SPT Energy Group Inc. - Proxy Solicitation & Information Statement 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Wing Shan International Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer, registered institution in securities, or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for any Shares in the Company.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

WING SHAN INTERNATIONAL LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 570)

(i) MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED; (ii) PLACING OF NEW SHARES; AND (iii) APPLICATION FOR WHITEWASH WAIVER

Financial adviser to Wing Shan International Limited

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Independent financial adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Independent Board Committee of Wing Shan International Limited is set out on pages 33 and 34 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders of Wing Shan International Limited is set out on pages 35 to 57 of this circular.

A notice convening an extraordinary general meeting of the Company (“EGM”) to be held at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong on Monday, 19 January 2009 at 10:00 a.m. is set out on pages 252 to 254 of this circular. Whether or not you intend to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the registered office of the Company at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong, as soon as possible and in any event not later than forty-eight hours before the time appointed for holding the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment of it, if you so wish.

31 December 2008

		Page
Definitions . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the	Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from the	Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Letter from Veda Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		35
Appendix I –	Financial information of the Group . . . . . . . . . . . . . . . . . . . . . .	58
Appendix II –	Financial information of the Target Group . . . . . . . . . . . . . . . . .	131
Appendix III –	Unaudited pro forma financial information on
	the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	190
Appendix IV –	Reports on Benchmark Figure . . . . . . . . . . . . . . . . . . . . . . . . . . .	198
Appendix V –	Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	201
Appendix VI –	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	239
Notice of EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	252

– i –

DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context otherwise requires.

“Ace Supreme” Ace Supreme International Limited, a company incorporated in Hong Kong with limited liability and the entire capital of which is wholly-owned by Mr. Xu and Mr. Yang as at the Latest Practicable Date
“Acquisition” the proposed acquisition by the Company of the Sale Shares pursuant to the Agreement
“acting in concert” has the meanings ascribed to it in the Takeovers Code
“Adjustment”
the downward adjustment to the Consideration pursuant to the terms and conditions of the Agreement
“Agreement” the Sale and Purchase Agreement as amended by the Supplemental Agreement
“Announcement” the announcement dated 16 December 2008 made by the Company regarding, among other things, the Acquisition, the Whitewash Waiver and the Placing
“associate(s)” has the meaning ascribed to it in the Listing Rules
“Attorney”
Lipromate Resources Limited, a company incorporated in Hong Kong which is wholly-owned by the Company
“Benchmark Figure”
the audited consolidated net profit after taxation of the Target Group for the 12 months ending 30 June 2009 (prepared in accordance with either the Hong Kong Financial Reporting Standards or the Hong Kong Generally Accepted Accounting Principles) of not less than RMB45 million
“Board”
the board of Directors
“Business Day”
a day (other than a Saturday) on which banks are open for business in Hong Kong
“BVI”
the British Virgin Islands
“Common Win”
Common Win Investment Limited, a company incorporated in Hong Kong with limited liability

– 1 –

DEFINITIONS

“Company” Wing Shan International Limited, a company incorporated in Hong Kong with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange
“Completion” completion of the Agreement “connected person(s)” has the meaning ascribed to it under the Listing Rules “Consideration” the aggregate consideration of HK$300 million payable by the Company for the Sale Shares under the Agreement
“Consideration Shares” a total of 564,102,563 Shares to be allotted and issued to the Vendor under the Agreement
“Directors” directors of the Company
“DZH” (Foshan Dezhong Pharmaceutical Co., Ltd.), a sino-foreign joint venture company establish in the PRC
“EGM” the extraordinary general meeting of the Company to be convened to approve the Agreement and all transactions contemplated thereunder (including the issue and allotment of the Consideration Shares), the Whitewash Waiver, and the Placing Agreement and all the transactions contemplated thereunder (including the issue and allotment of the Placing Shares)
“Enlarged Group” the Group as enlarged by the Target Group immediately after Completion
“Equity Transfer Contracts” the conditional equity transfer contracts to be entered into between Sino Famous and Common Win, and Kimlong and Roundtop respectively, whereby (i) Sino Famous will sell and Common Win will purchase; and (ii) Kimlong will sell and Roundtop will purchase, 54.68% and 45.32% of the equity interest in Guangdong Medi-World respectively
“Executive”
the Executive Director of the Corporate Finance Division of the Securities and Futures Commission of Hong Kong or any of his delegates
“FLX”
(Foshan Feng Liao Xing
Pharmaceutical Co., Ltd), a sino-foreign joint venture company established in the PRC

– 2 –

DEFINITIONS

“Foshan Development” Foshan Development Company Limited, a company incorporated in Hong Kong with limited liability and the holding company of Hensil Investments
“Group” the Company and its subsidiaries
“Guangdong Medi-World” , a company established in the PRC with limited liability and the entire equity interest of which will be transferred to Common Win and Roundtop pursuant to the Equity Transfer Contracts
“Guangdong Medi-World Group” Guangdong Medi-World and its subsidiaries from time to time including Luya
“Guarantors” Mr. Xu, Mr. Wu and Mr. Yang collectively
“Hensil Investments” Hensil Investments Group Limited, a company incorporated in the BVI with limited liability and the controlling Shareholder
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”
a committee of the Board comprising all the independent non-executive Directors formed for the purpose of advising and giving recommendation to the Independent Shareholders regarding the Agreement and the transactions contemplated thereunder and the Whitewash Waiver
“Independent Shareholders” the Shareholders other than the Vendor and parties acting in concert with it and their respective associates and those who are involved in or interested in the Acquisition and the Whitewash Waiver
“Kimlong”
Kimlong Technology Limited, a company incorporated in Hong Kong with limited liability which is holding 45.32% equity interest in Guangdong Medi-World as at the Latest Practicable Date
“Last Trading Day”
28 November 2008, being the last trading day of the Shares prior to the suspension in trading of the Shares on the Stock Exchange at 9:30 a.m. on 1 December 2008
“Latest Practicable Date”
29 December 2008, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

– 3 –

DEFINITIONS

“Luya”	, a sino-foreign joint venture company established in the PRC with limited
	liability
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Mr. Du”	Mr. Du Richeng, the Chairman of the Board and a
	non-executive Director
“Mr. Wu”	Mr. Wu Chiu Kong ( )
“Mr. Xu”	Mr. Xu Tiefeng ( )
“Mr. Yang”	Mr. Yang Bin ( )
“Optima Capital”	Optima Capital Limited, a licensed corporation to carry
	on type 1 (dealing in securities), type 4 (advising on
	securities) and type 6 (advising on corporate finance)
	regulated activities under the SFO and the financial
	adviser to the Company
“PRC”	the People’s Republic of China
“Placing”	the placing of the Placing Shares by the Placing Agent
	on a best effort basis pursuant to the Placing
	Agreement
“Placing Agent”	Sun Hung Kai International Limited, a licensed
	corporation to carry on type 1 (dealings in securities)
	and type 6 (advising on corporate finance) regulated
	activities under the SFO and the placing agent of the
	Placing
“Placing Agreement”	the conditional placing agreement dated 29 November
	2008 entered into between the Company and the
	Placing Agent in relation to the Placing
“Placing Price”	the placing price of HK$0.30 per Placing Share
“Placing Shares”	up to 233,334,000 new Shares which may be allotted
	and issued by the Company pursuant to the Placing
“Relevant Period”	the period commencing six months prior to 29
	November 2008, being the date of the Sale and
	Purchase Agreement, up to and including the Latest
	Practicable Date

– 4 –

DEFINITIONS

“Roundtop” Roundtop Investments Limited, a company incorporated in Hong Kong with limited liability
“Sale and Purchase Agreement” the sale and purchase agreement dated 29 November 2008 entered into among the Company, the Vendor and the Guarantors in relation to the sale and purchase of the Sale Shares
“Sale Shares” the 100 ordinary shares of US$1 each in the share capital of the Target Company, representing 100% of the issued share capital of the Target Company
“SFO” the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
“Share(s)” share(s) of HK$0.10 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Shares
“Sino Famous” Sino Famous Trading Limited, a company incorporated in Hong Kong with limited liability which is holding 54.68% equity interest in Guangdong Medi-World as at the Latest Practicable Date
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Supplemental Agreement” a supplemental agreement to the Sale and Purchase Agreement dated 16 December 2008 entered into among the Company, the Vendor and the Guarantors in relation to the amendment of, inter alia, the issue mechanism of the Consideration Shares
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers
“Target Company” Smartpoint International Limited, a company incorporated in the BVI with limited liability
“Target Group” the Target Company and the companies which will become its subsidiaries upon completion of the reorganisation, including Common Win, Roundtop, Ace Supreme, and the Guangdong Medi-World Group

– 5 –

DEFINITIONS

“Veda Capital” or “Independent Veda Capital Limited, a licensed corporation to carry Financial Adviser” on type 6 (advising on corporate finance) regulated activity under the SFO and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Agreement, the transactions contemplated thereunder and the Whitewash Waiver
“Vendor” or “Sureplan” Sureplan Limited, a company incorporated in the BVI with limited liability
“Whitewash Waiver” a waiver from the Executive pursuant to Note 1 on Dispensations from Rule 26 of the Takeovers Code in respect of the obligation of the Vendor and any parties acting in concert with it to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by the Vendor and parties acting in concert with it which might otherwise arise as a result of the issue of the Consideration Shares to the Vendor under the terms of the Agreement
“RMB” Renminbi, the lawful currency of the PRC
“HK$” Hong Kong dollars, the lawful currency of Hong Kong “sq.m.” square metre “%” per cent.

For illustrative purpose in this circular, amounts in RMB have been translated into HK$ at the rate of RMB1 = HK$1.13.

Unofficial English translation for identification purposes only.

– 6 –

LETTER FROM THE BOARD

WING SHAN INTERNATIONAL LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 570)

Non-Executive Director: Mr. Du Richeng, Chairman

Executive Directors:

Mr. Lam Siu Hung, Managing Director

Registered Office: Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong

Mr. Situ Min,

Chief Financial Officer & Qualified Accountant

Mr. Li Songquan, Deputy Managing Director

Independent Non-Executive Directors:

Mr. Chan Ting Chuen, David

Mr. Ng Pui Cheung, Joseph

Mr. Cheung Kin Piu, Valiant

31 December 2008

To the Shareholders

Dear Sir or Madam,

(i) MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED; (ii) PLACING OF NEW SHARES; AND

(iii) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

The Board announced on 16 December 2008 that on 29 November 2008, the Company entered into the Sale and Purchase Agreement with the Vendor and the Guarantors, pursuant to which, among other things, the Vendor agreed to sell and the Company agreed to acquire the entire issued share capital of the Target Company at a consideration of HK$300 million, and the same parties entered into the Supplemental Agreement on 16 December 2008 to amend the Sale and Purchase Agreement. The consideration of HK$300 million shall be

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LETTER FROM THE BOARD

settled as to HK$80 million by cash and as to HK$220 million by the issue of 564,102,563 Consideration Shares by the Company to the Vendor or its nominees as detailed in the paragraph headed “Consideration” below.

In addition, on 29 November 2008, the Company entered into the Placing Agreement with the Placing Agent, pursuant to which the Company has conditionally agreed to place, through the Placing Agent on a best effort basis, up to 233,334,000 Placing Shares at a price of HK$0.30 per Placing Share to not less than six independent placees. The Placing Shares will be allotted and issued under a specific mandate to be approved by the Independent Shareholders at the EGM. The net proceeds from the Placing is estimated to be approximately HK$68.95 million and will be used to finance part of the Consideration of the Acquisition. Completion of the Acquisition and the Placing are inter-conditional with each other.

As at the Latest Practicable Date, the Vendor and parties acting in concert with it did not hold any Shares. Upon Completion and the issue in full of 564,102,563 Consideration Shares, the Vendor will be interested in 564,102,563 Shares, representing approximately 34.64% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. Upon Completion, Hensil Investments and the Vendor will be presumed to be acting in concert under class (1) of the definition of acting in concert under the Takeovers Code, and Hensil Investments and the Vendor and their respective parties acting in concert with it will in aggregate hold approximately 71.81% of the total issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. In the circumstances, an obligation on the part of the Vendor to make a general offer for all the Shares not already owned or agreed to be acquired by the Vendor and parties acting in concert with it will arise under Rule 26 of the Takeovers Code as a result of the issue of the Consideration Shares to the Vendor. An application has been made by the Vendor to the Executive for the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver will be granted subject to the approval of the Independent Shareholders taken by way of poll at the EGM.

The Acquisition constitutes a major transaction pursuant to Rule 14.06(3) of the Listing Rules and a connected transaction of the Company pursuant to Rule 14A.13(1)(b)(i) of the Listing Rules by reason of the proposed appointment of any two of the Guarantors as executive Directors, or nomination by the Guarantors of two persons as executive Directors to the Board, after Completion. The Agreement and the transactions contemplated thereunder are therefore subject to the approval by Independent Shareholders at the EGM by poll. Since completion of the Placing and Completion is inter-conditional with each other, the Placing Agreement and the transactions contemplated thereunder is therefore also subject to the approval by the Independent Shareholders at the EGM by way of poll.

Rule 2.8 of the Takeovers Code requires the Company to establish an independent committee of the Board to advise the Independent Shareholders on the Agreement, including the Acquisition and the Whitewash Waiver, and that such independent committee should comprise all non-executive Directors who have no direct or indirect interest in the Acquisition and the Whitewash Waiver other than as a Shareholder. The Company has four non-executive Directors, namely Messrs Du Richeng, Chan Ting Chuen, David, Ng Pui Cheung, Joseph and Cheung Kin Piu, Valiant. As Mr. Du was involved in the negotiation of

– 8 –

LETTER FROM THE BOARD

the Agreement and the Placing Agreement, the Directors consider that it would be more appropriate that Mr. Du does not sit on the Independent Board Committee. Accordingly, the Independent Board Committee comprising all of the three independent non-executive Directors, namely Messrs Chan Ting Chuen, David, Ng Pui Cheung, Joseph and Cheung Kin Piu, Valiant, has been established to advise and give recommendation to the Independent Shareholders on the terms of the Agreement and the transactions contemplated thereunder and the Whitewash Waiver. Veda Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders thereon, which appointment has been approved by the Independent Board Committee.

The purpose of this circular is to provide you with further information on (i) the Acquisition and the Placing; (ii) the financial and other information on the Group; (iii) the financial information on the Target Group; (iv) the letter of the Independent Board Committee setting out its opinion on the Agreement and the Whitewash Waiver and its recommendation to Independent Shareholders; (v) the letter of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders setting out its opinion on the Agreement and the Whitewash Waiver. A notice of the EGM is set out on pages 252 to 254 of this circular.

THE ACQUISITION

Date of the Sale and Purchase Agreement

29 November 2008

Date of the Supplemental Agreement

16 December 2008

Parties

Vendor:

Sureplan Limited, the entire issued share capital of which is indirectly owned as to 50% by Mr. Yang, 25% by Mr. Wu and 25% by Mr. Xu respectively. The principal business activity of Sureplan Limited is investment holding.

Purchaser: the Company Guarantors: Mr. Yang, Mr. Wu and Mr. Xu

Mr. Yang is the Chairman and a director of Guangdong Medi-World and Luya. Mr. Yang has been working in the pharmaceutical industry for many years and has extensive experience in medicines and drugs registration, research and development and sale of pharmaceutical products. He had successfully launched a number of new products to the market with satisfactory returns and has good reputation in the sales market.

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LETTER FROM THE BOARD

Mr. Xu had worked for a consideration period of time in the government body in the PRC responsible for economy management and is experienced in investment management and business economy management. He has been a director of both Guangdong Medi-World and Luya since 2004 and is principally responsible for evaluating investments and treasury and financial planning for the Target Group.

Mr. Wu has extensive experience in investment and international trading. He has been a director of Guangdong Medi-World since 2004 and is responsible for general management of the Target Group. Prior to joining Guangdong Medi-World, he was involved in the trading of a wide variety of products such as garment, household electrical appliances and electronic components.

The Vendor and its ultimate beneficial owners, being Mr. Yang, Mr. Wu and Mr. Xu, are third parties independent of and not connected with the Company and its connected persons. The Guarantors guarantee to the Company the due and punctual performance and discharge by the Vendor of all its obligations and warranties under the Agreement.

Assets to be acquired

Pursuant to the Agreement, the Vendor agreed to sell and the Company agreed to acquire the Sale Shares, being the entire issued share capital of the Target Company. As at the Latest Practicable Date, the Target Company has no material assets and has no operating business. Upon completion of a reorganisation (as more particularly described under the paragraph headed “Reorganisation” below) which shall be completed as a condition precedent to the Agreement, the Target Company’s principal investments will be its interests in the entire issued share capital of Common Win, Roundtop and Ace Supreme which will in turn hold the entire equity interest in the Guangdong Medi-World Group. The principal operating subsidiary of the Guangdong Medi-World Group is Luya. Common Win and Roundtop are both investment holding companies with no material assets and have not commenced any business operation since their respective date of incorporation. Ace Supreme is an investment holding company which sole asset is its 25% equity interest in Luya. Guangdong Medi World and Luya are engaged in the manufacturing and sale of Chinese medicine and pharmaceutical products and biological and healthcare products in the PRC. Further information on the Target Group is set out in the section headed “Information on the Target Group” below.

Consideration

The Consideration for the Acquisition is HK$300 million, subject to Adjustment as detailed in the paragraph headed “Adjustments to the Consideration and custody arrangements” below, and will be satisfied in the following manner:

(i) as to HK$80 million payable by the Company to the Vendor in cash at the date of Completion or not later than 2 Business Days after the day of receipt of the proceeds from the Placing by the Company, whichever is later; and

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LETTER FROM THE BOARD

(ii) as to HK$220 million by the issue and allotment of 564,102,563 Consideration Shares by the Company to the Vendor (or as it may direct) at an issue price of HK$0.39 per Consideration Share at the date of Completion (of which the share certificate(s) in respect of 153,846,153 Consideration Shares will be held in the custody of the Attorney as detailed below).

The Consideration Shares represent approximately 67.88% of the issued share capital of the Company as at the Latest Practicable Date, 40.44% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, and 34.64% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. The 153,846,153 Consideration Shares to be held in the custody of the Attorney represent approximately 18.51% of the issued share capital of the Company as at the Latest Practicable Date, 11.03% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, and 9.45% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares.

Adjustments to the Consideration and custody arrangements

The Consideration shall be subject to Adjustment, whereby the Vendor shall return the Company a cash amount (the “Returned Amount”) if the audited consolidated net profit after taxation of the Target Group for the 12 months ending 30 June 2009 (prepared in accordance with either the Hong Kong Financial Reporting Standards or the Hong Kong Generally Accepted Accounting Principles) is less than RMB45 million within 30 Business Days after the audited financial statements of the Target Group for the 12 months ending 30 June 2009 are issued. The Returned Amount pursuant to the Adjustment is equivalent to 6 times of the shortfall in the audited consolidated net profit after taxation of the Target Group for the 12 months ending 30 June 2009 as against the Benchmark Figure. The multiple of 6 times was determined after arm’s length negotiations between the Company and the Vendor with reference to the Consideration of HK$300 million and the Benchmark Figure.

All the 564,102,563 Consideration Shares will be issued to the Vendor on the date of Completion, of which the share certificates in respect of 153,846,153 Consideration Shares will be held in the custody of the Attorney but the Vendor shall have the voting rights over such Consideration Shares. In the event that no adjustment to the Consideration is required to be made pursuant to the Adjustment or (as the case may be) the Company has received the Returned Amount in respect of the Adjustment within 30 Business Days after the audited financial statements of the Target Group for the 12 months ending 30 June 2009 are issued, the Attorney shall release the share certificate(s) in respect of the 153,846,153 Consideration Shares to the Vendor (or as it may direct) upon the 30th Business Day after the audited financial statements of the Target Group for the 12 months ending 30 June 2009 are issued.

Pursuant to the Agreement, in the event that the Returned Amount, if any, in respect of the Adjustment is not received by the Company by noon on the 30th Business Day after the audited financial statements of the Target Group for the 12 months ending 30 June 2009 are issued, the Attorney shall be entitled to sell or dispose of any of the Consideration Shares in its custody as agent for the Vendor to any party and use part or all of the sale proceeds (as

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LETTER FROM THE BOARD

the case may be) to pay any part of the Returned Amount in respect of the Adjustment to the Company. The Attorney shall not have or be entitled to exercise any voting power over any of the Consideration Shares held in custody for the Vendor.

The cash portion of the Consideration of HK$80 million will be satisfied by the internal resources of the Group and the proceeds from the Placing. Further information on the Placing is set out in the section headed “Placing of New Shares” below. The aggregate Consideration of HK$300 million payable to the Vendor has been arrived at after arm’s length negotiations between the Company and the Vendor with reference to the Benchmark Figure and having considered the growth potential of the Target Group as well as the potential synergies between the existing business of the Group and that of the Target Group after Completion. In view of the prospects of the industry, the growth potential of the Target Group and the synergistic benefits to the Group which is elaborated in the paragraph headed “Reasons for the Acquisition” below, the Board considers that the Consideration is fair and reasonable.

The Benchmark Figure referred to in the Adjustment is deemed as a profit forecast under Rule 10 of the Takeovers Code and therefore has to be reported on by the auditors or consultant accountants and the financial adviser of the Company as required by the Takeovers Code. The Benchmark Figure has been reported on in accordance with Rule 10 of the Takeovers Code by KPMG, the Company’s auditors, and Optima Capital Limited, the financial adviser of the Company. The reports on the Benchmark Figure are set out in Appendix IV to this circular.

The management of the Target Group and the Guarantors (the “Target Group Management”) have adopted the following assumptions in the preparation of the Benchmark Figure: 1. The reorganisation of the Target Group is taken as if it had taken place, and the Target Group is taken as if it had been in operation on a standalone basis, at the beginning of the forecast period and there will be no material changes in the corporate structure of the Target Group throughout the forecast period.

The senior management, business structure and major businesses of the Target Group will be relatively stable.
There will be no dispute over intellectual properties and other economic matters during the forecast period.
There will be no material changes in existing political, legal, fiscal or economic conditions in Hong Kong, the PRC or elsewhere which will materially affect the business carried out by the Target Group.
There will be no material changes in the bases or rates of taxation in Hong Kong and the PRC.
There will be no material changes in inflation rate, interest rates or foreign currency exchange rates from those currently prevailing.

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LETTER FROM THE BOARD

There will be no changes in legislation or regulations whether in Hong Kong, the PRC or elsewhere materially affecting the business carried out by the Target Group.
The Target Group’s operations will not be adversely affected in any material respect by interruptions or shortages of supplies of raw materials or labour disputes or any other reasons that are beyond the control of the Target Group.
The Target Group’s business and operation will not be severely interrupted by any unforeseeable factors or unforeseen reasons that are beyond the control of the Target Group Management, including but not limited to the occurrence of natural disasters or catastrophes (such as flood or typhoons), or serious accidents.

Issue price of Consideration Shares

The issue price of HK$0.39 per Consideration Share represents:

(i) a discount of approximately 4.88% to the closing price of HK$0.41 per Share as quoted on the Stock Exchange on 28 November 2008, being the last trading day prior to the signing of the Sale and Purchase Agreement and the suspension of trading in the Shares pending the release of the Announcement;
(ii) a discount of approximately 2.99% to the average closing price of HK$0.402 per Share as quoted on the Stock Exchange over the last 5 trading days up to and including 28 November 2008;
(iii) a premium of approximately 7.35% over the average closing price of approximately HK$0.3633 per Share as quoted on the Stock Exchange over the last 15 trading days up to and including 28 November 2008; and
(iv) a premium of approximately 5.4% over the closing price of HK$0.37 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The issue price of the Consideration Shares was negotiated on an arm’s length basis between the Company and the Vendor with reference to the prevailing market prices of the Shares. Save for the custody arrangement as mentioned in the section headed “Adjustments to the Consideration and custody arrangement” above, there is no restriction on dealing in the Consideration Shares. The Directors (including the independent non-executive Directors) consider the terms of the Agreement (including the issue of the Consideration Shares) are fair and reasonable and in the interests of the Company and Independent Shareholders as a whole.

Application has been made by the Company to the Stock Exchange for the grant of the listing of, and the permission to deal in, the Consideration Shares on the Stock Exchange. The Consideration Shares will rank pari passu in all respects among themselves and with all other Shares in issue on the date of such issue.

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LETTER FROM THE BOARD

Conditions precedent

Completion of the Acquisition is conditional upon the satisfaction or waiver (as the case may be) of the following conditions:

(i) the passing of the ordinary resolution(s) at an extraordinary general meeting by the Independent Shareholders to approve the Agreement, the issue and allotment of the Consideration Shares to the Vendor (or as it may direct), the Whitewash Waiver, and all other transactions contemplated in the Agreement, the Placing Agreement and all transactions contemplated under the Placing Agreement;
(ii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Consideration Shares and the Placing Shares under the Placing;
(iii) the granting by the Executive of the Whitewash Waiver;
(iv) completion of a due diligence investigation by the Company in respect of the Target Group, including without limitation, its state of affairs, assets and liabilities, legal, financial position and business operations, and all outstanding matters and documents in relation to the Guangdong Medi-World Group as listed and set out in the Agreement having been solved or provided to the reasonable satisfaction of the Company;
(v) the issuance of a legal opinion by a qualified PRC lawyer retained by the Vendor and such legal opinion shall have addressed to the reasonable satisfaction of the Company all issues and concerns raised by the Company which have reasonably arisen from its due diligence exercise and/or in relation to the affairs of the Target Group;
(vi) there having been no breach of any of the warranties in any respect by the Vendor and/or any of the Guarantors;
(vii) the parties to the Agreement having obtained (if any) all other consents, permits, approvals, authorisations and waivers necessary or appropriate for the entering into and consummation of the transactions contemplated in the Agreement;
(viii) the Equity Transfer Contracts having become effective and having been completed in accordance with the terms of the Equity Transfer Contracts and the Company having received all such documentation and proof evidencing such completion to its satisfaction;
(ix) the corporate restructuring involving the acquisition by the Target Company of all the issued and paid up capital of Common Win, Roundtop and Ace Supreme having been completed and the Company having received all such documentation and proof evidencing such completion of the corporate restructuring to its satisfaction;

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(x) no change, event or circumstances having occurred which has or which, in the opinion of the Company, may have a material adverse effect, including the absence or departure of certain key employees of the Target Group as listed in the Agreement;
(xi) there being no material difference between the unaudited and audited consolidated financial statements of the Target Group for the three years ended 31 December 2007 and for the six months ended 30 June 2008 as prepared in accordance with the Hong Kong Financial Reporting Standards or the Hong Kong Generally Accepted Accounting Principles;
(xii) the Placing Agreement having become unconditional in all respects save as regards any condition requiring the Agreement to become unconditional;
(xiii) the Placing Agent having completed the placing of the maximum number of Placing Shares and the placing proceeds obtained by the Company pursuant to the Placing amount to at least HK$70 million before deducting the placing fee of the Placing Agent referred to in the Placing Agreement; and
(xiv) compliance with any other requirements of the Stock Exchange in relation to the sale and purchase of the Sale Shares, the issue of the Consideration Shares and any of the transactions contemplated under the Agreement.

Conditions (i), (ii), (iii), (viii), (ix), (xi), (xii), (xiii) and (xiv) are not waivable. If any of the above conditions precedent is not fulfilled or waived (as the case may be) by any of the parties to the Agreement on or before 31 March 2009 or such later date as may be agreed in writing between the parties to the Agreement, the Agreement shall lapse and be of no further effect and no party shall have any claim against, or liability or obligation to, the other party save in respect of any antecedent breaches of the Agreement.

As at the Latest Practicable Date, none of the conditions above has been fulfilled.

Completion

Completion shall take place within five Business Days after fulfillment or waiver (as the case may be) of all the conditions precedent.

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and its financial results will be consolidated in the Group’s financial statement after Completion. In addition, the Vendor will enter into a deed of waiver on the date of Completion to waive all indebtedness due and owing by the Target Company to the Vendor as at the date of Completion. As at the Latest Practicable Date, such indebtedness amounted to approximately HK$27.3 million.

It is proposed that any two of the Guarantors or any other persons nominated by the Guarantors will be appointed as executive Directors after Completion. A further announcement will be made by the Company in relation to the appointment of Directors.

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LETTER FROM THE BOARD

Reorganisation

As at the date of the Agreement and as illustrated in the simplified shareholding charts in the paragraph headed “Information on Target Group” below, Guangdong Medi-World is held as to 54.68% by Sino Famous (a company held as to 50% by Mr. Xu and as to 50% by Mr. Wu as at the Latest Practicable Date) and as to 45.32% by Kimlong (a company indirectly wholly-owned by Mr. Yang as at the Latest Practicable Date); and Luya is held as to 75% by Guangdong Medi-World and 25% by Ace Supreme. Ace Supreme is beneficially held as to 50% by Mr. Xu and as to 50% by Mr. Yang. Pursuant to the proposed reorganisation which is one of the conditions precedent to Completion, Sino Famous and Kimlong will transfer their respective equity interest in Guangdong Medi-World to Common Win and Roundtop respectively pursuant to the Equity Transfer Contracts and the Target Company will acquire all of the issued and paid up capital of Common Win, Roundtop and Ace Supreme. As a result, upon completion of the reorganisation as described above, the Target Company will indirectly hold the entire equity interest in the Guangdong Medi-World Group through its direct shareholding in Common Win, Roundtop and Ace Supreme.

PLACING OF NEW SHARES

On 29 November 2008, the Company entered into the Placing Agreement with the Placing Agent in respect of the Placing of a maximum of 233,334,000 new Shares by the Placing Agent on a best effort basis.

The Placing Agreement dated 29 November 2008

Parties

Issuer: the Company Placing Agent: Sun Hung Kai International Limited

Placees: The Placing Shares will be placed to not less than six placees (which will be independent individual, corporate and/or institutional investors) and their ultimate beneficial owners will be third parties independent of and not connected with the Company, its connected persons and the Vendor. The placees will not be parties acting in concert with Hensil Investments, the Vendor and their respective ultimate beneficial owners. It is expected that no placee will become a substantial Shareholder (as defined in the Listing Rules) immediately following completion of the Placing.

The Company confirms that, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Placing Agent and its ultimate beneficial owners are third parties independent of and not connected with the Company and its connected persons.

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LETTER FROM THE BOARD

The Placing Shares

Pursuant to the Placing Agreement, the Placing Agent has conditionally agreed to place up to 233,334,000 Placing Shares on a best efforts basis. The Placing Shares represent (i) approximately 28.08% of the issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 21.92% of the issued share capital of the Company as enlarged by the issue of the Placing Shares; and (iii) approximately 14.33% of the issued share capital of the Company as enlarged by the issue of the Placing Shares and the Consideration Shares.

The Placing Shares, when fully paid, will rank pari passu in all respects with the Shares in issue on the date of completion of the Placing.

Placing under specific mandate

The Placing Shares will be allotted and issued under a specific mandate to be approved by the Independent Shareholders at the EGM.

Placing Price

The Placing Price of HK$0.30 per Placing Shares was agreed after arm’s length negotiations between the Company and the Placing Agent and represents:

(i) a discount of approximately 26.83% to the closing price of HK$0.41 per Share as quoted on the Stock Exchange on 28 November 2008, being the last trading day prior to the date of the Placing Agreement and suspension of trading in the Shares pending the release of the Announcement;
(ii) a discount of approximately 25.37% to the average closing price of HK$0.402 per Share as quoted on the Stock Exchange over the last 5 trading days up to and including 28 November 2008;
(iii) a discount of approximately 17.42% to the average closing price of approximately HK$0.3633 per Share as quoted on the Stock Exchange over the last 15 trading days up to and including 28 November 2008;
(iv) a discount of approximately 11.37% to the average closing price of approximately HK$0.3385 per Share as quoted on the Stock Exchange over the last 30 trading days up to and including 28 November 2008; and
(v) a discount of approximately 18.9% to the closing price of HK$0.37 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Directors (including the independent non-executive Directors) consider that the Placing Price, which was negotiated on an arm’s length basis between the Company and the Placing Agent with reference to the prevailing market prices of the Shares as described above and the size of the Placing Shares which represent approximately 28.08% of the issued share capital of the Company as at the Latest Practicable Date. In view of the recent

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volatile market conditions, the Directors would like to set the Placing Price at a level that would attract independent individual, corporate and/or institutional investors to participate in the Placing which is on a best-effort basis.

Placing Commission

The placing commission in relation to the Placing is equal to 1.5% of the aggregate Placing Price on the number of Placing Shares successfully placed pursuant to the Placing Agreement, which was arrived at after arm’s length negotiations between the Company and the Placing Agent. The Directors consider that the placing commission under the Placing Agreement is fair and reasonable.

After taking into account the estimated placing commission of approximately HK$1.05 million in relation to the Placing, the net price per Placing Share is expected to be approximately HK$0.296 per Share (assuming all 233,334,000 Placing Shares are successfully placed by the Placing Agent).

Conditions precedent to the Placing Agreement

Completion of the Placing Agreement is conditional upon:

(i) the Agreement having become unconditional in all respects save as regards any condition requiring the Placing Agreement to become unconditional;
(ii) if required, approval of the Placing Agreement and the transactions contemplated under the Placing Agreement having been obtained by the Shareholders (save for such Shareholders required to abstain from voting (if any) under the Listing Rules) in the EGM;
(iii) the granting by the Listing Committee of the Stock Exchange of the listing of, and permission to deal in, all of the Placing Shares having been obtained by the Company; and
(iv) the Company obtaining all necessary consents and approvals in respect of the transactions contemplated under the Placing Agreement, if applicable.

The Placing and the Acquisition are inter-conditional with each other.

If the conditions are not fulfilled on or prior to 31 March 2009 (or such later date as may be agreed in writing between the Company and the Placing Agent), all obligations of the Placing Agent and of the Company under the Placing Agreement shall cease and determine and none of the parties shall have any claim against the other in relation to the Placing Agreement.

The Company has applied to the Listing Committee for the approval of the listing of, and permission to deal in, the Placing Shares.

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LETTER FROM THE BOARD

Completion of the Placing Agreement

Subject to the fulfillment of all the conditions precedent as set out above and subject to the Placing Agent having successfully placed the maximum number of 233,334,000 Placing Shares to not less than six independent placees (who shall not (a) on its own hold such Placing Shares as represent 10% or more; and (b) together with parties acting in concert with it hold such Shares as represent 30% or more, of the Company’s issued share capital as at the date of the Placing Agreement and as at the date of completion of the Placing Agreement) and the Company receiving on the date of completion of the Placing Agreement proceeds from Placing of at least HK$70 million before expenses, completion of the Placing Agreement will take place no later than the 5th Business Day following the satisfaction of the conditions above (or such other date as the Company and the Placing Agent may agree and such date shall be the same date as the Completion). Further announcement will be made by the Company upon completion of the Placing.

Fund raising activities involving issue of securities in the past 12 months

The Company had not carried out any fund raising exercise or issued any equity securities in the 12-month period immediately preceding the date of the Announcement.

EFFECT ON SHAREHOLDING IN THE COMPANY

The following is a summary of the shareholding in the Company (i) as at the Latest Practicable Date; (ii) upon completion of the Placing and the Acquisition assuming a maximum of 233,334,000 Placing Shares are successfully placed by the Placing Agent and there being no other change to the issued share capital of the Company since the Latest Practicable Date:

Shareholders Hensil Investments (note 1) Vendor and parties acting in concert with it Placees (note 2) Other public Shareholders Total Total public Shareholders	As at the Latest Practicable Date Number of Shares % 605,290,886 72.84 – – – – 225,683,358 27.16 830,974,244 100.00 225,683,358 27.16	After completion of the Placing and the Acquisition (note 4) Number of Shares % 605,290,886 37.17 564,102,563 34.64 233,334,000 14.33 225,683,358 13.86 1,628,410,807 100.00 459,017,358 28.19	After completion of the Placing and the Acquisition (note 4) Number of Shares % 605,290,886 37.17 564,102,563 34.64 233,334,000 14.33 225,683,358 13.86 1,628,410,807 100.00 459,017,358 28.19
			100.00

			28.19

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LETTER FROM THE BOARD

Notes:

Hensil Investments is wholly owned by Foshan Development, the entire issued share capital of which is held by Mr. He Haochang and Mr. Chen Jinhui on trust for the Foshan Municipal People’s Government.
Pursuant to the Placing Agreement, the Placing Agent represents, warrants and undertakes to the Company that the placees and their ultimate beneficial owners shall be third parties independent of and not connected with the Company, its connected person and the Vendor, and that no placee will become a substantial Shareholder (as defined in the Listing Rules) immediately following completion of the Placing, and the placees will not be parties acting in concert with Hensil Investments, the Vendor and their respective ultimate beneficial owners. Therefore, the placees are treated as public Shareholders.
The above figures are based on the latest information available to the Company.
Upon Completion, Hensil Investments and the Vendor will be presumed to be acting in concert under Class (1) of the definition of acting in concert under the Takeovers Code; and Hensil Investments, the Vendor and their respective parties acting in concert will in aggregate hold approximately 71.81% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares.
Based on the above shareholding structure, it is expected that completion of the Acquisition and the Placing will not result in a change of control of the Company.

INFORMATION ON THE TARGET GROUP

The following diagrams illustrate the simplified shareholding chart of (i) the Guangdong Medi-World Group as at the Latest Practicable Date; (ii) the Target Company as at the Latest Practicable Date; (iii) the Target Group immediately after completion of the reorganisation as detailed under the paragraph headed “Reorganisation” above but before Completion; and (iv) the Target Group immediately after Completion.

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LETTER FROM THE BOARD

(i) Simplified shareholding structure of the Guangdong Medi-World Group as at the Latest Practicable Date:

==> picture [386 x 273] intentionally omitted <==

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

Mr. Yang
Mr. Xu Mr. Wu (Note 1) Mr. Xu Mr. Yang
50% 50% 100% 50% 50%
Sino Famous Kimlong Ace Supreme
54.68% 45.32%
Guangdong Medi-World
25%
75%
Luya
----- End of picture text -----

(ii) Simplified shareholding structure of the Target Company as at the Latest Practicable Date:

==> picture [229 x 186] intentionally omitted <==

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

Mr. Xu Mr. Wu Mr. Yang
(Note 2) (Note 2) (Note 2)
25% 25% 50%
The Vendor
100%
Target Company
----- End of picture text -----

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LETTER FROM THE BOARD

(iii) Simplified shareholding structure of the Target Group immediately after completion of the reorganisation but before Completion:

==> picture [422 x 431] intentionally omitted <==

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

Mr. Xu Mr. Wu Mr. Yang
(Note 2) (Note 2) (Note 2)
25% 25% 50%
The Vendor
100%
Target Company
100% 100% 100%
Common Win Roundtop Ace Supreme
54.68% 45.32%
Guangdong Medi-World
75% 25%
Luya
----- End of picture text -----

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LETTER FROM THE BOARD

(iv) Simplified shareholding structure of the Target Group immediately after Completion:

==> picture [422 x 335] intentionally omitted <==

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

Company
100%
Target Company
100% 100% 100%
Common Win Roundtop Ace Supreme
54.68% 45.32%
Guangdong Medi-World
75% 25%
Luya
----- End of picture text -----

Notes:

Mr. Yang holds 99% interest in Kimlong through his wholly-owned subsidiary and holds 1% interest in Kimlong directly.
Each of Mr. Xu, Mr. Wu and Mr. Yang indirectly holds their respective interest in the issued share capital of the Vendor through each of their respective wholly-owned companies. The shareholding charts set out above have been simplified for illustration purpose.
The charts above illustrate the simplified shareholding structures of the Guangdong Medi-World Group. Certain intermediate investment holding companies and non-revenue generating subsidiaries of Guangdong Medi-World have not been shown in the above charts.

Target Company

The Target Company was incorporated in the BVI with limited liability on 10 November 2008, and is an investment holding company. As at the Latest Practicable Date, the Target Company has no material asset and has not carried out any business operation since its incorporation and was incorporated for the purpose as the holding company of the Target Group. As referred to in the paragraph headed “Reorganisation” above and as illustrated in the shareholding charts above, upon completion of the reorganisation of the members of the Target Group, the Target Company will hold the entire issued share capital of Common Win, Roundtop and Ace Supreme which will in turn hold the entire equity interest in the Guangdong Medi-World Group.

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LETTER FROM THE BOARD

Common Win

Common Win is an investment holding company incorporated in Hong Kong with limited liability on 17 March 2008. As at the Latest Practicable Date, Common Win has no material assets and has not commenced any business operation since its incorporation. Common Win is incorporated for the purpose of holding 54.68% equity interests in Guangdong Medi-World.

Roundtop

Round Top is an investment holding company incorporated in Hong Kong on 20 June 2008 with limited liability. As at the Latest Practicable Date, Roundtop has no material assets and has not commenced any business operation since its incorporation. Roundtop is incorporated for the purpose of holding 45.32% equity interests in Guangdong Medi-World.

Ace Supreme

Ace Supreme is a company incorporated in Hong Kong on 29 October 1997 with limited liability. As at the Latest Practicable Date, Ace Supreme is an investment holding company with its sole asset being its 25% equity interest in Luya.

The Guangdong Medi-World Group

Guangdong Medi-World is a company incorporated in the PRC in 1992 with limited liability. Luya is a principal subsidiary of the Guangdong Medi-World Group and is a 75% owned joint venture of Guangdong Medi-World. The Guangdong Medi-World Group is principally engaged in the research and development, manufacturing and sale of traditional Chinese medicine, contemporary drugs extracted from plants ( ), chemical drugs, biological drugs, healthcare products, lyophilized powder for injection and cephalosporin powder for injection specialised in treating cardiovascular and brain-vascular problem, high blood pressure, anti-tumor, antibiotics, immunity recovery in form of tablets, capsules, granules, ointment, gel and cream etc. mainly in the PRC. Guangdong Medi-World has over 500 employees and manufactory plants of a total area of approximately 130 mu whereas Luya has over 200 employees and manufactory plants of a total area of approximately 30 mu. Both Guangdong Medi-World and Luya have passed the Good Manufacture Practice (“GMP”) certification of the PRC Government. The Guangdong Medi-World Group has been investing much resources in their research and development of new products. In addition, since 2004, Guangdong Medi-World has been cooperating with SUN YAT-SEN UNIVERSITY ( ) and Guangdong College of Pharmacy ( ) in researching and exploiting new technology to develop new products. Currently, the Guangdong Medi-World Group owns over 80 approved products registration certificates, of which principal products include Nifedipine Sustained-release Tablet ( ( )) which is a chemical drug used to soothe high blood pressure and cardiac neuralgia, Yupingfeng Granule ( ) which is a Chinese medicine used to strengthen immunity system, Qiye Shen’an Tablet ( ) which is a drug extracted from plant used to soothe a wide range of syndrome including insomnia, heartburn or tumor etc, Cefodizime Sodium for injection ( ( )) which is a chemical drug used as antibiotics, and Group A Streptococcus (A ) which is a chemical drug used to control and

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prevent cancer cells which are all leading products in the market in the PRC. In addition, it has obtained 2 patented new drugs pending approval for registration and 7 patent applications in process. Furthermore, 3 of the Guangdong Medi-World Group’s products are listed in breed of the Chinese medicine protection ( ), and a majority of its products are included in the national essential list for the basic medical insurance medicine ( ). Most of the products of the Guangdong Medi-World Group are sold to retail drug stores and hospitals in the PRC.

REASONS FOR THE ACQUISITION

The principal activity of the Company is investment holding. The principal activities of its subsidiaries are the manufacture and sale of Chinese medicine and pharmaceutical products in the PRC. Prior to October 2006, the principal business of the Group was the generation and sale of electricity in Foshan City, Guangdong Province, the PRC, which had caused substantial losses to the Group for four consecutive years up to the financial year of 2006. With a view to improving the operating results of the Group, the Group acquired its existing Chinese medicine business in October 2006 through the acquisition of a 51% equity interest in each of DZH and FLX. In December 2006, the Group disposed of its then loss making electricity generation business when there was no sign of the fuel oil prices easing off, which had burdened the Group and resulted in an escalating cost of production and greater operating losses, as the on-grid tariff adjustments permitted by the relevant government authorities could not catch up with the escalating fuel oil costs. As a result of the aforesaid transactions, the core business of the Group at present is in pharmaceutical business in the PRC.

For the year ended 31 December 2006, the Group recorded audited loss of approximately HK$431.7 million, which comprised loss from the discontinued operation in the electricity generation business of approximately HK$425.3 million and loss from the continuing operation of approximately HK$6.4 million. The new pharmaceutical business of the Group contributed a profit from operation of approximately HK$9.4 million to the Group since it became part of the Group in October 2006. For the year ended 31 December 2007, the Group recorded audited profit of approximately HK$25.0 million of which HK$8.4 million was attributable to the Shareholders. The significant improvement of the financial performance of the Group was primarily attributable to the satisfactory performance of the pharmaceutical business in the PRC. For the six months ended 30 June 2008, the Group had recorded unaudited profit of approximately HK$20.4 million, representing an increase of approximately 1.5 times compared to the unaudited profit of approximately HK$8.2 million for the corresponding period in 2007.

In view of the success in the pharmaceutical business of the Group, the Board considered that the Acquisition would allow the Company to further penetrate into the pharmaceutical business in the PRC. Aligning with the continuous and steady economic growth in the PRC, people in the PRC are becoming more health-conscious and more willing to spend in medical and health area. According to the statistics released by the National Development and Reform Commission of the PRC, in terms of the gross output value, industrial sales value and total export value of the PRC medical and pharmaceutical industry have grown more than 20% in 2007. In addition, as the Guangdong Medi-World Group has a long and successful history of operations and have established reputable

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products in the pharmaceutical market and track records/strong distribution networks in the PRC and in view of the extensive experience and expertise of the management of the Target Group, in particular, the expertise of Mr. Yang in the pharmaceutical industry, the Board considered that the Acquisition will allow the Group to leverage on the research and development capability and sales network of the Target Group to facilitate the Group in further expanding its business in the pharmaceutical industry. The Board considers that the Acquisition will therefore create synergistic benefits to the Group in its PRC pharmaceutical business and enables the Company to broaden its revenue base and further improve the financial performance of the Company.

Taking into account the above factors, the Board (including the Independent Board Committee) considers that the Acquisition provides a good opportunity to diversify the Group’s pharmaceutical business in the PRC, the terms of the Agreement are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and the Acquisition is in the interests of the Company and the Shareholders as a whole.

REASONS FOR THE PLACING

The Directors considered that the Placing is a preferred means of funding part of the Acquisition for the following reasons:

(i) a large amount of bank borrowings to finance the Consideration would adversely affect the gearing ratio of the Company which is not in the interests of the Company or its Shareholders as a whole; and
(ii) the Placing will broaden the shareholder base and enhance the profile of the Company given that the placees are individual, institutional or professional investors.

The net proceeds from the Placing is approximately HK$68.95 million and will be used to finance part of the Consideration as set out in the section headed “Consideration” above.

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LETTER FROM THE BOARD

FINANCIAL INFROMATION ON THE TARGET GROUP

The audited combined net profit attributable to the Target Group for the two financial years ended 31 December 2006 and 2007 and six months ended 30 June 2008 (as extracted from the accountants’ report on the Target Group as set out in Appendix II to this circular) are as follows:

	For the six	For the six
	months ended		For the year	ended
		30 June	31 December
		2008	2007		2006
	HK$ million		HK$ million	_HK$ _	million
Turnover		110.3	167.4		127.1
Audited combined net profit
before taxation and
extraordinary items		32.0	28.5		21.4
Audited combined net profit
after taxation and
extraordinary items		24.6	26.3		19.2

As at 30 June 2008, the audited combined net asset value of the Target Group was approximately HK$145.0 million.

FINANCIAL IMPACTS OF THE ACQUISITION

Upon Completion, the results of the Target Group would be consolidated into the Group. In view of the overall profit generating track record of the Target Group in the past three financial years as illustrated in Appendix II to this circular, the Directors are of the view that the earnings of the Group will be enhanced as a result of the Acquisition, which is in the interest of the Company and the Shareholders as a whole.

As illustrated in the unaudited pro forma statement of assets and liabilities of the Enlarged Group as set out in Appendix III to this circular, assuming the Acquisition and the Placing had taken place on 30 June 2008, the Group’s net asset value attributable to the equity shareholders of the Company would be increased by approximately HK$289.0 million from approximately HK$528.8 million to approximately HK$817.8 million. In addition, the total assets would be increased by approximately HK$441.1 million whereas the total liabilities would be increased by approximately HK$152.1 million.

As disclosed in the latest interim report of the Group for the six months ended 30 June 2008, the Group had an unaudited cash and cash equivalents balance of approximately HK$94.6 million. As illustrated in the unaudited pro forma statement of assets and liabilities of the Enlarged Group as set out in Appendix III to this circular, assuming the Acquisition and the Placing had taken place on 30 June 2008, the aggregate cash and cash equivalents contributed by the Target Group upon Completion would be approximately HK$116.1

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million. The Consideration will be settled partly by internal resources and partly by the proceeds from the Placing. Based on the above, the Acquisition will not have any material impact to the Group’s working capital position.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Board considers that the Acquisition would allow the Company to further penetrate into the pharmaceutical business in the PRC and further improve the Enlarged Group’s trading prospects in the future. The Directors consider that as a result of the expanding population, aging population, industrial modernisation and the influence of globalised diseases, people in the PRC are becoming more health-conscious and more willing to spend in medical and health area. In addition, as the Guangdong Medi-World Group has a long and successful history of operations and has established reputable products in the pharmaceutical market and strong distribution networks in the PRC, the Acquisition would create synergistic benefits to the Enlarged Group.

REGULATORY REQUIREMENTS

Takeovers Code

Application for Whitewash Waiver

As at the Latest Practicable Date, the Vendor and parties acting in concert with it did not hold any Shares. Upon Completion and the issue in full of 564,102,563 Consideration Shares, the Vendor will be interested in 564,102,563 Shares, representing approximately 34.64% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. Upon Completion, Hensil Investments and the Vendor will be presumed to be acting in concert under class (1) of the definition of acting in concert under the Takeovers Code, and Hensil Investments and the Vendor and their respective parties acting in concert with them will in aggregate hold approximately 71.81% of the total issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. In the circumstances, an obligation on the part of the Vendor to make a general offer for all the Shares not already owned or agreed to be acquired by the Vendor and parties acting in concert with it will arise under Rule 26 of the Takeovers Code as a result of the issue of the Consideration Shares to the Vendor. An application has been made by the Vendor to the Executive for the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver will be granted subject to the approval of the Independent Shareholders taken by way of poll at the EGM.

It is one of the conditions of the Agreement that the Whitewash Waiver be granted by the Executive and approved by the Independent Shareholders at the EGM. If the Whitewash Waiver is not granted by the Executive or not approved by the Independent Shareholders, the Agreement will not become unconditional and the Acquisition will not proceed.

The Vendor and parties acting in concert with it had not dealt in any securities in the Company during the Relevant Period.

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Other arrangements

As at the Latest Practicable Date,

(i) save for the Agreement, there is no arrangement (whether by way of option, indemnity or otherwise) in relation to the Shares or the shares of the Vendor and which might be material to the Whitewash Waiver;
(ii) save for the Agreement, there is no other agreement or arrangement to which the Vendor is a party which relates to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Acquisition or the Whitewash Waiver;
(iii) there is no outstanding derivative in respect of relevant securities (as defined in the Takeovers Code) in the Company which has been entered into by the Vendor or any person acting in concert with it;
(iv) neither the Vendor nor any parties acting in concert with it holds any convertible securities, warrants or options of the Company; and
(v) there is no relevant securities (as defined in the Takeovers Code) in the Company which the Vendor or any person acting in concert with it has borrowed or lent.

Listing Rules

The Acquisition constitutes a major transaction pursuant to Rule 14.06(3) of the Listing Rules and a connected transaction of the Company pursuant to Rule 14A.13(1)(b)(i) of the Listing Rules by reason of the proposed appointment of any two of the Guarantors as executive Directors, or nomination by the Guarantors of two persons as executive Directors after Completion. The Agreement and the transactions contemplated thereunder are therefore subject to the approval by Independent Shareholders at the EGM by poll. Since completion of the Placing and Completion is inter-conditional with each other, the allotment and issue of the Placing Shares under a specific mandate is therefore also subject to the approval by the Independent Shareholders at the EGM by way of poll.

Voting

By reason of the requirements of the Takeovers Code and the Listing Rules as explained above, the Vendor and parties acting in concert with it and the respective associates of its members are required to abstain from voting at the EGM in respect of the resolutions to approve the Agreement and the transactions contemplated thereunder, the Whitewash Waiver, and the Placing Agreement and the transactions contemplated thereunder. In addition, Mr. Du, Mr. Lam Siu Hung, Mr. Situ Min and Mr. Li Songquan, all being Directors, were involved in the negotiation of the Agreement and the Placing Agreement and therefore, they are required to abstain from voting at the EGM in respect of the resolutions to approve the Agreement and the transactions contemplated thereunder, the Whitewash Waiver, and the Placing Agreement and the transactions contemplated thereunder in accordance with the requirement of the Notes on Dispensations from Rule 26 of the

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LETTER FROM THE BOARD

Takeovers Code. As at the Latest Practicable Date, none of Mr. Du, Mr. Lam Siu Hung, Mr. Situ Min and Mr. Li Songquan, the Vendor and parties acting in concert with it or the respective associates of its members holds any Shares.

As Hensil Investments and the Vendor will, upon Completion, be presumed to be parties acting in concert under Class (1) of the definition of acting in concert under the Takeovers Code, Hensil Investments and Foshan Development which control approximately 72.84% of the issued share capital of the Company as at the Latest Practicable Date will abstain from voting at the EGM in respect of the resolutions to approve the Agreement and the transactions contemplated thereunder, the Whitewash Waiver, and the Placing Agreement and the transactions contemplated thereunder.

Save as disclosed above, to the best of the knowledge, information and belief of the Directors after having made all reasonable enquiries, no other Shareholder is required to abstain from voting on the proposed ordinary resolutions to approve the Whitewash Waiver, the Agreement and the transactions contemplated thereunder, and the Placing Agreement and the transactions contemplated thereunder at the EGM.

EGM

The EGM to approve the Agreement and the transactions contemplated thereunder, the Whitewash Waiver, and the Placing Agreement and the transactions contemplated thereunder will be held at 10:00 a.m. on Monday, 19 January 2009 at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong. A notice convening the EGM is set out on pages 252 to 254 of this circular.

Enclosed is a form of proxy for use at the EGM. Whether or not you intend to attend and vote at the EGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s registered office at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong, as soon as possible but in any event no less than 48 hours before the time appointed for holding such meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.

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LETTER FROM THE BOARD

INTENTION OF THE VENDOR

It is the intention of the Vendor that the Enlarged Group will continue its current business. The Vendor has no intention to make any major changes to the business or continued employment of the employees of the Enlarged Group or to redeploy the fixed assets of the Enlarged Group.

The Vendor considers that the Acquisition will create synergistic benefits to the Group in its PRC pharmaceutical business and this in turn would enhance the value of the investments of the Vendor in the Company in the long run.

PROCEDURE FOR DEMAND A POLL

Pursuant to the Article 73 of the Articles of Association, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is taken as may from time to time be required under the Listing Rules or any other applicable laws, rules or regulations or unless a poll is (before or on the declaration of the result of the show of hands) demanded:–

(i) by the Chairman; or
(ii) by at least three members present in person or by proxy for the time being entitled to vote at the meeting; or
(iii) by any member or members present in person 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) by any member or members present in person 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 up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

RECOMMENDATION

The Directors believe that the terms of the Acquisition and the Placing are fair and reasonable, and the Acquisition, the Whitewash Waiver and the Placing are in the interests of the Company and the Shareholders as a whole and therefore recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Agreement and the transactions contemplated thereunder, the Whitewash Waiver, and the Placing Agreement and the transactions contemplated thereunder.

You are advised to read carefully the letter from the Independent Board Committee on pages 33 and 34 of this circular. The Independent Board Committee, having taken into account the advice of Veda Capital, the text of which is set out on pages 35 to 57 of this circular, considers that the terms of the Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, and the terms of the Agreement and the transactions contemplated thereunder and the Whitewash

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LETTER FROM THE BOARD

Waiver are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve the Agreement and the transactions contemplated thereunder and the Whitewash Waiver.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully, By Order of the Board DU Richeng Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Acquisition and the Whitewash Waiver:

WING SHAN INTERNATIONAL LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 570)

31 December 2008

(i) MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED; AND (ii) APPLICATION FOR WHITEWASH WAIVER

To the Independent Shareholders

Dear Sir or Madam,

We refer to the circular of the Company dated 31 December 2008 (the “ Circular ”), of which this letter forms part. Unless specified otherwise, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed as the Independent Board Committee to advise you as to whether, in our opinion, the terms of the Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Company and the Independent Shareholders are concerned and whether the terms of the Agreement and the transactions contemplated thereunder and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole.

Veda Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Details of their independent advice, together with the principal factors and reasons they have taken into consideration, are set out on pages 35 to 57 of the Circular.

Having considered the terms of the Agreement and the transactions contemplated thereunder and the independent advice of Veda Capital in relation thereto, we are of the opinion that the terms of the Agreement and the transactions contemplated thereunder are fair and reasonable in so far as the Company and the Independent Shareholders are concerned, and the terms of the Agreement and the transactions contemplated thereunder and

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Agreement and the transactions contemplated thereunder and the Whitewash Waiver.

Yours faithfully,

Independent Board Committee Mr. Chan Ting Chuen, David Mr. Ng Pui Cheung, Joseph Mr. Cheung Kin Piu, Valiant Independent Independent Independent non-executive Director non-executive Director non-executive Director

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LETTER FROM VEDA CAPITAL

The following is the full text of a letter of advice from Veda Capital to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition and the Whitewash Waiver prepared for the purpose of inclusion in this circular.

==> picture [114 x 31] intentionally omitted <==

Veda Capital Limited Suite 1302, 13/F, Takshing House 20 Des Voeux Road Central, Hong Kong

31 December 2008

To the Independent Board Committee and the Independent Shareholders of Wing Shan International Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISTION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition and the Whitewash Waiver, details of which are set out in the letter from the Board (the “Board Letter”) contained in this circular (the “Circular”) dated 31 December 2008 issued by the Company, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

It was stated in the Announcement that on 29 November 2008, the Company entered into the Agreement with the Vendor and the Guarantors, pursuant to which, among other things, the Vendor agreed to sell and the Company agreed to acquire the entire issued share capital of the Target Company at a consideration of HK$300 million, and the same parties entered into the Supplemental Agreement on 16 December 2008 to amend the Agreement. The consideration of HK$300 million shall be settled as to HK$80 million by cash and as to HK$220 million by the issue of 564,102,563 Consideration Shares by the Company to the Vendor or its nominees.

In addition, on 29 November 2008, the Company entered into the Placing Agreement with the Placing Agent pursuant to which the Company has conditionally agreed to place, through the Placing Agent, up to 233,334,000 Placing Shares at a price of HK$0.30 per Placing Share to not less than six independent placees on a best effort basis. The net proceeds from the Placing is estimated to be approximately HK$68.95 million and will be used to finance part of the Consideration of the Acquisition. Completion of the Acquisition and the Placing are inter-conditional with each other.

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LETTER FROM VEDA CAPITAL

As at the Latest Practicable Date, the Vendor and parties acting in concert with it did not hold any Shares. Upon Completion and the issue in full of 564,102,563 Consideration Shares, the Vendor will be interested in 564,102,563 Shares, representing approximately 34.64% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. Upon Completion, Hensil Investments and the Vendor will be presumed to be acting in concert under class (1) of the definition of acting in concert under the Takeovers Code, and Hensil Investments and the Vendor and their respective parties acting in concert will in aggregate hold approximately 71.81% of the total issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. In the circumstances, an obligation on the part of the Vendor to make a general offer for all the Shares not already owned or agreed to be acquired by the Vendor and parties acting in concert with it will arise under Rule 26 of the Takeovers Code as a result of the issue of the Consideration Shares to the Vendor. An application has been made by the Vendor to the Executive for the Whitewash Waiver. The Executive has indicated that the whitewash waiver will be granted subject to the approval of the Independent Shareholders taken by way of poll at the EGM.

The Independent Board Committee has been established to advise whether the terms of the Acquisition and the Whitewash Waiver are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. The Independent Board Committee (comprising the independent non-executive Directors, namely Mr. Chan Ting Chuen, David, Mr. Ng Pui Cheung, Joseph and Mr. Cheung Kin Piu, Valiant) which is not involved in nor has any interest in the Acquisition and the Whitewash Waiver and thus being independent, has been established. Mr. Du Richeng, a non-executive Director, was involved in the negotiation of the Agreement and the Placing Agreement, the Directors consider that it would be more appropriate that Mr. Du does not sit on the Independent Board Committee. Veda Capital has been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to (i) whether the terms of the Acquisition and the Whitewash Waiver are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and (ii) whether the Independent Shareholders should vote in favour of the resolution to approve the Acquisition and the Whitewash Waiver.

BASIS OF OUR ADVICE

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company, Directors and management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which

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LETTER FROM VEDA CAPITAL

would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, Directors and management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and will continue to be true at the date of the EGM.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular (other than information relating to the Vendor and the parties acting in concert with it and the Guarantors) opinions expressed in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinion expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading. The directors of the Vendor jointly and severally accept full responsibility for the accuracy of the information contained in the Circular (other than information relating to the Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statements in the Circular misleading. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company or its subsidiaries.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In assessing the Acquisition and the Whitewash Waiver and in giving our recommendation to the Independent Board Committee and the Independent Shareholders, we have taken into account the following principal factors and reasons:

Business highlights and financial information of the Target Group

The principal operating subsidiaries of the Target Group are under the Guangdong Medi-World Group comprising Guangdong Medi-World and Luya. Guangdong Medi-World is a company incorporated in the PRC in 1992 with limited liability. Luya is a subsidiary of the Guangdong Medi-World Group and is a 75% owned joint venture of Guangdong Medi-World. The Guangdong Medi-World Group is principally engaged in the research and development, manufacturing and sale of traditional Chinese medicine, contemporary drugs extracted from plants ( ), chemical drugs, biological drugs, healthcare products, lyophilized powder for injection and cephalosporin powder for injection specialised in treating cardiovascular and brain-vascular problem, high blood pressure, anti-tumor, antibiotics, immunity recovery in form of tablets, capsules, granules, ointment, gel and cream etc. mainly in the PRC. Guangdong Medi-World has over 500 employees and manufactory plants of a total area of approximately 130 mu whereas Luya has over 200 employees and manufactory plants of a total area of approximately 30 mu. Both Guangdong Medi-World and Luya have passed the Good Manufacture Practice (“GMP”) certification of the PRC Government. The Guangdong Medi-World Group has been investing much resources in their research and development of new products. In addition, since 2004, Guangdong

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LETTER FROM VEDA CAPITAL

Medi-World has been cooperating with SUN YAT-SEN UNIVERSITY ( ) and Guangdong College of Pharmacy ( ) in researching and exploiting new technology to develop new products. Currently, the Guangdong Medi-World Group owns over 80 approved products registration certificates, of which principal products include Nifedipine Sustained-release Tablet ( ( )) which is a chemical drug used to sooth high blood pressure and cardiac neuralgia, Yupingfeng Granule ( ) which is a Chinese medicine used to strengthen immunity system, Qiye Shen’an Tablet ( ) which is a drug extracted from plant used to sooth a wide range of syndrome including insomnia, heartburn or tumor etc., Cefodizime Sodium for injection ( ( )) which is a chemical drug used as antibiotics, and Group A Streptococcus (A ) which is a chemical drug used to control and prevent cancer cells which are all leading products in the market in the PRC. In addition, it has obtained 2 patented new drugs pending approval for registration and 7 patent applications in process. Furthermore, 3 of the Guangdong Medi-World Group’s products are listed in breed of the Chinese medicine protection ( ), and a majority of its products are included in the national essential list for the basic medical insurance medicine ( ). Most of the products of the Guangdong Medi-World Group are sold to retail drug stores and hospitals in the PRC.

Set out below is the financial performance analysis on the Target Group for the three years ended 31 December 2005, 2006 and 2007 and six months ended 30 June 2007 and 2008:

				Six months ended	Six months ended
	Year ended 31 December			30 June
	2005	2006	2007	2007	2008
	(audited)	(audited)	_(audited) _	(unaudited)	(audited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	138,811	127,054	167,419	58,835	110,310
Gross profit	86,102	76,378	104,533	37,990	68,522
Gross profit margin	62	60	62	65	62
Profit before
taxation	16,255	21,357	28,498	8,675	32,045
Profit after taxation	13,889	19,200	26,256	8,010	24,625
Increase % relative
to the previous
year/period	N/A	38	37	N/A	207

(i) Financial year ended 31 December 2006 versus financial year ended 31 December 2005

As stated in the section headed “Management discussion and analysis on the Target Group” as contained in Appendix II to the Circular, during 2006, the PRC government re-formulated the pricing policy of the pharmaceutical products by lowering the selling price of certain pharmaceutical products. In light of this, the turnover of the Target Group was affected by the decrease in selling prices of

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LETTER FROM VEDA CAPITAL

certain main pharmaceutical products. The directors of the Target Group decided to reformulate the Target Group’s business strategy by lowering the administrative expenses, broadening the customer base to induce more sales and cutting headcount of staff in order to maintain steady growth in profit.

The Target Group’s combined turnover and profit before taxation for the year ended 31 December 2006 amounted to approximately HK$127 million and HK$21 million respectively. Despite a decrease of approximately 8% in turnover, there was an increase of approximately 31% in profit before taxation as compared to the corresponding figures for the year ended 31 December 2005 due to the decrease in the selling and distribution costs and administrative expenses. The Target Group’s gross profit margin for the year ended 31 December 2006 remained at around 60%, representing a slight decrease of 2 percentage points from the gross margin of the previous year. The decrease in turnover was due to the decrease in sales of Yupingfeng Granule and Cefodizime Sodium. The increase in profit before taxation was due to the increase in government grants and decrease in the selling and distribution costs and administrative expenses by 25% and 9% respectively for the year ended 31 December 2006. Profit attributable to equity shareholders of the Target Company for the year ended 31 December 2006 increased by approximately 46% to reach HK$19 million for the year.

(ii) Financial year ended 31 December 2007 versus financial year ended 31 December 2006

The Target Group’s combined turnover and profit before taxation for the year ended 31 December 2007 amounted to approximately HK$167 million and approximately HK$28 million respectively representing an increase of approximately 32% and approximately 33% respectively from those for the year ended 31 December 2006. The increase in the Target Group’s turnover was due to the boost in sales of the Target Group’s main selling product, Cefodizime Sodium. The Target Group’s gross profit margin remained at around 62% in 2007. The increase in profit before taxation was not only due to the increase in sales but also due to the decrease in cost of sales and the increase in the receipt of government grants in the year. The Target Group’s 2007 profit attributable to shareholders increased by 37% to reach HK$26 million for the year and the Target Group’s basic earnings per share was HK$263,000, an increase of 37% from HK$192,000 in 2006.

(iii) Six months ended 30 June 2008 versus six months ended 30 June 2007

For the six-month period ended 30 June 2008, the Target Group’s combined turnover and profit before taxation for the period amounted to approximately HK$110 million and approximately HK$32 million respectively representing an increase of approximately 87% and approximately 269% respectively from the same period in 2007. The Target Group’s gross profit margin remained steady at around 62% in the period. The increase in profit before taxation was due to the increase in sales and the decrease in cost of sales and the increase in the receipt of government grants in the period. The Target Group’s profit attributable to

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LETTER FROM VEDA CAPITAL

shareholders increased by approximately 207% to reach HK$25 million for the period. The significant increase in the Target Group’s turnover was attributed by introducing medical scheme to farm villages by the PRC government and the extension of medical insurance coverage to the urban towns and cities in the PRC. Sales of the Target Group’s main products were increased tremendously due to efficient marketing and the expansion of its sales network.

Background of and reasons for the Acquisition

The principal activity of the Company is investment holding. The principal activities of its subsidiaries are the manufacture and sale of Chinese medicine and pharmaceutical products in the PRC. As stated in the Board Letter, prior to October 2006, the principal business of the Group was the generation and sale of electricity in Foshan City, Guangdong Province, the PRC, which had caused substantial losses to the Group for four consecutive years up to the financial year of 2006. With a view to improving the operating results of the Group, the Group acquired its existing Chinese medicine business in October 2006. In December 2006, the Group disposed of its then loss making electricity generation business when there was no sign of the fuel oil prices easing off, which had burdened the Group and resulted in an escalating cost of production and greater operating losses, as the on-grid tariff adjustments permitted by the relevant government authorities could not catch up with the escalating fuel oil costs. As a result of the aforesaid transactions, the core business of the Group at present is in pharmaceutical business in the PRC.

Aligning with the continuous and steady economic growth in the PRC, people in the PRC are becoming more health-conscious and more willing to spend in medical and health area. According to the statistics released by the National Development and Reform Commission of the PRC, in terms of the gross output value, industrial sales value and total export value of the PRC medical and pharmaceutical industry have grown more than 20% in 2007. In addition, as the Guangdong Medi-World Group has a long and successful history of operations (as reflected in its increasing operating profitability as set out in the section headed “Business highlights and financial information of the Target Group” above) and have established reputable products in the

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LETTER FROM VEDA CAPITAL

pharmaceutical market and track records/strong distribution networks in the PRC and in view of the extensive experience and expertise of the management of the Target Group, in particular, the expertise of Mr. Yang in the pharmaceutical industry, the Board considered that the Acquisition will allow the Group to leverage on the research and development capability and sales network of the Target Group to facilitate the Group in further expanding its business in the pharmaceutical industry. The Board considers that the Acquisition will therefore create synergistic benefits to the Group in its PRC pharmaceutical business and enables the Company to broaden its revenue base and further improve the financial performance of the Company.

In view of the proven success in the pharmaceutical business of the Group and the Guangdong Medi-World Group, we share the view of the Directors that the Acquisition would allow the Company to further penetrate into the pharmaceutical business in the PRC with the benefits of diversification and increasing its earnings base. The Acquisition is in line with the existing business focus of the Group which may benefit from the synergy effect brought from the Target Group and the Acquisition is in the ordinary and usual course of business of the Group. Taking into account the promising future business prospect of the Target Group leveraging on the increasing health-consciousness and willingness for medical spending in the PRC, which will lead to growing in demand for medical and pharmaceutical products, we concur with the Directors that the Acquisition is in the interests of the Company and the Independent Shareholders as a whole.

Conditions precedent

Completion of the Acquisition is conditional upon the satisfaction or waiver (as the case may be) of the conditions as set out under the section headed “Conditions precedent” in the Board Letter. Conditions (i), (ii), (iii), (viii), (ix), (xi), (xii), (xiii) and (xiv) are not waivable. If any of such conditions precedent is not fulfilled or waived (as the case may be) by any of the parties to the Agreement on or before 31 March 2009 or such later date as may be agreed in writing between the parties to the Agreement, the Agreement shall lapse and be of no further effect and no party shall have any claim against, or liability or obligation to, the other party save in respect of any antecedent breaches of the Agreement.

Completion shall take place within five Business Days after fulfillment or waiver (as the case may be) of all the conditions precedent. Upon Completion, the Vendor will enter into a deed of waiver on the date of Completion to waive all indebtedness due and owing by the Target Company to the Vendor as at the date of Completion. Such shareholder’s loan amounted to approximately HK$27.3 million as at the Latest Practicable Date. We consider such waiver of the shareholder’s loan by the Target Company is for the benefits and in the interests of the Company and the Independent Shareholders so that the Target Group (which will become part of the Enlarged Group upon Completion) will not be indebted to the Vendor and the net asset value of the Target Group will increase accordingly by the amount of shareholder’s loan being waived. It is proposed that any two of the Guarantors or any other persons nominated

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LETTER FROM VEDA CAPITAL

by the Guarantors will be appointed as executive Directors after Completion. A further announcement will be made by the Company in relation to the appointment of Directors.

Given the conditions to the Agreement are for (i) compliance to the relevant provisions of the Listing Rules; (ii) completion of a due diligence investigation including obtaining the relevant legal opinions to the reasonable satisfaction of the Company; (iii) for obtaining the Whitewash Waiver from the general offer obligations of the Vendor under the Takeovers Code pursuant to the issue of the Consideration Shares; (iv) for ensuring no breach of the warranties by the Vendor and/or any of the Guarantors; (v) completion of the reorganization as described under the section headed “Reorganisation” in the Board Letter; (vi) for ensuring there being no material difference between the audited and unaudited accounts of the Target Group; and (vii) for the completion of the Placing Agreement, we concur with the Directors that the conditions of the Acquisition are in normal commercial terms and fair and reasonable so far as the Company and the Independent Shareholders are concerned.

Consideration for the Acquisition

The Consideration for the Acquisition is HK$300 million, subject to Adjustments (as further discussed in this section below), and will be satisfied in the following manner:

(i) as to HK$80 million payable by the Company to the Vendor in cash at the date of Completion or not later than 2 Business Days after the day of receipt of the proceeds from the Placing by the Company, whichever is later; and
(ii) as to HK$220 million by the issue and allotment of 564,102,563 Consideration Shares by the Company to the Vendor (or as it may direct) at an issue price of HK$0.39 per Consideration Share at the date of Completion (of which the share certificate(s) in respect of 153,846,153 Consideration Shares will be held in the custody of the Attorney).

The aggregate Consideration of HK$300 million payable to the Vendor has been arrived at after arm’s length negotiations between the Company and the Vendor with reference to the track records and growth potential of the Target Group as well as the potential synergies between the existing business of the Group and that of the Target Group after Completion.

As advised by the Directors and mentioned in the Board Letter, the cash portion of the Consideration of HK$80 million will be satisfied by the internal resources of the Group and the proceeds from the Placing. We consider that the issue of the Consideration Shares to the Vendor is in the interests of the Company as it will not draw on the existing cash resources of the Group for full settlement of the Consideration and please also refer to the section headed “Consideration Shares” below for our evaluation of fairness and reasonableness of the terms of the Consideration Shares.

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LETTER FROM VEDA CAPITAL

a. Adjustments to the Consideration

The Consideration shall be subject to Adjustment, whereby the Vendor shall return the Company a cash amount (the “ Returned Amount ”) within 30 Business Days after the audited financial statements of the Target Group for the 12 months ending 30 June 2009 are issued if the audited consolidated net profit after taxation of the Target Group for the 12 months ending 30 June 2009 is less than the Benchmark Figure of RMB45 million. The Returned Amount pursuant to the Adjustment is equivalent to 6 times of the shortfall in the audited consolidated net profit after taxation of the Target Group for the 12 months ending 30 June 2009 (the “ Actual Profit ”) as against the Benchmark Figure. The multiple of 6 times was determined after arm’s length negotiations between the Company and the Vendor with reference to the Consideration of HK$300 million and the adjustment mechanism as described above.

The Consideration is equivalent to approximately 6 times of the Benchmark Figure of RMB45 million (approximately HK$50 million), (i.e. Benchmark Figure of approximately HK$50 million x 6 times = HK$300 million), should there be any shortfall of Actual Profit from the Benchmark Figure, we consider it fair and reasonable for the Vendor to compensate the Company for 6 times the amount of the shortfall and the Adjustment mechanism to the Consideration is in the interests of the Company and the Independent Shareholders.

b. Custody arrangements

All the 564,102,563 Consideration Shares will be issued to the Vendor on the date of Completion, of which the share certificates in respect of 153,846,153 Consideration Shares (representing approximately 27.3% of the total number of Consideration Shares to be issued upon Completion. The 153,846,153 Consideration Shares worth HK$60 million at the issue price of HK$0.39 per Consideration Share) will be held in the custody of the Attorney. The Vendor shall have the voting power over such Consideration Shares held custody. In the event that no adjustment to the Consideration is required to be made pursuant to the Adjustment or (as the case may be) the Company has received the Returned Amount in respect of the Adjustment within 30 Business Days after the audited financial statements of the Target Group for the 12 months ending 30 June 2009 are issued, the Attorney shall release the share certificate(s) in respect of the 153,846,153 Considerations Shares to the Vendor (or as it may direct) upon the 30th Business Day after receiving the audited financial statements of the Target Group for the 12 months ending 30 June 2009.

Pursuant to the Agreement, in the event that the Returned Amount in respect of the Adjustment is not received by the Company by noon on the 30th Business Day after receiving the audited financial statements of the Target Group for the 12 months ending 30 June 2009, the Attorney shall be entitled to sell or dispose of any of the Consideration Shares in its custody as agent for the Vendor to any party and use part or all of the sale proceeds (as the case may be) to pay any part

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LETTER FROM VEDA CAPITAL

of the Returned Amount in respect of the Adjustment to the Company. The Attorney shall not have or be entitled to exercise any voting power over any of the Consideration Shares held in custody for the Vendor.

Given (i) the custody arrangement could be used to set off the Returned Amount (if any and if applicable) to ensure the refund of the Consideration which is subject to the Adjustments; and (ii) the worth of the Consideration Shares (based on the issue price of HK$0.39 per Consideration Share) to be held by the Attorney for custody is HK$60 million, in other words, based on the multiple for Adjustments of approximately 6 times, the tolerance of the shortfall from the Benchmark Figure would be RMB9 million (approximately HK$10.17 million) (the “ Tolerance Amount ”) (calculated as HK$60 million / 5.9 times or RMB53.1 million / 5.9 times) assuming no Returned Amount in respect of the Adjustment is received by the Company as scheduled. Based on the historical trend of annual growth in net profit of the Target Group for the three years ended 31 December 2007 had been more than 37% and the net profit of the Target Group for the six months ended 30 June 2008 was approximately HK$24.6 million, the possibility that the shortfall from the Benchmark Figure for more than the Tolerance Amount of RMB9 million (approximately HK$10.17 million) is relatively low and we consider the custody arrangement is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

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c. Valuation comparisons

For comparison purpose, we have identified all the companies (the “ Pharmaceutical Comparables ”) listed on the Main Board or the Growth Enterprise Market of the Stock Exchange (including the Company itself) with a total of 12, which are engaged in manufacture and sale of pharmaceutical products, i.e. in similar line of principal business as the Target Group. Since the Consideration is equivalent to approximately 6 times of the Benchmark Figure of RMB45 million (approximately HK$50 million), we consider the use of price to earnings multiples a valid tool to evaluate the Consideration against the Pharmaceutical Comparables and we have reviewed and tabulated below the price earnings multiples of the Pharmaceutical Comparables respectively:

		Market	Net profit		Net profit
		capitalisation	for the	Annual	for the	Interim
		as at the	latest	price	latest	price
Company name		date of the	financial	earnings	interim	earnings
(stock code)	Principal activities	Agreement	year	multiple	period	multiple
		(HK$	(HK$		(HK$
		million)	million)	(times)	million)	(times)
China Shineway	Research and development,	3,473	554.9	6.26	303.4	11.45
Pharmaceutical	manufacture and trading of
Group Limited	Chinese pharmaceutical
(2877)	products
China WindPower	Wind farm investment and	1,176	100.1	11.75	53.9	21.83
Group Limited	operation and related business.
(182)	Trading of Chinese medicine,
	Sum Yung and dried seafood,
	and other health food products,
	and provide Chinese clinical
	services
CK Life Sciences	Research and development,	2,047	117.0	17.50	8.3	252.22
International	manufacturing,					(not valid
(Holdings) Inc.	commercialisation, marketing					for
(currently 775 and	and sale of environmental and					comparison
previously 8222)	human products					for being
						an extreme
						outliner)
The Company	Manufacture and sale of	340.7	8.4	40.577	20.4	16.69
	pharmaceutical products
Dawnrays	Development, manufacture and	546.5	114.3	4.78	55.2	9.9
Pharmaceutical	sale of non-patented chemical
(Holdings) Limited	medicines including
(2348)	cephalosporins in sterile bulk
	medicine and powder for
	injection forms, their
	intermediate pharmaceuticals
	and system specific medicines
GreaterChina	Trading of Chinese herbal	47.0	(30.5)	Not	Not	Not
Technology Group	products, provision of portal			applicable	available	available
Limited (8032)	development and information
	technology advisory services
	and consultation services,
	manufacture and sale of
	western medicine

– 45 –

LETTER FROM VEDA CAPITAL

		Market	Net profit		Net profit
		capitalisation	for the	Annual	for the	Interim
		as at the	latest	price	latest	price
Company name		date of the	financial	earnings	interim	earnings
(stock code)	Principal activities	Agreement	year	multiple	period	multiple
		(HK$	(HK$		(HK$
		million)	million)	(times)	million)	(times)
Hua Han	Research, development,	458.0	144.2	3.18	Not	Not
Bio-Pharmaceutical	manufacture and sale of				available	available
Holdings Limited	gynecological medicine and
(587)	medicinal healthcare products
	for women
Shandong Xinhua	Development, manufacture and	144.0	36.0	4.00	23.1	6.23
Pharmaceutical	sales of bulk pharmaceuticals,
Company Limited	preparations (such as injections
(719)	and tablets) and chemical
	products
Tong Ren Tang	Manufacturing and sales of	442.7	173.5	2.55	95.3	4.65
Technologies	Chinese Patent Medicine in the
Company Limited	forms of granules, pills, tablets
(8069)	and soft capsules
VODone Limited	Manufacturing, trading and	187.0	(59.7)	Not	8.9	21.01
(82)	contracting of Chinese			applicable
	medicines products and
	Telemedia service in the PRC
Wai Yuen Tong	Production and sale of Chinese	271.4	83.8	3.24	(174.8)	Not
Medicine Holdings	and western pharmaceutical					applicable
Limited (897)	and health food products,
	bottled birds nest drinks and
	herbal essence products and
	property investments and
	property holding
Wuyi International	Research and development,	1,111.4	307.7	3.61	136.4	8.15
Pharmaceutical Co.	manufacturing and trading of
Limited (1889)	pharmaceutical products
			Highest	40.58		21.83
			Lowest	2.55		4.64
			Average	9.75		12.49
(i) Comparison of the Consideration to the		300	26.3	11.43	27.9	10.77
historical earnings of the Target Company		(Note 1)
(ii) Comparison of	the Consideration to the	300	50.9	5.9	Not	Not
minimum prospective earnings of the Target		(Note 1)	(Note 2)		applicable	applicable
Company as represented by the Benchmark
Figure

Notes:

Representing the Consideration
Representing the Benchmark Figure of RMB45 million in Hong Kong dollars

Source: www.hkex.com.hk

– 46 –

LETTER FROM VEDA CAPITAL

As shown in the above table, we noted that

(i) the price earnings multiple represented by the Consideration to the net profit of the Target Group for the year ended 31 December 2007 of approximately 11.43 times is within the range of price earnings multiples (based on net profits for the latest financial year) of the Pharmaceutical Comparables from approximately 2.55 times to approximately 40.58 times (as represented by the case of the Company) and is above the average of the price earnings multiples of the Pharmaceutical Comparables of approximately 9.75 times.
(ii) the price earnings multiple represented by the Consideration to the net profit of the Target Group for the six months ended 30 June 2008 (which represents a more up to date comparison) of approximately 10.77 times is within the range of price earnings multiples (based on net profits for the latest interim period) of the Pharmaceutical Comparables from approximately 4.64 times to approximately 21.83 times and is less than the average of the price earnings multiples of the Pharmaceutical Comparables of approximately 12.49 times.
(iii) the price earnings multiple represented by the Consideration to the Benchmark Figure of approximately 5.9 times is within the range of price earnings multiples (based on net profits for the latest financial year) of the Pharmaceutical Comparables from approximately 2.55 times to approximately 40.58 times and is less than the average of the price earnings multiples of the Pharmaceutical Comparables of approximately 9.75 times.

On the above basis, we consider that the Consideration is fair and reasonable so far as the interests of the Company and the Independent Shareholders are concerned.

– 47 –

LETTER FROM VEDA CAPITAL

The Consideration Shares

The Consideration of HK$300 million will be partly satisfied by way of the issue of Consideration Shares to the Vendor or its nominees in the amount of HK$220 million.

(i) Issue price of the Consideration Shares

The premium/discount of the issue price of each Consideration Share of HK$0.39 over/to the closing price of the Shares for different periods are set out in the following table:

		Premium/
		(discount) of the
		issue price over/to
		the closing price/
	Closing price/	average closing
	average closing	price per Share in
	price per Share for	the respective
Date/period	the period	period
	(HK$)	(%)
As at the Last Trading Day	0.41	(4.88)
5 days up to and including
the Last Trading Day	0.402	(2.99)
15 days up to and including
the Last Trading Day	0.3633	7.35
As at the Latest Practicable
Date	0.37	5.41

– 48 –

LETTER FROM VEDA CAPITAL

The closing price of the Shares during the last 12 months since 1 September 2007 up to and including the Last Trading Day, were plotted against the issue price of HK$0.39 per Consideration Share in the following graph:

==> picture [375 x 209] intentionally omitted <==

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

0.7
Closing price
(HK$)
0.6
0.5
0.4
HK$0.39
0.3
0.2
0.1
0
Day
3-Dec-07 17-Dec-07 31-Dec-07 14-Jan-08 28-Jan-08 11-Feb-08 25-Feb-08 10-Mar-08 24-Mar-08 7-Apr-08 21-Apr-08 5-May-08 19-May-08 2-Jun-08 16-Jun-08 30-Jun-08 14-Jul-08 28-Jul-08 11-Aug-08 25-Aug-08 8-Sep-08 22-Sep-08 6-Oct-08 20-Oct-08 3-Nov-08 17-Nov-08 Last Trading
----- End of picture text -----

Source: Website of Stock Exchange (www.hkex.com.hk) Note: Trading of the Shares was suspended on 5 to 12 February 2008.

As illustrated in the graph above, the issue price of HK$0.39 per Consideration Share represents premium over closing prices of the Shares for approximately one third of the period from 1 December 2007 to the 28 November 2008. During the recent period from 8 October 2008 to 25 November 2008, the issue price of the Consideration Share was at premium to the closing prices.

– 49 –

LETTER FROM VEDA CAPITAL

(ii) Comparison analysis

In order to assess the fairness and reasonableness of the terms of the Consideration Shares, we have looked into all the recent announcements (since 1 September 2008 until the date of the Announcement) of acquisitions involving the issue of consideration shares (the “ Shares Comparables ”) by companies listed on the Main Board or the Growth Enterprise Market of the Stock Exchange for reference. We believe that the Shares Comparables may reflect the recent trend of the terms of issue of consideration shares in the market up to date. Set out below is a summary of the issue statistics of the Shares Comparables:

				Premium/	(discount) of the issue price	(discount) of the issue price	(discount) of the issue price
				of the consideration share		over/to:
					(ii) the	(iii) the
					average	average
					closing price	closing price
					of shares for	of shares for
		Amount		(i) the closing	the last 3	the	last 6
		involved	Issue price	price of	months up to	months	up to
		for the	of the	shares on the	and including	and including
Date of	Company	consideration	consideration	last trading	the last	the last
announcement	(Stock code)	shares	shares	day	trading day	trading day
		(HK$ million)	(HK$)	(%)	(%)		(%)
16 Dec 08	Hua Lien	180	0.6	7.1	22.37		24.14
	International
	(Holding)
	Company Limited
	(969)
8 Dec 08	Golife Concepts	5.88	0.05	(18.03)	(58.31)		(65.63)
	Holdings Limited
	(8172)
3 Dec 08	China Best Group	130	0.05	31.58	69.68		75.64
	Holding Limited
	(370)
15 Oct 08	Argos Enterprise	26.4	0.6	20.00	8.43		6.57
	(Holdings)
	Limited (8022)
6 Oct 08	Sunny Global	574	0.667	(19.67)	(5.79)		(3.28)
	Holdings Limited
	(1094)
28 Sep 08	Melco LottVentures	28.0	0.991	27.05	28.37		25.81
	Limited (8198)
25 Sep 08	New Heritage	26.3	0.2	6.38	(14.74)		(16.40)
	Holdings Limited
	(95)
19 Sep 08	Sino Prosper	56.2	0.16	3.23	20.60		27.25
	Holdings Limited
	(766)
18 Sep 08	Sino Union	400	1.25	0	16.46		14.28
	Petroleum &
	Chemical
	International
	Limited (346)
11 Sep 08	Mexan Limited (22)	83.7	0.077	(9.4)	(3.91)		(8.06)

– 50 –

LETTER FROM VEDA CAPITAL

				Premium/	(discount) of the issue price	(discount) of the issue price	(discount) of the issue price
				of the consideration share		over/to:
					(ii) the	(iii) the
					average	average
					closing price	closing price
					of shares for	of shares for
		Amount		(i) the closing	the last 3	the	last 6
		involved	Issue price	price of	months up to	months	up to
		for the	of the	shares on the	and including	and including
Date of	Company	consideration	consideration	last trading	the last	the last
announcement	(Stock code)	shares	shares	day	trading day	trading day
		(HK$ million)	(HK$)	(%)	(%)		(%)
9 Sep 08	Willie International	112	0.14	6.87	(11.43)		(27.20)
	Holdings Limited
	(273)
5 Sep 08	Jian ePayment	23.9	0.245	6.99	4.67		0.19
	Systems Limited
	(8165)
2 Sep 08	China Chief Cable	50	0.456	0.22	(9.16)		(18.67)
	TV Group Limited
	(8153)
	Maximum premium			31.58	16.93		17.85
	Maximum discount			(19.64)	(71.26)		(73.66)
	Average of the			10.95	11.45		5.55
	premiums
	Average of the			(15.69)	(23.74)		(33.52)
	discounts
	Median			6.38	(5.46)		(12.24)
	The Company –	220	0.39	(4.88)	10.51		(1.37)
	Consideration
	Shares

Source: Website of the Stock Exchange (www.hkex.com.hk)

As indicated in the above table setting out the issue statistics of the Shares Comparables, we observed that:

(i) the discount of approximately 4.88% represented by the issue price of each Consideration Share to the closing price of the Shares on the Last Trading Day (a) falls within the range of premiums/discounts represented by the Shares Comparables on the relevant last trading days, which ranges between a discount of 19.67% and a premium of 31.58%; and (b) is less than the average discount of the Share Comparables on the relevant last trading days of approximately 15.70%;
(ii) the premium of approximately 10.51% represented by the issue price of each Consideration Share to the average closing price of the Shares for the last 3 months up to and including the Last Trading Day (a) falls within the range of premiums/discounts represented by average closing prices of the Shares Comparables on the relevant last 3 months, which ranges between a discount of 71.26% and a premium of 16.93%; and

– 51 –

LETTER FROM VEDA CAPITAL

(b) represents a better issue statistics than the median of the price comparisons of the Share Comparables on the relevant last 3 months of a discount of approximately 5.46%; and

(iii) the discount of approximately 1.37% represented by the issue price of each Consideration Share to the average closing price of the Shares for the last 6 months up to and including the Last Trading Day (a) falls within the range of premiums/discounts represented by average closing prices of the Shares Comparables on the relevant last 6 months, which ranges between a discount of 73.66% and a premium of 17.85%; and (b) is less than the median of the price comparisons of the Share Comparables on the relevant last 6 months of a discount of approximately 12.24%.

Based on the above observation, we concur with the view of the Directors that the issue price of the Consideration Shares is fair and reasonable so far as the interests of the Company and the Independent Shareholders are considered. We also consider that the terms of the Acquisition were entered into upon normal commercial terms.

Financial effects of the Acquisition

(i) Earnings

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and its financial results will be consolidated in the Group’s financial statement after Completion. Since the Target Group has been profitable for the 3 years ended 31 December 2007 and the six months ended 30 June 2008, it is expected that the Acquisition would have a positive impact on the earnings position of the Group upon completion of the Acquisition.

(ii) Net assets

Net asset value attributable to Shareholders as at 30 June 2008 was approximately HK$348.3 million or HK$0.42 per Share (based on 830,974,244 Shares in issue as at 30 June 2008 and the Latest Practicable Date). According to the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to the Circular, the unaudited pro forma net asset value of the Enlarged Group attributable to the Shareholders after completion of the Acquisition and the Placing would be increased by approximately 83% to approximately HK$637.3 million. On the other hand, the unaudited pro forma net asset value per Share of the Enlarged Group attributable to the Shareholders after completion of the Acquisition and the Placing would be decreased by approximately 6.64% to approximately HK$0.39 per Share (based on 1,628,410,807 Shares will be in issue after completion of the Acquisition and the Placing). Such decrease in the unaudited pro forma net asset value per Share is an inevitable consequence of the issue price of the Consideration Share and the Placing Price being at discounts to the existing net asset value per Share. We have looked into the comparison of the closing price on the date of the Agreement of the Pharmaceutical

– 52 –

LETTER FROM VEDA CAPITAL

Comparables to their respective latest published net asset value per share and noticed that the range is from a premium of approximately 44.68% (with only one Pharmaceutical Comparable) to a discount of approximately 91.47% with a median of a discount of approximately 44.00%. On this basis, notwithstanding the fact that the unaudited pro forma net asset value per share of the Enlarged Group attributable to the Shareholders after completion of the Acquisition and the Placing will be decreased by approximately 6.64%, we consider the Acquisition is fair and reasonable to the Company and Shareholders given it is not uncommon for the Pharmaceutical Comparables to trade below their respective net asset value per share.

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the actual financial position of the Group will be upon completion of the Acquisition and the Placing.

Dilution effect on the shareholding interests of the Independent Shareholders

The following is a summary of the changes in shareholding of the Company as a result of issuance of the Consideration Shares upon Completion:

Shareholders Hensil Investments (Note 1) Vendor and parties acting in concert with it Placees (Note 2) Other public Shareholders Total Total public Shareholders	As at the Latest Practicable Date Shares % 605,290,886 72.84 – – – – 225,683,358 27.16 830,974,244 100.00 225,683,358 27.16	After completion of the Acquisition Shares % 605,290,886 43.39 564,102,563 40.43 – – 225,683,358 16.18 1,395,076,807 100.00 225,683,358 16.18	After completion of the Acquisition and the Placing Shares % 605,290,886 37.17 564,102,563 34.64 233,334,000 14.33 225,683,358 13.86 1,628,410,807 100.00 459,047,358 28.19	After completion of the Acquisition and the Placing Shares % 605,290,886 37.17 564,102,563 34.64 233,334,000 14.33 225,683,358 13.86 1,628,410,807 100.00 459,047,358 28.19
				100.00

				28.19

Notes:

Hensil Investments is wholly owned by Foshan Development, the entire issued share capital of which is held by Mr. He Haochang and Mr. Chen Jinhui on trust for the Foshan Municipal People’s Government.

– 53 –

LETTER FROM VEDA CAPITAL

Pursuant to the Placing Agreement, the Placing Agent represents, warrants and undertakes to the Company that the placees and their ultimate beneficial owners shall be third parties independent of and not connected with the Company, its connected person and the Vendor, and that no placee will become a substantial Shareholder (as defined in the Listing Rules) immediately following completion of the Placing. And the placees will not be parties acting in concert with Hensil Investments, the Vendor and their respective ultimate beneficial owners. Therefore, the placees are treated as public Shareholders.
The above figures are based on the latest information available to the Company.

As set out in the above table, 225,683,358 Shares were held by the public/ Independent Shareholders, representing approximately 27.16% of the issued share capital of the Company as at the Latest Practicable Date. Immediately after Completion and issue of the Consideration Shares, the public/Independent Shareholders will still hold 225,638,358 Shares, representing approximately 16.18% of the enlarged issued share capital of the Company with the addition of 564,102,563 Consideration Shares to be issued to the Vendor (or its nominees) upon Completion. Immediately after completion of the Acquisition and Placing with the issue of the Consideration Shares and the Placing Shares, the public/Independent Shareholders will still hold 225,638,358 Shares, representing approximately 13.86% of the enlarged issued share capital of the Company with the addition of 564,102,563 Consideration Shares to be issued to the Vendor (or its nominees) upon Completion and 233,334,000 Placing Shares to be issued to the placees.

Having considered that:

(i) the Target Group has been profit making with increasing profitability for the 3 years ended 31 December 2007 and the six months ended 30 June 2008;
(ii) the Acquisition would allow the Company to further penetrate into the pharmaceutical business in the PRC with the benefits of diversification and increasing its earnings base;
(iii) the promising future business prospect of the Target Group leveraging on the increasing health-consciousness and willingness for medical spending in the PRC, which will lead to growing in demand for medical and pharmaceutical products;
(iv) should there be any shortfall of Actual Profit from the Benchmark Figure, the Vendor will compensate the Company for 6 times the amount of the shortfall;
(v) the custody arrangement could be used to set off the Returned Amount (if any and if applicable) to ensure the refund of the Consideration which is subject to the Adjustments and the possibility that the shortfall from the Benchmark Figure for more than the Tolerance Amount of RMB9 million (approximately HK$10.17 million) is relatively low;

– 54 –

LETTER FROM VEDA CAPITAL

(vi) the price earnings multiple represented by the Consideration to the net profit of the Target Group for the six months ended 30 June 2008 (which represents a more up to date comparison) of approximately 10.77 times is within the range of price earnings multiples (based on net profits for the latest interim period) of the Pharmaceutical Comparables from approximately 4.64 times to approximately 21.83 times and is less than the average of the price earnings multiples of the Pharmaceutical Comparables of approximately 12.49 times;
(vii) the price earnings multiple represented by the Consideration to the Benchmark Figure of approximately 5.9 times is within the range of price earnings multiples (based on net profits for the latest financial year) of the Pharmaceutical Comparables from approximately 2.55 times to approximately 40.58 times and is less than the average of the price earnings multiples of the Pharmaceutical Comparables of approximately 9.75 times;
(viii) the issue of the Consideration Shares to the Vendor is in the interests of the Company as it will not draw on the existing cash resources of the Group for full settlement of the Consideration;
(ix) the issue price of the Consideration Share was at premium to the closing prices during the recent period from 8 October 2008 to 25 November 2008;
(x) the discount of approximately 4.88% represented by the issue price of each Consideration Share to the closing price of the Shares on the Last Trading Day is less than the average discount of the Share Comparables on the relevant last trading days of approximately 15.70%;
(xi) the premium of approximately 10.51% represented by the issue price of each Consideration Share to the average closing price of the Shares for the last 3 months up to and including the Last Trading Day represents a better issue statistics than the median of the price comparisons of the Share Comparables on the relevant last 3 months of a discount of approximately 5.46%;
(xii) the discount of approximately 1.37% represented by the issue price of each Consideration Share to the average closing price of the Shares for the last 6 months up to and including the Last Trading Day is less than the median of the price comparisons of the Share Comparables on the relevant last 6 months of a discount of approximately 12.24%;
(xiii) the benefits of improving the net assets and possible improvement in earnings of the Enlarged Group upon Completion;
(xiv) the conditions of the Agreement are in normal commercial terms and fair and reasonable to the Company and the Independent Shareholders,

– 55 –

LETTER FROM VEDA CAPITAL

we consider that the benefits of the Acquisition (including the issue of the Consideration Shares) outweigh the dilution effect on the shareholding held by the public/Independent Shareholders in the Company as created by the issue of the Consideration Shares. In addition, the shareholding interest of all the Shareholders (other than Vendor (or its nominees) will be diluted in proportion to their respective shareholdings, we consider that such dilution effect to public/ Independent Shareholders is acceptable and justifiable so far as the Independent Shareholders are concerned.

THE WHITEWASH WAIVER

As at the Latest Practicable Date, the Vendor and parties acting in concert with it did not hold any Shares. Upon Completion and the issue in full of 564,102,563 Consideration Shares, the Vendor will be interested in 564,102,563 Shares, representing approximately 34.64% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. Upon Completion, Hensil Investments and the Vendor will be presumed to be parties acting in concert under class (1) of the definition of acting in concert under the Takeovers Code, and Hensil Investments and the Vendor and their respective parties acting in concert will in aggregate hold approximately 71.81% of the total issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Placing Shares. In the circumstances, an obligation on the part of the Vendor to make a general offer for all the Shares not already owned or agreed to be acquired by the Vendor and parties acting in concert with it will arise under Rule 26 of the Takeovers Code as a result of the issue of the Consideration Shares to the Vendor.

However, the Vendor has applied to the Executive for the Whitewash Waiver under Note 1 on dispensations from Rule 26 of the Takeovers Code and the Executive has indicated that subject to the approval of the Whitewash Waiver by the Independent Shareholders at the EGM by way of a poll, he will waive the obligation of the Vendor and parties acting in concert with it to make a general offer which results from the issue of the Consideration Shares. As stated in the Board Letter, the Acquisition is conditional upon, among other things, the Executive granting the Whitewash Waiver to the Vendor and parties acting in concert with it.

Based on our analysis of the terms and conditions of the Consideration (including issue of the Consideration Shares) as set out above, we consider that the Acquisition is in the interests of the Company and the Independent Shareholders taken as a whole. If the Whitewash Waiver is not granted by the Executive or if the Whitewash Waiver is not approved by the Independent Shareholders at the EGM, the Acquisition will not proceed and the Company will lose all the benefits that are expected to be brought by the completion of the Acquisition. Accordingly, we are in the opinion that for the purpose of implementing the Acquisition as discussed above, the approval of the Whitewash Waiver by the Independent Shareholders at the EGM is in the interests of the Company and the Shareholders as a whole and are fair and reasonable.

– 56 –

LETTER FROM VEDA CAPITAL

RECOMMENDATION

Taking into consideration of the above mentioned principal factors and reasons, we consider that, the terms of the Acquisition and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and the Acquisition and the Whitewash Waiver are in the interests of the Company and the Independent Shareholders as a whole. We also consider that the terms of the Agreement were entered into upon normal commercial terms and in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the relevant ordinary resolutions to be proposed at the EGM to approve the Acquisition and the Whitewash Waiver.

Yours faithfully, For and on behalf of Veda Capital Limited Hans Wong Julisa Fong Managing Director Executive Director

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION

The following is a summary of the consolidated financial information of the Group for each of the three years ended 31 December 2005, 2006 and 2007 and for the six months ended 30 June 2008, as extracted from the relevant annual reports and interim report of the Company.

Consolidated Profit and Loss Account

Six months ended 30 June 2008 HK$’000 (Unaudited) Continuing operation Turnover 228,192 Cost of sales (143,871) Gross profit 84,321 Other revenue 1,299 Other net income 570 Selling and distribution costs (33,662) Administrative expenses (21,416) Profit from operation 31,112 Finance costs (737) Profit/(loss) before taxation 30,375 Income tax (9,961) Profit/(loss) for the year from continuing operation 20,414 Discontinued operation Loss for the year from discontinued operation – Profit/(loss) for the period/year 20,414 Attributable to: – Equity shareholders of the Company 7,871 – Minority interests 12,543 Profit/(loss) for the period/year 20,414	Year ended 31 December 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (restated) 355,880 109,627 – (231,382) (67,157) – 124,498 42,470 – 2,109 1,781 402 1,173 318 – (55,984) (23,213) – (37,632) (20,879) (6,294) 34,164 477 (5,892) (1,258) (6,358) – 32,906 (5,881) (5,892) (7,871) (510) – 25,035 (6,391) (5,892) – (425,303) (801,271) 25,035 (431,694) (807,163) 8,396 (337,401) (762,579) 16,639 (94,293) (44,584) 25,035 (431,694) (807,163)	Year ended 31 December 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (restated) 355,880 109,627 – (231,382) (67,157) – 124,498 42,470 – 2,109 1,781 402 1,173 318 – (55,984) (23,213) – (37,632) (20,879) (6,294) 34,164 477 (5,892) (1,258) (6,358) – 32,906 (5,881) (5,892) (7,871) (510) – 25,035 (6,391) (5,892) – (425,303) (801,271) 25,035 (431,694) (807,163) 8,396 (337,401) (762,579) 16,639 (94,293) (44,584) 25,035 (431,694) (807,163)	Year ended 31 December 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (restated) 355,880 109,627 – (231,382) (67,157) – 124,498 42,470 – 2,109 1,781 402 1,173 318 – (55,984) (23,213) – (37,632) (20,879) (6,294) 34,164 477 (5,892) (1,258) (6,358) – 32,906 (5,881) (5,892) (7,871) (510) – 25,035 (6,391) (5,892) – (425,303) (801,271) 25,035 (431,694) (807,163) 8,396 (337,401) (762,579) 16,639 (94,293) (44,584) 25,035 (431,694) (807,163)
84,321 1,299 570 (33,662) (21,416) 31,112 (737) 30,375 (9,961) 20,414 –	124,498 2,109 1,173 (55,984) (37,632) 34,164 (1,258) 32,906 (7,871) 25,035 –	42,470 1,781 318 (23,213) (20,879) 477 (6,358) (5,881) (510) (6,391) (425,303)	– 402 – – (6,294
			(5,892 –
			(5,892 –
			(5,892 (801,271
20,414	25,035	(431,694)
7,871 12,543	8,396 16,639	(337,401) (94,293)	(762,579 (44,584
20,414	25,035	(431,694)

– 58 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months
ended 30 June
2008
HK$’000
(Unaudited)
Dividends payable to equity shareholders of
the Company attributable to the
period/year:
Final dividend proposed after the balance sheet
date
–
Basic and diluted earnings/(loss) per share
From continuing and discontinued operations:
0.95 cents
From continuing operation:
0.95 cents
From discontinued operation:
–
Dividends per share
–
Notes:

Year ended 31 December
2007
2006
2005
HK$’000
HK$’000
HK$’000
(Audited)
(Audited)
(Audited)
(restated)
4,155
–
–
1.01 cents
(40.64 cents)
(91.86 cents)
1.01 cents
(1.18 cents)
(0.71 cents)
–
(39.46 cents)
(91.15 cents)
50 cents
–
–

There were no exceptional items or extraordinary items in each of the three financial years ended 31 December 2005, 2006 and 2007 and the six months ended 30 June 2008.
No qualified opinion has been issued by the Company’s auditors, KPMG, in respect of the financial statements for each of the three financial years ended 31 December 2005, 2006 and 2007.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 30 June 2008 HK$’000 (Unaudited) 142,999 8,327 26,666	As 2007 HK$’000 (Audited) 141,817 7,963 25,349	at 31 December 2006 2005 HK$’000 HK$’000 (Audited) (Audited) 146,858 1,041,826 7,663 – 24,127 31,821	at 31 December 2006 2005 HK$’000 HK$’000 (Audited) (Audited) 146,858 1,041,826 7,663 – 24,127 31,821
177,992 1,131 88,601 141,285 3,112 – 412,121 ------------ 72,574 92,426 – 1,594 94,565 261,159 ------------ 85,810 – 18,222 – 6,861 110,893 ------------ --------------------------------------------- 150,266	175,129 144 90,701 132,738 3,953 – 402,665 ------------ 72,895 72,633 – 1,498 82,364 229,390 ------------ 94,958 – – – 5,864 100,822 ------------ --------------------------------------------- 128,568	178,648 – 98,224 123,437 1,103 – 401,412 ------------ 57,989 43,544 – – 108,531 210,064 ------------ 70,361 – 20,203 28,762 3,671 122,997 ------------ --------------------------------------------- 87,067	1,073,647 6,485 – – – 31,725
			1,111,857 ------------ 25,359 101,746 25 – 132,340
			259,470 ------------ 135,581 257 28,846 – –
			164,684 ------------ --------------------------------------------- 94,786
562,387 ------------	531,233 ------------	488,479 ------------	1,206,643 ------------

– 60 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Non-current liabilities Bank loans Other loans Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholders of the Company Minority interests TOTAL EQUITY	As at 30 June 2008 HK$’000 (Unaudited) – – 33,546 33,546 ------------ --------------------------------------------- 528,841 83,097 265,220 348,317 180,524 528,841	As 2007 HK$’000 (Audited) – – 33,805 33,805 ------------ --------------------------------------------- 497,428 83,097 241,068 324,165 173,263 497,428	at 31 December 2006 2005 HK$’000 HK$’000 (Audited) (Audited) – 100,000 – 296,984 37,709 – 37,709 396,984 ------------ --------------------------------------------- ------------ --------------------------------------------- 450,770 809,659 83,015 83,015 210,243 567,670 293,258 650,685 157,512 158,974 450,770 809,659	at 31 December 2006 2005 HK$’000 HK$’000 (Audited) (Audited) – 100,000 – 296,984 37,709 – 37,709 396,984 ------------ --------------------------------------------- ------------ --------------------------------------------- 450,770 809,659 83,015 83,015 210,243 567,670 293,258 650,685 157,512 158,974 450,770 809,659
				396,984 ------------ --------------------------------------------- 809,659

				83,015 567,670
				650,685 158,974
				809,659

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. LATEST PUBLISHED FINANCIAL STATEMENTS

Set out below are the latest published unaudited consolidated financial statements of the Group for the six months ended 30 June 2008 and audited consolidated financial statements of the Group for the year ended 31 December 2007, together with the accompanying notes relating thereto and the comparative figures for the six months ended 30 June 2007 and the year ended 31 December 2006 as extracted from the interim report of the Company for the six months ended 30 June 2008 and the annual report of the Company for the year ended 31 December 2007. References to page numbers in this section are to the page numbers of such interim report and annual report of the Company.

UNAUDITED INTERIM FINANCIALS

Consolidated Profit and Loss Account

For the six months ended 30 June 2008 – Unaudited

Note Turnover 2 Cost of sales Gross profit Other revenue 3 Other net income 3 Selling and distribution costs Administrative expenses Profit from operations Finance costs 4(a) Profit before taxation 4 Income tax 5 Profit for the period Attributable to: – Equity shareholders of the Company – Minority interests Profit for the period Basic and diluted earnings per share 7	Six months ended 30 June 2008 2007 HK$’000 HK$’000 228,192 183,287 (143,871) (106,345) 84,321 76,942 1,299 1,127 570 455 (33,662) (45,404) (21,416) (25,367) 31,112 7,753 (737) (543) 30,375 7,210 (9,961) 948 20,414 8,158 7,871 2,317 12,543 5,841 20,414 8,158 0.95 cents 0.28 cents	Six months ended 30 June 2008 2007 HK$’000 HK$’000 228,192 183,287 (143,871) (106,345) 84,321 76,942 1,299 1,127 570 455 (33,662) (45,404) (21,416) (25,367) 31,112 7,753 (737) (543) 30,375 7,210 (9,961) 948 20,414 8,158 7,871 2,317 12,543 5,841 20,414 8,158 0.95 cents 0.28 cents
	84,321 1,299 570 (33,662) (21,416) 31,112 (737) 30,375 (9,961)	76,942 1,127 455 (45,404 (25,367
		7,753 (543
		7,210 948
	20,414
	7,871 12,543	2,317 5,841
	20,414 0.95 cents

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 30 June 2008 – Unaudited

Note Non-current assets Fixed assets – Property, plant and equipment 10 – Investment property – Interests in leasehold land held for own use under operating leases Construction in progress Intangible assets Goodwill Other financial assets Current assets Inventories and consumables Trade and other receivables 11 Restricted deposits Cash and cash equivalents Current liabilities Trade and other payables 12 Bank loans 13 Tax payable Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities Net assets	At 30 June 2008 HK$’000 142,999 8,327 26,666	At 31 December 2007 (audited) HK$’000 141,817 7,963 25,349
	177,992 1,131 88,601 141,285 3,112 412,121 ------------ 72,574 92,426 1,594 94,565 261,159 ------------ 85,810 18,222 6,861	175,129 144 90,701 132,738 3,953
		402,665 ------------ 72,895 72,633 1,498 82,364
		229,390 ------------ 94,958 – 5,864
	110,893 ------------ ----------------------- 150,266 ------------ ----------------------- 562,387 ------------ 33,546 ------------ ----------------------- 528,841	100,822 ------------ ----------------------- 128,568 ------------ ----------------------- 531,233 ------------ 33,805 ------------ ----------------------- 497,428

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Capital and reserves Share capital 14 Reserves Total equity attributable to equity shareholders of the Company Minority interests Total equity	At 30 June 2008 HK$’000 83,097 265,220 348,317 180,524 528,841	At 31 December 2007 (audited) HK$’000 83,097 241,068
		324,165 173,263
		497,428

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2008 – Unaudited

Share capital HK$’000 83,015 53 – – – – – – 83,068	Share premium HK$’000 1,041,726 132 – – – – – – 1,041,858	Capital redemption reserve HK$’000 297 – – – – – – – 297	Capital reserve HK$’000 – – – – – – – – –	Exchange reserve HK$’000 1,007 – – – – – – 9,246 10,253	Reserve fund HK$’000 1,065 – – – – 5,169 – – 6,234	Fair value reserve (Accumulated losses)/ retained profits HK$’000 HK$’000 (304) (833,548) – – – 2,317 1,003 – (266) – – (5,169) – – – – 433 (836,400)	Fair value reserve (Accumulated losses)/ retained profits HK$’000 HK$’000 (304) (833,548) – – – 2,317 1,003 – (266) – – (5,169) – – – – 433 (836,400)	Total equity attributable to equity shareholders of the Company HK$’000 293,258 185 2,317 1,003 (266) – – 9,246 305,743	Minority interests HK$’000 157,512 – 5,841 963 (255) – (13,978) 5,211 155,294	Total equity HK$’000 450,770 185 8,158 1,966 (521) – (13,978) 14,457
										461,037

83,097 – – – – – – – – –	204,057 – – – – – – – – –	297 – – – – – – – – –	– – – – – – – – 490 (490)	22,059 – – – – – – 19,864 – –	7,631 – – – 9,083 – – 340 – –	792 – (419) 136 – – – 25 – –	6,232 7,871 – – (9,083) – (4,155) – – 490	324,165 7,871 (419) 136 – – (4,155) 20,229 490 –	173,263 12,543 (402) 130 – (16,062) – 11,052 – –	497,428 20,414 (821) 266 – (16,062) (4,155) 31,281 490 –
83,097	204,057	297	–	41,923	17,054	534	1,355	348,317	180,524	528,841

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2008 – Unaudited

Cash generated from operations PRC enterprise income tax paid Net cash generated from/(used in) operating activities Net cash (used in)/generated from investing activities Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes Cash and cash equivalents at 30 June Analysis of balance of cash and cash equivalents Deposits with banks Cash at bank and in hand	Six months ended 30 June 2008 2007 HK$’000 HK$’000 23,558 734 (10,626) (7,158) 12,932 (6,424) (2,012) 17,528 (3,258) (40,818) 7,662 (29,714) 82,364 89,919 4,539 2,848 94,565 63,053 11,114 9,647 83,451 53,406 94,565 63,053	Six months ended 30 June 2008 2007 HK$’000 HK$’000 23,558 734 (10,626) (7,158) 12,932 (6,424) (2,012) 17,528 (3,258) (40,818) 7,662 (29,714) 82,364 89,919 4,539 2,848 94,565 63,053 11,114 9,647 83,451 53,406 94,565 63,053
	12,932 (2,012) (3,258) 7,662 82,364 4,539	(6,424 17,528 (40,818
		(29,714 89,919 2,848
	94,565
	11,114 83,451	9,647 53,406
	94,565

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Unaudited Interim Financial Report

(Expressed in Hong Kong dollars)

1. Basis of preparation

This interim financial report is unaudited, but has been reviewed by the audit committee of the Company and by its auditors, KPMG, in accordance with Hong Kong Standard on Review Engagements 2410 “Review of interim financial information performed by the independent auditor of the entity” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). KPMG’s review report to the Board of Directors is included on page 20.

This interim financial report has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, including compliance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim financial reporting” issued by the HKICPA. It was authorized for issuance on 12 September 2008.

The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

In preparing this interim financial report, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated accounts as at and for the year ended 31 December 2007.

This interim financial report contains condensed consolidated accounts and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2007 annual accounts. The condensed consolidated interim accounts and notes thereon do not include all of the information required for a full set of accounts prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable Hong Kong Financial Reporting Standards, HKASs and Interpretations.

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. The Board of Directors has determined the accounting policies expected to be adopted in the preparation of the Group’s annual accounts for the year ending 31 December 2008, on the basis of HKFRSs currently in use.

The HKFRSs that will be effective or available for voluntary early adoption in the annual accounts for the year ending 31 December 2008 may be affected by the issue of additional interpretation(s) or other changes announced by the HKICPA subsequent to the date of issuance of this interim financial report. Therefore the policies that will be applied in the Group’s accounts for that period cannot be determined with certainty at the date of issuance of this interim financial report.

The interim financial report has been prepared in accordance with the same accounting policies adopted in the 2007 annual accounts. The adoption of the new and revised HKFRSs did not have significant impact on the Group’s results of operations and financial position.

The financial information relating to the financial year ended 31 December 2007 that is included in the interim financial report as being previously reported information does not constitute the Company’s statutory accounts for that financial year but is derived from those accounts. Statutory accounts for the year ended 31 December 2007 are available from the Company’s registered office. The auditors have expressed an unqualified opinion on those accounts in their report dated 23 April 2008.

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. Turnover

The principal activities of the Group are manufacture and sale of pharmaceutical products in the People’s Republic of China (“PRC”). Turnover represents the sales value of goods sold less returns, discounts, value added tax and sales tax.

Turnover may be analyzed as follows:

Sale of pharmaceutical products – Pills and tablets – Medicine wine – Paste, granules and others	Six months ended 30 June 2008 2007 HK$’000 HK$’000 162,982 127,686 17,412 16,624 47,798 38,977 228,192 183,287	Six months ended 30 June 2008 2007 HK$’000 HK$’000 162,982 127,686 17,412 16,624 47,798 38,977 228,192 183,287
		183,287

3. Other revenue and net income

Other revenue Government grants Interest income Other net income Rental income Others	Six months ended 30 June 2008 2007 HK$’000 HK$’000 704 591 595 536 1,299 1,127	Six months ended 30 June 2008 2007 HK$’000 HK$’000 704 591 595 536 1,299 1,127
		1,127

	599 (29)	454 1
	570	455

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Profit before taxation

Profit before taxation is arrived at after charging:

(a) Finance costs Interest on bank advances and other borrowings wholly repayable within five years (b) Other items Cost of inventories Depreciation and amortization – assets held for use under operating leases – lease prepayment – other assets – intangible assets Impairment losses for trade receivables Operating lease charges on buildings	Six months ended 30 June 2008 2007 HK$’000 HK$’000 737 543 143,871 106,345 144 133 307 279 9,305 9,016 7,712 7,066 1,437 771 182 185	Six months ended 30 June 2008 2007 HK$’000 HK$’000 737 543 143,871 106,345 144 133 307 279 9,305 9,016 7,712 7,066 1,437 771 182 185

		106,345 133 279 9,016 7,066 771 185

5. Income tax in consolidated profit and loss account

Current tax PRC enterprise income tax for the period Under-provision in prior years Deferred tax Origination and reversal of temporary differences Effect of change in tax rate on deferred tax	Six months ended 30 June 2008 2007 HK$’000 HK$’000 11,388 5,001 432 –	Six months ended 30 June 2008 2007 HK$’000 HK$’000 11,388 5,001 432 –
	11,820 - - - - - - - - - - - - (1,859) –	5,001 - - - - - - - - - - - - (3,308) (2,641)
	(1,859) ------------ --------------------------------------------- 9,961	(5,949) ------------ --------------------------------------------- (948)

No provision has been made for Hong Kong Profits Tax as the Group sustained losses in Hong Kong for taxation purposes during the period.

On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC (“new tax law”) which took effect on 1 January 2008. As a result of the new tax law, the income tax rate applicable to DZH and FLX changed from 27% to 25% with effect from 1 January 2008. The change in the carrying amount of the deferred tax liabilities as a result of the change in tax rate has been reflected in the annual report of the Group for the year ended 31 December 2007 and the interim report for the period ended 30 June 2007.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FLX was recognized as a new high technology enterprise pursuant to document “ ” issued by The Department of Foreign Trade and Economic Cooperation of Guangdong Province and received approvals from the Foshan Tax Bureau for a three-year income tax reduction to 12% up to 31 December 2007. Hence, FLX was subject to PRC enterprise income tax at 12% for the period ended 30 June 2007.

Further under the new tax law, the gross amount of dividends received by the Company from its PRC subsidiaries in respect of their profits generated after 1 January 2008 is subject to withholding tax at a rate of 5%. Under the grandfathering treatments, the undistributed profits of the PRC subsidiaries as at 31 December 2007 are exempted from withholding tax.

6. Dividends

(a) Dividends attributable to the interim period

The directors do not recommend the payment of any interim dividend for the six months ended 30 June 2008 (six months ended 30 June 2007: Nil).

(b) Dividends attributable to the previous financial year, approved and paid during the interim period

Final dividend in respect of the financial year ended 31 December 2007, approved and paid during the following interim period, of HK0.5 cent (year ended 31 December 2006: Nil) per ordinary share	Six months ended 30 June 2008 2007 HK$’000 HK$’000 4,155 –

7. Earnings per share

(a) Basic

The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Company of $7,871,000 (six months ended 30 June 2007: $2,317,000) and the 830,974,244 ordinary shares (six months ended 30 June 2007: 830,152,078) in issue during the period.

(b) Diluted

The diluted earnings per share for the six months ended 30 June 2007 and 2008 is the same as the basic earnings per share as all potential ordinary shares are anti-dilutive.

8. Material related party transactions

Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Company’s directors and certain of the highest paid employees, is as follows:

Short-term employee benefits Post-employment benefits	Six months ended 30 June 2008 2007 HK$’000 HK$’000 1,359 1,201 38 23 1,397 1,224	Six months ended 30 June 2008 2007 HK$’000 HK$’000 1,359 1,201 38 23 1,397 1,224
		1,224

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Segment reporting

The Group primarily operates in one business segment – manufacture and sale of pharmaceutical products. It operates principally in one geographical segment – the PRC. Substantially all of the Group’s assets were located in the PRC. Accordingly, no analysis of the segment information is presented.

10. Property, plant and equipment

Acquisitions and disposals

During the six months ended 30 June 2008, the Group acquired items of plant and machinery and furniture and fixtures with a cost of approximately $1,348,000 and $309,000 respectively (six months ended 30 June 2007: plant and machinery of $687,000 and motor vehicles of $547,000). Items of plant and equipment and motor vehicles with net book value of $278,000 and $138,000 respectively were disposed of during the six months ended 30 June 2008 (six months ended 30 June 2007: Nil), resulting in a loss on disposal of $15,000 (six months ended 30 June 2007: Nil).

11. Trade and other receivables

Trade and bills receivables Less: allowance for doubtful debts Deposits, prepayments and other receivables	At 30 June 2008 HK$’000 86,385 (4,005)	At 31 December 2007 (audited) HK$’000 63,496 (2,372)
	82,380 10,046	61,124 11,509
	92,426	72,633

Included in trade and other receivables are trade and bills receivables (net of allowance for doubtful debts) with the following ageing analysis as of the balance sheet date:

Within 3 months of invoice date 3 to 6 months after invoice date More than 6 months after invoice date	At 30 June 2008 HK$’000 64,867 16,423 1,090 82,380	At 31 December 2007 (audited) HK$’000 52,110 6,782 2,232
		61,124

Debts are due within 30 to 90 days from the date of billing. All of the trade and other receivables are expected to be recovered within one year.

– 71 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

12. Trade and other payables

Trade creditors Other creditors and accrued charges Advances received from customers	At 30 June 2008 HK$’000 21,796 62,439 1,575 85,810	At 31 December 2007 (audited) HK$’000 20,707 69,095 5,156
		94,958

Included in trade and other payables are trade creditors with the following ageing analysis as of the balance sheet date:

									At 31
							At	30 June	December
								2008	2007
									(audited)
								HK$’000	HK$’000
Due	within	1	month	or	on	demand		21,796	20,707

13. Bank loans

At 30 June 2008, the Group’s bank loans were repayable as follows:

								At 31
						At	30 June	December
							2008	2007
								(audited)
							HK$’000	HK$’000
Within	1	year	or	on	demand		18,222	–

The bank loans are unsecured, bear interest at 7.84% per annum and are repayable within one year.

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Share capital

At 30 June 2008 Number of shares Nominal value ’000 HK$’000 3,000,000 300,000	At 30 June 2008 Number of shares Nominal value ’000 HK$’000 3,000,000 300,000	At 31 December 2007 Number of shares Nominal value (audited) (audited) ’000 HK$’000 3,000,000 300,000	At 31 December 2007 Number of shares Nominal value (audited) (audited) ’000 HK$’000 3,000,000 300,000

830,974 –	83,097 –	830,146 828	83,015 82
830,974	83,097	830,974	83,097

15. Equity settled share-based transactions

The Company has a share option scheme which was adopted on 22 May 2002 whereby the directors of the Company are authorized, at their discretion, to invite employees of the Group, including directors of any company in the Group, to take up options to subscribe for shares of the Company. The exercise price of options is the highest of the nominal value of the shares, the closing price of the shares on The Stock Exchange of Hong Kong Limited at the date of grant and the average closing price of the shares on The Stock Exchange of Hong Kong Limited for the five business days immediately preceding the date of grant. The options vest immediately or after six months from the date of grant and are then exercisable within a period of five years. Each option gives the holder the right to subscribe for one ordinary share in the Company.

No benefit cost or obligation is recognized at the date of grant or exercise for share options granted on 30 July 2002 as the Group has taken advantage of the transitional provisions set out in HKFRS 2 “Share-based payment”, under which the recognition and measurement policies have not been applied to all options granted to employees on or before 7 November 2002. On 30 January 2008, these 8,000,000 share options in total were lapsed without exercise.

On 2 January 2008, each of the three independent non-executive directors of the Company was granted 828,000 share options (no share options were granted during the six months ended 30 June 2007) under the Company’s share option scheme to subscribe for 828,000 ordinary shares. These share options vest immediately on 2 January 2008 and have an exercise period of five years. The exercise price is $0.434 per share, being the average closing price of the shares on The Stock Exchange of Hong Kong Limited for the five business days immediately preceding the date of grant.

The fair value of the share options granted on 2 January 2008 of $490,000 was recognized as share-based compensation expenses in profit or loss during the six months ended 30 June 2008. On 19 March 2008, these 2,484,000 share options in total were lapsed following a mandatory unconditional cash offer for the shares of the Company.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) The terms and conditions of the grants that existed during the six months ended 30 June 2008 are as follows, whereby all options are settled by physical delivery of shares:

Date granted Exercise period Exercise price HK$ 30 July 2002 30 January 2003 to 29 January 2008 $ 0.35 2 January 2008 2 January 2008 to 1 January 2013 $0.434	At 30 June 2008 ’000 8,000 2,484
	10,484

All the above share options are granted to the directors.

(b) The number and weighted average exercise prices of share options are as follows:

At 1 January Granted Exercised Lapsed and cancelled At 30 June 2008/ 31 December 2007 Options vested at 30 June 2008/ 31 December 2007	2008 Weighted average exercise price Number of shares HK$ ’000 $ 0.35 8,000 $0.434 2,484 – – $ 0.37 (10,484)	2008 Weighted average exercise price Number of shares HK$ ’000 $ 0.35 8,000 $0.434 2,484 – – $ 0.37 (10,484)	2007 Weighted average exercise price Number of shares HK$ ’000 $ 0.36 10,328 – – $ 0.35 (828 $0.415 (1,500	2007 Weighted average exercise price Number of shares HK$ ’000 $ 0.36 10,328 – – $ 0.35 (828 $0.415 (1,500
	–	–	$ 0.35	8,000
	–	–	$ 0.35	8,000

16. Capital commitments

Capital commitments of the Group outstanding at 30 June 2008 not provided for in the interim financial report were as follows:

				At 31
		At	30 June	December
			2008	2007
				(audited)
			HK$’000	HK$’000
Contracted	for		432	–

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

AUDITED FINANCIALS

Consolidated Profit and Loss Account

For the year ended 31 December 2007

Note Continuing operation Turnover 3 Cost of sales Gross profit Other revenue 4 Other net income 4 Selling and distribution costs Administrative expenses Profit from operation Finance costs 5(a) Profit/(loss) before taxation 5 Income tax 6(a) Profit/(loss) for the year from continuing operation Discontinued operation Loss for the year from discontinued operation 7 Profit/(loss) for the year Attributable to: 9 & 26(a) – Equity shareholders of the Company – Minority interests Profit/(loss) for the year Dividends payable to equity shareholders of the Company attributable to the year: Final dividend proposed after the balance sheet date 32	2007 HK$’000 355,880 (231,382)	2006 HK$’000 109,627 (67,157) 42,470 1,781 318 (23,213) (20,879) 477 (6,358) (5,881) (510) (6,391) (425,303) (431,694) (337,401) (94,293) (431,694) –
	124,498 2,109 1,173 (55,984) (37,632) 34,164 (1,258) 32,906 (7,871) 25,035 –	42,470 1,781 318 (23,213 (20,879
		477 (6,358
		(5,881 (510
		(6,391 (425,303
	25,035
	8,396 16,639	(337,401 (94,293
	25,035 4,155

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Basic and diluted earnings/(loss) per share From continuing and discontinued operations: From continuing operation:

From discontinued operation:

Note 10	2007 HK$’000 1.01 cents 1.01 cents –	2006 HK$’000 (40.64 cents)

		(1.18 cents)

		(39.46 cents)

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2007

2007 HK$’000 HK$’000 141,817 7,963 25,349 175,129 144 90,701 132,738 3,953 402,665 72,895 72,633 1,498 82,364 229,390 ------------ 94,958 – – 5,864 100,822 ------------ ----------------------- 128,568 531,233 ------------	2006 HK$’000 HK$’000 146,858 7,663 24,127	2006 HK$’000 HK$’000 146,858 7,663 24,127
175,129 144 90,701 132,738 3,953 402,665 128,568	57,989 43,544 – 108,531 210,064 ------------ 70,361 20,203 28,762 3,671 122,997 ------------ -----------------------	178,648 – 98,224 123,437 1,103
		401,412 87,067
531,233 ------------		488,479 ------------

– 77 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note Non-current liabilities Deferred tax liabilities 21(b) NET ASSETS CAPITAL AND RESERVES 26(a) Share capital Reserves Total equity attributable to equity shareholders of the Company Minority interests TOTAL EQUITY	2007 HK$’000 HK$’000 33,805 33,805 ------------ ----------------------- 497,428 83,097 241,068 324,165 173,263 497,428	2006 HK$’000 HK$’000 37,709 37,709 ------------ ----------------------- 450,770 83,015 210,243 293,258 157,512 450,770	2006 HK$’000 HK$’000 37,709 37,709 ------------ ----------------------- 450,770 83,015 210,243 293,258 157,512 450,770

			83,015 210,243
			293,258 157,512
			450,770

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

At 31 December 2007

Note Non-current assets Interest in subsidiaries 17 Current assets Other receivables 20 Cash and cash equivalents 22 Current liabilities Trade and other payables 23 Bank overdrafts 25 Net current assets NET ASSETS CAPITAL AND RESERVES 26(b) Share capital Reserves TOTAL EQUITY	2007 HK$’000 HK$’000 282,400 ------------ 570 13,193 13,763 ------------ 1,958 – ------------ 1,958 ------------ ----------------------- 11,805 ------------ ----------------------- 294,205 83,097 211,108 294,205	2007 HK$’000 HK$’000 282,400 ------------ 570 13,193 13,763 ------------ 1,958 – ------------ 1,958 ------------ ----------------------- 11,805 ------------ ----------------------- 294,205 83,097 211,108 294,205	2006 HK$’000 HK$’000 282,400 ------------ 217 7,332 7,549 ------------ 2,478 309 ------------ 2,787 ------------ ----------------------- 4,762 ------------ ----------------------- 287,162	2006 HK$’000 HK$’000 282,400 ------------ 217 7,332 7,549 ------------ 2,478 309 ------------ 2,787 ------------ ----------------------- 4,762 ------------ ----------------------- 287,162

		83,097 211,108		83,015 204,147
		294,205		287,162

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2007

Total equity at 1 January Acquisition of subsidiaries Disposal of subsidiaries Net income recognized directly in equity: Exchange difference on translation of accounts of PRC subsidiaries Changes in fair value of available-for-sale securities, net of deferred tax Net income for the year recognized directly in equity Net profit/(loss) for the year Total recognized income and expense for the year Attributable to: Equity shareholders of the Company Minority interests Dividends declared by subsidiaries paid to minority interests Movements in equity arising from capital transactions: Shares issued under share option scheme Total equity at 31 December	2007 HK$’000 HK$’000 450,770 ------------ – ------------ – ------------ 33,294 2,209	2007 HK$’000 HK$’000 450,770 ------------ – ------------ – ------------ 33,294 2,209	2006 HK$’000 HK$’000 809,659 ------------ 152,902 ------------ (98,189) ------------ 18,689 (597) 18,092 ------------ (431,694) ------------ ----------------------- 450,770 293,258 157,512 450,770 ------------ – – 450,770	2006 HK$’000 HK$’000 809,659 ------------ 152,902 ------------ (98,189) ------------ 18,689 (597) 18,092 ------------ (431,694) ------------ ----------------------- 450,770 293,258 157,512 450,770 ------------ – – 450,770
	323,876 187,432 511,308 ------------	35,503 ------------ 25,035 ------------ ----------------------- 511,308 (14,169) 289	293,258 157,512 450,770 ------------	18,092 ------------ (431,694 ------------ ----------------------- 450,770 – –
		497,428

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2007

Note Operating activities Profit/(loss) before taxation Adjustments for: Depreciation and amortization Impairment losses Gain on disposal of subsidiaries Finance costs 5(a) Interest income 4 Loss on disposal of fixed assets Foreign exchange loss/ (gain) Operating profit/(loss) before changes in working capital Increase in inventories and consumables (Increase)/decrease in trade and other receivables Decrease in time deposits Increase in restricted deposits Increase in trade and other payables Decrease in provision for staff welfare Cash generated from operations PRC enterprise income tax paid Net cash generated from operating activities Investing activities Acquisition of subsidiaries, net of cash acquired 30(a) Disposal of subsidiary, net of cash disposed of 30(b) Payment for the purchase of fixed assets Payment for construction in progress Interest received Increase in prepayment for planned maintenance	2007 HK$’000 HK$’000 32,906 33,001 815 – 1,258 (970) 27 867	2006 HK$’000 HK$’000 (480,435) 89,992 280,283 (63,355) 21,834 (3,380) – (726) (155,787) (83,092) 40,541 – – 245,720 (247) 47,135 (1,985) 45,150 69,725 (108,997) (1,600) (21) 3,380 6,485
	67,904 (14,906) (29,904) 18,303 (1,498) 24,597 – 64,496 (12,881) 51,615 – – (2,424) (169) 970 –	(155,787 (83,092 40,541 – – 245,720 (247
		47,135 (1,985
		69,725 (108,997 (1,600 (21 3,380 6,485

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Net cash used in investing activities Financing activities Proceeds from new bank loans Repayment of bank loans Proceeds from shares issued under share option scheme Interest paid Dividends paid to former shareholders of subsidiaries Dividends paid to minority shareholders Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes Cash and cash equivalents at 31 December 22	2007 HK$’000 HK$’000 (1,623) 17,655 (37,549) 289 (1,258) – (42,930)	2007 HK$’000 HK$’000 (1,623) 17,655 (37,549) 289 (1,258) – (42,930)	2006 HK$’000 HK$’000 (31,028) 27,076 (32,517) – (16,234) (29,452) (5,416) (56,543) (42,421) 132,340 – 89,919	2006 HK$’000 HK$’000 (31,028) 27,076 (32,517) – (16,234) (29,452) (5,416) (56,543) (42,421) 132,340 – 89,919
		(63,793) (13,801) 89,919 6,246		(56,543
				(42,421 132,340 –
		82,364

MAJOR NON-CASH TRANSACTIONS

On 28 December 2006, the consideration for the disposal of Hensil Worldwide Inc. (“HWI”, together with its subsidiaries are referred to as the “HWI Group”) of $288 million was satisfied by way of offsetting with the outstanding principal amount of the convertible notes of $282.4 million issued by the Company to Foshan Development Company Limited (“FDC”) on 9 October 2006 together with accrued interest and early redemption cost of $5.6 million arising thereon (please refer to note 30).

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Accounts

(Expressed in Hong Kong dollars)

1 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The consolidated accounts for the year ended 31 December 2007 comprise Wing Shan International Limited (the “Company”) and its subsidiaries (together referred to as the “Group”).

These accounts 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 Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These accounts also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange 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 and the Company. Note 2 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these accounts.

(b) Basis of preparation of the accounts

The measurement basis used in the preparation of the accounts is the historical cost basis except that financial assets and liabilities are stated at their fair values as explained in accounting policies set out in notes 1(e), 1(l) and 1(n).

The preparation of accounts 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 that are 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 that are 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 recognized 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 accounts and estimates with a significant risk of material adjustment in the next year are discussed in note 33.

(c) Subsidiaries and minority interests

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.

An investment in a subsidiary is consolidated into the consolidated accounts from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealized profits arising from intra-group transactions are eliminated in full in preparing the consolidated accounts. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment.

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated profit and loss account as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 1(j)).

(d) Goodwill

Goodwill represents the excess of the cost of a business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 1(j)).

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination is recognized immediately in profit or loss.

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(e) Investments in equity securities

The Group’s investments are classified as available-for-sale securities and are initially stated at cost, which is their transaction price plus attributable transaction costs unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. These investments are subsequently remeasured at each balance sheet date with any resultant gain or loss being recognized directly in equity. Dividend income from these investments is recognized in profit or loss in accordance with the policy set out in note 1(s)(iv). When these investments are derecognized or impaired (see note 1(j)), the cumulative gain or loss previously recognized directly in equity is recognized in profit or loss.

Investments are recognized/derecognized on the date the Group commits to purchase/sell the investments or they expire.

(f) Investment property

Investment properties are land and/or buildings which are owned or held under a leasehold interest 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 cost less accumulated depreciation and impairment losses (see note 1(j)). Rental income from investment properties is accounted for as described in note 1(s)(iii). Depreciation is provided over the properties’ estimated useful lives on a straight-line basis. Estimated useful lives of investment properties are 25 to 50 years.

– 84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Major costs incurred in restoring investment properties to their nominal working condition are charged to profit or loss. Improvements are capitalized and depreciated over their expected useful lives.

Gains or losses arising from the retirement or disposal of investment properties are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognized in profit or loss on the date of retirement or disposal.

(g) Property, plant and equipment

Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 1(j)).

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed property, plant and equipment includes the cost of materials, direct labour, borrowing cost and any other costs directly attributable to bringing the asset to a working condition for its intended use.

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 disposal proceeds and the carrying amount of the item and are recognized 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:

Buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives.

–	Plant,	machinery and equipment:
	–	for manufacturing of pharmaceutical products	10-15 years
	–	for generation of electricity	27 years
–	Motor	vehicles	5-10 years
–	Others		2-12 years

Both the useful life of an asset and its residual value, if any, are reviewed annually.

(h) Construction in progress

Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at cost less any impairment losses (see note 1(j)). Cost comprises direct costs of construction as well as interest charges, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges, during the period of construction.

Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

(i) Intangible assets (other than goodwill)

– 85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

overheads and borrowing costs, where applicable. Capitalized development costs are stated at cost less accumulated amortization and impairment losses. Other development expenditure is recognized as an expense in the period in which it is incurred.

Other intangible assets that are acquired by the Group are stated in the balance sheet at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses (see note 1(j)). Expenditure on internally generated goodwill and brands is recognized as an expense in the period in which it is incurred.

Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortized from the date they are available for use and their estimated useful lives are as follows:

– product protection rights Over the product protection period – trademarks 50 years

Both the period and method of amortization are reviewed annually.

Intangible assets are not amortized while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives as set out above.

(j) Impairment of assets

(i) Impairment of investments in equity securities and trade and other receivables

Investments in equity securities (other than investments in subsidiaries) and other current and non-current receivables that are stated at cost or amortized cost or are classified as available-for-sale securities 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 reorganization;
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 recognized as follows:

For trade and other current receivables and other financial assets carried at amortized cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s 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 amortized cost share similar risk characteristics, such as similar past due status, and have not been individually assessed

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 collective 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 recognized, 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 recognized in prior years.

–

For available-for-sale securities, the cumulative loss that has been recognized directly in equity is removed from equity and is recognized in profit or loss. The amount of the cumulative loss that is recognized in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that asset previously recognized in profit or loss.

Impairment losses recognized in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognized directly in equity.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognized in respect of trade debtors and bills receivable 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 and bills receivable 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 recognized in profit or loss.

(ii) Impairment of other long-lived 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, except in the case of goodwill, an impairment loss previously recognized no longer exists or may have decreased:

property, plant and equipment;
investment property;
pre-paid interests in leasehold land classified as being held under an operating lease;
construction in progress;
intangible assets;
investments in subsidiaries; and
goodwill.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill 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

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

money 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 recognized in 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 recognized 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 recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized.

(iii) Interim financial reporting and impairment

Under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see notes 1 (j)(i) and (ii)).

Impairment losses recognized in an interim period in respect of goodwill and unquoted equity securities carried at cost are not reversed in a subsequent period. Impairment losses recognized in an interim period in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of available-for-sale equity securities is recognized directly in equity. This is the case even if no loss, or a smaller loss, would have been recognized had the impairment been assessed only at the end of the financial year to which the interim period relates.

(k) Inventories and consumables

Inventories are carried at the lower of cost and net realizable value while consumables, comprising of fuel oil, components and replacement parts held for consumption by the Group, are stated at cost less any provisions for damages or obsolescence.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realizable 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 recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(l) Trade and other receivables

Trade and other receivables are initially recognized at fair value and thereafter stated at amortized cost less allowance for impairment of doubtful debts (see note 1(j)), unless the effect of discounting would be immaterial. In such case, they are stated at cost less allowance for impairment of doubtful debts (see note 1(j)).

(m) Interest-bearing borrowings

Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between amount initially recognized and redemption value being recognized in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

(n) Trade and other payables

Trade and other payables are initially recognized at fair value and subsequently stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(o) 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 consolidated cash flow statement.

(p) Employees benefits

(i) Short-term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in 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) Share based payments

The fair value of share options granted to employees is recognized as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at the grant date using the binomial lattice model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognized in prior years is charged/credited to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On the vesting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. The equity amount is recognized in the capital reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to retained profits).

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

No benefit cost or obligation is recognized at the date of grant or exercise as the Group has taken advantage of the transitional provisions set out in HKFRS 2 “Share-based payment”, under which the recognition and measurement policies have not been applied to the following grants of options:

all options granted to employees on or before 7 November 2002; and
all options granted to employees after 7 November 2002 but which had vested before 1 January 2005.

(q) 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 recognized in profit or loss except to the extent that they relate to items recognized directly in equity, in which case they are recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rate 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 utilized, are recognized. 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 difference 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 utilized.

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 difference, unless it is probable that they will reverse in the future.

The amount of deferred tax recognized is measured based on the expected manner of realization 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 utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

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FINANCIAL INFORMATION OF THE GROUP

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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 Company or 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 Company or the Group intends either to settle on a net basis, or to realize 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 realize the current tax assets and settle the current tax liabilities on a net basis or realize and settle simultaneously.

(r) Provisions and contingent liabilities

Provisions are recognized for liabilities of uncertain timing or amount when the Group or the Company 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.

(s) Revenue recognition

Provided 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 recognized in profit or loss as follows:

(i) Sale of goods

Revenue is recognized 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 or other sales taxes and is after deduction of any trade discounts.

(ii) Sale of electricity

Revenue arising from sale of electricity is recognized based on electricity supplied as recorded by meters read during the year. Additional fuel cost surcharges and subsidies for electricity supplied, representing an adjustment for tariff of electricity supplied, are recorded as revenue in the period that agreement on the surcharge amount is reached. Subsequent agreement in respect of the current period is accrued in the current period if the agreement occurs prior to finalization of the accounts.

(iii) Rental income from operating leases

Rental income receivable under operating leases is recognized 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

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incentives granted are recognized in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognized as income in the accounting period in which they are earned.

(iv) Dividends

Dividend income from listed investments is recognized when the share price of the investment goes ex-dividend.

(v) Interest income

Interest income is recognized as it accrues using the effective interest method.

(vi) Government grants

Government grants are recognized in the balance sheet initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognized as revenue in profit or loss on a systematic basis in the same period in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognized in profit or loss as revenue on a systematic basis over the useful life of the asset.

(t) Translation of foreign currencies

For the purpose of presenting the consolidated financial statements, the Group adopted Hong Kong dollars (“HKD”) as its presentation currency. The functional currencies of the Company and the subsidiaries incorporated in Hong Kong are HKD and the functional currencies of the subsidiaries established in the PRC are Renminbi (“RMB”).

Foreign currency transactions during the year are translated into the functional currency of the entity at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the foreign exchange rates ruling at the balance sheet date. Exchange gains and loss are recognized in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into the functional currency of the entity using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into the functional currency of the entity using the foreign exchange rates ruling at the dates the fair value was determined.

The results of foreign operations are translated into the presentation currency of the Group at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items, including goodwill arising on consolidation of foreign operations acquired on or after 1 January 2005, are translated into the presentation currency of the Group at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognized directly in a separate component of equity. Goodwill arising on consolidation of a foreign operation acquired before 1 January 2005 is translated into the presentation currency of the Group at the foreign exchange rate that applied at the date of acquisition of the foreign operation.

On disposal of a foreign operation, the cumulative amount of the exchange difference recognized in equity which relate to that foreign operation is included in the calculation of profit or loss on disposal.

(u) Operating lease charges

Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. 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

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derived from the leased asset. Lease incentives received are recognized in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

The cost of acquiring land held under an operating lease is amortized on a straight-line basis over the period of the lease term.

(v) Borrowing costs

Borrowing costs are expensed in profit and loss in the period in which they are incurred, except to the extent that they are capitalized 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 capitalization 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. Capitalization 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.

(w) Discontinued operations

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. It also occurs when the operation is abandoned.

Where an operation is classified as discontinued, a single amount is presented on the face of the profit and loss account, which comprises:

the post-tax profit or loss of the discontinued operation; and
the post-tax gain or loss recognized on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group constituting the discontinued operation.

(x) Related parties

For the purposes of these accounts, a party is 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;
(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

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(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.

(y) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these accounts.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, cash and cash equivalents, interest-bearing borrowings, tax balances, corporate and financing expenses.

2 CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued a number of new and revised HKFRSs and Interpretations that are first effective or available for early adoption for the current accounting period of the Group and the Company.

There have been no significant changes to the accounting policies applied in these accounts for the years presented as a result of these developments. However, as a result of the adoption of HKFRS 7, Financial instruments: Disclosures and the amendment to HKAS 1, Presentation of Financial Statements: Capital disclosures , there have been some additional disclosures provided as follows:

As a result of the adoption of HKFRS 7, the accounts include expanded disclosure about the significance of the Group’s financial instruments and the nature and extent of risks arising from those instruments, compared with the information previously required to be disclosed by HKAS 32, Financial Instruments: Disclosure and presentation . These disclosures are provided throughout these accounts, in particular in note 31.

The amendment to HKAS 1 introduces additional disclosure requirements to provide information about the level of capital and the Group’s objectives, policies and processes for managing capital. These new disclosures are set out in note 26(i).

Both HKFRS 7 and the amendment to HKAS 1 do not have any material impact on the classification, recognition and measurement of the amounts recognized in the financial instruments.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 35).

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3 TURNOVER

The principal activities of the Group are manufacture and sale of pharmaceutical products in the People’s Republic of China (“PRC”) upon the acquisition of Hensil Holdings Company Limited (“HHC”) on 9 October 2006 as set out in note 30(a). Turnover represents the sales value of goods sold less returns, discounts, value added tax and sales tax.

Turnover of continuing operation may be analyzed as follows:

Sales of pharmaceutical products – Pills and tablets – Medicine wine – Paste, granules and others	2007 HK$’000 237,275 41,475 77,130 355,880	2006 HK$’000 68,776 16,917 23,934
		109,627

Prior to the disposal of HWI on 28 December 2006 (see note 7), the Group also engaged in the generation and sale of electricity. Turnover included in discontinued operation for the period ended 28 December 2006 represented the invoiced value, net of value added tax, of electricity supplied in Foshan City, Guangdong Province, the PRC amounting to $686.5 million and additional tariff for peak hour electricity subscription amounting to $35.3 million.

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4 OTHER REVENUE AND NET INCOME

Other revenue Government grants Interest income Dividend income from listed securities Others Representing: Continuing operation Discontinued operation Other net income Insurance compensation Rental income Others Representing: Continuing operation Discontinued operation PROFIT/(LOSS) BEFORE TAXATION Profit/(loss) before taxation is arrived at after charging: (a) Finance costs (note (i)): Interest on bank advances and other borrowings wholly repayable within five years Interest expense and early redemption costs on convertible notes (note (ii)) Representing: Continuing operation Discontinued operation	2007 HK$’000 1,054 970 37 48 2,109	2006 HK$’000 29,416 3,380 – –
		32,796

	2,109 –	1,781 31,015
	2,109	32,796

	– 1,163 10	1,551 3,824 56
	1,173	5,431

	1,173 –	318 5,113
	1,173 2007 HK$’000 1,258 – 1,258	5,431

		2006 HK$’000 15,741 6,093
		21,834

	1,258 –	6,358 15,476
	1,258	21,834

5 PROFIT/(LOSS) BEFORE TAXATION Profit/(loss) before taxation is arrived at after charging:

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Notes:

(i) No interest was capitalized as construction in progress during the years presented.
(ii) Convertible notes of $282,400,000 were issued to FDC, a shareholder of the Company, upon the acquisition of HHC on 9 October 2006 as set out in note 30(a). The convertible notes were settled on 28 December 2006 by way of offsetting with the consideration for the disposal of HWI as set out in note 30(b).

(b) Staff costs:

Salaries, wages and other benefits Contribution to defined contribution retirement plans Representing: Continuing operation Discontinued operation (c) Other items: Continuing operation: Auditors’ remuneration Depreciation and amortization – investment property – lease prepayments – other assets – intangible assets Impairment losses – trade receivables Operating lease charges on buildings Research and development costs Discontinued operation: Cost of consumables Depreciation and amortization – assets held for use under operating leases – lease prepayment – other assets Impairment losses – fixed assets	48,816 2,015 50,831	32,939 1,219
		34,158

	50,831 –	14,467 19,691
	50,831 2007 HK$’000 1,641 269 568 17,837 14,327 815 475 1,257 – – – – –	34,158

		2006 HK$’000 4,789 66 138 4,800 3,450 164 311 911
		876,575 4,224 1,615 75,699 280,119

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6 INCOME TAX IN THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

(a) Taxation in the consolidated profit and loss account represents:

Current tax PRC enterprise income tax for the year Deferred tax Origination and reversal of temporary differences Representing: Continuing operation – tax charge Discontinued operation – tax credit	2007 HK$’000 15,092 (7,221) 7,871	2006 HK$’000 3,051 (51,792) (48,741) 510 (49,251) (48,741)
	7,871 –	510 (49,251
	7,871

No provision has been made for the Hong Kong Profits Tax as the Group sustained losses in Hong Kong for taxation purposes during the year.

Pursuant to the income tax rules and regulations of the PRC, the applicable PRC enterprise income tax of the Group’s subsidiaries, Foshan Dezhong Pharmaceutical Co., Ltd. (“DZH”) and Foshan Feng Liao Xing Pharmaceutical Co., Ltd. (“FLX”) is 27%. The subsidiaries are granted certain tax relief, under which they are exempted from PRC enterprise income tax for the first two profit making years and entitled to an income tax reduction to 12% for the next three years up to 31 December 2003 and 31 December 2004 respectively.

DZH and FLX are also recognized as new high technology enterprises pursuant to documents “ ” and “ ” respectively issued by The Department of Foreign Trade and Economic Cooperation of Guangdong Province and received approvals from the Foshan Tax Bureau for a three-year extension of the income tax reduction to 12% up to 31 December 2006 and 31 December 2007 respectively. Hence, DZH and FLX are subject to PRC enterprise income tax at 27% and 12% for the year respectively.

On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC (“new tax law”) which will take effect on 1 January 2008. As a result of the new tax law, the income tax rate applicable to DZH and FLX will change from 27% to 25% with effect from 1 January 2008. The change in the carrying amount of the current tax payable and deferred tax liabilities as a result of the change in tax rate has been reflected in these accounts.

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(b) Reconciliation between tax expense/(credit) and accounting profit/(loss) at applicable tax rates:

Profit/(loss) before taxation – continuing operation – discontinued operation Notional tax on profit/(loss) before tax, calculated at rates applicable to profit/(loss) in the countries concerned Tax effect on non-deductible expenses Tax effect on non-taxable revenue Tax effect on unused tax losses not recognized (note) Effect on opening current and deferred tax balances resulting from the change in tax rate during the year Income tax concessions Others Actual tax expense/(credit)	2007 HK$’000 32,906 – 32,906 9,732 1,897 (54) – (1,207) (2,497) – 7,871	2006 HK$’000 (5,881) (474,554) (480,435) (86,047) 2,661 (11,926) 48,146 – (1,460) (115) (48,741)

Note: The amount arose from the tax losses of the Company’s former subsidiary, (Foshan Shakou Power Plant Co., Ltd.) (“Shakou JV”), for the year ended 31 December 2006. No deferred tax assets were recognized as it was not probable that future taxable profits would be available against which the assets could be utilized.

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7 DISCONTINUED OPERATION

On 28 December 2006, the Company sold the entire equity interest in HWI for an aggregate consideration of $288 million to FDC.

The loss from the discontinued operation is analyzed as follows:

			From 1 January 2006
			to 28 December 2006
			HK$’000
Loss	of	HWI Group	488,658
Gain	on	disposal (note 30(b))	(63,355)
			425,303

The results of the HWI Group for the period from 1 January 2006 to 28 December 2006 are as follows:

	From 1 January 2006
	to 28 December 2006
	HK$’000
Turnover	721,751
Cost of sales	(981,849)
Gross loss	(260,098)
Other revenue	31,015
Other net income	5,113
Administrative expenses	(18,344)
Impairment losses	(280,119)
Loss from operations	(522,433)
Finance costs	(15,476)
Loss before taxation	(537,909)
Income tax	49,251
Loss for the period	(488,658)
Attributable to:
– Equity shareholders of HWI	(390,933)
– Minority interests	(97,725)
Loss for the period	(488,658)

During the period, HWI Group contributed the Group’s net operating cash flows by $7,301,000, contributed $7,849,000 in respect of investing activities and paid $22,915,000 in respect of financing activities.

No tax charge arose on the gain on disposal of HWI.

The carrying amounts of the assets and liabilities of the HWI Group at the date of disposal have been disclosed in note 30(b).

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APPENDIX I

8 DIRECTORS’ REMUNERATION AND INDIVIDUALS WITH HIGHEST EMOLUMENTS

Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows:

Executive directors He Haochang Lam Siu Hung Situ Min Li Songquan Independent non-executive directors Chan Ting Chuen, David Ng Pui Cheung, Joseph Cheung Kin Piu, Valiant Executive directors He Haochang Lam Siu Hung Situ Min Li Feng Independent non-executive directors Chan Ting Chuen, David Ng Pui Cheung, Joseph Cheung Kin Piu, Valiant	Directors’ fees HK$’000 100 100 100 100 100 100 100 700 Directors’ fees HK$’000 100 100 100 100 100 100 100 700	Salaries and allowances Discretionary bonuses Retirement scheme contributions HK$’000 HK$’000 HK$’000 105 61 5 624 165 31 420 88 21 315 79 16 – – – – – – – – – 1,464 393 73 Salaries and allowances Discretionary bonuses Retirement scheme contributions HK$’000 HK$’000 HK$’000 365 88 18 461 108 23 365 88 18 52 123 12 – – – – – – – – – 1,243 407 71	2007 Total HK$’000 271 920 629 510 100 100 100
			2,630

			2006 Total HK$’000 571 692 571 287 100 100 100
			2,421

Of the five individuals with the highest emoluments, two (2006: four) are directors whose emoluments are disclosed in the above. Details of the remaining three (2006: one) individuals were as follows:

Salaries and other emoluments Retirement scheme contributions	2007 HK$’000 2,340 – 2,340	2006 HK$’000 242 –
		242

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The emoluments of the three (2006: one) individuals with highest emoluments are within the following

band:

			2007	2006
			Number of	Number of
			individuals	individuals
$
Nil	–	1,000,000	3	1

9 PROFIT/(LOSS) ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated profit/(loss) attributable to equity shareholders of the Company includes a profit of $6,754,000 (2006: loss of $363,523,000) which has been dealt with in the accounts of the Company.

10 EARNINGS/(LOSS) PER SHARE

(a) Basic

From continuing and discontinued operations

The calculation of basic earnings/(loss) per share is based on the profit attributable to ordinary equity shareholders of the Company of $8,396,000 (2006: loss of $337,401,000) and the weighted average of 830,526,069 (2006: 830,146,244) ordinary shares in issue during the year.

From continuing operation

The calculation of basic earnings/(loss) per share is based on the profit attributable to ordinary equity shareholders of the Company of $8,396,000 (2006: loss of $9,823,000) and the weighted average of 830,526,069 (2006: 830,146,244) ordinary shares in issue during the year.

From discontinued operation

The calculation of basic loss per share is based on the loss attributable to ordinary equity shareholders of the Company of $327,578,000 and the weighted average of 830,146,244 ordinary shares in issue during the year ended 31 December 2006.

(b) Diluted

The diluted earnings or loss per share for the years ended 31 December 2006 and 2007 is not shown as all potential ordinary shares are anti-dilutive.

11 MATERIAL RELATED PARTY TRANSACTIONS

(a) Transactions with Foshan Electric Power Construction Group Corporation (“Power Group Corporation”), its subsidiaries and associates

Foshan City District Electric Power Construction Corporation (“Power Construction Corporation”) is a substantial shareholder of Shakou JV. Power Construction Corporation is a part of a larger group of companies under Power Group Corporation, which are owned by the PRC government and Shakou JV has significant transactions and relationships with Power Group Corporation, its subsidiaries and associates. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is a summary of principal related party transactions with Power Group Corporation, its subsidiaries and associates, which were carried out in the ordinary course of business. These transactions also constitute connected transactions under the Listing Rules.

Name of related company Nature of transaction Note Foshan City District Electricity Fuel Supply Company Purchase of fuel (excluding value added tax) (i) Foshan City District Electric Power Construction Corporation and its associates Interest on loans (ii) Funeng Power Supply Co. Ltd. Lease of facilities and premises (iii)	2007 HK$’000 – – –	2006 HK$’000 864,487 7,791 3,503

Notes:

(i) During the year ended 31 December 2006, the Group purchased fuel from (Foshan City District Electricity Fuel Supply Company) (“Fuel
Company”). The Fuel Company, being a fellow subsidiary of Power Construction Corporation, is a related party to the Company because Power Construction Corporation is a substantial shareholder of Shakou JV. The Fuel Company supplies fuel to the Group at prices which are determined by Shakou JV and the Fuel Company from time to time, but in any event will not be higher than: (i) the then prevailing market prices for sales of fuel by the Fuel Company to independent third parties; or (ii) the then quotation of price of the fuel that Shakou JV could obtain from other independent supplier, whichever is lower.
(ii) During the year ended 31 December 2006, Shakou JV had outstanding loans due to Power Construction Corporation and its associate pursuant to certain loan agreements entered into between Shakou JV and the respective counter parties.
(iii) In July 2004, Shakou JV entered into a facilities lease agreement with Funeng Power Supply Co. Ltd. (“Funeng JV”). Funeng JV, being a fellow subsidiary of Power Construction Corporation, is a related party to the Company because Power Construction Corporation is a substantial shareholder of Shakou JV. Pursuant to the facilities lease agreement, Shakou JV leased to Funeng JV certain assets (including office premises, factory premises, land use rights and auxiliary power generation facilities) for two years commencing from the date of the agreement and Shakou JV would receive two annual rental payments of approximately $4.55 million (RMB: 4.80 million) for the year ended 31 December 2006.

(b) Acquisition of HHC from Foshan Development (Holdings) Limited (“FDH”)

On 9 October 2006, the Group acquired the entire equity interest in HHC and amount due from HHC from FDH by way of issuance of convertible notes of $282.4 million to FDC. FDH is a related party to the Group because FDH is a related party of FDC, a substantial shareholder of the Company.

(c) Disposal of HWI to FDC

On 28 December 2006, the Group disposed of the entire equity interest in HWI to FDC, a substantial shareholder of the Company, at a consideration of $288 million. The consideration for the disposal was satisfied by way of offsetting with the outstanding principal amount of the convertible notes of $282.4 million issued by the Company upon the acquisition of HHC on 9 October 2006, together with related interest and early redemption costs.

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APPENDIX I

(d) Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Company’s directors and certain of the highest paid employees as disclosed in note 8, is as follows:

Short-term employee benefits Post-employments benefits	2007 HK$’000 3,837 52 3,889	2006 HK$’000 2,592 71
		2,663

Total remuneration is included in “staff costs” (see note 5(b)).

(e) Transactions with other state-owned entities in the PRC

Power Group Corporation is a state-owned entity and together with Shakou JV both operate in an economic regime currently predominated by entities directly or indirectly owned or controlled by the PRC government and numerous government authorities and agencies (collectively referred to as “state-owned entities”).

Apart from transactions mentioned in note 11(a), transactions with state-owned entities include but not limited to the sales and purchases of electricity.

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to those with other entities that are not state-owned. The Group has established its buying, pricing strategy and approval process for purchases and sales of products and services. Such buying, pricing strategy and approval processes do not depend on whether the counterparties are state-owned entities or not.

Having considered the potential for transactions to be impacted by related party relationships, the entity’s pricing strategy, buying and approval processes, and what information would be necessary for an understanding of the potential effect of the relationship on the accounts, the directors are of the opinion that the following transactions require disclosures as related party transactions:

Sale of electricity to grid company Purchase of electricity from grid company	2007 HK$’000 – –	2006 HK$’000 721,751 1,740

12 SEGMENT REPORTING

Segment information is presented in respect of the Group’s business segment. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting system. In view of the fact that the Group operates mainly in the PRC, no geographical segment information is presented.

The Group comprises the following main business segments:

Pharmaceutical: The manufacture and sale of pharmaceutical products in the PRC Electricity: The generation and sale of electricity in the PRC

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Continuing operation Pharmaceutical Discontinued operation Electricity 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 355,880 109,627 – 721,751 43,087 8,846 – (459,078) 33,001 8,454 – 81,538 815 164 – – – – – 280,119 – – – (63,355) 543,488 502,548 – – 92,510 103,547 – – 2,424 1,365 – 235	Consolidated 2007 2006 HK$’000 HK$’000 355,880 831,378 43,087 (450,232) 319 561 (9,242) (8,930) 34,164 (458,601) (1,258) (21,834) 32,906 (480,435) (7,871) 48,741 25,035 (431,694) 33,001 89,992 815 164 – 280,119 – (63,355) 543,488 502,548 88,567 108,928 632,055 611,476 92,510 103,547 42,117 57,159 134,627 160,706	Consolidated 2007 2006 HK$’000 HK$’000 355,880 831,378 43,087 (450,232) 319 561 (9,242) (8,930) 34,164 (458,601) (1,258) (21,834) 32,906 (480,435) (7,871) 48,741 25,035 (431,694) 33,001 89,992 815 164 – 280,119 – (63,355) 543,488 502,548 88,567 108,928 632,055 611,476 92,510 103,547 42,117 57,159 134,627 160,706
	319 (9,242) 34,164 (1,258) 32,906 (7,871)	561 (8,930
		(458,601 (21,834
		(480,435 48,741
81,538 – 280,119 (63,355) –	25,035 33,001 815 – – 543,488
	88,567	108,928
–	632,055 92,510
	42,117	57,159
235	134,627

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13 FIXED ASSETS

Buildings HK$’000 146,521 68,022 – – (151,574) 5,705	Plant, machinery and equipment HK$’000 1,845,503 127,593 665 1,082 (1,909,181) 64,861	Motor vehicles HK$’000 9,039 2,824 140 – (8,671) 314	Others HK$’000 10,077 35,281 795 – (9,858) 670	Sub-total HK$’000 2,011,140 233,720 1,600 1,082 (2,079,284) 71,550	Investment property HK$’000 – 10,555 – – – 101	Interests in leasehold land held for own use under operating leases HK$’000 57,511 27,249 – – (59,494) 2,245	The Group Total HK$’000 2,068,651 271,524 1,600 1,082 (2,138,778) 73,896	The Company Total HK$’000 128 – – – – –
68,674 - - - - - - - - 68,674 – – – 5,214 73,888 - - - - - - - - 65,655 21,941 4,880 21,361 (94,141) 3,048 22,744 - - - - - - - ---------------------------- 22,744 2,440 – 1,820	130,523 - - - - - - - - 130,523 432 25 (24) 9,820 140,776 - - - - - - - - 885,769 41,994 77,855 250,342 (1,248,779) 38,178 45,359 - - - - - - - ---------------------------- 45,359 11,368 (4) 3,905	3,646 - - - - - - - - 3,646 794 – (795) 214 3,859 - - - - - - - - 8,334 1,964 333 – (8,040) 284 2,875 - - - - - - - ---------------------------- 2,875 435 (795) 174	36,965 - - - - - - - - 36,965 1,198 – (513) 2,794 40,444 - - - - - - - - 9,556 20,033 1,655 – (9,788) 516 21,972 - - - - - - - ---------------------------- 21,972 3,594 (506) 1,769	239,808 - - - - - - - - 239,808 2,424 25 (1,332) 18,042 258,967 - - - - - - - - 969,314 85,932 84,723 271,703 (1,360,748) 42,026 92,950 - - - - - - - ---------------------------- 92,950 17,837 (1,305) 7,668	10,656 - - - - - - - - 10,656 – – – 806 11,462 - - - - - - - - – 2,899 66 – – 28 2,993 - - - - - - - ---------------------------- 2,993 269 – 237	27,511 - - - - - - - - 27,511 – – – 2,070 29,581 - - - - - - - - 25,690 3,216 1,753 8,416 (36,831) 1,140 3,384 - - - - - - - ---------------------------- 3,384 568 – 280	277,975 - - - - - - - - 277,975 2,424 25 (1,332) 20,918 300,010 - - - - - - - - 995,004 92,047 86,542 280,119 (1,397,579) 43,194 99,327 - - - - - - - ---------------------------- 99,327 18,674 (1,305) 8,185	128 - - - - - - - - 128 – – – –
								128 - - - - - - - - 128 – – – – –
								128 - - - - - - - ---------------------------- 128 – – –
27,004 - - - - - - - ---------------------------- 46,884 45,930	60,628 - - - - - - - ---------------------------- 80,148 85,164	2,689 - - - - - - - ---------------------------- 1,170 771	26,829 - - - - - - - ---------------------------- 13,615 14,993	117,150 - - - - - - - ---------------------------- 141,817 146,858	3,499 - - - - - - - ---------------------------- 7,963 7,663	4,232 - - - - - - - ---------------------------- 25,349 24,127	124,881 - - - - - - - ---------------------------- 175,129 178,648	128 - - - - - - - ---------------------------- –

								–

– 106 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(a) The interests in leasehold land held for own use under operating leases and investment properties are held on a medium-term lease of 50 years in the PRC.
(b) The Group leases out investment properties under operating leases. The leases typically run for an initial period of twenty years with three months’ notice for termination. Lease payments are usually increased every three to ten years to reflect market rentals. None of the leases includes contingent rentals.

The Group’s total future minimum lease payments under non-cancellable operating leases are receivables as follows:

			2007	2006
			HK$’000	HK$’000
Within	1	year	749	174

All investment properties of the Group were stated in the balance sheet at cost less accumulated depreciation and impairment losses. The fair value of the investment properties as at 31 December 2007 is $9,281,000 (2006: $7,699,000) by reference to net rental income allowing for reversionary income potential. The valuation as at 31 December 2007 and 2006 was carried out by the directors and Sallmanns (Far East) Limited, an independent firm of professional surveyors, respectively.

(c) In 2006, the continuing increase in fuel oil price and expected decrease in future subsidies caused the Group to assess the recoverable amount of fixed assets of Shakou JV. Based on this assessment, the carrying amount of fixed assets was written down by $280.1 million. The estimates of recoverable amount were based on the value in use, determined using a discount rate of 7%.

14 CONSTRUCTION IN PROGRESS

At 1 January Acquisition of subsidiaries (note 30(a)) Additions Transfer to fixed assets (note 13) Exchange adjustments At 31 December	2007 HK$’000 – – 169 (25) – 144	2006 HK$’000 – 1,051 21 (1,082) 10
		–

– 107 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15 INTANGIBLE ASSETS

	The Group	Total HK$’000 – 100,699 993 101,692 - - - - - - - - - - - - 101,692 7,662 109,354 - - - - - - - - - - - - – (3,450) (18) (3,468) - - - - - - - - - - - - (3,468) (14,327) (858) (18,653) ------------ --------------------------------------------- 90,701 98,224
Product protection rights HK$’000 – 64,440 635 65,075 - - - - - - - - - - - - 65,075 4,903 69,978 - - - - - - - - - - - - – (3,236) (17) (3,253) - - - - - - - - - - - - (3,253) (13,438) (804)	Trademarks HK$’000 – 36,259 358 36,617 - - - - - - - - - - - - 36,617 2,759 39,376 - - - - - - - - - - - - – (214) (1) (215) - - - - - - - - - - - - (215) (889) (54)	Total HK$’000 – 100,699 993
		101,692 - - - - - - - - - - - - 101,692 7,662
		109,354 - - - - - - - - - - - - – (3,450 (18
		(3,468 - - - - - - - - - - - - (3,468 (14,327 (858
(17,495) ------------ --------------------------------------------- 52,483 61,822	(1,158) ------------ --------------------------------------------- 38,218 36,402

The amortization charge for the year is included in “cost of sales” in the consolidated profit and loss account.

– 108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16 GOODWILL

Cost: At 1 January 2006 Acquisition of subsidiaries (note 30(a)) Disposal Exchange adjustments At 31 December 2006 At 1 January 2007 Exchange adjustments At 31 December 2007 Accumulated amortization and impairment losses: At 1 January 2006 Written back on disposal At 31 December 2006 and 2007 Carrying amount: At 31 December 2007 At 31 December 2006	The Group HK$’000 578,319 122,234 (578,319) 1,203 123,437 - - - - - - - - - - - - 123,437 9,301 132,738 - - - - - - - - - - - - (578,319) 578,319 – ------------ --------------------------------------------- 132,738 123,437

Goodwill acquired through business combination in 2006 is allocated to the pharmaceutical business cash-generating unit (“CGU”) for impairment testing.

The recoverable amount of the CGU is determined based on value-in-use calculations. The key assumptions used in the valuations are those regarding the expected changes to selling prices and costs, and discount rates. The changes in selling prices and costs are based on historical operating records and expectation of future changes in the market. Discount rates applied are able to reflect the current market assessments of the time value of money and the risks specific to the CGU.

The Company determined the value-in-use by preparing cash flow projections derived from the most recent financial forecast approved by the management covering a one-year period and extrapolated to cover a period of nine more years with an estimated increase in selling prices and costs of 3% (2006: 3%) and no growth in sales volume. The rate used to discount the forecast cash flows is 12.0% (2006: 8.5%).

Management believes that any reasonably possible change in any of these key assumptions would not cause the carrying amount of the CGU to exceed the recoverable amount.

– 109 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17 INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries	The Company 2007 2006 HK$’000 HK$’000 223,569 223,569 58,831 58,831 282,400 282,400	The Company 2007 2006 HK$’000 HK$’000 223,569 223,569 58,831 58,831 282,400 282,400
		282,400

The amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment. In the opinion of the directors, the amounts will not be repayable within twelve months from the balance sheet date and are therefore shown in the balance sheet as non-current.

The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the Group at 31 December 2007.

All of these are controlled subsidiaries as defined under note 1(c) and have been consolidated into the group accounts.

	Place of incorporation/ establishment and	Issued and paid up	Percentage of equity interest held	Percentage of equity interest held
Name of company	operation	share capital	Directly	Indirectly	Principal activities
Lipromate Resources Limited	Hong Kong	Ordinary	100%	–	Provision of financial
	14 December 2006	HK$1			and management
					services to the Group
Hensil Industrial Inc. Limited	Hong Kong	Ordinary	100%	–	Investment holding
(note (ii))	6 July 2007	HK$1
Hensil Trading & Investments	Hong Kong	Ordinary	100%	–	Investment holding
Limited (note (ii))	6 July 2007	HK$1
Foshan Dezhong Pharmaceutical	The PRC	US$5,760,000	–	51%	Manufacturing and sale
Co., Ltd. (note (i))	1 November 1998				of Chinese
					pharmaceutical
					products
Foshan Feng Liao Xing	The PRC	US$6,926,100	–	51%	Manufacturing and sale
Pharmaceutical Co., Ltd.	16 March 2000				of Chinese
(note (i))					pharmaceutical
					products
Dezhong Pharmaceutical (Hong	Hong Kong	Ordinary	–	51%	Dormant
Kong) Company Limited	13 December 1999	HK$2

Notes:

(i) DZH and FLX are sino-foreign equity joint ventures established pursuant to the law of the PRC on sino-foreign equity joint ventures. DZH and FLX have joint venture periods of 50 years expiring on 30 October 2048 and 15 March 2050, respectively.
(ii) The subsidiaries are incorporated on 6 July 2007.

– 110 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18 OTHER FINANCIAL ASSETS

Available-for-sale equity securities – Listed in the PRC Market value of listed securities	The Group 2007 2006 HK$’000 HK$’000 3,953 1,103 3,953 1,103	The Group 2007 2006 HK$’000 HK$’000 3,953 1,103 3,953 1,103
		1,103

19 INVENTORIES AND CONSUMABLES

(a) Inventories in the balance sheet comprise:

Raw materials Work in progress Finished goods Packaging materials Low value consumables	The Group 2007 2006 HK$’000 HK$’000 29,254 27,753 16,793 13,866 19,230 8,936	The Group 2007 2006 HK$’000 HK$’000 29,254 27,753 16,793 13,866 19,230 8,936
	65,277 4,990 2,628	50,555 4,620 2,814
	72,895	57,989

(b) The analysis of the amount of inventories and consumables recognized as an expense is as follows:

Cost of inventories sold and consumables Representing: Continuing operation Discontinued operation	2007 HK$’000 147,760 147,760 –	2006 HK$’000 943,732

		67,157 876,575

– 111 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20 TRADE AND OTHER RECEIVABLES

Trade and bills receivables Less: allowance for doubtful debts (note 20(b)) Deposits, prepayments and other receivables	The Group 2007 2006 HK$’000 HK$’000 63,496 39,584 (2,372) (3,034) 61,124 36,550 11,509 6,994 72,633 43,544	The Company 2007 2006 HK$’000 HK$’000 – – – – – – 570 217 570 217	The Company 2007 2006 HK$’000 HK$’000 – – – – – – 570 217 570 217
			– 217
			217

(a) Ageing analysis

Included in trade and other receivables are trade and bills receivables (net of allowance for doubtful debts) with the following ageing analysis as of the balance sheet date:

Within 3 months Over 3 months but less than 6 months Over 6 months	The Group 2007 2006 HK$’000 HK$’000 52,110 33,113 6,782 1,248 2,232 2,189 61,124 36,550	The Company 2007 2006 HK$’000 HK$’000 – – – – – – – –	The Company 2007 2006 HK$’000 HK$’000 – – – – – – – –
			–

Debts are due within 30 to 90 days from the date of billing. All of the trade and other receivables are expected to be recovered within one year. Further details on the Group’s credit policy are set out in note 31(a).

(b) 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 and bills receivables directly (see note 1(j)(i)).

– 112 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The movement in the allowance for doubtful debts during the year, including both specific and collective loss components, is as follows:

At 1 January Acquisition of subsidiaries Impairment loss recognized Uncollectible amounts written off Exchange adjustments At 31 December	The Group 2007 2006 HK$’000 HK$’000 3,034 – – 2,870 815 164 (1,674) – 197 – 2,372 3,034	The Company 2007 2006 HK$’000 HK$’000 – – – – – – – – – – – –	The Company 2007 2006 HK$’000 HK$’000 – – – – – – – – – – – –
			–

At 31 December 2007, the Group’s trade receivables of $3,153,000 (2006: $5,189,000) were individually determined to be impaired. The individually impaired receivables related to customers that were overdue more than one year and management assessed that only a portion of these receivables is expected to be recovered. Consequently, specific allowances for doubtful debts of $2,372,000 (2006: $3,034,000) were recognized. The Group does not hold any collateral over these balances.

(c)

Trade and bills receivables that are not impaired

The ageing analysis of trade and bills receivables that are neither individually nor collectively considered to be impaired are as follows:

Within 3 months Over 3 months but less than 6 months Over 6 months	The Group 2007 2006 HK$’000 HK$’000 51,566 31,453 6,563 784 2,214 2,158 60,343 34,395	The Company 2007 2006 HK$’000 HK$’000 – – – – – – – –	The Company 2007 2006 HK$’000 HK$’000 – – – – – – – –
			–

As at 31 December 2007, receivables that were neither past due nor impaired amounted to $50,484,000 (2006: $30,097,000).

Receivables that were not impaired relate to a number of independent customers that have a good track record with the Group and no recent history of default. 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.

A writ of summons was served by DZH on Guangdong Guanghong Medicines Company Limited (“Guangdong Guanghong”) in 2005 in respect of a claim for the payment of goods by Guangdong Guanghong to DZH of approximately RMB1,345,000 (equivalent to $1,439,000) together with related interest.

On 15 November 2006, a judgement (“the Judgement”) was issued by Foshan Chancheng District People’s Court of Guangdong Province (“the People’s Court”) against Guangdong Guanghong for a sum of RMB1,345,000 together with interest. In response, Guangdong Guanghong filed an appeal against the Judgement. On 15 March 2007, Foshan Intermediate People’s Court of Guangdong Province (“the Intermediate People’s Court”) issued a judgement whereby the validity of the Judgement against Guangdong Guanghong was revoked and the case was re-heard by the People’s Court on 20 November 2007. On 4 March 2008, a judgement was issued by the People’s Court in favour of DZH in respect of the above claim.

– 113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 25 March 2008, Guangdong Guanghong filed an appeal against the judgement. The directors are of the opinion that DZH has a considerable prospect of success in the above claim and no allowance for doubtful debts was made on the outstanding debt of $1,439,000 which has been overdue more than one year.

21 INCOME TAX IN THE BALANCE SHEET

(a) Current taxation in the balance sheet represents:

Provision for PRC enterprise income tax

The	Group
2007	2006
HK$’000	HK$’000
5,864	3,671

(b) Deferred tax assets/(liabilities) recognized:

The components of deferred tax assets/(liabilities) recognized in the consolidated balance sheet and the movements during the year are as follows:

The Group

Intangible assets Depreciation in excess of related depreciation allowance Impairment loss in respect of fixed assets Allowance for impairment of doubtful debts HK$’000 HK$’000 HK$’000 HK$’000 – 10,063 21,662 – (26,525) (10,466) – 723 934 (981) 50,421 346 – (9,587) (73,577) – – – – – (261) 591 1,494 10 (25,852) (10,380) – 1,079	Intangible assets Depreciation in excess of related depreciation allowance Impairment loss in respect of fixed assets Allowance for impairment of doubtful debts HK$’000 HK$’000 HK$’000 HK$’000 – 10,063 21,662 – (26,525) (10,466) – 723 934 (981) 50,421 346 – (9,587) (73,577) – – – – – (261) 591 1,494 10 (25,852) (10,380) – 1,079	Intangible assets Depreciation in excess of related depreciation allowance Impairment loss in respect of fixed assets Allowance for impairment of doubtful debts HK$’000 HK$’000 HK$’000 HK$’000 – 10,063 21,662 – (26,525) (10,466) – 723 934 (981) 50,421 346 – (9,587) (73,577) – – – – – (261) 591 1,494 10 (25,852) (10,380) – 1,079	Intangible assets Depreciation in excess of related depreciation allowance Impairment loss in respect of fixed assets Allowance for impairment of doubtful debts HK$’000 HK$’000 HK$’000 HK$’000 – 10,063 21,662 – (26,525) (10,466) – 723 934 (981) 50,421 346 – (9,587) (73,577) – – – – – (261) 591 1,494 10 (25,852) (10,380) – 1,079	Available- for-sale securities HK$’000 – (176) – – (89) (3) (268)	Others HK$’000 – (3,344) 1,072 – – (16) (2,288)	Total HK$’000 31,725 (39,788) 51,792 (83,164) (89) 1,815
						(37,709)

(25,852) 1,994 – 3,002 – (1,819)	(10,380) 873 – 680 – (753)	– – – – – –	1,079 (68) – (238) – 71	(268) – 77 – (717) (50)	(2,288) 28 – 950 – (126)	(37,709) 2,827 77 4,394 (717) (2,677)
(22,675)	(9,580)	–	844	(958)	(1,436)	(33,805)

– 114 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22 CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS

The Group 2007 2006 HK$’000 HK$’000 11,503 25,326 70,861 83,205 82,364 108,531 – (309) – (18,303)	The Group 2007 2006 HK$’000 HK$’000 11,503 25,326 70,861 83,205 82,364 108,531 – (309) – (18,303)	The Company 2007 2006 HK$’000 HK$’000 11,503 7,024 1,690 308 13,193 7,332
		7,332

	(309) (18,303)
82,364	89,919

As at 31 December 2007, restricted deposits of $1,498,000 (2006: Nil) were placed with the People’s Court in relation to a claim lodged against a previous customer. Further details of the claim are discussed in note 20(c).

23 TRADE AND OTHER PAYABLES

Creditors and accrued charges Advances received from customers	The Group 2007 2006 HK$’000 HK$’000 89,802 70,361 5,156 – 94,958 70,361	The Company 2007 2006 HK$’000 HK$’000 1,958 2,478 – – 1,958 2,478	The Company 2007 2006 HK$’000 HK$’000 1,958 2,478 – – 1,958 2,478
			2,478

Included in trade and other payables are trade creditors with the following ageing analysis as of the balance sheet date:

							The	Group	The Company	The Company
							2007	2006	2007	2006
							HK$’000	HK$’000	HK$’000	HK$’000
Due	within	1	month	or	on	demand	89,802	70,361	–	–

All of the trade and other payables are expected to be settled within one year.

– 115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24 PROVISION FOR STAFF WELFARE

At 1 January Amount utilized Disposal of subsidiaries (note 30(b)) At 31 December	The Group 2007 2006 HK$’000 HK$’000 – 257 – (247) – (10) – –	The Group 2007 2006 HK$’000 HK$’000 – 257 – (247) – (10) – –
		–

25 BANK LOANS AND OVERDRAFTS

At 31 December 2007, the Group’s bank loans and overdrafts are repayable as follows:

Within 1 year or on demand Representing: Bank overdrafts (note 22) Unsecured bank loans	The Group 2007 2006 HK$’000 HK$’000 – 20,203 – 309 – 19,894 – 20,203	The Company 2007 2006 HK$’000 HK$’000 – 309 – 309 – – – 309	The Company 2007 2006 HK$’000 HK$’000 – 309 – 309 – – – 309

			309 –
			309

The bank loans as at 31 December 2006 were unsecured, bore interest at 6.12% and were repayable within one year.

– 116 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26 CAPITAL AND RESERVES

(a) The Group

Share capital (Note (c)) HK$’000 83,015 – – – – – – – 83,015	Share premium (Note (d)) HK$’000 1,041,726 – – – – – – – 1,041,726	Capital redemption reserve (Note (d)) HK$’000 297 – – – – – – – 297	Exchange reserve (Note (e)) HK$’000 20,729 – – (33,640) – – – 13,918 1,007	Reserve fund Enterprise development fund (Note (f)) (Note (f)) HK$’000 HK$’000 23,481 23,481 – – – – (23,481) (23,481) – – – – 1,065 – – – 1,065 –	Reserve fund Enterprise development fund (Note (f)) (Note (f)) HK$’000 HK$’000 23,481 23,481 – – – – (23,481) (23,481) – – – – 1,065 – – – 1,065 –	Fair value reserve (Accumulated losses)/ retained profits s (Note (g)) HK$’000 HK$’000 – (542,044) – (337,401) – – – 46,962 (259) – (45) – – (1,065) – – (304) (833,548)	Fair value reserve (Accumulated losses)/ retained profits s (Note (g)) HK$’000 HK$’000 – (542,044) – (337,401) – – – 46,962 (259) – (45) – – (1,065) – – (304) (833,548)	Total equity attributable to equity hareholders of the Company HK$’000 650,685 (337,401) – (33,640) (259) (45) – 13,918 293,258	Minority interests HK$’000 158,974 (94,293) 152,902 (64,549) (249) (44) – 4,771 157,512	Total equity HK$’000 809,659 (431,694) 152,902 (98,189) (508) (89) – 18,689
										450,770

83,015 – 82 – – – – – –	1,041,726 (837,876) 207 – – – – – –	297 – – – – – – – –	1,007 – – – – – – – 21,052	1,065 – – – – – 6,492 – 74	– – – – – – – – –	(304) – – – 1,453 (327) – – (30)	(833,548) 837,876 – 8,396 – – (6,492) – –	293,258 – 289 8,396 1,453 (327) – – 21,096	157,512 – – 16,639 1,396 (313) – (14,169) 12,198	450,770 – 289 25,035 2,849 (640) – (14,169) 33,294
83,097	204,057	297	22,059	7,631	–	792	6,232	324,165	173,263	497,428

– 117 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) The Company

Share capital HK$’000 83,015 – 83,015	Share premium HK$’000 1,041,726 – 1,041,726	Capital redemption reserve (Accumulated losses)/ retained profits HK$’000 HK$’000 297 (474,353) – (363,523) 297 (837,876)	Capital redemption reserve (Accumulated losses)/ retained profits HK$’000 HK$’000 297 (474,353) – (363,523) 297 (837,876)	Total HK$’000 650,685 (363,523
				287,162

83,015 – 82 –	1,041,726 (837,876) 207 –	297 – – –	(837,876) 837,876 – 6,754	287,162 – 289 6,754
83,097	204,057	297	6,754	294,205

On 12 October 2007, the High Court of the HKSAR issued an order to confirm that accumulated losses of $837,876,000 would be offset by a corresponding reduction of the share premium account.

(c) Share capital

2007 Number of shares Nominal value ’000 HK$’000 3,000,000 300,000	2007 Number of shares Nominal value ’000 HK$’000 3,000,000 300,000	2006 Number of shares Nominal value ’000 HK$’000 3,000,000 300,000	2006 Number of shares Nominal value ’000 HK$’000 3,000,000 300,000

830,146 828	83,015 82	830,146 –	83,015 –
830,974	83,097	830,146	83,015

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meeting of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

On 28 June and 21 August 2007, options were exercised to subscribe for 528,000 and 300,000 ordinary shares of $0.35 each in the Company respectively at total consideration of $289,800 of which $82,800 was credited to share capital and the balance of $207,000 was credited to the share premium account.

– 118 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Share premium and capital redemption reserve

The application of the share premium account and capital redemption reserve is governed by Sections 48B and 49H respectively of the Hong Kong Companies Ordinance.

(e) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the accounts of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in note 1(t).

(f) Reserve fund and enterprise development fund

In accordance with the accounting principles and financial regulations applicable in the PRC, the PRC subsidiaries are required to transfer part of its profit after taxation to the reserve fund and the enterprise development fund. The transfer amounts are determined by the subsidiary’s board of directors in accordance with the articles of association and the transfers are made before profit distribution to the joint-venture partners. Reserve fund can only be used to make good losses, if any, and for increasing capital. Enterprise development fund can only be used for increasing capital.

(g) Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale securities held at the balance sheet date, and is dealt with in accordance with the accounting policy set out in note 1(e).

(h) Distributability of reserves

At 31 December 2007, the aggregate amount of reserves available for distribution to equity shareholders of the Company was $6,754,000 (2006: Nil). After the balance sheet date the directors proposed a final dividend of 0.5 cent (2006: Nil) per ordinary share, amounting to $4,155,000 (2006: Nil). This dividend has not been recognized as a liability at the balance sheet date.

(i) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Consistent with industry practice, the Group monitors its capital structure on the basis of an adjusted debt-to-equity ratio. For this purpose the Group defines debt as total debt (which includes trade and other payables, bank loans and overdrafts and dividend payable) plus unaccrued proposed dividend. Equity comprises all components of equity less unaccrued proposed dividends.

During 2007, the Group’s strategy, which remains unchanged from 2006, was to maintain the capital in order to cover any debt position.

– 119 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The adjusted debt-to-equity ratio at 31 December 2007 and 2006 is as follows:

Current liabilities: Trade and other payables Bank loans and overdrafts Dividend payable Add: Proposed dividends Adjusted debt Total equity Less: Proposed dividends Adjusted equity Adjusted debt-to-equity ratio	The Group 2007 2006 HK$’000 HK$’000 94,958 70,361 – 20,203 – 28,762	The Group 2007 2006 HK$’000 HK$’000 94,958 70,361 – 20,203 – 28,762
	94,958 4,155	119,326 –
	99,113	119,326

	497,428 (4,155)	450,770 –
	493,273 20%	450,770

		26%

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

27 EMPLOYEES RETIREMENT BENEFITS

The Group operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employee’s relevant income, subject to a cap of monthly relevant income of $20,000. Apart from the mandatory contributions, the employer would make monthly voluntary contributions, which is the excess of 5%, or 10% for employees working over ten years, of the basic salary over the mandatory contribution. Mandatory contribution to the plan vest immediately. Where there are employees who leave the Group prior to vesting fully in the voluntary contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions.

Employees in the Group’s PRC subsidiaries are members of the state-managed retirement scheme. The PRC subsidiaries are required to contribute a specified percentage of the payroll to the scheme. The only obligation of the Group with respect to the retirement scheme is to make the specified contributions.

The Group has no other material obligation for payment of retirement benefits beyond the annual contributions as described above.

28 EQUITY SETTLED SHARE-BASED TRANSACTIONS

The Company has a share option scheme which was adopted on 22 May 2002 whereby the directors of the Company are authorized, at their discretion, to invite employees of the Group, including directors of any company in the Group, to take up options to subscribe for shares of the Company. The exercise price of options is the highest of the nominal value of the shares, the closing price of the shares on The Stock Exchange of Hong Kong Limited at the date of grant and the average closing price of the shares on The Stock Exchange of Hong Kong Limited for the five business days immediately proceeding the date of grant. The options vest after six months from the date of grant and are then exercisable within a period of five years. Each option gives the holder the right to subscribe for one ordinary share in the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) The terms and conditions of the grants that existed during the year are as follows, whereby all options are settled by physical delivery of shares:

Date granted Exercise period Exercise price 25 July 2002 25 January 2003 to 24 January 2008 $0.350 30 July 2002 30 January 2003 to 29 January 2008 $0.350 19 May 2003 22 November 2003 to 21 November 2008 $0.415	2007 HK$’000 828 8,000 1,500
	10,328

All the above share options are granted to the directors.

(b) The number and weighted average exercise prices of share options are as follows:

At 1 January Exercised during the year Lapsed and cancelled At 31 December Options vested at 31 December	2007 Weighted average exercise price Number of shares HK$ ’000 $0.360 10,328 $0.350 (828) $0.415 (1,500) $ 0.35 8,000 $ 0.35 8,000	2006 Weighted average exercise price Number of shares HK$ ’000 $0.36 10,328 – – – – $0.36 10,328 $0.36 10,328	2006 Weighted average exercise price Number of shares HK$ ’000 $0.36 10,328 – – – – $0.36 10,328 $0.36 10,328
			10,328

			10,328

The weighted average share price at the date of exercise of share options exercised during the year was $0.66 (2006: Not applicable).

The remaining 8,000,000 share options subsequently lapsed in January 2008.

all options granted to employees on or before 7 November 2002; and
all options granted to employees after 7 November 2002 but which had vested before 1 January 2005.

29 COMMITMENTS

At 31 December 2007, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

			The	Group	The Company	The Company
			2007	2006	2007	2006
			HK$’000	HK$’000	HK$’000	HK$’000
Within	1	year	330	–	–	–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30 ACQUISITION AND DISPOSAL OF SUBSIDIARIES

(a) Acquisition of subsidiaries

On 9 October 2006, pursuant to the passing by the independent shareholders of the resolution at the extraordinary general meeting on 3 October 2006 and the completion of the acquisition on 9 October 2006, the Company acquired the entire equity interest in HHC and amount due from HHC from FDH. HHC is an investment holding company and its principal assets are its 51% equity interests in each of DZH and FLX. Each of DZH and FLX is principally engaged in the manufacture and sale of pharmaceutical products in the PRC.

From the date of acquisition to 31 December 2006, the subsidiaries contributed net profit of $8 million to the net loss for 2006 of the Group. Had the acquisition occurred on 1 January 2006, turnover, profit from continuing operation and net loss for 2006 of the Group would have been $348.2 million, $23.9 million and $401.4 million respectively.

Details of assets acquired and liabilities assumed as at the acquisition date were as follows:

Pre-acquisition carrying amount HK$’000 Fixed assets 140,714 Construction in progress 1,051 Intangibles assets – Other financial assets 1,611 Inventories 48,743 Trade and other receivables 49,439 Deposits with banks mature beyond three months 18,130 Cash and cash equivalents 69,725 Trade and other payables (39,865) Bank loans (16,750) Dividend payable (63,481) Amount due to FDH (58,830) Tax payable (2,630) Deferred tax liabilities (1,992) Minority interests (99,799) Share of net identifiable assets and liabilities 46,066 Add: Amount due from HHC Goodwill on acquisition Consideration Satisfied by: Convertible notes issued to FDC Net inflow of cash and cash equivalents in connection with the acquisition of subsidiaries: Cash and cash equivalents of the subsidiaries acquired	Fair value adjustments HK$’000 38,763 – 100,699 – 6,707 – – – – – – – – (37,796) (53,103) 55,270	Recognized values on acquisition HK$’000 179,477 1,051 100,699 1,611 55,450 49,439 18,130 69,725 (39,865) (16,750) (63,481) (58,830) (2,630) (39,788) (152,902) 101,336 58,830 122,234 282,400 282,400 69,725
		58,830 122,234

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Disposal of subsidiaries

The Group disposed of the HWI Group on 28 December 2006 to FDC and the net assets of the HWI Group at the date of disposal were as follows:

Net assets of:
Fixed assets
Deferred tax assets
Consumables
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provision for staff welfare
Bank loans
Other loans
Minority interests
Exchange reserve
Gain on disposal
Consideration
Satisfied by:
Offsetting with convertible notes issued and related interest and early redemption
cost (see note 5(a)(ii))
Net outflow of cash and cash equivalents in connection with the disposal of
subsidiaries:
Cash and cash equivalents of the subsidiaries disposed of

HK$’000
741,199
83,164
105,912
66,936
108,997
(350,805)
(10)
(125,332)
(307,227)
322,834
(64,549)
(33,640)
63,355
288,000
288,000
(108,997)

The impact of HWI Group on the Group’s results and cash flows in prior year has been disclosed in note 7.

31 FINANCIAL INSTRUMENTS

Exposure to credit, liquidity, interest rate and foreign currency risks arises in the normal course of the Group’s business. The Group is also exposed to equity price risk arising from its equity investments in other entities.

These risks are limited by the Group’s financial management policies and practices described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade receivables. Credit evaluations are performed on all customers requiring credit over a certain amount. 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. These receivables are due within 30 to 90 days from the date of billing. Debtors with balances that are more than three months overdue are requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not obtain collateral from customers.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 but to a lesser extent. At 31 December 2007, the Group has a certain concentration of credit risk as 4% (2006: 11%) and 10% (2006: 32%) of the total trade receivables were due from the Group’s largest customer and the five largest customers respectively.

The maximum exposure to credit risk is represented by the carrying amount of the asset in the balance sheet after deducting any impairment allowance. The Group does not provide any guarantees which would expose the Group to credit risk.

(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 approval by the Company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves 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

Trade and other payables Bank loans Bank overdrafts	2007 Carrying amount Total contractual undiscounted cash flow HK$’000 HK$’000 94,958 (94,958) – – – – 94,958 (94,958)	Within 1 year or on demand HK$’000 (94,958) – – (94,958)	2006 Carrying amount Total contractual undiscounted cash flow HK$’000 HK$’000 70,361 (70,361) 19,894 (19,894) 309 (309) 90,564 (90,564)	Within 1 year or on demand HK$’000 (70,361) (19,894) (309)
				(90,564)

The Company

Trade and other payables Bank overdrafts	2007 Carrying amount Total contractual undiscounted cash flow HK$’000 HK$’000 1,958 (1,958) – – 1,958 (1,958)	Within 1 year or on demand HK$’000 (1,958) – (1,958)	2006 Carrying amount Total contractual undiscounted cash flow HK$’000 HK$’000 2,478 (2,478) 309 (309) 2,787 (2,787)	Within 1 year or on demand HK$’000 (2,478) (309)
				(2,787)

(c) Interest rate risk

The Group’s interest rate risk arises primarily from short-term borrowings. Borrowings issued at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The Group’s interest rate profile as monitored by management is set out in (i) below.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Interest rate profile

The following table details the interest rate profile of the Group’s and the Company’s total borrowings at the balance sheet date.

The Group

	2007	2007	2006	2006
	Effective	One year	Effective	One year
	interest rate	or less	interest rate	or less
	%	HK$’000	%	HK$’000
Fixed rate borrowings:
Bank loans	–	–	6.12%	19,894
Variable rate borrowings:
Bank overdrafts	–	–	2.78%	309
Total borrowings		–		20,203

Fixed rate borrowings as a
percentage of total
borrowings		–		98.5%

The Company
	2007		2006
	Effective	One year	Effective	One year
	interest rate	or less	interest rate	or less
	%	HK$’000	%	HK$’000
Variable rate borrowings:
Bank overdrafts	–	–	2.78%	309
		–		309

(ii) Sensitivity analysis

As the effect of the Group’s results of operations and financial position as at 31 December 2007 and 2006 in relation to the estimated increase/decrease in interest rates is not material, no sensitivity analysis is disclosed.

(d) Foreign currency risk

Individual companies within the Group has limited foreign currency risk as most of the transactions are denominated in the same currency as the functional currency of the operations in which they relate. However, as the principal subsidiaries, DZH and FLX, mainly carried out transactions in RMB, therefore any appreciation or depreciation of HKD against RMB will affect the Group’s financial position and reflect in the exchange reserve.

(e) Equity price risk

The Group is exposed to equity price changes arising from equity investments classified as available-for-sale equity securities (see note 18), which are listed on the Stock Exchange of Shenzhen, the PRC. The available-for-sale investments have been chosen based on their longer term growth potential and are monitored regularly for performance against expectations.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table indicates the approximate change in the Group’s consolidated equity in response to reasonably possible changes in the share price of equity securities to which the Group has significant exposure at the balance sheet date.

The Group Market price of equity investments:	Increase/ (decrease) in share price 20% (20%)	2007 Effect on equity HK$’000 739 (739)	2006 Effect on equity HK$’000 222 (222)

The sensitivity analysis has been determined assuming that the reasonably possible changes in share price of equity investments had occurred at the balance sheet date and had been applied to the exposure to equity price risk in existence at that date. It is also assumed that the Group’s equity investments would not be considered impaired as a result of a reasonably possible decrease in share price, and that all other variables remain constant. The stated changes represent management’s assessment of reasonably possible changes in the share price over the period until the next annual balance sheet date. The analysis is performed on the same basis for 2006.

(f) Fair values

The amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment. Given these terms it is not meaningful to disclose their fair values.

All remaining financial instruments are carried at amounts not materially different from their fair values as at 31 December 2007 and 2006.

(g) Estimation of fair values

The following summaries the major methods and assumptions used in estimating the fair values of financial instruments:

(i) Securities

Fair value is based on quoted market prices at the balance sheet date without any deduction for transaction costs.

(ii) Interest-bearing loans and borrowings

Fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

(h) Business risk

The Group is dependent on specific herb materials for its production of certain pharmaceutical products. At 31 December 2007, the Group has a certain concentration of business risk as 20% (2006: 13%) of the total purchases were made from the Group’s five largest suppliers. If the Group could not purchase adequate quantity of specific herb materials from these suppliers and failed to identify alternative sources, its results and financial position could be adversely affected.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32 DIVIDENDS

Dividends payable to equity shareholders of the Company attributable to the year

													2007	2006
													HK$’000	HK$’000
Final	dividend	proposed	after	the	balance	sheet	date	of	0.5	cent	(2006:	Nil)
per	ordinary	share											4,155	–

The final dividend proposed after the balance sheet date has not been recognized as a liability at the balance sheet date.

33 ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the accounts. The Group bases the assumptions and estimates on historical experience and on various other assumptions that the Group 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 accounts. The significant 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 accounts.

(a) Impairment for long-lived assets

If circumstances indicate that the net book value of a long-lived asset, except in the case of goodwill, may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognized in accordance with HKAS 36, Impairment of assets. The carrying amounts of long-lived 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. For goodwill, the recoverable amount is estimated annually to assess if the carrying amounts may not be recoverable whether or not there is any indication of impairment. When such a decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group’s assets are not readily available. 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 sale volume, selling price, material cost 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 sales volume, tariff, expected changes to selling prices and operating costs, and discount rate.

(b) Depreciation and amortization

Property, plant and equipment and intangible assets are depreciated and amortized on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value, if any. The Group reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation and amortization 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 upgrading and improvement work performed, anticipated technological changes, and legal or similar limits on the use of assets. The depreciation and amortization expense for future periods is adjusted if there are significant changes from previous estimates.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Impairment for bad and doubtful debts

The Group estimates impairment losses for bad and doubtful debts resulting from the inability of the debtors to make the required payments. The Group bases the estimates on the ageing of the trade and other receivables balance, credit-worthiness of the debtors, and historical write-off experience. If the financial condition of the debtors were to deteriorate, actual write-offs would be higher than estimated.

(d) Write down of inventories

The Group determines the write-down for obsolescence of inventories. These estimates are based on the current market condition and the historical experience and selling goods of similar nature. It could change significantly as a result of change in market condition.

34 COMPARATIVE FIGURES

As a result of adopting HKFRS 7, Financial instruments: Disclosures, and the amendment of HKAS 1, Presentation of Financial Statements: Capital disclosures, certain comparative figures have been adjusted to conform with changes in disclosures in the current year and to show separately comparative amounts in respect of items disclosed for the first time in 2007. Further details of these developments are disclosed in note 2.

35 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2007

Up to the date of issue of these accounts, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2007 and which have not been adopted in these accounts.

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations 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 results of operations and financial position except for HKFRS 8, Operating segments.

In addition, the adoption of HKFRS 8, which is effective for accounting period beginning on or after 1 January 2009, may result in new or amended disclosures in the accounts.

36 NON-ADJUSTING POST BALANCE SHEET EVENTS

(a) On 2 January 2008, each of the three independent non-executive directors was granted 828,000 share options to subscribe for 828,000 ordinary shares at an exercise price of $0.434 per share with an exercise period of five years. These 2,484,000 share options in total subsequently lapsed in March 2008.
(b) After the balance sheet date the directors proposed a final dividend. Further details are disclosed in note 32.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. INDEBTEDNESS

At the close of business on 31 October 2008, being the latest practicable date for the purpose of the indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding bank and other loans of approximately HK$133,678,000. As at 31 October 2008, bank loans amounting to approximately HK$77,105,000 were secured by the Enlarged Group’s interests in leasehold land, buildings and construction in progress with an aggregate carrying value of approximately HK$82,174,000.

Save as disclosed above, at the close of business on 31 October 2008, the Enlarged Group did not have outstanding liabilities or any mortgages, charges, debentures, loan capital, bank overdrafts or loans, liabilities under acceptance or other similar indebtedness, hire purchase or finance lease obligations or any guarantees or other material contingent liabilities.

The Directors confirmed that no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 October 2008 up to the Latest Practicable Date.

4. MATERIAL CHANGE

As disclosed in the interim report of the Company dated 12 September 2008 (the “Interim Report”), the Group’s turnover increased due to increase in sale prices and volume as well as the appreciation in RMB. For the six months ended 30 June 2008, turnover of the Group grew by 24.5% as compared to the corresponding period in 2007.

As further disclosed in the Interim Report, on 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC which took effect on 1 January 2008. As a result of the new tax law, the income tax rate applicable to the Group’s subsidiaries, DZH and FLX, changed from 27% to 25% with effect from 1 January 2008. On the other hand, FLX was recognised as a new high technology enterprise and received approvals from the Foshan Tax Bureau for a three-year enterprise income tax at 12% up to 31 December 2007. Further, under the new tax law, the gross amount of dividends received by the Company from its PRC subsidiaries in respect of their profits generated after 1 January 2008 is subject to withholding tax at a rate of 5%. The tax exposure of the Group was affected after 31 December 2007 as a result of the above changes.

As at 31 December 2007, the Group had fully repaid its bank loans and had no outstanding bank borrowings as at that date. In January 2008, FLX has drawn down another unsecured bank loan for its general working capital purposes. As disclosed in the Interim Report, the bank loans as at 30 June 2008 were approximately HK$18.2 million which bear interest at 7.84% per annum and are repayable within one year. Apart from this, the Group had not drawn down any other bank loans or borrowings up to the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any material change in the financial or trading position or outlook of the Group subsequent to 31 December 2007, being the date to which the latest published audited accounts of the Group were made up, and up to the Latest Practicable Date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. WORKING CAPITAL

The Directors, after due and careful enquiry, are of the opinion that, taking into account the internal resources and financing facilities available to the Enlarged Group and barring any unforeseen circumstances, the Enlarged Group would have sufficient working capital for at least twelve months from the date of this circular.

– 130 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

1. ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of the accountants’ report on the financial information of the Target Group, which is prepared for the purpose of inclusion in this circular, received from the reporting accountants, KPMG, Certified Public Accountants.

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

31 December 2008

The Directors Wing Shan International Limited

Dear Sirs,

Introduction

We set out below our report on the financial information relating to Smartpoint International Limited (the “Target Company”) and its subsidiaries (collectively, the “Target Group”) including the combined income statements, combined statements of changes in equity and combined cash flow statements of the Target Group for each of the years ended 31 December 2005, 2006, 2007 and the six months ended 30 June 2008 (the “Relevant Period”) and the combined balance sheets of the Target Group as at 31 December 2005, 2006, 2007 and 30 June 2008, together with the notes thereto (the “Financial Information”) for inclusion in the circular of Wing Shan International Limited (the “Company”) dated 31 December 2008 (the “Circular”) in connection with the proposed acquisition of the Target Company by the Company (the “Acquisition”) as described more fully in the section headed “Letter from the Board” contained in the Circular.

The Target Company was incorporated in the British Virgin Islands on 10 November 2008 as a company with limited liability under the BVI Business Companies Act, 2004 of the British Virgin Islands. In accordance with the group reorganisation (the “Reorganisation”) as detailed in the section headed “Reorganisation” in the “Letter from the Board” of the Circular, the Target Company will become the holding company of the companies now comprising the Target Group, details of which are set out in Section A below. The Target Company has not carried on any business since the date of its incorporation save for the aforementioned Reorganisation. The Reorganisation has not yet been completed as at the date of this report.

As at the date of this report, no audited financial statements have been prepared for the companies comprising the Target Group, except for Guangdong Medi-World Pharmaceutical Co., Ltd (“Guangdong Medi-World”) (note below) and Shandong Lukang Pharmaceutical Group Luya Co., Ltd. (“Luya”) (note below), as they were either incorporated shortly before 30 June 2008 or have not carried on any business since their respective dates of incorporation or are investment holding companies and are not subject to statutory audit

– 131 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

requirements under the relevant rules and regulations in their jurisdictions of incorporation. We have, however, reviewed all significant transactions of these companies from their respective dates of incorporation to 30 June 2008 for the purpose of this report.

The statutory financial statements of Guangdong Medi-World and Luya, which were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises established in the People’s Republic of China (the “PRC”), were audited during the Relevant Period by the respective statutory auditors as indicated below:

Name of company	Financial period	Statutory auditors (note)
Guangdong Medi-World	Years ended 31 December	Foshan Kangcheng Certified
	2005, 2006 and 2007	Public Accountants Co.,
		Ltd (Registered in the
		PRC)
Luya	Years ended 31 December	Shandong Tianhengxin
	2005, 2006 and 2007	Certified Public
		Accountants Co., Ltd
		(Registered in the PRC)

Note: The English translation of the names is for reference only. The official names of these entities are in Chinese.

Basis of preparation

The Financial Information has been prepared by the directors of the Target Company (the “Directors”) based on the audited financial statements or, where appropriate, unaudited management accounts of the companies now comprising the Target Group, on the basis set out in Section A below, after making such adjustments as are appropriate. Adjustments have been made, for the purpose of this report, to restate these financial statements to conform with accounting policies as referred to in Section C below, which are in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) promulgated by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”). HKFRSs include Hong Kong Accounting Standards and Interpretations.

Respective responsibilities of directors and reporting accountants

The Directors are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with HKFRSs. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the Financial Information that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Our responsibility is to express an opinion on the Financial Information based on our audit.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Basis of opinion

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have carried out appropriate audit procedures in respect of the Financial Information for the Relevant Period in accordance with Hong Kong Standards on Auditing issued by the HKICPA and have carried out such additional procedures as we considered necessary in accordance with Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Information. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the Financial Information, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the Financial Information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

We have not audited any accounts of the companies now comprising the Target Group in respect of any period subsequent to 30 June 2008.

Opinion

In our opinion, for the purpose of this report, all adjustments considered necessary have been made and the Financial Information, on the basis of presentation set out in Section A below and in accordance with the accounting policies set out in Section C below, gives a true and fair view of the Target Group’s combined results and cash flows for the Relevant Period, and of the state of affairs of the Target Group as at 31 December 2005, 2006, 2007 and 30 June 2008.

Corresponding financial information

For the purpose of this report, we have also reviewed the unaudited corresponding interim financial information of the Target Group comprising the combined income statement, the combined statement of changes in equity and the combined cash flow statement for the six months ended 30 June 2007, together with the notes thereon (the “Corresponding Financial Information”), for which the Directors are responsible, in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our responsibility is to express a conclusion on the Corresponding Financial Information based on our review.

A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, 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 Corresponding Financial Information.

Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the Corresponding Financial Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

A BASIS OF PRESENTATION

As the companies that took part in the Reorganisation were controlled by the same group of shareholders through the relevant investment holding companies (referred to as “the Controlling Shareholders”) before and after the Reorganisation and, consequently there was a continuation of the risks and benefits to the Controlling Shareholders, the Financial Information has been prepared using the merger basis of accounting as if the Target Group has always been in existence. The net assets of the combining companies are combined using the existing book values from the Controlling Shareholders’ perspective.

The combined income statements, combined statements of changes in equity and combined cash flow statements of the Target Group for the Relevant Period as set out in Sections B1, B3 and B4 respectively include the results of operations of the following companies now comprising the Target Group as if the current group structure had been in existence throughout the entire Relevant Period. The combined balance sheets of the Target Group as at 31 December 2005, 2006, 2007 and 30 June 2008 as set out in Section B2 have been prepared to present the state of affairs of the following companies now comprising the Target Group as at the respective dates as if the current group structure had been in existence as at the respective dates.

All material intra-group transactions and balances have been eliminated on combination.

– 134 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Pursuant to the completion of the Reorganisation, the Target Company will have direct or indirect interests in the following subsidiaries, all of which are private companies, particulars of which are set out below:

		Issued and
	Place and date of	fully paid up/	Attributable
	incorporation/	registered	equity	interest
Name of company	establishment	capital	Direct	Indirect	Principal activities
Common Win Investments	Hong Kong	HK$1,000,000	100%	–	Investment holding
Limited (“Common	17 March 2008
Win”)
Roundtop Investments	Hong Kong	HK$1,000,000	100%	–	Investment holding
Limited (“Roundtop”)	20 June 2008
Ace Supreme International	Hong Kong	HK$2	100%	–	Investment holding
Limited (“Ace	29 October 1997
Supreme”)
Guangdong Medi-World	The PRC	US$9,060,000	–	100%	Manufacture and sale
(note)	13 November 1992				of pharmaceutical
					products
Luya (note)	The PRC	RMB24,529,300	–	100%	Manufacture and sale
	6 November 2000				of pharmaceutical
					products
Foshan Winteam Medical	The PRC	RMB500,000	–	100%	Research, development
Technology Company	5 July 2005				and provision of
Limited (“Winteam”)					technology
(note)					consultancy services
					of pharmaceutical
					and health-care
					products, cosmetics
					and medical
					equipment

Note: Guangdong Medi-World, Luya and Winteam are Foreign Investment Enterprise, Sino-Foreign Joint Venture and Domestic Enterprise respectively established pursuant to respective law of the PRC.

– 135 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

B FINANCIAL INFORMATION

1 Combined income statements

(Expressed in Hong Kong dollars)

Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 138,811 127,054 167,419 58,835 110,310 (52,709) (50,676) (62,886) (20,845) (41,788) 86,102 76,378 104,533 37,990 68,522 662 1,470 5,181 2,055 3,912 (91) (46) (179) (86) (113) (48,250) (36,409) (40,393) (18,238) (27,031) (19,375) (17,552) (37,886) (11,428) (10,734) 19,048 23,841 31,256 10,293 34,556 (2,793) (2,484) (2,758) (1,618) (2,511) 16,255 21,357 28,498 8,675 32,045 (2,366) (2,157) (2,242) (665) (7,420) 13,889 19,200 26,256 8,010 24,625 13,171 19,200 26,256 8,010 24,625 718 – – – – 13,889 19,200 26,256 8,010 24,625 – – 43,845 – – 132 192 263 80 246 N/A N/A N/A N/A N/A	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 138,811 127,054 167,419 58,835 110,310 (52,709) (50,676) (62,886) (20,845) (41,788) 86,102 76,378 104,533 37,990 68,522 662 1,470 5,181 2,055 3,912 (91) (46) (179) (86) (113) (48,250) (36,409) (40,393) (18,238) (27,031) (19,375) (17,552) (37,886) (11,428) (10,734) 19,048 23,841 31,256 10,293 34,556 (2,793) (2,484) (2,758) (1,618) (2,511) 16,255 21,357 28,498 8,675 32,045 (2,366) (2,157) (2,242) (665) (7,420) 13,889 19,200 26,256 8,010 24,625 13,171 19,200 26,256 8,010 24,625 718 – – – – 13,889 19,200 26,256 8,010 24,625 – – 43,845 – – 132 192 263 80 246 N/A N/A N/A N/A N/A	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 138,811 127,054 167,419 58,835 110,310 (52,709) (50,676) (62,886) (20,845) (41,788) 86,102 76,378 104,533 37,990 68,522 662 1,470 5,181 2,055 3,912 (91) (46) (179) (86) (113) (48,250) (36,409) (40,393) (18,238) (27,031) (19,375) (17,552) (37,886) (11,428) (10,734) 19,048 23,841 31,256 10,293 34,556 (2,793) (2,484) (2,758) (1,618) (2,511) 16,255 21,357 28,498 8,675 32,045 (2,366) (2,157) (2,242) (665) (7,420) 13,889 19,200 26,256 8,010 24,625 13,171 19,200 26,256 8,010 24,625 718 – – – – 13,889 19,200 26,256 8,010 24,625 – – 43,845 – – 132 192 263 80 246 N/A N/A N/A N/A N/A	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 138,811 127,054 167,419 58,835 110,310 (52,709) (50,676) (62,886) (20,845) (41,788) 86,102 76,378 104,533 37,990 68,522 662 1,470 5,181 2,055 3,912 (91) (46) (179) (86) (113) (48,250) (36,409) (40,393) (18,238) (27,031) (19,375) (17,552) (37,886) (11,428) (10,734) 19,048 23,841 31,256 10,293 34,556 (2,793) (2,484) (2,758) (1,618) (2,511) 16,255 21,357 28,498 8,675 32,045 (2,366) (2,157) (2,242) (665) (7,420) 13,889 19,200 26,256 8,010 24,625 13,171 19,200 26,256 8,010 24,625 718 – – – – 13,889 19,200 26,256 8,010 24,625 – – 43,845 – – 132 192 263 80 246 N/A N/A N/A N/A N/A	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 138,811 127,054 167,419 58,835 110,310 (52,709) (50,676) (62,886) (20,845) (41,788) 86,102 76,378 104,533 37,990 68,522 662 1,470 5,181 2,055 3,912 (91) (46) (179) (86) (113) (48,250) (36,409) (40,393) (18,238) (27,031) (19,375) (17,552) (37,886) (11,428) (10,734) 19,048 23,841 31,256 10,293 34,556 (2,793) (2,484) (2,758) (1,618) (2,511) 16,255 21,357 28,498 8,675 32,045 (2,366) (2,157) (2,242) (665) (7,420) 13,889 19,200 26,256 8,010 24,625 13,171 19,200 26,256 8,010 24,625 718 – – – – 13,889 19,200 26,256 8,010 24,625 – – 43,845 – – 132 192 263 80 246 N/A N/A N/A N/A N/A
86,102 662 (91) (48,250) (19,375) 19,048 (2,793) 16,255 (2,366)	76,378 1,470 (46) (36,409) (17,552) 23,841 (2,484) 21,357 (2,157)	104,533 5,181 (179) (40,393) (37,886) 31,256 (2,758) 28,498 (2,242)	37,990 2,055 (86) (18,238) (11,428) 10,293 (1,618) 8,675 (665)	68,522 3,912 (113 (27,031 (10,734
				34,556 (2,511
				32,045 (7,420
13,889	19,200	26,256	8,010
13,171 718	19,200 –	26,256 –	8,010 –	24,625 –
13,889 – 132 N/A	19,200 – 192 N/A	26,256 43,845 263 N/A	8,010 – 80 N/A

The accompanying notes form part of the Financial Information.

– 136 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2 Combined balance sheets

(Expressed in Hong Kong dollars)

As at 31 December 2005 2006 2007 $’000 $’000 $’000 50,517 46,796 53,483 27,597 28,071 29,554	As at 31 December 2005 2006 2007 $’000 $’000 $’000 50,517 46,796 53,483 27,597 28,071 29,554	As at 31 December 2005 2006 2007 $’000 $’000 $’000 50,517 46,796 53,483 27,597 28,071 29,554	As at 30 June 2008 $’000 53,571 31,008
78,114 19,769 6,510 15,441 31,906 1,159 1,330 2,433 156,662 ---------- 17,861 55,113 – 4,865 77,839 ---------- 50,623 47,041 – 866 987	74,867 39,471 5,407 3,447 36,061 1,202 1,558 2,433 164,446 ---------- 12,264 44,533 465 13,466 70,728 ---------- 26,811 39,282 – 351 2,552	83,037 36,411 4,763 5,051 4,663 1,293 7,135 2,433 144,786 ---------- 19,274 57,041 – 8,087 84,402 ---------- 43,809 22,884 5,314 3,063 3,917	84,579 46,968 4,577 10,801 4,236 1,476 7,641 2,433
			162,711 ---------- 21,667 88,619 – 31,578
			141,864 ---------- 77,078 30,332 5,637 4,814 4,176
99,517 ---------- -------------------- (21,678) ---------- -------------------- 134,984 ----------	68,996 ---------- -------------------- 1,732 ---------- -------------------- 166,178 ----------	78,987 ---------- -------------------- 5,415 ---------- -------------------- 150,201 ----------	122,037 ---------- -------------------- 19,827 ---------- -------------------- 182,538 ----------

– 137 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Section C Note Non-current liabilities Shareholder’s loan 19 Deferred income on government grants NET ASSETS Capital and reserves 22 Share capital Reserves TOTAL EQUITY	As at 31 December 2005 2006 2007 $’000 $’000 $’000 41,073 41,073 27,221 2,072 8,787 11,340 ---------- -------------------- ---------- -------------------- ---------- -------------------- 91,839 116,318 111,640 1 1 1 91,838 116,317 111,639 91,839 116,318 111,640	As at 30 June 2008 $’000 27,318 10,233 ---------- -------------------- 144,987

		1 144,986
		144,987

The accompanying notes form part of the Financial Information.

Approved and authorised for issue by the board of directors on 31 December 2008.

Yang Bin Director

Xu Tiefeng Director

– 138 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

3 Combined statements of changes in equity

(Expressed in Hong Kong dollars)

Section C Note Total equity at 1 January Profit for the year/ period Exchange differences on translation of accounts of PRC subsidiaries Dividends declared during the year/period 6 Total equity at 31 December/30 June	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 75,675 91,839 116,318 116,318 111,640 13,889 19,200 26,256 8,010 24,625 2,275 5,279 12,911 5,495 8,722 – – (43,845) – – 91,839 116,318 111,640 129,823 144,987	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 75,675 91,839 116,318 116,318 111,640 13,889 19,200 26,256 8,010 24,625 2,275 5,279 12,911 5,495 8,722 – – (43,845) – – 91,839 116,318 111,640 129,823 144,987
		144,987

The accompanying notes form part of the Financial Information.

– 139 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

4 Combined cash flow statements

(Expressed in Hong Kong dollars)

Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045 6,426 6,020 6,603 3,203 3,707 423 540 627 314 338 1,286 1,319 1,045 561 465 (21) (10) (86) (41) (429) (61) (59) (100) (92) (114) 2,793 2,484 2,758 1,618 2,511 – 46 18 – – 593 1,358 3,030 1,180 1,103 27,694 33,055 42,393 15,418 39,626 3,219 5,597 (7,010) (9,903) (2,393) 20,823 6,425 18,890 14,205 (31,151) (2,121) (7,759) (16,398) (23,220) 7,448 1,923 8,280 3,918 220 (848) 51,538 45,598 41,793 (3,280) 12,682 (3,850) (3,365) (4,641) (403) (6,174) 47,688 42,233 37,152 (3,683) 6,508 --------- --------- --------- --------- ---------	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045 6,426 6,020 6,603 3,203 3,707 423 540 627 314 338 1,286 1,319 1,045 561 465 (21) (10) (86) (41) (429) (61) (59) (100) (92) (114) 2,793 2,484 2,758 1,618 2,511 – 46 18 – – 593 1,358 3,030 1,180 1,103 27,694 33,055 42,393 15,418 39,626 3,219 5,597 (7,010) (9,903) (2,393) 20,823 6,425 18,890 14,205 (31,151) (2,121) (7,759) (16,398) (23,220) 7,448 1,923 8,280 3,918 220 (848) 51,538 45,598 41,793 (3,280) 12,682 (3,850) (3,365) (4,641) (403) (6,174) 47,688 42,233 37,152 (3,683) 6,508 --------- --------- --------- --------- ---------	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045 6,426 6,020 6,603 3,203 3,707 423 540 627 314 338 1,286 1,319 1,045 561 465 (21) (10) (86) (41) (429) (61) (59) (100) (92) (114) 2,793 2,484 2,758 1,618 2,511 – 46 18 – – 593 1,358 3,030 1,180 1,103 27,694 33,055 42,393 15,418 39,626 3,219 5,597 (7,010) (9,903) (2,393) 20,823 6,425 18,890 14,205 (31,151) (2,121) (7,759) (16,398) (23,220) 7,448 1,923 8,280 3,918 220 (848) 51,538 45,598 41,793 (3,280) 12,682 (3,850) (3,365) (4,641) (403) (6,174) 47,688 42,233 37,152 (3,683) 6,508 --------- --------- --------- --------- ---------	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045 6,426 6,020 6,603 3,203 3,707 423 540 627 314 338 1,286 1,319 1,045 561 465 (21) (10) (86) (41) (429) (61) (59) (100) (92) (114) 2,793 2,484 2,758 1,618 2,511 – 46 18 – – 593 1,358 3,030 1,180 1,103 27,694 33,055 42,393 15,418 39,626 3,219 5,597 (7,010) (9,903) (2,393) 20,823 6,425 18,890 14,205 (31,151) (2,121) (7,759) (16,398) (23,220) 7,448 1,923 8,280 3,918 220 (848) 51,538 45,598 41,793 (3,280) 12,682 (3,850) (3,365) (4,641) (403) (6,174) 47,688 42,233 37,152 (3,683) 6,508 --------- --------- --------- --------- ---------	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045 6,426 6,020 6,603 3,203 3,707 423 540 627 314 338 1,286 1,319 1,045 561 465 (21) (10) (86) (41) (429) (61) (59) (100) (92) (114) 2,793 2,484 2,758 1,618 2,511 – 46 18 – – 593 1,358 3,030 1,180 1,103 27,694 33,055 42,393 15,418 39,626 3,219 5,597 (7,010) (9,903) (2,393) 20,823 6,425 18,890 14,205 (31,151) (2,121) (7,759) (16,398) (23,220) 7,448 1,923 8,280 3,918 220 (848) 51,538 45,598 41,793 (3,280) 12,682 (3,850) (3,365) (4,641) (403) (6,174) 47,688 42,233 37,152 (3,683) 6,508 --------- --------- --------- --------- ---------
27,694 3,219 20,823 (2,121) 1,923 51,538 (3,850)	33,055 5,597 6,425 (7,759) 8,280 45,598 (3,365)	42,393 (7,010) 18,890 (16,398) 3,918 41,793 (4,641)	15,418 (9,903) 14,205 (23,220) 220 (3,280) (403)	39,626 (2,393 (31,151 7,448 (848
				12,682 (6,174
47,688 ---------	42,233 ---------	37,152 ---------	(3,683) ---------

– 140 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) (10,693) (602) (1,523) (780) (666) (34,808) (6,976) (4,068) (1,333) (14,092) – – – – (183) 21 10 86 41 429 61 59 100 92 114 (45,419) (7,509) (5,405) (1,980) (14,398) --------- --------- --------- --------- --------- (2,793) (2,484) (2,758) (1,618) (2,511) 39,480 63,901 88,555 44,278 72,544 (35,735) (87,713) (71,557) (28,974) (39,275) – – (13,852) (13,852) 97 – – (38,531) (6,163) – 952 (26,296) (38,143) (6,329) 30,855 --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ 3,221 8,428 (6,396) (11,992) 22,965 1,616 4,865 13,466 13,466 8,087 28 173 1,017 1,017 526 4,865 13,466 8,087 2,491 31,578	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) (10,693) (602) (1,523) (780) (666) (34,808) (6,976) (4,068) (1,333) (14,092) – – – – (183) 21 10 86 41 429 61 59 100 92 114 (45,419) (7,509) (5,405) (1,980) (14,398) --------- --------- --------- --------- --------- (2,793) (2,484) (2,758) (1,618) (2,511) 39,480 63,901 88,555 44,278 72,544 (35,735) (87,713) (71,557) (28,974) (39,275) – – (13,852) (13,852) 97 – – (38,531) (6,163) – 952 (26,296) (38,143) (6,329) 30,855 --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ 3,221 8,428 (6,396) (11,992) 22,965 1,616 4,865 13,466 13,466 8,087 28 173 1,017 1,017 526 4,865 13,466 8,087 2,491 31,578	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) (10,693) (602) (1,523) (780) (666) (34,808) (6,976) (4,068) (1,333) (14,092) – – – – (183) 21 10 86 41 429 61 59 100 92 114 (45,419) (7,509) (5,405) (1,980) (14,398) --------- --------- --------- --------- --------- (2,793) (2,484) (2,758) (1,618) (2,511) 39,480 63,901 88,555 44,278 72,544 (35,735) (87,713) (71,557) (28,974) (39,275) – – (13,852) (13,852) 97 – – (38,531) (6,163) – 952 (26,296) (38,143) (6,329) 30,855 --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ 3,221 8,428 (6,396) (11,992) 22,965 1,616 4,865 13,466 13,466 8,087 28 173 1,017 1,017 526 4,865 13,466 8,087 2,491 31,578	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) (10,693) (602) (1,523) (780) (666) (34,808) (6,976) (4,068) (1,333) (14,092) – – – – (183) 21 10 86 41 429 61 59 100 92 114 (45,419) (7,509) (5,405) (1,980) (14,398) --------- --------- --------- --------- --------- (2,793) (2,484) (2,758) (1,618) (2,511) 39,480 63,901 88,555 44,278 72,544 (35,735) (87,713) (71,557) (28,974) (39,275) – – (13,852) (13,852) 97 – – (38,531) (6,163) – 952 (26,296) (38,143) (6,329) 30,855 --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ 3,221 8,428 (6,396) (11,992) 22,965 1,616 4,865 13,466 13,466 8,087 28 173 1,017 1,017 526 4,865 13,466 8,087 2,491 31,578	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) (10,693) (602) (1,523) (780) (666) (34,808) (6,976) (4,068) (1,333) (14,092) – – – – (183) 21 10 86 41 429 61 59 100 92 114 (45,419) (7,509) (5,405) (1,980) (14,398) --------- --------- --------- --------- --------- (2,793) (2,484) (2,758) (1,618) (2,511) 39,480 63,901 88,555 44,278 72,544 (35,735) (87,713) (71,557) (28,974) (39,275) – – (13,852) (13,852) 97 – – (38,531) (6,163) – 952 (26,296) (38,143) (6,329) 30,855 --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ --------- ------------------------------------ 3,221 8,428 (6,396) (11,992) 22,965 1,616 4,865 13,466 13,466 8,087 28 173 1,017 1,017 526 4,865 13,466 8,087 2,491 31,578
(45,419) --------- (2,793) 39,480 (35,735) – – 952 --------- ------------------------------------ 3,221 1,616 28	(7,509) --------- (2,484) 63,901 (87,713) – – (26,296) --------- ------------------------------------ 8,428 4,865 173	(5,405) --------- (2,758) 88,555 (71,557) (13,852) (38,531) (38,143) --------- ------------------------------------ (6,396) 13,466 1,017	(1,980) --------- (1,618) 44,278 (28,974) (13,852) (6,163) (6,329) --------- ------------------------------------ (11,992) 13,466 1,017	(14,398 --------- (2,511 72,544 (39,275 97 –
				30,855 --------- ------------------------------------ 22,965 8,087 526
4,865	13,466	8,087	2,491

The accompanying notes form part of the Financial Information.

– 141 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

C NOTES TO THE FINANCIAL INFORMATION

(Expressed in Hong Kong dollars unless otherwise indicated)

1 Significant accounting policies

(a) Statement of compliance

The Financial Information has been prepared in accordance with all applicable HKFRSs and the disclosure requirements of the Hong Kong Companies Ordinance. The Financial Information also complies with the Listing Rules. A summary of the significant accounting policies adopted by the Target Group is set out below.

The Target Group has not presented combined accounts previously. This is the Target Group’s first HKFRS Financial Information and HKFRS 1 has been applied.

The HKICPA has issued certain new and revised HKFRSs that are not yet effective during the Relevant Period. The Target Group has not early adopted these HKFRSs in preparing the Financial Information for the Relevant Period (see note 30).

(b) Basis of preparation of the Financial Information

The Financial Information comprises the Target Company and its subsidiaries.

The measurement basis used in the preparation of the Financial Information is the historical cost basis.

The Financial Information presents the combined results, combined cash flows and combined financial position of the Target Group for each of the years ended 31 December 2005, 2006, 2007 and the six months ended 30 June 2008 on the basis that the Target Company, for the purpose of this report, is regarded as a continuing entity and that the Reorganisation had been completed as at the beginning of the Relevant Period and that the business of the Target Group had been conducted by the Target Company throughout the Relevant Period as they are related to entities under common control.

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 estimates and associated assumptions are based on historical experience and various other factors that are 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 that are not readily apparent from other sources. Actual results may differ from these estimates.

Judgements made by management in the application of HKFRSs that have significant effect on the Financial Information and estimates with a significant risk of material adjustment in the next year are discussed in note 28.

The accounting policies set out below have been applied consistently to all periods presented in this Financial Information.

(c) Subsidiaries and controlled entities

Subsidiaries are entities controlled by the Target Group. Control exists when the Target Group has the power to govern the financial and operating policies of the entities, so as to obtain benefits from their activities. In assessing control, potential voting rights that presently are exercisable are

– 142 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

taken into account. Merger accounting is adopted for common control combinations in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and when control is not transitory.

Intra-group balances and transactions and any unrealized profits arising from intra-group transactions are eliminated in full in preparing the Financial Information. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment.

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Target Company, whether directly or indirectly through subsidiaries, and in respect of which the Target Group has not agreed any additional terms with the holders of those interests which would result in the Target Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the combined balance sheets within equity, separately from equity attributable to the equity shareholders of the Target Company. Minority interests in the results of the Target Group are presented on the face of the combined income statements as an allocation of the total profit for the year/period between minority interests and the equity shareholders of the Target Company.

Where losses attributable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Target Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Target Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Target Group has been recovered.

(d) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the Target Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses (see note 1(i)). Goodwill is allocated to cash-generating units and is tested annually for impairment.

Any excess of the Target Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination is recognized immediately in profit or loss.

On disposal of a cash generating unit, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(e) Investments in equity securities

The Target Group’s policies for investments in equity securities, other than investments in subsidiaries are as follows:

Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognized in the combined balance sheets at cost less impairment losses (see note 1(i)). Dividend income from these investments is recognized in profit or loss in accordance with the policy set out in note 1(r)(iv).

Investments are recognized/derecognized on the date the Target Group commits to purchase/sell the investments or they expire.

(f) Property, plant and equipment

Property, plant and equipment are stated in the combined balance sheets at cost or deemed cost less accumulated depreciation and impairment losses (see note 1(i)).

– 143 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Certain items of property, plant and equipment that have been revalued to fair value on or prior to 1 January 2005, the date of transition to HKFRSs, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed property, plant and equipment includes the cost of materials, direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use.

Depreciation is calculated to write off the cost of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:

– Buildings held for own use which are situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives

–	Plant and machinery	5 – 15 years
–	Office equipment and motor vehicles	5 – 10 years

Both the useful life of an asset and its residual value, if any, are reviewed annually.

(g) Construction in progress

Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (note 1(i)). Cost comprises direct costs of construction. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

(h) Intangible assets (other than goodwill)

Expenditure on research activities is recognized as an expense in the period in which it is incurred. Expenditure on development activities is capitalized if the product or process is technically and commercially feasible and the Target Group has sufficient resources and the intention to complete development. The expenditure capitalized includes the costs of materials, direct labour, and an appropriate proportion of overheads and borrowing costs, where applicable. Capitalized development costs are stated at cost less accumulated amortization and impairment losses. Other development expenditure is recognized as an expense in the period in which it is incurred.

Other intangible assets that are acquired by the Target Group are stated in the combined balance sheets at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses (see note 1(i)). Expenditure on internally generated goodwill and brands is recognized as an expense in the period in which it is incurred.

– 144 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

–	Computer software	5 years
–	Technical know-how	10 years
–	Trademarks	10 years

Both the period and method of amortization are reviewed annually.

(i) Impairment of assets

(i) Impairment of investments in equity securities and trade and other receivables

Investments in equity securities (other than investments in subsidiaries) and other current and non-current receivables that are stated at cost or amortized cost or are classified as available-for-sale securities 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 Target 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 recognized as follows:

For unquoted equity securities carried at cost, the 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 current receivables and other financial assets carried at amortized cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s 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 amortized 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 collective group.

– 145 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognized in respect of trade receivables 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 Target Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade receivables 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 recognized in profit or loss.

(ii) Impairment of other assets

property, plant and equipment;
pre-paid interests in leasehold land classified as being held under an operating lease;
construction in progress,
intangible assets; and
goodwill.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing 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 time value of money 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).

– 146 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Recognition of impairment losses

Reversals of impairment losses

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 recognized in prior periods. Reversals of impairment losses are credited to profit or loss in the periods in which the reversals are recognized.

(j) Inventories and consumables

Inventories are carried at the lower of cost and net realisable value.

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 recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

(k) Trade and other receivables

Trade and other receivables are initially recognized at fair value and thereafter stated at amortized cost less allowance for impairment of doubtful debts (see note 1(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 (see note 1(i)).

(l) Interest-bearing borrowings

(m) Trade and other payables

Trade and other payables are initially recognized at fair value and subsequently stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

– 147 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(n) Cash and cash equivalents

(o) Employee benefits

(i) Salaries, annual bonuses, paid annual leave and the cost to the Target Group of non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Target Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.
(ii) Contributions to appropriate local retirement schemes pursuant to the relevant labour rules and regulations in the PRC are recognized as an expense in profit or loss as incurred, except to the extent that they are included in the cost of inventories not yet recognized as an expense.

(p) Income tax

(i) Income tax for the period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or loss except to the extent that they relate to items recognized directly in equity, in which case they are recognized in equity.
(ii) Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.
(iii) 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.

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 utilized, are recognized. 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 difference 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 utilized.

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 Target 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.

– 148 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(iv) 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 Target 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 Target 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.

(q) Provisions and contingent liabilities

Provisions are recognized for liabilities of uncertain timing or amount when the Target 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.

(r) Revenue recognition

Provided it is probable that the economic benefits will flow to the Target Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in profit or loss as follows:

(i) Sale of goods

– 149 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(ii) Government grants

Government grants are recognized in the combined balance sheets initially as deferred income when there is reasonable assurance that they will be received and that the Target Group will comply with the conditions attaching to them. Grants that compensate the Target Group for expenses incurred are recognized as other revenue in profit or loss on a systematic basis in the same period in which the expenses are incurred. Grants that compensate the Target Group for the cost of an asset are recognized in profit or loss as revenue on a systematic basis over the estimated useful life of the asset.

(iii) Interest income

Interest income is recognized as it accrues using the effective interest method.

(iv) Dividends

Dividend income is recognized when the shareholder’s rights to receive payment is established.

(s) Translation of foreign currencies

For the purpose of presenting the Financial Information, the Target Group adopted Hong Kong dollars (“HKD”) as its presentation currency. The functional currencies of the Target Company and the subsidiaries incorporated in Hong Kong are HKD and the functional currencies of the subsidiaries established in the PRC are Renminbi (“RMB”).

Foreign currency transactions during the period are translated into the functional currency of the entity at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognized in profit or loss.

The results of foreign operations are translated into the presentation currency of the Target Group at the exchange rates approximating the foreign exchange rates ruling at the dates of transactions. Balance sheet items are translated into the presentation currency of the Target Group at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognized directly in a separate component of equity.

On disposal of a foreign operation, the cumulative amount of the exchange difference recognized in equity which relates to that foreign operation is included in the calculation of profit or loss on disposal.

(t) Operating lease charges

Leases which do not transfer substantially all the risks and rewards of ownership to the Target Group are classified as operating leases. Where the Target Group has the use of assets 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 recognized in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

– 150 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The cost of acquiring land held under an operating lease is amortized on a straight-line basis over the period of the lease term.

(u) Borrowing costs

Borrowing costs are expensed in the period in which they are incurred.

(v) Dividends

Dividends are recognized as a liability in the period in which they are declared or approved.

(w) Related parties

For the purposes of the Financial Information, a party is considered to be related to the Target Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Target Group or exercise significant influence over the Target Group in making financial and operating policy decisions, or has joint control over the Target Group;
(ii) the Target Group and the party are subject to common control;
(iii) the party is an associate of the Target Group or a joint venture in which the Target Group is a venturer;
(iv) the party is a member of key management personnel of the Target Group or the Target 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 Target Group or of any entity that is a related party of the Target 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.

(x) Segment reporting

A segment is a distinguishable component of the Target Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

The Target Group primarily operates in one business segment – manufacture and sale of pharmaceutical products. It operates principally in one geographical segment – the PRC. Substantially all of the Target Group’s assets are located in the PRC. Accordingly, no analysis of the segment information is presented.

– 151 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

2 Turnover

The principal activities of the Target Group are manufacture and sale of pharmaceutical products in the PRC. Turnover represents the sales value of goods sold less returns, discounts, value added tax and sales tax, which may be analysed as follows:

Tablets Injections Granules Others	Years 2005 $’000 81,039 38,519 9,979 9,274 138,811	ended 31 December 2006 2007 $’000 $’000 79,192 82,566 34,106 59,907 7,950 12,955 5,806 11,991 127,054 167,419	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 33,784 49,346 18,998 40,748 5,026 8,580 1,027 11,636 58,835 110,310	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 33,784 49,346 18,998 40,748 5,026 8,580 1,027 11,636 58,835 110,310
				110,310

3 Other revenue and net loss

Years 2005 $’000 576 21 61 4 662	ended 31 December 2006 2007 $’000 $’000 1,389 4,825 10 86 59 100 12 170 1,470 5,181	ended 31 December 2006 2007 $’000 $’000 1,389 4,825 10 86 59 100 12 170 1,470 5,181	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 1,779 3,272 41 429 92 114 143 97 2,055 3,912	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 1,779 3,272 41 429 92 114 143 97 2,055 3,912
				3,912

– 91	46 –	18 161	– 86	– 113
91	46	179	86	113

Various government grants have been received for technological improvements and for research and development costs on new pharmaceutical products. There are no unfulfilled conditions or contingencies relating to these grants. Government grants received for which related expenditure has not yet been incurred are accounted for as deferred income in the combined balance sheets.

– 152 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

4 Profit before taxation

Profit before taxation is arrived at after charging/(crediting):

(a)
Finance costs:
Interest on bank borrowings
(b)
Staff costs:
Salaries, wages and other
benefits
Contributions to defined
contribution retirement
plans
(c)
Other items:
Auditors’ remuneration
Depreciation of property,
plant and equipment
Amortization of
– interests in leasehold land
– intangible assets
Recognition/(reversal) of
impairment loss on
– trade receivables
– amount due from a fellow
subsidiary
– amount due from a related
company
Research and development
costs
Cost of inventories (note
14(b))

Years ended 31 December
Six months ended
30 June
2005
2006
2007
2007
2008
$’000
$’000
$’000
$’000
$’000
(unaudited)
2,793
2,484
2,758
1,618
2,511
16,301
15,629
16,381
7,713
10,394
859
828
906
432
399
17,160
16,457
17,287
8,145
10,793
38
29
238
169
33
6,426
6,020
6,603
3,203
3,707
423
540
627
314
338
1,286
1,319
1,045
561
465
1,444
605
786
775
(386)
–
–
10,131
–
–
–
–
6,116
–
444
4,332
3,055
6,504
4,222
1,740
52,709
50,676
62,886
20,845
41,788

– 153 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

5 Income tax in the combined income statements

(a) Taxation in the combined income statements represents:

Current tax – PRC Enterprise Income Tax Provision for the year/period Deferred tax Origination and reversal of temporary differences	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 3,002 2,331 7,504 1,849 7,490 (636) (174) (5,262) (1,184) (70) 2,366 2,157 2,242 665 7,420

No provision has been made for Hong Kong Profits Tax as the Target Group does not earn income subject to Hong Kong Profits Tax during the Relevant Period.

Pursuant to the income tax rules and regulations of the British Virgin Islands, the Target Group is not subject to any income tax in the British Virgin Islands.

Pursuant to the income tax rules and regulations of the PRC, Guangdong Medi-World was recognized as an Advanced Technology Enterprise and received an approval from the Foshan Tax Bureau for a three-year extension of the 50% income tax reduction for the period from 1 January 2004 to 31 December 2006 and was subject to a reduced enterprise income tax rate of 10% for the years ended 31 December 2004, 2005 and 2006. In 2007, Guangdong Medi-World was recognized as a High and New Technology Enterprise and the applicable tax rate for the year ended 31 December 2007 was 18%.

Pursuant to the income tax rules and regulations of the PRC, Luya was entitled to a 50% income tax reduction for the period from 1 January 2005 to 31 December 2007 and hence subject to PRC income tax at 15% for the years ended 31 December 2005, 2006 and 2007.

Pursuant to the new income tax law of the PRC effective from 1 January 2008, Guangdong Medi-World and Luya are both subject to the new applicable income tax rate of 25% for the six months ended 30 June 2008.

Further, under the new income tax law, the gross amount of dividends received by the Target Company from its PRC subsidiaries in respect of their profits generated after 1 January 2008 is subject to withholding tax at a rate of 5%. Under the grandfathering treatments, the undistributed profits of the PRC subsidiaries as at 31 December 2007 are exempted from withholding tax.

– 154 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

(b) Reconciliation between tax expense and accounting profit at applicable tax rates:

Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 16,255 21,357 28,498 8,675 32,045

1,674 899 (69) (138) – –	2,318 179 (117) (96) (116) (11)	4,625 850 (796) (232) (2,205) –	1,467 514 (264) – (1,052) –	8,012 28 (620) – – –
2,366	2,157	2,242	665	7,420

6 Dividends

Dividends payable to equity shareholders of the Target Company declared during the year/period:

				Six months ended	Six months ended
	Years	ended 31 December		30	June
	2005	2006	2007	2007	2008
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
Dividends declared during the
year/period	–	–	43,845	–	–

On 10 August 2007 and 15 October 2007, dividends amounting to approximately $11,725,000 and $32,120,000 respectively, which were attributable to the financial years ended on or before 31 December 2006, were declared by Guangdong Medi-World and payable to equity shareholders of the Target Company.

– 155 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

7 Directors’ remuneration

Details of directors’ remuneration are as follows:

Fees $’000 – – – –	Basic salaries, allowances and other benefits Contributions to retirement benefit scheme $’000 $’000 – – 119 – 119 – 238 –	Basic salaries, allowances and other benefits Contributions to retirement benefit scheme $’000 $’000 – – 119 – 119 – 238 –	Bonuses $’000 – – – –	Total $’000 – 119 119
				238

– – –	– 124 124	– – –	– – –	– 124 124
–	248	–	–	248

– – –	– 135 135	– – –	– – –	– 135 135
–	270	–	–	270

– – –	– 64 64	– – –	– – –	– 64 64
–	128	–	–	128

– – –	– 69 69	– – –	– – –	– 69 69
–	138	–	–	138

– 156 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The remuneration of the Directors is within the following bands:

	Years	ended 31 December	ended 31 December	Six months ended 30 June	Six months ended 30 June
	2005	2006	2007	2007	2008
	Number of	Number of	Number of	Number of	Number of
	directors	directors	directors	directors	directors
				(unaudited)
HKD Nil – HKD
1,000,000	2	2	2	2	2

Save as disclosed above, no emoluments were paid by the Target Company to the Directors or any of the five highest paid individuals (note 8) during the Relevant Period as an inducement to join or upon joining the Target Company or as compensation for loss of office. No Directors have waived or agreed to waive any emoluments during the Relevant Period.

8 Individuals with highest emoluments

The five highest paid individuals of the Target Group include two directors of the Target Company during the Relevant Period whose remuneration is reflected in the analysis presented in note 7 above. Details of remuneration paid to the remaining highest individuals of the Target Group are as follows:

Basic salaries, allowances and other benefits Contributions to retirement benefit schemes Discretionary bonuses Number of senior management	Years 2005 $’000 330 6 − 336 3	ended 31 December 2006 2007 $’000 $’000 327 342 8 9 − − 335 351 3 3	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 171 175 5 5 − − 176 180 3 3	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 171 175 5 5 − − 176 180 3 3
				180

				3

The emoluments of the three individuals with the highest emoluments are within the following bands:

	Years	ended 31 December	ended 31 December	Six months	ended 30 June
	2005	2006	2007	2007	2008
	Number of	Number of	Number of	Number of	Number of
	individuals	individuals	individuals	individuals	individuals
				(unaudited)
HKD Nil – HKD
1,000,000	3	3	3	3	3

Save as disclosed above, no emoluments were paid by the Target Group to the five highest paid individuals during the Relevant Period as an inducement to join or upon joining the Target Group or as compensation for loss of office.

– 157 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

9 Earnings per share

The calculation of basic earnings per share for the Relevant Period is based on the net profit attributable to ordinary equity shareholders of the Target Company for each of the years ended 31 December 2005, 2006, 2007 and the six months ended 30 June 2007 and 2008 and on the number of shares in issue of 100 ordinary shares in the Target Company.

There were no dilutive potential ordinary shares during the Relevant Period and, therefore, diluted earnings per share are not presented.

10 Fixed assets

Buildings $’000 49,131 680 914	Plant and machinery $’000 36,819 1,514 685	Office equipment and motor vehicles $’000 26,026 670 485	Sub-total $’000 111,976 2,864 2,084	Interests in leasehold land held for own use under operating leases $’000 21,062 7,829 392	Total $’000 133,038 10,693 2,476
50,725 - - - - - - - - - (19,343) (2,226) (378)	39,018 - - - - - - - - - (21,061) (2,832) (415)	27,181 - - - - - - - - - (18,430) (1,368) (354)	116,924 - - - - - - - - - (58,834) (6,426) (1,147)	29,283 - - - - - - - - - (1,237) (423) (26)	146,207 - - - - - - - - - (60,071 (6,849 (1,173
(21,947) - - - - - - - - - ---------------------------------- 28,778	(24,308) - - - - - - - - - ---------------------------------- 14,710	(20,152) - - - - - - - - - ---------------------------------- 7,029	(66,407) - - - - - - - - - ---------------------------------- 50,517	(1,686) - - - - - - - - - ---------------------------------- 27,597	(68,093 - - - - - - - - - ---------------------------------- 78,114

50,725 46 – 1,881 52,652 - - - - - - - - - (21,947) (2,316) – (859)	39,018 462 (32) 1,445 40,893 - - - - - - - - - (24,308) (2,498) 17 (950)	27,181 94 (103) 1,008 28,180 - - - - - - - - - (20,152) (1,206) 61 (771)	116,924 602 (135) 4,334 121,725 - - - - - - - - - (66,407) (6,020) 78 (2,580)	29,283 – – 1,086 30,369 - - - - - - - - - (1,686) (540) – (72)	146,207 602 (135 5,420
					152,094 - - - - - - - - - (68,093 (6,560 78 (2,652
(25,122) - - - - - - - - - ---------------------------------- 27,530	(27,739) - - - - - - - - - ---------------------------------- 13,154	(22,068) - - - - - - - - - ---------------------------------- 6,112	(74,929) - - - - - - - - - ---------------------------------- 46,796	(2,298) - - - - - - - - - ---------------------------------- 28,071	(77,227 - - - - - - - - - ---------------------------------- 74,867

– 158 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Buildings $’000 52,652 – 2,646 – 4,006	Plant and machinery $’000 40,893 604 5,870 – 3,109	Office equipment and motor vehicles $’000 28,180 919 – (513) 2,142	Sub-total $’000 121,725 1,523 8,516 (513) 9,257	Interests in leasehold land held for own use under operating leases $’000 30,369 – – – 2,308	Total $’000 152,094 1,523 8,516 (513 11,565
59,304 - - - - - - - - - (25,122) (2,535) – (2,006)	50,476 - - - - - - - - - (27,739) (3,047) – (2,225)	30,728 - - - - - - - - - (22,068) (1,021) 454 (1,716)	140,508 - - - - - - - - - (74,929) (6,603) 454 (5,947)	32,677 - - - - - - - - - (2,298) (627) – (198)	173,185 - - - - - - - - - (77,227 (7,230 454 (6,145
(29,663) - - - - - - - - - ---------------------------------- 29,641	(33,011) - - - - - - - - - ---------------------------------- 17,465	(24,351) - - - - - - - - - ---------------------------------- 6,377	(87,025) - - - - - - - - - ---------------------------------- 53,483	(3,123) - - - - - - - - - ---------------------------------- 29,554	(90,148 - - - - - - - - - ---------------------------------- 83,037

59,304 – – 3,604 62,908 - - - - - - - - - (29,663) (1,382) (1,833)	50,476 173 – 3,071 53,720 - - - - - - - - - (33,011) (1,744) (2,044)	30,728 493 (45) 1,869 33,045 - - - - - - - - - (24,351) (581) (1,493)	140,508 666 (45) 8,544 149,673 - - - - - - - - - (87,025) (3,707) (5,370)	32,677 – – 1,988 34,665 - - - - - - - - - (3,123) (338) (196)	173,185 666 (45 10,532
					184,338 - - - - - - - - - (90,148 (4,045 (5,566
(32,878) - - - - - - - - - ---------------------------------- 30,030	(36,799) - - - - - - - - - ---------------------------------- 16,921	(26,425) - - - - - - - - - ---------------------------------- 6,620	(96,102) - - - - - - - - - ---------------------------------- 53,571	(3,657) - - - - - - - - - ---------------------------------- 31,008	(99,759 - - - - - - - - - ---------------------------------- 84,579

The interests in leasehold land held for own use under operating leases and buildings are held on medium-term leases of 50 years in the PRC.

– 159 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

11 Construction in progress

At 1 January Additions Transfer to fixed assets (note 10) Exchange adjustments At 31 December/30 June	As 2005 $’000 394 19,367 – 8 19,769	at 31 December 2006 2007 $’000 $’000 19,769 39,471 18,970 2,464 – (8,516) 732 2,992 39,471 36,411	As at 30 June 2008 $’000 36,411 8,342 – 2,215
			46,968

Construction in progress comprises costs incurred on buildings and plant and equipment not yet completed at the respective balance sheet dates.

12 Intangible assets

Computer software $’000 339 6	Trademarks $’000 282 5	Technical know-how $’000 11,767 219	Total $’000 12,388 230
345 - - - - - - - - - - - - (139) (69) (3)	287 - - - - - - - - - - - - (219) (28) (4)	11,986 - - - - - - - - - - - - (4,366) (1,189) (91)	12,618 - - - - - - - - - - - - (4,724 (1,286 (98
(211) ------------ --------------------------------------------- 134	(251) ------------ --------------------------------------------- 36	(5,646) ------------ --------------------------------------------- 6,340	(6,108 ------------ --------------------------------------------- 6,510

345 12 357 - - - - - - - - - - - - (211) (70) (9)	287 11 298 - - - - - - - - - - - - (251) (29) (10)	11,986 445 12,431 - - - - - - - - - - - - (5,646) (1,220) (233)	12,618 468
			13,086 - - - - - - - - - - - - (6,108 (1,319 (252
(290) ------------ --------------------------------------------- 67	(290) ------------ --------------------------------------------- 8	(7,099) ------------ --------------------------------------------- 5,332	(7,679 ------------ --------------------------------------------- 5,407

– 160 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Computer software $’000 357 28 27	Trademarks $’000 298 – 23	Technical know-how $’000 12,431 – 945	Total $’000 13,086 28 995 14,109 - - - - - - - - - - - - (7,679) (1,045) (622) (9,346) ------------ --------------------------------------------- 4,763 14,109 859 14,968 - - - - - - - - - - - - (9,346) (465) (580) (10,391) ------------ --------------------------------------------- 4,577 As at 30 June 2008 $’000 1,476
412 - - - - - - - - - - - - (290) (77) (25)	321 - - - - - - - - - - - - (290) (8) (23)	13,376 - - - - - - - - - - - - (7,099) (960) (574)	14,109 - - - - - - - - - - - - (7,679 (1,045 (622
(392) ------------ --------------------------------------------- 20	(321) ------------ --------------------------------------------- –	(8,633) ------------ --------------------------------------------- 4,743
412 25 437 - - - - - - - - - - - - (392) (6) (24)	321 20 341 - - - - - - - - - - - - (321) – (20)	13,376 814 14,190 - - - - - - - - - - - - (8,633) (459) (536)	14,109 859
			14,968 - - - - - - - - - - - - (9,346 (465 (580
(422) ------------ --------------------------------------------- 15 As 2005 $’000 1,159	(341) (9,628) ------------ --------------------------------------------- ------------ --------------------------------------------- – 4,562 at 31 December 2006 2007 $’000 $’000 1,202 1,293

Investments in unlisted equity securities do not have a quoted market price in an active market. In the opinion of the directors, their fair values cannot be reliably measured and disclosed in the Financial Information.

– 161 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

14 Inventories and consumables

(a) Inventories and consumables in the combined balance sheets comprise:

Raw materials Work in progress Finished goods Consumables	As 2005 $’000 3,792 3,327 9,983 759 17,861	at 31 December 2006 2007 $’000 $’000 4,180 5,625 1,520 3,285 5,709 9,127 855 1,237 12,264 19,274	As at 30 June 2008 $’000 9,591 2,464 7,935 1,677
			21,667

(b) The analysis of the amount of inventories and consumables recognized as an expense is as follows:

Carrying amount of inventories sold Write down of inventories	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 47,846 48,154 62,364 20,845 41,506 4,863 2,522 522 – 282 52,709 50,676 62,886 20,845 41,788	Years ended 31 December Six months ended 30 June 2005 2006 2007 2007 2008 $’000 $’000 $’000 $’000 $’000 (unaudited) 47,846 48,154 62,364 20,845 41,506 4,863 2,522 522 – 282 52,709 50,676 62,886 20,845 41,788
		41,788

15 Trade and other receivables

As 2005 $’000 25,340 6,566 31,906	at 31 December 2006 2007 $’000 $’000 32,029 1,212 4,032 3,451 36,061 4,663	at 31 December 2006 2007 $’000 $’000 32,029 1,212 4,032 3,451 36,061 4,663	As at 30 June 2008 $’000 – 4,236
			4,236

57,078 (3,593) 53,485 1,628 –	46,621 (3,776) 42,845 1,688 –	60,638 (4,879) 55,759 1,282 –	79,304 (4,882
			74,422 2,494 11,703
55,113	44,533	57,041	88,619

– 162 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Note:

(i) Amounts due from a fellow subsidiary and related companies are unsecured, interest-free and have no fixed terms of repayment.

During the year ended 31 December 2007 and the six months ended 30 June 2008, management assessed that the recovery of the amounts due from a fellow subsidiary and a related company totalling $16,247,000 and $444,000 respectively was remote as the fellow subsidiary and the related company were in financial difficulties, thus impairment losses were recognized.

(ii) Loan to a related company is unsecured, interest-bearing at 7.47% per annum and repayable within one year.

(a) Ageing analysis

Included in trade and other receivables are trade receivables (net of allowance for doubtful debts) with the following ageing analysis as at each combined balance sheet date:

Neither past due nor impaired Less than 3 months past due More than 3 months past due	As 2005 $’000 36,059 - - - - - - - - - - - - 15,557 1,869 17,426 ------------ --------------------------------------------- 53,485	at 31 December 2006 2007 $’000 $’000 35,402 46,846 - - - - - - - - - - - - - - - - - - - - - - - - 5,837 7,638 1,606 1,275 7,443 8,913 ------------ --------------------------------------------- ------------ --------------------------------------------- 42,845 55,759	As at 30 June 2008 $’000 57,206 - - - - - - - - - - - - 16,456 760
			17,216 ------------ --------------------------------------------- 74,422

Trade receivables are due within 90-120 days from the date of billing. All of the trade and other receivables are expected to be recovered within one year. Further details on the Target Group’s credit policy are set out in note 25(a).

(b) Impairment of trade receivables

Impairment losses in respect of trade receivables are recorded using an allowance account unless the Target Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly (see note 1(i)(i)).

– 163 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The movements in the allowance for doubtful debts during the year/period, including both specific and collective loss components, are as follows:

At 1 January Impairment loss recognized/ (reversed) during the year/period Uncollectible amounts written off Exchange adjustments At 31 December/30 June	As 2005 $’000 2,097 1,444 – 52 3,593	at 31 December 2006 2007 $’000 $’000 3,593 3,776 605 786 (566) – 144 317 3,776 4,879	As at 30 June 2008 $’000 4,879 (386) – 389
			4,882

The Target Group’s trade receivables of approximately $3,593,000, $4,341,000, $4,879,000 and $4,882,000 as at 31 December 2005, 2006, 2007 and 30 June 2008 respectively were individually determined to be impaired. A portion of these individually impaired receivables were overdue for more than one year and management assessed that the full amount of these receivables is expected to be irrecoverable. Consequently, specific allowances for doubtful debts of approximately $3,593,000, $4,341,000, $4,879,000 and $4,882,000 as at 31 December 2005, 2006, 2007 and 30 June 2008 respectively were recognized. The Target Group does not hold any collateral over these balances.

(c) Trade receivables that are not impaired

The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows:

Neither past due nor impaired Less than 3 months past due More than 3 months past due	As 2005 $’000 36,059 - - - - - - - - - - - - 15,557 1,869 17,426 ------------ --------------------------------------------- 53,485	at 31 December 2006 2007 $’000 $’000 35,402 46,846 - - - - - - - - - - - - - - - - - - - - - - - - 5,837 7,638 1,606 1,275 7,443 8,913 ------------ --------------------------------------------- ------------ --------------------------------------------- 42,845 55,759	As at 30 June 2008 $’000 57,206 - - - - - - - - - - - - 16,456 760
			17,216 ------------ --------------------------------------------- 74,422

Receivables that were neither past due nor impaired relate to a number of independent customers that have a good track record with the Target Group or no recent history of default. 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 Target Group does not hold any collateral over these balances.

– 164 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

16 Cash and cash equivalents

Cash at bank and in hand Cash and cash equivalents in the combined balance sheets and cash flow statements	As 2005 $’000 4,865 4,865	at 31 December 2006 2007 $’000 $’000 13,466 8,087 13,466 8,087	As at 30 June 2008 $’000 31,578
			31,578

17 Bank loans

Bank loans – Secured – Unsecured	As 2005 $’000 36,385 14,238 50,623	at 31 December 2006 2007 $’000 $’000 19,860 42,740 6,951 1,069 26,811 43,809	As at 30 June 2008 $’000 77,078 –
			77,078

The bank loans as at 31 December 2005, 2006, 2007 and 30 June 2008 are repayable within one year.

The banking facilities of the Target Group are secured by the Target Group’s interests in leasehold land, buildings and construction in progress with an aggregate carrying value of $33,151,000, $32,128,000, $34,705,000 and $78,647,000 at 31 December 2005, 2006, 2007 and 30 June 2008 respectively. Such banking facilities amounted to $36,385,000, $37,734,000, $42,740,000 and $77,078,000 and are utilized to the extent of $36,385,000, $19,860,000, $42,740,000 and $77,078,000 at 31 December 2005, 2006, 2007 and 30 June 2008 respectively.

18 Trade and other payables

Creditors and accrued charges Advances received from customers Amounts due to directors Amounts due to related companies	As 2005 $’000 38,920 3,079 5,042 – 47,041	at 31 December 2006 2007 $’000 $’000 25,490 20,249 914 1,323 11,142 – 1,736 1,312 39,282 22,884	As at 30 June 2008 $’000 28,695 1,637 – –
			30,332

Amounts due to directors and related companies are unsecured, interest-free and have no fixed terms of repayment.

– 165 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Included in trade and other payables are trade creditors with the following ageing analysis at the combined balance sheet date:

												As at
							As	at	31	December		30 June
							2005			2006	2007	2008
							$’000			$’000	$’000	$’000
Due	within	3	months	or	on	demand	47,041			39,282	22,884	30,332

All of the trade and other payables are expected to be settled within one year.

19 Shareholder’s loan

Shareholder’s loan is unsecured, interest-free and has no fixed terms of repayment. The shareholder agreed not to demand repayment of shareholder’s loan within twelve months from each combined balance sheet date and accordingly, the balance is shown as non-current.

20 Income tax in the combined balance sheets

(a) Current taxation in the combined balance sheets represents:

As 2005 $’000 866	at 31 December 2006 2007 $’000 $’000 (114) 3,063	at 31 December 2006 2007 $’000 $’000 (114) 3,063	As at 30 June 2008 $’000 4,814

– 866	(465) 351	– 3,063	– 4,814
866	(114)	3,063	4,814

– 166 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

(b) Deferred tax assets recognized:

The components of deferred tax assets recognized in the combined balance sheets and the movements during the year/period are as follows:

Allowance for impairment of doubtful debts $’000 Deferred tax arising from: At 1 January 2005 677 Credited to profit or loss 176 Exchange adjustments 14 At 31 December 2005 867 At 1 January 2006 867 Credited to profit or loss 174 Exchange adjustments 36 At 31 December 2006 1,077 At 1 January 2007 1,077 Effect of change in tax rate 2,065 Credited to profit or loss 2,864 Exchange adjustments 268 At 31 December 2007 6,274 At 1 January 2008 6,274 Credited to profit or loss 70 Exchange adjustments 383 At 30 June 2008 6,727	Impairment loss for inventories $’000 – 460 3 463	Total $’000 677 636 17
		1,330

867 174 36	463 – 18	1,330 174 54
1,077	481	1,558

1,077 2,065 2,864 268	481 140 193 47	1,558 2,205 3,057 315
6,274	861	7,135

6,274 70 383	861 – 53	7,135 70 436
6,727	914	7,641

(c) Deferred tax liabilities not recognized

At 30 June 2008, temporary differences relating to the undistributed profits of PRC subsidiaries amounted to $24,625,000. Deferred tax liabilities of $1,231,000 have not been recognized in respect of the tax that would be payable on the distribution of these retained profits as the Target Group controls the dividend policy of the subsidiaries and it has been determined that it is probable that profits will not be distributed in the foreseeable future.

– 167 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

21 Goodwill

Goodwill acquired through business combination is allocated to the pharmaceutical business cash-generating unit (“CGU”) for impairment testing.

The Target Company determined the value-in-use by preparing cash flow projections derived from the most recent financial forecast approved by the management covering a one-year period and extrapolated to cover a period of nine more years with an estimated increase in selling prices and costs of 3% and sales volume of 8%. The rate used to discount the forecast cash flows is 12%.

Management believes that any reasonably possible change in any of these key assumptions would not cause the carrying amount of the CGU to exceed the recoverable amount.

– 168 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

22 Capital and reserves

Movement of capital and reserves of the Target Group during the year/period are as follows:

Attributable to equity shareholders of the Target Company Share capital Other reserve Exchange reserve PRC statutory reserves Retained profits Total Minority interests $’000 $’000 $’000 $’000 $’000 $’000 $’000 (note 22(a)) (note 22(b)) (note 22(c)) (note 22(d)) 1 (1,997) – 1,218 71,349 70,571 5,104 – 5,822 – – – 5,822 (5,822) – – 2,275 – – 2,275 – – – – – 13,171 13,171 718 – – – 2,359 (2,359) – – 1 3,825 2,275 3,577 82,161 91,839 –	Attributable to equity shareholders of the Target Company Share capital Other reserve Exchange reserve PRC statutory reserves Retained profits Total Minority interests $’000 $’000 $’000 $’000 $’000 $’000 $’000 (note 22(a)) (note 22(b)) (note 22(c)) (note 22(d)) 1 (1,997) – 1,218 71,349 70,571 5,104 – 5,822 – – – 5,822 (5,822) – – 2,275 – – 2,275 – – – – – 13,171 13,171 718 – – – 2,359 (2,359) – – 1 3,825 2,275 3,577 82,161 91,839 –	Attributable to equity shareholders of the Target Company Share capital Other reserve Exchange reserve PRC statutory reserves Retained profits Total Minority interests $’000 $’000 $’000 $’000 $’000 $’000 $’000 (note 22(a)) (note 22(b)) (note 22(c)) (note 22(d)) 1 (1,997) – 1,218 71,349 70,571 5,104 – 5,822 – – – 5,822 (5,822) – – 2,275 – – 2,275 – – – – – 13,171 13,171 718 – – – 2,359 (2,359) – – 1 3,825 2,275 3,577 82,161 91,839 –	Attributable to equity shareholders of the Target Company Share capital Other reserve Exchange reserve PRC statutory reserves Retained profits Total Minority interests $’000 $’000 $’000 $’000 $’000 $’000 $’000 (note 22(a)) (note 22(b)) (note 22(c)) (note 22(d)) 1 (1,997) – 1,218 71,349 70,571 5,104 – 5,822 – – – 5,822 (5,822) – – 2,275 – – 2,275 – – – – – 13,171 13,171 718 – – – 2,359 (2,359) – – 1 3,825 2,275 3,577 82,161 91,839 –	Attributable to equity shareholders of the Target Company Share capital Other reserve Exchange reserve PRC statutory reserves Retained profits Total Minority interests $’000 $’000 $’000 $’000 $’000 $’000 $’000 (note 22(a)) (note 22(b)) (note 22(c)) (note 22(d)) 1 (1,997) – 1,218 71,349 70,571 5,104 – 5,822 – – – 5,822 (5,822) – – 2,275 – – 2,275 – – – – – 13,171 13,171 718 – – – 2,359 (2,359) – – 1 3,825 2,275 3,577 82,161 91,839 –	Attributable to equity shareholders of the Target Company Share capital Other reserve Exchange reserve PRC statutory reserves Retained profits Total Minority interests $’000 $’000 $’000 $’000 $’000 $’000 $’000 (note 22(a)) (note 22(b)) (note 22(c)) (note 22(d)) 1 (1,997) – 1,218 71,349 70,571 5,104 – 5,822 – – – 5,822 (5,822) – – 2,275 – – 2,275 – – – – – 13,171 13,171 718 – – – 2,359 (2,359) – – 1 3,825 2,275 3,577 82,161 91,839 –	Attributable to equity shareholders of the Target Company Share capital Other reserve Exchange reserve PRC statutory reserves Retained profits Total Minority interests $’000 $’000 $’000 $’000 $’000 $’000 $’000 (note 22(a)) (note 22(b)) (note 22(c)) (note 22(d)) 1 (1,997) – 1,218 71,349 70,571 5,104 – 5,822 – – – 5,822 (5,822) – – 2,275 – – 2,275 – – – – – 13,171 13,171 718 – – – 2,359 (2,359) – – 1 3,825 2,275 3,577 82,161 91,839 –	Total equity $’000 75,675 – 2,275 13,889 –
							91,839

1 – – –	3,825 – – –	2,275 5,279 – –	3,577 – – 2,591	82,161 – 19,200 (2,591)	91,839 5,279 19,200 –	– – – –	91,839 5,279 19,200 –
1	3,825	7,554	6,168	98,770	116,318	–	116,318

1 – – – –	3,825 – – – –	7,554 12,911 – – –	6,168 – – 4,192 –	98,770 – 26,256 (4,192) (43,845)	116,318 12,911 26,256 – (43,845)	– – – – –	116,318 12,911 26,256 – (43,845
1	3,825	20,465	10,360	76,989	111,640	–	111,640

1 – – –	3,825 – – –	20,465 8,722 – –	10,360 – – 2,589	76,989 – 24,625 (2,589)	111,640 8,722 24,625 –	– – – –	111,640 8,722 24,625 –
1	3,825	29,187	12,949	99,025	144,987	–	144,987

– 169 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Share capital

The Target Company was incorporated on 10 November 2008 with authorized share capital of US$50,000 divided into 50,000 shares of US$1 par value. On the same date, the Target Company issued 100 shares at par value of US$1 each.

For the purpose of the Financial Information, the share capital in the combined balance sheets as at 31 December 2005, 2006, 2007 and 30 June 2008 represents the share capital of the Target Company as if the current group structure had been in existence since 1 January 2005.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Target Company. All ordinary shares rank equally with regard to the Target Company’s residual assets.

(b) Other reserve

On 2 April 2007, Guangdong Medi-World acquired 37.5% equity interest in Luya from Ace Supreme, a company under common control by the Controlling Shareholders, for a consideration of RMB8,000,000. The difference between the historical carrying value of the equity interest acquired and the acquisition consideration is recorded in “Other reserve” as if the current group structure had been in existence since 1 January 2005.

On 28 October 2005, a company under common control by the Controlling Shareholders acquired 5% equity interest in Guangdong Medi-World from its minority equity owners for a consideration of US$1. The difference between the carrying value of minority interests and acquisition consideration is treated as an equity movement and recorded in “Other reserve”.

(c) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the accounts of PRC operations. The reserve is dealt with in accordance with the accounting policy set out in note 1(s).

(d) PRC statutory reserves

In accordance with the accounting principles and financial regulations applicable in the PRC, the PRC subsidiaries are required to transfer part of its profit after taxation to the reserve fund and the enterprise development fund. The transfer amounts are determined by the subsidiary’s board of directors in accordance with the articles of association and the transfers are made before distribution of a dividend to equity owners. Reserve fund can only be used to make good losses, if any, and for increasing capital. Enterprise development fund can only be used for increasing capital.

(e) Distributable reserve

The Target Company was incorporated on 10 November 2008. Accordingly, there was no reserve available for distribution to shareholders as at 30 June 2008.

On the basis set out in Section A above, the aggregate amounts of distributable reserve at 31 December 2005, 2006, 2007 and 30 June 2008 of the companies comprising the Target Group were approximately $82,161,000, $98,770,000, $76,989,000 and $99,025,000 respectively.

(f) Capital management

The Target Group’s primary objectives when managing capital are to safeguard the Target Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

– 170 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The Target Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Consistent with industry practice, the Target Group monitors its capital structure on the basis of an adjusted debt-to-equity ratio. For this purpose the Target Group defines adjusted net debt as total debt, which includes trade and other payables, bank loans and dividend payable less shareholder’s loan with no fixed repayment terms. Adjusted equity comprises all components of equity and shareholder’s loan with no fixed repayment terms.

The adjusted debt-to-equity ratio at 31 December 2005, 2006, 2007 and 30 June 2008 is as follows:

As 2005 $’000 50,623 47,041 – 97,664	at 31 December 2006 2007 $’000 $’000 26,811 43,809 39,282 22,884 – 5,314 66,093 72,007	at 31 December 2006 2007 $’000 $’000 26,811 43,809 39,282 22,884 – 5,314 66,093 72,007	As at 30 June 2008 $’000 77,078 30,332 5,637
			113,047

91,839 41,073	116,318 41,073	111,640 27,221	144,987 27,318
132,912 0.73	157,391 0.42	138,861 0.52	172,305

			0.66

Neither the Target Company nor any of its subsidiaries are subject to externally imposed capital requirements.

– 171 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

23 Material related party transactions

In addition to the related party information disclosed elsewhere in the Financial Information, the Target Group entered into the following material related party transactions:

(a) Key management personnel remuneration

Key management personnel are all directors whose remuneration details are disclosed in note

(b) Recurring transactions with related companies

Sales to related companies Purchases from related companies	Years 2005 $’000 26,192 2,491	ended 31 December 2006 2007 $’000 $’000 28,013 44,579 2,214 2,177	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 19,651 24,418 656 6,681	Six months ended 30 June 2007 2008 $’000 $’000 (unaudited) 19,651 24,418 656 6,681

				6,681

Related companies are related parties to the Target Company because the related companies and the Target Company have common directors, Mr Xu Tiefeng and Mr Yang Bin.

24 Employee retirement benefits

Defined contribution retirement plans

Pursuant to the relevant labour rules and regulations in the PRC, the PRC subsidiaries of the Target Group participate in defined contribution retirement schemes (the “Schemes”) organized by the PRC municipal government authorities whereby the subsidiaries are required to contribute to the Schemes to fund the retirement benefits of the eligible employees. Contributions made to the Schemes are calculated based on a specified percentage of the payroll of the eligible employees for the period from 1 January 2005 to 30 June 2008. The local government authorities are responsible for the entire pension obligations payable to the retired employees. The only obligation of the Target Group with respect to the Schemes is to make the specified contributions.

The Target Group has no other material obligation for payment of retirement benefits beyond the annual contributions as described above.

– 172 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

25 Financial instruments

Exposure to credit, liquidity, interest rate and foreign currency risks arises in the normal course of the Target Group’s business. These risks are limited by the Target Group’s financial management policies and practices described below.

(a) Credit risk

The Target Group’s credit risk is primarily attributable to trade receivables. Credit evaluations are performed on all customers requiring credit over a certain amount. 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. These receivables are due within 90 to 120 days from the date of billing. Debtors with balances that are more than three months overdue are requested to settle all outstanding balances before any further credit is granted. Normally, the Target Group does not obtain collateral from customers.

The Target 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 but to a lesser extent. At the balance sheet date, the Target Group has a certain concentration of credit risk as 21%, 15%, 16%, 22% and 44%, 28%, 41%, 44% of the total trade receivables were due from the Target Group’s largest customer and the five largest customers as at 31 December 2005, 2006, 2007 and 30 June 2008 respectively.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the combined balance sheets after deducting any impairment allowance. The Target Group does not provide any other guarantees which would expose the Target Group to credit risk.

(b) Liquidity risk

Individual operating entities within the Target 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. The Target Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The following table details the remaining contractual maturities at the balance sheet date of the Target Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the balance sheet date) and the earliest date the Target Group can be required to pay:

Bank loans Trade and other payables Shareholder’s loan Dividend payable	As at 31 December Carrying amount Total contractual undiscounted cash outflow $’000 $’000 50,623 53,448 47,041 47,041 41,073 41,073 − − 138,737 141,562	2005 Within 1 year or on demand $’000 53,448 47,041 41,073 − 141,562	As at 31 December Carrying amount Total contractual undiscounted cash outflow $’000 $’000 26,811 28,379 39,282 39,282 41,073 41,073 − − 107,166 108,734	2006 Within 1 year or on demand $’000 28,379 39,282 41,073 −
				108,734

– 173 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Bank loans Trade and other payables Shareholder’s loan Dividend payable	As at 31 December Carrying amount Total contractual undiscounted cash outflow $’000 $’000 43,809 46,538 22,884 22,884 27,221 27,221 5,314 5,314 99,228 101,957	2007 Within 1 year or on demand $’000 46,538 22,884 27,221 5,314 101,957	As at 30 June 2008 Carrying amount Total contractual undiscounted cash outflow Within 1 year or on demand $’000 $’000 $’000 77,078 82,836 82,836 30,332 30,332 30,332 27,318 27,318 27,318 5,637 5,637 5,637 140,365 146,123 146,123	As at 30 June 2008 Carrying amount Total contractual undiscounted cash outflow Within 1 year or on demand $’000 $’000 $’000 77,078 82,836 82,836 30,332 30,332 30,332 27,318 27,318 27,318 5,637 5,637 5,637 140,365 146,123 146,123
				146,123

(c) Interest rate risk

The Target Group’s interest rate risk arises primarily from short-term borrowings. Borrowings issued at variable rates and at fixed rates expose the Target Group to cash flow interest rate risk and fair value interest rate risk respectively. The Target Group’s interest rate profile as monitored by management is set out in (i) below.

Interest rate profile

The following table details the interest rate profile of the Target Group’s total borrowings at the balance sheet date.

			As at 31 December 2005	As at 31 December 2005	As at 31 December 2006	As at 31 December 2006
			Effective	One year	Effective	One year
			interest rate	or less	interest rate	or less
			%	$’000	%	$’000
Fixed	rate	borrowings:
Bank	loans		5.58	50,623	5.85	26,811

			As at 31 December 2007		As at 30 June 2008
			Effective	One year	Effective	One year
			interest rate	or less	interest rate	or less
			%	$’000	%	$’000
Fixed	rate	borrowings:
Bank	loans		6.23	43,809	7.47	77,078

(d) Foreign currency risk

Individual companies within the Target Group has limited foreign currency risk as most of the transactions are denominated in the same currency as the functional currency of the operations in which they relate. However, as the principal subsidiaries, Guangdong Medi-World and Luya, mainly carried out transactions in RMB, therefore any appreciation and depreciation of HKD against RMB will affect the Target Group’s financial position and will be reflected in the exchange reserve.

– 174 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(e) Fair values

The amounts due from/to directors, fellow subsidiaries and related companies and shareholder’s loan are unsecured, interest-free and have no fixed terms of repayment. Given these terms it is not meaningful to disclose their fair values.

All remaining financial instruments are carried at amounts not materially different from their fair values as at 31 December 2005, 2006, 2007 and 30 June 2008.

(f) Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments:

Interest-bearing loans and borrowings

Fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

(g) Business risk

The Target Group has a certain concentration of business risk as 20%, 22%, 25%, 16% and 33%, 37%, 37%, 30% of total sales are from the Target Group’s largest and the five largest customers during the years ended 31 December 2005, 2006, 2007 and the six months ended 30 June 2008 respectively.

In addition, the Target Group is dependent on specific raw materials for its production of certain pharmaceutical products. The Target Group has a certain concentration of business risk as 29%, 20%, 26%, 29% and 60%, 59%, 67%, 64% of the total purchases are from the Target Group’s largest and the five largest suppliers during the years ended 31 December 2005, 2006, 2007 and the six months ended 30 June 2008 respectively. If the Target Group could not purchase adequate quantity of specific raw materials from these suppliers and failed to identify alternative sources, its results and financial position could be adversely affected.

26 Capital commitments

Capital commitments outstanding at 31 December 2005, 2006, 2007 and 30 June 2008 not provided for in the Financial Information are as follows:

								As at
		As	at	31	December		30	June
		2005			2006	2007		2008
		$’000			$’000	$’000		$’000
Contracted	for	6,653			1,698	124		4,915

27 Ultimate holding company

The Directors consider the ultimate holding company of the Target Company to be Sureplan Limited, which is incorporated in the British Virgin Islands, upon the completion of the Reorganisation.

– 175 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

28 Accounting estimates and judgements

The Target Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the accounts. The Target Group bases the assumptions and estimates on historical experience and on various other assumptions that the Target Group 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 significant accounting policies are set forth in note 1. The Target Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Financial Information.

(a) Impairment

If circumstances indicate that the carrying amount of fixed assets, construction in progress and intangible assets may not be recoverable, these assets may be considered impaired, and an impairment loss may be recognized in accordance with HKAS 36 “Impairment of Assets”. The carrying amounts of these 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. For goodwill, the recoverable amount is estimated annually to assess if the carrying amount may not be recoverable whether or not there is any indication of impairment. When such a decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Target Group’s assets are not readily available. 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 sale volume, selling price, material cost and amount of operating costs. The Target 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 revenue and amount of operating costs.

In addition, the Target Group estimates impairment losses for bad and doubtful debts resulting from the inability of the debtors to make the required payments. The Target Group bases the estimates on the ageing of the trade and other receivables balance, credit-worthiness of the debtors and historical write-off experience. If the financial condition of the debtors were to deteriorate, actual write-offs would be higher than estimated.

(b) Depreciation and amortization

Fixed assets and intangible assets are depreciated and amortized on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value, if any. The Target Group reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The useful lives are based on the Target Group’s historical experience with similar assets and taking into account upgrading and improvement work performed, anticipated technological changes, and legal or similar limits on the use of assets. The depreciation and amortization expense for future periods is adjusted if there are significant changes from previous estimates.

(c) Write down of inventories

The Target Group determines the write-down for obsolescence of inventories. These estimates are based on the current market condition and the historical experience in selling goods of similar nature. It could change significantly as a result of change in market condition.

– 176 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

29 The Target Company’s balance sheet

On the basis set out in Section A above, the net assets of the Target Company at 30 June 2008 amounted to approximately $1,000 and were represented by the interests in subsidiaries and shareholder’s loan.

30 Possible impact of amendments, new standards and interpretations issued but not yet effective for the relevant period

Up to the date of issue of the Financial Information, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the relevant period and which have not been adopted in the Financial Information.

The Target Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations 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 Target Group’s results of operations and financial position.

In addition, the adoption of HKFRS 8, “Operating segments”, which is effective for accounting period beginning on or after 1 January 2009, may result in new or amended disclosures in the Financial Information.

The adoption of revised HKAS 1, “Presentation of financial statements” (2007), which is effective for accounting period beginning on or after 1 January 2009, is expected to have a significant impact on the presentation of the Financial Information.

– 177 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

D DIRECTORS’ REMUNERATION AND SENIOR MANAGEMENT’S REMUNERATION

Save as disclosed in Section C note 7 and note 8 above, no remuneration has been paid or is payable in respect of the Relevant Period by the Target Company or any of the companies now comprising the Target Group to the Directors. Under the arrangement presently in force, the estimated aggregate amount of the Directors’ emoluments payable for the year ending 31 December 2008 is approximately $162,000 excluding management bonuses which are payable at the Target Group’s discretion.

E SUBSEQUENT EVENTS

The following significant events took place subsequent to 30 June 2008:

(1) Proposed acquisition of the Target Group

On 16 December 2008, the Board of Wing Shan International Limited (the “Company”) announced that the Company entered into a sales and purchase agreement with Sureplan Limited pursuant to which the Company has agreed to purchase and Sureplan Limited has agreed to sell the entire interests in the Target Group, subject to the completion of the Reorganisation and other conditions precedent.

(2) Valuation of properties

For the purpose of the Acquisition, the properties, leasehold land and machineries of the Target Group were valued as at 31 October 2008 by BMI Appraisals Limited, an independent firm of surveyors. Details of the valuation are set out in the Valuation Report presented in Appendix V to the Circular.

(3) Dividend distribution

Subsequent to 30 June 2008 and up to the date of this report, distribution totalling approximately RMB 19,186,000 was declared by the subsidiaries of the Target Company.

F SUBSEQUENT FINANCIAL STATEMENTS

No audited accounts have been prepared by the Target Company or any of the companies now comprising the Target Group in respect of any period subsequent to 30 June 2008.

Yours faithfully, KPMG

Certified Public Accountants Hong Kong

– 178 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2. MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

(i) For the year ended 31 December 2005

Financial review

The Target Group’s gross profit margin was at approximately 62% in 2005. The turnover of the Target Group’s main pharmaceutical products was satisfactory and the Target Group recorded a profit margin of approximately 10% in 2005.

The Target Group’s 2005 profit attributable to equity shareholders of the Target Company was approximately HK$13 million and the Target Group’s basic earnings per share was approximately HK$130,000.

Business review

During 2005, the Directors decided to reformulate the Target Group’s business strategy by restructuring the sales team and the marketing department. The increase in headcount of staff resulted in the increase in selling and distribution costs and decrease in profit for the year.

Liquidity and financial information

The Target Group generally financed its operation by internally generated cashflow, bank loans and facilities provided by its bankers. As at 31 December 2005, the Target Group’s net current liabilities were approximately HK$22 million, with cash and bank balances of approximately HK$5 million.

As at 31 December 2005, the Target Group’s gearing ratio was approximately 61% (calculated as total liabilities over total assets). The Target Group pledged its land and buildings with an aggregate carrying value of approximately HK$33 million to secure the banking facilities granted to the Target Group.

– 179 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Treasury policies and foreign exchange exposure

Since all of the Target Group’s assets and liabilities, revenue and expenditures are denominated in Renminbi, the use of financial instruments for hedging purposes is not considered necessary and the exposure to exchange rate fluctuations is minimal.

Employee information and emolument policy

The Target Group had 885 employees as at 31 December 2005, whose salaries are reviewed and adjusted annually based on their performance and experience. Employees received competitive remuneration packages including salary and year-end double pay. Total staff costs incurred for the year amounted to approximately HK$17 million.

Contingent liability

As at 31 December 2005, the Target Group has no contingent liability.

Material acquisition and disposal of subsidiaries and associated companies

For the year ended 31 December 2005, there was no material acquisition or disposal of any subsidiary and associated company by the Target Group.

Significant investments held

As the 31 December 2005, the Target Group did not hold any significant investments.

Prospects and future plan for material investments

As at 31 December 2005, the Target Group had received orders from its major customers for it to plan for its production in the first quarter of the following year. During the year, Guangdong Medi-World has incurred approximately HK$19 million for the construction work of a new production plant and installation of new equipment for the production of pharmaceutical products in powder form. The Target Group planned to continue such construction and installation work in the following year, with capital commitments amounting to approximately HK$7 million as at 31 December 2005. Other than that, the Target Group did not have any plan for new business, material investments or acquisitions of capital assets.

– 180 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(ii) For the year ended 31 December 2006

Financial review

In 2006, the Target Group’s combined turnover and profit before taxation for the year amounted to approximately HK$127 million and HK$21 million respectively. Despite a decrease of approximately 9% in turnover, there was an increase of approximately 31% in profit before taxation as compared to 2005 due to the decrease in selling and distribution costs and administrative expenses.

The Target Group’s gross profit margin remained at around 60% in 2006. The decrease in turnover was due to the decrease in sales of Yupingfeng Granule and Cefodizime Sodium. The increase in profit before taxation was not only due to the increase in government grants, but also due to the decrease in selling and distribution costs and administrative expenses by 24% and 9% respectively in 2006.

The Target Group’s 2006 profit attributable to equity shareholders of the Target Company increased by 46% to HK$19 million for the year and the Target Group’s basic earnings per share was approximately HK$190,000, representing an increase of 46% compared to that of 2005.

Business review

During 2006, the PRC government re-formulated the pricing policy of the pharmaceutical products by lowering the selling price of certain pharmaceutical products. In light of this, the turnover of the Target Group was affected by the decrease in selling prices of certain main pharmaceutical products. The Directors decided to reformulate the Target Group’s business strategy by lowering the administrative expenses, broadening the customer base to induce more sales and cutting headcount of staff in order to maintain steady growth in profit.

Liquidity and financial information

The Target Group generally financed its operation by internally generated cashflow, bank loans and banking facilities provided by its bankers. As at 31 December 2006, the Target Group’s net current assets were approximately HK$2 million, with cash and bank balances of approximately HK$13 million as compared to net current liabilities of approximately HK$22 million and HK$5 million of cash and bank balances as at 31 December 2005.

– 181 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 December 2006, the current ratio of the Target Group was approximately 1.03 times based on current assets of approximately HK$71 million and current liabilities of approximately HK$69 million.

As at 31 December 2006, the Target Group’s gearing ratio was approximately 51% (calculated as total liabilities over total assets). The Target Group pledged its land and buildings with an aggregate carrying value of approximately HK$32 million to secure the banking facilities granted to the Target Group.

Treasury policies and foreign exchange exposure

Employee information and emolument policy

The Target Group had 619 employees as at 31 December 2006, whose salaries are reviewed and adjusted annually based on their performance and experience. Employees received competitive remuneration packages including salary and year-end double pay. Total staff costs incurred during the year amounted to approximately HK$16 million.

Contingent liability

As at 31 December 2006, the Target Group has no contingent liability.

Material acquisition and disposal of subsidiaries and associated companies

For the year ended 31 December 2006, there was no material acquisition or disposal of any subsidiary and associated company by the Target Group.

Significant investments held

As the 31 December 2006, the Target Group did not hold any significant investments.

Prospects and future plan for material investments

As at 31 December 2006, the Target Group had received orders from its major customers for it to plan for its production in the first quarter of the following year. During the year, Guangdong Medi-World has incurred approximately HK$19 million for the construction work of a new production plant and installation of new equipment for the production of pharmaceutical products

– 182 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

in solid form. The plant was expected to be put into commercial production in early 2007. The Target Group did not have any other plan for new business, material investments or acquisitions of capital assets.

(iii) For the year ended 31 December 2007

Financial review

The Target Group primarily operates in one business segment, which is manufacturing and sale of pharmaceutical products, and in one geographical segment, the PRC. The turnover and profit of the Target were all derived from the aforesaid business in the PRC. In 2007, the Target Group’s combined turnover and profit before taxation for the year amounted to approximately HK$167 million and HK$28 million respectively, representing an increase of 32% and 33% respectively from 2006. The increase in the Target Group’s turnover was due to the boost in sales of the Target Group’s main selling product, Cefodizime Sodium. The Target Group’s gross profit margin remained at around 62% in 2007. The increase in profit before taxation was not only due to the increase in sales but also the decrease in cost of sales and the increase in the receipt of government grants in the year.

The Target Group’s 2007 profit attributable to shareholders increased by 37% to reach HK$26 million for the year and the Target Group’s basic earnings per share was approximately HK$260,000.

Business review

The significant increase in the Target Group’s turnover was attributed by the stable quality and the attractive pricing of the Target Group’s main pharmaceutical products, Cefodizime Sodium. Sales of Cefodizime Sodium increased by 115% from 2006 due to efficient marketing and the expansion of the Target Group’s sales network.

Liquidity and financial information

The Target Group generally financed its operation by internally generated cashflow, bank loans and banking facilities provided by its bankers. As at 31 December 2007, the Target Group’s net current assets were approximately HK$5 million, with cash and bank balances of approximately HK$8 million as compared to approximately HK$2 million in net current assets and HK$13 million in cash and bank balances as at 31 December 2006.

As at 31 December 2007, the current ratio of the Target Group was approximately 1.07 times based on current assets of approximately HK$84 million and current liabilities of approximately HK$79 million.

– 183 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

As at 31 December 2007, the Target Group’s gearing ratio was approximately 51% (calculated as total liabilities over total assets). The Target Group pledged its land and buildings with an aggregate carrying value of approximately HK$35 million to secure the banking facilities granted to the Target Group.

Treasury policies and foreign exchange exposure

Employee information and emolument policy

The Target Group had 665 employees as at 31 December 2007, whose salaries are reviewed and adjusted annually based on their performance and experience. Employees received competitive remuneration packages including salary and year-end double pay. Total staff costs incurred during the year amounted to approximately HK$17 million.

Contingent liability

As at 31 December 2007, the Target Group has no contingent liability.

Material acquisition and disposal of subsidiaries and associated companies

For the year ended 31 December 2007, there was no material acquisition or disposal of any subsidiary and associated company by the Target Group.

Significant investments held

As the 31 December 2007, the Target Group did not hold any significant investments.

Prospects and future plan for material investments

As at 31 December 2007, the Target Group had received orders from its major customers for it to plan for its production in the first quarter of the following year. The Target Group did not have any plan for new business, material investments or acquisitions of capital assets.

– 184 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(iv) For the six months ended 30 June 2008

Financial review

For the six-month period ended 30 June 2008, the Target Group’s combined turnover and profit before taxation amounted to approximately HK$110 million and HK$32 million respectively, representing an increase of 87% and 269% respectively compared to the same period in 2007.

The Target Group’s gross profit margin remained steady at around 62% in the period. The increase in profit before taxation was not only due to the increase in sales, but also due to the decrease in cost of sales and the increase in the receipt of government grants in the period.

The Target Group’s profit attributable to shareholders was HK$25 million for the period and the Target Group’s basic earnings per share was approximately HK$250,000.

Business review

The significant increase in the Target Group’s turnover was attributed by the introduction of medical scheme to farm villages by the PRC government and the extension of medical insurance coverage to the urban towns and cities in the PRC. Sales of the Target Group’s main products increased tremendously due to efficient marketing and the expansion of its sales network.

Liquidity and financial information

The Target Group generally financed its operation by internally generated cashflow, bank loans and banking facilities provided by its bankers. As at 30 June 2008, the Target Group’s net current assets were approximately HK$20 million, with cash and bank balances of approximately HK$32 million.

As at 30 June 2008, the current ratio of the Target Group was approximately 1.16 times based on current assets of approximately HK$142 million and current liabilities of approximately HK$122 million.

As at 30 June 2008, the Target Group’s gearing ratio was approximately 53% (calculated as total assets over total liabilities). The Target Group pledged its land and buildings with an aggregate carrying value of approximately HK$44 million to secure the banking facilities granted to the Target Group.

– 185 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Treasury policies and foreign exchange exposure

Employee information and emolument policy

The Target Group had 699 employees as at 30 June 2008, whose salaries are reviewed and adjusted annually based on their performance and experience. Employees received competitive remuneration packages including salary and year-end double pay. Total staff costs incurred during the period amounted to approximately HK$11 million.

Contingent liability

As at 30 June 2008, the Target Group has no contingent liability.

Material acquisition and disposal of subsidiaries and associated companies

For the period ended 30 June 2008, there was no material acquisition or disposal of any subsidiary and associated company by the Target Group.

Significant investments held

As the 30 June 2008, the Target Group did not hold any significant investments.

Prospects and future plan for material investments

As at 30 June 2008, the Target Group had received orders from its major customers for it to plan for its production in the following quarter of the year. During the period, Luya has incurred approximately HK$8 million for the improvement work on the production facilities of antibiotics. Luya planned to continue such improvement work in the 2nd half of the year, with capital commitments amounting to approximately HK$5 million as at 30 June 2008. Other than that, the Target Group did not have any plan for new business, material investments or acquisitions of capital assets.

– 186 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

3. RECONCILIATION STATEMENT OF PROPERTY ASSETS OF THE TARGET GROUP

Set out below is the reconciliation of the net book value of the Target Group’s property assets included in the combined balance sheet of the Target Group as at 30 June 2008 and the fair value of the Target Group’s property assets as at 31 October 2008 as stated in the property valuation report in appendix V to this circular:

				Fair value as
		Carrying		at 31 October
		amount		2008 as shown
		included in the		in the
		combined		valuation
		balance sheet		report as set
		of the Target		out in
		Group as at	Fair value	appendix V to
No.	Property	30 June 2008	adjustment	this circular
		HK$’000	HK$’000	HK$’000
12	An industrial complex located	26,644	10,988	37,632
	at No. 2 Qiao Xi Road,
	Rong Shan Neighbourhood
	Committee,
	Rong Gui Road Workplace,
	Shunde District,
	Foshan City,
	Guangdong Province,
	The PRC
13	An industrial complex located	8,124	3,438	11,562
	at Shiban Village Committee
	Industrial Zone,
	Lunjiao Road Workplace,
	Shunde District,
	Foshan City,
	Guangdong Province,
	The PRC

– 187 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

				Fair value as
		Carrying		at 31 October
		amount		2008 as shown
		included in the		in the
		combined		valuation
		balance sheet		report as set
		of the Target		out in
		Group as at	Fair value	appendix V to
No.	Property	30 June 2008	adjustment	this circular
		HK$’000	HK$’000	HK$’000
14	An industrial complex at	45,559	24,151	69,710
	No. 2 Ke Yuan Heng Third
	Road, Xiao Huang Pu
	Neighbourhood
	Committee High and New
	Technology Industrial
	Development Zone (Rong
	Gui), Rong Gui County
	Workplace, Shunde District,
	Foshan City, Guangdong
	Province, The PRC
15	6 residential units in Block 1,	699	1,273	1,972
	Shu Yuan Road,
	Zhenhua Management Zone
	Workplace,
	Rong Gui County,
	Shunde District,
	Foshan City,
	Guangdong Province,
	The PRC
16	An industrial complex located	16,704	17,188	33,892
	at Huan Cheng Xi Road West
	and Hong Xing Xi Road
	North,
	Central District,
	Jining City,
	Shandong Province,
	The PRC

– 188 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Fair value as Carrying at 31 October amount 2008 as shown included in the in the combined valuation balance sheet report as set of the Target out in Group as at Fair value appendix V to No. Property 30 June 2008 adjustment this circular HK$’000 HK$’000 HK$’000 17 Land Parcel C08-2 located at 4,079 13,490 17,569 Science and Technology Product Parks, Shunde High and New Technology Zone (Rong Gui), Shunde District, Foshan City, Guangdong Province, The PRC

For illustrative purpose in this reconciliation statement, amounts in RMB have been translated into HK$ at the rate of RMB1 = HK$1.1335.

– 189 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

For illustrative purpose only, set out below is the unaudited pro forma financial information of the Enlarged Group after completion of the Acquisition of the Target Company. The unaudited pro forma financial information is prepared in accordance with Paragraph 4.29(1) and Paragraph 14.69(4)(a)(ii) of the Listing Rules to illustrate the effect of the Acquisition on the Group’s financial information.

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION

Introduction to the unaudited pro forma financial information

The accompanying unaudited pro forma financial information of Wing Shan International Limited (the “Company”) and its subsidiaries (collectively, the “Group”) together with Smartpoint International Limited (the “Target Company”) and its subsidiaries (collectively, the “Target Group”) (collectively referred to as the “Enlarged Group”), includes the unaudited pro forma combined balance sheet prepared based on the consolidated balance sheet of the Group as at 30 June 2008 and the combined balance sheet of the Target Group as at 30 June 2008, and gives effect to the proposed acquisition of the Target Company by the Company (the “Acquisition”) as if the Acquisition had been completed on 30 June 2008 (the “Unaudited Pro Forma Financial Information”).

The unaudited pro forma combined balance sheet of the Enlarged Group is prepared based upon the unaudited consolidated balance sheet of the Group as at 30 June 2008 as set out in Appendix I to this circular and the audited combined balance sheet of the Target Group as at 30 June 2008 as set out in Appendix II after incorporating the unaudited pro forma adjustments described in the accompanying notes. A narrative description of the unaudited pro forma adjustments of the Acquisition that are (i) directly attributable to the transactions concerned and not relating to future events or decisions; (ii) expected to have a continuing impact on the Enlarged Group; and (iii) factually supportable, are summarised in the accompanying notes.

The Unaudited Pro Forma Financial Information of the Enlarged Group is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 30 June 2008. Further, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information of the Group as set out in Appendix I to this circular, the financial information of the Target Group as set out in Appendix II to this circular and other financial information included elsewhere in this circular.

– 190 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1 Unaudited pro forma combined balance sheet as at 30 June 2008

The Group HK$’000 177,992 1,131 229,886 – – 3,112 –	The Target Group HK$’000 84,579 46,968 7,010 10,801 4,236 1,476 7,641	Pro forma combined Pro forma adjustments HK$’000 HK$’000 (note 2(c)) 262,571 71,391 48,099 236,896 71,258 10,801 4,236 4,588 7,641	Pro forma the Enlarged Group HK$’000 333,962 48,099 308,154 10,801 4,236 4,588 7,641
412,121 ------------ 72,574 92,426 1,594 94,565 261,159 ------------ 18,222 85,810 – 6,861 –	162,711 ------------ 21,667 88,619 – 31,578 141,864 ------------ 77,078 30,332 5,637 4,814 4,176	574,832 ------------ 94,241 3,858 181,045 1,594 126,143 (10,000) 403,023 ------------ 95,300 116,142 1,050 5,637 11,675 4,176	717,481 ------------ 98,099 181,045 1,594 116,143
			396,881 ------------ 95,300 117,192 5,637 11,675 4,176
110,893 ------------ --------------------------------------------- 150,266 ------------ ---------------------------------------------	122,037 ------------ --------------------------------------------- 19,827 ------------ ---------------------------------------------	232,930 ------------ --------------------------------------------- 170,093 ------------ ---------------------------------------------	233,980 ------------ --------------------------------------------- 162,901 ------------ ---------------------------------------------

– 191 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group HK$’000 562,387 ------------ – – 33,546 33,546 ------------ --------------------------------------------- 528,841	The Target Group HK$’000 182,538 ------------ 27,318 10,233 – 37,551 ------------ --------------------------------------------- 144,987	Pro forma combined Pro forma adjustments HK$’000 HK$’000 (note 2(c)) 744,925 ------------ 27,318 (27,318) 10,233 33,546 18,812 71,097 ------------ --------------------------------------------- 673,828	Pro forma the Enlarged Group HK$’000 880,382 ------------ – 10,233 52,358
			62,591 ------------ --------------------------------------------- 817,791

83,097 265,220 348,317 180,524	1 144,986 144,987 –	83,098 79,743 410,206 64,220 493,304 180,524	162,841 474,426
			637,267 180,524
528,841	144,987	673,828	817,791

See accompanying notes to the Unaudited Pro Forma Financial Information of the Enlarged Group.

– 192 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2 Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

(a) The balances of assets and liabilities of the Group are extracted from the unaudited consolidated balance sheet of the Group as at 30 June 2008 as included in the published interim report of the Group for the six months ended 30 June 2008.
(b) The balances of assets and liabilities of the Target Group are extracted from the audited combined balance sheet of the Target Group as at 30 June 2008 as set out in Appendix II of this circular.
(c) Excess of consideration of the Acquisition over the net fair value of the acquired net assets

Pursuant to the sale and purchase agreement dated 29 November 2008 as supplemented by a supplemental agreement dated 16 December 2008 entered into between Wing Shan International Limited (the “Company”), Sureplan Limited (“Sureplan”), Mr Yang Bin, Mr Wu Chiu Kong and Mr Xu Tiefeng (the “Agreement”), the consideration payable by the Company for the proposed acquisition of the entire issued share capital in the Target Company (the “Acquisition”) will be HK$300,000,000. Pursuant to the Agreement, Sureplan will waive all indebtedness due and owing by the Target Company to the then shareholders (the “Shareholder’s Loan”) as at the completion date of the Acquisition. The consideration for the Acquisition will be satisfied by the Company in the following manner upon completion: (1) HK$220,000,000 shall be paid by the Company by way of the allotment and issue of 564,102,563 Consideration Shares at HK$0.39 per Consideration Share to Sureplan; and (2) HK$80,000,000 by cash. The cash portion of the consideration of HK$80,000,000 will be satisfied by cash of HK$10,000,000 from internal resources of the Group and HK$70,000,000 from the proceeds of placing of 233,334,000 new shares at HK$0.30 per placing share to not less than six independent placees (the “Placing”). The estimated placing commission of HK$1,050,000 is recognized as a reduction of share premium. The Acquisition and the Placing are inter-conditional with each other.

Upon completion of the Acquisition, identifiable assets and liabilities of the Target Group will be accounted for in the consolidated financial statements of the Enlarged Group at their fair values under the purchase method of accounting. The identifiable assets and liabilities of the Target Group are recorded in the unaudited pro forma combined balance sheet of the Enlarged Group at their fair values as if the Acquisition was completed on 30 June 2008. The fixed assets (including property, plant and equipment and interests in leasehold land), inventories and deferred tax liabilities increase by approximately HK$71,391,000, HK$3,858,000 and HK$18,812,000 respectively as a result of the fair value adjustments. The Shareholder’s Loan of the Target Group decreases by HK$27,318,000 upon the Acquisition.

The fair value of fixed assets of the Target Group of HK$155,970,000 is determined by the directors of the Company with reference to the fair value of the property assets as at 31 October 2008 as stated in the valuation report prepared by BMI as set out in Appendix V to this circular. The fair value of inventories of the

– 193 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Target Group of HK$25,525,000 is determined by the directors of the Company with reference to the prevailing market prices of the Target Group’s products. As a result of the aforesaid fair value adjustments of fixed assets and inventories, deferred tax liabilities are calculated based on the applicable tax rate of 25%.

Based on the above-mentioned fair value adjustments of the identifiable tangible assets and liabilities, the fair value of the net assets of the Target Group is approximately HK$228,742,000. As the directors of the Company consider that the consideration of HK$300,000,000 approximates to the fair value of the identifiable net assets of the Target Group, the balance of HK$71,258,000 is therefore recognised as intangible assets for the purpose of this Unaudited Pro Forma Financial Information of the Enlarged Group to reflect the approximate value of the intangible assets as a result of the Acquisition. Goodwill from the Acquisition represents the difference between the consideration and the Target Group’s net assets, after consideration of the fair value adjustments in respect of fixed assets, inventories, intangible assets and deferred tax liabilities, as at 30 June 2008. No deferred taxation is recognized in respect of the intangible assets (including goodwill).

The fair value of the net identifiable assets of the Target Group at the date of completion of the Acquisition may be substantially different from the fair value used in the preparation of this Unaudited Pro Forma Financial Information of the Enlarged Group. In addition, the calculation of goodwill in the Unaudited Pro Forma Financial Information of the Enlarged Group is based on the value of Consideration Share at HK$0.39 per share on the assumption that the audited combined profit attributable to equity holders of the Target Company for the 12 months ending 30 June 2009, prepared in accordance with Hong Kong Financial Reporting Standards or accounting principles generally accepted in Hong Kong, is not less than RMB 45,000,000. However, the consideration of the Acquisition may be different from the amount stated in this Appendix as (1) the value of the Consideration Share in respect of the calculation of the consideration of the Acquisition should be based on the market price of the share of the Company on the completion date of the Acquisition, which may be different from the prices presented in this Appendix; and (2) it is subject to a purchase price adjustment in the event that the audited combined profit attributable to equity holders of the Target Company for the 12 months ending 30 June 2009, prepared in accordance with Hong Kong Financial Reporting Standards or accounting principles generally accepted in Hong Kong, is less than RMB 45,000,000. Therefore, the final amount of intangible assets (including goodwill) to be recognized in connection with the Acquisition may be different from the estimated intangible assets (including goodwill) stated herein.

The above unaudited pro forma adjustment reflects the increase in the net assets of HK$143,963,000.

(d) Translation of RMB into HK$ is made in the Unaudited Pro Forma Financial Information of the Enlarged Group at the rate of HK$1.1335 = RMB1.

– 194 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a comfort letter, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, KPMG, Certified Public Accountants, Hong Kong. As described in the section headed “Documents available for inspection” in Appendix VI to this circular, a copy of the following comfort letter is available for inspection.

(B) COMFORT LETTER ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

31 December 2008

The Directors Wing Shan International Limited

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of the Enlarged Group set out in Section A of Appendix III to the circular of Wing Shan International Limited (the “Company”, together with its subsidiaries are referred to as the “Group”) dated 31 December 2008, which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the proposed acquisition of the entire issued share capital in Smartpoint International Limited (the “Target Company”, together with its subsidiaries, the “Target Group”), might have affected the unaudited consolidated balance sheet of the Group as at 30 June 2008. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the notes to the Unaudited Pro Forma Financial Information of the Enlarged Group of Section A of this Appendix.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

– 195 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

It is our responsibility to form an opinion, as required by Paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (“HKSIR”) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. The engagement did not involve independent examination of any of the underlying financial information.

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Enlarged Group as at 30 June 2008 or any future date.

– 196 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Opinion

In our opinion:

(a) the accompanying Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

KPMG

Certified Public Accountants Hong Kong

– 197 –

REPORTS ON BENCHMARK FIGURE

APPENDIX IV

Set out below is the texts of the reports from KPMG, the auditors and the reporting accountants of the Group, and Optima Capital, the financial adviser to the Company, in relation to the Benchmark Figure, for the purpose of inclusion in this circular.

(i) Report from KPMG

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

31 December 2008

The Directors Wing Shan International Limited

Dear Sirs

Smartpoint International Limited (“the Target Company”)

We have reviewed the accounting policies adopted and calculations made in arriving at the forecast of the combined net profit after taxation of Smartpoint International Limited (the “Target Company”) and its subsidiaries (collectively referred to as the “Target Group”) for the year ending 30 June 2009 (“the Profit Forecast”), for which the directors of the Target Company are solely responsible, as set forth in the section headed “Adjustments to the Consideration and Custody Arrangements” of the “Letter from the Board” of the circular of Wing Shan International Limited dated 31 December 2008 (“the Circular”).

The Profit Forecast has been prepared by the directors of the Target Company based on the unaudited combined results of the Target Group for the five months ended 30 November 2008 and a forecast of the combined results of the Target Group for the remaining seven months ending 30 June 2009.

In our opinion, so far as the accounting policies and calculations are concerned, the Profit Forecast has been properly compiled in accordance with the assumptions made by the directors of the Target Company as set out in the section headed “Adjustments to the Consideration and Custody Arrangements” of the “Letter from the Board” of the Circular and is presented on a basis consistent in all material respects with the accounting policies adopted by the Target Group as set out in the Financial Information of the Target Group, the text of which is set out in Appendix II to the Circular.

Yours faithfully,

KPMG

Certified Public Accountants Hong Kong

– 198 –

REPORTS ON BENCHMARK FIGURE

APPENDIX IV

(ii) Report from Optima Capital

Unit 3618, 36/F Bank of America Tower 12 Harcourt Road Central Hong Kong

31 December 2008

The Board of Directors Wing Shan International Limited Rooms 2801-2805 China Insurance Group Building 141 Des Voeux Road Central Hong Kong

Dear Sirs,

We refer to the Benchmark Figure of consolidated net profit after taxation of the Target Group for the 12 months ending 30 June 2009 (the “Forecast Period”) of RMB45 million which is the basis of the Adjustment to the Consideration for the Acquisition. We note that the Benchmark Figure is regarded as a profit forecast under Rule 10 of the Takeovers Code. Details of the Benchmark Figure and the Adjustment mechanism are set out in the letter from the Board contained in the circular of the Company to the Shareholders dated 31 December 2008 (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

We have discussed with the management of the Target Group and the Guarantors the bases and assumptions adopted in preparing the Benchmark Figure. We have also discussed with KPMG, the auditors of the Company, the results of their review of the Benchmark Figure. KPMG has confirmed that, so far as the accounting policies and calculations are concerned, the Benchmark Figure has been properly compiled in accordance with the assumptions made by the directors of the Target Company as set out in the paragraph headed “Adjustments to the Consideration and custody arrangements” of the letter from the Board contained in the Circular and is presented on a basis consistent in all material respects with the accounting policies adopted by the Target Group.

Shareholders’ attention is drawn to the fact that the assumptions adopted for the preparation of the Benchmark Figure may not remain valid throughout the whole of the Forecast Period and could be materially affected by changes in economic and market conditions and other circumstances. Actual results are likely to be different from the Benchmark Figure since actual events may not occur as expected and the variations may be material. Subject to the above, on the bases and assumptions on which the

– 199 –

REPORTS ON BENCHMARK FIGURE

APPENDIX IV

Benchmark Figure has been prepared by the management of the Target Group and the Guarantors and on the basis of the review performed by KPMG, we are of the opinion that the Benchmark Figure, for which the management of the Target Group and the Guarantors are solely responsible, has been made after due care and consideration.

Yours faithfully, For and on behalf of OPTIMA CAPITAL LIMITED Mei H. Leung Chairman

– 200 –

PROPERTY VALUATION

APPENDIX V

Set out below is the text of the letter, summary of values and valuation certificates received from BMI Appraisals Limited, an independent property valuer, prepared for the purpose of incorporation in this circular, in connected with their valuations of the properties of the Enlarged Group as at 31 October 2008.

==> picture [225 x 79] intentionally omitted <==

31 December 2008

The Directors Wing Shan International Limited Rooms 2801-2805 China Insurance Group Building No. 141 Des Voeux Road Central Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to your instructions for us to value the properties held by Wing Shan International Limited (the “Company”) and/or its subsidiaries (hereinafter referred to as the “Group”) or Smartpoint International Limited (the “Target Company”) or its subsidiaries (hereinafter referred to as the “Target Group”) located in the People’s Republic of China (the “PRC”). We confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 31 October 2008 (the “date of valuation”).

BASIS OF VALUATION

Our valuations of the concerned properties have been based on the Market Value, which is defined as “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.”

PROPERTY CATEGORISATIONS

In the course of our valuations, the valued properties are categorised into the following groups:

Group I – Properties held by the Group for owner-occupation in the PRC

– 201 –

PROPERTY VALUATION

APPENDIX V

Group II – Properties held by the Group for investment purpose in the PRC

Group III – Property held by the Group under contractual rights in the PRC

Group IV – Properties held by the Target Group for owner-occupation in the PRC

Group V – Property held by the Target Group for future development in the PRC

VALUATION METHODOLOGIES

In valuing Property Nos. 2 – 4, 6 – 10, 15 and 17, we have valued them on an open market basis by the Comparison Approach assuming sale in their existing states with the benefit of vacant possession and by making reference to comparable sales evidence as available in the relevant market. Appropriate adjustments have then been made to account for the differences between the properties and the comparables in terms of age, time, location and other relevant factors.

For Property Nos. 6 – 10, we have also adopted the Investment Approach where appropriate by taking into account the current passing rents of the properties being held under existing tenancies and the reversionary potential of the tenancies if they have been or would be let to tenants.

In valuing Property Nos. 1, 5, 12 – 14 and 16 in the PRC, due to the inherent nature of usage and lack of market sales comparables, the properties have been valued by the Depreciated Replacement Cost Approach. Depreciated replacement cost is defined as “the aggregate amount of the value of the land for the existing use or a notional replacement site in the same locality, and the new replacement cost of the buildings and other site works, from which appropriate deductions may then be made to allow for the age, condition, economic and functional obsolescence and environmental factors etc; all of these might result in the existing property being worth less to the undertaking in occupation than would a new replacement.” This basis has been used due to the lack of an established market upon which to base comparable transactions. However this approach generally furnishes the most reliable indication of value for assets without a known used market.

For Property No. 11, no commercial value has been attributed to the property due to the absence of relevant title documents.

TITLE INVESTIGATION

For the properties located in the PRC, we have been provided with extracts of title documents and have been advised by the Group that no further relevant documents have been produced. For the properties in Group II, we have been provided tenancy agreements. Moreover, due to the nature of the land registration system in the PRC, we have not been able to examine the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. Therefore, in the course of our valuations, we have relied on the advice and information given by the Group and its PRC legal adviser, King’s Law Firm ( ) regarding the titles of the PRC properties. All documents have been used for reference only.

– 202 –

APPENDIX V

PROPERTY VALUATION

In valuing the properties in the PRC, we have relied on the advice given by the Group and its PRC legal adviser that the Group or the Target Group has valid and enforceable titles to the properties which are freely transferable, and has free and uninterrupted rights to use the same, for the whole of the unexpired terms granted subject to the payment of annual government rent / land use fees and all requisite land premium / purchase consideration payable have been fully settled.

VALUATION ASSUMPTIONS

Our valuations have also been made on the assumption that the properties are sold in the market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to affect the values of the properties.

In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuations.

VALUATION CONSIDERATIONS

We have inspected the properties externally and where possible, the interior of the properties. In the course of our inspections, we did not note any serious defects. However, no structural surveys have been made. We are, therefore, unable to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

In the course of our valuations, we have relied to a considerable extent on the information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, particulars of occupancy, site / floor areas, completion dates of the buildings, development costs, identification of the properties and other relevant information.

Except otherwise stated, dimensions, measurements and site / floor areas included in the valuation certificates are based on information contained in the leases and other documents provided to us and are therefore only approximations.

We have not carried out detailed on-site measurements to verify the correctness of the site / floor areas in respect of the properties but have assumed that the site / floor areas shown on the documents handed to us are correct.

We have no reason to doubt the truth and accuracy of the information provided to us by the Group and we have relied on your confirmation that no material facts have been omitted from the information so supplied. We consider that we have been provided with sufficient information for us to reach an informed view.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

– 203 –

APPENDIX V

PROPERTY VALUATION

For the properties located in the PRC, the potential tax liabilities include Value Added Tax ( ) at 17% of total revenue, Business Tax ( ) at 5% of the taxable income, City Development Tax ( ) at 7% of Circulation Tax ( ), Education Charge ( ) at 3% of Circulation Tax and Income Tax ( ) at 25% on profit before tax. The exact amount of tax payable upon realization of the relevant properties in the PRC will be subject to the formal tax advice issued by the relevant tax authorities at the time of disposal of relevant properties upon presentation of the relevant transaction documents. However, as advised by the Company, the Group will continue to occupy the PRC properties in their existing uses for its existing medical business, and the likelihood of any tax liabilities being crystallized is, therefore, remote.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Our valuations have been prepared under the generally accepted valuation procedures and are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfer.

Our summary of values and the valuation certificates are attached herewith.

Yours faithfully, For and on behalf of

BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng Joannau W.F. Chan BSc, MUD, MBA (Finance), MSc (Eng), BSc. MSc. MRICS MHKIS RPS(GP) PhD (Econ), MHKIS, MCIArb, AFA, SCIFM, FCIM, Director MASCE, MIET, MIEEE, MASME, MIIE Director

Notes:

Dr. Tony C.H. Cheng is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 16 years’ experience in valuations of properties in Hong Kong and the People’s Republic of China.

Ms. Joannau W.F. Chan is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 16 years’ experience in valuations of properties in Hong Kong and over 10 years’ experience in valuations of properties in the People’s Republic of China.

– 204 –

PROPERTY VALUATION

APPENDIX V

SUMMARY OF VALUES

											Market			Value
											Value in		attributable to
											existing state	Interest		the Group
											as at	attributable		as at
No. Property											31 October 2008	to the Group	31	October 2008
											RMB			RMB
Group	I –			Properties					held	by the Group for owner-occupation in the PRC
1. An		industrial complex									located at 34,300,000	51%		17,493,000
No. 89					Fo	Ping		Road,
Foshan					City,
Guangdong							Province,
The PRC

2. Unit			701,								200,000	51%		102,000
No. 23					Dong Sheng Nei Street,
Foshan					City,
Guangdong							Province,
The PRC
3. Units				205		and 305 and 580,000						51%		295,800
2	ancillary						carports,
No. 9 Huayuan East Street,
Foshan					City,
Guangdong							Province,
The PRC

4. Unit			807,								160,000	51%		81,600
No. 2 Jian Hua Street,
Foshan					City,
Guangdong							Province,
The PRC

– 205 –

APPENDIX V

PROPERTY VALUATION

No.
Property
Market
Value in
existing state
as at
31 October 2008
Interest
attributable
to the Group
RMB
5.
An industrial complex
located at
No. 35 Fo Luo Main Road,
Foshan City,
Guangdong Province,
The PRC
57,400,000
51%
Sub-Total:
92,640,000
Group II – Properties held by the Group for investment purpose in the
6.
A commercial building
located at
No. 49 Rui Qing Sub-district,
Zhanjiang City,
Guangdong Province,
The PRC
1,580,000
51%
7.
A warehouse located at
No. 86 Li Yu Sha Road,
Foshan City,
Guangdong Province,
The PRC
1,400,000
51%
8.
Shop No. 3, Level 1,
No. 33 Wei Guo Road,
Foshan City,
Guangdong Province,
The PRC
540,000
51%

Value
attributable to
the Group
as at
31 October 2008
RMB
29,274,000

47,246,400

PRC
805,800
714,000
275,400

– 206 –

APPENDIX V

PROPERTY VALUATION

No. Property 31 9. A development located at No. 43 Qing Ning Road, Foshan City, Guangdong Province, The PRC 10. A commercial building located at No. 81 Sheng Ping Road, Foshan City, Guangdong Province, The PRC Sub-Total: Group III – Property held by the Group 11. A non-residential unit in a proposed development at Shang Shi Jiao Tang Bian Street, Chao Dong Village, Huan Shi County, Foshan City, Guangdong Province, The PRC N Sub-Total:	Market Value in existing state as at October 2008 Interest attributable to the Group RMB 11,540,000 51% 560,000 51%	Value attributable to the Group as at 31 October 2008 RMB 5,885,400 285,600
	15,620,000 7,966,200 under contractual rights in the PRC o Commercial Value 51% No Commercial Value Nil Nil	7,966,200
		Nil

– 207 –

APPENDIX V

PROPERTY VALUATION

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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Market|Value|
|Value|in|Interest|attributable|to|
|existing|state|attributable|the|Group|
|as|at|to|the|Target|as|at|
|No.|Property|31|October|2008|Group|31|October|2008|
|RMB|RMB|
|Group|IV|–|Properties|held|by|the|Target|Group|for|owner-occupation|in|the|PRC|
|12.|An|industrial|complex|located|at|33,200,000|100%|33,200,000|
|No.|2|Qiao|Xi|Road,|
|Rong|Shan|Neighbourhood|
|Committee,|
|Rong|Gui|Road|Workplace,|
|Shunde|District,|
|Foshan|City,|
|Guangdong|Province,|
|The|PRC|
|13.|An|industrial|complex|located|at|10,200,000|100%|10,200,000|
|Shiban|Village|Committee|
|Industrial|Zone,|
|Lunjiao|Road|Workplace,|
|Shunde|District,|
|Foshan|City,|
|Guangdong|Province,|
|The|PRC|

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– 208 –

APPENDIX V

PROPERTY VALUATION

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

|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|Market|Value|
|Value|in|Interest|attributable|to|
|existing|state|attributable|the|Group|
|as|at|to|the|Target|as|at|
|No.|Property|31|October|2008|Group|31|October|2008|
|RMB|RMB|
|14.|An|industrial|complex|at|61,500,000|100%|61,500,000|
|No.|2|Ke|Yuan|Heng|Third|Road,|
|Xiao|Huang|Pu|Neighbourhood|
|Committee|High|and|New|
|Technology|Industrial|
|Development|Zone|(Rong|Gui),|
|Rong|Gui|County|Workplace,|
|Shunde|District,|
|Foshan|City,|
|Guangdong|Province,|
|The|PRC|
|15.|6|residential|units|in|Block|1,|1,740,000|100%|1,740,000|
|Shu|Yuan|Road,|
|Zhenhua|Management|Zone|
|Workplace,|
|Rong|Gui|County,|
|Shunde|District,|
|Foshan|City,|
|Guangdong|Province,|
|The|PRC|

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– 209 –

APPENDIX V

PROPERTY VALUATION

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Market|Value|
|Value|in|Interest|attributable|to|
|existing|state|attributable|the|Group|
|as|at|to|the|Target|as|at|
|No.|Property|31|October|2008|Group|31|October|2008|
|RMB|RMB|
|16.|An|industrial|complex|located|at|29,900,000|100%|29,900,000|
|Huan|Cheng|Xi|Road|West|and|
|Hong|Xing|Xi|Road|North,|
|Central|District,|
|Jining|City,|
|Shandong|Province,|
|The|PRC|
|Sub-Total:|136,540,000|136,540,000|

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Group V – Property held by the Target Group for future development in the PRC

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|17.|Land|Parcel|C08-2|located|at|15,500,000|100%|15,500,000|
|Science|and|Technology|Product|
|Parks,|
|Shunde|High|and|New|
|Technology|Zone|(Rong|Gui),|
|Shunde|District,|
|Foshan|City,|
|Guangdong|Province,|
|The|PRC|
|Sub-Total:|15,500,000|15,500,000|
|Grand|Total:|260,300,000|207,252,600|

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– 210 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties held by the Group for owner-occupation in the PRC

Market Value in Particulars of existing state as at Property Description and tenure occupancy 31 October 2008 RMB 1. An industrial complex The property comprises a The property was 34,300,000 located at parcel of land with a site area occupied by the No. 89 Fo Ping Road, of approximately 21,757 sq.m. Group for industrial (51% interest Foshan City, (or about 234,192.35 sq.ft.) use as at the date of attributable to the Guangdong Province, upon which 13 buildings and valuation. Group: 17,493,000) The PRC structures were erected in various stages between 1975 and 2004. The total gross floor area (“GFA”) of the property is approximately 33,134.10 sq.m. (or about 356,655.45 sq.ft.). The land use rights of the property have been granted for a term expiring on 15 November 2048 for industrial use.

Notes:−

Pursuant to 11 Real Estate Title Certificates all issued by Guangdong Province People’s Government ( ), 11 buildings and structures of the property with a total GFA of 21,606.40 sq.m. erected on the land parcel of the property with a site area of 22,057 sq.m. are legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. ( ) for industrial use. The details of which are summarized in the table below:

Certificate No.
Use of the Buildings
No. of
Storeys
Completion
Year
Yue Fang Di Zheng Zi Di No. 2070312
Canteen
2
1999
Yue Fang Di Zheng Zi Di No. 2070327
Transportation Bridge
N/A
1999
Yue Fang Di Zheng Zi Di No. 2087199
Boiler
2
1980
Yue Fang Di Zheng Zi Di No. 2087200
Scientific Research
7
1996
Yue Fang Di Zheng Zi Di No. 2088483
Vessel Washing
1
1991
Yue Fang Di Zheng Zi Di No. 2088484
Material Warehouse
6
1993
Yue Fang Di Zheng Zi Di No. 2088485
10 ton Boiler
1
1991
Yue Fang Di Zheng Zi Di No. 2088486
Injection Workshop
4
1975
Yue Fang Di Zheng Zi Di No. 2088487
Material Warehouse
6
1989
Yue Fang Di Zheng Zi Di No. 2088488
Composite Workshop
4
1991
Yue Fang Di Zheng Zi Di No. 2088489
Power Distribution
4
1989
Total:

GFA
(sq.m.)
608.53
60.86
461.84
3,242.01
191.25
4,620.70
342.40
1,018.35
5,335.50
5,410.23
314.73

21,606.40

– 211 –

APPENDIX V

PROPERTY VALUATION

Pursuant to 2 Real Estate Title Certificates both issued by Guangdong Province People’s Government, other 2 buildings and structures of the property with a total GFA of 11,527.70 sq.m. erected on the land parcel of the property with a site area of 21,757 sq.m. are legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. for industrial use. The details of which are summarized in the table below:

Certificate No. Use of the Buildings No. of Storeys Completion Year Yue Fang Di Zheng Zi Di No. C4726925 Pill Workshop 4 2002 Yue Fang Di Zheng Zi Di No. C4726916 Composite Workshop 5 N/A Total:	GFA (sq.m.) 6,600.18 4,927.52
	11,527.70

According to the information from the Group and confirmation of the PRC legal adviser, the site area of the property is 21,757 sq.m. which is detailed in Note 2.
The status of title in accordance with the information provided by the Group is as follows:

Real Estate Title Certificates Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Dezhong Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The property may be disposed of freely to both local and overseas purchasers; and
f. Having considered relevant title documents and information from the Group, the site area of the property is 21,757 sq.m..
Foshan Dezhong Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 212 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. Unit 701, The property comprises a The property was 200,000 No. 23 Dong Sheng Nei residential unit on the 7[th] occupied by the Street, floor of an 8-storey residential Group as staff (51% interest Foshan City, building which was completed quarters as at the date attributable to the Guangdong Province, in 1990’s. of valuation. Group: 102,000) The PRC The gross floor area (“GFA”) of the property is approximately 73.98 sq.m. (or about 796.32 sq.ft.).

The land use rights of the property have been granted for a term expiring on 22 June 2069 for residential use.

Notes:−

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C0556130 issued by Guangdong Province People’s Government dated 18 October 2001, the property with a GFA of 73.98 sq.m. is legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. for a term expiring on 22 June 2069 for residential use.
The status of title in accordance with the information provided by the Group is as follows:

Real Estate Title Certificate Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Dezhong Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Dezhong Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 213 –

APPENDIX V

PROPERTY VALUATION

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. Units 205 and 305 and 2 The property comprises 2 The property was 580,000 ancillary carports, residential units and 2 occupied by the No. 9 Huayuan East ancillary carports in a 9-storey Group for residential (51% interest Street, residential building which was and carparking uses as attributable to the Foshan City, completed in 1990’s. at the date of Group: 295,800) Guangdong Province, valuation. The PRC The gross floor area (“GFA”) of the residential portion of the property is approximately 140.50 sq.m. (or about 1,512.34 sq.ft.). The land use rights of the property have been granted for a term expiring on 25 May 2070 for residential use.

Notes:−

Pursuant to 2 Real Estate Title Certificates both issued by Guangdong Province People’s Government, the residential portion of the property is legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. for residential use. The details of which are summarized in the table below:

	Premise	Certificate No.	GFA
			(sq.m.)
	Unit 205	Yue Fang Di Zheng Zi Di No. C0657394	70.25
	Unit 305	Yue Fang Di Zheng Zi Di No. C0657393	70.25
		Total:	140.50

2.	Pursuant to 2 Real Estate Title	Certificates both issued by Guangdong Province People’s Government, the
	carport portion of the property is legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. for residential
	use. The details of which are summarized in the table below:
	Premise	Certificate No.	GFA
			(sq.m.)
	Ancillary Carport of Unit 205	Yue Fang Di Zheng Zi Di No. C0657395	7.21
	Ancillary Carport of Unit 305	Yue Fang Di Zheng Zi Di No. C0657383	6.34
		Total:	13.55

The status of title in accordance with the information provided by the Group is as follows: Real Estate Title Certificates Yes

– 214 –

PROPERTY VALUATION

APPENDIX V

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Dezhong Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing uses of the property are in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Dezhong Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 215 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. Unit 807, The property comprises a The property was 160,000 No. 2 Jian Hua Street, residential unit on 8[th] Floor of occupied by the Foshan City, an 8-storey residential Group for residential (51% interest Guangdong Province, building which was completed use as at the date of attributable to the The PRC in 1990’s. valuation. Group: 81,600) The gross floor area (“GFA”) of the property is approximately 65.27 sq.m. (or about 702.57 sq.ft.).

The land use rights of the property have been granted for a term expiring on 31 December 2063 for residential use.

Notes:−

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C0556131 issued by Guangdong Province People’s Government dated 18 October 2001, the property with a GFA of 65.27 sq.m. is legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. for a term expiring on 31 December 2063 for residential use.
The status of title in accordance with the information provided by the Group is as follows:

Real Estate Title Certificate Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Dezhong Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Dezhong Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 216 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. An industrial complex The property comprises 2 The property was 57,400,000 located at parcels of land with a total occupied by the No. 35 Fo Luo Main site area of approximately Group for industrial (51% interest Road, 34,377.11 sq.m. (or about use as at the date of attributable to the Foshan City, 370,035.21 sq.ft.) upon which valuation. Group: 29,274,000) Guangdong Province, 12 buildings and structures The PRC were erected mainly in 2000. The total gross floor area (“GFA”) of the property is approximately 45,850.63 sq.m. (or about 493,536.18 sq.ft.). The land use rights of the 2 parcels of the land with site areas of 19,583.00 sq.m. and 14,794.11 sq.m. have been granted for respective terms expiring on 1 January 2050 and 6 April 2050 for industrial use.

Notes:−

Pursuant to 2 State-owned Land Use Rights Certificates, Fo Fu Guo Yong (2001) Zi Di No. 06000614403 ( ) and Nan Fu Guo Yong (2001) Zi Di No. Di090139 ( ) both issued by the People’s Republic of China State-owned Land Resources Bureau ( ) dated 28 September 2001 and 23 November 2001 respectively, the land use rights of the property with a total site area of 34,377.11 sq.m. have been granted to Foshan Feng Liao Xing Pharmaceutical Co., Ltd. ( ) for respective terms expiring on 1 January 2050 and 6 April 2050 for industrial use.

– 217 –

APPENDIX V

PROPERTY VALUATION

Pursuant to 12 Real Estate Title Certificates all issued by Guangdong Province People’s Government ( ), the 12 buildings and structures of the property with a total GFA of 45,850.63 sq.m. erected on the land parcel of the property with a total site area of 34,377.11 sq.m. are legally owned by Foshan Feng Liao Xing Pharmaceutical Co., Ltd. for industrial use. The details of which are summarized in the table below:

Certificate No.
Buildings
No. of
Storeys
Completion
Year
Yue Fang Di Zheng Zi Di No. C0653502
Building No.1
10
N/A
Yue Fang Di Zheng Zi Di No. C0653503
Building No.2
5
N/A
Yue Fang Di Zheng Zi Di No. C0653504
Building No.3
6
N/A
Yue Fang Di Zheng Zi Di No. C0653505
Warehouse, Phase 2
5
N/A
Yue Fang Di Zheng Zi Di No. C0653507
Building No.4
7
N/A
Yue Fang Di Zheng Zi Di No. C0653508
Building No.7
4
N/A
Yue Fang Di Zheng Zi Di No. C0653509
Building Nos. 8 & 9
3
N/A
Yue Fang Di Zheng Zi Di No. C0653510
Building No.5
6
N/A
Yue Fang Di Zheng Zi Di No. C4584058
Sewage Treatment Bldg
4
1994
Yue Fang Di Zheng Zi Di No. C4584059
Inhibitor Workshop
5
2001
Yue Fang Di Zheng Zi Di No. C4584060
Warehouse Building
5
2003
Yue Fang Di Zheng Zi Di No. C4387040
Test Composite Building
7
2003
Total:

GFA
(sq.m.)
3,353.66
2,696.90
2,341.29
1,623.72
4,311.73
944.18
1,654.25
3,678.70
886.24
11,298.38
5,618.60
7,442.98

45,850.63

The status of title in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Certificates Yes Real Estate Title Certificates Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 218 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties held by the Group for investment purpose in the PRC

Property
Description and tenure
Particulars of
occupancy
Market Value in
existing state as at
31 October 2008
RMB
A commercial building
located at
No. 49 Rui Qing
Sub-district,
Zhanjiang City,
Guangdong Province,
The PRC
The property comprises a
parcel of land with a site area
of approximately 338 sq.m.
(or about 3,638.23 sq.ft.) upon
which a 5-storey commercial
building was erected in about
1997.
The gross floor area (“GFA”)
of the property is
approximately 1,866.20 sq.m.
(or about 20,087.78 sq.ft.).
The land use rights of the
property have been granted for
a term expiring on 22 March
2063 for commercial /
residential uses.
The property is leased
to an independent
third party for a term
of 5 years expiring on
31 March 2012 at a
monthly rent of
RMB5,000 for
commercial use as at
the date of valuation.
1,580,000
(51% interest
attributable to the
Group: 805,800)

Notes:−

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C3660682 issued by Guangdong Province People’s Government dated 24 November 2005, the property with a site area of 338 sq.m. and a GFA of 1,866.20 sq.m. is legally owned by Foshan Feng Liao Xing Pharmaceutical Co., Ltd. for a term expiring on 22 March 2063 for commercial/residential uses.
The status of title in accordance with the information provided by the Group is as follows:
Real Estate Title Certificate Yes
The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 219 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. A warehouse located at The property comprises a The property is leased 1,400,000 No. 86 Li Yu Sha Road, parcel of land with a site area to an independent Foshan City, of approximately 429 sq.m. third party for a term (51% interest Guangdong Province, (or about 4,617.76 sq.ft.) upon of 3 years expiring on attributable to the The PRC which a 2-storey warehouse 30 September 2009 at Group: 714,000) was erected in about 2006. a monthly rent of RMB11,973 for
The gross floor area (“GFA”) warehouse use as at of the property is the date of valuation. approximately 919.86 sq.m. (or about 9,901.37 sq.ft.). The land use rights of the property have been granted for a term expiring on 1 May 2049 for warehouse use.

Notes:−

Pursuant to a State-owned Land Use Rights Certificate, Fo Fu Guo Yong (2008) Di No. 06000645784 issued by Foshan City People’s Government ( ) dated 17 July 2008, the land use rights of the property with a site area of 429 sq.m. have been granted to Foshan Dezhong Pharmaceutical Co., Ltd. for a term expiring on 1 May 2049 for warehouse use.
Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C6810584 issued by Guangdong Province People’s Government, the property with a GFA of 919.86 sq.m. is legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. for a term expiring on 1 May 2049 for warehouse use.
The status of title in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Certificate Yes Real Estate Title Certificate Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Dezhong Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Dezhong Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 220 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. Shop No. 3, The property comprises a shop The property is leased 540,000 Level 1, unit on Level 1 of a 9-storey to an independent No. 33 Wei Guo Road, commercial / residential third party for a term (51% interest Foshan City, building which was completed of 2 years expiring on attributable to the Guangdong Province, in 1990’s. 31 December 2008 at Group: 275,400) The PRC a monthly rent of The gross floor area (“GFA”) RMB3,000 for of the property is commercial use as at approximately 104.80 sq.m. the date of valuation. (or about 1,128.07 sq.ft.).

The land use rights of the property have been granted for a term expiring on 30 April 2041 for commercial use.

Notes:−

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C653506 issued by Guangdong Province People’s Government, the property with a GFA of 104.80 sq.m. is legally owned by Foshan Feng Liao Xing Pharmaceutical Co., Ltd. for a term expiring on 30 April 2041 for commercial use.
The status of title in accordance with the information provided by the Group is as follows:
Real Estate Title Certificate Yes
The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 221 –

APPENDIX V

PROPERTY VALUATION

VALUATION CERTIFICATE

Property

A development located at No. 43 Qing Ning Road, Foshan City, Guangdong Province, The PRC

Market Value in Particulars of existing state as at Description and tenure occupancy 31 October 2008 RMB The property comprises a The property is leased 11,540,000 parcel of land with a site area to an independent of approximately 5,543.60 third party for a term (51% interest sq.m. (or about 59,671.31 of 30 years as a attributable to the sq.ft.) upon which an hospital complex as at Group: 5,885,400) industrial complex with 7 the date of valuation. buildings and structures were erected in various stages Details of the tenancy between 1960 and 1982. are shown in Note 4.

The property comprises a parcel of land with a site area of approximately 5,543.60 sq.m. (or about 59,671.31 sq.ft.) upon which an industrial complex with 7 buildings and structures were erected in various stages between 1960 and 1982. The total gross floor area (“GFA”) of the property is approximately 8,210.26 sq.m. (or about 88,375.24 sq.ft.). The land use rights of the property have been granted for a term expiring on 1 January 2050 for industrial use.

Notes:−

Pursuant to 7 Real Estate Title Certificates all issued by Guangdong Province People’s Government, 7 buildings and structures of the property are legally owned by Foshan Feng Liao Xing Pharmaceutical Co., Ltd. for industrial use. The details of which are summarized in the table below:

Certificate No.
Use of the Buildings
No. of
Storeys
Yue Fang Di Zheng Zi Di No. C0653511
Building No.1
7
Yue Fang Di Zheng Zi Di No. C0653512
Building No.2
5
Yue Fang Di Zheng Zi Di No. C0653515
Building No.5
5
Yue Fang Di Zheng Zi Di No. C0653516
Building No.6
1
Yue Fang Di Zheng Zi Di No. C0653517
Building No.7
1
Yue Fang Di Zheng Zi Di No. C0653518
Building No.8
1
Yue Fang Di Zheng Zi Di No. C0653519
Building No.15
3
Total:

GFA
(sq.m.)
1,710.55
3,174.78
1,589.05
89.04
177.00
92.20
1,377.64

8,210.26

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C0653514 issued by the Guangdong Province People’s Government and Foshan City Housing Relocation Contract ( ) entered into between Foshan City 12th Primary School ( ) and Foshan Feng Liao Xing Pharmaceutical Co., Ltd. dated 1 March 2003, the land with a site area of 62.9 sq.m. as advised by the Group was transferred from the latter to the former.
Pursuant to a Land Transfer Agreement ( ) entered between Foshan Feng Liao Xing Pharmaceutical Co., Ltd. and Foshan Dongjian Group Co., Ltd. ( ), the land with a site area of 42.50 sq.m. was transferred from the former to the latter.

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APPENDIX V

PROPERTY VALUATION

The details of the tenancy are summarized in the table below:

Year Duration Annual Rent 1[st] – 3[rd] Year 1 March 2004 – 28 February 2007 RMB 500,000 4[th] – 6[th] Year 1 March 2007 – 28 February 2010 RMB 700,000 7[th] – 10[th] Year 1 March 2010 – 28 February 2014 RMB 800,000 11[th] – 20[th] Year 1 March 2014 – 29 February 2024 RMB1,200,000 21[st] – 30[th] Year 1 March 2024 – 1 March 2024 RMB1,500,000

The yearly rent can be adjusted subject to the Price Index from Statistics Bureau ( ).

The status of title in accordance with the information provided by the Group is as follows: Real Estate Title Certificates Yes
The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing land use mentioned in the tenancy is different from the land use in Real Estate Title Certificates and the approval of existing land use has not been obtained from the relevant government authority. However, there exist no legal impediments to apply for the change of the uses of land and buildings of the property.
e. The buildings and structure without relevant ownership documents may be required to demolished by the relevant government authority.
f. According to the PRC laws and regulations, the term of tenancy cannot exceed 20 years, therefore the term of last 10 years of the tenancy is void.
g. The property may be disposed of freely to both local and overseas purchasers; and
h. Having considered relevant title documents and advice from the Group, the site area of the property is 5,543.60 sq.m..
Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 223 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at Description and tenure occupancy 31 October 2008 RMB The property comprises a The property is leased 560,000 parcel of land with a site area to an independent of approximately 39.00 sq.m. third party for a term (51% interest (or about 419.80 sq.ft.) upon expiring on 31 attributable to the which a 2-storey commercial December 2009 at a Group: 285,600) building was erected in about monthly rent of 1972. RMB3,250 for commercial use as at The floor area (“GFA”) the date of valuation.

Property

A commercial building The property comprises a located at parcel of land with a site area No. 81 Sheng Ping Road, of approximately 39.00 sq.m. Foshan City, (or about 419.80 sq.ft.) upon Guangdong Province, which a 2-storey commercial The PRC building was erected in about 1972. The gross floor area (“GFA”) of the property is approximately 72.37 sq.m. (or about 778.99 sq.ft.).

The land use rights of the property have been granted for a term expiring on 15 November 2038 for commercial use.

Notes:−

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. 2063661 issued by Guangdong Province People’s Government, the property with a site area of 39 sq.m. and a GFA of 72.37 sq.m. is legally owned by Foshan Dezhong Pharmaceutical Co., Ltd. for a term expiring on 15 November 2038 for commercial use.
The status of title in accordance with the information provided by the Group is as follows:
Real Estate Title Certificate Yes
The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Foshan Dezhong Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
Foshan Dezhong Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

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PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group III – Property held by the Group under contractual rights in the PRC

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. A non-residential The property comprises a The construction No Commercial unit in a proposed non-residential unit with a works of the proposed Value development at proposed gross floor area development have not Shang Shi Jiao Tang Bian (GFA) of 1,250 sq.m. in a been commenced as at Street, proposed development. the date of valuation. Chao Dong Village, Huan Shi County, Foshan City, Guangdong Province, The PRC

==> picture [62 x 52] intentionally omitted <==

Notes:−

Pursuant to a Housing Resettlement Contract A0108193D entered into between Foshan Dongjian Group Co., Ltd. ( ) and Foshan Feng Liao Xing Pharmaceutical Co., Ltd. dated 31 August 2008, the property is granted to the latter for the resettlement of a land with a site area of 1,250 sq.m. which was formerly owned by the latter.
As advised by the Group, the land detailed in Note 1 has been handed over to the former.
The status of title in accordance with the information provided by the Group is as follows:

Real Estate Title Certificate No

The opinion of the PRC legal adviser to the Group states that the completed property will be handed over to Foshan Feng Liao Xing Pharmaceutical Co., Ltd. upon the completion of the subject proposed development.
As at the date of valuation, no commercial value has been attributed to the property due to the absence of relevant title documents.
Foshan Feng Liao Xing Pharmaceutical Co., Ltd. is effectively owned as to 51% by the Group.

– 225 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group IV – Properties held by the Target Group for owner-occupation in the PRC

==> picture [426 x 248] intentionally omitted <==

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

||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Market|Value|in|
|Particulars|of|existing|state|as|at|
|Property|Description|and|tenure|occupancy|31|October|2008|
|RMB|
|12.|An|industrial|complex|The|property|comprises|a|The|property|was|33,200,000|
|located|at|parcel|of|land|with|a|site|area|occupied|by|the|Target|
|No.|2|Qiao|Xi|Road,|of|approximately|22,376.80|Group|for|industrial|(100%|interest|
|Rong|Shan|sq.m.|(or|about|240,863.88|use|as|at|the|date|of|attributable|to|the|
|Neighbourhood|sq.ft.)|upon|which|various|valuation.|Target|Group:|
|Committee,|buildings|were|erected|in|33,200,000)|
|Rong|Gui|Road|1990’s.|
|Workplace,|
|Shunde|District,|The|gross|floor|area|(“GFA”)|
|Foshan|City,|of|the|property|is|
|Guangdong|Province,|approximately|21,222.80|sq.m.|
|The|PRC|(or|about|228,442.22|sq.ft.).|
|The|land|use|rights|of|the|
|property|have|been|granted|for|
|a|term|expiring|on|27|
|November|2051|for|industrial|
|use.|

----- End of picture text -----

Notes:−

Pursuant to a State-owned Land Use Rights Grant Agreement ( ) (“Agreement”) and a State-owned Land Use Rights Grant Agreement Supplementary Agreement ( ) (“Supplementary Agreement”) entered into between ( ) and Guangdong Medi-world Pharmaceutical Co., Ltd. ( ) dated 3 December 2001 and 5 February 2002 respectively, Guangdong Medi-world Pharmaceutical Co., Ltd. has been granted the land use rights of the property with the following salient conditions:

(i) Use : Industrial (ii) Site Area of the Property : 21,963.7 sq.m. (iii) Land Use Term : 50 years from the issue date of State-owned Land Use Rights Certificate (iv) Consideration : RMB10,981,850

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C3184097 issued by Guangdong Province People’s Government, the property with a site area of 22,376.8 sq.m. and a GFA of 21,222.8 sq.m. is legally owned by Medi-world Pharmaceutical Co., Ltd. for a term expiring on 27 November 2051 for industrial use.
The property is subject to a mortgage registered on 1 August 2006 in favour of Shunde Rong Gui Village Credit Cooperative Association ( ).
The status of title in accordance with the information provided by the Group is as follows:

State-Owned Land Use Rights Grant Certificate Yes Real Estate Title Certificate Yes

– 226 –

PROPERTY VALUATION

APPENDIX V

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-world Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
d. The property may be disposed of freely to both local and overseas purchasers subject to the approval of the relevant mortgagee.
We have prepared our valuation based on the assumption that the property is not subject to any material encumbrances.
Guangdong Medi-world Pharmaceutical Co., Ltd. is an indirect wholly-owned subsidiary of the Target Company.

– 227 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at Property Description and tenure occupancy 31 October 2008 RMB 13. An industrial complex The property comprises a The property was 10,200,000 located at parcel of land with a site area occupied by the Target Shiban Village of approximately 5,625.0 Group for industrial (100% interest Committee Industrial sq.m. (or about 60,547.50 use as at the date of attributable to the Zone, sq.ft.) upon which various valuation. Target Group: Lunjiao Road Workplace, buildings were erected mainly 10,200,000) Shunde District, in 1991. Foshan City, Guangdong Province, The gross floor area (“GFA”) The PRC of the property is approximately 5,018.7 sq.m. (or about 54,021.29 sq.ft.). The land use rights of the property have been granted for a term expiring on 5 October 2049 for industrial use.

Notes:−

Pursuant to a State-owned Land Use Rights Grant Agreement ( ) (“Agreement”) entered into between Lunjiao County Shiban Village Committee ( ) and Guangdong Medi-world Dazhong Pharmaceutical Co., Ltd. ( ) dated 17 September 1999, the latter has been granted the land use rights of the property with the following salient conditions:

(i) Use : Industrial (ii) Site Area of the Property : 5,660 sq.m. (iii) Land Use Term : 50 years from the issue date of State-owned Land Use Rights Certificate (iv) Consideration : RMB210 per sq.m. based on site area

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C4766703 issued by Guangdong Province People’s Government, the property with a site area of 5,625.0 sq.m and a GFA of 5,018.7 sq.m. is legally owned by Medi-world Pharmaceutical Co., Ltd. for a term expiring on 5 October 2049 for industrial use.
The property is subject to a mortgage approved on 25 April 2006 in favour of Shunde Rong Gui Village Credit Cooperative Association.
The status of title in accordance with the information provided by the Group is as follows:

State-Owned Land Use Right Grant Agreement Yes Real Estate Title Certificate Yes

– 228 –

PROPERTY VALUATION

APPENDIX V

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-world Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
d. The property may be disposed of freely to both local and overseas purchasers subject to the approval of the relevant mortgagee.
e. Guangdong Medi-world Dazhong Pharmaceutical Co., Ltd. is the former name of Guangdong Medi-world Pharmaceutical Co., Ltd.
We have prepared our valuation based on the assumption that the property is not subject to any material encumbrances.
Guangdong Medi-world Pharmaceutical Co., Ltd. is an indirect wholly-owned subsidiary of the Target Company.

– 229 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at Property Description and tenure occupancy 31 October 2008 RMB 14. An industrial complex at The property comprises a The property was 61,500,000 No. 2 Ke Yuan Heng parcel of land with a site area under interior Third Road, of approximately 34,902.68 decoration as at the (100% interest Xiao Huang Pu sq.m. (or about 375,692.45 date of valuation. attributable to the Neighbourhood sq.ft.) upon which various Target Group: Committee High and buildings was erected mainly Subsequently, portion 61,500,000) New Technology in 1991. of the property with a Industrial Development GFA of 330 sq.m. was Zone (Rong Gui), The gross floor area (“GFA”) leased to an Rong Gui County of the property is independent third Workplace, approximately 18,332.09 sq.m. party for a term of 5 Shunde District, (or about 197,326.62 sq.ft.). months expiring on 15 Foshan City, May 2009 at a Guangdong Province, The land use rights of the monthly rent of The PRC property have been granted for RMB5,200 for a term expiring on 24 warehouse use. November 2054 for industrial use.

Notes:−

Pursuant to a State-owned Land Use Rights Grant Contract ( ) Numbered as (2004)2737 (“Contract”) entered into between Guangdong Province Foshan City Shunde District Land and Recourses Bureau ( ) and Medi-world Pharmaceutical Co., Ltd. dated 23 November 2004, Medi-world Pharmaceutical Co., Ltd. has been granted the land use rights of the property with the following salient conditions:

(i) Use : Industrial (ii) Nature of Development : Industrial (iii) Site Area of the Property : 64,293.1 sq.m. (iv) Land Use Term : 50 years from the delivery date of the land (v) Plot Ratio : � 2.0 (vi) Density : � 55% (vii) Height Restriction : � 20m (viii) Green Area : � 30% (ix) Other Requirement : Follow Shun Jian Main Points No.(2004)0515 ( (2004)0515 ) (x) Land Premium : RMB14,144,482

The land of the property is portion of the land detailed in Note 1 and the details of the remaining portion are shown in Property No. 17.
Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C6782214 issued by the Guangdong Province People’s Government, the property with a site area of 34,902.68 sq.m. and a GFA of 18,332.09 sq.m. is legally owned by Medi-world Pharmaceutical Co., Ltd. for a term expiring on 24 November 2054 for industrial use.
The property is subject to a mortgage approved on 21 January 2008 in favour of Industrial Bank Co., Ltd., Foshan Shunde Branch ( ).

– 230 –

PROPERTY VALUATION

APPENDIX V

As advised by the Group, the land of the property was granted at a preferential land premium ( ) and no further land premium is required.
According to the Real Estate Title Certificate and confirmation of the PRC adviser, the site area of the property is 34,902.68 sq.m..
The status of title in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Grant Contract Yes Real Estate Title Certificate Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-world Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
d. The property may be disposed of freely to both local and overseas purchasers subject to the approval of the relevant mortgagee.
e. According to the Contract and the Real Estate Title Certificate detailed in Note 3, the site area of the property is 34,902.68 sq.m..
We have prepared our valuation based on the assumption that the property is not subject to any material encumbrances.
Guangdong Medi-world Pharmaceutical Co., Ltd. is an indirect wholly-owned subsidiary of the Target Company.

– 231 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at Description and tenure occupancy 31 October 2008 RMB The property comprises 6 The property was 1,740,000 residential units in a 7-storey occupied by the Target commercial / residential Group for residential (100% interest composite block which was use as at the date of attributable to the completed in 1990’s. valuation. Target Group: 1,740,000)

Property

6 residential units in The property comprises 6 Block 1, residential units in a 7-storey Shu Yuan Road, commercial / residential Zhenhua Management composite block which was Zone Workplace, completed in 1990’s. Rong Gui County, Shunde District, The total gross floor area Foshan City, (“GFA”) of the property is Guangdong Province, approximately 676.60 sq.m. The PRC (or about 7,282.92 sq.ft.). The land use rights of the property have been granted for a term commencing on 1 November 1995 and expiring on 31 October 2065 for residential use.

Notes:−

The property comprises 6 residential units in the subject block and it includes:–
Block 1

302, 502, 604, 702, 704 and 705

Pursuant to 6 Real Estate Title Certificates all issued by Shunde City People’s Government ( ), the property with a total GFA of 676.60 sq.m. is legally owned by Guangdong Medi-world Dazhong Pharmaceutical Co., Ltd. ( ) for residential use. The details of which are summarized in the table below:

Certificate No. Unit Floor Yue Fang Di Zheng Zi Di No. 1626388 302 3 Yue Fang Di Zheng Zi Di No. 1626390 502 5 Yue Fang Di Zheng Zi Di No. 1626392 604 6 Yue Fang Di Zheng Zi Di No. 1626393 702 7 Yue Fang Di Zheng Zi Di No. 1626394 704 7 Yue Fang Di Zheng Zi Di No. 1626395 705 7 Total:	GFA (sq.m.) 113.80 115.30 111.60 112.40 111.80 111.70
	676.60

The status of title in accordance with the information provided by the Group is as follows:

Real Estate Title Certificates Yes

– 232 –

PROPERTY VALUATION

APPENDIX V

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-world Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property may be disposed of freely to both local and overseas purchasers.
f. Guangdong Medi-world Dazhong Pharmaceutical Co., Ltd. is the former name of Guangdong Medi-world Pharmaceutical Co., Ltd. and there exist no legal impediments for the change of the name to Guangdong Medi-world Pharmaceutical Co., Ltd. in Real Estate Title Certificates.
Guangdong Medi-world Pharmaceutical Co., Ltd. is an indirect wholly-owned subsidiary of the Target Company.

– 233 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Property

Description and tenure

Particulars of occupancy

Market Value in existing state as at 31 October 2008 RMB

An industrial complex The property comprises a located at parcel of land with a site area Huan Cheng Xi Road of approximately 17,186.5 West and Hong Xing Xi sq.m. (or about 184,995.49 Road North, sq.ft.) upon which 14 Central District, buildings in various stages Jining City, between 1979 and 2004 and a Shandong Province, building under construction The PRC were erected.

==> picture [90 x 42] intentionally omitted <==

The total gross floor area (“GFA”) of the property is approximately 7,518.42 sq.m. (or about 80,928.27 sq.ft.).

Portion of the 29,900,000 property with a GFA of 7,518.42 was (100% interest occupied by the Target attributable to the Group for industrial Group: 29,900,000 and ancillary uses as at the date of valuation.

The remaining portion of the property is under construction.

The property also comprises a workshop which is under construction (“Workshop”). The proposed GFA of the Workshop will be approximately 3,470 sq.m. (or about 37,351.08 sq.ft.) upon completion as schedule in January 2009.

The land use rights of the property have been granted for a term expiring in December 2052 for industrial use.

Notes:−

Pursuant to a State-Owned Land Use Rights Certificate, Ji Zhong Guo Yong (2002) Zi Di No. 0802000450 ( (2002) 0802000450 )), issued by Jining City Land and Resources Bureau dated 16 December 2002, the land use rights of the property with a site area of 17,186.5 sq.m. have been granted to Shandong Lukang Pharmaceutical Group Luya Co. Ltd. ( ) (“Luya Co. Ltd.”) for a term expiring in December 2052 for industrial use.

– 234 –

APPENDIX V

PROPERTY VALUATION

Pursuant to 4 Building Ownership Certificates all issued by Jining City Housing Administrative Bureau ( ) dated 18 November 2002, 18 buildings of the property with a total GFA of 7,840.75 sq.m. are legally owned by Luya Co. Ltd. for industrial and transportation uses. As advised by the Group, 4 out of the 18 buildings with a total GFA of 322.33 sq.m. have been demolished. The details of the remaining 14 buildings are summarized as follows:

Building No.
Building Ownership Certificate No.
No. of Storey
1
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04505
2
2
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04505
2
6
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04488
1
7
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04488
2
8
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04488
2
9
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04488
3
11
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04504
1
12
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04504
2
13
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04504
3
14
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04504
1
15
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04503
1
16
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04503
1
17
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04503
1
18
Ji Ning Shi Fang Quan Zheng Gu Zi Di No. 04503
1
Total:

GFA
sq.m.
625.70
542.38
85.05
942.91
742.80
1,500.00
93.44
915.95
1,501.84
54.01
192.05
92.66
211.82
17.81

7,518.42

Pursuant to a Construction Works Planning Permit ( ), No. ZQJ-0720 ( ZQJ-0720), issued by Jining City Planning Bureau ( ) dated 20 November 2007, the construction planning of the Workshop with a planed GFA of 3,470 sq.m. located within the factory zone of Luya Co. Ltd. meets the regulation of the urban planning and have been approved.
Pursuant to a Construction Works Commencement Permit ( ), No. Ji Qu 2008-007 ( 2008-007), issued by Ji Ning City Central District Construction Bureau ( ) dated 4 March 2008, the construction work of the Workshop with a planed GFA of 3,470 sq.m. located within the factory zone of Luya Co. Ltd. was permitted to commence with a construction period from 18 September 2007 to 10 July 2008.
As advised by the Group, the total construction cost and the construction expended for the Workshop which is under construction are approximately RMB14,800,000 and RMB11,900,000 respectively.
Upon completion as scheduled in January 2009, the building value of the workshop will be approximately RMB14,800,000.
Pursuant to a Mortgage Contract, Lu Sheng Tai He Hang (Jin Zhi) Gao Di Zi (2008) Di No. 008 ( (2008) 008 ), entered into between Luya Co. Ltd. and Shandong Shengtai Rural Cooperative Bank Jincheng Branch dated 19 August 2008, the former has mortgaged the property to the latter as security for a loan amount of RMB9,800,000.
The status of title in accordance with the information provided by the Group is as follows:

State-Owned Land Use Rights Certificate Yes Building Ownership Certificates Yes Construction Works Planning Permit Yes Construction Work Commencement Permit Yes

– 235 –

PROPERTY VALUATION

APPENDIX V

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Luya Co. Ltd. is in possession of a proper legal title to the property;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is subject to a mortgage but no attachment or similar process is levied on the property;
d. The existing use, design and construction of the property are in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The valid construction period mentioned in Construction Work’s Permit has expired. However, no legal impediment exists for the extension of construction period and the application of extension is not required;
f. No legal impediment for Luya Co. Ltd. exists to obtain the relevant title certificates of the workshop under construction when completed; and
g. The property may be disposed of freely to both local and overseas purchasers subject to the approval of the relevant mortgagee.
We have prepared our valuation based on the assumption that the property is not subject to any material encumbrances.
Luya Co. Ltd. is an indirect wholly-owned subsidiary of the Target Company.

– 236 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group V – Property held by the Group for future development in the PRC

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 31 October 2008 RMB
1. Land Parcel C08-2 The property comprises a The property is a 15,500,000 located at Science and parcel of land with a site area vacant site as at the Technology Product of approximately 29,285.10 date of valuation. (100% interest Parks, sq.m. (or about 315,224.82 attributable to the Shunde High and New sq.ft.). Target Group: Technology Zone (Rong 15,500,000) Gui), The land use rights of the Shunde District, property have been granted for Foshan City, a term expiring on 24 Guangdong Province, November 2054 for industrial The PRC use.

Notes:−

Pursuant to a State-owned Land Use Rights Grant Contract ( ) Numbered as (2004)2737 (“Contract”) entered into between Guangdong Province Foshan City Shunde District Land and Recourses Bureau ( ) and Medi-world Pharmaceutical Co., Ltd. dated 23 November 2004, Medi-world Pharmaceutical Co., Ltd. has been granted the land use rights of the property with the following salient conditions:

The land of the property is portion of the land detailed in Note 1 and the details of the remaining portion are shown in Property No. 14.
Pursuant to a State-owned Land Use Rights Certificate, Shun Fu Guo Yong (2004) Di No. 1002310 issued by the People’s Republic of China State-owned Land Resources Bureau dated 24 November 2004, the property with a site area of 29,285.1 sq.m. has been granted to Medi-world Pharmaceutical Co., Ltd. for a term expiring on 24 November 2054 for industrial use.
As advised by the Group, the land of the property was granted at a preferential land premium ( ) and no further land premium is required.
As advised by the Group, no planning document has been granted for the property and the development proposal should be consistent with the Contract stipulated in Note 1.
According to the Real Estate Title Certificate and confirmation of the PRC adviser, the site area of the property is 29,285.1 sq.m..

– 237 –

PROPERTY VALUATION

APPENDIX V

The status of title in accordance with the information provided by the Group is as follows:

State-Owned Land Use Rights Grant Contract Yes State-owned Land Use Rights Certificate Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-world Pharmaceutical Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The design of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The property may be disposed of freely to both local and overseas purchasers; and
f. According to the Contract and State-owned Land Use Right Certificate detailed in Note 3, the site area of the property 29,285.10 sq.m..
Guangdong Medi-world Pharmaceutical Co., Ltd. is an indirect wholly-owned subsidiary of the Target Company.

– 238 –

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules and the Takeovers Code for the purpose of giving information with regard to the Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than information relating to the Vendor and the parties acting in concert with it and the Guarantors) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The directors of the Vendor jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than information relating to the Group) and confirm, having made all reasonable enquires, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statements in this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately after completion of the Acquisition and the Placing will be as follows:

Authorised: 3,000,000,000 Shares	HK$ 300,000,000

Issued and fully paid: 830,974,244 Shares as at the Latest Practicable Date 233,334,000 Placing Shares to be issued 564,102,563 Consideration Shares to be issued pursuant to the Agreement	83,097,424 23,333,400 56,410,256
1,628,410,807 Shares upon completion of the Acquisition and the Placing	162,841,080

All of the issued Shares rank pari passu with each other in all respects including the rights as to voting, dividends and return of capital. The Consideration Shares and the Placing Shares to be allotted and issued will, when issued and fully paid, rank pari passu in all respects with the existing Shares.

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Since 31 December 2007, the date to which the latest audited financial statements of the Company were made up, and up to the Latest Practicable Date, the Company has not issued any new Shares.

Save as disclosed above, the Company did not have any other options, warrants and other convertible securities or rights affecting the Shares as at the Latest Practicable Date.

3. MARKET PRICES

The table below shows the closing price of the Shares on the Stock Exchange on (i) the last trading day of the Stock Exchange for each calendar month during the Relevant Period before the Latest Practicable Date; (ii) the Last Trading Day; and (iii) the Latest Practicable Date:

	Closing price
Date	per Share
	HK$
30 May 2008	0.520
30 June 2008	0.445
31 July 2008	0.420
29 August 2008	0.370
30 September 2008	0.400
31 October 2008	0.285
28 November 2008 (also the Last Trading Day)	0.410
Latest Practicable Date	0.370

The highest and lowest closing prices per Share recorded on the Stock Exchange during the Relevant Period were HK$0.52 on 30 May 2008 and 4 June 2008 and HK$0.241 on 27 October 2008 respectively.

4. DISCLOSURE OF INTERESTS

Directors’ and chief executives’ interests and short positions in shares, underlying shares and debentures of the Company or any associated corporations

As at the Latest Practicable Date, none of the Directors nor chief executive of the Company were interested, or were deemed to have interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the Register referred to therein; or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange; or (iv) were required to be disclosed under the Takeovers Code.

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Interests of substantial Shareholders

As at the Latest Practicable Date, according to the register of interests maintained by the Company pursuant to section 336 of the SFO and so far as is known to the Directors and the chief executive of the Company, the persons, other than Directors or the chief executive of the Company, who had an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested 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 and the amount of each of such persons’ interest in such securities, together with any options in respect of such capital, were as follows:

The Company

		Approximate	Approximate
			percentage
			of total
		Number	issued
		of Shares	share
Shareholder	Capacity	held	capital
Hensil Investments	Beneficial owner	605,290,886	72.84%
Foshan Development	Interest in controlled	605,290,886	72.84%
	corporation	(Note 1)
Sureplan	Beneficial owner	564,102,563	67.88%
Profit Channel	Interest in controlled	564,102,563	67.88%
Development Limited	corporation	(Note 2)
Mr. Yang	Interest in controlled	564,102,563	67.88%
	corporation	(Note 3)

Note 1: The 605,290,886 Shares were held by Hensil Investments, which is wholly owned by Foshan Development. By virtue of its interest in Hensil Investments, Foshan Development was deemed to be interested in such 605,290,886 Shares held by Hensil Investments.
Note 2: Profit Channel Development Limited is deemed to be interested in Sureplan’s interest in the Company under the SFO by virtue of Profit Channel Development Limited being entitled to control the exercise of not less than one-third of the voting power at the general meeting of Sureplan.
Note 3: The 564,102,563 Shares represent the Consideration Shares to be issued to the Vendor pursuant to the Agreement. Sureplan is owned indirectly as to 25% by Mr. Wu, 25% by Mr. Xu and 50% by Mr. Yang and Mr. Yang is deemed to be interested in Sureplan’s interest in the Company under the SFO by virtue of Profit Channel Development Limited is wholly-owned by Mr. Yang.

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The subsidiaries of the Company

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

||||||
|---|---|---|---|---|
|Name|of|substantial|Percentage|of|
|Name|of|subsidiary|shareholder|shareholding|
|FLX|49%|
|DZH|49%|

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So far as is known to the Directors, as at the Latest Practicable Date, no other persons (other than the Directors, the chief executive and substantial Shareholders disclosed above) had any 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 the Part XV of the SFO or was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any subsidiary of the Company.

5. ADDITIONAL DISCLOSURE OF INTERESTS

(a) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2007, being the date to which the latest published audited consolidated accounts of the Group were made up.
(b) As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date which was significantly in relation to the business of the Group.
(c) As at the Latest Practicable Date, none of the Vendor or parties acting in concert with it or any directors of the Vendor owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company.
(d) None of the Vendor or parties acting in concert with it or the directors of the Vendor had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(e) As at the Latest Practicable Date, the Directors did not have any shares in the Company or the Vendor. Save for the sale by Mr. Ng Pui Cheung, Joseph, an independent non-executive Director, of (i) 50,000 Shares at HK$0.41 per Share on 27 June 2008 and (ii) 150,000 Shares (of which 42,000 Shares were sold at HK$0.43 and 108,000 Shares were sold at HK$0.42) at an average price of HK$0.423 per Share on 31 July 2008, none of the Directors had dealt for value in any shares, convertible securities, warrants, options or derivatives of the Company or the Vendor during the Relevant Period.

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(f) As at the Latest Practicable Date, there was no agreement, arrangement or understanding between the Vendor or any parties acting in concert with it and other persons in relation to the transfer, charge or pledge of the Shares to be issued to the Vendor and parties acting in concert with it under the Agreement.
(g) As at the Latest Practicable Date, the Vendor and parties acting in concert with it had no arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with any person.
(h) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of “associate” in the Takeovers Code.
(i) The Company had no shares in the Vendor as at the Latest Practicable Date, and had not dealt for value in the shares of the Vendor during the Relevant Period.
(j) As at the Latest Practicable Date, none of (i) the subsidiaries of the Company; (ii) the pension fund of the Company or of a subsidiary of the Company; and (iii) any advisers to the Company (as specified in class (2) of the definition of “associate” under the Takeovers Code) had any interest in the Shares, convertible securities, warrants, options or derivatives of the Company.
(k) As at the Latest Practicable Date, no Shares, convertible securities, warrants, options or derivatives of the Company were managed on a discretionary basis by fund managers connected with the Company.
(l) As at the Latest Practicable Date, no person had irrevocably committed themselves to vote for or against the resolutions to be proposed at the EGM in relation to the Agreement and the Whitewash Waiver.
(m) No benefit will be given to any Director as compensation for loss of office in any members of the Group or otherwise in connection with the Agreement and/or the Whitewash Waiver.
(n) As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) existed between the Vendor or any parties acting in concert with it and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Agreement and/or the Whitewash Waiver.
(o) As at the Latest Practicable Date, there was no material contract entered into by the Vendor in which a Director had a material personal interest.
(p) As at the Latest Practicable Date, there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of the Agreement and/or the Whitewash Waiver or otherwise connected with the Agreement and/or the Whitewash Waiver.

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(q) As at the Latest Practicable Date, none of the Vendor and parties acting in concert with it, the Company, or the Directors had borrowed or lent any Shares.
(r) As at the Latest Practicable Date, no person, with whom the Vendor or any parties acting in concert with it had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code, owned or controlled any shareholding in the Company.

6. LITIGATION

A writ of summons was served by DZH on (Guangdong Guanghong Medicines Company Limited) (“ Guangdong Guanghong ”) in 2005 in respect of a claim of approximately RMB1,344,756.13 together with related interests for the payment of goods by Guangdong Guanghong to DZH. Guangdong Guanghong had disputed over the jurisdiction of (Foshan Chancheng District People’s Court of Guangdong Province) to hear the case which was subsequently rejected by (Foshan Intermediate People’s Court) on 10 January 2006.

On 15 November 2006, a judgment (the “ Judgment ”) was issued by (Foshan Chancheng District People’s Court of Guangdong Province) against Guangdong Guanghong for a sum of RMB$1,344,756.13 together with interests. In response, Guangdong Guanghong filed an appeal against the Judgment. On 15 March 2007, (Foshan Intermediate People’s Court) issued a judgment whereby the validity of the Judgment against Guangdong Guanghong was revoked and the case was re-heard on 20 November 2007. On 4 March 2008, a judgment (the “ Reheard Judgment ”) was issued by Foshan Chancheng District People’s Court of Guangdong Province against Guangdong Guanghong for a sum of RMB$1,344,756.13 together with interests. On 25 March 2008, Guangdong Guanghong filed an appeal with Foshan Intermediate People’s Court against the Reheard Judgment and the appeal was heard and is now pending the delivery of judgment.

Save as disclosed above, no member of the Enlarged Group is engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against any member of the Enlarged Group as at the Latest Practicable Date.

7. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

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8. SERVICE CONTRACTS

As at the Latest Practicable Date, the following Director had entered into a service contract with the Company, the terms and conditions of which are set out below:

Term of service contract Fixed annual Director (both dates inclusive) remuneration Cheung Kin Piu, Valiant From 15 March 2008 to HK$100,000 14 March 2010

The executive Directors are entitled to enjoy the annual discretionary bonus to be determined by the remuneration committee of the Company at its absolute discretion having regard to the operating results of the Group and the performance of the executive Directors. Save as disclosed above, as at the Latest Practicable Date, none of the Directors had entered into a service contract with the Company or any of its subsidiaries or associated companies in force which (i) (including both continuous and fixed term contracts) has been entered into or amended within 6 months before the date of the Announcement; (ii) is a continuous contract with a notice period of 12 months or more; or (iii) is a fixed term contract with more than 12 months to run irrespective of the notice period.

None of the Directors has a service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

9. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by the Enlarged Group after the date two years preceding the date of the Announcement and up to the Latest Practicable Date:

(a) an agreement dated 6 August 2007 entered into amongst Hensil Trading & Investments Limited, a company incorporated in the British Virgin Islands, as vendor and Hensil Trading & Investments Limited, a limited company incorporated in Hong Kong, as purchaser in relation to the sale and purchase of 51% capital interest in FLX for the consideration of HK$82,782,000;
(b) an agreement dated 5 August 2007 entered into amongst Hensil Industrial Inc. as vendor and Hensil Industrial Inc. Limited as purchaser in relation to the sale and purchase of 51% capital interest in DZH for the consideration of HK$199,618,000;
(c) a tenancy agreement dated 17 May 2008 entered into between DZH and (Foshan City Xu Qixiu Herbal Tea Limited*), an
independent third party, relating to the lease of a property located at No. 81 Sheng Ping Road, Urban District, Foshan City, Guangdong Province, the PRC

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with a gross floor area of approximately 72 sq.m to for a term commencing from 1 June 2008 to 31 December 2009 at a monthly rental of RMB 3,250 exclusive of management fees, water and electricity charges;

(d) a letter dated 1 January 2007 between FLX and Foshan City Chancheng District Heng Jian Medicine Store, an independent third party, whereby FLX agreed to lease a shop located at Shop No. 3, Level 1, No. 33 Wei Guo Road, Foshan City, Guangdong Province, the PRC to Foshan City Chancheng District Heng Jian Medicine Store from 1 January 2007 to 31 December 2008 at a monthly rental of RMB3,000 excluding all outgoings;
(e) a tenancy agreement dated 30 March 2007 entered into between FLX and (Zhanjiang City Mingcheng Medical Equipment
Limited*), an independent third party, relating to the lease of a property located at no. 49 of (Ruiqing Road, Mazhang District, Zhanjiang City) with a gross floor area of approximately 1,800 sq.m. to for a term commencing from 1 April 2007 and
expiring on 31 March 2012 for business use, at a monthly rental of RMB 5,000 exclusive of all outgoings;
(f) (Foshan city property demolition and relocation agreement) and the supplemental agreement both dated 31 August 2008 entered into between FLX and (Dongjian Group Co., Ltd*), pursuant to which FLX agreed to deliver up the property at (Tangbian Street, Shangshijiao, Chaodong Village, Huanshi Town, Shiwan District, Foshan City) with land use right no. ( ) which will be demolished by and will deliver FLX a property of area of 1,250 square meters as compensation and during the period of demolition and relocation, will pay FLX a one-time relocation allowance of RMB4,000 together with RMB18 per square meters per month as subsidies;
(g) a tenancy agreement dated 20 May 2007 entered into between DZH and (Yingde City Quan Xiang Teahouse Limited*), an
independent third party, relating to the lease of a property located at No. 81 Sheng Ping Road, Urban District, Foshan City, Guangdong Province, the PRC with a gross floor area of approximately 72 sq.m to for a term of one year expiring on 31 May 2008 at a monthly rental of RMB3,250 exclusive of management fees, water and electricity charges;
(h) a supplemental agreement (2004) 2737 - 01 dated 8 December 2008 to a state-owned land use rights grant
contract (2004)2737 between (Bureau of Land and Resources of Foshan*) as grantor and Guangdong Medi-World as land user pursuant to which Bureau of Land and Resources of Foshan agreed Guangdong Medi-World to commence the construction on the land granted by 31 December 2009, and complete the construction and apply for examination of the

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land by 30 December 2011 and the approved and registration amount of the project-fixed investment of Guangdong Medi-World should not be less than RMB90,930,000 (equivalent to approximately HK$102.8 million);

(i) an assets reorganization agreement dated 15 May 2008 between Guangdong Medi-World as purchaser and (Foshan Winteam Pharmaceutical Co., Ltd) (“ Foshan Winteam ”) as vendor in relation to the changes of certain drug registration documents to the name of Guangdong Medi-World as manufacturer and the sale of Foshan Winteam’s all medicine production equipments, supporting equipments and devices situated at a production site at a consideration of RMB2,116,815 (equivalent to approximately HK$2.4 million);
(j) an equity transfer agreement dated 12 March 2008 between Mr. Yang as transferor and Guangdong Medi-World as transferee in relation to the transfer of 50% equity interests in (Foshan Winteam Medical Technology Co., Ltd) (“ Foshan WMT* ”) at a consideration of RMB250,000 (equivalent to approximately HK$0.3 million);
(k) an equity transfer agreement dated 12 March 2008 between Mr. Xu as transferor and Guangdong Medi-World as transferee in relation to the transfer of 50% equity interests in Foshan WMT at a consideration of RMB250,000 (equivalent to approximately HK$0.3 million);
(l) an equity transfer agreement dated 15 March 2007 (the “ Equity Transfer Agreement ”) among Ace Supreme and Sino Famous as transferors and Guangdong Medi-World as transferee whereby each of Ace Supreme and Sino Famous agreed to transfer its 37.5% equity interests in Luya to Guangdong Medi-World at a consideration of RMB 8,000,000 (equivalent to approximately HK$9.0 million) for each of the transfer;
(m) a supplemental agreement dated 23 April 2007 to the Equity Transfer Agreement among Ace Supreme, Sino Famous and Guangdong Medi-World whereby parties agreed Guangdong Medi-World to pay HKD8,104,000 to each of Ace Supreme and Sino Famous as the consideration under the Equity Transfer Agreement;
(n) a trademark use licence agreement dated 30 July 2007 (“ Trademark Use Licence Agreement 1 ”) between Group Medi-World as licensor and Foshan Winteam as licensee in relation to the trademark “ ” (trademark no.912678) for the use of products of type 5 “ ” for the period of 30 July 2007 to 13 December 2016 at a consideration to be agreed by both parties; (Note 1)

Note 1: By a subsequent verbal agreement, Guangdong Medi-World and Foshan Winteam agreed that the consideration for each of Trademark Use Licence Agreement 1, Trademark Use Licence Agreement 2 and Trademark Use Licence Agreement 3 is nil.

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(o) a trademark use licence agreement dated 30 July 2007 (“ Trademark Use Licence Agreement 2 ”) between Group Medi-World as licensor and Foshan Winteam as licensee in relation to the trademark “ ” (trademark no. 912668) for the use of products of type 5 ” for the period of 30 July 2007 to 13 December 2016 at a consideration to be agreed by both parties; (Note 1)
(p) a trademark use licence agreement dated 30 July 2007 (“ Trademark Use Licence Agreement 3 ”) between Group Medi-World as licensor and Foshan Winteam as licensee in relation to the trademark “ ” (trademark no. 3542548) for the use of products of Type 5 “ ” for the period of 30 July 2007 to 6 April 2015 at a consideration to be agreed by both parties; (Note 1)
(q) a licence agreement to use the business name “ ” dated 8 November 2007 between as licensor and Luya as licensee for the use of the business name “ ” on Luya’s research and development, production and sales of medicine for the period of 14 October 2007 to 13 October 2010 at a licensing fee of 1% of the annual sales income during the period in which the licence is in effect;
(r) a tenancy agreement dated 1 July 2008 entered into between Guangdong Medi-World as lessor and Foshan WMT as lessee in relation to the lease of office room at (Yonggui Gaoxin Area Technology and Property Park at Shunde*) for the period of 1 July 2008 to 30 June 2010 at a monthly rent of RMB1,000 exclusive of all outgoings;
(s) a tenancy agreement dated 10 December 2008 entered into between Guangdong Medi-World as lessor and (Guangdong Dachong Pharmaceutical Co., Ltd) (“ Guangdong Dachong* ”) as lessee in relation to the lease of warehouse of Guangdong Medi-World for the period of 16 December 2008 to 15 May 2009 at a monthly rent of RMB5,200;
(t) a termination agreement dated 25 December 2008 entered into between Guangdong Medi-World and Foshan Winteam to terminate (i) Trademark Use Licence Agreement 1 for the use of trademark “ ”, (ii) Trademark Use License Agreement 2 for the use of trademark “ ” and (iii) Trademark Use Licence Agreement 3 for the use of trademark “ ”;
(u) the Sale and Purchase Agreement;
(v) the Placing Agreement; and
(w) the Supplemental Agreement.

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10. EXPERTS AND CONSENTS

(a) The following are the qualifications of the experts who have given their opinions and advice which are included in this circular:

Name

Veda Capital Limited

BMI Appraisals Limited KPMG Optima Capital Limited

Qualification

a licensed corporation to carry on type 6 (advising on corporate finance) regulated activity under the SFO

independent professional valuer
Certified Public Accountants

a licensed corporation to carry on type 1 (dealing in securities), type 4 (advising on securities), and type 6 (advising on corporate finance) regulated activities under the SFO

(b) Neither Optima Capital, Veda Capital, KPMG nor BMI Appraisals Limited has any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) Optima Capital, Veda Capital, KPMG and BMI Appraisals Limited have given and have not withdrawn their respective written consent to the issue of this circular with the inclusion of their respective opinions or letters and/or the references to their names and/or their opinions or letters in the form and context in which they are respectively included.
(d) Neither Optima Capital, Veda Capital, KPMG nor BMI Appraisals Limited had any direct or indirect interest in any asset which had been acquired or disposed of by, or leased to any member of the Group, or was proposed to be acquired or disposed of by, or leased to any member of the Group since 31 December 2007, the date to which the latest published audited financial statements of the Group were made up.

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11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection (i) during normal business hours from 9:00 a.m. to 5:00 p.m. (other than Saturdays, Sundays and public holidays) at the registered office of the Company in Hong Kong at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong; (ii) on the website of the Securities and Futures Commission (www.sfc.hk); and (iii) the Company’s website at www.wingshan.com.hk from the date of this circular up to and including the date of the EGM:

(a) the memorandum of association and the Articles of Association of the Company;
(b) the 2006 and 2007 annual reports of the Company containing audited consolidated financial statements of the Group for the two years ended 31 December 2006 and 2007;
(c) the letter from Veda Capital containing its advice to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from Veda Capital” in this circular;
(d) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Board Committee” in this circular;
(e) the written consents referred to in the paragraph headed “Experts and Consents” in this Appendix;
(f) the accountant’s report on the Target Group, the text of which is set out in Appendix II to this circular;
(g) the report from KPMG on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(h) the report from KPMG on the Benchmark Figure, the text of which is set out in Appendix IV to this circular;
(i) the report from Optima Capital on the Benchmark Figure, the text of which is set out in Appendix IV to this circular;
(j) the valuation report from BMI Appraisals Limited in respect of the property interest of the Enlarged Group, the text of which is set out in Appendix V to this circular;
(k) the service contracts referred to in the paragraph headed “Service Contracts” in this Appendix;
(l) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix; and

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(m) this circular.

12. MISCELLANEOUS

(a) The qualified accountant of the Company is Mr. Situ Min, a fellow member of the Association of Chartered Certified Accountants and a member of Chinese Institute of Certified Public Accountants. The company secretary of the Company is Mr. Huen Po Wah, an associate of The Hong Kong Institute of Chartered Secretaries and an associate of The Institute of Chartered Secretaries and Administrators.
(b) The registered office of the Company is situated at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong.
(c) The Hong Kong share registrar of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(d) The registered address of Optima Capital is Unit 3618, 36th Floor, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong.
(e) The registered address of Veda Capital is Suite 1302, 13/F, Tak Shing House, 20 Des Voeux Road Central, Hong Kong
(f) The registered office of the Vendor is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands and the correspondence address of the Vendor in Hong Kong is at Unit B, 15th Floor, Kee Shing Centre, 74-76 Kimberley Road, Tsimshatsui, Kowloon, Hong Kong. The directors of the Vendor are Mr. Yang, Mr. Wu and Mr. Xu.
(g) The business address of the Directors is at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong.
(h) In the event of inconsistency, the English texts of this circular and the accompanying form of proxy shall prevail over the Chinese texts.

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NOTICE OF EGM

WING SHAN INTERNATIONAL LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 570)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Wing Shan International Limited (the “ Company ”) will be held at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong on Monday, 19 January 2009 at 10:00 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1 “ THAT :

(i) the conditional sale and purchase agreement dated 29 November 2008 (as amended by a supplemental agreement dated 16 December 2008, together the “ Agreement ”) (copies of which are produced to the meeting marked “A” and initialed by the Chairman of the meeting for the purpose of identification) entered into among (i) the Company as purchaser, (ii) Sureplan Limited (“ Sureplan ”) as vendor and (iii) Mr. Yang Bin, (iv) Mr. Wu Chiu Kong and (v) Mr. Xu Tiefeng as Sureplan’s guarantors in respect of the acquisition by the Company of the entire issued share capital of Smartpoint International Limited (“ Smartpoint ”), for a total consideration of HK$300,000,000 pursuant to the Agreement, upon the terms and subject to the conditions therein contained, and all transactions contemplated thereunder and in connection therewith and any other ancillary documents, be and are hereby approved, confirmed and/or ratified; and the directors of the Company (the “ Directors ”) be and are hereby authorized for and on behalf of the Company to do all such acts and things and to sign, seal, execute and deliver all such documents and take all such steps which they may in their discretion consider necessary, desirable or expedient for the implementation of and giving effect to the Agreement and the transactions contemplated thereunder as they may in their discretion consider to be desirable and in the interests of the Company; and
(ii) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and the permission to deal in, the Consideration Shares (as defined in the circular of the Company dated 31 December 2008 (the “ Circular ”)), the allotment and issue of the Consideration Shares upon completion of the Agreement pursuant to the

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NOTICE OF EGM

  - Agreement upon the terms and subject to the conditions therein contained be and is hereby approved; and the Directors be and are hereby authorised for and on behalf of the Company to do all such acts and things and to sign, seal, execute and deliver all such documents and take all such steps which they may in their discretion consider necessary, desirable or expedient for the implementation of and giving effect to the allotment and issue of the Consideration Shares in accordance with the terms of the Agreement as they may in their discretion consider to be desirable and in the interests of the Company.”

2 “ THAT ” subject to the Executive (as defined in the Circular) granting to Sureplan and parties acting in concert with it the Whitewash Waiver (as defined in the Circular) and the satisfaction of any conditions attached to the Whitewash Waiver imposed by the Executive, any obligations which may arise under Rule 26 of the Hong Kong Code on Takeovers and Mergers and which would require Sureplan and parties acting in concert with it to make a mandatory general offer to the shareholders of the Company for all the issued shares of the Company other than those shares already owned or agreed to be acquired by Sureplan and parties acting in concert with it as a result of the allotment and issue of the Consideration Shares to Sureplan pursuant to the Agreement be and are hereby waived; and that the Directors be and are hereby authorised for and on behalf of the Company to do all such acts and things and to sign, seal, execute and deliver all such documents and take all such steps which they may in their discretion consider necessary, desirable or expedient to implement and/or give effect to any matters relating to or in connection with the waiver of such obligations as they may in their discretion consider to be desirable and in the interests of the Company.”
3 “ THAT :
(i) the conditional placing agreement (“ Placing Agreement ”) dated 29 November 2008 entered into between the Company and Sun Hung Kai International Limited (“ Placing Agent ”) in relation to the engagement of the Placing Agent to place, on a best effort basis, an aggregate of 233,334,000 new shares of HK$0.10 each in the capital of the Company (“ Placing Shares ”) at the placing price of HK$0.3 per share (a copy of which is produced to the meeting marked “B” and initialed by the Chairman of the meeting for the purpose of identification) be and is hereby approved, confirmed and/or ratified; and the Directors be and are hereby authorized for and on behalf of the Company to do all such acts and things and to sign, seal, execute and deliver all such documents and take all such steps which they may in their discretion consider necessary, desirable or expedient for the implementation of and giving effect to the Placing Agreement and the transactions contemplated thereunder as they may in their discretion consider to be desirable and in the interests of the Company; and

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NOTICE OF EGM

(ii) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and the permission to deal in, the Placing Shares, the allotment and issue of the Placing Shares pursuant to and in accordance with the terms and conditions of the Placing Agreement be and is hereby approved; and the Directors be and are hereby authorized for and on behalf of the Company to do all such acts and things and to sign, seal, execute and deliver all such documents and take all such steps which they may in their discretion consider necessary, desirable or expedient for the implementation of and giving effect to the allotment and issue of the Placing Shares in accordance with the terms of the Placing Agreement as they may in their discretion consider to be desirable and in the interests of the Company.”

By Order of the Board of Directors DU Richeng Chairman

Hong Kong, 31 December 2008

Notes:

Any member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote instead of him. A proxy need not be a member of the Company, but must attend the meeting in person to represent the member.
To be valid, a proxy form together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority must be deposited at the registered office of the Company at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.
Where there are joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share, shall alone be entitled to vote in respect thereof.

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AI assistant

SPT Energy Group Inc. — Proxy Solicitation & Information Statement 2008

49801_rns_2008-12-30_584e0dd1-6c9a-4f3a-9de7-cddc35c3851c.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

WING SHAN INTERNATIONAL LIMITED

(i) MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED; (ii) PLACING OF NEW SHARES; AND (iii) APPLICATION FOR WHITEWASH WAIVER

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

WING SHAN INTERNATIONAL LIMITED

(i) MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED; (ii) PLACING OF NEW SHARES; AND

(iii) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE ACQUISITION

Date of the Sale and Purchase Agreement

Date of the Supplemental Agreement

Parties

LETTER FROM THE BOARD

Assets to be acquired

Consideration

LETTER FROM THE BOARD

Adjustments to the Consideration and custody arrangements

Issue price of Consideration Shares

Conditions precedent

Completion

Reorganisation

PLACING OF NEW SHARES

The Placing Agreement dated 29 November 2008

Parties

The Placing Shares

Placing under specific mandate

Placing Price

Placing Commission

Conditions precedent to the Placing Agreement

Completion of the Placing Agreement

Fund raising activities involving issue of securities in the past 12 months

EFFECT ON SHAREHOLDING IN THE COMPANY

INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

Target Company

Common Win

Roundtop

Ace Supreme

The Guangdong Medi-World Group

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

LETTER FROM THE BOARD

REASONS FOR THE PLACING

FINANCIAL INFROMATION ON THE TARGET GROUP

FINANCIAL IMPACTS OF THE ACQUISITION

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

REGULATORY REQUIREMENTS

Takeovers Code

Application for Whitewash Waiver

Other arrangements

Listing Rules

Voting

LETTER FROM THE BOARD

EGM

INTENTION OF THE VENDOR

PROCEDURE FOR DEMAND A POLL

RECOMMENDATION

ADDITIONAL INFORMATION

WING SHAN INTERNATIONAL LIMITED

(i) MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED; AND (ii) APPLICATION FOR WHITEWASH WAIVER

Yours faithfully,

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISTION OF THE ENTIRE ISSUED SHARE CAPITAL IN SMARTPOINT INTERNATIONAL LIMITED AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

LETTER FROM VEDA CAPITAL

BASIS OF OUR ADVICE

LETTER FROM VEDA CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

Business highlights and financial information of the Target Group

SPT Energy Group Inc. Proxy Solicitation & Information Statement 2008