SPT Energy Group Inc. - Proxy Solicitation & Information Statement 2010

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 Winteam Pharmaceutical Group 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 securities of the Company.

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

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 570)

(I) MAJOR AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF EQUITY INTEREST IN FOSHAN CITY AN NING COMPANY LIMITED; (II) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS; AND (III) APPLICATION FOR WHITEWASH WAIVER

Financial adviser to Winteam Pharmaceutical Group Limited

Optima Capital Limited

Independent financial adviser to the Listing Rules Independent Board Committee, the Whitewash Independent Board Committee and the Independent Shareholders

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Shenyin Wanguo Capital (H.K.) Limited

Capitalised terms used on this cover have the same meanings as those defined in the section headed “Definitions” in this circular.

A letter from the Listing Rules Independent Board Committee is set out on pages 24 and 25 of this circular. A letter from the Whitewash Independent Board Committee is set out on page 26 of this circular. A letter from Shenyin Wanguo containing its advice to the Listing Rules Independent Board Committee, the Whitewash Independent Board Committee and the Independent Shareholders is set out on pages 27 to 52 of this circular.

A notice convening the EGM to be held at Boardroom V, Ground Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Monday, 29 March 2010 at 10:00 a.m. is set out on pages 305 to 307 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.

11 March 2010

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the	Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the	Listing Rules Independent Board Committee . . . . . . . . . . . . . . . .	24
Letter from the	Whitewash Independent Board Committee. . . . . . . . . . . . . . . . . . .	26
Letter from Shenyin Wanguo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		27
Appendix I	– Financial information of the Group . . . . . . . . . . . . . . . . . . . .	53
Appendix II	– Financial information of the Target Company . . . . . . . . . . . .	121
Appendix III	– Financial information of DZH . . . . . . . . . . . . . . . . . . . . . . . . .	134
Appendix IV	– Unaudited pro forma financial information of
	the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	172
Appendix V	– Financial information of the Smartpoint Group . . . . . . . . . . .	178
Appendix VI	– Profit forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	243
Appendix VII	– Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	247
Appendix VIII	– General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	290
Notice of EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	305

– i –

DEFINITIONS

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

“Acquisition” the proposed acquisition by the Purchaser of the Sale Interest pursuant to the Acquisition Agreement
“Acquisition Agreement” the equity transfer agreement dated 30 January 2010 entered into between the Purchaser and the Vendor in relation to the Acquisition and the grant of the Option
“acting in concert” has the meanings ascribed to it in the Takeovers Code “Announcement” the announcement of the Company dated 4 February 2010 in relation to, among other things, the Acquisition, the Subscription and the Whitewash Waiver
“associate(s)” has the meaning ascribed to it in the Listing Rules
“Board” the board of Directors
“Business Day” a day (other than a Saturday, Sunday or public holiday) on which banks are open for business in the PRC and Hong Kong
“BVI” the British Virgin Islands “Company” Winteam Pharmaceutical Group 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
“connected person(s)” has the meaning ascribed to it under the Listing Rules “Consideration” the consideration of RMB116 million (equivalent to approximately HK$131.7 million) payable in cash by the Company for the Sale Interest under the Acquisition Agreement
“Director(s)” director(s) of the Company “DZH” (Foshan Dezhong Pharmaceutical Co., Ltd.*), a sino-foreign joint venture company established in the PRC in which the Company indirectly holds a 51% equity interest

– 1 –

DEFINITIONS

“EGM” the extraordinary general meeting of the Company to be held at Boardroom V, Ground Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Monday, 29 March 2010 at 10:00 a.m. to consider and, if thought fit, approve the Acquisition Agreement and the transactions contemplated thereunder, the Subscription Agreement and the transactions contemplated thereunder and the Whitewash Waiver

“Enlarged Group” the Group as enlarged by the Target Company immediately after completion of the Acquisition Agreement
“Executive” the Executive Director of the Corporate Finance Division of the Securities and Futures Commission of Hong Kong or any of his delegates
“Extra Benefit” Extra Benefit Corp., a company incorporated in the BVI with limited liability and wholly-owned by Mr. Xu
“FLX”
(Foshan Feng Liao Xing Pharmaceutical
Co., Ltd.*), a sino-foreign joint venture company established in the PRC in which the Company indirectly holds a 51% equity interest
“Forecast” the positive profit alert statement released by the Company in its announcement dated 2 March 2010 in respect of its results for the financial year ended 31 December 2009 which constitutes a profit forecast under Rule 10 of the Takeovers Code
“Group” the Company and its subsidiaries
“Guarantors” Mr. Yang and Mr. Xu
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent (i) in respect of the Acquisition and the Subscription, the Shareholders” Shareholders other than the Vendor, the Subscribers and their respective associates; and (ii) in respect of the Whitewash Waiver, the Shareholders other than the Subscribers, Sureplan, Mr. Yang, Mr. Xu, parties acting in concert with any of the Subscribers, Sureplan, Mr. Yang and Mr. Xu, Mr. SITU Min and those who are involved in or are interested in the Subscription Agreement and the Whitewash Waiver
“Last Trading Day”
29 January 2010, being the last trading day prior to the suspension of trading in the Shares pending the release of the Announcement
“Latest Practicable Date”
9 March 2010, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular

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DEFINITIONS

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Listing Rules Independent a committee of the Board comprising all the four independent Board Committee” non-executive Directors, namely Mr. LO Wing Yat, Mr. PANG Fu Keung, Mr. WANG Bo and Mr. ZHANG Jianhui, formed pursuant to the requirements of the Listing Rules for the purpose of advising and giving recommendation to the Independent Shareholders in respect of the Acquisition and the Subscription
“Luya” (Shandong Lukang Pharmaceutical Group Luya Co., Ltd*), a sino-foreign joint venture company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company
“Minority Holders” holders of the Remaining Minority Interest “Mr. Xu” Mr. XU Tiefeng ( ), an executive Director “Mr. Yang” Mr. YANG Bin ( ), an executive Director “National Essential Drugs ( (2009 )) List” (National List of Essential Drugs (Catalogue for Basic Healthcare Institutions) (2009 version)*)
“Optima Capital” Optima Capital Limited, a corporation licensed 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 in relation to the Acquisition, the Subscription and the Whitewash Waiver
“Option” the right granted by the Vendor to the Purchaser for the Purchaser to purchase from the Vendor any of the Remaining Minority Interest offered to sell to the Vendor by the Minority Holders on the terms and conditions set out in the Acquisition Agreement
“PRC” the People’s Republic of China, for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region and Taiwan
“Profit Channel” Profit Channel Development Limited, a company incorporated in the BVI with limited liability and wholly-owned by Mr. Yang
“Purchaser” (Guangdong Medi-world Pharmaceutical Co., Ltd.*), a company established in the PRC with limited liability and a wholly-owned subsidiary of the Company

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DEFINITIONS

“Remaining Minority the remaining capital contribution in the total amount of Interest” RMB1,638,100 in the Target Company (representing a 7% equity interest in the Target Company) not owned by the Vendor

“Relevant Period” the period commencing six months prior to 30 January 2010, being the date of the Acquisition Agreement and the Subscription Agreement, up to and including the Latest Practicable Date
“Sale Interest” capital contribution in the total amount of RMB21,715,300 in the Target Company (representing a 93% equity interest in the Target Company) presently beneficially owned by the Vendor
“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
“Shenyin Wanguo” Shenyin Wanguo Capital (H.K.) 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 independent financial adviser appointed to advise (i) the Listing Rules Independent Board Committee and the Independent Shareholders in respect of the Acquisition Agreement and the Subscription Agreement; and (ii) the Whitewash Independent Board Committee in respect of the Subscription Agreement and the Whitewash Waiver
“Smartpoint” Smartpoint International Limited, a company incorporated in the BVI with limited liability and a wholly-owned subsidiary of the Company
“Smartpoint Group” Smartpoint and its subsidiaries
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscribers” Profit Channel and Extra Benefit
“Subscription” the subscription of the Subscription Shares by the Subscribers pursuant to the Subscription Agreement
“Subscription Agreement” the conditional subscription agreement dated 30 January 2010 entered into among the Company, the Subscribers and the Guarantors in relation to the Subscription
“Subscription Price” the subscription price of HK$0.85 per Subscription Share

– 4 –

DEFINITIONS

“Subscription Shares”
the 155,000,000 new Shares to be allotted and issued by the Company pursuant to the Subscription Agreement
“Sureplan” Sureplan Limited, a company incorporated in the BVI with limited liability and which is currently interested in approximately 34.64% of the total issued share capital of the Company
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers
“Target Company”
(Foshan City An Ning Company Limited*),
a company incorporated in the PRC with limited liability
“Vendor” Mr. HE Zhaojian ( )
“Whitewash Waiver” a waiver from the Executive pursuant to Note 1 to the Notes on Dispensations from Rule 26 of the Takeovers Code to waive the obligation of the Subscribers to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by the Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them which would otherwise arise as a result of the issue of the Subscription Shares to the Subscribers pursuant to the Subscription Agreement
“Whitewash Independent a committee of the Board comprising all the five non-executive Board Committee” Directors, namely Mr. DU Richeng, Mr. LO Wing Yat, Mr. PANG Fu Keung, Mr. WANG Bo and Mr. ZHANG Jianhui, formed pursuant to the requirements of the Takeovers Code for the purpose of advising and giving recommendation to the Independent Shareholders regarding the Subscription Agreement and the Whitewash Waiver
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“RMB” Renminbi, the lawful currency of the PRC
“%” per cent.

For illustration purposes, all amounts denominated in RMB in this circular have been translation into HK$ at the exchange rate of RMB1 = HK$1.135, and they do not form any representations or guarantees of any person that any one of the aforesaid currencies could be, have been, or will be converted into the other currency at the exchange rate used in this circular.

Certain English translations of Chinese names or words in this circular are included for identification purpose only and should not be regarded as the official English translation of such Chinese names or words.

– 5 –

LETTER FROM THE BOARD

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 570)

Non-Executive Director: Mr. DU Richeng, Chairman

Executive Directors: Mr. YANG Bin, Managing Director Mr. XU Tiefeng, Executive Deputy Chairman Mr. SITU Min, Chief Financial Officer & Qualified Accountant Mr. LI Songquan, Deputy Managing Director

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

Independent Non-Executive Directors:

Mr. LO Wing Yat Mr. PANG Fu Keung Mr. WANG Bo Mr. ZHANG Jianhui

11 March 2010

To the Shareholders

Dear Sir or Madam,

(I) MAJOR AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF EQUITY INTEREST IN FOSHAN CITY AN NING COMPANY LIMITED; (II) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS; AND (III) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

On 30 January 2010, the Purchaser entered into the Acquisition Agreement with the Vendor pursuant to which the Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Interest at the Consideration of RMB116 million (equivalent to approximately HK$131.7 million). The Sale Interest represents a 93% equity interest in the Target Company, which is an investment holding company. The Target Company’s principal asset is the holding of a 49% equity interest in DZH, and while the remaining 51% equity interest in DZH is held by the Company. The Remaining Minority

– 6 –

LETTER FROM THE BOARD

Interest in the Target Company, totaling 7%, is held by the Minority Holders. The Vendor has also granted the Purchaser the Option for the Purchaser to purchase from the Vendor any of the Remaining Minority Interest offered to sell to the Vendor by the Minority Holders.

On 30 January 2010, the Company also entered into the Subscription Agreement with the Subscribers and the Guarantors pursuant to which the Company has conditionally agreed to allot and issue and each of the Subscribers has conditionally agreed to subscribe for, on a several basis, 77,500,000 Subscription Shares at a price of HK$0.85 per Subscription Share. The obligations of the Subscribers under the Subscription Agreement are guaranteed by their respective beneficial owners on a several basis. The net proceeds of approximately HK$130.0 million from the Subscription will be used to finance payment of the Consideration for the Acquisition.

Completion of the Subscription Agreement is conditional on, among other things, the Acquisition Agreement having been completed in accordance with its terms. However, completion of the Acquisition Agreement is not conditional on completion of the Subscription Agreement. In the event that the Subscription Agreement is not capable of becoming unconditional or is not completed for any reasons, the Acquisition will be funded by internal resources and bank borrowings of the Group.

On 2 March 2010, the Company announced that the Group is expected to record a significant increase in profit for the financial year ended 31 December 2009 as compared to that of the financial year ended 31 December 2008. The positive profit alert statement was issued after the preliminary assessment of the profit of the Group for the year ended 31 December 2009 by the Directors based on the unaudited consolidated financial statements of the Group for the financial year ended 31 December 2009, and such statement constitutes a profit forecast under Rule 10 of the Takeovers Code. KPMG, the auditors of the Company, and Optima Capital, the financial adviser to the Company, have reported on the Forecast in accordance with Rule 10 of the Takeovers Code.

The purpose of this circular is to provide you with, among other things, (i) details of the Acquisition, the Option and the Subscription; (ii) financial information of the Group; (iii) financial information of the Target Company and DZH; (iv) the letter from the Listing Rules Independent Board Committee setting out its recommendation to the Independent Shareholders on votings as regards the Acquisition Agreement and the Subscription Agreement; (v) the letter from the Whitewash Independent Board Committee setting out its recommendation to the Independent Shareholders on voting as regards the Subscription Agreement and the Whitewash Waiver; (vi) the letter from Shenyin Wanguo to the Listing Rules Independent Board Committee, the Whitewash Independent Board Committee and the Independent Shareholders setting out its advice on the Acquisition Agreement, the Subscription Agreement and the Whitewash Waiver; (vii) the reports on the Forecast from KPMG and Optima Capital; and (viii) the notice convening the EGM.

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LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date

30 January 2010

Parties

Purchaser:

(Guangdong Medi-world Pharmaceutical Co., Ltd.*), an indirect wholly-owned subsidiary of the Company

Vendor: Mr. HE Zhaojian ( )

To the best of the Directors’ knowledge, information and belief, the Vendor is the beneficial owner of the Sale Interest. The principal asset of the Target Company is the holding of a 49% equity interest in DZH, an indirect non-wholly owned subsidiary of the Company principally engaged in the production of a wide range of Chinese medicines. Accordingly, the Vendor is a connected person of the Company under the Listing Rules.

Asset to be acquired

The asset to be acquired by the Purchaser is the Sale Interest (representing a 93% equity interest in the Target Company). Further information on the Target Company and DZH is set out in the section headed “Information on the Target Company and DZH” below.

Consideration

The Consideration for the Sale Interest is RMB116 million (equivalent to approximately HK$131.7 million) payable in cash by the Purchaser to the Vendor at completion of the Acquisition Agreement.

In March 2009, the State Council of the PRC approved a medical reform proposal (including (Opinions Concerning Further Reform of the Medical and Health System) and (Implementation Plan on Further Reform of the Medical and Health System for 2009-2011)) for public medical and health care system. It is expected that the reform proposal would involve investments by the PRC government of RMB850 billion (equivalent to approximately HK$964.8 billion) at various levels of the public medical and health care system from 2009 to 2011. On 18 August 2009, the State Council of the PRC further released the National Essential Drugs List, marking the establishment of a national list of essential drugs required to be stocked up and used by public medical and health care institutions and to be sold by retail drug stores. The National Essential Drugs List covers over 300 types of medicines, of which DZH manufactures a total of 17 types. In light of the aforesaid medical reform proposal and expected increase in the sale of DZH’s medicine products as a result of the establishment of the National Essential Drugs List, the Directors are optimistic about the future development of DZH. Details of the development prospect of DZH are more particularly described in the section headed “Reasons for the Acquisition” below.

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LETTER FROM THE BOARD

The original cost of the Sale Interest to the Vendor is approximately RMB108.6 million (equivalent to approximately HK$123.3 million). The Consideration has been determined after arm’s length negotiations between the parties having taken into account the following factors: (i) the promising business and development prospects of DZH as described above; and (ii) the historical financial performance and financial position of DZH since the acquisition of a 51% equity interest in DZH by the Company in October 2006.

Option in respect of the Remaining Minority Interest

Pursuant to the Acquisition Agreement, the Vendor may within 12 months from the date of completion of the Acquisition Agreement continue to negotiate with the Minority Holders to purchase the Remaining Minority Interest at a price not more than RMB5 for every RMB1 of registered capital of the Target Company held by the Minority Holders. On this basis, the total purchase price for all the Remaining Minority Interest would be up to RMB8,190,500 (equivalent to approximately HK$9.3 million). The Vendor has agreed to grant the Option to the Purchaser for it to acquire, in its sole discretion, from the Vendor any and all of such Remaining Minority Interest on the same terms offered to the Vendor by the Minority Holders. In the event that any of the Remaining Minority Interest is available for sale and the Purchaser exercises its rights to purchase the Remaining Minority Interest, the Company will finance such purchases by its internal resources. In the event that the Purchaser decides to exercise its right to acquire the Remaining Minority Interest, the Company will comply with the relevant provisions of the Listing Rules as and when appropriate.

Conditions precedent

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

(i) the Purchaser being satisfied with the result of the due diligence review on the Target Company, including but not limited to its financial position, business, operation and legality of establishment, and such result does not reveal any material breach, inaccurate and/or misleading information in relation to the Vendor’s representations, warranties and undertakings set out in the Acquisition Agreement;
(ii) the Vendor having been registered with the Administration of Industry and Commerce of Foshan City as the registered shareholder of the Target Company in respect of the Sale Interest (the “Registration”) and the Purchaser being satisfied with the terms of the memorandum and articles of association of the Target Company;
(iii) the execution of the transfer of the Sale Interest by the Vendor to the Purchaser having been approved by the shareholders of the Target Company at a shareholders’ meeting held by the Target Company after the Registration and the other shareholders of the Target Company having waived their pre-emption rights in relation to the Sale Interest;

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LETTER FROM THE BOARD

(iv) the Vendor having agreed and procured the resignation of the existing directors of the Target Company and agreed the appointment of the directors nominated by the Purchaser to the board of directors of the Target Company;
(v) the passing of the necessary resolution approving the Acquisition Agreement by the board of the Purchaser;
(vi) the announcement(s) and circular regarding the Acquisition Agreement having been made by the Company in accordance with the Listing Rules and the execution of the Acquisition Agreement having been approved by the Directors;
(vii) approval of the Acquisition Agreement by the Independent Shareholders having been obtained at the EGM;
(viii) the obtaining of a notification of approval issued by the Administration of Industry and Commerce of Foshan City for the Registration and the appointment of the persons nominated by the Purchaser as director(s) and legal representative(s) of the Target Company; and
(ix) a legal opinion being issued by Grandall Legal Group (Shenzhen), in the form to the satisfaction of the Purchaser, confirming, including but not limited to, the Vendor is the legal and beneficial owner of the Sale Interest.

If any of the above conditions precedent is not fulfilled or waived by the Purchaser on or before 30 April 2010 or such later date as may be agreed in writing between the parties to the Acquisition Agreement, the Acquisition 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 Acquisition Agreement. All of the conditions set out above except for condition (ix) have been agreed between the parties taking into account the relevant requirements of the laws, rules and regulations in the PRC and Hong Kong. Accordingly, the Purchaser will not waive any of the conditions (i) to (viii). The condition (ix) may be waived by the Purchaser commercially, subject to the final results of the legal due diligence work to be conducted by the Purchaser on the Sale Interest and the Target Company. As at the Latest Practicable Date, the results of the legal due diligence work in respect of, among other things, the Sale Interest and the Target Company were satisfactory and the Purchaser had no intention to waive condition (ix).

Completion of the Acquisition Agreement

Upon completion of the Acquisition Agreement, the Target Company will become a 93%-owned subsidiary of the Company and its financial results and position will be consolidated into the Group’s financial statements.

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LETTER FROM THE BOARD

INFORMATION ON THE TARGET COMPANY AND DZH

The Target Company

The Target Company is an investment holding company established in the PRC and holds a 49% equity interest in DZH. Except for the holding this 49% equity interest in DZH, the Target Company has no other material assets and liabilities.

According to the accountants’ report of the Target Company prepared in accordance with the Hong Kong Financial Reporting Standards as set out in Appendix II to this circular, the Target Company did not record any turnover for any of the years ended 31 December 2008 and 2009. However, as DZH is accounted for as an associate of the Target Company, the Target Company recorded share of profit of an associate in the amount of approximately HK$22.3 million and approximately HK$19.9 million for the years ended 31 December 2008 and 31 December 2009 respectively, while the audited profit (both before and after taxation) of the Target Company were approximately HK$22.3 million and approximately HK$19.9 million respectively. The audited net assets of the Target Company as at 31 December 2008 and 31 December 2009 were approximately HK$95.4 million and HK$90.2 million respectively.

DZH

The Company indirectly holds the remaining 51% equity interest in DZH. DZH is principally engaged in the production and sale of Chinese medicine and pharmaceutical products in the PRC.

DZH has a long established history in Chinese medicine and pharmaceutical business, which dates back to around 1957. The existing operations of DZH include research and development, manufacturing and sale of Chinese medicine and pharmaceutical products. DZH currently employs around 500 employees and has established leading workshops in the PRC for the production of Chinese patent medicines in solid form. Its major products include “Biyankang tablet” ( ), “Biyan drops (Spray)” ( ), “VC Yinqiao tablet” ( ), “Yuanjilin Ganhe Cha” ( ), “Shaolin Dieda Herbal Plaster” ( ) and “Yaoshen Herbal Plaster” ( ). In April 2009, the trademark of “Dezhong” was accredited by the State Administration for Industry and Commerce of the PRC as “Famous Trademark of China” ( ).

An accountants’ report of DZH has been prepared and included in Appendix III of this circular. Set out below are the audited financial information of DZH for the two years ended 31 December 2008 and 2009 as extracted from the accountants’ report of DZH:

	For the year ended	For the year ended	For the year ended
	31 December
	2008		2009
	HK$ million	_HK$ _	million
Turnover	251.4		223.5
Profit before taxation	53.9		48.0
Profit after taxation	45.6		40.5

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LETTER FROM THE BOARD

	As at 31 December	As at 31 December
	2008	2009
	HK$ million	HK$ million
Total assets	253.2	258.6
Net assets	194.8	184.0

THE SUBSCRIPTION AGREEMENT

Date

30 January 2010

Parties

Issuer: the Company Subscribers: Profit Channel and Extra Benefit Guarantors: Mr. Yang as guarantor to Profit Channel and Mr. Xu as guarantor to Extra Benefit

Profit Channel and Extra Benefit are wholly owned by Mr. Yang and Mr. Xu respectively. Each of Profit Channel and Extra Benefit is an investment holding company. Mr. Yang and Mr. Xu are executive Directors and in aggregate hold a 75% equity interest in Sureplan, which in turn is a controlling Shareholder of the Company interested in 564,102,563 Shares (representing approximately 34.64% of the existing issued share capital of the Company).

The Subscription Shares

Under the Subscription Agreement, an aggregate of 155,000,000 Subscription Shares will be subscribed by the Subscribers, of which 77,500,000 Shares are to be subscribed by Profit Channel and 77,500,000 Shares are to be subscribed by Extra Benefit. The obligations of the Subscribers under the Subscription Agreement are guaranteed by their respective beneficial owners on a several basis. The aggregate nominal value of the Subscription Shares is HK$15,500,000.

The aggregate of 155,000,000 Subscription Shares represent (i) approximately 9.5% of the existing issued share capital of the Company; and (ii) approximately 8.7% of the issued share capital of the Company as enlarged by the issue of the Subscription Shares.

The Subscription Shares, when fully paid, will rank pari passu in all respects with the Shares then in issue.

The Subscription Shares will be allotted and issued under a specific mandate to be sought from the Independent Shareholders at the EGM.

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LETTER FROM THE BOARD

Subscription Price

The Subscription Price of HK$0.85 per Subscription Share represents:

(i) a discount of approximately 2.3% to the closing price of HK$0.87 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 7.6% to the average of the closing prices of the Shares as quoted on the Stock Exchange over the last 5 trading days up to and including the Last Trading Day of approximately HK$0.92 per Share;
(iii) a discount of approximately 12.4% to the average of the closing prices of the Shares as quoted on the Stock Exchange over the last 10 trading days up to and including the Last Trading Day of approximately HK$0.97 per Share;
(iv) a premium of approximately 1.2% over the average of the closing prices of the Shares as quoted on the Stock Exchange over the last 30 trading days up to and including the Last Trading Day of approximately HK$0.84 per Share;
(v) a discount of approximately 30.3% to the closing price of HK$1.22 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(vi) a premium of approximately 107.3% over the unaudited net asset value of approximately HK$0.41 per Share as at 30 June 2009 (based on the unaudited equity attributable to owners of the Company of approximately HK$670,221,000 as set out in the Company’s interim report for the six months ended 30 June 2009 and a total of 1,628,410,807 Shares in issue as at 30 June 2009).

The Subscription Price has been determined after arm’s length negotiations between the Company and the Subscribers with references to, among other things, (i) the prevailing market price of the Shares; and (ii) the purpose of the Subscription of financing the Acquisition. The Directors (including the independent non-executive Directors) consider that the terms of the Subscription Agreement, including the Subscription Price, are fair and reasonable so far as the Independent Shareholders are concerned and that the Subscription is in the interests of the Company and the Shareholders as a whole.

The aggregate subscription price payable by the Subscribers to the Company for the Subscription Shares is HK$131.75 million. The net proceeds from the Subscription after deducting related fees and expenses is estimated to be approximately HK$130.0 million and will be used to finance payment of the Consideration for the Acquisition. The net price per Subscription Share approximates HK$0.84.

Conditions precedent

Completion of the Subscription Agreement is conditional upon:

(i) the Listing Committee granting the approval for the listing of, and permission to deal in, the Subscription Shares;

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LETTER FROM THE BOARD

(ii) the passing of the ordinary resolution(s) by way of poll at an extraordinary general meeting by the Independent Shareholders to approve the Subscription Agreement and all the transactions contemplated thereunder, the allotment and issue of the Subscription Shares to the Subscribers (or other party as it may direct) and the Whitewash Waiver;
(iii) the granting by the Executive of the Whitewash Waiver; and
(iv) the Acquisition Agreement having been completed in accordance with its terms.

None of the conditions set out above can be waived by the Company or any of the Subscribers. In the event that the conditions are not fulfilled on or before 30 May 2010 (or such other date or time as may be agreed between the Company and the Subscribers), all obligations of the Subscribers and of the Company under the Subscription Agreement shall cease and determine and none of the parties shall have any claim against the other in relation to the Subscription Agreement.

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

Completion of the Subscription Agreement

Completion of the Subscription Agreement will take place at 4:00 p.m. on the tenth Business Day following the satisfaction of the conditions set out above (or such other date as the parties to the Subscription Agreement may agree in writing). Further announcement will be made upon completion of the Subscription Agreement.

As stated above, completion of the Subscription Agreement is conditional on, among other things, the Acquisition Agreement having been completed in accordance with its terms. However, completion of the Acquisition Agreement is not conditional on the completion of the Subscription Agreement. In the event that the Subscription Agreement is not capable of becoming unconditional or is not completed for any reasons, the Acquisition will be funded by the internal resources and bank borrowings of the Group.

CLARIFICATION ON FUND RAISING ACTIVITIES IN THE PAST 12 MONTHS

The Company would like to clarify that due to an inadvertent mistake, it was disclosed in the Announcement that the Company has not carried out any fund raising exercise in the 12 months immediately preceding the date of the Announcement.

On 16 December 2008, the Company issued an announcement in relation to, among other things, the acquisition of Smartpoint and the best effort placing (the “Placing”) of up to 233,334,000 Shares at HK$0.3 each. On 6 February 2009, the Placing was completed and 233,334,000 Shares were successfully placed. The net proceeds from the Placing of HK$69.85 million had been utilised to finance part of the consideration for the acquisition of Smartpoint as intended and disclosed in the aforesaid announcement.

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LETTER FROM THE BOARD

At the time of preparing the Announcement, the Company had mistakenly used 16 December 2008, being the date of the aforesaid announcement relating to the Placing, as reference date and therefore considered that details of the Placing are not required to be disclosed as fund raising activities of the Company in the past 12 months in the Announcement. The Company subsequently realised that the date of issue of the Shares under the Placing should be used as the reference date for the purpose of disclosing the fund raising activities of the Company in the past 12 months under the Listing Rules. Accordingly, details of the Placing are disclosed above for Shareholders’ information.

Save as disclosed above, the Company has not carried out any fund raising exercise in the 12 months immediately preceding the date of the Announcement.

EFFECT ON SHAREHOLDING STRUCTURE OF THE COMPANY

The table below depicts the effect of the Subscription on the shareholding structure of the Company.

	Shareholders Hensil Investments Group Limited (Note 1)	As at the Latest Practicable Date Number of Shares Approximate % 605,290,886 37.17	As at the Latest Practicable Date Number of Shares Approximate % 605,290,886 37.17	Upon completion of the Subscription Number of Shares Approximate % 605,290,886 33.94 564,102,563 31.62 77,500,000 4.35 77,500,000 4.35 719,102,563 40.32 268,000 0.02 458,749,358 25.72 1,783,410,807 100.00
	Sureplan (Note 2) Profit Channel (Note 2) Extra Benefit (Note 2)	564,102,563 – –	34.64 – –	564,102,563 77,500,000 77,500,000
	Sub-total for Sureplan, the Subscribers, Mr. Yang, Mr. Xu and parties acting in concert with any of them Mr. SITU Min (Note 3) Public Shareholders Total	564,102,563 268,000 458,749,358 1,628,410,807	34.64 0.02 28.17 100.00	719,102,563 268,000 458,749,358 1,783,410,807

Notes:

Hensil Investments Group Limited is wholly owned by Foshan Development Company Limited.
Sureplan is owned as to 25% by First Linkup Development Limited, 25% by Extra Benefit and 50% by Profit Channel, each of which is in turn wholly owned by Mr. WU Chiu Kong, Mr. Xu and Mr. Yang respectively.
Mr. SITU Min is an executive Director.

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LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

The principal activity of the Company is investment holding and the principal activities of its principal subsidiaries, including DZH, are the manufacture and sale of Chinese medicine and pharmaceutical products in the PRC.

In October 2006, the Company acquired the 51% interest in DZH which is presently held by it. Following completion of the aforesaid acquisition, DZH has been performing well and has recorded satisfactory results for the three financial years subsequent to such acquisition.

As mentioned above, the State Council of the PRC has approved a medical reform proposal for public medical and health care system in March 2009. It is expected that the reform proposal would involve investments by the PRC government of RMB850 billion (equivalent to approximately HK$964.8 billion) at various levels of the public medical and health care system from 2009 to 2011. The National Essential Drugs List released by the State Council of the PRC on 18 August 2009 covers over 300 types of medicines, of which DZH manufactures a total of 17 types, while other members of the Group together manufacture a total of 47 types. One of the popular products manufactured by DZH, “Biyankang Tablet” ( ), is on the National Essential Drugs List. “Biyankang Tablet” ( ) is a patented product manufactured exclusively by DZH. In light of the reform proposal for the public medical and health care system and the establishment of the National Essential Drugs List, it is expected that demand for DZH’s medicine products, particularly its patented products, will increase and DZH will benefit from the recent development of the medicine industry in the PRC.

Despite the future performance of the Group may rely more on the business performance of DZH after completion of the Acquisition, the Company considers that the business prospects of DZH is promising and the Acquisition provides a good opportunity for the Company to increase its investment in DZH with a view to enhancing the overall profitability of the Group and bringing value to the Shareholders. The Directors (including the independent non-executive Directors) consider the terms of the Acquisition Agreement to be fair and reasonable so far as the Independent Shareholders are concerned and that the Acquisition is in the interests of the Company and the Shareholders as a whole.

REASONS FOR THE SUBSCRIPTION

The net proceeds of approximately HK$130.0 million raised from the Subscription will be used to fund the Acquisition. The Directors have considered the other financing options for the Acquisition including debt financing and rights issue of Shares to all Shareholders. Having considered the various options, the Directors consider that the proposed Subscription is the most appropriate means of funding the Acquisition for reasons as follows: (i) the debt financing option will incur finance charges and interest costs for the Group during the term of the loan. Despite the prevailing low interest rate, any increase in interest rate would post upward pressure on the level of finance expenses of the Group; (ii) the gearing ratio of the Group will inevitably be affected if the Acquisition is to be financed by bank borrowings. Given the long term nature of the investment in DZH, the Company may not be able to successfully arrange the necessary bank financing the term of which would match the

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LETTER FROM THE BOARD

pay-back periods of the investments; (iii) a rights issue would normally involve a longer timetable to complete the capital raising and, in order to provide sufficient incentive for any arm’s length underwriters to underwrite the new issue, the Directors believe that it is highly likely that a more substantial discount to market price would be required for the launch of a rights issue to all Shareholders. Shareholders who will not subscribe for their pro-rata rights will suffer from a higher dilutive effect than as a result of completion of the Subscription; (iv) a rights issue will involve more costs to the Company by reason of the underwriting commission, and other administrative and legal expenses and costs; and (v) as illustrated above, the issue price of the Subscription has been agreed quite close to the prevailing market price of the Shares and at a substantial premium over the underlying net asset value of the Shares, despite the dilutive effect of the Subscription to the Shareholders on percentage, the Directors consider that the Subscription would be the most straight forward and cost effective means of financing for the purpose of the Acquisition and the dilution effect to the Shareholders as a result of the Subscription is acceptable and commercially justifiable.

FINANCIAL IMPACTS OF THE ACQUISITION

On earnings

Upon completion of the Acquisition Agreement, the results of the Target Company will be consolidated into the Group. Through the Acquisition, the Company will hold an attributable interest of approximately 96.6% in DZH, increasing from its present holding of 51%. In view of the overall profitability of DZH in the past, the Directors are optimistic about the future earnings capability of the Enlarged Group and believe the Acquisition is in the interests of the Company and the Shareholders as a whole.

On assets and liabilities

An unaudited pro forma combined balance sheet on the Enlarged Group as at 30 June 2009 is set out in Appendix IV to this circular, which has been prepared assuming completion of the Acquisition had taken place on 30 June 2009 and the Consideration has been settled in cash by internal resources of the Group, without taking account the Subscription and the allotment and issue of the Subscription Shares. On this basis and as the Company already had control over DZH before the Acquisition, the acquisition of additional interest in DZH as a result of completion of the acquisition of the Sale Interest would not result in a change in the carrying amount of assets and liabilities in the Group’s consolidated balance sheet, except that the account balance of the Group’s investment in an associate would be eliminated and the account balance of the minority interest in the Group’s consolidated balance sheet relating to DZH would decrease. Had completion of the Acquisition taken place on 30 June 2009, the effect of this is, as illustrated in the unaudited pro forma balance sheet, that (i) the Group’s total assets would decrease by approximately HK$131.8 million from approximately HK$1,148.6 million to approximately HK$1,016.8 million because of the decrease in cash and cash equivalents of approximately HK$131.7 million (being the payment of the Consideration) and the elimination of the account balance in investment in an associate of approximately HK$0.09 million; (ii) the Group’s total liabilities would remain at approximately HK$302.5 million; (iii) the amount of minority interests would decrease by approximately HK$101.4 million from approximately HK$175.8

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LETTER FROM THE BOARD

million to approximately HK$74.4 million due to the increase of the Group’s equity interest in DZH; and (iv) the Group’s total equity attributable to shareholders of the Company would decrease by approximately HK$30.3 million from approximately HK$670.2 million to approximately HK$639.9 million primarily reflecting the difference between the decrease in the amount of minority interests of approximately HK$101.4 million and the Consideration paid for the Sale Interest of approximately HK$131.7 million.

The bases and assumptions on which the unaudited pro forma combined balance sheet of the Enlarged group has been prepared are more particularly described in the section headed “Introduction to the unaudited pro forma financial information” in Appendix IV. Particulars of the pro forma adjustments and the pro forma assets and liabilities of the Enlarged Group are set out in the sections headed “Unaudited pro forma combined balance sheet as at 30 June 2009” and “Notes to the unaudited pro forma financial information of the Enlarged Group” in Appendix IV. Shareholders should note that the unaudited pro forma financial information of the Enlarged Group has been prepared based on a number of assumptions, estimates, uncertainties and currently available information and does not purport to predict the future financial position of the Enlarged Group.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Following completion of the Acquisition Agreement, the Group will hold a 93% equity interest in the Target Company. Accordingly, the Group’s attributable equity interest in DZH will increase from 51% to approximately 96.6%. After taking into account the good performance of DZH, the Directors are optimistic about the future earning capability of the Enlarged Group. In addition, due to the introduction of the medical reform proposal for public medical and health care system and release of the National Essential Drugs List by the State Council of the PRC in 2009, the Board considers that the Acquisition would further enhance the Enlarged Group’s trading prospects in the future.

INFORMATION ON THE SUBSCRIBERS

Profit Channel is a company wholly owned by Mr. Yang, the sole director of Profit Channel. The principal activity of Profit Channel is investment holding and its principal asset is a 50% equity interest in Sureplan, which is in turn holding 564,102,563 Shares (representing approximately 34.64% of the issued share capital of the Company as at the Latest Practicable Date).

Extra Benefit is a company wholly owned by Mr. Xu, the sole director of Extra Benefit. The principal activity of Extra Benefit is investment holding and its principal asset is a 25% equity interest in Sureplan, which is in turn holding 564,102,563 Shares (representing approximately 34.64% of the issued share capital of the Company as at the Latest Practicable Date).

INTENTION OF THE SUBSCRIBERS

The Group will continue to be engaged in the manufacture and sale of Chinese medicine and pharmaceutical products in the PRC after completion of the Subscription. The Subscribers have no intention to make any material change to the business or continued

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LETTER FROM THE BOARD

employment of the employees of the Group or to redeploy the fixed assets of the Group. The Subscribers also intend that the Shares will remain listed on the Stock Exchange after completion of the Acquisition and the Subscription.

The Subscribers consider that the Company has promising growth prospects and, in the circumstances, they are prepared to continue their support to the Group in furthering the development of the Group in its medicine and pharmaceutical business in the PRC. As the Acquisition presents the Group with a good opportunity to enhance its future earning capability as stated by the Directors above, the Subscribers are of the view that the Subscription represents an opportunity to enhance their participation in the future growth of the Group. The Subscribers therefore consider that the Subscription is in their long-term commercial interests.

REGULATORY REQUIREMENTS

Takeovers Code

Application for Whitewash Waiver

Profit Channel and Extra Benefit are wholly owned by Mr. Yang and Mr. Xu respectively. Mr. Yang and Mr. Xu are executive Directors and are in aggregate holding 75% interest in Sureplan, which in turn held 564,102,563 Shares (representing approximately 34.64% of the issued share capital of the Company as at the Latest Practicable Date). Sureplan and the Vendor are presumed to be parties acting in concert under class (1) of the definition of acting in concert under the Takeovers Code. As at the Latest Practicable Date, the Vendor did not hold any Shares. Save for the shareholding of Sureplan, the Subscribers, Mr. Yang, Mr. Xu and parties acting in concert with any of them had no other interests in the voting rights of the Company as at the Latest Practicable Date. Upon completion of the Subscription and the allotment and issue of the Subscription Shares, Sureplan, the Subscribers, Mr. Yang, Mr. Xu, and parties acting in concert with any of them will be interested in a total of 719,102,563 Shares, representing approximately 40.32% of the issued share capital of the Company as enlarged by the issue of the Subscription Shares (assuming that no Shares will be issued between the Latest Practicable Date and completion of the Subscription). The issue of the Subscription Shares will result in Sureplan, the Subscribers, Mr. Yang, Mr. Xu and parties acting in concert with any of them increasing their voting rights in the Company by more than 2% within the 12-month period immediately prior to completion of the Subscription. An application has been made by the Subscribers to the Executive for the Whitewash Waiver to waive the obligation of the Subscribers to make a general offer for all the issued Shares not already owned or agreed to be acquired by the Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them which would otherwise arise under Rule 26 of the Takeovers Code as a result of the allotment and issue of the Subscription Shares to the Subscribers.

It is one of the conditions of the Subscription Agreement that the Whitewash Waiver be granted by the Executive and approved by the Independent Shareholders at the EGM by way of poll. The Executive has agreed that it will grant the Whitewash Waiver subject to the

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LETTER FROM THE BOARD

approval of the Independent Shareholders. If the Whitewash Waiver is not granted by the Executive or not approved by the Independent Shareholders, the Subscription Agreement will not become unconditional and the Subscription will not proceed.

The Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them have not dealt in any securities in the Company during the Relevant Period.

Other arrangements

As at the Latest Practicable Date,

(i) there was no arrangement (whether by way of option, indemnity or otherwise) in relation to the Shares or the shares of the Subscribers and Sureplan, and which might be material to the Whitewash Waiver;
(ii) save for the Subscription Agreement, there was no other agreement or arrangement to which the Subscribers, Sureplan, Mr. Yang or Mr. Xu was 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 Subscription or the Whitewash Waiver;
(iii) there was no outstanding derivative in respect of relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company which has been entered into by the Subscribers, Sureplan, Mr. Yang, Mr. Xu or any person acting in concert with any of them;
(iv) save for the 564,102,563 Shares held by Sureplan, neither the Subscribers, Sureplan, Mr. Yang, Mr. Xu nor any parties acting in concert with any of them held any convertible securities, warrants or options of the Company; and
(v) there were no relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company which the Subscribers, Sureplan, Mr. Yang, Mr. Xu or any person acting in concert with any of them had borrowed or lent.

The Forecast

On 2 March 2010, the Company announced that the Group is expected to record a significant increase in profit for the financial year ended 31 December 2009 as compared to that of the financial year ended 31 December 2008. The significant improvement of the financial performance of the Group for the financial year ended 31 December 2009 was mainly attributable to the profit contribution from Smartpoint. As the acquisition of Smartpoint was completed on 6 February 2009, the financial results of Smartpoint have been consolidated into the Group with effect from the same date. This significant improvement of financial performance has taken into account the profit contribution from Smartpoint and the financial performance of the other subsidiaries of the Group, including DZH and FLX.

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LETTER FROM THE BOARD

The Company is still in the process of finalising its financial statements for the year ended 31 December 2009. The Company will announce its audited annual results for the year ended 31 December 2009 as soon as practicable but in no event later than 30 April 2010.

The above positive profit alert statement was issued after the preliminary assessment of the profit of the Group for the year ended 31 December 2009 by the Directors based on the unaudited consolidated financial statements of the Group for the financial year ended 31 December 2009, and such statement constitutes a profit forecast under Rule 10 of the Takeovers Code. KPMG, the auditors of the Company, and Optima Capital, the financial adviser to the Company, have reported on the Forecast in accordance with Rule 10 of the Takeovers Code.

The texts of the reports of KPMG and Optima Capital on their opinions on the Forecast are set out in Appendix VI to this circular. The assumptions adopted by the Directors in preparing the Forecast are set out in the section headed “Assumptions” in Appendix VI.

LISTING RULES

As the Vendor owns a 93% equity interest in the Target Company which in turn holds a 49% interest in DZH (being a non wholly-owned subsidiary of the Company), he is a connected person of the Company under the Listing Rules and the entering into of the Acquisition Agreement constitutes a connected transaction of the Company. As the relevant percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules in respect of the Acquisition exceed 25% but are less than 100%, the Acquisition also constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. The Acquisition Agreement and the transactions contemplated thereunder are therefore subject to the approval of the Independent Shareholders at the EGM by way of poll.

The Subscribers are connected persons of the Company under the Listing Rules and the Subscription Agreement constitutes a connected transaction of the Company pursuant to Chapter 14A of the Listing Rules. The Subscription Agreement and the transactions contemplated thereunder are therefore subject to the approval of the Independent Shareholders at the EGM by way of poll.

VOTING

As at the Latest Practicable Date, the Vendor and his associates did not hold any Shares. Profit Channel and Extra Benefit are wholly owned by Mr. Yang and Mr. Xu respectively. Mr. Yang and Mr. Xu are executive Directors and are in aggregate holding a 75% interest in Sureplan, which in turn hold 564,102,563 Shares (representing approximately 34.64% of the issued share capital of the Company as at the Latest Practicable Date). Save for the aforesaid, the Subscribers and their respective associates did not hold any Shares. By reason of the requirements of the Takeovers Code and the Listing Rules as explained above, in respect of the Acquisition and the Subscription, the Vendor, the Subscribers and their respective associates are required to abstain from voting at the EGM in respect of the resolutions to approve the Acquisition Agreement and Subscription Agreement; and in respect of the Whitewash Waiver, the Subscribers, Sureplan, Mr. Yang, Mr. Xu,

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LETTER FROM THE BOARD

parties acting in concert with any of the Subscribers, Sureplan, Mr. Yang and Mr. Xu, Mr. SITU Min, an executive Director who held 268,000 Shares (representing approximately 0.02% of the issued share capital of the Company) as at the Latest Practicable Date and has been involved in the negotiation process of the Subscription, are required to abstain from voting at the EGM in respect of the resolution(s) to approve the Whitewash Waiver.

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 in respect of the proposed resolutions to approve the Acquisition Agreement, the Subscription Agreement and the Whitewash Waiver at the EGM.

EGM

The EGM to approve the Acquisition Agreement and the transactions contemplated thereunder, the Subscription Agreement and the transactions contemplated thereunder and the Whitewash Waiver will be held at Boardroom V, Ground Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Monday, 29 March 2010 at 10:00 a.m.. A notice convening the EGM is set out on pages 305 to 307 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.

RECOMMENDATIONS

The Directors (including the non-executive Directors) consider that the terms of the Acquisition Agreement and the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned, and the Acquisition Agreement and the transactions contemplated thereunder, the Subscription Agreement and the transactions contemplated thereunder and the Whitewash Waiver 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 Acquisition Agreement and the transactions contemplated thereunder, the Subscription Agreement and the transactions contemplated thereunder and the Whitewash Waiver.

You are advised to read carefully the letters from the Listing Rules Independent Board Committee and the Whitewash Independent Board Committee on pages 24 and 25 and page 26 respectively of this circular. The Listing Rules Independent Board Committee and the Whitewash Independent Board Committee, having taken into account the advice of Shenyin Wanguo which is set out on pages 27 to 52 of this circular, consider that the terms of the Acquisition Agreement, the Subscription Agreement and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned, and the Acquisition Agreement and the transactions contemplated thereunder, the Subscription Agreement and

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LETTER FROM THE BOARD

the transactions contemplated thereunder, and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole. Accordingly, (i) the Listing Rules Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve the Acquisition Agreement and the Subscription Agreement; and (ii) the Whitewash Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve the Subscription Agreement and the Whitewash Waiver.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of

Winteam Pharmaceutical Group Limited DU Richeng Chairman

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LETTER FROM THE LISTING RULES INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Listing Rules Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Acquisition Agreement and the Subscription Agreement:

==> picture [296 x 43] intentionally omitted <==

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

11 March 2010

To the Independent Shareholders

Dear Sir or Madam,

(I) MAJOR AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF EQUITY INTEREST IN FOSHAN CITY AN NING COMPANY LIMITED; AND

(II) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS

We refer to the circular of the Company dated 11 March 2010 (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 Listing Rules Independent Board Committee to advise you as to whether, in our opinion, the terms of the Acquisition Agreement and the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned and whether the Acquisition Agreement, the Subscription Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole.

Shenyin Wanguo has been appointed as the independent financial adviser to advise the Listing Rules 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 27 to 52 of the Circular.

Having considered the terms of the Acquisition Agreement and the Subscription Agreement and the independent advice of Shenyin Wanguo in relation thereto, we are of the opinion that (i) the terms of the Acquisition Agreement and the Subscription Agreement are fair and reasonable; and (ii) the Acquisition Agreement and the transactions contemplated thereunder and the Subscription Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. We therefore recommend

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LETTER FROM THE LISTING RULES INDEPENDENT BOARD COMMITTEE

the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Acquisition Agreement and the transactions contemplated thereunder, and the Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully,

Listing Rules Independent Board Committee

Mr. LO Wing Yat Mr. PANG Fu Keung Mr. WANG Bo Mr. ZHANG Jianhui Independent Independent Independent Independent non-executive non-executive non-executive non-executive Director Director Director Director

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LETTER FROM THE WHITEWASH INDEPENDENT BOARD COMMITTEE

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

==> picture [296 x 43] intentionally omitted <==

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

11 March 2010

To the Independent Shareholders

Dear Sir or Madam,

(I) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS AND (II) APPLICATION FOR WHITEWASH WAIVER

We have been appointed as the Whitewash Independent Board Committee to advise you as to whether, in our opinion, the Subscription Agreement and the Whitewash Waiver are (i) fair and reasonable so far as the Independent Shareholders are concerned; and (ii) in the interests of the Company and the Shareholders as a whole.

Shenyin Wanguo has been appointed as the independent financial adviser to advise the Whitewash Independent Board Committee 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 27 to 52 of the Circular.

Having considered the terms of the Subscription Agreement and the independent advice of Shenyin Wanguo in relation thereto, we are of the opinion that the Subscription Agreement and the Whitewash Waiver are (i) fair and reasonable; and (ii) 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 Subscription Agreement and the Whitewash Waiver.

Yours faithfully, Whitewash Independent Board Committee Mr. LO Wing Yat Mr. Du Richeng Mr. PANG Fu Keung Independent Non-executive Independent non-executive Director Director non-executive Director Mr. WANG Bo Mr. ZHANG Jianhui Independent Independent non-executive Director non-executive Director

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LETTER FROM SHENYIN WANGUO

The following is the full text of the letter of independent advice from Shenyin Wanguo for the purpose of inclusion in this circular:

==> picture [37 x 38] intentionally omitted <==

Shenyin Wanguo Capital (H.K.) Limited 28th Floor, Citibank Tower Citibank Plaza 3 Garden Road Hong Kong

11 March 2010

To The Listing Rules Independent Board Committee, the Whitewash Independent Board Committee and the Independent Shareholders of

Winteam Pharmaceutical Group Limited

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION AND SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS AND WHITEWASH WAIVER

INTRODUCTION

We refer to the circular of Winteam Pharmaceutical Group Limited dated 11 March 2010 (the “ Circular ”), of which this letter forms part, regarding, inter alia , the Acquisition, the Subscription and the Whitewash Waiver (collectively referred to as the “ Transactions ” in this letter). Unless the context otherwise requires, terms used in this letter shall have the same meanings as defined in the Circular.

The Acquisition constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. Given the Vendor and the Subscribers are connected persons of the Company, the entering into of the Acquisition Agreement and the Subscription Agreement constitute connected transactions for the Company under Chapter 14A of the Listing Rules. The Acquisition and the Subscription are subject to the approval of the Independent Shareholders by way of poll at the EGM.

Upon completion of the Subscription Agreement, the allotment and issue of the Subscription Shares would result in the Subscribers, Mr. Yang, Mr. Xu, Sureplan and parties acting in concert with any of them (collectively referred to as the “ Concert Group ” in this letter) increasing their voting rights in the Company by more than 2% within the 12-month period ending on and inclusive of the date of completion of the Subscription Agreement. An application has been made by the Subscribers to the Executive for the Whitewash Waiver to waive the obligation of the Subscribers to make a general offer for all the issued Shares not already owned or agreed to be acquired by the Concert Group which would otherwise arise

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LETTER FROM SHENYIN WANGUO

under Rule 26 of the Takeovers Code as a result of the allotment and issue of the Subscription Shares to the Subscribers. Subject to the approval of the Independent Shareholders by way of poll at the EGM, the Executive has agreed to grant the Whitewash Waiver.

We, Shenyin Wanguo Capital (H.K.) Limited, have been appointed as the independent financial adviser to advise you on the Transactions, details of which are set out in the Circular. In this letter, we will make recommendations to you as to whether the Acquisition and the Subscription are on normal commercial terms and in the ordinary and usual course of business of the Group, whether the terms of the Acquisition Agreement and the Subscription Agreement, and the Whitewash Waiver are fair and reasonable and whether the Transactions are in the interests of the Company and the Shareholders as a whole as well as we will advise the Independent Shareholders on how to vote at the EGM in respect of the Acquisition and the Subscription.

The Listing Rules Independent Board Committee, comprising all the four independent non-executive Directors, namely Mr. LO Wing Yat, Mr. PANG Fu Keung, Mr. WANG Bo and Mr. ZHANG Jianhui, has been established to advise the Independent Shareholders, taking into account our recommendations set out in this letter, as to whether the terms of the Acquisition Agreement and the Subscription Agreement are fair and reasonable and whether the Acquisition and the Subscription are in the interests of the Company and the Shareholders as a whole as well as to advise the Independent Shareholders on how to vote at the EGM in respect of the Acquisition and the Subscription. The advice of the Listing Rules Independent Board Committee as regards the Acquisition and the Subscription is contained in its letter included in the Circular.

The Whitewash Independent Board Committee, comprising all the five non-executive Directors including the independent non-executive Directors, namely Mr. DU Richeng, Mr. LO Wing Yat, Mr. PANG Fu Keung, Mr. WANG Bo and Mr. ZHANG Jianhui, has been established to advise the Independent Shareholders, taking into account our recommendations set out in this letter, as to whether the terms of the Subscription Agreement and the Whitewash Waiver are fair and reasonable and whether the Subscription and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole as well as to advise the Independent Shareholders on how to vote at the EGM in respect of the Subscription and the Whitewash Waiver. The advice of the Whitewash Independent Board Committee as regards the Subscription and the Whitewash Waiver is contained in its letter included in the Circular.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and statements supplied as well as opinions and representations expressed by the Company and the Directors and have assumed that all such information and statements supplied as well as opinions and representations expressed to us were true, accurate and complete in all material aspects at the time they were provided and continue to be true up to the date of the EGM. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information and statements supplied as well as opinions and representations expressed to us.

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LETTER FROM SHENYIN WANGUO

We consider that we have been provided with sufficient information to enable us to reach our advice and recommendations as set out in this letter and to justify our reliance on the accuracy of such information. We have no reason to suspect that any material facts or information (which are known to the Company) have been omitted or withheld from the information or statements supplied or opinions or representations expressed to us, nor to doubt the truth and accuracy of the information and statements supplied or the reasonableness of the opinions and representations expressed to us. We have not, however, carried out any independent verification on the information provided to us by the Company and the Directors, nor have we conducted an independent in-depth investigation into the business or affairs or future prospects of the Enlarged Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

We have taken into account the following principal factors and reasons in arriving at our recommendations with regard to the Transactions:

Principal terms of the Acquisition

On 4 February 2010, the Board announced that on 30 January 2010, the Purchaser entered into the Acquisition Agreement with the Vendor pursuant to which the Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Interest.

The principal terms of the Acquisition Agreement are summarised as follows:

(i) Subject asset:
Sale Interest, representing a 93% equity interest in the Target Company (which is an investment holding company with its principal asset being the holding of a 49% equity interest in DZH).
(ii) Consideration for the RMB116 million (approximately HK$131.7 Acquisition: million) payable in cash by the Purchaser to the Vendor at completion of the Acquisition Agreement.
(iii) Conditions precedent:
(a) the Purchaser being satisfied with the result of the due diligence review on the Target Company;
(b) the Vendor having been registered with the Administration of Industry and Commerce of Foshan City as the registered shareholder of the Target Company in respect of the Sale Interest (“ Registration ”) and the Purchaser being satisfied with the terms of the memorandum and articles of association of the Target Company;

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LETTER FROM SHENYIN WANGUO

(c) the execution of the transfer of the Sale Interest by the Vendor to the Purchaser having been approved by the shareholders of the Target Company at a shareholders’ meeting held by the Target Company after the Registration and the other shareholders of the Target Company having waived their pre-emption rights in relation to the Sale Interest;
(d) the Vendor having agreed and procured the resignation of the existing directors of the Target Company and agreed the appointment of the directors nominated by the Purchaser to the board of directors of the Target Company;

(e) the passing of the necessary resolution approving the Acquisition Agreement by the board of the Purchaser;

(f) the announcement(s) and the Circular regarding the Acquisition Agreement having been made by the Company in accordance with the Listing Rules and the execution of the Acquisition Agreement having been approved by the Directors;
(g) approval of the Acquisition Agreement by the Independent Shareholders having been obtained at the EGM;

(h) the obtaining of a notification of approval issued by the Administration of Industry and Commerce of Foshan City for the Registration and the appointment of the persons nominated by the Purchaser as director(s) and legal representative(s) of the Target Company; and (i) a legal opinion being issued by Grandall Legal Group (Shenzhen), in the form to the satisfaction of the Purchaser, confirming, including but not limited to, the Vendor is the legal and beneficial owner of the Sale Interest.

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LETTER FROM SHENYIN WANGUO

(iv) Completion:

Completion of the Acquisition Agreement shall take place on the third Business Day following the date upon which all the conditions precedent are fulfilled or waived (as the case may be) or such other day as agreed by the parties to the Acquisition Agreement. The long stop date of the Acquisition Agreement is 30 April 2010 or such later date as may be agreed in writing between the parties to the Acquisition Agreement.

Information on the Group

The Group started its pharmaceutical business since completion of the acquisition of the 51% interest in each of DZH and (Foshan Feng Liao Xing Pharmaceutical Co., Ltd.) on 9 October 2006 (the “ DZH and FLX Acquisition ”).

On 6 February 2009, the Group acquired the entire interests in (Guangdong Medi-World Pharmaceutical Co., Ltd.) (i.e. the Purchaser), (Shandong Lukang Pharmaceutical Group Luya Co., Ltd.) and (Foshan Winteam Medical Technology Company Limited) from Sureplan (“ Medi-World Acquisition ”).

On 6 November 2009, the Group acquired the entire interest in (Foshan Nanhai Pharmaceutical Group Medicinal Material Co., Ltd.) from (Foshan Nanhai Pharmaceutical Group Co., Ltd.), being a company owned as to 25.5% by each of Mr. Yang and Mr. Xu (“ Nanhai Acquisition ”).

At present, the Group is principally engaged in the manufacture and sale of Chinese medicine and pharmaceutical products in the PRC under five major brands, namely (Sheng Tong Ping), (Gaode), (Xi Ming Tang), (Dezhong) and (Feng Liao Xing). The products of the Group are sold to local hospitals and chemists through the Group’s extensive sales network in the PRC. Currently, the Group has four major production plants: three in Foshan City of Guangdong Province and one in Jining City of Shandong Province. The Directors have advised that each of the Group’s plants has passed the good manufacturing practice (commonly known as “ GMP ”) certification of the PRC.

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LETTER FROM SHENYIN WANGUO

Financial performance and position of the Group

Set out below is the financial information of the Group extracted from the Company’s interim and annual reports:

(i) Consolidated income statement

Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) Turnover 317,704 228,192 Gross profit 147,129 84,321 Gross profit margin (%) 46.3% 37.0% Profit from operations 59,120 31,112 Finance costs (2,607) (737) Profit before taxation 56,513 30,375 Income tax (12,636) (9,961) Profit for the year/period 43,877 20,414 Attributable to: – Shareholders 29,257 7,871 – Minority interests 14,620 12,543 Profit for the year/period 43,877 20,414	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) Turnover 317,704 228,192 Gross profit 147,129 84,321 Gross profit margin (%) 46.3% 37.0% Profit from operations 59,120 31,112 Finance costs (2,607) (737) Profit before taxation 56,513 30,375 Income tax (12,636) (9,961) Profit for the year/period 43,877 20,414 Attributable to: – Shareholders 29,257 7,871 – Minority interests 14,620 12,543 Profit for the year/period 43,877 20,414	Year ended 31 December 2008 2007 HK$’000 HK$’000 (audited) (audited) 443,533 355,880 158,284 124,498 35.7% 35.0% 54,783 34,164 (1,378) (1,258) 53,405 32,906 (4,938) (7,871) 48,467 25,035 20,330 8,396 28,137 16,639 48,467 25,035	Year ended 31 December 2008 2007 HK$’000 HK$’000 (audited) (audited) 443,533 355,880 158,284 124,498 35.7% 35.0% 54,783 34,164 (1,378) (1,258) 53,405 32,906 (4,938) (7,871) 48,467 25,035 20,330 8,396 28,137 16,639 48,467 25,035
147,129 46.3% 59,120 (2,607) 56,513 (12,636)	84,321 37.0% 31,112 (737) 30,375 (9,961)	158,284 35.7% 54,783 (1,378) 53,405 (4,938)	124,498 35.0% 34,164 (1,258
			32,906 (7,871
43,877	20,414	48,467
29,257 14,620	7,871 12,543	20,330 28,137	8,396 16,639
43,877	20,414	48,467

2007 was the first full financial year in which the Group operated as a pharmaceutical manufacturer. Turnover has been on a growing trend. Turnover for the financial year 2008 increased by 24.6% on a year-on-year basis. The Directors have advised that the increase in turnover was mainly attributable to the upward adjustment of selling prices of the Group’s major products and the increase in demand for the products which was driven by the favourable socioeconomic factors such as the growth of the aging population in the PRC and the increased health consciousness of the society. Turnover for the six months ended 30 June 2009 increased by 39.2% on a period-on-period basis, which was mainly due to additional sales recorded as a result of the Medi-World Acquisition. Gross profit margin for the six months ended 30 June 2009 also increased significantly from 37% to 46.3% on a period-on-period basis, which was mainly attributable to more products with a higher profit margin being sold as a result of the Medi-World Acquisition and more stringent control being imposed on the costs of medicinal materials and packaging. On 2 March 2010, the Company issued

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LETTER FROM SHENYIN WANGUO

a “positive profit alert” announcement informing the Shareholders and potential investors that the Group was expected to record a significant increase in profit for the financial year ended 31 December 2009 as compared to that for the financial year ended 31 December 2008.

(ii) Consolidated balance sheet

Fixed assets Construction in progress Intangible assets Goodwill Other non-current assets Inventories Trade and other receivables Other current assets Restricted deposits Cash and cash equivalents Trade and other payables Bank loans Other current liabilities Deferred income on government grants Deferred tax liabilities Minority interests Net assets attributable to the Shareholders	30 June 2009 HK$’000 (unaudited) 321,254 47,918 147,781 183,399 4,582 111,478 171,933 4,009 1,527 154,673 (132,891) (106,520) (2,414) (9,735) (50,929) (175,844) 670,221	31 December 2008 HK$’000 (audited) 170,233 1,364 78,706 141,037 2,743 82,457 68,490 1,440 1,529 155,722 (102,339) (18,190) – – (28,078) (195,810) 359,304

Fixed assets and construction in progress

The balances mainly represent the plant, machinery, equipment and buildings for the Group’s production and operations. Increase in the balances is mainly due to the Medi-World Acquisition in February 2009 whereby one production plant in Foshan City of Guangdong Province and one in Jining City of Shandong Province were added to the Group.

Intangible assets and goodwill

The balances mainly represent the goodwill arisen from the acquisitions as mentioned in the sub-section headed “ Information on the Group ” in this letter as well as the trademarks of the Group. Increase in the balances is mainly due to the Medi-World Acquisition whereby goodwill in connection therewith was recorded and additional trademarks were brought to the Group.

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LETTER FROM SHENYIN WANGUO

Cash position

For the six months ended 30 June 2009, the Group recorded a net cash inflow from its operating activities of approximately HK$56.7 million. As a result of the Medi-World Acquisition, the Group’s other financing activities and the changes of foreign exchange rates, the Group recorded an overall net cash outflow of approximately HK$1 million for the same period.

Bank loans and gearing ratio

The Group’s bank loans increased by approximately HK$88.3 million as at 30 June 2009 as compared to 31 December 2008, mainly as a result of the Medi-World Acquisition. The gearing ratio (bank loans divided by equity attributable to the Shareholders) of the Group was 15.9% as at 30 June 2009 as compared to 5.1% as at 31 December 2008. Among the bank loans, approximately 17% were unsecured and 83% were secured, and the loan interest rates ranged from 5.31% to 8.715% per annum.

Information on the Target Company and DZH

The Target Company is an investment holding company established in the PRC and holds a 49% equity interest in DZH which has been accounted for as an associated company of the Target Company. Except for the holding of this 49% equity interest in DZH, the Target Company has no other material assets and liabilities. Its accountants’ report is set out in Appendix II to the Circular.

DZH is principally engaged in the manufacture and sale of Chinese medicine and pharmaceutical products in the PRC. The Company indirectly holds the remaining 51% equity interest in DZH which has been accounted for as a subsidiary of the Company and its financial statements have been consolidated into the Group’s financial statements.

DZH has a long established history in the Chinese medicine and pharmaceutical business, which dates back to around 1957. It has one production plant in Foshan City of Guangdong Province. The major products of DZH include (Biyankang Tablet), (Biyan Drops (Spray)), (Vitamin C Yinqiao Tablet), (Yuanjilin Ganhe Tea), (Shaolin Dieda Herbal Plaster) and (Yaoshen Herbal Plaster). In April 2009, DZH’s trademark – “ ” (Dezhong) was accredited by the State Administration for Industry and Commerce of the PRC as (Famous Trademark of China).

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LETTER FROM SHENYIN WANGUO

In September 2008, the State Council of the PRC published a draft plan with a view to easing the difficulties and minimising the costs for PRC citizens to obtain proper healthcare treatment. On 17 March 2009, the PRC government issued (the Opinion on Deepening the Healthcare System Reform). On 18 March 2009, the State Council of the PRC issued (2009 – 2011 ) (the Notice on Important Implementing Plans for the Healthcare System Reform 2009 – 2011). The goal of the healthcare reform plan (the “ Reform Proposal ”) is to establish a basic and universal healthcare framework to provide PRC citizens with safe, efficient, convenient and affordable healthcare. According to the Reform Proposal, a total of RMB850 billion was estimated to be invested by the PRC government at various levels of the public medical and healthcare system from 2009 to 2011. A significant portion is expended to establish a basic healthcare medical insurance regime which aims to cover over 90% of the national population by 2011. Another significant part of the spending plan focuses on healthcare facilities including thousands of rural clinics, county-level hospitals and urban community clinics in under-developed areas which are expected to be built by 2011.

The drug supply system which regulates pricing and how drugs are procured, prescribed and dispensed in healthcare facilities is also included in the Reform Proposal. On 18 August 2009, the State Council of the PRC released the National Essential Drugs List marking the establishment of a national list of essential drugs required to be stocked up and used by public medical and healthcare institutions and to be sold by retail chemists. The Directors have advised that the National Essential Drugs List covers over 300 types of medicine, 64 of which are the Group’s products including 17 from DZH. (Biyankang Tablet) is one of these 17 DZH’s products and is a popular patent product exclusively manufactured by DZH. Sales of (Biyankang Tablet) for the year ended 31 December 2009 represented approximately 48.7% of the total turnover of DZH for the same year.

In anticipation of the positive industry outlook as a result of the Reform Proposal and the establishment of the National Essential Drugs List, it is expected that demand for DZH’s Chinese medicine and pharmaceutical products, particularly, its exclusive patent products will increase which should have a positive effect on DZH’s operating performance. Therefore, we consider that the Acquisition represents an opportunity for the Group to further capture the upside potential of the pharmaceutical industry in the PRC which is expected to be benefited from the active PRC government support.

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LETTER FROM SHENYIN WANGUO

Financial performance and position of DZH

Set out below is the financial information of DZH extracted from its accountants’ report set out in Appendix III to the Circular (the “ Accountants’ Report ”):

(i) Consolidated income statement

Turnover Gross profit Gross profit margin (%) Profit before taxation Income tax Profit for the year	Year ended 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 223,470 251,366 205,329 116,601 116,947 91,224 52.2% 46.5% 44.4% 47,990 53,920 35,954 (7,463) (8,342) (11,308) 40,527 45,578 24,646	Year ended 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 223,470 251,366 205,329 116,601 116,947 91,224 52.2% 46.5% 44.4% 47,990 53,920 35,954 (7,463) (8,342) (11,308) 40,527 45,578 24,646	Year ended 31 December 2009 2008 2007 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 223,470 251,366 205,329 116,601 116,947 91,224 52.2% 46.5% 44.4% 47,990 53,920 35,954 (7,463) (8,342) (11,308) 40,527 45,578 24,646
	116,601 52.2% 47,990 (7,463)	116,947 46.5% 53,920 (8,342)	91,224 44.4% 35,954 (11,308
	40,527	45,578

Turnover of DZH has been maintained at the level of over HK$200 million. Increase in turnover for 2008 was mainly due to the popularity of DZH’s products which was driven by the products’ stable quality and attractive pricing as well as due to the efficient marketing and expansion of sales network of DZH. Decrease in turnover for 2009 was mainly due to the global economic challenge since September 2008. The Directors have advised that sales of DZH’s key products, namely (Biyankang Tablet) and (Vitamin C Yinqiao Tablet) represented approximately 48.7% and 15.9% respectively of the total turnover of DZH for the year ended 31 December 2009.

In terms of gross profit margin, DZH has been performing satisfactorily for the three years ended 31 December 2009. The Directors have advised that such satisfactory performance was mainly due to appropriate cost control and marketing strategy adopted.

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LETTER FROM SHENYIN WANGUO

(ii) Consolidated balance sheet

Fixed assets Deferred tax assets Inventories Trade and other receivables Tax recoverable Restricted and time deposits Cash and cash equivalents Trade and other payables Tax payable Net assets	31 December 2009 2008 HK$’000 HK$’000 (audited) (audited) 60,522 67,592 118 134 48,539 48,488 18,689 55,119 – 1,069 22,033 9,487 108,656 71,292 (71,016) (58,430) (3,534) – 184,007 194,751

Cash position

For the three years ended 31 December 2007, 2008 and 2009, DZH recorded net cash inflows from its operating activities of approximately HK$1.7 million, HK$49.2 million and HK$105.9 million respectively. For the three years ended 31 December 2007, 2008 and 2009, DZH paid out dividends of approximately HK$16.6 million, HK$17.6 million and HK$46.1 million to its shareholders respectively.

Gearing

DZH did not have any external borrowings as at 31 December 2008 and 2009.

Evaluation of the Consideration

The Directors have advised that the Consideration was determined after arm’s length negotiations between the parties to the Acquisition Agreement. Based on DZH’s net profit for the year ended 31 December 2009 and its net asset value as at 31 December 2009 (both are set out in the Accountants’ Report) attributable to the Sale Interest of approximately HK$18.5 million and HK$83.9 million respectively, the Consideration represents a price to earnings (“ PE ”) multiple of 7.12 times and a price to book (“ PB ”) multiple of 1.57 times.

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LETTER FROM SHENYIN WANGUO

In assessing the fairness and reasonableness of the Consideration, we performed comparison of the PE multiple and the PB multiple implied by the Acquisition with the historical PE and PB multiples of selected comparable transactions and companies and the Group’s previous relevant acquisitions.

Set out below are all the transactions including the Nanhai Acquisition that involved an acquirer or vendors listed in Hong Kong and target companies principally engaged in a business similar to that of DZH during the period from 1 January 2009 to the Last Trading Day based on our searches conducted on a best efforts basis on Bloomberg and the website of the Stock Exchange:

==> picture [426 x 264] intentionally omitted <==

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

|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|Date|of|Interest|Historical|
|announcement|Acquirer|Vendor|Target|company|acquired|Consideration|PE|PB|
|%|HK$|million|times|times|
|15|December|2009|Wai|Yuen|Tong|64.2|37.35|11.71|2.21|
|Medicine|Holdings|
|(Hunan|Fangsheng|Limited|(stock|(Hunan|Xiangya|
|Pharmaceutical|code:|897)|Pharmaceutical|
|Company|Limited)|Company|Limited)|
|23|October|2009|China|100|9.10|N/A|1.02|
|(Shijiazhuang|Pharmaceutical|(note|i)|
|Pharmaceutical|Group|Limited|(Shijiazhuang|Pharma|
|Group|Company|(stock|code:|1093)|Group|Zhongchen|
|Limited)|Pharmaceutical|
|Company|Limited)|
|2|July|2009|The|Group|100|4.54|7.90|2.62|
|(note|ii)|
|(Foshan|Nanhai|(Foshan|Nanhai|
|Pharmaceutical|Pharmaceutical|Group|
|Group|Co.,|Ltd.)|Medicinal|Material|Co.,|
|Ltd.)|
|Median|9.81|2.21|
|(note|iii)|
|Mean|9.81|1.95|
|(note|iii)|

----- End of picture text -----

Notes:

(i) N/A (i.e. not applicable) due to the loss making financial year prior to the date of the announcement.
(ii) This is the Nanhai Acquisition.
(iii) As there are only two applicable comparable transactions in respect of the historical PE multiples, each of the median and mean of such PE multiples is the same as each other which is equal to the average of the historical PE multiples of these two transactions.

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LETTER FROM SHENYIN WANGUO

Set out below are the Medi-World Acquisition and the DZH and FLX Acquisition:

Date of				Interest			Historical	Historical
announcement	Acquirer	Vendor	Target company	acquired		Consideration	PE	PB
				%		HK$ million	times	times
16 December 2008	The Group	Sureplan	The Purchaser 100 (Shandong Lukang Pharmaceutical Group Luya Co., Ltd.) 100 (Foshan Winteam Medical Technology Company Limited) 100		}	300.00	11.41 (note)	2.07
22 August 2006	The Group	Foshan Development (Holdings) Limited	(Foshan Feng Liao Xing Pharmaceutical Co., Ltd.) 51 DZH 51		}	282.40	8.50	1.78

Note: We have noted the prospective PE of approximately 6 times implied by the Medi-World Acquisition was disclosed in the announcement. However, for the sake of comparability, the historical PE of 11.41 times is included in our analysis.

Set out below are all the comparable companies listed in Hong Kong which are principally engaged in a business similar to that of DZH on the Last Trading Day based on our searches conducted on a best efforts basis on Bloomberg:

	Stock	Market	Historical	Historical
Name of company	code	capitalisation	PE	PB
		HK$ million	times	times
China Shineway Pharmaceutical Group	2877	11,247	24.89	4.05
Limited
Sino Biopharmaceutical Limited	1177	10,324	34.69	4.52
Guangzhou Pharmaceutical Company Limited	874	8,677	42.05	2.28
China Pharmaceutical Group Limited	1093	6,094	6.48	1.29
The United Laboratories International	3933	4,680	10.88	1.68
Holdings Limited
Shandong Luoxin Pharmacy Stock Co., Ltd.	8058	3,859	18.56	5.70
Shandong Xinhua Pharmaceutical Company	719	3,643	104.48	2.04
Limited
Hua Han Bio-Pharmaceutical Holdings	587	2,788	18.85	1.71
Limited
Tong Ren Tang Technologies Co. Ltd.	8069	2,624	14.41	1.65
Lijun International Pharmaceutical (Holding)	2005	2,544	21.95	1.53
Co., Ltd.
Extrawell Pharmaceutical Holdings Limited	858	2,382	152.67	7.39
Wuyi International Pharmaceutical Company	1889	1,299	5.48	0.76
Limited
Dawnrays Pharmaceutical (Holdings) Limited	2348	1,077	9.31	1.45

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LETTER FROM SHENYIN WANGUO

	Stock		Market	Historical	Historical
Name of company	code	capitalisation		PE	PB
		_HK$ _	million	times	times
Lee’s Pharmaceutical Holdings Limited	8221		864	30.75	8.51
Yunnan Enterprises Holdings Limited	455		720	257.14	1.80
Broad Intelligence International	1149		621	26.44	1.07
Pharmaceutical Holdings Limited
Jiwa Bio-Pharm Holdings Limited	2327		612	11.88	1.74
China Grand Pharmaceutical and Healthcare	512		569	N/A	21.24
Holdings Limited
Wai Yuen Tong Medicine Holdings Limited	897		407	N/A	0.68
Vital Pharmaceutical Holdings Limited	1164		302	4.95	0.48
Jilin Province Huinan Changlong	8049		244	14.32	0.88
Bio-pharmacy Company Limited
Essex Bio-Technology Limited	8151		173	7.92	1.69
Everpride Biopharmaceutical Company	8019		172	N/A	13.65
Limited
Northeast Tiger Pharmaceutical Co., Ltd.	8197		141	21.81	1.45
		Minimum		4.95	0.48
		Maximum		257.14	21.24
		Median		18.85	1.69
		Mean		40.00	3.61

Note: N/A (i.e. not applicable) due to the loss making financial year prior to the Last Trading Day.

We have noted that both the PE and PB multiples implied by the Acquisition of 7.12 times and 1.57 times respectively fall within the respective ranges of, and below the respective means and medians of, the historical PE and PB multiples of the selected comparable companies. Further, we have noted that the same PE and PB multiples implied by the Acquisition fall below the respective means and medians of the historical PE and PB multiples of the selected comparable transactions and the historical PE and PB multiples of each of the Group’s three previous relevant acquisitions i.e. the DZH and FLX Acquisition, the Medi-World Acquisition and the Nanhai Acquisition respectively, which we consider is favourable to the Company and the Shareholders as a whole. Therefore, we are of the view that the Consideration is fair and reasonable.

Subscription

On 4 February 2010, the Board announced that on 30 January 2010, the Company entered into the Subscription Agreement with the Subscribers and the Guarantors pursuant to which the Company has conditionally agreed to allot and issue and each of the Subscribers has conditionally agreed to subscribe for, on a several basis, 77,500,000 Subscription Shares at a price of HK$0.85 per Subscription Share. The obligations of the Subscribers under the Subscription Agreement are guaranteed by their respective beneficial owners on a several basis. The Subscription Shares will be allotted and issued under a specific mandate to be sought from the Independent Shareholders at the EGM. The long stop date of the Subscription Agreement is 30 May 2010 or such other date or time as may be agreed between the Company and the Subscribers.

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LETTER FROM SHENYIN WANGUO

The total Subscription money payable by the Subscribers amounts to HK$131,750,000 which, after related fees and expenses are deducted, will be used to finance the Acquisition. Completion of the Subscription Agreement is conditional on, inter alia , the Acquisition Agreement having been completed in accordance with its terms. However, completion of the Acquisition Agreement is not conditional on completion of the Subscription Agreement. In the event that the Subscription Agreement is not capable of becoming unconditional or is not completed for any reasons, the Acquisition will be funded by the internal resources and bank borrowings of the Group.

(i) Subscription Price

The Subscription Price of HK$0.85 each represents:

(a) a discount to the closing Share price quoted on the Stock Exchange on the Last Trading Day;
(b) a premium over or a discount to each of the averages of the closing Share prices quoted on the Stock Exchange; and
(c) a premium over each of the net asset value (“ NAV ”) and net tangible asset value (“ NTAV ”) attributable to the Shareholders per Share, as follows:
Premium/(Discount) (%) Closing Share price (HK$) (2.3) 0.87 on the Last Trading Day (7.6) 0.92 as an average over 5 trading days up to and including the Last Trading Day (“ 5-Day Average ”)
(12.4) 0.97 as an average over 10 trading days up to and including the Last Trading Day (“ 10-Day Average ”)
1.2 0.84 as an average over 30 trading days up to and including the Last Trading Day
13.3 0.75 as an average over 180 trading days up to and including the Last Trading Day
32.8 0.64 as an average over the period from 2 January 2009 up to and including the Last Trading Day (the “ Review Period ”)

Premium (%) NAV/NTAV per Share (HK$)

107.3 0.41 NAV per Share as at 30 June 2009 304.8 0.21 NTAV per Share as at 30 June 2009

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LETTER FROM SHENYIN WANGUO

Set out below are the daily closing Share prices quoted on the Stock Exchange from 2 January 2009 up to and including the Latest Practicable Date:

HK$ per Share

==> picture [370 x 255] intentionally omitted <==

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

1.4
Last Trading Day
1.2
1.0 Subscription Price of
HK$0.85
0.8
0.6
0.4
0.2 Latest
Practicable Date
0.0
Source: The website of the Stock Exchange
2 Jan 20092 Feb 20092 Mar 20091 Apr 20094 May 20091 Jun 20092 Jul 20093 Aug 20091 Sep 20092 Oct 20092 Nov 20091 Dec 20094 Jan 20101 Feb 20101 Mar 2010
----- End of picture text -----

During the Review Period, the closing Share price fluctuated between HK$0.37 and HK$1.2 with an average of HK$0.64 per Share. The closing Share price rose to HK$1.11 on 21 January 2010 and peaked at HK$1.2 on 22 January 2010. During the Review Period, the Directors announced on 21 January 2010 that they were not aware of any reasons for the unusual trading volume and price movements on the same day. On 5 February 2010, being the first trading day after the Announcement, the Share price at one time surged to HK$1.11 and closed at HK$1.03 from the closing Share price of HK$0.87 on the Last Trading Day, which represent increases of approximately 27.6% and 18.4% respectively. On 2 March 2010, the Company issued a “positive profit alert” announcement informing the Shareholders and potential investors that the Group was expected to record a significant increase in profit for the financial year ended 31 December 2009 as compared to that for the financial year ended 31 December 2008. Based on the closing Share price of HK$1.22 as at the Latest Practicable Date, the market capitalisation of the Company was approximately HK$1,986.7 million and the Share price was trading at premium over the Subscription Price.

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LETTER FROM SHENYIN WANGUO

Set out below are the total monthly trading volumes of the Shares and their percentages to the total issued Shares during the Review Period:

2009 January February March April May June July August September October November December 2010 January Average	Total monthly trading volume of the Shares 4,614,000 3,544,000 7,532,199 7,080,000 14,634,000 29,318,000 29,824,750 58,224,000 38,315,617 31,928,000 57,882,157 24,336,000 284,363,548 45,507,405	Percentage to the total issued Shares (%) 0.56 0.22 0.46 0.43 0.90 1.80 1.83 3.58 2.35 1.96 3.55 1.49 17.46
		2.82

Source: The website of the Stock Exchange

Liquidity of the Shares was generally thin during the Review Period. The Directors have advised that they were not aware of any reasons for the unusual trading volume movements during the Review Period.

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LETTER FROM SHENYIN WANGUO

Set out below are all the placings and subscriptions of new shares announced by companies listed on the Main Board of the Stock Exchange in 30 trading days prior to and including the Last Trading Day based on our searches conducted on a best efforts basis on the website of the Stock Exchange:

				Premium/(Discount) of the placing	Premium/(Discount) of the placing	Premium/(Discount) of the placing
				price/subscription price		over/to:
					Average of	Average of
					closing	closing
					share	share
			Placing	Closing	prices for	prices for
			price/	share price	the last 5	the last 10
Date of			Subscription	on the last	trading	trading
announcement	Name of company	Stock code	price	trading day	days	days
			HK$ per
			share	%	%	%
29 January	Prosperity Investment	310	1.8	(14.69)	(13.88)	(14.29)
2010	Holdings Limited
29 January	TPV Technology	903	5.2	6.56	7.66	3.52
2010	Limited
28 January	China Precious Metal	1194	1.98	(17.15)	(12.62)	(18.48)
2010	Resources Holdings
	Co., Ltd.
28 January	China Energy	228	0.45	(18.18)	(20.49)	(18.63)
2010	Development
	Holdings Limited
28 January	Global Flex Holdings	471	0.108	(10.74)	(18.18)	(19.40)
2010	Limited
27 January	Tonic Industries	978	0.0859	(94.92)	(94.60)	(93.95)
2010	Holdings Limited
26 January	Sino Biopharmaceutical	1177	2.1	(6.25)	(9.50)	(10.30)
2010	Limited
26 January	China Oil And Gas	603	1.25	(16.67)	(17.11)	(11.41)
2010	Group Limited
22 January	Freeman Corporation	279	0.55	(14.06)	(17.42)	(18.64)
2010	Limited
21 January	Bestway International	718	0.3	(41.18)	(31.03)	(28.57)
2010	Holdings Limited
21 January	Dragon Hill Wuling	305	0.85	(23.42)	(23.42)	(23.42)
2010	Automobile Holdings
	Limited
21 January	Sino Dragon New	395	0.495	(8.33)	3.77	7.73
2010	Energy Holdings
	Limited
20 January	Kong Sun Holdings	295	0.4	(19.19)	(19.19)	(19.60)
2010	Limited
19 January	China Agrotech	1073	0.95	(15.18)	(19.08)	(17.75)
2010	Holdings Limited
19 January	New Times Energy	166	0.31	(10.10)	(12.70)	(12.30)
2010	Corporation Limited
19 January	Xiwang Sugar	2088	2.51	(16.05)	(16.33)	(14.97)
2010	Holdings Company
	Limited

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LETTER FROM SHENYIN WANGUO

				Premium/(Discount) of the placing	Premium/(Discount) of the placing	Premium/(Discount) of the placing
				price/subscription price		over/to:
					Average of	Average of
					closing	closing
					share	share
			Placing	Closing	prices for	prices for
			price/	share price	the last 5	the last 10
Date of			Subscription	on the last	trading	trading
announcement	Name of company	Stock code	price	trading day	days	days
			HK$ per
			share	%	%	%
19 January	Jia Sheng Holdings	729	0.73	(18.90)	(18.00)	4.30
2010	Limited
18 January	Kiu Hung Energy	381	0.339	(17.32)	(20.42)	(16.30)
2010	Holdings Limited
18 January	Bio-Dynamic Group	39	0.4	(12.09)	(11.70)	(12.18)
2010	Limited
18 January	Loudong General Nice	988	1.5	(7.41)	(6.83)	(5.96)
2010	Resources (China)
	Holdings Limited
17 January	Asia Energy Logistics	351	0.159	(19.70)	(16.93)	(13.16)
2010	Group Limited
15 January	China Grand	512	0.43	(33.80)	(34.65)	(35.14)
2010	Pharmaceutical and
	Healthcare Holdings
	Limited
15 January	Winbox International	474	1.26	(25.88)	(27.08)	(20.10)
2010	(Holdings) Limited
15 January	Tongda Group	698	0.24	(18.64)	(14.29)	(13.98)
2010	Holdings Limited
15 January	Solartech International	1166	0.12	(13.04)	(15.61)	(15.91)
2010	Holdings Limited
15 January	Kam Hing International	2307	2.3	(6.12)	0.09	6.68
2010	Holdings Limited
14 January	TCC International	1136	3.3	(11.53)	(11.58)	(10.67)
2010	Holdings Limited
14 January	Hua Yi Copper	559	0.131	(18.63)	(19.93)	(21.70)
2010	Holdings Limited
14 January	Jackin International	630	0.95	(19.50)	(19.40)	(14.00)
2010	Holdings Limited
14 January	ZTE Corporation	763	45	(13.00)	(12.60)	(11.70)
2010
13 January	China Precious Metal	1194	1.94	(17.45)	(19.10)	(14.31)
2010	Resources Holdings
	Co., Ltd.
13 January	Emperor Watch &	887	0.51	(3.77)	(1.35)	1.39
2010	Jewellery Limited
13 January	Tianjin Port	3382	2.5	(14.97)	(14.44)	(12.86)
2010	Development
	Holdings Limited
7 January	Global Flex Holdings	471	0.103	(16.26)	(18.64)	(16.80)
2010	Limited
7 January	New Smart Energy	91	0.061	(11.59)	(17.57)	(15.81)
2010	Group Limited

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LETTER FROM SHENYIN WANGUO

				Premium/(Discount) of the placing	Premium/(Discount) of the placing	Premium/(Discount) of the placing	Premium/(Discount) of the placing
					price/subscription price		over/to:
						Average of	Average of
						closing	closing
						share	share
			Placing		Closing	prices for	prices for
			price/	share price		the last 5	the last 10
Date of			Subscription	on	the last	trading	trading
announcement	Name of company	Stock code	price	trading day		days	days
			HK$ per
			share		%	%	%
5 January	Unity Investments	913	0.38		(6.17)	(5.24)	(5.12)
2010	Holdings Limited
4 January	21 Holdings Limited	1003	0.15		(9.64)	(2.85)	0.60
2010
30 December	Hong Long Holdings	1383	0.95		(4.04)	(2.06)	(1.04)
2009	Limited
30 December	The Bank of East Asia,	23	30.6		(2.12)	(0.62)	0.03
2009	Limited
30 December	Vitar International	195	2.15		(19.48)	(18.62)	(16.92)
2009	Holdings Limited
30 December	PetroAsian Energy	850	0.51		(3.77)	(4.49)	(6.25)
2009	Holdings Limited
29 December	Ming Hing Waterworks	402	0.12		(83.56)	(75.51)	(71.43)
2009	Holdings Limited
27 December	Sino-Ocean Land	3377	6.23		(8.38)	(6.60)	(12.75)
2009	Holdings Limited
21 December	Victory City	539	1.35		(9.40)	(16.15)	(14.88)
2009	International
	Holdings Limited
18 December	Mastermind Capital	905	0.125		0.00	(5.02)	(13.49)
2009	Limited
18 December	Green Global	61	1.68		(26.96)	(28.63)	(31.48)
2009	Resources Limited
18 December	Wang Sing	2389	0.23		12.20	9.50	4.50
2009	International
	Holdings Group
	Limited
17 December	Nam Hing Holdings	986	0.63		(10.00)	(13.93)	(18.29)
2009	Limited
17 December	Minmetals Land	230	2.45		(13.12)	(15.40)	(11.71)
2009	Limited
			Minimum		(94.92)	(94.60)	(93.95)
			Maximum		12.20	9.50	7.73
			Median		(14.06)	(15.61)	(14.00)
			Mean		(16.40)	(16.32)	(15.24)
			Subscription	Price	(2.3)	(7.6)	(12.4)

The Subscription Price is at a discount of 2.3% to the closing Share price on the Last Trading Day and is at discounts of 7.6% and 12.4% to the 5-Day Average and the 10-Day Average respectively. Given that (a) each of such discounts falls within the range of, and below the mean and median of, the premiums and discounts of the placing prices and subscription prices over and to the relevant benchmarked prices as

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LETTER FROM SHENYIN WANGUO

illustrated above; (b) the Subscription Price stayed above all the closing Share prices prior to 13 January 2010 over the Review Period; and (c) the Subscription Price is at an 107.3% premium over the NAV attributable to the Shareholders per Share as at 30 June 2009 which would result in net asset enhancement to the Shareholders, we consider that the Subscription Price is fair and reasonable in so far as the Independent Shareholders are concerned.

(ii) Dilution of shareholdings

Set out below are the shareholding structures of the Company (a) as at the Latest Practicable Date; and (b) upon completion of the Subscription Agreement:

Shareholders Hensil Investments Group Limited The Concert Group Other Shareholders Total	As at the Latest Practicable Date Number of Shares Approximate % 605,290,886 37.17 564,102,563 34.64 459,017,358 28.19 1,628,410,807 100.00	Upon completion of the Subscription Agreement Number of Shares Approximate % 605,290,886 33.94 719,102,563 40.32 459,017,358 25.74 1,783,410,807 100.00	Upon completion of the Subscription Agreement Number of Shares Approximate % 605,290,886 33.94 719,102,563 40.32 459,017,358 25.74 1,783,410,807 100.00
			100.00

The Subscription Shares represent approximately 9.5% of the Shares in issue as at the Latest Practicable Date and approximately 8.7% of the issued Shares as enlarged by the Subscription Shares. The shareholdings of the Shareholders other than the Concert Group shall be diluted by approximately 8.7% from 65.36% as at the Latest Practicable Date to 59.68% upon completion of the Subscription Agreement.

The Directors have considered alternative fund raising means to finance the Acquisition which include (a) debt financing; and (b) a rights issue. The issuance of the Subscription Shares is considered appropriate as it is fast, relatively straightforward, interest-free and gearing-free as compared to the alternatives despite its dilutive impact on the existing shareholdings. Further, debt financing and a rights issue usually take a longer period of time for the Group to negotiate with the lenders or the underwriters (as the case may be). For a rights issue, the process may be even longer as it involves the issue of a prospectus and the Shareholders who choose not to participate in the issue will suffer from even severer dilution of their shareholdings as a more substantial discount of the subscription price to the prevailing Share price is usually expected of a rights issue.

The Subscription also represents an opportunity for Mr. Yang and Mr. Xu who are the executive Directors and controlling Shareholders to increase their investments in the Company. We are given to understand that Mr. Yang and Mr. Xu, together with other members of senior management of the Group, are responsible for implementing the development strategies as outlined in the 2009 interim report of the Company with a view to achieving higher growth and performance for the Group. We consider that the

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LETTER FROM SHENYIN WANGUO

Subscription provides further impetus to Mr. Yang and Mr. Xu who are important to the future performance of the Group to implement such strategies and is therefore beneficial to the Company in this regard.

Financial effects of the Acquisition and the Subscription on the Enlarged Group

Since DZH is a subsidiary of the Company, its financial statements have been consolidated into the financial statements of the Group prior to completion of the Acquisition Agreement. After completion of the Acquisition Agreement, the financial statements of the Target Company will be consolidated into the financial statements of the Group. The unaudited pro forma financial information of the Enlarged Group taking into account the Acquisition (the “ Pro Forma Financial Information ”) is set out in Appendix IV to the Circular for illustrative purposes. The Directors have anticipated the professional fees and other expenses incurred by the Company in connection with the Transactions to be around HK$1.7 million.

Set out below are the financial effects of the Acquisition and the Subscription on the Enlarged Group:

(i) Net asset value

We have noted from the Pro Forma Financial Information that the net assets attributable to the Shareholders would decrease from approximately HK$670,221,000 to HK$639,918,000 (“ Decrease ”) in the event that the Subscription does not proceed and as if the Acquisition had been completed on 30 June 2009. Such Decrease is mainly due to the recognition of the premium of the cash Consideration over the carrying value of the Target Company (including its 49% equity interest in DZH) attributable to the Sale Interest in the reserves of the Enlarged Group. On account of the fairness and reasonableness of the Consideration as discussed in the sub-section headed “ Evaluation of the Consideration ”, we are of the view that the Decrease is justifiable.

Taking account of the Subscription Price being at an 107.3% premium over the NAV attributable to the Shareholders per Share as at 30 June 2009, the Subscription would result in net asset enhancement to the Shareholders. We consider that the possible enhancement in the net assets attributable to the Shareholders is in the interests of the Company and the Shareholders as a whole.

(ii) Results

Prior to completion of the Acquisition Agreement, DZH is a 51% owned subsidiary of the Company. While 100% of DZH’s results are consolidated into the Group’s income statement, only 51% of which are attributable to the Shareholders. Following the Acquisition, the Company will increase its attributable interest in DZH from 51% to 96.57% and, hence, the sharing of the results of DZH by the Shareholders will increase accordingly.

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LETTER FROM SHENYIN WANGUO

(iii) Cash flow

Since the Consideration is expected to be principally financed by the Company allotting and issuing the Subscription Shares, there will be no material impact on the cash flow of the Enlarged Group in this regard. Otherwise, depending on the ultimate financing structure, the Enlarged Group’s cash position may decrease accordingly if all or part of the Consideration is financed by its internal resources.

(iv) Gearing

Since the Target Company and DZH are debt-free and taking into account that the Consideration is principally financed by the Company allotting and issuing the Subscription Shares, the gearing ratio of the Enlarged Group is expected to decrease upon completion of the Acquisition Agreement and the Subscription Agreement.

In the event that the Subscription does not proceed and the Consideration is fully financed by the Group’s cash, the gearing ratio (bank loans divided by equity attributable to the Shareholders) of the Enlarged Group would increase from 15.9% to 16.6% as if the Acquisition had been completed on 30 June 2009. Such increase in the gearing ratio is due to the Decrease which we have considered is justifiable as discussed in the paragraph headed “ (i) Net asset value ” in this letter.

Whitewash Waiver

Assuming no further Shares will be issued by the Company prior to the allotment and issue of the 155,000,000 Subscription Shares upon completion of the Subscription Agreement, the interests held by the Concert Group will increase from approximately 34.64% to 40.32% of the issued Shares as enlarged by the Subscription Shares. In other words, the allotment and issue of the Subscription Shares would result in the Concert Group increasing its voting rights in the Company by more than 2% within the 12-month period ending on and inclusive of the date of completion of the Subscription Agreement. In such circumstances, an obligation for the Subscribers to make a general offer for all the issued Shares not already owned or agreed to be acquired by the Concert Group will arise under Rule 26 of the Takeovers Code.

An application has been made by the Subscribers to the Executive for the Whitewash Waiver pursuant to Note 1 on Dispensations from Rule 26 of the Takeovers Code. Subject to the approval of the Independent Shareholders by way of poll at the EGM, the Executive has agreed to grant the Whitewash Waiver.

Pursuant to the Subscription Agreement, completion of the Subscription Agreement is subject to, inter alia , the Whitewash Waiver having been granted by the Executive and approved by the Independent Shareholders by way of poll at the EGM. As a result, if the Whitewash Waiver is not granted by the Executive or not approved by the Independent Shareholders, the Subscription Agreement will not become unconditional and the Subscription will not proceed, and the benefits derived from the Subscription as discussed in the sub-section headed “ Subscription ” will not accrue to the Company.

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LETTER FROM SHENYIN WANGUO

Taking into account the terms and conditions of the Subscription Agreement including the fairness and reasonableness of the Subscription Price and the issuance of the Subscription Shares being an appropriate way to finance the Acquisition as discussed in the sub-section headed “ Subscription ”, we consider that the Subscription is on normal commercial terms and the terms of the Subscription Agreement (including completion of the Subscription Agreement being subject to, inter alia , the Whitewash Waiver having been granted by the Executive and approved by the Independent Shareholders by way of poll at the EGM) are fair and reasonable in so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Upon completion of the Subscription Agreement, the Concert Group will hold approximately 40.32% of the issued Shares as enlarged by the Subscription Shares. As such, any further acquisition of voting rights in the Company by the Concert Group which will increase its shareholding by more than 2% in any 12-month period may be subject to the obligation to make a general offer under the Takeovers Code.

DISCUSSION AND ANALYSIS

Effective from 4 September 2009, the Company’s name has changed from “Wing Shan International Limited” to “Winteam Pharmaceutical Group Limited”. The Group started its pharmaceutical business since completion of the DZH and FLX Acquisition in October 2006. DZH has been performing well and has recorded satisfactory results for the three financial years subsequent to the DZH and FLX Acquisition. Following the Acquisition, the Company will increase its attributable interest in DZH from 51% to 96.57% and, hence, the profit attributable to the Shareholders is expected to increase accordingly. In view of the satisfactory performance of DZH in the past and the favourable socioeconomic factors such as the growth of the aging population in the PRC, increased health consciousness of the society and the active PRC government support as discussed in the sub-section headed “ Information on the Target Company and DZH ”, we consider that the Acquisition, which is also in line with the merger and acquisition strategy and the industry consolidation trend as outlined in the 2007 and 2008 annual reports and the 2009 interim report of the Company, is a reasonable strategic move and is in the interests of the Company and the Shareholders as a whole.

We have been advised by the Directors that the Consideration was determined after arm’s length negotiations between the parties to the Acquisition Agreement. We have compared the PE multiple and the PB multiple implied by the Acquisition with the historical PE and PB multiples of selected comparable transactions and companies and the Group’s previous relevant acquisitions. As discussed in the sub-section headed “ Evaluation of the Consideration ” with reference to the relevant PE and PB multiples, we consider that the Consideration is fair and reasonable.

Taking into account the terms and conditions of the Acquisition Agreement including the fairness and reasonableness of the Consideration, we consider that the Acquisition is on normal commercial terms and the terms of the Acquisition Agreement are fair and reasonable in so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM SHENYIN WANGUO

The Directors have advised that the net proceeds of approximately HK$130 million raised from the Subscription will be used to finance the Acquisition, which will be funded by the internal resources and bank borrowings of the Group in the event that the Subscription does not proceed. The issuance of the Subscription Shares is considered appropriate as it is fast, relatively straightforward, interest-free and gearing-free as compared to the alternatives such as debt financing and a rights issue despite its dilutive impact on the existing shareholdings. Further, the Subscription provides further impetus to Mr. Yang and Mr. Xu who are important to the future performance of the Group to implement the Group’s relevant development strategies and is therefore beneficial to the Company in this regard. Taking into account the terms and conditions of the Subscription Agreement including the fairness and reasonableness of the Subscription Price and the issuance of the Subscription Shares being an appropriate way to finance the Acquisition, we consider that the Subscription is on normal commercial terms and the terms of the Subscription Agreement are fair and reasonable in so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Pursuant to the Subscription Agreement, the Whitewash Waiver is required to be granted by the Executive and approved by the Independent Shareholders by way of poll at the EGM. Since we are of the view that the Subscription is fair and reasonable and the issuance of the Subscription Shares is an appropriate way to finance the Acquisition, we consider that the Whitewash Waiver is fair and reasonable and is in the interests of the Independent Shareholders.

As noted from the Pro Forma Financial Information, the net assets attributable to the Shareholders would decrease (the gearing ratio of the Enlarged Group would increase from 15.9% to 16.6% accordingly) as if the Acquisition had been completed without the Subscription on 30 June 2009, which we consider is justifiable on account of the fairness and reasonableness of the Consideration as discussed in the sub-section headed “ Evaluation of the Consideration ”.

Taking account of the Subscription Price being at an 107.3% premium over the NAV attributable to the Shareholders per Share as at 30 June 2009, the Subscription would result in net asset enhancement to the Shareholders. Further, the Acquisition, together with the Subscription, would involve no material initial cash outlay to the Enlarged Group and the gearing ratio of the Enlarged Group would improve as well.

OPINION

Having taken into account the principal factors and reasons set out above, we are of the view that (i) the Acquisition and the Subscription, which are not in the ordinary and usual course of business of the Group, are on normal commercial terms; (ii) the terms of the Acquisition Agreement and the Subscription Agreement, and the Whitewash Waiver are fair and reasonable; and (iii) the Acquisition Agreement and the transactions contemplated thereunder, the Subscription Agreement and the transactions contemplated thereunder, and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM SHENYIN WANGUO

Accordingly, we recommend the Listing Rules Independent Board Committee to advise, and we ourselves advise, the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Acquisition Agreement and the transactions contemplated thereunder, and the Subscription Agreement and the transactions contemplated thereunder; and we recommend the Whitewash Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Subscription Agreement and the transactions contemplated thereunder, and the Whitewash Waiver.

Yours faithfully, for and on behalf of Shenyin Wanguo Capital (H.K.) Limited Felix Chan Associate Director

– 52 –

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 2006, 2007 and 2008 and for the six months ended 30 June 2009, as extracted and summarised from the relevant annual reports and interim report of the Company.

Consolidated Profit and Loss Account

Six months ended 30 June 2009 HK$’000 (Unaudited) Continuing operation Turnover 317,704 Cost of sales (170,575) Gross profit 147,129 Other revenue 4,966 Other net income 18 Selling and distribution costs (61,522) Administrative expenses (31,471) Profit from operation 59,120 Finance costs (2,607) Profit/(loss) before taxation 56,513 Income tax (12,636) Profit/(loss) for the year from continuing operation 43,877 Discontinued operation Loss for the year from discontinued operation – Profit/(loss) for the period/year 43,877 Attributable to: – Equity shareholders of the Company 29,257 – Minority interests 14,620 Profit/(loss) for the period/year 43,877	Year ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 443,533 355,880 109,627 (285,249) (231,382) (67,157) 158,284 124,498 42,470 4,233 3,224 1,781 748 58 318 (66,237) (55,984) (23,213) (42,245) (37,632) (20,879) 54,783 34,164 477 (1,378) (1,258) (6,358) 53,405 32,906 (5,881) (4,938) (7,871) (510) 48,467 25,035 (6,391) – – (425,303) 48,467 25,035 (431,694) 20,330 8,396 (337,401) 28,137 16,639 (94,293) 48,467 25,035 (431,694)	Year ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 443,533 355,880 109,627 (285,249) (231,382) (67,157) 158,284 124,498 42,470 4,233 3,224 1,781 748 58 318 (66,237) (55,984) (23,213) (42,245) (37,632) (20,879) 54,783 34,164 477 (1,378) (1,258) (6,358) 53,405 32,906 (5,881) (4,938) (7,871) (510) 48,467 25,035 (6,391) – – (425,303) 48,467 25,035 (431,694) 20,330 8,396 (337,401) 28,137 16,639 (94,293) 48,467 25,035 (431,694)	Year ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 443,533 355,880 109,627 (285,249) (231,382) (67,157) 158,284 124,498 42,470 4,233 3,224 1,781 748 58 318 (66,237) (55,984) (23,213) (42,245) (37,632) (20,879) 54,783 34,164 477 (1,378) (1,258) (6,358) 53,405 32,906 (5,881) (4,938) (7,871) (510) 48,467 25,035 (6,391) – – (425,303) 48,467 25,035 (431,694) 20,330 8,396 (337,401) 28,137 16,639 (94,293) 48,467 25,035 (431,694)
147,129 4,966 18 (61,522) (31,471) 59,120 (2,607) 56,513 (12,636) 43,877 –	158,284 4,233 748 (66,237) (42,245) 54,783 (1,378) 53,405 (4,938) 48,467 –	124,498 3,224 58 (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
43,877	48,467	25,035
29,257 14,620	20,330 28,137	8,396 16,639	(337,401 (94,293
43,877	48,467	25,035

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months ended 30 June 2009 HK$’000 (Unaudited) Dividends payable to equity shareholders of the Company attributable to the period/ year: Final dividend proposed after the balance sheet date – Dividend per share – Basic and diluted earnings/(loss) per share 1.99 cents From continuing operation: 1.99 cents From discontinued operation: –	Year ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 11,399 4,155 – 0.7 cents 0.5 cents – 2.45 cents 1.01 cents (40.64 cents) 2.45 cents 1.01 cents (1.18 cents) – – (39.46 cents)

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

Asset and Liabilities Total assets Total liabilities Net assets Equity attributable to owners of the company Minority interests Total equity	As at 30 June 2009 HK$’000 (Unaudited) 1,148,554 302,489 846,065 670,221 175,844 846,065	As 2008 HK$’000 (audited) 703,721 148,607 555,114 359,304 195,810 555,114	at 31 December 2007 2006 HK$’000 HK$’000 (audited) (audited) 632,055 611,476 134,627 160,706 497,428 450,770 324,165 293,258 173,263 157,512 497,428 450,770

Notes:

There were no exceptional items or extraordinary items in each of the three financial years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009.
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 2006, 2007 and 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS

Set out below is the audited consolidated financial statements of the Company as extracted from pages 28 to 72 of the annual report of the Company for the year ended 31 December 2008. References to page numbers in this appendix are to the page numbers of such annual report of the Company.

“ Consolidated Profit and Loss Account

For the year ended 31 December 2008

(Expressed in Hong Kong dollars)

Note Turnover 3 Cost of sales Gross profit Other revenue 4 Other net income 4 Selling and distribution costs Administrative expenses Profit from operations Finance costs 5(a) Profit before taxation 5 Income tax 6(a) Profit for the year Attributable to: 8 & 25(a) – Equity shareholders of the Company – Minority interests Profit for the year Dividends payable to equity shareholders of the Company attributable to the year: 9 Final dividend proposed after the balance sheet date Earnings per share 10 Basic Diluted	2008 $’000 443,533 (285,249)	2007 $’000 355,880 (231,382) 124,498 3,224 58 (55,984) (37,632) 34,164 (1,258) 32,906 (7,871) 25,035 8,396 16,639 25,035 4,155 1.01 cents N/A
	158,284 4,233 748 (66,237) (42,245) 54,783 (1,378) 53,405 (4,938)	124,498 3,224 58 (55,984 (37,632
		34,164 (1,258
		32,906 (7,871
	48,467
	20,330 28,137	8,396 16,639
	48,467 11,399 2.45 cents N/A

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2008

(Expressed in Hong Kong dollars)

2008 $’000 $’000 135,763 8,165 26,305 170,233 1,364 78,706 141,037 2,743 394,083 82,457 68,490 1,440 1,529 155,722	2008 $’000 $’000 135,763 8,165 26,305 170,233 1,364 78,706 141,037 2,743 394,083 82,457 68,490 1,440 1,529 155,722	2007 $’000 $’000 141,817 7,963 25,349	2007 $’000 $’000 141,817 7,963 25,349
	170,233 1,364 78,706 141,037 2,743 394,083	72,895 72,633 – 1,498 82,364	175,129 144 90,701 132,738 3,953
			402,665
309,638 ---------		229,390 ---------

– 57 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note Current liabilities Trade and other payables 23 Bank loans 24 Tax payable 21(a) Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities 21(b) NET ASSETS CAPITAL AND RESERVES 25(a) Share capital Reserves Total equity attributable to equity shareholders of the Company Minority interests TOTAL EQUITY	2008 $’000 $’000 102,339 18,190 – 120,529 --------- ----------------- 189,109 583,192 --------- 28,078 28,078 --------- ----------------- 555,114 83,097 276,207 359,304 195,810 555,114	2008 $’000 $’000 102,339 18,190 – 120,529 --------- ----------------- 189,109 583,192 --------- 28,078 28,078 --------- ----------------- 555,114 83,097 276,207 359,304 195,810 555,114	2007 $’000 $’000 94,958 – 5,864 100,822 --------- ----------------- 128,568 531,233 --------- 33,805 33,805 --------- ----------------- 497,428	2007 $’000 $’000 94,958 – 5,864 100,822 --------- ----------------- 128,568 531,233 --------- 33,805 33,805 --------- ----------------- 497,428
				531,233 --------- 33,805 --------- ----------------- 497,428

		83,097 276,207 359,304 195,810		83,097 241,068
				324,165 173,263
		555,114		497,428

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

At 31 December 2008

(Expressed in Hong Kong dollars)

2008 $’000 $’000 282,438 ------------ 5,996 17,688	2008 $’000 $’000 282,438 ------------ 5,996 17,688	2007 $’000 $’000 282,400 ------------ 570 13,193 13,763 ------------ 1,958 1,958 ------------ ----------------------- 11,805 ------------ ----------------------- 294,205	2007 $’000 $’000 282,400 ------------ 570 13,193 13,763 ------------ 1,958 1,958 ------------ ----------------------- 11,805 ------------ ----------------------- 294,205
23,684 ------------ 6,900		13,763 ------------ 1,958
6,900 ------------ -----------------------	16,784 ------------ ----------------------- 299,222

	83,097 216,125		83,097 211,108
	299,222		294,205

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2008 (Expressed in Hong Kong dollars)

	2008	2008	2007	2007
	$’000	$’000	$’000	$’000
Total equity at 1 January		497,428		450,770
		------------		------------
Net income recognized directly in
equity:
Exchange differences on translation of
accounts of the subsidiaries in the
People’s Republic of China
(“PRC”)	29,533		33,294
Changes in fair value of
available-for-sale securities, net of
deferred tax	(587)		2,209
Net income for the year recognized
directly in equity		28,946		35,503
		------------		------------
Net profit for the year		48,467 ------------		25,035 ------------
		-----------------------		-----------------------
Total recognized income and expense
for the year		574,841		511,308
Attributable to:
Equity shareholders of the Company	362,969		323,876
Minority interests	211,872		187,432
	574,841		511,308
	------------		------------
Dividends declared by subsidiaries paid
to minority interests		(16,062)		(14,169)
Dividends approved during the year		(4,155)		–
Movements in equity arising from
capital transactions:
Release of reserve upon lapse of
share options		490		–
Shares issued under share option
scheme		–		289
Total equity at 31 December		555,114		497,428

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2008 (Expressed in Hong Kong dollars)

Note Operating activities Profit before taxation Adjustments for: Depreciation and amortization Impairment loss on intangible assets 5(c) Impairment losses on trade receivables 5(c) Finance costs 5(a) Interest income 4 Loss on disposal of fixed assets 4 Equity settled share-based payment expenses Foreign exchange loss Operating profit before changes in working capital Increase in inventories Decrease/(increase) in trade and other receivables (Increase)/decrease in time deposits Increase in restricted deposits Increase in trade and other payables Cash generated from operations PRC enterprise income tax paid Net cash generated from operating activities	2008 $’000 $’000 53,405 35,217 1,811 125 1,378 (1,385) 45 490 4,322	2007 $’000 $’000 32,906 33,001 – 815 1,258 (970) 27 – 867 67,904 (14,906) (29,904) 18,303 (1,498) 24,597 64,496 (12,881) 51,615
	95,408 (9,562) 4,143 (7,958) (31) 7,381 89,381 (19,709)	67,904 (14,906 (29,904 18,303 (1,498 24,597
		64,496 (12,881
	69,672

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2008 $’000 $’000 (4,050) (1,211) 1,385	2008 $’000 $’000 (4,050) (1,211) 1,385	2007 $’000 $’000 (2,424) (169) 970 (1,623) 17,655 (37,549) 289 (1,258) (42,930) – (63,793) (13,801) 89,919 6,246 82,364	2007 $’000 $’000 (2,424) (169) 970 (1,623) 17,655 (37,549) 289 (1,258) (42,930) – (63,793) (13,801) 89,919 6,246 82,364
17,696 – – (1,378) (16,062) (4,155)	(3,876) (3,899) 61,897 82,364 3,503	17,655 (37,549) 289 (1,258) (42,930) –	(1,623 (63,793
			(13,801 89,919 6,246
	147,764

The notes on pages 35 to 72 form part of these accounts.

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE ACCOUNTS

(Expressed in Hong Kong dollars unless otherwise indicated)

1 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The consolidated accounts for the year ended 31 December 2008 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 instruments classified as available-for-sale securities are stated at their fair values as explained in accounting policy set out in note 1(e).

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 31.

(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.

– 63 –

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 arising on a business combination 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 in equity securities 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)(iii). 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)(ii). 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.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

When the Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see note 1(u)), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 1(u).

Gains or losses arising from the retirement or disposal of an investment property 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	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	10-15 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 and, 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 borrowing cost, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to borrowing costs, 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)

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 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.

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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)).

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 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.

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 and bills 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 Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade and bills 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

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 properties;
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

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).

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 an impairment loss 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 available-for-sale equity securities are not reversed in a subsequent period. 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. Consequently, if the fair value of available-for-sale equity securities increases in the remainder of the annual period, or in any other period subsequently, the increase is recognized in equity and not profit or loss.

(k) Inventories

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

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.

(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)).

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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.

(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 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).

No benefit cost or obligation is recognized at the date of grant or exercise for share options granted on or before 7 November 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.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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) 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 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.

(iii) Dividends

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

(iv) Interest income

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

(v) 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 deducted from the carrying amount of the asset and consequently are effectively recognized in profit or loss over the useful life of the asset by way of reduced depreciation expense.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(t) Translation of foreign currencies

For the purpose of presenting the consolidated accounts, 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 differences recognized in equity which relate to that foreign operation is included in the calculation of profit or loss on disposal.

(u) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Group

Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases, with the following exception:

Property held under operating leases that would otherwise meet the definition of an investment property is classified as an investment property on a property-by-property basis and, if classified as investment property, is accounted for as if held under a finance lease (see note 1(f)).

(ii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 or 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) 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
(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.

(x) 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.

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 are located in the PRC. Accordingly, no analysis of the segment information is presented.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2 CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued a number of new Interpretations and an amendment to HKFRSs that are first effective for the current accounting period of the Group and the Company. However, none of these developments is relevant to the Group’s or the Company’s operations.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 32).

3 TURNOVER

The principal activities of the 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 and is analyzed as follows:

Sales of pharmaceutical products – Pills and tablets – Medicine wine – Paste, granules and others	2008 $’000 294,311 51,939 97,283 443,533	2007 $’000 237,275 41,475 77,130
		355,880

4 OTHER REVENUE AND NET INCOME

Other revenue Government grants Interest income Rental income Dividend income from listed securities Other net income Exchange gain Loss on disposal of fixed assets Others	2008 $’000 1,635 1,385 1,213 – 4,233	2007 $’000 1,054 970 1,163 37
		3,224

	794 (45) (1)	48 (27) 37
	748	58

Various government grants have been received for technological improvements and for research and development costs on new and existing 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 under “trade and other payables” in the consolidated balance sheet.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5 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) Staff costs: Salaries, wages and other benefits Contributions to defined contribution retirement plans (c) Other items: Auditors’ remuneration Depreciation and amortization – assets held for use under operating leases – lease prepayments – other assets – intangible assets Impairment losses – trade receivables – intangible assets Operating lease charges on buildings Research and development costs Rentals receivable from investment properties less direct outgoings Cost of inventories (note 19(b))	2008 $’000 1,378	2007 $’000 1,258

	62,655 2,357	48,816 2,015
	65,012 1,870 293 621 18,649 15,654 125 1,811 373 2,054 750 285,249	50,831

		1,641 269 568 17,837 14,327 815 – 475 1,257 685 231,382

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 Under-provision in respect of prior year Deferred tax Origination and reversal of temporary differences	2008 $’000 11,558 577	2007 $’000 15,092 –
	12,135 (7,197)	15,092 (7,221
	4,938	7,871

No provision has been made for the Hong Kong Profits Tax as the Company and its Hong Kong incorporated subsidiaries sustained losses in Hong Kong for taxation purposes during the years ended 31 December 2008 and 2007.

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the income tax rules and regulations of the PRC, the applicable PRC enterprise income tax rate of the Group’s subsidiaries, Foshan Dezhong Pharmaceutical Co., Ltd. (“DZH”) and Foshan Feng Liao Xing Pharmaceutical Co., Ltd. (“FLX”) was 27% for the years prior to 31 December 2007. 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 year ended 31 December 2007.

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 from 27% to 25% had been reflected in the consolidated accounts of the Group for the year ended 31 December 2007.

Pursuant to documents issued jointly by Guangdong Science and Technology Department, Guangdong Provincial Finance Bureau, Guangdong Provincial Office of the State Administration of Taxation and Guangdong Provincial Local Taxation Bureau, DZH and FLX were recognized as advanced and new technology enterprises to enjoy a preferential enterprise income tax rate of 15% for a three-year period with effect from 1 January 2008. As a result of the change in tax rate to 15% for a three-year period, the change in the carrying amount of the current tax payable and deferred tax liabilities has been reflected in these consolidated accounts.

In addition, 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.

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

Profit before taxation Notional tax on profit before taxation, calculated at rates applicable to profit in the countries concerned Tax effect on non-deductible expenses Tax effect on non-taxable revenue Effect on opening current and deferred tax balances resulting from the change in tax rate during the year Income tax concessions Withholding tax on undistributed profits of PRC subsidiaries Under-provision in respect of prior year Actual tax expense	2008 $’000 53,405	2007 $’000 32,906 9,732 1,897 (54) (1,207) (2,497) – – 7,871
	16,007 1,623 (165) (6,422) (8,159) 1,477 577	9,732 1,897 (54 (1,207 (2,497 – –
	4,938

– 76 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

7 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 Du Richeng 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 $’000 100 100 100 100 100 100 100 700 Directors’ fees $’000 100 100 100 100 100 100 100 700	2008 Salaries and allowances Discretionary bonuses Retirement scheme contributions $’000 $’000 $’000 – – – 660 220 33 420 105 21 420 105 21 – – – – – – – – – 1,500 430 75 2007 Salaries and allowances Discretionary bonuses Retirement scheme contributions $’000 $’000 $’000 105 61 5 624 165 31 420 88 21 315 79 16 – – – – – – – – – 1,464 393 73	Total $’000 100 1,013 646 646 100 100 100
			2,705

			Total $’000 271 920 629 510 100 100 100
			2,630

Of the five individuals with the highest emoluments, two (2007: two) are directors whose remuneration is disclosed in the above. Details of the emoluments of the remaining three (2007: three) individuals were as follows:

Salaries and other emoluments Retirement scheme contributions	2008 $’000 2,707 – 2,707	2007 $’000 2,340 –
		2,340

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The emoluments of the three (2007: three) individuals with highest emoluments are within the following

band:

			2008	2007
			Number of	Number of
			individuals	individuals
$
Nil	–	1,000,000	3	3

8 PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated profit attributable to equity shareholders of the Company includes a loss of $8,121,000 (2007: $8,021,000) which has been dealt with in the accounts of the Company.

Reconciliation of the above amount to the Company’s profit for the year:

Amount of consolidated loss attributable to equity shareholders dealt with in the Company’s accounts Final dividends from subsidiaries attributable to the profits of the previous financial year, approved and paid during the year Company’s profit for the year (note 25(b))	2008 $’000 (8,121) 16,803 8,682	2007 $’000 (8,021) 14,775
		6,754

9 DIVIDENDS

(a) Dividends payable to equity shareholders of the Company attributable to the year

	2008	2007
	$’000	$’000
Final dividend proposed after the balance sheet date of 0.7 cent per
ordinary share (2007: 0.5 cent per ordinary share)	11,399	4,155

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

(b) Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year

	2008	2007
	$’000	$’000
Final dividend in respect of the previous financial year, approved and
paid during the year, of 0.5 cent per ordinary share (2007: Nil per
ordinary share)	4,155	–

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10 EARNINGS PER SHARE

(a) Basic

The calculation of basic earnings per share is based on the profit attributable to equity shareholders of the Company of $20,330,000 (2007: $8,396,000) and the weighted average of 830,974,000 (2007: 830,526,069) ordinary shares in issue during the year.

(b) Diluted

There were no dilutive potential ordinary shares during the years presented and, therefore, diluted earnings per share is not presented.

11 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 as disclosed in note 7, is as follows:

Short-term employee benefits Post-employments benefits	2008 $’000 4,312 54 4,366	2007 $’000 3,837 52
		3,889

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

12 SEGMENT REPORTING

– 79 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

13 FIXED ASSETS

Buildings Plant, machinery and equipment $’000 $’000 68,674 130,523 – 432 – 25 – (24) 5,214 9,820	Buildings Plant, machinery and equipment $’000 $’000 68,674 130,523 – 432 – 25 – (24) 5,214 9,820	Motor vehicles $’000 3,646 794 – (795) 214	Others $’000 36,965 1,198 – (513) 2,794	Sub-total Investment properties $’000 $’000 239,808 10,656 2,424 – 25 – (1,332) – 18,042 806	Sub-total Investment properties $’000 $’000 239,808 10,656 2,424 – 25 – (1,332) – 18,042 806	Interests in leasehold land held for own use under operating leases $’000 27,511 – – – 2,070	The Group Total $’000 277,975 2,424 25 (1,332) 20,918
73,888 - - - - - - - 73,888 – – 4,620 78,508 - - - - - - - 22,744 2,440 – 1,820 27,004 - - - - - - - 27,004 2,648 – 1,723	140,776 - - - - - - - 140,776 1,046 (286) 8,767 150,303 - - - - - - - 45,359 11,368 (4) 3,905 60,628 - - - - - - - 60,628 12,431 (279) 3,951	3,859 - - - - - - - 3,859 – (451) 209 3,617 - - - - - - - 2,875 435 (795) 174 2,689 - - - - - - - 2,689 364 (406) 108	40,444 - - - - - - - 40,444 3,004 (47) 2,553 45,954 - - - - - - - 21,972 3,594 (506) 1,769 26,829 - - - - - - - 26,829 3,206 (47) 1,770	258,967 - - - - - - - 258,967 4,050 (784) 16,149 278,382 - - - - - - - 92,950 17,837 (1,305) 7,668 117,150 - - - - - - - 117,150 18,649 (732) 7,552	11,462 - - - - - - - 11,462 – – 718 12,180 - - - - - - - 2,993 269 – 237 3,499 - - - - - - - 3,499 293 – 223	29,581 - - - - - - - 29,581 – – 1,849 31,430 - - - - - - - 3,384 568 – 280 4,232 - - - - - - - 4,232 621 – 272	300,010 - - - - - - - 300,010 4,050 (784) 18,716
							321,992 - - - - - - - 99,327 18,674 (1,305) 8,185
							124,881 - - - - - - - 124,881 19,563 (732) 8,047
31,375 - - - - - - - 47,133 46,884	76,731 - - - - - - - 73,572 80,148	2,755 - - - - - - - 862 1,170	31,758 - - - - - - - 14,196 13,615	142,619 - - - - - - - 135,763 141,817	4,015 - - - - - - - 8,165 7,963	5,125 - - - - - - - 26,305 25,349	151,759 - - - - - - - 170,233

							175,129

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) The interests in leasehold land held for own use under operating leases and investment properties are held on a medium-term leases 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 two years, at the end of which period all terms are renegotiated. One of the leases runs for twenty years with three months’ notice for termination. Lease payments of this lease are gradually increased during the lease period 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 receivable as follows:

			2008	2007
			$’000	$’000
Within	1	year	756	749

All investment properties of the Group were stated in the consolidated balance sheet at cost less accumulated depreciation and impairment losses. The fair value of the investment properties as at 31 December 2008 is $13,734,000 (2007: $9,281,000) by reference to net rental income allowing for reversionary income potential. The valuation of the investment properties as at 31 December 2008 and 2007 was carried out by BMI Appraisals Limited, an independent firm of professional surveyors, and the directors respectively.

14 CONSTRUCTION IN PROGRESS

At 1 January Additions Transfer to fixed assets (note 13) Exchange adjustments At 31 December	The Group 2008 2007 $’000 $’000 144 – 1,211 169 – (25) 9 – 1,364 144	The Group 2008 2007 $’000 $’000 144 – 1,211 169 – (25) 9 – 1,364 144
		144

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15 INTANGIBLE ASSETS

Product protection rights $’000 65,075 4,903	The Group Trademarks $’000 36,617 2,759	Total $’000 101,692 7,662 109,354 - - - - - - - - - - - - 109,354 6,837 116,191 - - - - - - - - - - - - (3,468) (14,327) (858) (18,653) - - - - - - - - - - - - (18,653) (15,654) (1,811) (1,367) (37,485) ------------ --------------------------------------------- 78,706 90,701
69,978 - - - - - - - - - - - - 69,978 4,375 74,353 - - - - - - - - - - - - (3,253) (13,438) (804) (17,495) - - - - - - - - - - - - (17,495) (14,682) (1,811) (1,282)	39,376 - - - - - - - - - - - - 39,376 2,462 41,838 - - - - - - - - - - - - (215) (889) (54) (1,158) - - - - - - - - - - - - (1,158) (972) – (85)	109,354 - - - - - - - - - - - - 109,354 6,837
		116,191 - - - - - - - - - - - - (3,468 (14,327 (858
		(18,653 - - - - - - - - - - - - (18,653 (15,654 (1,811 (1,367
(35,270) ------------ --------------------------------------------- 39,083 52,483	(2,215) ------------ --------------------------------------------- 39,623 38,218

During the year, the directors assessed the recoverable amount of the Group’s product protection right in respect of one of the pharmaceutical products and determined that it was impaired, because that pharmaceutical product was selling at a gross loss. Accordingly, an impairment loss of $1,811,000 (2007: Nil) was recognized. The recoverable amount of the product protection right was estimated based on its value in use. The estimate of value in use was determined using a discount rate of 13%.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16 GOODWILL

Cost and carrying amount: At 1 January Exchange adjustments At 31 December	The Group 2008 2007 $’000 $’000 132,738 123,437 8,299 9,301 141,037 132,738	The Group 2008 2007 $’000 $’000 132,738 123,437 8,299 9,301 141,037 132,738
		132,738

Goodwill acquired through business combination is allocated to the Group’s cash-generating units (“CGU”) identified as follows:

Manufacture and sale of pharmaceutical products – DZH Manufacture and sale of pharmaceutical products – FLX	The Group 2008 2007 $’000 $’000 114,136 107,420 26,901 25,318 141,037 132,738	The Group 2008 2007 $’000 $’000 114,136 107,420 26,901 25,318 141,037 132,738
		132,738

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 of each of the CGU 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% (2007: 3%) and no growth in sales volume. The rate used to discount the forecast cash flows is 13% (2007: 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.

17 INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries	The Company 2008 2007 $’000 $’000 223,569 223,569 58,869 58,831 282,438 282,400	The Company 2008 2007 $’000 $’000 223,569 223,569 58,869 58,831 282,438 282,400
		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 recoverable within twelve months from the Company’s balance sheet date and are therefore shown in the Company’s 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 2008.

– 83 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

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

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.

18 OTHER FINANCIAL ASSETS

Available-for-sale equity securities – Listed in the PRC Market value of listed securities	The Group 2008 2007 $’000 $’000 2,743 3,953 2,743 3,953	The Group 2008 2007 $’000 $’000 2,743 3,953 2,743 3,953

		3,953

– 84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19 INVENTORIES

(a) Inventories in the consolidated balance sheet comprise:

Raw materials Work in progress Finished goods Packaging materials Low value consumables	The Group 2008 2007 $’000 $’000 35,554 29,254 17,007 16,793 21,504 19,230	The Group 2008 2007 $’000 $’000 35,554 29,254 17,007 16,793 21,504 19,230
	74,065 5,680 2,712	65,277 4,990 2,628
	82,457	72,895

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

				2008	2007
				$’000	$’000
Cost	of	inventories	sold	285,249	231,382

20 TRADE AND OTHER RECEIVABLES

Trade and bills receivables Less: allowance for doubtful debts (note 20(b)) Deposits, prepayments and other receivables	The Group 2008 2007 $’000 $’000 52,965 63,496 (2,647) (2,372)	The Group 2008 2007 $’000 $’000 52,965 63,496 (2,647) (2,372)	The Company 2008 2007 $’000 $’000 – – – –	The Company 2008 2007 $’000 $’000 – – – –
	50,318 18,172	61,124 11,509	– 5,996	– 570
	68,490	72,633	5,996	570

(a) Ageing analysis

Included in trade and other receivables are trade and bills receivables 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	The Group 2008 2007 $’000 $’000 41,651 52,110 6,715 6,782 4,599 4,604 52,965 63,496	The Group 2008 2007 $’000 $’000 41,651 52,110 6,715 6,782 4,599 4,604 52,965 63,496
		63,496

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Trade receivables 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 29(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)).

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

At 1 January Impairment loss recognized Uncollectible amounts written off Exchange adjustments At 31 December	The Group 2008 2007 $’000 $’000 2,372 3,034 125 815 – (1,674) 150 197 2,647 2,372	The Group 2008 2007 $’000 $’000 2,372 3,034 125 815 – (1,674) 150 197 2,647 2,372
		2,372

At 31 December 2008, the Group’s trade receivables of $3,871,000 (2007: $3,153,000) were individually determined to be impaired. The individually impaired receivables related to receivables 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 $2,647,000 (2007: $2,372,000) 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 of invoice date 3 to 6 months after invoice date More than 6 months after invoice date	The Group 2008 2007 $’000 $’000 40,856 51,566 6,547 6,563 1,691 2,214 49,094 60,343	The Group 2008 2007 $’000 $’000 40,856 51,566 6,547 6,563 1,691 2,214 49,094 60,343
		60,343

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2008, receivables that were neither past due nor impaired individually amounted to $39,509,000 (2007: $50,484,000).

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 of the customers 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 sales amount of goods sold to Guangdong Guanghong by DZH of approximately RMB1,345,000 (equivalent to $1,529,000) 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. On 25 March 2008, Guangdong Guanghong made an appeal to the Intermediate People’s Court. On 2 December 2008, a final judgement was issued by the Intermediate People’s Court in favour of DZH.

The directors are of the opinion that DZH has been successful in the above claim and no allowance for doubtful debts should be made on the outstanding debt of $1,529,000 which has been overdue more than one year.

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21 INCOME TAX IN THE BALANCE SHEET

(a) Current taxation in the balance sheet represents:

Provision for PRC enterprise income tax

The Group
2008	2007
$’000	$’000
(1,440)	5,864

(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 allowances in excess of related depreciation $’000 $’000 (25,852) (10,380) 1,994 873 – – 3,002 680 – – (1,819) (753) (22,675) (9,580)	Intangible assets Depreciation allowances in excess of related depreciation $’000 $’000 (25,852) (10,380) 1,994 873 – – 3,002 680 – – (1,819) (753) (22,675) (9,580)	Allowance for impairment of doubtful debts $’000 1,079 (68) – (238) – 71 844	Available– for-sale securities Withholding tax on undistributed profits of PRC subsidiaries $’000 $’000 (268) – – – 77 – – – (717) – (50) – (958) –	Available– for-sale securities Withholding tax on undistributed profits of PRC subsidiaries $’000 $’000 (268) – – – 77 – – – (717) – (50) – (958) –	Others $’000 (2,288) 28 – 950 – (126) (1,436)	Total $’000 (37,709) 2,827 77 4,394 (717) (2,677)
						(33,805)

(22,675) 4,756 – 2,669 – (1,387)	(9,580) 962 – 475 – (592)	844 (355) – 15 – 50	(958) – 407 – 216 (57)	– – – (1,477) – (19)	(1,436) 603 – (451) – (88)	(33,805) 5,966 407 1,231 216 (2,093)
(16,637)	(8,735)	554	(392)	(1,496)	(1,372)	(28,078)

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22 CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS

The Group 2008 2007 $’000 $’000 15,009 11,503 140,713 70,861 155,722 82,364	The Group 2008 2007 $’000 $’000 15,009 11,503 140,713 70,861 155,722 82,364	The Company 2008 2007 $’000 $’000 7,051 11,503 10,637 1,690 17,688 13,193
		13,193

(7,958)	–
147,764	82,364

As at 31 December 2008, restricted deposits of $1,529,000 (2007: $1,498,000) were placed with the People’s Court in relation to a claim lodged against a former customer. Further details of the claim are discussed in note 20(c).

23 TRADE AND OTHER PAYABLES

Trade creditors Other creditors and accrued charges Advances received from customers	The Group 2008 2007 $’000 $’000 20,150 20,707 78,143 69,095 4,046 5,156 102,339 94,958	The Company 2008 2007 $’000 $’000 – – 6,900 1,958 – – 6,900 1,958	The Company 2008 2007 $’000 $’000 – – 6,900 1,958 – – 6,900 1,958
			1,958

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

							The
							2008	2007
							$’000	$’000
Due	within	1	month	or	on	demand	20,150	20,707

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

24 BANK LOANS

At 31 December 2008, the Group’s bank loans are repayable as follows:

	The	Group
	2008	2007
	$’000	$’000
Unsecured bank loans
– Within 1 year or on demand	18,190	–

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2008, the bank loans are unsecured, interest-bearing at 7.84% per annum and repayable within one year.

25 CAPITAL AND RESERVES

(a) The Group

Share capital (Note (c)) $’000 83,015 – 82 – – – – – –	Share premium (Note (d)) $’000 1,041,726 (837,876) 207 – – – – – –	Capital reserve (Note (h)) $’000 – – – – – – – – –	Capital redemption reserve (Note (d)) $’000 297 – – – – – – – –	Exchange reserve (Note (e)) $’000 1,007 – – – – – – – 21,052	Reserve fund (Note (f)) $’000 1,065 – – – – – 6,492 – 74	Fair value reserve (Accumulated losses)/ retained profits (Note (g)) $’000 $’000 (304) (833,548) – 837,876 – – – 8,396 1,453 – (327) – – (6,492) – – (30) – 792 6,232	Fair value reserve (Accumulated losses)/ retained profits (Note (g)) $’000 $’000 (304) (833,548) – 837,876 – – – 8,396 1,453 – (327) – – (6,492) – – (30) – 792 6,232	Total equity attributable to equity shareholders of the Company $’000 293,258 – 289 8,396 1,453 (327) – – 21,096	Minority interests $’000 157,512 – – 16,639 1,396 (313) – (14,169) 12,198	Total equity $’000 450,770 – 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

83,097 – – – – – – – – –	204,057 – – – – – – – – –	– – – – 490 (490) – – – –	297 – – – – – – – – –	22,059 – – – – – – – – 18,414	7,631 – – – – – 10,237 – – 328	792 – (617) 318 – – – – – 31	6,232 20,330 – – – 490 (10,237) – (4,155) –	324,165 20,330 (617) 318 490 – – – (4,155) 18,773	173,263 28,137 (593) 305 – – – (16,062) – 10,760	497,428 48,467 (1,210) 623 490 – – (16,062) (4,155) 29,533
83,097	204,057	–	297	40,473	18,196	524	12,660	359,304	195,810	555,114

– 90 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) The Company

Share capital (Note (c)) $’000 83,015 – 82 – 83,097	Share premium (Note (d)) $’000 1,041,726 (837,876) 207 – 204,057	Capital reserve (Note (h)) $’000 – – – – –	Capital redemption reserve (Accumulated losses)/ retained profits (Note (d)) $’000 $’000 297 (837,876) – 837,876 – – – 6,754 297 6,754	Capital redemption reserve (Accumulated losses)/ retained profits (Note (d)) $’000 $’000 297 (837,876) – 837,876 – – – 6,754 297 6,754	Total $’000 287,162 – 289 6,754
					294,205

83,097 – – – –	204,057 – – – –	– – – 490 (490)	297 – – – –	6,754 (4,155) 8,682 – 490	294,205 (4,155 8,682 490 –
83,097	204,057	–	297	11,771	299,222

(c) Share capital

2008 Number of shares Nominal value ’000 $’000 3,000,000 300,000	2008 Number of shares Nominal value ’000 $’000 3,000,000 300,000	2007 Number of shares Nominal value ’000 $’000 3,000,000 300,000	2007 Number of shares Nominal value ’000 $’000 3,000,000 300,000

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

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 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.

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Following the completion of the acquisition of new subsidiaries on 6 February 2009 as disclosed in note 30(a), 797,436,563 ordinary shares were issued after the balance sheet date.

(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.

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.

(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

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. 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 equity holders of the subsidiary. Reserve fund can only be used to make good losses, if any, and 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) Capital reserve

The capital reserve represents the fair value of the actual or estimated number of unexercised share options granted to employees of the Company recognized in accordance with the accounting policy adopted for share-based payments in note 1(p)(ii).

(i) Distributability of reserves

At 31 December 2008, the aggregate amount of reserves available for distribution to equity shareholders of the Company was $11,771,000 (2007: $6,754,000). After the balance sheet date the directors proposed a final dividend of 0.7 cent (2007: 0.5 cent) per ordinary share, amounting to $11,399,000 (2007: $4,155,000). This dividend has not been recognized as a liability at the balance sheet date.

(j) 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.

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 and bank loans) plus unaccrued proposed dividends. Equity comprises all components of equity less unaccrued proposed dividends.

During 2008, the Group’s strategy, which remains unchanged from 2007, is to maintain the capital in order to cover any debt position.

The adjusted debt-to-equity ratio at 31 December 2008 and 2007 is as follows:

Current liabilities: Trade and other payables Bank loans Add: Proposed dividends Adjusted debt Total equity Less: Proposed dividends Adjusted equity Adjusted debt-to-equity ratio	The Group 2008 2007 $’000 $’000 102,339 94,958 18,190 – 120,529 94,958 11,399 4,155 131,928 99,113 555,114 497,428 (11,399) (4,155) 543,715 493,273 24% 20%	The Group 2008 2007 $’000 $’000 102,339 94,958 18,190 – 120,529 94,958 11,399 4,155 131,928 99,113 555,114 497,428 (11,399) (4,155) 543,715 493,273 24% 20%
	120,529 11,399	94,958 4,155
	131,928
	555,114 (11,399)	497,428 (4,155
	543,715 24%

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

26 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. The aggregate of the mandatory and voluntary contributions made by the employer represents 5% of the basic salary of the employees. Mandatory contributions 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.

– 93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27 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 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.

On 2 January 2008, each of the three independent non-executive directors of the Company was granted 828,000 share options under the Company’s share option scheme to subscribe for 828,000 ordinary shares. Pursuant to the amendments made to the share option scheme adopted on 22 May 2002, 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 year. 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.

(a) The terms and conditions of the grants that existed during the years 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 2 January 2008 2 January 2008 to 1 January 2013 $ 0.434	2008 ’000 – 8,000 – 2,484 10,484	2007 ’000 828 8,000 1,500 –
		10,328

All the above share options were granted to the directors.

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

At 1 January Granted during the year Exercised during the year Lapsed and cancelled At 31 December Options vested at 31 December	2008 Weighted average exercise price Number of shares ’000 $0.350 8,000 $0.434 2,484 – – $0.370 (10,484) – – – –	2007 Weighted average exercise price Number of shares ’000 $0.360 10,328 – – $0.350 (828) $0.415 (1,500) $0.350 8,000 $0.350 8,000	2007 Weighted average exercise price Number of shares ’000 $0.360 10,328 – – $0.350 (828) $0.415 (1,500) $0.350 8,000 $0.350 8,000
			8,000

			8,000

The weighted average share price at the date of exercise of share options exercised during the year ended 31 December 2007 was $0.66.

28 COMMITMENTS

(a) Capital commitments of the Group outstanding at 31 December 2008 not provided for in the accounts were as follows:

		The
		2008	2007
		$’000	$’000
Contracted	for	291	–

(b) At 31 December 2008, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within 1 year	The Group 2008 2007 $’000 $’000 – 330

Operating lease payments represent rentals payable by the Group for its office premises. The lease was negotiated for an average term of two years with fixed rental. The lease did not include any contingent rentals.

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29 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.

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 2008, the Group has no concentration of credit risk.

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.

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade receivables are set out in note 20.

(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.

– 96 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following table details the remaining contractual maturities at the balance sheet date of the Group’s and the Company’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 Group and the Company can be required to pay:

The Group

Trade and other payables Bank loans The Company Trade and other payables	2008 Carrying amount Total contractual undiscounted cash flow $’000 $’000 102,339 (102,339) 18,190 (18,289) 120,529 (120,628) 2008 Carrying amount Total contractual undiscounted cash flow $’000 $’000 6,900 (6,900)	Within 1 year or on demand $’000 (102,339) (18,289) (120,628) Within 1 year or on demand $’000 (6,900)	2007 Carrying amount Total contractual undiscounted cash flow $’000 $’000 94,958 (94,958) – – 94,958 (94,958) 2007 Carrying amount Total contractual undiscounted cash flow $’000 $’000 1,958 (1,958)	Within 1 year or on demand $’000 (94,958) –
				(94,958)

				Within 1 year or on demand $’000 (1,958)

(c) Interest rate risk

The Group’s interest rate risk arises primarily from short-term borrowings. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The 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 Group’s total borrowings at the balance sheet date.

Fixed rate borrowings: Bank loans	2008 Effective interest rate One year or less % $’000 7.84% 18,190	2007 Effective interest rate One year or less % $’000 – –

The bank loans are issued at fixed rate and hence, no sensitivity analysis is presented.

– 97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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.

The following table indicates the approximate change in the Group’s 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.

Market price of equity investments:	Increase/ (decrease) in share price 20% (20%)	2008 Effect on equity $’000 466 (466)	2007 Effect on equity $’000 593 (593)

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. 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 2007.

(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 2008 and 2007.

(g) Estimation of fair values

The following summarizes 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.

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(h) Business risk

The Group is dependent on specific herb materials for its production of certain pharmaceutical products. At 31 December 2008, the Group has a certain concentration of business risk as 36% (2007: 20%) 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.

30 NON-ADJUSTING POST BALANCE SHEET EVENTS

(a) Acquisition of subsidiaries

Pursuant to the approval by the independent shareholders at the extraordinary general meeting on 19 January 2009 and the completion of the acquisition on 6 February 2009, the Company acquired the entire equity interest in Smartpoint International Limited (“Smartpoint”). Smartpoint is an investment holding company and its principal assets are its 100% equity interests in each of Guangdong Medi-World Pharmaceutical Co., Ltd. (“Guangdong Medi-World”) and Shandong Lukang Pharmaceutical Group Luya Co., Ltd. (“Luya”). Each of Guangdong Medi-World and Luya is principally engaged in the manufacture and sale of pharmaceutical products in the PRC.

Following the completion of the acquisition on 6 February 2009, 797,436,563 ordinary shares were issued after the balance sheet date.

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

Fixed assets (including construction in progress)
Intangible assets
Other financial assets
Deferred tax assets
Inventories
Trade and other receivables
Current tax recoverable
Cash and cash equivalents
Trade and other payables
Bank loans
Deferred income on government grants
Deferred tax liabilities
Total net identifiable assets of the subsidiaries acquired
Add: Goodwill on acquisition
Consideration*
Satisfied by:
Issue of consideration shares
Proceeds of placing new shares
Cash

Recognized
values on
acquisition
$’000
191,381
80,435
1,458
5,972
28,326
93,534
768
22,749
(34,196)
(87,105)
(8,268)
(28,593)
266,461
39,495
305,956
220,000
70,000
15,956
305,956

Includes legal and professional fees of $5,956,000.

– 99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The valuation for the purpose of purchase accounting is preliminary and is subject to review by experts; thus, the allocation of the purchase price is subject to refinement.

(b) After the balance sheet date the directors proposed a final dividend of 0.7 cent per ordinary share, amounting to $11,399,000. This dividend has not been recognized as a liability at the balance sheet date. Further details are disclosed in note 9.

31 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

If circumstances indicate that the net book value of fixed assets, construction in progress, intangible assets, interest in subsidiaries and goodwill 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 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 sales volume, selling price, material costs 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, expected changes to selling prices and operating costs, and discount rate.

In addition, 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.

(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 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.

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) 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 in selling goods of similar nature. It could change significantly as a result of change in market condition.

32 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2008

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 2008 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 result in a restatement of the Group’s results of operations and financial position.

In addition, the following developments are expected to result in amended disclosures in the accounts, including restatement of comparative amounts in the first period of adoption:

HKFRS 8, Operating segments HKAS 1 (revised 2007), Presentation of financial statements

Effective for accounting periods beginning on or after 1 January 2009 1 January 2009”

– 101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Set out below is the unaudited interim financial statements of the Company and notes thereto as extracted from pages 18 to 36 of the interim report of the Company for the six months ended 30 June 2009. References to page numbers in this appendix are to the page numbers of such interim report of the Company.

“ Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2009 – Unaudited (Expressed in Hong Kong dollars)

Note Turnover 3 Cost of sales Gross profit Other revenue 4 Other net income/(loss) 4 Selling and distribution costs Administrative expenses Profit from operations Finance costs 5(a) Profit before taxation 5 Income tax 6 Profit for the period Other comprehensive income for the period, net of tax Exchange differences on translation of financial statements of overseas subsidiaries Available-for-sale securities: net movement in fair value reserve Total comprehensive income for the period	Six months ended 30 June 2009 2008 $’000 $’000 317,704 228,192 (170,575) (143,871) 147,129 84,321 4,966 1,898 18 (29) (61,522) (33,662) (31,471) (21,416) 59,120 31,112 (2,607) (737) 56,513 30,375 (12,636) (9,961) 43,877 20,414 3,712 31,281 305 (555) 4,017 30,726 ------------ ------------ 47,894 51,140	Six months ended 30 June 2009 2008 $’000 $’000 317,704 228,192 (170,575) (143,871) 147,129 84,321 4,966 1,898 18 (29) (61,522) (33,662) (31,471) (21,416) 59,120 31,112 (2,607) (737) 56,513 30,375 (12,636) (9,961) 43,877 20,414 3,712 31,281 305 (555) 4,017 30,726 ------------ ------------ 47,894 51,140
	147,129 4,966 18 (61,522) (31,471) 59,120 (2,607) 56,513 (12,636) 43,877 3,712 305	84,321 1,898 (29 (33,662 (21,416
		31,112 (737
		30,375 (9,961
		20,414 31,281 (555
	4,017 ------------ 47,894

– 102 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note Profit attributable to: – Equity shareholders of the Company – Minority interests Profit for the period Total comprehensive income attributable to: – Equity shareholders of the Company – Minority interests Total comprehensive income for the period Earnings per share (HKD) 7 Basic Diluted	Six months ended 30 June 2009 2008 $’000 $’000 29,257 7,871 14,620 12,543 43,877 20,414 33,365 27,817 14,529 23,323 47,894 51,140 1.99 cents 0.95 cents N/A N/A	Six months ended 30 June 2009 2008 $’000 $’000 29,257 7,871 14,620 12,543 43,877 20,414 33,365 27,817 14,529 23,323 47,894 51,140 1.99 cents 0.95 cents N/A N/A
		20,414

		27,817 23,323
		51,140

		0.95 cents

		N/A

Details of dividends payable to equity shareholders of the Company are set out in note 16.

– 103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 30 June 2009 – Unaudited

(Expressed in Hong Kong dollars)

Note Non-current assets Fixed assets 9 – Property, plant and equipment – Investment properties – Interests in leasehold land held for own use under operating leases Construction in progress 9 Intangible assets 10 Goodwill 11 Other financial assets Current assets Inventories Trade and other receivables 12 Amount due from a related company Tax recoverable Restricted deposits 13 Cash and cash equivalents 13 Current liabilities Trade and other payables 14 Bank loans 15 Amount due to a director Tax payable Net current assets Total assets less current liabilities	At 30 June 2009 $’000 218,658 9,033 93,563	At 31 December 2008 (audited) $’000 135,763 8,165 26,305
	321,254 47,918 147,781 183,399 4,582 704,934 ------------ 111,478 171,933 397 3,612 1,527 154,673 443,620 ------------ 132,891 106,520 11 2,403	170,233 1,364 78,706 141,037 2,743
		394,083 ------------ 82,457 68,490 – 1,440 1,529 155,722
		309,638 ------------ 102,339 18,190 – –
	241,825 ------------ ----------------------- 201,795 ------------ ----------------------- 906,729 ------------	120,529 ------------ ----------------------- 189,109 ------------ ----------------------- 583,192 ------------

– 104 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note Non-current liabilities Deferred income on government grants Deferred tax liabilities Net assets Capital and reserves Share capital 16 Reserves Total equity attributable to equity shareholders of the Company Minority interests Total equity	At 30 June 2009 $’000 9,735 50,929 60,664 ------------ ----------------------- 846,065 162,841 507,380 670,221 175,844 846,065	At 31 December 2008 (audited) $’000 – 28,078
		28,078 ------------ ----------------------- 555,114

		83,097 276,207
		359,304 195,810
		555,114

– 105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2009 – Unaudited (Expressed in Hong Kong dollars)

											Total
											equity
										attributable
											to
											equity
				Capital				Fair	shareholders
		Share	Share	redemption	Capital	Exchange	Reserve	value	Retained		of the	Minority		Total
		capital	premium	reserve	reserve	reserve	fund	reserve	profits	Company			interests	equity
	Note	$’000	$’000	$’000	$’000	$’000	$’000	$’000	$’000		$’000		$’000	$’000
At 1 January 2008		83,097	204,057	297	–	22,059	7,631	792	6,232		324,165		173,263	497,428
Changes in equity for the
six months ended 30
June 2008:
Transfer to reserve fund		–	–	–	–	–	9,083	–	(9,083)		–		–	–
Dividends declared by
subsidiaries paid to
minority interests		–	–	–	–	–	–	–	–		–		(16,062)	(16,062)
Dividends approved in
respect of the previous
year	16(b)	–	–	–	–	–	–	–	(4,155)		(4,155)		–	(4,155)
Equity settled share-based
transactions		–	–	–	490	–	–	–	–		490		–	490
Release of reserve upon
lapse of share options		–	–	–	(490)	–	–	–	490		–		–	–
Total comprehensive
income for the period		–	–	–	–	19,864	340	(258)	7,871		27,817		23,323	51,140
At 30 June 2008		83,097	204,057	297	–	41,923	17,054	534	1,355		348,317		180,524	528,841

At 1 July 2008		83,097	204,057	297	–	41,923	17,054	534	1,355		348,317		180,524	528,841
Changes in equity for the
six months ended 31
December 2008:
Transfer to reserve fund		–	–	–	–	–	1,154	–	(1,154)		–		–	–
Total comprehensive
income for the period		–	–	–	–	(1,450)	(12)	(10)	12,459		10,987		15,286	26,273
At 31 December 2008		83,097	204,057	297	–	40,473	18,196	524	12,660		359,304		195,810	555,114

At 1 January 2009		83,097	204,057	297	–	40,473	18,196	524	12,660		359,304		195,810	555,114
Changes in equity for the
six months ended 30
June 2009:
Consideration shares issued
upon the acquisition of
subsidiaries	16(a)	56,410	163,590	–	–	–	–	–	–		220,000		–	220,000
Placing of new shares, net
of transaction costs	16(a)	23,334	45,617	–	–	–	–	–	–		68,951		–	68,951
Transfer to reserve fund		–	–	–	–	–	191	–	(191)		–		–	–
Dividends declared by
subsidiaries paid to
minority interests		–	–	–	–	–	–	–	–		–		(34,495)	(34,495)
Dividends approved in
respect of the previous
year	16(b)	–	–	–	–	–	–	–	(11,399)		(11,399)		–	(11,399)
Total comprehensive
income for the period		–	–	–	–	3,948	(4)	164	29,257		33,365		14,529	47,894
At 30 June 2009		162,841	413,264	297	–	44,421	18,383	688	30,327		670,221		175,844	846,065

– 106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2009 – Unaudited (Expressed in Hong Kong dollars)

Note Cash generated from operations PRC income tax paid Net cash generated from operating activities Net cash used in investing activities Net cash generated from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rates changes Cash and cash equivalents at 30 June 13 Analysis of balance of cash and cash equivalents Deposits with banks matured within three months when placed Cash at bank and in hand	Six months ended 30 June 2009 2008 $’000 $’000 70,521 23,558 (13,833) (10,626) 56,688 12,932 (78,061) (2,012) 20,464 (3,258) (909) 7,662 147,764 82,364 (131) 4,539 146,724 94,565 12,491 11,114 134,233 83,451 146,724 94,565	Six months ended 30 June 2009 2008 $’000 $’000 70,521 23,558 (13,833) (10,626) 56,688 12,932 (78,061) (2,012) 20,464 (3,258) (909) 7,662 147,764 82,364 (131) 4,539 146,724 94,565 12,491 11,114 134,233 83,451 146,724 94,565
	56,688 (78,061) 20,464 (909) 147,764 (131)	12,932 (2,012 (3,258
		7,662 82,364 4,539
	146,724
	12,491 134,233	11,114 83,451
	146,724

– 107 –

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 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 (the “Listing Rules”), including compliance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim financial reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). It was authorized for issue on 17 September 2009.

The interim financial report has been prepared in accordance with the same accounting policies adopted in the 2008 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2009 annual financial statements. Details of these changes in accounting policies are set out in note 2.

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.

This interim financial report contains condensed consolidated financial statements 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 2008 annual financial statements. The condensed consolidated interim financial statements and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”).

This interim financial report is unaudited, but has been reviewed by the Audit Committee of the Company. It has also been reviewed by 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 HKICPA. KPMG’s independent review report to the Board of Directors is included on page 37.

The financial information relating to the financial year ended 31 December 2008 that is included in the interim financial report as being previously reported information does not constitute the Company’s statutory financial statements for that financial year but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2008 are available from the Company’s registered office. The auditors have expressed an unqualified opinion on those financial statements in their report dated 23 April 2009.

2. CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued one new HKFRS, a number of amendments to HKFRSs and new Interpretations that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Group’s financial statements:

HKFRS 8, Operating segments
HKAS 1 (revised 2007), Presentation of financial statements
Improvements to HKFRSs (2008)
Amendments to HKAS 27, Consolidated and separate financial statements – cost of an investment in a subsidiary, jointly controlled entity or associate
Amendments to HKFRS 7, Financial instruments: Disclosures – improving disclosures about financial instruments

– 108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Improvements to HKFRSs (2008) has had no material impact on the Group’s financial statements as the amendments are consistent with policies already adopted by the Group. In addition, the amendments to HKFRS 7 do not contain any additional disclosure requirements specifically applicable to the interim financial report. The impact of the remainder of these developments on the interim financial report is as follows:

HKFRS 8 requires segment disclosure to be based on the way that the Group’s chief operating decision maker regards and manages the Group, with the amounts reported for each reportable segment being the measures reported to the Group’s chief operating decision maker for the purposes of assessing segment performance and making decisions about operating matters. The adoption of HKFRS 8 has resulted in the presentation of segment information in a manner that is more consistent with internal reporting provided to the Group’s most senior executive management. The Group operates in a single business segment, which is manufacturing and sale of pharmaceutical products including pills and tablets, medicine wine, injections, paste, granules and others in the PRC. Accordingly, no segmental analysis is presented.
As a result of the adoption of HKAS 1 (revised 2007), details of changes in equity during the period arising from transactions with equity shareholders in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income and expense are presented in the consolidated statement of comprehensive income. The new format for the consolidated statement of comprehensive income and the consolidated statement of changes in equity has been adopted in this interim financial report and corresponding amounts have been restated to conform to the new presentation. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any of the periods presented.
The amendments to HKAS 27 have removed the requirement that dividends out of pre-acquisition profits should be recognized as a reduction in the carrying amount of the investment in the investee, rather than as income. As a result, as from 1 January 2009 all dividends receivable from subsidiaries, associates and jointly controlled entities, whether out of pre- or post-acquisition profits, will be recognized in the company’s profit or loss and the carrying amount of the investment in the investee will not be reduced unless that carrying amount is assessed to be impaired as a result of the investee declaring the dividend. In such cases, in addition to recognizing the dividend income in the profit or loss, the Company would recognize an impairment loss. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any dividends receivable in the current or future periods and previous periods have not been restated.

3. TURNOVER

The principal activities of the Group are the 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.

Turnover may be analyzed as follows:

Sale of pharmaceutical products – Pills and tablets – Medicine wine – Injections – Paste, granules and others	Six months ended 30 June 2009 2008 $’000 $’000 200,651 162,982 21,244 17,412 29,132 – 66,677 47,798 317,704 228,192	Six months ended 30 June 2009 2008 $’000 $’000 200,651 162,982 21,244 17,412 29,132 – 66,677 47,798 317,704 228,192
		228,192

– 109 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. OTHER REVENUE AND NET INCOME/(LOSS)

Other revenue Dividend income from unlisted securities Rental income Government grants Interest income Others Other net income/(loss) Loss on disposal of fixed assets Others	Six months ended 30 June 2009 2008 $’000 $’000 130 – 508 599 3,289 704 587 595 452 – 4,966 1,898	Six months ended 30 June 2009 2008 $’000 $’000 130 – 508 599 3,289 704 587 595 452 – 4,966 1,898
		1,898

	(9) 27	(15) (14)
	18	(29)

5. 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 prepayments – other assets – intangible assets Impairment losses for trade receivables Operating lease charges on buildings Research and development costs	Six months ended 30 June 2009 2008 $’000 $’000 2,607 737 170,575 143,871 553 144 608 307 12,247 9,305 11,022 7,712 766 1,437 186 182 4,113 1,250	Six months ended 30 June 2009 2008 $’000 $’000 2,607 737 170,575 143,871 553 144 608 307 12,247 9,305 11,022 7,712 766 1,437 186 182 4,113 1,250

		143,871 144 307 9,305 7,712 1,437 182 1,250

– 110 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. INCOME TAX IN CONSOLIDATED INCOME STATEMENT

Current tax PRC income tax for the period Under-provision in respect of prior years Deferred tax Origination and reversal of temporary differences	Six months ended 30 June 2009 2008 $’000 $’000 14,330 11,388 401 432 14,731 11,820 (2,095) (1,859) 12,636 9,961	Six months ended 30 June 2009 2008 $’000 $’000 14,330 11,388 401 432 14,731 11,820 (2,095) (1,859) 12,636 9,961
	14,731 (2,095)	11,820 (1,859
	12,636

No provision has been made for the Hong Kong Profits Tax as the Company and its Hong Kong incorporated subsidiaries sustained losses in Hong Kong for taxation purposes during the six months ended 30 June 2009.

Pursuant to the Corporate Income Tax Law of the PRC, the statutory income tax rate applicable to the Group’s PRC subsidiary, Luya was 25% for the six months ended 30 June 2009.

In accordance with the relevant PRC income tax laws, regulations and implementation guidance note, Feng Liao Xing, Dezhong and Guangdong Medi-World are recognized as advanced and new technology enterprises and are entitled to tax concessions whereby their profits are taxed at preferential income tax rate of 15% for the six months ended 30 June 2009.

In addition, the gross amount of dividends received by the Company from its PRC subsidiaries in respect of their profits generated after 31 December 2007 is subject to withholding tax at a rate of 5%. Deferred tax liabilities have been recognized for in this regard based on the expected dividends to be distributed from the Group’s PRC subsidiaries in the foreseeable future in respect of the profits generated after 31 December 2007.

7. EARNINGS PER SHARE

(a) Basic earnings per share

The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Company of $29,257,000 (six months ended 30 June 2008: $7,871,000) and the weighted average of 1,469,804,640 ordinary shares (six months ended 30 June 2008: 830,974,244) in issue during the interim period.

(b) Diluted earnings per share

There were no dilutive potential ordinary shares during the periods presented and, therefore, diluted earnings per share is not presented.

– 111 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. MATERIAL RELATED PARTY TRANSACTION

(a) Transactions with related party

During the six months ended 30 June 2009, a transaction with the following party is considered to be related party transaction:

Name of related party	Relationship
Foshan Nanhai New & Specific Pharmaceutical	Effectively 25.5% owned by Mr. YANG		Bin and
Co., Ltd. (“Nanhai New & Specific	25.5% owned by Mr. XU Tiefeng, directors			of
Pharmaceutical”)	the Company
		Six months ended
		30 June
		2009		2008
		$’000	$’000
Sale of goods to Nanhai New & Specific Pharmaceutical		511		–

The amount due from Nanhai New & Specific Pharmaceutical as at 30 June 2009 amounted to $397,000 (31 December 2008: Nil).

(b) Key management personnel remuneration

Remuneration for key management personnel is as follows:

Short-term employee benefits Post-employment benefits	Six months ended 30 June 2009 2008 $’000 $’000 1,736 1,359 24 38 1,760 1,397	Six months ended 30 June 2009 2008 $’000 $’000 1,736 1,359 24 38 1,760 1,397
		1,397

9. FIXED ASSETS AND CONSTRUCTION IN PROGRESS

(a) Fixed assets

Note Net book value, at 1 January Transfer from construction in progress Additions through acquisition of subsidiaries 19 Other additions Reversal of impairment losses Depreciation for the period/year Disposals Exchange adjustments Net book value, at 30 June 2009/31 December 2008	30 June 2009 31 December 2008 (audited) $’000 $’000 170,233 175,129 30,479 – 124,498 – 6,968 4,050 1,041 – (13,408) (19,563) (30) (52) 1,473 10,669 321,254 170,233	30 June 2009 31 December 2008 (audited) $’000 $’000 170,233 175,129 30,479 – 124,498 – 6,968 4,050 1,041 – (13,408) (19,563) (30) (52) 1,473 10,669 321,254 170,233
		170,233

– 112 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Construction in progress

Note At 1 January Additions through acquisition of subsidiaries 19 Other additions Transfer to fixed assets Exchange adjustments At 30 June 2009/31 December 2008 INTANGIBLE ASSETS Note Net book value, at 1 January Additions through acquisition of subsidiaries 19 Amortization for the period/year Impairment loss for the period/year Exchange adjustments Net book value, at 30 June 2009/31 December 2008	30 June 2009 31 December 2008 (audited) $’000 $’000 1,364 144 67,282 – 8,924 1,211 (30,479) – 827 9 47,918 1,364 30 June 2009 31 December 2008 (audited) $’000 $’000 78,706 90,701 79,049 – (11,022) (15,654) – (1,811) 1,048 5,470 147,781 78,706	30 June 2009 31 December 2008 (audited) $’000 $’000 1,364 144 67,282 – 8,924 1,211 (30,479) – 827 9 47,918 1,364 30 June 2009 31 December 2008 (audited) $’000 $’000 78,706 90,701 79,049 – (11,022) (15,654) – (1,811) 1,048 5,470 147,781 78,706
		78,706

10. INTANGIBLE ASSETS

The additions to intangible assets during the period comprised trademark and distribution network with useful lives of 10 years.

11. GOODWILL

Note At 1 January Additions through acquisition of subsidiaries 19 Exchange adjustments At 30 June 2009/31 December 2008	30 June 2009 $’000 141,037 41,941 421 183,399	31 December 2008 (audited) $’000 132,738 – 8,299
		141,037

Goodwill relates to the premium paid on the acquisition and reflects the growth potential of the subsidiaries in the field of pharmaceutical products in the PRC.

– 113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. TRADE AND OTHER RECEIVABLES

Included in trade and other receivables are trade and bills receivables with the following ageing analysis:

Within 3 months of invoice date 3 to 6 months after invoice date More than 6 months after invoice date Trade and bills receivables Less: allowance for doubtful debts Deposits, prepayments and other receivables	At 30 June 2009 At 31 December 2008 (audited) $’000 $’000 128,878 41,651 17,597 6,715 13,513 4,599 159,988 52,965 (8,278) (2,647) 20,223 18,172 171,933 68,490	At 30 June 2009 At 31 December 2008 (audited) $’000 $’000 128,878 41,651 17,597 6,715 13,513 4,599 159,988 52,965 (8,278) (2,647) 20,223 18,172 171,933 68,490
	159,988 (8,278) 20,223	52,965 (2,647 18,172
	171,933

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.

13. CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS

Deposits with banks Cash at bank and in hand Cash and cash equivalents in the consolidated balance sheet Less: deposits with bank matured beyond three months when placed Cash and cash equivalents in the condensed consolidated cash flow statement	At 30 June 2009 $’000 20,440 134,233	At 31 December 2008 (audited) $’000 15,009 140,713 155,722 (7,958) 147,764
	154,673 (7,949)	155,722 (7,958
	146,724

At 30 June 2009, restricted deposits of $1,527,000 (31 December 2008: $1,529,000) were placed with the People’s Court in relation to a claim lodged against a former customer.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. TRADE AND OTHER PAYABLES

Included in trade and other payables are trade creditors with the following ageing analysis:

Due within 1 month or on demand Trade creditors Other creditors and accrued charges Advances received from customers	At 30 June 2009 At 31 December 2008 (audited) $’000 $’000 53,413 20,150 53,413 20,150 73,310 78,143 6,168 4,046 132,891 102,339	At 30 June 2009 At 31 December 2008 (audited) $’000 $’000 53,413 20,150 53,413 20,150 73,310 78,143 6,168 4,046 132,891 102,339
		20,150 78,143 4,046
		102,339

15. BANK LOANS

At 30 June 2009, the Group’s bank loans are repayable and secured as follows:

Within 1 year or on demand Unsecured bank loans Secured bank loans – secured by fixed assets	At 30 June 2009 $’000 106,520	At 31 December 2008 (audited) $’000 18,190
	18,170 88,350	18,190 –
	106,520	18,190

The bank loans at 30 June 2009 are interest bearing at rates ranging from 5.31 to 8.715% per annum (31 December 2008: 7.84% per annum) and are repayable within one year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. CAPITAL, RESERVES AND DIVIDENDS

(a) Share capital

At 30 June 2009 Number of shares Nominal value ’000 $’000 3,000,000 300,000	At 30 June 2009 Number of shares Nominal value ’000 $’000 3,000,000 300,000	At 31 December 2008 Number of shares Nominal value (audited) (audited) ’000 $’000 3,000,000 300,000	At 31 December 2008 Number of shares Nominal value (audited) (audited) ’000 $’000 3,000,000 300,000

830,974 564,103 233,334	83,097 56,410 23,334	830,974 – –	83,097 – –
1,628,411	162,841	830,974	83,097

(i) On 6 February 2009, the Company allotted and issued 564,102,563 ordinary shares of $0.10 each at the issue price of $0.39 per share to settle the consideration for the acquisition of the entire equity interest in a subsidiary. Details of the acquisition are set out in note 19.
(ii) On 6 February 2009, the Company allotted and issued 233,334,000 ordinary shares of $0.10 each by way of share placement at $0.30 per share for cash.

(b) Dividends

(i) Dividends payable to equity shareholders attributable to the interim period

The directors do not recommend the payment of any interim dividend for the six months ended 30 June 2009 (six months ended 30 June 2008: Nil).

(ii) Dividends payable to equity shareholders attributable to the previous financial year, approved and paid during the interim period

	Six months ended	Six months ended
	30 June
	2009	2008
	$’000	$’000
Final dividend in respect of the previous financial year
approved and paid during the following interim period, of
HK0.7 cent per ordinary share (six months ended 30 June
2008: HK0.5 cent per ordinary share)	11,399	4,155

– 116 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. 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 at the date of grant and the average closing price of the shares on the Stock Exchange 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.

A total of 8,000,000 share options were granted on 30 July 2002. No benefit cost or obligation was recognized at the date of grant or exercise for these share options as the Group took 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 (who resigned in January and February 2009) was granted 828,000 share options under the Company’s share option scheme to subscribe for 828,000 ordinary shares. Pursuant to the amendments made to the share option scheme adopted on 22 May 2002, 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 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.

No share options were outstanding as at 30 June 2009.

18. CAPITAL COMMITMENTS OUTSTANDING NOT PROVIDED FOR IN THE INTERIM FINANCIAL REPORT

			At		At
		30	June	31	December
			2009		2008
					(audited)
			$’000		$’000
Contracted	for		5,211		291

– 117 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. ACQUISITION OF SUBSIDIARIES

On 6 February 2009, the Company acquired the entire equity interest in Smartpoint. Smartpoint is an investment holding company and its principal assets are its 100% equity interests in each of Guangdong Medi-World and Luya. Each of Guangdong Medi-World and Luya is principally engaged in the manufacture and sale of pharmaceutical products in the PRC.

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

Pre-acquisition carrying amounts $’000 Fixed assets 81,517 Construction in progress 67,282 Intangible assets 3,972 Other financial assets 1,458 Deferred tax assets 5,972 Inventories 23,123 Trade and other receivables 93,534 Tax recoverable 2,924 Cash and cash equivalents 22,749 Trade and other payables (30,299) Bank loans (87,105) Deferred income on government grants (13,561) Deferred tax liabilities (1,346) Net identifiable assets 170,220 Add: Goodwill on acquisition Consideration (note (a)) Satisfied by: Issue of consideration shares (note (b)) Cash	Fair value adjustments $’000 42,981 – 75,077 – – 4,966 – – – – – – (29,212) 93,812	Recognized values on acquisition $’000 124,498 67,282 79,049 1,458 5,972 28,089 93,534 2,924 22,749 (30,299) (87,105) (13,561) (30,558) 264,032 41,941 305,973 220,000 85,973 305,973
		41,941

Notes:

(a) The consideration includes legal and professional fees of $5,973,000.
(b) The fair value of the shares issued was based on the published share price (6 February 2009).
(c) The acquired subsidiaries contributed turnover of $112,221,000 and net profit of $18,622,000 to the Group during the period. If the acquisition had occurred on 1 January 2009, management estimates that the consolidated turnover would have been $335,366,000 and the consolidated net profit for the period would have been $47,993,000. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Pursuant to the sale and purchase agreement dated 29 November 2008 between the Group and the vendor, the consideration for acquisition of Smartpoint is subject to downward adjustment, whereby the vendor shall return the Company a cash amount (the “Return Amount”) if the audited consolidated net profit after tax generated by Smartpoint and its subsidiaries (“Smartpoint Group”) for the twelve months ended 30 June 2009 is less than RMB45,000,000 (approximately $51,102,000) (the “Benchmark Figure”). The Return Amount is equivalent to six times of the shortfall in the audited consolidated net profit after tax generated by Smartpoint Group for the twelve months ended 30 June 2009 as against the Benchmark Figure.

The above consideration does not include the downward adjustment as the directors estimated that the audited consolidated net profit after tax generated by Smartpoint Group for the twelve months ended 30 June 2009 will exceed the Benchmark Figure.

20. NON-ADJUSTING POST BALANCE SHEET EVENT

On 2 July 2009, Guangdong Medi-World entered into a share purchase agreement with the shareholders of Foshan Nanhai Pharmaceutical Group Co. Ltd. (“Nanhai Pharmaceutical Group”) to acquire the entire equity interest of Nanhai Pharmaceutical for a cash consideration of RMB4,000,000 (equivalent to approximately $4,537,000). Nanhai Pharmaceutical is engaged in the business of sales of traditional Chinese medicines. This transaction has not yet completed at the date of this report. The Group has commenced the process of assessing the financial impact of the above acquisition but is not yet in a position to determine the potential financial impact of the above acquisition on the Group’s results of operations in future periods and financial position at future date.

The seller, Nanhai Pharmaceutical Group is a company controlled by Mr. YANG Bin and Mr. XU Tiefeng, the directors of the Company and the above acquisition constitutes a discloseable and connected transaction under the Listing Rules. Further details of the acquisition are disclosed in the Company’s announcement dated 2 July 2009.

21. COMPARATIVE FIGURES

As a result of the application of HKAS 1 (revised 2007), Presentation of financial statements, certain comparative figures have been adjusted to conform to current period’s presentation and to provide comparative amounts in respect of items disclosed for the first time in 2009. Further details of these developments are disclosed in note 2.”

4. INDEBTEDNESS

At the close of business on 31 January 2010, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding bank and other loans of approximately HK$66,118,000. As at 31 January 2010, bank loans amounting to approximately HK$59,663,000 were secured by the Enlarged Group’s interests in leasehold land, buildings, construction in progress and machinery with an aggregate carrying value of approximately HK$91,540,000 and personal guarantee provided by Mr. Yang and Mr. Xu, both are executive Directors. Bank loan amounting to approximately HK$6,376,000 was secured by interests in leasehold land of Foshan Winteam Pharmaceutical Co., Ltd., a company in which Mr. Yang and Mr. Xu each holds 50% equity interest. The remaining other loans of HK$79,000 were not secured.

Save as disclosed above, at the close of business on 31 January 2010, the Enlarged Group did not have any other 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Directors confirmed that no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 January 2010 up to the Latest Practicable Date.

5. MATERIAL CHANGE

As disclosed in the announcement and circular of the Company dated 16 December 2008 and 31 December 2008 respectively, the Company entered into an agreement (as amended by a supplemental agreement dated 16 December 2008) with Sureplan, Mr. Yang, Mr. Xu and Mr. WU Chiu Kong for the acquisition of the entire issued share capital of Smartpoint, together with its two operating subsidiaries, Guangdong Medi-World and Luya, at a consideration of HK$300 million. The acquisition was completed on 6 February 2009.

As disclosed in the announcement of the Company dated 2 July 2009, Guangdong Medi-World entered into an agreement with (Foshan Nanhai Pharmaceutical Group Co. Ltd.) for the acquisition of the entire equity interest of (Foshan Nanhai Pharmaceutical Group Medicinal Material Co. Ltd.) at a consideration of HK$4 million. The acquisition was completed on 6 November 2009.

On 20 January 2010, DZH and FLX entered into a land use right transfer agreement with an independent third party pursuant to which DZH and FLX acquired the land use right in relation to a piece of industrial land located at (Gao Ming District, Foshan City*) at a consideration of RMB17,500,000 (equivalent to approximately HK$19.9 million) for the purpose of setting up a modernized traditional Chinese medicinal materials extraction and preliminary treatment center ( ).

On 11 February 2010, the Purchaser entered into an industrial factory transfer agreement with an independent third party pursuant to which the Purchaser agreed to sell the industrial land, factory and the ancillary facilities located at (Shunde District, Foshan City*) for a consideration of RMB41,000,000 (equivalent to approximately HK$46.5 million).

As further disclosed in the announcement of the Company dated 2 March 2010, the Group is expected to record a significant increase in profit for the financial year ended 31 December 2009 as compared to that of the financial year ended 31 December 2008. The significant improvement of the financial performance of the Group for the financial year ended 31 December 2009 was mainly attributable to the profit contribution from Smartpoint.

Save as disclosed above, the Directors confirm that there had been no material change in the financial or trading position or outlook of the Group since 31 December 2008, the date to which the latest published audited consolidated financial statements of the Company were made up, and up to and including the Latest Practicable Date.

6. WORKING CAPITAL

The Directors, after due and careful consideration, 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 will have sufficient working capital for at least twelve months from the date of this circular.

– 120 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

1. ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

The following is the text of a report, prepared for the purpose of incorporation in this circular, as received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

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

11 March 2010

The Directors Winteam Pharmaceutical Group Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Foshan City An Ning Company Limited (the “Target Company” or the “Company”) including the income statements, the statements of comprehensive income, the statements of changes in equity and the cash flow statements of the Target Company, for each of the years ended 31 December 2007, 2008 and 2009 (the “Relevant Period”), and the balance sheets of the Target Company as at 31 December 2007, 2008 and 2009, together with the notes thereto (the “Financial Information”), for inclusion in the circular of Winteam Pharmaceutical Group Limited (“Winteam”) dated 11 March 2010 (the “Circular”).

The Target Company was incorporated in Foshan City, Guangdong Province, on 13 October 1998 as a company with limited liability under the Company Law of the People’s Republic of China (the “PRC”).

The Target Company has adopted 31 December as its financial year end date. The statutory financial statements of the Target Company for the Relevant Period were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises established in the PRC and were audited by Foshan Zhong Lian Certified Public Accountants Company Limited (Registered in the PRC).

The directors of the Target Company have prepared the financial statements of the Target Company for the Relevant Period in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). The Underlying Financial Statements for each of the years ended 31 December 2007, 2008 and 2009 were audited by KPMG Huazhen in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

– 121 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

The Financial Information has been prepared by the directors of the Target Company based on the Underlying Financial Statements, with no adjustments thereon and in accordance with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

The directors of the Target Company are responsible for the preparation and true and fair presentation of the Financial Information in accordance with HKFRSs issued by the HKICPA, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Listing Rules. 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 form an opinion on the Financial Information based on our procedures.

BASIS OF OPINION

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have examined the Underlying Financial Statements and have carried out such appropriate procedures as we considered necessary in accordance with Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA.

We have not audited any financial statements of the Target Company in respect of any period subsequent to 31 December 2009.

OPINION

In our opinion, for the purpose of this report, the Financial Information, in accordance with the accounting policies set out in Section B below, gives a true and fair view of the Target Company’s results and cash flows for the Relevant Period, and the state of affairs of the Target Company as at 31 December 2007, 2008, and 2009.

– 122 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

A FINANCIAL INFORMATION

Income Statements

for the three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

Note Share of profit of an associate 5 Other revenue Profit before taxation Income tax 2 Profit for the year	2007 $’000 12,077 4 12,081 – 12,081	2008 $’000 22,333 – 22,333 – 22,333	2009 $’000 19,858 21
			19,879 –
			19,879

The accompanying notes in Section B form part of the Financial Information.

– 123 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Statements of comprehensive income for the three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

Note Profit for the year Other comprehensive income for the year Exchange differences on translation of the Company’s Financial Information Total comprehensive income for the year	2007 $’000 12,081 5,273 17,354	2008 $’000 22,333 4,974 27,307	2009 $’000 19,879 (102) 19,777

The accompanying notes in Section B form part of the Financial Information.

– 124 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Balance sheets for the three years ended 31 December 2007, 2008 and 2009 (Expressed in Hong Kong dollars)

Note Non-current assets Interest in an associate 5 Current assets Cash and cash equivalents NET ASSETS CAPITAL AND RESERVES 6 Paid-in capital Reserves TOTAL EQUITY	2007 $’000 76,722 ------------ 4 ------------ 76,726 21,845 54,881 76,726	2008 $’000 95,428 ------------ 4 ------------ 95,432 21,845 73,587 95,432	2009 $’000 90,163 ------------ 25 ------------ 90,188

			21,845 68,343
			90,188

The accompanying notes in Section B form part of the Financial Information.

– 125 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Statements of changes in equity for the three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

Paid-in capital $’000 21,845 – – – 21,845	Reserve fund $’000 4,412 – 1,208 – 5,620	Retained earnings $’000 39,704 12,081 (1,208) (8,129) 42,448	Exchange reserve $’000 1,540 5,273 – – 6,813	Total $’000 67,501 17,354 – (8,129) 76,726 76,726 27,307 – (8,601) 95,432 95,432 19,777 – (25,021) 90,188
21,845 – – –	5,620 – 2,233 –	42,448 22,333 (2,233) (8,601)	6,813 4,974 – –	76,726 27,307 – (8,601
21,845	7,853	53,947	11,787
21,845 – – –	7,853 – 1,988 –	53,947 19,879 (1,988) (25,021)	11,787 (102) – –	95,432 19,777 – (25,021
21,845	9,841	46,817	11,685

The accompanying notes in Section B form part of the Financial Information.

– 126 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Cash flow statements

for the three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

2007 $’000 12,081 (12,077) (4)	2008 $’000 22,333 (22,333) –	2009 $’000 19,879 (19,858) (21) – – – ------------ 25,021 21 25,042 ------------ (25,021) (25,021) ------------ ----------------------- 21 4 – 25
– (39) (39) ------------ 8,129 4 8,133 ------------ (8,129) (8,129) ------------ ----------------------- (35) 41 (2)	– – – ------------ 8,601 – 8,601 ------------ (8,601) (8,601) ------------ ----------------------- – 4 –	– –
		– ------------ 25,021 21
		25,042 ------------ (25,021
		(25,021 ------------ ----------------------- 21 4 –
4	4

The accompanying notes in Section B form part of the Financial Information.

– 127 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

B NOTES TO FINANCIAL INFORMATION

1 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards, which collective term includes Hong Kong Accounting Standards and related interpretations, promulgated by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). Further details of the significant accounting policies adopted are set out in the remainder of this Section B.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Financial Information, the Company has adopted all these new and revised HKFRSs to the Relevant Period, except for any new standards or interpretations that are not yet effective for the accounting period ended 31 December 2009.

The Financial Information also complies with 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 (the “Stock Exchange”).

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

(b) Basis of preparation and presentation

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

The preparation of Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors 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 recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

(c) Associate

An associate is an entity in which the Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the Financial Information under the equity method. Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

(d) Cash and cash equivalents

– 128 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

(e) Income tax

Income tax for the years comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

(f) Translation of foreign currencies

For the purpose of presenting the Financial Information, the Company adopted Hong Kong dollars (“HKD”) as its presentation currency. The functional currencies of the Company is Renminbi (“RMB”).

Foreign currency transactions during the year are translated into the functional currency of the Company 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 Company at the foreign exchange rates ruling at the balance sheet date. Exchange gains and loss are recognised in profit or loss.

The results of operations are translated into the presentation currency at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into the presentation currency at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in other comprehensive income and accumulated separately in equity in the exchange reserve.

(g) Related parties

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

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

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.

2 INCOME TAX

No provision for income tax has been made in the Financial Information as dividend income received from associates in the People’s Republic of China (the “PRC”) is exempted for income tax.

– 129 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

3 DIRECTORS’ REMUNERATION

	2007	2008	2009
	$’000	$’000	$’000
Fees	–	–	–
Salaries, allowances and benefits in kind	–	–	–
Discretionary bonuses	–	–	–
Retirement scheme contributions	–	–	–

4 RELATED PARTY TRANSACTIONS

Dividends received from an associate Dividends paid to equity holders INTEREST IN AN ASSOCIATE Unlisted shares, at cost	2007 $’000 8,129 (8,129) 2007 $’000 21,845	2008 $’000 8,601 (8,601) 2008 $’000 21,845	2009 $’000 25,021

			(25,021)

			2009 $’000 21,845

5 INTEREST IN AN ASSOCIATE

The movements of the Company’s share of an associate’s net assets are as follows:

Opening balance at 1 January Share of profit Dividends received Exchange adjustments Share of net assets at 31 December	2007 $’000 67,501 12,077 (8,129) 5,273 76,722	2008 $’000 76,722 22,333 (8,601) 4,974 95,428	2009 $’000 95,428 19,858 (25,021) (102)
			90,163

The particulars of the associate are as follows:

		Place of
	From of	incorporation
Name of	business	and	Paid-in	Held by the		Principal
associate	structure	operation	capital	Company		activity
Foshan Dezhong	Incorporated	the PRC	USD		49%	Manufacturing
Pharmaceutical			5,760,000			and sale of
Company						pharmaceutical
Limited						products

– 130 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Summary financial information of the associate

2007 100 per cent Company’s effective interest 2008 100 per cent Company’s effective interest 2009 100 per cent Company’s effective interest	Assets $’000 219,154 107,385 253,181 124,059 259,439 127,125	Liabilities $’000 62,578 30,663 58,430 28,631 75,432 36,962	Equity $’000 156,576 76,722 194,751 95,428 184,007 90,163	Revenue $’000 205,329 100,611 251,366 123,170 223,470 109,500	Profit $’000 24,646 12,077

					45,578 22,333

					40,527 19,858

6 CAPITAL AND RESERVES

(a) Paid-in capital

		2007	2008	2009
		$’000	$’000	$’000
Paid-in	capital	21,845	21,845	21,845

The Company was incorporated on 13 October 1998 with an authorised and paid-in capital of RMB 23,353,400.

(b) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the Company’s Financial Information from functional currency to presentation currency. The reserve is dealt with in accordance with the accounting policy set out in note 1(f).

(c) Reserve fund

In accordance with the accounting principles and financial regulations applicable in the PRC, the Company is required to transfer part of its profit after taxation to the reserve fund. The transfer amounts are in accordance with the articles of association and the transfers are made before profit distribution to the equity holders of the Company.

– 131 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

7 IMMEDIATE AND ULTIMATE CONTROLLING PARTIES

At 31 December 2009, the Company was owned by a group of individuals, each of whom held no more than 1% equity interest in the Company.

8 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ACCOUNTING PERIOD ENDED 31 DECEMBER 2009

Up to the date of issue of the Financial Information, the HKICPA has issued certain amendments, new standards and interpretations which are not yet effective for the accounting period ended 31 December 2009 and which have not been adopted in the Financial Information.

The Company 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 Company’s results of operations and financial position.

C SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company in respect of any period subsequent to 31 December 2009.

Yours faithfully

KPMG

Certified Public Accountants Hong Kong

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

2. MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET COMPANY

Review

The Target Company is an investment holding company established in the PRC and holds a 49% equity interest in DZH. Except for this 49% equity interest in DZH, the Target Company has no other material assets and liabilities. The Target Company has not engaged in any business since its establishment in 1998. Revenue and profit of the Target Company are mainly attributable to the share of profit from DZH. Profits before and after tax for each of the three years ended 31 December 2009 are approximately HK$12.1 million, HK$22.3 million and HK$19.9 million respectively. The Target Group did not record any expenses for each of the three years ended 31 December 2007, 2008 and 2009.

Liquidity and financial information

As at 31 December 2007, 2008 and 2009, the net assets of the Target Company were approximately HK$76.7 million, HK$95.4 million and HK$90.2 million respectively. As at 31 December 2007, 2008 and 2009, cash and cash equivalent of the Target Company were HK$4,000, HK$4,000 and HK$25,000 respectively.

The Target Company did not have any borrowings as at 31 December 2007, 2008 and 2009. Thus, the gearing ratios (total borrowings over net assets) of the Target Company were nil as at each of the balance sheet dates.

Foreign exchange exposure

As the Target Company did not have any business operation, the Target Company has little foreign currency risk exposure. No hedging has been carried out by the Target Company.

Contingent liabilities

As at 31 December 2007, 2008 and 2009, the Target Company did not have any significant contingent liabilities.

Charge on assets

No assets of the Target Company were charged as at 31 December 2007, 2008 and 2009.

Employee

As at 31 December 2007, 2008 and 2009, the Target Company did not employ any staff.

Material acquisition and disposal of subsidiaries and associated companies

For the years ended 31 December 2007, 2008 and 2009, there was no material acquisition or disposal of any subsidiary and associated company by the Target Company.

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1. ACCOUNTANTS’ REPORT OF DZH

The following is the text of a report, prepared for the purpose of incorporation in this circular, as received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

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

11 March 2010

The Directors Winteam Pharmaceutical Group Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Foshan Dezhong Pharmaceutical Company Limited (“DZH” or the “Company”) and its subsidiary (hereinafter collectively referred to as the “Group”) including the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of the Group, for each of the years ended 31 December 2007, 2008 and 2009 (the “Relevant Period”), and the consolidated balance sheets of the Group as at 31 December 2007, 2008 and 2009, together with the notes thereto (the “Financial Information”), for inclusion in the circular of Winteam Pharmaceutical Group Limited (“Winteam”) dated 11 March 2010 (the “Circular”).

DZH was incorporated in Foshan City, Guangdong Province, on 1 November 1998 as a company with limited liability under the Company Law of the People’s Republic of China (the “PRC”).

DZH has adopted 31 December as its financial year end date. The statutory financial statements of DZH for the Relevant Period were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises established in the PRC and were audited by Foshan Zhong Lian Certified Public Accountants Company Limited (Registered in the PRC).

The directors of DZH have prepared the consolidated financial statements of the Group for the Relevant Period in accordance with the Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). The Underlying Financial Statements for each of the years ended 31 December 2007, 2008 and 2009 were audited by KPMG Huazhen in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

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FINANCIAL INFORMATION OF DZH

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The Financial Information has been prepared by the directors of DZH based on the Underlying Financial Statements, with no adjustments thereon and in accordance with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

The directors of DZH are responsible for the preparation and true and fair presentation of the Financial Information in accordance with HKFRSs issued by the HKICPA, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Listing Rules. 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 form an opinion on the Financial Information based on our procedures.

BASIS OF OPINION

We have not audited any financial statements of the Company, its subsidiary or the Group in respect of any period subsequent to 31 December 2009.

OPINION

In our opinion, for the purpose of this report, the Financial Information, in accordance with the accounting policies set out in Section B below, gives a true and fair view of the Group’s consolidated results and cash flows for the Relevant Period, and the state of affairs of the Group as at 31 December 2007, 2008 and 2009.

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FINANCIAL INFORMATION OF DZH

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A CONSOLIDATED FINANCIAL INFORMATION

Consolidated income statements

for the three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

2007 $’000 205,329 (114,105)	2008 $’000 251,366 (134,419)	2009 $’000 223,470 (106,869) 116,601 3,554 (92) (54,106) (17,967) 47,990 (7,463) 40,527
91,224 1,508 174 (40,358) (16,594) 35,954 (11,308)	116,947 2,312 (44) (47,888) (17,407) 53,920 (8,342)	116,601 3,554 (92 (54,106 (17,967
		47,990 (7,463
24,646	45,578

The accompanying notes in Section B form part of the Financial Information.

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Consolidated statements of comprehensive income for the three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

Note Profit for the year Other comprehensive income for the year Exchange differences on translation of the Group’s Financial Information Total comprehensive income	2007 $’000 24,646 10,763 35,409	2008 $’000 45,578 10,150 55,728	2009 $’000 40,527 (207) 40,320

The accompanying notes in Section B form part of the Financial Information.

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Consolidated balance sheets at 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

2007 $’000 62,956 9,136 213	2008 $’000 58,122 9,470 134	2009 $’000 50,934 9,588 118
72,305 ------------ 40,935 61,253 – 1,498 – 43,163 146,849 ------------ 57,771 4,807	67,726 ------------ 48,488 55,119 1,069 1,529 7,958 71,292 185,455 ------------ 58,430 –	60,640 ------------ 48,539 18,689 – – 22,033 108,656
		197,917 ------------ 71,016 3,534
62,578 ------------ ----------------------- 84,271 ------------ ----------------------- 156,576	58,430 ------------ ----------------------- 127,025 ------------ ----------------------- 194,751	74,550 ------------ ----------------------- 123,367 ------------ ----------------------- 184,007

44,582 111,994	44,582 150,169	44,582 139,425
156,576	194,751	184,007

The accompanying notes in Section B form part of the Financial Information.

– 138 –

APPENDIX III

FINANCIAL INFORMATION OF DZH

Consolidated statements of changes in equity for the three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

Paid-in capital $’000 44,582 – – – 44,582	Reserve fund $’000 52,704 – 10,700 – 63,404	Retained earnings $’000 37,328 24,646 (10,700) (16,590) 34,684	Exchange reserve $’000 3,143 10,763 – – 13,906	Total $’000 137,757 35,409 – (16,590) 156,576 156,576 55,728 – (17,553) 194,751 194,751 40,320 (51,064) 184,007
44,582 – – –	63,404 – 17,779 –	34,684 45,578 (17,779) (17,553)	13,906 10,150 – –	156,576 55,728 – (17,553
44,582	81,183	44,930	24,056
44,582 – –	81,183 – –	44,930 40,527 (51,064)	24,056 (207) –	194,751 40,320 (51,064
44,582	81,183	34,393	23,849

The accompanying notes in Section B form part of the Financial Information.

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Consolidated cash flow statements for three years ended 31 December 2007, 2008 and 2009

(Expressed in Hong Kong dollars)

2007 $’000 35,954 10,736 216 784 (526) –	2008 $’000 53,920 10,819 235 (9) (908) 44	2009 $’000 47,990 10,730 247 (118) (1,152) 546 58,243 (51) 36,430 1,529 12,586 108,737 (2,843) 105,894 ------------ (4,615) (14,075) 1,152 (17,538) ------------
47,164 (6,095) (28,329) (105) (694) 11,941 (10,267) 1,674 ------------ (1,342) – 526	64,101 (7,553) 6,134 (31) 659 63,310 (14,140) 49,170 ------------ (2,204) (7,958) 908	58,243 (51 36,430 1,529 12,586
		108,737 (2,843
		105,894 ------------ (4,615 (14,075 1,152
(816) ------------	(9,254) ------------

The accompanying notes in Section B form part of the Financial Information.

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Note Financing activities Dividends paid to equity holders of the Company Net cash used in financing activities Net (decrease)/increase 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 15	2007 $’000 (16,590) (16,590) ------------ ----------------------- (15,732) 53,478 5,417 43,163	2008 $’000 (17,553) (17,553) ------------ ----------------------- 22,363 43,163 5,766 71,292	2009 $’000 (46,053) (46,053) ------------ ----------------------- 42,303 71,292 (4,939) 108,656

The accompanying notes in Section B form part of the Financial Information.

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B NOTES TO CONSOLIDATED FINANCIAL INFORMATION

1 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards, which collective term includes Hong Kong Accounting Standards, HKFRSs and related interpretations, promulgated by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). Further details of the significant accounting policies adopted are set out in the remainder of this Section B.

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

(b) Basis of preparation and presentation

The consolidated Financial Information comprises the Company and its subsidiary.

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

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are discussed in note 21.

(c) Subsidiary

A subsidiary is an entity 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.

(d) 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(f)).

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APPENDIX III

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 recognised in profit or loss on the date of retirement or disposal.

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	10	–	15	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.

(e) Leased assets

(i) Classification of assets leased to the Group

(ii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are 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 amortised on a straight-line basis over the period of the lease term.

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(f) Impairment of assets

(i) Impairment of trade and other receivables

Trade and other receivables 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; and
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

If any such evidence exists, 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 amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the 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 recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

Impairment losses in respect of trade and other receivables, whose recovery is considered doubtful but not remote, are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade and other 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 recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

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

If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell 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

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FINANCIAL INFORMATION OF DZH

APPENDIX III

inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.

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. A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(g) Inventories

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

(h) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 1(f)), 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(f)).

(i) Trade and other payables

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

(j) Cash and cash equivalents

(k) Employees benefits

Short term employee benefits and contributions to defined contribution retirement plans

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APPENDIX III

(l) Income tax

Income tax comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary 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 utilised.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

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APPENDIX III

(m) Provisions and contingent liabilities

Provisions are recognised 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.

(n) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. 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 recognised in profit or loss as follows:

(i) Sale of goods

Revenue is recognised when goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(ii) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

(iii) Interest income

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

(iv) Government grants

Government grants are recognised 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 recognised 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 deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

(o) Research and development cost

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible, the Group has sufficient resources and the intention to complete development, and the Group has the ability to measure reliably the expenditure attributable to the intangible asset during its development.

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APPENDIX III

(p) Translation of foreign currencies

For the purpose of presenting the consolidated Financial Information, the Group adopted Hong Kong dollars (“HKD”) as its presentation currency. The functional currencies of the Company is Renminbi (“RMB”).

Foreign currency transactions during the year are translated into the functional currency of the Group 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 Group at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss.

(q) Related parties

For the purposes of these Financial Information, 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
(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.

(r) Segment reporting

Operating segments, and the amounts of each segment item reported in the Financial Information, are identified from the Financial Information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

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 are located in and turnover derived from the PRC. Accordingly, no analysis of the segment information is presented.

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2 TURNOVER

The principal activities of the Group are manufacturing 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 and is analysed as follows:

Sales of pharmaceutical products – Pills and tablets – Paste, granules and others	2007 $’000 154,433 50,896 205,329	2008 $’000 184,249 67,117 251,366	2009 $’000 169,880 63,590
			233,470

3 OTHER REVENUE

Government grants Interest income Rental income	2007 $’000 982 526 – 1,508	2008 $’000 1,210 908 194 2,312	2009 $’000 2,283 1,152 119
			3,554

4 PROFIT BEFORE TAXATION

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

(a) Staff costs: Salaries, wages and other benefits Contributions to defined contribution retirement plans (b) Other items: Auditors’ remuneration Depreciation and amortisation – lease prepayments – other assets Impairment losses – trade receivables – Research and development costs Cost of inventories (note 13(b))	2007 $’000 27,620 1,123 28,743 20 216 10,736 784 827 114,105	2008 $’000 33,233 1,269 34,502 49 235 10,819 (9) 457 134,419	2009 $’000 23,040 2,449
			25,489

			66 247 10,730 (118) 2,376 106,869

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5 INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

(a) Taxation in the consolidated income statement represents:

Current tax Provision for the year Deferred tax Origination and reversal of temporary differences	2007 $’000 12,181 (873) 11,308	2008 $’000 8,251 91 8,342	2009 $’000 7,446 17
			7,463

Pursuant to the income tax rules and regulations of the PRC, the applicable PRC corporate income tax of the Company for the year ended 31 December 2007 was 27%.

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 the Company changed from 27% to 25% with effect from 1 January 2008. The impact of the change in tax rate to 25% on deferred tax assets has been reflected in the consolidated Financial Information of the Group for the year ended 31 December 2007.

Pursuant to documents issued jointly by Guangdong Science and Technology Department, Guangdong Provincial Finance Bureau, Guangdong Provincial Office of the State Administration of Taxation and Guangdong Provincial Local Taxation Bureau, the Company was recognised as an advanced and new technology enterprise to enjoy a preferential corporate income tax rate of 15% for a three-year period with effect from 1 January 2008. The impact of the change in tax rate to 15% on deferred tax assets has been reflected in the consolidated Financial Information of the Group for the year ended 31 December 2008.

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

2007 $’000 35,954	2008 $’000 53,920	2009 $’000 47,990

9,708 1,583 – 17 –	13,480 578 (414) 90 (5,392)	11,998 264 – – (4,799)
11,308	8,342	7,463

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APPENDIX III

FINANCIAL INFORMATION OF DZH

6 DIRECTORS’ REMUNERATION

Executive directors Liang Yanru Cheng Zhiyong Jiang Kai Executive directors Liang Yanru Cheng Zhiyong Jiang Kai Executive directors Yang Xionghui Cheng Zhiyong Jiang Kai	Directors’ fees $’000 – – – – Directors’ fees $’000 – – – – Directors’ fees $’000 – – – –	2007 Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions $’000 $’000 $’000 82 760 16 66 608 16 66 608 15 214 1,976 47 2008 Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions $’000 $’000 $’000 90 951 6 72 761 19 72 761 19 234 2,473 44 2009 Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions $’000 $’000 $’000 264 170 25 306 113 32 306 57 32 876 340 89	Total $’000 858 690 689
			2,237

			Total $’000 1,047 852 852
			2,751

			Total $’000 459 451 395
			1,305

7 INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, three (2008: three; 2007: three) are directors whose remuneration is disclosed in the above. Details of the emoluments of the remaining two (2007: two) individuals were as follows:

Salaries and other emoluments Retirement scheme contributions	2007 $’000 401 28 429	2008 $’000 512 37 549	2009 $’000 285 42
			327

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APPENDIX III

The emoluments of the two (2008: two; 2007: two) individuals with highest emoluments are within the following band:

			2007	2008	2009
			Number of	Number of	Number of
			individuals	individuals	individuals
$
Nil	–	1,000,000	2	2	2

8 DIVIDENDS

(a) Dividends payable to equity holders of the Group attributable to the year

								2007	2008	2009
								$’000	$’000	$’000
Final	dividend	proposed	after	the	balance	sheet	date	17,553	51,064	–

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

(b) Dividends payable to equity holders of the Group attributable to the previous financial year, approved during the year

	2007	2008	2009
	$’000	$’000	$’000
Final dividend in respect of the previous financial
year, approved during the year	16,590	17,553	51,064

9 MATERIAL RELATED PARTY TRANSACTIONS

(a) Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Group’s directors as disclosed in note 6, is as follows:

			2007	2008	2009
			$’000	$’000	$’000
Short-term	employee	benefits	2,337	2,751	1,305

Total remuneration is included in “staff costs” (see note 4(a)).

10 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 are located in and turnover derived from the PRC. Accordingly, no analysis of the segment information is presented.

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11 FIXED ASSETS

Buildings $’000 24,486 – 1,837	Plant, machinery and equipment $’000 77,668 – 5,827	Motor vehicles $’000 1,406 263 116	Electricity equipment $’000 22,665 1,079 1,745	Property, plant and equipment Sub-total Interests in leasehold land held for own use under operating leases $’000 $’000 126,225 10,412 1,342 – 9,525 781	Property, plant and equipment Sub-total Interests in leasehold land held for own use under operating leases $’000 $’000 126,225 10,412 1,342 – 9,525 781	Total $’000 136,637 1,342 10,306
26,323 - - - - - - - - - 26,323 – – 1,646 27,969 - - - - - - - - - 27,969 26 (370) (29) 27,596 - - - - - - - - - (12,781) (1,082) (1,004) (14,867) - - - - - - - - - (14,867) (1,181) – (945) (16,993) - - - - - - - - - (16,993) (1,005) 311 17	83,495 - - - - - - - - - 83,495 – – 5,221 88,716 - - - - - - - - - 88,716 1,215 (2,078) (89) 87,764 - - - - - - - - - (27,854) (7,238) (2,391) (37,483) - - - - - - - - - (37,483) (7,892) – (2,445) (47,820) - - - - - - - - - (47,820) (7,907) 1,826 43	1,785 - - - - - - - - - 1,785 – (446) 106 1,445 - - - - - - - - - 1,445 433 (303) 5 1,580 - - - - - - - - - (1,035) (290) (90) (1,415) - - - - - - - - - (1,415) (116) 402 (85) (1,214) - - - - - - - - - (1,214) (112) 273 –	25,489 - - - - - - - - - 25,489 2,204 – 1,622 29,315 - - - - - - - - - 29,315 2,473 (2,059) (32) 29,697 - - - - - - - - - (16,889) (2,126) (1,356) (20,371) - - - - - - - - - (20,371) (1,630) – (1,295) (23,296) - - - - - - - - - (23,296) (1,706) 1,854 26	137,092 - - - - - - - - - 137,092 2,204 (446) 8,595 147,445 - - - - - - - - - 147,445 4,147 (4,810) (145) 146,637 - - - - - - - - - (58,559) (10,736) (4,841) (74,136) - - - - - - - - - (74,136) (10,819) 402 (4,770) (89,323) - - - - - - - - - (89,323) (10,730) 4,264 86	11,193 - - - - - - - - - 11,193 – – 699 11,892 - - - - - - - - - 11,892 468 – (12) 12,348 - - - - - - - - - (1,704) (216) (137) (2,057) - - - - - - - - - (2,057) (235) – (130) (2,422) - - - - - - - - - (2,422) (247) – (91)	148,285 - - - - - - - - - 148,285 2,204 (446) 9,294
						159,337 - - - - - - - - - 159,337 4,615 (4,810) (157)
						158,985 - - - - - - - - - (60,263) (10,952) (4,978)
						(76,193) - - - - - - - - - (76,193) (11,054) 402 (4,900)
						(91,745) - - - - - - - - - (91,745) (10,977) 4,264 (5)
(17,670) - - - - - - - - - ---------------------------------- 9,926 10,976 11,456	(53,858) - - - - - - - - - ---------------------------------- 33,906 40,896 46,012	(1,053) - - - - - - - - - ---------------------------------- 527 231 370	(23,122) - - - - - - - - - ---------------------------------- 6,575 6,019 5,118	(95,703) - - - - - - - - - ---------------------------------- 50,934 58,122 62,956	(2,760) - - - - - - - - - ---------------------------------- 9,588 9,470 9,136	(98,463) - - - - - - - - - ---------------------------------- 60,522

						67,592

						72,092

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The interests in leasehold land held for own use under operating leases is held on a medium-term lease of 50 years in the PRC.

12 SUBSIDIARY

					2007	2008	2009
					$’000	$’000	$’000
Unlisted	shares,	at	cost	(HK$2)	–	–	–

Particulars of the subsidiary are as follows:

Name of company Place of incorporation/ establishment and operation Issued and paid up share capital Percentage of equity interest held Dezhong Pharmaceutical (Hong Kong) Company Limited Hong Kong 13 December 1999 Ordinary HK$2 100% Directly INVENTORIES (a) Inventories in the consolidated balance sheet comprise: 2007 2008 $’000 $’000 Raw materials 13,943 16,941 Work in progress 13,889 14,947 Finished goods 8,556 11,800 36,388 43,688 Packaging materials 2,213 2,384 Low value consumables 2,334 2,416 40,935 48,488	Name of company Place of incorporation/ establishment and operation Issued and paid up share capital Percentage of equity interest held Dezhong Pharmaceutical (Hong Kong) Company Limited Hong Kong 13 December 1999 Ordinary HK$2 100% Directly INVENTORIES (a) Inventories in the consolidated balance sheet comprise: 2007 2008 $’000 $’000 Raw materials 13,943 16,941 Work in progress 13,889 14,947 Finished goods 8,556 11,800 36,388 43,688 Packaging materials 2,213 2,384 Low value consumables 2,334 2,416 40,935 48,488	Name of company Place of incorporation/ establishment and operation Issued and paid up share capital Percentage of equity interest held Dezhong Pharmaceutical (Hong Kong) Company Limited Hong Kong 13 December 1999 Ordinary HK$2 100% Directly INVENTORIES (a) Inventories in the consolidated balance sheet comprise: 2007 2008 $’000 $’000 Raw materials 13,943 16,941 Work in progress 13,889 14,947 Finished goods 8,556 11,800 36,388 43,688 Packaging materials 2,213 2,384 Low value consumables 2,334 2,416 40,935 48,488	Principal activities Dormant 2009 $’000 13,200 22,154 8,149
	36,388 2,213 2,334	43,688 2,384 2,416	43,503 2,195 2,841
	40,935	48,488	48,539

13 INVENTORIES

(b) The analysis of the amount of inventories recognised as an expense is as follows:

				2007	2008	2009
				$’000	$’000	$’000
Cost	of	inventories	sold	114,105	134,419	106,869

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FINANCIAL INFORMATION OF DZH

14 TRADE AND OTHER RECEIVABLES

Trade and bills receivables Less: allowance for doubtful debts (note 14(b)) Deposits, prepayments and other receivables	2007 $’000 52,676 (853)	2008 $’000 45,690 (897)	2009 $’000 16,474 (779)
	51,823 9,430	44,793 10,326	15,695 2,994
	61,253	55,119	18,689

(a) Ageing analysis

Included in trade and other receivables are trade and bills receivables 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	2007 $’000 46,223 3,603 2,850 52,676	2008 $’000 37,113 6,064 2,513 45,690	2009 $’000 14,856 426 1,192
			16,474

Trade and bills receivables are due within 30 to 90 days from the date of billing. All of the trade are expected to be recovered within one year. Further details on the Group’s credit policy are set out in note 20(a).

(b) Impairment of trade and bills receivables

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

At 1 January Impairment loss recognised Uncollectible amounts written off Exchange adjustments At 31 December	2007 $’000 34 784 – 35 853	2008 $’000 853 (9) – 53 897	2009 $’000 897 (118) – –
			779

At 31 December 2007, 2008 and 2009, the Group’s gross trade receivables of $853,000, $897,000 and $779,000 were individually determined to be impaired. The individually impaired receivables related to receivables that were overdue more than one year and management assessed that receivables are not expected to be recovered. Consequently, specific allowances for doubtful debts of $853,000, $897,000 and $779,000 were recognised as at 31 December 2007, 2008 and 2009 respectively. The Group does not hold any collateral over these balances.

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(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 of invoice date 3 to 6 months after invoice date More than 6 months after invoice date	2007 $’000 46,223 3,603 1,997 51,823	2008 $’000 37,113 6,064 1,616 44,793	2009 $’000 14,856 426 413
			15,695

As at 31 December 2007, 2008 and 2009, receivables that were neither past due nor impaired individually, amounted to $51,823,000, $44,793,000 and $15,695,000 respectively.

A writ of summons was served by the Company on Guangdong Guanghong Medicines Company Limited (“Guangdong Guanghong”) in 2005 in respect of a claim for the payment of sales amount of goods sold to Guangdong Guanghong by the Company of approximately RMB1,345,000 (equivalent to $1,529,000) 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 the Company in respect of the above claim. On 25 March 2008, Guangdong Guanghong made an appeal to the Intermediate People’s Court. On 2 December 2008, a final judgement was issued by the Intermediate People’s Court in favour of the Company.

As at 31 December 2008, the directors were of the opinion that the Company was successful in the above claim and no allowance for doubtful debts should be made on the outstanding debt of $1,529,000 which has been overdue for more than one year. The amount was received subsequently in 2009.

15 CASH AND CASH EQUIVALENTS

Cash at bank and in hand Less: Time deposits with maturity beyond three months Cash and cash equivalents	2007 $’000 43,163 – 43,163	2008 $’000 79,250 (7,958) 71,292	2009 $’000 130,689 (22,033)
			108,656

As at 31 December 2007 and 2008, restricted deposits of $1,498,000 and $1,529,000 respectively were placed with the People’s Court in relation to a claim lodged against a former customer. Further details of the claim are discussed in note 14(c).

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FINANCIAL INFORMATION OF DZH

16 TRADE AND OTHER PAYABLES

Trade creditors Other creditors and accrued charges Dividends payable Withholding income tax payable Advances received from customers	2007 $’000 8,781 44,897 – – 4,093 57,771	2008 $’000 10,417 44,475 – – 3,538 58,430	2009 $’000 14,702 48,159 4,760 251 3,144
			71,016

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

							2007	2008	2009
							$’000	$’000	$’000
Due	within	1	month	or	on	demand	8,781	10,417	14,702

Other creditors and accrued charges mainly include advances from customers, accrued staff costs and benefits and advertising expenses payable.

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

17 INCOME TAX IN THE CONSOLIDATED BALANCE SHEET

(a) Current taxation in the consolidated balance sheet represents:

						2007	2008	2009
						$’000	$’000	$’000
Provision	for	PRC	corporate	income	tax	4,807	(1,069)	3,534

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(b) Deferred tax assets / (liabilities) recognised

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

Deferred tax arising from: At 1 January 2007 Credited to consolidated income statements Exchange adjustments At 31 December 2007 At 1 January 2008 Charged to consolidated income statements Exchange adjustments At 31 December 2008 At 1 January 2009 Credited/(charged) to consolidated income statements Exchange adjustments At 31 December 2009	Allowance for impairment of doubtful debts $’000 (657) 873 (3)
	213

	213 (91) 12
	134

	134 (17) 1
	118

18 CAPITAL AND RESERVES

(a) Paid-in capital

Hensil Industrial Inc. Limited (HK) Foshan City An Ning Company Limited	2007, 2008 and 2009 Amount in original currency Amount in HKD equivalent USD’000 $’000 % 2,938 22,737 51% 2,822 21,845 49% 5,760 44,582 100%	2007, 2008 and 2009 Amount in original currency Amount in HKD equivalent USD’000 $’000 % 2,938 22,737 51% 2,822 21,845 49% 5,760 44,582 100%
		100%

The Company was incorporated on 1 November 1998 with an authorised and paid-in capital of USD5,760,000.

(b) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the Financial Information from functional currency to presentation currency. The reserve is dealt with in accordance with the accounting policy set out in note 1(p).

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(c) Reserve fund

In accordance with the accounting principles and financial regulations applicable in the PRC, the Company is required to transfer part of its profit after taxation to the reserve fund. The transfer amounts are determined by the Company’s board of directors in accordance with the articles of association and the transfers are made before profit distribution to the equity holders of the Company.

(d) Capital management

The Company is a subsidiary of Winteam Pharmaceutical Group Limited (“Winteam”) which is listed on The Stock Exchange of Hong Kong. Other than following Winteam Group’s capital management strategy to support the whole Group’s capital base, the Company’s and its subsidiary’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.

During 2009, the Group’s strategy, which remains unchanged from 2008 and 2007, is to maintain the capital in order to cover any debt position.

The adjusted debt-to-equity ratio at 31 December 2009, 2008 and 2007 is as follows:

2007 $’000 57,771 17,553 75,324	2008 $’000 58,430 51,064 109,494	2009 $’000 71,016 –
		71,016

156,576 (17,553)	194,751 (51,064)	184,007 –
139,023 54%	143,687 76%	184,007

		39%

Neither the Company nor its subsidiary is subject to externally imposed capital requirements.

19 EMPLOYEES RETIREMENT BENEFITS

The Company is a member of the state-managed retirement scheme. The Company is required to contribute a specified percentage of the payroll to the scheme. The only obligation of the Company 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.

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20 FINANCIAL INSTRUMENTS

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

(a) Credit risk

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade receivables are set out in note 14.

(b) Liquidity risk

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 parent 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 following table details the remaining contractual maturities at the balance sheet date of the 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 Group can be required to pay:

		2007			2008			2009
		Total			Total			Total
		contractual	Within 1		contractual	Within 1		contractual	Within 1
	Carrying	undiscounted	year or on	Carrying	undiscounted	year or on	Carrying	undiscounted	year or on
	amount	cash flow	demand	amount	cash flow	demand	amount	cash flow	demand
	$’000	$’000	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Trade and other
payables	57,771	(57,771)	(57,771)	58,430	(58,430)	(58,430)	71,016	(71,016)	(71,016)

(c) Foreign currency risk

The Group mainly carried out transactions in RMB, therefore any appreciation or depreciation of HKD against RMB will affect the Group’s financial position and be reflected in the exchange reserve.

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(d) Business risk

The Group is dependent on specific herb materials for its production of certain pharmaceutical products. At 31 December 2009, the Group has a certain concentration of business risk as 26% (2008: 36%; 2007: 20%) 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.

21 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 Financial Information. 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 Financial Information. 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 Financial Information.

(a) Impairment

If circumstances indicate that the net book value of property, plant and equipment, and interests in leasehold land held for own use under operating leases may not be recoverable, these assets may be considered “impaired”, and an impairment loss may be recognised 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. 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 sales volume, selling price, material costs 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, expected changes to selling prices and operating costs, and discount rate.

(b) Depreciation and amortisation

Fixed assets are depreciated and amortised 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 amortisation 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 amortisation expense for future periods is adjusted if there are significant changes from previous estimates.

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(c) Write down of inventories

22 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2009

Up to the date of issue of these Financial Information, the HKICPA has issued certain amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2009 and which have not been adopted in these Financial Information.

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 result in a restatement of the Group’s results of operations and financial position.

C SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by DZH and its subsidiary in respect of any period subsequent to 31 December 2009.

Yours faithfully

KPMG

Certified Public Accountants Hong Kong

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2. MANAGEMENT DISCUSSION AND ANALYSIS ON DZH

For the year ended 31 December 2007

Financial review

DZH 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 were all derived from the aforesaid business in the PRC.

During 2007, DZH’s turnover and profit before taxation amounted to approximately HK$205.3 million and HK$36.0 million respectively. The sales of the key products, “Biyankang tablets” ( ) and “VC Yinqiao tablets” ( ), amounted to approximately HK$108.8 million and HK$25.9 million respectively, together representing approximately 65.6% of DZH’s turnover.

DZH’s gross profit margin was approximately 44.4% in 2007 while its profit for the year amounted to approximately HK$24.6 million in 2007.

Business review

During 2007, the PRC government reformulated the pricing policy of the pharmaceutical products by lowering the maximum retail price of certain pharmaceutical products. In light of this, DZH’s managements negotiated with relevant provincial governments and managed to maintain or raise the maximum retail price of several key products, such as “Biyankang tablets” ( ) and “VC Yinqiao tablets” ( ). The Directors formulated DZH’s business strategy by broadening the customer base to boost sales, in the meantime cutting cost through bringing down the administrative expenses and upgrading the technological level on the production of key products in order to maintain steady growth in profit.

During 2007, DZH was granted the prescription patent ( ) and production patent ( ) for “Biyankang tablets” ( ) and “Yaoshen Herbal Plaster” ( ) respectively by the National Patent Office ( ). With such patents of invention, DZH possessed the exclusive production rights of these two products for 17 years henceforward, thus strengthening the competitiveness of these key products. DZH also submitted applications for the grant of the prescription patent and production patent for other key products such as “Biyan drops (spray)” ( ), “Yaotongkang granule” ( ), “Wujibaifeng granule” ( ) and “Rujiekang pill” ( ).

Liquidity and financial information

DZH generally financed its operation by internally generated cashflow. As at 31 December 2007, DZH’s net current assets were approximately HK$84.3 million, with cash and bank balances of approximately HK$43.2 million.

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As at 31 December 2007, the current ratio of DZH was approximately 2.3 times based on current assets of approximately HK$146.8 million and current liabilities of approximately HK$62.6 million.

As at 31 December 2007, DZH’s gearing ratio was approximately 29% (calculated as total liabilities over total assets). DZH did not have any short term or long term bank loan.

Treasury policies and foreign exchange exposure

Since all of DZH’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.

Contingent liability

As at 31 December 2007, DZH had no contingent liability.

Charge on assets

As at 31 December 2007, no assets of DZH were charged.

Employees

As at 31 December 2007, DZH had 510 employees. Staff costs for the year ended 31 December 2007 were approximately HK$28.7 million, which mainly included salaries, wages and other benefits and contributions to defined contribution retirement plans.

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 DZH.

Prospects and future plan for material investments

In the future, factors such as adjustments in the national policy regarding the retail prices of pharmaceutical products, inflation in cost of raw materials, rise in operating expenses and the keen competition in the PRC pharmaceutical market will pose certain impact on the steady development of DZH. However, a coin even has two sides. The medical reform proposal (including (Opinions Concerning Further Reform of the Medical and Health System) and (Implementation Plan on Further Reform of the Medical and Health System for 2009-2011)) as approved by the State Council of the PRC in March 2009 and the gradual implementation of medical insurance system of workers and citizens will rapidly expand the scale of PRC pharmaceutical sales and boost the development. Furthermore, as a result of the expanding population, aging

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population, increasing health-consciousness and industrial modernization in the PRC and the influence of globalized disease will also push and prompt the growth of the pharmaceutical industry in the PRC.

DZH did not have any plan for new business, material investments or acquisitions of capital assets.

For the year ended 31 December 2008

Financial review

In 2008, DZH’s turnover and profit before taxation amounted to approximately HK$251.4 million and HK$53.9 million respectively, representing an increase of approximately 22.4% and 50.0% respectively from 2007. The increase in DZH’s turnover was due to the boost in sales of its key products, “Biyankang tablets” ( ) and “VC Yinqiao tablets” ( ), sales from these two products amounted to approximately HK$130.5 million and HK$28.9 million respectively, representing an increase of approximately 20.0% and 11.6% respectively from 2007. The increase in profit before taxation was mainly due to the increases in turnover and gross profit margin during the year.

DZH’s gross profit margin increased to approximately 46.5% in 2008 from approximately 44.4% in 2007. DZH’s profit for the year increased by approximately 85% from approximately HK$24.6 million in 2007 to approximately HK$45.6 million for 2008. The increase in DZH’s profit for the year is mainly due to the increase in turnover and the lower income tax rate during the year.

Business review

The significant increase in DZH’s turnover was mainly attributable to the stable quality and the attractive pricing of DZH’s key pharmaceutical products “Biyankang tablets” ( ), “VC Yinqiao tablets” ( ) and “Biyan drops (spray)” ( ), etc. and the efficient marketing as well as the expansion of DZH’s sales network.

During 2008, “Biyan drops (spray)” ( ) was granted the prescription patent ( ) and production patent ( ) by the National Patent Office ( ). The process of applications for patent of invention of “Weiyanxiao granule” ( ), “Yaotongkang granule” ( ) and “Rujiekang pill” ( ) had reached the substantive verification stage.

DZH also submitted application for the grant of prescription patent and production patent for two other products, namely “Shentian capsule” ( ) and “Gandakang tablet” ( ).

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Liquidity and financial information

DZH generally financed its operation by internally generated cashflow. During 2008, cash generated from operations amounted to approximately HK$63.3 million, representing an increase of approximately 430.2% over HK$11.9 million in 2007. As at 31 December 2008, DZH’s net current assets were approximately HK$127.0 million with cash and bank balances of approximately HK$71.3 million, as compared to approximately HK$84.3 million of net current assets and HK$43.2 million of cash and bank balances as at 31 December 2007.

As at 31 December 2008, the current ratio of DZH was approximately 3.2 times based on current assets of approximately HK$185.5 million and current liabilities of approximately HK$58.4 million.

As at 31 December 2008, DZH’s gearing ratio was approximately 23.1% (calculated as total liabilities over total assets). DZH did not have any short term bank loan or long term bank loan.

Treasury policies and foreign exchange exposure

Contingent liability

As at 31 December 2008, DZH had no contingent liability.

Charge on assets

As at 31 December 2008, no assets of DZH were charged.

Employees

As at 31 December 2008, DZH had 530 employees. Staff costs for the year ended 31 December 2008 were approximately HK$34.5 million, which mainly included salaries, wages and other benefits and contributions to defined contribution retirement plans.

Material acquisition and disposal of subsidiaries and associated companies

For the year ended 31 December 2008, there was no material acquisition or disposal of any subsidiary and associated company by DZH.

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APPENDIX III

Prospects and future plan for material investments

The Board is confident that the pharmaceutical industry will grow steadily with the approval of the medical reform proposal (including (Opinions Concerning Further Reform of the Medical and Health System) and (Implementation Plan on Further Reform of the Medical and Health System for 2009-2011)) by the State Council of the PRC in 2009 and years ahead as the government has a plan to invest RMB850 billion in the new reform of the pharmaceutical system in the PRC. This investment, which will mostly be used as the government’s subsidies for the new rural cooperative pharmaceutical service and urban residents’ insurance, is expected to greatly increase the market volume of the pharmaceutical industry in the PRC. The industry will be entering into its rapid development stage in the domestic market in the next 3 years.

DZH did not have any plan for new business, material investments or acquisitions of capital assets.

For the year ended 31 December 2009

Financial review

In 2009, DZH’s turnover and profit before taxation for the year amounted to approximately HK$223.5 million and HK$48.0 million respectively, both representing a decrease of about 11% from 2008. The decrease in DZH’s turnover and profit before taxation were mainly due to the global economic challenge since September 2008, resulting in the drop in sales of the Company’s key product, “Biyankang tablets” ( ). Sales from this product amounted to approximately HK$108.4 million, representing a decrease of approximately 17% against 2008. On the other hand, sales from another key product, “VC Yinqiao tablet” ( ), recorded an increase of approximately 22% over 2008 to approximately HK$35.2 million. The sales of these two key products accounted for approximately 64% of the total turnover of DZH.

DZH’s gross profit margin increased from approximately 46.5% in 2008 to approximately 52.2% in 2009, which is mainly attributable to the increase in the selling prices of several relatively high gross profit margin products and the decrease in cost of sales compared to that of the previous financial year. DZH’s profit for the year decreased by approximately 11.1% from approximately HK$45.5 million to approximately HK$40.5 million for the year of 2009. The decrease in DZH’s profit for the year is mainly due to the increase in selling and distribution costs during the year.

Business review

During 2009, DZH adopted stringent cost control policy by negotiating prices of goods supplied with suppliers and carried out tender invitation, so as to lower material cost and enhance the gross profit margin.

– 167 –

FINANCIAL INFORMATION OF DZH

APPENDIX III

On August 2009, the State Council of the PRC released the National Essential Drugs List which included a total of 17 types of DZH’s products including the exclusive product – “Biyankang tablet” ( ). As a result of this, DZH raised the selling prices of several key products to reflect their popularities and qualities.

In terms of intellectual property rights, “Weiyanxiao granule” ( ) and “Wujibaifeng granule” ( ) were granted respectively the patents of invention by the National Patent Office ( ) during 2009.

Liquidity and financial information

DZH generally financed its operation by internally generated cashflow. During 2009, cash generated from operations amounted to approximately HK$108.7 million, representing an increase of approximately 71.8% over that of HK$63.3 million in 2008. As at 31 December 2009, DZH’s net current assets were approximately HK$123.4 million, with cash and bank balances of approximately HK$108.7 million, as compared to approximately HK$127.0 million of net current assets and HK$71.3 million of cash and bank balances as at 31 December 2008.

As at 31 December 2009, the current ratio of DZH was approximately 2.7 times based on current assets of approximately HK$197.9 million and current liabilities of approximately HK$74.6 million.

As at 31 December 2009, DZH’s gearing ratio was approximately 28.8% (calculated as total liabilities over total assets). DZH did not have any short term or long term bank loan.

Treasury policies and foreign exchange exposure

Contingent liability

As at 31 December 2009, DZH had no contingent liability.

Charge on assets

As at 31 December 2009, no assets of DZH were charged.

Employees

As at 31 December 2009, DZH had 530 employees. Staff costs for the year ended 31 December 2009 were approximately HK$25.5 million, which mainly included salaries, wages and other benefits and contributions to defined contribution retirement plans.

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FINANCIAL INFORMATION OF DZH

APPENDIX III

Material acquisition and disposal of subsidiaries and associated companies

For the year ended 31 December 2009, there was no material acquisition or disposal of any subsidiary and associated company by DZH.

Prospects and future plan for material investments

As announced by the PRC government in 2009, the State Council of the PRC approved a medical reform proposal (including (Opinions Concerning Further Reform of the Medical and Health System) and (Implementation Proposal on Further Reform of the Medical and Health System for 2009-2011)) for public medical and health care system. It is expected that the reform proposal would involve investments by the PRC government of RMB850 billion (equivalent to approximately HK$964.8 billion) at various levels of the public medical and health care system in the next three years. The Board is confident that the pharmaceutical industry will grow steadily with the PRC government’s favorable policies in the years ahead. It is expected that the pharmaceutical industry will continue to grow in the near future.

In order to increase the production capacity and meet the increasing sales demand of DZH and FLX, DZH and FLX planned to set up a modernized traditional Chinese medicinal material extraction and preliminary treatment center ( ) (the “Center”) in (Geng He Town, Gao Ming District, Foshan City). Upon, among other things, the building facilities and the operations having met the GMP standard requirements of the PRC, the Center will be able to provide the preliminary extracted and processed medicinal materials to the subsidiaries of the Company and other customers.

For the purpose of set up the Center, a land use right with an area of 71,248.8 sq.m has been acquired by DZH and FLX in January 2010 at a consideration of RMB17,500,000. The investment in establishing the Center will be financed by the internal resources of DZH and FLX.

Except for the investment mentioned above, DZH did not have any plan for new business, material investments or acquisitions of capital assets.

– 169 –

FINANCIAL INFORMATION OF DZH

APPENDIX III

3. RECONCILIATION STATEMENT OF PROPERTY ASSETS OF DZH

Set out below is the reconciliation of the (i) net book value of DZH’s property assets included in the consolidated balance sheet of DZH as at 31 December 2009; (ii) net book value of DZH’s property assets included in the management accounts of DZH as at 31 January 2010; and (iii) the fair value of DZH’s property assets as at 31 January 2010 as stated in the property valuation report in appendix VII to this circular:

						(iii) Fair
						value as at
						31 January
						2010 as
						shown in
						the
		(i) Net book value		(ii) Net book value		valuation
		included in the		included in the		report as
		consolidated	Depreciation	management		set out in
		balance sheet of	charge for	accounts of DZH		appendix
		DZH as at 31	January	as at 31 January	Valuation	VII to this
No.	Property	December 2009	2010	2010	surplus	circular
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
1.	An industrial	18,551	100	18,451	19,799	38,250
	complex
	located at
	No. 89 Fo
	Ping Road,
	Foshan City,
	Guangdong
	Province,
	The PRC
2.	Unit 701,	94	–	94	144	238
	No. 23 Dong
	Sheng Nei
	Street,
	Foshan City,
	Guangdong
	Province,
	The PRC
3.	Units 205 and	280	2	278	414	692
	305 and 2
	ancillary
	carports,
	No. 9
	Huayuan East
	Street,
	Foshan City,
	Guangdong
	Province,
	The PRC

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FINANCIAL INFORMATION OF DZH

APPENDIX III

No. Property 4. Unit 807, No. 2 Jian Hua Street, Foshan City, Guangdong Province, The PRC 5. A warehouse located at No. 86 Li Yu Sha Road, Foshan City, Guangdong Province, The PRC 6. A commercial building located at No. 81 Sheng Ping Road, Foshan City, Guangdong Province, The PRC Total	(i) Net book value included in the consolidated balance sheet of DZH as at 31 December 2009 Depreciation charge for January 2010 HK$’000 HK$’000 83 1 391 – 115 1 19,514 104	(ii) Net book value included in the management accounts of DZH as at 31 January 2010 HK$’000 82 391 114 19,410	Valuation surplus HK$’000 111 1,187 522 22,177	(iii) Fair value as at 31 January 2010 as shown in the valuation report as set out in appendix VII to this circular HK$’000 193 1,578 636
				41,587

– 171 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

For illustrative purpose only, set out below is the unaudited pro forma financial information of the Enlarged Group assuming completion of the Acquisition. 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 the Group together with the Target Company includes the unaudited pro forma combined balance sheet prepared based on the consolidated balance sheet of the Group as at 30 June 2009 and the balance sheet of the Target Company as at 31 December 2009, and gives effect to the proposed Acquisition as if the Acquisition had been completed on 30 June 2009 (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 2009 as set out in Appendix I to this circular and the audited balance sheet of the Target Company as at 31 December 2009 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 2009. 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 Company as set out in Appendix II to this circular and other financial information included elsewhere in this circular.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

1 Unaudited pro forma combined balance sheet as at 30 June 2009

The Group HK$’000 321,254 47,918 331,180 – 4,582	The Target Company HK$’000 – – – 90,163 –	Pro forma combined Pro forma adjustments Notes HK$’000 HK$’000 321,254 – 47,918 331,180 90,163 (90,163) 2(d) 4,582	Pro forma the Enlarged Group HK$’000 321,254 47,918 331,180 – 4,582
704,934 ----------- 111,478 175,942 1,527 154,673 443,620 ----------- 106,520 132,902 2,403	90,163 ----------- – – – 25 25 ----------- – – –	795,097 ----------- 111,478 175,942 1,527 154,698 (131,750) 2(c) 443,645 ----------- 106,520 132,902 2,403	704,934 ----------- 111,478 175,942 1,527 22,948
			311,895 ----------- 106,520 132,902 2,403
241,825 ----------- ----------------------------------------- 201,795 ----------- -----------------------------------------	– ----------- ----------------------------------------- 25 ----------- -----------------------------------------	241,825 ----------- ----------------------------------------- 201,820 ----------- -----------------------------------------	241,825 ----------- ----------------------------------------- 70,070 ----------- -----------------------------------------

– 173 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The Group HK$’000 906,729 ----------- 9,735 50,929	The Target Company HK$’000 90,188 ----------- – –	Pro forma combined Pro forma adjustments Notes HK$’000 HK$’000 996,917 ----------- 9,735 50,929	Pro forma the Enlarged Group HK$’000 775,064 ----------- 9,735 50,929
60,664 ----------- ----------------------------------------- 846,065 162,841 507,380 670,221 175,844	– ----------- ----------------------------------------- 90,188 21,845 68,343 90,188 –	60,664 ----------- ----------------------------------------- 936,253 184,686 (21,845) 2(d) 575,723 (98,646) 2(f) 760,409 175,844 (101,422) 2(e)	60,664 ----------- ----------------------------------------- 714,340
			162,841 477,077
			639,918 74,422
846,065	90,188	936,253	714,340

See accompanying notes to the Unaudited Pro Forma Financial Information of the Enlarged Group.

– 174 –

APPENDIX IV 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 2009 as included in the published interim report of the Group for the six months ended 30 June 2009.
(b) The balances of assets and liabilities of the Target Group are extracted from the audited combined balance sheet of the Target Company as at 31 December 2009 as set out in Appendix II of this circular.
(c) Acquisition

Pursuant to the Agreement entered into between Guangdong Medi-world Pharmaceutical Co., Ltd. (“GMWP”), a subsidiary of the Company, and Mr. He Zhao Jian, the owner of the Target Company, GMWP has conditionally agreed to acquire 93% equity interest in the Target Company at the consideration of RMB116,000,000 (approximately equivalent of HK$131,750,000). The pro forma adjustment reflects this transaction as if the Acquisition had been completed on 30 June 2009 and the consideration was settled by the Group’s cash at bank and in hand.

(d) Principal asset of the Target Company and elimination

The principal asset of the Target Company is the 49% equity interest in DZH which is a 51%-owned subsidiary of the Company. DZH’s assets and liabilities have already been consolidated in the Group’s unaudited consolidated balance sheet as at 30 June 2009. As the Company had control over DZH before the Acquisition, the acquisition of additional interest in DZH does not result in change in carrying amount of assets and liabilities in the Group’s consolidated balance sheet. Except for the cash of HK$25,000 in the Target Company, the “Interest in an associate” of HK$90,163,000, the “Paid-in capital” of HK$21,845,000 and the reserves of HK$68,343,000 in the Target Company’s balance sheet will be eliminated, and the net debit to reserves would be HK$68,318,000.

(e) Change in Minority Interest

The carrying amount of minority interests in the Group’s consolidated balance sheet as at 30 June 2009 related to DZH amounted to HK$109,056,000 which is adjusted to reflect the relative change in interest in DZH’s net assets. The decrease in amount of minority interests of HK$101,422,000 (As 49% of the minority interests of DZH of HK$109,056,000 held by the Target Company was included in the Group’s financial statements as at 30 June 2009, the decrease in minority interests of HK$101,422,000 represents 93% of the aforesaid minority interests of DZH attributable to the 93% equity interest in the Target Company) and the consideration paid for the acquisition of HK$131,750,000, ie HK$30,328,000 is recognised directly in the Group’s equity, ie debited to reserves.

(f) Net movement in reserves

The cumulative effect of the Acquisition would be the elimination entries of HK$68,318,000 as discussed in (d) above and the net impact of the change in minority interest of HK$30,328,000 as discussed in (e) above, which would reduce reserve by HK$98,646,000.

(g) Translation of RMB into HK$ is made in the Unaudited Pro Forma Financial Information of the Enlarged Group at the rate of HK$1.1357 = RMB1.

– 175 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report, prepared for the purpose of incorporation in this circular, as received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

(B) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

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

11 March 2010

The Directors

Winteam Pharmaceutical Group Limited

Dear Sirs,

We report on the unaudited pro forma financial information (“the Pro Forma Financial Information”) of Winteam Pharmaceutical Group Limited (“the Company”) and its subsidiaries (collectively refer to the “Group”), together with Foshan City An Ning Company Limited (the “Target Company”) (collectively referred to as the “Enlarged Group”) set out in Section A of Appendix IV of the circular dated 11 March 2010 (“the Circular”), which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the proposed acquisition of the 93% equity interest in the Target Company might have affected the unaudited consolidated balance sheet of the Group as at 30 June 2009. The basis of preparation of the unaudited Pro Forma Financial Information is set out in 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 (the “HKICPA”).

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.

– 176 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

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 2009 or any future date.

Opinion

In our opinion:

a) the 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 Company, 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

– 177 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

On 29 November 2008, the Company entered into an agreement (as amended by a supplemental agreement dated 16 December 2008) with Sureplan, Mr. Yang, Mr. Xu and Mr. WU Chiu Kong for the acquisition of the entire issued share capital of Smartpoint (the “Smartpoint Acquisition”), together with its two operating subsidiaries, the Purchaser and Luya, at a consideration of HK$300 million.

The consideration for the Smartpoint Acquisition of HK$300 million was satisfied (i) as to HK$80 million by the Company to Sureplan in cash on 6 February 2009, being the date of completion of the Smartpoint Acquisition; and (ii) as to HK$220 million by the allotment and issue of 564,102,563 new Shares by the Company to Surplan at an issue price of HK$0.39 per Share on 6 February 2009.

The Purchaser is a company incorporated in the PRC in 1992 with limited liability. Luya is a 75%-owned joint venture of the Purchaser. The Purchaser and Luya are 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. The Purchaser and Luya own 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, “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. These products are all leading products in the market in the PRC. Details of the Smartpoint Acquisition are set out in the circular of the Company dated 31 December 2008 (the “Smartpoint Circular”).

The Smartpoint Acquisition was completed on 6 February 2009. Set out below are the accountants’ report of the Smartpoint Group, the management discussion and analysis on the Smartpoint Group and the unaudited pro forma financial information of the Group as enlarged by the Smartpoint Acquisition, as extracted from the Smartpoint Circular.

– 178 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

1. ACCOUNTANTS’ REPORT ON THE SMARTPOINT GROUP

The following is the text of the accountants’ report on the financial information of Smartpoint Group as extracted from the Smartpoint Circular, which had been prepared for the purpose of inclusion in the Smartpoint Circular. Such accountants’ report had been addressed to Wing Shan International Limited (the former name of the Company) by the then independent reporting accountants, KPMG, Certificated Public Accountants, Hong Kong.

“

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

– 179 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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 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

– 180 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

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.

– 181 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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 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.

– 182 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

– 183 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

– 184 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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 ----------

– 185 –

APPENDIX V

FINANCIAL INFORMATION OF THE SMARTPOINT 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	Xu Tiefeng
Director	Director

– 186 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

– 187 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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) ---------

– 188 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

– 189 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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.

– 190 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

(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 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).

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APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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)).

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.

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APPENDIX V

–	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.

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APPENDIX V

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

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APPENDIX V

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

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APPENDIX V

(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.

(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.

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APPENDIX V

(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.

(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.

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APPENDIX V

(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

(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.

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APPENDIX V

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.

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.

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APPENDIX V

(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.

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

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APPENDIX V

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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.

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	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	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	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	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
	16,301 859	15,629 828	16,381 906	7,713 432	10,394 399
	17,160 38 6,426 423 1,286 1,444 – – 4,332 52,709	16,457 29 6,020 540 1,319 605 – – 3,055 50,676	17,287 238 6,603 627 1,045 786 10,131 6,116 6,504 62,886	8,145 169 3,203 314 561 775 – – 4,222 20,845

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APPENDIX V

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.

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APPENDIX V

(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:

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

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APPENDIX V

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

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APPENDIX V

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.

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APPENDIX V

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

– 206 –

APPENDIX V

FINANCIAL INFORMATION OF THE SMARTPOINT 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.

– 207 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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

– 208 –

APPENDIX V

FINANCIAL INFORMATION OF THE SMARTPOINT 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.

– 209 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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

– 210 –

APPENDIX V

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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 79,304 (4,882) 74,422 2,494 11,703 88,619
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

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.

– 211 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

(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)).

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.

– 212 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

(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.

16 Cash and cash equivalents

Cash at bank and in hand Cash and cash equivalents in the combined balance sheets and cash flow statements Bank loans Bank loans – Secured – Unsecured	As 2005 $’000 4,865 4,865 As 2005 $’000 36,385 14,238 50,623	at 31 December 2006 2007 $’000 $’000 13,466 8,087 13,466 8,087 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 31,578
			31,578

			As at 30 June 2008 $’000 77,078 –
			77,078

17 Bank loans

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

– 213 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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.

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.

– 214 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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

(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

– 215 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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.

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.

– 216 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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

– 217 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

(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.

– 218 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

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FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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

==> picture [356 x 137] intentionally omitted <==

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

Years ended 31 December Six months ended 30 June
2005 2006 2007 2007 2008
$’000 $’000 $’000 $’000 $’000
(unaudited)
Sales to
related
companies 26,192 28,013 44,579 19,651 24,418
Purchases
from related
companies 2,491 2,214 2,177 656 6,681
----- End of picture text -----

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.

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FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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

– 221 –

APPENDIX V

FINANCIAL INFORMATION OF THE SMARTPOINT 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.

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FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

(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.

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FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

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FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.

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APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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

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APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

2. MANAGEMENT DISCUSSION AND ANALYSIS ON THE SMARTPOINT GROUP

(i) For the year ended 31 December 2005

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 2005, the Target Group’s combined turnover and profit before taxation for the year amounted to approximately HK$139 million and HK$16 million respectively.

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.

– 227 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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.

– 228 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

(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.

– 229 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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

– 230 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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

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.

– 231 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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.

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.

– 232 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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.

– 233 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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.

– 234 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

For illustrative purpose only, set out below is the unaudited pro forma financial information of the Group as enlarged by the Smartpoint Acquisition. 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 Smartpoint 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.

– 235 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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 ------------ ---------------------------------------------

– 236 –

APPENDIX V

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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.

– 237 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT 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

– 238 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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.”

– 239 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

The following is the text of a comfort letter as extracted from the Smartpoint Circular, which had been prepared for the sole purpose of inclusion in the Smartpoint Circular. Such comfort letter had been addressed to Wing Shan International Limited (the former name of the Company) by the then independent reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

“ (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”).

– 240 –

APPENDIX V FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

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.

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.

– 241 –

FINANCIAL INFORMATION OF THE SMARTPOINT GROUP

APPENDIX V

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”

– 242 –

APPENDIX VI

PROFIT FORECAST

On 2 March 2010, the Company issued a positive profit alert statement to inform the Shareholders that the Group was expected to record a significant increase in profit for the financial year ended 31 December 2009 as compared to that of the financial year ended 31 December 2008. The significant improvement of the financial performance of the Group for the financial year ended 31 December 2009 was mainly attributable to the profit contribution from Smartpoint. The Forecast constitutes a profit forecast under Rule 10 of the Takeovers Code. KPMG, the auditors of the Company, and Optima Capital, the financial adviser to the Company, have reported on the Forecast in accordance with the requirements of the Takeovers Codes.

1. ASSUMPTIONS

The assumptions adopted by the Directors in the preparation of the Forecast include:

(i) all sales recorded in the unaudited consolidated financial statements of the Group for the year ended 31 December 2009 are finalised. There would be no material sales returns from the customers subsequent to 31 December 2009;
(ii) accounts receivables in the unaudited consolidated financial statements of the Group are recoverable and there would be no significant bad debts in respect of these accounts receivables subsequent to 31 December 2009;
(iii) trade creditors and other creditors in the unaudited consolidated financial statements of the Group as at 31 December 2009 are complete and there were no significant unrecorded liabilities or contingent liabilities not reflected; and
(iv) the forecasted useful lives of the property, plant and equipment included in the unaudited consolidated financial statements of the Group are not materially different from their actual useful lives.

– 243 –

PROFIT FORECAST

APPENDIX VI

2. REPORTS

Set out below is the reproduction of the text of the report dated 2 March 2010 issued by KPMG, the auditors of the Company, in relation to the Forecast.

“

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

2 March 2010

The Board of Directors Winteam Pharmaceutical Group Limited Room 2801-2805, China Insurance Group Building 141 Des Voeux Road Central, Hong Kong

Dear Sirs,

In connection with the following statement as set out in the announcement of Winteam Pharmaceutical Group Limited (“the Company”) in respect of positive profit alert made by the board of directors of the Company on 2 March 2010 (the “Positive Profit Alert Statement”):

“The board of directors (the “Directors”) of the Company (the “Board”) wishes to inform shareholders of the Company (the “Shareholders”) and potential investors that based on the preliminary assessment of the unaudited consolidated financial statements of the Group for the financial year ended 31 December 2009, the Group is expected to record a significant increase in profit for the financial year ended 31 December 2009 as compared to that of the financial year ended 31 December 2008.”

we have been advised by the directors of the Company that the Positive Profit Alert Statement is based on the preliminary assessment by the management of the Company and its subsidiaries (collectively referred to as the “Group”) of the profit of the Group for the year ended 31 December 2009 based on the unaudited consolidated financial statements of the Group for the year ended 31 December 2009 (the “Profit Forecast”).

We have reviewed, in accordance with the Auditing Guideline 3.341 “Accountants’ report on profit forecasts” issued by the Hong Kong Institute of Certified Public Accountants, the accounting policies adopted and calculations made in arriving at the Profit Forecast, for which the directors of the Company are solely responsible.

– 244 –

PROFIT FORECAST

APPENDIX VI

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 Company as set out in the Memorandum of the Board of Directors on the Profit Forecast for year ended 31 December 2009 and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group as set out in its published annual report filed with The Hong Kong Stock Exchange Limited for the year ended 31 December 2008.

Yours faithfully,

KPMG

Certified Public Accountants Hong Kong”

– 245 –

PROFIT FORECAST

APPENDIX VI

Set out below is the reproduction of the text of the report dated 2 March 2010 issued by Optima Capital, the financial adviser of the Company, in relation to the Forecast.

“

Unit 3618, 36th Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong

2 March 2010

The Board of Directors Winteam Pharmaceutical Group Limited Rooms 2801-2805 China Insurance Group Building 141 Des Voeux Road Central Hong Kong

Dear Sirs,

We refer to the profit alert statement in connection with the expected significant increase in profit for the financial year ended 31 December 2009 as compared to that of the financial year ended 31 December 2008 as disclosed in the announcement of the Company dated 2 March 2010 (the “Profit Alert Announcement”). We note that such profit alert statement constitutes a profit forecast (the “Forecast”) under Rule 10 of the Hong Kong Code on Takeovers and Mergers (the “Takeovers Code”). Terms used in this letter shall have the same meanings as defined in the Profit Alert Announcement unless the context requires otherwise.

We have discussed with the management of the Group the bases and assumptions adopted in preparing the Forecast and noted that the Forecast has been prepared principally based on the unaudited management accounts of the Group for the financial year ended 31 December 2009 which are not finalised and subject to adjustments. We have also considered the letter dated 2 March 2010 addressed to the Directors from KPMG, the auditors of the Company, regarding the calculations and accounting policies upon which the Forecast has been made. KPMG is of the opinion that so far as the calculations and accounting policies are concerned, the Forecast has been properly compiled in accordance with the assumptions made by the Directors as set out in Profit Alert Announcement and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group.

Having considered the bases and assumptions on which the Forecast is made by the Directors and the accounting policies and calculations adopted by the Directors and reported on by KPMG, we are of the opinion that the Forecast, for which the Directors are solely responsible, has been made after due care and consideration.

Yours faithfully, For and on behalf of OPTIMA CAPITAL LIMITED Beatrice Lung Managing Director”

– 246 –

PROPERTY VALUATION

APPENDIX VII

The following is the texts of the letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 31 January 2010 of the properties held/to be acquired/rented by the Group.

==> picture [227 x 78] intentionally omitted <==

11 March 2010

The Directors

Winteam Pharmaceutical Group Limited

Room 2801-5 China Insurance Group Building 141 Des Voeux Road Central Central, Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Winteam Pharmaceutical Group Limited (the “Company”) for us to value the properties held/to be acquired from Mr. HE Zhaojian (the “Vendor”) or rented by the Company and/or its subsidiaries (hereinafter referred to as the “Group”). 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 January 2010 (the “date of valuation”).

BASIS OF VALUATION

Our valuations of the 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”.

– 247 –

PROPERTY VALUATION

APPENDIX VII

PROPERTY CATEGORISATIONS

In the course of our valuations, the valued properties are categorised into the following Groups:

Group I – Properties held/to be acquired from the Vendor by the Group for owner-occupation in the PRC Group II – Properties held/to be acquired from the Vendor by the Group for investment in the PRC Group III – Properties held by the Group for owner-occupation in the PRC Group IV – Properties held by the Group for investment in the PRC Group V – Properties held by the Group under contractual rights in the PRC Group VI – Property held by the Group for future development in the PRC Group VII – Property rented by the Group in Hong Kong Group VIII – Property rented by the Group in the PRC

VALUATION METHODOLOGIES

In valuing Property Nos. 2 – 6, 11, 13 – 15 and 18, 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. 5, 6, 13 – 15, 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, 7 – 10, 12, 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 Nos. 16 and 17, we cannot attribute any commercial value to the property due to the absence of relevant title documents.

– 248 –

APPENDIX VII

PROPERTY VALUATION

For remaining properties, we are of the opinion that the properties rented by the Group have no commercial value either because of their non-assignabilities in the open market or there are prohibitions against subletting and/or assignment contained in the tenancy agreements or the lack of marketable and substantial profit rents.

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. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the extracts handed to us. In the course of our valuations, we have relied upon the advice and information given by the Group and its PRC legal adviser, King’s Law Firm ( ) regarding the titles of the properties. All documents have been used for reference only.

In valuing the properties in the PRC, we have relied on the advice given by the Group and its PRC legal adviser that Foshan City An Ning Company Limited ( ) (the “Target Company”) and/or its subsidiaries (hereinafter referred to as 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.

In valuing the interests in the properties rented by the Group, we have been provided with copies of the tenancy agreements relating to the properties. However, we have not searched the titles of the properties and have not scrutinized 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. All documents have been used for reference only.

VALUATION ASSUMPTIONS

Our valuations have 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 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.

– 249 –

APPENDIX VII

PROPERTY VALUATION

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, 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 advice 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.

For the properties located in the PRC, as advised by the legal adviser, 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.

– 250 –

PROPERTY VALUATION

APPENDIX VII

REMARKS

We hereby certify that we neither have any present nor any prospective interest in the Group or the Vendor or the Target Group or the appraised properties or the values reported.

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfers. The exchange rate adopted are the average rate as at the date of valuation being HK$1=RMB0.8790. There has been no significant fluctuation in the exchange rates between the date of valuation and the date of this report.

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), PhD (Econ), BSc. MSc. MRICS MHKIS RPS(GP) MHKIS, MCIArb, AFA, SIFM, FCIM, Senior Director MASCE, MIET, MIEEE, MASME, MIIE Managing Director

Notes: Dr. Tony C.H. Cheng is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 17 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 17 years’ experience in valuations of properties in Hong Kong and over 11 years’ experience in valuations of properties in the People’s Republic of China.

– 251 –

APPENDIX VII

PROPERTY VALUATION

SUMMARY OF VALUES

				Additional		Total Value
				Value		attributable
				attributable	Total	to the Group
			Interest to	to the Group	interest	upon
		Market	be acquired	corresponding	attributable	completion
		Value in	by the	to the	to the Group	of the
		existing state	Group	Acquisition	upon	Acquisition
		as at 31	pursuant to	as at 31	completion	as at 31
		January	the	January	of the	January
No.	Property	2010	Acquisition	2010	Acquisition	2010
		RMB		RMB		RMB

Group I – Properties held/to be acquired from the Vendor by the Group for owner-occupation in the PRC

1. An	1. An	industrial complex 33,700,000	industrial complex 33,700,000	industrial complex 33,700,000	industrial complex 33,700,000	industrial complex 33,700,000	industrial complex 33,700,000	45.57%	15,357,090	96.57%	32,544,090
located					at
No. 89					Fo Ping Road,
Foshan					City,
Guangdong						Province,
The PRC


2. Unit			701,				210,000	45.57%	95,697	96.57%	202,797
No. 23					Dong Sheng
Nei		Street,
Foshan					City,
Guangdong						Province,
The PRC
3. Units				205 and 305 and 610,000				45.57%	277,977	96.57%	589,077
2	ancillary carports,
No. 9 Huayuan East
Street,
Foshan					City,
Guangdong						Province,
The PRC

==> picture [70 x 42] intentionally omitted <==

– 252 –

APPENDIX VII

PROPERTY VALUATION

SUMMARY OF VALUES

No. Property 4. Unit 807, No. 2 Jian Hua Street, Foshan City, Guangdong Province, The PRC Sub-Total:	Market Value in existing state as at 31 January 2010 Interest to be acquired by the Group pursuant to the Acquisition Additional Value attributable to the Group corresponding to the Acquisition as at 31 January 2010 Total interest attributable to the Group upon completion of the Acquisition RMB RMB 170,000 45.57% 77,469 96.57% 34,690,000 15,808,233	Total Value attributable to the Group upon completion of the Acquisition as at 31 January 2010 RMB 164,169
		33,500,133

– 253 –

APPENDIX VII

PROPERTY VALUATION

SUMMARY OF VALUES

				Additional		Total Value
				Value		attributable
				attributable	Total	to the Group
			Interest to	to the Group	interest	upon
		Market	be acquired	corresponding	attributable	completion
		Value in	by the	to the	to the Group	of the
		existing state	Group	Acquisition	upon	Acquisition
		as at 31	pursuant to	as at 31	completion	as at 31
		January	the	January	of the	January
No.	Property	2010	Acquisition	2010	Acquisition	2010
		RMB		RMB		RMB

Group II – Properties held/to be acquired from the Vendor by the Group for investment in the PRC

5.	A warehouse located	1,390,000	45.57%	633,423	96.57%	1,342,323
	at No. 86 Li Yu Sha
	Road,
	Foshan City,
	Guangdong Province,
	The PRC

6. A commercial building located at No. 81 Sheng Ping Road, Foshan City, Guangdong Province, The PRC Sub-Total: Total:	560,000 45.57% 1,950,000 36,640,000	255,192 96.57% 888,615 16,696,848	540,792
			1,883,115
			35,383,248

– 254 –

PROPERTY VALUATION

APPENDIX VII

SUMMARY OF VALUES

==> picture [426 x 450] intentionally omitted <==

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

||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Market|Value|Value|
|in|existing|Interest|attributable|
|state|as|at|Attributable|to|the|Group|as|at|
|No.|Property|31|January|2010|to|the|Group|31|January|2010|
|RMB|RMB|
|Group|III|–|Properties|held|by|the|Group|for|owner-occupation|in|the|PRC|
|7.|An|industrial|complex|located|at|57,700,000|51%|29,427,000|
|No.|35|Fo|Luo|Main|Road,|
|Foshan|City,|
|Guangdong|Province,|
|The|PRC|
|8.|An|industrial|complex|32,300,000|100%|32,300,000|
|located|at|No.|2|Qiao|Xi|Road,|
|Rong|Shan|Neighbourhood|
|Committee,|
|Rong|Gui|Road|Workplace,|
|Shunde|District,|
|Foshan|City,|
|Guangdong|Province,|
|The|PRC|
|9.|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|

----- End of picture text -----

==> picture [94 x 42] intentionally omitted <==

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APPENDIX VII

PROPERTY VALUATION

SUMMARY OF VALUES

No. Property 10. An industrial complex at 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 11. 6 residential units in Block 1, Shu Yuan Road, Zhenhua Management Zone Workplace, Rong Gui County, Shunde District, Foshan City, Guangdong Province, The PRC 12. An industrial complex located at Huan Cheng Xi Road West and Hong Xing Xi Road North, Central District, Jining City, Shandong Province, The PRC Sub-Total:	Market Value in existing state as at 31 January 2010 Interest Attributable to the Group RMB 62,400,000 100% 1,810,000 100% 32,100,000 100%	Value attributable to the Group as at 31 January 2010 RMB 62,400,000 1,810,000 32,100,000
	196,510,000	168,237,000

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PROPERTY VALUATION

APPENDIX VII

SUMMARY OF VALUES

No.
Property
Market Value
in existing
state as at
31 January 2010
Interest
Attributable
to the Group
RMB
Group IV – Properties held by the Group for investment in the PRC
13.
A commercial building
located at
No. 49 Rui Qing Sub-district,
Zhanjiang City,
Guangdong Province,
The PRC
1,640,000
51%
14.
Shop No. 3, Level 1,
No. 33 Wei Guo Road,
Foshan City,
Guangdong Province,
The PRC
540,000
51%
15.
A development located at
No. 43 Qing Ning Road,
Foshan City,
Guangdong Province,
The PRC
12,000,000
51%
Sub-Total:
14,180,000

Value
attributable
to the Group as at
31 January 2010
RMB
836,400
275,400
6,120,000

7,231,800

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APPENDIX VII

PROPERTY VALUATION

SUMMARY OF VALUES

No. Property

Market Value Value in existing Interest attributable state as at Attributable to the Group as at 31 January 2010 to the Group 31 January 2010 RMB RMB

Group V – Properties held by the Group under contractual rights in the PRC

A non-residential unit in a proposed No Commercial Nil development at Value Shang Shi Jiao Tang Bian Street, Chao Dong Village, Huan Shi County, Foshan City, Guangdong Province, The PRC

==> picture [103 x 41] intentionally omitted <==

A land parcel located at Xinyu No Commercial Nil Lugang Industrial Zone, Value Genghe Town, Gaoming District, Foshan City, Guangdong Province, The PRC Sub-Total: Nil Nil

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APPENDIX VII

PROPERTY VALUATION

SUMMARY OF VALUES

No. Property

	Market Value		Value
	in existing	Interest	attributable
	state as at	Attributable	to the Group as at
31	January 2010	to the Group	31 January 2010
	RMB		RMB

Group VI – Property held by the Group for future development in the PRC

18. Land Parcel C08-2 located at Science and Technology Product Parks, Shunde High and New Technology Zone (Rong Gui), Shunde District, Foshan City, Guangdong Province, The PRC Sub-Total: Group VII – Property rented by the Grou 19. Rooms 2801-2805, 28th Floor, China Insurance Group Building, No. 141 Des Voeux Road Central, Hong Kong Sub-total: Group VIII – Property rented by the Gro 20. Various office units and warehouses in Xin Ti Road, Dali Town, Foshan City, Guangdong Province, The PRC Sub-total: Total:	15,400,000 100%	15,400,000
	15,400,000 p in Hong Kong No Commercial Value	15,400,000
		Nil
	Nil	Nil

	up in the PRC No Commercial Value	Nil
	Nil 226,090,000	Nil

		190,868,800

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PROPERTY VALUATION

APPENDIX VII

VALUATION CERTIFICATE

Group I – Properties held/to be acquired from the Vendor by the Group for owner-occupation in the PRC

Market Value in Particulars of existing state as at No. Property Description and tenure occupancy 31 January 2010 RMB 1. An industrial complex The property comprises a The property was 33,700,000 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 (45.57% additional Foshan City, (or about 234,192.35 sq.ft.) use as at the date of interest attributable Guangdong Province, upon which 13 buildings and valuation. to the Group The PRC structures, completed in pursuant to the various stages between 1975 Acquisition: and 2004, were erected. 15,357,090 The total gross floor area 51% existing interest (“GFA”) of the property is attributable to the approximately 33,134.10 sq.m. Group: 17,187,000 (or about 356,655.45 sq.ft.). 96.57% interest The land use rights of the attributable to the property have been granted for Group upon a term expiring on 15 completion of the November 2048 for industrial Acquisition: use. 32,544,090)

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Fo Fu Guo Yong (2002) Zi Di No. 06000616681, ( (2002) 06000616681 ), issued by Foshan City Land Resource Bureau ( ), the land use rights of the property with a site area of 198 sq.m. have been granted to Foshan Dezhong Pharmaceutical Co., Ltd. ( ) (“DZH”) for industrial use.
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 DZH 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

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

Total: 21,606.40

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APPENDIX VII

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 DZH 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 based on the information shown in Real Estate Title Certificates detailed in Note 3.
The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Certificate Yes Real Estate Title Certificates Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. DZH 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 enormous payment payable to the government;
b. As per confirmation from the Group, 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 can be freely disposed of in the open market; and
f. Having considered relevant title documents and surveying result provided by the Group, the site area of the property is 21,757 sq.m. which is based on the information shown in Real Estate Title Certificates detailed in Note 3.
DZH is effectively owned as to 51% and 45.57% by the Company and the Target Company respectively.

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PROPERTY VALUATION

APPENDIX VII

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Description and tenure occupancy 31 January 2010 RMB
The property comprises a The property was 210,000 residential unit on the 7[[th]] occupied by the floor of an 8-storey residential Group as staff (45.57% additional building which was completed quarters as at the date interest attributable in 1990’s. of valuation. to the Group pursuant to the
The gross floor area (“GFA”) Acquisition: 95,697 of the property is approximately 73.98 sq.m. (or 51% existing interest about 796.32 sq.ft.). attributable to the Group: 107,100
The land use rights of the property have been granted for 45.57% interest a term expiring on 22 June attributable to the 2069 for residential use. Group upon completion of the
Acquisition: 202,797)

No. Property

Unit 701, The property comprises a No. 23 Dong Sheng Nei residential unit on the 7[[th]] Street, floor of an 8-storey residential Foshan City, building which was completed Guangdong Province, in 1990’s. 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 ( C0556130 ) issued by the 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. ( ) (“DZH”) for a term expiring on 22 June 2069 for residential use.
The status of title and grant of major approvals and licences 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. DZH 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 enormous 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 can be freely disposed of in the open market.
DZH is effectively owned as to 51% and 45.57% by the Company and the Target Company respectively.

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VALUATION CERTIFICATE

								Market Value in
							Particulars of	existing state as at
No. Property						Description and tenure	occupancy	31 January 2010
								RMB
3. Units 205				and 305 and 2		The property comprises 2	The property was	610,000
ancillary			carports,			residential units and 2	occupied by the
No.	9 Huayuan East					ancillary carports in a 9-storey	Group for residential	(45.57% additional
Street,						residential building which was	and carparking uses as	interest attributable
Foshan		City,				completed in 1990’s.	at the date of	to the Group
Guangdong					Province,		valuation.	pursuant to the
The PRC						The total gross floor area		Acquisition: 277,977
						(“GFA”) of the residential portion of the property is approximately 140.50 sq.m.		51% existing interest attributable to the
						(or about 1,512.34 sq.ft.).		Group: 311,100
						The land use rights of the		96.57% interest
						property have been granted for		attributable to the
						a term expiring on 25 May		Group upon
						2070 for residential use.		completion of the
								Acquisition: 589,077)

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. ( ) (“DZH”) for residential use. The details of which are summarized in the table below:

Premise Certificate No. Unit 205 Yue Fang Di Zheng Zi Di No. C0657394 Unit 305 Yue Fang Di Zheng Zi Di No. C0657393 Total:	GFA (sq.m.) 70.25 70.25
	140.50

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 DZH for residential use. The details of which are summarized in the table below:

Premise Certificate No. Ancillary Carport of Unit 205 Yue Fang Di Zheng Zi Di No. C0657395 Ancillary Carport of Unit 305 Yue Fang Di Zheng Zi Di No. C0657383 Total:	GFA (sq.m.) 7.21 6.34
	13.55

The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

Real Estate Title Certificates

Yes

– 263 –

PROPERTY VALUATION

APPENDIX VII

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. DZH 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 enormous 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 can be freely disposed of in the open market.
DZH is effectively owned as to 51% and 45.57% by the Company and the Target Company respectively.

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PROPERTY VALUATION

APPENDIX VII

VALUATION CERTIFICATE

					Market Value in
				Particulars of	existing state as at
No.	Property		Description and tenure	occupancy	31 January 2010
					RMB
4.	Unit 807,		The property comprises a	The property was	170,000
	No. 2 Jian Hua Street,		residential unit on 8th Floor of	occupied by the
	Foshan	City,	an 8-storey residential	Group for residential	(45.57% additional
	Guangdong Province,		building which was completed	use as at the date of	interest attributable to
	The PRC		in 1990’s.	valuation.	the Group pursuant to
			The gross floor area (“GFA”) of the property is		the Acquisition: 77,469
			approximately 65.27 sq.m. (or		51% existing interest
			about 702.57 sq.ft.).		attributable to the
					Group: 86,700
			The land use rights of the
			property have been granted for		96.57% interest
			a term expiring on 31		attributable to the
			December 2063 for residential		Group upon
			use.		completion of the
					Acquisition: 164,169)

Notes:

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C0556131 ( C0556131 ) issued by the 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. ( ) (“DZH”) for a term expiring on 31 December 2063 for residential use.
The status of title and grant of major approvals and licences 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. DZH 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 enormous 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 can be freely disposed of in the open market.
DZH is effectively owned as to 51% and 45.57% by the Company and the Target Company respectively.

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PROPERTY VALUATION

APPENDIX VII

VALUATION CERTIFICATE

Group II – Properties held/to be acquired from the Vendor by the Group for investment in the PRC

No.
5.

Property
Description and tenure
Particulars of
occupancy
Market Value in
existing state as at
31 January 2010
RMB
A warehouse located at
No. 86 Li Yu Sha Road,
Foshan City,
Guangdong Province,
The PRC
The property comprises a
parcel of land with a site area
of approximately 429 sq.m.
(or about 4,617.76 sq.ft.) upon
which a 2-storey warehouse
was erected in about 2006.
The gross floor area (“GFA”)
of the property is
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.
As advised by the
Group, the property
was vacant as at the
date of valuation.
1,390,000
(45.57% additional
interest attributable to
the Group pursuant to
the Acquisition:
633,423
51% existing interest
attributable to the
Group: 708,900
96.57% interest
attributable to the
Group upon
completion of the
Acquisition:
1,342,323)

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Fo Fu Guo Yong (2008) Di No. 06000645784 ( (2008) 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. ( ) (“DZH”) 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 ( C6810584 ) issued by Guangdong Province People’s Government ( ), the property with a GFA of 919.86 sq.m. is legally owned by DZH for a term expiring on 1 May 2049 for warehouse use.
The status of title and grant of major approvals and licences 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. DZH 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 enormous 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 can be freely disposed of in the open market.
DZH is effectively owned as to 51% and 45.57% by the Company and the Target Company respectively.

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VALUATION CERTIFICATE

Description and tenure

No. Property

A commercial building The property comprises a located at No. 81 parcel of land with a site area 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, completed in about 1972, was erected.
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.

Market Value in
Particulars of existing state as at occupancy 31 January 2010 RMB
As per tenancy 560,000 agreements provided by the Group, the (45.57% additional property was subject interest attributable to to a tenancy for a the Group pursuant to term expiring on 31 the Acquisition: December 2009 at a 255,192 monthly rent of RMB3,250 for 51% existing interest commercial use. attributable to the Group: 285,600
Subsequently, the property is leased for 96.57% interest a term of 1 years attributable to the commencing on 1 Group upon January 2010 and completion of the expiring on 31 Acquisition: 540,792) December 2010 at a monthly rent of RMB3,250 for commercial use.

Notes:

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. 2063661 ( 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. ( ) (“DZH”) for a term expiring on 15 November 2038 for commercial use.
The status of title and grant of major approvals and licences 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. DZH 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 enormous 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 can be freely disposed of in the open market.
DZH is effectively owned as to 51% and 45.57% by the Company and the Target Company respectively.

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APPENDIX VII

VALUATION CERTIFICATE

Group III – Properties held by the Group for owner-occupation in the PRC

No. Property Description and tenure 7. An industrial complex The property comprises 2 located at parcels of land with a total No. 35 Fo Luo Main site area of approximately Road, 34,377.11 sq.m. (or about Foshan City, 370,035.21 sq.ft.) upon which Guangdong Province, 12 buildings and structures, The PRC completed mainly in 2000, were erected. 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.

Market Value in Particulars of existing state as at occupancy 31 January 2010 RMB The property was 57,700,000 occupied by the Group for industrial (51% interest use as at the date of attributable to the valuation. Group: 29,427,000)

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. ( ) (“FLX”) for respective terms expiring on 1 January 2050 and 6 April 2050 for industrial use.
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 FLX for industrial use. The details of which are summarized in the table below:

		No. of	Completion
Certificate No.	Buildings	Storeys	Year	GFA
				(sq.m.)
Yue Fang Di Zheng Zi Di No. C0653502	Building No. 1	10	N/A	3,353.66
Yue Fang Di Zheng Zi Di No. C0653503	Building No. 2	5	N/A	2,696.90
Yue Fang Di Zheng Zi Di No. C0653504	Building No. 3	6	N/A	2,341.29
Yue Fang Di Zheng Zi Di No. C0653505	Warehouse, Phase 2	5	N/A	1,623.72
Yue Fang Di Zheng Zi Di No. C0653507	Building No. 4	7	N/A	4,311.73
Yue Fang Di Zheng Zi Di No. C0653508	Building No. 7	4	N/A	944.18
Yue Fang Di Zheng Zi Di No. C0653509	Building Nos. 8 & 9	3	N/A	1,654.25

– 268 –

APPENDIX VII

PROPERTY VALUATION

Certificate No.
Buildings
No. of
Storeys
Completion
Year
Yue Fang Di Zheng Zi Di No. C0653510
Building No. 5
6
N/A
Yue Fang Di Zheng Zi Di No. C4584058
Sewage Treatment
Building
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.)
3,678.70
886.24
11,298.38
5,618.60
7,442.98

45,850.63

The status of title and grant of major approvals and licences 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. FLX 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 enormous 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 can be freely disposed of in the open market.
FLX is effectively owned as to 51% by the Company.

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VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
No. Property Description and tenure occupancy 31 January 2010 RMB
1. An industrial complex The property comprises a The property was 32,300,000 located at parcel of land with a site area occupied by the 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. Group: Committee, buildings, completed in 32,300,000) Rong Gui Road 1990’s, were erected. Workplace, Shunde District, The total gross floor area Foshan City, (“GFA”) 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.

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. ( ) (“Guangdong Medi-World”) dated 3 December 2001 and 5 February 2002 respectively, Guangdong Medi-World 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 ( 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 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 City Rong Gui Village Credit Cooperative Association ( ).
Pursuant to the Industrial Workshop Transfer Contract ( ) entered into between Guangdong Medi-World and on 11 February 2010, the property has been contracted to be transferred from the Guangdong Medi-World to latter.

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The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

State-Owned Land Use Rights Grant Agreement and Yes its Supplementary Agreement Real Estate Title Certificate Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-World 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 enormous 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;
d. The property can be freely disposed of in the open market subject to the consent of the relevant mortgagee; and
e. The site area of the property (i.e. 22,376.8 sq.m.) is based on the Real Estate Title Certificate.
We have prepared our valuation based on the assumption that the property is not subject to any material encumbrances.
Guangdong Medi-World is an indirect wholly-owned subsidiary of the Company.

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VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
No. Property Description and tenure occupancy 31 January 2010 RMB
1. 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 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. Group: Lundun Road Workplace, buildings, mainly completed in 10,200,000) Shunde District, 1991, were erected. Foshan City, Guangdong Province, The total gross floor area The PRC (“GFA”) 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 Guangdong Medi-World Pharmaceutical Co., Ltd. ( ) (“Guangdong Medi-World”) 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 City Rong Gui Village Credit Cooperative Association ( ).
The status of title and grant of major approvals and licences 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

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-World Dazhong Pharmaceutical Co., Ltd. is the former name of Guangdong Medi-World and there exist no legal impediments for the change of the name to Guangdong Medi-World Pharmaceutical Co., Ltd. in Real Estate Title Certificates;

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b. Guangdong Medi-World 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 enormous payment payable to the government;
c. All land premium and other costs of ancillary utility services have been settled in full;
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 can be freely disposed of in the open market subject to the consent of the relevant mortgagee; and
f. The site area of the property (i.e. 5,625.0 sq.m.) is based on the Real Estate Title Certificate.
We have prepared our valuation based on the assumption that the property is not subject to any material encumbrances.
Guangdong Medi-World is an indirect wholly-owned subsidiary of the Company.

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VALUATION CERTIFICATE

Market Value in Particulars of existing state as at No. Property Description and tenure occupancy 31 January 2010 RMB 10. An industrial complex at The property comprises a The property was 62,400,000 No. 2 Ke Yuan Heng parcel of land with a site area occupied by the Third Road, of approximately 34,902.68 Group for industrial (100% interest Xiao Huang Pu sq.m. (or about 375,692.45 use as at the date of attributable to the Neighbourhood sq.ft.) upon which various valuation. Group: Committee High and buildings, mainly completed in 62,400,000) New Technology 1991, were erected. Industrial Development Zone (Rong Gui), The total gross floor area Rong Gui County (“GFA”) of the property is Workplace, approximately 18,332.09 sq.m. Shunde District, (or about 197,326.62 sq.ft.). Foshan City, Guangdong Province, The land use rights of the The PRC property have been granted for a term expiring on 24 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 Guangdong Medi-World Pharmaceutical Co., Ltd. ( ) (“Guangdong Medi-World”) on 23 November 2004, Guangdong Medi-World has been contracted to be 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 ( ) (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. 18.
Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C6782214 ( 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 Guangdong Medi-World for a term expiring on 24 November 2054 for industrial use.

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The property is subject to a mortgage approved on 21 January 2008 in favour of Industrial Bank Co., Ltd., Foshan Shunde Branch ( ).
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 and grant of major approvals and licences 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 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 enormous 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;
d. The property can be freely disposed of in the open market subject to the consent of the relevant mortgagee; and
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 is an indirect wholly-owned subsidiary of the Company.

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VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
No. Property Description and tenure occupancy 31 January 2010 RMB
1. 6 residential units in The property comprises 6 The property was 1,810,000 Block 1, residential units in a 7-storey occupied by the Shu Yuan Road, commercial/residential block Group for residential (100% interest Zhenhua Management which was completed in use as at the date of attributable to the Zone Workplace, 1990’s. valuation. Group: Rong Gui County, 1,810,000) 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 and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

Real Estate Title Certificates

Yes

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The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Guangdong Medi-World Dazhong Pharmaceutical Co., Ltd. is the former name of Guangdong Medi-World and there exist no legal impediments for the change of the name to Guangdong Medi-World Pharmaceutical Co., Ltd. ( ) (“Guangdong Medi-World”) in Real Estate Title Certificates;
b. Guangdong Medi-World 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 enormous payment payable to the government;
c. All land premium and other costs of ancillary utility services have been settled in full;
d. The property is not subject to mortgage or any other material encumbrances;
e. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
f. The property can be freely disposed of in the open market.
Guangdong Medi-World is an indirect wholly-owned subsidiary of the Company.

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VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
No. Property Description and tenure occupancy 31 January 2010 RMB
1. An industrial complex The property comprises a The property was 32,100,000 located at parcel of land with a site area occupied by the Huan Cheng Xi Road of approximately 17,186.5 Group for industrial (100% interest West and Hong Xing Xi sq.m. (or about 184,995.49 use as at the date of attributable to the Road North, sq.ft.) upon which 14 valuation. Group: Central District, buildings completed in various 32,100,000) Jining City, stages between 1979 and 2004 Shandong Province, and a building under The PRC construction, were erected. The total gross floor area (“GFA”) of the property is approximately 10,988.42 sq.m. (or about 118,279.35 sq.ft.).

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 ( ), issued by Jining City Land 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”) for a term expiring in December 2052 for industrial use.
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 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

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PROPERTY VALUATION

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 completed in 2009 (the “Workshop”) with a planed GFA of 3,470 sq.m. located within the factory zone of Luya 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 proposed GFA of 3,470 sq.m. located within the factory zone of Luya was permitted to commence with a construction period from 18 September 2007 to 10 July 2008.
Pursuant to a Mortgage Contract, Lu Sheng Tai He Hang (Jin Zhi) Gao Di Zi (2008) Di No. 008 ( ), entered into between Luya 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

The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:
a. Luya 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 of the property are in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. There exist no legal impediments for Luya to obtain the relevant title certificates of the Workshop completed in 2009 with a GFA of 3,470 sq.m.; and
f. The property can be freely disposed of in the open market subject to the consent of the relevant mortgagee.
We have prepared our valuation based on the assumption that the property is not subject to any material encumbrances.
Luya is an indirect wholly-owned subsidiary of the Company.

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VALUATION CERTIFICATE

Group IV – Properties held by the Group for investment in the PRC

No.
13.

Property
Description and tenure
Particulars of
occupancy
Market Value in
existing state as at
31 January 2010
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, completed in about
1997, was erected.
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.
As per a tenancy
agreement provided
by the Group, the
property is subject to
a tenancy for a term
expiring on 31 March
2012 at a monthly
rent of RMB5,000 for
commercial use.
1,640,000
(51% interest
attributable to the
Group:
836,400)

Notes:

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. C3660682 ( 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. ( ) (“FLX”) for a term expiring on 22 March 2063 for commercial/residential uses.
The status of title and grant of major approvals and licences 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. FLX 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 enormous 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 can be freely disposed of in the open market.
FLX is effectively owned as to 51% by the Company.

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VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
No. Property Description and tenure occupancy 31 January 2010 RMB
1. Shop No. 3, Level 1, The property comprises a shop As per a tenancy 540,000 No. 33 Wei Guo Road, unit on Level 1 of a 9-storey agreement provided Foshan City, commercial/residential by the Group, the (51% interest Guangdong Province, building which was completed property is subject to attributable to the The PRC in 1990’s. a tenancy for a term Group: of 2 years 275,400)
The gross floor area (“GFA”) commencing on 1 of the property is September 2009 and approximately 104.80 sq.m. expiring on 31 August (or about 1,128.07 sq.ft.). 2011 at a monthly rent of RMB15,000 for
The land use rights of the commercial use. 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 ( 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. ( ) (“FLX”) for a term expiring on 30 April 2041 for commercial use.
The status of title and grant of major approvals and licences 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. FLX 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 enormous 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 can be freely disposed of in the open market.
FLX is effectively owned as to 51% by the Company.

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PROPERTY VALUATION

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
No. Property Description and tenure occupancy 31 January 2010 RMB
1. A development located at The property comprises a As per a tenancy 12,000,000 No. 43 Qing Ning Road, parcel of land with a site area agreement provided Foshan City, of approximately 5,543.60 by the Group, the (51% interest Guangdong Province, sq.m. (or about 59,671.31 property is subject to attributable to the The PRC sq.ft.) upon which an a tenancy for a term Group: industrial complex with 7 of 30 years as a 6,120,000) buildings and structures, hospital complex as at completed in various stages the date of valuation. between 1960 and 1982, were erected. Details of the tenancy are shown in Note 4.
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.
A development located at No. 43 Qing Ning Road, Foshan City, Guangdong Province, The PRC

Notes:

Pursuant to 7 Real Estate Title Certificates all issued by Guangdong Province People’s Government ( ), 7 buildings and structures of the property with a site area of 5,649 sq.m. are legally owned by Foshan Feng Liao Xing Pharmaceutical Co., Ltd. ( ) (“FLX”) 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 ( C0653514 ) issued by the Guangdong Province People’s Government ( ) and Foshan City Housing Relocation Contract ( ) entered into between Foshan City 12[th] Primary School ( ) and FLX on 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 FLX 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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The details of the tenancy are summarized in the table below:

Year	Duration	Annual Rent
1st – 3rd Year	1 March 2004 – 28 February 2007	RMB 500,000
4th – 6th Year	1 March 2007 – 28 February 2010	RMB 700,000
7th – 10th Year	1 March 2010 – 28 February 2014	RMB 800,000
11th – 20th Year	1 March 2014 – 29 February 2024	RMB 1,200,000
21st – 30th Year	1 March 2024 – 1 March 2024	RMB 1,500,000

The yearly rent can be adjusted subject to the Price Index from Statistics Bureau ( ).

The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

Land Transfer Agreement Yes Real Estate Title Certificates Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. FLX 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 enormous 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. However, the terms of tenancy are valid, legal and enforceable for the first 20 years;
g. The property may be freely disposed of in the open market; and
h. As per information provided by the Group, original site area of the property was 5,649 sq.m. detailed in Note 1 and 42.50 sq.m. and 62.90 sq.m. of site area have been transferred and resumed respectively. Therefore, the current site area of the property is 5,543.60 sq.m.
FLX is effectively owned as to 51% by the Company.

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VALUATION CERTIFICATE

Group V – Properties held by the Group under contractual rights in the PRC

No. Property Description and tenure 16. A non-residential unit in The property comprises a a proposed development non-residential unit with a at Shang Shi Jiao Tang proposed gross floor area Bian Street, (“GFA”) of 1,250 sq.m. in a Chao Dong Village, proposed development. Huan Shi County, Foshan City, Guangdong Province, The PRC

Market Value in Particulars of existing state as at occupancy 31 January 2010 RMB The construction No Commercial works of the proposed Value development had not been commenced as at the date of valuation.

==> picture [96 x 41] 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. ( ) (“FLX”) dated 31 August 2008, the property is granted to FLX 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 and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

Housing Resettlement Contract Yes State-owned Land Use Right Certificate No

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. The completed property will be handed over to FLX upon the completion of the proposed development; and
b. As the relevant title document has not been obtained, no legal opinion can be provided for the property.
In arriving at our valuation, we cannot attribute any commercial value to the property without proper title document.
FLX is effectively owned as to 51% by the Company.

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VALUATION CERTIFICATE

Market Value in Particulars of existing state as at No. Property Description and tenure occupancy 31 January 2010 RMB 17. A land parcel located The property comprises a The property was a No Commercial at Xinyu Lugang parcel of land with a site area vacant site as at the Value Industrial Zone, of approximately 71,248.8 date of valuation. Genghe Town, sq.m. (or about 766,922.08 Gaoming District, sq.ft.). Foshan City Guangdong Province The land use rights of the The PRC property have been granted for a term expiring on 24 December 2053 for industrial use.

Notes:–

Pursuant to a Land Use Rights Transfer Contract ( ) entered into between Foshan City Gaoming District Genghe Town Construction Real Estate Administration Office ( ), Guangdong Medi-World Pharmaceutical Co., Ltd. ( ) (“Guangdong Medi-World”) and Foshan Feng Liao Xing Pharmaceutical Co., Ltd.

( ) (“FLX”) on 20 January 2010 (“Contract”), Guangdong Medi-World and FLX have been contracted to be granted the land use rights of the property with the following salient conditions:

(i) Use : Industrial (ii) Site Area of the Property : 71,248.8 sq.m. (iii) Land Use Term : 50 years expiring on 24 December 2053 (iv) Land Premium : RMB17,500,000

As advised by the Group, the land premium of the property has not been fully settled.
In arriving at our valuation, we cannot attribute any commercial value to the property without proper title document.
The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

Land Use Rights Transfer Contract Yes Real Estate Title Certificate No

The opinion of the PRC legal adviser to the Group states that the Contract detailed in Note 1 is legal and enforceable.
Guangdong Medi-World is an indirect wholly-owned subsidiary of the Company.
FLX is effectively owned as to 51% by the Company.

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APPENDIX VII

VALUATION CERTIFICATE

Group VI – Property held by the Group for future development in the PRC

				Market Value in
			Particulars of	existing state as at
No.	Property	Description and tenure	occupancy	31 January 2010
				RMB
18.	Land Parcel C08-2	The property comprises a	The property was a	15,400,000
	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.).		Group:
	Technology Zone (Rong			15,400,000)
	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 Recourses Bureau ( ) and Guangdong Medi-World Pharmaceutical Co., Ltd. ( ) on 23 November 2004, Guangdong Medi-World has been contracted to be 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. 10.
Pursuant to a State-owned Land Use Rights Certificate, Shun Fu Guo Yong (2004) Di No. 1002310 ( (2004) 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 Guangdong Medi-World for a term expiring on 24 November 2054 for industrial use.
Pursuant to the State-owned Land Use Rights Grant Contract Supplementary Agreement, Shun Guo Chu Rang Zi (2004) Di. No. 2737 Bu No. 01 ( (2004) 2737 01 ) entered into between Foshan City Land Recourses Bureau ( ) and Guangdong Medi-World on 8 December 2008, the proposed development should be completed and passed in acceptance inspection before 30 December 2011.

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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 State-owned Land Use Rights Certificate and confirmation of the PRC adviser, the site area of the property is 29,285.1 sq.m.
The status of title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

State-Owned Land Use Rights Grant Contract Yes and its Supplementary Agreement 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 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 enormous 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 freely disposed of in the open market;
f. According to the Contract and the Real Estate Title Certificate detailed in Note 3, the site area of the property is 29,285.10 sq.m.; and
g. The construction work of the property has not been commenced. However, the property will not be resumed unless the property is vacant on the expiry date detailed in Note 4.
Guangdong Medi-World is an indirect wholly-owned subsidiary of the Company.

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VALUATION CERTIFICATE

Group VII – Property rented by the Group in Hong Kong

No. Property

Description and tenure

Market Value in Particulars of existing state as at occupancy 31 January 2010 HK$

Rooms 2801-2805, 28[th] Floor, China Insurance Group Building, No. 141 Des Voeux Road Central, Hong Kong

The property comprises 5 office units on the 28[th] floor of an office/commercial development known as China Insurance Group Building which was completed in 1967.

As advised by the No Commercial Value Group, the property was occupied by the Group for office use as at the date of valuation.

As advised by the Group, the total gross floor area of the property is approximately 2,500 sq. ft. (or about 232.26 sq.m.).

Pursuant to a tenancy agreement entered into between an independent third-party landlord and Lipromate Resources Limited, the property is leased to the latter for a term of 2 years commencing on 1 April 2009 and expiring on 31 March 2011 at a monthly rent of HK$30,000 exclusive of Government rates and management fee.

Note:–

According to the above-mentioned tenancy agreement, the tenant of the property is Lipromate Resources Limited, which is a wholly-owned subsidiary of the Company.

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APPENDIX VII

VALUATION CERTIFICATE

Group VIII – Property rented by the Group in the PRC

No. Property

Description and tenure

Market Value in Particulars of existing state as at occupancy 31 January 2010 RMB

Various office units and warehouses in Xin Ti Road, Dali Town, Foshan City, Guangdong Province, The PRC

The property comprises various office units and warehouses in an industrial building which was completed in about 1980’s.

As advised by the Group, the total gross floor area of the property is approximately 8,156.43 sq. m. (or about 87,795.81 sq.ft.).

As advised by the No Commercial Value Group, the property was occupied by the Group for office and warehouse uses as at the date of valuation.

Pursuant to a tenancy agreement entered into between an independent third-party landlord and , the property is leased to the latter for a term commencing on 1 November 2009 and expiring on 30 October 2011 at a monthly rent of RMB50,000 exclusive of management fee.

Notes:–

According to the above-mentioned tenancy agreement, the tenant of the property is , which is a wholly-owned subsidiary of the Company; and
The opinion of the PRC legal adviser to the Company states that although the above-mentioned tenancy agreement has not been properly registered with the relevant government authority, the legality of the tenancy agreement would not be affected.

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GENERAL INFORMATION

APPENDIX VIII

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 Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular (other than those expressed by the Subscribers, Sureplan, Mr. Yang and Mr. Xu) 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 Subscribers, being Mr. Yang and Mr. Xu respectively, 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 (other than those expressed by the Group) 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 capitals of the Company as at the Latest Practicable Date were and immediately after completion of the Subscription Agreement will be as follows:

Authorised: 3,000,000,000 Shares	HK$ 300,000,000.0

Issued and fully paid: 1,628,410,807 Shares in issue as at the Latest Practicable Date 155,000,000 Subscription Shares to be issued	162,841,080.7 15,500,000.0
1,783,410,807 Shares in issue upon completion of the Subscription Agreement	178,341,080.7

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 Subscription 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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APPENDIX VIII

On 6 February 2009, the Company (i) issued 564,102,563 new Shares to Sureplan as part of the consideration for the acquisition of Smartpoint; and (ii) placed 233,334,000 new Shares to not less than six placees who are third parties independent of the Company, its connected persons and Sureplan pursuant to a placing agreement dated 29 December 2008 entered into between the Company and Sun Hung Kai International Limited. Save as disclosed above, since 31 December 2008, 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.

The Company did not have any 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$
31 July 2009	0.76
28 August 2009	0.75
30 September 2009	0.74
30 October 2009	0.77
31 November 2009	0.75
31 December 2009	0.75
29 January 2010 (also the Last Trading Day)	0.87
26 February 2010	1.17
Latest Practicable Date	1.22

The highest and lowest closing prices per Share recorded on the Stock Exchange during the Relevant Period were HK$1.24 on 23 February 2010 and HK$0.70 on 30 July 2009 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, the interests and short positions of the Directors or chief executive of the Company 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

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APPENDIX VIII

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 were as follows:

			Approximate
			percentage of
			total
		Number of	interests to
Name of Directors	Capacity	Shares	issued Shares
Mr. Yang	Interest in controlled	641,602,563	39.40%
	corporation	(Notes 1 & 2)
Mr. Xu	Interest in controlled	641,602,563	39.40%
	corporation	(Notes 1 & 3)
SITU Min	Beneficial owner	268,000	0.02%

Note:

(1) 564,102,563 Shares were held by Sureplan which is 50% owned indirectly by Mr. Yang and 25% owned indirectly by Mr. Xu. Mr. Yang is deemed to be interested in Sureplan’s interest in the Company under the SFO. Mr. Yang and Mr. Xu are directors of Sureplan.
(2) 77,500,000 Shares are to be subscribed by Profit Channel pursuant to the terms of the Subscription Agreement and Profit Channel is deemed to be interested in such Shares. Profit Channel is wholly owned by Mr. Yang.
(3) 77,500,000 Shares are to be subscribed by Extra Benefit pursuant to the terms of the Subscription Agreement and Extra Benefit is deemed to be interested in such Shares. Extra Benefit is wholly owned by Mr. Xu.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and the 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.

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) had an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the

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APPENDIX VIII

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 Group	Beneficial owner	605,290,886	37.17%
Limited
Foshan Development	Interest in controlled	605,290,886	37.17%
Company Limited	corporation	(Note 1)
Sureplan	Beneficial owner	564,102,563	34.64%
Profit Channel	Beneficial owner and	641,602,563	39.40%
	interest in controlled	(Notes 2 & 3)
	corporation
Extra Benefit	Beneficial owner and	641,602,563	39.40%
	other	(Notes 2 & 4)
First Linkup Development	Other	564,102,563	34.64%
Limited		(Note 2)
WU Chiu Kong	Other	564,102,563	34.64%
		(Note 2)

Notes:

(1) The 605,290,886 Shares were held by Hensil Investments Group Limited, which is wholly owned by Foshan Development Company Limited. By virtue of its interest in Hensil Investments Group Limited, Foshan Development Company Limited was deemed to be interested in such 605,290,886 Shares held by Hensil Investments Group Limited.
(2) Sureplan is owned as to 25% by First Linkup Development Limited, 25% by Extra Benefit and 50% by Profit Channel which are in turn wholly owned by Mr. WU Chiu Kong, Mr. Xu and Mr. Yang respectively.
(3) 77,500,000 Shares are to be subscribed by Profit Channel pursuant to the terms of the Subscription Agreement and thus Profit Channel is deemed to be interested in such Shares.
(4) 77,500,000 Shares are to be subscribed by Extra Benefit pursuant to the terms of the Subscription Agreement and thus Extra Benefit is deemed to be interested in such Shares.

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GENERAL INFORMATION

APPENDIX VIII

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, save as disclosed in the section headed “Disclosure of interests” above in this Appendix, none of the Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them (including the directors of the Subscribers) owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company.
(b) None of the Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them (including the directors of the Subscribers) had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(c) None of the Directors had dealt for value in any shares, convertible securities, warrants, options or derivatives of the Company or the Subscribers during the Relevant Period.
(d) As at the Latest Practicable Date, there was no agreement, arrangement or understanding between the Subscribers, Sureplan, Mr. Yang, Mr. Xu or parties acting in concert with any of them and other persons in relation to the transfer, charge or pledge of the Shares to be issued to the Subscribers under the Subscription Agreement.
(e) 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.
(f) The Company had no interest in the shares in any of the Subscribers as at the Latest Practicable Date, and had not dealt for value in the shares of any of the Subscribers during the Relevant Period.
(g) 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.

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APPENDIX VIII

(h) 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.
(i) As at the Latest Practicable Date, no person had irrevocably committed themselves to vote for or against the resolution(s) to be proposed at the EGM in relation to the Subscription or the Whitewash Waiver.
(j) 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 Subscription and the Whitewash Waiver.
(k) As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) existed between the Subscribers, Sureplan, Mr. Yang, Mr. Xu or parties acting in concert with any of them and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Subscription or the Whitewash Waiver.
(l) As at the Latest Practicable Date, there was no material contract entered into by the Subscribers, Sureplan, Mr. Yang, Mr. Xu or parties acting in concert with any of them in which any Director has a material personal interest, except for the Subscription Agreement entered into by the Subscribers in which each of Mr. Yang and Mr. Xu, who were executive Directors, had a material personal interest.
(m) 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 Subscription or the Whitewash Waiver or otherwise connected with the Subscription and the Whitewash Waiver.
(n) As at the Latest Practicable Date, none of the Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them had borrowed or lent any Shares.
(o) As at the Latest Practicable Date, none of the Subscribers, Sureplan, Mr. Yang, Mr. Xu and parties acting in concert with any of them had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with any person.
(p) As at the Latest Practicable Date, neither the Company nor the Directors had borrowed or lent any Shares.

6. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Enlarged Group.

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APPENDIX VIII

7. SERVICE CONTRACTS

Set out below are the details of the service contracts of the Directors which are fixed-term contracts with more than 12 months to run irrespective of the notice period:

Director Term of service contract Remuneration ZHANG Jianhui 10 June 2009 to 9 June 2011 HK$180,000 per annum, without variable remuneration payable under the contract WANG Bo 10 June 2009 to 9 June 2011 HK$180,000 per annum, without variable remuneration payable under the contract

Set out below are the details of the service contract of Mr. DU Richeng (a non-executive Director) which is a fixed-term contract and has been entered into or amended within 6 months before the date of the Announcement:

Term of service contract Remuneration 1 January 2010 to HK$180,000 per annum, without variable 31 December 2010 remuneration payable under the contract

As at the Latest Practicable Date, save as disclosed above, none of the Directors had any existing or proposed service contract with the Company or any of its subsidiaries or associated companies which (i) has been entered into or amended within 6 months before the date of the Announcement; or (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; or (iv) is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

8. DIRECTORS’ INTERESTS IN CONTRACTS

On 10 November 2009, a master supply agreement dated 10 November 2009 entered into between the Company and (Foshan Nanhai Pharmaceutical Group Co. Ltd.) in relation to the supply of certain pharmaceutical products by the Group during the three-year period from 1 January 2010 to 31 December 2012. (Foshan Nanhai Pharmaceutical Group Co. Ltd.) is owned as to 25.5% by each of Mr. Yang and Mr. Xu who are executive Directors.

As at the Latest Practicable Date, save as disclosed above and apart from the Subscription Agreement, none of the Directors was materially interested in any contract or arrangement subsisting and which was significant in relation to the business of the Enlarged Group.

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APPENDIX VIII

9. DIRECTORS’ INTERESTS IN ASSETS OF THE GROUP

On 6 February 2009, the Company completed the acquisition of the entire issued share capital of Smartpoint from Sureplan in which Mr. Yang and Mr. Xu are holding 75% interests collectively.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any asset which had been acquired or disposed of by or leased to any member of the Enlarged Group or was proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2008, the date to which the latest published audited consolidated financial statements of the Company were made up.

10. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, save as disclosed below, none of the Directors and their respective associates was interested in any business which competes or is likely to compete, whether directly or indirectly, with the business of the Enlarged Group. The Directors confirm that the Group is capable of carrying on its business independent of, and at arm’s length from, the business as disclosed below which are considered to compete or likely to compete with the business of the Enlarged Group. The Directors also confirm that the respective management and administration of the business set out below are independent from the Enlarged Group.

			Description of business of
			the entity which is
Name of entity the	business of		considered to compete or		Nature of
which is considered		to compete	likely to compete with the		interest of the
or likely to compete with the			business of the Enlarged	Name of	Director(s) in
business of the Enlarged Group (Foshan Nanhai Pharmaceutical			Group (a) management of investment in the	Director Mr. Yang and Mr. Xu	the entity shareholders and directors
Group Co. Ltd*)			sectors of
			pharmaceuticals,
			medical equipments,
			sanitary materials and
			health food; and

(b) distribution of pharmaceutical products

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APPENDIX VIII

11. 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 falling two years preceding the date of the Announcement and up to the Latest Practicable Date:

(a) a supplemental agreement dated 1 March 2008 between Hensil Trading & Investments Limited, a company incorporated in the BVI, as vendor and Hensil Trading & Investments Limited, a limited company incorporated in Hong Kong, as purchaser, pursuant to which the purchaser agreed to take up the amount of HK$37,028,000 due to Hensil Holdings Company Limited from the vendor as part of the consideration of HK$82,782,000 in relation to the sale and purchase of 51% capital interest in FLX;
(b) a supplemental agreement dated 1 March 2008 between Hensil Industrial Inc. as vendor and Hensil Industrial Inc. Limited as purchaser, pursuant to which the purchaser agreed to take up the amount of HK$21,802,514.40 due to Hensil Holdings Company Limited from the vendor as part of the consideration of HK$199,618,000 in relation to the sale and purchase of 51% capital interest in DZH;
(c) an equity transfer agreement dated 12 March 2008 between Mr. Yang as transferor and the Purchaser 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);
(d) an equity transfer agreement dated 12 March 2008 between Mr. Xu as transferor and the Purchaser 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);
(e) an assets reorganization agreement dated 15 May 2008 between the Purchaser 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 the Purchaser as manufacturer and the sale of all the medicine production equipments, supporting equipments and devices of Foshan Winteam situated at a production site at a consideration of RMB2,116,815 (equivalent to approximately HK$2.4 million);
(f) 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 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;

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GENERAL INFORMATION

(g) a tenancy agreement dated 1 July 2008 entered into between the Purchaser 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;
(h) (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 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 sq.m. 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 sq.m. per month as subsidies;
(i) an agreement dated 29 November 2008 (the “Smartpoint Acquisition Agreement”) entered into among the Company, Sureplan, Mr. Yang, Mr. Xu and Mr. WU Chiu Kong in relation to the acquisition of the entire issued share capital of Smartpoint at a consideration of HK$300 million. The acquisition was completed on 6 February 2009;
(j) a placing agreement dated 29 November 2008 entered into between the Company (as issuer) and Sun Hung Kai International Limited (as placing agent) pursuant to which the Company has conditionally agreed to place, through the placing agent, up to 233,334,000 new Shares at a price of HK$0.30 per Share to not less than six independent placees on a best effort basis;
(k) 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 the Purchaser as land user pursuant to which Bureau of Land and Resources of Foshan agreed the Purchaser to commence the construction on the land granted by 31 December 2009, and complete the construction and apply for examination of the land by 30 December 2011 and the approved and registration amount of the project-fixed investment of the Purchaser should not be less than RMB90,930,000 (equivalent to approximately HK$102.8 million);
(l) a tenancy agreement dated 10 December 2008 entered into between the Purchaser as lessor and (Guangdong Dachong Pharmaceutical Co., Ltd.*) as lessee in relation to the lease of warehouse of the Purchaser for the period of 16 December 2008 to 15 May 2009 at a monthly rent of RMB5,200;

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APPENDIX VIII

(m) a supplemental agreement dated 16 December 2008 entered into among the Company, Sureplan, Mr. Yang, Mr. Xu and Mr. WU Chiu Kong in relation to the amendment of, inter alia, the issue mechanism of the consideration Shares to be issued under the Smartpoint Acquisition Agreement;
(n) a termination agreement dated 25 December 2008 entered into between the Purchaser 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 “ ”;
(o) a tenancy agreement dated 28 April 2009 entered into between Lucky Crown Holdings Limited ( ) as landlord and Lipromate Resources Limited ( ), a wholly-owned subsidiary of the Company, as tenant, pursuant to which Lucky Crown Holdings Limited shall let and Lipromate Resources Limited shall take the premises at Rooms 2801-2805, 28th Floor, China Insurance Group Building, No. 141 Des Voeux Road Central, Hong Kong for the term from 1 April 2009 to 31 March 2011 and at the rent of HK$30,000 per month;
(p) a tenancy agreement dated 7 May 2009 between FLX and (Foshan City Jian Min Pharmaceutical Chain Co.,
Ltd.*), an independent third party, whereby FLX agreed to lease a shop located at No. 33 Wei Guo Road, Foshan City, Guangdong Province, the PRC with a construction area of approximately 103 sq.m to from 1 September 2009 to 31 August 2011 at a monthly rental of RMB15,000 exclusive of all utility expenses;
(q) a tenancy agreement dated 30 October 2009 entered into between ( ) (Foshan City Nanhai Pharmaceutical Group Co., Ltd*) as landlord
and ( ) (Foshan City Nanhai Pharmaceutical Group Medicinal Material Co., Ltd.) as tenant, pursuant to which ( ) (Foshan City Nanhai Pharmaceutical Group Co., Ltd) shall let and
( ) (Foshan City Nanhai Pharmaceutical Group Medicinal Material Co., Ltd.*) shall take the land use rights of certain factories with an aggregate area of 8,041.14 sq.m. for the term from 1 November 2009 to 30 October 2011 at the rent of RMB50,000 per month;
(r) an equity transfer agreement dated 2 July 2009 between (Foshan City Nanhai Pharmaceutical Group Co., Ltd*) as transferor and the Purchaser as transferee in relation to the transfer of the entire equity interest in (Foshan City Nanhai Pharmaceutical Group
Medicinal Material Co., Ltd.*) at a consideration of RMB4,000,000 (equivalent to approximately HK$4,537,000). The acquisition was completed on 6 November 2009;
(s) a tenancy agreement dated 9 December 2009 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

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GENERAL INFORMATION

APPENDIX VIII

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 commencing from 1 January 2010 to 31 December 2010 at a monthly rental of RMB 3,250 (exclusive of tax) and the management fees, water and electricity charges shall be borne by ;

(t) a land use right transfer agreement dated 20 January 2010 entered into between (Foshan City Gao Ming District Geng He Town
Construction and Real Estate Management Office*) as the transferor and DZH and FLX as the transferees, pursuant to which agreed to transfer the land use right in relation to a piece of industrial land located at Xin Yu Lu Gang Industrial District, Geng He Town, Gao Ming District, Foshan City with an area of 71,248.8 sq.m. to DZH and FLX at a consideration of RMB17,500,000 (equivalent to approximately HK$19.9 million);
(u) an industrial factory transfer agreement dated 11 February 2010 entered into between the Purchaser as transferor and (Foshan City Shunde District Kaihui Investment Company Limited) as the transferee, pursuant to which the Purchaser agreed to transfer the industrial land, factory and the ancillary facilities located at (No. 2, Rong Shan Ju Wei Hui Qiao Xi Road, Rong Gui Street Office, Shunde District, Foshan City) on an as-is basis, with an area of the land of 22,376.8 sq.m. and a gross floor area of the factory of 21,222.8 sq.m., to , at a consideration of RMB41,000,000 (equivalent
to approximately HK$46.5 million);
(v) the Acquisition Agreement; and
(w) the Subscription Agreement.

12. EXPERTS AND CONSENTS

(a) The following are the qualifications of the experts who have given their opinions and advices which are included in this circular:

Name Qualification BMI Appraisals Limited independent professional valuer KPMG Certified Public Accountants Optima Capital Limited a corporation licensed 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 Shenyin Wanguo Capital (H.K.) a licensed corporation to carry on type 1 Limited (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

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GENERAL INFORMATION

APPENDIX VIII

(b) As at the Latest Practicable Date, neither BMI Appraisals Limited, KPMG, Optima Capital nor Shenyin Wanguo had 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) BMI Appraisals Limited, KPMG, Optima Capital and Shenyin Wanguo have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their respective opinions or letters and/or the references to their names in the form and context in which they are respectively included.
(d) As at the Latest Practicable Date, neither BMI Appraisals Limited, KPMG, Optima Capital nor Shenyin Wanguo had any direct or indirect interest in any asset which had been acquired or disposed of by, or leased to any member of the Enlarged Group, or was proposed to be acquired or disposed of by, or leased to any member of the Enlarged Group since 31 December 2008, the date to which the latest published audited financial statements of the Group were made up.

13. 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) on the Company’s website at www.winteamgroup.com 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 annual reports of the Company for the two years ended 31 December 2007 and 2008;
(c) the interim report of the Company for the six months ended 30 June 2009;
(d) the letter from Shenyin Wanguo containing its advice to the Listing Rules Independent Board Committee, the Whitewash Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from Shenyin Wanguo” in this circular;
(e) the letter of recommendation from the Listing Rules Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Listing Rules Independent Board Committee” in this circular;

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GENERAL INFORMATION

APPENDIX VIII

(f) the letter of recommendation from the Whitewash Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Whitewash Independent Board Committee” in this circular;
(g) the written consents referred to in the paragraph headed “Experts and Consents” in this Appendix;
(h) the accountants’ report on the Target Company, the text of which is set out in Appendix II to this circular;
(i) the accountants’ report on DZH, the text of which is set out in Appendix III to this circular;
(j) the report from KPMG on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV to this circular;
(k) the report from KPMG on the Forecast, the text of which is set out in Appendix VI to this circular;
(l) the report from Optima Capital on the Forecast, the text of which is set out in Appendix VI to this circular;
(m) 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 VII to this circular;
(n) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(o) the service contracts of the Directors referred to in the paragraph headed “Service contracts” in this Appendix;
(p) the circular dated 31 December 2008 issued by the Company relating to the acquisition by the Company of the entire issued share capital of Smartpoint from Sureplan, which contains the accountants’ report on the Smartpoint Group, the text of which is reproduced in Appendix V to this circular, and the report from KPMG on the unaudited pro forma financial information of the Group as enlarged by the acquisition of the Smartpoint Group, the text of which is reproduced in Appendix V to this circular; and
(q) this circular.

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GENERAL INFORMATION

APPENDIX VIII

14. MISCELLANEOUS

(a) 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 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 Shenyin Wanguo is 28/F., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong.
(f) The registered office of Profit Channel is situated at Sea Meadow House, Blackburne Highway, Road Town, Tortola, the BVI and the correspondence address of Profit Channel in Hong Kong is at Unit B, 15th Floor, Kee Shing Centre, 74-76 Kimberley Road, Tsim Sha Tsui, Kowloon, Hong Kong. The sole director of Profit Channel is Mr. Yang.
(g) The registered office of Extra Benefit is situated at Sea Meadow House, Blackburne Highway, P.O. Box 116, Road Town, Tortola, the BVI and the correspondence address of Extra Benefit in Hong Kong is at Unit B, 15th Floor, Kee Shing Centre, 74-76 Kimberley Road, Tsim Sha Tsui, Kowloon, Hong Kong. The sole director of Extra Benefit is Mr. Xu.
(h) The business address of the Directors is at Rooms 2801-2805, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong.
(i) The registered office of Sureplan is situated at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, the BVI and the correspondence address of Sureplan in Hong Kong is at Flat B, 15th Floor, Kee Shing Centre, 74-76 Kimberley Road, Tsim Sha Tsui, Kowloon, Hong Kong. The directors of Sureplan are Mr. Yang, Mr. Xu and Mr. WU Chiu Kong.
(j) 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

==> picture [296 x 42] intentionally omitted <==

(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 Winteam Pharmaceutical Group Limited (the “ Company ”) will be held at Boardroom V, Ground Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Monday, 29 March 2010 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

“ THAT the equity transfer agreement dated 30 January 2010 entered into between (Guangdong Medi-world Pharmaceutical Co., Ltd.*) (the

“ Purchaser ”) and Mr. HE Zhaojian ( ) in relation to the proposed acquisition by the Purchaser of the capital contribution in the total amount of RMB21,715,300 in (Foshan City An Ning Company Limited) (the “ Target Company ”) (representing 93% equity interest in the Target Company) (the “ Acquisition Agreement ”) (copy of which is produced to the meeting marked “ A ” and initialed by the Chairman of the meeting for the purpose of identification) at a consideration of RMB116 million, upon the terms and subject to the conditions therein contained, and all the transactions contemplated thereunder be and are hereby approved, confirmed and/or ratified; and that 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 and 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 Acquisition Agreement and the transactions contemplated thereunder as they may in their discretion consider to be desirable and in the interests of the Company.”

“ THAT :
(i) the conditional subscription agreement (the “ Subscription Agreement ”) dated 30 January 2010 entered into among the Company as the issuer, Profit Channel Development Limited and Extra Benefit Corp. as the subscribers (the “ Subscribers ”) and Mr. Yang Bin and Mr. Xu Tiefeng as guarantors in relation to the subscription of the 155,000,000 new shares of the Company to be issued and allotted by the Company pursuant to the Subscription Agreement (the “ Subscription Shares ”) at HK$0.85 per Subscription 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) and the transactions contemplated thereunder be and are hereby approved, confirmed

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NOTICE OF EGM

and/or ratified; and that 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 Subscription 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 permission to deal in, the Subscription Shares, the allotment and issue of the Subscription Shares pursuant to the Subscription Agreement upon the terms and subject to the conditions therein contained be and is hereby approved; and that 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 and 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 Subscription Shares in accordance with the terms of the Subscription Agreement as they may in their discretion consider to be desirable and in the interests of the Company.”
“ THAT subject to the Executive (as defined in the circular of the Company dated 11 March 2010 (the “ Circular ”)) granting to the Subscribers the Whitewash Waiver (as defined in the Circular) and the satisfaction of all the 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 the Subscribers and parties acting in concert with any of them, 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 the Subscribers, Sureplan Limited, Mr. Yang Bin, Mr. Xu Tiefeng and parties acting in concert with any of them as a result of the allotment and issue of the Subscription Shares to the Subscribers pursuant to the Subscription Agreement be and are hereby waived; and that 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 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.”

By Order of the Board Winteam Pharmaceutical Group Limited DU Richeng Chairman

Hong Kong, 11 March 2010

For identification purpose only

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NOTICE OF EGM

Notes:

(1) Any member 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.
(2) In order to be valid, the form of proxy together with any power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that 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.
(3) Pursuant to Rule 2.9 of the Takeovers Code and Rule 13.39(4) of the Listing Rules, the votes at the meeting will be taken by poll.

– 307 –

AI assistant

SPT Energy Group Inc. — Proxy Solicitation & Information Statement 2010

49801_rns_2010-03-10_3126570e-f7ff-438b-a5e4-285d4a9e5130.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

(Stock Code: 570)

(I) MAJOR AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF EQUITY INTEREST IN FOSHAN CITY AN NING COMPANY LIMITED; (II) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS; AND (III) APPLICATION FOR WHITEWASH WAIVER

Optima Capital Limited

Shenyin Wanguo Capital (H.K.) Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

To the Shareholders

(I) MAJOR AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF EQUITY INTEREST IN FOSHAN CITY AN NING COMPANY LIMITED; (II) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS; AND (III) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date

Parties

Asset to be acquired

Consideration

LETTER FROM THE BOARD

Option in respect of the Remaining Minority Interest

Conditions precedent

Completion of the Acquisition Agreement

INFORMATION ON THE TARGET COMPANY AND DZH

The Target Company

DZH

THE SUBSCRIPTION AGREEMENT

Date

Parties

The Subscription Shares

Subscription Price

Conditions precedent

Completion of the Subscription Agreement

CLARIFICATION ON FUND RAISING ACTIVITIES IN THE PAST 12 MONTHS

LETTER FROM THE BOARD

EFFECT ON SHAREHOLDING STRUCTURE OF THE COMPANY

REASONS FOR THE ACQUISITION

REASONS FOR THE SUBSCRIPTION

LETTER FROM THE BOARD

FINANCIAL IMPACTS OF THE ACQUISITION

On earnings

On assets and liabilities

LETTER FROM THE BOARD

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

INFORMATION ON THE SUBSCRIBERS

INTENTION OF THE SUBSCRIBERS

REGULATORY REQUIREMENTS

Takeovers Code

Application for Whitewash Waiver

Other arrangements

The Forecast

LETTER FROM THE BOARD

LISTING RULES

VOTING

LETTER FROM THE BOARD

EGM

RECOMMENDATIONS

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

(I) MAJOR AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF EQUITY INTEREST IN FOSHAN CITY AN NING COMPANY LIMITED; AND

(II) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS

(I) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS AND (II) APPLICATION FOR WHITEWASH WAIVER

MAJOR AND CONNECTED TRANSACTION AND SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSONS AND WHITEWASH WAIVER

INTRODUCTION

LETTER FROM SHENYIN WANGUO

BASIS OF OUR OPINION

LETTER FROM SHENYIN WANGUO

PRINCIPAL FACTORS AND REASONS CONSIDERED

Principal terms of the Acquisition

LETTER FROM SHENYIN WANGUO

LETTER FROM SHENYIN WANGUO

(iv) Completion:

Information on the Group

Financial performance and position of the Group

(i) Consolidated income statement

(ii) Consolidated balance sheet

SPT Energy Group Inc. Proxy Solicitation & Information Statement 2010