacific) from (i) [●]/Pixar’s Toy Story and Toy Story 2; (ii) [●] Standard Characters (i.e. Mickey Mouse, Minnie Mouse, Donald Duck, Daisy Duck, Pluto and Goofy) and related secondary Standard Characters; (iii) Winnie The Pooh characters (i.e. Winnie The Pooh, Piglet, Rabbit, Eeyore, Tigger, Owl, Gopher, Kanga and Roo) in the style designed by [●]; and (iv) [●] Princess characters (i.e. Snow White, Cinderella, Sleeping Beauty, Jasmine, Belle, Ariel, Pocahontas, Mulan), which are licensed to HK Kingworld pursuant to the license agreement between [●] (Asia Pacific) and HK Kingworld dated 1 August 2008
“Licensed Material (as licensed to SZ Kingworld)”
consists of such depictions of characters and still scenes and accompanying design elements as designated by [●] (Shanghai) from (i) [●]’s Standard Characters (i.e. Mickey Mouse, Minnie Mouse, Donald Duck, Daisy Duck, Goofy and Pluto); (ii) [●]’s “Winnie The Pooh” series with any Winnie The Pooh Characters including Winnie The Pooh ([●]), Tigger, Eeyore, Kanga, Roo, Rabbit, Piglet, Hunny Pot and Owl in the style designed by [●]; (iii) [●] Princess series; (iv) characters from [●]/Pixar’s Toy Story and Toy Story 2; and (v) the trademark “[●]” and “[●]”, which are licensed to SZ Kingworld in the license agreement between [●] (Shanghai) and SZ Kingworld dated 1st October 2007 and subject to any special restrictions as to usage as may be identified by [●] (Shanghai)
“Licensed Materials”

Licensed Material (as licensed to SZ Kingworld) and Licensed Material (as licensed to HK Kingworld)

— 27 —

DEFINITIONS
“Luen Wah” Luen Wah (H.K.) Medicine Limited (香港聯華藥業有限公司), a company incorporated in Hong Kong with limited liability, the supplier of the Imada Product Range prior to 2010 and an Independent Third Party
“Macao” The Macao Special Administration Region of the PRC “Memorandum” the memorandum of association adopted by the Company pursuant to the [written resolutions] passed by the Shareholders on [●]
“Mentholatum Eye Drop Range” the four eye drop products under the brand name of “Mentholatum”, which SZ Kingworld has ceased to distribute since 1 January 2010 and details of which are disclosed in the sub-section headed “Brands and Products” in the “Business” section of this document
“Mentholatum Product Range” (曼秀雷敦系列) all products under the brand name of “Mentholatum” which are and/or were supplied by Mentholatum (China) Pharmaceuticals Company Limited (曼秀雷敦(中國)藥業有限公司) and distributed by the Group
“Min Tong Chisionhon Granules” (明通治傷風顆粒) [an OTC (A)/a Dual-Specification] pharmaceutical product manufactured in Taiwan and imported from Pearl Shining
“Ministry of Health” 中華人民共和國衛生部 (the Ministry of Health of the PRC Government)
“Morning Gold” Morning Gold Medicine Company Limited (金辰醫藥有限公司), a limited liability company incorporated under the laws and held as to 51% and 49% by Mr. Zhao and Ms. Chan, respectively. Morning Gold is a connected person of the Company
“Mr. Chan Weixiong” Chan Weixiong (陳偉雄), a brother of Ms. Chan, holding 5% interests in Kingworld Department Store Property Management and 10% interests in King Gibson PRC
“Mr. Chan Zhanxiong” Chan Zhanxiong (陳展雄), a brother of Ms. Chan and had held 80% equity interest in Jinbaoli until 15 January 2008
“Mr. Zhao” Zhao Li Sheng (趙利生), the chairman, executive Director and co-founder of the Company, chairman and co-founder of SZ Kingworld and the sole shareholder of Golden Land
“Ms. Chan” Chan Lok San (陳樂燊), the executive Director and co-founder of the Company, vice president and co-founder of SZ Kingworld and the sole shareholder of Golden Morning

— 28 —

DEFINITIONS

“Ms. Huang”	Huang Lanjiao (黃蘭嬌), the mother of Mr. Zhao, holding 5%
	interests in SZ Kingworld from September 2002 to April 2006
“Nanchang Consultancy”	南昌市金活信息諮詢服務有限責任公司 (Nanchang City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in
	Nanchang, Jiangxi Province, the PRC
“Nanjiang IDS”	Nanjing IDS Marketing Co. Ltd. (南京利豐英和商貿有限公
	司), a company incorporated in the PRC and an Independent
	Third Party
“Nanning Consultancy”	南寧市金活商務服務有限公司 (Nanning City Kingworld
	Business Services Company Limited), a company established
	in the PRC and an indirect wholly-owned subsidiary of the
	Company located in Nanning, Guangxi Province, the PRC
“NBTY”	Nature’s Bounty, Inc., a corporation organized and existing
	under the laws of the State of Delaware, the USA, and an
	Independent Third Party
“[●] Herbal Candy”	([●]枇杷糖) a healthcare product manufactured in Thailand
	and imported from China Capital
“[●] Medicine”	[●] Medicine Manufactory (Hong Kong) Limited
	([●]總廠有限公司), a company incorporated in Hong Kong
	with limited liability, the manufacturer of the [●] Pei Pa Koa
	and an Independent Third Party. According to the latest public
	search records, [●] Medicine, Great Pleasure and China
	Capital have two common shareholders and two common
	directors
“[●] Pei Pa Koa”	([●]蜜煉川貝枇杷膏) a Cough Relieving Product
	manufactured in Hong Kong by [●] Medicine
“[●] Product Series”	[●] Pei Pa Koa and [●] Herbal Candy
“OEM”	original equipment manufacturer, which refers to a company
	reselling products developed and manufactured by another
	company with its own name and/or logo
“OTC”	over the counter, a classification of pharmaceutical product
	which can be obtained without any doctors prescriptions. In
	the PRC, OTC products are further classified into “OTC (A)”
	and “OTC (B)”, details of which are set out in the section
	headed “Regulatory Overview” of this document

— 29 —

	DEFINITIONS
“Pearl Shining”	Pearl Shining Co., of which Cheng Lok Yam, Ella, the
	sister-in-law of Ms. Chan, is the sole proprietor. Thus, Pearl
	Shining is a connected person of the Company
“Pharmaceutical Products	醫藥產品註冊證, a registration certificate issued and
Registration Certificate”	approved by the SFDA for the importation of pharmaceutical
	product produced by a manufacturer in Hong Kong, Macao or
	Taiwan in to the PRC with a valid period of five years
“PRC” or “China”	the People’s Republic of China, excluding Taiwan, Hong
	Kong and Macao
“PRC EIT Law”	中華人民共和國企業所得稅法(PRC Enterprise Income Tax
	Law), which came into force on 1 January 2008
“PRC GAAP”	General Accepted Accounting Principles in the PRC
“PRC Government”	the Central People’s Government of the PRC
“PRC Lawyer”	北京市海問律師事務所(Haiwen & Partners), the PRC legal
	adviser to the Company
“PRC Trademark Office”	中華人民共和國國家工商行政管理總局商標局 (Trademark
	Office, State Administration for Industry and Commerce, the
	PRC)
“Product Display Booth”	free-standing product display dump bin(s) for the display of
	Taiko Seirogan and Flying Eagle Wood Lok Medicated Oil
	under the name of “Kingworld Healthy Family” (金活健康之
	家)
“Product Display Booth Scheme”	the setting up of Product Display Booths in retail outlets in
	the PRC by SZ Kingworld
“Region(s)”	a particular region(s) of the PRC market within the
	distribution network of SZ Kingworld, details of which are set
	out in the sub-section headed “Distribution Network” under
	the section headed “Business” of this document
“Renminbi” or “RMB”	Renminbi, the lawful currency of the PRC
“Remeje”	日美健藥品(中國)有限公司(Remeje Pharmaceutical (China)
	Company Limited), a company established in the PRC, the
	supplier of Bifina Probiotic Capsule, and an Independent
	Third Party

— 30 —

	DEFINITIONS
“Sales Regions 1, 2 and 3”	the three respective sales regions covered by SZ Kingworld’s
	distribution network, details of which are set out in the
	section headed “Business — Distribution Network” in this
	document
“SFDA”	中華人民共和國國家食品藥品監督管理局 (State Food and
	Drug Administration, the PRC)
“SH Industry”	上海市金活實業有限公司 (Shanghai Kingworld Industry
	Company Limited), a company established in the PRC with
	limited liability and held as to 90% and 10% by SZ Industry
	and Ms. Chan, respectively. [SH Industry is a connected
	person of the Company]
Shantou Ruichi	汕頭巿瑞馳印務有限公司(Shantou Ruichi Printing Company
	Limited), a company established in the PRC which is
	responsible for producing the labels for the Golden 100 [●]
	Range, and an Independent Third Party
Shantou Yuehui	汕頭巿粵輝醫藥包裝材料廠有限公司 (Shantou Yuehui
	Medicine Packing Material Factory Company Limited), a
	company established in the PRC which is responsible for
	producing the paper boxes for the Golden 100 [●] Range, and
	an Independent Third Party
“Share(s)”	share(s) of HK$0.10 each in the share capital of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Shenzhen Yongxiang”	深圳市永祥醫藥有限公司 (Shenzhen Yongxiang Medicine
	Co. Ltd), a strategic investor having 5% equity interest in SZ
	Kingworld at the time of the establishment of SZ Kingworld
	on 19 April 1996. The beneficial owners of Shenzhen
	Yongxiang are [Independent Third Parties] and its nature of
	business includes the distribution of pharmaceuticals
“Sirio Pharma”	廣東仙樂製藥有限公司(Sirio Pharma Company Limited), a
	company established in the PRC, holder of a Food Hygiene
	Licence (食品衞生許可證) which is valid until 25 September
	2011, and an Independent Third Party
“Speedroad”	Speedroad Medical Information Company Limited, a limited
	private company incorporated under the laws of the PRC in
	2004, and an Independent Third Party
“Speedroad Report”	PRC Pharmaceutical Products Market Competitiveness
	Report dated [●] by Speedroad

— 31 —

DEFINITIONS

“sq.m.” square metres
“Sub-distributor Customer” sub-distributor which has a contractual relationship with the Distributor Customer and/or SZ Kingworld for the purchase of the products distributed by the Group
“subsidiary(ies)” has the meaning ascribed thereto in section 2 of the Companies Ordinance
“substantial shareholder(s)” has the meaning ascribed to it in the [●]
“Superbrand” an award presented by the Hong Kong Superbrands Council “SZ Industry” 深圳市金活實業有限公司 (Shenzhen Kingworld Industry Company Limited), a limited liability company established in the PRC which is wholly-owned by Kingkok International Enterprises. [SZ Industry is a connected person of the Company]
“SZ Kingworld” 深圳市金活醫藥有限公司 (Shenzhen Kingworld Medicine Company Limited), a company established in the PRC with limited liability on 19 April 1996 and [an indirect wholly-owned subsidiary of the Company]
“SZ Kingworld Lifeshine” 深圳金活利生藥業有限公司 (Shenzhen Kingworld Lifeshine Pharmaceutical Company Limited), a company established in the PRC with limited liability which is a direct wholly-owned subsidiary of Morning Gold and the manufacturer and the Group’s supplier of the Kingworld Product Range and Imada Red Flower Oil. SZ Kingworld Lifeshine is a connected person of the Company
“SZ Warehouse” a warehouse located in 301A, 302B, 401A and 402B of Xinyi Logistics Complex Building, Shabeili, Longdong, Longgang District, Shenzhen, Guangdong, the PRC which is operated and managed by SZ Kingworld
“SZDA”
中華人民共和國廣東省食品藥品監督管理局深圳巿藥品監督管理局 (Shenzhen Drug Administration, GDFA)
“Tai San”
T. M. Lin Company Limited trading under the business name of Tai San Enterprise & Trading Co. (泰山企業貿易公司), a company incorporated under the laws of Hong Kong, being the supplier of the [[●] Product Range] and [●], and an Independent Third Party

— 32 —

	DEFINITIONS
“Taiko Seirogan”	(喇叭牌正露丸) an OTC (A) pharmaceutical product
	manufactured in Japan and imported from Etta Trading
	Company Limited (一德貿易有限公司), a company
	incorporated with limited liability in Hong Kong, and an
	Independent Third Party
“Taiyuan Consultancy”	太原市金活企業信息諮詢服務有限公司 (Taiyuan City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in Taiyuan,
	Shanxi Province, the PRC
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Track Record Period”	the period comprising the three financial years ended 31
	December 2007, 31 December 2008, 31 December 2009 and
	the six months ended 30 June 2010
[“[●] (Asia Pacific)”	The [●] Company (Asia Pacific) Limited
	(●有限公司), a company incorporated with [limited
	liability] in Hong Kong, and an Independent Third Party]
[“[●] (Shanghai)”	The [●] Company (Shanghai) Limited (●有限公司), a
	company established with limited liability in the PRC, and an
	Independent Third Party]
“Twelve Subsidiaries”	Wuhan Consultancy, Beijing Consultancy, Wuxi Consultancy,
	Taiyuan Consultancy, Nanchang Consultancy, Lanzhou
	Consultancy, Xi’an Consultancy, Zhengzhou Consultancy,
	Fuzhou Consultancy, Hefei Consultancy, Hangzhou
	Consultancy and Nanning Consultancy
“USA” or “United States”	the United States of America
“USD”	United States Dollar, the lawful currency of the USA
“Wenjindu Customs”	中華人民共和國[深圳]文錦渡海關 (Wenjindu Customs
	House, Shenzhen Customs District, the PRC)
“Wenjindu EEIQB”	中華人民共和國深圳出入境檢驗檢疫局文錦渡出入境檢驗檢
	疫局(Wenjindu Entry-exit Inspection and Quarantine Bureau,
	Shenzhen Entry-exit Inspection and Quarantine Bureau, the
	PRC)
“Wuhan Consultancy”	武漢市金活信息諮詢服務有限責任公司 (Wuhan City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in Wuhan,
	Hubei Province, the PRC

— 33 —

DEFINITIONS

“Wuxi Consultancy”	無錫市金活信息諮詢服務有限責任公司 (Wuxi City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in Wuxi,
	Jiangsu Province, the PRC
“Xi’an Consultancy”	西安市金活信息諮詢服務有限責任公司 (Xi’an City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in Xi’an,
	Shaanxi Province, the PRC
“Xin Hua Peng”	深圳市新華鵬消毒劑有限公司, (Shenzhen Xin Hua Peng
	Sterilization Company Limited), a limited liability company
	incorporated in the PRC and held as to [95%] and [5%] by SZ
	Industry and [an Independent Third Party], respectively. Xin
	Hua Peng is a connected person of the Company
“Yuen Tai”	Yuen Tai Pharmaceuticals Limited (遠大製藥廠有限公司), a
	limited company incorporated under the laws of Hong Kong,
	a direct wholly-owned subsidiary of Morning Gold and the
	manufacturer of the Fengbao Jianfu Capsule. Yuen Tai is a
	connected person of the Company
“ZH Warehouse”	a warehouse located in Level 1, Block B, Nanping Technology
	Industrial Park, 7 Pingxi San Lu, Zhuhai, Guangdong, the
	PRC which is operated and managed by Zhuhai Jinming
“ZHDA”	中華人民共和國廣東省食品藥品監督管理局珠海市食品藥品
	監督管理局) (Zhuhai Drug Administration, GDFA)
“Zhengzhou Consultancy”	鄭州市金活信息諮詢服務有限責任公司 (Zhengzhou City
	Kingworld Information Consultancy Services Company
	Limited), a company established in the PRC and an indirect
	wholly-owned subsidiary of the Company located in
	Zhengzhou, Henan Province, the PRC
“Zhuhai Jinming”	珠海市金明醫藥有限公司(Zhuhai City Jinming Medicine
	Company Limited), a company established with limited
	liability in the PRC and held equally by SZ Kingworld and
	Guangdong Minglin

“%” per cent

The English versions of the Chinese names which are included in this document are for identification purposes only and should not be regarded as the official English translation of such Chinese names or words unless stated otherwise. If there is any inconsistency, the Chinese names shall prevail.

— 34 —

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:

[the Group’s business strategies and plan of operations;
the amount and nature of, and potential for, future development of the Group’s business;
the Group’s operations and business prospects, and the Group’s Directors’ expectations and estimates on the operations such as the receipt of sufficient inventories to meet the Group’s distribution needs;
the regulatory environment of the Group’s industry in general;
future development in the Group’s industry; and
the general economic trend and conditions of the PRC.]

The words “anticipate”, “believe”, “consider”, “could”, “expect”, “intend”, “may”, “plan”, “seek”, “will”, “would”, “with a view to” and similar expressions, and the negative of these words as they relate to us, are intended to identify a number of these forward-looking statements. These forward-looking statements reflecting the Directors’ current views with respect to future events are not an assurance of future performance and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this document. One or more of these risks or uncertainties identified may materialise, whilst underlying assumptions on which the forward-looking statement are based may prove to be inaccurate.

Subject to the requirements of the [●], the Directors do not intend to publicly update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this document might not occur in the way as expected, or at all. Accordingly, you should not place undue reliance on any forward-looking information. All forward-looking statements in this document are qualified by reference to this cautionary statement.

— 35 —

RISK FACTORS

Prospective investors should carefully consider and evaluate the following risk factors and uncertainties and all other information set out in this document before deciding to invest in [●]. The operations of the Group involve certain risks, many of which are beyond its control. Particular attention should be paid to the fact that the Group’s business is located in China, and is governed by a legal and regulatory environment that may differ from that which prevails in other countries and jurisdictions. If any of the following risk factors and uncertainties develop into actual events, the Group’s business, results of operations and financial condition could be materially and adversely affected. In such cases, the trading price of the Shares could fluctuate due to any of these risk factors and uncertainties. Additional risks and uncertainties that are not presently known to the Group, that are not expressed or implied below, or that are currently deemed immaterial, could also have a material adverse effect on the business, results of operations and financial condition of the Group.

There are certain risks and uncertainties involved in the Group’s operations and many of these risks are beyond its control. These risks and uncertainties can be characterized as: (i) risks relating to the Group’s business; (ii) risks relating to China’s pharmaceutical industry; (iii) risks relating to doing business in the PRC; and (iv) [●]. Additional risks and uncertainties not presently known to the Group, or not expressed or implied below, or that the Group deems immaterial, could also harm its business, financial condition and results of operations.

RISKS RELATING TO THE BUSINESS OF THE GROUP

Risk relating to [ ● ] Pei Pa Koa

During the Track Record Period, a substantial proportion of the Group’s revenue was derived from the sale of [●] Pei Pa Koa, which is a product manufactured by [●] Medicine and supplied directly by Great Pleasure. During the Track Record Period, the Group’s turnover generated from the sales of [●] Pei Pa Koa was approximately RMB[353.8] million, RMB[357.1] million, RMB[373.7] million and RMB[229.2] million respectively, representing approximately [67.1]%, [66.6]%, [67.1]% and [73.0]% of the Group’s total turnover respectively. For the three financial years ended 31 December 2009 and the six months ended 30 June 2010, aggregate purchases made by the Group from Great Pleasure for [●] Pei Pa Koa amounted to approximately RMB[283.7] million, RMB[288.1] million, RMB[302.0] million and RMB[●] million, respectively, representing approximately [66.3]%, [70.9]%, [73.1]% and [●]% of the Group’s total purchases for these respective periods. Consequently, the Group’s profitability, performance and financial results rely on, among other things, the sale of [●] Pei Pa Koa, the continued and undisrupted supply from Great Pleasure of [●] Pei Pa Koa and the Group’s regional distribution right granted by [●] Medicine and Great Pleasure on a continued basis, and the performance of the Distributor Customers and the Sub-Distributor Customers.

Pursuant to the Distribution Agreement dated 22 April 2010, SZ Kingworld was appointed as the regional distributor for the [●] Pei Pa Koa in certain regions in the PRC for a term of three years commencing from the date of the Distribution Agreement. Prior to entering into the Distribution Agreement, no written agreement has been entered into among [●] Medicine, Great Pleasure and SZ Kingworld. Given that the Group’s performance relied upon the distribution of [●] Pei Pa Koa, the Group may not have the bargaining power vis-à-vis [●] Medicine and Great Pleasure to negotiate terms

— 36 —

RISK FACTORS

favorable to the Group. The selling prices of the [●] Pei Pa Koa to be distributed by the Group to the Distributor Customers [and by the Distributor Customers to the Sub-distributor Customers] are set by [●] Medicine and Great Pleasure and are subject to their regular review. In the event that [●] Medicine and Great Pleasure increase the selling prices offered to the Group and the Group is unable to pass on such higher purchase costs to Distributor Customers and/or Sub-Distributor Customers, by way of increasing sales or selling prices offered to the Distributor Customers or decreasing other costs in amounts sufficient to offset such higher purchase costs, the profitability, performance and financial results of the Group may be materially and adversely affected. During the Track Record Period, the purchase prices of [●] Pei Pa Koa was increased but SZ Kingworld was unable to increase the price of [●] Pei Pa Koa supplied to the Distributors Customers because Great Pleasure requested not to do so, which to the best of the Directors’ understanding, was due to the reason for (i) maintaining a reasonable profit margin for the Distributor Customers; (ii) preventing the disincentive of the Distributor Customers to purchase [●] Pei Pa Koa from the Group; (iii) providing incentive for them to remain as the Group’s customers so as to maintaining the market share of [●] Pei Pa Koa in the PRC, and (iv) avoiding non-compliance of the government price ceiling of [●] Pei Pa Koa by the retailers. In addition, the retail prices of [●] Pei Pa Koa set by retailers are subject to the price-ceiling guideline set by the relevant PRC government authorities, such price-ceiling remained the same since its promulgation in 2003. In the event that (i) the retail prices of [●] Pei Pa Koa have reached the price-ceiling set by the relevant PRC government authorities; (ii) the relevant PRC government authorities reduce the price-ceiling of the retail prices of [●] Pei Pa Koa; and (ii) [●] Medicine and Great Pleasure correspondingly lower the selling prices of the [●] Pei Pa Koa to be sold by the Distributor Customers and/or the Sub-distributor Customers without offering a lower purchase price to the Group or lowering such purchase price to a lesser extent, the Group’s profit margin may be reduced. Pursuant to the Distribution Agreement, SZ Kingworld is also required to guarantee an increase of not less than 5% of the annual sales volume of [●] Pei Pa Koa of the previous calendar year. Prior to the entering of the Distribution Agreement, SZ Kingworld was not required to guarantee, and did not achieve, such increase. Accordingly, there is no guarantee that the Group can achieve the increase of not less than 5% of the annual sales volume of [●] Pei Pa Koa of the previous calendar year, which may require the Group to overstock [●] Pei Pa Koa and/or may result in the termination of the Distribution Agreement by Great Pleasure and/or [●] Medicine. Nonetheless, such overstocking [has not occurred prior to the date of the Distribution Agreement].

Whilst the Group is one of the three distributors of [●] Pei Pa Koa in the PRC, the Group is not appointed by [●] Medicine and Great Pleasure as its sole and exclusive distributor in respect of certain agreed regions. In other words, [●] Medicine and/or Great Pleasure may appoint other distributors to compete with the Group in the agreed regions in which the Group operates. To a more extreme extent, [●] Medicine and/or Great Pleasure may sell [●] Pei Pa Koa directly in the PRC without going through any distributors and sub-distributors. Detailed terms of the Distribution Agreement are set out in the section headed “Business” of this document.

In the event that the Group is unable to continue to secure the regional distribution right of [●] Pei Pa Koa upon the expiry or early termination of the Distribution Agreement, its business performance and profitability may be materially and adversely affected.

Furthermore, the Directors believe that brand awareness of and consumer’s loyalty towards [●] Pei Pa Koa are critical to the success of the Group’s business. Any circumstances which adversely affect the market acceptance and brand image of [●] Pei Pa Koa could have a material adverse effect on the business of the Group.

— 37 —

RISK FACTORS

Reliance on other major suppliers and/or manufacturers

The Group is engaged in the distribution and marketing of pharmaceutical and healthcare products and general foodstuffs, which is dependent upon the stable supply of products from the suppliers and/or manufacturers. The Group’s suppliers and/or manufacturers may change their existing sales or marketing strategy in respect of the products that are distributed by the Group, including but not limited to, selling the products directly in the PRC market without utilising any third party distributors such as the Group, changing their export strategy, reducing their sales or production volume or increasing their stipulated selling prices which would then reduce the profit margin for the Group. The Group’s distribution rights in relation to [●] Pei Pa Koa which accounted for over 67% of the Group’s revenue for the year ended 31 December 2009 are due to expire in 2013 pursuant to the Distribution Agreement. In the event that any of the Group’s suppliers and/or manufacturers change their sales or marketing strategy or otherwise withdraw the distribution rights granted to SZ Kingworld or appoint other distributors to distribute its products in the markets in which the Group operates, the Group’s business, results of operations and financial performance may be materially and adversely affected.

Whilst the Group has not encountered any material contractual dispute with any of its suppliers and/or manufacturers during the Track Record Period, should any of the distribution agreements with the Group’s suppliers and/or manufacturers be terminated, the Group’s business prospects and financial performance may be materially and adversely affected.

Violation of laws and regulations by contracted suppliers and manufacturers

The Group does not own or operate any manufacturing facilities. It depends on a number of manufacturers and suppliers in different jurisdictions for the supply of its pharmaceutical products, healthcare products and general foodstuff. The failure of suppliers or manufacturers contracted by the Group to comply with any regulatory requirements in their respective jurisdictions, including such requirements against infringement of intellectual property rights of third parties under the laws of the PRC, may result in their failure to obtain the necessary certificates, permits and licenses required under the applicable laws to conduct their manufacturing or other business activities, which could, in turn affect the supply of pharmaceutical and healthcare products and general foodstuffs available to the Group. There are no assurances that the Group will be able to identify suitable suppliers and/or other contracted manufacturers as replacement on a timely basis and in such event, its business, financial performance and operations may be materially adversely affected.

Pursuant to a public declaration dated 1 February 2010 issued by Luen Wah on its company website, Luen Wah announced that it has not agreed in writing with any PRC manufacturers for the production of Imada Red Flower Oil and for the use of the registered trademark of “Imada” in the PRC. As such, Luen Wah may take legal action against SZ Kingworld Lifeshine, the manufacturer and the Group’s current supplier of Imada Red Flower Oil, on the allegation that such production of Imada Red Flower Oil by SZ Kingworld Lifeshine infringes on the intellectual property rights of Luen Wah in relation to Imada Red Flower Oil. As advised by the PRC Lawyer, SZ Kingworld Lifeshine obtained the pharmaceutical production permit (藥品生產許可證) issued by GDFA on 1 January 2006. As stated in the Pharmaceutical Production Permit, “Imada Red Flower Oil” is a common pharmaceutical name (藥品通用名稱). According to the PRC Lawyer, in accordance with the relevant PRC laws, the holder

— 38 —

RISK FACTORS

of a specific right to use a registered trademark (注冊商標專用權人) has no right to prohibit the proper use of a common name of the merchandise (本商品通用名稱) by any other person even though such common name forms part of the registered trademark. As such, Luen Wah being the holder of a specific right to use the registered trademark of “Imada Red Flower Oil” in the PRC, has no right to prohibit the proper use of “Imada Red Flower Oil” as a common pharmaceutical name by any other person. Moreover, as confirmed by the PRC Lawyer, SZ Kingworld Lifeshine has obtained the pharmaceutical production permit (藥品生產許可證) issued by GDFA on 1 January 2006 and the pharmaceutical registration approval (藥品注冊批件) issued by SFDA on 7 March 2006 and has complied with the relevant PRC rules and regulations for the manufacturing of Imada Red Flower Oil in the PRC. After obtaining the relevant permit and approval, SZ Kingworld Lifeshine commenced the manufacturing of Imada Red Flower Oil in August 2010.

If such proceeding is instituted by Luen Wah, it may result in the cessation of the manufacturing of Imada Red Flower Oil by SZ Kingworld Lifeshine; and this would adversely affect the supply of Imada Red Flower Oil to the Group and consequently, the relevant business of the Group in respect of the distribution of Imada Red Flower Oil. [As at the Latest Practicable Date, SZ Kingworld Lifeshine had not received any allegation for infringement on the intellectual property rights of Luen Wah in relation to Imada Red Flower Oil.] [Upon consultation with the PRC Lawyer, the Directors are of the view that the production of Imada Red Flower Oil by SZ Kingworld Lifeshine and the distribution by the Group of Imada Red Flower Oil purchased from SZ Kingworld Lifeshine in the PRC are valid under the laws of the PRC.] Nonetheless, the Directors and the PRC Lawyer are of the view that the Group may still face risk of claims in purchasing Imada Red Flower Oil from SZ Kingworld Lifeshine for resale purpose, which may have an impact on the Group’s financial performance. Each of the annual caps for the purchase and distribution of Imada Red Flower Oil from SZ Kingworld Lifeshine is expected to be RMB11.5 million, RMB25.0 million and RMB32.6 million for the financial years ended 31 December 2010, 2011 and 2012 respectively, which represent 2.1%, 4.5% and 5.9% of the Group’s 2009 revenue respectively. [In any event, SZ Kingworld Lifeshine has undertaken to indemnify the Group for any loss and expenses incurred by the Group, including any costs of purchase and litigation expenses arising from such claims pursuant to a deed of undertaking and indemnity entered into by SZ Kingworld Lifeshine in favour of the [Group].]

The Group may incur losses resulting from product liability claims as the quality of the products distributed by the Group is not under its control

Standard quality inspection of the products imported into the PRC for distribution by the Group is normally carried out by the relevant PRC authorities upon arrival of the products in the PRC. As a distributor, the Group is not responsible for the quality control of the production of the products it distributes. The products may contain undesirable side effects or harm that are unknown to the Group. Any contamination, whether arising accidentally or resulting from any deliberate acts of third parties, will adversely affect the reputation of the products it distributes, the Group’s corporate image as well as its sales volume. Any contamination in the raw materials or defects in the relevant manufacturing processes of the products could lead to undesirable effects on the end-users and may result not only in reduced sales but also lead to claims or potential litigation against the Group. [Under existing PRC laws, where a defective product causes personal injury and damage to properties, a victim may seek compensation from the manufacturer or the seller of the product; where a seller commits faults which results in a defective product and causes personal injury and damage, the seller shall be liable for

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compensation. Where the responsibility lies with the manufacturer, the seller shall, after settling compensation, have the right to recover such compensation from the manufacturer, and vice versa. Even if the manufacturer is responsible, the Group cannot be assured that it will be able to recover the relevant amounts, or at all. The Group did not have any product liability claims made against it during the Track Record Period. As at the Latest Practicable Date, the Group, through the Twelve Subsidiaries and the representative offices’ regular visits with the Distributor Customers for collecting information in relation to products distributed by the Group, did not receive any report of side effects or contamination of the products that might be harmful to the end-users. The Group cannot assure that the products it distributes will not be contaminated or have undesirable side effects on end-users in the future. The Group will engage independent professionals to conduct quality inspection upon receiving products from the suppliers or manufacturers.

During the delivery of products from the Group’s warehouses to its customers, the quality of the products may also be affected. Any failure on the part of the Group’s suppliers to maintain quality standards could materially and adversely affect the brand name and reputation of the products which the Group distributes, thus adversely affecting the Group’s business prospects and financial performance. Pursuant to the distribution agreement entered into between SZ Kingworld and the Distributor Customers, products that are damaged, with incomplete packaging or inconsistent with the specifications as set out in the purchase orders may be returned by the Distributor Customers subject to the decision of SZ Kingworld. If customers lose confidence in the products which the Group distributes, they will no longer purchase these products and as a result, the Group’s business, financial condition and results of operations may be materially and adversely affected.

Any failure to introduce new products, and any failure to gain market acceptance of the Group’s new products, could have a negative effect on its business

The Group currently distributes a portfolio of 27 pharmaceutical products, healthcare products and general foodstuffs sourced from 14 suppliers and/or manufacturers. The Group’s future growth is dependent on its ability to improve its existing product line and diversify the Group’s product range that can meet the requirements of the changing market. The Group intends to expand its product range by targeting new consumer groups. Factors that could affect the Group’s ability to introduce new products include, among others, limited capital resources, government regulations, the inability to attract and retain competent sales and marketing staff and any failure to anticipate changes in consumer tastes and purchase preferences.

There is no assurance that the Group will be able to identify new products with significant market value. In practice, the Group sources new products through its international sourcing department. Due to the rapidly changing nature of the pharmaceutical and healthcare industry in the PRC, there can be no assurance that the Group will be able to identify trends in consumer preferences or needs and introduce new products that respond to such trends in a timely manner or at all.

In addition, the Group cannot ensure that it will be able to launch any new products or that they will become commercially successful. New products that appear to be promising at their early phases

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RISK FACTORS

of sale may not be able to maintain their performance. Even if such new products can be successfully launched, they may not achieve the level of market acceptance that the Group expects. Any delay or failure to identify and introduce new products may significantly impede the Group’s business and results of operation and its ability to compete.

The launch of a new product involves considerable time and costs which may affect the Group’s ability to manage its existing business and operations. Moreover, the introduction of new products involves risks such as the lack of experience in the management and promotion marketing, regulatory compliance and market positioning of the new products. In addition, the Group may not be able to reach agreements with its Distributor Customers and/or Sub-distributor Customers on commercially reasonable terms or at all for the distribution of such new products.

The Group’s efforts to expand into the new markets may not be successful

The Group intends to introduce some of its existing and/or new products into new markets such as Hong Kong and Macao. The Group may not have sufficient experience to operate in the new market and could face considerable challenges in its expansion into the new markets, including:

lack of local presence and familiarity with local business practices;
shortage of personnel with both necessary language skills and technical capabilities;
burdens or cost of complying with foreign laws and regulations, including unexpected changes in regulatory requirements;
volatility in currency exchange rates;
changes in political, regulatory or economic conditions in these countries;
economic slowdown in any of these countries;
actual market demand for its products;
foreign exchange controls or other regulatory restrictions that might prevent it from repatriating income earned in such countries; and
greater difficulty in collecting accounts receivables.

Any of the foregoing risks could have a negative impact on the Group’s efforts to expand its markets, which in turn may materially and adversely affect its business, financial condition and results of operations.

There is no assurance that the Group will be able to successfully implement its business plans

Details of the Group’s objective, strategies and future plans are set out in the sections headed “Business — Objective and Strategies” and “Future plans and use of proceeds” in this document. The

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RISK FACTORS

successful implementation of the Group’s business plans depends on a number of factors including, among others, continued growth of the pharmaceutical and healthcare product market in the PRC and other new markets, the availability of funds, competition and change in government policies. There is no assurance that the Group will be able to implement its business plans as scheduled nor that any such plans will be as successful as contemplated by the management. Any failure or delay in achieving any or all of the Group’s business plans may have an adverse effect on the Group’s profitability and prospects.

Possible failure to integrate future acquired businesses successfully into the existing operations of the Group

To enhance the growth of the Group, the Group may acquire distribution business of well-established distributors with a stable cash flow, an established network of retail outlets and good credit terms with financial institutions and its customer base. The ability of the Group to expand through acquisitions depends on the ability to identify, negotiate and complete acquisitions and to obtain sufficient financing if necessary. Even if the Group successfully completes an acquisition, it may experience:

delays or failures in realizing the benefits of the acquired business;
diversion of the management of the Group’s time and attention from its other business concerns;
higher costs of integration than the Group anticipated; or
difficulties in retaining key personnel of the acquired business who are necessary to manage the acquired business.

If the distribution businesses to be acquired operate outside the PRC or offer products that are different from the existing products lines which the Group distributes, the Group’s risk exposure may increase due to the Group’s lack of experience in the businesses newly acquired. The Group’s failure to integrate any acquired businesses successfully into its existing operations may have an adverse and material adverse effect on the Group’s operation and results.

Moreover, as the customers of the distribution businesses to be acquired will become the customers of the Group upon completion of the said acquisition, the Group would have to assess the credibility of these new customers and if they are found to be less credible than existing customers of the Group, the Group may consider giving them credit term less favourable than those given to its existing customers. The Group’s liquidity and operational cash flows may be materially and adversely affected if the Group encounters a material increase in default of payment from such new customers.

Seasonality of demand for [ ● ] Pei Pa Koa and Taiko Seirogan

Sales of [●] Pei Pa Koa experienced seasonal fluctuations. [During the Track Record Period, the sales revenue of [●] Pei Pa Koa was generally higher during the winter seasons, as compared with its sales in the months from April to August.]

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Other than [●] Pei Pa Koa, [Taiko Seirogan also experienced seasonality effect during the Track Record Period.] Nonetheless, promotional activities were launched by the Group to promote the sales of Taiko Seirogan in the low season of 2009 so as to reduce the seasonality effect for Taiko Seirogan in that year.

As a result of these seasonal fluctuations, comparisons of sales and operating results between different periods within a single financial year, or between different periods in different financial years, are not necessarily meaningful and cannot be relied on as indicators of the Group’s performance. In addition, if the Group fails to respond to any seasonal change in consumer preferences and market trends and to adjust its product supply, the Group’s sales performance for that season or period may be materially and adversely affected.

The Group may be susceptible to, among other things, product liability claims and payment of compensation of the products in relation to their representation of attributes or intended effects

The Group’s marketing and promotional campaigns rely heavily on the assertions and implications that the products will have particular effects and offer particular solutions to the end-users. For example, the Group claims in its promotional materials that Flying Eagle Wood Lok Medicated Oil is effective in soothing pains in muscles and joints and relaxes nerves. If end-users challenge or claim that the products are not as effective as the Group suggests they are, the Group may incur legal and financial liabilities which could be costly and time-consuming and may divert financial and other resources away from its business operations. As a result, the Group’s reputation, business, financial condition and results of operations may be materially and adversely affected.

The Group’s marketing and promotional activities are critical to the success of the products which the Group distributes

The Group issues an annual sales and marketing guideline setting out the expected sales target of its products for each year which is followed and executed by its sales and marketing teams. Other than its own resources, the resources for the Group’s marketing and promotional activities are provided by its suppliers and/or manufacturers. The Group markets its pharmaceutical and healthcare products mainly through various promotional campaigns such as the Product Display Booths at the retail outlets, supplemented by advertisements in newspapers and other public means. In addition, the Group’s sales and marketing staff regularly visit various retail outlets such as pharmacies and clinics to collect sales data for marketing purpose. During the Track Record Period, manufacturers and/or suppliers of certain products that the Group distributes had engaged celebrities as their product ambassadors for the promotion of their products. A PRC celebrity was engaged and paid by [●] Medicine as the ambassador for the [●] Product Series in the PRC from July 2005 to July 2010.

These various marketing and promotional activities are crucial to the success of the products the Group distributes. However, the Group cannot ensure that the engagement of celebrities by the manufacturers or suppliers can be on a continuous basis and that the resources provided by the manufacturers and/or suppliers on marketing and promotional activities will be adequate. Any factors adversely affecting the Group’s ability to maintain its marketing and promotional activities, such as

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RISK FACTORS

the availability of resources to conduct such marketing and promotional activities, may have an adverse effect on the market share, brand name and reputation of the products the Group distributes, which can result in decreased demand for its products and adversely affect the Group’s business and results of operation.

Violation of PRC advertising laws by the Group

The relevant PRC laws and regulations require advertising content to be fair and accurate, not misleading and in full compliance with applicable laws. Contents of advertisements relating to the pharmaceutical and healthcare products distributed by the Group must be filed with the provincial agency of the SFDA or other competent authorities, and the required permits and approvals from the provincial agency of the SFDA or other competent authorities must be obtained before their publication or broadcasting. Violation of these laws or regulations may result in penalties, including fines, orders to cease dissemination of the advertisements, orders to publish an advertisement correcting the misleading information and even criminal liabilities. In severe circumstances, the provincial agency of the SFDA may issue a safety warning to the public and publish the names of the violators. In addition, the Group cannot assure that regulators will not interpret such laws and regulations differently than the Group do, or will deem its advertising content to be fair and accurate. See “Regulation — Advertising.” If the Group and/or its suppliers is found to have committed any violations, certain of the advertising activities in relation to the products distributed by the Group may be discontinued, the Group may not be able to publish new advertisements in a timely manner, and therefore the Group’s turnover and reputation could be materially affected. Moreover, government actions and civil claims may be filed against the Group and/or its suppliers for misleading or inaccurate advertising. The Group may have to spend significant resources in defending against such actions, and these actions may damage its reputation, result in reduced turnover, and negatively affect its results of operations. During the Track Record Period, the Group had not violated any laws or regulations in the PRC in relation to advertising and had not received any actions or claims filed against the Group. [Having made reasonable enquiries with the suppliers, the Directors were not informed or made aware of any actions or claims in relation to the advertisements of the products distributed by the Group.]

Product counterfeiting and/or parallel importing may occur

There is no assurance that counterfeit products or parallel imports of the products which the Group distributes will not infiltrate the PRC markets. The Group may be compelled to take legal action and/or seek assistance from investigation agencies, enforcement agencies and authorities in the eradication, prohibition and/or deterrence of counterfeiting activities and/or parallel importing. [The Group had not received any report of counterfeit products or parallel imports of the products which the Group distributes during the Track Record Period.] Should any product counterfeiting or parallel importing occur, the Group’s financial performance as well as profitability may be materially and adversely affected.

The Group has limited control over its distribution network

As the Group does not operate any retail outlets, the Group relies on the Distributor Customers and the Sub-distributor Customers for the sale of products distributed by the Group. In addition, the

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RISK FACTORS

Group relies on the Distributor Customers to manage the Sub-distributor Customers as the Group only has contractual relationships with the Distributor Customers (other than for the [●] Product Series and Taiko Seirogan where a tripartite distribution agreement has been entered into between SZ Kingworld, the Distributor Customers and the Sub-distribution Customers in order to regulate the prices of such products). As a result, the Group’s control over the sales by the Distributor Customers, the Sub-distributor Customers and the retail outlets which they operate is limited. If such customers experience difficulties in selling the products distributed by the Group, they may attempt to liquidate their excessive inventory build-up through aggressive discounts, which may damage the image and the value of the products distributed by the Group. Furthermore, difficulties faced by the Distributor Customers, the Sub-distributor Customers and the retail outlets which they operate, may in the future lead to reduced purchases from the Group, which would adversely affect the results of operations of the Group.

The Group may not be able to accurately monitor the inventory level of its customers

The Group’s control over the sales by its customers is limited. The Group will monitor the performances of the Distributor Customers by making monthly visits and reviewing reports on their distribution flow and inventory levels. Such policy however, requires the cooperation of the Distributor Customers (i) to manage the Sub-distributor Customers and (ii) to accurately and timely report and submit the relevant data to the Group, and the Group may not be able to fully ensure the accuracy of the data provided by the Distributor Customers. Due to the above reasons, the Group may not be able to accurately monitor the inventory level of the customers that sells products distributed by the Group, or to identify or prevent any excessive inventory build-up of products distributed by the Group.

Customers do not give long-term purchase commitments

Historically, the Group’s customers did not give long term purchase commitments in the distribution agreements entered into between the customers and SZ Kingworld and renewed on an annual basis. Under such agreements, an annual sales target is set by the Group and the customers are entitled to a rebate if they meet their annual target. Given the short-term purchase commitment, customers of the Group may cease to place or reduce the number of, or cancel or defer purchase orders. The Directors believe that the Group has established business relationships with its major customers, however, there can be no assurance that any of its major customers will continue to place orders at the current levels of demand with the Group in the future and that the income generated therefrom will increase or be maintained in the future. Any unexpected cessation of, or substantial reduction in, the volume of order from any of the major customers may adversely and materially affect the Group’s business and financial performance.

The Group may experience delays in collecting trade and bills receivables from customers

The Group grants an open account with a credit term of [30] to [90] days to its customers. Most of the customers make payments by telegraphic transfer. To the extent that revenue recognized under a purchase order has not been received, the Group records it as a trade and bills receivable. As at 31 December 2009, the Group had an aggregate trade and bills receivables of approximately RMB111,745,000. Impairment losses in respect of trade and bills receivables are recorded using an

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RISK FACTORS

allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly. As at 31 December 2009, of the total amount of trade and bills receivables before provision for impairment, [RMB19,092,000] had been outstanding for 91 to 180 days from the time the revenue was recognized, [RMB16,048,000] had been outstanding for 181 days to one year from the time the revenue was recognized, and [RMB3,851,000] had been outstanding for over one year from the time the revenue was recognized.

The Group’s liquidity and operational cash flows may be materially and adversely affected if the trade receivable cycles or collection periods lengthen or if the Group encounters a material increase in default of payment from customers. Should these events occur, the Group may be required to obtain working capital from other sources, such as from third-party financing, in order to maintain the Group’s daily operations, and such financing from outside sources may not be available or alternatively it may be available on terms which are not favourable to the Group.

Reliance on independent delivery agents

The SZ Warehouse is operated and managed by SZ Kingworld for the storage of all of SZ Kingworld’s products. The [●] Product Series that are being distributed in the Guangdong Province by Zhuhai Jinming are stored in the ZH Warehouse. During the Track Record Period, SZ Kingworld entered into contracts with several independent delivery agents for the delivery of the products the Group distributes from the SZ Warehouse/ZH Warehouse to the Group’s customers at various designated regions in the PRC. The failure of such delivery agents to comply with the terms of the contracts or any regulatory requirements may result in their failure to conduct their business activities, which could affect the delivery of products to the Group’s customers on a timely basis. There is no assurance that the Group will be able to identify other suitable delivery agents as replacement on a timely basis and in such event, its business, financial performance and operations may be adversely and materially affected.

Difficulties encountered by the Group in expanding its distribution network

One of the key elements of the Group’s business strategy is to expand its distribution network. However, the success of its expansion plan is subject to, among other things, the following factors:

the existence and availability of suitable regions and locations for expansion of its distribution network;
the availability of suitable distributors and sub-distributors;
its ability to negotiate favorable cooperation terms with such distributors and sub-distributors;
the availability of adequate management and financial resources;
its ability to hire, train and retain skilled sales representatives; and

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RISK FACTORS

the adaptation of its logistics and other operational and management systems to an expanded distribution network.

Accordingly, the Group cannot give assurance that it will be able to achieve its expansion goals or effectively integrate any new distributors and sub-distributors into its existing network. If it encounters difficulties in expanding its distribution network, its growth prospects may be limited, which in turn may have an adverse and material effect on its business, financial condition and results of operations.

Uncertainty in obtaining external financing and significant level of borrowing of the Group

The Group generally funds its operations from, among other things, the sale proceeds of its product, capital injections by the Controlling Shareholders and short-term (repayable within 1 year or on demand) and long-term (repayable after two years but within five years) borrowings from independent financial institutions. To finance its ongoing operations, existing and other acquisition and investment plans, the Group may need to obtain financing from external sources to supplement its operations in the future. Its ability to obtain external financing in the future is subject to a variety of uncertainties, including, among other things:

regulatory approvals to raise financing in the domestic or international markets;
its financial condition, results of operations, cash flows and credit history;
the condition of the global and domestic financial markets; and
changes in the PRC monetary policy with respect to bank interest rates and lending practices and conditions.

The Group has relied on both short-term and long-term borrowings to fund a portion of its capital requirements, and expects to continue to do so in the future. [During the Track Record Period, all the Group’s bank borrowings are from banks in the PRC. As at 31 December 2009, the Group had long-term and short-term interest bearing bank borrowings totaling approximately RMB[306.6] million, representing approximately [47.8]% of the Group’s total assets as at the same date, with net current assets of approximately RMB[160.4] million.] [During the Track Record Period, the Group had not experienced any difficulties in obtaining and renewing any bank loans.]

The Group may face financial and operational risks if the interest rate or financial environment change, or if its cash flows and capital resources are insufficient to finance its debt obligations. The Group may be forced to sell its assets, seek additional capital or restructure or refinance its indebtedness from other sources, all of which may not be successful. Failure to repay the Group’s debt may result in the imposition of penalties, additional undertakings or obligations, including increases in interest rates, legal actions by its creditors and bankruptcy and, therefore, may adversely and materially affect the financial position of the Group.

The Group cannot give any assurance that it will be able to obtain bank loans or renew existing credit facilities in the future on favourable terms, if at all, or that any fluctuations in interest rates will

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RISK FACTORS

affect the amount of debt payments. If adequate funding is not available to the Group on favourable terms, if at all, it may not be able to fund its existing operations and develop or expand its business, and therefore its business, financial condition and results of operations may be materially and adversely affected.

The Group’s information technology system failure or breakdown may cause interruptions to the its business

The Group acquired and installed an ERP System in 2005 to monitor and manage its inventory level and daily operations for the distribution of its products. A failure or breakdown of any part of its information technology system may interrupt its normal business or operations, result in a slowdown in operational and management efficiency and adversely affect its ability to meet its distribution schedules. [No failure or breakdown of any part of its information technology system has been reported during the Track Record Period.] Any termination of service contract with the system providers may adversely affect the Group’s business, financial condition and results of operations.

Loss or withdrawal of licences, permits and all other necessary approvals for the Group to operate

In accordance with PRC laws and regulations, the Group is required to obtain and maintain different licenses and permits for the import and distribution of pharmaceutical products, healthcare products and general foodstuffs in the normal course of its business. During the Track Record Period, the Group was able to obtain the relevant licences and permits for the operation of the Group’s business. As at the Latest Practicable Date, [the registration certificates of Fengbao Jianfu Capsule and Min Tong Chisionhon Granules had expired and the Group expects the renewed certificates for each of Min Tong Chisionhon Granules and Fengbao Jianfu Capsule, will be obtained in April 2011 and December 2010 respectively.] Each of the two products contributed [0.2]% and [0.2]% of the Group’s revenue for the financial year ended 31 December 2009 and [3.2]% and [nil]% for the six months ended 30 June 2010. Before obtaining the renewed licenses, the Group will not import any of such products into the PRC and will only sell the remaining stock on hand or may apply for a one-off import permit. The Directors confirmed that as at the Latest Practicable Date, the Group complied with all relevant laws and regulations for the operation of its business. Although the Group has experienced delays in renewing certain licenses, permits and/or approvals, the Group has not encountered any refusals of non-renewal of licenses, permits and/or approvals. Loss of or failure to renew or obtain or maintain the relevant licenses and permits could lead to temporary or permanent suspension of the Group’s distribution operations. If the Group fails to comply with licensing or other regulatory requirements, its business, financial condition and results of operations may be adversely affected.

The Group may not be able to pass the increase in purchase price of its major products to the Distributor Customers

During the Track Record Period, the purchase prices of [●] Pei Pa Koa and Taiko Seirogan had been raised by the respective suppliers. The purchase prices of [●] Pei Pa Koa were increased because its cost of production had increased during the Track Record Period. As shown in the table in the sub-section headed “Pricing” under the “Business” section of this document, SZ Kingworld was able to raise the price of Taiko Seirogan supplied to the Distributor Customers to maintain its profit margin

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RISK FACTORS

but it was not able to increase the prices of the [●] Pei Pa Koa supplied to the Distributor Customers as it was requested by [Great Pleasure] not to do so, resulting in a decrease in the Group’s gross profit margin in [2009 as compared to the year 2008.] In the event that the respective suppliers and/or manufacturers further increase the price of the products sold to the Group, and the Group is not able to raise its selling price to the Distributor Customers, this may have a material adverse effect on the Group’s profitability.

Insurance coverage may not be sufficient to cover the risks relating to the Group’s operations

[Although the Group has not encountered any major accidents in the course of its operations during the Track Record Period which may have caused property damage and/or personal injuries,] there is no assurance that the Group will be able to prevent any unforeseeable accidents in the future. The Group has procured the necessary insurance coverage, including but not limited to social security insurance, property all risks insurance and insurance for the transportation of the products the Group distributes in the PRC. Further particulars on the insurance policies are set out in the sub-section headed “Insurance” under the section headed “Business” in this document. [Although there had been no product liability claims during the Track Record Period,] the Group faces exposure to such claims in the event that any of its products are alleged to have caused property damage, bodily injury or other adverse effects. Losses incurred or payments that the Group may be required to make as a result of the above claims could have a material adverse effect on the Group’s results of operations if such losses or payments are not adequately insured.

Reliance on the experience of key executives and management personnel

The Group’s success to date, has been attributable to the management skills and experience of the Directors and the senior management as mentioned in the section headed “Directors, senior management and staff” in this document as well as their established relationships with the Group’s customers, suppliers and manufacturers. There can be no assurance that senior management will continue to perform as well as they have done in the past, and that the Group will be able to retain their services when their contracts expire. There can also be no assurance that (i) qualified personnel can be found to replace any possible loss of such key personnel and/or (ii) staffs with relevant experience can be identified to manage potential distribution business which may be acquired by the Group which may adversely and materially affect the Group’s profitability and operations.

Any change in the Group’s tax treatment could have a material adverse effect on the results of its operations

On 16 March 2007, the PRC Government enacted the PRC EIT Law, under which most domestic enterprises and foreign invested enterprises are subject to a uniform income tax of 25%. The PRC EIT Law became effective on 1 January 2008, when the Foreign-Invested Enterprise and Foreign Enterprise Income Tax Law (《中華人民共和國外商投資企業和外國企業所得稅法》) and the Enterprise Income Tax Provisional Regulations of the PRC expired. The PRC EIT Law provides for a five-year transition period starting from 1 January 2008 for enterprises that enjoy low tax rate preferences. Under the PRC EIT Law, those enterprises established prior to 16 March 2007 which were eligible for tax exemption or reduction in accordance with the prior tax laws and regulations are eligible to continue to enjoy any existing preferential tax treatments until their expiration, but for

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foreign invested enterprises that did not make profit, such preferential tax treatment is deemed to commence from 1 January 2008. Both SZ Kingworld and Zhuhai Jinming currently enjoy preferential tax treatments, which are subject to progressive increases in tax rates during the transition period. [For details of the rules, please refer to sub-section headed “Taxation” under the section headed “Financial Information” in this document.

Effective tax rates for SZ Kingworld and Zhuhai Jinming during the Track Record Period were respectively [17.8]%, [24.3]%, [20.5]% and [26.6]% while the enterprise income tax rate for the Twelve Subsidiaries was [25%] throughout the Track Record Period. The Group’s income tax expenses may increase substantially after the expiration of such preferential tax treatments. There is no guarantee that the above mentioned preferential tax rate policies enjoyed by SZ Kingworld and Zhuhai Jinming will not be withdrawn or amended by the relevant authorities in the PRC in the future before the expiry. If the relevant preferential tax policies are withdrawn or amended, the profitability of the Group may be materially and adversely affected.

Dividends payable from the Company’s PRC subsidiaries may become subject to withholding taxes under the PRC tax laws

The Company was incorporated in the Cayman Islands and its income mostly comes from dividends that it receives from its subsidiaries. Before the introduction of the PRC EIT Law, dividends derived from its business operations in the PRC were exempted from income tax under PRC law. Under the PRC EIT Law, dividends payable by a foreign invested enterprise to its foreign investors are subject to a 10% withholding tax, unless such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding tax arrangement. Pursuant to an applicable tax treaty between the PRC and Hong Kong, a company incorporated in Hong Kong, such as HK Kingworld, which owns the entire interests in all of the Company’s PRC incorporated subsidiaries will be subject to a withholding tax at the rate of 5% of dividends it receives from a company incorporated in the PRC if it holds a 25% or more equity interest in such PRC company paying the dividends, such as SZ Kingworld.

The Company is a holding company that relies on dividend payments from its subsidiaries for funding

The Company is a holding company incorporated in the Cayman Islands and its operations are conducted through its subsidiaries in Hong Kong and the PRC. Therefore, the availability of funds to pay dividends to the Shareholders and to repay its indebtedness depends on dividends received from its subsidiaries. If its subsidiaries incur any debts or losses, such indebtedness or loss may impair their ability to pay dividends or other distributions to the Company. As a result, the Company’s ability to pay dividends or other distributions and to repay its indebtedness will be restricted.

PRC laws require that dividends be paid only out of the new profit calculated according to PRC GAAP, which differs from the generally accepted accounting principles in other jurisdictions, including HKFRS. PRC laws also require foreign-invested PRC enterprises, such as the PRC subsidiaries of the Group, to set aside part of their net profit as statutory reserves. These statutory reserves are not available for distribution as cash dividends.

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RISK FACTORS

Wrongdoings by employees of the Group and by other third parties

As at the Latest Practicable Date, the Group had a total of [378] employees. Employee wrongdoings at different operation levels could reduce the operational efficiency and business performance and may even result in violations of laws, third party claims and regulatory actions against the Group causing reputation or financial damage to the Group.

There is no assurance that all the employees of the Group will conduct their duties at all times in good faith and in a manner which is in full compliance with the laws and the Group’s policies. In addition, third parties and business associates of the Group such as manufacturers, suppliers or customers may act fraudulently or commit wrongdoings against the Group such as the deliberate provision of defective products by suppliers or payment of counterfeit banknotes by customers. As such, there is no assurances that the Group will be able to prevent or detect all incidents of wrongdoings committed by such third parties which could adversely affect its business operation, reputation and financial performance.

RISKS RELATING TO THE INDUSTRY

Change in price control policy in the PRC which may restrict the freedom for setting the prices of certain products which the Group distributes

The prices of certain pharmaceutical products are subject to the control of the relevant state and provincial price administration authorities in the PRC. In practice, price control policies imposed by the PRC government include but are not limited to setting a ceiling on the retail prices of such price-controlled products. The actual price for any given price-controlled products set by manufacturers, wholesalers/distributors and retailers cannot exceed the price ceiling imposed in accordance with the applicable government price control policies.

Four kinds of pharmaceutical products distributed by the Group, namely Kingworld Gan Mao Qing Capsule, [●] Pei Pa Koa, Taiko Seirogan and [●], are subject to government price restrictions. During the Track Record Period, the revenue contributed by price-contolled products accounted for 79.32%, 81.24%, 75.35% and 80.26% of the Group’s turnover, respectively. Due to the number of its Distributor Customers and Sub-distributor Customers, the Group may not have adequate control over their pricing and distribution policies in the PRC market and there is no assurance that all such customers within the Group’s distribution network will strictly adhere to the Group’s pricing and other distribution policies. The failure of the such customers to adhere to the Group’s pricing and distribution policies may subsequently induce price fluctuation and adversely affect sales of the products. Details of the regulatory price control over the products the Group distributes in the PRC are set out in the section headed “Regulatory Overview” under the sub-section headed “Price Controls” in this document. [The Directors expect that the relevant regulatory price control over the products distributed by the Group will continue to be imposed after the Listing unless otherwise ordered by the relevant PRC authorities.]

If the relevant PRC government authorities determine that any of the Group’s customers are involved in activities in violation of PRC law or regulation, the Group would have to cease its business

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RISK FACTORS

relationships with such customers. There can be no assurance that in such event the Group would be able to locate replacements in a timely manner or at all. Moreover, the loss of such customer(s) in such circumstances may have an adverse and material effect on the Group’s corporate image and business prospects, results of operations and financial condition.

Compliance with new regulations on supervision of product quality and safety imposed by the PRC Government

In common with other consumer product distributors, the Group may be subject to product liability claims and penalty by the relevant PRC government authorities in the PRC market in which the Group distributes its products if such products are found to be unfit for consumption. Due to the increased national and international press coverage in relation to, among other things, tainted milk and food safety in the PRC, the PRC government may impose stricter control measures on product safety and quality.

There can be no assurance that the Group may be able to respond immediately to the changes in product standards issued by the PRC government or have sufficient time to ensure compliance by its overseas manufacturers with such revised standards in the production of its products. In any case, constant vigilance on changes to product standards and additional efforts to comply with new product standards and control measures, upon their imposition by the PRC government, will certainly give rise to further costs and expenses on the part of the Group. In such case, the business operation and financial performance of the Group may be materially and adversely affected.

Effect of the PRC healthcare reform on the PRC pharmaceutical industry

The healthcare system in the PRC has undergone and evolved over various stages of reform since the Chinese Communist Party took control of the country in 1949 and is still in the progress of undergoing further reform. On 21 January 2009, the Chinese government announced that it expects to spend approximately RMB850 billion on healthcare reform in the PRC in the next three years and highlighted five focus areas, including: (1) to expand basic healthcare insurance programs including to insure 90% of its urban workers, residents and rural residents by 2011, and to increase government contribution to rural residents and urban non-employed population from current RMB40-80 per person to approximately RMB120 per person; (2) to establish an Essential Drug List (“EDL”), and more importantly, an EDL implement system that would ensure quality supply of these drugs at an affordable pricing to its people, especially its rural residents; (3) to improve the basic medical system with an emphasis on third and fourth tiers hospitals, township medical centres, remote area village clinics, and low-income region city community medical centres; (4) to promote public medical service parity and establish a nationwide standard “health record” for the entire population; and (5) to reform public hospitals.

While the overall view of such reform is positive for the pharmaceutical industry in the PRC, there may be negative effects as follows: (1) executive risk: the anticipated spending may be slower and it may be more time consuming and requires larger amount of funding than it was announced; (2) sufficiency of funding: the amount of approximately RMB850 billion requires 75% to be financed by

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RISK FACTORS

local government; (3) reduction in prices: centralized procurement through EDL may lead to reduction in prices of drugs but may be compensated by increased sale volume; and (4) favouring larger companies: such reform may favour larger pharmaceutical companies with more drug products and resources in comparison with smaller companies.

The PRC pharmaceutical distribution industry is highly competitive

The Group’s business is subject to competition from other pharmaceutical distributors. Chinese and international pharmaceutical distributors engaged in the distribution of substitute or products similar to the products the Group distributes in the PRC may have more resources, a wider distribution network and more experience in distribution. Competition is likely to intensify if (i) the number of distributors of substitute or similar products increases due to increased market demand or increased prices; (ii) competitors drastically reduce prices due to oversupply of products; or (iii) competitors distribute new products or substitute products having comparable medicinal applications or therapeutic effects that may be used as direct substitutes for the products the Group distributes which are more effective with prices comparable to or lower than the products the Group distributes. If any of the above occurs, the Group’s business, operational results and financial conditions may be adversely affected.

Successful launch of competitive or substitutable lines to the products the Group distributes may adversely affect the Group’s profitability

Although the current pharmaceutical and healthcare products distributed by the Group are well established in the market, it is possible that products with similarly functions may be developed and marketed as direct substitutes. If such substitutes are successfully launched in the market and these substitutes are not distributed by the Group, the Group’s profitability may be adversely materially affected.

Disruptions in the global financial markets and the resulting governmental action in the PRC and in other parts of the world could have a material adverse impact on the Group’s results of operations, financial condition and cash flow

The recent global financial crisis has adversely affected the United States, and other countries’ economies, including the PRC. As the financial crisis has broadened and intensified, the growth of the PRC’s overall economy has been negatively impacted. The on-going financial crisis affecting the banking system and financial markets has also resulted in a tightening of credit markets, a low level of liquidity in many financial markets and increased volatility in credit and equity markets. The Group also faces risks due to, among other factors changes in economic environments, changes in interest rates, and instability in the securities markets around the world. Major market disruptions and the current adverse changes in market conditions and regulatory climate in the PRC and worldwide may adversely affect the Group’s business and industry or impair its ability to borrow amounts under its credit facilities or any future financial arrangements. In addition, as the timing and nature of any recovery in worldwide financial markets and the global economy remain uncertain, there can be no assurance that market conditions will improve in the near future or that the Group’s results will not be adversely affected. Upon Listing, the price and trading volume of the Shares may likely be subject to similar market fluctuations which may be unrelated to its operating performance or prospects.

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RISK FACTORS

These recent and developing economic and governmental factors may have a material adverse effect on the Group’s ability to renew existing borrowings or obtain new borrowings which may materially and adversely affect the Group’s results of operations, the price of the Shares, financial condition or cash flows as the Group relies on bank borrowings for a portion of its working capital and capital expenditure requirements.

Rapid changes in the pharmaceutical industry may render products distributed by the Group obsolete

The pharmaceutical industry is characterised by rapid changes in technology, constant enhancement of industrial know-how and frequent emergence of new products. Future technological improvements and continual product developments in the pharmaceutical industry may render existing products distributed by the Group obsolete or affect the Group’s viability and competitiveness. Therefore, the Group’s future success will largely depend on its ability to:

diversify portfolio of products distributed by the Group; and
source new and competitively priced pharmaceutical products which meet the requirements of the constantly changing market.

If the Group fails to respond to this environment by sourcing new products in a timely fashion, or if future pharmaceutical products distributed by the Group do not achieve adequate market acceptance, the Group’s business and profitability may be materially and adversely affected.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

Regulatory requirements for the sale and distribution of pharmaceutical and healthcare products in the PRC

[Given the increasing concern on the safety of consumption of pharmaceutical and healthcare products in the PRC, there is no assurance that the PRC Government may not impose more stringent control measures and requirements in regulating the sale and distribution of pharmaceutical and healthcare products and the operation of such businesses in the near future.]

The enforcement of the Labour Contract Law in the PRC may adversely affect the business of the Group

On 29 June 2007, the National People’s Congress of China enacted the Labour Contract Law (勞動合同法), which became effective on 1 January 2008. Compared to the Labour Law (勞動法), the Labour Contract Law establishes more restrictions and increases the cost to employers upon termination of employees, including specific provisions relating to fixed-term employment contracts, temporary employment, probation, consultation with the labour union and employee general assembly, employment without a contract, dismissal of employees, compensation upon termination, overtime work, and collective bargaining. According to the Labour Contract Law, an employer is obligated to sign an unlimited term labour contract with an employee if the employer continues to employ the employee after two consecutive fixed term. The employer also has to pay compensation to employees

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RISK FACTORS

if the employer terminates an unlimited term labour contract. Unless an employee refuses to extend an expired labour contract, compensation is also required when the labour contract expires and the employer does not extend the labour contract with the employee under the same terms as or better terms than those in the original contract. Further, under the Regulations on Paid Annual Leave for Employees (職工帶薪年休假條例), which became effective on 1 January 2008, employees who have served more than one year with an employer are entitled to a paid vacation ranging from five to 15 days, depending on their length of service. Employees who waive such vacation time at the request of the employers shall be compensated at three times their normal salaries for each waived vacation day. As a result of these new protective labour measures, the Group’s labour costs may increase. The Group cannot give assurance that any disputes, work stoppages or strikes will not arise in the future.

Changes in the economic, political and regulatory environment in the PRC may adversely affect the business, operating results and financial condition of the Group

In the past two decades, the PRC Government has implemented economic reform measures in developing the PRC economy. In the transition from a planned economy to a more market-oriented economy, the business environment of the PRC remains subject to the policies, directions and regulatory control measures of the PRC Government.

As a matter of national policy, the PRC Government has, from time to time and as it deems appropriate, called for effective measures in macroeconomic control in order to ensure steady and sustainable national economic growth. Whereas the Group’s ability to successfully expand its business operations in the PRC depends on the economic conditions and business environment of the PRC, there is no assurance that the policy of the PRC government to impose macro-environment control measures from time to time as it deems fit would not adversely affect, directly or indirectly, the business operations of the Group. The macroeconomic measures may have a transitory adverse effect on the Group’s operating results in the short or long run. Further, there may be new regulations or policies, or the readjustments of previously implemented regulations which limit the Group’s ability to operate or require the Group to change its business plan or increase its costs. All of these could adversely affect the business and operating results of the Group.

Future outbreaks of contagious diseases in the PRC may have a material adverse effect on the Group’s business, financial condition and results of operations

Any future outbreaks of contagious diseases, including the H5N1 avian influenza, the human swine influenza and severe acute respiratory syndrome (“SARS”), may materially and adversely affect the PRC economy as a whole and in turn, the Group’s business and operations. There have been various reports of outbreaks of influenza caused by H5N1 virus and H1N1 virus in certain regions of Asia and Europe. The World Health Organization and other agencies have issued and may continue to issue warnings on a potential influenza pandemic if there is sustained human-to-human transmission. Any outbreak of influenza in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, particularly in Asia. Additionally, a recurrence of SARS, a highly contagious form of atypical pneumonia, similar to the occurrence in the year 2003, which affected Hong Kong, China and certain other areas in Asia, could have similar adverse effects. There is no guarantee that any future outbreak of avian influenza, SARS,

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RISK FACTORS

human swine influenza or other epidemics, or the measures taken by the PRC government or other countries in response to a future outbreak of avian influenza, SARS, human swine influenza or other epidemics, will not seriously affect the Group’s operations or those of the Group’s suppliers or customers, which may have an adverse and material effect on the Group’s results of operations.

Government control of currency and future movements in exchange rates may adversely affect the ability of the Group to remit dividends

Since 1994, the conversion of RMB into foreign currencies, including Hong Kong dollars, has been based on exchange rates set by the People’s Bank of China. The People’s Bank of China sets the exchange rates daily based on the previous day’s interbank foreign exchange market rates in the PRC and the current exchange rates in the financial markets.

Since then, the official exchange rate for the conversion of RMB to US dollars has generally been stable as it is pegged against the US dollar. However, the PRC Government changed its currency policy on 21 July 2005 which abandoned the peg of RMB against US dollars in favour of a managed float of the RMB based on market demand and supply with reference to a basket of currencies and their weightings. As a result, the RMB appreciated slightly following this change in currency policy. As the exchange rate of RMB is allowed to move in a managed way, there can be no assurance that the RMB will not further appreciate or that other measures will not be introduced by the PRC Government to address the concerns of the PRC’s trading partners. There is also no assurance that such exchange rate will continue to remain stable in the future. In light of the above, the Group has arranged with banks in the PRC to limit the risks in relation to future movements in exchange rate arising from settling payments to suppliers in Hong Kong dollars. However, such arrangement cannot avoid all currency risks that the Group may encounter. Accordingly, any fluctuations in the value of RMB could also affect the value of dividends, if any, payable on the Shares in Hong Kong dollars.

The PRC legal system is not fully developed and has inherent uncertainties that could limit the legal protections available to the Group

The PRC legal system is based on written statutes and the legal interpretations made by the Standing Committee of the National People’s Congress. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the PRC Government has been developing a comprehensive system of commercial laws, and although considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, these laws and regulations are, however, relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of the laws and regulations in the PRC involve uncertainties and the Group’s legal rights may not be adequately protected.

— 56 —

WAIVERS FROM COMPLIANCE WITH THE [ ● ]

Waiver from strict compliance with Rule 14A of the [ ● ]

The Group has entered into and is expected to enter into certain transactions which will constitute non-exempt continuing connected transactions of the Company under the [●] upon the Listing. Accordingly, the Company has applied to the [●] for, [and the [●] has agreed to grant,] waivers from strict compliance with Chapter 14A of the [●] in relation to certain continuing connected transactions between the Group and certain connected persons. Details of such waivers are set out in the section headed “Connected Transactions” to this document.

Waiver from strict compliance with Rule 8.12 of the [ ● ]

Pursuant to Rule 8.12 of the [●], a new applicant applying for a primary listing on the [●] must have a sufficient management presence in Hong Kong, which will normally mean that at least two of its executive directors must be ordinarily resident in Hong Kong.

The Board comprises a total of seven Directors, being four executive Directors and three independent non-executive Directors. The four executive Directors are Mr. Zhao, Ms. Chan, Mr. Zhou Xuhua and Mr. Lin Yusheng. All of the four executive Directors are ordinarily resident in the PRC.

Given that the business and operation of the Group are primarily located, managed and conducted in the PRC, and the executive Directors ordinarily reside in the PRC, the Company does not and, after the Listing or in the foreseeable future, will not have sufficient management presence in Hong Kong.

Accordingly, the Company has applied to the [●] for, [and the [●] has granted], a waiver from strict compliance with Rule 8.12 of the [●].

In order to maintain effective communication with the [●], the Company will put in place the following measures to ensure that regular communication is maintained between the [●] and the Company:

(1) The Company will appoint two authorised representatives pursuant to Rule 3.05 of the [●] who will act as the Company’s principal channel of communication with the [●] and ensure that they will comply with the [●] at all times. The two authorised representatives to be appointed are Mr. Lin Yusheng, the executive Director, and Mr. Chan Hon Wan, the financial controller and company secretary of the Company. Each of the authorised representatives will be available to meet with the [●] in Hong Kong within a reasonable time frame upon the request of the [●] and will be readily contactable by telephone and facsimile. Each of the two authorised representatives is authorised to communicate on behalf of the Company with the [●].

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WAIVERS FROM COMPLIANCE WITH THE [ ● ]

(2) All the authorised representatives have means to contact all members of the Board (including the independent non-executive Directors) promptly at all times as and when the [●] wishes to contact the Directors for any matters. To enhance the communication between the [●], the authorised representatives and the Directors, the Company will implement a policy pursuant to which (a) each executive Director and independent non-executive Director will have to provide their respective mobile phone numbers, residential phone numbers and fax numbers to the authorised representatives; (b) in the event that an executive Director and independent non-executive Director expects to travel and be out of office, he / she will provide the phone number of the place of his /her accommodation to the authorised representatives; and (c) all the executive Directors and independent non-executive Directors will provide their mobile phone numbers, residential phone numbers, office phone numbers and fax numbers to the [●].
(3) Each of the members of the Board has confirmed that he / she possesses valid travel documents to visit Hong Kong for business purpose and would be able to come to Hong Kong and meet the [●] upon reasonable short notice.
(4) The Company will appoint [Guotai Junan Capital Limited] as its compliance adviser (the “Compliance Adviser”) to act as the Company’s alternative channel of communication with the [●] commencing on the Listing Date until the date on which the Company complies with Rule 13.46 of the [●] in respect of its financial results for the first full financial year commencing after the Listing Date pursuant to Rule 3A.19 of the [●] (the “Engagement Period”).
(5) The Company will ensure that during the Engagement Period, the Compliance Adviser has access at all times promptly to its authorised representatives, Directors and other senior officers who will provide to the Compliance Adviser such information and assistance as the Compliance Adviser may reasonably require in connection with the performance of the Compliance Adviser’s duties.
(6) During the Engagement Period, in the case of resignation by, or termination of, the Compliance Adviser, the Company undertakes to appoint a replacement compliance adviser within three months from the effective date of such resignation or termination (as the case may be) pursuant to Rule 3A.27 of the [●].

— 58 —

DIRECTORS

DIRECTORS
Name	Residential Address	Nationality
Executive Directors
Zhao Li Sheng	No. 1, Meigui Road,	Chinese
(趙利生)	No. 6003, Shennan Avenue,
	Fu Tian District,
	Shenzhen,
	the PRC
Chan Lok San	No. 1, Meigui Road,	Chinese
(陳樂燊)	No. 6003, Shennan Avenue,
	Fu Tian District,
	Shenzhen,
	the PRC
Zhou Xuhua	Room 1109, Block B,	Chinese
(周旭華)	Kai Xuan Hao Ting,
	Northwest Juncture of
	Hong Li Xi Road and
	Xin Zhou Road,
	Fu Tian District,
	Shenzhen, the PRC
Lin Yusheng	2-91, Li Jun Garden, Xian, Shaanxi	Chinese
(林玉生)	Province, the PRC
Independent Non-executive Directors
[Duan Jidong]	中國北京市北京奧園702-4-602	Chinese
(段繼東)	(702-4-602 Beijing Ao Yuan, Beijing,
	the PRC)
[Zhang Jianqi]	中國廣東省廣州市海珠區	Chinese
(張建琦)	中大西區721棟405房
	(Room 405, No.721 West District of the
	Campus of Zhongshan University,
	Hai Zhu District, Guangzhou,
	Guangzhou Province
	the PRC)
[Wong Cheuk Lam]	Flat E, 42/F, Tower 8,	Chinese
(黃焯琳)	Tseung Kwan O Plaza,
	Tseung Kwan O, Kowloon,
	Hong Kong

— 59 —

	CORPORATE INFORMATION	CORPORATE INFORMATION
Registered office		Appleby Trust (Cayman) Ltd.
		Clifton House
		75 Fort Street
		PO Box 1350
		Grand Cayman KY1-1108
		Cayman Islands
Headquarter and principal	place of	Room Nos. 1001 to 1008,
business in the PRC		Block A of Tian An International Building,
		Reminnan Road,
		Luohu District, Shenzhen,
		Guangdong Province,
		the PRC
Principal place of business		9th Floor
in Hong Kong		Hutchison House
		10 Harcourt Road
		Central
		Hong Kong
Authorised representative		Mr. Lin Yusheng
		Room 4, 7/F,
		Tesbury Centre,
		28 Queen’s Road East,
		Wanchai,
		Hong Kong
		Mr. Chan Hon Wan
		[Flat F, 26/F, Block 1
		Tung Chung Crescent,
		Tung Chung,
		New Territories,
		Hong Kong]
Compliance adviser		[Guotai Junan Capital Limited]
		27/F., Low Block
		Grand Millennium Plaza
		181 Queen’s Road Central
		Hong Kong
Company secretary		Mr. Chan Hon Wan
Audit committee		[Mr. Wong Cheuk Lam (Chairman)]
		Dr. Duan Jidong
		Prof. Zhang Jianqi]

— 60 —

CORPORATE INFORMATION

Remuneration committee [Prof. Zhang Jianqi (Chairman) ] Dr. Duan Jidong Mr. Wong Cheuk Lam] Nomination committee [Dr. Duan Jidong (Chairman) Prof. Zhang Jianqi Mr. Wong Cheuk Lam] Website address [●] Principal bankers [●] [address] [●] [address] [●] [address]

— 61 —

INDUSTRY OVERVIEW

/

This and other sections of this document contain information relating to the PRC economy and the PRC pharmaceutical and healthcare industry and international pharmaceutical and healthcare markets. Certain information contained herein has been derived from official government publications and sources from Speedroad Report and report from BMI. While reasonable care has been taken in the extraction and reproduction of such information and statistics, neither we, [ ● ] have independently verified the information directly or indirectly derived from these sources, and such information may not be consistent with other information compiled within or outside the PRC. We make no representations as to the completeness, accuracy or fairness of such information, and accordingly, such information should not be unduly relied upon.

SOURCES OF INFORMATION

About BMI

BMI provides data, analysis, ratings and forecasts on country risk and industry research and is an Independent Third Party. BMI assessed the pharmaceutical market by processing the relevant factors through its 10-year Pharmaceutical Expenditure Forecast Model, which incorporates historic trends, macroeconomic variables, epidemiological forecasts and analyst input. The information disclosed in this document from BMI is extracted from reports not commissioned by the Company and was prepared in the ordinary course of business of BMI.

About Speedroad

Speedroad is a limited private company incorporated under PRC laws in 2004 and is approved by the Guangzhou Administration for Industry and Commerce of the PRC to provide services in data collection, business analysis and consultation, and market research for the PRC pharmaceutical industry. Speedroad is an Independent Third Party. The information disclosed in this document was extracted from the Speedroad Report which was commissioned by the Company at a fee of approximately [RMB46,000.00] and prepared in the ordinary course of business of Speedroad.

A. THE PRC PHARMACEUTICAL AND HEALTHCARE MARKET

The Chinese pharmaceutical market is one of the world’s largest pharmaceutical market. However, this status is historically mainly due to the size of its population rather than its development. According to BMI, in the late 1990s and early 2000s, China’s pharmaceutical sector was substantially smaller than it is today, and was dominated by acute care treatments, with the majority of sales occurring at large hospitals. As the country’s economy has developed, the sector has experienced double digit year on year growth as the state encouraged the sector’s development. In addition, spending on OTC medicines, which accounted for 22.6% of total expenditure in 2008, will rise as the economy develops, the pharmaceutical industry improves and consumer spending power grows over time.

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INDUSTRY OVERVIEW

1. Growth of the PRC and global pharmaceutical market

In line with the trend of an ageing population and sustained economic development over many years, there follows an increasing need for advancement of technology in the pharmaceutical industry and the corresponding rise on the expenditure of the pharmaceutical products.

According to the Speedroad Report, which made reference to a research report by IMS Health, the size of the global pharmaceutical market in 2009 was estimated to be approximately USD820 billion in terms of revenue. Over the past 10 years, this industry sector has experienced an annual growth rate ranging between approximately 4.5% to 14.5% and a CAGR of 9.40%, which was far greater than the growth rate of the world economy during the same period.

Total Sales Revenue and Annual Growth Rate of the Global Pharmaceutical Industry (including the PRC) (1999-2009)

Total Global Revenue of Pharmaceutical Products (billion US$) Annual Growth Rate based on Constant Exchange Rate (%)

==> picture [434 x 222] intentionally omitted <==

----- Start of picture text -----

900 16.00%
14.50 820
800 773 14.00%
715
700 11.70 11.80
648 12.00%
605
600 10.20
560
9.20 10.00%
499
500
7.90
429 7.20 8.00%
400 362 393 6.80 6.60
334
6.00%
300 4.80 4.50
4.00%
200
100 2.00%
0 0.00%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(Estimate)
Year
USD (billion)
----- End of picture text -----

Source: IMS Health marketing prognosis extracted by Speedroad

— 63 —

INDUSTRY OVERVIEW

Compared with the global pharmaceutical market, the PRC pharmaceutical market exhibits a more favourable development trend. In recent years the scale of the PRC pharmaceutical market has been constantly expanding, with the industry recording a rapid increase in sales revenue. In 2009, the predicted growth rate in sales revenue of the global pharmaceutical market over the previous year by IMS Health was approximately 4.5%. By contrast the sales revenue of the PRC pharmaceutical market for the first nine months of 2009 was recorded at approximately RMB586.5 billion, representing a growth rate of approximately 17.5% over the same period of the preceding year (first nine months of 2008 was recorded at approximately RMB499.1 billion), indicating an immense potential for the PRC pharmaceutical market.

Total Sales Revenue and Annual Growth Rate of the Pharmaceutical Industry in the PRC (1999-2008)

Total Sales Revenue of the Chinese Pharmaceutical Industry (billion RMB) Annual Growth Rate (%)

==> picture [432 x 224] intentionally omitted <==

----- Start of picture text -----

900 30.00%
800 25.68% 25.40% 778.8
25.00%
700 22.45% 21.84% 24.01%
20.48% 18.70% 628.0
600 20.00%
500.8
500 17.90%
421.9 15.00%
15.10%
400
335.7
12.70%
300 284.7 10.00%
236.3
205.3
200 168.5
137.6 5.00%
100
0 0.00%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
RMB (billion)
----- End of picture text -----

Source: SFDA Southern Medicine Economic Institute ( 國家食品藥品監督管理局南方醫藥經濟研究所 )

— 64 —

INDUSTRY OVERVIEW

2. Growth of the PRC pharmaceutical industry contributes to the rapid growth in the PRC economy

In recent years, the PRC economy has experienced a sustained period of relatively high growth. In 2009, the PRC experienced a year on year GDP growth of 8.7% with total GDP for the year totalled reaching approximately RMB33,535.3 billion. Although the PRC GDP growth rate in 2009 is down against previous years, it still stands well above the global average of -0.1% despite the outbreak of the global economic downturn. The PRC appears to have weathered the effects of the global economic downturn better than many western economies and is generally expected to achieve a optimistic growth in the coming years in term of GDP growth.

China’s GDP and Annual Growth Rate (1999-2009)

==> picture [447 x 257] intentionally omitted <==

----- Start of picture text -----

GDP (billion RMB)
GDP Real Annual Growth Rate (%)
350,000 33,535.3 15.00%
13.00%
30,067.0
300,000 11.60%
10.90% 12.00%
10.00% [10.10%] 25,730.6
250,000 9.00%
9.10%
8.70%
8.40% 8.30% 21,192.4
9.00%
200,000 7.60% 18,321.7
15,987.8
150,000 13,582.3
6.00%
12,033.3
9,593.3
100,000 8,940.4
8,206.7
3.00%
50,000
0 0.00%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
RMB (billion)
----- End of picture text -----

Source: National Bureau of Statistics of the PRC ‘The PRC Statistical Yearbook’

— 65 —

INDUSTRY OVERVIEW

According to the Ministry of Industry and Information Technology of the PRC, in the first 9 months of 2009, the total industrial output of the PRC pharmaceutical industry amounted to approximately RMB618.4 billion, which represented a growth rate of approximately 17.3% over the same period of the preceding year (first nine months of 2008 was recorded at approximately RMB527.2 billion). As shown in the chart below, since 1999, the total production value of the PRC pharmaceutical industry recorded a CAGR of approximately 21.2%, which is far higher than the growth rate of the PRC GDP and the global pharmaceutical market (please refer to the chart titled “Total Sales Revenue and Annual Growth Rate of the Global Pharmaceutical Industry (including the PRC) for 1999-2009 (Estimate)” on page 62 of this Document) over the same period.

In November 2009, director of the SFDA Southern Medicine Economic Research Institute announced that China’s pharmaceutical production value is expected to rise by 23% year on year to approximately RMB1,250 billion in 2010, and he added that the ongoing healthcare reform will help the PRC pharmaceutical market to grow by approximately a further RMB200 billion.

Total Production Value of the PRC Pharmaceutical Industry (1999-2008)

Total Production Value of the PRC Pharmaceutical Industry (billion RMB) Annual Growth Rate (%)

==> picture [432 x 225] intentionally omitted <==

----- Start of picture text -----

1,000 35.00%
900 866.7
30.00%
800
25.07% 29.76%
700 22.48% 23.87% 22.36% 667.9 25.00%
600 19.56%
534.0 20.00%
16.85%
500
16.93% 436.4
15.00%
400
14.79% 352.3
301.3
300 11.89% 246.0 10.00%
214.3
200 183.4
153.4
5.00%
100
0 0.00%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
RMB (billion)
----- End of picture text -----

Source: Ministry of Industry and Information Technology of the PRC

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INDUSTRY OVERVIEW

3. Industrial information regarding the pharmaceutical and healthcare products related to the Group

Market Analysis of Cough Relieving Products
i. Cough has been the most common symptom of illness for Chinese mainland residents

According to the Abstract of China Health Statistics (2009) published by the Ministry of Health of the PRC, the two-week prevalence rates of the three major diseases resulting in acute cough, namely acute upper respiratory tract infection, acute nasopharyngitis and influenza, were approximately 18.2%, 15.4% and 4.4%, respectively, ranking the second, third and ninth among the top ten diseases in this regard. The prevalence rate of the chronic obstructive pulmonary disease (COPD), another disease resulting in cough, was 6.9%, ranking the seventh among the top ten chronic diseases. Based on the findings of the fourth National Health Services Survey in 2008, it is estimated that the population of Chinese mainland residents suffering cough illness would be 1,359.50 million times in total and 1.02 times per capita in 2009. This comprised 662.10 million times in cities and 697.40 million times in rural areas.

ii. The segment of cough relieving products has achieved a sustained and steady growth

The development of the cough relieving products market has been quite mature in the PRC. According to Speedroad, the size of the cough relieving products market was over RMB8 billion (RMB8.17 billion) in 2009. From 2005 to 2009, it recorded a CAGR of 9.63% on average. The PRC cough relieving products market is expected to grow steadily at around 10% in the next three to five years, along with deteriorating pollution as a result of the industrialization and urbanization process as well as the growth of the number of people receiving consultation and treatment brought about by the increased coverage of the new rural cooperative medical insurance system and the urban resident basic medical insurance scheme for Chinese mainland residents.

The Growth Trend of Cough Relieving Products Market in the PRC (2005-2009)

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----- Start of picture text -----

Market Size (RMB 100 million)
Market growth rate (%) 14.67% 5.68%
90 77.3 81.7 16%
80 10.59% 14%
12.20% 7.78% 67.4
70
61.0 12%
56.6
60
10%
50
8%
40
6%
30
4%
20
10 2%
0 0%
2005 2006 2007 2008 2009
----- End of picture text -----

Source: Speedroad PRC Pharmaceutical Products Retail Market Key Categories Competitiveness Report 2009

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INDUSTRY OVERVIEW

iii. Cough relieving products occupy an increasingly significant market position in the retail market

According to the Speedroad Report, which made reference to the retail data monitoring statistics (中國葯品零售監測分析系統) from Guangzhou Biao Dian, Medical Data Company Limited of Southern Medicine Economic Institute under SFDA, the market share of cough relieving products in the medicine retail market had increased to 6.01% in 2009 from 4.50% in 2005 in the PRC.

Movement in the Retail Market Share of Cough Relieving Products (2005-2009)

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----- Start of picture text -----

0.07 Market share (%)
6.26% 6.15% 6.01%
0.06
0.05
4.50%
4.05%
0.04
0.03
0.02
0.01
0.00
2005 2006 2007 2008 2009
----- End of picture text -----

Source: Conference Papers from the 20th National Medical Economy Information Conference/retail data monitoring statistics ( 中國葯品零售監測分析系統 ) from Guangzhou Biao Dian, Medical Data Company Limited of Southern Medicine Economic Institute under SFDA

Pursuant to a market analysis conducted by Speedroad, in 2009, [●] Pei Pa Koa accounted for approximately 24.09% of the proprietary Chinese medical Cough Relieving Products market in the PRC, representing a total sales of approximately RMB1.03 billion. According to the Speedroad Report, as at June 2010, there were in total four licensed imported proprietary Chinese medical Cough Relieving Products in the PRC OTC market and amongst those, [●] Pei Pa Koa is the leading product, with over 95% share of the market for imported proprietary Chinese medical Cough Relieving Products in the PRC.

Market Analysis of Vitamin and Mineral Supplements Products
i. General Overview of the Vitamin and Mineral Supplements Market
1) Chinese mainland residents are faced with the dual challenges of nutritional deficiency and nutrition imbalance

According to the statistics of the Report on the National Nutrition and Health Survey of China jointly published by the Ministry of Health of the PRC, the Ministry of Science and Technology of the PRC and the National Bureau of Statistics of the PRC in October 2004, children’s malnutrition

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INDUSTRY OVERVIEW

remained serious in China’s rural areas. 17.3% and 9.3% of Chinese children less than 5-year-old were subject to growth retardation and low body weight, respectively, and these figures were as high as 29.3% and 14.4% in impoverished rural areas. The 1-year-old group had the highest growth retardation rate, 20.9% on average in rural areas and up to 34.6% in impoverished rural areas, indicating a critical problem of unreasonable complementary foods to infants prevailing in rural areas.

Micronutrient deficiency, such as iron and vitamin A, is a common problem among both urban and rural residents in the PRC. The anemia rate of Chinese mainland residents as a result of micronutrient deficiency was 15.2% on average. The anemia rate of infants less than 2-year-old, aged people over 60-year-old, and women within childbearing age were 24.2%, 21.5% and 20.6%, respectively. The vitamin A deficiency rate of children at 3-12-year-old was 9.3%, of which 3.0% in cities and 11.2% in rural areas; while the vitamin A marginal deficiency rate was 45.1%, of which 29.0% in cities and 49.6% in rural areas. The calcium intake of urban and rural residents was only 391 mg in the PRC, representing 41% of the recommended intake. The calcium intake of urban residents was 439 mg, higher than that of rural residents (372mg).

2) The vitamin and mineral supplements market has been on a stable growth track after a correction phase

According to the study by Speedroad, in 2009, the total market size of vitamin and mineral supplements (including prescription drugs and medicines and health care products sold in the OTC retail market) in the PRC amounted to approximately RMB16.78 billion, representing an average CAGR of 3.71% for the recent five years. This market segment experienced a decline in 2006, but has showed a steady recovery trend in the recent three years, with an average growth rate of 6.46%. Speedroad estimates that in the next three to five years, the vitamin and mineral supplements market will maintain a growth of about 8%.

The Growth Trend of Vitamin and Mineral Supplements Market in the PRC (2005-2009)

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Source: Speedroad PRC Pharmaceutical Products Retail Market Key Category Competitiveness Report 2009

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INDUSTRY OVERVIEW

3) Vitamin and mineral supplements is the category with the highest sales in the retail market of developed regions in the PRC

According to Speedroad Report, which made reference to the retail data monitoring statistics (中國葯品零售監測分析系統) from Guangzhou Biao Dian, Medical Data Company Limited of Southern Medicine Economic Institute under SFDA, in 2009, the retail market share of vitamin and mineral supplements ranked the second next to cardiovascular products in central cities such as Beijing, Guangzhou and Shanghai, and its market share increased to 14.93% in 2009 from 11.45% in 2004.

Movement in the Retail Market Share of Vitamin and Mineral Supplements in Key Markets (2004-2009)

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----- Start of picture text -----

14.93%
15.0% 14.12% 14.10% 14.49%
11.80%
12.0% 11.45%
9.0%
6.0%
3.0%
0.0%
2004 2005 2006 2007 2008 2009
----- End of picture text -----

Market Analysis of Orthopedic Medicines
i. General Overview of the Orthopedic Medicines Market
1) Patients with Orthopedic diseases have increased rapidly

According to the statistics of the four National Health Services Surveys by the Ministry of Health of the PRC in 1993, 1998, 2003 and 2008, the two-week prevalence rate of Chinese mainland residents suffering musculoskeletal diseases increased to 25% in 2008 from 9.5% in 1993, while the two-week prevalence rate for all kinds of injuries increased from 4.3% to 5.6% during the same period. Along with the aging of the population, the prevalence rate for osteoporosis and fracture, the two major orthopedic diseases for the elderly group, increased significantly. According to Speedroad, in 2009, people suffering various kinds of osteoarthritis amounted to 67.88 million, while people suffering various kinds of skeletal trauma were approximately 36.39 million, in the PRC.

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INDUSTRY OVERVIEW

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----- Start of picture text -----

Two-week prevalence rate of
Musculoskeletal diseases in the PRC
----- End of picture text -----

==> picture [450 x 162] intentionally omitted <==

----- Start of picture text -----

Two-week prevalence rate of Two-week prevalence rate
Musculoskeletal diseases in the PRC of all kinds of damages in the PRC
30 Two-week prevalence rate (%) 8 Two-week prevalence rate (%)
25
25
5.7 5.6
6
20 4.5
14.7 4.3
15 10.9 4
9.5
10
2
5
0 0
1993 1998 2003 2008
1993 1998 2003 2008
----- End of picture text -----

Source: Health Services Surveys by the Ministry of Health, 1993, 1998, 2003 and 2008

2) Rapid Growth in the Market of Orthopedic Drugs for External Use

According to Speedroad, the total market size of orthopedic drugs for external use in the PRC amounted to approximately $5.64 billion in 2009, with an average CAGR of 17.1% for the recent five years, which was higher than the overall growth rate of 16.72% of the pharmaceutical market in the PRC over the same period。Speedroad estimates that the growth rate of the market of orthopedic drugs for external use in the PRC will be maintained at around 17% in the next three to five years.

The Growth Trend of Orthopedic Drugs for External in the PRC (2005-2009)

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----- Start of picture text -----

Market Size (RMB 100 million)
Market growth rate (%) 15.68%
60 56.4 30%
17.89%
48.7
50 25%
17.98%
17.45%
16.87% 41.3
40 30.0 35.0 20%
30 15%
20 10%
10 5%
0 0%
2005 2006 2007 2008 2009
----- End of picture text -----

Source: Speedroad PRC Pharmaceutical Products Retail Market Key Category Competitiveness Report 2009

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INDUSTRY OVERVIEW

Market Analysis of Gastrointestinal Discomfort Medication
i. General Overview of the Market of Gastrointestinal Upset
1) Gastrointestinal discomfort is one of the most common diseases suffered by mainland residents

According to the statistics of the National Health Services Survey by the Ministry of Health of the PRC, in 2008, the two-week prevalence rate for gastrointestinal discomfort caused by gastroenteritis was as high as 13.6%, which ranked the fourth among the top ten diseases with a high incidence rate. In the Mainland, the prevalence rate for gastroenteritis of rural residents is growing rapidly. The two-week prevalence rate for gastroenteritis increased from 11.64% in 1998 to 15.4% in 2008.

Two-week prevalence rate Two-week prevalence rate of Gastroenberitis of Residents of Gastraenteritis of Rural Residents in the PRC in the PRC

==> picture [451 x 127] intentionally omitted <==

----- Start of picture text -----

Two-week prevalence rate (‰) Two-week prevalence rate (‰)
15.4
15 13.6 16
11.53
12 10.5 11.64 11.3
12
9
8
6
3 4
0 0
1998 2003 2008 1998 2003 2008
----- End of picture text -----

Source: Report on “National Health Services Survey” by the Ministry of Health

2) The gastrointestinal discomfort drug market is growing steadily

According to Speedroad, the total market size of gastrointestinal discomfort drugs in the PRC amounted to approximately $1.29 billion in 2009, with an average CAGR of 10.86% for the recent five years. Speedroad estimates that as standby drugs for residents in the Mainland, gastrointestinal discomfort drugs will maintain a growth rate of around 10% in the next three to five years.

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INDUSTRY OVERVIEW

The Growth Trend of the Gastrointestinal Discomfort Drug market in the PRC (2005-2009)

==> picture [344 x 192] intentionally omitted <==

----- Start of picture text -----

Market Size (RMB 100 million)
Market growth rate (%) 8.15%
14 10.19% 12.9 30%
9.76% 11.9
15.22%
12
10.8 25%
13.11% 9.8
10
8.5 20%
8
15%
6
10%
4
5%
2
0 0%
2005 2006 2007 2008 2009
----- End of picture text -----

Source: Speedroad PRC Pharmaceutical Products Retail Market Key Category Competitiveness Report 2009

Market Analysis of Chinese patent drugs for cardiovascular and cerebrovascular diseases
i. General Overview of the Market of Chinese Patent Drugs for cardiovascular and cerebrovascular diseases
1) Cardiovascular and cerebrovascular diseases have become the most important concern affecting the health of residents in the Mainland

According to the statistics of the “National Health Services Survey” by the Ministry of Health of the PRC, during the 15-year period from 1993 to 2008, the prevalence rate for cardiovascular and cerebrovascular diseases of residents in the PRC was growing rapidly. The prevalence rate for cardiovascular and cerebrovascular diseases of residents increased from 31.4% in 1993 to 85.7% in 2008, representing an average annual growth rate of 8.37%. Based on the population of 1.328 billion in 2008, the number of cases of circulatory system diseases where a clear medical diagnosis was established increased from 37 million in 1993 to 114 million, of which the number of people suffering hypertension increased to 73 million from 14 million. Besides, the number of cerebrovascular disease cases increased from 5 million to 13 million, and the number of coronary heart disease cases increased to 28 million from 18 million.

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INDUSTRY OVERVIEW

Number of Cases for Cardiovascular and Cerebrovascular Diseases of Residents in the PRC (1993-2008)

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----- Start of picture text -----

Number of cases (100 million)
1.2 1.14
0.9
0.65
0.6
0.48
0.37
0.3
0
1993 1998 2003 2008
----- End of picture text -----

Source: Report on the “National Health Services Survey” by the Ministry of Health

2) Cardiovascular and cerebrovascular drugs will be the largest category of drugs in the PRC market

According to IMS statistics, in 2003, cardiovascular drugs have ranked No. 1 in the global pharmaceutical market, with a market share of 16.09% and a market size of US$75 billion. In 2005, among the world’s 10 best-selling drugs, four were cardiovascular drugs. In 2008, spending on cardiovascular drugs was more than US$90 billion, and in 2010, this amount will likely climb to US$104.4 billion.

Currently, cardiovascular and cerebrovascular drugs ranked the second in the PRC pharmaceutical market, next to anti-infection drugs. In 2009, the total scale of the PRC cardiovascular and cerebrovascular drug market reached $88.38 billion, of which chemical drugs accounted for 63.85% of all cardiovascular and cerebrovascular drugs, representing a market size of approximately $56.44 billion. The market size of Chinese patent drugs was approximately $31.94 billion, accounting for 36.15% of the entire cardiovascular and cerebrovascular drug market. From 2005 to 2009, the market of Chinese patent drugs for cardiovascular and cerebrovascular diseases in the PRC had been growing rapidly year after year, with an average CAGR of 16.48% for the recent five years. Speedroad estimates that the market of Chinese patent drugs for cardiovascular and cerebrovascular diseases in the PRC will grow at more than 16% over the next three to five years.

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INDUSTRY OVERVIEW

The Growth Trend of Chinese Patent Drugs market for Cardiovascular and Cerebrovascular Diseases in the PRC (2005-2009)

==> picture [364 x 194] intentionally omitted <==

----- Start of picture text -----

Market Size (RMB 100 million)
Market growth rate (%) 15.77%
350 30%
319.4
15.86%
300 17.05% 275.9 25%
17.28%
250 18.82% 238.1
203.5 20%
200 173.5
15%
150
10%
100
50 5%
0 0%
2005 2006 2007 2008 2009
----- End of picture text -----

Source: Speedroad PRC Pharmaceutical Products Retail Market Key Category Competitiveness Report 2009

B. THE IMPORT AND EXPORT MARKET OF PHARMACEUTICAL AND HEALTHCARE PRODUCTS IN THE PRC

During the period of 1999 to 2008, the total import trading volume of pharmaceutical and healthcare products in the PRC has increased from USD2.2 billion to USD16.7 billion, representing an absolute increase of approximately 6.59 times. For the first eleven months of 2009, the total import trading volume of pharmaceutical and healthcare products in the PRC has reached USD18.05 billion, an increase of 19.20% comparing to the same period in 2008.

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INDUSTRY OVERVIEW

The Total Import Value of Pharmaceutical and Healthcare Products Per Year and the Annual Growth Rate in the PRC (1999-2008)

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----- Start of picture text -----

The Total Import Value of Pharmaceutical and
Healthcare Products in the PRC (billion USD)
Annual Growth Rate (%)
20 120.00%
18 100.00%
16.7 100.00%
16
14 14.0 80.00%
12 11.8
11.1 60.00%
46.67%
10.0
10
37.50%
8.0 40.00%
8
25.00% 26.13%
21.21%
6 18.00% 20.00%
9.09% 4.0 19.29%
4
3.3
2.2 2.4 0.00%
2
-5.93%
0 -20.00%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
USD (billion)
----- End of picture text -----

Source: China Chamber of Commerce of Medicine & Health Products ( 中國醫藥保健品進出口商會 )/China Custom Statistical Yearbook.

In the year 2007, the total import trading volume of healthcare products in the PRC amounted to approximately USD77.56 million, with an annual growth rate of approximately 17.8%. In 2008, the total import trading volume of healthcare products reached USD108 million, a 39.6% increase compared to the previous year, exceeding the export trading volume of the same products. From January to August in the year 2009, the total import and export trading volume of healthcare products in the PRC was approximately USD133 million, which marks an increase of approximately 7% compare to the same period of the preceding year. Accordingly, the export trading volume reached approximately USD55 million, which is an increase of approximately 2.45%; while the import volume was approximately USD78 million, which is an increase of 9.47%. The growth rate in import trading of healthcare products apparently outpaced that of export trading, indicating that the increasing demand for imported healthcare products for the same period of the preceding year in the PRC market. (Source: CCCMHPIE/China Custom Statistical Yearbook)

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INDUSTRY OVERVIEW

C. THE RETAIL MARKET FOR PHARMACEUTICAL AND HEALTHCARE PRODUCTS

During the period of 2000 to 2009, the sales market for pharmaceutical products has been expanding at a CAGR of approximately 16.72%, which is faster than the GDP growth rate of the PRC (CAGR of approximately 10.5% over the same period). The global economic downturn in 2009 did not adversely impact on the PRC pharmaceutical industry as the total sales volume of pharmaceutical products reached approximately RMB510 billion in the year 2008, representing an annual growth rate of 24.39%. It is estimated by SFDA Southern Medicine Economic Institute that such market will maintain at a growth rate above 16% in the next three to five years. Pursuant to the preliminary analysis by the SFDA Southern Medical Economic Institute, in 2009, the total sales volume of the pharmaceutical products market amounted to approximately RMB619.4 billion, representing an estimated annual growth rate of 21.45%.

Annual Sales Volume of Pharmaceutical Product Market in the PRC and Growth Rate 2000-2008

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----- Start of picture text -----

Gross Sales Volume of the PRC Pharmaceutical
Product Market (billion RMB)
Annual Growth Rate (%)
700 24.39% 26.00%
24.00%
600 22.00%
20.00%
510.00
500 17.54% 18.00%
16.72% 16.52%
18.00%
410.00
400 13.52% 356.20 16.00%
15.64% 15.10%
13.80% 14.00%
313.10 13.77%
300 268.70 12.00%
236.70 10.00%
208.00
200 178.20 8.00%
154.10
6.00%
100 4.00%
2.00%
0 0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
RMB (billion)
----- End of picture text -----

Source: SFDA Southern Medicine Economic Institute ( 國家食品藥品監督管理局南方醫藥經濟研究所 )

According to the SFDA Southern Medical Economic Institute, the total number of pharmaceutical retail outlets in the PRC was 378,600 in 2008, on the basis that the total population in the PRC in 2008 was 1.328 billion which means there is an average of one pharmaceutical retail outlet for every 3,508 persons in the PRC, which is far higher than the international standard of 1 retail outlet for every 6,000 persons. The total retail sales volume of pharmaceutical products in the PRC in 2009 was approximately RMB148.7 billion, representing an annual growth rate of approximately 14.83% while the CAGR from the years 2000 to 2009 was approximately 20.39%.

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INDUSTRY OVERVIEW

Size of the Pharmaceutical Products Retail Market and its Growth Rate in the PRC (2000-2009)

==> picture [410 x 232] intentionally omitted <==

----- Start of picture text -----

Size of the Pharmaceutical Products Retail Market
in the PRC (billion RMB)
Annual Growth Rate (%)
160 60.00%
148.7
140 49.27%
129.5 50.00%
120
110.0
40.00%
100
33.33% 91.6
79.0
80 30.00%
68.6
60 60.0 20.09%
22.50% 51.2 20.00%
14.30% 14.83%
40 34.3 17.19% 17.73%
28.0 15.19% [15.95%]
10.00%
20
0 0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
RMB (billion)
----- End of picture text -----

Source: SFDA Southern Medicine Economic Institute ( 國家食品藥品監督管理局南方醫藥經濟研究所 )

D. PHARMACEUTICAL DISTRIBUTION SECTOR

Given the vast size and huge population of 1.3 billion people, the activity of distributing pharmaceuticals in China is a formidable task fraught with numerous challenges. A particular barrier is transporting medicines to the 700 million people located in rural locations, where per-capita income is lower, making operating there less profitable.

Following far-reaching reforms across the entire economy in the 1980s, many large state-owned pharmaceutical enterprises have been privatised and started listing on [●]. Driven by insatiable consumer demand, the total number of distributors expanded significantly, from 2,500 in the 1980s to more than 16,000 a decade later. Currently, according to the China retail drug sales development research centre, foreign companies and their joint ventures hold around 51% of the Chinese retail drug market share, having strengthened their market positions through investment. Local companies hold the remaining 49%. The centre reported that investments by foreign companies have increased in China. At the same time, over the past four years, the majority of the top seven distributors have experienced year on year reductions in their profit margins. The top ten companies accounted for 35% of the market in 2008. The top 100 firms now account for over two-thirds of the market and the leading three firms, achieve combined sales of RMB63.7 billion By way of comparison, in the USA the sales volume of the three major distributors accounts for more than 90% of the USA’s domestic market.

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INDUSTRY OVERVIEW

The US$44 billion drug distribution sector in China, presently fragmented between some 9,500 entities, is likely to consolidate in the coming years, under the influence of market forces. Some local companies are increasingly specialising in the registering and distribution of foreign made pharmaceuticals for smaller Western players, previously largely unable to penetrate the market. The other major change to revolutionise the sector was the introduction of Good Supply Practice (GSP) certificates. Also, there is no assurance that counterfeit products or parallel imports of the products will not infiltrate the PRC markets. [Nonetheless, the Group has not received any report of counterfeit products or parallel imports of the products which the Group distributed during the Track Record Period.] In May 2009, the Chinese Ministry of Health and five other government agencies, including the National Development and Reform Commission, asked Chinese pharmaceutical companies to establish modern pharmaceutical distribution centres. They had previously issued guidance opinion in January 2009 for the regularisation of the Centralised Drug Procurement System for Medical Institutions. This will provide drug distributors with modern logistics distribution capabilities, enhancing the delivery of products to medical institutions.

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REGULATORY OVERVIEW

I. PHARMACEUTICAL PRODUCTS

(I) Major Regulatory Laws, Regulations and Rules

1. Drug Administration Law of the People’s Republic of China 《中華人民共和國藥品管理法》

The Sixth Session of the Standing Committee of the National People’s Congress promulgated the Drug Administration Law of the PRC on 20 September 1984 which was further amended in February 2001 (the “ Drug Administration Law ”). The amended Drug Administration Law has been in force since 1 December 2001. The Drug Administration Law provides for, inter alia, administration of pharmaceutical manufacturing enterprises, administration of pharmaceutical trading enterprises, administration of pharmaceuticals at medical institutions, administration of general pharmaceutical products, administration of special pharmaceutical products, administration of packaging and advertising of pharmaceutical products, and administration of supervision of pharmaceutical products, etc.

2. Drug Administration Law Implementation Details 《中華人民共和國藥品管理法實施條例》

China’s State Council (the “ State Council ”) promulgated the Drug Administration Law Implementation Details (the “ Implementation Details ”) on 4 August 2002. The Implementation Details has been in force since 15 September 2002, providing detailed procedures for the implementation of the regulations under the Drug Administration Law.

3. Management Procedures for Imported Drugs 《藥品進口管理辦法》

China’s State Food and Drug Administration Bureau (the “ Food and Drug Administration ”) and the General Administration of Customs of the PRC (the “ Administration of Customs ”) jointly promulgated the Management Procedures for Imported Drugs (the “ Management Procedures ”), which was implemented on 1 January 2004. The Management Procedures provide detailed requirements on records for imported pharmaceutical products, port examination of imported pharmaceutical products and supervisory management of imported pharmaceutical products, etc.

4. Prescription and Non-Prescription Drugs Classification Management System (Trial) 《處方藥與非處方藥分類管理辦法（試行）》

The State Drug Administration Bureau (which was re-organised into the State Food and Drug Administration Bureau in March 2003) promulgated the Prescription and Non-Prescription Drugs Classification Management System (Trial) (the “ Classification Management System ”) on 18 June 1999. The Classification Management System has been in force since 1 January 2000. The Classification Management System provides for the regulations on the basic classification system for prescription and non-prescription drugs.

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REGULATORY OVERVIEW

(II) Major Domestic Regulatory Bodies in the PRC

1. The Ministry of Health and its Branch Offices 《衛生部及其分支機構》

The Ministry of Health was established by the State Council in accordance with the State Council’s Notice on the Establishment of Institutions (Guo Fa [2003] No. 8) 《國務院關於機構設置的通知》(國發 [2003] 8號) and is responsible for the management of the State Food and Drug Administration Bureau《國家食品藥品監督管理局》.

Pursuant to the Notice of the General Office of the State Council on Issuing the Provisions on the Main Functions, Internal Organisation and Personnel Establishment of the Ministry of Health (Guo Ban Fa [2008] No. 81) 《國務院辦公廳關於印發衛生部主要職責內設機構和人員編制規定的通知》 (國辦發 [2008] 81號), the principal responsibilities of the Ministry of Health relating to pharmaceutical products include, inter alia, the following:-

(1) Promoting reforms for medicine and health systems. For example, formulation of health reform and development strategies, plans and guidance policies; drafting of drug-related provisional laws and regulations, development of drug regulations; and formulation of relevant standards and technical specifications.
(2) Establishing and implementing the State’s fundamental drugs system. Organizing the formulation of the Pharmacy Code (藥品法典) of the PRC and the Catalogue of National Essential Drugs (國家基本藥物目錄).
(3) Drafting provisional laws and regulations for the purpose of promoting the development of Chinese medicines, and formulation of relevant regulations and policies.

2. State Food and Drug Administration Bureau and its Branch Offices 《國家食品藥品監督管理局及其分支機構》

The State Food and Drug Administration was established in March 2003 following the restructuring of the former State Drug Administration pursuant to the State Council’s Notice on the Establishment of Institutions (Guo Fa [2003] No. 8). The State Food and Drug Administration was re-classified as a State Bureau of vice-ministerial level 《副部級國家局》 in March 2008 under the administration of the Ministry of Health pursuant to 《國務院關於部委管理的國家局設置的通知》 (國發 [2008] 12號) (the State Council’s notice on the Establishment of State Bureaux under the Administration of Ministries and Commissions (Guo Fa [2008] No. 12)).

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REGULATORY OVERVIEW

Pursuant to the Notice of the General Office of the State Council on Issuing the Provisions on the Main Functions, Internal Organisation and Personnel Establishment of the State Food and Drug Administration (Guo Ban Fa [2008] No. 100)《國務院辦公廳關於印發國家食品藥品監督管理局主要職責內設機構和人員編制規定的通知》 (國辦發 [2008] 100號), the principal responsibilities of the State Food and Drug Administration relating to pharmaceutical products include, inter alia, the following:-

(1) Developing, planning and supervising the implementation of drug supervision and administration. Participation in the drafting of the relevant laws, regulations, and departmental rules.
(2) Administration and technical supervision of drugs, and also developing and implementing of quality control standard on drug research, manufacturing, circulation and usage.
(3) Managing the registration and supervisory management of drugs, formulating and supervising the implementation of the national drug standards, monitoring adverse drug reaction incidents, re-evaluating and eliminating of drugs, participating in the formulation of the Catalogue of National Essential Drugs, coordinating relevant departments to implement the State’s fundamental drugs system, and implementation of the Classification Management System for prescription and non-prescription drugs.
(4) Formulating and implementing supervisory management regulations for Chinese medicines and ethnic medicines, drafting and determining the quality standards for Chinese medicines and ethnic medicines, organizing the development of administrative regulations for the production quality of Chinese herbal medicines and the manufacturing standards of Chinese oral medicines and supervising their implementation, organizing the implementation of a species protection system for Chinese medicines.
(5) Supervising the management of drug quality and safety; supervising the management of radioactive pharmaceuticals, anaesthetic drugs, toxic drugs and psychotropic drugs, and publication of information on drug quality and safety.
(6) Organizing investigations on illegal drug research, manufacturing, circulation and usage.
(7) Providing guidance to the regional administrations on food and drugs supervision and management, emergency incidences, inspections, and development of information systems.
(8) Developing and improving the licensing system for pharmacists, providing guidance and supervision of the registration of licensed pharmacists.

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3. The General Administration of Quality Supervision, Inspection and Quarantine of the PRC and its Branch Offices 《國家質量監督檢驗檢疫總局及其分支機構》

The General Administration of Quality Supervision, Inspection and Quarantine of the PRC (the “ Administration of Quality Supervision ”) is a direct subordinate organization of the State Council delegated with power of legal enforcement. The Administration of Quality Supervision is in charge of the national quality standard, measurement standard, entry-exit commodities inspection, entry-exit health quarantine, entry-exit animal and plant quarantine, and safety of imported and exported food and their relevant certification and standardization.

Pursuant to the Notice of the General Office of the State Council on Issuing the Provisions on the Main Functions, Internal Organization and Personnel Establishment of the General Administration of Quality Supervision, Inspection and Quarantine of the PRC (Guo Ban Fa [2008] No. 69)《國務院辦公廳關於印發國家質量監督檢驗檢疫總局主要職責內設機構和人員編制規定的通知》 (國辦發 [2008] 69號), the principal responsibilities of the Administration of Quality Supervision include, inter alia, the following:-

(1) Carrying out quality supervision, inspection and quarantine, formulating and supervising the implementation and the development of strategies and relevant regulations for the enhancement of national quality standards, drafting and implementation of laws and regulations and the relevant departmental policies relating to quality supervision, inspection and quarantine, formulating the technical specifications of works on quality supervision, inspection and quarantine.
(2) Undertaking the development of a credible product quality system, implementing re-calling policies for defective products and unsafe food, and supervising the management of anti-forgery measures.
(3) Supervising and managing product quality and safety, managing the compulsory safety and quality inspection of products, risk monitoring and control, conducting State regulated inspections, regulating national inspection exempted products, managing the Industrial Products Production Permits《工業產品生產許可證》and supervising inspections on fiber quality, supervising and managing inspection, verification and arbitration on product quality and safety, organizing and conducting product quality and safety remediation projects, investigating and penalizing illegal violations of product quality, and enforcing against illegal activities on forgery and inferior products.
(4) Formulating the Catalogue of Entry-exit Goods for Entry-exit Inspection and Quarantine 《出入境檢驗檢疫商品目錄》, coordinating and managing of the entry-exit inspection and quarantine operations, and managing the issuance of the certificate of origin in accordance with laws.
(5) Undertaking the responsibilities of entry-exit health quarantine, and quarantine inspection of entry-exit animals and plants and their commodities.

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(6) Undertaking statutory inspections and supervisory management of import and export commodities, managing verification of import and export commodities and implementation of the certification of import and export commodities under the State administered permit system, and managing the labels and/or seals of inspection and quarantine of imported and exported commodities, managing and supervising the import safety and quality licensing system and the export quality licensing system.
(7) Vertical management of all the Entry-Exit Inspection and Quarantine institutions, and the leadership of the national supervisory business of technical quality.

4. General Administration of Customs of the People’s Republic of China and its Branch Offices 《中華人民共和國海關總署及其分支機構》

The General Administration of Customs of the PRC is the primary institution responsible for controlling imports and exports in China. Its main duties include customs supervision, collection and management of excise tax, supervising processing trade and tax-free exemptions, customs statistics, customs inspections, prevention of and enforcement actions against smuggling, and the management of ports, etc.

(III) Management of Permits for Pharmaceutical Enterprises and Good Supply Practices

According to Article 14 of the Drug Administration Law and Article 11 of the Implementation Details, together with other related regulations, operation of a pharmaceutical wholesale enterprise will require the approval and obtaining of the Pharmaceutical Trade License (藥品經營許可證) from the local Food and Drug Administration of the relevant provincial, autonomous region, and municipal governments. After successfully obtaining the Pharmaceutical Trade License, the applicant will be able to register with the relevant local Administration of Industry and Commerce for operating a pharmaceutical wholesale enterprise. The Pharmaceutical Trade License will be valid for 5 years from the date of issue. In the event a pharmaceutical wholesale enterprise intends to continue its operation after 5 years, an application for re-registration is required to be made 6 months prior to the date of expiration of the Pharmaceutical Trade License.

According to Article 13 of the Implementation Details, pharmaceutical enterprises are required to obtain the certificate of Good Supply Practices (藥品經營質量管理規範) after passing the certification inspections conducted by the regional drug administrations of the relevant provincial, autonomous region, and municipal governments pursuant to the implementation methods and implementation details issued by the regulatory authorities of drugs under the State Council.

GSP Standards 《藥品經營質量管理規範》, which comprise a set of quality guidelines for operations (including wholesale and retail) related to pharmaceutical products, regulate pharmaceutical enterprises to ensure the quality of pharmaceutical products in China. The current applicable GSP standards require pharmaceutical enterprises to implement strict controls on the operation of pharmaceutical products, including but not limited to standards regarding staff qualifications, premises, warehouses, inspection of equipment and facilities, management and quality control. Under The Administrative Measures for Certification of Good Supply Practices (藥品經營質量管理規範認證管理辦法) effective on 24 April 2003, each GSP certificate is valid for 5 years and may be extended three months prior to its expiration upon a re-examination and re-approval by the relevant authority.

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In addition, pursuant to Articles 17, 18 and 19 of the Drug Administration Law, for purchasing drugs, pharmaceutical enterprises shall establish and apply an examination and acceptance system, and check the certification of drug quality, labels and other marks; drugs that do not meet the specified requirements shall not be purchased or used. Drug distributor shall keep authentic and complete records when purchasing and selling drugs and must indicate on the records the general name of the drug in China, dosage form, specifications, batch number, date of expiry, manufacturer, purchase (or sale) units, amount of the drug purchased (or sold), purchase or sale price, date of purchase (or sale), and other contents specified by the drug regulatory departments under the State Council.

(IV) Licensing management of import and export business operations

1. Record Registration of Foreign Trade Dealers

According to, inter alia, the Foreign Trade Law of the PRC 《中華人民共和國對外貿易法》, which came into force on 1 July 2004, and the Measures for the Archival Filing and Registration of Foreign Trade Operators《對外貿易經營者備案登記辦法》, a foreign trade dealer who intends to engage in the import and export of goods and technologies, should file the records for registration with the Ministry of Commerce of the People’s Republic of China (hereinafter referred to as “Ministry of Commerce”) or authorities entrusted by the Ministry of Commerce. If any foreign trade dealers do not register in accordance with the said measures, the customs will not press the formalities of customs declaration and approval for them.

The Ministry of Commerce entrusts qualified local administrations for foreign trade (hereinafter referred to as “record registration authorities”) with the duty of record registration for local foreign trade dealers. Foreign trade dealers should register their records with local record registration authorities.The procedure of record registration for foreign trade dealers is as follows:

(1) Fill in and sign the registration form of Foreign Trade Dealers (hereinafter referred to as “Registration Form”).
(2) Submit the following materials to record registration authorities for record registration:
The Registration Form;
Copy of business license;
Copy of organization code certificate;
Foreign trader dealers who are foreign-invested enterprises should also submit a copy of the approval certificate of foreign-invested enterprises;
Individual dealers of industry and commerce (sole proprietors) who obtained registration of industry and commerce in accordance with the laws should submit

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notarized certificate of property issued by legal notary organs. The enterprises of foreign countries (regions) that have registered as dealers of industry and commerce in accordance with laws should submit certification of funds and creditworthiness issued by legal notary organs.

(3) Record registration authorities should handle the records for registration within 5 days upon receipt of above submitted materials on which the seal of record registration shall be affixed, and the records shall be registered in accordance with the laws upon completion of the record registration procedure.

Foreign trade dealers should go through related formalities of foreign trade business by presenting the Registration Form on which the seal of record registration is affixed within 30 days to local customs, administrations of inspection and quarantine, foreign currency and tax. If the formalities are not complied with within the time limit, the Registration Form will expire and become invalid automatically. If there is any change to any items on the Registration Form, foreign trade dealers should register the changes in the Registration Form within 30 days according to the provisions of Articles 5 and 8 of the said measures. Any change that is not registered within the time limit will render the Registration Form invalid automatically.

2. Registration Permit for Dealers of Imported and Exported Goods

Pursuant to, inter alia, the Customs Law of the PRC《中華人民共和國海關法》and the Provisions of the Customs of the People’s Republic of China for the Administration of Registration of Declaration Entities 《中華人民共和國海關對報關單位註冊登記管理規定》, enterprises engaged in direct importation of goods and services which complete the customs formalities concerning declaration of inward and outward articles and payment of duties by themselves, must also obtain the Registration Permit for Dealers of Imported and Exported Goods of the PRC《中華人民共和國海關進出口貨物收發貨人報關註冊登記證書》 from the local customs office. The Registration Permit for Dealers of Imported and Exported Goods of the PRC is valid for 3 years.

(V) Administration of Imported Pharmaceutical Products

Pursuant to Article 36 of the Implementation Details and Article 42 of the Management Procedures, any importation of drugs shall apply for registration pursuant to the provisions of the drug regulatory department under the State Council. A drug may only be imported after an Imported Drug Registration Certificate is obtained if it is produced by a foreign manufacturer, or after a Pharmaceutical Product Registration Certificate is obtained if it is produced by a manufacturer in Hong Kong, Macao or Taiwan of China. The Imported Drug Registration Certificate and the Pharmaceutical Product Registration Certificate are issued and approved by the State Food and Drug Administration, with a valid period of five years.Articles 3 and 4 of the Management Procedures provide that drugs shall be imported via the ports where drug importation is approved by the State Council, and pharmaceutical import registration must be completed. Article 38 of the Implementation Details provides that importers must, upon arrival of the pharmaceutical products at the Approved Ports, present the Imported Drug Registration Certificate 《進口藥品註冊證》 and/or the Pharmaceutical Products Registration Certificate《醫藥產品註冊證》, together with the proof of origin of the imported pharmaceutical products, copy of the purchase agreement of the imported

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pharmaceutical products, packaging and transport receipts , freight invoice, ex factory quality examination certificate as well as usage directions of the imported pharmaceutical products to the pharmaceutical supervisory and administrative department of the place where the port is located for filing. After inspection of the imported pharmaceutical products, the local pharmaceutical supervisory and administrative department will issue an Imported Pharmaceutical Customs Form 《進口藥品通關單》, which must be presented to the Customs by the importer in order to complete the customs declaration, inspection and release procedures.

(VI) Rules and Regulations governing the import of pharmaceutical products and penalties on non-compliance

As required by the Drug Administration Law, the Drug Administration Law Implementation Details and the Management Procedures for Imported Drugs, a drug may only be imported after an Imported Drug Registration Certificate is obtained if it is produced by a foreign manufacturer, or after a Pharmaceutical Product Registration Certificate is obtained if it is produced by a manufacturer in Hong Kong, Macao or Taiwan of China. Importers must, upon arrival of the pharmaceutical products at the Approved Ports, present such materials as required by law to the pharmaceutical supervisory and administrative department of the place where the port is located for filing. Upon passing inspection, the importer will be issued an Imported Pharmaceutical Customs Form《進口藥品通關單》, which will be presented to the Customs in order to complete the customs declaration, inspection and release procedures. Pursuant to Article 17 of the Management Procedures for Imported Drugs, no import filing shall be made if the Imported Drug Registration Certificate or the Pharmaceutical Product Registration Certificate of the drug to be imported has been invalid or expired.

Pursuant to the “Announcement on Issues regarding the Re-registration of Imported Pharmaceuticals” issued by the State Food and Drug Administration on 7 January 2009, provisional imports can be applied for during the re-registration of imported pharmaceuticals and its reporting conditions, procedures, required information, term and administration requirements will be executed in accordance with the Annex 2 “Regulations for the Administration of Provisional Imports and Repackaging during Re-registration” of the announcement.

Pursuant to Articles 3, 4, 5 and 6 of the “Regulations for the Administration of Provisional Import and Repackaging during Re-registration”, applications for provisional import shall be submitted to the Administration Acceptance Service Centre of the State Food and Drug Administration. The Centre shall conduct a formal review within five working days and issue the notice of acceptance if the requirements are met. The Pharmaceutical Registry of SDFA shall review the provisional imported application within 20 working days and issue the “Import Drugs Approval Notice” (進口藥品批件) if the requirements are met. Prior to obtaining the “Imported Drug Registration Certificate” or the “Pharmaceutical Products Registration Certificate” the Import Drugs Approval Notice may only be issued not more than twice after expiry of the relevant import registration certificate of such pharmaceutical product(s). The longest term for imports stipulated in the “Import Drugs Approval Notice” (進口藥品批件) is six months during which the actual import term, such as two months or three months, will be determined according to the registration progress.

Pursuant to Article 12 of the “Regulations for the Administration of Provisional Import and Repackaging during Re-registration”, the “Import Drugs Approval Notice” (進口藥品批件) shall be

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used for only one time within the effective term stipulated in the document. The applicant shall complete the importation of the approved import quantity on an one-off basis at the port designated by the “Import Drugs Approval Notice” (進口藥品批件) within the effective term stipulated in the document. The “Import Drugs Approval Notice” (進口藥品批件) shall not be used repeatedly and shall be void upon its expiry.

Article 81 of the Drug Administration Law provides that if any enterprise that imports drugs to which Imported Drug Registration Certificate has been granted fails to register with competent authority in accordance with the provisions of applicable laws, it shall be given a disciplinary warning and be instructed to rectify within a time limit; if it fails to do so, the Imported Drug Registration Certificate shall be revoked.

Articles 48 and 74 of the Drug Administration Law provides that a drug shall be treated as a counterfeit drug if it is imported without approval as required by law. Where counterfeit drugs are sold, the drugs illegally sold and the illegal gains shall be confiscated, and a fine not less than two times but not more than five times the value of the said drugs shall be imposed. The approval documents, if any, shall be withdrawn and an order shall be given to suspend production or business operation for rectification. If the circumstances are serious, the Pharmaceutical Trade License shall be revoked. If a crime is committed, criminal liabilities shall be investigated in accordance with law.

In addition, Article 61 of the Foreign Trade Law of the People’s Republic of China provides that anyone who imports or exports any goods that are banned from import or export or unlawfully imports or exports any goods that are restricted from import or export without approval shall be dealt with and punished by the customs office according to relevant laws or administrative regulations. If the offence constitutes any crime, it shall be subject to criminal liabilities.

(VII) Drugs Classification Management System

Pursuant to Articles 2, 4 and 8 of the Classification Management System, drugs are managed as prescription drugs and non-prescription drugs respectively according to their varieties, specifications, cure, dosage and method of administration. Only practising doctors or licensed assistant doctors can deploy, purchase or apply prescription drugs; whilst non-prescription drugs can be purchased or applied according to the user’s own judgment without requiring the approval of practising doctors or licensed assistant doctors. There are two categories of non-prescription drugs, namely category A and category B. The State Food and Drug Administration has the primary responsibility to manage the selection, approval, publication and adjustment of the Categories of Non-prescription Drugs 《非處方藥目錄》.

The Classification Management system has not provided specific regulations on “dual specification drugs”. According to the Notice relating to Relevant Matters on the Administration of Non-prescription drugs in Year 2002 (Guo Yao Jian Ban [2002] No. 195)《關於做好2002年非處方藥管理有關工作的通知》（國藥監辦[2002]195號） issued by the State Drug Administration, and the Notice to Strengthen the Administration of the Insert Sheet and Labeling of Non-prescription Drugs (Guo Shi Yao Jian Zhu [2006] No.610) 《關於進一步加強非處方藥說明書和標簽管理的通知》（國食藥監注[2006]610號）, “dual specification drug” is defined as drug which falls under the

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categorization of both prescription and non-prescription drugs, in addition, “dual specification drugs” should follow the labeling and insert-sheets requirements of both prescription and non-prescription drugs, and the colour of its packaging for prescriptive and non-prescriptive categories must be clearly distinguishable.

Articles 6 and 7 of the Classification Management System provide that the labeling and insertsheets of non-prescription drugs must be approved by the State Drug Administration, and its packaging must bear the special marks for non-prescription drugs prescribed by the State Drug Administration. Pursuant to Article 7 of the Provisional Management Regulations for Prescription and Non-Prescription Drugs Distribution《處方藥與非處方藥流通管理暫行規定》, which came into force since 1 January 2000, manufacturers of all prescription and non-prescription drugs which have entered into the distribution network, should clearly print on their packaging and insert-sheets the relevant cautions or reminders.

Articles 8 of the Classification Management System provides that distributors of prescription drugs and non-prescription drugs, and retailers of prescription drugs and category A non-prescription drugs, are required to obtain the Licence for Pharmaceutical Business Enterprise《藥品經營企業許可證》. Other business enterprises approved by the provincial drug regulatory administrations or their delegated drug administrative departments, are allowed to engage in the retail sales of category B non-prescription drugs. Pursuant to Article 6 of the Provisional Prescription and Non-Prescription Drugs Distribution Management Regulations, all drug manufacturers and wholesalers must sell their prescription and non-prescription drugs to the respective drug retailer enterprises with legal operating qualifications in accordance with the principles and requirements of the management classification and sales classification and keep their sales records according to requirements. Pursuant to Articles 20 and 21 of the Provisions for Supervision of Drug Distribution《藥品流通監督管理辦法》, which came into force since 1 May 2007, a drug manufacturer or distributor shall not provide the public with prescription drug or Class A non-prescription drug by means of tie-in sale or offering free drugs in association with sales of drug or commodities, etc. Also, a drug manufacturer or distributor shall not sell prescription drugs directly to the public by post or via the Internet.

Article 60 of the Drug Administration Law provides that introduction of prescription drugs may be published on medical and pharmaceutical professional publications jointly specified by the State Council’s Health Administration Authorities and the State Council’s Drug Supervision and Administration Authorities, however, publication of advertisements through the mass media or otherwise through advertising promotions targeted on the general public are not allowed.

II. FOOD AND HEALTHCARE PRODUCTS

(I) Major Regulatory Laws, Regulations and Rules

1. Food Safety Law of the People’s Republic of China 《中華人民共和國食品安全法》

The Food Safety Law of the PRC (the “Food Safety Law”), which was promulgated by the Standing Committee of the 11th National People’s Congress of the PRC on 28 February, 2009, came

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into force since 1 June, 2009 . The Food Safety Law sets out the regulations on, inter alia, monitoring and evaluating food safety risks, food product safety standards, operation of food product manufacturing enterprises, food product examinations, food product imports and exports, handling of food safety incidents and supervisory management of food products.

2. Regulations for the Implementation of the Food Safety Law 《中華人民共和國食品安全法實施條例》

The Regulations for the Implementation of the Food Safety Law (the “Implementation Regulations of the Food Safety Law”) was promulgated on 20 July 2009 at the 73rd State Council executive meeting. The Implementation Regulations of the Food Safety Law entered into force since 20 July 2009. The Implementation Regulations of the Food Safety Law has provided detailed procedures for the implementation of the regulations under the Food Safety Law

3. Measures for the Administration of Healthcare Food 《保健食品管理辦法》

The Measures for the Administration of Healthcare Food (the “Healthcare Food Measures”) were promulgated by the Ministry of Health on 15 March 1996 and came into force since 1 June 1996. The Healthcare Food Measures set out regulations primarily on the application for approvals, production operations, labeling, insert-sheets, advertising and promotions and regulatory management, etc. of domestic and imported healthcare food products in the PRC.

4. Measures for the Registration of Healthcare Food (trial) 《保健食品註冊管理辦法》（試行）

The Measures for the Registration of Health Food (trial) (the “Healthcare Food Registration Measures”) were promulgated by the Food and Drug Administration on 30 April 2005, and came into force since 1 July 2005 . The Healthcare Food Registration Measures set out the regulations on registration of domestic and imported healthcare foods in China, covering areas such as registration applications and approvals, raw materials and semi-finished products, labeling and direction of usage, product trials and testing, re-registration and reviews, etc.

(II) Major Domestic Regulatory Institutions in the PRC

1. The Ministry of Health and its Branch Offices

According to the Notice of the General Office of the State Council on Issuing the Provisions on the Main Functions, Internal Organization and Personnel Establishment of the Ministry of Health (Guo Ban Fa [2008] No. 81) 《國務院辦公廳關於印發衛生部主要職責內設機構和人員編制規定的通知》 (國辦發[2008] No. 81), the principal responsibilities of the Ministry of Health in relation to food and healthcare food include, inter alia, the following:-

(1) Promoting reforms to the health system; setting the targets and developing the strategies, plans and guiding policies on health reforms; drafting of provisional laws and regulations in relation to health and food safety, formulating policy rules for health and food safety and setting the standards and regulations of related technologies.

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(2) Undertaking the comprehensive coordination work on food safety, organizing and conducting investigations on accidents in relation to food safety, formulating the standards for food safety, conducting risk evaluation on safety of food and related products, alerting the public for potential hazardous incidents, formulating the conditions and inspection regulations on the certification qualification of organizations for inspection of food safety and unifying the publication of information in relation to food safety.

The division of work on food safety among the Ministry of Health and other governmental organizations is as follows:-

(1) Work distribution in relation to supervision of food safety

The Ministry of Health takes the lead in establishing a comprehensive coordination mechanism for food safety for the general comprehensive supervision of food safety. The General Administration of Quality Supervision, Inspection and Quarantine of the PRC is responsible for monitoring the food production and processing sectors and the safety of imported and exported food products. The Ministry of Health is responsible for the comprehensive coordination of food safety, and organizing and conducting investigations on material incidents in relation to food safety.

(2) Work distribution in relation to the supervision and management on the licensing of the food production, circulation and consumption sectors

The Ministry of Health is responsible for setting health regulations and conditions for the authorisation of food production and circulation and the adoption of food production and licensing conditions for circulation. The General Administration of Quality Supervision, Inspection and Quarantine of the PRC is responsible for the supervision and management on the licensing of food production sectors.

2. The State Food and Drug Administration and its Branch Offices

According to the Notice of the General Office of the State Council on Issuing the Provisions on the Main Functions, Internal Organization and Personnel Establishment of the State Food and Drug Administration (Guo Ban Fa [2008] No.100)《國務院辦公廳關於印發國家食品藥品監督管理局主要職責內設機構和人員編制規定的通知》（國辦發[2008] 100號）, save as provided otherwise, the State Food and Drug Administration is responsible for the supervision and management of healthcare food products. Concerning food products, the State Food and Drug Administration’s duties are primarily related to the supervision of food consumables.

3. The General Administration of Quality Supervision, Inspection and Quarantine of the PRC and its Branch offices

According to the Notice of the General Office of the State Council on Issuing the Provisions on the Main Functions, Internal Organization and Personnel Establishment of the General Administration of Quality Supervision, Inspection and Quarantine of the PRC (Guo Ban Fa [2008] No.69)《國務院辦公廳關於印發國家質量監督檢驗檢疫總局主要職責內設機構和人員編制規定的通知》（國辦發

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[2008] 69號）, in addition to the above stated duties concerning the drug regulatory authority, the major duties of the Administration of Quality Supervision in relation to food and healthcare food products also include undertaking the responsibility of monitoring the safety of quality in the production and processing of food and any related products, monitoring and inspecting the safety of imported or exported food products, managing registration of production and processing units of imported or exported food products according to the laws, and external promotion of the State’s export enterprises.

(III) Licensing Administration for Enterprises Operating in Food and Healthcare Products

Pursuant to Article 27 of the Food Hygiene Law of the PRC《食品衛生法》and the Measures for the Administration of Food Hygiene Licences《食品衛生許可證管理辦法》, enterprises operating in food production must apply to the Ministry of Health for a Food Hygiene Licence (衛生許可證). Business can only be carried out after the granting of such licence. Relevant enterprises shall also be responsible for the hygiene of food produced.

According to the Measures for the Administration of Healthcare Food and the Food Hygiene Law of the PRC, the food and drugs supervising authorities in some areas of the PRC (including but not limited to Shenzhen City and Zhuhai City of the Guangdong Province) require enterprises dealing in healthcare food products to apply for the Food Hygiene Licence (保健食品經營企業衛生許可證) from them.

The aforementioned Food Hygiene Law of the PRC has now been repealed by the Food Safety Law《食品安全法》. However, according to the Food Safety Law, Food Hygiene Licences obtained by enterprises operating in food production before the commencement of the Food Safety Law shall continue to be valid.

Moreover, pursuant to Articles 34, 39, 40 and 41 of the Food Safety Law, Food Enterprises shall follow the relevant laws to establish and execute a heath control system for their operation staff; inspect certification documents of the food suppliers’ licences and food quality for the food they acquire, and shall set up an inspection and recording system for food purchase in order to accurately record data of the food such as its name, specifications, amount, production batch number, shelf-life, name of the supplier, contact details, and date of purchase, etc. Food Enterprises shall also store food according to requirements guaranteeing food safety, regularly inspect stored food, and dispose of food products that have deteriorated or expired.

(IV) Matters relating to healthcare food product approval prior to the implementation of the Healthcare Food Registration Measures

According to Article 22 of the Food Hygiene Law implemented since 30 October 1995, it explicitly provides that for food products with specific healthcare functions, such products and their insert sheets must be submitted to the State Council’s Health Administration authorities for inspection and approval, their health standards and administrative measures for their production operations are promulgated by the State Council’s Health Administration authorities.

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According to Articles 5 and 8 of the Healthcare Food Measures implemented since 1 June 1996, all food products which are alleged to have healthcare functions must be inspected and confirmed by the Ministry of Health (such function had been assumed by the State Food and Drug Administration since 2003); the research-manufacturer shall make an application to its local provincial Health Administration authority and upon the granting of preliminary approval, the same shall be submitted to the Ministry of Health for approval. Approval Certificate for Healthcare Foods will be issued by the Ministry of Health to Healthcare products which have satisfied the inspection requirements. The Assessment Committee of the Ministry of Health will organise four assessment meetings annually, which are generally convened during the last month of each quarter. All materials with preliminary approvals must be sent to the Ministry of Health by the end of the first month of each quarter. Decision on whether approvals should be granted will be made by the Ministry of Health in accordance with the assessment opinions within 30 working days after the assessment. According to Articles 12 and 13 of the Healthcare Food Measures, importers or agencies must file an application to the Ministry of Health (or to the State Food and Drug Administration instead effective from 2003) when healthcare foods are imported, and an Approval Certificate for Imported Healthcare Foods《進口保健食品批准證書》will be issued after meeting the requisite standards upon inspection.

(V) Import Administration of Food and Healthcare Food

Pursuant to Article 62 of the Food Safety Law and Article 36 of the Implementation Regulations of the Food Safety Law, imported food, food additives and any food-related products shall comply with the National Food Safety Standards. Importers supplying imported food shall present the necessary certificates and relevant approval documents such as contracts, invoices, packaging receipts, and delivery notes for inspection by the Entry-Exit Inspection and Quarantine Authorities at the Customs authorities of the relevant location. Upon meeting the requisite standards after inspection by the Entry-Exit Inspection and Quarantine Authorities, imported food shall be allowed to enter the territory through the Customs authorities according to the Customs Clearance Certificate issued by the Entry-Exit Inspection and Quarantine Authorities. Article 63 of the Food Safety Law requires importers to file applications to the Health Administration Department of the State Council and submit relevant assessments on food safety for the import of food without specific National Food Safety Standards, or new and first-time imported food additives and new food-related products.

Pursuant to Article 65 of the Food Safety Law and Article 39 of the Implementation Regulations of the Food Safety Law, exporters or agents exporting food into our domestic territory shall make a filing to the National Entry-Exit Inspection and Quarantine Authorities for record. Overseas food production enterprises exporting food into our domestic territory shall register with the national Entry-Exit Inspection and Quarantine Authorities, where the registration shall be valid for 4 years.

According to Article 67 of the Food Safety Law, importers shall establish an import and sales recording system to accurately record data of the food such as its name, specifications, amount, production date, production or import batch number, shelf-life, names of the exporter, purchaser and their respective contact details, delivery date, etc. The import and sales record of food shall be accurate and shall be kept for not less than 2 years.

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According to Articles 12 and 13 of the Healthcare Food Measures, importers or agencies should file an application to the Ministry of Health (or to the State Food and Drug Administration instead effective from 2003) for an “Approval Certificate for Imported Healthcare Foods” 《進口保健食品批准證書》after meeting the requisite standards upon inspection. Frontier agencies for hygiene supervision and inspection of imported food shall conduct hygiene supervision and inspection according to the “Approval Certificate for Imported Healthcare Foods” and grant clearance upon satisfaction of the inspection certificate. Healthcare Food Measures also requires healthcare food operators to obtain a photocopy of the “Approval Certificate for Healthcare Foods” and a Product Inspection Certificate from the Ministry of Health when purchasing healthcare foods; and obtain a photocopy of the “Approval Certificate for Imported Healthcare Foods” and a Product Inspection Certificate from the frontier agencies for hygiene supervision and inspection of imported food when purchasing imported healthcare foods.

Healthcare Food Registration Measures require that operators of imported healthcare food shall declare on an Application Form for the Registration of Imported Healthcare Food《進口保健食品註冊申請表》, and the SFDA shall issue an “Approval Certificate for Imported Healthcare Food” 《進口保健食品批准證書》 after inspection. [The approval certificate for imported healthcare food issued by SFDA after 2003 shall be valid for 5 years.]

According to the requirements of the Healthcare Food Registration Measures, the applicant for the healthcare food registration shall be the holder of the Approval Certificate of Healthcare Foods. Where an overseas applicant of imported healthcare food is a foreign manufacturer, a domestic agency in the PRC shall be appointed for completing the imported healthcare food registration procedure. Any change of the agency shall be reported to the State Food and Drug Administration for filing.

According to the “Import and Export of Special Food Pre-inspection Procedures Guide” 《進出口特殊食品預審辦理指南》published on the website of the Shenzhen Entry-exit Inspection and Quarantine Bureau, and the “Provisional Inspection and Quarantine Administrative Measures for the Import and Export of Special Food implemented by the Shenzhen Entry-exit Inspection and Quarantine Bureau” 《深圳出入境檢驗檢疫局進出口特殊食品監督檢驗管理辦法（試行）》 effective from 1 November 2005, the Shenzhen Inspection and Quarantine Bureau shall establish procedures for pre-inspection of special food. Any production and operating units of special food entering the territory through Shenzhen ports shall be subject to a pre-inspection at the Food Inspection Agency of the Bureau before being imported, and shall obtain an “Import and Export of Special Food Certificate”《進出口特殊食品預審證明》 . Such certificate shall be valid for 6 months, and will be verified each time according to the actual import and export amount/weight declared for inspection, and will be retrieved by the Entry-exit Inspection and Quarantine Bureau after the full amount/weight has been declared for inspection.

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III. MEDICAL PRODUCT

(I) Major regulatory laws and regulations

1. Regulations for Supervision and Administration of Medical Devices

The State Council issued the “Regulations for Supervision and Administration of Medical Devices”《醫療器械監督管理條例》(hereinafter referred to as “Regulations on Medical Devices”) on 4 January 2000, which became effective from 1 April 2000. The Regulations on Medical Devices mainly provide for the management of medical devices, management of the production, operation and use of medical devices, and the supervision and legal liabilities, etc. for medical devices in the PRC, respectively.

2. Administrative Measures for Business Licenses of Medical Devices Enterprises

The SFDA issued the “Administrative Measures for Permits for Medical Devices Operation Enterprises” 醫療器械經營企業許可証管理辦法》on 9 August 2004 (hereinafter referred to as “Measures on Permits for Medical Device Operation Enterprises”), which became effective from 9 August 2004. The Measures on Permits for Medical Device Operation Enterprises primarily provide for the conditions and procedures for the application for permits for medical devices operation enterprises, changes and renewals, supervision and legal responsibilities, etc. respectively.

3. Administrative Measures for Registration of Medical Devices

The SFDA issued the “Administrative Measures for Registration of Medical Devices” 《醫療器械註冊管理辦法》on 9 August 2004 (hereinafter referred to as “Measures for Medical Device Registration”), which became effective from 9 August 2004. The Measures for Medical Device Registration primarily provide for the registration inspections, clinical trials, registration applications and approvals, re-registration, changes and re-submission of registration certificates, supervision and administration and legal responsibilities, etc., respectively.

(II) Major regulatory bodies in the PRC

1. Ministry of Health and its affiliates

Pursuant to the “Notice of the State Council General Office on the issuance of internal organization for main responsibilities and staffing requirements of the Ministry of Health” (Guo Ban Fa [2008] No. 81) 《國務院辦公廳關於印發衛生部主要職責內設機構和人員編制規定的通知》（國辦發 [2008] 81號）, the main duties of the Ministry of Health regarding medical devices include the following: promoting of the reform of medical and health system, devising health reforms and development strategic objectives, plans and policies, drafting laws and regulations relating to medical devices, formulating medical device regulations, and formulating the relevant standards and technical specifications.

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2. The SFDA and its affiliates

Pursuant to the “Notice of the State Council General Office on the issuance of internal organization for main responsibilities and staffing requirements of the SFDA” (Guo Ban Fa [2008] No.100) 《國務院辦公廳關於印發國家食品藥品監督管理局主要職責內設機構和人員編制規定的通知》（國辦發 [2008] 100號）, the main duties of the SFDA regarding medical devices include the following:

(1) formulation of medical device regulatory policies and plans and supervising the implementation thereof, participation in the drafting of relevant PRC laws and regulations and draft departmental rules;
(2) being responsible for administrative supervision and technical supervision of medical devices, formulating quality control standards of development, production, distribution and use of medical devices and supervising the implementation thereof;
(3) being responsible for the registration and supervision of medical devices, developing national standards for medical devices and overseeing the implementation thereof, organizing and developing the monitoring of adverse events for medical devices, and re-evaluation and elimination of medical devices;
(4) supervision and management of the quality safety of medical devices, and publication of information regarding the quality safety of medical devices;
(5) organizing investigation of offenses regarding development, production, distribution and use of medical devices; and
(6) providing guidance for supervision and management, emergency response, inspection and informatization establishment regarding local food and drugs.
The General Administration of Quality Supervision, Inspection and Quarantine of the PRC and its Branch Offices ( 國家質量監督檢驗檢疫總局及其分支機構 )
The major responsibilities of this organization are set out above under the section headed
“I. Pharmaceutical Products” in this section of the document.
General Administration of Customs of the People’s Republic of China and its Branch Offices ( 中華人民共和國海關總署及其分支機構 )

The major responsibilities of this organization are set out above under the section headed “I. Pharmaceutical Products” in this section of the document.

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(III) Managing the Permits for Medical Devices Operation Enterprises

Rule 24 of the Regulations on Medical Devices and Measures on Permits for Medical Devices Operation Enterprises stipulates that the establishment of Class I medical devices operation enterprises is subject to filing with the provincial drug supervision and administration department; the establishment of Classes II and III medical devices operation enterprises is subject to examination and approval by the provincial drug supervision and administration department and the issuance of a Permit for Medical Devices Operation Enterprises, which is valid for five years.

Rule 26 of the Regulations on Medical Devices stipulates that medical devices operation enterprises and medical institutions shall purchase certified medical devices from manufacturers that have obtained a Permit for Medical Devices Manufacturing Enterprises 《醫療器械生產企業許可證》( ) or operation enterprises that have obtained a Permit for Medical Devices Operation Enterprises and examined the product certification. The operation of medical devices operating enterprises may not involve unregistered, uncertified, expired, obsolete or eliminated medical devices.

Rule 34 of the Regulations on Medical Devices stipulates that advertisements of medical devices are subject to examination and approval by the drug supervision and administration departments of the People’s Government at the provincial level or above, and may not be published, broadcast, distributed or posted without approval. The content of advertisements of medical devices shall follow the user manuals as approved by the drug supervision and administration department of the State Council or the drug supervision and administration department(s) of the People’s Government of the province, self-autonomous region or municipality.

(IV) Managing the import of medical devices

Pursuant to Rules 8, 11 and 14 of the Regulations on Medical Devices, the State implements a product manufacturing registration system for medical devices. For medical devices imported into the PRC for the first time, the importing unit shall provide relevant information of the device such as its user manual, quality standard, inspection methods, etc., together with samples and evidential proof of authorised production and sale from the exporting country (or region). Application for completion of importing procedures can only be made following inspection by and registration at the drug supervision and administration department of the State Council and obtaining an import registration certificate. The Product Registration Certificate for Medical Devices is valid for four years.

Pursuant to Rules 2, 4 and 6 of the Measures on the Management of Medical Devices Registration (《醫療器械註冊管理辦法》), all medical devices sold and used in the PRC shall apply for registration. Unregistered medical devices shall not be sold and used. Foreign medical devices are subject to examination by the SFDA and a medical device registration certificate will be issued upon approval. For application for the registration of foreign medical devices, the foreign manufacturer shall specify an organization to act as its agent in the PRC and the agent shall be liable for the corresponding legal liabilities. In addition, the foreign manufacturer shall entrust a legal entity in the PRC with the relevant qualification or entrust its branch located in the PRC to provide after-sales services.

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IV. PRICE CONTROLS

Drug Price Administration

According to Article 3 of the Price Law of the PRC (the “Price Law”) effective from 1 May 1998, the market-regulated price refers to the price formed through market competition and determined by the operator at his own discretion; the government-guided price refers to the price determined by the operator under the guidance of the competent government pricing authority or other relevant authorities with reference to the requisite basic price and its variable band according to the limit and scope of their pricing rights in compliance with the Price Law; the government-set price refers to the price fixed by the competent government pricing authority or other relevant authorities according to the limit and scope of their pricing rights.

According to Articles 18 and 19 of the Price Law, the government may administer government-guided prices or government-set prices , if necessary, as the prices of the following commodities and services: (1) the prices of the few commodities relating to national economic development and people’s livelihood in a significant manner;

(2) the prices of the few commodities which are scarce resources;
(3) the prices of commodities operated by natural monopoly;
(4) the prices of significant public utilities;
(5) the prices of significant social beneficial services.

The pricing right limit and the specific scope of application of government-guided prices and government-set prices are based on the pricing catalogues prepared by the central and the local governments. The central pricing catalogue is prepared and revised by the State Council’s pricing authorities and submitted to the State Council for approval before announcement. The local pricing catalogue is prepared by the competent pricing authorities of the people’s governments of provinces, autonomous regions and municipalities in accordance with the pricing right limit and the specific scope of application specified in the central pricing catalogue, and upon review and endorsement by the originating people’s government, it will be submitted to the State Council’s pricing authorities for approval and confirmation before announcement. All local people’s governments below the provincial level are not allowed to prepare pricing catalogues.

According to Articles 6, 7 and 8 of the Price Law, apart from the applicable government-guided prices or government-set prices in accordance with the law, market-regulated prices which are determined by the operators at their own discretion in compliance with the Price Law may be administered as prices for commodities and services. The prices determined by the operators shall comply with the principles of fairness, legality, integrity and trustworthiness, such prices are basically determined in accordance with the costs of production and operation as well as the market supply and demand conditions.

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According to Article 11 of the Price Law, operators are entitled to the following rights in conducting pricing activities:

(1) determining the market-regulated prices at their own discretion;
(2) determining prices within the scope specified by the government-guided prices;
(3) Except for specific products, having the right to determine the price for trial sales of new products which are within the scope of government-guided prices and government-set prices;
(4) reporting and prosecuting infringements against their legal and discretionary pricing right.

According to Articles 13 and 14 of the Price Law, operators shall mark their prices clearly in compliance with the law while selling or acquiring commodities and offering services by specifying the relevant conditions including the name, place of origin, specifications, grade, unit for price calculation, item for the price or service, pricing standards, etc. of the commodity; and are not allowed to sell the commodities at prices in addition to the marked prices, nor collect any fees which are not marked explicitly. Operators must not commit the following irregular pricing conduct:

(1) Collaborating with others to manipulate market prices and damage the lawful rights and interests of other operators or consumers;
(2) Except for selling fresh and live products, seasonal products and stockpiled products at discounted prices, to engage in dumping sales at prices below cost in order to remove competitors or monopolise the market, disrupting the normal orderly production and operation, and damage the national interest or the lawful right and interest of other operators;
(3) fabricating and spreading information of rising prices for pushing up the prices of commodities to excessively high levels;
(4) making use of deceitful or misleading pricing means for enticing consumers or other operators to enter into transactions;
(5) For the provision of homogeneous commodities or services, applying price discriminations against other operators trading with equal conditions;
(6) adopting upgrading or downgrading measures in order to acquire or sell commodities or offer services to the effect of raising or lowering prices in a disguised manner;
(7) making excessively high profits in violation of laws and regulations;
(8) engaging in other improper pricing conduct prohibited by law or administrative regulations.

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According to Article 33 of the Price Law, the pricing authorities of all the people’s governments above county levels shall be responsible for the supervision and inspection of pricing activities.

According to Article 55 of the Drug Administration Law and Articles 48, 49 and 50 of the Drug Administration Law Implementation Details, government-set prices, government-guided prices and market-regulated prices are administered by the State to drug prices. Government-set prices or government-guided prices are implemented on listed drug products on the National Basic Medical Insurance Pharmaceutical Catalogue and non-listed drug products on the National Basic Medical Insurance Pharmaceutical Catalogue but with monopolised production and operation; and market-regulated prices are implemented on other pharmaceuticals. For drug products under government-set prices or government-guided prices in accordance with the law, their prices will be reasonably fixed and adjusted in accordance with the requisite pricing principles under the Price Law by the government pricing authorities. After the drug prices are fixed at government-set prices or government-guided prices in compliance with the law, the government pricing authorities will publish an announcement and specify the implementation date of such prices in the specified publications in accordance with the Price Law.

According to Articles 55, 56, 57 and 59 of the Drug Administration Law effective from 1 December 2001, drug production and operation enterprises must implement the government-set prices and government-guided prices, and must not increase prices in whatever manner at their own discretion. For drug products with market-regulated prices in accordance with the law, the drug production and operation enterprises shall determine the price according to the principles of fairness, reasonableness, integrity and trustworthiness as well as quality for value in order to supply drug users with reasonably priced drug products. The drug production and operation enterprises shall comply with the requirements relating to drug price administration promulgated by the State Council’s pricing authorities, determine and clearly mark the retail prices of drug products, prevent making excessively high profits and fraudulent pricing conduct detrimental to the benefits of drug users, and shall provide information on the actual purchase and selling prices and the volume of purchases and sales of their drug products to the government pricing authorities in compliance with the law; the drug production and operation enterprises are also prohibited from giving or receiving rebates or other benefits secretly off-record on the drug purchases or sales.

According to the Opinion on Reforming Drug Price Administration issued by the State Planning Commission effective from 20 July 2000, for drug products under government-set prices, the drug retailers may determine the actual selling price of drugs provided that the price does not exceed the maximum retail price determined by the government. For drug products under market-regulated prices, wholesalers and retailers of drug products may determine the actual selling price of drugs provided that the price does not exceed the retail price determined by the drug production enterprise. Drugs must be sold at clearly marked price.

According to the Opinion relating to Further Medical and Health System Reforms from the Central Government and the State Council《中共中央、國務院關於深化醫藥衛生體制改革的意見》 (Zhong Fa [2009] No.6) issued on 17 March 2009, to the extent within the basic drugs guided retail prices determined by the State, the provincial people’s government may determine the unified purchase price of the local area in accordance with the tenders. According to the Notice on the Publication of Recent Core Implementation Proposals of Medical and Health System Reforms

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(2009-2011) by the State Council《國務院關於印發醫藥衛生體制改革近期重點實施方案(2009-2011) 的通知》(Guo Fa [2009] No. 12) released on 18 March 2009, basic drug products used by government operated medical and health institutions will be purchased by public tenders through organisations specified by provincial people’s government and will be centrally delivered by the delivery enterprise selected by tender.

As confirmed by the PRC Lawyer, the prices of the healthcare products currently distributed by the Group are not subject to government restrictions, and four kinds of pharmaceuticals products among those distributed by the Group are under government price restrictions, specific restrictions of which are as follows:

Kingworld Gan Mao Qing Capsule: This is the pharmaceutical called “Gan Mao Qing Capsules (tablets)” under “(2) Chinese patent medicines category” (No.8 and Health Insurance No.12) in Schedule 1 titled “Price-controlled Pharmaceutical Products Catalog of National Development and Reform Commission (國家發展改革委定價藥品目錄)” of “Circular of the National Development and Reform Commission on adjustment of Price-controlled Pharmaceutical Products Catalog of National Development and Reform Commission (國家發展改革委關於調整<國家發展改革委定價藥品目錄>等有關問題的通知) (Fa Gai Jia Ge [2010] No. 429);
[●] Pei Pa Koa: This is the pharmaceutical called “Mi Lian Chuan Bei Pei Pa Koa” under “(2) Chinese patent medicines category” (No. 106 and Health Insurance No.205) in Schedule 2 titled “Catalog for Non-prescription Pharmaceuticals included in the Pricing Range set by Pricing Regulatory Departments of Provinces, Autonomous Regions and Municipalities (納入各省、自治區、直轄市價格主管部門定價範圍的非處方藥劑型目錄)” of the aforesaid document (Fa Gai Jia Ge [2010] No. 429);
Taiko Seirogan: This is the pharmaceutical called “Seirogan” under “(2) Chinese patent medicines category” (No. YZ23) in the annex titled “Catalog for the First Batch of New Pharmaceuticals under Government Price Ceiling Management (廣東省第一批新增政府最高限價管理藥品目錄)” to “Circular of Guangdong Provincial Price Bureau on Issue of Catalog for the First Batch of New Pharmaceuticals under Government Price Ceiling Management (廣東省物價局關於印發廣東省第一批新增政府最高限價管理藥品目錄的通知)” (Yue Jia (2009) 177);
[●]: This is the pharmaceutical called “[●]” under “(2) Chinese patent medicines category” (No. YZ95) in the above mentioned “Catalog for the First Batch of New Pharmaceuticals under Government Price Ceiling Management (廣東省第一批新增政府最高限價管理藥品目錄)”;

The form of government pricing of the above products distributed by the Group is the setting of the highest retail prices. [However, the price ceiling of the retail price for Taiko Seirogan had not yet been promulgated by the relevant authorities as at the Latest Practicable Date and such the pricing of Taiko Seirogan shall remain market-regulated until promulgation of the relevant notice.]

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As advised by the PRC Lawyer, apart from the four pharmaceuticals mentioned above, the pricing of the healthcare products and other pharmaceutical products distributed by the Group is determined by the market, that is, the pricing is determined by the enterprises and no restriction by government departments is imposed on the prices of the products.

V. TRADEMARKS

1. Application, Examination and Approval for Trademark Registration

According to Articles 3, 8 and 9 of the Trademark Law, registered trademarks are trademarks which have been approved and registered by the Trademark Office, a trademark registrant is entitled to the right of exclusive use of the trademark and protection by the law. Any visible mark, including word, design, letter, number, 3D (three-dimension) mark or colour combination or a combination of the above elements, that can distinguish the commodities of a natural person, legal person or other organisation from those of others is a trademark eligible to apply for trademark registration. A trademark registrant is entitled to tag the words “Registered Trademark” or use the registered symbol. According to Article 13 of the Trademark Law Implementation Regulation, if an application for trademark registration is made for a combination of colours, a declaration shall be made in the application and accompanied by a literal description. According to Articles 27, 30, 37 and 38 of the Trademark Law, a public announcement shall be made upon completion of a preliminary examination of the trademark applying for registration by the Trademark Office; and anyone may raise an objection within three months from the date of the announcement. If no objection has been received upon expiry of the announcement period, the trademark shall be approved for registration and a trademark registration certificate will be issued and announced. The valid period of a registered trademark is ten years from the date of the approval for registration. For further usage after the expiry of the valid period, an application for renewal of registration shall be made six months prior to the expiry date; if no renewal application is filed during this period, a six-month extension period may be granted. If no renewal application is filed upon the expiry of the extension period, the registered trademark will be revoked. The valid period for each registration renewal will last for ten years.

2. Transfer and Licensing of Registered Trademarks

According to Article 39 of the Trademark Law, for transfer of registered trademarks, the transferor and transferee shall execute a transfer agreement and make a joint application to the Trademark Office. The transferee shall guarantee the quality of the commodity using the registered trademark. Upon approval of the transfer of the registered trademark, an announcement will be made. The transferee is entitled to the right of exclusive use of the trademark commencing from the date of the announcement.

According to Article 40 of the Trademark Law, the trademark registrant may permit others to use his registered trademark by executing a licensing agreement on the use of trademark. The licensor shall supervise the quality of the commodity of the licensee using the registered trademark. The licensee shall guarantee the quality of the commodity using the registered trademark. Any licensed use of trademarks belonging to others must ensure the licensee’s name and the place of origin of the commodity are marked clearly on the commodity using the registered trademark. Trademark licensing agreement shall be filed with the Trademark Office.

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3. Administration on the Use of Trademark

According to Article 6 of the Trademark Law, commodities which must use registered trademarks as required by State regulations shall make applications for trademark registration, such commodities are prohibited from selling in the market without registration approval. According to Article 27 of the Administrative Measures for Insert-Sheet and Labeling of Drugs 《藥品說明書和標簽管理規定》 effective from 1 June 2006, unregistered trademarks are prohibited from using on the insert-sheet and labeling of drug products.

According to Article 10 of the Trademark Law, the following signs are prohibited from being used as trademarks:

(1) signs which are identical with or similar to the national name, national flag, national emblem, military flag or medals of the People’s Republic of China, as well as those which are identical with the names of the specific sites or the names and designs of monumental buildings of the places where the central government agencies are located;
(2) signs which are identical with or similar to the national name, national flag, national emblem or military flag of any foreign country, except with the consent of the government of that country;
(3) signs which are identical with or similar to the name, flag, or emblem of any intergovernmental international organization, except with the consent of that organization or those which are unlikely to mislead the public;
(4) signs which are identical with or similar to the official symbols or inspection seals that indicate controls are imposed or warranty is provided, except those which are authorised;
(5) signs which are identical with or similar to the name or symbol of the Red Cross or the Red Crescent;
(6) signs which involve racial discrimination;
(7) signs which are exaggerative promotional with deception;
(8) signs which are detrimental to socialist morality or customs, or having other harmful influences; or
(9) names of places of administrative districts above county level or names of foreign places known by the public are not allowed to be used as trademarks, however, except for place names containing other meanings or for those which form part of a collective trademark or certification trademark; registered trademarks that use place names shall continue to be valid.

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According to Article 44 of the Trademark Law, if any of the following occurs concerning the use of a registered trademark, the Trademark Office shall order rectification within a specified period or revoke the registered trademark:

(1) unauthorised alteration of the registered trademark;
(2) unauthorised changes in the registrant’s name, address or other registration items;
(3) unauthorised transfer of the registered trademark; or
(4) cessation of use for three consecutive years.

VI. ADVERTISING

Article 4 of the Advertising Law of the People’s Republic of China stipulates that advertisements shall not resort to any falsehood to a deception or misleading to the consumers. Article 14 stipulates that an advertisement for medicines or medical apparatuses should not in any way contain the following:

Any unscientific assertions or assurances in terms of efficiency or uses;
Treatment efficiency or curative rate;
Comparisons with other medicines or medical apparatuses in efficacy or safety;
Titles or images of medical research institutes, academic institutions, medical organizations or experts, doctors or patients; and
Other contents that are prohibited by laws and administrative decrees.

Article 15 stipulates that the contents of an advertisement for a medicine should be based on the indications approved by the public health administrative department of the State Council or by the public heath administrative department of a province, autonomous region or municipality under the direct administration of the central government. Article 43 stipulates that for advertisements which are subject to examination according to law before publication and acts of advertising without approval by advertisement examination organizations, the advertising supervision and administrative organizations shall order the responsible advertisers, advertising agents or advertisement publishers to stop publications, confiscate the advertising expenses and concurrently impose a fine ranging from the amount equal to the advertising expenses to five times the amount of the advertising expenses.

Article 60 of the Drug Administration Law stipulates that drug advertisements shall be subject to approval by the drug regulatory department of the people’s government of the province, autonomous region or municipality directly under the Central Government where the enterprise is located, an approval number of drug advertisement shall be issued. No one may launch advertisements without the approval number. Prescription drugs may be introduced in the medical or pharmaceutical professional publications jointly designated by the administrative department for health and the drug regulatory

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department under the State Council, but their advertisements may not be released by mass media or disseminated to the general public by other means. Article 92 stipulates that any violation of the provisions of this Law related to the control over drug advertising shall be punished pursuant to the provisions of the Advertisement Law of the People’s Republic of China, the drug regulatory department that issues the advertisement approval number shall withdraw it and shall, within one year, reject any application for approval of advertising for the drug in question. If a crime is constituted, criminal liabilities shall be investigated in accordance with law.

Article 53 of the Regulations for Implementation of the Drug Administration Law stipulates that for publishing an advertisement in a province, autonomous region or municipality directly under the Central Government other than the place where the drug manufacturer or drug import agency is located, any enterprise publishing advertisement shall file a record in advance with the drug regulatory department of the province, autonomous region or municipality directly under the Central Government where the advertisement is to be published. If the drug regulatory department of the province, autonomous region or municipality directly under the Central Government accepting the record finds that the approved contents of the drug advertisement does not conform to the provisions on the control of drug advertisement, it shall turn over the matter to the original verifying and issuing department for handling.

Article 2 of the “Circular of SFDA regarding the Printing and Distribution of the ‘Provisional Regulation on Health Food Examination’”(Guo Shi Yao Jian Shi [2005] No.211) stipulates that the (food) drug regulatory department of the province, autonomous region or municipality directly under the Central Government is responsible for examining health food advertising within its jurisdiction. Article 12 stipulates that for health food advertising applications passing the examination, a health food advertising approval number will be issued. Article 14 stipulates that the effective term of the health food advertising approval number is one year.

VII. PRODUCT LIABILITY

The PRC Tort Liability Law (中華人民共和國侵權責任法) which will soon be effective on 1 July 2010 also has similar provisions on product liabilities. Further, according to such law, where a defective product is identified after it has been launched, the manufacturer and the seller shall take remedial measures such as warning or recalling the product in a timely manner. If the manufacturer or the seller knows that there are defects in a product but still produces or sells such product, and thus causes death or serious damage to the health of consumer, the consumer shall have the right to request for punitive damages.]

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VIII. PROFITS OF FOREIGN-FUNDED ENTERPRISES AND REPATRIATION OF FUNDS ON LIQUIDATION

(1) Major Regulatory Laws, Regulations and Rules
The Foreign-funded Enterprises Law of the PRC ( 中華人民共和國外資企業法)

The Sixth National People‘s Congress adopted the Foreign-funded Enterprises Law of the PRC (hereinafter referred to as the “Foreign-funded Enterprises Law”) on 12 April 1986, which was amended on 31 October 2000 afterwards. The Foreign-funded Enterprises Law (as amended) became effective as of 31 October 2000. The Foreign-funded Enterprises Law provides regulations concerning matters, such as establishment, operation, employment, financial affairs and taxation of foreign-funded enterprises.

The Implementation Regulations on the Foreign-funded Enterprises Law of the PRC ( 中華人民共和國外資企業法實施細則 )

The State Council approved the Implementation Regulations on the Foreign-funded Enterprises Law of the PRC (hereinafter referred to as the “Implementation Regulations on the Foreign-funded Enterprises Law”) on 28 October 1990, which was promulgated on the same day by the former Ministry of Foreign Trade and Economic and was amended on 12 April 2001 afterwards. The Implementation Regulations on the Foreign-funded Enterprises Law (as amended) became effective as of 12 April 2001. The Implementation Regulations on Foreign-funded Enterprises Law provides regulations concerning matters, such as procedures for establishment, form of organization and registered capital, methods of contributing investments and the time limit, use of sit and the site use fees, purchasing and marketing, taxation, control of foreign exchange, financial affairs and accounting, workers and staff members, trade union, terms of operations, termination and liquidation.

The Control of Foreign Exchange Regulations of the PRC ( 中華人民共和國外匯管理條例 )

The State Council promulgated and approved the Control of Foreign Exchange Regulations of the PRC (hereinafter referred to as the “Control of Foreign Exchange Regulations”) on 29 January 1996, which was first amended on 14 January 1997 afterwards and was second amended on 1 August 2008. The Control of Foreign Exchange Regulations (as amended) became effective on 5 August 2008. The Control of Foreign Exchange Regulations provide regulations concerning matters, such as the PRC’s control of foreign exchanges of current account items, control of foreign exchanges of capital account items, control of foreign exchanges business of financial institutions, control of Renminbi exchange rates and foreign exchanges market, control of supervision and legal responsibility.

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(2) Major Regulatory Authorities in the PRC

MOFCOM and its Branches

Ministry of Commerce of the PRC (hereinafter referred to as “MOFCOM”), which was established according to the “Notice of the State Council Regarding the Establishment of Organizations” (國務院關於機構設置的通知) (GuoFa[2003] No.8), is a component department of the State Council, which is responsible for the supervision of domestic and foreign trade as well as international economic cooperation.

Pursuant to the “Notice of the General Office of the State Council Regarding Circulating Regulations of Internal Organs and Staffing of the Major Responsibilities of MOFCOM” (國務院辦公廳關於印發商務部主要職責內設機構和人員編制規定的通知) (Guo Ban Fa[2003] No.29), MOFCOM’s relevant major responsibilities are as follows:

(1) Drawing development strategies, guidelines and policies related to domestic and foreign trade and international economic co-operation, drafting laws and regulations concerning domestic and foreign trade, international economic co-operation and foreign investments and formulating rules for implementation and regulations;
(2) Macro-guiding foreign investment works throughout the PRC; analyzing and studying the situation of foreign investments throughout the PRC, reporting the development about foreign investments and proposing to the State Council regularly, drafting policies of foreign investments, formulating and implementing reform proposals, participating in drafting middle and long-term development plans about the use of foreign funds; legally approving the above limit stipulated by the state, investment restriction and the set-up of foreign enterprises involving quota and license management and its alterations; legally approving contracts concerning large-scale foreign investment projects and matters of major changes stipulated specially by the articles and laws; monitoring the execution of related laws and regulations, rules and contracts and articles by the foreign-funded enterprises; guiding and managing investment invitation, investment promotion and the approval of foreign-funded enterprises and the work of import and export, overall coordinating and guiding specific matters concerning nation-level economic and technological development zones.

2. State Administration for Industry and Commerce and its Branches

Pursuant to the “Notice of the General Office of the State Council Regarding Circulating Regulations of Internal Organs and Staffing of the Major Responsibilities of State Administration for Industry and Commerce” (國務院辦公廳關於印發國家工商行政管理總局主要職責內設機構和人員編制規定的通知) (Guo Ban Fa[2008] No.88), State Administration for Industry and Commerce is responsible for the registration and supervision of the market subjects, such as all types of enterprises, units and individuals engaging in operational activities, as well as foreign/ regional resident representative offices, and undertaking the responsibilities of legal standardization, as well as maintaining order of all kinds of market operations.

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REGULATORY OVERVIEW

State Administration of Foreign Exchange of the PRC and its branches

State Administration of Foreign Exchange of the PRC (hereinafter referred to as “SAFE”) is a national bureau which was established according to the “Notice of the State Council Regarding the Establishment of National Bureau Administered by Ministries” (國務院關於部委管理的國家局設置的通知) (Guo Fa[2008] No.12).

Pursuant to the “Notice of the General Office of the State Council Regarding Circulating Regulations of Internal Organs and Staffing of the Major Responsibilities of SAFE” (國務院辦公廳關於印發國家外匯管理局主要職責內設機構和人員編制規定的通知) (Guo Ban Fa[2009] No.12), SAFE’s relevant major responsibilities are as follows:

(1) to participate in the drafting of laws and regulations relating to the administration of foreign exchange and draft departmental regulations, and issue regulatory documents relating to the performance of duties.
(2) to compile statistics on and monitor international payments, foreign debt and liabilities, release relevant information according to requirements and undertake duties relevant to the monitoring of cross-border funds movement.
(3) to supervise and manage the foreign exchange markets within the country; be responsible for the supervision and management of foreign exchange settlement and sale business; foster and develop foreign exchange markets.
(4) to supervise and verify the truthfulness and legality of foreign exchange payments of recurrent projects in accordance with the law; implement foreign exchange administration on capital projects according to the law and continually improve administration work based on the progress of the convertibility of the RMB capital projects; regulate the administration of foreign exchange accounts within and outside of the country.
(5) to implement foreign exchange supervision and verification in accordance with the law and penalize acts of breaching foreign exchange administration.
(3) Profits of Foreign-funded Enterprises and Repatriation of Funds on Liquidation

Article 19 of the Foreign-funded Enterprises Law (外資企業法) stipulates that legal profits, other legal income and funds on liquidation obtained by foreign investors from foreign-funded enterprises can be remitted out of the country.

Article 58 of The Implementation Regulations on the Foreign-funded Enterprises Law (外資企業法實施細則) stipulates that reserve fund and staff incentive and welfare fund shall be drawn from the profits of foreign-funded enterprises after payment of income tax in accordance with PRC tax laws. Foreign-funded enterprises shall not distribute profits before offsetting losses from previous accounting years; undistributed profits from previous accounting years can be distributed together with the distributable profits of the current accounting year. Pursuant to Article 21 of The Administration Provisions on the Settlement, Sale and Payment of Foreign Exchange (結匯、售匯及

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REGULATORY OVERVIEW

付匯管理規定) implemented on 1 July 1996, remittance of profits after tax and dividends by foreign investors of foreign invested enterprises shall be paid out of its foreign exchange account or redeemed at designated banks for foreign exchange upon presenting a board resolution in relation to profit distribution.

Pursuant to Article 21 of the Foreign-funded Enterprises Law (外資企業法) and Article 76 of The Implementation Regulations on the Foreign-funded Enterprises Law (外資企業法實施細則), upon winding up of an foreign-funded enterprise, it shall be liquidated in accordance with the statutory procedures; except as part of the liquidation procedures, foreign investors shall not remit or carry funds of such enterprise out of China or handle the property of such enterprise on their own before completion of the liquidation process. When a foreign-funded enterprise has been liquidated, the excess of its net assets and remaining property over its registered capital shall be deemed as profits, and are subject to income tax according to PRC tax laws. Pursuant to Article 22 of the Control of Foreign Exchange Regulations (外匯管理條例), upon liquidation and payment of tax in accordance with the relevant rules of the state, foreign invested enterprises that terminated its operations legally can remit its Renminbi amounts belonging to external investors through foreign exchange purchase with financial institutions involved in the settlement and sale of foreign exchange business.

IX. RULES ON ACQUISITION OF DOMESTIC ENTERPRISES BY FOREIGN INVESTORS

MOFCOM promulgated the “Regulations on Foreign Investor’s Merger of Domestic Enterprises” 《關於外國投資者併購境內企業的規定》 on 8 August 2006, which was effective from 8 September 2006. According to the documents from the Company, MOFCOM issued the “Reply from MOFCOM Regarding Approval for the Establishment of Shenzhen Kingworld Company Limited as a Foreign-funded Enterprise” 《商務部關於同意設立外資企業深圳市金活醫藥有限公司的批復》（商資批[2006]1505號）(Shang Zi Pi [2006] No. 1505) on 20 July 2006, the acquisition of the 100% equity interests in SZ Kingworld by foreign investors was approved. MOFCOM further issued the Certificate of Approval for the Establishment of Enterprise with Foreign Investment in the People’s Republic of China(Shang Wai Zi Zi Shen Zi[2006]No. 0585)《中華人民共和國外商投資企業批准證書》（商外資資審字[2006]0585號） to SZ Kingworld on 27 July 2006. On 29 August 2006, SZ Kingworld completed the procedures of the change of business registration in respect of the foreign investor’s merger.

As confirmed by the PRC Lawyer, SZ Kingworld has completed the foreign investment approval and merger procedures before the implementation of the “Regulations on Foreign Investor’s Merger of Domestic Enterprises”. Thus, this regulation does not apply to the foreign investor’s merger of SZ Kingworld.

X. THE NOTICE ON IMPROVING ON RELEVANT BUSINESS OPERATIONS ISSUES CONCERNING IMPROVING THE ADMINISTRATION OF THE PAYMENT AND SETTLEMENT OF FOREIGN EXCHANGE CAPITAL OF FOREIGN INVESTED ENTERPRISES

The “Notice on Improving the Operational Administration on the Conversion of Foreign Exchange Capital Contribution of Foreign-funded Enterprises (Hui Zong Fa(2008)No.142)《國家外匯管理局綜合司關於完善外商投資企業外匯資本金支付結匯管理有關業務操作問題的通知》（匯綜發

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REGULATORY OVERVIEW

（2008）142號）, which was issued by the Comprehensive Department of SAFE and effective from 29 August 2008, stipulated the foreign exchange capital contribution verification and payment and settlement of foreign exchange by the foreign-funded enterprises. SZ Kingworld is a foreign-funded enterprise registered in the PRC, thus this Notice applies to SZ Kingworld.

XI. COMPLIANCE WITH RULES AND REGULATIONS

As advised by the PRC Lawyer, under the laws of the PRC, the short-term cash advances made by SZ Kingworld to SZ Industry contravened certain PRC laws and regulations in relation to lending and financing. Thus, the PRC Lawyer advised that the Group may be subject to a penalty ranging from the amount the Group received as a result of such contravention (違規收入) to five times the amount the Group received as a result of such contravention (違規收入) in relation to any non-compliance with such PRC laws and regulations.

Given that (i) the short-term cash advances have been fully repaid by SZ Industry to SZ Kingworld; (ii) there has not been any dispute in respect of such short-term cash advances; and (iii) as at the Latest Practicable Date, the Group had not been penalized by any PRC government authorities as a result of such short-term cash advances as confirmed by the Directors, the risk that the Group will be subject to such penalties resulting from such cash advances in contravention of the relevant PRC laws and regulations is minimal.

In addition, in order to prevent any future non-compliance with the relevant PRC laws and regulations, the Group has ensured that all Directors are aware of the illegality of such advances or loans and will not allow any future advances or loans by or to the subsidiaries of the Group in the PRC unless the advances or loans will be obtained from properly authorised banks or financial institutions and, made in a manner in compliance with the applicable PRC laws and regulations.

During the Track Record Period and up to the Latest Practicable Date, save as the (i) the short term cash advances made by SZ Kingworld to SZ Industry mentioned above; and (ii) six penalties handed down by the Shenzhen Municipal Office of SAT to SZ Kingworld for loss of tax receipts, which amounted to a total fine of RMB900 and has been settled in full, the Group has complied with all the relevant laws and regulations in the PRC. In order to avoid further loss of tax receipts, the Group has [adopted “the Methods of the People’s Republic of China for Invoice Management: Supplementary Provisions《發票管理的補充規定》” into its management system] and [the Group has not received any similar penalty since September 2008.]

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HISTORY AND DEVELOPMENT

Incorporation/establishment of subsidiaries/jointly controlled entity

BVI Kingworld was incorporated as an investment holding company in the BVI in February 2005. At the time of its incorporation, BVI Kingworld was held as to 80% by Mr. Zhao and 20% by Ms. Chan.

HK Kingworld was incorporated in Hong Kong in May 2008 as a wholly-owned subsidiary of BVI Kingworld. For details of the change of shareholding structure of HK Kingworld since its incorporation, please refer to the sub-section headed “Group development and reorganisation” in this section of this document.

SZ Kingworld was established in the PRC on 19 April 1996. At the time of its establishment, SZ Industry and Shenzhen Yongxiang made a capital investment of RMB2,745,500 and RMB144,500, representing 95% and 5% equity interest in SZ Kingworld respectively. For details of the change of shareholding structure of SZ Kingworld since its establishment, please refer to the sub-section headed “Group development and reorganisation” in this section of this document.

Between 2002 and 2007, the Twelve Subsidiaries were established as wholly-owned subsidiaries of SZ Kingworld throughout the PRC to facilitate the sales and marketing of the products the Group distributed. Details of the Twelve Subsidiaries are set out in the table below:

Date of

Name establishment Responsible region(s)

1 Wuhan Consultancy October 2002 Hubei Province 2 Beijing Consultancy November 2002 Heilongjiang Province, Jilin Province and Liaoning Province
3 Wuxi Consultancy November 2002 Wuxi, Changzhou and Jiangyang of Jiangsu Province
4 Taiyuan Consultancy November 2002 Shanxi Province 5 Nanchang Consultancy December 2002 Jiangxi Province 6 Lanzhou Consultancy January 2003 Gansu Province 7 Xi’an Consultancy January 2003 Shaanxi Province 8 Zhengzhou Consultancy March 2003 Henan Province 9 Fuzhou Consultancy March 2003 Fujian Province 10 Hefei Consultancy March 2003 Anhui Province 11 Hangzhou Consultancy October 2004 Hangzhou, Jiaxing, Huzhou and Shouxing of Zhejiang Province
12 Nanning Consultancy May 2007 Guangxi Zhuang Autonomous Region

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HISTORY AND DEVELOPMENT

In order to avoid unnecessary competition in the Guangdong province for the distribution of the [●] Product Series, Zhuhai Jinming was established in January 2004 jointly by SZ Kingworld and Guangdong Minglin to take up the distribution business of the [●] Product Series in this province, while SZ Kingworld and Guangdong Minglin remain as the regional distributors of the [●] Product Series in their other respective regions in the PRC. To the Directors’ best knowledge, there has been no geographical overlap of authorised sales regions among SZ Kingworld, Zhuhai Jinming and Guangdong Minglin since January 2004.

Business development

The following table sets out a summary of the license/distribution rights of products obtained by the Group since the establishment of SZ Kingworld:

	Source of
Commencement	distribution	Products or	Origin of	Distribution
date	rights	rights	product	area
1 October 1996	Tai San	[[●] Product	Japan	PRC
		Range]
October 1997	Tai San	[●]	Japan	PRC
June 1997	[●] Medicine and	[●] Pei Pa Koa	Hong Kong	14 regions in the
	Great Pleasure			PRC (save for
				the Guangdong
				province where
				the distribution
				right has been
				granted to Zhuhai
				Jinming in July
				2004)
May 1998	Etta Trading	Taiko Seirogan	Japan	certain regions in
	Company Limited			the PRC
November 1998	Pearl Shining	Min Tong	Taiwan	PRC
		Chisionhon
		Granules
December 1999	Yuen Tai	Fengbao Jianfu	Hong Kong	PRC
		Capsule

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HISTORY AND DEVELOPMENT

	Source of
Commencement	distribution	Products or	Origin of	Distribution
date	rights	rights	product	area
April 2001	Mentholatum	Mentholatum	Hong Kong	Shenzhen,
	(China)	Product Range		Shantou and later
	Pharmaceuticals			Chongqing and
	Company Limited			seven other
				provinces in the
				PRC
July 2002	[●] Medicine	[●] Herbal Candy	Hong Kong	14 regions in the
				PRC (save for
				the Guangdong
				province, the
				distribution right
				of which was
				granted to Zhuhai
				Jinming in
				January 2006)
August 2002	Luen Wah	Imada Golden	Hong Kong	PRC
		Dragon Oil
		(ceased in 2005)
November 2002	Luen Wah	Imada Seasons	Hong Kong	PRC
	(distribution	Safe Oil (ceased
	agreement	in 2007) and
	expired in	Imada Red
	December 2009)	Flower Oil
August 2003	Europharm	Flying Eagle	Hong Kong	PRC
	Laboratories	Wood Lok
	Company Limited	Medicated Oil
2007	SZ Kingworld	Kingworld	PRC	PRC
	Lifeshine (as	Product Range
	manufacturer)

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HISTORY AND DEVELOPMENT

	Source of
Commencement	distribution	Products or	Origin of	Distribution
date	rights	rights	product	area
1 October 2007	[●]	a licence to		PRC
	(Shanghai)	produce and
		distribute
		products under
		the category of
		sugar
		confectioneries
		and nutritional
		supplement
		within the
		healthcare
		product segment
		bearing the
		Licensed Material
		(as licensed to
		SZ Kingworld)
December 2007	NBTY	to produce and	N/A	PRC
	(a USA	import the
	manufacturer)	Golden A+ [●]
		Range (ceased on
		24 June 2010)
May 2008	Sirio Pharma	to produce	N/A	PRC
	(a PRC	Golden 100 [●]
	manufacturer)	Range
1 August 2008	[●] (AsiaPacific)	a license to	N/A	Hong Kong and
		produce and		Macao
		distribute
		products under
		the category of
		sugar
		confectioneries
		and nutritional
		supplement
		within the
		healthcare
		product segment
		bearing the
		Licensed Material
		(as licensed to
		HK Kingworld)

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HISTORY AND DEVELOPMENT

	Source of
Commencement	distribution	Products or	Origin of	Distribution
date	rights	rights	product	area
April 2009	Shantou Yuehui,	to produce plastic	N/A
	Guangzhou	bottles, paper
	Yuehai and	boxes and labels
	Shantou Ruichi	for Golden 100
		[●] Range
May 2009	Remeje	Bifina Probiotic	Japan	PRC
		Capsules
July 2009	Kakki	distribution of	N/A	Hong Kong and
	Corporation	healthcare		Macao
	Limited	products
July 2009	Serene Trading	DIA Instant	Japan	PRC
	Co. H.K.	Cooling Gel
		Sheet
26 March 2010	Nanjing IDS	Jamieson Product	Canada	PRC
		Range

Import business

Prior to 2 December 2002, the Group had been relying on import agents instead of SZ Kingworld to import products into the PRC. After SZ Kingworld obtained the Certificate of Approval from the Department of Foreign Trade and Economic Cooperation of Shenzhen on 25 November 2002, which allowed SZ Kingworld to import products into the PRC, SZ Kingworld amended its scope of business to include the management of import and export business operations on 2 December 2002. Since then, the Group had been able to import products through SZ Kingworld into the PRC. As advised by the PRC Lawyer, SZ Kingworld did not require the Certificate of Approval to operate its business in the PRC prior to 2 December 2002 as SZ Kingworld was not engaged in the import business before it changed its business scope on 2 December 2002. The PRC Lawyer further advised that the Group complied with the prevailing relevant laws and regulations in the PRC for importing products through import agents before obtaining the Certificate of Approval, and there had not been any penalty imposed on the Group by the relevant PRC authorities for importing products through import agents prior to 2 December 2002.

Pursuant to a change of policy in the PRC, SZ Kingworld was registered as a foreign trade enterprise according to the Foreign Trade Law of the PRC in February 2009. Save for the filing and registration procedures to establish SZ Kingworld as a foreign trade enterprise, it is not required under the prevailing PRC laws for foreign trade enterprises to obtain other permits or licenses from the relevant PRC authority. Before its registration as a foreign trade enterprise, SZ Kingworld was not required by the prevailing PRC laws to be registered as any specific type of enterprise. During the

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HISTORY AND DEVELOPMENT

period from 2 December 2002 to the date of such registration, SZ Kingworld was able to engage in importing business as it had obtained the Certificate of Approval from the Department of Foreign Trade and Economic Cooperation of Shenzhen allowing SZ Kingworld to import products into the PRC.

Group development and reorganisation

On 19 April 1996, SZ Kingworld was established in the PRC with an initial registered capital of RMB2.89 million. At the time of its establishment, SZ Industry made an investment of RMB2,745,500, representing an equity interest of 95% in SZ Kingworld, and Shenzhen Yongxiang, a strategic investor introduced by Mr. Zhao, made a capital contribution of RMB144,500 to SZ Kingworld, representing the remaining 5% equity interest in SZ Kingworld.

In September 2002, Shenzhen Yongxiang transferred its 5% equity interest in SZ Kingworld to Ms. Huang, the mother of Mr. Zhao, at a consideration of RMB250,000 which was determined based on [arm’s length negotiations] between Shenzhen Yongxiang and Ms. Huang. The decision of the transfer was made by Shenzhen Yongxiang.

In November 2002, the registered capital of SZ Kingworld was increased from RMB2.89 million to RMB6.8 million to cope with its business expansion. SZ Industry and Ms. Huang contributed RMB[3,714,500] and RMB[195,500] respectively to the increase in the registered capital of SZ Kingworld. Upon completion of the capital contribution, the shareholding interests of SZ Industry and Ms. Huang in SZ Kingworld remained unchanged with SZ Industry and Ms. Huang holding [95%] and [5%] equity interest in SZ Kingworld respectively.

On 7 January 2004, Zhuhai Jinming was jointly established in the PRC by SZ Kingworld and Guangdong Minglin to conduct the distribution of the [●] Product Series in the Guangdong province. At the time of its establishment, Zhuhai Jinming was held equally by SZ Kingworld and Guangdong Minglin.

In February 2005, BVI Kingworld was incorporated in the BVI. At the time of its incorporation, BVI Kingworld was held as to 80% by Mr. Zhao and 20% by Ms. Chan.

On 20 April 2006, each of SZ Industry and Ms. Huang entered into share transfer agreements with BVI Kingworld in relation to the transfer of their respective 95% and 5% equity interests in SZ Kingworld to BVI Kingworld for the consideration of RMB14,843,536 and RMB781,239 respectively. Such consideration was determined by reference to the net asset value of SZ Kingworld as at [31 March] 2006. The decisions to transfer 95% and 5% equity interest in SZ Kingworld by SZ Industry and Ms. Huang respectively to BVI Kingworld were made by SZ Industry and Ms. Huang respectively. Upon completion of the above equity transfers, SZ Kingworld became a direct wholly owned subsidiary of BVI Kingworld.

In July 2006, the Certificate for Establishment of Enterprise with Foreign Investment was granted to SZ Kingworld by the PRC Ministry of Commerce. Following the grant of such certificate,

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HISTORY AND DEVELOPMENT

SZ Kingworld applied to the Shenzhen Bureau of Trade and Industry and the Shenzhen Administration for Industry and Commerce for, among other things, the revision of its scope of business, change of shareholders and the extension of the duration of operation of SZ Kingworld and the application was approved in August 2006.

In December 2006, the registered capital of SZ Kingworld was increased from RMB6.8 million to RMB80 million. Such registered capital was fully paid-up in April 2007, through a capital contribution by BVI Kingworld of an aggregate amount of approximately RMB[73.2] million, of which approximately RMB[14.7] million, RMB[26.7] million, RMB[31.3] million, RMB[0.59] million was made in December 2006, February 2007, March 2007 and April 2007, respectively. The funding of BVI Kingworld for the above capital contribution was financed by Mr. Zhao and Ms. Chan, the two ultimate shareholders of BVI Kingworld, with their own financial resources.

In May 2008, HK Kingworld was incorporated in Hong Kong as a direct wholly-owned subsidiary of BVI Kingworld. In September 2008, BVI Kingworld transferred its entire equity interest in SZ Kingworld to HK Kingworld at a consideration of RMB88,824,775, the basis of which was determined with reference to the total consideration of RMB15,624,775 paid by BVI Kingworld in relation to the acquisition of the equity interests in SZ Kingworld on [20] April 2006, together with the total amount of RMB73.2 million which BVI Kingworld had contributed in SZ Kingworld during [2006 and 2007]. The consideration of RMB88,824,775 was settled via the subscription of a total number of 101,162,536 shares of HK$1 each in HK Kingworld by BVI Kingworld. Upon completion of the transfer in September 2008, SZ Kingworld became a direct wholly owned subsidiary of HK Kingworld.

In May 2008, Golden Land and Golden Morning were incorporated in BVI and were wholly owned by Mr. Zhao and Ms. Chan respectively.

In July 2008, the Company was incorporated in the Cayman Islands. At the time of its incorporation, one Share was alloted and issued to Offshore Incorporation (Cayman) Limited for cash at par and such Share was transferred to Golden Land on 25 September 2008. On the same date, the Company alloted and issued 79 Shares and 20 Shares to Golden Land and Golden Morning respectively. As such, the Company was held as to 80% by Golden Land and 20% by Golden Morning. The Company was registered under Part XI of the Companies Ordinance as a non-Hong Kong Company and its business registration certificate was applied and issued in October 2008.

In October 2008, BVI Kingworld changed its name from Kingworld Medicine Group Limited to Kingworld Medicine and Healthcare Group Limited in order to differentiate its name from the name of the Company.

[On [●], a shareholders’ resolution was passed to increase the authorised share capital of the Company, from HK$380,000 divided into 3,800,000 Shares of par value of HK$0.1 each, to HK$1,000,000,000 divided into 10,000,000,000 Shares of par value of HK$0.1 each.]

On [●], the Company entered into a sale and purchase agreement with [Mr. Zhao and Ms. Chan, under which the Company acquired the entire issued share capital of BVI Kingworld in consideration of the allotment and issuance of [359,999,920] fully paid up Shares and [89,999,980] fully paid up Shares to Golden Land and Golden Morning respectively.]

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HISTORY AND DEVELOPMENT

As at the Latest Practicable Date, the Group had a total of 12 local subsidiaries established in the PRC, the Twelve Subsidiaries, all of which are directly wholly-owned by SZ Kingworld.

CORPORATE STRUCTURE

The following chart illustrates the corporate structure and the principal activities of each member of the Group upon listing of the Shares on the [●]:

==> picture [458 x 409] intentionally omitted <==

----- Start of picture text -----

Mr. Zhao Ms. Chan
100% 100%
Golden Land Golden Morning Public
(BVI) (BVI)
60% 15% 25%
The Company
(Cayman Islands)
Investment holding
100%
BVI Kingworld
(BVI)
Investment holding
100%
HK Kingworld
(Hong Kong)
Distributing and marketing
100%
SZ Kingworld
(PRC)
Distributing and marketing
50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
y y
y
#
(PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC) * (PRC)
Zhuhai Jinming Beijing Consultancy Hangzhou Consultanc Nanning Consultancy Hefei Consultancy Wuhan Consultancy Taiyuan Consultanc Wuxi Consultancy Fuzhou Consultancy Xi'an Consultancy Zhengzhou Consultanc Lanzhou Consultancy Nan Chang Consultancy
----- End of picture text -----

The principal activities of each of the Twelve Subsidiaries are sales and marketing.
A jointly controlled entity held by SZ Kingworld and Guangdong Minglin in equal proportion. A summary of the financial information in respect of the Group’s interest in Zhuhai Jinming is disclosed in note 14 to the Accountants’ Report, the text of which is set out in Appendix I to this document.

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BUSINESS

OVERVIEW

According to the Top 100 Importers of Pharmaceutical and Healthcare Products Report published by CCCMHPIE which was based on the statistics provided by the PRC Custom, in 2009, SZ Kingworld ranked 76[th] amongst the importers of pharmaceutical and healthcare products in the PRC based on an imported value of US$47.3 million in 2009, as compared to the average imported value of approximately US$292.8 million amongst the top 10 ranking importers and the total imported value of US$9.53 billion of the top 100 importers in 2009. As at the Latest Practicable Date, the Group managed a portfolio of 48 pharmaceutical and healthcare products and general foodstuffs and a medical product which are manufactured in Japan, the USA, Canada, Hong Kong, Taiwan, Thailand and the PRC and sourced from 13 different suppliers and/or manufacturers.

Products distributed by the Group

[●] Medicine issued an authorisation letter dated 1 January 2010 to SZ Kingworld, pursuant to which the Group has the right to distribute [●] Herbal Candy in certain regions in the PRC specified in the said authorisation letter for a term of one year, which may be renewable on a yearly basis. With respect to [●], the Group also entered into an authorisation letter dated 29 August 2008 with Tai San, the exclusive agent of [●] in the PRC, pursuant to which the Group has the right to distribute [●] in the PRC for a term of three years.

During the Track Record Period, the Group had entered into various distribution agreements, authorisation letters and purchase orders in respect of the distribution rights of products that the Group distributed in the PRC. [The term under the authorisation letters entered into between the Group and the suppliers and/or manufacturers during the Track Record Period was either unspecified or ranged from one to three years while the term under the purchase orders obtained by the Group during the Track Record Period was unspecified.] The Group typically enters into distribution agreements for products which the Group considers to have market potential and/or products which the Group has been selling for three years or more. The Group will enter into purchase orders for any new products which will be sold by the Group for trial purpose. While the distribution agreements generally set out the price and specification of the products, the credit periods, guidelines for the sale and distribution

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BUSINESS

of the products, including but not limited to restrictions on the regions in which the products may be sold the authorisation letters and purchase orders, on the other hand, only specify the conditions such as the price and specification of the products. [In order to formalize their arrangements and secure a more stable supply and relationship with the suppliers and/or manufacturers, the Group is currently negotiating with the respective supplier and manufacturer of [●] Herbal Candy and [●] for the signing of the distribution agreements.]

Products distributed pursuant to distribution agreements

							Commencement
							Date of
							distributorship
		Contractual party supplying	Major terms of				right of the
	Name of product	products to the Group	distribution/supplier agreement				product	Price Controls
1.	[●] Pei Pa Koa ([●]蜜	[●] Medicine	(a)	Date: 22 April 2010			[12 June 1997]	Subject to the
	煉川貝枇杷膏)		(b)	Parties to distribution agreement: (i) [●] Medicine, (ii) Great Pleasure, (iii) SZ				highest retail prices set by the PRC government
				Kingworld and (iv) HK				For further
				Kingworld (as	guarantor)			details, please
			(c)	Nature of the Distributor in	distributorship: the PRC			refer to the sub-section
								headed “Price
			(d)	Geographical	coverage:			Controls by
				Shanghai, Jiangsu		Province,		the PRC
				Zhejiang Province, Fujian				Government”
				Province, Jiangxi Province,				under the
				Hainan Province, Anhui				“Business”
				Province, Henan Province,				section of this
				Shanxi Province, Shaanxi				document
				Province, Gansu Province,
				Qinghai Province,		Ningxia
				Autonomous Region and Inner
				Mongolia Autonomous Region
			(e)	Term: three years		(from 22
				April 2010 to	22 April 2013)
				and may be extended subject to
				further negotiation amongst the
				parties For detailed terms,
				please refer to	the sub-section
				headed “Distribution of [●]
				Product Series” under the
				“Business — Business Model”
				section of this	document.

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										Commencement
										Date of
										distributorship
			Contractual party supplying Major terms of							right of the
	Name of product		products to the Group			distribution/supplier agreement				product	Price Controls
2.	Taiko Seirogan		[Etta	Trading Company,		(a)	Date: 1 April 2009			[1 May 1998]	Subject to the
	(喇叭牌正露丸)		Limited (“Etta”) ● the [authorised agent] of Taiko Seirogan in the (b)				Parties to distribution agreement: (i) Etta and (ii) SZ Kingworld				highest retail prices set by the PRC government
			●	PRC] an Independent Third Party (c)			Nature of the distributorship: Distributor in the agreed regions in the PRC				For further details, please refer to the sub-section
						(d)	Geographical coverage:				headed “Price
							Guangdong Province, Fujian				Controls by
							Province, Hainan Province,				the PRC
							Shanghai, Zhejiang Province,				Government”
							Jiangsu Province, Beijing,				under the
							Tianjin, Hubei Province,				“Business”
							Shaanxi Province, Yunnan				section of this
							Province and Guangxi Province				document
						(e)	Term: three	years	(from 1
							April 2009 to 31 March 2012)
3.	[●] Product Range		[Tai San			(a)	Date: 18 December 2005			[1 October	N/A
	([●]系列)		●	the authorised principal (b)			Parties to distribution			1996]
	(i)	[●] Kanyu Drop S		agent of the [●] Product			agreement: (i) Tai		San and (ii)
	(ii) (iii)	[●] Kanyu Drop C-20 [●] Kanyu Drop		Range in the PRC, Hong Kong, Macao, Taiwan, Malaysia, Singapore, etc.] (c)			SZ Kingworld Nature of the distributorship: Distributor in the PRC
	(iv)	M400 [●] Vitamin EC	●	[an Independent Third Party] (d)			Geographical coverage: The PRC (except Hong Kong, Macao and Taiwan)
						(e)	Term: five years (from 1
							January 2006 to 31 December
							2010) and may be
							automatically extended for
							another five	years	unless
							otherwise agreed by the parties
4.	Golden 100 [●] Range		[Sirio		Pharma	(a)	Date: 15 October 2010			[14 May 2008]	N/A
	consisting of a total of 5 flavors (金色100系列)		●	the [authorised manufacturer] of Golden 100 [●] Range (b)			Parties to supplier agreement: (i) Sirio Pharma and (ii) SZ Kingworld
			●	[an Independent Third (c)			Nature of the distributorship:
				Party]			NA
						(d)	Geographical coverage: NA
						(e)	Term: two years from 15
							October 2010 to 14 October
							2012

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										Commencement
										Date of
										distributorship
			Contractual party supplying			Major terms of				right of the
	Name of product		products to the Group			distribution/supplier agreement				product	Price Controls
5.	Flying Eagle Wood Lok Europharm Laboratories					(a)	Date: 7 March 2008			[26 August	N/A
	Medicated Oil (飛鷹活絡油)		Company Limited (“Europharm”)			(b)	Parties to distribution agreement: (i) Europharm		and	2003]
			●	the manufacturer of			(ii) SZ Kingworld
				Flying Eagle Wood Lok Medicated Oil		(c)	Nature of the distributorship: Distributor in the PRC
			●	an Independent Third Party		(d)	Geographical coverage: The PRC (except Hong Kong and
							Macao)
						(e)	Term: [From 7 March 2008 to
							31 December 2010]
6.	Imada Red Flower Oil		1.	Luen Wah		(a)	Date: 14 January 2010			[28 November	N/A
	(依馬打正紅花油)			● the manufacturer of Imada Red Flower		(b)	Parties to distribution agreement: (i) SZ Kingworld			2002] with Luen Wah
				Oil (ceased on 31 December 2009)			Lifeshine and (ii) SZ Kingworld			[1 February 2010] with SZ
				● an Independent Third		(c)	Nature of the distributorship:			Kingworld
				Party			Distributor in the PRC			Lifeshine
			2.	SZ Kingworld Lifeshine		(d)	Geographical coverage: The
							PRC
				● the manufacturer of
				Imada Red Flower		(e)	Term: one year (from 1
				Oil upon expiration of the distribution			February 2010 to 31 2011)	January
				agreement with
				Luen Wah
7.	Min	Tong Chisionhon	Pearl	Shining		(a)	Date: 21 October 2010			[25 November	N/A
	Granules (明通治傷風顆粒)		●	the authorised agent of Min Tong Chisionhon		(b)	Parties to distribution agreement: (i) Pearl Shining			1998]
				Granules in	the PRC		and (ii) SZ Kingworld
				and Hong Kong		(c)	Nature of the distributorship:
							Distributor in the PRC
						(d)	Geographical coverage: [The
							PRC]
						(e)	Term: from [25 November
							2010] to 31 December 2012
8.	Fengbao Jianfu Capsule		[Yuen Tai			(a)	Date: 21 October 2010			[1 December	N/A
	(鳳寶牌健婦膠囊)		●	the manufacturer of		(b)	Parties to distribution: (i)			1999]
				Fengbao Jianfu			Yuen Tai and (ii) SZ
				Capsule]			Kingworld
						(c)	Nature of the distributorship:
							Distributor in the PRC
						(d)	Geographical coverage: [The
							PRC]
						(e)	Term: from [25 November
							2010] to 31 December 2012

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									Commencement
									Date of
									distributorship
				Contractual party supplying		Major terms of			right of the
	Name of product			products to the Group		distribution/supplier agreement			product	Price	Controls
9.	Mentholatum Product			Mentholatum (China)		(a)	Date: 14 May 2010		[30 April 2001]	N/A
	Range (i) Mentholatum			Pharmaceutical Company Limited		(b)	Parties to distribution agreement: (i) Mentholatum
		Deep Heating		●	the manufacturer of the		(China) Pharmaceutical
		Rub (曼秀雷敦複			Mentholatum Product		Company Limited and (ii)	SZ
		方水楊酸甲酯乳			Range		Kingworld
		膏)		●	an Independent Third	(c)	Nature of the distributorship:
	(ii)	Compound			Party		Distributor in the PRC
		Mentholatum Ointment (曼秀雷敦複方薄荷腦軟				(d)	Geographical coverage: The PRC
		膏)				(e)	Term: two years (from 1
	(iii)	Mentholatum Compound					March 2010 to 28 February 2012)
		Menthol Nasal
		Inhalation (曼秀
		雷敦複方薄荷鼻
		用吸入劑)
	_Note: distribution _		of the
	_Mentholatum Eye _		Drop
	Range has been ceased
	since 1 January 2010
10.	Kingworld Product			SZ	Kingworld Lifeshine	(a)	Date: 14 January 2010		[1 January 2007]	Subject to the
	Range (i) Kingworld Gan Mao Qing			●	the manufacturer of the Kingworld Product Range	(b)	Parties to distribution agreement: (i) SZ Kingworld Lifeshine and (ii) SZ			highest retail prices set by the PRC government
		Capsule					Kingworld			For further
	(ii) (iii)	(金活感冒清膠囊) Kingworld American Ginseng Capsule (金活洋參膠囊) Kingworld Gen-seng Capsule (金活西洋參膠囊)				(c) (d) (e)	Nature of the distributorship: Distributor in the PRC Geographical coverage: The PRC Term: one year (from 1 February 2010 to 31 January 2011)			details, please refer to the sub-section headed “Price Controls by the PRC Government” under the “Business”
	(iv)	Kingworld								section of this
		American								document
		Ginseng Tablets
		(金活洋參含片)
11.	DIA	Instant Cooling		Serene Trading Co. H.K.		(a)	Date: 8 July 2009		1 August 2009	N/A
	Gel Sheet			●	the authorised	(b)	Parties to the distribution
					distributor		agreement:
				●	[an Independent Third Party]		(i) Serene Trading Co. H.K. and (ii) SZ Kingworld
						(c)	Nature of the distributorship:
							Distributor in the PRC
						(d)	Geographical coverage:
							The PRC
						(e)	Term: five years (from 1
							August 2009 to 31 July 2014)

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								Commencement
								Date of
								distributorship
		Contractual party supplying			Major terms of			right of the
	Name of product	products to the Group			distribution/supplier agreement			product	Price Controls
12.	Jamieson Product	Nanjing		IDS	(a)	Date: 27 March 2010		[27 March 2010]	N/A
	Range which consists of a total of [22] products (please refer to the sub-section	●	the principal agent of the Jamieson Product Range in the PRC		(b)	Parties to distribution agreement: (i) Nanjing IDS and (ii) SZ Kingworld
	“Brands and Products”	●	[an Independent Third		(c)	Nature of the distributorship:
	under the heading		Party]			Distributor in the PRC
	“Business” of this				(d)	Geographical coverage:
	document for the					Pharmacies located in
	description of the [22]					Shenzhen, Guangzhou,
	products)					Dongguan and Foshan;
						department stores,
						supermarkets and pharmacies
						located in Beijing and Tianjin
					(e)	Term: five years	(from 27
						March 2010 to 26 March 2015)

Products distributed pursuant to authorisation letter

							Commencement	Commencement
							Date of
							distributorship
		Contractual party supplying					right of the
	Name of product	products	to the Group	Major terms of authorisation letter product					Price Controls
13.	[●] Herbal Candy	[●] Medicine		(a)	Date: 1 January 2010		[8	July 2002]	N/A
	([●]枇杷糖)			(b)	Parties to authorisation
					letter: [●] Medicine
				(c)	Nature of the distributorship:
					Distributor in the PRC
				(d)	Geographical coverage:
					Shanghai, Jiangsu Province,
					Zhejiang	Province, Fujian
					Province, Jiangxi Province,
					Hainan Province, Anhui
					Province, Henan Province,
					Shanxi Province, Shaanxi
					Province, Gansu Province,
					Qinghai Province, Ningxia
					Autonomous Region and Inner
					Mongolia Autonomous Region
				(e)	Term: one year (from 1
					January 2010 to 31 December
					2010) and may be renewable
					on a yearly basis

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							Commencement
							Date of
							distributorship
		Contractual party supplying					right of the
	Name of product	products to the Group		Major terms of authorisation letter			product	Price Controls
14.	[●] ([●])	Tai	San	(a)	Date: 29 August	2008	[17 March 1997]	Subject to the
		●	the exclusive agent of [●] in the PRC	(b)	Parties to authorisation letter: Tai San			highest retail prices set by the PRC government
		●	an Independent Third Party	(c)	Nature of the distributorship: Distributor in the PRC			For further details, please
				(d)	Geographical coverage: The			refer to the
					PRC			sub-section
				(e)	Term: three years (from 29			headed “Price
					August 2008 to 28 August			Controls by
					2011)			the PRC
								Government”
								under the
								“Business”
								section of this
								document

Products distributed pursuant to purchaser order

Name of product
Source of product
Major terms of purchaser order
Commencement
Date of
distributorship
right of the
product
Price Controls
15.
Bifina Probiotic
Capsule
(美菲娜益生菌複合無縫
膠囊)
[Remeje
●
[the authorised
distributor] of Bifina
Probiotic Capsule in the
PRC]
●
an Independent Third
Party
(a)
Date: 26 May 2009
(b)
Parties to purchase order: (i)
Remeje and (ii) SZ Kingworld
[26 May 2009]
N/A

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The following table sets out the expiry dates of (i) the distribution rights; and (ii) the relevant Imported Drug Registration Certificate or the Pharmaceutical Product Registration Certificate of each of the products distributed by the Group with over 5% contribution to the revenue of the Group for the year ended 31 December 2009 and/or the six months ended 30 June 2010:-

			Revenue	Revenue
		Expiry date of	contribution to	contribution to
		the relevant	the Group (for	the Group (for
		pharmaceutical	the year ended	the six months
	Expiry date of the	registration	31 December	ended 30 June
Name of product	distribution rights	certificate	2009)	2010)
[●] Pei Pa Koa	22 April 2013	14 March 2015	67.1%	73.0%
Taiko Seirogan	31 March 2012	21 February 2015	7.6%	3.5%
[●] Product Range	31 December 2010	N/A_(Note 1)_	5.2%	3.3%
Flying Eagle Wood Lok
Medicated Oil	31 December 2010	5 December 2010	5.1%	4.0%
[●] Herbal Candy	31 December 2010	N/A_(Note 1)_	4.0%	5.3%

Note:

[[●] Product Range and [●] Herbal Candy are healthcare products. [As confirmed by the PRC Lawyer, the approval certificate of imported healthcare foods for these two products, which were issued prior to 2003, do not have any specific expiry dates and are valid under the PRC laws.]

Renewal of expiring distribution rights

The Group will discuss with the respective manufacturers/suppliers for the extension of the distribution rights of the relevant products approximately three months before their respective expiry date. [The Group has contacted the respective suppliers and manufacturers for the renewal of the distribution rights of the [●] Product Range, Flying Eagle Wood Lok Medicated Oil, [●] Herbal Candy], Imada Red Flower Oil and Kingworld Product Range]. [The Company is currently negotiating the terms of the renewal of the distribution rights of Golden 100 [●] Range with the authorised manufacturer. The Directors expect that such distribution agreements will be renewed by the end of October 2010.]

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Renewal of expired and expiring registration certificates

The registration certificate for each of Fengbao Jianfu Capsule and Min Tong Chisionhon Granules has expired and their respective application for the renewal of the registration certificate has been submitted before the expiry of each of their certificate. As the relevant PRC authorities requested extra documents in relation to the drug registration application of Fengbao Jianfu Capsule, SZ Kingworld had only received the notice from such authorities approximately six months after the expiry of the license of Fengbao Jianfu Capsule. The notice confirmed that the drug registration application of Fengbao Jianfu Capsule had been accepted and [should] be processed by the relevant PRC authorities. [As at the Latest Practicable Date, no renewed certificate has been issued so far as their registration applications are still under review by the relevant PRC authorities.]

The application for the renewal of the registration certificate of Flying Eagle Wood Lok Medicated Oil, which is due to expire on 5 December 2010, was received by the relevant PRC authority on 17 August 2010. [As confirmed by the PRC Lawyer, the Group has no legal impediment to the renewal of such registration certificates and the Company will follow up with the renewal progress. Also, the Company may apply for an Import Drugs Approval Notice for the importation of Flying Eagle Wood Lok Medicated Oil, Fengbao Jianfu Capsule and Min Tong Chisionhon Granules into the PRC during the renewal of the registration certificates.]

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The portfolio of products managed by the Group include 12 pharmaceutical products, seven healthcare product ranges and 28 general foodstuffs. These products can be grouped under seven functional categories, namely, cough and phlegm relieving, gastrointestinal, vitamin, orthopaedics, cardiovascular, influenza and others. The turnover by products which the Group distributed and the corresponding amount as a percentage of the Group’s turnover during the Track Record Period are set out below:

		Year	ended 31	December	December			Six months ended 30 June	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2007		2008			2009		2009		2010
	RMB’000	_% _	RMB’000	_% _	RMB’000		_% _	RMB’000	_% _	RMB’000		%
Pharmaceutical
products
[●] Pei Pa Koa	353,775	67.0%	357,121	66.6%	373,720		67.1%	186,728	67.9%	229,196	73.0%
Taiko Seirogan	53,755	10.2%	61,623	11.5%		42,325	7.6%	26,002	9.4%	11,034		3.5%
Flying Eagle Wood Lok
Medicated Oil	4,345	0.8%	10,130	1.9%		28,591	5.1%	10,388	3.8%	12,587		4.0%
Imada Red Flower Oil	28,259	5.4%	28,573	5.3%		26,131	4.7%	12,289	4.5%	4,363		1.4%
Mentholatum Product
Range_(Note 1)_	37,026	7.0%	20,432	3.8%		27,519	4.9%	16,611	6.0%	15,201		4.8%
[●]	7,886	1.5%	16,918	3.2%		1,202	0.2%	1,159	0.4%	9,921		3.2%
Kingworld Product
Range 1_(Note 3)_	3,810	0.7%	221	0.1%		2,879	0.5%	740	0.3%	2,384		0.8%
Min Tong Chisionhom	580	0.1%	128	—%		549	0.1%	484	0.2%	101		—%
Fengbao Jianfu Capsule	833	0.2%	312	0.1%		1,329	0.2%	23	—%	—		—%
Healthcare products,
foodstuffs and
medical product
[●] Herbal Candy	12,692	2.4%	14,266	2.6%		22,387	4.0%	8,276	3.0%	16,741		5.3%
[[●] Product Range]	23,910	4.5%	25,842	4.8%		29,127	5.2%	11,893	4.3%	10,442		3.3%
Kingworld Product
Range 2_(Note 3)_	366	0.1%	—	—%		216	—%	19	—%	164		0.1%
Other products_(Note 2)_	361	0.1%	980	0.1%		992	0.4%	545	0.2%	1,855		0.6%
Gross sales	527,598	100.0%	536,546	100.0%	556,967		100.0%	275,157	100.0%	313,989	100.0%
Less: Sales tax	(271)		(525)			(550)		(362)		(279)
Net sales	527,327		536,021		556,417			274,795		313,710

Notes:

SZ Kingworld has not distributed the Mentholatum Eye Drop Range since 1 January 2010.
Other products include Golden 100 [●] Range, Bifina Probiotic Capsule, [Jamieson Product Range] and DIA Instant Cooling Gel Sheet. Golden 100 [●] Range, Bifina Probiotic Capsule and Jamieson Product Range are under the category of general foodstuffs distributed by the Group. DIA Instant Cooling Gel Sheet is a medical product.

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Kingworld Product Range 1 includes Kingworld Gan Mao Qing Capsule and Kingworld Gen-seng Capsule. Kingworld Product Range 2 includes Kingworld American Ginseng Capsule and Kingworld American Ginseng Tablets.

Many of the products distributed by the Group are established brand names including [●] Pei Pa Koa, Taiko Seirogan, [[●] Product Range], Flying Eagle Wood Lok Medicated Oil, [●], Min Tong Chisionhon Granules and Mentholatum Product Series. Amongst these brands, “[●]” was awarded the Chinese Well-known Mark under the fifth category by the PRC Trademark Office in 2006. Based on a market analysis conducted by Speedroad, in 2009, [●] Pei Pa Koa accounted for a total sales of approximately RMB1.03 billion, representing approximately 24.09% of the proprietary Chinese medical Cough Relieving Products market in the PRC. According to the Speedroad Report, in June 2010, there were four licensed imported proprietary Chinese medical Cough Relieving Products in the PRC OTC market and amongst those, [●] Pei Pa Koa was the leading product with over 95% share of the market for imported proprietary Chinese medical Cough Relieving Products in the PRC. [●] Pei Pa Koa was also the Group’s all-time best-seller during the Track Record Period, which accounted for approximately [67.1]%, [66.6]%, [67.1]% and [73.0]% of the Group’s turnover for the three financial years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010, respectively. According to the Speedroad Report, the Group’s sales of [●] Pei Pa Koa during the Track Record Period accounted for approximately [42.6]%, [41.1]% and [42.8]% of the total turnover of [●] Pei Pa Koa in the PRC market for the three financial years ended 31 December 2007, 2008 and 2009, respectively.

Since the commencement of its business in October 1996, the Group has established an extensive distribution network in the PRC, which as at the Latest Practicable Date, consisted of approximately 190 Distributor Customers [having a network of] 400 Sub-distributor Customers, which are not direct customers of the Group, and approximately 1,500 Product Display Booths which have been set up in 12 provinces covering a total of 38 cities in the PRC. The Group only distributes products to the Distributor Customers. During the Track Record Period, the revenue contributed by the top five Distributor Customers accounted for [19.8]%, [24.3]%, [23.0]% and [17.6]% of the Group’s turnover, respectively. For more effective management and co-ordination of the distribution network, the Group has segmented the PRC market into 34 Regions, each overseen by one or more of the Twelve Subsidiaries or a regional representative office, each staffed with a sales and marketing team. These representative offices and the Twelve Subsidiaries have been set up to assist the Group in product sales and marketing, customer management, pricing management and brand promotion. Details of the roles and responsibilities of the regional representative offices and the Twelve Subsidiaries are set out in the sub-section headed “Segmentation of distribution network” under the “Business” section in this document. Moreover, a jointly controlled entity in the name of Zhuhai Jinming was established in 2004 by SZ Kingworld and Guangdong Minglin solely for the distribution of the [●] Product Series in the Guangdong Province. Since May 2009, the Group has set up Product Display Booths at retail outlets in the PRC featuring two products, namely Taiko Seirogan and Flying Eagle Wood Lok Medicated Oil under the name of “Kingworld Healthy Family (金活健康之家)” as a means of brand promotion.

As at the Latest Practicable Date, the Group had a total of [378] staff, [70] of whom worked in the Group’s Shenzhen head office while [308] were deployed across the 34 Regions, mainly to perform sales and marketing duties. Each year the Group issues the Annual Sales Guideline setting out the annual sales target, and sets seasonal marketing strategies to provide sales and marketing directions

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to be followed by all representative offices and its staff. The Group’s experienced managerial team, including sales directors and product managers, are responsible for co-ordinating the frontline sales and marketing team to meet the annual sales target. Moreover, the Group continuously seeks to broaden its portfolio of products it distributes, by introducing new products from international markets.

OBJECTIVE AND STRATEGIES

The principal objective of the Group is to increase the sales and market share in the distribution of branded pharmaceutical and healthcare products and general foodstuffs in the PRC. To achieve this, the Directors intend to apply the following strategies:

Maintaining and increasing the market share of the existing products

The Group will continue to maintain the leading position of [●] Pei Pa Koa in the Cough Relieving Product market in terms of its sales volume by introducing the same into the second and third-tier cities in the PRC and identifying new customer categories and demographics.

The Group also plans to achieve a substantial growth in turnover for each of Taiko Seirogan and Flying Eagle Wood Lok Medicated Oil in the PRC market in the coming two to three years.

Prospects of new products

The Group will continue to expand its product portfolio in order to strengthen its existing market position and further increase its market share. In addition to the existing products from Japan, Thailand, Taiwan and Hong Kong, the Group intends to extend its scope by sourcing products from other North American countries. The Group entered into a distribution agreement with Nanjing IDS on 27 March 2010 pursuant to which the Group has the right to distribute [22] general foodstuffs in the PRC, which are imported from Canada. Details of these [22] products are set out in the sub-section headed “Brands and Products” under the “Business” section in this document. Pursuant to the Deed of Non-Competition, the Controlling Shareholders will procure their associates not to engage in any activities in the PRC or overseas which may compete with the Group, including the distribution of all products by the Group, which include the 22 new general foodstuffs imported through Nanjing IDS from Canada. Further particulars of the Deed of Non-Competition are set forth under the paragraph headed “Deed of Non-Competition” in the section headed “Relationship with Controlling Shareholders” in this document.

Continued expansion of the Group’s distribution network

The Group’s distribution network is of great importance to its distribution business of pharmaceutical and healthcare products. The Group continues to expand its distribution network in both vertical and horizontal dimensions. In the vertical dimension, the Group aims to boost the sales volume of the products it distributes by co-operating directly with the retail outlets within the network of the Distributor Customers and Sub-distributor Customers. Such retail outlets mainly include local pharmacies where Product Display Booths are set up under the name of “Kingworld Healthy Family” (金活健康之家) as a means of brand promotion. These booths give the Group control over the

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selection of products for display. This strategy will assist the Group in enhancing the market presence and recognition of the Group and the products it distributes. As at the Latest Practicable Date, the Group had set up approximately 1,500 Product Display Booths for the marketing and promotion of Taiko Seirogan and Flying Eagle Wood Lok Medicated Oil. It is expected that the number of Product Display Booths will continue to increase to approximately [3000] in approximately [3000] retail outlets, such as pharmacies, supermarket, clinics and chain stores in Guangdong, Fujian, Jiangxi, Hunan, Hubei, Beijing and other provinces in the PRC from 2010 to 2012.

In the horizontal dimension, the Group plans to expand its market presence beyond the PRC, specifically targeting Hong Kong and Macao. HK Kingworld entered into an agreement on 2 July 2009 with Kakki Corporation Limited for the distribution of healthcare products in Hong Kong and Macao. As at the Latest Practicable Date, no specific product had yet been identified and/or considered by the Group for distribution in Hong Kong and Macao. Under the Distribution Agreement, the Group is not allowed to distribute [●] Pei Pa Koa in Hong Kong and Macao.

The Group also plans to acquire up to three distribution businesses, principally engaged in the distribution of imported pharmaceutical and healthcare products in the PRC, for the purpose of expanding horizontally and improving its distribution network and enlarging its scale of operation in the PRC. The Directors currently expect that each of these three distribution businesses to be acquired will have an established distribution network in the eastern and/or southern provinces in the PRC comprising sub-distributor cutomers such as pharmacies, supermarkets or clinics, a proven record of sales turnover of approximately RMB[100] million in [2009] and good credit terms with financial institutions. The Directors expect that the acquisition targets will not own or be engaged in the retail business.

Upon completion of the said acquisition, the Directors expect that (i) the customers of the three distribution businesses to be acquired will become the customers of the Group and therefore the number of Distributor Customers will be increased; (ii) the number of products distributed by the Group will be increased as the products that are originally distributed by the three distribution businesses to be acquired will become part of the portfolio of products distributed by the Group; and (iii) the acquired distribution businesses will bring in additional revenue and profit to the Group resulting from additional sales generated from the potential increase in the number of Distributor Customers and increased profit margin by taking up the profit originally earned by the distribution businesses to be acquired.

The Group will try to keep the status quo of the distribution businesses to be acquired by retaining all existing staff in order to avoid any sudden increase in the demand for human resources. In addition, the Group will also maintain the existing distribution network and operation model of each of the distribution businesses to be acquired with a view to ensure stability and continuity of such businesses and the Group as a whole. Nonetheless, the Group will assign two personnel to assist in the management of each of such distribution businesses. In the event that the distribution businesses to be acquired may have a larger distribution network and/or products which are not previously distributed by the Group, resulting in an increase of promotion and marketing activities, the Group may be required to recruit additional staff with the relevant experience to manage the work and may have to incur additional operating expenses. As the customers of the three distribution businesses to

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be acquired will become the customers of the Group upon completion of the said acquistion, the Group would have to assess the credibility of these new customers and if they are found to be less credible than the existing Distributor Customers, may consider giving them credit terms less favourable than those given to the existing Distributor Customers.

The Directors confirm that it is not the current intention of the Group to acquire any retail business and the three distribution businesses to be acquired will not own any retail business. As such, the Directors do not expect that there will be a sharp increase in inventory level of the Group upon acquisition of these distribution businesses. As at the Latest Practicable Date, the Company had not identified any acquisition targets with respect to potential distribution businesses. For further details please refer to the sub-section headed “Use of proceeds” under the section headed “Future Plans and Use of Proceed” in this document.

Consolidation of Distributor Customers and/or Sub-distributor Customers

In addition to developing its business through the expansion of its distribution network, the Group aims to acquire well-established distributors with stable cash flow in the PRC. In order to qualify as a well-established distributor, the Group expects that such distributor will have a stable cash flow and an established distribution network of retail outlets in the PRC. The Group anticipates a more vertically integrated and organized distribution network so that its sales and marketing strategies can be carried out more effectively to boost its sales.

Active exploration of new markets

As at the Latest Practicable Date, the Product Display Booths at the retail outlets covered by the Group’s existing distribution network mainly included pharmacies in the PRC. In order to capture new end-users, the Group together with its Distributor Customers and Sub-distributor Customers will try to explore and develop new markets such as local clinics, supermarkets and beauty salons in [residential areas including city communities and villages in remote areas] so as to reach out to a larger population that is not currently covered.

COMPETITIVE STRENGTHS

The Directors consider that the principal strengths of the Group are:

Well established distribution network and strong sales and marketing team

Over the years, the Group had established an organized and cohesive distribution network which, as at the Latest Practicable Date, comprised approximately 190 Distributor Customers and 400 Sub-distributor Customers and a chain of 1,500 Product Display Booths at the retail outlets in the PRC from the network of the Distributor Customers and Sub-distributor Customers. It is estimated that the current distribution network of the Group covers a total number of more than 17,000 retail outlets throughout the PRC of which the Group has no control. Nonetheless, the distribution network of the Group does not cover the Xinjiang Uyghur Autonomous Region and Tibet Autonomous Region. As at the Latest Practicable Date, the Group had geographically segmented the PRC market into 34 Regions which are managed by one or more of the Twelve Subsidiaries and other regional representative

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offices. These offices are frontline executors of the Group’s sales and marketing strategies. They are responsible for organizing marketing campaigns, which include placing advertisement, liaising for public promotions, attending industry exhibitions and organizing product launch and other promotional events for suppliers and manufacturers. They also work closely with the Group’s customers in the development of sales strategies and techniques, case studies sharing, and collecting invaluable sales data for market analysis and strategy review and adjustment.

Product portfolio with well-known brands

As at the Latest Practicable Date, the products distributed by the Group included a total of 48 products, which can be further divided into seven functional categories. Established brand names include, but are not limited to, [●], [●], Taiko, [Kyushin], and Mentholatum and general foodstuff bearing the [●] Licensed Materials. Recognition of the brand names is evidenced in the awards which they have received. For example, “[●]” has been awarded the honour of the Chinese Well-known Mark by the PRC Trademark Office in 2006; the [[●] Product Range] was awarded with best sales performance products by Watsons in both 2006 and 2007; while [●] and [Kyushin] were awarded the Superbrand status in 2002 and 2004, respectively. Detailed information of the awards and recognition in relation to the Group is set out under the sub-section headed “Awards and Recognition” under the “Business” section in this document.

SZ Kingworld has growth potential for the distribution of pharmaceutical and healthcare products

The Group has throughout the years imported pharmaceutical and healthcare products of established brand names. According to the Top 100 Importers of Pharmaceutical and Healthcare Products Report published by CCCMHPIE which was based on the statistics provided by the PRC Customs, SZ Kingworld ranked [76[th] in 2009] among the top 100 importers of pharmaceutical and healthcare products in the PRC based on its total import value. By introducing and distributing its portfolio of products, the Group has also earned its recognized operation in the pharmaceutical and healthcare product distribution industry. Over the years, the Group had been awarded with some major honours such as Shenzhen Top 100 Business Superbrands (深圳百強商業超級品牌) and Top 100 Chinese Brand Enterprises (中國品牌百企業榜上榜企業) in 2006, and Top 50 Private Enterprises in Shenzhen (深圳市50強民營企業) in 2004.

Proven historical business relationships with key manufacturers/suppliers and customers

The Group succeeded in acquiring several significant distributorships from manufacturers and suppliers in the early years of its establishment and has established long-term relationships with these manufacturers and suppliers. These relationships with Tai San (the supplier of the [[●] Product Range] and [●]) have begun since 1995 (in the capacity of SZ Industry before the establishment of SZ Kingworld, both being wholly-owned by the Controlling Shareholders), [●] Medicine and Great Pleasure since 1997 and Etta Trading Company Limited (the supplier of Taiko Seirogan) since 1998. Moreover, the Group has been co-operating with its top five customers over the Track Record Period for a period of [seven to 14 years] since the establishment of SZ Kingworld.

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Well-educated workforce

As at the Latest Practicable Date, the Group employed a total of [378] staff, over [81]% of whom have obtained post-secondary education and [15]% have received a bachelor’s degree or above from university. Amongst the four executive Directors Ms. Chan and Mr. Lin Yusheng have master’s degrees in business-related disciplines, while the Group’s quality control personnel are all professionally qualified either as licensed pharmacist or qualified GSP officers.

BUSINESS MODEL

The Group is engaged in, and the Group’s revenue is principally generated from, the distribution of branded imported pharmaceutical and healthcare products in the PRC and does not manufacture any products. SZ Kingworld, being an indirect wholly-owned subsidiary of the Company, is the Group’s primary operating company in conducting the business in distributing pharmaceutical and healthcare products.

Out of the 48 products distributed by SZ Kingworld, 15 of which are sourced or purchased directly from the manufacturers and the remaining products are sourced from distributor agents or principal distributors. SZ Kingworld does not have the right to choose whether to source the products from the manufacturers or from their distributor agents or principal distributors (the “authorised agents”) for distribution in the PRC market.

SZ Kingworld has entered into arrangements with the manufacturers and/or authorised agents/distributors, pursuant to which SZ Kingworld has been granted the right to distribute such pharmaceutical and healthcare products in the agreed regions in the PRC. In some cases, SZ Kingworld has been granted with an exclusive distribution right in certain agreed regions in the PRC. For certain pharmaceutical and healthcare products, SZ Kingworld has entered into license arrangement whereby SZ Kingworld is authorised to produce and distribute products. SZ Kingworld will then contract with the approved manufacturers for the production of such pharmaceutical and healthcare products.

SZ Kingworld distributes the pharmaceutical and healthcare products in the PRC through the Distributor Customers, which, in turn, sub-distribute the products to their respective networks of sub-distributors. For the above arrangement, SZ Kingworld enters into distribution agreements with the Distributor Customers and, for only two specific products, namely, [●] Product Series and Taiko Seirogan, SZ Kingworld enters into tripartite agreements with the Distributor Customers and the Sub-distributor Customers for the purposes of (i) regulating the pricing; (ii) preventing cross-region sourcing and sales; and (iii) setting out the sales targets for the Sub-distributor Customers.

Another source of revenue of the Group is generated from the business of Zhuhai Jinming, which is a jointly controlled entity set up by SZ Kingworld and Guangdong Minglin in 2004. Zhuhai Jinming is set up for the distribution of [●] Product Series in the Guangdong Province. The daily operation of Zhuhai Jinming is independent of the Group.

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As at the Latest Practicable Date, SZ Kingworld was responsible for the distribution of the products the Group distributes in the PRC. The Group’s distribution business principally involves merchandising, distributing and marketing of products in the PRC. SZ Kingworld focuses its resources in the distribution and marketing of the products it distributes, while other functions such as the delivery and manufacture of the products are contracted out to or sourced from third parties. The following diagram illustrates the flow of the operating process under which the Group operates.

==> picture [381 x 520] intentionally omitted <==

----- Start of picture text -----

PHASE 1
Purchase of
products
Purchase from overseas manufacturers or suppliers Purchase from
Healthcare local manufactures
Pharmaceutical products and or suppliers
Products general food stuffs
Import filing with the Quality inspection
local branch office of by the local EEIQB
SFDA upon arrival of
products at the ports obtain from the local
manufacturer or suppliers the
pharmaceutical production
Issuance of Imported Customs clearance permit and the pharmaceutical
Pharmaceutical registration approval
Customs Form
Customs clearance and
quality inspection by
the GDIDC
Quality inspection
by the quality
inspection staff at
the SZ Warehouse
Warehousing
PHASE 3
Marketing of products
and maintenance of
distribution Network
PHASE 2
Sales and distribution
of products
Receive purchase orders
Entry of data into ERP System
Credit checks
Arrangement of product delivery by delivery agents
Issue invoice and collect payment
----- End of picture text -----

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Phase 1 — Purchase of products

The Group manages a product portfolio purchased from overseas and local manufacturers and/or their authorised principal agents (collectively the “Suppliers”). The international sourcing department of SZ Kingworld is responsible for researching, identifying and introducing new products from international markets to diversify the Group’s product portfolio. The sourcing criteria for new products are based on the proven sales records and profitability as well as the reputation, safety and reliability of such new products. SZ Kingworld has obtained the Pharmaceutical Trade License (藥品經營許可證) from the local Food SFDA required to distribute products in the PRC.

The term of the distribution agreements for the distribution of pharmaceutical and healthcare products range from one year to three years. [During the Track Record Period, the Group did not experience any difficulty in renewing the agreements with Suppliers.]

The distribution agreements generally set out the specifications and prices for the pharmaceutical and healthcare products, credit periods and guidelines for the sale and distribution of the products, including but not limited to restrictions on the regions in which the products may be sold. Under some of the distribution agreements, the Suppliers are responsible for ensuring the quality of[, and the intellectual property rights to,] their pharmaceutical products. The Group is responsible to make payments to Suppliers as well as to comply with guidelines set by the Suppliers, especially the suggested distribution price. In some circumstances, suppliers would prescribe a minimum or target purchase amount. The distribution agreement may be renewed or extended upon mutual agreement in writing before the expiry date. The Suppliers may terminate such agreements if the Group breach major contract terms, such as if the Group fails to comply with the distribution guidelines specified in the agreements or if the Group is delinquent in making payment. Once the distributorship has been established, the products are purchased from the Suppliers either by importing the products from overseas or purchasing the products within the borders of the PRC.

Purchase of products from overseas suppliers

Import procedures are involved for purchase of products from overseas suppliers. In respect of imported pharmaceutical products, the Group must, upon arrival of the pharmaceutical products at the ports, file such materials as required by law to the pharmaceutical supervisory and administrative department of the place where the port is located. Upon passing inspection, the Group will be issued an imported pharmaceutical customs form《進口藥品通關單》, which will be presented to the local PRC Customs in order to complete the customs declaration, inspection and release procedures. Quality inspection will be conducted by the GDIDC. For further details, please refer to the subsections headed “Administration of Imported Pharmaceutical Products” and “Rules and Regulations governing the import of pharmaceutical products and penalties on non-compliance” under the “Regulatory Overview” section of this document.

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In respect of imported healthcare products and general food stuffs, the Group shall present the necessary certificates and relevant approval documents such as contracts, invoices, packaging receipts, and delivery notes for inspection by the EEIQB at the PRC customs. Upon meeting the requisite standards after inspection by the EEIQB, imported health care products and general food stuffs shall be allowed to enter the PRC. For further details, please refer to the subsections headed “Import Administration of Food and Healthcare Food” under the “Regulatory Overview” section of this document.

For SZ Kingworld, such import procedures are generally conducted via the Wenjindu cross-border control point for pharmaceutical products and healthcare products and general foodstuffs. The procedures for the import of pharmaceutical products and import of healthcare products and general foodstuff are different in respect of their respective quality inspection phase. The pharmaceutical products are delivered directly to the warehouse of SZ Kingworld for inspection by the GDIDC, while Wenjindu EEIQB conducts the inspection of the healthcare products and general foodstuff at the port. Upon receipt of the inspection report for the pharmaceutical product from the GDIDC and the sanitary certificate for the healthcare product and general foodstuff from the Wenjindu EEIQB, the products are moved to another part of the SZ Warehouse to indicate that they are ready for distribution.

Purchase of products within the PRC

[PRC manufacturers of pharmaceutical products must obtain the pharmaceutical production permit (藥品生產許可證) and the pharmaceutical registration approval (藥品註冊批件) for selling products to the Group.] Products purchased by the Group in the PRC include Imada Red Flower Oil and Kingworld Product Range which are manufactured by SZ Kingworld Lifeshine and Mentholatum Product Range which is manufactured by Mentholatum (China) Pharmaceutical Company Limited, and quality inspection was conducted by inspection staff at the SZ Warehouse. SZ Kingworld Lifeshine was engaged in the processing of Imada Red Flower Oil for Luen Wah for the period between [October 2004] and [December 2009]. SZ Kingworld Lifeshine commenced the manufacturing of Imada Red Flower Oil in August 2010 after obtaining the pharmaceutical production permit (藥品生產許可証) issued by GDFA on 1 January 2006 and the pharmaceutical registration approval (藥品註冊批件) issued by SFDA on 7 March 2006.

As confirmed by the PRC Lawyer, under the laws of the PRC, SZ Kingworld Lifeshine has the right to manufacture Imada Red Flower Oil and no consent is required to be obtained from Luen Wah to manufacture such product from August 2010 onwards.

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Payment terms for Suppliers

SZ Kingworld’s purchases are mainly made in HKD [(and the remaining by RMB and USD)] by telegraphic transfer with a general credit period of 90 days granted by the various suppliers during the Track Record Period. For the three financial years ended 31 December 2009 and six months ended 30 June, 2010, approximately [83.9]%, [89.4]%, [92.7]% and 93.6% respectively of SZ Kingworld’s total purchases were settled in Hong Kong dollars, and the rest purchases were settled in RMB and US dollars.

The Group has entered into forward foreign exchange contracts with certain banks in the PRC for the management of risks in relation to future movements in exchange rates arising from settling payment to suppliers in Hong Kong dollars.

Distribution of [ ● ] Product Series

[●] Medicine, Great Pleasure and China Capital are companies incorporated in Hong Kong with limited liability and are Independent Third Parties. Great Pleasure engages in the import and export business and China Capital engages in the general trading business. [According to the latest public search records, [●] Medicine, Great Pleasure and China Capital have common shareholders and common directors. Great Pleasure and China Capital have three common directors and three common shareholders. The following chart sets out the common directorship and common shareholding amongst [●] Medicine, Great Pleasure, China Capital, SZ Kingworld and Guangdong Minglin.]

		Common	Common
	Role	shareholders	directors
[●] Medicine	manufacturer of [●] Product Series	A, B	D, E
Great Pleasure	authorised distributor of [●] Pei Pa	A, B, C	C, D, E
	Koa
China Capital	authorised agent of [●] Herbal Candy	A, B, C	C, D, E
SZ Kingworld	regional distributor of [●] Product	Nil	Nil
	Series and a holder of 50% equity
	interest in Zhuhai Jinming
Guangdong Minglin	another regional distributor of [●]	Nil	Nil
	Product Series and a holder of 50%
	equity interest in Zhuhai Jinming

Note: [Based on the Directors’ understanding, [●] Medicine, Great Pleasure and China Capital do not form a group of companies, and there are common shareholders and directors among them].

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SZ Kingworld is authorised to distribute two of the various products of [●] Medicine, namely, [●] Pei Pa Koa in three different sizes of 300ml, 150ml, and 75ml and [●] Herbal Candy in two packaging sizes of 20g and 45g. According to the website of [●] Medicine, its products are categorized into three series, namely, pei pa koa, herbal candy and traditional Chinese medicine granules. The table below shows the number of products in each of these series and the series to which the products distributed by the Group belong:

	Category of products as	Number of products as
	shown on the website of	shown on the website of	Products which
	[●] Medicine	[●] Medicine	the Group distributes
1.	Pei pa koa	Three different kinds of	Bottle sizes of 300ml, 150ml
		packaging	and 75ml
2.	Herbal candy	Three flavors with two	One flavor in 20g and 45g
		different kinds of
		packaging
3.	Traditional Chinese	Five kinds for flu, cough,	N/A
	medicine granules	cold and health
		enhancement

As confirmed by [●] Medicine, [●] Pei Pa Koa is their principal product. SZ Kingworld and Zhuhai Jinming directly source the [●] Product Series from Great Pleasure and China Capital respectively. To the best of the Directors’ knowledge, Guangdong Minglin also sources the [●] Product Series from Great Pleasure and China Capital directly.

[The prices of [●] Pei Pa Koa (i) offered to SZ Kingworld, Guangdong Minglin and Zhuhai Jinming were the same from September 2008 and up to the Latest Practicable Date; and (ii) offered to the Distributor Customers by the Group and to the Sub-distributor Customers by the Distributor Customers, are set by [●] Medicine and Great Pleasure and are subject to their regular review.]

Guangdong Minglin is a company incorporated in the PRC with limited liability. The principal business of Guangdong Minglin is the distribution of pharmaceuticals. [None of the Controlling Shareholders or any member of the Group have any shareholding interests in Guangdong Minglin.] Other than Guangdong Minglin’s interests in Zhuhai Jinming, SZ Kingworld and Guangdong Minglin are independent in terms of their shareholders, directors and senior management. According to the latest public search records, there are no common shareholders and directors among [●] Medicine, Great Pleasure, China Capital and Guangdong Minglin. For further details of Zhuhai Jinming, please refer to the sub-section headed “Zhuhai Jinming” in the “Business” section of this document.

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Distribution of [ ● ] Product Series

The following diagram sets out the distribution flow of the [●] Product Series:—

==> picture [450 x 539] intentionally omitted <==

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Notes:

To the best of the Directors’ knowledge, as at the Latest Practicable Date, there were three regional distributors, namely, SZ Kingworld, Guangdong Minglin and Zhuhai Jinming, distributing the [●] Product Series in the PRC without any overlapping regions. To the best of the Directors’ knowledge, since 1997 and up to the Latest Practicable Date, the Directors were not aware of other regional distributors distributing the [●] Product Series in the PRC, apart from the above three regional distributors.
Other than Guangdong Minglin’s interests in Zhuhai Jinming, SZ Kingworld and Guangdong Minglin are independent in terms of their shareholders, directors and senior management. As such, Guangdong Minglin declined to confirm the structure of its distribution network.
According to the policy of SZ Kingworld, the Twelve Subsidiaries have been set up in regions in the PRC with a more established customer base. Apart from handling a larger amount of sales of the Group, each of the Twelve Subsidiaries also has personnel dedicated to the implementation of the Group’s marketing and promotional activities. On the other hand, the regional representative offices are set up in regions in the PRC with a developing customer base and are responsible for conducting the sales activities of the Group. Prior to July 2008, the distribution of the products distributed by the Group in Shanghai was handled by SH Industry. In July 2008, SH Industry ceased to distribute the products for SZ Kingworld and SZ Kingworld assumed the responsibilities of distributing such products. As a transitional arrangement, a representative office of SZ Kingworld was set up in Shanghai to distribute the products, and as a matter of business efficacy and efficiency, the marketing activities with respect to the products distributed by the Group in Shanghai are handled by the relevant Twelve Subsidiaries nearby. It is the present intention of the Group that a subsidiary will be set up in Shanghai to conduct both sales and marketing activities.

According to the policy of SZ Kingworld, the Twelve Subsidiaries have been set up in regions in the PRC with a more established customer base. Apart from handling a larger amount of sales of the Group, each of the Twelve Subsidiaries also has personnel dedicated to the implementation of the Group’s marketing and promotional activities. On the other hand, the regional representative offices are set up in regions in the PRC with a developing customer base and are responsible for conducting the sales activities of the Group. Prior to July 2008, the distribution of the products distributed by the Group in Shanghai was handled by SH Industry. In July 2008, SH Industry ceased to distribute the products for SZ Kingworld and SZ Kingworld assumed the responsibilities of distributing such products. As a transitional arrangement, a representative office of SZ Kingworld was set up in Shanghai to distribute the products, and as a matter of business efficacy and efficiency, the marketing activities with respect to the products distributed by the Group in Shanghai are handled by the relevant Twelve Subsidiaries nearby. It is the present intention of the Group that a subsidiary will be set up in Shanghai to conduct both sales and marketing activities.

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On 22 April, 2010, [●] Medicine, Great Pleasure, SZ Kingworld, and HK Kingworld (as guarantor) entered into the Distribution Agreement in relation to the non-exclusive distribution of [●] Pei Pa Koa in certain agreed regions of the PRC, pursuant to which (i) [●] Medicine shall appoint Great Pleasure as, and Great Pleasure accepts the appointment of, the distributor of [●] Pei Pa Koa in the PRC; (ii) Great Pleasure shall, and [●] Medicine has consented to, appoint SZ Kingworld as, and SZ Kingworld shall accept the appointment of, the regional distributor in respect of the non-exclusive distribution of [●] Pei Pa Koa in the Authorised Regions; and (iii) SZ Kingworld shall purchase [●] Pei Pa Koa from Great Pleasure. A summary of the principal terms of the Distribution Agreement is as follows:

Duration

Three years from 22 April 2010 to 22 April 2013 and may be extended subject to further negotiation amongst the parties.

Principal responsibilities and obligations of SZ Kingworld

(1) distributing the [●] Pei Pa Koa to Distributor Customers and Sub-distributor Customers holding valid pharmaceutical trade licence (藥品經營許可證) and GSP Certificate (藥品經營質量管制規範認證證書) in the Authorised Regions;

(2) unless with the prior consent of [●] Medicine, SZ Kingworld cannot distribute or provid assistance to any third party to distribute the [●] Pei Pa Koa, whether directly or indirectly or through itself or any other jointly controlled entities or entities in which SZ Kingworld has any equity or shareholding interest or by any other means, within the Authorised Regions (other than the distribution of the [●] Pei Pa Koa in the Guangdong Province through Zhuhai Jinming);

(3) submitting a written purchase order forecast for the coming month to Great Pleasure between the 15th to 20th day of each month, whereby the quantity of such monthly purchase order forecast shall not be less than 75% of the average monthly purchase of the previous year; (4) handling all import procedures as required by the PRC Customs and be responsible for paying all related fees and taxes (if any);

(5) assuming all risk upon delivery of the [●] Pei Pa Koa by Great Pleasure at the SZ Warehouse;

(6) distributing [●] Pei Pa Koa at an agreed price in accordance with the Distribution Agreement which will be subject to regular review by [●] Medicine and Great Pleasure;

(7) submitting weekly sales report(s) to [●] Medicine and Great Pleasure in accordance with the Distribution Agreement;

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(8) guaranteeing an increase of not less than 5% as compared to the annual sales volume of the previous calendar year; and
(9) making payment to Great Pleasure within 60 days upon delivery, failing which a default interest of 10% of the default amount will be charged.
Right of termination by [●] Medicine or Great Pleasure
[●] Medicine or Great Pleasure has the right to terminate the Distribution Agreement immediately from the date when SZ Kingworld is given or deemed to be given a written notice by [●] Medicine or Great Pleasure (as the case may be) upon the occurrence of any of the following events, where:-
(i) SZ Kingworld or HK Kingworld breaches any provision of the Distribution Agreement;
(ii) any representations or undertakings by SZ Kingworld in the Distribution Agreement are proven to be untrue or incorrect or unable to be enforced or is violated;
(iii) SZ Kingworld breaches or fails to comply with the relevant laws, legislation or government policies for the sale of [●] Pei Pa Koa in the Authorised Regions;
(iv) the legal representative of SZ Kingworld or more than half of the directors or the chief management staff [(including general manager and deputy general manager)] of SZ Kingworld as at the date of the Distribution Agreement is changed;
(v) SZ Kingworld raises queries with [●] Medicine in respective of its intellectual property rights of [●] Pei Pa Koa;
(vi) SZ Kingworld or HK Kingworld for whatever reason disposes or intends to dispose of any of their material assets;
(vii) Any assets owned by SZ Kingworld or HK Kingworld are detained /confiscated /frozen /subject to property preservation measures or other limitation measures;

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(viii) SZ Kingworld or HK Kingworld voluntarily applies for or is subject to application for bankruptcy, liquidation or dissolution;
(ix) The Pharmaceutical Products Registration Certificate relating to [●] Pei Pa Koa (including any specifications of the products of [●] Medicine) becomes invalid or temporarily invalid for whatever reason, or is revoked, deregistered, cancelled, withdrawn, terminated and encounters other similar circumstances for whatever reason; or
(x) The pharmaceutical trade licence《藥品經營許可證》or the GSP Certificate 《藥品經營質量管理規範認證證書》 obtained by SZ Kingworld within the effective period of the Distribution Agreement becomes invalid or temporarily invalid for whatever reason, or is revoked, deregistered, cancelled, withdrawn, terminated and encounters other similar circumstances for whatever reason.

Liability for breach of The non-defaulting party has the right to claim damages from contract the defaulting party for the breach of terms under the Distribution Agreement.

As at the Latest Practicable Date, SZ Kingworld had not breached any of the clauses under the Distribution Agreement. Other than the Distribution Agreement, the Group has not entered into any distribution agreement with [●] Medicine and/or Great Pleasure for the distribution of [●] Pei Pa Koa where the Group is required to guarantee any annual sales amount or purchase quantity in order to secure the distributorship right for [●] Pei Pa Koa.

Relationship with OEM suppliers

As at the Latest Practicable Date, SZ Kingworld engaged manufacturers to produce the Golden 100 [●] Range in accordance with a license agreement entered into between SZ Kingworld and [●] (Shanghai) in 2007. Pursuant to the granting of this license, SZ Kingworld has entered into a supply agreement with Sirio Pharma in relation to the production of the Golden 100 [●] Range. The revenue contributed by the Group’s OEM business accounted for 0%, 0.11% and 0% for the three financial years ended 31 December 2007, 2008 and 2009 respectively.

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Phase 2 — Sales and distribution of products

The Twelve Subsidiaries and the regional representative offices are responsible for collecting purchase orders from the Distributor Customers which will then be faxed to the head office of SZ Kingworld for verification and processing. The following flow chart sets out the major procedures and responsible departments involved in the process of distribution of products for SZ Kingworld.

==> picture [228 x 312] intentionally omitted <==

----- Start of picture text -----

Receipt of purchase orders from customers by regional representative
offices or Twelve Subsidiaries
Confirmation and approval of purchase orders
by operations department, finance department and sales department
Entry of purchase order into the ERP System and generation of
sales order by operations department
Confirmation and approval of sales order
by finance department and warehouse staff
Preparation of products for delivery in accordance with sales order
by warehouse staff
Issuance of sales order and arrangement for delivery
by operations department
Product delivery by delivery agent and
the responsible person of the Region from the respective
Twelve Subsidiaries or representative offices receives
SMS in relation to delivery process
----- End of picture text -----

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Distributor Customers and Sub-distributor Customers

The Group’s Distributor Customers are Independent Third Parties which are distributors who have sales channels reaching other sub-distributors in the PRC, such as retail pharmacies. The Group distributes products only to the Distributor Customers which in turn monitor the Sub-distributor Customers. The Distributor Customers are selected based on their reputation, market coverage, credit record and the scale of their distribution network. Details of the Distributor Customers during the Track Record Period are set out in the table below:

			No. of new	No. of
	Total	No.	appointments	Terminations	Reasons		for termination
2007
Distributor		195	116	15	[(a)	the sales target was not achieved;
Customers						or
				38	(b)	failed to fulfill the requirements
						set by SZ Kingworld, such		as:—
						(i)	poor payment record;
						(ii)	selling outside	the
							authorised area;
						(iii)	violating the pricing policy;
							and/or
						(iv)	failing to provide accurate
							sales record.]
2008
Distributor		181	52	13	[(a)	the	sales target was	not
Customers						achieved; or
					(b)	failed to fulfill the requirements
				53		set by SZ Kingworld, such		as:—
						(i)	poor payment record;
						(ii)	selling outside	the
							authorised area;
						(iii)	violating the pricing policy;
							and/or

(iv) failing to provide accurate sales record.]

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No. of new No. of Total No. appointments Terminations Reasons for termination Distributor 190 51 8 [(a) the sales target was not Customers achieved; or (b) failed to fulfill the requirements 34 set by SZ Kingworld, such as:—

(i) poor payment record;
(ii) selling outside the authorised area;
(iii) violating the pricing policy; and/or
(iv) failing to provide accurate sales record.]
Six months ended 30 June 2010
Distributor [190] [64] [12] [(a) the sales target was not Customers achieved;] [52] (b) failed to fulfill the requirements set by SZ Kingworld, such as:—
(i) poor payment record;
(ii) selling outside the authorised area;
(iii) violating the pricing policy; and/or
(iv) failing to provide accurate sales record.]

Notes:

The total numbers of the Distributor Customers in 2006 was 132.
Zhongshan region was established in 2009, it was included in the Guangzhou region prior to 2009.

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During the Track Record Period, the Group terminated the arrangement with certain Distributor Customers (“Terminated Distributor Customers”) based on the reasons as stated in the above table. The Directors consider that such terminations do not have any material adverse impact on the business of Group for the following reasons:-

(i) for the three years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010, each of the percentage of revenue generated from the Terminated Distributor Customers as a whole was approximately [7.2]%, [8.6]%, [6.4]%, and [5.7]% respectively of the Group’s total turnover. [The sales made to these Distributor Customers during the Track Record Period did not form a substantial portion of the Group’s revenue during the same period];
(ii) [as the Group will monitor the performances of the Distributor Customers by making monthly visits and reviewing reports on their distribution flow and inventory levels, there will not be any accumulation of inventory at the level of the Distributor Customers. Given that the Group’s inventory check on the Distributor Customers is conducted on a regular basis, [the Directors confirmed that the Terminated Distributor Customers during the Track Record Period did not have an excessive inventory level of products distributed by the Group.] Nonetheless, the Group will check on the inventory level of the Terminated Distributor Customers at the time of termination. Should the inventory level of such Terminated Distributor Customers have been found to be excessive, the Group may (i) at the request of such Terminated Distributor Customers, exercise its discretion to repurchase the excessive stocks from such Terminated Distributor Customers; or (ii) take the initiative to negotiate with such Terminated Distributor Customers in respect of repurchasing the excessive stocks to ensure that there will not be any accumulation of inventory at the level of the Distributor Customers. No such request or initiative by the Group had been made during the Track Record Period]; and
(iii) the number of Terminated Distributor Customers was sufficiently replenished by the number of newly appointed Distributor Customers.

During the Track Record Period, there were in total 535, 575, 500, and [402] Sub-distributor Customers respectively in the Group’s distribution network and the number of terminated Sub-distributor Customers was 78, 207, 277, and [229] respectively during the same period. The termination of the Sub-distributor Customers was at the discretion of the Distributor Customers instead of the Group, and the termination was mainly due to such Sub-distributor Customers failing to meet the sales targets and/or requirements set by the Distributor Customers. The Directors consider that such terminations do no have any material adverse impact on the business of the Group since the Group do not distribute products directly to the Sub-distributor Customers and there had been no direct sales made by the Group to the Sub-distributor Customers. Although the Group has no direct control over the Sub-distributor Customers (other than those who had entered into tripartite distribution agreements with SZ Kingworld and the Distributor Customers, details of which are set out in the subsection headed “Agreements with the Sub-distributor Customers” in this section of the document), the Distributor Customers will monitor the distribution flow and inventory levels of the Sub-distributor Customers.

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The Group’s distribution and sales of pharmaceutical and healthcare products to Distributor Customers are generally governed by a two-party distribution agreement.

Agreements with the Distributor Customers

The current agreement with each of the Distributor Customers generally specifies, among other things, the following matters:

the products to be distributed, the price to be paid for each of the products, the sales target and the sales coverage to be achieved by the Distributor Customers;
the region(s) where the products are to be distributed, the one-year term period for distribution, and the minimum price to be sold by the Distributor Customers;
the terms of payment and the agreed mechanism and conditions for sales rebate provided by SZ Kingworld to the Distributor Customers;
the situation under which the Distributor Customers may return the products subject to the decision of SZ Kingworld; and
the marketing activities for certain products to be conducted by SZ Kingworld to facilitate the sales activities to be conducted by the Distributor Customers.

Pursuant to the agreements with certain Distributor Customers, SZ Kingworld and the Distributor Customers shall, depending on the market situation and upon meeting certain criteria set by the Distributor Customers, jointly co-operate in the selection of Sub-distributor Customers for sub-distributing the products distributed by the Group.

Principal obligations of SZ Kingworld and Distributor Customers

The duties and responsibilities of SZ Kingworld and each Distributor Customer pursuant to the distribution agreement they have entered into generally include the following:

SZ Kingworld is generally responsible for (i) supplying the products to the Distributor Customers in accordance with the schedules and the relevant quality standards; (ii) maintaining the stability of the selling price(s) and assisting the Distributor Customer in gaining reasonable profits; (iii) cooperating with the Distributor Customers to conduct the marketing and promotional activities and provide after-sales services; (iv) providing technical support and training; and/or (v) handling all matters in relation to the quality of the products and settling any miscellaneous costs so incurred.
the Distributor Customer is generally responsible for (i) conducting sales activities and cooperating with SZ Kingworld in relation to the marketing and promotional activities; (ii) collecting the products delivered by SZ Kingworld at the agreed delivery place; (iii) checking the products at the delivery place, and upon identifying any defects, collecting relevant documentary evidence and thereafter informing SZ Kingworld so as to facilitate

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the early negotiation and settlement between SZ Kingworld and the delivery agents; (iv) bearing all the economic loss arising from the deficiencies of the products if the Distributor Customer fails to fulfill its obligations as aforesaid[; (v) not to sell (a) any similar products that may compete with the products provided by SZ Kingworld and (b) the products in any regions other than the agreed regions; and/or (vi) performing any other works in relation to the sales activities.]

Agreements with the Sub-distributor Customers

In order to regulate the prices of the [●] Product Series and Taiko Seirogan supplied to the Sub-distributor Customers by the Distributor Customers, preventing cross-region sourcing and sales, and setting out the sales targets directly for the Sub-distributor Customers to follow, SZ Kingworld, the Distributor Customers and the Sub-distributor Customers have entered into a tripartite distribution agreement for a term of one year, pursuant to which the Sub-distributor Customers shall be responsible for selling the [●] Product Series and/or Taiko Seirogan (as the case may be) in accordance with terms similar to those contained in the agreements between SZ Kingworld and the Distributor Customers, in particular, to set a suggested selling price. Although a tripartite agreement has been entered into, the [●] Product Series and/or Taiko Seirogan (as the case may be) supplied to the Sub-distributor Customers will be directly sourced from the Distributor Customers and the payment will be made by the Sub-distributor Customers directly to the Distributor Customers.

Revenue recognition

[SZ Kingworld recognizes its revenue when the products are delivered at the Distributor Customers’ premises which is taken to be the point in time when the customers have accepted the products and the related risks.] Each delivery is designated with a specific pre-numbered delivery note. As such, double counting of sales is prevented.

Credit terms for Distributor Customers

[Bills are issued upon delivery of products.] Payment is primarily settled by telegraphic transfer or letters of credit either in advance or on an open account basis with credit term up to 90 days, depending on product delivery schedule and credit-worthiness of the customers. [In order to assess the credit-worthiness of each customer, various considerations are taken into account including but not limited to the length of business relationship, previous transaction and payment records, order volume, reputation and market share of each customer. As at the Latest Practicable Date, SZ Kingworld was not aware of any customers who had experienced any material financial difficulty and resulted in bad debts.] SZ Kingworld has on average a relationship of approximately ten years with its major customers. The credit period, in general, offered to customers ranges from 30 to 90 days, except for the receivables in relation to the product distributed by the Group, Flying Eagle Wood Lok Medicated Oil, which are due within 90 days, 90 days and 12 months from the date of billing for the years ended 31 December 2007, 2008 and 2009 respectively.

Since 2009, the Group has been offering a 12-month credit term to all the Distributor Customers for the Flying Eagle Wood Lok Medicated Oil. The implementation of this 12-month credit term policy is a sales strategy put forward by the Group to increase the market share of Flying Eagle Wood Lok

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Medicated Oil in the PRC as this product is still in its market expansion stage and has a high gross profit margin of approximately 58% as compared to other products of the Group with a gross profit margin in 2009 ranging from 1.5% to 38%. The annual sales of this product has increased from RMB4.3 million in 2007 to RMB10.1 million in 2008 to RMB28.6 million in 2009 and the percentage of its sales representing 0.8% in 2007 to 5.1% of the Group’s total sales in 2009. In the year 2010, the Group will continue to offer the Distributor Customers a 12-month credit term as a business strategy to build up a larger customer base for the distribution of Flying Eagle Wood Lok Medicated Oil.

SZ Kingworld’s accounts receivables in respect of Flying Eagle Wood Lok Medicated Oil as at 30 June 2010 amounted to RMB14.1 million, over [60.9]% of which were settled up to 5 October 2010. The outstanding accounts receivables of RMB5.5 million in respect of Flying Eagle Wood Lok Medicated Oil are still within the credit period and the Directors expect that the outstanding balance will be settled when the outstanding amounts are due.

The Group has a policy to monitor the credit risk on the recoverability of the receivables of Flying Eagle Wood Lok Medicated Oil. The management of the Group evaluates the creditworthiness of the financial position and condition of each customer, which entails assessing the creditworthiness, ageing and past payment history of such customer. During the year ended 31 December 2009, the Group had sold Flying Eagle Wood Lok Medicated Oil to more than 90 Distributor Customers with a total sales amount of RMB28.6 million, out of which RMB19.8 million (69.2%) had been settled during the year 2009 and thereafter up to 13 June 2010. [During the Track Record Period, all such Distributor Customers have made full payment of their outstanding receivables before or upon the expiry of their credit periods which shows that the Group’s Distributor Customers have good payment history.] As such, the Directors are of the opinion that no impairment of trade receivables of Flying Eagle Wood Lok Medicated Oil during the year ended 31 December 2009 is required.

For the three financial years ended 31 December, 2007, 2008 and 2009, the debtor’s turnover days of the Group were [63] days, [88] days and [71] days respectively. The measure on credit control and collection included [(i) reviewing debtor’s balance by the management of the Group on a regular basis and immediate notification to the management of the Group by the finance department for any significant late settlements; (ii) frequent visits by the sales team to those late settling debtors to investigate the actual operating situation; and (iii) frequent telephone tracing and follow up by the finance department for late debts.]

[The Directors confirm that SZ Kingworld does not have a general provision policy on trade debtors based on ageing analysis. Nonetheless, the management/finance department of the Group reviews the long outstanding debtors and their recoverability on a regular basis and provision is made on specific debtors with potential recoverability problem, as and when necessary.] The provision for trade debtors for each of the three financial years ended 31 December 2007, 2008 and 2009 amounted to approximately RMB[2.6] million, RMB[2.8] million, RMB[2.8] million respectively.

Sales returns

The Distributor Customers may return products that are damaged, with incomplete packaging or inconsistent with the specifications as set out in the purchase orders subject to the decision of SZ

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Kingworld. [During the Track Record Period, the Group’s monthly sales to customers were generally stable and did not have a material amount of sales returns from the customers.] The Group’s sales returns from the Distributor Customers amounted to approximately [RMB1.84] million, [RMB5.08] million, [RMB4.23] million and RMB[1.14] million, representing 0.3%, 0.9%, 0.8% and [0.4]% respectively, of the Group’s turnover during the Track Record Period. As such, in the opinion of the Directors, the Group’s sales return and relevant profit have an insignificant impact on the Group’s result and no provision has been made for sales returns by customers in the financial statements.

Pricing

Pricing of [●] Product Series

Pursuant to the Distribution Agreement, pricing of the [●] Pei Pa Koa distributed by the Group to its Distributor Customers is determined by [●] Medicine and Great Pleasure.

In respect of the pricing of the [●] Product Series, there was a pricing guideline set out in (i) the distribution agreements entered into between SZ Kingworld and the Distributor Customers and (ii) the tripartite distribution agreements entered into between SZ Kingworld, the Distributor Customers and the Sub-Distributor Customers for the distribution of the [●] Product Series in the PRC (the “[●] Pricing Guideline”). As confirmed by the Directors, [the [●] Pricing Guideline is determined by [●] Medicine, Great Pleasure and/or China Capital setting out the selling prices of the [●] Product Series by the Distributor Customers and the Sub-distributor Customers to their customers (including but not limited to their sub-distributors, chain stores, supermarkets, clinics, and retail outlets) and the retail prices of the [●] Product Series.] [As confirmed by the PRC Lawyer, non-compliance of the [●] Pricing Guideline by the Distributor Customers and the Sub-distributor Customers would not constitute a breach of duty by the Group under the Distribution Agreement.] Nonetheless, the Group may take into account such compliance by the Distributor Customers in relation to the [●] Pricing Guideline when determining (i) the offering of cash rebate to its customers and/or (ii) the renewal of the distribution agreements with its customers. The retail price of [●] Pei Pa Koa is also subject to the PRC government price control, as confirmed by the PRC Lawyer, only the Party which sells [●] Pei Pa Koa at a price higher than the retail price ceiling set by the PRC government would be responsible and penalised for the violation of the PRC government regulated retail price control. The Directors confirm that the retail prices set out under the [●] Pricing Guideline did not exceed the price ceiling set by the relevant PRC government authorities during the Track Record Period.

Pricing of the products distributed by the Group other than the [●] Product Series

Other than the [●] Product Series, the selling price of the products distributed by the Group to the Distributor Customers is determined by the Group based on arm’s length negotiations with the suppliers and Distributor Customers. Various factors were taken into account for determining the relevant selling prices. These factors include the Group’s [procurement cost] and gross profit margin, the extensiveness of its distribution network and bargaining power, government policies and regulations, competition, consumer preference and market considerations. During the Track Record Period, for products other than the [●] Product Series, the Group issued its own pricing guidelines to the Distributor Customers and the Sub-distributor Customers on the (i) selling price of such products by the Distributor Customers and the Sub-distributor Customers to their customers (including but not

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limited to their sub-distributors, chain stores, supermarkets, clinics, and retail outlets) and (ii) the retail price of such products. Similar to the [●] Pricing Guideline, which was set by [●] Medicine, Great Pleasure, and/or China Capital, non-compliance of the Group’s own pricing guideline by the Distributor Customers and the Sub-distributor Customers would not constitute a breach of duties by the Group under the various distribution agreements with the Group’s suppliers. Nonetheless, the Group may take into the account the compliance of such pricing guideline by the Distributor Customers and Sub-distributor Customers when determining (i) the offering of cash rebate to its customers and/or (ii) the renewal of the distribution agreements with its customers.

Sales Rebate

[●]

Price controls by the PRC Government

As confirmed by the PRC Lawyer, the prices of the healthcare products currently distributed by the Group are not subject to government restrictions, and four kinds of pharmaceutical products among those distributed by the Group are under government price restrictions, specific restrictions of which are as follows:

Kingworld Gan Mao Qing Capsule: This is the pharmaceutical called “Gan Mao Qing Capsules (tablets)” under “(2) Chinese patent medicines category” (No.8 and Health Insurance No.12) in Schedule 1 titled “Price-controlled Pharmaceutical Products Catalog of National Development and Reform Commission (國家發展改革委定價藥品目錄)” of “Circular of the National Development and Reform Commission on adjustment of Price-controlled Pharmaceutical Products Catalog of National Development and Reform Commission (國家發展改革委關於調整<國家發展改革委定價藥品目錄>等有關問題的通知) (Fa Gai Jia Ge [2010] No. 429);
[●] Pei Pa Koa: This is the pharmaceutical called “Mi Lian Chuan Bei Pei Pa Koa” under “(2) Chinese patent medicines category” (No. 106 and Health Insurance No.205) in Schedule 2 titled “Catalog for Non-prescription Pharmaceuticals included in the Pricing Range set by Pricing Regulatory Departments of Provinces, Autonomous Regions and Municipalities (納入各省、自治區、直轄市價格主管部門定價範圍的非處方藥劑型目錄)” of the aforesaid document (Fa Gai Jia Ge [2010] No. 429);
Taiko Seirogan: This is the pharmaceutical called “Seirogan” under “(2) Chinese patent medicines category” (No. YZ23) in the annex titled “Catalog for the First Batch of New Pharmaceuticals under Government Price Ceiling Management (廣東省第一批新增政府最高限價管理藥品目錄)” to “Circular of Guangdong Provincial Price Bureau on Issue of Catalog for the First Batch of New Pharmaceuticals under Government Price Ceiling Management (廣東省物價局關於印發廣東省第一批新增政府最高限價管理藥品目錄的通知)” (Yue Jia (2009) 177);

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[●]: This is the pharmaceutical called “[●]” under “(2) Chinese patent medicines category” (No. YZ95) in the above mentioned “Catalog for the First Batch of New Pharmaceuticals under Government Price Ceiling Management (廣東省第一批新增政府最高限價管理藥品目錄)”;

The form of government pricing of the above products distributed by the Group is the setting of the highest retail prices. [However, the price ceiling of the retail price for Taiko Seirogan had not yet been promulgated by the relevant authorities as at the Latest Practicable Date and the pricing of Taiko Seirogan shall remain market-regulated until promulgation of the relevant notice.]

The revenue contribution to the Group from each of the above four regulated products, namely, [●] Pei Pa Koa, Kingworld Gan Mao Qing Capsules, [●] and Taiko Seirogan was RMB373.7 million, RMB2.4 milion, RMB1.2 million and RMB42.3 milion, representing 67.2, 0.4%, 0.2% and 7.6% of the Group’s turnover, respectively for the financial year ended 31 December 2009 and RMB229.2 million, RMB1.8 million, RMB9.9 million and RMB11.0 million, representing 73.1%, 0.6%, 3.2% and 3.5% of the Group’s turnover respectively for the six months ended 30 June 2010. According to the PRC Lawyer, no revision of the price ceiling for the retail prices of the above four regulated products is expected by the relevant government authorities in the PRC. [However, the relevant regulatory price control over the products distributed by the Group will continue to be imposed after [●] unless otherwise ordered by the relevant PRC authorities.]

Nonetheless, the purchase prices of [●] Pei Pa Koa and Taiko Seirogan had been raised by the respective suppliers during the Track Record Period. The purchase prices of [●] Pei Pa Koa were increased because its cost of production had increased during the Track Record Period. As shown in the table above, SZ Kingworld was able to raise the price of Taiko Seirogan supplied to the Distributor Customers to maintain its profit margin but was not able to increase the prices of the [●] Pei Pa Koa supplied to the Distributor Customers at the request of [Great Pleasure], resulting in a decrease in the Group’s gross profit margin in [2009 as compared to the year 2008.] To the best of the Directors’ understanding Great Pleasure requested SZ Kingworld not to increase the price of the [●] Pei Pa Koa supplied to the Distributor Customers, it was due to the reason for (i) maintaining a reasonable profit margin for the Distributor Customers; (ii) preventing the disincentive of the Distributor Customers to purchase [●] Pei Pa Koa from the Group; (iii) providing incentive for them to remain as the Group’s customers so as to maintaining the market share of [●] Pei Pa Koa in the PRC and (iv) avoiding non-compliance of the government price ceiling of [●] Pei Pa Koa by the retailers. As a result, SZ Kingworld directed more resources to promote products with a higher gross profit margin with a view to making up for the decrease in revenue due to the increase in the unit price of the [●] Pei Pa Koa. Please refer to the sub-section headed “Risks Relating to the Industry” under the “Risk Factors” section of this document for details of risk the Group may face in relation to the price controls by the PRC Government.

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Warehouse and Delivery

SZ Kingworld maintains and operates its own warehouse which has obtained the GSP Certificate. GSP Standards《藥品經營質量管理規範》, which comprise a set of quality guidelines for operations (including wholesale and retail) related to pharmaceutical products, regulate pharmaceutical enterprises to ensure the quality of pharmaceutical products in China. The current applicable GSP standards require pharmaceutical enterprises to implement strict controls on the operation of pharmaceutical products, including but not limited to standards regarding staff qualifications, premises, warehouses, inspection of equipment and facilities, management and quality control.

The product delivery procedure has been contracted out to independent delivery agents. Upon the issuance of a delivery note, the delivery agents will collect the products from the SZ Warehouse and deliver them to the customers. In the event of that there are product damages or losses during delivery, SZ Kingworld will be compensated for such damage or loss by either the delivery agent or by its insurance policy.

Warehouse

SZ Kingworld operates and manages the two-storey SZ Warehouse in Shenzhen, Guangdong Province, the PRC which stores all products to be distributed to the Group’s customers throughout the Regions. Details of the tenancy agreement of the SZ Warehouse are set out below:

Location	Duration	Consideration	Area
301A, 302B, 303A, 304B,	1 March 2009�	RMB38,438.52 per month	6,406.42 sq.m.
401A and 402B of Xinyi	28 February 2013	for the first 3 years, the rent
Logistics Complex		for the 4th year is to be
Building, Shabeili,		negotiated by both parties
Longdong, Longgang
District, Shenzhen, PRC

Delivery

As at the Latest Practicable Date, SZ Kingworld had engaged Shenzhen Wu Yue Logistic Limited (深圳市吳越物流有限公司) and Shenzhen Hai Yun Logistic Limited (深圳市海運物流有限公司), which are all Independent Third Parties, as delivery agents, for the delivery of products to its customers in accordance with the designated time and location. The agreement between SZ Kingworld and Shenzhen Wu Yue Logistic Limited for the delivery of products is valid until 18 June 2011 and the agreement between SZ Kingworld and Shenzhen Hai Yun Logistic Limited for the delivery of products is valid until 14 May 2011.

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Phase 3 — Management of distribution network

Since its inception in 1996, SZ Kingworld has developed its distribution network throughout the PRC market. As at the Latest Practicable Date, SZ Kingworld had a network coverage of over 29 provinces and [660] cities with approximately 190 Distributor Customers, [which in turn had a network of] approximately 400 Sub-distributor Customers, who are not direct customers of the Group, and covering 17,000 retail outlets, of which the Group has no control in the PRC. The Group does not have control over the operation of those retail outlets as the Group does not have any contractual relationship (other than agreements in relation to the setting up of the Production Display Booths) with such retail outlets. Nonetheless, the Group will provide product support services to them.

To achieve better management of its distribution network, SZ Kingworld selects and manages its Distributor Customers and works with such customers in the development and maintenance of the Sub-distributor Customers to avoid any overlapping of resources in their distribution networks. Moreover, SZ Kingworld deploys its sales team throughout the PRC market to manage and maintain regular and close contact with these customers within its network.

Over the years of development, SZ Kingworld has secured a relatively stable Distributor Customer network over the Region. The number of Distributor Customers was approximately 195, 181, 190 and [●] respectively during the Track Record Period. The sales managers of each Region collect purchase orders from the respective Distributor Customers, while the sales and marketing team of each Region liaises with the Distributor Customers and their respective customers to market the products and to gather market data for research and analysis purposes.

At the beginning of each year, based on the Annual Sales Guideline, the Group agrees with the Distributor Customers on the regional sales and marketing plan for each product including but not limited to, the amount of sales for each region, pricing strategies and policy, product distribution coverage, delivery time schedule, promotional and marketing support, advertising plan, rebate standard and to avoid competition amongst the Distributor Customers.

The Group and the Distributor Customers would independently assess the market demand for the products which the Group distributes before agreeing on the sales targets as set out in the distribution agreements between them. Upon achieving the relevant sales targets, the Group would reward the Distributor Customers with rebates. As such, these sale rebates may serve as an incentive for the Distributor Customers to enhance their sales efforts in order to boost their sales of the products purchased from the Group. Notwithstanding that there are sales targets set out in the distribution agreements between the Group and the Distributor Customers, these distribution agreements do not contain any clause which make the Group and/or the Distributor Customers liable in any respect in the event that such sales targets are not achieved. Also, the purchase of products by the Distributor Customers from the Group is at the discretion of the Distributor Customers and under no circumstances does the Group have any right to coerce the Distributor Customers to make purchase from the Group. As such, the sales targets set out in the distribution agreements will not cause excessive inventory level at the Distributor Customers’ level. Pursuant to the distribution agreements, the Group would also organize marketing and promotional activities on behalf of the Distributor Customers in their respective Regions as an incentive to boost their sales.

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Based on the distribution agreements, the Group manages the Distributor Customers and monitors their sales activities through deploying its sales teams at the regional representative offices and the Twelve Subsidiaries who shall report to the management team at the Group’s Shenzhen head office.

The sales personnel of the Group’s regional representative offices and the Twelve Subsidiaries [will monitor the performances of the Distributor Customers by making monthly visits and reviewing reports on the distribution flow and inventory levels of the Distribution Customers to ensure their compliance with the distribution agreements and that there will not be any accumulation of inventory at the level of the Distributor Customers. In the event that their inventory level is found to be excessive by the Group, [the Group may consider the feasibility of reducing and/or suspending the supply of products to the Distributor Customers.] In addition, the sales team will provide support to the Distributor Customers to ensure service quality and to collect market information, such as prices offered to retailers and end-users. The Directors confirm that the Group’s sales to the Distributor Customers are made without recourse. The Directors further confirm that there is no sales return policy imposed on the Distributor Customers except that the Distributor Customers may return products that are damaged, with incomplete packaging or inconsistent with the specifications as set out in the Distributor Customers’ purchase orders subject to the decision of SZ Kingworld. [The Group also requires the Distributor Customers to monitor the Sub-distributor Customers with regard to their distribution coverage, implementation of pricing policy, service quality and inventory levels.]

Segmentation of distribution network

For ease of management and implementation of marketing policies, SZ Kingworld divided the PRC market into three divisions, namely Sales Region 1, Sales Region 2 and Sales Region 3 as set out in the tables below. Three business directors are appointed to oversee the operations of the three respective divisions and their corresponding regional representative offices and the Twelve Subsidiaries. The Group has given sufficient consideration to the scope of coverage and the differences in product concentration in the different sales regions with a view to demarcating and standardizing the sales strategy and marketing plan.

Under the three divisions, the PRC market is further segmented into 34 Regions, 7 Regions in Sales Region 1 and 13 Regions in Sales Region 2 and 14 Regions in Sales Region 3, each being managed by either one or more of the Twelve Subsidiaries or a regional representative office, as the case may be, which are responsible for managing and liaising with the Distributor Customers and product marketing, such as the organization of sampling events, distribution of fliers and posters, brand promotion, monitoring of payment, retail pricing of products and compliance with terms under distribution agreements and providing product support services, which include sales returns, introduction of product features to the staff of its customers and their respective retail outlets, including retail outlets with Product Display Booths and provision of marketing materials for promotion. The relevant costs incurred for the provision of such services are RMB1.0 million, RMB1.2 million and RMB1.2 million in 2007, 2008 and 2009 respectively.

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		BUSINESS	BUSINESS
Sales	Region 1
			Responsible
	Region	Representative Office	province-level area(s)	Responsible area(s)
1	Shenzhen	Shenzhen office	Guangdong Province	Shenzhen
			(Note 1)	Dongguan Huizhou
				Heyuan
2	Guangzhou	Guangzhou office		Guangzhou Foshan
				Qingyuan Zhaoqing
				Yunfu
				Shaoguan
3	Zhongshan	Zhongshan office		Zhongshan
				Jiangmen
				Zhuhai
4	Shantou	Shantou office		Shantou Chaozhou
				Meizhou
				Jieyang
				Shanwei
5	Zhanjiang	Zhanjiang office		Zhanjiang Maoming
				Yangjiang
6	Fujian	Fuzhou Consultancy	Fujian Province
7	Hainan	Hainan office	Hainan Province

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Sales	Region 2
			Responsible
	Region	Representative Office	province-level area(s)	Responsible city(ies)
1	Hangzhou	Hangzhou Consultancy	Zhejiang Province	Hangzhou
			(Note 1)	Jiaxing
				Huzhou
				Shaoxing
2	Ningbo	Ningbo office		Ningbo
				Zhoushan
3	Wentai	Wentai office		Wenzhou
				Taizhou
4	Jinhua	Jinhua office		Jinhua
				Quzhou
				Lishui
5	Shanghai	Shanghai office	Shanghai
6	Yunnan	Yunnan office	Yunnan Province
7	Guizhou	Guizhou office	Guizhou Province
8	Guangxi	Nanning Consultancy	Guangxi Zhuang
			Autonomous Region
9	Sichuan	Sichuan office	Sichuan Province
10	Chongqing	Chongqing office	Chongqing
11	Hunan	Hunan office	Hunan Province
12	Hubei	Wuhan Consultancy	Hubei Province
13	Jiangxi	Nanchang Consultancy	Jiangxi Province

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Sales	Region 3
			Responsible
	Region	Representative Office	province-level area(s)	Responsible area(s)
1	Wuxi	Wuxi Consultancy	Jiangsu Province	Wuxi
			(Note 1)	Changzhou
2	Suzhou	Suzhou office		Suzhou
				Nantong
3	Xuzhou	Xuzhou office		Xuzhou
				Suqian
				Huai’an
				Yancheng
				Lianyunggang
4	Nanjing	Nanjing office		Nanjing
				Yangzhou
				Taizhou
				Zhenjiang
5	Henan	Zhengzhou Consultancy	Henan Province
6	Shanxi	Taiyuan Consultancy	Shanxi Province
7	Gansu	Lanzhou Consultancy	Gansu Province
8	Anhui	Hefei Consultancy	Anhui Province
9	Qinghai	Qinghai office	Qinghai Province
10	Inner	Inner Mongolia office	Mongol Autonomous
	Mongolia		Region
11	Ningxia	Ningxia office	Ningxia Hui Autonomous
			Region
12	Shaanxi	Xi’an Consultancy	Shaanxi Province
13	Beijing	Beijing office	Beijing
			Tianjin
			Hebei Province
			Shandong Province
14	Beijing	Beijing Consultancy	Heilongjiang Province
		(Note 2)	Jilin Province
			Liaoning Province

Notes:

Due to the importance of the markets in the Jiangsu Province, Zhejiang Province and Guangdong Province, they are sub-divided into smaller Regions for more effective management; while the Beijing Region covers a boarder area since it does not distribute the [●] Product Series, contributing a smaller portion to the Group’s turnover.
The Beijing Consultancy is responsible for managing the sales and distribution in the three provinces above and serving as a liaison office for renewal of licences with various bureaux and departments of the PRC Government for the Group.

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==> picture [453 x 323] intentionally omitted <==

----- Start of picture text -----

Sales Region 1
Sales Region 2
Sales Region 3
----- End of picture text -----

Segmentation of the PRC market into Regions is not only for administrative purposes such as human resources deployment and capital allocation, but more importantly it assists the Group in systematically keeping track of the performances of each of the 34 Regions. The Group’s extensive database includes information such as the number of customers and retail outlets, their locations and respective sales performance on each product which are stored in the ERP System. These information provides the management with a clear overview and a solid basis in formulating its business strategies. Each year financial budgets and sales targets are set and assigned to each Region in the Group’s Annual Sales Guideline. Moreover, delivery schedules are set out under the ERP System to provide the relevant dates for the delivery of products to each and every city within the Group’s distribution network.

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Revenue by geographical regions

Sales Region 1

						Sales
						in the six
	Subsidiary					months
Areas of	Representative		Sales	Sales	Sales	ended 30
coverage	Office	Products distributed by SZ Kingworld	in 2007	in 2008	in 2009	June 2010
			RMB’000	RMB’000	RMB’000	RMB’000
Shenzhen	Shenzhen office	Flying Eagle Wood Lok Medicated Oil, [●]	33,851	22,626	20,435	9,468
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan,
		Bifina Probiotic Capsule, Jamieson Product Range
Guangzhou	Guangzhou office	Flying Eagle Wood Lok Medicated Oil, [●]	44,459	65,308	39,446	15,640
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan,
		Bifina Probiotic Capsule, Jamieson Product Range
Zhongshan	Zhongshan office	Flying Eagle Wood Lok Medicated Oil, [●]	687	404	11,452	12,086
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan
Shantou	Shantou office	Flying Eagle Wood Lok Medicated Oil, [●]	3,196	8,735	7,299	2,523
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan
Zhanjiang	Zhanjiang office	Flying Eagle Wood Lok Medicated Oil, [●]	403	550	2,251	2,069
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan
Fujian	Fuzhou	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	47,337	48,193	56,921	28,722
	Consultancy	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan

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						Sales
						in the six
	Subsidiary					months
Areas of	Representative		Sales	Sales	Sales	ended 30
coverage	Office	Products distributed by SZ Kingworld	in 2007	in 2008	in 2009	June 2010
			RMB’000	RMB’000	RMB’000	RMB’000
Hainan	Hainan office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	10,110	7,702	6,519	5,755
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Sales Region	2
Hangzhou	Hangzhou	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	22,268	17,403	24,038	15,610
	Consultancy	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Ningbo	Ningbo office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	13,208	9,663	10,960	8,214
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Wentai	Wentai office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	10,957	14,504	17,092	8,786
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Jinhua	Jinhua office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	4,256	4,549	5,755	3,788
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Shanghai	Shanghai office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	63,095	46,490	53,015	33,573
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan

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BUSINESS

						Sales
						in the six
	Subsidiary					months
Areas of	Representative		Sales	Sales	Sales	ended 30
coverage	Office	Products distributed by SZ Kingworld	in 2007	in 2008	in 2009	June 2010
			RMB’000	RMB’000	RMB’000	RMB’000
Yunnan	Yunnan office	Flying Eagle Wood Lok Medicated Oil, [●]	1,860	305	558	359
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan
Guizhou	Guizhou office	Flying Eagle Wood Lok Medicated Oil, [●]	508	319	482	—
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules
Guangxi	Nanning	Flying Eagle Wood Lok Medicated Oil, [●]	3,003	2,877	1,351	570
	Consultancy	Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan
Sichuan	Sichuan office	Flying Eagle Wood Lok Medicated Oil, [●]	805	246	84	35
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules
Chongqing	Chongqing office	Flying Eagle Wood Lok Medicated Oil, [●]	2,902	4,578	8,188	141
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules
Hunan	Hunan office	Flying Eagle Wood Lok Medicated Oil, [●]	4,908	4,475	5,811	1,863
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules
Hubei	Wuhan	Flying Eagle Wood Lok Medicated Oil, [●]	7,562	13,262	21,973	1,048
	Consultancy	Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules

— 164 —

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						Sales
						in the six
	Subsidiary					months
Areas of	Representative		Sales	Sales	Sales	ended 30
coverage	Office	Products distributed by SZ Kingworld	in 2007	in 2008	in 2009	June 2010
			RMB’000	RMB’000	RMB’000	RMB’000
Jiangxi	Nanchang	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	30,124	32,718	35,246	13,585
	Consultancy	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules
Sales Region	3
Wuxi	Wuxi	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	21,018	25,204	28,002	16,392
	Consultancy	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Suzhou	Suzhou office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	11,601	14,024	15,624	10,615
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Nanjing	Nanjing office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	15,898	19,048	16,758	9,970
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Xuzhou	Xuzhou office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	21,182	26,712	27,429	13,470
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Qinghai	Qinghai office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	2,170	2,726	2,444	1,973
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules

— 165 —

BUSINESS

						Sales
						in the six
	Subsidiary					months
Areas of	Representative		Sales	Sales	Sales	ended 30
coverage	Office	Products distributed by SZ Kingworld	in 2007	in 2008	in 2009	June 2010
			RMB’000	RMB’000	RMB’000	RMB’000
Gansu	Lanzhou	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	4,777	6,058	6,684	4,729
	Consultancy	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules
Ningxia	Ningxia office	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	1,750	2,119	2,566	1,370
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules
Shaanxi	Xi’an Consultancy	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	16,944	19,238	18,747	14,833
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules, Taiko Seirogan
Henan	Zhengzhou	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	25,160	20,485	23,317	13,809
	Consultancy	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules
Anhui	Hefei Consultancy	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	18,289	17,306	16,740	10,581
		Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules
Shanxi	Taiyuan	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	6,968	9,863	8,150	4,703
	Consultancy	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules

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BUSINESS

						Sales
						in the six
	Subsidiary					months
Areas of	Representative		Sales	Sales	Sales	ended 30
coverage	Office	Products distributed by SZ Kingworld	in 2007	in 2008	in 2009	June 2010
			RMB’000	RMB’000	RMB’000	RMB’000
Inner Mongolia	Inner Mongolia	[●] Pei Pa Koa, [●] Herbal Candy, Flying Eagle	4,870	5,571	4,814	3,612
	office	Wood Lok Medicated Oil, [●] Product Range,
		Kingworld Product Range, Golden A+ [●] Range,
		Golden 100 [●] Range, Fengbao Jianfu Capsule,
		[●], Mentholatum Product Range, Min Tong
		Chisionhon Granules
Beijing	Beijing office	Flying Eagle Wood Lok Medicated Oil, [●]	5,987	1,302	1,160	4,355
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules, Taiko Seirogan,
		Jamieson Product Range
Beijing	Beijing Consultancy	Flying Eagle Wood Lok Medicated Oil, [●]	703	Nil	Nil	485
		Product Range, Kingworld Product Range, Golden
		A+ [●] Range, Golden 100 [●] Range, Fengbao
		Jianfu Capsule, [●], Mentholatum Product Range,
		Min Tong Chisionhon Granules
		SZ Kingworld total:	462,813	474,562	501,310	274,732
		Zhuhai Jinming (Note 1)	64,785	61,984	55,657	39,257
		Gross sales	527,598	536,546	556,967	313,989
		Less: sales tax	(271)	(525)	(550)	(279)
		Net sales	527,327	536,021	556,417	313,710

Notes:

The income of Zhuhai Jinming attributable to the Group as stated in note 14 to the Accountants’ Report set out in Appendix I to this document includes sales and other revenue. The sales of Zhuhai Jinming attributable to the Group for each of the three financial years ended 31 December 2009 and for the six months ended 30 June 2010 was RMB64.8 million, RMB62.0 million, RMB55.7 million and RMB39.3 million respectively; and the other revenue attributable to the Group for each of the three financial years ended 31 December 2009 and for the six months ended 30 June 2010 was RMB1.7 million, RMB3.7 million, RMB1.4 million and RMB0.7 million respectively.

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The Group’s distributorship in relation to the Kingworld Product Range started in 2007 but it was temporarily ceased for a period of 13 months from January 2008 to January 2009 as SZ Kingworld Lifeshine, the manufacturer [decided to] distribute the Kingworld Product Range on its own through its distribution network. The distribution right in relation to the Kingworld Product Range was returned to SZ Kingworld in 2009 due to the unsatisfactory performance of SZ Kingworld Lifeshine in its distribution of the products. The Directors confirm that the financial and operational impact of this arrangement on the Group during the cessation period was minimal.
The Company has ceased to distribute the Mentholatum Eye Drop Range since 1 January 2010.
[The Group’s distributorship in relation to the Jamieson Product Range started in March 2010.]

FACILITATION OF SALES OF PRODUCTS

SZ Kingworld has committed a large proportion of human resources in the sales and marketing of its products. The sales discipline is overseen by three business directors, each responsible for Sales Region 1, Sales Region 2 and Sales Region 3 respectively; while the marketing discipline is led by a [promotions director] who works closely with the product managers to plan and implement marketing strategies and promotional activities to support the sales teams at the Twelve Subsidiaries and the regional representative offices with the aim to achieve the sales target set out in the Annual Sales Guideline. According to the policy of SZ Kingworld, the Twelve Subsidiaries have been set up in regions in the PRC with a more established customer base. Apart from handling a larger amount of sales of the Group, each of the Twelve Subsidiaries also has personnel dedicated to the implementation of the Group’s marketing and promotional activities. On the other hand, the regional representative offices are set up in regions in the PRC with a developing customer base and are responsible for conducting the sales activities of the Group. Prior to July 2008, the distribution of the products distributed by the Group in Shanghai was handled by SH Industry. In July 2008, SH Industry ceased to distribute the products for SZ Kingworld and SZ Kingworld assumed the responsibilities of distributing such products. As a transitional arrangement, a representative office of SZ Kingworld was set up in Shanghai to distribute the products, and as a matter of business efficacy and efficiency, the marketing activities with respect to the products distributed by the Group in Shanghai are handled by the relevant Twelve Subsidiaries nearby. It is the present intention of the Group that a subsidiary will be set up in Shanghai to conduct both sales and marketing activities. As at the Latest Practicable Date, a sales and marketing team of [310] staff was deployed to explore, develop and maintain the extensive distribution network of the Group covering the 34 Regions.

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The extensive presence of the Group’s sales and marketing team over the Regions is shown in the following chart:

==> picture [322 x 265] intentionally omitted <==

----- Start of picture text -----

Three business directors One [promotions director]
responsible for the marketing
responsible for the sales discipline
discipline
The Twelve Subsidiaries and
regional representative offices Product Managers
covering 34 Regions
Plan and
implement marketing
strategies and
Sales and marketing teams
promotional activities
Place orders Monitor
Distributor Customers
Place orders Monitor
Sub-distributor Customers
Place orders
Retail Outlets
• pharmacy
• clinics
• chain stores etc.
----- End of picture text -----

Media promotion

The Group works closely with its suppliers and customers in launching marketing and promotional campaigns, such as publication of advertorials and interviews in newspapers featuring the Group’s corporate identity, and the brand images and effectiveness of the products the Group distributes. The costs of such campaigns are contributed by the Group and/or the manufacturers and/or suppliers.

The following table sets out the promotional expenses borne by SZ Kingworld and [●] Medicine respectively during the Track Record Period in respect of the [●] Product Series.

	[●] Pei Pa	Koa (HK$)	[●] Herbal Candy (HK$)	[●] Herbal Candy (HK$)
Track Record Period	[●] Medicine	SZ Kingworld	[●] Medicine	SZ Kingworld
For the financial year
ended 31 December 2007	8,106,897.78	Nil	536,547.85	178,933.60
For the financial year
ended 31 December 2008	7,772,246.72	Nil	609,909.83	203,303.27
For the financial year
ended 31 December 2009	5,990,096.37	Nil	442,116.07	147,371.79
For the six months ended
30 June 2010	[1,251,287.50]	[Nil]	[157,062.94]	[52,354.30]

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During the Track Record Period, [[●] Medicine was responsible for bearing all the promotional expenses for [●] Pei Pa Koa and approximately two-thirds of the promotional expenses for [●] Herbal Candy, while SZ Kingworld was not required to bear any part of the promotional expenses for [●] Pei Pa Koa but was responsible for approximately one-third of such expenses for [●] Herbal Candy.] [SZ Kingworld must obtain the approval of [●] Medicine before launching any marketing and promotional campaigns for the [●] Product Series.] The promotional expenses of the Mentholatum Product Range and Taiko Seirugan are borne by their relevant manufacturer/supplier while the promotional expenses of the rest of the products distributed by the Group are borne by SZ Kingworld.

Marketing and promotional activities

On top of liaising with the retail outlets to put up promotional posters and banners and other publication means in relation to its products, the sales and marketing team of the Group also organize other marketing and promotional activities such as free sample tasting, giving out souvenirs and consumer questionnaires.

Retailer training

The sales and marketing team of the Group also organizes training sessions in collaboration with the respective retail outlets to confer knowledge in relation to the products, such as information on the health benefits of the products and also introduce selling techniques and other general health matters. In 2009, the Group resolved to invest a sum of RMB1 million to set up a training centre in Shenzhen to provide trainings to its staff and customers.

Consumer education

In order to engage the public’s interest in pharmaceutical and healthcare products so as to raise awareness of the products the Group distributes, the Group organizes periodical media promotion campaigns and with the resources from the manufacturers and/or suppliers, the Group also organizes events relating to specific health topic and publishes booklets and flyers which indirectly market the products.

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Product Display Booth Scheme

In May 2009, SZ Kingworld entered into agreements directly with retail outlets such as pharmacies and chain stores to set up Product Display Booths to display, in particular, Taiko Seirogan and Flying Eagle Wood Lok Medicated Oil under the name of “Kingworld Healthy Family” (金活健康之家) as they are the Group’s best selling products after [●] Pei Pa Koa and also the products with the highest gross profit margin of 38.5% and 58.3% respectively in 2009.

==> picture [193 x 257] intentionally omitted <==

Example of Flying Eagle Wood Lok Medicated Oil Product Display Booth

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BUSINESS

==> picture [195 x 221] intentionally omitted <==

Example of Taiko Seirogan Product Display Booth

These retail outlet participants are sourced from SZ Kingworld’s distribution network and were recommended by or contacted through the Group’s Distributor Customers and/or Sub-distributor Customers. The Product Display Booths are set up at the initiative of [SZ Kingworld]. Over 76% of the Product Display Booths are located in the Guangdong Province since the Group has a sizable and established sales team in this province to assist the setting up of the Product Display Booths and to provide supporting services to the retail outlets. The Group is responsible for all the costs in relation to the production and setting up of the Product Display Booths for Flying Eagle Wood Lok Medicated Oil and shares a portion of such costs with the supplier of Taiko Seirogan [while the retail outlets are responsible for maintaining such display booths.] The Group, being a distributor and not a retailer, is not involved in the operation of, nor does it sell its products directly through, the Product Display Booths. Flying Eagle Wood Lok Medicated Oil is only one of the products being displayed on the Product Display Booths, and the setting up of such Product Display Booths has no linkage with the provision of the 12-month credit policy for Flying Eagle Wood Lok Medicated Oil. Such credit policy is only offered by the Group to its Distributor Customers but not to the retail outlets. The costs related to the Product Display Booths amounted to approximately RMB[1.25 million] from 2009 up to the Latest Practicable Date.

The purposes of setting up the Product Display Booths are (i) to promote the products the Group distributes as well as its image as one of the major companies in the pharmaceutical and healthcare products distribution industry; (ii) to assist the Distributor Customers and Sub-distributor Customers to further expand their sales network; (iii) to provide the Group with greater control over the selection of products for display to better achieve its marketing strategies; and (iv) to fulfill the annual sales target of the Group. As at the Latest Practicable Date, SZ Kingworld had set up approximately 1,500 Product Display Booths and the Group plans to set up an addition of 1,000 Product Display Booths for the year 2010 in Fujian, Jiangxi, Hunan, Hubei, Beijing and other provinces in the PRC.

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BRANDS AND PRODUCTS

The Group distributes a range of 47 products, which are sourced from 12 different manufacturers and/or suppliers from overseas (including Hong Kong) and from the PRC. As per the section headed “Regulatory Overview” in this document, products are classified into different categories subject to the different regulatory requirements and restrictions.

Each of the products the Group distributes will be set out in detail below based on their different functional categories, namely, cough and phlegm relieving, gastrointestinal, vitamin, orthopaedics, cardiovascular, influenza and others.

Cough Relieving Product

According to Speedroad, Cough Relieving Product is one of the ten major pharmaceutical products in the PRC retail market. The market share of the Cough Relieving Product in the pharmaceutical product market increased from 4.5% in 2005 to 6.01% in 2009. The size of the Cough Relieving Products market was RMB8.17 billion in 2009, increasing at an average 9.63% over the past five years. Amongst the various Cough Relieving Products, the decocted extract category (煎膏類) recorded a sales increase of approximately 5% in 2009. In comparison, [●] Pei Pa Koa, being a product under the decocted extract category (煎膏類), recorded an increase of [4.65%] in 2009.

Historical growth in Cough Relieving Products in the PRC from 2004 to 2009

Market size (RMB 100 million) Market growth rate

==> picture [360 x 198] intentionally omitted <==

----- Start of picture text -----

90 16%
14.67% 81.7
80 13.67% 77.3 14%
12.20%
70 67.4
12%
61.0
60 56.6
50.4 10%
7.78% 10.59%
50
8%
40 5.68%
6%
30
4%
20
10 2%
0 0%
2004 2005 2006 2007 2008 2009
----- End of picture text -----

Source: Speedroad PRC Pharmaceutical Products Market Competitiveness Report 2009

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[ ● ] Pei Pa Koa ([ ● ] 蜜煉川貝枇杷膏 )

[●] Pei Pa Koa is a Dual-Specification Cough Relieving Product, which is currently being distributed by the Group as an OTC (A) product, having the highest sales volume and market share in the Cough Relieving Products market in the PRC. It is manufactured in Hong Kong and it is effective in relieving cough and phlegm and soothing sore throats. It is distributed in three different bottle sizes, namely 300ml, 150ml and 75ml.

[●] Pei Pa Koa was the all-time best selling product of the Group, which accounted for over 67.1%, 66.6%, 67.2% and 73% of the Group’s turnover during the Track Record Period. The demand for [●] Pei Pa Koa is particularly high during the winter seasons.

According to the Speedroad Report, in 2009, the sales of [●] Pei Pa Koa accounted for a total sales of approximately RMB1.03 billion, representing approximately 24.09% of the proprietary Chinese medical Cough Relieving Products market in the PRC. [●] Pei Pa Koa was the leading product among the four licensed imported proprietary Chinese medical Cough Relieving Products in the PRC OTC market in June 2010 and had over 95% share of the market for the imported proprietary Chinese medical Cough Relieving Products in the PRC. According to the Speedroad Report, amongst the three distributors of [●] Pei Pa Koa in the PRC, namely Guangdong Minglin, Zhuhai Jinming and SZ Kingworld, during the Track Record Period, SZ Kingworld ranked first in 2007 (with market share of 42.56%), second in both 2008 and 2009 (with market share of 41.06% and 42.83% respectively), and [●] for the six months ended 30 June 2010 (with market share of [●]%) in terms of sales of [●] Pei Pa Koa in the PRC.

In addition, according to the Chinese retail medicine analysis system (中國藥品零售用藥分析系統) produced by the SFDA Southern Medicine Economic Institute, [●] Pei Pa Koa was one of the best-sellers amongst the pharmaceutical products being sold in the PRC market in 2007 and 2008.

[ ● ] Herbal Candy ([ ● ] 枇杷糖 )

[●] Herbal Candy is a healthcare product manufactured in Thailand and imported from Hong Kong. The Group first distributed this product in 2002. It is made of a variety of natural herbs which relieves sore throats and freshens the mouth. It is distributed in two packaging sizes, namely 20g and 45g.

Gastrointestinal

Taiko Seirogan ( 喇叭牌正露丸 )

Taiko Seirogan is an OTC (A) pharmaceutical product distributed by SZ Kingworld in two sizes, namely 50 capsules or 100 capsules per bottle. It is effective against diarrhea and other common ailments of the digestive system. The product is manufactured in Japan.

SZ Kingworld has been the distributor of this product in the PRC market since 1998. Although the sales of Taiko Seirogan dropped from RMB62 million in 2008 to RMB42 million in 2009 due to the delayed renewal of the import permit which affected the supply of this product in the PRC, Taiko

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Seirogan was the second best selling product of the Group for the year ended 31 December 2009. This product is one of the key products which the Group displays in the Product Display Booths. The Directors expect that there will be an increase in turnover in this product [due to the expansion of the Product Display Booth Scheme].

According to Speedroad, the total size of the gastrointestinal product market in the PRC in 2009 was around RMB1.29 billion which has increased by an average of 10.86% over the past five years. It is expected that the total size of the gastrointestinal product market will grow to RMB1.8 billion by the year 2012. The growth is mainly due to the sharp increase of enterogastritis in 2008 in both urban and rural areas according to the Ministry of Health of the PRC.

As stated in Speedroad, Taiko Seirogan ranked fourth in the gastrointestinal product market in the PRC from 2007 to 2009, accounting for approximately 7.45%, 7.53% and 5.8% of the total market sales volume respectively.

Bifina Probiotic Capsule ( 美菲娜益生菌複合無縫膠囊 )

Bifina Probiotic Capsule is a dietary supplement distributed in two kinds of packages of which one is 10 packs per box and another is 60 packs per box. It is manufactured in Japan and has beneficial effects on gastrointestinal dysfunctions, including constipation and diarrhea, as well as the immune system.

Vitamins

According to the Chinese retail medicine analysis system (中國藥品零售用藥分析系統) produced by the SFDA Southern Medicine Economic Institute, the market share of vitamins and mineral supplements in the PRC pharmaceutical and healthcare market increased from 11.45% in 2004 to 14.49% in 2008. The market size for vitamins and mineral supplement product in 2009 was RMB16.78 billion. According to Speedroad, the market size for vitamins and mineral supplement product will maintain a growth rate of approximately 8%. It is estimated by Speedroad that the market size for vitamins and mineral supplement product may reach approximately RMB20 billion in 2010.

[[ ● ] Product Range] ([ ● ] 系列 )

The [[●] Product Range] is a healthcare product. The [[●] Product Range] maintained a steady growth rate throughout the Track Record Period. This is evidenced by the fact that the market share of the [[●] Product Range] in the PRC amongst vitamins and mineral supplement products during the Track Record Period were 0.49%, 0.55%, 0.64% and [●]%, respectively according to the Speedroad Report.The series include four variants of fruit-flavored chewable jelly tablets, each of which offers a different composition of vitamins, namely:

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[ ● ] Kanyu Drop S provides a rich supplement of vitamins A and D, ideal for improving appetite and eye-sight and strengthening bone density. SZ Kingworld distributes two sizes, namely 300 or 100 tablets per can.

[ ● ] Kanyu Drop C20 provides a rich supplement of vitamins A, D and C, which aids in the development of healthy bones and teeth, maintains healthy vision and relieves dry eyes. SZ Kingworld only distributes the size of 180 tablets per can.

[ ● ] Kanyu Drop M400 provides a rich supplement of calcium and vitamins A and D. Vitamin D fosters the absorption of calcium which is ideal for the growth of teeth and bones. SZ Kingworld distributes two sizes, namely 180 or 100 tablets per can.

[ ● ] Vitamin EC provides a rich supplement of vitamins E and C, both of which are essential for healthy skin, teeth, gums and bones, and is a highly effective antioxidant that protects body and skin and is crucial to the creation of collagen. SZ Kingworld distributes one size, namely 200 tablets per can.

The Group first gained the distributorship of the [[●] Product Range] in 1996. The Guangdong province is the principal market for the [[●] Product Range]. The [[●] Product Range] has been actively promoted in the Jiangsu Province and Zhejiang Province, and the development of the [[●] Product Range] to the whole PRC market has been maintained at a steady pace. The [[●] Product Range] is currently one of the ten major vitamins and supplement products in Guangzhou and Shenzhen, ranking seventh and fourth respectively according to Speedroad. It accounted for no less than 5% of the Group’s total sales turnover for the year ended 31 December 2009. This product range has received many awards throughout the years.

Tai San has been the agent of the [[●] Product Range] since [1996]. Jinbaoli was the import agent of the [[●] Product Range] during the period between June 2007 and September 2009. During that period of time, SZ Kingworld imported the [[●] Product Range] through Jinbaoli from Tai San for distribution in the PRC. Such arrangement was terminated in September 2009 as Jinbaoli ceased to be an import agent of the [[●] Product Range] since September 2009. Currently, SZ Kingworld imports the [[●] Product Range] directly from Tai San for distribution in the PRC.

Jinbaoli was not an Independent Third Party when it imported the [[●] Product Range] for the Group during the period between June 2007 and September 2009.

Since the incorporation of Jinbaoli on [10 November 2006], Mr. Chan Zhanxiong (陳展雄) had held 80% equity interest in Jinbaoli and [was appointed as a supervisor of Jinbaoli for a term of three years.]

On 15 January 2008, Mr. Chan Zhanxiong transferred 36.5% and 16.5% equity interests in Jinbaoli to Mr. Huang Ruozhong (黃若忠), the corporate finance manager of SZ Kingworld (please refer to the section headed “Directors, senior management and staff” of this document for further details regarding Mr. Huang Ruozhong), and Mr. Yao Ren (姚韌), an Independent Third Party, respectively. As a result of the said transfers, Mr. Chan Zhanxiong’s equity interest in Jinbaoli was reduced to 27%.

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[On 15 January 2008, Mr. Chan Zhanxiong resigned as the supervisor of Jinbaoli] and became a director of Jinbaoli, and [Mr. Huang Ruozhong was appointed as a director of Jinbaoli for a term of three years.]

[On 31 August 2009], Mr. Chan Zhanxiong transferred his remaining 27% equity interest in Jinbaoli to Mr. Yao Ren. As a result of the said transfer, Mr. Chan Zhanxiong ceased to be a shareholder of Jinbaoli and Mr. Yao Ren’s equity interests in Jinbaoli was increased by 43.5%. [On 1 September 2009, Mr. Chan Zhanxiong resigned as a director of Jinbaoli and Mr. Huang Ruozhong became the supervisor of Jinbaoli.]

[On 3 February 2010], Mr. Huang Ruozhong transferred all his equity interest in Jinbaoli to an Independent Third Party and ceased to be the supervisor and shareholder of Jinbaoli.

[As at the Latest Practicable Date, Jinbaoli was an Independent Third Party.]

Golden 100 [ ● ] Range ( 金色 100 系列 )

This PRC produced general foodstuff range offers a total of five flavors including multi-vitamins in orange flavour, calcium in lemon flavour, vitamin C in orange flavour, vitamin-AD in pineapple flavour and dairy calcium (乳鈣) in yogurt flavour for children aged three to twelve. The Group first gained the distributorship of the range in 2008.

The Jamieson Product Range

The Jamieson Product Range consists of a total of [22] products which are set out as follows:

[Vitamin E 100iu ( 天然維生素 E100)]

[This product is an antioxidant for the maintenance of good health and it is offered in one size of 100 capsules per bottle. It helps prevent the oxidation of free radicals that may result in cell damage and it works to protect the body from tissue damage that may lead to degenerative diseases, such as heart diseases and cancer. It also protects the body from premature aging.]

[Folic Acid 1,000mg/1mg ( 葉酸營養片 )]

[This product is a compressed folic acid dry tablet offered in one size of 100 tablets per bottle. It helps prevent neural tube defects when taken prior to becoming pregnant and during early pregnancy and supports cardiovascular health by reducing homocysteine levels.]

[Stress Plex � ( 植物油複合營養片 )]

[Stress Plex� is a multivitamin product formulated using a combination of the water soluble B vitamins, vitamin C and zinc. It is offered in one size of 90 caplets per bottle. It helps support a healthy nervous system, increases energy to help the body cope with stress, and maintains the health of the immune system.]

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[Glucosamine Sulfate 500mg 150 ( 硫酸葡糖胺膠囊 )]

[This product is formulated using glucosamine in the form of sulfate and is offered in one size of 150 capsules per bottle. It helps to relieve joint pain associated with osteoarthritis and supports vital joint and bone health. It also protects against the deterioration of cartilage.]

[Coral Calcium 1,250mg ( 珊瑚鈣提取物複合片 )]

[Coral Calcium 1,250 mg is composed of over 70 trace minerals and 2 essential minerals, calcium and magnesium. It is offered in one size of 100 caplets per bottle. It helps to maintain strong bones and healthy teeth. In addition, it supports a healthy functioning of nerves, a healthy metabolism, muscle and heart rhythm. It also helps alleviate insomnia.]

[Cholestanol � 60 ( 植物甾醇複合片 )]

[Chotestamol[TM] 60 is offered in one size of 60 caplets per bottle. It contains Policosanol and other vitamins which help to reduce cholesterol level and prevent secondary heart disease.]

[Vitamin C Chewable 500mg (tropical) ( 維生素 C 水果複合嘴嚼片 )]

[This product is in one size of 100 tablets per bottle. It contains Vitamin C which is an antioxidant and this product helps to prevent common cold, protects against cell damage, helps speed tissue healing and boosts the immune system.]

[Grape Seed 500mg ( 葡萄籽提取物片 )]

[Grape Seed 500 mg is an antioxidant for the maintenance of good health which is offered in one size of 60 caplets per bottle. It helps increase blood flow and circulation and improve vision. It also helps to reduce varicose veins and may help slow premature aging by helping to repair damaged collagen.]

[Apple Cider Vinegar ( 蘋果醋片 )]

[This is a natural digestive acidifer which is offered in one size of 90 tablets per bottle. It aids in the body’s metabolism so that the energy derived from food is used and not stored as fat.]

[Evening Primrose Oil ( 月見草油軟膠囊 )]

[This product contains a source of essential fatty acids which is offered in one size of 90 capsules per bottle. It helps to relieve premenstrual syndrome (PMS) symptoms and reduce pain and inflammation associated with rheumatoid arthritis. It also assists in normalizing hormones estrogen levels and supports healthy hair, skin and nails.]

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[Omega 3 Brain � ( 奧米加 -3 膠囊 )]

[This product contains a high concentration of docosahexaenoic acid (DHA) which is offered in one size of 60 capsules per bottle. It acts as a maternal supplementation during pregnancy and lactation such that it may assist with proper development of the brain and eyes in the fetus and newborn infant. It also prevents age-related cognitive decline and may be useful in the treatment of attention deficit/hyperactivity disorder (ADHD).]

[Milk Thistle 4,500mg ( 乳果草提取物複合片 )]

[Milk Thistle 4,500 mg provides nutritional support for the liver and blood and helps to repair and regenerates liver cells. This product also acts as an antioxidant to protect cells from free radical damage and protects the kidneys, spleen and gallbladder. It is offered in one size of 60 caplets per bottle.]

[CoQ10 (CoQ10( 輔梅 ) 膠囊 30)]

[CoQ10 helps to maintain and/or support cardiovascular health which also acts as an antioxidant for the maintenance of good health. It is offered in one size of 80 capsules per bottle.]

[Vita-Vim for Women ( 西蘭花苗植物複合營養膠囊 )]

[Vita-Vim for Women is a multivitamin composed of 20 vitamins, minerals and other nutrients promoting the body’s immune defense system and supporting bone, breast and urinary tract health. It is offered in one size of 90 capsules per bottle.]

[Wild Salmon Oil 1,000mg ( 三文魚魚油提取物膠囊 )]

[Wild Salmon Oil 1,000mg acts as a source of omega-3 fatty acids for the maintenance of good health. It also helps to support cognitive health/brain function. It is offered in one size of 90 capsules bottle size.]

[Joints + Bones ( 氨基葡萄糖複合膠囊 )]

[Joints + Bones helps to relieve joint pain and osteoarthritis symptoms and to build healthy cartilage protecting against the deterioration of cartilage. It is offered in one size of 60 capsules per bottle.]

[Saw Palmetto ( 銀棕櫚提取物複合膠囊 )]

[This is a herbal capsule offered in one size of 30 capsules per bottle. This is a herbal medicine for the relief of prostatitis (inflammation and infection of the prostate gland). It also acts as a preventive treatment for problems of the prostate and a natural urinary tract disinfectant.]

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[Vitamin C Chewable (orange) ( 維生素 C 咀嚼片 )]

[Vitamin C 50 mg Chewable (orange) contains Vitamin C which helps to promote healthy gum, teeth and capillaries and helps form collagen in connective tissue. It also acts as an antioxidant which protects the cells from free radical change. It is offered in one size of 100 tablets per bottle with the flavour of oranges.]

[Bilberry ( 藍莓提取物複合膠囊 )]

[Bilberry is a source of antioxidants for the maintenance of good health, which also helps to improve collagen integrity and capillary permeability. It also has protective effect on capillary fragility and it supports vision and circulatory health. It is offered in one size of 60 capsules per bottle.]

[Silica ( 馬尾草提取物複合片 )]

[Silica contains silica and zinc which help to maintain healthy skin, hair and nail. It also helps to maintain immune function. It is offered in one size of 60 caplets per bottle.]

[Lutein-Z � ( 金盞花提取物複合膠囊 )]

[Lutein-Z� contains a complex of concentrated lutein and zeaxanthin derived from marigold flowers to support eye health. It also helps to treat and protect against macular degeneration and cataract conditions. It is offered in one size of 30 capsules per bottle.]

[Super Garlic Oil 3,000mcg ( 大蒜提取物軟膠囊 )]

[Super Garlic Oil 3,000 mcg contains unrefined garlic oil which provides antibiotic, antifungal and antiviral activity to help fight infections. It also helps to support cardiovascular health by helping to reduce cholesterol levels and a healthy immune system. It is offered in one size of 100 capsules per bottle.]

Orthopedics

The market size for the orthopedics product in 2009 was RMB5.64 billion in the PRC. The compound annual growth rate of such PRC market in the past five years was 17.1%, which was higher than the total growth rate of the total market size for the pharmaceutical product, which was at 16.7% for the same period. According to Speedroad, it is expected that in the coming 3 to 5 years, the market size for the orthopedics product will maintain a growth rate of approximately 17% in the PRC. In 2012, it is expected by Speedroad that the market size for the orthopedics product will be not less than RMB8 billion.

Flying Eagle Wood Lok Medicated Oil ( 飛鷹活絡油 )

Flying Eagle Wood Lok Medicated Oil is a prescription pharmaceutical liniment manufactured in and imported from Hong Kong for treatment of rheumatism, sore muscles and faintness. It is offered only in one 20ml bottle size.

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The Group first gained the distributorship of this product in 2003 and is also one of the Group’s key products to be displayed on the Product Display Booths. Over the Track Record Period, the sales volume of this product has risen from 0.8% for the year ended 31 December 2007 to 5.1% for the year ended 31 December 2009. Total sales of this product in 2009 have already exceeded the entire sales volume for the whole of 2008. In 2007, 2008 and 2009, the market share of this product made up of approximately 0.43%, 0.87% and 2.08% of the orthopedics product markets. The Directors believes that such growth will persist in the coming years, making the product as the Group’s third to reach an annual turnover of RMB100 million.

Imada Red Flower Oil ( 依馬打正紅花油 )

Imada Red Fowler Oil is another prescription pharmaceutical liniment offered in two sizes, namely 25ml and 12ml sized bottles. It provides immediate relief of all kinds of external pains, such as rheumatism, neck and backache, sprains and bruises, spasms, burns and cuts, swelling limbs, insect bites, stomach-ache and all kinds of joints pains.

The Group first gained the distributorship of this product in 2002 which was the top-five best-seller of the Group in 2007 and 2008. In 2007, 2008, 2009, and for the six months ended 30 June 2010, the market share of this product made up 2.36%, 2.50%, 1.95% and [●]%, respectively in the orthopedic product markets.[The Group had decided to purchase Imada Red Flower Oil from SZ Kingworld Lifeshine after expiry of the distribution agreement between SZ Kingworld and Luen Wah on 31 December 2009 as the price of Imada Red Flower Oil offered by SZ Kingworld Lifeshine is lower than that offered by Luen Wah.]

The two orthopedics liniments are supplementary to each other in the Group’s product portfolio despite their similar usage. Imada Red Flower Oil targets a wider and more popular clientele which is priced below RMB10 while Flying Eagle Wood Lok Medicated Oil targets the middle to high income group with a price of RMB10 and above.

In general, the liniment market has expanded rapidly over the past five years with an average increase of 17.1% per year. It is expected that the market growth shall maintain its momentum due to an ageing population and the increase of minor accidents. It is expected that by 2012, the market for the sale of liniment will reach approximately RMB8 billion.

Cardiovascular

[ ● ] ([ ● ])

[●] is a prescription pharmaceutical product which SZ Kingworld offers in two sizes, namely, 50 capsules or 20 capsules per bottle. It is a preventive and treatment medicine for coronary heart disease manufactured in Japan. [●] was awarded the Superbrand status by the [Hong Kong Superbrands Council] in 2004. The Group being the distributor of the [●] in the PRC market first gained the distributorship of this product in 1997.

According to the Speedroad Report, [●] is positioned as a high-end cardiovascular product which is sold at the highest price comparing to the ten most popular products of its kind.

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According to IMS Health, cardiovascular medicine ranked first in the total sales volume of pharmaceutical products worldwide in 2003, accounting for 16.09% of the whole market of USD75 billion. It is expected that the market shall exceed USD100 billion by the end of 2010. The cardiovascular products market is second only to the influenza products market in the PRC with a volume of RMB88.4 billion in 2009, 36.15% of which are Chinese medicine products. The growth of Chinese cardiovascular products in the PRC market had a CAGR of 16.48% over the past five years.

Tai San has been the agent of the [●] since [1996]. Jinbaoli was the import agent of the [●] during the period between March 2007 and September 2009. During this period, SZ Kingworld imported the [●] through Jinbaoli from Tai San for distribution in the PRC. Such arrangement was terminated in September 2009 as Jinbaoli ceased to be an import agent of the [●] since September 2009. [Currently, SZ Kingworld imports the [●] directly from Tai San for distribution in the PRC.]

Jinbaoli was not an Independent Third Party when it imported the [●] for the Group during the period between March 2007 and September 2009. Please refer to the sub-paragraph headed “[[●] Product Range] ([●]系列)” in this section of this document for further details.

[As at the Latest Practicable Date, Jinbaoli was an Independent Third Party.]

Influenza

Min Tong Chisionhon Granules ( 明通治傷風顆粒 )

Min Tong Chisionhon Granules is a Dual-Specification pharmaceutical product which is currently being distributed as an OTC (A) product in a six-pack package of two grams each. This Taiwan developed product is effective in alleviating symptoms of influenza, especially coughs, sneezing, sore throat, fever and headache. The Group first gained the distributorship of this product in 1998.

Kingworld Gan Mao Qing Capsule ( 金活感冒清膠囊 )

Kingworld Gan Mao Qing Capsule is a prescription pharmaceutical product, one of the four products of the PRC-manufactured Kingworld Product Range. It is distributed in two packages, namely, 12 or 24 capsules per box. This product is effective in alleviating symptoms of influenza, fever, runny nose and headache.

Other Categories

Gynecological

Fengbao Jianfu Capsule ( 鳳寶牌健婦膠囊 )

Fengbao Jianfu Capsule is a Dual-Specification pharmaceutical product which is now being distributed by the Group as an OTC (A) product in one size of 24 or 48 capsules per box. It is manufactured in and imported from Hong Kong and is effective in prevention of blood loss during menstruation. SZ Kingworld first gained the distributorship of this product in the year 1999.

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Ointment

Mentholatum Deep Heating Rub ( 曼秀雷敦複方水楊酸甲酯乳膏 )

Mentholatum Deep Heating Rub is an OTC (B) pharmaceutical product for external use only. It is manufactured in the PRC for the relief of aches and pains of muscles and joints associated with arthritis, simple backache, strains and sprains.

Compound Mentholatum Ointment ( 曼秀雷敦複方薄荷腦軟膏 )

Compound Mentholatum Ointment is an OTC (B) pharmaceutical product for external use only. It is an aid to cold symptoms manufactured in the PRC and offered in 2 sizes namely, 10g and 28g.

Ginseng

Kingworld Gen-seng Capsule ( 金活西洋參膠囊 )

Kingworld Gen-seng Capsule is an OTC (B) pharmaceutical product offered in one size of 12 capsules per box. This product is one of the product under the PRC-manufactured Kingworld Product Range. As a premium supplement, it enhances the immune system and helps to combat stress and fatigue.

Kingworld American Ginseng Capsule ( 金活洋參膠囊 )

Kingworld American Ginseng Capsule is a healthcare product of the PRC-manufactured Kingworld Product Range offered in one size namely 12 capsules per box. The capsule is effective in boosting immune system.

Kingworld American Ginseng Tablets ( 金活洋參含片 )

Kingworld American Ginseng Tablets is the second healthcare product under the PRC-manufactured Kingworld Product Range offered in one size namely 12 tablets per box. The product’s main raw material is American ginseng which is useful for resisting fatigue.

Inhalation

Mentholatum Compound Menthol Nasal Inhalation ( 曼秀雷敦複方薄荷鼻用吸入劑 )

Mentholatum Compound Menthol Nasal Inhalation is an OTC (B) pharmaceutical product manufactured in the PRC. It is effective in relieving nasal discomforts caused by flu.

Cooling Product

DIA Instant Cooling Gel Sheet (“ 大樹腳 ” 即時退熱貼 (8 小時 ))

DIA Instant Cooling Gel Sheet is a medical product manufactured in Japan and registered in the PRC pursuant to the Regulations on the Supervision and Administration of Medical Device (醫療器械監督管理條例). It provides instant cooling effect for fever.

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Eye Drop

As of 1 January 2010, SZ Kingworld ceased the distribution of the four products under the Mentholatum Eye Drop Range, which include (i) Mentholatum Compound Aspartate, Vitamin B6 and Dipotassium Glycyrrhetate Eye Drops (曼秀雷敦新樂敦眼藥水); (ii) Mentholatum Compound Taurine Eye Drops (曼秀雷敦小樂敦眼藥水); (iii) Mentholatum Compound Sodium Sulfamethoxazole Eye Drops (曼秀雷敦樂敦康眼藥水); and (iv) Mentholatum Compound Chondroitin Sulfate Eye Drops (曼秀雷敦樂敦瑩眼藥水), due to the low profit margin of 1.5% that they generate when compared to the average gross profit margin of 21.8% of the products the Group distributes for the financial year ended 31 December 2009. As such, the Directors decided to re-deploy the Group’s resources to other products with higher gross profit margins, such as Flying Eagle Wood Lok Medicated Oil and Taiko Seirogan.

INVENTORY MANAGEMENT

Inventory control is vital to the Group’s distribution business. The Group monitors the inventory level of various products in compliance with the requirements of its suppliers and the demand of its customers. In this connection, SZ Kingworld invests in and maintains an ERP System to record and manage the inflow and outflow of products and the purchase order and delivery procedures to ensure the Group’s product distribution are well-managed. In particular as the various regional representative offices, the Twelve Subsidiaries and the SZ Warehouse are geographically scattered throughout the PRC, the ERP System facilitates communication and co-operation within the Group.

Inventories are stated at cost calculated using the weighted average method or net realizable value, whichever is lower. The Group has an inventory provisioning procedure to value the inventories and to write off inventories when they become obsolete or damaged or expired. During the Track Record Period, the aggregate amount of inventory written off by the Group was approximately RMB[0], RMB[0], RMB[559,023] and RMB[0] respectively. The Group closely monitors the storage conditions of these products and will re-examine the packaging and the expiry date of these products before the Group delivers them to the Distributor Customers.

As at 31 December 2007, 2008, 2009 and for the six months ended 30 June 2010, the Group’s inventory balances were approximately RMB[99.1] million, RMB[98.6] million, RMB[75.9] million and RMB[35.0] million, respectively while its average inventory turnover days were [84], [89], [64] and [25] for the three financial years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010, respectively. The decrease was mainly attributable to the Group’s plan to reduce the inventory turnover days in order to improve the cash flow management. The Group intends to maintain one month’s inventory and replenish its [●] Products Series once a month and other products every two months. According to the policy of the Group, the Group makes regular visits to and discusses with the Distributor Customer in relation to their purchase amount and requirements in request for the products distributed by the Group. The Group will estimate their purchase from its suppliers based on its understanding of the requirements of the Distributor Customers through such visits and purchase orders received from the Distributor Customers. The Directors estimate that in general the Group is able to distribute products within [three] months from the time of delivery of the products by its suppliers. Nevertheless, the valid period before expiry for the products distributed by the Group generally ranges from 18 months to 60 months, particularly the majority of the products

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distributed by the Group (including the [●] Product Series) have a valid period longer than or equal to 36 months. [The Directors confirm that the Group would not distribute expired products to its Distributor Customers.] Based on the above, the Directors expect that it is unlikely for the Group to have slow moving or obsolete stocks. [Nonetheless, the goodwill of the Group maintains a reasonable stock level to ensure adequate supply to its customers.]

GOOD SUPPLY PRACTICES

SZ Kingworld has obtained the GSP Certificate from GFDA on 21 September 2008, which is valid until 20 September 2013. SZ Kingworld maintains a quality control team comprising of [6] experienced and qualified staff which is responsible for ensuring that SZ Kingworld is in compliance with all applicable regulations, standards and internal policies and, in particular, the GSP requirements. The quality control team is also responsible for setting and updating quality control policies covering a wide range of areas such as management of the SZ Warehouse, maintenance of the products the Group distributes, regular quality checks on the products the Group distributes and staff training.

SZ Kingworld sources products from suppliers and manufacturers which have good credentials and product quality track records. The quality control department at the head office of SZ Kingworld and the quality inspection officers at the SZ Warehouse are responsible for implementing quality control measures in its distribution operations. [The SZ Warehouse is also well-equipped with suitable storage conditions to maintain quality and ensure safety of the products.]

The quality inspection staff at the SZ Warehouse conducts inspection upon the delivery of products from the manufacturers and/or suppliers to the SZ Warehouse in accordance with the packages and products descriptions under the purchase order form/delivery note. Upon completion of the said inspection procedures, the products are delivered and transported to the designated location of the SZ Warehouse for storage. If such products do not pass the examination, or if the quantities, packages and descriptions of the products are not in line with the purchase order, the quality inspection staff at the SZ Warehouse will move such products to a designated area and will then notify the respective suppliers and/or manufactures as soon as possible. For imported products, the quality inspection staff will notify the GDIDC upon receipt of such products. The inspection staff of the GDIDC will visit the SZ Warehouse and conduct spot inspections to examine the products in accordance with the prescribed requirements and standards. After passing the examination, GDIDC will issue the imported pharmaceutical product inspection report to SZ Kingworld, which is a requisite document prior to the delivery of the imported products to the Group’s customers.

In relation to the products purchased from local PRC suppliers, the quality inspection staff at the SZ Warehouse will ensure the products delivered are attached with a Certificate of Analysis, which details the test results of the products. SZ Kingworld will only accept products that meet the specification as required by the relevant PRC rules and regulations.

A computer system have been installed at the SZ Warehouse to maintain records of inspection conducted by the quality inspection staff.

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The quality inspection staff at the SZ Warehouse is also responsible for (i) ensuring that the quality control system are in line with the GSP requirements during the validity period of the GSP Certificate; (ii) conducting daily warehouse management sampling inspection; and (iii) conducting quarterly product quality sampling inspection. The Group will engage independent professionals to conduct quality inspection upon receiving products from the suppliers or manufacturers.

INSURANCE

The Group is covered by various insurance policies in respect of different areas of operations, they include:

Insurance for transportation of products in the PRC (貨物運輸保險協議)

SZ Kingworld obtained insurance for potential loss and damages caused by accidents or natural hazards during delivery (both by land and by sea) of products, the insurance policy is valid for three years covering products such as [●] Pei Pa Koa, Imada Red Flower Oil and other pharmaceutical and healthcare products during their transportation from Shenzhen to all other destinations in the PRC.

Property all risks insurance (財產險保險)

To offer better protection to the Group’s products stored in the SZ Warehouse, SZ Kingworld has obtained the property all risks insurance which covers against the risk of direct physical loss of or damage to such property caused by accidents or natural hazards not excluded from the policy. This insurance policy is valid for one year.

Insurance for motor vehicles (機動車輛保險)

SZ Kingworld owns seven motor vehicles, one of which is under the name of Mr. Zhao. The insurance coverage for these seven motor vehicles include (i) standard motor vehicle insurance (機動車商業保險單); and (ii) mandatory traffic accident insurance (機動車交通事故責任強制保險單).

Mandatory traffic accident insurance generally covers claims for (a) death and generally bodily injury; (b) medical expenses; and (c) loss of properties; while standard motor vehicle insurance generally covers the legal liabilities for (a) death or bodily injury of third parties and third party property damage; (b) driver and passengers on board the vehicle; and (c) any accidental loss or damage to the insured vehicle. These insurance policies are valid for one year.

Social security insurance (社會保險)

SZ Kingworld has complied with the relevant PRC laws and regulations in relation to the social security insurance for all of its respective employees by making contributions to a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a worker compensation plan and a maternity plan. The Group also make contributions to an employee housing fund according to applicable PRC regulations.

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Accident and casualty insurance (團體意外傷害保險)

A total of 18 staff of the Group (the “Insured”) who travel frequently for work are currently covered by a one-year accident and casualty insurance policy taken out by [SZ Kingworld]. This insurance policy covers several areas such as casualties caused by accidents, hospitalization allowance and medical treatment caused by accidents.

Under existing PRC laws, where a defective product causes personal injury and damage to properties, a victim may seek compensation from the manufacturer or the seller of the product; where a seller commits faults which results in a defective product and causes personal injury and damage, the seller shall be liable for compensation. Where the responsibility lies with the manufacturer, the seller shall, after settling compensation, have the right to recover such compensation from the manufacturer, and vice versa. As a distributor, the Group does not maintain any product liability insurance and it did not have any product liability claims made against it during the Track Record Period. During the Track Record Period, the Group did not submit any material insurance claims. The Directors believe that the coverage of the current insurance policies taken out by the Group is adequate and sufficient for its operations. The Group will continue to review and assess the risks and make necessary adjustments to its insurance practice to go in line with the operation needs and industry practice.]

LICENSES AND PERMITS

The Directors and the PRC Lawyer confirm that the Group has obtained all licenses, permits or certificates necessary (if any) to conduct its operations from the relevant governmental authorities in the PRC since its establishment. For details of the licences and permits obtained by members of the Group relating to the Group’s operations and their expiry dates, please refer to the section headed “Further Information about the Business of the Group” in Appendix V of this document.

As required by the relevant PRC laws and regulations, all the imported pharmaceutical products distributed by the Group may only be imported into the PRC after (i) an Imported Drug Registration Certificate is obtained if it is produced by a foreign manufacturer; or (ii) a Pharmaceutical Product Registration Certificate is obtained if it is produced by the manufacturer in Hong Kong, Macao, or Taiwan.

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The following table sets out the imported pharmaceutical products distributed by the Group in the PRC during the Track Record Period, the respective type of registration certificate obtained and their expiry dates:-

		Type of registration	Expiry date of the
No.	Name of imported product	certificate	registration certificate
1	[●] Pei Pa Koa	Pharmaceutical Products	14 March 2015
		Registration Certificate
2	Taiko Seirogan	Imported Drug	21 February 2015
		Registration Certificate
3	Flying Eagle Wood Lok	Pharmaceutical Products	5 December 2010
	Medicated Oil	Registration Certificate
4	Min Tong Chisionhon Granules	Pharmaceutical Products	11 April 2010
		Registration Certificate
5	Fengbao Jianfu Capsule	Pharmaceutical Products	14 August 2008
		Registration Certificate
6	[●]	Imported Drug	8 October 2015
		Registration Certificate

Notes:

The Imported Drug Registration Certificate for Taiko Seirogan expired on 4 August 2009 and was renewed on 22 February 2010. The renewed certificate shall expire on 21 February 2015.
The Imported Drug Registration Certificate for [●]s expired on 28 August 2008 and was renewed on 9 October 2010. The renewed certificate shall expire on 8 October 2015.
The registration certificate for each of Fengbao Jianfu Capsule, [●] and Min Tong Chisionhon Granules has expired and their respective application for the renewal of the registration certificate has been submitted before the expiry of each of their certificates. [As the relevant PRC authorities requested extra documents in relation to the drug registration application of Fengbao Jianfu Capsule, SZ Kingworld had only received the notice from such authorities approximately six months after the expiry of the license of Fengbao Jianfu Capsule.] [As at the Latest Practicable Date, no renewed certificate has been issued so far as their registration applications are still under review by the relevant PRC authorities.] The Directors expect that the Pharmaceutical Products Registration Certificate of Fengbao Jianfu Capsule will be issued by early November 2010.

During the Track Record Period, some of the Group’s imported products were sold in the PRC after the expiry of the relevant Imported Drug Registration Certificate or Pharmaceutical Products Registration Certificate (where applicable). The Company confirms that imported pharmaceutical products currently sold by it under the Imported Drug Registration Certificate or the Pharmaceutical Product Registration Certificate have all been imported before expiry of the above-mentioned registration certificates. The above-mentioned registration certificates are mainly used in import procedures of pharmaceutical products and, upon expiry of such certificates, no importing of these

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pharmaceutical products into the PRC is allowed unless an Import Drugs Approval Notice has been granted. During the Track Record Period, Import Drugs Approval Notices were granted on (i) 13 August 2009 and 5 June 2010, for the importation of [●]s into the PRC; and (ii) on 5 June 2010 for the importation of Fengbao Jianfu Capsule into the PRC. SZ Kingworld has applied for an Import Drugs Approval Notice for Min Tong Chisionhon Granules on 22 October 2010.] As advised and confirmed by the PRC Lawyer, sales of pharmaceutical products imported before expiry of registration certificates are not prohibited under relevant PRC laws. Accordingly, import and sales of inventory pharmaceutical products by the Company according to valid import registration certificates do not violate PRC laws.

Renewal of relevant registration certificate

The Company confirms that imported drug re-registration application has been submitted to the relevant PRC authority for Min Tong Chisionhon Granules and Fengbao Jianfu Capsule before the expiry of each of their certificates [As at the Latest Practicable Date, no renewed certificate had been issued so far as their registration applications were still under review by the relevant PRC authorities. The Group expects the renewed certificate for each of Min Tong Chisionhon Granules and Fengbao Jianfu Capsule will be obtained in April 2011 and December 2010, respectively.]

During the Track Record Period, the Group was able to obtain the relevant licences, certificates and permits for the operation of the Group’s business although the Group has experienced a delay in renewing certain licence, permits and/or approvals in relation to the import of pharmaceutical products distributed by the Group during the Track Record Period. Save as disclosed, the Group has not encountered any refusal of non-renewals of licences, permits and/or approvals.

AWARDS AND RECOGNITIONS

Over the years, the Group has received awards and obtained recognitions from various PRC government authorities, industry associations, chambers of commerce, trade promotion and professional bodies, community organizations and other business enterprises. These include:

		Awarded	Year of
Awards	Awarded by	to	awards
*Business Awards*
2001-2002年度優秀合作夥伴[(Excellent	深圳市海王星辰醫藥有限公司	SZ	2002
Partner Enterprise in 2001 to 2002)]	[(Shenzhen Neptune Star	Kingworld
	Pharmaceuticals Limited)]
深圳市工商業系統統計先進集體	深圳市經濟貿易局(Economic	SZ	2003
[(Shenzhen Advanced Statistical Business	and Trade Bureau of Shenzhen	Kingworld
Systems Group)]	Municipal Government)

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		Awarded	Year of
Awards	Awarded by	to	awards
深圳市50強民營企業(Top 50 Private	深圳市人民政府(Shenzhen	SZ	2004
Enterprises in Shenzhen)	Municipal Government)	Kingworld
2005年度最佳合作伙伴	金華市醫藥有限公司[(Jinhua	SZ	2005
[(Best Partner Enterprise in 2005)]	Pharmaceuticals Limited)]	Kingworld
“愛國者”品牌中國總評榜(1980-2005) —	品牌中國總評榜組委會	SZ	2006
中國品牌百企榜上榜企業[(Top	[(China Brand Union	Kingworld
“Patriotic” Chinese Brands (1980-2005)	Association)]
-Top 100 Chinese Brand Enterprises)]
首屆深圳百強商業超級品牌[(Top 100	首屆深圳百強商業超級品牌評	SZ	2006
Shenzhen Business Superbrands)]	審委員會/深圳特區報及深圳專	Kingworld
	家工作聯合會[(Top 100
	Shenzhen Business
	Superbrands Committee]
	Shenzhen Special Zone Daily
	and [Shenzhen Expert Group
	Federation)]
“國大藥房五周年”開拓進取獎(Fifth	(上海國大藥房連鎖有限公司)	SZ	2006
Anniversary of “National	[(Shanghai National Pharmacy	Kingworld
Pharmacy” — Progressive Expansion	Chain Company Limited)]
Award)
[2005-2006年度中國醫藥保健品行業“金	[中國“金銷獎”委員會	SZ	May
銷獎” (Golden Distributor Award —	(Committee of China Golden	Kingworld	2006
China Pharmaceutical and Healthcare	Distributor Award)]
Industry in 2005-2006)]
[2005-2006年度中國經銷商“金銷獎”	[中國“金銷獎”委員會	SZ	August
(Golden Distributor Award — China	(Committee of China Golden	Kingworld	2006
Distributors in 2005-2006)]	Distributor Award)]
2007年度中國醫藥經濟資訊網”榮譽會員	南方醫藥經濟研究所	SZ	2007
[(Honorary member of the 2007 China	(SFDA and Southern Medicine	Kingworld
Pharmaceutical and Economic	Economic Institute)
Information Net)]
屈臣氏2007最佳部門銷售獎	屈臣氏[(Watsons)]	SZ	2007
(HWB Award 2007)		Kingworld

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		Awarded	Year of
Awards	Awarded by	to	awards
2007-2008年度最佳合作伙伴/優秀合作	廣東一致藥店有限公司/深圳市	SZ	2007-2008
伙伴[(Best Partner Enterprise in	一致醫藥連鎖有限公司	Kingworld
2007-2008/Excellent Partner Enterprise)]	[(Guangdong Yizhi Pharmacy
	Company Limited/Shenzhen
	Yizhi Pharmaceutical Franchise
	Company Limited)]
[“改革開放三十年廣東省醫藥批發產業20	[廣東省醫藥行業協會	SZ	2008
強企業”榮譽證書(Top 20 Enterprises of	(Guangdong Pharmaceutical	Kingworld
the Guangdong Pharmaceutical Wholesale	Profession Association)]
Industry Honours Certificate for 30 years
of Reform)]
2008廣東省服務行業100強[(Top 100	國家食品藥品監督管理局/廣東	SZ	2008
Enterprises in the Services Industry of	省企業聯合會及廣東省企業家	Kingworld
Guangdong Province in 2008)]	協會[(SFDA Guangdong
	Enterprises Federation/
	Guangdong Entrepreneur
	Association)]
2008年品牌合作獎	中國海王星晨連鎖藥店有限公	SZ	2008
[(Brand Collaboration Award in 2008)]	司[(China Nepstar Chain	Kingworld
	Drugstore Company Limited)]
2009年度最佳合作伙伴	廣東一致恒興醫藥有限公司	SZ	2009
[(Best Partner Enterprise in 2009)]	(Guangdong Accord Hengxing	Kingworld
	Medicine Co., Ltd.)
*Charity Awards*
關心少年兒童文化事業獎	共青團嘉興市委員會、嘉興市	SZ	2003
[(Childcare Cultural Business Award)]	教育局及嘉興市文學藝術聯合	Kingworld
	會[(Jiaxing Communist Youth
	League Committee, Jiaxing
	Education Bureau and Jiaxing
	Federation of Literature and
	Arts)]

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		Awarded	Year of
Awards	Awarded by	to	awards
廣東省第六屆少兒藝術花會CIOFF第三屆	廣東省第六屆少兒暨藝術花	SZ	2004
亞洲兒童民間藝術節- 關愛兒童健康企業	會CIOFF第三屆亞洲兒童民間	Kingworld
[(Sixth Youth Arts Exhibition and Third	藝術節組委會[(Sixth Youth
Asian Children Folk Art Festival —	Arts Exhibition and Third
Childcare Enterprise of the Guangdong	Asian Children Folk Art
Province)]	Festival Organizing
	Committee)]
“抗震救災衆志成城- 為汶川賑災”榮譽	羅湖區慈善會[(Luo Hu	The	2008
證書[(Sichuan Earthquake Relief	Charity Organization)]	Group
Honorary Certificate)]
蘭州市佛教協會“佛心醫心共創和諧”	蘭州市佛教協會[(Lanzhou	SZ	2008
[(Lanzhou Buddhist Association —	Buddhist Association)]	Kingworld
Harmony of Buddhism and Medicare)]
*Awards accredited to the Group in relation*	*to the distribution of specific*	*product*
南方都市報3.15讀者最喜愛的品牌— 喇	南方都市報3.15讀者最喜愛的	SZ	2006
叭正露丸(Nanfang City Daily 3.15	品牌活動組委會[(Nanfang	Kingworld
Readers’ Favorite Brand-Taiko Seirogan)	City Daily 3.15 Readers’
	Favorite Brand Organizing
	Committee)]
2006年南方都市報讀者最喜愛的品牌-	南方都市報3.15讀者最喜愛的	SZ	2006
[●] (Nanfang City Daily 2006 Readers’	品牌活動組委會[(Nanfang	Kingworld
Favorite Brand-[●])	City Daily 3.15 Readers’
	Favorite Brand Organizing
	Committee)]
*Membership*
深圳市質量協會團體會員單位(2004-2009)	Shenzhen Association For	SZ	2004-2009
(Member of Shenzhen Association For	Quality	Kingworld
Quality)
Member of the Council	The First Council Meeting of	SZ	2006
	China Chamber of	Kingworld
	International Commerce —
	Shenzhen

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		Awarded	Year of
Awards	Awarded by	to	awards
2008年度廣東省企業聯合會、廣東省企業	廣東省企業聯合會及廣東省企	SZ	2008
家協會優秀會員[(2008 Outstanding	業家協會[(Guangdong	Kingworld
Member of the Guangdong Enterprises	Enterprises
Federation and Guangdong Entrepreneur	Federation/Guangdong
Association)]	Entrepreneur Association)]

SUPPLIERS

For the three financial years ended 31 December 2007, 2008, 2009 and the six months ended 30 June 2010, the Group’s five largest suppliers accounted for approximately [91.9]%, [94.0]%, [92.0]% and [84.3]% of its total purchases, respectively. Purchases from Great Pleasure, the largest supplier of the Group for [●] Pei Pa Koa, accounted for approximately [66.3]%, [70.9]%, [73.1]% and [64.1]% of the total purchases of the Group, respectively during the Track Record Period. The Group has commenced its business relationship with Great Pleasure for the supply of [●] Pei Pa Koa since 1997. For other major suppliers, such as Etta for the supply of Taiko Seirogan, Tai San for the supply of [●] Product Range and [●], Europharm, for the supply of Flying Eagle Wood Lok Medicated Oil and Metholatum (China) Pharmaceutical Company Limited for the supply of Mentholatum Product Range, the Group has commenced business with such suppliers since 1998, 1996, 2003 and 2002 respectively.

None of the Directors, their respective associates or Golden Land, Golden Morning, Mr. Zhao and Ms Chan, or their respective associates has any interest in any of the above mentioned suppliers.

CUSTOMERS

For the three financial years ended 31 December 2007, 2008, 2009 and the six months ended 30 June 2010, the Group’s five largest Distributor Customers accounted for approximately [19.8]%, [24.3]%, [23.0]% and [17.6]% of its total sales respectively. During the Track Record Period, sales to the largest Distributor Customer accounted for approximately [6.5]%, [7.2]%, [7.1]% and [6.4]% of the total revenue of the Group, respectively.

None of the Directors, their respective associates or Golden Land, Golden Morning, Mr. Zhao and Ms Chan, or their respective associates have any interest in any of the above mentioned Distributor Customers.

COMPETITION

The Group is principally engaged in the distribution and marketing of a portfolio of branded imported pharmaceutical, healthcare products and general foodstuff in the PRC. The Directors consider that the Group is one of the companies in the industry that has obtained regional distribution rights on some of the best-known pharmaceutical and healthcare products in the PRC market. SZ Kingworld ranked 64[th] and 76[th] amongst the importers of pharmaceutical and healthcare products in the PRC based on the total imported value in 2008 and 2009 respectively.

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The Directors consider that the Group has established a reputation amongst the Distributor Customers and Sub-distributor Customers in the PRC over the past years and is able to operate competitively. However, the Directors also believe that the Group will face competition mainly from distributors which have the financial resources, sales and marketing expertise, and greater retailer and wholesaler network comparable to or better than those of the Group.

Moreover, as Chinese consumers are becoming increasingly health conscious leading to an increase in demand for high quality pharmaceutical and healthcare products in recent years, this may attract more enterprises to enter into the pharmaceutical and healthcare products distribution market in the PRC. The Directors believe that the Group’s competitive strengths as set out in this document will allow the Group to differentiate from its competitors and to extend its distribution business into a greater area of the PRC.

INTELLECTUAL PROPERTY RIGHTS OF THE GROUP

For details regarding the trademarks and domain names of the Group, please refer to the section headed “Further Information about the Business of the Group” in Appendix V of this document.

[ ● ] license

SZ Kingworld has entered into a license agreement with [●] (Shanghai) whereby [●] (Shanghai) has granted a license to SZ Kingworld to produce and sell sugar confectioneries and nutritional supplements within the health care segment bearing the Licensed Material (as licensed to SZ Kingworld) in the PRC (excluding Hong Kong, Macao and Taiwan) from 1 October 2007 to 30 September 2010.

HK Kingworld has also entered into a license agreement with [●] (Asia Pacific) whereby [●] (Asia Pacific) has granted a license to HK Kingworld to produce and sell sugar confectioneries and nutritional supplements within the healthcare segment bearing the Licensed Material (as licensed to HK Kingworld) in Hong Kong and Macao from 1 August 2008 to 30 September 2010.

SZ Kingworld and HK Kingworld are currently negotiating the renewal of the relevant license agreement with [●] (Shanghai) and [●] (Asia Pacific).

Information management system

On 29 July 2005, SZ Kingworld entered into a computer system cooperation agreement with an independent software provider (together with agreements for the provision of software and related services under the ERP System, including that of the OA System), pursuant to which a licence was granted to SZ Kingworld and companies of which it has 51% or more interests in, for a fee of RMB490,000, for the use of the software and the provision of relevant services for the setting up and management of the EPR System.

SZ Kingworld has also entered into a mobile service agreement with an independent services provider pursuant to which a software which is integrated into the ERP System is provided to enable

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the Company to send messages via cell phones (“SMS”) to the responsible person of the Region from the respective Twelve Subsidiaries or representative offices upon the delivery of products. Such mobile service software was provided to SZ Kingworld free of charge, while the annual service fee is RMB1,200 starting from the second year and the charge per SMS is RMB0.1.

PROPERTIES

Leased properties

As at the Latest Practicable Date, all offices and warehouses where the Group conducted its business were rental properties. They include (i) the 832.30 sq.m. head office of SZ Kingworld located at Room 1001-1008, 10th Floor, Block A, Tian’an Building, Renmin Nan Road, Shenzhen, Guangdong Province, PRC which is rented from SZ Industry at a rental fee of RMB45,776.50 per month for the period between 1 January 2009 to 31 December 2009 and such monthly rent shall be subject to adjustment according to the annual guideline issued by the PRC authorities for the period between 1 January 2010 to 31 December 2011; and (ii) the 6,406.42 sq.m. warehouse located at 301A, 302B, 303A, 304B, 401A and 402B of Xinyi Logistics Complex Building, Shabeili, Longdong, Longgang District, Shenzhen, PRC which is rented from an Independent Third Party at a monthly rental of RMB38,438.52 for the period between 1 March 2009 to 28 February 2012 and a monthly rent to be agreed between the parties for the period between 1 March 2012 to 28 February 2013.

Acquired properties

The Group owns a shop with a total area of 956 sq.m. located at the basement floor of Kingworld Department Store (金世界商場) in Luohu, Shenzhen, Guangdong Province, PRC. This property was transferred from SZ Industry on 11 August 2008 to SZ Kingworld to settle [a loan in the amount of RMB45,888,000 due by SZ Industry to SZ Kingworld having taking into account an independent valuation report on the property prepared by a qualified valuer.] The property is currently leased out to Independent Third Parties with details set out in the table below:

Address of property	Rent	Duration	Area
Shop A028 Basement	RMB62,699.2	8 January 2010 �	517 sq.m.
1st Floor,	per month	7 October 2012
Kingworld Department Store,
Jie Fang Road,
Luo Hu, Shenzhen
Shop A026 Basement	RMB53,239.73	1 January 2010 �	439 sq.m.
1st Floor,	per month subject to	30 April 2012
Kingworld Department Store,	5% increase based on
Jie Fang Road,	the previous year’s rent
Luo Hu, Shenzhen	starting from 1 May
	2010

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The Group also owns a property with a total area of 1,489 sq.m. located at Unit B on Level 9 West, Yong Xing Office Building, No. 22, Lane 376 Yan’an Road West, Jing’an District, Shanghai, PRC, which was acquired from SH Industry on 28 September 2009 at a consideration of RMB3,820,000. This property is currently used by the Shanghai representative office.

ZHUHAI JINMING

Zhuhai Jinming has been granted with the right to distribute the [●] Product Series in the Guangdong Province in the PRC.

In order to avoid competition between SZ Kingworld and Guangdong Minglin, [●] Medicine, Great Pleasure, SZ Kingworld and Guangdong Minglin negotiated between themselves and established Zhuhai Jinming Trading Company in Zhuhai on 7 January 2004 pursuant to the shareholders’ resolutions of each of SZ Kingworld and Guangdong Minglin, which were passed on 10 October 2003 for distributing [●] Product Series in the Guangdong Province. The name of Zhuhai Jinming Trading Company was changed to Zhuhai Jinming on 18 February 2004.

As at the Latest Practicable Date, the registered capital of Zhuhai Jinming was RMB5 million, contributed by both of SZ Kingworld and Guangdong Minglin in equal shares. Accordingly, each of SZ Kingworld and Guangdong Minglin is holding 50% equity interests in Zhuhai Jinming. The principal business and operation of Zhuhai Jinming is to distribute health supplement products and medicines (the Nim Jiom Product Series) in the Guangdong Province.

Zhuhai Jinming has a shareholders’ committee, which comprises 4 representatives from SZ Kingworld and 4 representatives from Guangdong Minglin and is the highest authority in Zhuhai Jinming. Any shareholders’ resolutions must be passed by shareholders that represent more than 50% of the voting rights. Any shareholders’ resolutions in relation to the change of the registered capital, merger, dissolution or winding-up, change of the form of organization, or amendment of the articles of association must be passed by shareholders that represent approximately more than 66% of the voting rights. [SZ Kingworld and Guangdong Minglin, being the shareholders of Zhuhai Jinming, will discuss and recommend strategies and plans to the board of directors of Zhuhai Jinming for the business development of Zhuhai Jinming. According to the constitution of Zhuhai Jinming, all decisions regarding the business of Zhuhai Jinming are made by the board of directors of Zhuhai Jinming and SZ Kingworld has been actively participating in management discussions at the board meetings of Zhuhai Jinming.]

The board of directors of Zhuhai Jinming comprises 9 directors, which are elected by the shareholder committee. The board of directors of Zhuhai Jinming is responsible for running the day-to-day business of Zhuhai Jinming. The term of each director is 3 years. The chairman of the board of directors, who is also the legal representative of Zhuhai Jinming, is elected by the directors. Any directors’ resolution shall be passed in a board meeting with the presence of more than 6 directors and by a majority of not less than 50% of the directors so present.

The day-to-day operation of Zhuhai Jinming is managed by the senior managers employed by the board of directors, which have been delegated with the power to recruit employees, handle financial matters and operate the business of Zhuhai Jinming. Accordingly, the Group does not exercise direct

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control over the daily operation of Zhuhai Jinming and [no transaction has been entered into between Zhuhai Jinming and the Group during the Track Record Period.] The daily operation of Zhuhai Jinming is independent of the Group. As at the Latest Practicable Date, Zhuhai Jinming had a total of 48 employees. During the Track Record Period, the total revenue of Zhuhai Jinming amounted to RMB66.5 million, RMB65.7 million, RMB57.1 million and RMB40.0 million respectively.

As at the Latest Practicable Date, Any profits generated from Zhuhai Jinming, after settling the tax payment and assigning the relevant portions for statutory provident funds and pension funds, will be distributed to both SZ Kingworld and Guangdong Minglin in equal shares.

According to the PRC Lawyer, as at the Latest Practicable Date, Zhuhai Jinming legally and validly existed.

As at the Latest Practicable Date, save for the distribution of [●] Product Series in the Guangdong province, Zhuhai Jinming was not engaged in any other distribution activities.

Zhuhai Jinming is authorised by [●] Medicine to distribute the [●] Product Series in the Guangdong province in the PRC. Zhuhai Jinming directly sources [●] Pei Pa Koa and [●] Herbal Candy from Great Pleasure and China Capital respectively. Zhuhai Jinming does not have the right to choose whether to source the [●] Product Series from the manufacturer or from its authorised agents. No distribution agreement has been entered into among Zhuhai Jinming, [●] Medicine, Great Pleasure and/or China Capital for the distribution of the [●] Product Series.

In September 2008, Great Pleasure increased the price of [●] Pei Pa Koa supplied to Zhuhai Jinming. Such increase in pricing was also applicable to SZ Kingworld and Guangdong Minglin. However, Zhuhai Jinming, SZ Kingworld and Guangdong Minglin cannot increase the selling price to their respective customers at the request of Great Pleasure [for the reason of trying to preserve the market share of [●] Pei Pa Koa in the PRC market]. As a result, the financial performance of Zhuhai Jinming significantly deteriorated in 2009.

In 2010, the financial performance of Zhuhai Jinming has improved, hence the board of directors of Zhuhai Jinming considers that at this material time, there is no need to formulate any plan with respect to its financial performance.

Distribution network

As at the Latest Practicable Date, save for the distribution of the [●] Product Series, Zhuhai Jinming was not engaged in any other business activities. During the Track Record Period, [●] Pei Pa Koa accounted for 96.1%, 95.2%, 93.7%, and 94.5% of Zhuhai Jinming’s total turnover respectively and [●] Herbal Candy accounted for 3.9%, 4.8%, 6.3% and 5.5% of Zhuhai Jinming’s total turnover respectively.

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Zhuhai Jinming distributes the [●] Product Series through its distributor customers in the Guangdong Province. Since its establishment in the year 2004, Zhuhai Jinming has developed its distribution network in the Guangdong Province, which is divided into 5 districts, namely Shenzhen district, Guangzhou district, Guangdong East district, Guangdong West district and the Pearl River Delta district, as shown in the table below. Each of the 5 districts maintains its own sales team who are responsible for sales and marketing of the [●] Product Series, product pricing management and coordination of promotional activities. Each of the Shenzhen district, Guangzhou district and Guangdong East district has established its own representative offices in Shenzhen, Guangzhou and Shantou respectively. The Guangzhou district has also maintained a mini storage in Foshan to facilitate the storing of the [●] Products Series. As at the Latest Practicable Date, Zhuhai Jinming has [21] distributor customers. Similar to SZ Kingworld, Zhuhai Jinming enters into agreement with its distributor customers covering the same terms as those specify under the sub-section headed “Agreement with Distributor Customers” in this “Business” section of the document. Zhuhai Jinming does not enter into any agreement with any sub-distributors customers under the network of its distributor customers.

							Responsible
	District	Representative		Office	District	establishment	cities
1	Shenzhen	Shenzhen office			Shenzhen		Shenzhen
							Dongguan
							Huizhou
2	Guangzhou	Guangzhou	office		Guangzhou (office)		Guangzhou
					Foshan (mini storage)		Foshan
							Qingyuan
							Shaoguan
3	Pearl River	Delta Zhongshan office			Zhuhai Jinming head		Zhuhai
					office		Zhongshan
							Zhaoqing
							Yunfu
							Jiangmen
4	Guangdong	East Shantou office			Shantou		Shantou
							Chaozhou
							Meizhou
							Jieyang
							Shanwei
5	Guangdong	West Zhanjiang office			Nil		Zhanjiang
							Maoming
							Yangjiang

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The following flow chart sets out the major procedures and responsible departments in the process of distributing the [●] Product Series for Zhuhai Jinming:

==> picture [286 x 310] intentionally omitted <==

----- Start of picture text -----

Receipt of purchase order from distributor customers
by fax at Zhuhai Jinming head office
Entry of purchase order into the information management
system and credit check against the customer’s financial
record by the operations department
Credit check PASSED Credit check FAILED
EITHER
Issuance of sales order
Approval by deputy general
manager if the order value does
not exceed 10% of credit limit;
Preparation of products
for delivery OR
Purchase order denied
Delivery of products
by delivery agent
----- End of picture text -----

[According to the company policy of Zhuhai Jinming, in order to assess the credit conditions of the customer, upon the receipt of a purchase order, credit check is conducted through its information management system. In the event that the credit limit of the customer is exceeded, the purchase order will be denied unless the deputy general manager grants an approval specifically to such an order.]

During Track Record Period, Zhuhai Jinming issues the sales invoice to its customers after the products are being delivered and settlements are made either by way of telegraphic transfer, letters of credit of 90 days or cash. The credit limit shall be the amount equivalent to its monthly sales target and the credit term on average ranges from 30 to 90 days.

As at the Latest Practicable Date, Zhuhai Jinming was not aware of any customers who had financial difficulty and resulted in bad debts. The customer network of Zhuhai Jinming has been customers of either SZ Kingworld or Guangdong Minglin before the establishment of Zhuhai Jinming in the year 2004, which remained quite stable over the years of development.

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Office, Warehouse and Delivery

Zhuhai Jinming rented two properties from Independent Third Parties for use as its warehouse and office, which [are fully utilized.] The warehouse has been granted with the GSP Certificate. Details of the relevant tenancy agreements of the warehouse and office of Zhuhai Jinming are respectively set out as follows:

Purpose	Location	Duration	Consideration	Area
[Warehouse]	Level 1, Block B,	8 March 2008 �	8 March 2008 �	1,300 sq.m.
	Nanping Technology	7 March 2011	7 March 2009
	Industrial Park,		RMB22,100 per
	7 Pingxi San Lu,		month; and
	Zhuhai, China		8 March 2009 �
			7 March 2011
			RMB23,400 per
			month
[Office]	North Portion,	1 April 2010 �	RMB18,573 per	399 sq.m.
	Level 6,	1 April 2012	month
	News Building,
	566 Yinhua Road,
	Xiangzhou District,
	Zhuhai, China

The delivery of the products to the customers is contracted out to Independent Third Parties. The agreements between Zhuhai Jinming and the delivery agents for the delivery of products is valid until 31 August 2011.

Information management system

On 25 March 2007, Zhuhai Jinming entered into a SAP Software Individual End-user License Agreement with an independent software company pursuant to which a non-exclusive perpetual license has been granted to Zhuhai Jinming to use SAP’s proprietary software within the PRC for an unlimited period until the license is terminated by either party at a net price license fee of RMB355,612 together with a maintenance agreement to provide maintenance service with respect to the SAP software at one designated site. The maintenance fee for the service was determined at 17% of RMB345,254 per annum.

Zhuhai Jinming also entered into a service agreement with an independent services provider on 19 March 2007 for the setting up and administration of the SAP ERP system at a service fee of RMB602,000 and the provision of a SMMS software for a fee of RMB70,000.

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Insurance

For Zhuhai Jinming, the insurance policy for transportation of products is valid for one year for the delivery service of the [●] Product Series from ZH Warehouse to other destinations within the Guangdong Province.

Zhuhai Jinming has also obtained the property all risks insurance for its products stored in the ZH warehouse which covers against “the risk” of direct physical loss of or damage to such property caused by accidents or natural hazards not excluded from the policy. This policy is valid for one year.

Zhuhai Jinming has complied with the relevant PRC laws and regulations in relation to the social security insurance for all its employees.

Zhuhai Jinming owns one motor vehicle with both the standard motor vehicle insurance and the mandatory traffic accident insurance being obtained for such vehicle. These insurance policies are valid for one year.

Land use right

Pursuant to a land use right transfer agreement dated 13 May 2009, Zhuhai Jinming has acquired the right to use a piece of land located at No. 3-1-2 of QianShan Industrial Zone Xiangzhou District, Zhuhai, PRC with a total area of 10,376.67 sq.m. at a transfer price of RMB7,783,000 for the period commencing from 30 June 2009 and up to 19 December 2057 for the construction of a warehouse and an office to replace the current rented properties for the long term development of its distribution business. It is proposed that 15% of the constructed property will be designated for office and staff quarters uses while 42% and 43% of which will be used as the warehouse and other operational facilities, such as car park, security control, show rooms, etc., respectively. The reasons for the acquisition of such land are that (i) the current rented properties provide insufficient space for storage of products; (ii) Zhuhai Jinming plans to expand its product portfolio to include products other than the [●] Product Series; and (iii) having its own warehouse and office would save the rental expenses incurred otherwise. As at the Latest Practicable Date, the construction on the land was still at the design stage and no construction work had been commenced on the land. [As at the Latest Practicable Date, Zhuhai Jinming had not received any notice of non-compliance for not developing such piece of land.] The Directors expect that the development of the land will be completed before the date of expiry of the regulatory timeframe.

Costs of construction of the warehouse and office are estimated to be approximately [RMB18 million,] which will be incurred in different phases in 2010 and 2011. The source of funding for such construction comes [from Zhuhai Jinming’s bank borrowings and its own resources.]

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DIRECTORS

The Board consists of seven Directors, four of whom are executive Directors and three of whom are independent non-executive Directors. The following table sets out a summary of the names, ages and responsibilities of the Directors.

Name of Director	Age	Responsibilites
Zhao Li Sheng (趙利生)	52	Executive Director, co-founder and chairman
		of the Group responsible for the Group’s
		overall strategic planning and business
		management
Chan Lok San (陳樂燊)	46	Executive Director and co-founder of the
		Group responsible for the Group’s financial
		planning and human resources management
		of the Group
Zhou Xuhua (周旭華)	45	Executive Director and general manager of
		SZ Kingworld responsible for business
		development and operations of SZ Kingworld
Lin Yusheng (林玉生)	45	Executive Director and deputy general
		manager of SZ Kingworld responsible for
		capital managerment and operations of the
		Group
Duan Jidong (段繼東)	45	Independent non-executive Director
Zhang Jianqi (張建琦)	53	Independent non-executive Director
Wong Cheuk Lam (黃焯琳)	42	Independent non-executive Director

Executive Directors

Mr. Zhao Li Sheng (趙利生), aged [52], is the co-founder of the Group and the chairman of the Company. He is primarily responsible for the Group’s overall strategic planning and business management. He has over 15 years of experience in business management and development in the distribution of pharmaceutical and healthcare products. He was also appointed as the chairman of SZ Industry in 1994 the general manager and chairman of SZ Kingworld in 1996. Mr. Zhao qualified as a senior business manager by the Business Management Qualification Accreditation Committee of Hubei Province in December 2002.

Mr. Zhao has been a member of the standing committee (常委) of the 4th and 5th Shenzhen Committee of the Chinese People’s Political Consultative Conference (深圳市政協第四及第五屆委員會). Mr. Zhao is The Fifth Council of the Shenzhen General Chamber of Commerce (深圳市總商會(工商聯)第五屆理事會) in 2005. In 2008, he was the honorary director (名譽會董) of the Federation of Hong Kong Chiu Chow Community Organizations, the council member (理事) of the Third Session of China Overseas Friendship Association (第三屆中華海外聯誼會) and in 2009, the standing council member (常務理事) of the Third China Economic and Social Council (第三屆中國經濟社會理事會). Currently he is the vice president (副會長) of the Shenzhen Healthcare Association (深圳市保健協會) and the Fourth Council of the Pharmaceutical Profession Association (深圳市醫藥行業協會第四屆理

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事會). He is also the chairman of the Youth Chawnese Committee of Shenzhen (深圳潮人海外經濟促進會青年委員會). Save as disclosed above, he did not hold any directorships in listed public companies or any other major appointments in Hong Kong or overseas in the three years preceding the Latest Practicable Date. He is the spouse of Ms. Chan. He was appointed as a Director on 14 April 2009.

Ms. Chan Lok San (陳樂燊), aged [46], is the co-founder of the Group. She is primarily responsible for the Group’s financial planning and human resources management. She has over 15 years of experience in the pharmaceutical industry as well as over 8 years of experience in property management. In 2010, she obtained a master’s degree in business administration at Sun Yat-sen University (中山大學). Ms. Chan has been working for SZ Industry since [1994] and SZ Kingworld since [1996]. She is and has been the vice chairlady and deputy general manager of SZ Kingworld and SZ Industry since [2005] and [2006] respectively and the vice chairlady of SZ Kingworld Lifeshine since [2005] and the legal representative of Kingworld Department Store Property Management and King Gibson PRC. She has received a master’s degree in business administration of senior management from Sun Yat-Sen University in 2010. She was also a member of the Global Foundation of Distinguished Chinese (世界傑出華人基金會) in 2003. Currently, she is the director (理事) of Sun Yat-Sen University Entrepreneur Alumni Association (Second Session) (第二届中山大學企業家校友聯合會). Save as disclosed above, she did not hold any directorships in listed public companies or any other major appointments in Hong Kong or overseas in the three years preceding the Latest Practicable Date. She is the spouse of Mr. Zhao. She was appointed as a Director on 14 April, 2009.

Mr. Zhou Xuhua (周旭華), aged [44], is and has been the general manager of SZ Kingworld [since 2008]. He is primarily responsible for the business development and operations of SZ Kingworld. He was the business manager of SZ Industry between 1994 and 1995 and was the regional manager of SZ Kingworld after he joined the Group in 1996. He has 13 years of experience in the pharmaceutical industry. [Mr. Zhou has worked as a clerk and was later promoted as a supervisor of Shenzhen International Arcade between 1987 and 1993.] He completed his education at Shenzhen Finance School (深圳市財經學校) in 1987. Save as disclosed above, he did not hold any directorships in listed public companies or any other major appointments in Hong Kong or overseas in the three years preceding the Latest Practicable Date. He was appointed as a Director on 3 August, 2009.

Mr. Lin Yusheng (林玉生), aged [45], is and has been the deputy general manager of SZ Kingworld [since July 2006]. He is primarily responsible for the capital management and also the operations of the Group. He has approximately 10 years of experience in the pharmaceutical industry. In 1989, he obtained a bachelor’s degree in philosophy at Yanan University (延安大學). He received a master’s degree in business administration at the Hong Kong Polytechnic University in 2006. From 1999 to 2004, he worked in Xi’an Lijun Pharmaceutical Company Limited, which is principally engaged in the manufacturing and sale of pharmaceutical products in the PRC, and a wholly owned subsidiary of Lijun International Pharmaceutical (Holding) Company Limited ([●] stock

code: 2005), a company listed on the [●] which, together with its subsidiaries, are engaged in the research, development, manufacturing and selling of finished medicines and bulk pharmaceutical products to hospitals and distributors. Mr. Lin was appointed as a vice president of Lijun International Pharmaceutical (Holding) Company Limited from 2004 to 2006. From 2005 to

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2006, he was also appointed as the chairman of Xi’an Lijun Fangyuan Pharmaceutical Company Limited (西安利君方圓製藥有限責任公司). Save as disclosed above, he did not hold any directorships in listed public companies or any other major appointments in Hong Kong or overseas in the three years preceding the Latest Practicable Date. He was appointed as a Director on 3 August, 2009.

Independent Non-executive Directors

Dr. Duan Jidong (段繼東), aged [45], was appointed as an independent non-executive director on [●]. He has approximately 20 years of experience in the pharmaceutical industry. He received a bachelor’s degree in medicine at [The Shanghai Railway Medical Institute] (上海鐵道醫學院) in 1989. He was a doctor with the Central Hospital of Shenyang Railway Bureau (原沈陽鐵路局中心醫院) from 1989 to 1994 and worked in the Beijing Mundipharma Pharmaceutical Company Limited (北京萌蒂制藥有限公司) from 1994 to 1998. He served as the chairman and legal representative of Kunming Baker Norton Pharmaceutical Company Limited from 2002 to 2006 and a director of Holley Pharmaceutical Company Limited (重慶華立藥業股份有限公司, Shenzhen [●] stock code: 000607) from 2005 to 2006, Wuhan Jianmin Pharmaceutical Groups Corporation Limited (武漢健民藥業集團股份有限公司, Shanghai [●] stock code: 600976), and Kunming Pharmaceutical Corp (昆明制藥集團股份有限公司, Shanghai [●] Stock Code: 600422) from 2004 to 2006. He is currently an independent non-executive director of Zhejiang CONBA Pharmaceutical Company Limited (浙江康恩貝制藥股份有限公司, Shanghai [●] stock code: 600572) and the chairman of Beijing Strategy & Action Enterprise Management Consulting Company Limited (北京時代方略企業管理咨詢有限公司). In addition, he completed the 8th Session of Qualification Training for Independent Directors of Listed Companies in 2008 (2008年度第八期上市公司獨立董事任職資格培訓班) organized by the Shanghai [●] in 2008. Save as disclosed above, he did not hold any directorships in listed public companies or any other major appointments in Hong Kong or overseas in the three years preceding the Latest Practicable Date.

Prof. Zhang Jianqi (張建琦), aged [53], was appointed as an independent non-executive director of the Company on [●]. He completed a course in industrial enterprise management at Xi’an Foundation University (now known as Xi’an University of Finance and Economics) in 1981. He received a PhD in management at the Xi’an Jiaotong University (西安交通大學) in 1998. Mr. Zhang obtained a master degree in engineering at Xi’an Jiaotong University in 1993. He has over 22 years of experience in tertiary education. He was qualified as a lecturer in Corporate Management in 1987. Since 1999, he has been working as a professor at Lingnan (University) College, Sun Yat-Sen University and later as a PhD tutor at the same University in 2003 . He is also a committee member (委員) of the Guangdong Committee of the Chinese People’s Political Consultative Conference (政協廣東省委員會). Since 2007, he has been the independent non-executive director of Foshan Nationstar Optoelectronics Company Limited (佛山市國星光電股份有限公司), Guangzhou Kangwei Group Sports Goods Company Limited (廣州康威集團體育用品股份有限公司) and Guangdong Alpha Animation and Culture Company Limited (廣東奧飛動漫文化股份有限公司) (Shenzhen [●] stock code 002292). In October 2009, he was appointed as the independent non-executive director of Zhuguang Holdings Group Company Limited (formerly known as “Nam Fong International Holdings Limited”), Shenzhen [●] Stock Code 01176). Save as disclosed above, he did not hold any directorships in listed public companies or any other major appointments in Hong Kong or overseas in the three years preceding the Latest Practicable Date.

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Mr. Wong Cheuk Lam (黃焯琳), aged [42], was appointed as an independent non-executive director on [●]. He has over 15 years of experience in accounting and finance fields. Mr. Wong obtained a bachelor of arts degree from the University of Hong Kong in 1992 and a master of business degree from Victory University of Technology, Australia in 1997. He is a member of the Hong Kong Institute of Certified Public Accountants and is also a certified practising accountant of CPA Australia. From 1994 to 2003, he worked in accounting positions for Sakura Finance Asia Limited and, BOCI Securities Limited and Going Accounting Services Company. Since 2003, he has been working as a company secretary at Zhengzhou Gas Company Limited (鄭州燃氣股份有限公司), a company listed on the [●] ([●] stock code: 3928) and has been the chief financial officer since July 2005 and a financial controller from October 2007 to July 2010 of the same company. Save as disclosed above, he did not hold any directorships in listed public companies or any other major appointments in Hong Kong or overseas in the three years preceding the Latest Practicable Date.

SENIOR MANAGEMENT

Name	Age	Group Position
Mr. Chan Hon Wan (陳漢雲)	49	Financial Controller and Company Secretary
Ms. Luo Qingfang (羅清芳)	52	Human Resources Manager
Mr. Liu Yibing (劉亦兵)	51	Administration Director
Ms. Fang Danna (方丹娜)	44	Financial Manager
Mr. Zhang Sheng Xing (張盛興)	37	Sales Director (Sales Region 1)
[Mr. Yan Yaodong (閻耀東)]	38	Sales Director (Sales Region 2)
Mr. Ceng Yun (曾溳)	39	Sales Director (Sales Region 3)
Mr. Yang Yongtao (楊永濤)	35	Promotions Director
Ms. Liang Caiyun (梁彩雲)	41	Operations and Customer Services Manager
Ms. Tien Yongli (田永莉)	46	Audit and Control Manager
Ms. Zhang Dan (張丹)	45	Deputy Marketing Director
Mr. Huang Ruozhong (黃若忠)	48	Corporate Finance Manager

Mr. Chan Hon Wan (陳漢雲), aged [49], is the financial controller and company secretary of the Company and was appointed on 25 June, 2009. He is responsible for the management of the Group’s financial matters. He has over 24 years of experience in auditing and accounting fields. He served as a financial controller of Fairwood Fast Food Limited from 1995 to 1998. He also worked as a corporate finance director of Texwood Limited from 2000 to 2005 and a business director of Texwood Group from 2006 to 2008 respectively. He received a bachelor’s degree in economics from Macquarie University Australia in 1986. In 2005, he received a master’s degree in science (accountancy) from the Hong Kong Polytechnic University. He is an associate member of the Institute of Chartered Accountants in Australia and an associate member of the Hong Kong, Institute of Certified Public Accountants.

Ms. Luo Qingfang (羅清芳), aged [52], is the human resources manager of SZ Kingworld. She is primarily responsible for the formulation and management of the Group’s human resources policies. She has approximately 16 years of experience in human resources. She worked as an office manager of the Southern Investment Advisor (深圳南方投資諮詢有限公司) in 1993 and a human resources

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manager of Guangdong Nanguo Business Bloc Company Limited (廣東南國企業集團有限公司) in 1994. She received a master’s degree in business administration from Zhongnan University of Economics and Law (中南財經大學) in 2000. In addition, she completed an EMBA course (在職經理工商管理碩士課程研修班) in 2002 at Lingnan (University) College, Sun Yat-Sen University. She joined the Group in 2000.

Mr. Liu Yibing (劉亦兵), aged [51], is the administration director of SZ Kingworld. He is primarily responsible for the implementation of the Group’s administrative policies. He has approximately 8 years of experience in the administrative field. He worked in the cadre training center at the human resources department of Foxconn International Group between 1995 and 1998. He received a bachelor’s degree in Chinese literature from Hunan Normal University (湖南師範大學) in 1982. He joined the Group in 2001.

Ms. Fang Danna (方丹娜), aged [44], is the financial manager of the SZ Kingworld since 1995. She is primarily responsible for the management of the Group’s financial policies. She has approximately 20 years of experience in the accounting industry. She worked for the accounting department of Shenzhen Xinwei Electronics Company Limited (深圳新偉電子有限公司) in 1989 before she joined SZ Industry as a financial manager in 1995. She received a bachelor’s degree in accounting from Wuhan University (武漢大學) in 1991.

Mr. Zhang Sheng Xing (張盛興), aged [37], is the sales director (Sales Region 1) of SZ Kingworld. He is primarily responsible for the overall sales and customer management in Sales Region 1. He has approximately 14 years of experience in sales in the pharmaceutical industry. He completed the advanced training course in the essential studies in EMBA with Lingnan College (嶺南學院) of the Sun Yat-Sen University (中山大學) in 2006. He joined the Group in 1994.

[ Mr. Yan Yaodong (閻耀東), aged [38], is the sales director (Sales Region 2) of SZ Kingworld. He is primarily responsible for the overall sales and customer management in Sales Region 2. He has approximately 9 years of experience in the pharmaceutical industry. He completed his secondary education majoring in foreign language (English language) with Hulan Teachers Training College [(呼蘭師範專科學校)] in 1996. He joined the Group in 2010.]

Mr. Ceng Yun (曾溳), aged [39], is the sales director (Sales Region 3) of SZ Kingworld. He is primarily responsible for the overall sales and customer management in Sales Region 3. He has approximately 12 years of experience as a sales manager in the pharmaceutical industry. He received a master’s degree in industrial economics from Nanchang University (南昌大學) in 2001. He joined the Group in 1996.

Mr. Yang Yongtao (楊永濤), aged [36], is the promotions director of SZ Kingworld. He is primarily responsible for the implementation of the Group’s overall promotional strategies and management of the retail outlets. He has approximately 8 years of experience in the sales and promotion areas. [He worked as a promotion officer in the sales and marketing department of TCL Communication Company Limited in 2000 and] as a key account supervisor in the marketing & sales center in Raystar Cosmetics (Shenzhen) Company Limited in 2001. He completed a course in facilities

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engineering and sales management with Changchun Institute of Optics and Fine Mechanic (長春光學精密機械學院), now known as Changchun University of Science and Technology, in 1994 and later in economics management with Party School of the Central Committee of the Communist Party of China (中共中央黨校函授學院) in 1999. He joined the Group in 2003.

Ms. Liang Caiyun (梁彩雲), aged [41], is the operations and customer services manager of SZ Kingworld. She is primarily responsible for the implementation of the Group’s overall customer services strategies including but not limited to the delivery of the products and the review of purchase agreements. She has over 20 years of experience in the sales and strategic planning fields. Before joining the Group in 1999, she worked in the Aviation Industry Corporation of China ZhongHang Electronic Measuring Instruments Co. Ltd. (中國航空工業總公司中航電測儀器股份有限公司) in 1988 and later as a planning and statistics officer of Chiaphua Appliance (Shenzhen) Company Limited in 1997. She completed her tertiary education in the area of industrial enterprises management with 012 Base Vocational School (012基地職工學院) in 1988. She received the qualification certificate of specialty and technology for the intermediate level in statistics from the National Bureau of Statistics of China (國家統計局) in 1996.

Ms. Tian Yongli (田永莉), aged [46], is the audit and control manager of SZ Kingworld. She is primarily responsible for the formulation, implementation and review of the Group’s accounting policies and internal control. She has approximately 17 years of experience in the auditing and accounting fields. She worked as an accounting officer for Electronic Industry Bureau of Wuhan City (武漢市電子工業局) in 1992. She received the junior accountant qualification from Finance Department of the PRC (中華人民共和國財政部) in 1999. She received a professional diploma in industrial enterprises’ operation and management from Wu Han Radio and TV University (武漢市廣播電視大學) in 1986. She joined the Group in 2005.

Ms. Zhang Dan (張丹), aged [45], is the deputy marketing director ([●] Product Series) of SZ Kingworld. She is primarily responsible for the formulation and implementation of the Group’s overall marketing strategies for the products the Group distributes, especially [●] Pei Pa Koa. She has approximately 11 years of experience in the sales and marketing areas. She received a bachelor’s degree in medical treatment from Yunyang Medical College of Tongji Medical University (同濟醫科大學鄖陽醫學院) in 1986. [She was a lecturer at the Hubei Province Wuhan Health School between 1986 and 1995, and she] joined the Group in 1996.

Mr. Huang Ruozhong (黃若忠), aged 48, is the corporate finance manager of SZ Kingworld and is responsible for managing the [matters relating to the Listing]. He has 15 years experience in handling securities and finance related matters. He worked in the securities department of the Shantou branch of the Bank of Communications Co. Ltd. from 1992 to 1999. He worked in the securities trading department of the Shantou Trust and Investment Company from 1999 to 2002, and worked for the Deheng Securities Company Limited from 2002 to 2003. From 2004 and onwards, he has been the executive directors of the 12 Consultancies and since 2006 the director of Zhuhai Jinming. In 2001, he was presented with the qualification of handling securities business by the Securities Association of China (中國證券協會). He attended a course at the Chinese People’s Liberation Army Air Force Surface-to-air Missile Academy (中國人民解放軍空軍地空導彈學院) and Chinese People’s Liberation Army Air Force Artillery Academy (中國人民解放軍空軍高炮學院) in 1985 and 1989 respectively. Mr. Huang joined SZ Kingworld in May 2003.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

Save as disclosed in this document, none of the Directors or senior management of the Company is interested in any business apart from the Group’s business, which competes or is likely to compete directly or indirectly with the Group’s business.

COMPANY SECRETARY

Mr. Chan Hon Wan (陳漢雲) is the Company Secretary of the Group. He is also the Financial Controller of the Company. His biographical details are set out under the paragraph headed “Senior Management” above.

[At the time of the Listing, the Group has been operated under substantially the same management throughout the Track Record Period.]

DIRECTORS’ AND SENIOR MANAGEMENT’S REMUNERATION

[During the Track Record Period, the aggregate amount of remuneration (including fees, salaries, contributions to pensions schemes, housing and other allowances, benefits in kind and discretionary bonuses) which were paid to the Directors was approximately [RMB255,000], [RMB1,945,000], [RMB2,401,000] and RMB[●] respectively.]

The aggregate amount of salaries and other allowances and benefits in kind discretionary bonuses and contribution to pensions schemes paid to the five highest paid individuals [(comprising of Directors and Senior Management)] for the Track Record Period was approximately [RMB910,000], [RMB2,472,000], [RMB2,617,000] and RMB[●] respectively.

[The aggregate amount of remuneration paid to the Directors increased substantially in 2008. Such increase was primarily attributable to the fact that Mr. Zhao, Ms. Chan and Mr. Zhou Xuhua did not receive any salaries in 2007.]

[The remuneration of the Directors and senior management is determined in accordance with their individual performances, qualifications, experience and seniority, as well as the performance of the Group and market conditions. The level of bonuses to be paid to the Directors and senior management, if any, after the Listing will depend on, among other things, the Group’s operating results, cash flow and recommendations from the remuneration committee of the Board of Directors. Following the Listing, the remuneration committee of the Board will review on a regular basis and determine the compensation package of each Director and senior management of the Group.]

[Except as disclosed above, no other payments have been made or are payable, in respect of the Track Record Period, by the Group to or on behalf of any of the Directors. The aggregate remuneration, excluding discretionary bonuses, of the Directors payable for the year ending 31 December 2009 is [RMB2,323,000].]

For additional information on Directors’ remuneration during the Track Record Period as well as information on the highest paid individuals, please refer to notes 9 and 10 to the combined financial statements, included in the accountants’ report set out in Appendix I to this document.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

STAFF

Overview of the number of staff

During the Track Record Period, the Group had a total of 286, 290, [351] and [378] full-time employees, respectively. The following table sets forth a breakdown of the Group’s employees by function as at the Latest Practicable Date:

	Number of	Percentage
Areas of Operations	Employees	of Total
Directors	[4]	[1.06%]
Senior Managers	[12]	[3.17%]
Sales	[308]	[81.48%]
Marketing	[8]	[2.12%]
Finance and Accounting	[11]	[2.91%]
Human Resources	[3]	[0.79%]
Internal Audit	[2]	[0.53%]
Quality Control	[6]	[1.59%]
Customer Service	[10]	[2.65%]
Others	[14]	[3.70%]
Total	[378]	[100%]

Relationship with staff

[The Group has not experienced any significant problems with its employees or disruption to its operations due to labour disputes nor has it experienced any difficulties in the recruitment and retention of experienced staff which have had a material effect on the Group’s business. The Directors believe that the Group maintains good working relationship with its staff.]

Staff benefits

[During the Track Record Period, the Group made contributions to various benefit plans such as social insurance scheme, housing funds, occupational injury insurance, retirement benefit scheme and certain other employee benefits for employees who are employed by the Group pursuant to the PRC laws and regulations and the existing policy requirements of the local government in the PRC.]

[As required by PRC regulations, contributions to the benefit plans are required to be made at specified percentages of the staff’s salaries, bonuses and certain allowances up to a maximum amount specified by the respective local government authorities. Members of the retirement scheme are entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date.]

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

[The Group and its Hong Kong employees contribute to the mandatory provident fund in accordance with the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) and relevant requirements based on 5% of the relevant incomes of the relevant employee.]

During the Track Record Period, the aggregate contribution of the Group in the benefit plans amounted to approximately [RMB903,000], [RMB1,755,000], [RMB2,028,000] and RMB[●] respectively.

Staff remuneration

[The Group determines its staff’s remuneration in accordance with its standard salary policies. Its total staff costs (including the Directors’ and senior management’s emoluments) during the Track Record Period was approximately [RMB12,682,000], [RMB19,271,000], [RMB18,941,000], and RMB[7,680,000] respectively, which accounted for [2.4%], [3.6%], [3.4%] and [2.4]% of the Group’s total revenue, respectively. During the Track Record Period, the increase in total staff costs was mainly due to the increase in number of staff as well as the new Employment Contract Law which became effective on 1 January 2008.]

Staff training

[The Group provides internal training courses for its staff on a regular basis to enhance their technical and product knowledge including industry quality standards, regulatory standards, customer sales skills and inventory control systems. The Group also arranges for its staff to attend training courses organized by [professional external training organizations].] SZ Kingworld has [committed] approximately RMB1 million for establishing a training centre in 2009.

Compliance with labour and employment regulations

[The Group had complied with all material applicable labour and employment laws and regulations in the PRC as at the Latest Practicable Date. As advised by the PRC Lawyer, the new Employment Contract law (勞動合同法), which mainly governs the employment contracts, became effective on 1 January 2008. The Directors confirm that the Group’s employment contracts have complied with the new Employment Contract Law.]

BOARD COMMITTEES

Audit Committee

The Company established an audit committee on [●] with written terms of reference in compliance with the Code on Corporate Governance Practices as set out in Appendix 14 to the [●]. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control system of the Group. The audit committee has [3] members, namely [Dr. Duan Jidong], [Prof. Zhang Jianqi] and [Mr. Wong Cheuk Lam].

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

Remuneration Committee

The Company established a remuneration committee on [●] with written terms of reference in compliance with the Code on Corporate Governance Practices as set out in Appendix 14 to the [●]. The primary duties of the remuneration committee are, among other things, to review and determine the terms of remuneration packages, bonuses and other compensation payable to the Directors and senior management and to make recommendation to the Board on the Group’s policy and structure for all remuneration of the Directors and senior management. The remuneration committee has [3] members, namely [Dr. Duan Jidong, Prof. Zhang Jianqi and Mr. Wong Cheuk Lam.]

[Nomination Committee

The Company established a nomination committee on [●] with written terms of reference in compliance with the Code on Corporate Governance Practices as set out in Appendix 14 to the [●]. The nomination committee is mainly responsible for making recommendations to the Board on appointment of Directors and succession planning for Directors. The nomination committee has [3] members, namely [Dr. Duan Jidong, Prof. Zhang Jianqi and Mr. Wong Cheuk Lam.]

COMPLIANCE ADVISER

[●]

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SHARE CAPITAL

The issued share capital of the Company immediately following [●] will be as follows:

HK$

Authorised share capital :

[10,000,000,000] Shares

[1,000,000,000]

General Mandate to issue Shares

Conditional on [●] becoming unconditional, the Directors have been granted a general conditional mandate to allot, issue and deal with Shares with a total nominal value of not more than the sum of:

[20%] of the aggregate of the total nominal value of share capital of the Company in issue immediately following completion of [●] but excluding Shares that may be issued upon exercise of [●]; and
the total nominal amount of the share capital of the Company which may be repurchased by the Company (if any) pursuant to the repurchase mandate (as referred to below).

The allotment and issue of Shares under a right issue or pursuant to the exercise of any subscription rights, warrants which may be issued by the Company from time to time, Shares in lieu of the whole or part of a dividend on Shares in accordance with the Articles or on exercise of the [●] do not generally require the approval of the shareholders of the Company in general meeting and the aggregate nominal amount of Shares which the Directors are authorised to allot and issue pursuant to this mandate will not be reduced by the allotment and issue of such Shares.

This mandate will expire:

at the conclusion of the Company’s next annual general meeting;
upon the expiration of the period within which the Company is required by laws of the Cayman Islands or the Articles to hold its next annual general meeting; or
when varied, revoked or renewed by an ordinary resolution of the Shareholders passed in general meeting,

whichever is the earliest.

For further details of this general mandate, please see the paragraph headed “Written resolutions passed by the Shareholders on [●]” in the section headed “Further information about the Group” of Appendix V to this document.

General mandate to repurchase Shares

Conditional on [●] becoming unconditional, the Directors have been granted a general unconditional mandate to exercise all the powers of the Company to repurchase Shares with a total nominal value of not more than 10% of the total nominal amount of Shares in issue immediately following completion of [●] but excluding Shares that may be issued under [●].

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SHARE CAPITAL

This mandate only related to repurchase made on [●] on which the securities of the Company may be listed and which is recognised by [●] for this purpose, and which is in accordance with [●]. [A summary of the relevant [●] is set out in the paragraph headed “Repurchases of the Company’s own securities” in the section headed “Further information about the Group” of Appendix [V] to this document.

This mandate will expire:

at the conclusion of the Company’s next annual general meeting;
upon the expiration of the period which the Company is required by laws of the Cayman Islands or the Articles to hold its next annual general meeting; or
when varied or revoked by an ordinary resolution of the Shareholders passed in general meeting,

whichever is the earliest.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

CONTROLLING SHAREHOLDERS

Immediately upon the completion of [●], the Controlling Shareholders, comprising Golden Land, Golden Morning Mr. Zhao and Ms. Chan are together entitled to control the exercise of voting rights of [75]% of the Shares eligible to vote in a general meeting of the Company.

Save as disclosed above, there is no other person who will, immediately following completion of [●], be directly or indirectly interested in 30% or more of the Shares then in issue or have a direct or indirect equity interest in any member of the Group representing 30% or more of the equity in such entity.

EXCLUDED BUSINESS OF CONTROLLING SHAREHOLDERS

During the Track Record Period and as at the Latest Practicable Date, Mr. Zhao and Ms. Chan, being two of the Controlling Shareholders, and their associates (further particulars of which are set forth in the section headed “ Connected Transactions ” of this document) were interested in the following businesses which compete, or are likely to compete, either directly or indirectly, with the Group (“ Excluded Business ”). Particulars of the companies engaging in the Excluded Business are set out as follows:

1. Companies engaging in the manufacturing of pharmaceuticals

Name of company

Principal Business

(1) Yuen Tai [(Note][1)] As at the Latest Practicable Date, Fengbao Jianfu Capsule was the only product manufactured by Yuen Tai and the Group was the sole distributor of such product. As Yuen Tai is a manufacturer and does not distribute Fengbao Jianfu Capsule itself other than selling it to the Group for distribution, Yuen Tai is not in competition with the Group. The Group’s sales in respect of Fengbao Jianfu Capsule, which was supplied by Yuen Tai, accounted for [0.16]%, [0.06]%, [0.24]% and [0]% of the Group’s revenue respectively during the Track Record Period. Each of the annual caps for the purchase and distribution of Fengbao Jianfu Capsule from Yuen Tai is expected to be RMB2.9 million, RMB9.7 million and RMB14.5 million for the financial years ended 31 December 2010, 2011 and 2012 respectively, each of which represents 0.7%, 2.2% and 3.3% of the Group’s 2009 cost of sales respectively. Yuen Tai is a direct wholly owned subsidiary of Morning Gold, details of which are set out in the paragraph headed “3. Companies having no business operations as at the Latest Practicable Date” below.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Name of company Principal Business

(2) SZ Kingworld Lifeshine As at the Latest Practicable Date, Kingworld Product (Note 1) Range and Imada Red Flower Oil were the only products manufactured by SZ Kingworld Lifeshine and the Group was the sole distributor of such products. As SZ Kingworld Lifeshine is a manufacturer and does not distribute Kingworld Product Range and Imada Red Flower Oil itself other than selling the products to the Group for distribution, SZ Kingworld Lifeshine is not in competition with the Group. The Group’s sales in respect of Kingworld Product Range, which was supplied by SZ Kingworld Lifeshine, accounted for [0.79]%, [0.04]%, [0.56]% and [0.81]% of the Group’s revenue respectively during the Track Record Period. Each of the annual caps for the purchase and distribution of Kingworld Product Range and Imada Red Flower Oil from SZ Kingworld Lifeshine is expected to be RMB5.9 million, RMB6.6 million and 7.6 million; RMB11.5 million, RMB25.0 million and RMB32.6 million for the financial years ended 31 December 2010, 2011 and 2012 respectively, each of which represents 1.4%, 1.5% and 1.7%; 2.6%, 5.7% and 7.5% of the Group’s 2009 cost of sales respectively. SZ Kingworld Lifeshine is a direct wholly owned subsidiary of Morning Gold, details of which are set out in the paragraph headed “3. Companies having no business operations as at the Latest Practicable Date” below.

2. Companies engaging in businesses other than the manufacturing of pharmaceuticals

Name of company Principal Business

(1) King Gibson PRC Sales of golf-related products, garments and accessories, including clothes, shoes, caps, gloves, etc.
(2) Kingworld Department Store Provision of property management services Property Management
(3) Kamcorp Investment holding and owns an office premises in Hong Kong.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Companies having no business operations as at the Latest Practicable Date

Name of company

(1) SH Industry, Xin Hua Peng, SZ Industry, Kingkok International Enterprises and Kingkok Investment Holdings [(Note][2)]
(a) SH Industry was previously a client of SZ Kingworld and was engaged in the distribution of the [●] Product Range and [●] Herbal Candy in Shanghai since its incorporation. Such products were sourced from SZ Kingworld. Since July 2008, SH Industry ceased its operation in the distribution of the [●] Product Range and [●] Herbal Candy in Shanghai.
(b) Xin Hua Peng was engaged in the manufacturing of “WD Disinfectant” (“WD無敵消毒液”) until expiry of its relevant manufacturing license in July 2007.
(c) SZ Industry is indirect wholly owned by two of the Controlling Shareholders, namely Mr. Zhao and Ms. Chan (who are also the Directors). It was established under the laws of the PRC on 30 June 1994. According to its business license, its scope of business includes the distribution of healthcare products (limited to the [[●] Product Range]) and distribution of packaged foodstuffs. During the Track Record Period, SZ Industry acted as [a holding company and was not engaged in any distribution business operation] notwithstanding that during the Track Record Period and as at the Latest Practicable Date, SZ Industry was the owner of various certificates, including the Certificates of Imported Health Food for the importation of the [[●] Product Range]. Other than [[●] Product Range], SZ Industry did not hold any certificate of or conduct any business in relation to pharmaceutical or healthcare products. For further details, please refer to the relevant paragraph under “Authorisation granted by SZ Industry to distribute the [[●] Product Range]” in the section headed “Connected Transactions” of this document.

As SZ Industry was a holding company as at the Latest Practicable Date, the Directors consider that there is no competition between the business of the Group and that of SZ Industry.

(d) Kingkok International Enterprises and Kingkok Investment Holdings were not engaged in any business other than their direct or indirect equity interests in SZ Industry, SH Industry and Xin Hua Peng.
(2) Flying Success

Flying Success was an investment holding company and prior to August 2007, it invested in the shares of Lijun International Pharmaceutical (Holding) Co., Ltd. (利君國際醫藥(控股)有限公司), a company listed on the [●] (stock code: 2005).

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

(3) Morning Gold [(Note][1)]

4. Companies which have no business operations since their incorporation

As at the Latest Practicable Date, none of King Gibson Hong Kong, Kingworld Bright Future and Kingworld Medicine had conducted any business operations since their incorporation.

Notes:

As at the Latest Practicable Date, Yuen Tai and SZ Kingworld Lifeshine were direct wholly owned subsidiaries of Morning Gold, which in turn was owned as to 51% by Mr. Zhao and 49% by Ms. Chan respectively. Morning Gold was not engaged in any business other than its shareholding interests in Yuen Tai and SZ Kingworld Lifeshine as at the Latest Practicable Date. Both Yuen Tai and SZ Kingworld Lifeshine will continue to appoint the Group as their sole distributor after the Listing. Pursuant to the Deed of Non-Competition, each of the Controlling Shareholders has undertaken that he/she/it shall (i) procure his/her/its associates (including but not limited to Yuen Tai and SZ Kingworld Lifeshine) not to engage in any activities in the PRC or overseas which may be in competition with the Group; and (ii) first refer to the Company any investment or other commercial opportunity relating to the Restricted Activity (as defined in the paragraph under “Deed of Non-Competition” in the section of “Relationship with Controlling Shareholders” in this document) that is identified by, or offered by a third party, to him/her/it or any company controlled by him/her/it and the Controlling Shareholders or his/her/its associates would only be entitled to pursue such opportunity if the Company declined it. Therefore, during the valid term of the Deed of Non-Competition, if Yuen Tai and SZ Kingworld Lifeshine manufacture other pharmaceuticals and healthcare products in addition to the existing products which they manufacture, they will not distribute such products themselves, and shall offer the Company the opportunity to distribute such products unless such opportunity is declined by the Company. The Company will seek approval from its board committee, consisting of independent non-executive Directors who do not have a material interest in the matter, as to whether to pursue or decline such opportunity. In the event that such opportunity has been declined by the Company in accordance with the terms of the Deed of Non-Competition, Yuen Tai and SZ Kingworld Lifeshine may refer to other companies for distribution of their products. For further details of the Deed of Non-Competition, please refer to the paragraph under “Deed of Non-Competition” in the section of “Relationship with Controlling Shareholders” in this document.
As at the Latest Practicable Date, SH Industry and Xin Hua Peng were directly held as to [90%] and [95%] respectively by SZ Industry. As at the Latest Practicable Date, SZ Industry was a direct wholly owned subsidiary of Kingkok International Enterprises, which in turn was wholly owned by Kingkok Investment Holdings. Kingkok Investment Holdings was owned as to 80% by Mr. Zhao and 20% by Ms. Chan.

Rationale for non-inclusion

As the principal business of the Group is the distribution of branded imported pharmaceutical and healthcare products, and the abovementioned 15 companies are not engaged in such distribution business, the Directors consider that there is no competition between the businesses engaged by the abovementioned 15 companies and the business of the Group. Since the abovementioned 15 companies are all not within the principal business scope of the Group, they are therefore not included in the Group.

Amongst the 15 companies as mentioned above, Yuen Tai and SZ Kingworld Lifeshine are both engaged in the manufacturing business while the Group is principally engaged in the distribution business of branded imported pharmaceutical and healthcare products. As such, the manufacturing business engaged by Yuen Tai and SZ Kingworld Lifeshine does not fall within the principal business scope of the Group.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Reasons for not being in competition with the Group

The Directors consider that there is no competition between the principal business engaged by each of the abovementioned 15 companies and the business of the Group since the abovementioned 15 each of companies are not engaged in the distribution business. Therefore, they are not considered to be in competition with the Group. [Also, the Controlling Shareholders entered into the Deed of Non-Competition in favour of the Company to the effect that the Controlling Shareholders will procure their associates (including the abovementioned 15 companies) not to engage in any activities which may compete with the Group. For details of the Deed of Non-Competition, please refer to the relevant paragraph headed “Deed of Non-Competition” in the section of “Relationship with Controlling Shareholders” of this document.]

Based on the above, [Mr. Zhao and Ms. Chan have no intention to include the abovementioned companies into the Group and the Directors consider that there is no competition between the principal business engaged by each of the abovementioned companies and the business of the Group.]

Having considered the matters described above and the following factors, the Directors are satisfied that the Group can carry on its business independently of and at arms length from the Excluded Business and the Controlling Shareholders following the Listing:

INDEPENDENCE FROM CONTROLLING SHAREHOLDERS

Management Independence

Golden Land, being a Controlling Shareholder, is wholly owned by Mr. Zhao, whereas Golden Morning, being another Controlling Shareholder, is wholly owned by Ms. Chan. Both Mr. Zhao and Ms. Chan are executive Directors. The Board comprises four executive Directors and three independent non-executive Directors. Two of the executive Directors, namely, Mr. Zhao and Ms. Chan, hold management roles (including directorships) in the other Controlling Shareholders, namely, Golden Land and Golden Morning, respectively and in the companies owned, either directly or indirectly, by the Controlling Shareholders.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

The following tables set forth the management roles (including directorships) held by the two executive Directors, namely, Mr. Zhao and Ms. Chan, with (i) the Group; (ii) the other two Controlling Shareholders, namely, Golden Land and Golden Morning; and (iii) companies owned, either directly or indirectly, by the Controlling Shareholders as at the Latest Practicable Date:

				Position held with the Controlling Shareholders(Note 1)
		Position held with		and companies owned, either directly or indirectly, by
	Name	the Group		the Controlling Shareholders(Note 1)
1.	Mr. Zhao_(Note 2)_	Director (Note 4) of		Director of
		(1)	BVI Kingworld	(1) Golden Land
		(2)	HK Kingworld	(2) Morning Gold
		(3)	SZ Kingworld	(3) SZ Industry
		(4)	the Company	(4) SH Industry
		(5)	Zhuhai Jinming	(5) Yuen Tai
		Legal	Representative of	(6) SZ Kingworld Lifeshine
		(1)	SZ Kingworld	(7) Kingkok International Enterprises
		(2)	Zhuhai Jinming	(8) Kingkok Investment Holdings
				(9) Flying Success
				(10) Xin Hua Peng
				(11) Kamcorp
				(12) Kingworld Bright Future
				(13) Kingworld Medicine
				Legal Representative of
				(1) SZ Industry
				(2) SH Industry
				(3) SZ Kingworld Lifeshine
				(4) Xin Hua Peng

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Position held with Name the Group 2. Ms. Chan [(Note][3)] Director [(Note][4)] of (1) BVI Kingworld (2) HK Kingworld (3) the Company (4) SZ Kingworld

Position held with the Controlling Shareholders [(Note][1)] and companies owned, either directly or indirectly, by the Controlling Shareholders [(Note][1)] Director of (1) Golden Morning (2) Morning Gold (3) SZ Industry (4) SH Industry (5) SZ Kingworld Lifeshine (6) King Gibson PRC (7) Kingworld Department Store Property Management
(8) Kingkok International Enterprises (9) Kingkok Investment Holdings (10) Flying Success (11) Xin Hua Peng (12) Kamcorp (13) King Gibson Hong Kong
(14) Kingworld Medicine

Legal Representative of

(1) King Gibson PRC (2) Kingworld Department Store Property Management

Notes:

For the purpose of the tables above, “Controlling Shareholders” may exclude Mr. Zhao and/or Ms. Chan, where applicable.
Mr. Zhao participates in the [management] of the companies as set out in table 1 above in the capacity as a director of such companies.
Ms. Chan participates in the [management] of the companies as set out in table 2 above in the capacity as a director of such companies.
Mr. Zhao and Ms. Chan will devote 90% and 80% of their time and attention respectively to the management of the Group. The Directors are of the view that such time and attention devoted by Mr. Zhao and Ms. Chan respectively will be sufficient for the management of the Group.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Save as disclosed above, the Directors confirm that none of the Directors and members of the senior management in the Group hold positions (including directorships, legal representatives, etc.) in any of the companies directly or indirectly controlled by the Controlling Shareholders.

Notwithstanding the fact that (i) Mr. Zhao, being an executive Director, is also the director of a Controlling Shareholder, namely, Golden Land; (ii) Ms. Chan, being an executive Director, is also the director of a Controlling Shareholder, namely, Golden Morning; and (iii) both Mr. Zhao and Ms. Chan hold directorships in the companies owned, either directly or indirectly, by the Controlling Shareholders, the Directors are of the view that the Company is managed independently of the Controlling Shareholders and companies owned, either directly or indirectly, by the Controlling Shareholders for the following reasons:-

Other than the two Directors (namely, Mr. Zhao and Ms. Chan) mentioned above, all the other Directors and members of the senior management of the Company do not concurrently hold directorships and/or senior management positions in the Controlling Shareholders (namely, Golden Land and Golden Morning) and in any of the companies owned, either directly or indirectly, by the Controlling Shareholders.
Golden Land and Golden Morning are investment holding companies which do not have any substantial business. Thus, the two Directors, namely, Mr. Zhao and Ms. Chan, do not need to devote substantial time to Golden Land and Golden Morning, which are Controlling Shareholders as well.
The companies owned, either directly or indirectly, by the Controlling Shareholders are either principally engaged in business activities other than the principal business of the Group or some of which had no business activities as at the Latest Practicable Date (further particulars of which are set forth in the section headed “Excluded Business of Controlling Shareholders” in “Relationship with Controlling Shareholders” to this document) rather than the distribution of branded imported pharmaceutical and healthcare products, which is the principal business engaged by the Group.

In addition to the above, each of the Directors is aware of his or her fiduciary duties as a Director of the Company which require, among other things, that he or she acts for the benefit and in the best interests of the Company and does not allow any conflict between his or her duties as a Director and his or her personal interest. [In the event that there is a potential conflict of interest arising out of any transaction to be entered into between the Group and the Directors or their respective associates, the interested Director(s) shall abstain from voting at the relevant Board meetings in respect of such transactions and shall not be counted in the quorum.] In this regard, the Directors are of the view that the Group can be managed independently notwithstanding that Mr. Zhao and Ms. Chan are the executive Directors.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

[Also, the Directors consider that in the event of conflicts of interest, the Board will be able to function properly for the following reasons:

two out of four of the executive Directors, namely, Mr. Zhou Xuhua and Mr. Lin Yusheng, do not have any shareholding interests or roles in any of the companies directly or indirectly controlled by the Controlling Shareholders;
the Directors confirm that both Mr. Zhou Xuhua and Mr. Lin Yusheng have work experience in the pharmaceutical industry and in particular, Mr. Lin Yusheng has managerial experience in pharmaceutical companies;
in terms of the experience of the independent non-executive Directors, taking into account the experience of Dr. Duan Jidong in the pharmaceutical industry, Professor Zhang Jianqi’s experience in tertiary education and the compliance, accounting and finance qualifications of Mr. Wong Cheuk Lam, in the event that certain members of the Board are required to abstain from voting in such matters involving conflicts of interest, the independent non-executive Directors can provide the Board with advice and guidance based on their respective experiences;
none of the members of the Group’s senior management hold positions (including directorships, legal representatives, etc.) in any of the companies held, either directly or indirectly, by the Controlling Shareholders. In the event that certain members of the Board are required to abstain from voting in such matters involving conflicts of interest, the Group’s senior management team can provide the rest of the Board members with advice and guidance based on their respective experiences; and
the Directors confirm that they will consult with independent experts from the pharmaceutical industry to obtain their professional opinion, advice and guidance, when necessary.]

[Furthermore, the management independence is warranted as the Group has its own team of senior staff independent of the Excluded Business. The team possesses in-depth experience and understanding of the industry of distribution of pharmaceutical and healthcare products and general foodstuffs and are responsible to take charge of the Group’s daily operations.]

Operational Independence

[The organizational structure of the Group is made up of a number of departments, comprising sales department, marketing department, securities department, audit department, finance department, human resources department, international sourcing department and quality control department. Each department has a specific area of responsibility. Internal control procedures are available to ensure effective operation of the Group’s business. Furthermore, the Group has its own distribution network and its own sources of customers. The Group can operate independently through its own distribution networks, which are not overlapped with the Excluded Business.]

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Although the Group entered into the various continuing connected transactions with companies controlled by the Controlling Shareholders as set out in the section headed “ Connected Transactions ” to this document, the Directors confirm that these continuing connected transactions were entered into on normal commercial terms after arm’s length negotiations and are fair and reasonable. The Group will also fully comply with the relevant requirements, e.g., reporting, announcement, independent shareholders’ approval, etc. of Chapter 14A of the [●] if any more connected transactions arise in the future.

Administrative independence

The Group has its own capabilities and personnel to perform all essential administrative functions, including internal control and audit monitor, financial and accounting management, invoicing and billing, human resources and information technology.

Financial independence

The Group has an independent financial system and makes financial decisions according to the Group’s business needs.

During the Track Record Period, Mr. Zhao provided personal guarantee in favour of China Construction Bank Shenzhen Branch of the obligations of SZ Kingworld under a loan agreement. [The approval by China Construction Bank Shenzhen Branch on the cancellation of the provision of personal guarantee by Mr. Zhao as a security for the abovementioned loan was granted on [1 September 2010 and the personal guarantee was released on the same date (i.e. before the Listing)]. All non-trade balance due to the Controlling Shareholders and their associates will be fully settled before the Listing.]

During the Track Record Period, save as disclosed in the Accountant’s Report in Appendix [I] and in the section headed “Connected Transactions” to this document, the Controlling Shareholders, through entities either controlled or partly-owned by them, have not provided loans to the Group or bank guarantee to secure bank loans of the Group.

[Save and except the abovementioned personal guarantee provided by Mr. Zhao, the Directors confirm that the Group will not rely on the Controlling Shareholders for financing after the Listing.]

Given the above reasons, the Directors are of the view that the Group is capable of carrying on its business independently of the Controlling Shareholders and their associates after the Listing.

In order to maintain independence from the Controlling Shareholders, the Group has adopted certain measures as stated in the paragraph headed “Corporate Governance Measures” below. The Controlling Shareholders and their associates and other related parties have further given non-competition undertakings in this regard in order to further safeguard the interest of the Group, details of which are set out in the paragraphs headed “Deed of Non-Competition” [and “Undertaking Letter”] below.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Deed of Non-Competition

In order to avoid any possible future competition between the Group and the Controlling Shareholders, the Deed of Non-Competition has been entered into by the Controlling Shareholders in favour of the Company. The major terms and conditions of the Deed of Non-Competition are set out as follows:

The Controlling Shareholders (individually, the “Covenantor” and collectively the “Covenantors”) entered into a deed of non-competition (the “Deed of Non-Competition”) on [●] in favour of the Company, pursuant to which each of the Covenantors has given certain non-competition undertakings to the Company (for it and for the benefit of the members of the Group), to the effect that, he/she/it shall not, and he/she/it shall make his/her/its best efforts to procure that his/her/its associates or connected persons do not and shall not, directly or indirectly, whether on his/her/its own or through any entities, carry on, participate, be interested or engaged or otherwise be involved, whether for profit, reward or otherwise, in any business which is involved in any activity (the “Restricted Activity”), conducted in the PRC or overseas, which is in competition with, or is likely to be in competition with, the business carried on by any member of the Group (i.e. [wholesale, import and export of proprietary Chinese medicine, chemical medicine preparation, antibiotics crude drugs and preparations, packaged food (including health food), including but not limited to the distribution of the pharmaceuticals and healthcare products currently distributed by the Group as described in the section headed “Business” of this document.]), from time to time during the restricted period set out in the Deed of Non-Competition. There shall be no restriction on a Covenantor and/or his/her/its associates or connected persons holding or being interested in shares or other securities in any company which conducts or is engaged in any Restricted Activity (the “Subject Company”), provided that:

(a) such shares or securities are listed on a stock exchange; and
(b) the aggregate number of shares, held by him/her/it and/or his/her/its associates or connected persons or in which he/she/it is interested, does not amount to more than 5% of the issued shares of the Subject Company, and he/she/it or his/her/its connected person or associates at no time shall have the right to appoint more than 10% of composition of the board of directors of the Subject Company.

Each of the Covenantors has undertaken further that he/she/it shall first refer to the Company any investment or other commercial opportunity relating to the Restricted Activity that is identified by, or offered by a third party, to him/her/it or any company controlled by him/her/it (other than those companies which are controlled by any Covenantor only by virtue of his/her/its shareholding in the Company), in the following manner:

(a) The relevant Covenantor or his/her/its associates or connected persons shall give a written offer notice to the Company of such opportunity, identifying the nature of business, investment or acquisition costs and other details reasonably necessary for the Company to consider whether to pursue the opportunity.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

(b) The Company is required to notify the relevant Covenantor within 30 days (which, if the Company in its sole discretion decides, may be extended for another 30 days by the Company notifying the relevant Covenantors of such extension) in writing of any decision taken to pursue or decline such opportunity. The Company will seek approval from its board committee, consisting of independent non-executive Directors who do not have a material interest in the matter, as to whether to pursue or decline such opportunity.
(c) The relevant Covenantor or his/her/its associates or connected persons will be entitled to pursue such opportunity if (i) he/she/it has received a notice from the Company declining the opportunity, or (ii) he/she/it has not received any notice from the Company within 30 days (which, if the Company in its sole discretion decides, may be extended for another 30 days by the Company notifying the relevant Covenantor of such extension).
(d) If there is a material change in the nature of the opportunity pursued by the relevant Covenantor or his/her/its associates or connected persons, he/she/it will refer the opportunity as so revised to the Company in the manner as outlined above.

The Deed of Non-Competition will terminate upon the earlier of:

(a) the anniversary date when the Covenantor and his/her/its associates or connected persons cease to beneficially own, directly or indirectly, 30% or more of the issued share capital of the Company; or
(b) the date when the Shares cease to be listed on the [●].

Undertaking Letter

Undertaking letter executed by Pearl Shining and Ms. Cheng Lok Yam, Ella

In order to avoid any possible future competition between the Group and Pearl Shining, a sole proprietorship of Ms. Cheng Lok Yam, Ella, a connected person of Mr. Zhao and Ms. Chan who are two of the Controlling Shareholders, both Ms. Cheng Lok Yam, Ella and Pearl Shining executed an undertaking letter on 12 March 2010 in favour of the Company (the “Undertaking Letter”).

Pursuant to the Undertaking Letter, Ms. Cheng Lok Yam, Ella and Pearl Shining confirmed that as at the date of the Undertaking Letter, they have not carried on, participated, engaged, involved or invested in any other business within and/or outside the PRC that would directly or indirectly compete with the business of the Group, save the business involving the Company as the distributor of Pearl Shining for the distribution of Min Tong Chisionhon Granules in the PRC (the “Min Tong Business”). Ms. Cheng Lok Yam, Ella and Pearl Shining further undertook that in the event that Ms. Cheng Lok Yam, Ella carried on, participated, engaged, involved or invested in any other business within and/or outside the PRC that would directly or indirectly compete with the business of the Group (save the Min Tong Business), Ms. Cheng Lok Yam, Ella and Pearl Shining should notify the Company in writing. The Company is required to notify Ms. Cheng Lok Yam, Ella and Pearl Shining in writing within 30 days thereof of any decision taken to pursue or decline such business opportunity, failing which Ms. Cheng Lok Yam, Ella and Pearl Shining should pursue such business opportunity.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

The Undertaking Letter will become ineffective when the Shares cease to be listed on the

[●].

Corporate Governance Measures

The Controlling Shareholders have entered into the Deed of Non-Competition in favour of the Company in order to protect the Company’s interests. For further details, please refer to the paragraph headed “Deed of Non-Competition” in this section of the document. In order to further avoid potential conflicts of interests, the Group has adopted a system of corporate governance measures:

[As part of the preparations for the Listing, the Company has amended its Memorandum and Articles to comply with the [●]. In particular, its Memorandum and Articles provide that, except in certain limited circumstances, a Director shall not vote on any resolution approving any contract or arrangement or any other proposal in which such Director or any of his/her associates have a material interest nor shall such Director be counted in the quorum present at the meeting. As such, the Controlling Shareholders in their capacity as Directors shall not vote or be counted in the quorum in respect of any proposals involving themselves or any of their other affiliates.]
[The Group is committed that the Board should include a balanced composition of executive and independent non-executive Directors. The Directors are of the view that the independent non-executive Directors should be of sufficient calibre. Details of the independent non-executive Directors are set out in the section headed “Directors and senior management” to this document, who are free of any business or other relationship which could interfere in any material manner with the exercise of their independent judgment. The independent non-executive Directors will be able to provide an impartial, external opinion to protect the interests of the public Shareholders.]
[the Board will ensure that any material conflict or material potential conflict of interests will be reported to the independent non-executive Directors as soon as practicable when such conflict or potential conflict is discovered. Following the reporting of any material conflict or material potential conflict of interests, the Board will hold a meeting to review and evaluate the implications and risk exposure of such event and will monitor any material irregular business activities and alert the Board, including the independent non-executive Directors, to take any precautionary actions, where necessary.]
[The Company has appointed [Guotai Junan Capital] as its compliance adviser, which will provide advice and guidance to the Group in respect of compliance with the applicable laws and the [●] including various requirements relating to directors’ duties and internal controls.]

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

[The decision-making process in relation to the Deed of Non-Competition will be governed and monitored as follows:
The independent non-executive Directors will be responsible for deciding, without attendance by any other executive Directors (except as invited by the independent non-executive Directors to assist them), whether or not to take up a new opportunity referred to the Group or any other matter arising under the terms of the Deed of Non-Competition.
The independent non-executive Directors will also review, on an annual basis, any decision in relation to new opportunities referred to the Group, and state their views with basis and reasons in the annual report.]
[the Company will observe any transaction that is proposed between the Group and its connected persons, and will be required to comply with Chapter 14A of the [●] including, where applicable, the announcement, reporting and independent shareholders’ approval requirements of those rules.]
[The independent non-executive Directors will review, at least on an annual basis, the compliance with the non-competition undertaking by the Controlling Shareholders under the Deed of Non-Competition, the options, pre-emptive rights or first rights of refusals, if any, provided by the Controlling Shareholders on its existing or future competing businesses and decide whether to exercise these rights.]
[Disclosure on how the Deed of Non-Competition was complied and enforced is consistent with the principles of making voluntary disclosures in the corporate governance report will also be made in the Group’s annual reports.]
[Decisions on matters reviewed by the independent non-executive Directors relating to the enforcement of the undertaking (e.g. the exercise of options or first rights of refusals) shall be disclosed either through the annual report, or by way of announcements to the public.]
the Controlling Shareholders have undertaken to provide to the Group all information necessary for the annual review by the independent non-executive Directors and the enforcement of the Non-competition Deed;
the Company will disclose decisions on matters reviewed by the independent non-executive Directors relating to the compliance and enforcement of the non-competition undertaking of the Controlling Shareholders under the Non-competition Deed in its annual report of the Company; and
the Controlling Shareholders will make an annual statement on compliance with the non-competition undertaking under the Non-competition Deed in the annual report of the Company, including the disclosure on how the Non-competition Deed was complied with and enforced (if applicable), which is consistent with the principles of making voluntary disclosure in the corporate governance report of the annual report.

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PERSONS HAVING NOTIFIABLE INTERESTS UNDER [ ● ]

Interests and short positions of the Directors and chief executives in the Shares, underlying Shares or debentures of the Company and its associated corporations

So far as the Directors are aware, immediately following completion of [●], the interests and/or short positions of the Directors and chief executives of the Company in the Shares, underlying Shares or debentures of the Company or any associated corporations (within the meaning of [●]) which will have to be notified to the Company and [●], or which will be required, pursuant to [●], to be entered in the register referred to therein, or pursuant to the [●], to be notified to the Company and [●] once the Shares are [●] will be as follows:

Long position in the Shares:

			Approximate
			percentage
		Number	of shareholding
Name	Nature of Interest	of Shares	immediately after [●]
Mr. Zhao_(Note 1)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares
Ms. Chan_(Note 2)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares

Notes:

Mr. Zhao is deemed (by virtue of [●]) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [360,000,000] Shares are held by Golden Land, which is wholly owned by Mr. Zhao. The reference to [360,000,000] Shares deemed to be interested by Mr. Zhao (as disclosed herein) and Golden Land (as disclosed in the sub-section headed “Interests and/or short position discloseable under [●] and substantial Shareholders” of this section) relate to the same block of Shares.
(b) [90,000,000] Shares are indirectly held by Ms. Chan, wife of Mr. Zhao, through Golden Morning, which is wholly owned by Ms. Chan.
Ms. Chan is deemed (by virtue of [●]) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [90,000,000] Shares are held by Golden Morning, which is wholly owned by Ms. Chan. The reference to [90,000,000] Shares deemed to be interested by Ms. Chan (as disclosed herein) and Golden Morning (as disclosed in the sub-section headed “Interests and/or short position discloseable under [●] and substantial Shareholders” of this section) relate to the same block of Shares.
(b) [360,000,000] Shares are indirectly held by Mr. Zhao, husband of Ms. Chan, through Golden Land, which is wholly owned by Mr. Zhao.

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PERSONS HAVING NOTIFIABLE INTERESTS UNDER [ ● ]

Long positions in the shares of the associated corporations of the Company:

			Approximate
	Name of associated	Capacity/	percentage of
Name	corporation	Nature of Interest	shareholding
Mr. Zhao	Golden Land	Beneficial Owner	100%
Ms. Chan	Golden Morning	Beneficial Owner	100%

Interests and/or short position discloseable under Divisions 2 and 3 of Part XV of the [ ● ] and substantial shareholders

So far as the Directors are aware, immediately following completion of [●], the following persons will have an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of [●] or who will be, directly or indirectly interested in 10% or more of the nominal value of the Shares carrying rights to vote in all circumstances at general meetings of the Company:

Long position in the Shares

			Approximate
			percentage
			of interest
	Capacity/	Number	immediately after
Name	Nature of Interest	of Shares	[●]
Golden Land	Beneficial Owner	[360,000,000]	[60]%
		Shares
Golden Morning	Beneficial Owner	[90,000,000]	[15]%
		Shares
Mr. Zhao_(Note 1)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares
Ms. Chan_(Note 2)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares

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PERSONS HAVING NOTIFIABLE INTERESTS UNDER [ ● ]

Notes:

Mr. Zhao is deemed (by virtue of [●]) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [360,000,000] Shares are held by Golden Land, which is wholly owned by Mr. Zhao.
(b) [90,000,000] Shares are indirectly held by Ms. Chan, wife of Mr. Zhao, through Golden Morning, which is wholly owned by Ms. Chan.
Ms. Chan is s deemed (by virtue of [●]) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [90,000,000] Shares are held by Golden Morning, which is wholly owned by Ms. Chan..
(b) [360,000,000] Shares are indirectly held by Mr. Zhao, husband of Ms. Chan, through Golden Land, which is wholly owned by Mr. Zhao.

Save as disclosed above, the Directors are not aware of any person (not being a Director or chief executive of the Company) who will, immediately following completion of [●], have a notifiable interest or short position in Shares or, underlying Shares of the Company which would fall to be disclosed to the Company and the [●] under the provisions of Divisions 2 and 3 of [●], or, be directly or indirectly interest in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

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FINANCIAL INFORMATION

You should read this section in conjunction with our combined financial information, including the notes thereto, as set forth in the Accountants’ Report in Appendix I to this document. We have prepared the combined financial information on the basis set out in Note 2 of Section II of Appendix I and in accordance with the accounting policies that are in conformity with HKFRS.

Co Ord III(3)

This document contains certain forward-looking statements relating to our plans, objectives, expectations and intentions, which involves risks and uncertainties. Our future financial condition could differ materially from that discussed in this document. For factors that could cause or contribute to such differences, please refer to the section headed “Risk Factors” and elsewhere in this document.

OVERVIEW

We are principally engaged in the distribution of well-known pharmaceutical and healthcare products in the PRC. As at the Latest Practicable Date, we managed a portfolio of 48 pharmaceutical and healthcare products, general foodstuffs and a medical product which are manufactured in Japan, the USA, Hong Kong, Taiwan, Thailand and the PRC and sourced from 13 different suppliers and/or manufacturers. Since the commencement of our business in September 1996, we have established an extensive distribution network in the PRC, which as at the Latest Practicable Date, consisted of approximately 190 Distributor Customers and 400 Sub-distributor Customers and approximately 1,500 Product Display Booths which are located in 12 provinces, covering 38 cities and more than 17,000 retail outlets which are not under the control of the Group in the PRC.

For more effective management and co-ordination, we have strategically devised a management hierarchy over the PRC market which is segmented into 34 Regions, each overseen by one or more of the Twelve Subsidiaries or a regional representative office staffed with a dedicated sales team. These representative offices have been set up to assist the Group in product marketing, retail outlet management, pricing management and corporate identity and brand promotion. Moreover, a jointly controlled entity in the name of Zhuhai Jinming was established by SZ Kingworld and Guangdong Minglin for the distribution of the [●] Product Series in the Guangdong Province. Starting from May 2009 the year 2009, we have taken the initiative to co-operate with retail outlets to set up Product Display Booths to display the products the Group distributes, namely, Taiko Seirogan and Flying Eagle Wood Lok Medicated Oil under the name of “Kingworld Healthy Home” (金活健康之家). As at the Latest Practicable Date, approximately 1,500 Product Display Booths had been set up and they are mainly located in Shenzhen of the Guangdong Province.

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FINANCIAL INFORMATION

The following table sets forth our annual revenue, operating profit, profit attributable to equity holders, operating margin and net profit margin for each of the three financial years ended 31 December 2009 and the six months ended 30 June 2010 respectively:

				Six	months
	Year	ended 31	December	ended 30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Selected income statement data:
Turnover	527,327	536,021	556,417	274,795	313,710
Gross profit	96,305	129,391	120,653	52,826	63,353
Profit from operations	44,528	62,011	56,363	16,375	18,034
Profit attributable to equity
holders of
the Company	29,235	34,397	37,244	8,561	10,612
Selected operating data:
Gross profit margin	18.3%	24.1%	21.7%	19.2%	20.2%
Operating margin	8.4%	11.6%	10.1%	6.0%	5.7%
Net profit margin	5.5%	6.4%	6.7%	3.1%	3.4%

FACTORS AFFECTING RESULTS OF OPERATIONS

Our results of operations and the period-to-period comparability of our financial results are affected by a number of factors, including the following principal factors:

Demand for our products . A key driver of our revenues is demand for our pharmaceutical and healthcare products. Demand is driven by several key factors, including economic development, natural growth of population, the growing ageing society, the need for healthcare and the advances in technology, which affect the demand for pharmaceutical and healthcare products generally and the demand for the products we sell as well.

Product mix . Our revenues are also affected by the selling prices of our products and the mixture of product types. Our product pricing is largely dependent on the customer preferences which dictate our product mix. Average selling prices are affected by the mix of pharmaceutical and healthcare we sell. Although we adjust our product mix according to customer preferences, we maintain our focus on distributing high margin pharmaceutical and healthcare products that command higher average selling prices.

Scale of operations . Our scale of operations has increased in the past three years. Scale of operations affects our operating results in several ways. A larger scale of operations allows us to increase our volume of sales and spread our fixed costs and labor costs over a higher number of units distributed and gives us more bargaining power when negotiating with suppliers. So long as there is

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FINANCIAL INFORMATION

sustained market demand for our products, a larger scale of operations will enable us to achieve higher revenue and better profit margins. In addition, a larger scale of operations generally has a positive impact on our future growth, as it can offer us competitive advantages in pursuing investments and acquisitions.

Selling and distribution costs . Selling and distribution costs affect our profitability. We seek to reduce these costs by streamlining, consolidating and computerizing our operations by constructing our own warehouse in Shenzhen and managing our inventories efficiently. In this regard, we hope to enjoy the benefits of further expansion of our sale network in the PRC.

SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION

The selected historical combined financial information set forth below have been extracted from our combined financial information for each of the three financial years ended 31 December 2009 and the six months ended 30 June 2010 (the “Financial Information”), all of which is respectively set forth in the Accountants’ Report attached as Appendix I to this document. The Financial Information has been prepared on the basis set out in Note 2 of Appendix I to this document and in accordance with the accounting policies that are in conformity with HKFRS. Investors should read these selected combined financial data together with Appendix I to this document and the discussion under the paragraph headed “Analysis of the Group’s Results” below.

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FINANCIAL INFORMATION

Combined Income Statements

Turnover (Note 1) Cost of sales Gross profit Valuation (loss)/gain on investment property Other revenue (Note 2) Other net income (Note 3) Selling and distribution costs Administrative expenses Profit from operations Finance costs Profit before taxation Income tax Profit for the year/period Attributable to: Equity holders of the Company Dividends Earnings per share (RMB) (Note 4) Basic and diluted (cents)	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 527,327 536,021 556,417 (431,022) (406,630) (435,764) 96,305 129,391 120,653 — (1,891) 600 3,591 7,220 6,786 9,068 10,978 7,143 (51,748) (62,357) (58,378) (12,688) (21,330) (20,441) 44,528 62,011 56,363 (8,958) (16,570) (9,610) 35,570 45,441 46,753 (6,335) (11,044) (9,509) 29,235 34,397 37,244 29,235 34,397 37,244 — 47,700 26,400 [6.50] [7.64] [8.28]	Six months ended 30 June 2009 2010 RMB’000 RMB’000 274,795 313,710 (221,969) (250,357) 52,826 63,353 — — 4,509 3,738 3,305 33 (33,991) (37,485) (10,274) (11,605) 16,375 18,034 (6,067) (3,568) 10,308 14,466 (1,747) (3,854) 8,561 10,612 8,561 10,612 — 5,637 [1.90] [2.36]

Notes:

The Directors consider that the key revenue driver for the financial year ended 2009 was the effect of (i) the Product Display Booths Scheme which was launched in May 2009 and (ii) the special 12-month credit term for Flying Eagle Word Lok Medicated Oil, sales of the product increased from RMB10.1 million in 2008 to RMB28.6 million in 2009.
Other revenue primarily consists of interest income on financial assets not at fair value through profit or loss, commission income and rental income.
Other net income primarily consists of net realised and unrealised gain on forward foreign exchange contracts and net foreign exchange gain.

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FINANCIAL INFORMATION

The calculation of basic earnings per share is based on the net profit attributable to equity holders of the Company for the three financial years ended 31 December 2009 and the six months ended 30 June 2010 and on the assumption that [450,000,000] shares in issue or to be issued as at the date of this document and pursuant to the Capitalisation Issue occurred on the first day of the Track Record Period.

Gross profit margin analysis

Gross profit margin was 18.3% for the year ended 2007, 24.1% for the year ended 2008, 21.7% for the year ended 31 December 2009 and 20.2% for the six months ended 30 June 2010. The increase in the Group’s gross profit margin from 18.3% in 2007 to 24.1% in 2008 was mainly due to the increase in sales for higher profit margin products like Flying Eagle Wood Lok Medicated Oil on one hand and decrease in sales quantity of lower margin products like eye-drop medicines on the other hand. The drop in gross profit margin from 24.1% in 2008 to 21.7% in 2009 and 20.2% in the six months ended 30 June 2010 was mainly due to the increase in average unit cost of [●] Pei Pa Koa products by 10.3% which could not be fully passed on to customers by correspondingly increasing the selling price of the [●] Pei Pa Koa.

Combined statements of comprehensive income

				Six months	Six months
	Year	ended 31 December		ended	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Profit for the year/period	29,235	34,397	37,244	8,561	10,612
Other comprehensive income
for the year/period
Exchange differences on
translation of financial
statements of foreign
subsidiaries	8	78	(152)	(412)	106
	8	78	(152)	(412)	106
Total comprehensive income for
the year/period	29,243	34,475	37,092	8,149	10,718

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FINANCIAL INFORMATION

Combined Balance Sheets

		At 31 December		At 30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Non-current assets
Property, plant and equipment	4,406	3,451	3,633	3,434
Investment property	—	45,400	46,000	46,000
Prepaid lease payments	—	—	7,502	7,380
	4,406	48,851	57,135	56,814
Current assets
Inventories	99,136	98,620	75,862	35,041
Trade and other receivables	278,404	265,746	178,513	170,422
Pledged bank deposits	69,049	103,396	246,619	197,537
Cash and cash equivalents	48,444	31,240	83,562	49,433
	495,033	499,002	584,556	452,433
Current liabilities
Trade and other payables	177,930	164,729	172,882	113,852
Bank loans	187,333	159,595	246,606	195,766
Current taxation	2,016	3,414	4,637	2,896
	367,279	327,738	424,125	312,514
Net current assets	127,754	171,264	160,431	139,919
Total assets less current liabilities	132,160	220,115	217,566	196,733
Non-current liabilities
Bank loans	—	100,000	60,000	60,000
Deferred tax liabilities	—	1,180	1,538	2,024
	—	101,180	61,538	62,024
NET ASSETS	132,160	118,935	156,028	134,709
CAPITAL AND RESERVES
Share capital	—	—	1	1
Reserves	43,160	29,935	156,027	134,708
Shareholders’ equity loans	89,000	89,000	—	—
TOTAL EQUITY	132,160	118,935	156,028	134,709

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FINANCIAL INFORMATION

RESULTS OF OPERATIONS

The table below sets forth selected results of operations data expressed as a percentage of our turnover, for each of the three financial years ended 31 December 2009 and the six months ended 30 June 2010. Our historical results of operations are not necessarily indicative of the results for any future period.

Turnover (Note 1) Cost of sales Gross margin Other revenue Other net income Selling and distribution costs Administrative expenses Profit from operations Finance costs Profit before taxation Net profit margin	Year ended 31 December 2007 2008 2009 (%) (%) (%) 100.0 100.0 100.0 (81.7) (75.9) (78.3) 18.3 24.1 21.7 0.7 1.3 1.2 1.7 2.0 1.3 (9.8) (11.6) (10.5) (2.4) (4.0) (3.7) 8.4 11.6 10.1 (1.7) (3.1) (1.7) 6.7 8.5 8.4 5.5 6.4 6.7	Six months ended 30 June 2009 2010 (%) (%) 100.0 100.0 (80.8) (79.8) 19.2 20.2 1.6 1.2 1.2 0.0 (12.4) (11.9) (3.7) (3.7) 6.0 5.7 (2.2) (1.1) 3.8 4.6 3.1 3.4

Note:

Computation of turnover or income and reasonable breakdown between important trading activities.

FINANCIAL OVERVIEW

Turnover

We generated substantially all of our turnover from the sales of pharmaceutical and healthcare products during the Track Record Period. Our turnover represents sales of our products less sales tax. We incurred sales tax of RMB0.3 million, RMB0.5 million, RMB0.6 million and RMB0.3 million for each of the three financial years ended 31 December 2009 and the six months ended 30 June 2010 respectively.

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FINANCIAL INFORMATION

We generated a substantial portion of our turnover from the sales of our [●] Product Series. Our [●] Product Series accounted for 69.5%, 69.2%, 71.1% and 78.3% of our turnover for each of the three financial years ended 31 December 2009 and the six months ended 30 June 2010 respectively. We also sell a range of other types of pharmaceutical products, including Taiko Seirogan, Flying Eagle Wood Lok Medicated Oil, [●] Products Range, Imada Red Flower Oil and other healthcare products.

The following table sets forth a breakdown of turnover for our products, and each item expressed as a percentage of our turnover, for each of the three financial years ended 31 December 2009 and six months ended 30 June 2009 and 2010 respectively:

		Year	ended 31	December	December			Six months ended 30 June	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2007		2008			2009		2009		2010
	RMB’000	_% _	RMB’000	_% _	RMB’000		_% _	RMB’000	_% _	RMB’000		%
[●] Pei Pa Koa	353,775	67.1%	357,121	66.6%	373,720		67.1%	186,728	67.9%	229,196	73.0%
[●] Herbal Candy	12,692	2.4%	14,266	2.6%		22,387	4.0%	8,276	3.0%	16,741		5.3%
Taiko Seirogan	53,755	10.2%	61,623	11.5%		42,325	7.6%	26,002	9.4%	11,034		3.5%
Flying Eagle Wood Lok
Medicated Oil	4,345	0.8%	10,130	1.9%		28,591	5.1%	10,388	3,8%	12,587		4.0%
[●] Product Range	23,910	4.5%	25,842	4.8%		29,127	5.2%	11,893	4.3%	10,442		3.3%
Imada Red Flower Oil	28,259	5.4%	28,573	5.3%		26,131	4.7%	12,289	4.5%	4,363		1.4%
Mentholatum Product
Range	450	0.1%	422	0.1%		1,342	0.2%	527	0.2%	15,201		4.8%
Mentholatum Eye Drop
Range*	36,576	6.9%	20,010	3.7%		26,177	4.7%	16,084	5.8%	—		0.0%
[●]	7,886	1.5%	16,918	3.2%		1,202	0.2%	1,159	0.4%	9,921		3.2%
Kingworld Product
Range	3,810	0.7%	221	0.1%		2,879	0.5%	740	0.3%	2,384		0.8%
Other products	2,140	0.4%	1,420	0.2%		3,086	0.7%	1,071	0.4%	2,120		0.7%
Gross sales	527,598	100.0%	536,546	100.0%	556,967		100.0%	275,157	100%	313,989	100.0%
Less: Sales tax	(271)		(525)			(550)		(362)		(279)
Net sales	527,327		536,021		556,417			274,795		313,710

SZ Kingworld has not distributed the Mentholatum Eye Drop Range since 1 January 2010.

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FINANCIAL INFORMATION

The following table sets forth a breakdown of sales volume and unit price for our products for each of the three financial years ended 31 December 2009 and six months ended 30 June 2009 and 2010 respectively.

		Year	ended 31	December	December		Six months ended 30 June	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2007		2008		2009		2009		2010
	Sales	Unit	Sales	Unit	Sales	Unit	Sales	Unit	Sales	Unit
	Volume	Price	Volume	Price	Volume	Price	Volume	Price	Volume	Price
	unit ’000	RMB	unit ’000	RMB	unit ’000	RMB	unit ’000	RMB	unit ’000	RMB
[●] Pei Pa Koa	23,012	15.4	23,379	15.3	23,828	15.7	12,044	15.5	14,488	15.8
[●] Herbal Candy	2,070	6.1	1,941	7.3	2,827	7.9	1,075	7.7	2,107	7.9
Taiko Seirogan	3,950	13.6	3,903	15.8	2,572	16.5	1,617	16.1	771	14.3
Flying Eagle Wood Lok
Medicated Oil	362	12.0	792	12.8	2,232	12.8	810	12.8	983	12.8
[●] Product Range	380	62.9	413	62.6	458	63.6	192	61.9	145	72.0
Imada Red Flower Oil	5,070	5.6	5,069	5.6	4,710	5.5	2,231	5.5	783	5.6
Mentholatum Product
Range	61	7.4	60	7.0	180	7.5	74	7.1	1,737	8.8
Mentholatum Eye Drop
Range	3,172	11.5	1,701	11.8	2,160	12.1	1,326	12.1	0	0.0
[●]	77	102.4	162	104.4	12	100.2	12	96.6	85	116.7
Kingworld Product
Range	2,972	1.3	186	1.2	2,176	1.3	545	1.4	1,799	1.3
Other products	139	15.4	95	14.9	255	12.1	84	12.8	84	25.2

The turnover of our products increased from RMB527.3 million in 2007 to RMB536.0 million in 2008 and to RMB556.4 million in 2009, due to the greater penetration of our products in existing geographic markets as well as expansion of sales in new geographic markets. The turnover for the six months ended 30 June 2010 was RMB313.7 million.

We sell our products exclusively to Distributor Customers, with whom we typically enter into written distribution agreements for one-year terms and which are renewable annually. We generally bill our customers upon delivery of products at their premises, with an up to 90-day credit term from the date of billing. Most of our distributors make payment by telegraphic transfer.

Historically, we have experienced limited amounts of uncollectible trade receivables. Our impairment on bad debt amounted to RMB0.2 million, RMB0.2 million, RMB0.1 million and RMB0.2 million for each of the three financial years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010 respectively.

For the financial year ended 31 December 2008, the Group’s turnover was approximately RMB536.0 million, representing an increase of approximately RMB8.7 million from approximately RMB527.3 million for the financial year ended 31 December 2007.

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FINANCIAL INFORMATION

The major components of the increase are as follows:

Taiko Seirogan

The sales of Taiko Seirogan increased by RMB7,868,000 from RMB53,755,000 in 2007 to RMB61,623,000 in 2008.

Flying Eagle Wood Lok Medicated Oil

The sales of Flying Eagle Wood Lok Medicated Oil increased by RMB5,785,000 from RMB4,345,000 in 2007 to RMB10,130,000 in 2008 mainly as the result of the increase in sales volume from 362,000 bottles in 2007 to 792,000 bottles in 2008 as well as the increase in unit price.

[ ● ]

The sales of [●] increased by RMB9,032,000 from RMB7,886,000 in 2007 to RMB16,918,000 2008 mainly as the result of the increase in sales volume from 77,000 bottles in 2007 to 162,000 bottles in 2008 as well as the increase in unit price.

The increase in sales for the above mentioned products was partially net off by the drop in sales of Mentholatum Eye Drop Range.

Mentholatum Eye Drop Range

The sales of Mentholatum Eye Drop Range decreased by RMB16,566,000 from RMB36,576,000 in 2007 to RMB20,101,000 in 2008 mainly as the result of the decrease in sales volume from 3,172,000 bottles in 2007 to 1,701,000 bottles in 2008 as the Group reduced its effort to promote this product due to its low margin.

For the year ended 31 December 2009, the Group’s turnover was approximately RMB556.4 million, representing an increase of approximately RMB20.4 million from approximately RMB536.0 million for the financial year ended 31 December 2008.

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FINANCIAL INFORMATION

The major components of the increase are as follows:

[ ● ] Pei Pa Koa

The sales of [●] Pei Pa Koa increased by RMB16,599,000 from RMB357,121,000 in 2008 to RMB373,720,000 in 2009 mainly as the result of the increase in sales volume from 23,379,000 bottles in 2008 to 23,828,000 bottles in 2009.

[ ● ] Herbal Candy

The sales of [●] Herbal Candy increased by RMB8,121,000 from RMB14,266,000 in 2008 to RMB22,387,000 in 2009 mainly as the result of the increase in sales volume from 1,941,000 cans in 2008 to 2,827,000 cans in 2009.

Flying Eagle Wood Lok Medicated Oil

The sales of Flying Eagle Wood Lok Medicated Oil increased by RMB18,461,000 from RMB10,130,000 in 2008 to RMB28,591,000 in 2009 mainly as the result of the increase in sales volume from 792,000 bottles in 2008 to 2,232,000 bottles in 2009.

The increase in sales for the above mentioned products was partially net off by the drop in sales of [●].

[ ● ]

The sales of [●] decreased by RMB15,716,000 from RMB16,918,000 in 2008 to RMB1,202,000 in 2009 mainly as the result of the decrease in sales volume from 162,000 cans in 2008 to 12,000 cans in 2009.This significant decrease was mainly due to the fact that the Import Registration Certificate for [●] expired on 28 August 2008. The Group has applied for the renewal of such certificate with the relevant government authorities in the PRC. Nonetheless, there was a delay in obtaining the renewed Import Registration Certificate and the Import Drugs Approval Notice was only granted in December 2009, which affected the importation of [●] for distribution. The Group has received a Notice of Cognizance for the renewal application on 27 August 2008 issued by theSFDA but was not provided with any reasons for the delay in or any rejections for, the issuance of the Import Registration Certificate.

Taiko Seirogan

The sales of Taiko Seirogan decreased by RMB19,298,000 from RMB61,623,000 in 2008 to RMB42,325,000 in 2009 mainly as the result of the decrease in sales volume from 3,903,000 bottles in 2008 to 2,572,000 bottles in 2009. The decrease was mainly due to the increase in the unit price of the product which led to a drop in sales volume and the delayed renewed of the Import Registration Certificate which affect the supply of this product in the PRC.

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FINANCIAL INFORMATION

The turnover increased to RMB313.7 million for the six months ended 30 June 2010, from RMB274.8 million for the same period in 2009, representing a 14.2% increase. The increase was mainly from [●] Product Series.

Based on the unaudited management accounts of the Group, the turnover of the Group for the two months ended 31 August 2010 was RMB[52.8] million.

The Group’s sales for Flying Eagle Wood Lok Medicated Oil for each of the three financial years ended 31 December 2007, 2008, 2009 and the six months ended 30 June 2010 were RMB4.3 million, RMB10.1 million, RMB28.6 million and RMB12.6 million respectively. The growth rate of the sales for this product in the first half of 2010 was lower than that in 2009 because in 2009 when special programs were first launched to promote the sales of this product, many retail stores carried small quantities of stock or even no stock, therefore many orders were first orders by nature and the quantities are much larger than the repeated orders in the first half of 2010.

Cost of Sales

Our cost of sales represents primarily the cost of products that we purchase from our suppliers. The following table sets forth our cost of sales, and each item expressed as a percentage of our total cost of sales, for each of the three financial years ended 31 December 2009 and the six months ended 30 June 2010 respectively:

		Year	ended 31	December	December		Six	months	ended 30	June
	2007		2008		2009		2009		2010
	RMB’000	_% _	RMB’000	_% _	RMB’000	_% _	RMB’000	_% _	RMB’000	%
[●] Pei Pa Koa	285,439	66.2%	275,383	67.8%	308,197	70.7%	156,399	70.5	193,099	77.1%
[●] Herbal Candy	9,758	2.3%	9,911	2.4%	16,111	3.7%	5,967	2.7	11,916	4.8%
Taiko Seirogan	48,821	11.3%	41,692	10.3%	26,015	6.0%	17,511	7.9	7,102	2.8%
Flying Eagle Wood Lok
Medicated Oil	2,259	0.5%	4,333	1.1%	11,929	2.7%	4,423	2.0	5,355	2.1%
[●] Product Range	16,340	3.8%	19,358	4.8%	19,651	4.5%	9,027	4.1	6,647	2.7%
Imada Red Flower Oil	24,310	5.6%	22,107	5.4%	21,332	4.9%	10,186	4.6	3,632	1.5%
Mentholatum Product
Range	413	0.1%	412	0.1%	1,321	0.3%	471	0.2	13,808	5.5%
Mentholatum Eye Drop
Range*	33,304	7.7%	20,047	4.9%	25,788	5.9%	15,843	7.1	—	0.0%
[●]	5,740	1.4%	12,450	3.0%	908	0.2%	897	0.4	6,191	2.5%
Other products	4,638	1.1%	937	0.2%	4,512	1.1%	1,245	0.5	2,607	1.0%
Total	431,022	100.0%	406,630	100.0%	435,764	100.0%	221,969	100.00	250,357	100.0%

SZ Kingworld has not distributed the Mentholatum Eye Drop Range since 1 January 2010.

Cost of sales of our products decreased from RMB431.0 million in 2007 to RMB406.6 million in 2008 mainly due to the decrease in sales volume by 9.8% as a result of the rise in average selling

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FINANCIAL INFORMATION

price by 13.7%. The cost of sales increased from RMB406.6 million in 2008 to RMB435.8 million in 2009 as sales volume increased by 12.6% primarily due to our increased marketing efforts and enlarged distribution network. The increase in cost of sales is also caused by the increase in the average unit cost of [●] Product Series by 10.3%.

Cost of sales increased to RMB250.4 million for the six months ended 30 June 2010, from RMB222.0 million for the same period in 2009, representing a 12.8% increase. The increase was in line with the increase in turnover.

Gross Profit and Gross Margin

Gross profit is equal to turnover less cost of goods sold and sales tax. Gross margin is equal to gross profit divided by turnover. Gross profit and gross margin should be taken into consideration together with net profit and net profit margin, with net profit being the remainder of gross profit after adding other revenue and other net income; and less selling and distribution expenses, administrativecosts, finance costs and taxation; and net profit margin equals to net profit divided by turnover. The following table sets forth the gross profit and gross margins of our products for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 respectively:

		Year ended 31	Year ended 31	December	December		Six	months ended 30	months ended 30	June
	2007		2008		2009		2009		2010
	_RMB’000 _	_Margin RMB’000 _		_Margin RMB’000 _		_Margin RMB’000 _		_Margin RMB’000 _		Margin
[●] Pei Pa Koa	68,336	19.3%	81,738	22.9%	65,523	17.5%	30,328	16.2%	36,097	15.7%
[●] Herbal Candy	2,934	23.1%	4,355	30.5%	6,276	28.0%	2,309	27.9%	4,825	28.8%
Taiko Seirogan	4,934	9.2%	19,931	32.3%	16,310	38.5%	8,491	32.7%	3,932	35.6%
Flying Eagle Wood Lok
Medicated Oil	2,086	48.0%	5,797	57.2%	16,662	58.3%	5,964	57.4%	7,232	57.5%
[●] Product Range	7,570	31.7%	6,484	25.1%	9,476	32.5%	2,866	24.1%	3,795	36.3%
Imada Red Flower Oil	3,949	14.0%	6,466	22.6%	4,799	18.4%	2,104	17.1%	731	16.8%
Mentholatum Product
Range	37	8.1%	10	2.5%	21	1.5%	56	10.6%	1,393	9.1%
Mentholatum Eye Drop
Range*	3,272	8.9%	(37)	(0.2)%	389	1.5%	241	1.5%	—	0.0%
[●]	2,146	27.2%	4,468	26.4%	294	24.5%	261	22.6%	3,730	37.6%
Other products	1,349	21.1%	714	34.6%	1,474	20.2%	568	31.3%	1,897	42.1%
	96,576	18.4%	129,916	24.2%	121,203	21.8%	53,188	19.3%	63,632	20.3%
Less: Sales tax	(271)	(0.1)%	(525)	(0.1)%	(550)	(0.1)%	(362)	(0.1)%	(279)	(0.1)%
Total	96,305	18.3%	129,391	24.1%	120,653	21.7%	52,826	19.2%	63,353	20.2%

SZ Kingworld has not distributed the Mentholatum Eye Drop Range since 1 January 2010.

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FINANCIAL INFORMATION

Our gross profit increased from RMB96.3 million in 2007 to RMB129.4 million in 2008 and to RMB120.7 million in 2009. Our gross margin was 18.3%, 24.1%, 21.7% and 20.2% for each of the three financial years ended 31 December and the six months ended 30 June 2010 respectively. Our gross margin is basically affected by our product mix. Our gross margin increased from 18.3% in 2007 to 24.1% in 2008 mainly as a result of the rise in the average selling price by 13.7%. The gross margin decreased from 24.1% in 2008 to 21.7% in 2009 and further decreased to 20.2% for the six months ended 30 June 2010 mainly due to the rise in unit cost in [●] Product Series by 8.3% which was not passed to the customers in 2009 and 2010 partly due to the price control on the retail price ceiling imposed by the relevant PRC authorities.

The average selling price of [●] Pei Pa Koa (300ml, 150ml and 75ml) offered by the Group to the Distributor Customers for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 is RMB15.4, RMB15.3, RMB15.7 and RMB15.8 respectively. Although the Group’s average purchase cost in relation to [●] Pei Pa Koa in HK dollars for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010, being HK$12.97, HK$13.69, HK$15.35 and HK$15.35 per bottle respectively, shows an increasing trend, such average purchase cost in equivalent RMB for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 was RMB12.59, RMB12.45, RMB13.53, RMB13.52 per bottle respectively. As the rate of RMB appreciation was higher than the rate of increase in purchase cost in HK dollars in year 2008, the average purchase cost in RMB in 2008 actually decreased when compared to the average purchase cost in RMB in 2007. As such, the gross margin in relation to [●] Pei Pa Koa was higher in 2008 when compared to that in 2007.

Other Revenue

Our other revenue primarily consists of interest income on financial assets not at fair value through profit or loss, rental income and commission income from supplier, which represents income from Mentholatum (China) Pharmaceuticals Company Limited for achieving the pre-agreed sales target. When the pre-agreed sales target is achieved by the Group, a purchase rebate in the form of commission income will given by the supplier. The Group will recognize such commission income in the same financial year when the amount of commission is agreed with the supplier. Before the Group ceased to purchase products form the supplier, the commission income was kept stable at approximately RMB1.5 million to RMB1.7 million each year in 2007 and 2008. As the first settlement of commission in 2010 from Mentholatum was received in August 2010, there was no commission

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FINANCIAL INFORMATION

income for the six months ended 30 June 2010. The following table sets forth a breakdown of other revenue, each item expressed as a percentage of the total other revenue, for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 respectively:

		Year	ended 31	December			Six months	Six months	ended 30 June	ended 30 June
	2007		2008		2009		2009			2010
	RMB’000	_% _	RMB’000	% RMB’000		_% _	RMB’000	_% _	RMB’000		%
Total interest income
on financial assets
not at fair value
through profit and
loss
- Bank interest
income	2,063	57.4%	5,016	69.5%	4,481	66.0%	3,396	75.3%	3,037		81.2%
Commission income	1,528	42.6%	1,693	23.4%	585	8.6%	446	9.9%	—		—
Rental income	—	—	439	6.1%	1,325	19.6%	667	14.8%	701		18.8%
Others	—	—	72	1.0%	395	5.8%	—	—	—		—
Total	3,591	100.0%	7,220	100.0%	6,786	100.0%	4,509	100.0%	3,738	100.0%

Other Net Income

Our other net income primarily consists of net realised and unrealised gain on forward foreign exchange contracts and net foreign exchange gain. The functional currency of our Group is RMB. We have foreign currency purchases in Hong Kong dollars or United State dollars, which expose us to market risk arising from changes in foreign exchange rate. The Group entered into forward foreign exchange contracts with certain banks in the PRC for the purpose of arranging for managing the risks in relation to fluctuation in RMB resulting in a currency hedging effect.

When the Group settles its trade payables in foreign currency by cash at market spot exchange rate, any exchange gain or loss will be recorded in the account of “net foreign exchange gain/(loss)”.

When the Group settles its trade payables in foreign currency by forward foreign exchange contracts, any exchange gain or loss will be recorded in the account of “net realised and unrealised gain/(loss) on forward foreign exchange contracts”.

The management of the Group has implemented a hedging policy that includes adequate procedures, limits, hedging timeframe, hedging products and approval guidelines. The management of the Group prepares and presents quarterly reports to the Board detailing the net foreign currency exposure and the results of the forward foreign exchange contracts.

The Group has accounting policy relating to derivative financial instruments. The Group has recognized the derivative financial instruments of the forward foreign exchange contracts as mentioned above under the hedging accounting in compliance with Hong Kong Accounting Standard 39.

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FINANCIAL INFORMATION

The following table sets forth a breakdown of other net income, each item expressed as a percentage of the total other net income, for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 respectively:

Year ended 31 December Six months ended 30 June 2007 2008 2009 2009 2010 RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 % Net gain on financial assets at fair value through profit or loss — — — — 303 4.3% 160 4.8% 71 215.2% Net realised and unrealised gain/(loss) on forward foreign exchange contracts 312 3.4% 3,133 28.5% 6,658 93.2% 3,178 96.2% (1,005)(3,045.5%) Net foreign exchange gain 8,756 96.6% 7,845 71.5% 182 2.5% (33) (1.0%) 967 2,930.3% Total 9,068 100.0% 10,978 100.0% 7,143 100.0% 3,305 100.0% 33 100.0%	Year ended 31 December Six months ended 30 June 2007 2008 2009 2009 2010 RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 % Net gain on financial assets at fair value through profit or loss — — — — 303 4.3% 160 4.8% 71 215.2% Net realised and unrealised gain/(loss) on forward foreign exchange contracts 312 3.4% 3,133 28.5% 6,658 93.2% 3,178 96.2% (1,005)(3,045.5%) Net foreign exchange gain 8,756 96.6% 7,845 71.5% 182 2.5% (33) (1.0%) 967 2,930.3% Total 9,068 100.0% 10,978 100.0% 7,143 100.0% 3,305 100.0% 33 100.0%	Year ended 31 December Six months ended 30 June 2007 2008 2009 2009 2010 RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 % Net gain on financial assets at fair value through profit or loss — — — — 303 4.3% 160 4.8% 71 215.2% Net realised and unrealised gain/(loss) on forward foreign exchange contracts 312 3.4% 3,133 28.5% 6,658 93.2% 3,178 96.2% (1,005)(3,045.5%) Net foreign exchange gain 8,756 96.6% 7,845 71.5% 182 2.5% (33) (1.0%) 967 2,930.3% Total 9,068 100.0% 10,978 100.0% 7,143 100.0% 3,305 100.0% 33 100.0%
	33	100.0%

Net realised and unrealised gain/(loss) on forward foreign exchange contracts

[Started from 2007, the Company entered into forward foreign exchange contracts to manage the risk of fluctuation in RMB, which is dominated currency of the Group’s revenue, against Hong Kong dollars or USD which is used for the settlement of the Group’s purchase of products from its suppliers. The Company confirms that all the payment through “forward foreign exchange” contracts are for settlement of purchase to its suppliers. As more forward foreign exchange contracts were entered into by the Company over the years from 2007 to 2009 and the trend of the appreciation of RMB continued, the realised and unrealised gain on forward foreign exchange contracts increased from RMB0.3 million in 2007 to RMB3.1 million in 2008 and further increased to RMB6.7 million in 2009.

The agreed forward currency rate offered to the Group by the banks was an appreciated rate which more favourable than the then market spot rate at the time when those forward contracts were entered into because the banks expected an appreciation in RMB on the expiry date of the forward contracts. On the forward contract expiry date, if there was a depreciation in RMB or actual appreciation of RMB on the forward contract expiry date was less than the agreed forward currency rate, the Group would record a gain on the forward contract as the agreed amount of RMB required to settle the forward contract was less than the actual amount required. However, if the actual appreciation of RMB on the forward contract expiry date was greater than the agreed rate on the forward contract, the Group would incur a loss on the forward contract. Therefore, such arrangement assists the Group to manage the risks in relation to future exchange rate movements.

The Company further confirms that there is no actual deliveny of the HKD at agreed rate after RMB has been deposited as a pledge to the bank under the forward contract arrangements. The nominal outstanding amount of the forward contract forms part of the bank loan of the Group as set out on page I-10 of this document.

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FINANCIAL INFORMATION

During the six months ended June 2010, the Group recognized a loss on net realised and unrealised forward foreign exchange contracts of approximately RMB1 million because it settled the forward foreign exchange contracts, which had maturity period of one-year and were expired during the six months ended June 2010, with a gain that was much lower than the fair value gain on the forward foreign exchange contracts recognized by the Group as at 31 December 2009. The Group recognized the fair value of the unexpired forward foreign exchange contracts as at 31 December 2009 based on the valuation performed by DTZ Debenham Tie Leung Limited, an independent professional valuers, and recognized an unrealised gain of approximately RMB3 million in its income statement during the year ended 31 December 2009 in compliance with Hong Kong Accounting Standard 39. As advised by the valuers that the global short-term interest rates have increased sharply due to the European debt crisis and the expectation of double-dip recession, and this fluctuation of the global interest rates was not anticipated in the valuers’ valuation of the Group’s forward foreign contract as at 31 December 2009, when the market was expecting a global economic recovery. Thus, the Group recognized a loss from the shortfall between the market value of the forward foreign exchange contracts at the expiry date and their fair value estimated by the valuers during the six months ended June 2010.

Net foreign exchange gain

At the time of purchase, the Company uses the spot exchange rate to convert the Hong Kong dollars or USD stated on the purchase orders into RMB. When settlement is made, the Group uses the spot exchange rate at the time of payment to calculate the amount of RMB required for the settlement of the trade payables. If RMB appreciates at the time of payment, the Group would record a foreign exchange gain because the Company can use less RMB to settle the trade payables denominated in Hong Kong dollars or USD. The net foreign exchange gain in 2009 decreased significantly comparing to 2007 and 2008, because the appreciation of RMB in 2009 was much slower than in 2007 and 2008.

Sensitivity analysis

In our Directors’ opinion, the Group’s currency risk of the forward foreign exchange contracts is low in view of the general perception that Renminbi will likely strengthen against Hong Kong dollars and United State dollars in the foreseeable future. The Group’s estimated possible exposure on currency risk of the forward foreign exchange contracts would be 3%. The following table indicates the approximate change in the Group’s profit after tax in response to the Group’s estimated possible changes in the foreign exchange rates to which the Group has significant exposure at 30 June 2010.

			Increase/
			(Decrease)
	As at	30 June	in foreign	Effect on profit
	2010 (audited)		exchange rate	after tax
	RMB’000			RMB’000
Notional principal amounts of
forward foreign exchange
contracts		195,766	3%		5,873
			(3)%		(5,873)

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FINANCIAL INFORMATION

The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at 30 June 2010 and had been applied to each of the Group entities’ exposure to currency risk for forward foreign exchange contracts in existence at that date, and that all other variables, in particular interest rates, remain constant.

After all the un-expired forward foreign exchange contracts on hand matured, the Group will not enter into any new forward foreign exchange contracts.

Selling and Distribution Costs

Our selling and distribution costs primarily consist of costs associated with our advertising and promotion, commission to customers, staff costs of our sales team, transportation and travelling expenses and other selling and distribution costs.

The following table sets forth a breakdown of our selling and distribution costs, and each item expressed as a percentage of total costs, for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 respectively:

		Year	ended 31	December			Six months	Six months	ended 30 June	ended 30 June
	2007		2008		2009		2009			2010
	RMB’000	_% _	RMB’000	% RMB’000		_% _	RMB’000	_% _	RMB’000			%
Advertising and
promotion	10,481	20.3%	15,831	25.4%	15,047	25.8%	7,646	22.5%	9,029		24.1%
Commission to
customers	12,983	25.1%	13,029	20.9%	12,833	22.0%	9,057	26.6%	9,779		26.1%
Staff costs	9,503	18.4%	12,601	20.2%	11,428	19.6%	6,439	18.9%	6,433		17.2%
Transportation and
travelling	6,862	13.3%	7,339	11.8%	7,417	12.7%	4,196	12.3%	3,925		10.5%
Inspection expenses	4,685	9.1%	4,393	7.0%	4,762	8.2%	2,646	7.8%	2,799			7.5%
Office expenses	1,555	3.0%	1,930	3.1%	1,502	2.6%	835	2.5%	448			1.2%
Entertainment	1,312	2.5%	1,390	2.2%	1,002	1.7%	499	1.5%	585			1.6%
License fee	126	0.2%	729	1.2%	558	1.0%	530	1.6%	2,569			6.9%
Storage fees	126	0.2%	178	0.3%	198	0.3%	79	0.2%	113			0.3%
Others	4,115	7.9%	4,937	7.9%	3,631	6.1%	2,064	6.1%	1,805			4.6%
Total	51,748	100.0%	62,357	100.0%	58,378	100.0%	33,991	100.0	37,485	100.0%

Our advertising and promotional expenses amounted to RMB10.5 million, RMB15.8 million, RMB15.0 million and RMB9.0 million for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 respectively, representing 20.3%, 25.4%, 25.8% and 24.1% respectively, of our total selling and distribution costs in the Track Record Period. Selling and distribution costs increased by RMB10.7 million from RMB51.7 million in 2007 to RMB62.4 million in 2008 primarily due to the rise in advertising and promotional expenses as a result of the additional advertising and marketing activities carried out by our sales and marketing team. The increase was also a result of the rise in staff costs primarily due to the expansion of our sales and marketing team in 2008.

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FINANCIAL INFORMATION

Selling and distribution costs decreased from RMB62.4 million in 2008 to RMB58.4 million in 2009, mainly because we reduced our advertising efforts and streamlined our sales and marketing team in response to the unfavourable market environment in early 2009.

Selling and distribution costs amounted to RMB37.5 million for the six months ended 30 June 2010.

When the annual sales target is reached by a Distributor Customer, a sales rebate in the form of commission to customers may be offered to the Distributor Customers. The Group recognizes the commission to customers within the same financial year when it has been agreed with the Distributor Customers the commission amount and had assessed that there is no indication of the default of repayment of trade receivables from Distributor Customers. During the Track Record Period, the Group’s commission was kept stable at approximately RMB13 million each year. The commission to customers amounted to RMB13.0 million, RMB13.0 million, RMB12.8 million and RMB9.8 million for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010, respectively.

Administrative Expenses

Our administrative expenses primarily consist of staff costs for our administrative, finance and human resource personnel, inspection fees of our products, office expenses, entertainment and depreciation of equipment and facilities used for administrative purpose.

The following table sets forth a breakdown of our administrative expenses, and each item expressed as a percentage of total expenses, for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010:

		Year	ended 31	December			Six months	Six months	ended 30 June	ended 30 June
	2007		2008		2009		2009			2010
	RMB’000	_% _	RMB’000	% RMB’000		_% _	RMB’000	_% _	RMB’000			%
Staff costs	4,082	32.2%	8,425	39.5%	9,541	46.7%	5,330	51.9%	5,227		45.0%
Office expenses	792	6.2%	1,713	8.0%	2,709	13.3%	983	9.6%	1,019			8.8%
Entertainment	1,324	10.4%	3,596	16.9%	1,543	7.5%	689	6.7%	1,402		12.1%
Depreciation	927	7.3%	1,097	5.1%	881	4.3%	491	4.8%	421			3.6%
Rent	627	4.9%	690	3.2%	721	3.5%	344	3.3%	389			3.4%
Travelling	641	5.1%	783	3.7%	602	2.9%	289	2.8%	276			2.4%
Others	4,295	33.9%	5,026	23.6%	4,444	21.8%	2,148	20.9%	2,871		24.7%
Total	12,688	100.0%	21,330	100.0%	20,441	100.0%	10,274	100.0%	11,605	100.0%

Our administrative expenses amounted to RMB12.7 million, RMB21.3 million, RMB20.4 million and RMB11.6 million for each of the three financial years ended 31 December 2009 and six months ended 30 June 2010 respectively. The administrative expenses increased from RMB12.7 million in 2007 to RMB21.3 million in 2008, primarily because we recruited additional professionals and incurred additional expenses related to the growth of our business. The increase in staff cost is mainly

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FINANCIAL INFORMATION

due to the increase in average salary of our staff due to the enforcement of Employment Contract Law (勞動合同法) on 1 January 2008. The administrative expenses decreased slightly from RMB21.3 million in 2008 to RMB20.4 million in 2009, mainly due to the decrease in entertainment expenses in response to the sluggish economy in early 2009.

Administrative expenses amounted to RMB11.6 million for the six months ended 30 June 2010.

Finance Costs

Our finance costs consist mainly of interest paid on our bank loans and bills payable. Interest rates on our bank loans are granted by PRC commercial banks and are typically linked to benchmark rates published by the People’s Bank of China. For each of the three financial years ended 31 December 2009 and six months ended 30 June 2010, our finance costs amounted to RMB9.0 million, RMB16.6 million, RMB9.6 million and RMB3.6 million respectively. Even though the bank borrowings increased from RMB259.6 million as at 31 December 2008 to RMB306.6 million as at 31 December 2009, the finance costs decreased from approximately RMB16.6 million in 2008 to approximately RMB9.6 million in 2009. The decrease is mainly attributable to the drop in average interest rate from 4.85% per annum in 2008 to 1.4% per annum in 2009 for fixed rate loans; and from 4.80% per annum in 2008 to 2.75% per annum in 2009 for variable rate loans.

Taxation

Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands, we are not subject to any income tax in the Cayman Islands and the British Virgin Islands.

No provision for Hong Kong Profits Tax has been provided during the Track Record Period as we did not have assessable profits subject to Hong Kong Profits Tax.

The PRC income tax charge of the Group during the Track Record Period represents mainly the PRC income tax charge from SZ Kingworld and the Group’s proportionate share of PRC income tax charge from Zhuhai Jinming, a jointly controlled entity of the Group.

Pursuant to the relevant laws and regulations in the PRC, SZ Kingworld and Zhuhai Jinming are located in the approved economic zone of Shenzhen and Zhuhai in the PRC and were subject to an income tax rate of 15% during the year ended 31 December 2007, 18% during the year ended 31 December 2008, 20% during the year ended 31 December 2009, and 22% during the six months ended 30 June 2010.

The National People’s Congress of the PRC approved the Corporate Income Tax Law of the PRC on 16 May 2007. With effect from 1 January 2008, the tax rate applicable to enterprises established in the PRC will be unified at 25% with certain grandfather provisions and preferential provisions. SZ Kingworld and Zhuhai Jinming are both entitled to the transitional tax rate of 18%, 20%, 22%, 24% and 25% in 2008, 2009, 2010, 2011, 2012 onwards respectively.

Under the Corporate Income Tax Law of the PRC with effect from 1 January 2008 onwards, non-resident enterprises without an establishment or place of business in the PRC or which have an

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FINANCIAL INFORMATION

establishment or place of business but the relevant income is not effectively connected with the establishment or a place of business in the PRC will be subject to withholding income tax at the rate of 10% on various types of passive income such as dividends derived from sources in the PRC. Pursuant to the double tax arrangement between the PRC and Hong Kong effective on 8 December 2006, the withholding income tax rate will be reduced to 5% if the investment by the Hong Kong investor in the invested entities in the PRC is not less than 25%. On 22 February 2008, the Minister of Finance and State Administration of Tax approved Caishui (2008) No. 1, pursuant to which dividend distributions out of retained earnings of foreign investment enterprises prior to 31 December 2007 will be exempted from withholding income tax. Deferred tax liabilities of RMB1.5 million and RMB1.7 million in respect of the withholding income tax on dividends has been recognised by the Group for the year ended 31 December 2008 and 2009 respectively.

The following table sets forth the Group’s profit before tax and income tax for each of the three financial years ended 31 December 2009 and the six months ended 30 June 2010; and the reconciliation between tax expense and accounting profit at the applicable tax rates:

				Six months	Six months
	Year	ended 31 December		ended	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)
Profit before taxation	35,570	45,441	46,753	10,308	14,466
Notional tax on profit before tax,
calculated at the rates applicable
in the jurisdictions concerned	5,365	8,214	9,366	2,068	3,215
Tax effect of non-deductible
expenses	1,466	3,787	498	478	771
Tax effect of non-taxable income	(496)	(2,518)	(2,177)	(1,173)	(541)
Unrecognised temporary difference	—	41	101	—	(77)
Withholding tax on undistributed
profits of PRC subsidiaries	—	1,520	1,759	412	486
Effect on opening deferred tax
balance resulting from a change
in tax rate	—	—	(38)	(38)	—
Actual tax expense	6,335	11,044	9,509	1,747	3,854
Applicable tax rate	15%	18%	20%	20%q	22%
Witholding tax rate (Note)	—	5%	5%	5%	5%
Overwall tax rate	15%	22%	24%	24%	26%
Effective tax rate	17.8%	24.3%	20.3%	16.9%	26.6%

Note: The withholding tax for dividend is 5% based on the net profit after income tax.

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FINANCIAL INFORMATION

The main reasons for the difference between the overall tax rate and the effective tax rate during the Track Record Period are due to the tax effect of non-deductible expenses or the tax effect of non-taxable income.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The financial information set out in the Accountants’ Report in Appendix I to this document has been prepared in accordance with HKFRSs. The preparation of the financial information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The Group bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the Financial Information. The principal accounting policies are set forth in note 1. The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Financial Information.

a) Depreciation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual value. The Group reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

b) Impairment

If circumstances indicate that carrying value of the Group’s property, plant and equipment may not be recoverable, the asset may be considered impaired, and an impairment loss may be recognised in profit or loss. The carrying amounts of assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount.

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FINANCIAL INFORMATION

and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sales volumes, sales revenue and amount of operating costs.

c) Valuation of investment properties

Investment properties are included in the balance sheet at their open market value, which is assessed annually by independent qualified valuers, after taking into consideration on an open market value basis calculated by reference to recent market transactions in comparable properties and the net income allowing for reversionary potential.

The assumptions adopted in the property valuations are based on the market conditions existing at the balance sheet date, with reference to current market sales prices and the appropriate capitalisation rate.

d) Impairment for bad and doubtful debts

The Group estimates allowance for impairment of doubtful debts on trade and other receivables (including amounts due from related parties) resulting from inability of the debtors to make the required payments. The Group bases the estimates on the ageing of the trade and other receivables balance, debtor credit-worthiness, and historical write-off experience. If the financial condition of the debtors were to deteriorate, actual write-offs would be higher than estimated.

e) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business less estimated selling expenses. These estimates are based on the current market conditions and the historical experience of selling merchandise of similar nature. It could change significantly as a result of changes in customer taste or competitor actions. The Group reassesses these estimates at each balance sheet date.

f) Income tax

Determining income tax provision involves judgement on the future tax treatment of certain transactions. The directors carefully evaluate tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislations. Deferred tax assets are recognised for temporary deductible differences. As those deferred tax assets can only be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credits can be utilised, the directors’ judgement is required to assess the probability of future taxable profits. The directors’ assessment is constantly reviewed and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax assets to be recovered.

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FINANCIAL INFORMATION

ANALYSIS OF THE GROUP’S RESULTS

Comparison of the Group’s results for the six months ended 30 June 2010 with those for the six months ended 30 June 2009

Turnover

For the six months ended 30 June 2010, the Group’s turnover was approximately RMB313.7 million, representing an increase of approximately RMB38.9 million, or 14.2%, from approximately RMB274.8 million for the six months ended 30 June 2009. The increase was mainly resulted from the increased sales of [●] Product Series and Flying Eagle Wood Lok Medicated Oil. Their growth on a period to period basis was 26.1% and 21.2% respectively as a result of our increased promotion effort on these products, including the sales focus strategy on the [●] Pei Pa Koa and extended credit period and Products Display Booths for Flying Eagle Wood Lok Medicated Oil.

Cost of sales

For the six months ended 30 June 2010, the Group’s cost of sales was approximately RMB250.4 million, representing an increase of approximately RMB28.4 million, or 12.8%, from approximately RMB222.0 million for the six months ended 30 June 2009. The increase in cost of sales is in line with the increase in turnover. The gross profit margin improved from 19.2% for the six months ended 30 June 2009 to 20.2% for the six months ended 30 June 2010 mainly as a result of the increase in sales of products with a higher gross profit margin, in particular, Flying Eagle Wood Lok Medicated Oil with a gross profit margin of 57.5%.

Other revenue

For the six months ended 30 June 2010, other revenue was approximately RMB3.7 million, representing a decrease of approximately RMB0.8 million, or 17.8%, from approximately RMB4.5 million for the six months ended 30 June 2009. The decrease was mainly due to the decrease in the commission income from approximately RMB0.5 million for the six months ended 30 June 2009 to nil for the six months ended 30 June 2010 as a result of the change in the commission arrangement with the supplier.

Other net income

For the six months ended 30 June 2010, other net income was approximately RMB33,000, representing a decrease of approximately RMB3.3 million, or 99%, from approximately RMB3.3 million for the six months ended 30 June 2009. The decrease was principally due to the decrease in forward contract gain of approximately RMB4.2 million which was partially net off by the increase in exchange gain of approximately RMB1.0 million.

Selling and distribution costs

For the six months ended 30 June 2010, selling and distribution costs were approximately RMB37.5 million, representing an increase of approximately RMB3.5 million, or 10.3%, from

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FINANCIAL INFORMATION

approximately RMB34.0 million for the six months ended 30 June 2009. The increase was mainly from advertising cost and license fee which increased by RMB1.4 million and RMB2.0 million respectively. In order to make use of the Chinese economic recovery from the global financial crisis, more advertising and marketing activities were launched by our sales and marketing team for the six months ended 30 June 2010. The increase in license fee was principally the result of the renewal of some of the expired licenses of our products for the six months ended 30 June 2010.

Administrative expenses

For the six months ended 30 June 2010, administrative expenses were approximately RMB11.6 million, representing an increase of approximately RMB1.3 million, or 13.0%, from approximately RMB10.3 million for the six months ended 30 June 2009. The increase was mainly due to the increase in entertainment expenses by approximately RMB0.7 million and the increase in donation by approximately RMB0.8 million.

Operating profit

For the six months ended 30 June 2010, our operating profit was approximately RMB18.0 million, representing an increase of approximately RMB1.6 million, or 9.8%, from approximately RMB16.4 million for the six months ended 30 June 2009. The increase in operating profit is primarily attributable to the increase in turnover and gross profit for the six months ended 30 June 2010.

Finance costs

For the six months ended 30 June 2010, finance costs were approximately RMB3.6 million, representing a decrease of approximately RMB2.5 million, or 41.0%, from approximately RMB6.1 million for the six months ended 30 June 2009. The decrease is mainly attributable to the drop in average interest rate on a period to period basis.

Profit before tax

For the six months ended 30 June 2010, our profit before tax was approximately RMB14.5 million, representing an increase of approximately RMB4.2 million, or 40.8%, from approximately RMB10.3 million for the six months ended 30 June 2009. The increase in profit before tax is primarily attributable to the increase in turnover and gross profit in the first six months of 2010.

Income tax expenses

For the six months ended 30 June 2010, our income tax expenses was approximately RMB3.9 million, representing an increase of approximately RMB2.2 million, or 129.4%, from approximately RMB1.7 million for the six months ended 30 June 2009. The increase is mainly attributable to the increase in profit before tax and the rise in effective tax rate.

Profit for the period attributable to equity holders of the Company

For the six months ended 30 June 2010, our profit for the period attributable to equity holders of the Company was approximately RMB10.6 million, representing an increase of approximately RMB2.0 million, or 23.3%, from approximately RMB8.6 million for the six months ended 30 June 2009.

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FINANCIAL INFORMATION

Comparison of the Group’s results for the year ended 31 December 2009 with the year ended 31 December 2008

Turnover

For the year ended 31 December 2009, the Group’s revenue was approximately RMB556.4 million, representing an increase of approximately RMB20.4 million, or 3.8%, from approximately RMB536.0 million for the year ended 31 December 2008. The increase was principally the result of greater penetration of our products in existing geographic markets as well as expansion of sales in new geographic markets. Sales volumes of our products increased by 12.6% from 2008 to 2009 primarily due to our increased marketing efforts and enlarged distribution network.

Cost of sales

For the year ended 31 December 2009, cost of sales was approximately RMB435.8 million, representing an increase of approximately RMB29.2 million, or 7.2%, from approximately RMB406.6 million for the year ended 31 December 2008, principally due to the increase in sales volume by 12.6% from 2008 to 2009. The increase in cost of sales was also caused by the increase in the average unit cost of [●] Product Series by 8.3%. The drop in gross profit margin from 24.1% in 2008 to 21.7% in 2009 was mainly due to the increase in average unit cost of [●] Pei Pa Koa products by 8.3% which could not be fully passed on to customers by correspondingly increasing the selling price of the [●] Pei Pa Koa.

Other revenue

For the year ended 31 December 2009, other revenue was approximately RMB6.8 million, representing a decrease of approximately RMB0.4 million, or 6.0%, from approximately RMB7.2 million for the year ended 31 December 2008. The decrease was mainly due to the decrease in the commission income from approximately RMB1.7 million for the year ended 31 December 2008 to approximately RMB0.6 million for the year ended 31 December 2009 as a result of the decrease in commission rate which was partially net off by the increase in rental income from RMB0.4 million in 2008 to RMB1.3 million in 2009.

Other net income

For the year ended 31 December 2009, our other net income was approximately RMB7.1 million, representing a decrease of approximately RMB3.9 million, or 35.5%, from approximately RMB11.0 million for the year ended 31 December 2008. This decrease was principally due to the decrease in exchange gain of approximately RMB7.7 million which was partially net off by the increase in forward contract gain of approximately RMB3.5 million.

Selling and distribution costs

For the year ended 31 December 2009, selling and distribution costs were approximately RMB58.4 million, representing a decrease of approximately RMB4.0 million, or 6.4%, from approximately RMB62.4 million for the year ended 31 March 2008 because we reduced our advertising efforts and streamlined our sales and marketing team in response to the unfavourable market environment in early 2009.

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FINANCIAL INFORMATION

Administrative expenses

For the year ended 31 December 2009, administrative expenses were approximately RMB20.4 million, representing a decrease of approximately RMB0.9 million, or 4.2%, from approximately RMB21.3 million for the year ended 31 December 2008. The decrease was mainly due to the decrease in entertainment expenses by approximately RMB2.1 million which was partially net off by the increase in office expenses and staff costs by approximately RMB1.0 million and RMB1.1 million respectively.

Operating profit

For the year ended 31 December 2009, our operating profit was approximately RMB56.4 million, representing a decrease of approximately RMB5.6 million, or 9.0%, from approximately RMB62.0 million for the year ended 31 December 2008 mainly due to the decrease in gross profit by approximately RMB8.7 million.

Finance costs

For the year ended 31 December 2009, finance costs were approximately RMB9.6 million, representing a decrease of approximately RMB7.0 million or 42.0%, from approximately RMB16.6 million for the year ended 31 December 2008. The decrease mainly reflected the decrease in interest expenses during the year ended 31 December 2009.

Profit before taxation

For the year ended 31 December 2009, our profit before taxation was approximately RMB46.8 million, representing an increase of approximately RMB1.4 million, or 3.1%, from approximately RMB45.4 million for the year ended 31 December 2008.

Income tax expenses

For the year ended 31 December 2009, our income tax expenses were approximately RMB9.5 million, representing a decrease of approximately RMB1.5 million, or 13.6%, from approximately RMB11.0 million for the year ended 31 December 2008. The effective tax rate is 20.5% and 24.3% for 2009 and 2008 respectively. The National People’s Congress of the PRC approved the Corporate Income Tax Law of the PRC on 16 May 2007. Effective from 1 January 2008, the tax rate applicable to enterprises established in the PRC will be unified at 25% with certain preferential provisions. We are entitled to the transitional tax rate at 18%, 20%, 22%, 24% and 25% in 2008, 2009, 2010, 2011 and 2012 onwards respectively.

Profit for the period attributable to equity holders of the Company

For the year ended 31 December 2009, our profit for the period attributable to equity holders of the Company was approximately RMB37.2 million, representing an increase of approximately RMB2.8 million, or 8.1%, from approximately RMB34.4 million for the year ended 31 December 2008.

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FINANCIAL INFORMATION

Comparison of the Group’s results for the year ended 31 December 2008 with the year ended 31 December 2007

Turnover

For the year ended 31 December 2008, the Group’s turnover was approximately RMB536.0 million, representing an increase of approximately RMB8.7 million, or 1.6%, from approximately RMB527.3 million for the year ended 31 December 2007. This growth was principally the result of the increase in average selling price for our products by about 13.7% on a year to year basis. Such increase in sales was partially net-off by the decrease in the sales quantity. The sales quantity for the year ended 31 December 2008 decreased by approximately 9.8% when compared to 2007 mainly as the result of the decrease in sales of eye-drop medicines by 45.3% which have lower profit margin.

Cost of sales

For the year ended 31 December 2008, cost of sales was approximately RMB406.6 million, representing a decrease of approximately RMB24.4 million, or 5.7%, from approximately RMB431.0 million for the year ended 31 December 2007. The decrease is principally due to the decrease in sales quantity of the pharmaceutical and healthcare products, in particular the eye-drop medicines, which decreased by about 45.3% on a year to year basis. Our gross profit was approximately RMB129.4 million for the year ended 31 December 2008, representing an increase of approximately RMB33.1 million, or 34.4%, from approximately RMB96.3 million for the year ended 31 December 2007. Gross profit margin was about 24.1% for the year ended 31 December 2008 while the gross profit margin for the year ended 31 December 2007 was 18.3%. The improvement was mainly due to the increase in sales for our higher profit margin products like Flying Eagle Wood Lok Medicated Oil on one hand and decrease in sales quantity of lower margin products like eye-drop medicines on the other hand.

Other revenue

For the year ended 31 December 2008, other revenue was approximately RMB7.2 million, representing an increase of approximately RMB3.6 million, or 100.0%, from approximately RMB3.6 million for the year ended 31 December 2007. The increase was mainly due to the increase in interest income of approximately RMB3.0 million as a result of an increase in average bank balance during the year.

Other net income

For the year ended 31 December 2008, our other net income was approximately RMB11.0 million, representing an increase of approximately RMB1.9 million, or 20.9%, from approximately RMB9.1 million for the year ended 31 December 2007. This increase was principally due to the increase in forward contract gain of approximately RMB2.8 million arising from the increased rate of appreciation of Renminbi against the Hong Kong Dollar during the year.

Selling and distribution costs

For the year ended 31 December 2008, distribution costs were approximately RMB62.4 million, representing an increase of approximately RMB10.7 million, or 20.7%, from approximately RMB51.7

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FINANCIAL INFORMATION

million for the year ended 31 December 2007. The increase was mainly due to the increase in bonus of approximately RMB1.4 million, salaries expenses of approximately RMB1.7 million and advertising expenses of approximately RMB5.0 million. The increase in advertising expenses was mainly due to the promotion campaign in media.

Administrative expenses

For the year ended 31 December 2008, administrative expenses were approximately RMB21.3 million, representing an increase of approximately RMB8.6 million, or 67.8%, from approximately RMB12.7 million for the year ended 31 December 2007. The increase was mainly due to the increase in entertainment expenses of approximately RMB2.3 million, labour insurance of approximately RMB0.8 million, office expenses of approximately RMB0.9 million and salaries expenses of approximately RMB3.4 million. The increase in salaries expense is mainly due to the increase in average salary of our staff due to the enforcement of Employment Contract Law (勞動合同法) on 1 January 2008.

Operating profit

For the year ended 31 December 2008, our operating profit was approximately RMB62.0 million, representing an increase of approximately RMB17.5 million, or 39.3%, from approximately RMB44.5 million for the year ended 31 December 2007.

Finance costs

For the year ended 31 December 2008, finance costs were approximately RMB16.6 million, representing an increase of approximately RMB7.6 million or 85.0%, from approximately RMB9.0 million for the year ended 31 December 2007. The increase mainly reflected increased level of borrowings during the year ended 31 December 2008 from approximately RMB187.3 million as at 31 December 2007 to approximately RMB259.6 million as at 31 December 2008.

Profit before taxation

For the year ended 31 December 2008, our profit before taxation was approximately RMB45.4 million, representing an increase of approximately RMB9.8 million, or 27.5%, from approximately RMB35.6 million for the year ended 31 December 2007.

Income tax expenses

For the year ended 31 December 2008, our income tax expenses were approximately RMB11.0 million, representing an increase of approximately RMB4.7 million, or 74.6%, from approximately RMB6.3 million for the year ended 31 December 2007. The effective tax rate increased to 24.3% for the year ended 31 December 2008 from 17.8% in the year ended 31 December 2007. The higher effective tax rate for the year ended 31 December 2008 was mainly due to the increase from 15% to 18% in income tax rate in approved economic zone in the PRC.

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FINANCIAL INFORMATION

Profit for the period attributable to equity holders of the Company

For the year ended 31 December 2008, our profit for the period attributable to equity holders of the Company was approximately RMB34.4 million, representing an increase of approximately RMB5.2 million, or 17.8%, from approximately RMB29.2 million for the year ended 31 December 2007.

ANALYSIS OF MAJOR BALANCE SHEET ITEMS

Non-current Assets

Non-current assets increased considerably from approximately RMB4.4 million as at 31 December 2007 to RMB48.9 million as at 31 December 2008. The increase was mainly a result from the purchase of investment property with aggregate cost of approximately RMB47.3 million for the purpose of generating stable rental income in the future.

The investment property carried at fair value was revalued as at 31 December 2008 and 2009 on an open market value basis calculated by reference to recent market transactions in comparable properties and net rental income allowing for reversionary income potential. The valuation was carried out by an independent firm of valuers, DTZ Debenham Tie Leung Limited.

The investment property is held under medium-term lease in the PRC and was pledged to secure banking facilities granted to us during the Track Record Period. We lease out the property under operating lease. The lease runs for a period of five years. None of the lease includes contingent rentals.

Non-current assets increased from approximately RMB48.9 million as at 31 December 2008 to RMB57.1 million as at 31 December 2009 mainly due to the addition of prepaid lease payment of approximately RMB7.5 million. The prepaid lease payments comprise land use right in the PRC. The increase was also the result of the recognition of change in fair value of investment property of approximately RMB0.6 million and the purchase of property, plant and equipment of approximately RMB1.1 million, but which was partly set off by the provision for depreciation charges for property, plant and equipment of approximately RMB0.9 million.

Non-current assets slightly decreased from approximately RMB57.1 million as at 31 December 2009 to RMB56.8 million as at 30 June 2010 mainly due to the provision for depreciation charges for property, plant and equipment of approximately RMB0.4 million and the amortisation of prepaid lease payments of approximately RMB0.1 million.

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FINANCIAL INFORMATION

Current Assets

Current assets of approximately RMB495.0 million as at 31 December 2007 increased to approximately RMB499.0 million and RMB584.5 million as at 31 December 2008 and 2009 respectively and decreased to approximately RMB452.4 million as at 30 June 2010. These movements are analysed as below:

a) Inventories

Inventories balance as at the respective year end and period end during the Track Record Period represents trading stocks. Our inventories level decreased slightly by approximately 0.5% from approximately RMB99.1 million as at 31 December 2007 to approximately RMB98.6 million as at 31 December 2008.

Our inventories level decreased substantially from approximately RMB98.6 million as at 31 December 2008 to approximately RMB75.9 million as at 31 December 2009 and RMB35.0 million as at 30 June 2010. The sharp decrease was mainly attributable to the Group’s plan to reduce the inventory turnover days from 89 days in 2008 to 64 days in 2009 and 25 days for the six months ended 30 June 2010 in order to improve the cash flow management.

The following table sets forth the ageing analysis for our inventories as of the dates indicated:

				As at
	As	of 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
0 - 30 days	74,703	52,843	61,282	19,610
31 - 90 days	11,951	29,974	9,855	7,638
91 - 180 days	8,813	12,698	4,122	5,046
181 - 365 days	2,420	1,705	603	2,747
over 365 days	1,249	1,400	—	—
Total	99,136	98,620	75,862	35,041

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FINANCIAL INFORMATION

b) Trade and Other Receivables

During the Track Record Period, trade and other receivables of the Group was approximately RMB278.4 million, RMB265.7 million, RMB178.5 million and RMB170.4 million as at 31 December 2007, 2008 and 2009 and as at 30 June 2010 respectively. The following table sets forth the breakdown for our trade and other receivables as of the dates indicated:

					As of
	As	of 31 December			30 June
	2007	2008		2009	2010
	RMB’000	RMB’000	RMB’000		RMB’000
Trade receivables	51,479	30,546		48,792	79,821
Less: Allowance for doubtful debts	(2,633)	(2,784)		(2,779)	(2,794)
	48,846	27,762		46,013	77,027
Bills receivables	41,823	101,037		62,953	28,300
Other receivables	24,653	6,608		4,822	34,301
Amounts due from related parties	159,130	121,222		47,519	12,285
Loans and receivables	274,452	256,629	161,307		151,913
Derivative financial instruments	312	—		3,068	1,166
Prepayments	3,504	8,852		13,968	17,103
Other deposits	118	265		170	240
Trade deposits	18	—		—	—
Deferred assets	—	—		—	—
Total	278,404	265,746	178,513		170,422

Trade and other receivables decreased from approximately RMB278.4 million as at 31 December 2007 to approximately RMB265.7 million as at 31 December 2008, primarily due to the decrease in trade receivables, amounts due from related companies and other receivables, but which was partially net-off by the increase in bills receivables and prepayments.

Trade and other receivables further decreased from approximately RMB265.7 million as at 31 December 2008 to approximately RMB178.5 million as at 31 December 2009, mainly due to the further decrease in amounts due from related companies and bills receivables, but which was partially net-off by the increase in prepayments.

Trade and other receivables decreased slightly from approximately RMB178.5 million as at 31 December 2009 to approximately RMB170.4 million as at 30 June 2010, mainly due to the decrease in bills receivables which was partially net-off by the increase in trade receivables.

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FINANCIAL INFORMATION

The following table sets forth the analysis by age group of the Group’s trade receivables as of the dates indicated:

				As of
	As	of 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
0 - 90 days	26,158	24,551	30,621	62,513
90 - 180 days	180	868	5,090	9,942
181 - 365 days	883	626	9,230	4,313
Over 365 days	24,258	4,501	3,851	3,053
Total	51,479	30,546	48,792	79,821

The Group normally grants credit terms ranging from 30 days to 90 days to its customers. Credit term within 12 months is granted to customers for purchase of the Flying Eagle Wood Lok Medicated Oil. As at 31 December 2007, 2008 and 2009 and as at 30 June 2010, the Group’s trade debtors of this product was RMB0.4 million, RMB1.3 million, RMB14.5 million and RMB14.1 million respectively and bills receivables of this product was RMB0.1 million, RMB0.7 million, RMB1.9 million and RMB2.4 million respectively.

As at 5 October 2010, all of the Group’s bills receivables as at 30 June 2010 were settled.

The net accounts receivables as at 30 June 2010 in relation to the products (excluding Flying Eagle Wood Lok Medicated Oil) which SZ Kingworld distributed amounted to RMB58.2 million (The Group’s total trade receivables of RMB79.8 million less Zhuhai Jinming’s trade receivables of RMB4.7 million, less trade receivables related to Flying Eagle Wood Lok Medicated Oil of RMB14.1 million and less the allowance for doubtful debts of RMB2.8 million), about [97.3]% of which were settled as at 5 October 2010. The remaining balance of 2.7% of the net accounts receivables as abovementioned, being an amount of RMB1.6 million, was outstanding and was overdue as at 5 October 2010. All of the Group’s customers in respect of these outstanding accounts receivables had good track records in the past and the Directors expect that the outstanding amounts will be settled after the PRC National Day holiday in mid-October 2010. Therefore, further provision for doubtful debts is not considered necessary.

The Directors confirm that there should not be any negative implication on Rule 8.05(1)(a).

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FINANCIAL INFORMATION

Impairment losses in respect of trade receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivable directly.

The following table sets forth the movements in the allowance for doubtful debts as of the dates indicated:

				As of
	As	of 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
At the beginning of the year/period	2,524	2,633	2,784	2,779
Impairment losses recognised	223	187	50	222
Uncollectible amounts written off	(114)	(36)	(41)	(207)
Impairment losses reversed	—	—	(14)	—
At the end of the year/period	2,633	2,784	2,779	2,794

Prepayments increased from approximately RMB3.5 million as at 31 December 2007 to approximately RMB17.1 million as at 30 June 2010, the increase is mainly due to the increase in listing expenses including but not limited to audit fee, legal fee and valuer’s fee that were booked as prepayments which will be net off against the share premium account or put through to the profit and loss accounts as listing expenses upon the Listing.

Amounts due from related parties decreased from approximately RMB159.1 million as at 31 December 2007 to approximately RMB12.3 million as at 30 June 2010. The decrease is mainly due to the repayment of the receivables from SZ Industry of RMB101.1 million and the reclassification of the receivable from Jinbaoli of RMB31.2 million from amount due from related party to other receivable under trade and other receivable. The receivables from SZ Industry arised mainly from short-term cash advances. As Jinbaoli ceased to be a related party since February 2010, accordingly, the receivable from Jinbaoli was classified in other receivables under trade and other receivables. The maximum outstanding receivables from SZ Industry were RMB129.1 million during the Track Record Period. All the amounts due from related parties and Jinbaoli will be settled before Listing.

As advised by the PRC Lawyer, under the laws of the PRC, the short-term cash advances made by SZ Kingworld to each of SZ Industry SZ Kingworld Lifeshine, and Jinbaoli contravened certain PRC laws and regulations in relation to lending and financing. Thus, the PRC Lawyer advised that the Group may be subject to a penalty ranging from the amount the Group received as a result of such contravention (違規收入) to five times the amount the Group received as a result of such contravention (違規收入) in relation to any non-compliance with such PRC laws and regulations.

— 264 —

FINANCIAL INFORMATION

Given that (i) the short-term cash advances have been fully repaid by SZ Industry to SZ Kingworld; (ii) there has not been any dispute in respect of such short-term cash advances; and (iii) as at the Latest Practicable Date, the Group had not been penalized by any PRC government authorities as a result of such short-term cash advances as confirmed by the Directors, the risk that the Group will be subject to such penalties resulting from such cash advances incontravention of the relevant PRC laws and regulations is minimal. The Directors also confirm that the Group had not received any notices or warnings from relevant PRC governmental authorities in respect of the short-term cash advances as at the Latest Practicable Date.

In connection with the above cash advances, the Controlling Shareholders agreed to indemnify the Group for any loss and liability that the Group may suffer as a result of any contravention of any PRC laws and regulations.

All amounts due from related parties are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the Directors, all amounts due from related parties as at 30 June 2010 are expected to be settled on or before the Listing. Also, the Directors confirm that the abovementioned arrangement of providing short-term cash advances will not be continued after the Listing.

c) Pledged Bank Deposits

All the bank deposits are pledged to banks as security for banking facilities granted to the Group. The substantial increase in pledged bank deposits from approximately RMB103.4 million as at 31 December 2008 to approximately RMB246.6 million as at 31 December 2009 was in line with the increase in bank loans.

d) Cash and cash equivalents

Deposits with banks carry interest at market rates which range from 0.7% to 1%, 0.4% to 1%, 0.4% to 1% and 0.4% to 2% per annum for the three financial years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010 respectively.

The following table sets forth the breakdown for our cash and cash equivalents as of the dates indicated:

		As	of 31 December	of 31 December	As of
					30 June
		2007	2008	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000
Bank	balances	48,316	30,819	83,508	49,273
Cash	on hand	128	421	54	160
Cash	and cash equivalents	48,444	31,240	83,562	49,433

— 265 —

FINANCIAL INFORMATION

Cash and cash equivalents decreased from approximately RMB48.4 million as at 31 December 2007 to approximately RMB31.2 million as at 31 December 2008, primarily due to the net cash generated from operating activities of approximately RMB51.5 million was partially net off by the net cash used in investment activities of approximately RMB42.4 million and the net cash used in financing activities of approximately RMB26.3 million.

Cash and cash equivalents increased from approximately RMB31.2 million as at 31 December 2008 to approximately RMB83.6 million as at 31 December 2009. Net cash generated from operating activities of approximately RMB162.4 million was partially net off by the net cash used in investing activities of approximately RMB4.2 million and the net cash used in financing activities of approximately RMB105.8 million and negative foreign exchange effect of approximately RMB0.2 million.

Cash and cash equivalents decreased from approximately RMB83.6 million as at 31 December 2009 to approximately RMB49.4 million as at 30 June 2010. The decrease is mainly due to the repayment of bank loans and dividend paid during the period.

Current Liabilities

Current liabilities decreased from approximately RMB367.3 million as at 31 December 2007 to approximately RMB327.7 million as at 31 December 2008, and then increased to approximately RMB424.1 million as at 31 December 2009. Current liabilities decreased again to approximately RMB312.5 million as at 30 June 2010. These fluctuations are analysed as below:

a) Trade and other payables

During the Track Record Period, trade and other payables of the Group was approximately RMB177.9 million, RMB164.7 million, RMB172.9 million and RMB113.9 million as at 31 December 2007, 2008 and 2009 and as at 30 June 2010 respectively.

— 266 —

FINANCIAL INFORMATION

The following table sets forth the breakdown for our trade and other payables as of the dates indicated:

	As	of 31 December	of 31 December		As of
					30 June
	2007	2008		2009	2010
	RMB’000	RMB’000	RMB’000		RMB’000
Trade payables	114,691	89,434	115,972		91,715
Trade deposits received	33,192	37,236		46,748	7,477
Other payables	2,463	2,355		1,039	2,262
Accruals	741	943		943	943
Receipt in advance	3,565	4,453		2,670	2,486
VAT payable	8,968	8,339		4,118	8,090
Amounts due to related parties	11,269	—		1,373	879
Shareholders’ loan	3,041	21,969		19	—
	177,930	164,729	172,882		113,852

Trade and other payables decreased from approximately RMB177.9 million as at 31 December 2007 to approximately RMB164.7 million as at 31 December 2008, primarily due to the decrease in trade payables, and amounts due to related parties, but which was partially net off by the increase in customers’ deposits and receipt in advance and shareholders’ loan.

Trade and other payables increased from approximately RMB164.7 million as at 31 December 2008 to approximately RMB172.9 million as at 31 December 2009, mainly due to the increase in trade payables and customers’ deposits, which was partially net off by the decrease in receipt in advance, value added tax payable and shareholders’ loan.

Trade and other payables decreased sharply from approximately RMB172.9 million as at 31 December 2009 to approximately RMB113.9 million as at 30 June 2010, mainly due to the decrease in trade payables and trade deposits received.

The decrease in trade payables was in line with our reduction in inventory level. The trade deposits received decreased from RMB46.7 million as at 31 December 2009 to RMB7.5 million as at 30 June 2010 mainly because the trade deposits received for the purchase of stock by customers is usually much higher at the end of the year as customers need to stock up in anticipation for the ceasing of stock delivery during the Chinese New Year holiday in the following year.

Our trade payables primarily include payables to our purchase of trading stock. The credit period provided by our suppliers typically from 45 days to 90 days during the Track Record Period.

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FINANCIAL INFORMATION

The following table sets forth the analysis by age group of the Group’s trade payables as of the dates indicated:

	As	of 31 December	of 31 December		As of
					30 June
	2007	2008		2009	2010
	RMB’000	RMB’000	RMB’000		RMB’000
0 - 90 days	103,352	86,626	108,741		72,818
90 - 180 days	6,134	2,542		7,231	18,897
181 - 365 days	4,678	—		—	—
Over 365 days	527	266		—	—
	114,691	89,434	115,972		91,715

The trade payables as at 30 June 2010 amounted to RMB91.7 million, about [94.8]% of which were settled as at 13 October 2010.

Customers’ deposits consisted of payments we received from our customers before such amounts were recognised as turnover, which are generally paid voluntarily by our customers. Customers’ deposits increased from approximately RMB33.2 million as at 31 December 2007 to approximately RMB37.2 million as at 31 December 2008 and approximately RMB46.7 million as at 31 December 2009. Customers’ deposits decreased from approximately RMB46.7 million as at 31 December 2009 to approximately RMB7.5 million as at 30 June 2010.

b) Bank loans

The bank loans were secured and repayable as follows:

	As	of 31 December	of 31 December	As of
				30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Within 1 year or on demand	187,333	159,595	246,606	195,766
After 1 year but within 2 years	—	—	60,000	60,000
After 2 years but within 5 years	—	100,000	—	—
Total	187,333	259,595	306,606	255,766

— 268 —

FINANCIAL INFORMATION

Bank loans increased from approximately RMB187.3 million as at 31 December 2007 to approximately RMB255.8 million as at 30 June 2010, the increase is mainly due to the arrangement in forward foreign currency contracts with various banks in PRC. Pursuant to such arrangement, when the Group settled the trade payables in Hong Kong dollars or United State dollars, the bank would lend the Group a foreign currency loan to settle the payments at an agreed currency exchange rate which was more favourable than the then market spot rate in a forward foreign currency contracts. At the same time, Renminbi was deposited with the banks as a pledge to the bank loan for future repayment of the bank loan when it was fall due. Therefore, the increase in bank loans is in line with the increase in (i) forward foreign currency contracts and (ii) pledged bank deposits. The pledged bank deposits increased from approximately RMB69.0 million as at 31 December 2007 to approximately RMB197.5 million as at 30 June 2010.

The range of effective interest rates on the Group’s bank loans are as follows:

	As	of 31 December	of 31 December		As of
					30 June
	2007	2008		2009	2010
Effective interest rates:
Fixed rate loans	4.9%-10.5%	2.1%-7.6%	0.2%-2.6%		0.4%-2.5%
Variable rate loans	—	2.8%-6.8%	0.1%-5.4%		0.1%-5.4%

The Group’s bank loans were secured by certain assets of the Group. An analysis of the carrying amounts of the Group’s secured assets is as follows:

	As	of 31 December	of 31 December	As of
				30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Investment property	—	45,400	46,000	46,000
Bills receivables	28,733	55,835	1,139	—
Pledged bank deposits	69,049	103,396	246,619	197,537
Total	97,782	204,631	293,758	243,537

Shareholders’ Equity Loans

Mr. Zhao and Ms. Chan are the ultimate controlling parties of the Company. The loans as at 31 December 2007 and 2008 were equity contribution in nature to provide capital to the Company and were unsecured and interest-free. The loans were capitalised into share capital of BVI Kingworld during the year ended 31 December 2009.

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FINANCIAL INFORMATION

FINANCIAL RATIOS

The following table sets forth certain financial ratios of our Group as of the date or for the year/period indicated.

					As of or
					for the six
					months
		As of or for the		years	ended
		ended 31 December			30 June
	Note	2007	2008	2009	2010
Profitability ratios
Gross profit margin (%)	1	18.3%	24.1%	21.7%	20.2%
Net profit margin (%)	2	5.5%	6.4%	6.7%	3.4%
Return on assets (%)	3	5.9%	6.3%	5.8%	n/a
Return on equity (%)	4	22.1%	28.9%	23.9%	n/a
Liquidity ratios
Current ratio	5	1.3	1.5	1.4	1.5
Quick ratio	6	1.1	1.2	1.2	1.3
Gearing ratio (%)	7	37.5%	47.4%	47.8%	50.2%
Inventory turnover days	8	84	89	64	25
Debtors’ turnover days	9	63	88	71	61
Creditors’ turnover days	10	97	80	97	79

Notes:

Gross profit margin is calculated based on the gross profit divided by turnover and multiplied by 100%.
Net profit margin is calculated based on the profit for the year/period divided by turnover and multiplied by 100%.
Return on assets is calculated based on the profit for the year divided by the total assets at the end of the year and multiplied by 100%.
Return on equity is calculated based on the profit for the year divided by issued share capital and reserves at the end of the year and multiplied by 100%.
Current ratio is calculated based on the total current assets divided by the total current liabilities at the end of the year/period.
Quick ratio is calculated based on the difference between the total current assets and the inventories divided by the total current liabilities at the end of the year/period.
Gearing ratio is calculated based on the total bank borrowings divided by total assets and multiplied by 100%.
Inventory turnover days is calculated based on the inventory at the end of the period divided by the total cost of sales during the period and multiplied by the number of days in the respective period.

— 270 —

FINANCIAL INFORMATION

Debtors’ turnover days is calculated based on trade and bill receivables at the end of the period divided by turnover during the period and multiplied by the number of days in the respective period.
Creditors’ turnover days is calculated based on trade payables at the end of the period divided by the total purchases during the period and multiplied by the number of days in the respective period.

ANALYSIS ON SELECTED FINANCIAL RATIOS

Gross profit margin ratio

Gross profit margin was 18.3% for the year ended 2007, 24.1% for the year ended 2008, 21.7% for the year ended 31 December 2009 and 20.2% for the six months ended 30 June 2010. The improvement of gross profit margin from 2007 to 2008 was mainly due to the increase in average selling price of our product by 13.7%. The drop in gross profit margin from 2008 to 2009 and the six months ended 30 June 2010 was mainly due to the increase in average unit cost of [●] Pei Pa Koa products by 8.3% which could not fully passed to customers.

Net profit margin ratio

Our net profit margin was 5.5% for the year 31 December 2007, 6.4% for the year ended 31 December 2008, 6.7% for the year ended 31 December 2009 and 3.4% for the six months ended 30 June 2010. The rise in net profit margin from 2007 to 2008 was mainly due to the increase in gross profit margin by 5.8% which was partially net off by the increase in selling cost and administrative expenses. The rise in net profit margin from 2008 to 2009 was mainly due to the decrease in finance costs and selling and distribution costs which was partially net off by the increase in cost of sales. The drop in net profit margin for the six months ended 30 June 2010 was mainly due to the increase in selling and distribution costs and the decrease in other net income.

Current and quick ratios

The current ratio of our Group was approximately 1.3 as at 31 December 2007, 1.5 as at 31 December 2008, 1.4 as at 31 December 2009 and 1.5 as at 30 June 2010; and the quick ratio of our Group was approximately 1.1 as at 31 December 2007, 1.2 as at 31 December 2008, 1.2 as at 31 December 2009 and 1.3 as at 30 June 2010, respectively. The current and quick ratio in general showed an increasing trend as at 31 December 2007, 2008 and 2009 and 30 June 2010 respectively, which were mainly attributable to the combined effects of (i) increase in the pledges bank deposits from approximately RMB69.0 million as at 31 December 2007 to approximately RMB197.5 million as at 30 June 2010 due to Group required more banking facilities from the banks for increasing the scale of operation of the Group; (ii) decrease in trade and payables which was mainly attributable to the decrease in payables for the purchase of Mentholatum Product Series in order to take advantage of discount offered by suppliers and (iii) decrease in the inventory level due to the Group kept less stock.

Gearing ratio

The gearing ratio of our Group increased from approximately 37.5% to 50.2% during the Track Record Period. Due to the increase in the scale of our business operations during the Track Record Period, we had to support our level of working capital by means of bank borrowings. Accordingly, the gearing ratio has increased during the Track Record Period.

— 271 —

FINANCIAL INFORMATION

Return on assets

Return on assets is an indicator of how profitable a company is in terms of its total assets and gives an idea as to how efficient a company is in using its assets to generate earnings. Our return on assets for each of the three financial years ended 31 December 2009 amounted to approximately 5.9%, 6.3% and 5.8% respectively. The Group’s return on assets was kept stable due to the fact that the increase in total assets by 9.7% in 2008 and 17.1% in 2009 was in line with the increase in net profit of the Group during the same period. The lower return on assets in 2009 compared with 2008 was because the increase in assets exceeded the increase in net profit.

Return on equity

Return on equity measures the efficiency of a company in generating profits from every dollar of net assets invested. Our return on equity for each of the three financial years ended 31 December 2009 amounted to approximately 22.1%, 28.9% and 23.9% respectively. The net profit of the Group increased steadily for the three financial years ended 31 December 2009. The higher return on equity in 2008 was due to the decrease in equity as a result of the payment of dividend to shareholders. The lower return on equity in 2009 compared with 2008 was because the increase in equity exceeded the increase in net profit.

Inventories and the inventory turnover days

Inventories balance as at the respective year end during the Track Record Period represents trading stocks.

Our inventories level was stable during the year 2007 to 2008 and decreased slightly by approximately 0.5% from approximately RMB99.1 million as at 31 December 2007 to approximately RMB98.6 million as at 31 December 2008.

Our inventories level decreased by approximately 23.0% from approximately RMB98.6 million as at 31 December 2008 to approximately RMB75.9 million as at 31 December 2009. The inventories level further reduced to approximately RMB35.0 million as at 30 June 2010. The sharp decrease was mainly attributable to the Group’s determination to reduce the inventory turnover days in order to enhance the liquidity of the Group.

Our inventory turnover days were 84, 89 and 64 for each of the three financial years ended 31 December 2009 and 25 for the six months ended 30 June 2010, respectively. The downward trend is in line of the reduction in stock level for each of the three financial years ended 31 December 2009 and the six months period ended 30 June 2010.

— 272 —

FINANCIAL INFORMATION

Trade and bills receivables and debtors’ turnover days

Trade and bills receivables balance as at the respective year end during the Track Record Period represents the outstanding amounts receivable by us from our customers who have been granted with credit period. Most of our distributors make payment by telegraphic transfer. The granting of credit to customers is assessed on a case-by-case basis and we generally grant credit terms of 30 to 90 days.

Our trade and bills receivables balance increased by approximately 42.0% from approximately RMB90.7 million as at 31 December 2007 to approximately RMB128.8 million as at 31 December 2008. The increase was primarily due to the growth of our business scale which leads to a higher level of receivables.

Our trade and bills receivables balance decreased by approximately 15.4% from approximately RMB128.8 million as at 31 December 2008 to approximately RMB109.0 million as at 31 December 2009. Our trade and bills receivables balance decreased by approximately 3.4% from approximately RMB109.0 million as at 31 December 2009 to approximately RMB105.3 million as at 30 June 2010. The decrease was mainly attributable to our increased effort in settling receivables in order to preserve a higher cash level during the slowdown in the PRC economy.

Our debtors’ turnover days was 63, 88, 71 and 61 for each of the three financial years ended 31 December 2009 and the six months period ended 30 June 2010 respectively. During the Track Record Period, most of our sales were made on a cash-on-delivery basis or with a 30 to 90 day credit period from the date of billing. Customers with overdue balances are generally requested to settle all outstanding balances before any further goods are delivered to them. As such, the ageing of most of our trade receivables balance as at each of 31 December 2007, 2008 and 2009 and as at 30 June 2010 can be maintained within 90 days from the date of billing to our customers.

Trade and bills payables and creditors’ turnover days

Trade and bills payables balance as at the respective year end during the Track Record Period represents the outstanding amounts payable by us to our suppliers. The credit periods granted by various suppliers are generally within 90 days during the Track Record Period.

Our trade payables balance was approximately RMB114.7 million, RMB89.4 million, RMB116.0 million and RMB91.7 million for each of the three financial years ended 31 December 2009 and the six months period ended 30 June 2010 respectively.

Our creditors’ turnover days was 97, 80, 97 and 79 for each of the three financial years ended 31 December 2009 and the six months period ended 30 June 2010, respectively. The creditors’ turnover days decreased from 97 for the financial year ended 31 December 2009 to 79 for the six months ended 30 June 2010. The decrease was in line with our reduction in inventory level.

— 273 —

FINANCIAL INFORMATION

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Liquidity

The following table summarises our cash flows during the Track Record Period:

				Six months
	Year	ended 31 December		ended
				30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Net cash generated from/(used in)
operating activities	(122,542)	51,503	162,467	315
Net cash generated from/(used in)
investing activities	63	(42,430)	(4,172)	2,813
Net cash generated from/(used in)
financing activities	125,203	(26,355)	(105,821)	(37,363)
Net increase/(decrease) in cash and cash
equivalents	2,724	(17,282)	52,474	(34,235)

Cash flows

We generally finance our operations through a combination of shareholders’ equity, internally generated cash flows and bank borrowings. Following completion of [●], we expect to finance our capital expenditure and operational requirements through internally generated cash flows, [●] and our cash reserve. Our Directors believe that on a long-term basis, our liquidity will be funded from operations and, if necessary, additional equity financing or bank borrowings.

As at 30 June 2010, we had bank and cash balances of approximately RMB247.0 million (including pledged bank deposits of approximately RMB197.5 million).

Net cashflow from operating activities

Our major operating cash flows during the Track Record Period are cash receipts from customers. In general, the operating cash inflow increased due to the increase in sales receipt and decreased due to the movement of our net working capital along with the growth of business during the Track Record Period.

— 274 —

FINANCIAL INFORMATION

The following table sets forth a breakdown of net cashflow from operating activities for the years and period indicated:

Profit before taxation
Adjustments for:
Depreciation
Impairment loss for trade receivables
Finance costs
Interest income
Unrealised (gain)/loss on forward
exchange contracts
Fair value change on investment
property
Loss on disposal of property, plant and
equipment
Amortisation on prepaid lease
payments
Write-down of inventories
Reversal of impairment loss on trade
receivables
Operating profit before changes in
working capital
Decrease in inventories
Decrease/(increase) in trade and other
receivables
(Decrease)/increase in trade and other
payables
PRC income tax paid
Net cash generated from/(used in)
operating activities

Year ended 31 December
Six months
ended
30 June
2007
2008
2009
2010
RMB’000
RMB’000
RMB’000
RMB’000
35,570
45,441
46,753
14,466
927
1,097
881
421
223
187
50
222
8,958
16,570
9,610
3,568
(2,063)
(5,016)
(4,481)
(3,037)
(312)
85
(3,068)
(1,116)
—
1,891
(600)
—
—
13
7
2
—
—
81
122
—
—
559
—
—
—
(14)
—
43,303
60,268
49,778
14,648
2,982
516
22,199
40,821
(128,432)
12,471
90,265
8,985
(34,784)
(13,286)
8,153
(59,030)
(5,611)
(8,466)
(7,928)
(5,109)
(122,542)
51,503
162,467
315

The net cash generated from operation was approximately RMB(122.5) million, RMB51.5 million, RMB162.5 million and RMB0.3 million for the year ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010 respectively. The increase in net cash generated from operating activities for the Track Record Period was mainly the result of the increase in profit before taxation

— 275 —

FINANCIAL INFORMATION

and the decrease in trade and other receivables which was partially net off by the decrease in trade and other payables. The increase in trade and other receivables for the year ended 31 December 2007 was mainly due to the short term cash advances to SZ Industry. As confirmed by the Director, the short term cash advances was used for working capital purpose and the amount had been fully settled before the end of 2009.

Net cashflow from investing activities

The principal items affecting net cashflow from investing activities during the Track Record Period were the payment for the purchase of investment property and the leasehold land in the PRC.

The following table sets forth a breakdown of net cashflow from investing activities for the years and period indicated:

Payment for the purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Interest received Payment for the purchase of investment property Prepaid lease payment paid Net cash generated from/(used in) investing activities	Year 2007 RMB’000 (2,020) 20 2,063 — — 63	ended 31 December Six months ended 30 June 2008 2009 2010 RMB’000 RMB’000 RMB’000 (163) (1,074) (224) 8 4 — 5,016 4,481 3,037 (47,291) — — — (7,583) — (42,430) (4,172) 2,813

Note: The investment property was transferred from SZ Industry on 11 August 2008 as a settlement of a shareholder’s loan in the amount of RMB45,888,000. The cashflow of RMB47,291,000 included a fair value change in investment property of RMB1,403,000.

Net cashflow from financing activities

Our financing activities during the Track Record Period mainly included proceeds from and repayments of loans from bank and the change in pledged bank deposits.

— 276 —

FINANCIAL INFORMATION

The following table sets forth a breakdown of net cashflow from financing activities for the years and period indicated:

Proceeds from new bank loans Repayment of bank loans Decrease/(increase) in pledged bank deposits Finance costs paid Dividends paid Proceeds from shareholders’ loan lssue of shares Net cash generated from/(used in) financing activities	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 224,333 431,167 247,538 (172,676) (358,905) (200,527) 3,504 (34,347) (143,223) (8,958) (16,570) (9,610) — (47,700) — 79,000 — — — — 1 125,203 (26,355) (105,821)	Six months ended 30 June 2010 RMB’000 92,780 (143,620) 49,082 (3,568) (32,037) — — (37,363)

Capital structure

As at 30 June 2010, we had net assets of approximately RMB134.7 million, comprising non-current assets of approximately RMB56.8 million (consisting of investment property, prepaid lease payments and property, plant and equipment), net current assets of approximately RMB139.9 million and non-current liabilities of approximately RMB62.0 million (consisting of bank loans and deferred tax liabilities).

Capital management

Our objectives when managing capital are to ensure that members of our Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. Our management reviews the capital structure by considering the cost of capital and the risks associated with each class of capital. In view of this, we will balance our overall capital structure through the payment of dividends, new share issues as well as the issue of new debt.

We monitor our capital structure on the basis of a debt-to-adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. We define net debt as interest-bearing bank loans less pledged bank deposits and cash and cash equivalents. Adjusted capital comprises all components of equity.

— 277 —

FINANCIAL INFORMATION

Our net debt-to-adjusted capital ratio at 31 December 2007, 2008 and 2009 and as at 30 June 2010 were as follows:

As 2007 RMB’000 Bank loans 187,833 Total debt 187,333 Less: Pledged bank deposits (69,049) Cash and cash equivalents (48,444) Net debt 69,840 Total equity 132,160 Net debt-to-adjusted capital ratio 52.9%	at 31 December 2008 2009 RMB’000 RMB’000 259,595 306,606 259,595 306,606 (103,396) (246,619) (31,240) (83,562) 124,959 — 118,935 156,028 105.1% 0%	As at 30 June 2010 RMB’000 255,766 255,766 (197,537) (49,433) 8,796 134,709 6.5%

Capital expenditures management

During the Track Record Period, our capital expenditure were funded by the cash generated from our operating activities.

In order to meet the expected growth in demand for the pharmaceutical and healthcare products in the PRC, our Directors believe that sufficient capital expenditure investment will be fundamental to our expansion plans, details of which have been set out in the section headed “Future plans and use of proceeds” in this document. We expect to spend

(i) approximately RMB68.7 million to expand and improve the coverage of its distribution network in the northeastern and southern regions of the PRC by acquiring the distribution business of well-established distributors with stable cash flow and an established network of retail outlets such as pharmacies, supermarkets, clinics, hospitals and rural markets and good credit terms with financial institutions and its customer base;
(ii) approximately RMB22.9 million to upgrade its transportation and delivery services to customers by constructing its own delivery centre equipped with standard GSP qualifications in Shenzhen; and
(iii) approximately RMB11.45 million to further expand the Product Display Booth Scheme by increasing the number of the Products Display Booths in retail outlets such as pharmacies, supermarkets, clinics and chain stores in well populated areas in Guangdong, Fujian, Jiangxi, Hunan, Hubei, Beijing and other provinces in the PRC.

— 278 —

FINANCIAL INFORMATION

We expect to meet future capital expenditure requirements through [our available cash and cash equivalents, cash generated from our operating activities, available banking facilities and the expected net proceeds from [●]. The amount of our capital expenditures and capital commitments during the Track Record Period, the capital commitment existed as at the Latest Practicable Date and the estimated capital expenditure budget of our Group for the three years ending 31 December 2011 are shown as follows:

		Year ended 31 December	Year ended 31 December
	2007	2008	2009
		(RMB’000)
Capital expenditure	2,020	160	40
Capital commitment	nil	nil	nil
	Year ending 31 December
	2010	2011	2012
		(RMB’000)
Estimated capital expenditure budget	0	22,900	1,000
Capital commitment existed as at the
Latest Practicable Date	0	0	0

Our Directors expect that the estimated capital expenditure budget will be financed by [●] and our internal financial resources.

Working capital and cash flow management

We finance our working capital requirements primarily through cash flow from our operating activities and bank borrowings. The net cash generated from our operating activities had improved during the Track Record Period and amounted to approximately a net cash outflow of RMB122.5 million, a net cash inflow of RMB51.5 million and a net cash inflow of RMB162.5 million for the three financial years ended 31 December 2009, respectively and a net cash inflow of RMB0.3 million for the six months ended 30 June 2010.

We have implemented and will implement several measures to improve our working capital management. For example, we [monitor our cash balance closely and determine our working capital requirement and the optimal account receivables, payables and inventory turnover period with reference to the overall business environment of the PRC economy and the pharmaceutical and healthcare industry. Where variances occur, our management will analyse such variances and modify its plans or implement new measures accordingly.]

— 279 —

FINANCIAL INFORMATION

Directors’ opinion on the sufficiency of our working capital

Our Directors are of the opinion that the working capital available to our Group is sufficient for our present requirements for the next 12 months commencing from the date of this document due to following reasons:

(a) as disclosed in the combined balance sheet, the net current assets of the Group as at 30 June 2010 amounted to approximately RMB139.9 million, which includes cash and cash equivalents of approximately RMB49.4 million;
(b) based on the satisfactory payment records of the trade debtors of the Group, the Directors expect that the trade receivables will be duly received within the normal credit terms;
(c) there is no indication that the available financing, including banking facilities, granted to the Group will be withdrawn by the counterparties in the near future; and
(d) the [●] will increase the working capital level.

INDEBTEDNESS

[At the close of business on 30 September 2010, being the latest practicable date for the purpose of preparing this indebtedness statement prior to the printing of this document, the Group had the following borrowings:]

Secured bank loans (note i) Within 1 year or on demand After 2 years but within 5 years Amount due to related parties (note ii)	RMB’000 [134,799] [60,000] [194,799] [1,372] [196,171]

Notes:

(i) [The loans are interest bearing and secured by the Group’s pledged bank deposits and investment property and the guarantee given by a director.]
(ii) [All of amounts due from/to related parties are unsecured, interest-fee and have no fixed terms of repayment. In the opinion of the Company’s directors, all amounts due from/to related parties as at 30 September 2010 are expected to be settled on or before the successful listing of the Company’s share in the Stock Exchange.]

As at 30 September 2010, the Group had no material contingent liabilities. The Directors are of opinion that there has been no material change in the Group’s contingent liabilities from 30 September 2010 to the Latest Practicable Date.

— 280 —

FINANCIAL INFORMATION

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have outstanding borrowings and indebtedness at the close of business on 30 September 2010, any loan capital issued and outstanding or agreed to be issued, bank overdraft, loans or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, guarantees or other material contingent liabilities.

Save as disclosed in this section headed “Indebtedness”, the Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Group since 30 September 2010.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Business Risk

The Group has a certain concentration of business risk as 67%, 67%, 67% and 73% of its turnover for the years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010 respectively was from a principal product, the [●] Product Series which was purchased from a sole supplier. The Group the manufacturer and the supplier entered into a regional distribution agreement for a three year term and subject to renewal. If there is any change in consumer taste and demand of the product, or the supplier does not renew the regional distribution agreement, the Group’s turnover and profitability will be adversely affected.

Foreign Currency Exchange Risk

The Group is exposed to currency risk primarily through purchases which give rise to trade payable, bank balance and bank loans that are denominated in foreign currencies other than the functional currency of the operations to which the transactions relate. The currencies giving rise to this risk are primarily Hong Kong dollars and United States dollars.

In order to manage this risk and to reduce our exposure, we entered into foreign currency forward contracts with certain works from time to time.

Interest Rate Risk

Our exposure from changes in interest rates relate primarily to the interest expenses associated with our bank loans. An increase in prevailing interest rates would lead to an increase in interest cost on our bank borrowings when such borrowings are rolled over.

Inflation

In recent years, China has not experienced significant inflation and thus inflation has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 1.5%, 4.8% and 5.9% in 2006, 2007 and 2008 respectively. Based on the upward change of the Consumer Price Index in late 2008, the PRC

— 281 —

FINANCIAL INFORMATION

government announced measures to restrict bank lending and investment in China in order to reduce inflationary pressures on China’s economy. Such measures adopted by the PRC government may not be successful in reducing or slowing the rate of inflation in China, and sustained or increased inflation in China in the future may adversely affect our business and financial results.

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE [ ● ]

Our Directors confirm that as at the Latest Practicable Date, there were no circumstances which would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the [●].

DIVIDEND POLICY

The dividend of approximately RMB47.7 million was paid for the year ended 31 December 2008. In January 2010, dividend amounted to RMB26.4 million was paid for the year ended 31 December 2009. The dividend of approximately RMB5.6 million was paid for the six months ended 30 June 2010.

After completion of [●], we may distribute dividends as our Directors consider appropriate. A decision to distribute any interim dividend or recommend any final dividend would require the approval of the Board and will be at its discretion. In addition, any final dividend for a financial year will be subject to Shareholders’ approval. Our Board will review the dividend policy from time to time in light of the following factors in determining whether dividends are to be declared and paid:

financial results of our Company;
shareholders’ interest;
general business conditions, strategies and future expansion needs;
our Company’s capital requirements;
the payment by its subsidiaries of cash dividends to our Company;
possible effects on the liquidity and financial position of our Company; and
other factors the Board may deem relevant.

Dividends may be paid only out of our distributable profits as permitted under the relevant laws. Our dividend distribution record in the past may not be used as a reference or basis to determine the level of dividends that may be declared or paid by us in the future.

The Directors currently intend that not less than 50% of our profit after taxation may be distributed as dividends for the applicable financial year subject to the approval of the Board after considering the above factors and by our then Shareholders. Such intention does not amount to any guarantee or representation or indication that the Company must or will declare and pay dividend in such manner or declare and pay any dividend at all.

— 282 —

FINANCIAL INFORMATION

PROPERTY INTEREST AND PROPERTY VALUATION

Property valuation

DTZ Debenham Tie Leung Limited, an independent property valuer, has valued the Group’s property interests as at 30 September 2010 and is of the opinion that the value of its property interests attributable to the Group in aggregate was approximately RMB58,550,000 as at 30 September 2010. There is a net revaluation surplus, representing the excess market value of the properties over their book value as of 31 December 2009. The full text of the letter, summary of values and valuation certificates with regard to such property interests are set forth in Appendix III to this document.

Reconciliation of appraised property values with net book values

Disclosure of the reconciliation between the valuation of the interests in properties attributable to the Group and such property interests in the Group’s combined balance sheets as of 31 December 2009 contained in the Accountants’ Report required under Rule 5.07 of [●] is set forth below:

	RMB’000
Buildings included in property, plant and equipment	683
Prepaid lease payment	7,380
Investment properties	46,000
Net book value as of 30 June 2010	54,063
Movement from 1 July 2010 to 30 September 2010
Add: Addition during the period	—
Less: Depreciation and amortisation during the period	69
Net book value as at 30 September 2010	53,994
Valuation surplus	4,556
Valuation of buildings, prepaid lease payment and investment
property as at 30 September 2010	58,550

DISTRIBUTABLE RESERVES

As at 30 June 2010, the Company did not have reserves available for distribution to the Shareholders.

— 283 —

FINANCIAL INFORMATION

SIGNIFICANT SUBSEQUENT EVENTS

Subsequent to the six months ended 30 June 2010 (being date to which our latest audited combined financial statements were prepared), the Group had the following significant events:

1. Amounts due from related parties

[On [●] November 2010, the Group formalised the existing loan arrangement by entering into the loan agreements with each of three related parties, Mr Zhao, Ms. Chan and SZ Industry, pursuant to which the Group made a loan to each of Mr Zhao and Ms. Chan in the amount of HK$16,800,000 (equivalent to RMB14,400,000) and HK$4,200,000 (equivalent to RMB3,600,000) respectively on 18 October 2010 and certain loans to SZ Industry in an aggregate amount of RMB18,800,000 in the period between September 2010 and October 2010. All of these loans are unsecured, interest-free and will be repayable by two installments of 50% each on or before 8 November 2010 and 21 November 2010 respectively.]

2. Related party’s guarantee

[On 1 September 2010, the personal guarantee of Mr Zhao of RMB100,000,000, which was provided to a bank for the banking facilities granted to the Group note 29(c) in section A in the Financial Information, was released subject to the successful listing of the Shares on the Stock Exchange within one year from 1 September 2010. If the listing of the Shares on the Stock Exchange is not successful, the bank will reinstate the personal guarantee of Mr Zhao in the amount of RMB100,000,000 and additional securities on the properties of a related party, SZ Industry, will be pledged to the bank for the banking facilities to the Group.]

NO MATERIAL ADVERSE CHANGE

Our Directors have confirmed that there has been no material adverse change in our financial or trading position since 30 June 2010 (being the date to which our latest audited combined financial statements were prepared, as set out in the accountants’ report in Appendix [I] to this document).

— 284 —

FUTURE PLANS

Please refer to the section entitled “Business — Objective and Strategies” in this document for a detailed description of the Group’s future plans.

— 285 —

APPENDIX I

ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for the purpose of inclusion in this document, received from the reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

34/F., The Lee Gardens 33 Hysan Avenue Causeway Bay Hong Kong

[Date]

The Directors Kingworld Medicines Group Limited Guotai Junan Capital Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Kingworld Medicines Group Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010 (the “Relevant Periods”) for inclusion in the document of the Company dated [date] (the “Document”) in connection with the proposed listing of the shares of the Company on the [●] of The [●] of Hong Kong Limited (the “[●]”).

The Company was incorporated as an exempted company and registered in the Cayman Islands with limited liability under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands on 10 July 2008. Pursuant to a corporate reorganisation as more fully explained in the section headed “[●]” in appendix [V] to the Document (the “[●]”), the Company became the holding company of the companies comprising the Group on [date].

The particulars of the Company’s subsidiaries during the Relevant Periods and as at the date of this report are as follows:

Name Place and date of incorporation/ operations Kingworld Medicine and Healthcare Group Limited (formerly known as Kingworld Medicine Group Limited) (“BVI Kingworld”) British Virgin Islands (“BVI”)/Hong Kong 7 February 2005	Equity interest attributable to the Group Issued and fully paid share capital/registered capital Principal activities As at 31 December As at 30 June As at date of this report 2007 2008 2009 2010 100% 100% 100% 100% 100% US$110 Investment holding
	As at 31 December
	2007 2008 2009 100% 100% 100%

— I-1 —

APPENDIX I	ACCOUNTANTS’ REPORT
Name Place and date of incorporation/ operations Kingworld Medicine Healthcare Limited (“HK Kingworld”) Hong Kong 14 May 2008 深圳市金活醫藥有限公司 Shenzhen Kingworld Medicine Company Limited (“SZ Kingworld”) (Note 1) The People’s Republic of China (the “PRC”) 19 April 1996 武漢市金活信息諮詢服務有限責任公司 Wuhan City Kingworld Information Consultancy Services Company Limited (“Wuhan Consultancy”) (Note 2) The PRC 8 October 2002 無錫市金活信息諮詢服務有限責任公司 Wuxi City Kingworld Information Consultancy Services Company Limited (“Wuxi Consultancy”) (Note 2) The PRC 20 November 2002 南昌市金活信息諮詢服務有限責任公司 Nanchang City Kingworld Information Consultancy Services Company Limited (“Nanchang Consultancy”) (Note 2) The PRC 5 December 2002 太原市金活企業信息諮詢服務有限公司 Taiyuan City Kingworld Information Consultancy Services Company Limited (“Taiyuan Consultancy”) (Note 2) The PRC 27 November 2002	Equity interest attributable to the Group Issued and fully paid share capital/registered capital Principal activities As at 31 December As at 30 June As at date of this report 2007 2008 2009 2010 — 100% 100% 100% 100% HK$101,162,537 Investment holding and provision of marketing service 100% 100% 100% 100% 100% RMB80,000,000 Distribution sale of branded imported pharmaceutical and healthcare products in the PRC 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service
	As at 31 December
	2007 2008 2009 — 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

— I-2 —

APPENDIX I	ACCOUNTANTS’ REPORT
Name Place and date of incorporation/ operations 福州金活企業信息諮詢服務有限公司 Fuzhou City Kingworld Information Consultancy Services Company Limited (“Fuzhou Consultancy”) (Note 2) The PRC 4 March 2003 北京市金活信息諮詢服務有限責任公司 Beijing City Kingworld Information Consultancy Services Company Limited (“Beijing Consultancy”) (Note 2) The PRC 12 November 2002 西安市金活信息諮詢服務有限責任公司 Xi’an City Kingworld Information Consultancy Services Company Limited (“Xi’an Consultancy”) (Note 2) The PRC 21 January 2003 蘭州市金活信息諮詢服務有限責任公司 Lanzhou City Kingworld Information Consultancy Services Company Limited (“Lanzhou Consultancy”) (Note 2) The PRC 10 January 2003 合肥市金活信息諮詢服務有限責任公司 Hefei City Kingworld Information Consultancy Services Company Limited (“Hefei Consultancy”) (Note 2) The PRC 6 March 2003	Equity interest attributable to the Group Issued and fully paid share capital/registered capital Principal activities As at 31 December As at 30 June As at date of this report 2007 2008 2009 2010 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service
	As at 31 December
	2007 2008 2009 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

— I-3 —

APPENDIX I	ACCOUNTANTS’ REPORT
Name Place and date of incorporation/ operations 鄭州市金活信息諮詢服務有限責任公司 Zhengzhou City Kingworld Information Consultancy Services Company Limited (“Zhengzhou Consultancy”) (Note 2) The PRC 3 March 2003 杭州金活信息諮詢服務有限公司 Hangzhou City Kingworld Information Consultancy Services Company Limited (“Hangzhou Consultancy”) (Note 2) The PRC 29 October 2004 南寧市金活商務服務有限公司 Nanning City Kingworld Business Services Company Limited (“Nanning Consultancy”) (Note 2) The PRC 24 May 2007	Equity interest attributable to the Group Issued and fully paid share capital/registered capital Principal activities As at 31 December As at 30 June As at date of this report 2007 2008 2009 2010 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service 100% 100% 100% 100% 100% RMB100,000 Provision of marketing and consultancy service
	As at 31 December
	2007 2008 2009 100% 100% 100% 100% 100% 100% 100% 100% 100%

Notes:

Wholly-foreign owned enterprise established in the PRC.
A limited liability company established in the PRC.
The English names of the above PRC incorporated entities are for identification purpose only.

All of the subsidiaries are indirectly owned by the Company except for BVI Kingworld which is directly owned by the Company.

All of the companies comprising the Group have adopted 31 December as their financial year end

date.

— I-4 —

APPENDIX I

ACCOUNTANTS’ REPORT

No statutory audited financial statements have been prepared for the Company and BVI Kingworld since their respective dates of incorporation as they were incorporated in countries where there are no statutory audit requirements. For the purpose of this report, we have, however, reviewed all the relevant transactions during the Relevant Periods and carried out such procedures as we considered necessary for inclusion of the Financial Information relating to these companies in this Document.

The financial statements of all of the Group’s subsidiaries established in the PRC were prepared in accordance with the relevant accounting principles and financial regulations applicable to the PRC enterprises. The statutory financial statements of HK Kingworld were prepared in accordance with Hong Kong Financial Reporting Standards. The financial statements of the Group’s subsidiaries were audited by the following certified public accountants registered in Hong Kong or the PRC.

Name of subsidiary	Period covered	Certified Public Accountants
HK Kingworld	Each of the two years ended 31	CCIF CPA Limited
	December 2008 and 2009
SZ Kingworld	Each of the three years ended 31	Shenzhen Zhong Qing Certified
	December 2007, 2008 and 2009	Public Accountants Ltd.
Wuhan Consultancy	Each of the two years ended 31	Wuhan Hengtong Chief Accountants
	December 2007 and 2009	Office
	Year ended 31 December 2008	Hubei Chengyi Certified Public
		Accountants
Wuxi Consultancy	Year ended 31 December 2007	Wuxi Jiayu Certified Public
		Accountants Co., Ltd.
	Each of the two years ended 31	Wuxi Liangxi Certified Public
	December 2008 and 2009	Accountants Co., Ltd.
Nanchang Consultancy	Each of the two years ended 31	Jiangxi Zhongfu Certified Public
	December 2007 and 2008	Accountants Co., Ltd.
	Year ended 31 December 2009	Jiangxi Huipu Certified Public
		Accountants Co., Ltd
Taiyuan Consultancy	Year ended 31 December 2007	Shanxi Zhiqiang Certified Public
		Accountants Co., Ltd.
	Each of the two years ended 31	Shanxi Jin Qiang Kuai Ji Shi Shi
	December 2008 and 2009	Wu Suo
Fuzhou Consultancy	Each of the three years ended 31	Fujian Indetrust Certified Public
	December 2007, 2008 and 2009	Accountants Co., Ltd.
Beijing Consultancy	Each of the three years ended 31	Beijing Huizhihongjing Certified
	December 2007, 2008 and 2009	Public Accountants Co., Ltd.

— I-5 —

APPENDIX I		ACCOUNTANTS’ REPORT
Name of subsidiary	Period covered	Certified Public Accountants
Xi’an Consultancy	Each of the three years ended 31	Shaanxi Yiyou Certified Public
	December 2007, 2008 and 2009	Accountants Firm Ltd.
Lanzhou Consultancy	Each of the three years ended 31	Gansu Guotong Certified Public
	December 2007, 2008 and 2009	Accountants
Hefei Consultancy	Year ended 31 December 2007	JiuZhou (Anhui) Certified Public
		Accountants
	Each of the two years ended 31	Hefei Yide Certified Public
	December 2008 and 2009	Accountants
Zhengzhou Consultancy	Year ended 31 December 2007	Henan Yonghao Unite Certified
		Public Accountants
	Each of the two years ended 31	Henan Guangfa Unite Certified
	December 2008 and 2009	Public Accountants
Hangzhou Consultancy	Each of the three years ended 31	Hangzhou Xinjiyuan Certified
	December 2007, 2008 and 2009	Accountants
Nanning Consultancy	Each of the three years ended 31	Guangxi Tongrui Certified Public
	December 2007, 2008 and 2009	Accountants Co., Ltd.

For the purpose of this report, the directors of the Company have prepared the combined financial statements of the Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have carried out an independent audit on the Underlying Financial Statements in accordance with Hong Kong Auditing Standards issued by HKICPA. We have examined the Underlying Financial Statements and have carried out such procedures as we consider necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 1 to the Financial Information. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Document.

The Underlying Financial Statements are the responsibility of the directors of the Company, who approve their issue. The directors of the Company are responsible for the contents of the Document in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements to form an independent opinion on the Financial Information and to report our opinion to you.

— I-6 —

APPENDIX I

ACCOUNTANTS’ REPORT

In our opinion, on the basis set out in note 1 in section A to the Financial Information, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31 December 2007, 2008 and 2009 and 30 June 2010 and of its combined results and combined cash flows of the Group for the Relevant Periods.

The comparative combined income statement, combined statement of comprehensive income, combined statement of cash flows and combined statement of changes in equity of the Group for the six months ended 30 June 2009 together with the notes thereon have been extracted from the Group’s unaudited combined financial information for same period (the “30 June 2009 Financial Information”) which were prepared by the directors of the Company solely for the purpose of this report. We conducted our review in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review consists of making inquires of the Group management personnel and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the 30 June 2009 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the 30 June 2009 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

— I-7 —

APPENDIX I

ACCOUNTANTS’ REPORT

A. FINANCIAL INFORMATION

Combined Income Statements

Notes Turnover 3 Cost of sales Gross profit Valuation (loss)/gain on investment property Other revenue 4(a) Other net income 4(b) Selling and distribution costs Administrative expenses Profit from operations Finance costs 5(a) Profit before taxation 5 Income tax 6 Profit for the year/period Attributable to: Equity holders of the Company Dividends 7 Earnings per share (RMB) Basic and diluted (cents) 8	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 527,327 536,021 556,417 (431,022) (406,630) (435,764) 96,305 129,391 120,653 — (1,891) 600 3,591 7,220 6,786 9,068 10,978 7,143 (51,748) (62,357) (58,378) (12,688) (21,330) (20,441) 44,528 62,011 56,363 (8,958) (16,570) (9,610) 35,570 45,441 46,753 (6,335) (11,044) (9,509) 29,235 34,397 37,244 29,235 34,397 37,244 — 47,700 26,400 [6.50] [7.64] [8.28]	Six months ended 30 June 2009 2010 RMB’000 RMB’000 (unaudited) 274,795 313,710 (221,969) (250,357) 52,826 63,353 — — 4,509 3,738 3,305 33 (33,991) (37,485) (10,274) (11,605) 16,375 18,034 (6,067) (3,568) 10,308 14,466 (1,747) (3,854) 8,561 10,612 8,561 10,612 — 5,637 [1.90] [2.36]

— I-8 —

APPENDIX I ACCOUNTANTS’ REPORT	APPENDIX I ACCOUNTANTS’ REPORT	APPENDIX I ACCOUNTANTS’ REPORT
Combined statements of comprehensive income Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 Profit for the year/period 29,235 34,397 37,244 Other comprehensive income for the year/period Exchange differences on translation of financial statements of foreign subsidiaries 8 78 (152) 8 78 (152) Total comprehensive income for the year/period 29,243 34,475 37,092	Six months ended 30 June 2009 2010 RMB’000 RMB’000 (unaudited) 8,561 10,612 (412) 106 (412) 106 8,149 10,718
		106
		106
		10,718

— I-9 —

APPENDIX I ACCOUNTANTS’ REPORT

Combined Balance Sheets
					As at
			At 31 December		30 June
	Notes	2007	2008	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000
Non-current assets
Property, plant and equipment	11	4,406	3,451	3,633	3,434
Investment property	12	—	45,400	46,000	46,000
Prepaid lease payments	13	—	—	7,502	7,380
		4,406	48,851	57,135	56,814
Current assets
Inventories	15	99,136	98,620	75,862	35,041
Trade and other receivables	16	278,404	265,746	178,513	170,422
Pledged bank deposits	17	69,049	103,396	246,619	197,537
Cash and cash equivalents	18	48,444	31,240	83,562	49,433
		495,033	499,002	584,556	452,433
Current liabilities
Trade and other payables	19	177,930	164,729	172,882	113,852
Bank loans	20	187,333	159,595	246,606	195,766
Current taxation	21(a)	2,016	3,414	4,637	2,896
		367,279	327,738	424,125	312,514
Net current assets		127,754	171,264	160,431	139,919
Total assets less current liabilities		132,160	220,115	217,566	196,733
Non-current liabilities
Bank loans	20	—	100,000	60,000	60,000
Deferred tax liabilities	21(b)	—	1,180	1,538	2,024
		—	101,180	61,538	62,024
NET ASSETS		132,160	118,935	156,028	134,709
CAPITAL AND RESERVES
Share capital	22	—	—	1	1
Reserves	23	43,160	29,935	156,027	134,708
Shareholders’ equity loans	24	89,000	89,000	—	—
TOTAL EQUITY		132,160	118,935	156,028	134,709

— I-10 —

APPENDIX I

ACCOUNTANTS’ REPORT

Combined Statements of Changes in Equity

At 1 January 2007 Changes in equity: Transfer Loans from shareholders Total comprehensive income for the year At 31 December 2007 At 1 January 2008 Changes in equity: Transfer Dividend Total comprehensive income for the year At 31 December 2008 At 1 January 2009 Changes in equity: Capitalisation issue Transfer Total comprehensive income for the year At 31 December 2009 At 1 January 2010 Changes in equity: Transfer Dividend Total comprehensive income for the year At 30 June 2010 Unaudited At 1 January 2009 Changes in equity: Transfer Total comprehensive income for the year At 30 June 2009	Share capital RMB’000 — — — — — — — — — — — 1 — — 1 1 — — — 1 — — — —	Attributable to equity holders of the Company Share premium Share- holders’ equity loans Capital reserve Statutory and discretionary reserves Exchange reserve RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 — 10,000 68 5,861 — — — — 3,752 — — 79,000 — — — — — — — 8 — 89,000 68 9,613 8 — 89,000 68 9,613 8 — — — 5,948 — — — — — — — — — — 78 — 89,000 68 15,561 86 — 89,000 68 15,561 86 89,000 (89,000) — — — — — — 4,305 — — — — — (152) 89,000 — 68 19,866 (66) 89,000 — 68 19,866 (66) — — — 1,973 — — — — — — — — — — 106 89,000 — 68 21,839 40 — 89,000 68 15,561 86 — — — 923 — — — — — (412) — 89,000 68 16,484 (326)	Retained profits RMB’000 7,988 (3,752) — 29,235 33,471 33,471 (5,948) (47,700) 34,397 14,220 14,220 — (4,305) 37,244 47,159 47,159 (1,973) (32,037) 10,612 23,761 14,220 (923) 8,561 21,858	Total RMB’000 23,917 — 79,000 29,243
				132,160
				132,160 — (47,700) 34,475
				118,935
				118,935 1 — 37,092
				156,028
				156,028 — (32,037) 10,718
				134,709
				118,935 — 8,149
				127,084

— I-11 —

APPENDIX I ACCOUNTANTS’ REPORT

Combined Statements of Cash Flows

Notes
Operating activities
Profit before taxation
Adjustments for:
Amortisation on prepaid lease
payments
Depreciation
Finance costs
Impairment loss on trade
receivables
Interest income
Loss on disposal of property,
plant and equipment
Reversal of impairment loss on
trade receivables
Unrealised (gain)/loss on forward
exchange contracts
Valuation (gain)/loss on
investment property
Write-down of inventories
Operating profit before changes
in working capital
Decrease in inventories
(Increase)/decrease in trade and
other receivables
(Decrease)/increase in trade and
other payables
Cash generated from/(used in)
operations
PRC income tax paid
Net cash generated from/(used in)
operating activities

Year ended 31 December
Six months
ended 30 June
2007
2008
2009
2009
2010
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(unaudited)
35,570
45,441
46,753
10,308
14,466
—
—
81
—
122
927
1,097
881
491
421
8,958
16,570
9,610
6,067
3,568
223
187
50
38
222
(2,063)
(5,016)
(4,481)
(3,396)
(3,037)
—
13
7
4
2
—
—
(14)
—
—
(312)
85
(3,068)
(1,405)
(1,116)
—
1,891
(600)
—
—
—
—
559
—
—
43,303
60,268
49,778
12,107
14,648
2,982
516
22,199
32,797
40,821
(128,432)
12,471
90,265
94,075
8,985
(34,784)
(13,286)
8,153
(70,344)
(59,030)
(116,931)
59,969
170,395
68,635
5,424
(5,611)
(8,466)
(7,928)
(3,987)
(5,109)
(122,542)
51,503
162,467
64,648
315

— I-12 —

APPENDIX I

Year ended 31 December
Six months
ended 30 June
2007
2008
2009
2009
2010
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(unaudited)
(2,020)
(163)
(1,074)
(182)
(224)
20
8
4
—
—
—
(47,291)
—
—
—
—
—
(7,583)
(4,011)
—
2,063
5,016
4,481
3,396
3,037
63
(42,430)
(4,172)
(797)
2,813
3,504
(34,347) (143,223)
(77,896)
49,082
224,333
431,167
247,538
135,216
92,780
(172,676) (358,905) (200,527)
(97,721) (143,620)
(8,958)
(16,570)
(9,610)
(6,067)
(3,568)
79,000
—
—
—
—
—
(47,700)
—
—
(32,037)
—
—
1
—
—
125,203
(26,355) (105,821)
(46,468)
(37,363)
2,724
(17,282)
52,474
17,383
(34,235)
45,712
48,444
31,240
31,240
83,562
8
78
(152)
(412)
106
48,444
31,240
83,562
48,211
49,433
ACCOUNTANTS’ REPORT

Notes
Investing activities
Payment for the purchase of
property,
plant and equipment
Proceeds from sale of property,
plant and equipment
Payment for the purchase of
investment property
Prepaid lease payments paid
Interest received
Net cash generated from/(used in)
investing activities
Financing activities
Decrease/(increase) in pledged
bank deposits
Proceeds from new bank loans
Repayment of bank loans
Finance costs paid
Proceeds from shareholders’
loans
Dividend paid
Issue of shares
Net cash generated from/(used in)
financing activities
Increase/(decrease) in cash and
cash equivalents
Cash and cash equivalents at
beginning of year/period
Effect of foreign exchange rates
changes
Cash and cash equivalents at end
of year/period
18

— I-13 —

ACCOUNTANTS’ REPORT

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL INFORMATION

The Company was incorporated as an exempted company and registered in the Cayman Islands with limited liability under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands on 10 July 2008. The address of the Company’s registered office and the principal place of business are set out in the section headed “Corporate Information” to the Document.

The Group is principally engaged in distribution sale of branded imported pharmaceutical and healthcare products in the PRC.

The combined income statements, combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows during the Relevant Periods are prepared as if the current group structure had been in existence throughout the Relevant Periods, or since the respective dates of incorporation/establishment of the relevant entity, where this is a shorter period. The combined balance sheets as at 31 December 2007, 2008 and 2009 and 30 June 2010 present the assets and liabilities of the companies now comprising the Group which had been incorporated/established as at the relevant balance sheet dates as if the current group structure had been in existence at those dates. The Group was under the control by Mr. Zhao Li Sheng (“Mr. Zhao”) and Ms. Chan Lok San (“Ms. Chan”) prior to and after the [●]. Pursuant to the [●], which was completed on [date] by interspersing the Company, BVI Kingworld, HK Kingworld, SZ Enterprise and its subsidiaries under the control by Mr. Zhao and Ms. Chan, the Company became the holding company of the companies comprising the Group. Accordingly, the Financial Information has been prepared as if the Company had been the holding company of the Group throughout the Relevant Periods in accordance with Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by HKICPA.

The Financial Information comprises the Company and its subsidiaries and its interest in a jointly controlled entity.

Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the entity. The Financial Information is presented in Renminbi (“RMB”), rounded to the nearest thousand except for per share data. Renminbi is the Company’s functional and presentation currency.

The measurement basis used in the preparation of the Financial Information is the historical cost basis except that the following assets and liabilities are stated at their fair values as explained in the accounting policies set out below:

investment property;
financial instruments classified at fair value through profit or loss; and
derivative financial instruments

— I-14 —

APPENDIX I

ACCOUNTANTS’ REPORT

The preparation of Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 27.

2. SIGNIFICANT ACCOUNTING POLICIES

a) Statement of compliance

The Financial Information have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The [●] of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group is set out below.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. For the purposes of preparing the Financial Information, the Group has not applied any new and revised HKFRS that is not yet effective for the Relevant Periods. The adoption of these new and revised HKFRSs has no significant impact on the Financial Information. The revised and new accounting standards and interpretations issued but not yet effective for the accounting period beginning on 1 January 2009 are set out in note 30.

b) Basis of combination

i) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

— I-15 —

ACCOUNTANTS’ REPORT

APPENDIX I

The financial statements of subsidiaries are included in the Financial Information from the date that control commences until the date that control ceases.

ii) Acquisition from entities under common control

Business combinations arising from transfer of interests in entities that are under the control of the equity holder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group’s controlling equity holder’s combined financial statements. The components of equity of the acquired entities are added to the same components within Group equity except that any share capital of the acquired entities is recognised as part of other reserve. Any cash paid for the acquisition is recognised directly in equity.

iii) Transactions eliminated on combination

Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the Financial Information. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

c) Jointly controlled entity

Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entity.

The Group recognises its interest in jointly controlled entity using proportionate consolidation. The Group’s share of each of the asset, liabilities, income and expenses of the jointly controlled entities are combined with the Group’s similar line items, line by line, in the Financial Information.

Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is accounted for in accordance with the Group’s accounting policy for goodwill arising on the acquisition of a business or a jointly controlled entity.

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

When a group entity transacts with a jointly controlled entity of the Group, profits or losses are eliminated to the extent of the Group’s interest in the jointly controlled entity.

— I-16 —

APPENDIX I ACCOUNTANTS’ REPORT

d) Financial assets at fair value through profit or loss

A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on the basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at fair value through profit or loss.

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets.

e) Derivative financial instruments

Derivative financial instruments are recognition initially at fair value. At each balance sheet date the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where the derivative qualify for cash flow hedge accounting or hedge the net investment in a foreign operation, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged.

f) Investment property

Investment properties are land and/or buildings which are owned or held under a leasehold interest (see note 2(h)) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use.

Investment properties are stated in the balance sheet at fair value. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is accounted for as described in note 2(s)(ii).

When the Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see note 2(h)), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 2(h).

— I-17 —

APPENDIX I

ACCOUNTANTS’ REPORT

Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified as investment property at fair value. Any difference between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss.

g) Property, plant and equipment

Property, plant and equipment, other than investment property, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses (see note 2(j)).

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net proceeds on disposal and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

Building Over the shorter of the unexpired lease term and estimated useful lives, being no more than 20 years Leasehold improvements 5 years or over the remaining term of the lease, if shorter Furniture, fixtures and 10% - 20% per annum office equipment Motor vehicles 10% - 20% per annum

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

h) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

i) Classification of assets leased to the Group

Assets held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases, with the following exceptions.

— I-18 —

APPENDIX I

ACCOUNTANTS’ REPORT

Property held under operating leases that would otherwise meet the definition of an investment property is classified as an investment property on a property-by-property basis and, if classified as investment property, is accounted for as if held under a finance lease (see note 2(f)).
Land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from the previous lessee.

ii) Assets acquired under finance leases

Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are included in prepaid lease payments and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Company or Group will obtain ownership of the asset, the life of the asset. Impairment losses are accounted for in accordance with the accounting policy as set out in note 2(j). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

iii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are written off as an expense of the accounting period in which they are incurred.

The cost of acquiring land held under operating lease is amortised on a straight-line basis over the period of the lease term except where the property is classified as an investment property.

i) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

— I-19 —

APPENDIX I ACCOUNTANTS’ REPORT

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down of loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

j) Impairment of assets
i) Impairment of trade and other receivables

Trade and other receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

If any such evidence exists, any impairment loss is determined and recognised as follows:

For unlisted equity securities carried at cost, impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities are not reversed.
For trade and other receivables and other financial assets carried at amortised cost, impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset’s

— I-20 —

APPENDIX I

ACCOUNTANTS’ REPORT

original effective interest rate (i.e., the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the Group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment; and
prepaid lease payments

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money

— I-21 —

APPENDIX I

ACCOUNTANTS’ REPORT

and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e., a cash-generating unit).

Recognition of impairment losses

An impairment loss is recognised in the profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

k) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 2(j)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

l) Trade and other payables

Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

m) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

— I-22 —

APPENDIX I ACCOUNTANTS’ REPORT

n) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the combined cash flow statement.

o) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary differences or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

— I-23 —

APPENDIX I

ACCOUNTANTS’ REPORT

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
- the same taxable entity; or
- different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.
p) Provisions and contingent liabilities

i) Contingent liabilities acquired in business combinations

Contingent liabilities acquired as part of a business combination are initially recognised at fair value, provided the fair value can be reliably measure. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with note 2(p)(ii). Contingent liabilities acquired in a business combination that cannot be reliably fair valued are disclosed in accordance with note 2(p)(ii).

— I-24 —

APPENDIX I

ACCOUNTANTS’ REPORT

ii) Other provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company or the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

q) Borrowing costs

Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

r) Translation of foreign currencies

Foreign currency transactions during the Relevant Periods are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss, except those arising from foreign currency borrowings used to hedge a net investment in a foreign operation which are recognised directly in equity.

Non-monetary assets and liabilities measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

The results of foreign operations are translated into RMB at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into RMB at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity.

— I-25 —

APPENDIX I ACCOUNTANTS’ REPORT

s) Revenue recognition

Provided that when it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

i) Sales of goods

Revenue is recognised when goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax and other sales taxes and is stated after deduction of returns and discounts.

ii) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

iii) Commission income

Commission income is recognised when the services are rendered.

iv) Interest income

Interest income is recognised as it accrues using the effective interest method.

t) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

— I-26 —

APPENDIX I ACCOUNTANTS’ REPORT

The Group is principally engaged in distribution sale of branded imported pharmaceutical and healthcare products. The revenue, results and assets of pharmaceutical products are more than 90% of the Group’s revenue, results and assets. No business segment analysis is presented accordingly.

The Group’s turnover and results from operations mainly derived from activities in the PRC. The principal assets of the Group are located in the PRC. Accordingly, no analysis by geographical segment is provided.

During the Relevant Periods, there was no revenue form transactions with a single external customer amounted to 10% or more of the Group’s total revenue.

u) Employee benefits

i) Short term employee benefits and contribution to define contribution retirement plans

Salaries, annual bonuses, paid annual leave, contribution to define contribution retirement plans and cost of non-monetary benefits are accrued in each of the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

ii) Defined contribution retirement plan obligation

Contributions to appropriate local defined contribution retirement schemes pursuant to the relevant labour rules and regulations in the PRC are recognised as an expense in income statement as incurred, except to the extent that they are included in the cost of inventories not yet recognised as an expense.

iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

v) Related parties

For the purpose of the Financial Information, parties are considered to be related to the Group

if:

i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;

— I-27 —

APPENDIX I

ACCOUNTANTS’ REPORT

ii) the Group and the party are subject to common control;
iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;
iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

3. TURNOVER

Turnover represents sales of branded imported pharmaceutical and healthcare products at net invoiced value of goods sold, less value-added and sales taxes, returns and discounts, during the Relevant Periods.

				Six months	Six months
	Year	ended 31	December	ended	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Sales	527,327	536,021	556,417	274,795	313,710

— I-28 —

APPENDIX I ACCOUNTANTS’ REPORT

4. OTHER REVENUE AND OTHER NET INCOME

a) Other revenue

				Six months	Six months
	Year	ended 31	December	ended	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Total interest income on financial
assets not at fair value through
profit or loss:
Bank interest income	2,063	5,016	4,481	3,396	3,037
Commission income	1,528	1,693	585	446	—
Rental income	—	439	1,325	667	701
Others	—	72	395	—	—
	3,591	7,220	6,786	4,509	3,738
Other net income
				Six months
	Year	ended 31	December	ended	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Net gain on financial assets at fair
value through profit or loss	—	—	303	160	71
Net realised and unrealised
gain/(loss) on forward foreign
exchange contracts	312	3,133	6,658	3,178	(1,005)
Net foreign exchange gain/(loss)	8,756	7,845	182	(33)	967
	9,068	10,978	7,143	3,305	33

b) Other net income

— I-29 —

APPENDIX I

ACCOUNTANTS’ REPORT

5. PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging/(crediting):

					Six months	Six months
		Year	ended 31	December	ended	30 June
		2007	2008	2009	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
a)	Finance costs
	Total interest expense on
	financial liabilities not at
	fair value through profit or
	loss:
	Interest on bank borrowings
	wholly repayable within
	five years	8,958	16,570	9,610	6,067	3,568
b)	Staff costs
	Salaries, and other benefits	12,682	19,271	18,941	10,829	10,622
	Contributions to defined
	contribution retirement plan	903	1,755	2,028	940	1,038
		13,585	21,026	20,969	11,769	11,660
c)	Other items
	Amortisation on prepaid lease
	payments	—	—	81	—	122
	Auditors’ remuneration	35	35	35	—	45
	Cost of inventories (note 15)	431,022	406,630	435,764	221,969	250,357
	Depreciation	927	1,097	881	491	421
	Impairment losses on trade
	receivables	223	187	50	38	222
	Loss on disposal of property,
	plant and equipment	—	13	7	4	2
	Operating lease charges in
	respect of land and
	buildings	1,836	2,087	1,882	1,030	877
	Write-down of inventories	—	—	559	—	—
	Rental income from
	investment property (less
	direct outgoings of
	RMB45,000, RMB260,000,
	RMB176,000 and
	RMB185,000 for the year
	ended 31 December 2008
	2009 and the six months
	ended 30 June 2009 and
	2010 respectively)	—	(394)	(1,065)	(491)	(516)
	Reversal of impairment loss
	on trade receivables	—	—	(14)	—	—

— I-30 —

APPENDIX I

ACCOUNTANTS’ REPORT

6. INCOME TAX

a) Taxation in the combined income statements represents:

		At 31 December	At 31 December	At 30	June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)
Current tax
- PRC Income tax	6,335	9,864	7,668	1,373	3,368
Deferred tax (note 21(b))
- current year/period	—	1,180	1,879	412	486
- attributable to a change in
tax rate	—	—	(38)	(38)	—
	—	1,180	1,841	374	486
	6,335	11,044	9,509	1,747	3,854

i) Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands, the Group is not subject to any income tax in the Cayman Islands and the British Virgin Islands.
ii) No provision for Hong Kong Profits Tax has been provided during the Relevant Periods as the Group did not have assessable profits subject to Hong Kong Profits Tax.
iii) The PRC income tax charge of the Group during the Relevant Periods represents mainly the PRC income tax charge from SZ Kingworld and the Group’s proportionate share of PRC income tax charge from Zhuhai City Jinming Medicine Company Limited (“Zhuhai Jinming”), a jointly controlled entity of the Group.

Pursuant to the relevant laws and regulations in the PRC, SZ Kingworld and Zhuhai Jinming are located in an approved economic zone in the PRC and were subject to an income tax rate of 15%, 18%, 20%, 20% and 22% during the years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2009 and 2010, respectively.

The National People’s Congress of the PRC approved the Corporate Income Tax Law of the PRC (“New CIT Law”) on 16 March 2007. With effect from 1 January 2008, the tax rate applicable to enterprises established in the PRC will be unified at 25% with certain grandfather provisions and preferential provisions. SZ Kingworld and Zhuhai Jinming are both entitled to the transitional tax rate of 18%, 20%, 22%, 24% and 25% in 2008, 2009, 2010, 2011, 2012 onwards respectively.

— I-31 —

APPENDIX I

ACCOUNTANTS’ REPORT

iv) Under the New CIT Law and its Implementation Rules, dividends receivable by non-PRC resident enterprises from PRC resident enterprises are subject to withholding tax at a rate of 10% unless reduced by tax treaties or agreements. Under the Agreement between the Mainland of China and Hong Kong Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion, or Mainland China/HKSAR DTA, Hong Kong corporate tax residents which hold 25% or more of a PRC enterprise are entitled to a reduced dividend withholding tax rate of 5%. Pursuant to CaiShui [2008] No. 1 Notice on Certain Preferential Enterprise Income Tax Policies, undistributed profits generated prior to 1 January 2008 are exempt from such withholding tax. Accordingly, dividends receivable by the Group’s investment holding company in Hong Kong from the PRC subsidiaries in respect of profits earned since 1 January 2008 will be subject to 5% withholding tax. Deferred tax liabilities of RMB Nil, RMB1,520,000, RMB1,759,000, RMB412,000 and RMB486,000 have been recognised by the Group for the years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June, 2009 and 2010 respectively for undistributed retained profits of the Group’s PRC subsidiaries.
b) Reconciliation between tax expense and accounting profit at the applicable tax rates:

				Six months	Six months
	Year	ended 31 December		ended	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)
Profit before taxation	35,570	45,441	46,753	10,308	14,466
Notional tax on profit before
tax, calculated at the rates
applicable in the
jurisdictions concerned	5,365	8,214	9,366	2,068	3,215
Tax effect of non-deductible
expenses	1,466	3,787	498	478	771
Tax effect of non-taxable
income	(496)	(2,518)	(2,177)	(1,173)	(541)
Unrecognised temporary
difference	—	41	101	—	(77)
Withholding tax on
undistributed profits of
PRC subsidiaries	—	1,520	1,759	412	486
Effect on opening deferred
tax balance resulting from
a change in tax rate	—	—	(38)	(38)	—
Actual tax expense	6,335	11,044	9,509	1,747	3,854

— I-32 —

APPENDIX I

ACCOUNTANTS’ REPORT

7. DIVIDENDS

				Six months	Six months
	Year	ended 31	December	ended 30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Interim dividends declared and
paid	—	47,700	—	—	5,637
Final dividend proposed after the
balance sheet date	—	—	26,400	—	—
	—	47,700	26,400	—	5,637

Dividends presented during the Relevant Periods represent dividends declared by BVI Kingworld to their then shareholders before it became a subsidiary of the Company.

The rates of dividend and the number of shares ranking for dividends are not presented as it is not indicative of the future dividend policy of the Company.

8. BASIC AND DILUTED EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit attributable to equity holders of the Company for the years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2009 and 2010 and on the assumption that [450,000,000] shares in issue or to be issued as at the date of this report and pursuant to the capitalisation issue occurred on the first day of the Relevant Periods.

There were no potential shares in issue during the Relevant Periods, the diluted earnings per share is same as the basic earnings per share during the Relevant Periods accordingly.

— I-33 —

APPENDIX I ACCOUNTANTS’ REPORT

9. DIRECTORS’ EMOLUMENTS

The directors of the Company were members of the senior management of the Group throughout the Relevant Periods and they have been disclosed in the Financial Information as if they had already been appointed at the beginning of the Relevant Periods. Details of the remuneration of directors during the Relevant Periods are as follows:

Details of directors’ remuneration of the Company are set out below:

		Basic salaries,		Contributions
		allowances		to retirement
		and other		benefit
	Fees	benefits	Bonus	schemes	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Year ended
31 December 2007
Executive directors
Chan Lok San	—	—	63	—	63
Lin Yusheng	—	185	—	2	187
Zhao Li Sheng	—	—	—	—	—
Zhou Xuhua	—	—	5	—	5
	—	185	68	2	255
Year ended
31 December 2008
Executive directors
Chan Lok San	—	449	72	32	553
Lin Yusheng	—	199	—	5	204
Zhao Li Sheng	—	649	—	32	681
Zhou Xuhua	—	475	—	32	507
	—	1,772	72	101	1,945
Year ended
31 December 2009
Executive directors:
Chan Lok San	—	559	78	8	645
Lin Yusheng	—	273	—	5	278
Zhao Li Sheng	—	755	—	8	763
Zhou Xuhua	—	670	—	45	715
	—	2,257	78	66	2,401

— I-34 —

APPENDIX I				ACCOUNTANTS’	ACCOUNTANTS’	REPORT
		Basic salaries,			Contributions
		allowances			to retirement
		and other			benefit
	Fees	benefits		Bonus	schemes	Total
	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000
Six months ended 30
June 2009
(unaudited)
Executive directors
Chan Lok San	—		341	38	8	387
Lin Yusheng	—		128	—	2	130
Zhao Li Sheng	—		444	—	8	452
Zhou Xuhua	—		437	—	19	456
	—		1,350	38	37	1,425
Six months ended 30
June 2010
Executive directors
Chan Lok San	—		355	44	—	399
Lin Yusheng	—		154	—	2	156
Zhao Li Sheng	—		461	—	—	461
Zhou Xuhua	—		448	—	26	474
	—		1,418	44	28	1,490

During the Relevant Periods, no amount was paid or payable by the Group to the directors or any of the five highest paid individuals set out in note 10 below as an inducement to join or upon joining the Group or as compensation for loss of office. There was no arrangement under which any director waived or agreed to waive any remuneration during the Relevant Periods.

— I-35 —

APPENDIX I ACCOUNTANTS’ REPORT

10. INDIVIDUALS WITH HIGHEST EMOLUMENTS

The five highest paid individuals of the Group during the Relevant Periods include 1, 3, 4, 4 and 4 directors during the years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2009 and 2010 respectively, whose emoluments are disclosed in note 9. The aggregate of the emoluments in respect of the remaining individuals are as follows:

				Six months	ended
	Year	ended 31 December		30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Salaries and allowance	287	104	121	63		80
Bonuses	356	410	66	34		39
Retirement scheme contributions	12	13	29	13		14
	655	527	216	110	133

The emoluments of individuals other than directors with the highest emoluments are within the following bands:

						Six months ended	Six months ended
			Year	ended 31 December		30 June
			2007	2008	2009	2009	2010
						(unaudited)
HK$1	-	HK$1,000,000	4	2	1	1	1

— I-36 —

APPENDIX I ACCOUNTANTS’ REPORT

11. PROPERTY, PLANT AND EQUIPMENT

			Furniture,
			fixtures
		Leasehold	and office	Motor
	Building	improvements	equipment	vehicles	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Cost
At 1/1/2007	—	72	2,790	2,799	5,661
Additions	—	44	1,054	922	2,020
Disposal	—	—	—	(114)	(114)
At 31/12/2007 and 1/1/2008	—	116	3,844	3,607	7,567
Additions	—	13	150	—	163
Disposals	—	—	(156)	(84)	(240)
At 31/12/2008 and 1/1/2009	—	129	3,838	3,523	7,490
Additions	707	110	135	122	1,074
Disposal	—	—	(40)	(62)	(102)
At 31/12/2009 and 1/1/2010	707	239	3,933	3,583	8,462
Additions	—	—	224	—	224
Disposal	—	—	(18)	—	(18)
At 30/6/2010	707	239	4,139	3,583	8,668
Accumulated depreciation
At 1/1/2007	—	15	995	1,318	2,328
Charge for the year	—	18	444	465	927
Disposal	—	—	—	(94)	(94)
At 31/12/2007 and 1/1/2008	—	33	1,439	1,689	3,161
Charge for the year	—	23	475	599	1,097
Disposal	—	—	(138)	(81)	(219)
At 31/12/2008 and 1/1/2009	—	56	1,776	2,207	4,039
Charge for the year	8	38	435	400	881
Disposal	—	—	(36)	(55)	(91)
At 31/12/2009 and 1/1/2010	8	94	2,175	2,552	4,829
Charge for the period	16	22	232	151	421
Disposal	—	—	(16)	—	(16)
At 30/6/2010	24	116	2,391	2,703	5,234

— I-37 —

APPENDIX I			ACCOUNTANTS’	ACCOUNTANTS’	REPORT
			Furniture,
			fixtures
		Leasehold	and office	Motor
	Building	improvements	equipment	vehicles	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Carrying amount
At 31/12/2007	—	83	2,405	1,918	4,406
At 31/12/2008	—	73	2,062	1,316	3,451
At 31/12/2009	699	145	1,758	1,031	3,633
At 30/6/2010	683	123	1,748	880	3,434

The building is situated in the PRC and held for the Group’s own use.

12. INVESTMENT PROPERTY

	RMB’000
Fair value
At 1 January 2007, 31 December 2007 and 1 January 2008	—
Additions	47,291
Fair value adjustment	(1,891)
At 31 December 2008 and 1 January 2009	45,400
Fair value adjustment	600
At 31 December 2009, 1 January 2010 and 30 June 2010	46,000

— I-38 —

APPENDIX I ACCOUNTANTS’ REPORT

a) The Group’s investment property was revalued as at 31 December 2008, 2009 and 30 June 2010 respectively on an open market value basis calculated by reference to recent market transactions in comparable properties and net rental income allowing for reversionary income potential. The valuations were carried out by an independent firm of valuers, DTZ Debenham Tie Leung Limited, who have among their staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the location and category of property being valued.
b) The Group’s investment property is held under medium-term lease in the PRC.
c) The Group’s investment property was pledged to secure banking facilities granted to the Group during the Relevant Periods (note 20(c)).
d) The Group leases out property under operating lease. The lease runs for a period of four years. None of the lease includes contingent rentals.

The Group’s total future minimum lease payments under non-cancellable operating leases are receivable as follows:

				As at
		As at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Within 1 year	—	1,354	1,422	1,457
After 1 year but within 5 years	—	3,772	2,350	1,614
	—	5,126	3,772	3,071

— I-39 —

APPENDIX I ACCOUNTANTS’ REPORT

13. PREPAID LEASE PAYMENTS

	RMB’000
Cost
At 1 January 2007, 31 December 2007, 1 January 2008 and 31
December 2008 and 1 January 2009	—
Additions	7,583
At 31 December 2009, 1 January 2010 and 30 June 2010	7,583
Accumulated amortisation
At 1 January 2007, 31 December 2007, 1 January 2008 and 31
December 2008 and
1 January 2009	—
Amortisation for the year	81
At 31 December 2009 and 1 January 2010	81
Amortisation for the period	122
At 30 June 2010	203
Net book value
At 31 December 2007	—
At 31 December 2008	—
At 31 December 2009	7,502
At 30 June 2010	7,380

a) The Group’s prepaid lease payments comprise land use rights held under medium term lease in the PRC.
b) The amortisation charge is included in administrative expenses in the combined income statement during the Relevant Periods.

— I-40 —

APPENDIX I ACCOUNTANTS’ REPORT

14. JOINTLY CONTROLLED ENTITY

During the Relevant Periods, the Group had interests in the following jointly controlled entity:

				Attributable
		Place and		equity interest
	Form of	date of	Paid-up	indirectly
	business	incorporation	registered	held by
Name of entity	structure	and operation	capital	the Group	Principal activities
Zhuhai Jinming	Limited	The PRC	RMB5,000,000	50%	Distribution sale of branded
	liability	7 January 2004			imported pharmaceutical
	company				and healthcare products in
					the PRC

The summarised financial information in respect of the Group’s interests in the jointly controlled entity which are accounted for using proportionate consolidation with the line-by-line reporting format is set out below:

							As at
		As	at 31 December			30 June
		2007		2008	2009		2010
	RMB’000		RMB’000		RMB’000	RMB’000
Non-current assets		674		565	4,456		4,378
Current assets		25,253		39,271	39,542		22,908
Current liabilities	(12,401)			(29,630)	(31,425)		(19,437)
Net assets		13,526		10,206	12,573		7,849
					Six months	ended
	Year ended 31			December	30 June
	2007	2008		2009	2009		2010
	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000
				(unaudited)
Income	66,516	65,675		57,080	25,721		39,952
Expense	(59,695)	(58,624)		(54,086)	(24,925)		(35,907)
Profit before taxation	6,821	7,051		2,994	796		4,045
Income tax	(1,157)	(1,625)		(629)	(77)		(768)
Profit for the year/period	5,664	5,426		2,365	719		3,277

— I-41 —

APPENDIX I	APPENDIX I		ACCOUNTANTS’	ACCOUNTANTS’	REPORT
					As at
		As	at 31 December		30 June
		2007	2008	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000
	Share of the jointly controlled
	entity’s capital commitment
	Authorised but not contracted for:
	Capital expenditure for construction of
	office premise and warehouse	—	—	—	9,000
15.	INVENTORIES
					As at
		As	at 31 December		30 June
		2007	2008	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000
	Trading stocks	99,136	98,620	75,862	35,041

The analysis of the amount of inventories recognised as expenses as follows:

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Carrying amount of inventories sold	431,022	406,630	435,205	250,357
Write-down of inventories	—	—	559	—
	431,022	406,630	435,764	250,357

— I-42 —

APPENDIX I

ACCOUNTANTS’ REPORT

16. TRADE AND OTHER RECEIVABLES

					As at
	As	at 31 December			30 June
	2007	2008		2009	2010
	RMB’000	RMB’000	RMB’000		RMB’000
Trade and bills receivables	93,302	131,583	111,745		108,121
Less: Allowance for doubtful debts	(2,633)	(2,784)		(2,779)	(2,794)
	90,669	128,799	108,966		105,327
Other receivables (note 16(f))	24,653	6,608		4,822	34,301
Amounts due from related parties
(note 29(b))	159,130	121,222		47,519	12,285
Loans and receivables	274,452	256,629	161,307		151,913
Derivative financial instruments (note 25)	312	—		3,068	1,166
Prepayments	3,504	8,852		13,968	17,103
Other deposits	118	265		170	240
Trade deposits	18	—		—	—
	278,404	265,746	178,513		170,422

a) All of the trade and other receivables, including amounts due from related parties, are expected to be recovered or recognised as expense within one year.

b) Ageing analysis

Included in trade and other receivables are trade debtors and bills receivable (net of allowance for doubtful debts) with the following ageing analysis as of each balance sheet date:

					As at
	As	at 31 December			30 June
	2007	2008		2009	2010
	RMB’000	RMB’000	RMB’000		RMB’000
0-90 days	60,146	101,121		72,732	78,330
91-180 days	5,765	22,046		19,092	17,682
181-365 days	2,973	3,734		16,047	9,033
More than 1 year but less than
2 years	792	66		1,068	282
Over 2 years	20,993	1,832		27	—
	90,669	128,799	108,966		105,327

— I-43 —

APPENDIX I

ACCOUNTANTS’ REPORT

The Group generally granted credit terms ranging from 30 days to 90 days to its customers during the Relevant Periods, except for the customers for purchase of the Group’s product, Flying Eagle Wood Lok Medicated Oil (飛鷹活絡油), to which credit terms within 90 days, 90 days, 12 months and 12 months were granted for the years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010 respectively. As at 31 December 2007, 2008, 2009 and 30 June 2010, the Group had trade debtors of this product of RMB372,000, RMB1,341,000, RMB14,540,000 and RMB14,158,000 respectively and bills receivables of this product of RMB117,000, RMB752,000, RMB1,940,000 and RMB2,409,000 respectively. Further details on the Group’s credit policy are set out in note 26(a).

c) Impairment of trade and bills receivables

Impairment losses in respect of trade and bills receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivable directly.

Movements in the allowance for doubtful debts:

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
At beginning of the year	2,524	2,633	2,784	2,779
Impairment losses recognised	223	187	50	222
Uncollectible amounts written off	(114)	(36)	(41)	(207)
Impairment losses reversed	—	—	(14)	—
At end of the year	2,633	2,784	2,779	2,794

Note: At 31 December 2007, 2008 and 2009 and 30 June 2010, the Group’s trade and bills receivables of RMB2,633,000, RMB2,784,000, RMB2,779,000 and RMB2,794,000 respectively were individually determined to be impaired and full provision had been made. These individually impaired receivables were outstanding over a long period and management assessed that receivables are expected to be irrecoverable. Accordingly, specific allowances for doubtful debts were recognised as 31 December 2007, 2008 and 2009 and 30 June 2010. The Group does not hold any collateral over these balances.

— I-44 —

APPENDIX I ACCOUNTANTS’ REPORT

d) Trade and bills receivables that are not impaired

The ageing analysis of trade and bills receivables (net of allowance for doubtful debts) that are neither individually nor collectively considered to be impaired are as follows:

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Neither past due nor impaired	60,146	101,121	79,219	82,686
Past due but not impaired
- 91 -180 days	5,765	22,046	16,974	14,925
- 181 - 365 days	2,973	3,734	11,678	7,434
- More than 1 year but less
than 2 years	792	66	1,068	282
- Over 2 years	20,993	1,832	27	—
	30,523	27,678	29,747	22,641

At 31 December 2007, 2008 and 2009 and 30 June 2010, trade and bills receivables that were past due but not impaired relate to a number of individual customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.

e) Bills receivables of RMB28,733,000, RMB55,835,000, RMB1,139,000 and RMBnil as at 31 December 2007, 2008 and 2009 and 30 June 2010 were pledged to banks for bank loans and banking facilities granted to the Group (note 20(c)).
f) At 30 June 2010, the other receivables included an amount of RMB31,179,000 which was reclassified from amount due from a related party (note 29(b)(vi)). In the opinion of the Company’s directors, the amount is expected to be settled on or before the successful listing of the Company’s shares on the [●].

17. PLEDGED BANK DEPOSITS

All bank deposits are pledged to banks as security for banking facilities granted to the Group (see note 20(c)).

— I-45 —

APPENDIX I ACCOUNTANTS’ REPORT

18. CASH AND CASH EQUIVALENTS

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB,000	RMB’000	RMB’000
Bank balances	48,316	30,820	83,508	49,273
Cash on hand	128	420	54	160
Cash and cash equivalents in the
combined balance sheet and the
combined cash flow statement	48,444	31,240	83,562	49,433

Deposits with banks carry interest at market rates which range from 0.7% to 1%, 0.1% to 1%, 0.1% to 1% and 0.1% to 2% per annum for the years ended 31 December 2007, 2008, 2009 and the six months ended 30 June 2010 respectively.

19. TRADE AND OTHER PAYABLES

					As at
	As	at 31 December			30 June
	2007	2008		2009	2010
	RMB’000	RMB,000	RMB’000		RMB’000
Trade payables	114,691	89,434	115,972		91,715
Accruals	1,744	1,930		1,735	1,514
Other payables	10,428	9,707		4,364	9,781
Amounts due to related parties
(note 29(b))	14,310	21,969		1,393	879
Financial liabilities measured at
amortised cost	141,173	123,040	123,464		103,889
Trade deposits received	33,192	37,236		46,748	7,477
Receipt in advance	3,565	4,368		2,670	2,486
Derivative financial instruments
(note 25)	—	85		—	—
	177,930	164,729	172,882		113,852

a) All of the trade and other payables, including amounts due to related parties, are expected to be settled or recognised as income within one year or are repayable on demand.

— I-46 —

APPENDIX I ACCOUNTANTS’ REPORT

b) Ageing analysis

Included in trade and other payables are trade creditors with the following ageing analysis as of each balance sheet date. The credit terms granted by the suppliers were generally ranging from 45 days to 90 days during the Relevant Periods.

					As at
	As	at 31 December			30 June
	2007	2008		2009	2010
	RMB’000	RMB’000	RMB’000		RMB’000
0-90 days	103,352	86,626	108,741		72,818
91-180 days	6,134	2,542		7,231	18,897
181-365 days	4,678	—		—	—
Over 1 year	527	266		—	—
	114,691	89,434	115,972		91,715

20. BANK LOANS

The bank loans were secured and repayable as follows:

					As at
	As	at 31 December			30 June
	2007	2008		2009	2010
	RMB’000	RMB’000	RMB’000		RMB’000
Within 1 year or on demand	187,333	159,595	246,606		195,766
After 1 year but within 2 years	—	—		60,000	60,000
After 2 years but within 5 years	—	100,000		—	—
	187,333	259,595	306,606		255,766
Representing:
Current portion	187,333	159,595	246,606		195,766
Non-current portion	—	100,000		60,000	60,000

a) All of the non-current interest bearing loans are carried at amortised cost. None of the non-current interest-bearing loans are expected to be settled within one year.

— I-47 —

APPENDIX I

ACCOUNTANTS’ REPORT

b) The range of effective interest rates on the Group’s bank loans are as follows:

					As at
		As at 31 December			30 June
	2007	2008		2009	2010
Effective interest rates:
Fixed rate loans	4.9% -10.5%	2.1% - 7.6%	0.2%	-2.6%	0.4%-2.5%
Variable rate loans	—	2.8% - 6.8%	0.1% - 5.4%		0.1%-5.4%

c) The Group’s bank loans were secured by certain assets of the Group, the properties of a related party and the guarantees given by the Company’s directors and certain related parties (note 29(c)). An analysis of the carrying amounts of the Group’s secured assets is as follows:

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Investment property (note 12)	—	45,400	46,000	46,000
Bills receivables (note 16(e))	28,733	55,835	1,139	—
Pledged bank deposits (note 17)	69,049	103,396	246,619	197,537
	97,782	204,631	293,758	243,537

21. INCOME TAX IN THE BALANCE SHEET

a) Current taxation in the combined balance sheet represents:

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Provision for PRC income tax	6,335	9,864	7,668	3,368
Tax paid	(5,611)	(8,466)	(6,445)	(5,109)
	724	1,398	1,223	(1,741)
Balance of PRC income tax related to
prior years	1,292	2,016	3,414	4,637
	2,016	3,414	4,637	2,896

— I-48 —

APPENDIX I ACCOUNTANTS’ REPORT

b) Deferred tax assets and liabilities recognised:

The components of deferred tax (assets)/liabilities recognised in the combined balance sheet and the movements during the Relevant Periods are as follows:

		Withholding
		tax on
		undistributed
	Revaluation of	profits of
	investment	PRC
	property	subsidiaries	Total
	RMB’000	RMB’000	RMB’000
At 1 January 2007, 31 December 2007 and
1 January 2008	—	—	—
Charged/(credited) to combined income
statement	(340)	1,520	1,180
At 31 December 2008	(340)	1,520	1,180
At 1 January 2009	(340)	1,520	1,180
Charged to combined income statement	120	1,759	1,879
Tax paid	—	(1,483)	(1,483)
Effect of change in tax rate	(38)	—	(38)
At 31 December 2009	(258)	1,796	1,538
At 1 January 2010	(258)	1,796	1,538
Charged to combined income statement	—	486	486
At 30 June 2010	(258)	2,282	2,024

c) Deferred tax assets and liabilities not recognsied

There were no significant unrecognsied deferred tax assets and liabilities during the Relevant Periods and as at 31 December 2007, 2008 and 2009 and 30 June 2010.

22. SHARE CAPITAL

Share capital in the combined balance sheet as at 31 December 2007 represents the issued share capital of BVI Kingworld of RMB82 respectively. Share capital in the combined balance sheet as at 31 December 2008 and 2009 and 30 June 2010 represents the aggregate amount of issued share capital of the Company and BVI Kingworld of RMB91, RMB778 and RMB778 respectively.

— I-49 —

APPENDIX I ACCOUNTANTS’ REPORT

The Company was incorporated on 10 July 2008 with an authorised share capital of HK$380,000 comprising 3,800,000 ordinary shares of HK$0.1 each. On the date of incorporation and 25 September 2008, one and 98 ordinary shares, respectively, of HK$0.1 each were alloted and issued at par.

23. RESERVES

At 1 January 2007 Changes in equity: Transfer Total comprehensive income for the year At 31 December 2007 At 1 January 2008 Changes in equity: Transfer Dividend Total comprehensive income for the year At 31 December 2008 At 1 January 2009 Changes in equity: Capitalisation issue Transfer Total comprehensive income for the year At 31 December 2009 At 1 January 2010 Change in equity: Tranfer Dividend Total comprehensive income for the period At 30 June 2010	Share premium RMB’000 (note a) — — — — — — — — — — 89,000 — — 89,000 89,000 — — — 89,000	Capital reserve Statutory and discretionary reserves RMB’000 RMB’000 (note b) (note c) 68 5,861 — 3,752 — — 68 9,613 68 9,613 — 5,948 — — — — 68 15,561 68 15,561 — — — 4,305 — — 68 19,866 68 19,866 — 1,973 — — — — 68 21,839	Exchange reserve RMB’000 (note d) — — 8 8 8 — — 78 86 86 — — (152) (66) (66) — — 106 40	Retained profits RMB’000 7,988 (3,752) 29,235 33,471 33,471 (5,948) (47,700) 34,397 14,220 14,220 — (4,305) 37,244 47,159 47,159 (1,973) (32,037) 10,612 23,761	Total RMB’000 13,917 — 29,243
					43,160
					43,160 — (47,700) 34,475
					29,935
					29,935 89,000 — 37,092
					156,027
					156,027 — (32,037) 10,718
					134,708

Notes:

a) On 23 September 2009, the shareholders’ equity loans of RMB89,000,000 (note 24) were capitalised into 100 ordinary shares of US$1 each at par of BVI Kingworld and a share premium of RMB88,999,000 was recognised.
b) Capital reserve

Capital reserve represents the excess of paid-up capital over the registered capital of the companies comprising the Group during the Relevant Periods.

— I-50 —

APPENDIX I ACCOUNTANTS’ REPORT

c) Statutory and discretionary reserves

The Group’s PRC subsidiaries are required to transfer 10% of their net profits as determined in accordance with the PRC regulations to the statutory reserve until the reserve balance reaches 50% of their registered capitals. The transfer to this reserve must be made before the distribution of a dividend to shareholders.

The transfer of net profits to the discretionary reserve of the Group’s PRC subsidiaries is determined by the shareholders in general meetings in accordance with the article of association and the PRC regulations. The transfer to this reserve must be made before the distribution of a dividend to shareholders.

The statutory and discretionary reserves are non-distributable. They can be used to reduce previous years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

d) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in note 2(r).

e) Distributable reserves

The Company was incorporated on 10 July 2008 and has not carried on any business since its date of incorporation save for the [●]. Accordingly, there was no reserve available for distribution to equity holders of the Company as at 31 December 2008 and 2009 and 30 June 2010.

24. SHAREHOLDERS’ EQUITY LOANS

					As at
		As	at 31 December		30 June
		2007	2008	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000
Mr.	Zhao	71,200	71,200	—	—
Ms.	Chan	17,800	17,800	—	—
		89,000	89,000	—	—

Mr. Zhao and Ms. Chan were the ultimate controlling parties of the Company during the Relevant Periods, as further detailed in note 1. The loans as at 31 December 2007 and 2008 were equity contribution in nature to provide capital to the Group and were unsecured and interest-free. The loans were capitalised into share capital of BVI Kingworld during the year ended 31 December 2009 (note 23(a)).

— I-51 —

APPENDIX I

ACCOUNTANTS’ REPORT

25. DERIVATIVE FINANCIAL INSTRUMENTS

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Forward foreign exchange contracts,
representing:
- current assets (note 16)	312	—	3,068	1,166
- current liabilities (note 19)	—	(85)	—	—
Notional principal amounts of forward
foreign exchange contracts outstanding
at balance sheet date	67,388	103,760	245,466	195,766

a) All forward foreign exchange contracts have the maturity period within or on one year.
b) Derivative financial assets represented the amounts the Group would receive whilst derivative financial liabilities represented the amounts the Group would pay if the position were closed at the balance sheet date.

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include cash and bank deposits, trade and other receivables and payables, bank loans, derivative financial instruments of forward foreign exchange contracts, amounts due from and to related parties. Details of the financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include credit risk, liquidity risk, interest rate risk, currency risk and business risk. The policies on how to mitigate these risks are set out as below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

a) Credit risk
(i) As at 31 December 2007, 2008 and 2009 and 30 June 2010, the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the combined balance sheet after deducting any impairment allowance.
(ii) In respect of trade receivables, in order to minimize risk, the management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. Credit evaluations of its customers’ financial position and condition is performed on each

— I-52 —

APPENDIX I

ACCOUNTANTS’ REPORT

and every major customer periodically. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. The Group does not require collateral in respect of its financial assets. Trade receivables are usually due within 30 days to 90 days from the date of billing, except for the receivables in relation to the Group’s product, Flying Eagle Wood Lok Medicated Oil, which are due within 90 days, 90 days, 12 months and 12 months from the date of billing for the years ended 31 December 2007, 2008 and 2009 and 30 June 2010 respectively.

(iii) In respect of trade receivables, the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of the industry and country in which customers operate also has an influence on credit risk. At the balance sheet date, the Group had a certain concentration of credit risk as 30%, 7%, 7% and 12% of the total trade receivables were due from the Group’s largest customer, and 56%, 25%, 28% and 33% of the total trade receivables were due from the Group’s five largest customers as at 31 December 2007, 2008 and 2009 and 30 June 2010 respectively.

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 16.

(iv) In respect of other receivables (including amounts due from related parties), the credit quality of the debtors is assessed by taking into account of their financial position, relationship with the Group, credit history and other factors. Management regularly reviews the recoverability about these other receivables and follow up the amounts overdue, if any. The directors are of the opinion that the default by counterparties is low.
(v) The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings given by international credit-rating agencies.

b) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to board approval. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants to ensure that it maintains sufficient amount of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. The Group relies on bank borrowings as a significant source of liquidity.

— I-53 —

APPENDIX I ACCOUNTANTS’ REPORT

The following liquidity risk tables set out the remaining contractual maturities at 31 December 2007, 2008 and 2009 and 30 June 2010 of the Group’s non-derivative financial liabilities and derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on current rates at 31 December 2007, 2008 and 2009 and 30 June 2010) and the earliest date the Group is required to pay:

		More than	Total
	Within	2 years but	contractual
	1 year or	less than	undiscounted	Carrying
	on demand	5 years	cash flow	amount
	RMB’000	RMB’000	RMB’000	RMB’000
At 31 December 2007
Non-derivative financial liabilities
Trade and bill payables	114,691	—	114,691	114,691
Accruals	1,744	—	1,744	1,744
Other payables	10,428	—	10,428	10,428
Amounts due to related parties	14,310	—	14,310	14,310
Bank loans	187,333	—	187,333	187,333
	328,506	—	328,506	328,506
Derivative financial liabilities	—	—	—	—
At 31 December 2008
Non-derivative financial liabilities
Trade and bill payables	89,434	—	89,434	89,434
Accruals	1,930	—	1,930	1,930
Other payables	9,707	—	9,707	9,707
Amounts due to related parties	21,969	—	21,969	21,969
Bank loans	159,595	114,117	273,712	259,595
	282,635	114,117	396,752	382,635
Derivative financial liabilities
Forward foreign exchange contracts	85	—	85	85

— I-54 —

APPENDIX I		ACCOUNTANTS’	ACCOUNTANTS’	REPORT
		More than	Total
	Within	2 years but	contractual
	1 year or	less than	undiscounted	Carrying
	on demand	5 years	cash flow	amount
	RMB’000	RMB’000	RMB’000	RMB’000
At 31 December 2009
Non-derivative financial liabilities
Trade and bill payables	115,972	—	115,972	115,972
Accruals	1,735	—	1,735	1,735
Other payables	4,364	—	4,364	4,364
Amounts due to related parties	1,393	—	1,393	1,393
Bank loans	246,606	65,521	312,127	306,606
	370,070	65,521	435,591	430,070
Derivative financial liabilities	—	—	—	—
At 30 June 2010
Non-derivative financial liabilities
Trade and bill payables	91,715	—	91,715	91,715
Accruals	1,514	—	1,514	1,514
Other payables	9,781	—	9,781	9,781
Amounts due to related parties	879	—	879	879
Bank loans	195,766	64,095	259,861	255,766
	299,655	64,095	363,750	359,655
Derivative financial liabilities	—	—	—	—

c) Interest rate risk

The Group is exposed to cash flow interest rate risk in relation to variable-rate bank borrowings (note 20) and bank balances and deposits (notes 17 and 18) and fair value interest rate risk in relation to fixed-rate bank borrowings (note 20).

— I-55 —

APPENDIX I ACCOUNTANTS’ REPORT

i) Interest rate profile

The following table details the interest rate profile of the Group’s bank loans at each of balance sheet date:

			As at 31 December	As at 31 December			As at 30	June
	2007		2008		2009		2010
	Effective		Effective		Effective		Effective
	interest		interest		interest		interest
	rates		rates		rates		rates
	%	RMB’000	%	RMB’000	%	RMB’000	%	RMB’000
Fixed rate borrowing:
Bank loans	4.9-10.5	187,333	2.1-7.6	112,494	0.2-2.6	151,458	0.4-2.5	125,560
Variable rate
borrowings:
Bank loans	—	—	2.8-6.8	147,101	0.1-5.4	155,148	0.1-5.4	130,206
Total borrowings		187,333		259,595		306,606		255,766
Net fixed rate
borrowing as a
percentage of total
net borrowings		100%		43%		49%		49%
Variable rate bank
balances and
deposits	0.7-1.0	48,316	0.1-0.7	30,820	0.1-0.4	83,508	0.1-0.4	49,273

ii) Sensitivity analysis

All of the bank loans of the Group which are fixed rate instruments are insensitive to any change in interest rates. A change in interest rates at the balance sheet date would not affect profit or loss.

— I-56 —

APPENDIX I

ACCOUNTANTS’ REPORT

At 31 December 2007, 2008 and 2009 and 30 June 2010, it is estimated that a general increase/decrease of 100 basis points in interest rates for variable rate bank loans, bank balances and deposits, with all other variables held constant, would decrease/increase the Group’s profit after tax and retained profits by approximately RMB483,000, RMB1,163,000, RMB716,000 and RMB809,000 respectively. Other components of combined equity would not change in response to the general increase/decrease in interest rates.

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for non-derivative financial instruments in existence at that date. The 100 basis points increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date. The analysis is performed on the same basis for the track period.

d) Currency risk

The Group is exposed to currency risk primarily through purchases which give rise to trade payables, bank balances and bank loans that are denominated in foreign currencies other than the functional currency of the operations to which the transactions relate. The currencies giving rise to this risk are primarily United States dollars (“US$”), Hong Kong dollars (“HK$”) and Euro dollars (“Euro”). The Group enters into forward foreign exchange contracts to manage its foreign currency risk arising from above anticipated transactions denominated in foreign currencies.

— I-57 —

APPENDIX I

ACCOUNTANTS’ REPORT

i) Exposure to currency risk

The Group

		The	Group
				As at
		As at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Assets
Cash and cash equivalents
US$	1	1	1	1
HK$	2,816	1,147	2,322	2,628
Trade and other receivables
HK$	22,708	3,879	2,346	743
Liabilities
Trade payables
HK$	88,517	89,168	115,925	82,815
Bank loans
US$	—	41,586	36,362	125,560
HK$	67,388	51,663	209,104	70,206
EURO	—	10,511	—	—
—
Derivative financial
assets/(liabilities)
US$	—	(919)	(214)	(535)
HK$	312	170	3,282	1,701
EURO	—	664	—	—
	312	(85)	3,068	1,166
Total assets
US$	1	1	1	1
HK$	25,836	5,196	7,950	5,072
EURO	—	664	—	—
Total liabilities
US$	—	42,505	36,576	126,095
HK$	155,905	140,831	325,029	153,021
EURO	—	10,511	—	—

— I-58 —

APPENDIX I ACCOUNTANTS’ REPORT

ii) Sensitivity analysis

The following table indicates the approximate change in the Group’s profit after tax (and retained profits) and other components of combined equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date.

The Group

	Increase/(decrease)	Effect on profit	Effect on profit	Effect on profit	Effect on other
	in foreign	after	tax and		components
	exchange rates	retained		profits	of equity
		RMB’000			RMB’000
At 31 December 2007
HK$	5%			(6,503)	—
	(5)%			6,503	—
At 31 December 2008
US$	5%			(2,125)	—
	(5)%			2,125	—
HK$	5%			(6,782)	—
	(5)%			6,782	—
EURO	5%			(492)
	(5%)			492
At 31 December 2009
US$	5%			(1,829)	—
	(5)%			1,829	—
HK$	5%		(15,854)		—
	(5)%			15,854	—
At 30 June 2010
US$	5%			(6,305)	—
	(5)%			6,305	—
HK$	5%			(7,397)	—
	(5)%			7,397	—

The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to each of the Group entities’ exposure to currency risk for both derivative and non-derivative financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant.

The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. Results of the analysis as presented in the above table represent an aggregation of the effects on each of the Group entities profit after tax and equity measured in the respective functional currencies, translated into RMB at the exchange rate ruling at the balance sheet date for presentation purposes. The analysis is performed on the same basis for the Relevant Periods.

— I-59 —

APPENDIX I

ACCOUNTANTS’ REPORT

e) Business risk

The Group has a certain concentration of business risk as 67%, 67%, 67% and 73% of its total turnover during the years ended 31 December 2007, 2008 and 2009 and 30 June 2010 respectively from a principal product, [●] Pei Pa Koa ([●]枇杷膏), which was purchased from a sole supplier that is the designated distributor of the manufacturer of [●] Pei Pa Koa. On 22 April 2010, the Group entered into a three-year period distribution agreement with the manufacturer and the supplier of [●] Pei Pa Koa, pursuant to which the Group is entitled the non-exclusive distribution right to sell [●] Pei Pa Koa in certain provinces in the PRC and is granted the credit terms of 60 days. If there is any change in consumer taste and demand of the product, or the supplier does not renew the purchase agreement, the Group’s turnover and profitability will be adversely affected.

f) Fair values

The following table provides an analysis of financial instruments that are measured at fair value at 31 December 2007, 2008 and 2009 and 30 June 2010 respectively, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair value measurements are those derived from using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	Level 2	Level 2	Level 2	Level 2
	RMB’000	RMB’000	RMB’000	RMB’000
Financial assets at fair value through
profit or loss
Derivative financial assets	312	—	3,068	1,166
Financial liabilities at fair value
through profit or loss
Derivative financial liabilities	—	(85)	—	—

— I-60 —

APPENDIX I

ACCOUNTANTS’ REPORT

Save as disclosed above, the fair values of cash and bank deposits, trade and other receivables and payables, amounts due from and to related parties are not materially different from their carrying amounts because of the immediate or short-term maturity of these financial instruments. The fair value of financial assets traded on active liquid markets are determined with reference to listed market prices. The carrying amounts of bank loans approximate their fair values.

g) Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of the following financial instruments.

i) Securities

Fair value is based on listed market price at the balance sheet date without any deduction for transaction costs.

ii) Interest-bearing bank loans

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

iii) Forward foreign exchange contracts

The fair value of forward foreign exchange contracts is determined by using the forward exchange rates at the balance sheet date and comparing to the contractual rates.

h) Capital management

The Group’s objectives when managing capital are to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The management reviews the capital structure by considering the cost of capital and the risks associated with each class of capital. In view of this, the Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt.

The Group monitors its capital structure on the basis of a debt-to-adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. The Group defines net debt as interest-bearing bank loans less pledged bank deposits and cash and cash equivalents. Adjusted capital comprises all components of equity.

— I-61 —

APPENDIX I

ACCOUNTANTS’ REPORT

The Group’s net debt-to-adjusted capital ratio at 31 December 2007, 2008 and 2009 and 30 June 2010 were as follows:

As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 Bank loans 187,833 259,595 306,606 Total debt 187,333 259,595 306,606 Less: Pledged bank deposits (69,049) (103,396) (246,619) Cash and cash equivalents (48,444) (31,240) (83,562) Net debt 69,840 124,959 — Total equity 132,160 118,935 156,028 Net debt-to-adjusted capital ratio 53% 105% 0%	As at 30 June 2010 RMB’000 255,766 255,766 (197,537) (49,433) 8,796 134,709 7%

27. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

a) Depreciation

— I-62 —

APPENDIX I

ACCOUNTANTS’ REPORT

b) Impairment

If circumstances indicate that carrying value of the Group’s property, plant and equipment and prepaid lease payments may not be recoverable, the assets may be considered impaired, and an impairment loss may be recognised in profit or loss. The carrying amounts of assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount.

The recoverable amount is the greater of the fair value less costs to sell and the value in use. In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to level of sales volume, sales revenue and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sales volumes, sales revenue and amount of operating costs.

c) Valuation of investment property

Investment property is included in the balance sheet at its open market value, which is assessed annually by independent qualified valuers, after taking into consideration on an open market value basis calculated by reference to recent market transactions in comparable properties and the net income allowing for reversionary potential.

The assumptions adopted in the property valuation is based on the market conditions existing at the balance sheet date, with reference to current market sales prices and the appropriate capitalisation rate.

d) Impairment for bad and doubtful debts

e) Net realisable value of inventories

— I-63 —

APPENDIX I

ACCOUNTANTS’ REPORT

f) Income tax

28. COMMITMENTS

(a) Commitments under operating lease

The Group leases certain premises for use as its office and warehouse under operating leases arrangements. Leases for properties are negotiated for terms ranging from one to five years.

During the Relevant Periods, the Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due as follows:

				As at
	As	at 31 December		30 June
	2007	2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000
Within one year	982	960	1,393	1,449
In the second to fifth year inclusive	1,383	701	1,956	1,366
	2,365	1,661	3,349	2,815

— I-64 —

APPENDIX I ACCOUNTANTS’ REPORT

29. RELATED PARTY TRANSACTIONS

a) During the Relevant Periods, the directors are of the opinion that the following companies are related parties of the Group:

Name of related parties Relationship

Mr. Zhao The Company’s director and the sole shareholder of the ultimate holding company of the Company Ms. Chan The Company’s director and the wife of Mr. Zhao Huang Lanjiao (“Ms. Huang”) Mother of Mr. Zhao Morning Gold Medicine Company Wholly owned by both Mr. Zhao and Ms. Chan Limited (“Morning Gold”)

Pearl Shining Company Note (i) (“Pearl Shining”) Yuen Tai Pharmaceuticals Limited Subsidiary of Morning Gold (“Yuen Tai”)

深圳市金活利生藥業有限公司 Subsidiary of Morning Gold Shenzhen Kingworld Lifeshine Pharmaceutical Company Limited (“SZ Kingworld Lifeshine”) 深圳市金活實業有限公司 Directly wholly owned by Mr. Zhao prior to 9 September Shenzhen Kingworld Industry 2009 and indirectly wholly owned by both Mr. Zhao and Company Limited Ms Chan since the above date (“SZ Industry”) 上海金活實業有限公司 Subsidiary of SZ Industry Shanghai Kingworld Industry Company Limited (“SH Industry”) 深圳市新華鵬消毒劑有限公司 Subsidiary of SZ Industry

深圳市新華鵬消毒劑有限公司 Shenzhen Xin Hua Ping Sterilization Company Limited (“Xin Hua Peng”) 廣東金保利醫藥有限公司 Guangdong Jinbaoli Medicine Company Limited (“Jinbaoli”)

Note (ii)

— I-65 —

APPENDIX I ACCOUNTANTS’ REPORT

Name of related parties Relationship 廣東金保寧醫藥有限公司 Notes (i) and (v) Guangdong Jinbaoning Medicine Company Limited (“Jinbaoning”) 深圳市金世界百貨物業管理有限 Note (iii) 公司 Shenzhen Kingworld Department Store Property Management Company Limited (“Kingworld Department Store Property Management”) 深圳市金活吉遜高爾夫用品有限 Note (iv) 公司 Shenzhen King Gibson Golf Company Limited (“King Gibson PRC”) Zhuhai Jinming Jointly controlled entity of the Group

Notes:

i) These related parties are owned and controlled by a close family member of Ms. Chan.

ii) The related party was owned and controlled by Mr. Huang Ruozhong (“Mr. Huang”), the legal representative and director of certain PRC subsidiaries of the Group, and a close family member of Ms. Chan during the years ended 31 December 2007, 2008 and 2009. During the six months ended 30 June 2010, the related party ceased to be owned and controlled by Mr. Huang and the close family member of Ms. Chan.

iii) The related party is owned and controlled by Ms. Huang, Ms. Chan and a close family member of Ms. Chan.

iv) The related party is owned and controlled by Ms. Chan and her close family members.

v) This related party was deregistered in November 2007.
vi) The English names of the above PRC incorporated entities are for identification purpose only.

— I-66 —

APPENDIX I ACCOUNTANTS’ REPORT

b) Related party transactions and balances

Recurring transactions

In the opinion of the Company’s directors, the following related party transactions are expected to continue after the successful listing of the Company’s shares in the [●]:

					Six months	Six months
		Year	ended 31 December		ended 30 June
	Notes	2007	2008	2009	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Purchases of goods
SZ Kingworld
Lifeshine	(ii)	3,967	—	3,842	1,528	2,333
Pearl Shining	(ii)	367	340	1,443	—	—
		4,334	340	5,285	1,528	2,333
Rental expenses
SZ Industry	(ii)	499	564	549	275	275
Packing service fee
SZ Kingworld
Lifeshine	(ii)	477	447	135	—	—

Save as disclosed above, the Group had the following related party transactions during the Relevant Periods:

SZ Industry granted certain rights to the Group to use its trademarks and distribution right for sale of goods in the PRC and its domain names “Kingworld.cn” and “Kingworld.com.cn” with a nil consideration during the Relevant Periods.
The Group acquired an investment property from SZ Industry, as further detailed in the following non-recurring transaction and note (iv), during the year ended 31 December 2008 and leased out the properties to two independent tenants under two lease agreements, pursuant to which the management service fee is borne by the tenants. SZ Industry and Kingworld Department Store Property Management entered into a property management contract on 1 January 2008, pursuant to which Kingworld Department Store Property Management was appointed to provide management service to SZ Industry’s property, which was subsequently sold to the Group, for a period from 1 January 2008 to 31 December 2011 at a management service fee of RMB401,000 per year. The Group in the capacity of the owner of the property is jointly liable with SZ Industry for the management service fee if the tenant of the Group fail to pay the management service fee.

— I-67 —

APPENDIX I ACCOUNTANTS’ REPORT

Non-recurring transactions

In the opinion of the Company’s directors, the following related party transactions are expected to discontinue after the listing of the Company’s shares on the [●]:

					Six months	Six months
		Year	ended 31 December		ended 30 June
	Note	2007	2008	2009	2009	2010
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Sales of goods
SH Industry	(i)	9,798	4,074	—	—	—
Jinbaoning	(i)	15,121	—	—	—	—
Jinbaoli	(i)	3,995	4,553	—	—	—
		28,914	8,627	—	—	—
Purchases of goods
Morning Gold	(ii)	—	654	—	—	—
Jinbaoli	(ii)	16,793	29,975	16,033	11,441	—
Jinbaoning	(ii)	4,267	—	—	—	—
		21,060	30,629	16,033	11,441	—
Sales of trademark
SZ Kingworld
Lifeshine	(ii)	—	6	—	—	—
SZ Industry	(ii)	—	66	—	—	—
		—	72	—	—	—
Staff costs
SH Industry	(iii)	707	796	352	230	117
Acquisition of an
investment property	(iv)
SZ Industry		—	45,888	—	—	—
Acquisition of a property
SH Industry	(v)	—	—	3,820	—	—

— I-68 —

APPENDIX I					ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT
*Amounts due*	*from/(to)*	*related parties*
		Outstanding balance				Maximum outstanding balance
									Six	months
					As at					ended
		As	at 31 December		30 June	Year	ended 31	December		30 June
		2007	2008	2009	2010	2007	2008	2009		2010
	Note	_RMB’000 _	_RMB’000 _	RMB’000	_RMB’000 _	_RMB’000 _	_RMB’000 _	RMB’000	RMB’000
Mr. Zhao
Other payable		(2,433)	(17,575)	(15)	(210)
Net payable		(2,433)	(17,575)	(15)	(210)
Ms. Chan
Other payable		(608)	(4,394)	(4)	(53)
Net payable		(608)	(4,394)	(4)	(53)
Morning Gold
Other receivable		1,344	1,344	—	—	1,344	1,344	1,344		—
Trade payable		—	(578)	(578)	(572)
Other payable		—	—	(44)	(44)
Net (payable)/receivable		1,344	766	(622)	(616)
Pearl Shining
Trade payable		—	—	(722)	—
Net payable		—	—	(722)	—
Yuen Tai
Other receivable		9,435	9,456	9,418	9,418	9,435	9,456	9,456		9,418
Net receivable		9,435	9,456	9,418	9,418

— I-69 —

APPENDIX I					ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT
		Outstanding balance				Maximum outstanding balance
									Six	months
					As at					ended
		As	at 31 December		30 June	Year	ended 31	December		30 June
		2007	2008	2009	2010	2007	2008	2009		2010
	Note	_RMB’000 _	_RMB’000 _	RMB’000	_RMB’000 _	_RMB’000 _	_RMB’000 _	RMB’000	RMB’000
SZ Kingworld Lifeshine
Other receivable		33,214	27,916	4,218	4,218	33,553	33,291	27,982		4,218
Trade payable		(4,787)	(3,547)	(3,611)	(3,611)
Net receivable		28,427	24,369	607	607
SZ Industry
Other receivable		101,198	35,056	—	—	106,286	129,119	41,358		—
Other payable		—	—	(30)	—
Net (payable)/receivable		101,198	35,056	(30)	—
SH Industry
Trade receivable		12,527	6,653	2,260	2,260
Net receivable		12,527	6,653	2,260	2,260
Jinbaoli
Other receivable	(vi)	—	42,530	35,234	—	—	42,530	50,093		35,234
Trade payable		(9,006)	—	—	—
Net (payable)/receivable		(9,006)	42,530	35,234	—
Kingworld Department Store
Property Management
Other receivable		3,807	—	—	—	9,580	3,807	—		—
Net receivable		3,807	—	—	—

— I-70 —

APPENDIX I					ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT	ACCOUNTANTS’ REPORT
		Outstanding balance				Maximum outstanding balance
									Six	months
					As at					ended
		As	at 31 December		30 June	Year	ended 31	December		30 June
		2007	2008	2009	2010	2007	2008	2009		2010
	Note	_RMB’000 _	_RMB’000 _	RMB’000	_RMB’000 _	_RMB’000 _	_RMB’000 _	RMB’000	RMB’000
King Gibson PRC
Other receivable		1,871	1,871	—	—	1,871	1,871	1,871		—
Net receivable		1,871	1,871	—	—
Zhuhai Jinming
Other payable		(2,263)	—	—	—
Net payable		(2,263)	—	—	—
Xin Hua Peng
Other receivable		521	521	—	—	521	521	521		—
Net receivable		521	521	—	—
Total net receivables included
in amounts due from related
parties (note 16)	(vii)	159,130	121,222	47,519	12,285
Total net payables included in
amounts due to related
parties (note 19)	(vii)	(14,310)	(21,969)	(1,393)	(879)

Notes:

i) The price of sales to these related parties was lower than the price charged to independent third party customers. In the opinion of the Company’s directors, these related parties’ transactions were conducted in the ordinary course of business.
ii) The transactions were based on the terms mutually agreed between the Group and the respective related parties. In the opinion of the Company’s directors, these related parties’ transactions were conducted in the ordinary course of business.

iii) The transactions were based on the terms mutually agreed between the Group and the related party.

— I-71 —

APPENDIX I

ACCOUNTANTS’ REPORT

iv) On 11 August 2008, the Group and SZ Industry entered into a sale and purchase agreement, pursuant to which the Group agreed to purchase and SZ Industry agreed to sell an investment property located in Shenzhen, the PRC for a consideration of RMB45,888,000. The consideration was based on recent market transactions in comparable properties. The property was valuated of RMB45,900,000 as at 14 August 2008, date of completion of the sale and purchase transaction, by an independent firm of valuers, DTZ Debenham Tie Leung Limited, who have among their staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the location and category of property being valued, on an open market value basis calculated by reference to recent market transactions in comparable properties and net rental income allowing for reversionary income potential. In the opinion of the Company’s directors, the related party transaction was conducted on normal commercial terms.
v) On 15 September 2009, the Group and SH Industry entered into a sale and purchase agreement, pursuant to which the Group agreed to purchase and SH Industry agreed to sell a property located in Shanghai, the PRC for a consideration of RMB3,820,000. The consideration was based on recent market transactions in comparable properties. The property was valued as at 15 July 2009, the date of the Group and SH Industry agreed the terms of the transaction, and 15 September 2009, the date of sale and purchase agreement duly signed and submitted to the PRC authority, of RMB3,820,000 and RMB4,300,000 respectively by an independent firm of valuers, DTZ Debenham Tie Leung Limited, who have among their staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the location and category of property being valued, on an open market value basis calculated by reference to recent market transactions in comparable properties and net rental income allowing for reversionary income potential. In the opinion of the Company’s directors, the related party transaction was conducted on normal commercial terms. The above property is held by the Group for own use and recognised in prepaid lease payments and building of the Group during the year ended 31 December 2009 and the six months ended 30 June 2010.
vi) Jinbaoli ceased to be a related party during the six months ended 30 June 2010 (details refer to note 29(a)(ii)). Accordingly, the amount due from Jinbaoli of RMB31,179,000 as at 30 June 2010 was reclassified as other receivable (note 16(f)).
vii) All of amounts due from/to related parties are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the Company’s directors, all amounts due from/to related parties as at 30 June 2010 are expected to be settled on or before the successful listing of the Company’s shares in the [●].
c) Save as disclosed above, the related parties provided the following guarantees and securities for banking facilities granted to the Group during the Relevant Periods:

Year ended 31 December 2007

(i) SZ Industry and Mr. Zhao made a joint guarantee of RMB55,710,000, it was released in April 2007.
(ii) SZ Industry made a guarantee of RMB5,000,000, it was released in December 2007.
(iii) SZ Industry, SZ Kingworld Lifeshine, Jinbaoning, Mr. Zhao and Ms. Chan made a joint guarantee of RMB32,000,000
(iv) SZ Industry and Mr. Zhao made a joint guarantee of RMB85,710,000.
(v) SZ Industry pledged its properties as securities.

— I-72 —

APPENDIX I

ACCOUNTANTS’ REPORT

Year ended 31 December 2008

(i) SZ Industry, SZ Kingworld Lifeshine, Jinbaoning, Mr. Zhao and Ms. Chan made a joint guarantee of RMB32,000,000, it was released in April 2008.
(ii) SZ Industry, Mr. Zhao and Ms. Chan made a joint guarantee of RMB32,000,000, it was released in December 2008.
(iii) SZ Industry and Mr. Zhao made a joint guarantee of RMB85,710,000.
(iv) Mr. Zhao made two personal guarantees of RMB100,000,000 and RMB5,000,000 respectively.
(v) SZ Industry pledged its properties as securities.

Year ended 31 December 2009

(i) SZ Industry and Mr. Zhao made a joint guarantee of RMB85,710,000, it was released in April 2009.
(ii) Mr. Zhao made two personal guarantees of RMB100,000,000 and RMB5,000,000 respectively. The guarantee of RMB5,000,000 was released in December 2009.
(iii) SZ Industry pledged its properties as securities. The securities were released in April 2009.

Year ended 30 June 2010

(i) Mr. Zhao made a personal guarantee of RMB100,000,000. The guarantee was conditional released subsequent to 30 June 2010, as further detailed in note 4 in section B in the Financial Information.
d) Key management remuneration:

	Year	ended 31 December	ended 31 December	As at	30 June
	2007	2008	2009	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Salaries, allowances and
other benefits	808	2,689	3,351	1,814	2,071
Bonus	227	714	695	370	369
Contributions to defined
contribution retirement plan	26	163	265	129	153
	1,061	3,566	4,311	2,313	2,593

— I-73 —

APPENDIX I ACCOUNTANTS’ REPORT

30. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATION ISSUED BUT NOT YET EFFECTIVE FOR THE RELEVANT PERIOD

Up to the date of issue of these financial statements, the HKICPA has issued the following amendments, new standards and interpretations which are not yet effective for the Relevant Periods and which have not been early adopted in these Financial Information.

HKAS 24 (Revised)	Related Party Disclosures2
HKAS 32 (Amendment)	Classification of Rights Issues1
HKFRS 1 (Amendment)	Limited Exemption from Comparative HKFRS 7 Disclosures
	for First-time Adopters3
HKFRS 9	Financial Instruments4
HK (IFRIC*) — INT 14
(Amendment)	Prepayments of a Minimum Funding Requirement2
HK (IFRIC) — INT 19	Extinguishing Financial Liabilities with Equity Instruments3
HKFRS (Amendments)	Improvements to HKFRSs 20105

IFRIC represents the International Financial Reporting Interpretations Committee.
1 Effective for annual periods beginning on or after 1 February 2010.
2 Effective for annual periods beginning on or after 1 January 2011.
3 Effective for annual periods beginning on or after 1 July 2010.
4 Effective for annual periods beginning on or after 1 January 2013.
5 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate.

The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group’s operations and financial position.

31. BALANCE SHEET OF THE COMPANY

The balance sheet of the Company is not presented as the Company was incorporated on 10 July 2008 and has not carried on any business since its incorporation, except for the [●]. The authorised and issue share capital of the Company is detailed in note 22.

32. IMMEDIATE AND ULTIMATE HOLDING COMPANY

The directors consider the immediate and ultimate holding company of the Company as at 30 June 2010 to be Golden Land International Limited, a company incorporated in the BVI.

— I-74 —

APPENDIX I

ACCOUNTANTS’ REPORT

B. SUBSEQUENT EVENTS

The following significant events took place subsequent to 30 June 2010:

The companies now comprising the Group underwent [●] to facilitate the Group’s structure in preparation for the [●]. Details of [●] are set out in the section headed the “[●]” in Appendix [V] to the Document. As a result of [●], the Company became the holding company of the Group on [date].
[●]
Amounts due from related parties

[On [●] November 2010, the Group formalized the existing loan arrangement by entering into the loan agreements with each of three related parties, Mr Zhao, Ms. Chan and SZ Industry, pursuant to which the Group made a loan to each of Mr Zhao and Ms. Chan of HK$16,800,000 (equivalent to RMB14,400,000) and HK$4,200,000 (equivalent to RMB3,600,000) respectively on 18 October 2010 and certain loans to SZ Industry in an aggregate amount of RMB18,800,000 in the period between September 2010 and October 2010. All of these loans are unsecured, interest-free and will be repayable by two installments of 50% each on or before 8 November 2010 and 21 November 2010 respectively.]

4. Related party’s guarantee

[On 1 September 2010, the personal guarantee of Mr Zhao of RMB100,000,000, which was provided to a bank for the banking facilities granted to the Group (note 29(c) in section A in the Financial Information), was released subject to the successful listing of the Company’s shares in the Stock Exchange within one year from 1 September 2010. If the listing of the Company’s shares in the Stock Exchange is not successful, the bank will reinstate the personal guarantee of Mr Zhao of RMB100,000,000 and additional securities on the properties of a related party, SZ Industry, will be pledged to the bank for the banking facilities to the Group.]

— I-75 —

APPENDIX I ACCOUNTANTS’ REPORT

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of its subsidiaries in respect of any period subsequent to 30 June 2010.

Yours faithfully,

CCIF CPA Limited

Certified Public Accountants Hong Kong

Leung Chun Wa

Practising Certificate Number P04963 [●]

— I-76 —

APPENDIX III

PROPERTY VALUATION

The following is the text of a letter, summary of valuations and valuation certificates prepared for the purpose of incorporation in this document received from DTZ Debenham Tie Leung Limited, an independent property valuer, in connection with its opinion of value of the property interests held by the Group in the People’s Republic of China as at 30 September 2010.

==> picture [84 x 80] intentionally omitted <==

16th Floor Jardine House 1 Connaught Place Central Hong Kong [●] 2010

The Directors

Kingworld Medicines Group Limited Block A, 10/F., Tian An International Building Renmin Nan Road East Shenzhen The People’s Republic of China

Dear Sirs,

Instructions, Purpose & Date of Valuation

In accordance with your instructions for us to carry out market valuation of the property interests held by Kingworld Medicines Group Limited (the “Company”) and its subsidiaries (hereinafter referred to as “the Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing the Group with our opinion of the value of such property interests as at 30 September 2010 (the “date of valuation”).

Basis of Valuation

Our valuation of each of the property interests represents its market value in accordance with the Valuation Standards on Properties of The Hong Kong Institute of Surveyors is defined as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

Valuation Assumptions

Our valuation excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by anyone associated with the sale, or any element of special value.

— III-1 —

APPENDIX III

PROPERTY VALUATION

In the course of our valuation of the property interests, which are situated in the PRC, we have assumed that transferable land use rights in respect of the property interests for the respective terms at nominal annual land use fees have been granted and that any premium has already been fully settled. We have also assumed that the grantees or the users of the property interests have free and uninterrupted rights to use or to assign the property interests for the whole of the un-expired term as granted.

We have relied on the information given by the Group and the opinion of its PRC legal adviser, Haiwen & Partners, regarding the title to the property interests in the PRC and the interests of the Group in the properties in the PRC. The status of titles and grant of major approvals and licenses, in accordance with the information provided by the Group and the PRC legal opinion are set out in the notes in the valuation certificates.

No allowance has been made in our valuation for any charges, mortgages or amounts owing neither on the property interests nor for any expenses or taxation, which may be incurred in effecting sales. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoing of an onerous nature, which could affect their values.

In valuing the property interests, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The [●] of Hong Kong Limited and The HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors.

Methods of Valuation

In valuing the property interest in Group I which is held and occupied by the Group in the PRC, we have valued it by direct comparison approach assuming sale of the property in its existing state with the benefit of vacant possession by making reference to comparable sales transactions as available in the relevant market.

In valuing the property interest in Group II, which is owned by the Group in the PRC for investment purpose, we have valued the property interest by direct comparison approach by making reference to comparable sales evidence as available in the relevant market, and where appropriate, by capitalising the net rental receivable from the existing tenancies derived from the property interest with due allowance for the reversionary income potential of the property interest.

In respect of the property interest in Group III which is held by the Group for future development in the PRC, we have valued it by direct comparison approach by making reference to land comparable transactions as available in the relevant market.

The property interests in Group IV, which are rented by the Group in the PRC, have no commercial value due to prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rents.

— III-2 —

APPENDIX III

PROPERTY VALUATION

Source of Information

In the course of our valuation, we have relied to a very considerable extent on the information given by the Group and its legal adviser, Haiwen & Partners, on PRC law and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, tenancy details, site and floor areas, site and floor plans and all other relevant matters.

Dimensions, measurements and areas included in the valuation certificates are based on information contained in the documents provided to us and are therefore only approximations. We have had no reason to doubt the truth and accuracy of the information provided to us which is material to the valuation. We were also advised by the Group that no material facts have been omitted from the information supplied.

Title Investigation

We have been provided with extracts of documents in relation to the title to the property interests in the PRC. However, we have not searched the original documents to ascertain ownership or to verify any amendments which may not appear on the copies handed to us. In the course of our valuation, we have relied to a very considerable extent on the information given to us by the Group and its legal advisers on the PRC law. We have accepted advice given to us on such matters as planning approvals or statutory notice, easements, tenure, identification of properties, development schemes, construction costs, ancillary facilities costs within the properties, particulars of occupancy, tenancy details, site and floor areas, attributable interest of the Group in the properties and all other relevant matters.

Site Inspection

We have inspected the exterior and where possible, the interior of the properties. However, no structural survey had been made and no tests had been carried out on any of the services. In the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defect. We have not carried out investigation on site to determine the suitability of the soil conditions and the services etc. of the property for any development. Our valuation is prepared on the assumption that these aspects are satisfactory and that no unexpected extraordinary expenses or delays will be incurred during the construction period. We have not been able to carry out detailed on-site measurements to verify the site and floor areas of the properties and we have assumed that the site and floor areas shown on the copies of documents handed to us are correct.

— III-3 —

APPENDIX III

PROPERTY VALUATION

Currency

Unless otherwise stated, all sums stated in our valuation certificates are in Renminbi (RMB), the official currency of the PRC.

We enclosed herewith the summary of our valuations and our valuation certificates.

Yours faithfully, for and on behalf of

DTZ Debenham Tie Leung Limited Andrew K.F. Chan Registered Professional Surveyor (GP) Registered China Real Estate Appraiser MSc., M.H.K.I.S., M.R.I.C.S.

Director

Note: Mr. Andrew Chan is a Registered Professional Surveyor who has over 22 years of experience in the valuation of properties in the PRC, Hong Kong and Macau.

— III-4 —

APPENDIX III

PROPERTY VALUATION

		SUMMARY OF VALUATIONS	SUMMARY OF VALUATIONS
						Capital value
						in existing
			Capital value			state as at
			in existing			30 September
			state as at	Attributable				2010
			30 September	interest		attributable
	Property		2010	to the Group		to	the	Group
			RMB		%			RMB
Group I — Property interest held and occupied by the Group in				the PRC
1.	Unit B on Level 9 West,		4,400,000		100		4,400,000
	Yong Xing Office Building,
	No. 22, Lane 376 Yan’an Road West,
	Jing’an District,
	Shanghai,
	the PRC
			Sub-total:				4,400,000
Group II — Property interest held by the Group for investment				purpose in the		PRC
2.	Part of the basement of		50,000,000		100	50,000,000
	Kingworld Department Store,
	Jiefang Road,
	Luohu District,
	Shenzhen,
	Guangdong Province,
	the PRC
			Sub-total:			50,000,000
Group III — Property interest		held by the	Group for future development		in the	PRC
3.	A piece of industrial land,		8,300,000	50%			4,150,000
	Qianshan Industrial Zone,
	Xiangzhou District,
	Zhuhai City,
	Guangdong Province,
	the PRC
			Sub-total:				4,150,000

— III-5 —

APPENDIX III

PROPERTY VALUATION

			Capital value
			in existing
	Capital value		state as at
	in existing		30 September
	state as at	Attributable	2010
	30 September	interest	attributable
Property	2010	to the Group	to the Group
	RMB	%	RMB

Group IV — Property interests rented by	Group IV — Property interests rented by	the Group in the PRC
4.	Room Nos. 1001 to 1008,	No commercial	No commercial
	Block A of Tian An	value	value
	International Building,
	Renminnan Road, Luohu
	District, Shenzhen,
	Guangdong Province,
	the PRC
5.	301A, 302B, 303A, 304B, 401A and	No commercial	No commercial
	402B of Xinyi Logistics Complex	value	value
	Building, Shabeili, Longdong,
	Longgang District, Shenzhen,
	Guangdong Province,
	the PRC
6.	No.602 of Block A,	No commercial	No commercial
	Bao’an Zhonghai Building,	value	value
	Nanhu Village,
	Hongshan Township,
	Hongshan District,
	Wuhan,
	Hubei Province,
	the PRC
7.	Room 502 on Level 5,	No commercial	No commercial
	32 Beidajie,	value	value
	Wuxi,
	Jiangsu Province,
	the PRC
8.	Room 702 West on Level 7,	No commercial	No commercial
	85 Xihu Road, Xihu District,	value	value
	Nanchang,
	Jiangxi Province,
	the PRC

— III-6 —

APPENDIX III

PROPERTY VALUATION

				Capital value
				in existing
		Capital value		state as at
		in existing		30 September
		state as at	Attributable	2010
		30 September	interest	attributable
	Property	2010	to the Group	to the Group
		RMB	%	RMB
Group IV — Property interests rented by		the Group in the PRC
9.	Unit A27 on Level 12,	No commercial		No commercial
	South Inner Ring Street,	value		value
	Yingze District,
	Taiyuan,
	Shanxi Province,
	the PRC
10.	Unit 702 on Level 7,	No commercial		No commercial
	177 Wuyi Central Road,	value		value
	Taijiang District,
	Fuzhou,
	Fujian Province,
	the PRC
11.	Unit 04 on Level 1, Block 7,	No commercial		No commercial
	Wanliuxingbiaojiayuan,	value		value
	Haidian District,
	Beijing,
	the PRC
12.	Unit 419 on Level 4 and Unit 1	No commercial		No commercial
	on Level 1 of Sub-block 2,	value		value
	Guesthouse of 3rd Sinohydro Bureau,
	Lianhu District,
	Xi’an,
	Shanxi Province,
	the PRC
13.	Unit 1015 of News Tower,	No commercial		No commercial
	123 Baiyin Road,	value		value
	Chengguan District,
	Lanzhou,
	Gansu Province,
	the PRC

— III-7 —

APPENDIX III

PROPERTY VALUATION

				Capital value
				in existing
		Capital value		state as at
		in existing		30 September
		state as at	Attributable	2010
		30 September	interest	attributable
	Property	2010	to the Group	to the Group
		RMB	%	RMB
Group IV — Property interests rented by the Group in the PRC
14.	Unit 104 of Block 9,	No commercial		No commercial
	Lubolang Sub-district,	value		value
	Yanhe West Road,
	Hefei,
	Anhui Province,
	the PRC
15.	Room 101,	No commercial		No commercial
	Unit 1, Block 3,	value		value
	Huangjiaan East Road,
	Jinshui District,
	Zhengzhou City,
	Henan Province,
	the PRC
16.	Room 7028 on Level 6,	No commercial		No commercial
	Block 15,	value		value
	66-8 East Qingchun Road,
	Jianggan District,
	Hangzhou,
	Zhejiang Province,
	the PRC
17.	Unit 204 on Level 2 of	No commercial		No commercial
	Office Tower,	value		value
	43 Sixian Road,
	Nanning,
	Guangxi Province,
	the PRC

— III-8 —

APPENDIX III

PROPERTY VALUATION

Capital value in existing Capital value state as at in existing 30 September state as at Attributable 2010 30 September interest attributable Property 2010 to the Group to the Group RMB % RMB

Group IV — Property interests rented by the Group in the PRC

18. North Portion of Level 6, News Building, 566 Yinhua Road, Xiangzhou District, Zhuhai, Guangdong Province, the PRC No commercial value 19. Level 1 of Block B, Nanping Technology Industrial Park, 7 Pingxi San Lu, Zhuhai, Guangdong Province, the PRC No commercial value Sub-total : Group V — Property interest rented by the Group in Hong Kong 20. Flat H on 14/F Everwin Mansion 18 Johnston Road Hong Kong 1/235 share of Inland Lot No.7722 No commercial value Sub-total : Grand-total :	No commercial value No commercial value
	No commercial value
	No commercial value
	No commercial value
	58,550,000

— III-9 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Group I — Property interest held and occupied by the Group in the PRC

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	30 September 2010
1.	Unit B on	The property comprises an office unit on the	The property is	[RMB4,400,000]
	Level 9 West,	level 9 of a 12-storey commercial building	occupied by the
	Yong Xing Office	completed in 1996.	Group for office
	Building,		use.
	No. 22, Lane 376	The gross floor area of the property is
	Yan’an Road West,	approximately 204.14 sq.m.
	Jing’an District,
	Shanghai,	According to the Shanghai Certificate of Real
	the PRC	Estate Ownership, the land use rights of the
		property have been vested in the Group for
		office use for an unspecified term.

Notes:

(1) According to Shanghai Certificate of Real Estate Ownership No. (2009)006035 issued by Shanghai Housing and Land Resources Administration Bureau on 28 September 2009, the land use rights and building ownership of the property, comprising an apportioned site area of 19.50 sq.m. and a gross floor area of 204.14 sq.m., have been vested in Shenzhen Kingworld Medicine Co., Ltd. for office use for an unspecified term.
(2) According to a Sales and Purchase Agreement No. 795922 dated 15 September 2009 entered into between Shanghai Kingworld Enterprise Co., Ltd. (上海金活實業有限公司) (“Party A”) and Shenzhen Kingworld Medicine Co., Ltd. (“Party B”), Party A has agreed to sell the property to Party B at a consideration of RMB3,820,000.
(3) According to Business Licence No. 440301503328289 dated 23 February 2009, Shenzhen Kingworld Medicine Co., Ltd. (深圳市金活醫藥有限公司) was established with a registered capital of RMB80,000,000 for a valid operation period from 19 April 1996 to 29 December 2016.
(4) We have been provided with a legal opinion on the property prepared by the Group’s legal adviser, which contains, inter alia, the following information:
(i) Shenzhen Kingworld Medicine Co., Ltd. (深圳市金活醫藥有限公司) is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of land use rights at no extra land premium or other onerous payment payable to the government subject to tax and fees in transaction of property;
(ii) The property may be freely disposed of to third parties; and
(iii) The property is not subject to any mortgage.

— III-10 —

APPENDIX III PROPERTY VALUATION

(iv) The Longest land use term for office use is 50 years. According to verbal inquiry with Shanghai Jingan Planning and Land Bureau, the local official agreed that the completion date of the building was 1996 and assuming that the land use rights was granted at the same time, the land use term has the latest expiry date in 2046.
(5) The status of title and grant of major approvals and licences in accordance with the information provided by the Group are as follows:-

Shanghai Certificate of Real Estate Ownership Yes Sales and Purchase Agreement Yes Business Licence Yes

— III-11 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Group II — Property interest held by the Group for investment purpose in the PRC

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	30 September 2010
2.	Part of the basement	The property comprises a commercial	Portion of property	RMB50,000,000
	of Kingworld	area in the basement equipment room of	with floor area of
	Department Store,	Kingworld Department Store which is a	439 sq.m. is leased
	Jiefang Road,	commercial development completed in	to an Independent
	Luohu District,	2001.	Third Party from 1
	Shenzhen,		January 2010 to 30
	Guangdong Province,	The property has a total gross floor area	April 2012 with
	the PRC	of approximately 956 sq.m.	initial monthly rental
			of RMB53,239.73
		The land use rights of the property have	and subject to an
		been granted for a term of 40 years	annual growth of 5%
		from 11 September 2000 to 10	since 1 May 2010.
		September 2040 for commercial use.
			Portion of the
			property with floor
			area of 517 sq.m. is
			leased to an
			Independent Third
			Party from 8 January
			2010 to 7 October
			2012 with monthly
			rental of
			RMB62,699.20.

Notes:

(1) According to the Real Estate Title Certificate No. 2000416242 dated 14 August 2008, the land use rights and the building ownership of the property, with a total gross floor area of 956 sq.m., have been granted to Shenzhen Kingworld Medicine Co., Ltd. (深圳市金活醫藥有限公司) for a land use term of 40 years from 11 September 2000 to 10 September 2040 for commercial use, with the particulars as follows :

Real Estate Title
Certificate No.	Unit	Use	Gross Floor Area
			(sq.m.)
2000416242	Equipment room, part of basement of	Commercial	956
	Kingworld Department Store

(2) According to Business Licence No. 440301503328289 dated 23 February 2009, Shenzhen Kingworld Medicine Co., Ltd. (深圳市金活醫藥有限公司) was established with a registered capital of RMB80,000,000 for a valid operation period from 19 April 1996 to 29 December 2016.

— III-12 —

APPENDIX III

PROPERTY VALUATION

(3) We have been provided with a legal opinion on the property prepared by the Group’s legal adviser, which contains, inter alia, the following information:
(i) Shenzhen Kingworld Medicine Co., Ltd. (深圳市金活醫藥有限公司) is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of land use rights at no extra land premium or other onerous payment payable to the government subject to tax and fees in transaction of property;
(ii) The property is subject to a mortgage; and
(iii) The property may be disposed of to third parties subject to the consent of the mortgagee.
(iv) The 2 leases are registered in the local real estate bureau.
(4) The status of the title and grant of major approvals and licences in accordance with the information provided by the Company are as follows:

Real Estate Title Certificate Yes Business Licence Yes

— III-13 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Group III — Property interest held by the Group for future development in the PRC

Property Description and tenure
1. A piece of The property comprises a parcel of land with a industrial land, site area of approximately 10,376.67 sq.m. Qianshan Industrial Zone, Xiangzhou The land use rights of the property have been District, Zhuhai granted for a term due to expire on 19 City, Guangdong December 2057. Province, the PRC According to the Group, the property is planned to develop as a logistic warehouse and office and scheduled to complete in 2011.

Capital value in Particulars of existing state as at Occupancy 30 September 2010 As at the date RMB8,300,000 of valuation, the (50% interest property was a attributable to vacant land. the Group RMB4,150,000)

According to the legal opinion, the land use rights was granted for industrial use.

Notes:

(1) According to the Real Estate Title Certificate issued by the Register Center of Zhuhai Real Estate (珠海市房地產登記中心), the land use rights of the property with a site area of 10,376.67 sq.m., have been granted to Zhuhai Jinming Medicine Co., Ltd. (珠海市金明醫藥有限公司) for a term due to expire on 19 December 2057, with the particulars as follows:

Location : Qianshan Industrial Zone, Xiangzhou District, Zhuhai Lot No. : B0506015 Site area : 10,376.67 sq.m. Usage Term : due to expire on 19 December 2057)

(2) According to Transfer Contract of Zhuhai State-owned Land Use Rights (珠海市國有土地使用權轉讓合同書) entered into between Zhuhai Xiangzhou Zhengfang Holdings Co., Ltd. (珠海市香洲正方控股有限公司) (“Party A”) and Zhuhai Jinming Medicine Co., Ltd. (珠海市金明醫藥有限公司) (“Party B”), the land use rights of the property, comprising a site area of 10,376.67sq.m., have been transferred to Party B at a total consideration of RMB7,783,000 for a term due to expire on 19 December 2057 for industrial use.
(3) We have been provided with a legal opinion on the property prepared by the Group’s legal adviser, which contains, inter alia, the following information:-
(i) Zhuhai Jinming Medicine Co., Ltd. (珠海市金明醫藥有限公司) is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of land use rights at no extra land premium or other onerous payment payable to the government subject to tax and fees in transaction of property;
(ii) The property is not subject to mortgage; and
(iii) The property may be disposed of to third parties according to local regulations.

— III-14 —

APPENDIX III PROPERTY VALUATION

(4) The status of the title and grant of major approvals and licences in accordance with the information provided by the Company are as follows:-

Real Estate Title Certificate Yes Transfer Contract of Zhuhai State-owned Land Use Rights Yes

— III-15 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Group IV — Property interests rented by the Group in the PRC

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 4. Room Nos. 1001 to 1008, The property comprises eight units on level 10 of a No Commercial Value Block A of Tian An 34-storey commercial building completed in about International Building, 1993. Renminnan Road, Luohu District, The property has a total gross floor area of Shenzhen, approximately 832.30 sq.m. The property is occupied Guangdong Province, by the Group as office use. the PRC The property is leased to Shenzhen Kingworld Medicine Co., Ltd. for a term of 3 years from 1 January 2009 to 31 December 2011 at a monthly rent of RMB45,776.5, for the 1st year and the rental for the 2nd and 3rd years are subject to adjustment as set out in the relevant guidelines issued by the Shenzhen Real Estate Association. exclusive of management fee and service charges.

Notes:

(1) The property is leased to Shenzhen Kingworld Medicine Co., Ltd. (深圳市金活醫藥有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-16 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 5. 301A, 302B, 303A, 304B, The property comprises six units in a 5-storey No Commercial Value 401A and industrial building completed in about 2003. 402B of Xinyi Logistics Complex Building, The property has a total gross floor area of Shabeili, Longdong, approximately 6,406.42 sq.m. The property is occupied Longgang District, by the Group as warehouse use. Shenzhen, The property is leased to Shenzhen Kingworld Guangdong Province, the PRC Medicine Co., Ltd. for a term of 4 years from 1 March 2009 to 28 February 2013 at a monthly rent of RMB38,438.52 for the first 3 years, exclusive of management fee and service charges. The rent for the 4th year is to be negotiated by both parties.

Notes:

(1) The property is leased to Shenzhen Kingworld Medicine Co., Ltd. (深圳市金活醫藥有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The property is subject to mortgage and the Group confirms that there is no limitation on the lease agreement. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-17 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 6. No.602 of Block A, The property comprises a unit on level 6 of an No Commercial Value Bao’an Zhonghai Building, 18-storey commercial building completed in about Nanhu Village, 2007. Hongshan Township, Hongshan District, The property has a total gross floor area of Wuhan, approximately 131.42 sq.m. and is occupied by the Hubei Province, Group for office use. the PRC The property is leased to Wuhan Kingworld Information Consultancy Services Co., Ltd. for a term of 3 years from 1 May 2009 to 30 April 2012 at a monthly rent of RMB2,000.

Notes:

(1) The property is leased to Wuhan Kingworld Information Consultancy Services Co., Ltd. (武漢市金活信息諮詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The property is subject to mortgage and the Group confirms that there is no limitation on the lease agreement. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-18 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 7. Room 502 on level 5, The property comprises a unit on level 5 of a 6-storey No Commercial Value 32 Beidajie, commercial building completed in the 1980’s. Wuxi, Jiangsu Province, The property has a total gross floor area of the PRC approximately 941.51 sq.m. and is occupied by the Group for office use. The property is leased to Wuxi Kingworld Information Consultancy Services Co., Ltd. (無錫市金活信息咨詢服務有限責任公司) for a term of one year from 1 January 2010 to 31 December 2010 at a monthly rent of RMB28,800.

Notes:

(1) The property is leased to Wuxi Kingworld Information Consultancy Services Co., Ltd. (無錫市金活信息咨詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has not been properly registered but it would not have material adverse impact on the Group’s using rights of the property. The lease is legal, valid, binding on both parties and subject to the risk of being unable to defend against third parties acting in good faith.

— III-19 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 8. Room 702 West on Level 7, The property comprises a unit on level 7 of a 8-storey No Commercial Value 85 Xihu Road, composite building completed in about 2001. Xihu District, Nanchang, The property has a total gross floor area of Jiangxi Province, approximately 99.05 sq.m. and is occupied by the the PRC Group for office use. The property is leased to Nanchang Kingworld Information Consultancy Services Co., Ltd. for a term from 1 January 2010 to 31 December 2010 at a monthly rent of RMB1,800.

Notes:

(1) The property is leased to Nanchang Kingworld Information Consultancy Services Co., Ltd. (南昌市金活信息諮詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has not been properly registered but it would not have material adverse impact on the Group’s using rights of the property. The lease is legal, valid, binding on both parties and subject to the risk of being unable to defend against third parties acting in good faith.

— III-20 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 9. Unit A27 on Level 12, The property comprises a unit on level 12 of a No Commercial Value South Inner Ring Street, 24-storey composite building completed in about 1999. Yingze District, Taiyuan, The property has a total gross floor area of Shanxi Province, approximately 127 sq.m. and is occupied by the Group the PRC for office use. The property is leased to Taiyuan Kingworld Enterprise Information Consultancy Services Co., Ltd. for a term of 1 year from 11 July 2010 to 10 July 2011 at a monthly rent of RMB1,800.

Notes:

(1) The property is leased to Taiyuan Kingworld Enterprise Information Consultancy Services Co., Ltd. (太原市金活企業信息諮詢服務有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-21 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 10. Unit 702 on Level 7, 177 The property comprises a unit on level 7 of a 7-storey No Commercial Value Wuyi Central Road, composite building completed in about 1992. Taijiang District, Fuzhou, The property has a total gross floor area of Fujian Province, approximately 60 sq.m. and is occupied by the Group the PRC for office use. The property is leased to Fuzhou Kingworld Enterprise Information Consultancy Services Co., Ltd. for a term of 1 year from 1 June 2010 to 31 May 2011 at a monthly rent of RMB3,000.

Notes:

(1) The property is leased to Fuzhou Kingworld Enterprise Information Consultancy Services Co., Ltd. (福州市金活企業信息諮詢服務有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has not been properly registered but it will not have material adverse impact on the Group’s using rights of the property. The lease is legal, valid, binding on both parties and subject to the risk of being unable to defend against third parties acting in good faith.

— III-22 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 11. Unit 04 on Level 1, The property comprises a unit on level one of a No Commercial Value Block 7, 13-storey composite building completed in the 1990’s. Wanliuxingbiaojiayuan, Haidian District, The property has a total gross floor area of 70 sq. m. Beijing, and is occupied by the Group for office uses. the PRC The property is sub-leased to Beijing Kingworld Information Consultancy Services Co., Ltd. for a term of 5 years from 12 April 2009 to 11 April 2014 at a monthly rent of RMB8,517.

Notes:

(1) The property is sub-leased to Beijing Kingworld Information Consultancy Services Co., Ltd. (北京市金活信息諮詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The property is subject to mortgage and there is no limitation on the lease agreement. The lease has not been properly registered but it will not have material adverse impact on the Group’s using rights of the property. The sub-lease is legal, valid, binding on both parties for the period consented by the landowner, but the sub-lease may be deemed invalid after the expiry date of such consent.

— III-23 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 12. Unit 419 on Level 4 and The property comprises two units in a 7-storey No Commercial Value Unit 1 on Level 1 of composite building completed in the 1980’s. Sub-block 2, Guesthouse of The property has a total gross floor area of 3rd Sinohydro Bureau, approximately 54 sq.m. and is occupied by the Group Lianhu District, for residential use and office use respectively. Xi’an, Shanxi Province, The property is leased to Xi’an Kingworld Information the PRC Consultancy Services Co., Ltd. for a term of 1 year from 24 October 2009 to 24 October 2010 at a monthly rent of RMB1,650. It has been renewed for a term of 1 year from 24 October 2010 to 24 October 2011 at a monthly rent of RMB1,600.

Notes:

(1) The property is leased to Xi’an Kingworld Information Consultancy Services Co., Ltd. (西安市金活信息諮詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lease has not been properly registered and therefore it may be subject to the risk of being unable to defend against third parties acting in good faith, but it will not have material adverse impact on the Group’s using rights of the property. No consent from the property owner with respect to the lease has been provided and therefore it is not certain whether the lessor is entitled to lease the property, if not, Xi’an Kingworld Information Consultancy Services Co., Ltd. is entitled to claim losses against the lessor.

— III-24 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 13. Unit 1015 of News Tower, The property comprises a unit on level 10 of a No Commercial Value 123 Baiyin Road, 22-storey commercial building completed in about Chengguan District, 1996. Lanzhou, Gansu Province, The property has a total gross floor area of the PRC approximately 34.02 sq.m. and is occupied by the Group for office use. The property is leased to Lanzhou Kingworld Information Consultancy Services Co., Ltd. for a term of 1 year from 27 December 2009 to 26 December 2010 at a monthly rent of RMB1,000.

Notes:

(1) The property is leased to Lanzhou Kingworld Information Consultancy Services Co., Ltd. (蘭州市金活信息諮詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-25 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 14. Unit 104 of Block 9, The property comprises a unit on level 1 of a 6-storey No Commercial Value Lubolang Sub-district, residential building completed in about 1996. Yanhe West Road, Hefei, The property has a total gross floor area of Anhui Province, approximately 82.96 sq.m. and is occupied by the the PRC Group for office use. The property is leased to Hefei Kingworld Information Consultancy Services Co., Ltd. for a term of 1 year from 1 January 2010 to 31 December 2010 at a monthly rent of RMB2,000.

Notes:

(1) The property is leased to Hefei Kingworld Information Consultancy Services Co., Ltd. (合肥市金活信息諮詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-26 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 15. Room 101, The property comprises a unit on level 1 of a No Commercial Value Unit 1, Block 3 composite building. Huangjiaan East Road, Jinshui District, The property has a total gross floor area of Zhengzhou City, approximately 129.63 sq.m. and is occupied by the Henan Province, Group for office use. the PRC The property is leased to Zhengzhou Kingworld Information Consultancy Services Co., Ltd. for a term of 1 year from 1 January 2010 to 31 December 2010 at a monthly rent of RMB1,800.

Notes:

(1) The property is leased to Zhengzhou Kingworld Information Consultancy Services Co., Ltd. (鄭州市金活信息諮詢服務有限責任公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-27 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 16. Room 7028 on Level 6, The property comprises a unit on level 6 of a 6-storey No Commercial Value Block 15, office building completed in about 1993. 66-8 East Qingchun Road, Jianggan District, The property has a total gross floor area of Hangzhou, approximately 41.25 sq.m. and is occupied by the Zhejiang Province, Group for office use. the PRC The property is leased to Hangzhou Kingworld Information Consultancy Services Co., Ltd. for a term of 1 year from 1 January 2010 to 31 December 2010 at an annual rent of RMB30,113.

Notes:

(1) The property is leased to Hangzhou Kingworld Information Consultancy Services Co., Ltd. (杭州金活信息諮詢服務有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has been registered in the relevant authority and it is legal, valid, binding on both parties and enforceable.

— III-28 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 17. Unit 204 on Level 2 of The property comprises a unit on level 2 of a 7-storey No Commercial Value Office Tower, commercial building completed in about 1989. 43 Sixian Road, Nanning, The property has a total gross floor area of Guangxi Province, approximately 27 sq.m. and is occupied by the Group the PRC for office use. The property is leased to Nanning Kingworld Business Services Co., Ltd. for a term of 12 months from 1 January 2010 to 31 December 2010 at a monthly rent of RMB790.

Notes:

(1) The property is leased to Hangzhou Nanning Kingworld Business Services Co., Ltd. (南寧市金活商務服務有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has not been properly registered but it will not have material adverse impact on the Group’s using rights of the property. The lease is legal, valid, binding on both parties and subject to the risk of being unable to defend against third parties acting in good faith.

— III-29 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 18. North Portion of Level 6, The property comprises a unit on level 6 of a No Commercial Value News Building, 16-storey commercial building completed in about 566 Yinhua Road, 2002. Xiangzhou District, Zhuhai, The property has a total gross floor area of Guangdong Province, approximately 399 sq.m. and is occupied by the Group the PRC for office use. The property is leased to Zhuhai Jinming Medicine Co., Ltd. for a term from 1 April 2008 to 1 April 2012 at a monthly rent of RMB18,573.

Notes:

(1) The property is leased to Zhuhai Jinming Medicine Co., Ltd. (珠海市金明醫藥有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lease has not been properly registered and therefore it may be subject to the risk of being unable to defend against third parties acting in good faith, but it will not have material adverse impact on the Group’s using rights of the property. No title document has been issued to the lessor and therefore it is not certain whether the lessor is entitled to lease the property, if not, Zhuhai Jinming Medicine Co., Ltd. is entitled to claim losses against the lessor.

— III-30 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 September 2010 19. Level 1 of Block B, The property comprises a unit on level 1 of a No Commercial Value Nanping Technology single-storey industrial building completed in about Industrial Park, 2006. 7 Pingxi San Lu, Zhuhai, The property has a total gross floor area of Guangdong Province, approximately 1,300 sq.m. and is occupied by the the PRC Group for storage use. The property is sub-leased to Zhuhai Jinming Medicine Co., Ltd. for a term of 3 years from 8 March 2008 to 7 March 2011. The current monthly rent is RMB23,400.

Notes:

(1) The property is sub-leased to Zhuhai Jinming Medicine Co., Ltd. (珠海市金明醫藥有限公司), a company indirectly held by the Company.
(2) According to the PRC legal opinion, the lessor is entitled to lease the property. The lease has not been properly registered but it will not have material adverse impact on the Group’s using rights of the property. The lease is legal, valid, binding on both parties and subject to the risk of being unable to defend against third parties acting in good faith.

— III-31 —

APPENDIX III

PROPERTY VALUATION

VALUATION CERTIFICATE

Group V — Property interest rented by the Group in Hong Kong

Property

Flat H on 14/F Everwin Mansion 18 Johnston Road Hong Kong 1/235 share of Inland Lot No.7722

Capital value in existing state as at Description and tenancy particulars 30 September 2010 The property comprises a residential unit on the 14th No commercial value floor of a 17-storey composite building completed in 1965.

Description and tenancy particulars

The property has a saleable floor area of approximately 360 sq.ft. (33.44 sq.m.).

The property is leased to Kingworld Medicine Healthcare Ltd. for a term of 2 years from 9 September 2009 to 8 September 2011 at a monthly rent of HK10,000, inclusive of management fee and rates.

— III-32 —

APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman Islands company law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 10 July 2008 under the Companies Law. The Company’s constitutional documents consist of its Amended and Restated Memorandum of Association (the “Memorandum”) and the Amended and Restated Articles of Association (the “Articles”).

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum provides, inter alia , that the liability of members of the Company is limited and that the objects for which the Company is established are unrestricted (and therefore include acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate whether as principal, agent, contractor or otherwise and since the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.
(b) By special resolution the Company may alter the Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on [●] 2010. The following is a summary of certain provisions of the Articles:

(a) Shares

(i) Classes of shares

The share capital of the Company consists of ordinary shares.

(ii) Share certificates

Every person whose name is entered as a member in the register of members shall be entitled without payment to receive a certificate for his shares. The Companies Law prohibits the issue of bearer shares to any person other than an authorised or recognised custodian defined in the Companies Law. The requirement on all service providers to implement appropriate due diligence procedures on the identity of a client in order to “know your client” as a result of proceeds of crime legislation mandates that special procedures should be followed when issuing bearer shares.

— IV-1 —

APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Every certificate for shares, warrants or debentures or representing any other form of securities of the Company shall be issued under the seal of the Company, and shall be signed autographically by one Director and the Secretary, or by 2 Directors, or by some other person(s) appointed by the Board for the purpose. As regards any certificates for shares or debentures or other securities of the Company, the Board may by resolution determine that such signatures or either of them shall be dispensed with or affixed by some method or system of mechanical signature other than autographic as specified in such resolution or that such certificates need not be signed by any person. Every share certificate issued shall specify the number and class of shares in respect of which it is issued and the amount paid thereon and may otherwise be in such form as the Board may from time to time prescribe. A share certificate shall relate to only one class of shares, and where the capital of the Company includes shares with different voting rights, the designation of each class of shares, other than those which carry the general right to vote at general meetings, must include the words “restricted voting” or “limited voting” or “non-voting” or some other appropriate designation which is commensurate with the rights attaching to the relevant class of shares. The Company shall not be bound to register more than 4 persons as joint holders of any share.

(b) Directors

(i) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law, the Memorandum and Articles and without prejudice to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the Board may determine). Any share may be issued on terms that upon the happening of a specified event or upon a given date and either at the option of the Company or the holder thereof, they are liable to be redeemed.

The Board may issue warrants to subscribe for any class of shares or other securities of the Company on such terms as it may from time to time determine.

Where warrants are issued to bearer, no certificate thereof shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate thereof has been destroyed and the Company has received an indemnity in such form as the Board shall think fit with regard to the issue of any such replacement certificate.

Subject to the provisions of the Companies Law, the Articles and, where applicable, the rules of any stock exchange of the Relevant Territory (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

— IV-2 —

APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others whose registered addresses are in any particular territory or territories where, in the absence of a registration statement or other special formalities, this is or may, in the opinion of the Board, be unlawful or impracticable. However, no member affected as a result of the foregoing shall be, or be deemed to be, a separate class of members for any purpose whatsoever.

(ii) Power to dispose of the assets of the Company or any subsidiary

While there are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries, the Board may exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting, but if such power or act is regulated by the Company in general meeting, such regulation shall not invalidate any prior act of the Board which would have been valid if such regulation had not been made.

(iii) Compensation or payments for loss of office

Payments to any present Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually or statutorily entitled) must be approved by the Company in general meeting.

(iv) Loans and provision of security for loans to Directors

There are provisions in the Articles prohibiting the making of loans to Directors and their associates which are equivalent to provisions of Hong Kong law prevailing at the time of adoption of the Articles.

The Company shall not directly or indirectly make a loan to a Director or a director of any holding company of the Company or any of their respective associates, enter into any guarantee or provide any security in connection with a loan made by any person to a Director or a director of any holding company of the Company or any of their respective associates, or if any one or more of the Directors hold (jointly or severally or directly or indirectly) a controlling interest in another company, make a loan to that other company or enter into any guarantee or provide any security in connection with a loan made by any person to that other company.

(v) Disclosure of interest in contracts with the Company or with any of its subsidiaries

With the exception of the office of auditor of the Company, a Director may hold any other office or place of profit with the Company in conjunction with his office of Director for such period and, upon such terms as the Board may determine, and may be paid such extra

— IV-3 —

APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer or member of any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration or other benefits received by him as a director, officer or member of such other company. The Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company.

No Director or intended Director shall be disqualified by his office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established. A Director who is, in any way, materially interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the earliest meeting of the Board at which he may practically do so.

There is no power to freeze or otherwise impair any of the rights attaching to any Share by reason that the person or persons who are interested directly or indirectly therein have failed to disclose their interests to the Company.

A Director shall not vote (nor shall he be counted in the quorum) on any resolution of the Board in respect of any contract or arrangement or other proposal in which he or his associate(s) is/are materially interested, and if he shall do so his vote shall not be counted nor shall he be counted in the quorum for that resolution, but this prohibition shall not apply to any of the following matters namely:

(aa) the giving of any security or indemnity to the Director or his associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries;
(bb) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has/have himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;
(cc) any proposal concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(dd) any proposal concerning any other company in which the Director or his associate(s) is/are interested only, whether directly or indirectly, as an officer or executive or a member or in which the Director or his associate(s) is/are beneficially interested in shares of that company, provided that the Director and any of his associates are not in aggregate beneficially interested in 5% or more of the issued shares of any class of such company (or of any third company through which his interest or that of his associate(s) is derived) or of the voting rights;
(ee) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death or disability benefits scheme or other arrangement which relates both to Directors, his associate(s) and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his associate(s), as such any privilege or advantage not generally accorded to the employees to which such scheme or fund relates; or
(ff) any contract or arrangement in which the Director or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company.
(vi) Remuneration

The Directors shall be entitled to receive, as ordinary remuneration for their services, such sums as shall from time to time be determined by the Board, or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such manner as they may agree or failing agreement, equally, except that in such event any Director holding office for only a portion of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he has held office. The Directors shall also be entitled to be repaid all travelling, hotel and other expenses reasonably incurred by them in attending any Board meetings, committee meetings or general meetings or otherwise in connection with the discharge of their duties as Directors. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.

Any Director who, at the request of the Company performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such special or extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time decide. Such remuneration shall be in addition to his ordinary remuneration as a Director.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

The Board may establish, either on its own or jointly in concurrence or agreement with other companies (being subsidiaries of the Company or with which the Company is associated in business), or may make contributions out of the Company’s monies to, such schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or former Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and former employees of the Company and their dependents or any class or classes of such persons.

In addition, the Board may also pay, enter into agreements to pay or make grants of revocable or irrevocable, whether or not subject to any terms or conditions, pensions or other benefits to employees and former employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or former employees or their dependents are or may become entitled under any such scheme or fund as mentioned above. Such pension or benefit may, if deemed desirable by the Board, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(vii) Appointment, retirement and removal

At any time or from time to time, the Board shall have the power to appoint any person as a Director either to fill a casual vacancy on the Board or as an additional Director to the existing Board subject to any maximum number of Directors, if any, as may be determined by the members in general meeting. Any Director so appointed shall hold office only until the next general meeting of the Company and shall then be eligible for re-election. There is no shareholding qualification for Directors.

At each annual general meeting, one third of the Directors for the time being will retire from office by rotation. However, if the number of Directors is not a multiple of three, then the number nearest to but not less than one third shall be the number of retiring Directors. The Directors who shall retire in each year will be those who have been longest in the office since their last re-election or appointment but as between persons who become or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot.

No person, other than a retiring Director, shall, unless recommended by the Board for election, be eligible for election to the office of Director at any general meeting, unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his willingness to be elected shall have been lodged at the head office or at the registration office. The period for lodgment of such notices will commence no earlier than the day after the despatch of the notice of the meeting appointed for such election and end no later than 7 days prior to the date of such meeting and the minimum length of the period during which such notices to the Company may be given must be at least 7 days.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

A Director is not required to hold any shares in the Company by way of qualification nor is there any specified upper or lower age limit for Directors either for accession to the Board or retirement therefrom.

A Director may be removed by an ordinary resolution of the Company before the expiration of his term of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and the Company may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two.

In addition to the foregoing, the office of a Director shall be vacated:

(aa) if he resigns his office by notice in writing delivered to the Company at the registered office or head office of the Company for the time being or tendered at a meeting of the Board;
(bb) if he dies or becomes of unsound mind as determined pursuant to an order made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Board resolves that his office be vacated;
(cc) if, without special leave, he is absent from meetings of the Board for six (6) consecutive months, and the Board resolves that his office is vacated;
(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;
(ee) if he is prohibited from being a director by law;
(ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles;
(gg) if he has been validly required by the stock exchange of the Relevant Territory (as defined in the Articles) to cease to be a Director and the relevant time period for application for review of or appeal against such requirement has lapsed and no application for review or appeal has been filed or is underway against such requirement; or
(hh) if he is removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the nearest lower round number) of the Directors (including himself) then in office.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

From time to time the Board may appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine and the Board may revoke or terminate any of such appointments. The Board may also delegate any of its powers to committees consisting of such Director or Directors and other person(s) as the Board thinks fit, and from time to time it may also revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Board.

(viii) Borrowing powers

Pursuant to the Articles, the Board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, debenture stock, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. The provisions summarized above, in common with the Articles of Association in general, may be varied with the sanction of a special resolution of the Company.

(ix) Register of Directors and officers

Pursuant to the Companies Law, the Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within 30 days of any change in such directors or officers.

(x) Proceedings of the Board

Subject to the Articles, the Board may meet anywhere in the world for the despatch of business and may adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote.

(c) Alterations to the constitutional documents

To the extent that the same is permissible under Cayman Islands law and subject to the Articles, the Memorandum and Articles of the Company may only be altered or amended, and the name of the Company may only be changed by the Company by special resolution.

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APPENDIX IV

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(d) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, if at any time the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to any class of shares may (unless otherwise provided for by the terms of issue of the shares of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be not less than two persons together holding (or in the case of a shareholder being a corporation, by its duly authorised representative) or representing by proxy not less than one-third in nominal value of the issued shares of that class. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll.

Any special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(e) Alteration of capital

The Company may, by an ordinary resolution of its members, (a) increase its share capital by the creation of new shares of such amount as it thinks expedient; (b) consolidate or divide all or any of its share capital into shares of larger or smaller amount than its existing shares; (c) divide its unissued shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions; (d) subdivide its shares or any of them into shares of an amount smaller than that fixed by the Memorandum; and (e) cancel shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled; (f) make provision for the allotment and issue of shares which do not carry any voting rights; (g) change the currency of denomination of its share capital; and (h) reduce its share premium account in any manner authorised and subject to any conditions prescribed by law.

Reduction of share capital — subject to the Companies Law and to confirmation by the court, a company limited by shares may, if so authorised by its Articles of Association, by special resolution, reduce its share capital in any way.

(f) Special resolution - majority required

In accordance with the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or by proxy or, in the case of members which are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than 21 clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been duly given. However, except in the case of an annual general meeting, if it is so agreed by a

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than 95% in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which less than 21 clear days’ notice has been given.

Under Companies Law, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within 15 days of being passed.

An “ordinary resolution”, by contrast, is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of members which are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than fourteen clear days’ notice has been given and held in accordance with the Articles. A resolution in writing signed by or on behalf of all members shall be treated as an ordinary resolution duly passed at a general meeting of the Company duly convened and held, and where relevant as a special resolution so passed.

(g) Voting rights (generally and on a poll) and right to demand a poll

Subject to any special rights, restrictions or privileges as to voting for the time being attached to any class or classes of shares at any general meeting on a show of hands, every member who is present in person or by proxy or being a corporation, is present by its duly authorised representative shall have one vote, and on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every share which is fully paid or credited as fully paid registered in his name in the register of members of the Company but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purpose as paid up on the share. Notwithstanding anything contained in the Articles, where more than one proxy is appointed by a member which is a Clearing House (as defined in the Articles) (or its nominee(s)), each such proxy shall have one vote on a show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he does use in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded or otherwise required under the rules of the stock exchange of the Relevant Territory (as defined in the Articles). A poll may be demanded by:

(i) the chairman of the meeting; or
(ii) at least two members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(iii) any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or
(iv) a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Should a Clearing House or its nominee(s), be a member of the Company, such person or persons may be authorised as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised in accordance with this provision shall be entitled to exercise the same rights and powers on behalf of the Clearing House or its nominee(s), as if such person were an individual member including the right to vote individually on a show of hands.

Where the Company has knowledge that any member is, under the [●], required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted.

(h) Annual general meetings

The Company must hold an annual general meeting each year. Such meeting must be held not more than 15 months after the holding of the last preceding annual general meeting, or such longer period as may be authorised by the [●] at such time and place as may be determined by the Board.

(i) Accounts and audit

The Board shall cause proper books of account to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the assets and liabilities of the Company and of all other matters required by the Companies Law necessary to give a true and fair view of the state of the Company’s affairs and to show and explain its transactions.

The books of accounts of the Company shall be kept at the head office of the Company or at such other place or places as the Board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any account or book or document of the Company except as conferred by the Companies Law or ordered by a court of competent jurisdiction or authorised by the Board or the Company in general meeting.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

The Board shall from time to time cause to be prepared and laid before the Company at its annual general meeting balance sheets and profit and loss accounts (including every document required by law to be annexed thereto), together with a copy of the Directors’ report and a copy of the auditors’ report not less than 21 days before the date of the annual general meeting. Copies of these documents shall be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles together with the notice of annual general meeting, not less than 21 days before the date of the meeting.

Subject to the rules of the stock exchange of the Relevant Territory (as defined in the Articles), the Company may send summarized financial statements to shareholders who has, in accordance with the rules of the stock exchange of the Relevant Territory (as defined in the Articles), consented and elected to receive summarized financial statements instead of the full financial statements. The summarized financial statements must be accompanied by any other documents as may be required under the rules of the stock exchange of the Relevant Territory (as defined in the Articles), and must be sent to the shareholders not less than twenty-one days before the general meeting to those shareholders that have consented and elected to receive the summarized financial statements.

The Company shall appoint auditor(s) to hold office until the conclusion of the next annual general meeting on such terms and with such duties as may be agreed with the Board. The auditors’ remuneration shall be fixed by the Company in general meeting or by the Board if authority is so delegated by the members.

The auditors shall audit the financial statements of the Company in accordance with generally accepted accounting principles of Hong Kong, the International Accounting Standards or such other standards as may be permitted by the [●].

(j) Notices of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting at which it is proposed to pass a special resolution must be called by at least 21 days’ notice in writing, and any other extraordinary general meeting shall be called by at least 14 days’ notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and must specify the time, place and agenda of the meeting, and particulars of the resolution(s) to be considered at that meeting, and, in the case of special business, the general nature of that business.

Except where otherwise expressly stated, any notice or document (including a share certificate) to be given or issued under the Articles shall be in writing, and may be served by the Company on any member either personally or by sending it through the post in a prepaid envelope or wrapper addressed to such member at his registered address as appearing in the Company’s register of members or by leaving it at such registered address as aforesaid or (in the case of a notice) by advertisement in the newspapers. Any member whose registered address is outside Hong Kong may notify the Company in writing of an address in Hong Kong which for the purpose of service of notice shall be deemed to be his registered address. Where the registered address of the member is outside Hong Kong, notice, if given through the post, shall be sent by prepaid airmail letter where available.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Although a meeting of the Company may be called by shorter notice than as specified above, such meeting may be deemed to have been duly called if it is so agreed:

(i) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the issued shares giving that right.

All business transacted at an extraordinary general meeting shall be deemed special business and all business shall also be deemed special business where it is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(aa) the declaration and sanctioning of dividends;
(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;
(cc) the election of Directors in place of those retiring;
(dd) the appointment of auditors;
(ee) the fixing of the remuneration of the Directors and of the auditors;
(ff) the granting of any mandate or authority to the Board to offer, allot, grant options over, or otherwise dispose of the unissued shares of the Company representing not more than 20% in nominal value of its existing issued share capital (or such other percentage as may from time to time be specified in the rules of the [●]) and the number of any securities repurchased by the Company since the granting of such mandate; and
(gg) the granting of any mandate or authority to the Board to repurchase securities in the Company.

(k) Transfer of shares

Subject to the Companies Law, all transfers of shares shall be effected by an instrument of transfer in the usual or common form or in such other form as the Board may approve provided always that it shall be in such form prescribed by the [●] and may be under hand or, if the transferor or transferee is a Clearing House or its nominee(s), under hand or by machine imprinted signature or by such other manner of execution as the Board may approve from time to time.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Execution of the instrument of transfer shall be by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferor or transferee or accept mechanically executed transfers in any case in which it in its discretion thinks fit to do so, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members of the Company in respect thereof.

The Board may, in its absolute discretion, at any time and from time to time remove any share on the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the Board otherwise agrees, no shares on the principal register shall be removed to any branch register nor shall shares on any branch register be removed to the principal register or any other branch register. All removals and other documents of title shall be lodged for registration and registered, in the case of shares on any branch register, at the relevant registration office and, in the case of shares on the principal register, at the place at which the principal register is located.

The Board may, in its absolute discretion, decline to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share option scheme upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien.

The Board may decline to recognize any instrument of transfer unless a fee of such maximum sum as the [●] may determine to be payable or such lesser sum as the Board may from time to time require is paid to the Company in respect thereof, the instrument of transfer is properly stamped (if applicable), is in respect of only one class of share and is lodged at the relevant registration office or the place at which the principal register is located accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in a newspaper circulating generally in Hong Kong or, where applicable, any other newspapers in accordance with the requirements of the [●], at such times and for such periods as the Board may determine. The register of members shall not be closed for periods exceeding in the whole 30 days in any year.

Fully paid shares shall be free from any restriction with respect to the right of the holder thereof to transfer such shares (except when permitted by the [●]) and shall also be free from all liens.

(l) Power of the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its own shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirement imposed from time to time by code, rules or regulations issued from time to time by the [●] and/or the Securities and Futures Commission of Hong Kong.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Where the Company purchases for redemption a redeemable Share, purchases not made through the market or by tender shall be limited to a maximum price, and if purchases are by tender, tenders shall be available to all members alike.

(m) Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to the ownership of shares in the Company by a subsidiary.

(n) Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the Board.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide:

(i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid, although no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share; and
(ii) all dividends shall be apportioned and paid pro rata in accordance with the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Board may deduct from any dividend or other monies payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.

Where the Board or the Company in general meeting has resolved that a dividend should be paid or declared on the share capital of the Company, the Board may resolve:

(aa) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the members entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or
(bb) that the members entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit.

Upon the recommendation of the Board the Company may by ordinary resolution in respect of any one particular dividend of the Company determine that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to members to elect to receive such dividend in cash in lieu of such allotment.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, but in the case of joint holders, shall be addressed to the holder whose name stands first in the register of members of the Company in respect of the shares at his address as appearing in the register, or addressed to such person and at such address as the holder or joint holders may in writing so direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent and shall be sent at the holder’s or joint holders’ risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared, the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

The Board may, if it thinks fit, receive from any member willing to advance the same, and either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the moneys so advanced may pay interest at such rate (if any) not exceeding 20 % per annum, as the Board may decide, but a payment in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights or privileges as a member in respect of the share or the due portion of the shares upon which payment has been advanced by such member before it is called up.

All dividends, bonuses or other distributions unclaimed for one year after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends, bonuses or other distributions unclaimed for six years after having been declared may be forfeited by the Board and, upon such forfeiture, shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

The Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions or after the first occasion on which such a cheque or warrant is returned undelivered.

(o) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. Every instrument of proxy, whether for a specified meeting or otherwise, shall be in such form as the Board may from time to time approve, provided that any form issued to a member for use by him for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which any business is to be transacted shall be such as to enable the member, according to his intentions, to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such business.

(p) Calls on shares and forfeiture of shares

The Board may from time to time make such calls as it may think fit upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times. A call may be made payable either in one sum or by instalments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding 20% per annum as the Board shall fix from the day appointed for the payment thereof to the time of actual payment, but the Board may waive payment of such interest wholly or in part. The Board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the monies so advanced the Company may pay interest at such rate (if any) not exceeding 20% per annum as the Board may decide.

If a member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve not less than 14 days’ notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment. The notice will name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and it shall also name the place where payment is to be made. The notice shall also state that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, nevertheless, remain liable to pay to the Company all moneys which, at the date of forfeiture, were payable by him to the Company in respect of the shares together with (if the Board shall in its discretion so require) interest thereon from the date of forfeiture until payment at such rate not exceeding 20 per cent per annum as the Board may prescribe.

(q) Inspection of corporate records

Members of the Company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. However, the members of the Company will have such rights as may be set forth in the Articles. The Articles provide that for so long as any part of the share capital of the Company is listed on the [●], any member may inspect any register of members of the Company maintained in Hong Kong (except when the register of member is closed) without charge and require the provision to him of copies or extracts thereof in all respects as if the Company were incorporated under and were subject to the Hong Kong Companies Ordinance.

An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or outside the Cayman Islands, as its directors may, from time to time, think fit.

(r) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, and continues to be present until the conclusion of the meeting.

The quorum for a general meeting shall be two members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

(s) Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority members in relation to fraud or oppression. However, certain remedies may be available to members of the Company under Cayman Islands law, as summarized in paragraph 3(f) of this Appendix.

(t) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares:

(i) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, then the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively; and
(ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, on the shares held by them respectively.

In the event that the Company is wound up (whether the liquidation is voluntary or compelled by the court) the liquidator may, with the sanction of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members and the members within each class. The liquidator may, with the like sanction, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator shall think fit, but so that no member shall be compelled to accept any shares or other property upon which there is a liability.

(u) Untraceable members

In accordance with the Articles, the Company is entitled to sell any of the shares of a member who is untraceable if:

(i) all cheques or warrants, being not less than three in total number, for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years;
(ii) upon the expiry of the 12 years and 3 months period (being the 3 months notice period referred to in sub-paragraph (iii)), the Company has not during that time received any indication of the existence of the member; and
(iii) the Company has caused an advertisement to be published in accordance with the rules of the stock exchange of the Relevant Territory (as defined in the Articles) giving notice of its intention to sell such shares and a period of three months has elapsed since such

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

advertisement and the stock exchange of the Relevant Territory (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds.

(v) Subscription rights reserve

Pursuant to the Articles, provided that it is not prohibited by and is otherwise in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of the shares to be issued on the exercise of such warrants, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of such shares.

3. CAYMAN ISLANDS COMPANY LAW

The Company was incorporated in the Cayman Islands as an exempted company on 10 July 2008 subject to the Companies Law. Certain provisions of Cayman Islands company law are set out below but this section does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of the Companies Law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar.

(a) Company operations

As an exempted company, the Company must conduct its operations mainly outside the Cayman Islands. Moreover, the Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.

(b) Share capital

In accordance with the Companies Law, a Cayman Islands company may issue ordinary, preference or redeemable shares or any combination thereof. The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangements in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association, in such manner as the company may from time to time determine including, but without limitation, the following:

(i) paying distributions or dividends to members;

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(ii) paying up unissued shares of the company to be issued to members as fully paid bonus shares;
(iii) in the redemption and repurchase of shares (in accordance with the detailed provisions of section 37 of the Companies Law);
(iv) writing-off the preliminary expenses of the company;
(v) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and
(vi) providing for the premium payable on redemption or purchase of any shares or debentures of the company.

Notwithstanding the foregoing, the Companies Law provides that no distribution or dividend may be paid to members out of the share premium account unless, immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business.

It is further provided by the Companies Law that, subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if authorised to do so by its articles of association, by special resolution reduce its share capital in any way.

The Articles include certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required.

(c) Financial assistance to purchase shares of a company or its holding company

There are no statutory prohibitions in the Cayman Islands on the granting of financial assistance by a company to another person for the purchase of, or subscription for, its own, its holding company’s or a subsidiary’s shares. Therefore, a company may provide financial assistance provided the directors of the company when proposing to grant such financial assistance discharge their duties of care and acting in good faith, for a proper purpose and in the interests of the company. Such assistance should be on an arm’s-length basis.

(d) Purchase of shares and warrants by a company and its subsidiaries

A company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a member. In addition, such a company may, if authorised

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

to do so by its articles of association, purchase its own shares, including any redeemable shares. Nonetheless, if the articles of association do not authorise the manner of purchase, a company cannot purchase any of its own shares without the manner of purchase first being authorised by an ordinary resolution of the company. A company may not redeem or purchase its shares unless they are fully paid. Furthermore, a company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. In addition, a payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

A Cayman Islands company may be able to purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. Thus there is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases. The directors of a company may under the general power contained in its memorandum of association be able to buy and sell and deal in personal property of all kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

(e) Dividends and distributions

With the exception of section 34 of the Companies Law, there are no statutory provisions relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see sub-paragraph 2(n) of this Appendix for further details).

(f) Protection of minorities and shareholders’ suits

It can be expected that the Cayman Islands courts will ordinarily follow English case law precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions thereto) which permit a minority member to commence a representative action against or derivative actions in the name of the company to challenge:

(i) an act which is ultra vires the company or illegal;
(ii) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company; and
(iii) an irregularity in the passing of a resolution the passage of which requires a qualified (or special) majority which has not been obtained.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Where a company (not being a bank) is one which has a share capital divided into shares, the court may, on the application of members thereof holding not less than one-fifth of the shares of the company in issue, appoint an inspector to examine the affairs of the company and, at the direction of the court, to report thereon.

Moreover, any member of a company may petition the court which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.

In general, claims against a company by its members must be based on the general laws of contract or tort applicable in the Cayman Islands or be based on potential violation of their individual rights as members as established by a company’s memorandum and articles of association.

(g) Disposal of assets

There are no specific restrictions in the Companies Law on the power of directors to dispose of assets of a company, although it specifically requires that every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interest of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(h) Accounting and auditing requirements

Section 59 of the Companies Law provides that a company shall cause proper records of accounts to be kept with respect to (i) all sums of money received and expended by the company and the matters with respect to which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company and (iii) the assets and liabilities of the company.

Section 59 of the Companies Law further states that proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

(i) Exchange control

There are no exchange control regulations or currency restrictions in effect in the Cayman Islands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Council:

(i) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(ii) in addition, that no tax be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by the Company:
(aa) on or in respect of the shares, debentures or other obligations of the Company; or
(bb) by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Law (1999 Revision).

The undertaking for the Company is for a period of twenty years from 9 June 2009.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments. The Cayman Islands are not a party to any double tax treaties.

(k) Stamp duty on transfers

There is no stamp duty payable in the Cayman Islands on transfers of shares of Cayman Islands companies save for those which hold interests in land in the Cayman Islands.

(l) Loans to directors

The Companies Law contains no express provision prohibiting the making of loans by a company to any of its directors. However, the Articles provide for the prohibition of such loans under specific circumstances.

(m) Inspection of corporate records

The members of the company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company’s articles of association.

(n) Register of members

A Cayman Islands exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or outside the Cayman Islands, as the directors may, from time to time, think fit. The Companies Law contains no requirement for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(o) Winding up

A Cayman Islands company may be wound up either by (i) an order of the court or (ii) voluntarily by a special resolution of its members. The court also has authority to order winding up in a number of specified circumstances including where, in the opinion of the court, it is just and equitable that such company be so wound up.

A voluntary winding up of a company occurs where the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum expires, or where the event occurs on the occurrence of which the memorandum provides that the company is to be dissolved. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above. Upon appointment of a liquidator, the responsibility for the company’s affairs rests entirely in his hands and no further executive action may be carried out without his approval.

A company is placed in liquidation either by an order of the court or by a special resolution of its members. A liquidator is appointed whose duties are to collect the assets of the company (including the amount (if any) due from the contributories), settle the list of creditors and discharge the company’s liability to them, ratably if insufficient assets exist to discharge the liabilities in full, and settle the list of contributories (“members”) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

In the case of a members’ voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets.

When the affairs of a company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. This general meeting shall be called by public notice or such other means as the Registrar of Companies may direct.

For the purpose of conducting the proceedings in winding up a company and assisting the court, there may be appointed one or more persons to be called an official liquidator or official liquidators; and the court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more than one persons are appointed to such office, the court shall declare whether any act required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the court.

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APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(p) Reconstructions

Reconstructions and amalgamations are governed by specific statutory provisions under the Companies Law whereby such arrangements may be approved by a majority in number representing 75% in value of members or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member would have the right to express to the court his view that the transaction for which approval is being sought would not provide the members with a fair value for their shares, nonetheless the courts are unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were approved and consummated the dissenting member would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of their shares) ordinarily available, for example, to dissenting members of a United States corporation.

(q) Take-overs

Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice require the dissenting members to transfer their shares on the terms of the offer. A dissenting member may apply to the court of the Cayman Islands within one month of the notice objecting to the transfer. The burden is on the dissenting member to show that the court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority members.

(r) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, save to the extent any such provision may be held by the court to be contrary to public policy, for example, where a provision purports to provide indemnification against the consequences of committing a crime.

4. GENERAL

Appleby, the Company’s legal adviser on Cayman Islands law, have sent to the Company a letter of advice which summarises certain aspects of the Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraph headed “Documents Available for Inspection” in Appendix VI. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.

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APPENDIX V STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT THE GROUP

1. Incorporation

The Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 10 July 2008. The Company has established a principal place of business in Hong Kong at 9th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong. The Company was registered as a non-Hong Kong company under Part XI of the Companies Ordinance on 20 October 2008. In connection with such registration, King & Wood of 9th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong has been appointed as the agent of the Company for acceptance of service of process and any notices served on the Company in Hong Kong. As the Company was incorporated in the Cayman Islands, it operates subject to the Companies Law and its constitution which comprises a memorandum and articles of association. A summary of certain relevant parts of its constitution and certain relevant aspects of the Companies Law is set out in Appendix IV to this document.

2. Subsidiaries

The Company’s principal subsidiaries are listed in the Accountants’ Report set out in Appendix I to this document.

3. Changes in share capital of the Company

As at the date of the Company’s incorporation, its authorised share capital was HK$380,000 divided into 3,800,000 Shares of par value of HK$0.1 each. The following sets out the changes in the share capital since the date of the Company’s incorporation:

(a) On 10 July, 2008, one Share was allotted and issued to Offshore Incorporations (Cayman) Limited for cash at par and such Share was transferred to Golden Land on 25 September 2008.
(b) On 25 September 2008, the Company allotted and issued 79 Shares and 20 Shares to Golden Land and Golden Morning at par value respectively.
(c) [on [●], the Company entered into a sale and purchase agreement with Mr. Zhao and Ms. Chan, under which the Company acquired the entire issued share capital of BVI Kingworld in consideration of the allotment and issue of [6,864] fully paid up Shares and [1,716] fully paid up Shares to Golden Land and Golden Morning respectively.]
(d) On [●], a shareholders’ resolution was passed to increase the authorised share capital of the Company, from HK$380,000 divided into 3,800,000 Shares of par value of HK$0.1 each, to HK$[1,000,000,000] divided into [10,000,000,000] Shares of par value of HK$0.1 each.

Except as described above and in the sub-section 4 below headed “Written resolutions passed by the Shareholders”, there have been no other changes in the share capital of the Company since its incorporation.

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APPENDIX V STATUTORY AND GENERAL INFORMATION

Changes in the share capital (or registered capital, as the case may be) of the Company’s subsidiaries and Zhuhai Jinming occurred within the two years immediately preceding the date of this document were as follows:

SZ Kingworld

On 25 May 2008, BVI Kingworld and HK Kingworld entered into an equity transfer agreement, pursuant to which BVI Kingworld transferred 100% equity interest in SZ Kingworld to HK Kingworld for a consideration of RMB88,824,775 (“SZ Kingworld Equity Transfer”). After completion of the SZ Kingworld Equity Transfer, SZ Kingworld was wholly owned by HK Kingworld.

Zhuhai Jinming

Pursuant to a shareholders’ resolution dated 28 October 2008, Zhuhai Jinming increased its registered capital from RMB2,880,000 to RMB5,000,000. RMB1,060,000 of such additional increase of RMB2,120,000 was contributed by SZ Kingworld and the remaining RMB1,060,000 of such additional increase of RMB2,120,000 was contributed by Guangdong Minglin. After completion of the increase of registered capital, the total registered capital of Zhuhai Jinming was RMB5,000,000 of which RMB2,500,000 was contributed by SZ Kingworld, representing 50% of total registered capital of Zhuhai Jinming and RMB2,500,000 was contributed by Guangdong Minglin, representing the remaining 50% of total registered capital of Zhuhai Jinming.

HK Kingworld

On 14 May 2008, HK Kingworld was incorporated in Hong Kong with limited liability with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each, with one share of HK$1 was issued and allotted to BVI Kingworld.

On 25 May 2008, HK Kingworld and BVI Kingworld entered into a subscription agreement, pursuant to which subject to the completion of the SZ Kingworld Equity Transfer, BVI Kingworld shall subscribe for 99 new shares of HK1.00 each in the authorised share capital of HK Kingworld to be allotted and issued for a consideration of RMB88,824,775.

On 29 September 2008, the authorised share capital of HK Kingworld was increased from HK$10,000 divided into 10,000 shares of HK$1 each to HK$300,000,000 divided into 300,000,000 shares of HK$1 each by the creation of an additional 299,990,000 shares of HK$1 each. On the same date, BVI Kingworld and HK Kingworld entered into a supplemental deed to the subscription agreement dated 25 May 2008 to revise the terms of such subscription agreement. Pursuant to the supplemental deed to the subscription agreement, subject to the completion of the SZ Kingworld Equity Transfer, BVI Kingworld shall subscribe for 101,162,536 new shares of HK$1 each instead of 99 new shares of HK$1 each in the authorised share capital of HK Kingworld to be allotted and issued for a consideration of HK$101,162,536 (equivalent to RMB88,824,775).

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APPENDIX V STATUTORY AND GENERAL INFORMATION

101,162,536 shares of HK$1 each in the authorised share capital of HK Kingworld were allotted and issued to BVI Kingworld on 29 September 2008 pursuant to the said supplemental deed to the subscription agreement.

BVI Kingworld

On 23 September 2009, BVI Kingworld issued and allotted 80 and 20 new ordinary shares of par value of USD1 each in the share capital of BVI Kingworld to Mr. Zhao and Ms. Chan respectively by capitalising a shareholders’ loan (in an aggregate amount of RMB89,000,000 provided by Mr. Zhao and Ms. Chan to BVI Kingworld according to their respective shareholdings in BVI Kingworld) into the capital of BVI Kingworld.

Written resolutions passed by the Shareholders

By resolutions approved in writing by the Shareholders on [●] and [●], the Company resolved, among other things:

(1) to increase the authorised share capital of the Company, from HK$380,000 divided into 3,800,000 Shares of par value of HK$0.1 each to HK$[1,000,000,000] divided into [10,000,000,000] Shares of par value of HK$0.1 each.
(2) that the acquisition by the Company of 100% issued share capital in BVI Kingworld was approved and in consideration of the acquisition, the Directors were authorised to allot and issue [6,864] Shares and [1,716] Shares to Golden Land and Golden Morning respectively, all credited as fully paid.
(3) [●]
(4) [●]
(5) [●]
(6) [●]
(7) to adopt and approve the Memorandum and the Articles, the terms of which are summarized in the section entitled “Appendix IV — Summary of the Constitution of the Company and Cayman Islands Company Law”.

5. [ ● ]

The companies comprising the Group underwent [●] to rationalize the Group’s structure [●], pursuant to which the Company became the holding company of the Group.

— V-3 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

The Group underwent the following restructuring:

(a) Incorporation of HK Kingworld

HK Kingworld was incorporated under the laws of Hong Kong on 14 May 2008 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each, of which 1 share was allotted and issued to BVI Kingworld on date of its incorporation.

(b) Acquisition of equity interest in SZ Kingworld by HK Kingworld

On 25 May 2008, BVI Kingworld and HK Kingworld entered into an equity transfer agreement relating to the SZ Kingworld Equity Transfer. After completion of the SZ Kingworld Equity Transfer, SZ Kingworld was wholly owned by HK Kingworld.

(c) Increase of authorised share capital of HK Kingworld and subscription of shares in the HK Kingworld

On 25 May 2008, HK Kingworld and BVI Kingworld entered into a subscription agreement, pursuant to which subject to the completion of SZ Kingworld Equity Transfer, BVI Kingworld shall subscribe for 99 new shares of HK$1 each in the authorised share capital of HK Kingworld to be allotted and issued for a consideration of RMB88,824,775.

On 29 September 2008, the authorised share capital of HK Kingworld was increased from HK$10,000 divided into 10,000 shares of HK$1 each to 300,000,000 divided into 300,000,000 shares of HK$1 each by the creation of an additional 299,990,000 shares of HK$1 each. On the same date, BVI Kingworld and HK Kingworld entered into a supplemental deed to the subscription agreement dated 25 May 2008 to revise the terms of such subscription agreement. Pursuant to the supplemental deed to the subscription agreement, subject to the completion of the SZ Kingworld Equity Transfer, BVI Kingworld shall subscribe for 101,162,536 new shares of HK$1 each instead of 99 new shares of HK$1 each in the authorised share capital of HK Kingworld to be allotted and issued for a consideration of HK$101,162,536 (equivalent to RMB88,824,775).

— V-4 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

(d) Incorporation of the BVI companies

(i) On 27 May 2008, Golden Land was incorporated in the BVI with limited liability with an authorised capital of US50,000 divided into 50,000 shares of US$1 each. 1 share in Golden Land was allotted and issued to Mr. Zhao on the date of its incorporation.

(ii) On 27 May 2008, Golden Morning was incorporated in the BVI with limited liability with an authorised capital of US50,000 divided into 50,000 shares of US$1 each. 1 share in Golden Morning was allotted and issued to Ms. Chan on the date of its incorporation.

(e) Incorporation of the Company

The Company was incorporated under the laws of the Cayman Islands on 10 July 2008 with an authorised share capital of HK$380,000 divided into 3,800,000 shares of HK$0.10 each.

Upon incorporation of the Company, one share was issued and allotted to the initial subscriber which was transferred to Golden Land on 25 September 2008.

On 25 September 2008, the Company issued and allotted 79 Shares and 20 Shares to Golden Land and Golden Morning respectively.

(f) Share swap between BVI Kingworld and the Company

Pursuant to a share transfer agreement dated [●] made among Mr. Zhao, Ms. Chan and the Company referred to item [●] of the paragraph headed “Summary of material contracts” in this section of the document, the Company acquired from Mr. Zhao and Ms. Chan 88 and 22 ordinary shares of US1.00 each respectively in the issued share capital of BVI Kingworld in consideration of which the Company allotted and issued [6,864] and [1,716] Shares, all credited as fully paid, to Golden Land and Golden Morning respectively. Upon completion of the above share swap, the Company become the holding company of the Group.

(g) Increase of the authorised share capital of the Company

On [●], all the Shareholders resolved to increase the authorised share capital of the Company from HK$380,000 to HK$[1,000,000,000] by creation of [9,996,200,000] new Shares ranking pari passu in all respects with the then existing issued Shares.

(h) [●].

— V-5 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

6. Repurchases of the Company’s own securities

This section includes information relating to the repurchase of the securities of the Company, [●] to be included in this document concerning such repurchase.

(a) Relevant Legal and Regulatory Requirements

[●]

(i) Shareholders’ Approval

All proposed repurchases of securities by a company [●] (which must be fully paid up in case of shares) must be approved in advance by ordinary resolutions of the Shareholders in a general meeting, either by way of general mandate or by specific approval of a particular transaction.

Pursuant to the written resolution of the Shareholders passed on [●], the Repurchase Mandate was given to the Directors authorising any repurchase by the Company of Shares [●] for this purpose, up to 10% of the aggregate nominal value of the share capital of the Company in issue immediately following completion of [●], such mandate will expire at the earliest of (i) the conclusion of the next annual general meeting of the Company, (ii) the date by which the Company’s next annual general meeting is required by applicable laws and the Articles to be held, or (iii) the time when such mandate is being revoked or varied by ordinary resolutions of the Shareholders in a general meeting (the ‘‘Relevant Period’’).

(ii) Source of Funds

The repurchase of the securities of the Company listed [●] must be funded out of funds legally available for the purpose in accordance with the Memorandum and the Articles and the applicable laws of the Cayman Islands. The Company may not repurchase the Shares [●] for consideration other than cash or for settlement otherwise than in accordance with [●]. Subject to the foregoing, the Company may make repurchases with funds which would otherwise be available for dividend or distribution or out of an issue of new Shares for the purpose of the repurchases.

(b) Reasons for Repurchases

The Directors believe that it is in the Company’s and the Shareholders’ best interests for the Directors to have general authority to execute repurchases of the securities of the Company in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings per Share and will only be made where the Directors believe that such repurchases will benefit the Company and the Shareholders.

— V-6 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

(c) Funding of Repurchases

In repurchasing securities, the Company may only apply funds legally available for such purpose in accordance with the Memorandum and the Articles, [●] and the applicable laws of the Cayman Islands.

(d) Share Capital

The exercise in full of the current repurchase mandate, on the basis of [600,000,000] Shares in issue immediately after [●], could accordingly result in up to [60,000,000] Shares being repurchased by the Company during the Relevant Period.

(e) General

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any of its associates (as defined in the [●]) currently intends to sell any of the Shares to the Company or the subsidiaries.

The Directors have undertaken [●] that, so far as the same may be applicable, they will exercise the repurchase mandate in accordance with [●], the Memorandum and the Articles, the Cayman Islands Company Law and any other applicable laws of the Cayman Islands.

If, as a result of any repurchase of the securities of the Company, a shareholder’s proportionate interest in the voting rights of the Company is increased, such increase will be treated as an acquisition for the purposes of [●]. Accordingly, a Shareholder or a group of Shareholders acting in concert could obtain or consolidate control of the Company and may become obliged to make a mandatory offer in accordance with [●]. Save as aforesaid, the Directors are not aware of any consequences of repurchases which would arise under [●] as a consequence of any repurchases pursuant to the Repurchase Mandate.

The Company has not made any repurchases of its own securities since its incorporation.

No connected person [●] has notified the Company that he/she/it has a present intention to sell his/her/its Shares to the Company, or has undertaken not to do so, if the repurchase mandate is exercised.

— V-7 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

B. FURTHER INFORMATION ABOUT THE BUSINESS OF THE GROUP

Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within the two years immediately preceding the date of this document that are or may be material:

(a) an instrument of transfer dated 8 April 2008 made between Morning Gold and BVI Kingworld for the transfer of 200,000 ordinary shares in the issued share capital of Yuen Tai from BVI Kingworld to Morning Gold at nil consideration;
(b) an equity transfer agreement dated 25 May 2008 entered into between BVI Kingworld and HK Kingworld relating to the SZ Kingworld Equity Transfer;
(c) a subscription agreement dated 25 May 2008 entered into between HK Kingworld and BVI Kingworld, pursuant to which subject to the completion of the SZ Kingworld Equity Transfer, BVI Kingworld shall subscribe for 99 new shares of HK1.00 each in the authorised share capital of HK Kingworld to be allotted and issued for a consideration of RMB88,824,775;
(d) a sale and purchase of property agreement dated 11 August 2008 entered into between SZ Industry and SZ Kingworld, pursuant to which SZ Industry agreed to sell and SZ Kingworld agreed to purchase a property situated at Equipment rooms, Basement -1 Floor, Kingworld Department Store, Jiefang Road, Luohu District, Shenzhen, Guangdong Province, the PRC at a consideration of RMB45,888,000;
(e) a supplemental deed to the subscription agreement relating to the subscription of shares in HK Kingworld dated 29 September 2008 entered into between BVI Kingworld and HK Kingworld for purpose of revising the terms of the subscription agreement dated 25 May 2008 executed by the parties. Pursuant to such supplemental deed to the subscription agreement, subject to the completion of the SZ Kingworld Equity Transfer, BVI Kingworld shall subscribe for 101,162,536 instead of 99 new shares of HK1.00 each in the authorised share capital of HK Kingworld to be allotted and issued for a consideration of HK$101,162,536 (equivalent to RMB88,824,775);
(f) a trademark licence agreement dated 1 January 2009 entered into between SZ Industry and SZ Kingworld, pursuant to which SZ Industry as licensor has granted to SZ Kingworld as licensee a right to use two registered trademarks and a trademark being applied for registration under certain terms and conditions for a term from 1 January 2009 to 6 July 2017 at nil consideration;
(g) a lease agreement dated 1 January 2010 between SZ Kingworld as landlord and Shenzhen You He Medicine Company Limited (深圳市友和醫藥有限公司) as tenant in respect of leasing a property in the total area of 439 sq.m. situated at Basement -1 Floor, Kingworld

— V-8 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Department Store, Jiefang Road, Luohu District, Shenzhen, the PRC commencing from 1 January 2010 to 30 April 2012 at a monthly rental of RMB53,239.73, which will be increased by 5% every year from 1 May 2010;

(h) a lease agreement dated 1 January 2010 between SZ Kingworld as landlord and Mr. Wu Qiu Wei（吳球偉）as tenant in respect of leasing a property in the total area of 517 sq.m. situated at Basement -1 Floor, Kingworld Department Store, Jiefang Road, Luohu District, Shenzhen, the PRC commencing from 8 January 2010 to 7 October 2012 at a monthly rental of RMB62,699.20;
(i) a share transfer agreement dated [●] made among Mr. Zhao, Ms. Chan and the Company, pursuant to which the Company acquired from Mr. Zhao and Ms. Chan 88 and 22 ordinary shares of US1.00 each in the issued share capital of BVI Kingworld respectively in consideration of which the Company (i) allotted and issued [6,864] and [1,716] Shares, all credited as fully paid to Golden Land and Golden Morning respectively;
(j) [The Deed of Non-Competition, the details of which are set out in the section headed “Relationship with Controlling Shareholders” in this document;]
(k) The Undertaking Letter, the details of which are set out in the section headed “Relationship with Controlling Shareholders” in this document.
(l) a supplemental agreement dated 27 April 2010 entered into between SZ Kingworld and SZ Industry, pursuant to which SZ Industry agreed that the licence to use certain trademarks granted by SZ Industry to SZ Kingworld under the letter of authorisation to use trademarks dated 10 January 2008 is an exclusive licence;
(m) a deed of undertaking and indemnity dated 9 October 2010 given by SZ Kingworld Lifeshine in favour of the Group to indemnify the Group for any loss and expenses incurred by the Group in the event of any action and/or claims in relation to Imada Red Flower Oil brought against the Group by any third parties.
(n) a supplemental agreement dated 27 April 2010 entered into between SZ Kingworld and SZ Industry, pursuant to which SZ Industry agreed that the licence to use certain trademarks granted by SZ Industry to SZ Kingworld under the trademark licence agreement dated 1 January 2009 is an exclusive licence;
(o) [a deed of indemnity dated [●] entered into by Golden Land, Mr. Zhao, Golden Morning and Ms. Chan, in favour of the Company (for itself and as trustee for the other members of the Group) in connection with certain estate duty, tax and other indemnities;]
(p) [●];
(q) [●]
(r) [●].

— V-9 —

APPENDIX V

STATUTORY AND GENERAL INFORMATION

Intellectual property rights
(a) Trademark

As at the Latest Practicable Date, the Group had registered the following trademarks:

Registered Registration Place of Trademark Owner Class number/ Term of validity registration SZ Kingworld 5 200014639 18 December 1999 to Hong Kong 28 December 2016 SZ Kingworld 5 200014640 18 December 1999 to Hong Kong 28 December 2016 A. [(Note][1)] SZ Kingworld 5,30,35 301541682 9 February 2010 to Hong Kong 8 February 2020 B. [(Note][2)]

==> picture [59 x 57] intentionally omitted <==

C.

==> picture [55 x 55] intentionally omitted <==

Notes:

The applicant claims the colours green and gold as elements of mark “A” in the series.
The applicant claims the colour gold as an element of mark “B” in the series.

— V-10 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Pursuant to a letter of authorisation to use trademarks executed by SZ Kingworld and SZ Industry and a trademark licence agreement entered into between SZ Industry as licensor and SZ Kingworld as licensee, SZ Industry granted licences to SZ Kingworld to use its certain trademarks (of which some of them are pending registration as listed below). Details of the letter of authorisation to use trademarks and the trademark license agreement are as follows:

Date of letter of
authorisation/			Trademark
trademark licence			Registration No./
agreement	Licensor	Licensee	Application No.	Consideration	Period of license
10 January 2008_(Note (i))_	SZ Industry	SZ Kingworld	Application No.6412368	Nil	10 January 2008 to
			Application No.6413656		9 January 2018
			Application No.6495497
			Application No.6495498
1 January 2009_(Note (ii))_	SZ Industry	SZ Kingworld	Registration No.1049781	Nil	1 January 2009 to 6
			Registration No.1049782		July 2017 (Note (iii))
			Application No.5682706

Notes:

(i) On 27 April 2010, a supplemental agreement was executed by SZ Kingworld and SZ Industry, pursuant to which SZ Industry agreed that the licence to use certain trademarks granted by SZ Industry to SZ Kingworld under the letter of authorisation to use trademarks dated 10 January 2008 is an exclusive licence.
(ii) On 27 April 2010, a supplemental agreement was executed by SZ Kingworld and SZ Industry, pursuant to which SZ Industry agreed that the licence to use certain trademarks granted by SZ Industry to SZ Kingworld under the trademark licence agreement dated 1 January 2009 is an exclusive licence.
(iii) Application for filing of such trademark licence agreement relating to the registered trademarks with Registration Nos. 1049781 and 1049782 has been submitted to the PRC Trademark Office on 6 March 2009. On 25 June 2009, the PRC Trademark Office approved the filing of such trademark licence agreement relating to trademarks with Registration Nos.1049781 and 1049782, and the period of license granted is from 1 January 2009 to 31 December 2011.

Details of the aforesaid trademarks are as follows:

Registered trademarks[(Note][1)]

Trademark

==> picture [36 x 57] intentionally omitted <==

==> picture [93 x 20] intentionally omitted <==

Registered Place of Registration Registration Owner Registration Class(es) No. Date Expiry Date SZ Industry PRC 35 1049781 7 July 1997 6 July 2017 SZ Industry PRC 35 1049782 7 July 1997 6 July 2017

— V-11 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Note:

The Directors are of the opinion that the abovementioned trademark license agreement has provided sufficient protection to the Group for the continued use of the abovementioned registered trademarks. Pursuant to the abovementioned trademark license agreement, upon expiration of the license period of the abovementioned registered trademarks (i.e. 6 July 2017), SZ Kingworld and SZ Industry may renew such licence agreement if an extension of the license period is necessary. As SZ Industry is a company controlled by Mr. Zhao and Ms. Chan (for further details, please refer to the section headed “Relationship with Controlling Shareholders” of this Document), the abovementioned registered trademarks will not be transferred from SZ Industry to the Group.

Trademarks pending registration

		Place of	Date of		Application
Trademark	Applicant	application	Application	Class(es)	No.
	SZ Industry	PRC	26 October 2006	35	5682706
	SZ Industry	PRC	3 December 2007	5	6412368
	SZ Industry	PRC	3 December 2007	30	6413656
	SZ Industry	PRC	7 January 2008	30	6495497
	SZ Industry	PRC	7 January 2008	5	6495498

— V-12 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

(b) Domain Names

Pursuant to two letters of authorisation to use domain names dated 17 April 2003 and 24 October 2006 both issued by SZ Industry to SZ Kingworld, SZ Industry granted licences to SZ Kingworld to use its certain domain names at nil consideration. Details of licence to use domain names are listed below:

Registrant Domain Name (as Licensor) Licensee Date of expiration Period of Licence kingworld.cn SZ Industry SZ Kingworld 17 March 2013 17 April 2003 to 17 March 2013 kingworld.com.cn SZ Industry SZ Kingworld 24 September 2011 24 October 2006 to 24 September 2011

Save as aforesaid, there are no other trade or service marks, patents, other intellectual or industrial property rights which are or may be material in relation to Group’s business.

(c) [ ● ] license

SZ Kingworld has entered into a license agreement with [●] (Shanghai) whereby [●] (Shanghai) has granted a non-exclusive license to SZ Kingworld to produce and sell sugar confectioneries and nutritional supplements within the health care segment bearing the Licensed Material (as licensed to SZ Kingworld) in the PRC (excluding Hong Kong, Macao and Taiwan) from 1 October 2007 to 30 September 2010.

HK Kingworld has also entered into a license agreement with [●] (Asia Pacific) whereby [●] (Asia Pacific) has granted a non-exclusive license to HK Kingworld to produce and sell sugar confectioneries and nutritional supplements within the healthcare segment bearing the Licensed Material (as licensed to HK Kingworld) in Hong Kong and Macao from 1 August 2008 to 30 September 2010.

[(d) Information management systems

— V-13 —

APPENDIX V

STATUTORY AND GENERAL INFORMATION

SZ Kingworld has also entered into a mobile service agreement with an independent services provider pursuant to which a software which is integrated into the ERP System is provided to enable the Company to send messages via cell phones (“SMS”) to its customers upon the delivery of products. Such mobile service software was provided to SZ Kingworld free of charge, while the annual service fee is RMB1,200 starting from the second year and the charge per SMS is RMB0.1.

3. Licenses and permits

Licences and Permits required for the Group’s operations

We set out below a table summarizing the licences and permits obtained by members of the Group relating to the Group’s operations and their expiry dates:

SZ Kingworld

	Name of Licence/ Permit	Registration Number	Expiry Date
1	Business Licence	Registration No.	29 December 2016
	(企業法人營業執照)	440301503328289
2	Certificate of Approval for	No.: 商外資資審字	Issued on 23 February
	Establishment of Enterprises with	[2006]0585號	2009 with a fixed
	Investment of Taiwan, Hong Kong,		operation period for 20
	Macao and Overseas Chinese in	Shang Wai Zi Zi Shen	years
	the People Republic of China	Zi [2006] No. 0585
	(台港澳僑投資企業批准證書)
3	GSP Certificate	No. A-GD-08-0159	20 September 2013
	(藥品經營質量管理規範認證證書)
4	Pharmaceutical Trade Licence of	No. 粵AA7550748	14 December 2014
	the People’s Republic of China	No. Yue AA7550748
	(中華人民共和國藥品經營許可證)
5	Food Hygiene Licence for	No. GDFDA健證字[2005]	21 January 2013
	Enterprises Dealing in Healthcare	第0302J0104號
	Food Products
	(保健食品經營企業衛生許可證)	GDFDA Jian Zheng Zi
		[2005] No. 0302J0104

— V-14 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION
	Name of Licence/ Permit	Registration Number	Expiry Date
6	Food Hygiene Licence	No.粵衛食證字[2005]	28 March 2011
	(食品衛生許可證)	第0301B03713
		Yue Wei Shi Zheng Zi
		[2005] No. 0301B03713
7	Permits for Medical Devices	No.: 粵022431	12 September 2011
	Operation Enterprises of the	No. Yue 022431
	People’s Republic of China
	(中華人民共和國醫療器械經營企業
	許可證)
8	Certificate of Approval for	No.: 深貿管准證字	Issued on 25 November
	Enterprises with Foreign Trade	第2002-1782號	2002 with no fixed
	Rights of the People’s Republic of		term of expiry
	China	Shen Mao Guan
	(中華人民共和國進出口企業資格證	Zhun Zheng Zi
	書)	No. 2002-1782
9	Registration Form of Foreign	No.: 00666276	Issued on 12 February
	Trade Dealers		2009 with no fixed
	(對外貿易經營者備案登記表)		term of expiry
10	Registration Permit for Dealers of	Custom Registration No.:	22 January 2013
	Imported and Exported Goods of	4403149790
	the People’s Republic of China
	(中華人民共和國海關進出口貨物收
	發貨人報關註冊登記證書)
11	Registration Certificate of	No.: 4700621142	7 August 2014 with a
	Self-inspection Company		fixed period for 5
	(自理報檢單位備案登記證明書)		years
12	Tax Registration Certificate	No.: 深國稅登	Issued on 6 March
	(稅務登記證)	字440301192426435	2009 with no fixed
			term of expiry
		Shen Guo Shui Deng
		Zi 440301192426435
13	Tax Registration Certificate	No.: 深地稅	Issued on 9 March
	(稅務登記證)	字440300192426435	2009 with no fixed
			term of expiry
		Shen Di Shui Zi
		440300192426435

— V-15 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

	Name of Licence/ Permit	Registration Number	Expiry Date
14	Organizational Code Certificate of	Code.: 19242643-5	21 December 2013
	the People’s Republic of China
	(組織機構代碼證)
15	Foreign Exchange Registration	No.00079973	Issued on [●] with no
	Certificate of the People’s		fixed term of expiry
	Republic of China
	(外匯登記證)
Wuhan Consultancy
16	Business Licence	Registration No.:	8 October 2022
	(企業法人營業執照)	420103000027769
17	Tax Registration Certificate	No.: 鄂國地稅武	Issued on 11 November
	(稅務登記證)	字420111744757444	2009 with no fixed
			term of expiry
		E Guo Di Shui Wu Zi
		420111744757444
18	Organizational Code Certificate of	Code No.: 74475744-4	30 August 2013
	the People’s Republic of China
	(組織機構代碼證)
Beijing Consultancy
19	Business Licence	Registration No.:	12 November 2022
	(企業法人營業執照)	110108004974876
20	Tax Registration Certificate	No.: 京稅證字	Issued on 29
	(稅務登記證)	110108745474737	September 2009 with
			no fixed term of expiry
		Jing Shui Zheng Zi
		No. 110108745474737
21	Organizational Code Certificate of	Code No.: 74547473-7	23 September 2013
	the People’s Republic of China
	(組織機構代碼證)
22	Social Security Registration	No.: 社險京字	Issued on 4 March
	Certificate of the People’s	110108809310號	2010 with no fixed
	Republic of China		term of expiry
	(社會保險登記證)	She Xian Jing Zi
		No. 110108809310

— V-16 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION
	Name of Licence/ Permit	Registration Number	Expiry Date
Hangzhou Consultancy
23	Business Licence	Registration No.:	28 October 2024
	(企業法人營業執照)	330100000016257
24	Tax Registration Certificate	No.: 浙稅聯字	Issued on 5 December
	(稅務登記證)	330104768208407	2006 with no fixed
			term of expiry
		Zhe Shui Lian Zi
		No. 330104768208407
25	Organizational Code Certificate of	Code No.: 76820840-7	27 October 2012
	the People’s Republic of China
	(組織機構代碼證)
26	Social Security Registration	No.: 社險浙字	4 January 2013
	Certificate of the People’s	33010444027588號
	Republic of China	She Xian Zhe Zi
	(社會保險登記證)	No. 33010444027588
Nanning Consultancy
27	Business Licence	Registration No.:	24 May 2017
	(企業法人營業執照)	（企）450103000000089
		（1-1）
28	Tax Registration Certificate	No.: 桂國稅字	Issued on 21 December
	(稅務登記證)	45010066212503X	2007 with no fixed
			term of expiry
		Gui Guo Shui Zi
		45010066212503X
29	Tax Registration Certificate	No.: 桂地稅字	Issued on 21 December
	(稅務登記證)	45010066212503X	2007 with no fixed
			term of expiry
		Gui Di Shui Zi
		No. 45010066212503X
30	Organizational Code Certificate of	No.: 66212503-X	18 December 2011
	the People’s Republic of China
	(組織機構代碼證)
31	Registration Certificate of Payment	No.: 00322176	30 August 2012
	and Deposit of Housing Provident
	Fund
	(住房公積金繳存登記證)

— V-17 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION
	Name of Licence/ Permit	Registration Number	Expiry Date
Hefei	Consultancy
32	Business Licence	Registration No.:	20 November 2022
	(企業法人營業執照)	340100000025079
33	Tax Registration Certificate	No.: 合國廬陽稅字	Issued on 14 August
	(稅務登記證)	340102748943893	2009 with no fixed
			term of expiry
		He Guo Lu Yang Shui Zi
		No. 340102748943893
34	Tax Registration Certificate	No.: 皖地稅合字	Issued on 25 June 2009
	(稅務登記證)	340103748943893	with no fixed term of
			expiry
		Wan Di Shui He Zi
		No. 340103748943893
35	Organizational Code Certificate of	Code No.: 74894389-3	26 May 2013
	the People’s Republic of China
	(組織機構代碼證)
Taiyuan Consultancy
36	Business Licence	Registration No.:	31 December 2010
	(企業法人營業執照)	140100103032815
37	Tax Registration Certificate	No.: 晋國稅字	Issued on 16 February
	(稅務登記證)	140106746032623	2006 with no fixed
			term of expiry
		Jin Guo Shui Zi
		No. 140106746032623
38	Tax Registration Certificate	No.: 併地稅稅迎字	Issued on 19 October
	(稅務登記證)	140106746032623	2006 with no fixed
			term of expiry
		Bing Di Shui Shui Ying Zi
		No. 140106746032623
39	Organizational Code Certificate of	Code No.: 74603262-3	16 January 2010
	the People’s Republic of China
	(組織機構代碼證)

— V-18 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION
	Name of Licence/ Permit	Registration Number	Expiry Date
40	Social Security Registration	No.: 社險晋字	Issued in September
	Certificate of the People’s	010345901260號	2009 with a fixed
	Republic of China		period of 4 years
	(社會保險登記證)	She Xian Jin Zi
		No. 010345901260
Wuxi	Consultancy
41	Business Licence	Registration No.:	30 September 2022
	(企業法人營業執照)	320204000004853
42	Tax Registration Certificate	No.: 錫地稅登字	Issued on 9 February
	(稅務登記證)	320200745553902	2007 with no fixed
			term of expiry
		Xi Di Shui Deng Zi
		No. 320200745553902
43	Organizational Code Certificate of	Code No.: 74555390-2	24 November 2012
	the People’s Republic of China
	(組織機構代碼證)
44	Social Security Registration	No.: 社險蘇字	Issued on 5 January
	Certificate of the People’s	32020415013750號	2009 with a fixed
	Republic of China		period of 5 years
	(社會保險登記證)	She Xian Su Zi
		No. 32020415013750
Fuzhou Consultancy
45	Business Licence	Registration No.:	3 March 2023
	(企業法人營業執照)	350100100018978
46	Tax Registration Certificate	No.: 閩國地稅字	Issued on 26 June 2009
	(稅務登記證)	350100100018978號	with no fixed term of
			expiry
		Min Guo Di Shui Zi
		No. 350100100018978
47	Organizational Code Certificate of	Code No.: 74638465-3	26 June 2013
	the People’s Republic of China
	(組織機構代碼證)

— V-19 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION
	Name of Licence/ Permit	Registration Number	Expiry Date
48	Social Security Registration	No.: 社險閩字	Issued on 5 January
	Certificate of the People’s	10120093936號	2009 valid with a
	Republic of China		long-term period
	(社會保險登記證)	She Xian Min Zi
		No. 10120093936
Xi’an	Consultancy
49	Business Licence	Registration No.:	18 December 2016
	(企業法人營業執照)	610104100000770
50	Tax Registration Certificate	No.: 陝國稅字	Issued on 2 November
	(稅務登記證)	610104742821107號	2006 with no fixed
			term of expiry
		Shan Guo Shui Zi
		No. 610104742821107
51	Tax Registration Certificate	No.: 陝地稅字	Issued on 27 October
	(稅務登記證)	6101047428211071號	2006 with no fixed
			term of expiry
		Shan Di Shui Zi
		No. 6101047428211071
52	Organizational Code Certificate of	Code No.: 74282110-7	21 December 2012
	the People’s Republic of China
	(組織機構代碼證)
53	Social Security Registration	No.: 陝社險字	Issued on 4 November
	Certificate of the People’s	61010474282110-7	2009 with a fixed
	Republic of China		period of 10 years
	(社會保險登記證)	Shan She Xian Zi
		No. 61010474282110-7
Zhengzhou Consultancy
54	Business Licence	Registration No.:	31 December 2013
	(企業法人營業執照)	410105100032048
55	Tax Registration Certificate	No.: 豫地稅鄭字	Issued on 4 September
	(稅務登記證)	410105747430084	2007 with no fixed
			term of expiry
		Yu Di Shui Zheng Zi
		No. 410105747430084

— V-20 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION
	Name of Licence/ Permit	Registration Number	Expiry Date
56	Organizational Code Certificate of	Code No.: 74743008-4	31 December 2013
	the People’s Republic of China
	(組織機構代碼證)
Lanzhou Consultancy
57	Business Licence	Registration No.:	10 January 2015
	(企業法人營業執照)	620102000000740
58	Tax Registration Certificate	No.: 甘地稅字	Issued on 29 May 2006
	(稅務登記證)	620102745864006	with no fixed term of
			expiry
		Gan Di Shui Zi
		No. 620102745864006
59	Organizational Code Certificate of	Code No.: 7458400-6	29 September 2010
	the People’s Republic of China
	(組織機構代碼證)
Nanchang Consultancy
60	Business Licence	Registration No.:	4 December 2022
	(企業法人營業執照)	360100110001346
61	Tax Registration Certificate	No.: 贛國稅字	Issued on 22 November
	(稅務登記證)	360103746051170號	2007 with no fixed
			term of expiry
		Gan Guo Shui Zi
		No. 360103746051170
62	Organizational Code Certificate of	Code No.: 74605117-0	1 November 2011
	the People’s Republic of China
	(組織機構代碼證)

During the Track Record Period, the Group was able to obtain the relevant licences and permits for the operation of the Group’s business although the Group has experienced a delay in renewing certain licence, permits and/or approvals in relation to the import of pharmaceutical products distributed by the Group during the Track Record Period. For details of the Group’s experience of delays, please refer to the sub-section headed “Licenses and Permits” under the “Business” section of this document. Save as disclosed, the Group has not encountered any refusal of non-renewals of licences, permits and/or approvals.

— V-21 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Further information about the subsidiaries of the Company and Zhuhai Jinming
(i) Offshore subsidiaries
(a) Kingworld Medicine and Healthcare Group Limited 金活醫藥保健集團有限公司 (“BVI Kingworld”)

Former Name, if any : Kingworld Medicine Group Limited 金活醫藥集團有限公司 Date of incorporation : 7 February 2005 Place of incorporation : British Virgin Islands Authorised Share Capital : US$50,000 (50,000 shares of US$1 per share) Issued Share Capital : US$110 (110 shares of US$1 per share) Shareholder(s) ( percentage of : The Company (100%) shareholding(s) )

(b) Kingworld Medicine Healthcare Limited 金活藥業健康發展有限公司 (“HK Kingworld”)

Former Name, if any : N/A Date of incorporation : 14 May 2008 Place of incorporation : Hong Kong Authorised Share Capital : HK$300,000,000 (300,000,000 shares of HK$1 per share) Issued Share Capital : HK$101,162,537 (101,162,537 shares of HK$1 per share) Shareholder(s) ( percentage of : BVI Kingworld (100%) shareholding(s) )

— V-22 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

(ii) PRC subsidiaries

(a) Shenzhen Kingworld Group Limited 深圳市金活醫藥有限公司 (“SZ Kingworld”)

Date of Establishment : 19 April 1996 Type of Company : Limited Liability Company (solely owned by a legal entity which is incorporated in Taiwan, Hong Kong and Macao) Total Investment : RMB90,000,000 Registered Capital : RMB80,000,000 Paid-up Capital : RMB80,000,000 Registered holder(s) of equity : HK Kingworld (100%) interest and percentage of equity interest Term of Business : 19 April 1996 — 29 December 2016 Legal Representative : Zhao Li Sheng (趙利生) Business Scope : Wholesale, import and export of proprietary Chinese medicine, chemical medicine preparation, antibiotics crude drugs and preparations, packaged food (including healthcare food), three categories of medical sanitary materials and dressings, clinical testing and analytical apparatus and diagnosis reagent, physiotherapeutic and rehabilitation equipment, medical cold therapeutic, low-temperature and refrigeration equipment and apparatus, and cosmetics (import and export of the above items shall not involve those items which are under special regulations by the State such as state-run trade administration, import and export quota licensing, export quota bidding and export licensing. Those items which are under special regulations by the State shall be subject to relevant regulations of the State) and other related ancillary businesses

— V-23 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

(b) Beijing City Kingworld Information Consultancy Services Company Limited 北京市金活信息咨詢服務有限責任公司 (“Beijing Consultancy”)

Date of Establishment : 12 November 2002 Type of Company : Limited Liability Company (solely owned by a legal entity - invested by a foreign invested enterprise) Registered Capital : RMB100,000 Paid-up Capital : RMB100,000 Registered holder(s) of equity : SZ Kingworld (100%) interest and percentage of equity interest Legal Representative : Huang Ruo Zhong (黃若忠) Term of Business : 12 November 2002 — 11 November 2022 Business Scope : Approved operation project: No General operation projects: [The Company shall not operate projects which are forbidden by the law, administrative measures and decisions of the State Council and policy in relation to foreign investment; for projects of which operations are restricted and shall be approved by the law, administrative measures and decisions of the State Council and policy in relation to foreign investment, the Company can only operate those projects after obtaining approval from relevant authorities and registration of such projects with the relevant administration of commerce and industry; for projects of which operations are not restricted by the law, administrative measures and decisions of the State Council and policy in relation to foreign investment, the Company can exercise its decision on whether to operate those projects]

— V-24 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Date of Establishment	:	6 March 2003
Type of Company	:	Limited Liability Company (solely owned by a
		legal entity which is a foreign invested enterprise)
Registered Capital	:	RMB100,000
Paid-up Capital	:	RMB100,000
Registered holder(s) of equity	:	SZ Kingworld (100%)
interest and percentage of
equity interest
Legal Representative	:	Huang Ruo Zhong (黃若忠)
Term of Business	:	6 March 2003 — 20 November 2022
Business Scope	:	Business information consultancy; corporate image
		strategy planning; investment planning (the
		abovementioned scope excludes projects restricted
		by the State); graphic design (excluding
		advertising)

(d) Nanchang City Kingworld Information Consultancy Services Company Limited 南昌市金活信息咨詢服務有限責任公司 (“Nanchang Consultancy”)

Date of Establishment	:	5 December 2002
Type of Company	:	Limited Liability Company (solely owned by a
		legal entity which is a foreign invested enterprise)
Registered Capital	:	RMB100,000
Paid-up Capital	:	RMB100,000
Registered holder (s) of equity	:	SZ Kingworld (100%)
interest and percentage of
equity interest
Legal Representative	:	Huang Ruo Zhong (黃若忠)
Term of Business	:	5 December 2002 to 4 December 2022
Business Scope	:	Information management consultancy; investment
		strategic planning, corporate image strategy
		planning and art planning and design (except for
		projects which are under special regulation
		provided by the State)

— V-25 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION	STATUTORY AND GENERAL INFORMATION
(e)	Fuzhou Kingworld	Information Consultancy Services Company Limited
	福州金活企業信息咨詢服務有限公司(“Fuzhou Consultancy”)
	Date of Establishment		:	4 March 2003
	Type of Company		:	Limited Liability Company (solely owned by a
				legal entity which is a foreign invested enterprise)
	Registered Capital		:	RMB100,000
	Paid-up Capital		:	RMB100,000
	Registered holder(s) of equity		:	SZ Kingworld (100%)
	interest and percentage of
	equity interest
	Legal Representative		:	Huang Ruo Zhong (黃若忠)
	Term of Business		:	4 March 2003 — 3 March 2023
	Business Scope		:	Information consultancy, investment planning,
				corporate image strategy planning and art design.
				(projects covered by the abovementioned scope
				shall only be operated after obtaining approvals
				from relevant authorities if such approvals are
				needed)

(f) Wuxi City Kingworld Information Consultancy Services Company Limited 無錫市金活信息咨詢服務有限責任公司 (“Wuxi Consultancy”)

Date of Establishment	:	20 November 2002
Type of Company	:	Limited Liability Company (solely owned by a
		legal entity)
Registered Capital	:	RMB100,000
Paid-up Capital	:	RMB100,000
Registered holder(s) of equity	:	SZ Kingworld (100%)
interest and percentage of
equity interest
Legal Representative	:	Huang Ruo Zhong (黃若忠)
Term of Business	:	20 November 2002 — 30 September 2022
Business Scope	:	Investment planning (excluding specifically
		approved projects); economic information
		consultancy, housework services, real estate
		information and consultancy business and agency
		services.

— V-26 —

APPENDIX V	APPENDIX V	STATUTORY AND GENERAL	STATUTORY AND GENERAL	STATUTORY AND GENERAL	INFORMATION	INFORMATION
(g)	Hangzhou Kingworld	Information Consultancy Services			Company	Limited
	杭州金活信息咨詢服務有限公司(“Hangzhou Consultancy”)
	Date of Establishment		:	29 October 2004
	Type of Company		:	Limited Liability Company (solely owned by a
				legal entity which is a foreign invested enterprise)
	Registered Capital		:	RMB100,000
	Paid-up Capital		:	RMB100,000
	Registered holder(s) (of equity		:	SZ Kingworld (100%)
	interest and percentage of
	equity interest
	Legal Representative		:	Huang Ruo Zhong (黃若忠)
	Term of Business		:	29 October 2004 — 28 October 2024
	Business Scope		:	Services: economic information consultancy,
				investment planning (excluding	securities and
				futures), corporate image strategy planning and art
				design

(h) Taiyuan City Kingworld Information and Consultancy Services Company Limited 太原市金活企業信息咨詢服務有限公司 (“Taiyuan Consultancy”)

Date of Establishment	:	27 November 2002
Type of Company	:	Limited Liability Company (solely owned by a
		legal entity)
Registered Capital	:	RMB100,000
Paid-up Capital	:	RMB100,000
Registered holder(s) of equity	:	SZ Kingworld (100%)
interest and percentage of
equity interest
Legal Representative	:	Huang Ruo Zhong (黃若忠)
Term of Business	:	27 November 2002 — 31 December 2010
Business Scope	:	Corporate management information consultancy,
		corporate image strategy planning and art design.
		([The Company] shall not operate projects which
		are forbidden by the law and regulations and which
		require approval before such approval has been
		granted)]

— V-27 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

(i) Xi’an Kingworld Information Consultancy Services Company Limited 西安市金活信息咨詢服務有限責任公司 (“Xi’an Consultancy”) Date of Establishment : 21 January 2003 Type of Company : Limited Liability Company (solely owned by a legal entity which is a foreign invested enterprise) Registered Capital : RMB100,000 Paid-up Capital : RMB100,000 Registered holder(s) of equity : SZ Kingworld (100%) interest and percentage of equity interest Legal Representative : Huang Ruo Zhong (黃若忠) Term of Business : 26 October 2004 — 18 December 2016 Business Scope : Business information consultancy, corporate image strategy planning and art design.

(j) Lanzhou City Kingworld Information Consultancy Services Company Limited 蘭州市金活信息咨詢服務有限責任公司 (“Lanzhou Consultancy”)

Date of Establishment : 10 January 2003 Type of Company : One Person Limited Company (legal entity) Registered Capital : RMB100,000 Paid-up Capital : RMB100,000 Registered holder(s) of equity : SZ Kingworld (100%) interest and percentage of equity interest Legal Representative : Huang Ruo Zhong (黃若忠) Term of Business : 10 January 2003 — 10 January 2015 Business Scope : Business information consultancy; business investment planning, corporate image strategy planning and art design service.

— V-28 —

APPENDIX V	APPENDIX V		STATUTORY AND GENERAL	STATUTORY AND GENERAL	INFORMATION
(k)	Zhengzhou City	Kingworld	Information Consultancy Services		Company Limited
	鄭州市金活信息咨詢服務有限責任公司(“Zhengzhou Consultancy”)
	Date of Establishment		:	3 March 2003
	Type of Company		:	Limited Liability Company (solely owned by a
				legal entity)
	Registered Capital		:	RMB100,000
	Paid-up Capital		:	RMB100,000
	Registered holder(s) of equity		:	SZ Kingworld (100%)
	interest and percentage of
	equity interest
	Legal Representative		:	Huang Ruo Zhong (黃若忠)
	Term of Business		:	3 March 2003 — 31 December	2013
	Business Scope		:	Investment planning (excluding	securities and
				futures consultancy and loan business), corporate
				image strategy planning and business management
				consultancy. (The abovementioned scope excludes
				projects forbidden by the law and regulations of the
				State and those of which approval is required.)

(l) Nanning City Kingworld Business Services Limited Company 南寧市金活商務服務有限公司 (“Nanning Consultancy”)

Date of Establishment	:	24 May 2007
Type of Company	:	Limited Liability Company (solely owned by a
		domestic legal entity)
Registered Capital	:	RMB100,000
Paid-up Capital	:	RMB100,000
Registered holder(s) of equity	:	SZ Kingworld (100%)
interest and percentage of
equity interest
Legal Representative	:	Huang Ruo Zhong (黃若忠)
Term of Business	:	24 May 2007 — 24 May 2017
Business Scope	:	Business planning, business information
		consultancy (except for projects which are under
		special regulation provided by the State). (Projects
		which are subject to approval can be operated
		within the term of business as stated in the
		approval).

— V-29 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

(m) Wuhan Kingworld Information Consultancy Services Company Limited 武漢市金活信息咨詢服務有限責任公司 (“Wuhan Consultancy”) Date of Establishment : 8 October 2002 Type of Company : Limited Liability Company (solely owned by a legal entity which is a foreign invested entity) Registered Capital : RMB100,000 Paid-up Capital : RMB100,000 Registered holder(s) of equity : SZ Kingworld (100%) interest and percentage of equity interest Legal Representative : Huang Ruo Zhong (黃若忠) Term of Business : 8 October 2002 — 8 October 2022 Business Scope : Economic information consultancy and corporate image strategy planning

(iii) Zhuhai Jinming

Zhuhai Jinming Medicine Limited Company 珠海市金明醫藥有限公司 (“Zhuhai Jinming”)

Date of establishment : 7 January 2004 Type of Company : Limited Liability Company (jointly invested by foreign invested enterprise and domestic fund) Registered Capital : RMB5,000,000 Paid-up Capital : RMB5,000,000 Registered holder(s) of equity : SZ Kingworld (50%) interest and percentage of equity Guangdong Minglin (50%) interest Term of Business : 7 January 2004 — 7 January 2014 Legal Representative : Zhao Li Sheng (趙利生) Business Scope : Wholesale of proprietary Chinese medicine, chemical crude drugs, chemical medicine preparations, antibiotics crude drugs and antibiotic preparations (valid till 20 December 2014); wholesale of healthcare food (valid till 20 August 2013)

— V-30 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

C. FURTHER INFORMATION ABOUT DIRECTORS, SUBSTANTIAL SHAREHOLDERS, MANAGEMENT, STAFF AND EXPERTS
Disclosure of interests
(a) Interests and short positions of the Directors and chief executives in the Shares, underlying Shares or debentures of the Company and its associated corporations

So far as the Directors are aware, immediately following completion of [●], the interests and/or short positions of the Directors and chief executives of the Company in the Shares, underlying Shares or debentures of the Company or any associated corporations (within the meaning of [●] which will have to be notified to the Company [●], or which will be required, pursuant to [●], to be entered in the register referred to therein, or pursuant to [●], to be notified to the Company [●] once the Shares [●] will be as follows:

Long position in the Shares:

			Approximate
			percentage
			of shareholding
		Number	immediately after
Name	Nature of Interest	of Shares	[●]
Mr. Zhao_(Note 1)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares
Ms. Chan_(Note 2)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares

Notes:

Mr. Zhao is deemed (by virtue of [●]) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [360,000,000] Shares are held by Golden Land, which is wholly owned by Mr. Zhao. The reference to [360,000,000] Shares deemed to be interested by Mr. Zhao (as disclosed herein) and Golden Land (as disclosed in the sub-section headed “Substantial Shareholders” of this section) relate to the same block of Shares.
(b) [90,000,000] Shares are indirectly held by Ms. Chan, wife of Mr. Zhao, through Golden Morning, which is wholly owned by Ms. Chan.

— V-31 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Ms. Chan is deemed (by virtue of [●]) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [90,000,000] Shares are held by Golden Morning, which is wholly owned by Ms. Chan. The reference to [90,000,000] Shares deemed to be interested by Ms. Chan (as disclosed herein) and Golden Morning (as disclosed in the sub-section headed “Substantial Shareholders” of this section) relate to the same block of Shares.
(b) [360,000,000] Shares are indirectly held by Mr. Zhao, husband of Ms. Chan, through Golden Land, which is wholly owned by Mr. Zhao.

Long positions in the shares of the associated corporations of the Company:

			Approximate
	Name of associated	Capacity/	percentage of
Name	corporation	Nature of Interest	shareholding
Mr. Zhao	Golden Land	Beneficial Owner	100%
Ms. Chan	Golden Morning	Beneficial Owner	100%

(b) Substantial Shareholders

So far as the Directors are aware, immediately following completion of [●], the following persons will have an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of [●] or who will be, directly or indirectly interested in 10% or more of the nominal value of the Shares carrying rights to vote in all circumstances at general meetings of the Company:

Long position in the Shares

			Approximate
			percentage
			of interest
	Capacity/	Number	immediately after
Name	Nature of Interest	of Shares	[●]
Golden Land	Beneficial Owner	[360,000,000]	[60]%
		Shares
Golden Morning	Beneficial Owner	[90,000,000]	[15]%
		Shares
Mr. Zhao_(Note 1)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares
Ms. Chan_(Note 2)_	Interest of a controlled	[450,000,000]	[75]%
	corporation, interest of spouse	Shares

— V-32 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Notes:

Mr. Zhao is deemed (by virtue of the SFO) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [360,000,000] Shares are held by Golden Land, which is wholly owned by Mr. Zhao.
(b) [90,000,000] Shares are indirectly held by Ms. Chan, wife of Mr. Zhao, through Golden Morning, which is wholly owned by Ms. Chan.
Ms. Chan is s deemed (by virtue of the SFO) to be interested in [450,000,000] Shares. These Shares are held in the following capacity:
(a) [90,000,000] Shares are held by Golden Morning, which is wholly owned by Ms. Chan..
(b) [360,000,000] Shares are indirectly held by Mr. Zhao, husband of Ms. Chan, through Golden Land, which is wholly owned by Mr. Zhao.

Save as disclosed above, the Directors are not aware of any person (not being a Director or chief executive of the Company) who will, immediately following completion of [●], have a notifiable interest or short position in Shares or, underlying Shares of the Company which would fall to be disclosed to the Company [●], or, be directly or indirectly interest in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

2. Particulars of service contracts

We have entered into a service contract with each of the Directors, pursuant to which each Director is appointed for terms of three years with effect from [●], subject to re-election in accordance with the Articles at the general meetings of the Company, or by termination by either us or such Director by giving to the other party [three months’] notice in writing.

The service contracts are available for inspection at the times and places set out in Appendix VI to this document.

None of the Directors has entered into a service contract with us which does not expire or which is not terminable by us within one year without the payment of compensation (other than the statutory compensation).

3. Directors’ remuneration

Remuneration and benefits in kind of approximately [●], [●] and [●] in aggregate were paid and granted by the Group to the Directors in respect of the financial years ended [●], [●] and [●] respectively.

— V-33 —

APPENDIX V STATUTORY AND GENERAL INFORMATION

Under the arrangements currently in force at the date of this document, the estimated amount of directors’ fees and other emoluments payable to the Directors for the year ending [31 December 2010] will be approximately [●].

4. Fees or commissions received

Save as disclosed in this document, none of the Directors or any of the persons whose names are listed in the paragraph headed “Consents of experts” in this Appendix had received any commissions, discounts, agency fee, brokerages or other special terms in connection with the issue or sale of any capital of any member of the Group from the Group within the two years preceding the date of this document.

5. Related party transactions

During the two years preceding that date of this document, the Group were engaged in related party transactions as described under note 30 to the “Notes to the Financial Statements” section of the Accountants’ Report set out in Appendix I to this document.

D. DISCLAIMERS

Save as disclosed in this document:

(a) so far as the Directors are aware, none of the Directors or chief executive of the Company has any interests and short positions in the Shares, underlying Shares and debentures of the Company or any of its associated corporation [●] which will have to be notified to the Company [●] or which will be required, pursuant to [●], to be entered into the register referred to therein, or will be required, pursuant to [●];
(b) none of the Directors nor any of the parties listed in the paragraph headed “Consents of experts” in the section headed “Other Information” of this Appendix is interested in the promotion of the Company, or in any assets which have, within the two years immediately preceding the issue of this document, been acquired or disposed of by or leased to us, or are proposed to be acquired or disposed of by or leased to any member of the Group;
(c) none of the Directors nor any of the parties listed in the paragraph headed “Consents of experts” in the section headed “Other Information” of this appendix is materially interested in any contract or arrangement subsisting at the date of this document which is significant in relation to the business of the Group;
(d) [●]:
(i) is interested legally or beneficially in any of the Shares or any shares in any of the Company’s subsidiaries; or

— V-34 —

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(ii) has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribed for the securities of the Company;
(e) none of the Directors, their respective associates or Shareholders who are interested in 5% or more of the issued share capital of the Company has any interest in the five largest suppliers or top five business customers of the Group.

E. [ ● ]

F. OTHER INFORMATION

1. Estate, tax and other indemnity

[Each of Golden Land, Mr. Zhao, Golden Morning and Ms. Chan (collectively, the “Indemnifiers”) have entered into a deed of indemnity in favour of the Company (for itself and as trustee for its present subsidiaries) to provide indemnities in respect of, among other matters, (a) any liability for estate duty under the Estate Duty Ordinance, Chapter 111 of the Laws of Hong Kong or legislation similar thereto in Hong Kong or any part of the world which might be incurred by any member of the Group on or before the Listing Dates]; and (b) any tax liabilities falling on the Group which might be payable by the Group in respect of any income, profits or gains earned, accrued or received on or before the Listing Date.]

[The Directors have been advised that no material liability for estate duty is likely to fall on the Company or any of its subsidiaries in the Cayman Islands or the PRC.]

Litigation

[No member of the Group is engaged in any litigation or arbitration of material importance and no litigation of claim of material importance is known to the Directors to be pending or threatened against any member of the Group.]

3. [ ● ]

4. Preliminary expenses

The estimated preliminary expenses are approximately HK$50,000 and are payable by the Company.

5. Promoter

There is no promoter of the Company.

— V-35 —

APPENDIX V

STATUTORY AND GENERAL INFORMATION

[ ● ]
[ ● ]

8. Binding effect

This document shall have the effect, if an application is made in pursuant hereof, of rendering all persons concerned bound by all the provisions (other than the penal provisions) of sections 44A and 44B of the Companies Ordinance so far as applicable.

9. Taxation of holders of Shares

Intending holders of Shares are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of subscribing for, purchasing, holding or disposing of Shares. It is emphasised that none of the Company, the Directors or the other parties involved will accept responsibility for any tax effect on, or liabilities of, holders of Shares resulting from their subscription for, purchase, holding or disposal of Shares.

Profits from dealings in the Shares arising in or derived from Hong Kong may also be subject to Hong Kong profits tax.

10. Miscellaneous

(a) Save as disclosed in this document:
(i) within the two years immediately preceding the date of this document, no share or loan capital of the Company or any of the Company’s subsidiaries has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;
(ii) no share or loan capital of the Company or any of the Company’s subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;
(iii) neither the Company nor any of the Company’s subsidiaries have issued or agreed to issue any founder shares, management shares or deferred shares;
(iv) no member of the Group is presently listed on any other stock exchange or traded on any trading system and no listing or permission to deal being or proposed to be sought;
(v) the Company have no outstanding convertible debt securities or debentures;
(vi) within the two years immediately preceding the date of this document, no commissions, discounts, brokerages fee or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Company or any of the Company’s subsidiaries; and

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APPENDIX V STATUTORY AND GENERAL INFORMATION

(vii) within the two years preceding the date of this document, no commission has been paid or payable (except commissions to underwriters) for subscription, agreeing to subscribe, procuring subscription or agreeing to procure subscription of any Shares in the Company or any of the Company’s subsidiaries.
(b) [●]
(c) Save as disclosed in the Accountants’ Report in Appendix I to this document, the Group has no material mortgage or charge.
(d) There has not been any interruption in the business of the Group which may have or have had a significant effect on the financial position of the Group in the twelve (12) months immediately preceding the date of this document.
(e) There has been no material adverse change in the financial or trading position or prospects of the Group since [●] (being the date to which the latest audited financial statements of the Group were made).

— V-37 —

AI assistant

Kingworld Medicines Group Limited — Proxy Solicitation & Information Statement 2010

49693_rns_2010-11-25_b3a05e4a-d22e-4b61-85a6-50910b009eec.pdf

Web Proof Information Pack of

KINGWORLD MEDICINES GROUP LIMITED 金活醫藥集團有限公司

WARNING

CONTENTS

SUMMARY

OVERVIEW OF BUSINESS

SUMMARY

SUMMARY

[ ● ] Product Series

Authorisation for the distribution of [ ● ] Product Series

Distribution Agreement for [ ● ] Pei Pa Koa

Revenue generated from the [ ● ] Product Series

SUMMARY

Products of [ ● ] Medicine

Relationship among [ ● ] Medicine, Great Pleasure, China Capital, Guangdong Minglin, and the Group

SUMMARY

Supply of [ ● ] Product Series

SUMMARY

Distribution of [ ● ] Product Series

SUMMARY

The Group’s operation in relation to [ ● ] Product Series

SUMMARY

Distribution Network

1. Credit term

2. Sales rebate

3. Pricing

SUMMARY

4. Sales Region

5. Product Return Policy

6. Exclusivity

Management of the Group’s distribution network by market segmentation

SUMMARY

Products distributed by the Group

Renewal of expired/expiring distribution rights and registration certificates

SUMMARY

OBJECTIVE AND STRATEGIES

COMPETITIVE STRENGTHS

SUMMARY

SUMMARY OF FINANCIAL INFORMATION

Combined income statements

SUMMARY

Gross profit margin analysis

SUMMARY

Combined statements of comprehensive income

SUMMARY

Combined balance sheets

SUMMARY

DIVIDEND POLICY

RISK FACTORS

SUMMARY

SUMMARY

(ii) Risks relating to the industry

SUMMARY

(iii) Risks relating to conducting business in the PRC

DEFINITIONS

DEFINITIONS

DEFINITIONS

FORWARD-LOOKING STATEMENTS

RISK FACTORS

RISKS RELATING TO THE BUSINESS OF THE GROUP

Risk relating to [ ● ] Pei Pa Koa

RISK FACTORS

RISK FACTORS

Reliance on other major suppliers and/or manufacturers

Violation of laws and regulations by contracted suppliers and manufacturers

RISK FACTORS

The Group may incur losses resulting from product liability claims as the quality of the products distributed by the Group is not under its control

RISK FACTORS

Any failure to introduce new products, and any failure to gain market acceptance of the Group’s new products, could have a negative effect on its business

RISK FACTORS

The Group’s efforts to expand into the new markets may not be successful

There is no assurance that the Group will be able to successfully implement its business plans

RISK FACTORS

Possible failure to integrate future acquired businesses successfully into the existing operations of the Group

Seasonality of demand for [ ● ] Pei Pa Koa and Taiko Seirogan

RISK FACTORS

The Group may be susceptible to, among other things, product liability claims and payment of compensation of the products in relation to their representation of attributes or intended effects

Kingworld Medicines Group Limited Proxy Solicitation & Information Statement 2010