一致Ｂ(200028)2007年年度报告（英文版）

深圳一致药业股份有限公司 Shenzhen Accord Pharmaceutical Co., Ltd. 2007 Annual Report March, 2008 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -1- CONTENT IMPORTANT NOTES----------------------------------------------------------------------------------------------- 2 I. COMPANY PROFILE---------------------------------------------------------------------------------------------3 II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS-------------------4 III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS---------6 IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEEs----------------------------------------------------------------------------------------------------------12 V. ADMINISTRATIVE STRUCTURE--------------------------------------------------------------------------19 VI. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING-----------------------26 VII. REPORT OF THE BOARD OF DIRECTORS-----------------------------------------------------------26 VIII. REPORT OF THE SUPERVISORY COMMITTEE---------------------------------------------------36 IX. SIGNIFICANT EVENTS---------------------------------------------------------------------------------------38 X. FINANCIAL REPORT-------------------------------------------------------------------------------------------51 XI. DOCUMENTS AVAILABLE FOR REFERENCE------------------------------------------------------146 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -2- IMPORTANT NOTES Board of Directors and the Supervisory Committee of Shenzhen Accord Pharmaceutical Co., Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior executives hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Chairman of the Company Mr. Chen Weigang, General Manager Mr. Shi Jinming, Chief Financial Officer Mr. Wei Pingxiao and Financial Manager Mr. Chi Guoguang hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. ShuLun Pan Certificated Public Accountants Co., Ltd. audited the Company’s Financial Report and issued standard unqualified Auditors’ Report for the Company. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -3- CHAPTER I. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 深圳一致药业股份有限公司 In English: Shenzhen Accord Pharmaceutical Co., Ltd. Abbr. of English name: Accord Pharm. 2. Legal Representative: Chen Weigang 3. Secretary of the Board of Directors: Chen Changbing Contact Address: Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen Guangdong Tel: (86) 755-25875195, 25875222 Fax: (86) 755-25875147 E-mail: 0028@szaccord.com.cn 4. Registered Address: Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen Guangdong Office Address: Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen Guangdong Post Code: 518029 Company’s Internet Web Site: http://www.szaccord.com.cn E-mail: investor@szaccord.com.cn 5. Newspapers for Disclosing the Information of the Company: Securities Times and Hong Kong Wen Wei Po Internet Web Site for Publishing the Annual Report: http://www.szse.cn http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: Accord Pharm. / Accord B Stock Code: 000028/ 200028 7. Other Information about the Company Initial registration date: Aug. 2, 1986 Initial registration place: Shenzhen, China Registration date after change: Dec. 24, 2001 Registration place after changed: Shenzhen, China Registered number for business license of corporation: 4403011001677 Registered number of taxation: GS Zi No. 440301192186267 SDSD Zi No. 440304192186267 Name of the Certified Public Accountants engaged by the Company: ShuLun Pan Certified Public Accountants & Co., Ltd. (Domestic) Address: 5/F, No. 61, Nanjing East Road, Shanghai Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -4- CHAPTER II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS Section I. Main business highlights Unit: RMB Increase/decre ase in this year 2007 2006 2005 compared with last year (%) After Before adjustment After adjustment Before adjustment After adjustment adjustment Operating income 6,878,305,483.32 5,708,713,814.45 5,708,713,814.45 20.49% 1,665,539,138.92 1,665,539,138.92 Total profit 191,051,327.11 104,676,664.78 115,804,263.69 64.98% 41,619,934.83 41,654,537.24 Net profit attributable to 124,914,225.45 72,555,229.24 80,224,503.01 55.71% 35,765,331.72 36,824,230.25 shareholders of the listed company Net profit attributable to shareholders of the listed company 99,427,894.80 63,962,326.55 81,756,363.32 21.61% 35,956,065.32 38,259,549.66 after deducting non-recurring gains and losses Net cash flow arising from 87,698,080.01 181,729,861.80 181,729,861.80 -51.74% 148,275,068.00 148,275,068.00 operating activities Total assets 2,906,088,133.89 2,679,240,445.07 2,642,885,690.85 9.96% 1,072,448,048.81 1,053,459,289.49 Owners’ equity(Shareholde 484,114,112.10 447,731,956.74 390,429,533.85 24.00% 393,721,269.08 364,501,472.64 rs’ equity) Section II. Major accounting highlights Increase/decr ease in this year 2007 2006 2005 compared with last year (%) After Before Before adjustment After adjustment After adjustment adjustment adjustment Basic earnings per 0.434 0.252 0.278 56.12% 0.124 0.128 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -5- share Diluted earnings 0.434 0.252 0.278 56.12% 0.124 0.128 per share Basic earnings per share after deducting 0.345 0.222 0.284 21.48% 0.125 0.133 non-recurring gains and losses Fully diluted return 25.80% 16.21% 20.55% 5.25% 9.08% 10.10% on equity Weighted average 28.26% 17.09% 20.03% 8.23% 9.51% 10.71% return on equity Fully diluted return on equity after deducting 20.54% 14.29% 20.94% -0.40% 9.13% 10.50% non-recurring gains and losses Weighted average return on equity after deducting 22.49% 15.07% 20.41% 2.08% 9.56% 11.13% non-recurring gains and losses Net cash flow arising from 0.304 0.631 0.631 -51.82% 0.515 0.515 operating activities per share Net asset per share attributable to 1.680 1.554 1.355 23.99% 1.366 1.265 shareholders of listed company 【Note】Item of deducting non-recurring gains/losses and amount Unit:RMB Items of non-recurring gains and losses Amount Gains and losses from the disposal of non-current assets 31,515,473.38 Governmental subsidy reckoned into current gains and 3,500,000.00 losses Net amount of non-operating income and expense excluded 708,602.14 the aforesaid items Impact on income tax -10,237,744.87 Total 25,486,330.65 Section III. Difference in net profit as audited by Chinese and International auditors and explanation Difference in net profit as audited by Chinese and International auditors and explanation had no Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -6- influences on on net profit as of year 2007 and the net asset ended year 2007 of the Company. Section IV. Changes in shareholders’ equity and reasons in the report year Unit:RMB Surplus public Total shareholders’ Items Share capital Capital reserve Retained profit reserve equity Amount at the period-begin 288,149,400.00 10,128,077.65 --- 92,152,056.20 390,429,533.85 Increase in the report period --- 2,131,711.77 7,092,488.00 124,914,225.45 134,138,425.22 Decrease in the report period --- 7,458,657.71 --- 32,995,189.26 40,453,846.97 Amount at the period-end 288,149,400.00 4,801,131.71 7,092,488.00 184,071,092.39 484,114,112.10 Reason for change Note 1 Note 2 Note 3 Note 1: The increase of capital reserve in this period was resulted from that the subordinate of the Company Sinopharm Medicine Holding Liuzhou Co., Ltd obtained the governmental compensation on dismantling and removal; the decrease of capital reserve in this period was resulted from that the subordinate of the Company Guangzhou Southern Medical Equipment Co., Ltd sold out the shares of China National Medicines Corporation Ltd. Note 2: The increase of surplus public reserve in this period was resulted from the withdrawal of the Company in accordance with the regulations. Note 3: The increase of retained profit in this period was resulted from that the Company and its surbodinate companies realized net profit; The decrease of retained profit in this period was resulted from that the Company withdrew the surplus public reserve and distributed the dividend. CHAPTER III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS Section I. Statement of change in share capital (Ended Dec. 31, 2007, Unit: Share) Before the change Increase/Decrease of this time (+, -) After the change Capitaliza New Proporti Bonus tion of Proporti Amount shares Others Subtotal Amount on shares public on issued reserve I. Restricted shares 161,927,420 56.20% -39,980,813 -39,980,813 121,946,607 42.32% 1. State-owned shares 2. State-owned legal person’s 112,786,386 39.14% 112,786,386 39.14% shares 3. Other domestic 49,141,034 17.05% -39,980,813 -39,980,813 9,160,221 3.18% shares Including: Domestic 49,126,134 17.05% -39,977,088 -39,977,088 9,149,046 3.18% non-state-owned legal person’s Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -7- shares Domestic natural 14,900 -3,725 -3,725 11,175 person’s shares 4. Foreign shares Including: Foreign legal person’s shares Foreign natural person’s shares II. Unrestricted 126,221,980 43.80% +39,980,813 +39,980,813 166,202,793 57.68% shares 1. RMB Ordinary 71,336,380 24.76% +39,980,813 +39,980,813 111,317,193 38.63% shares 2.Domestically listed foreign 54,885,600 19.05% 54,885,600 19.05% shares 3. Overseas listed foreign shares 4. Others Ⅲ. Total shares 288,149,400 100.00% 288,149,400 100.00% Statement on changes of restricted shares Unit: Share Increased Restricted Restricted Restricted restricted Reason for Name of shareholders shares at shares released shares at Releasing date shares in restriction year-begin in current year year-end current year Restricted SINOPHARM shares of Medicine Holding Co., 28,814,940 0 0 28,814,940 April 29, 2008 Share Merger Ltd. Reform SINOPHARM Restricted Medicine Holding Co., 83,971,446 0 0 83,971,446 shares of Share April 29, 2009 Ltd. Merger Reform Shenzhen Baoan Released District Shiyan Town restricted sales Economic and 14,407,470 14,407,470 0 0 on restricted May 10, 2007 Development shares of Share Corporation Merger Reform Shenzhen Baoan Restricted District Shiyan Town 9,149,046 0 0 9,149,046 shares of Share April 29, 2008 Economic and Merger Reform Development Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -8- Corporation Released Shenzhen Baoan restricted sales Shangwu Economic 12,655,772 12,655,772 0 0 on restricted May 10, 2007 and Development Co., shares of Share Ltd. Merger Reform Released restricted sales Shenzhen Wangzong 5,058,437 5,058,437 0 0 on restricted May 10, 2007 Industrial Co., Ltd. shares of Share Merger Reform Released restricted sales Guan Jian 4,769,231 4,769,231 0 0 on restricted May 10, 2007 shares of Share Merger Reform Released Wuxi Huaxin restricted sales Investment 1,332,332 1,332,332 0 0 on restricted May 10, 2007 Management Co., Ltd. shares of Share Merger Reform Released Shanghai Shisheng restricted sales Enterprise 953,846 953,846 0 0 on restricted May 10, 2007 Development Co., Ltd. shares of Share Merger Reform Released Shanghai Huaxia Yifu restricted sales Investment 800,000 800,000 0 0 on restricted May 10, 2007 Management Co., Ltd. shares of Share Merger Reform Total 161,912,520 39,977,088 0 121,935,432 － － Section II. Issuance and listing of shares 1. The previous 3 years ended the report period, the Company did not issue any share and list, such as no increasely issue new shares and place shares. 2. The change on shares structure of the Company On April 28, 2006, the Company have accomplished the Share Merger Reform Plan, in according to the regulations on listing of circulating shares with restricted conditions by CSRC and Shenzhen Stock Exchange, the Company have accomplished the works on listing of circulating shares with restricted conditions of Shenzhen Baoan District Shiyan Town Economic and Development Corporation, Shenzhen Baoan Shangwu Economic and Development Co., Ltd., Shenzhen Wangzong Industrial Co., Ltd., Nanjing Junyue Investment and Consultation Co., Ltd., Wuxi Huaxin Investment Management Co., Ltd., Shanghai Shisheng Enterprise Development Co., Ltd., Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 -9- and Shanghai Huaxia Yifu Investment Management Co., Ltd on May 10, 2007. The circulating shares with restricted sales released were 39,977,088 shares. Section III. About shareholders 1. Ended Dec. 31, 2007, the Company had totally 23,159 shareholders, including 14,869 shareholders of A-share and 8,290 shareholder of B-share. 2. Particulars about the shares held by the top ten shareholders (Ended Dec. 31, 2007) Total shareholders 23,159 Particulars about shares held by the top ten shareholders Amount of Shares Nature of Proportion Amount of Names of shareholders restricted pledged or shareholder of share held share held shares held frozen SINOPHARM State-owned MEDICINE HOLDING 39.14% 112,786,386 112,786,386 0 legal person CO., LTD. SHENZHEN BAOAN DISTRICT SHIYAN Domestic TOWN ECONOMIC non-state-owne 3.18% 9,149,046 9,149,046 0 AND DEVELOPMENT d legal person CORPORATION CHINA INDUSTRIAL AND COMMERCIAL BANK － PENGHUA Domestic HIGH QUALITY non-state-owne 2.37% 6,838,320 0 Unknown ADMINISTRATIVE d legal person STOCK SECURITIES INVESTMENT FUND （LOF） BANK 0F COMMUNICATIONS － Domestic PENGHUA CHINA 50 non-state-owne 1.65% 4,758,462 0 Unknown OPEN SECURITIES d legal person INVESTMENT FUND CHINA INDUSTRIAL AND COMMERCIAL Domestic BANK － GALAXY non-state-owne 1.56% 4,491,463 0 Unknown YINTAI FINANCING d legal person MELON-CUTTING FUND INDUSTRIAL BANK CO., LTD. － Domestic EVERBRIGHT non-state-owne 1.53% 4,400,000 0 Unknown PRAMERICA BONUS d legal person STOCK SECURITIES Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 10 - INVESTMENT FUND CHINA INDUSTRIAL AND COMMERCIAL BANK － BOC Domestic INTERNATIONAL non-state-owne 1.52% 4,375,188 0 Unknown CONTINUOUS d legal person GROWTH STOCK SECURITIES INVESTMENT FUND BANK OF CHINA － DACHENG FORTUNE Domestic MANAGEMENT 2020 non-state-owne 1.48% 4,270,947 0 Unknown LIFECYCLE d legal person SECURITIES INVESTMENT FUND CHINA INDUSTRIAL AND COMMERCIAL Domestic BANK － GUANGFA non-state-owne 1.47% 4,241,805 0 Unknown JUFENG STOCK d legal person SECURITIES INVESTMENT FUND CHINA INDUSTRIAL AND COMMERCIAL BANK － CHINA Domestic UNIVERSAL non-state-owne 1.35% 3,882,680 0 Unknown EQUILIBRIUM d legal person GROWTH SECURITIES INVESTMENT FUND Particulars about shares held by the top ten unrestricted shareholders Amount of unrestricted Name of shareholder Type of share shares held CHINA INDUSTRIAL AND COMMERCIAL BANK － PENGHUA HIGH QUALITY 6,838,320 RMB common share ADMINISTRATIVE STOCK SECURITIES INVESTMENT FUND（LOF） BANK 0F COMMUNICATIONS－PENGHUA CHINA 50 OPEN SECURITIES INVESTMENT 4,758,462 RMB common share FUND CHINA INDUSTRIAL AND COMMERCIAL BANK － GALAXY YINTAI FINANCING 4,491,463 RMB common share MELON-CUTTING FUND INDUSTRIAL BANK CO., LTD. － EVERBRIGHT PRAMERICA BONUS STOCK 4,400,000 RMB common share SECURITIES INVESTMENT FUND Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 11 - CHINA INDUSTRIAL AND COMMERCIAL BANK － BOC INTERNATIONAL 4,375,188 RMB common share CONTINUOUS GROWTH STOCK SECURITIES INVESTMENT FUND BANK OF CHINA － DACHENG FORTUNE MANAGEMENT 2020 LIFECYCLE 4,270,947 RMB common share SECURITIES INVESTMENT FUND CHINA INDUSTRIAL AND COMMERCIAL BANK － GUANGFA JUFENG STOCK 4,241,805 RMB common share SECURITIES INVESTMENT FUND CHINA INDUSTRIAL AND COMMERCIAL BANK－CHINA UNIVERSAL EQUILIBRIUM 3,882,680 RMB common share GROWTH SECURITIES INVESTMENT FUND CHINA AGRICULTURAL BANK－Changsheng 3,811,134 RMB common share Tongde Sector Growth Fund CHINA INDUSTRIAL AND COMMERCIAL BANK － BOSERA SELECT EQUITY 3,499,567 RMB common share SECURITIES INVESTMENT FUND CHINA INDUSTRIAL AND COMMERCIAL BANK－PENGHUA HIGH QUALITY ADMINISTRATIVE STOCK SECURITIES INVESTMENT Explanation on associated FUND(LOF) and BANK 0F COMMUNICATIONS－PENGHUA CHINA relationship or accordant 50 OPEN SECURITIES INVESTMENT FUND belong to Penghua Fund action among the aforesaid Management Co., Ltd., it is unknown that there exists no associated shareholders relationship or belongs to the consistent actionist among the other tradable shareholders regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. 3. The controlling shareholder of the Company Name of the controlling shareholder: SINOPHARM. Medicine Holding Co., Ltd. Legal representative: She Lulin Date of foundation: Jan. 8, 2003 Registered capital: RMB 1,637,037,451 Nature of economic: state-owned holding company Business scope: the wholesale of Chinese patent medicines (including ginseng, pilose antler and silver mushroom), chemical material, a chemical agent, antibiotics, biochemical, biological, diagnosis drug, industry investment, entrusted management and assets reorganization of pharmaceutical enterprises, domestic trade (barring specific permission), logistics supply and relevant consultant services (in right of exequatur to run if refers to permission operation). 4. Particulars about the actual controller Name of the actual controller: China National Pharmaceutical Group Corporation Legal representative: She Lulin Date of foundation: March 1, 1988 Registered capital: RMB 857,490,000 Nature of economic: state-owned sole company Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 12 - Business scope: entrusted management and assets reorganization of pharmaceutical enterprises, consultant service of medicine industry investment project, holding exhibition and fair of surgical appliance, the wholesale of Chinese medicine, Chinese patent medicines, Chinese medicine herb in pieces, chemical material medicine, a chemical agent, antibiotics, biochemical, biological. The underling exclusively invested company and controlling subsidiary of China Medicine Group Headquarter includes: China Medicine Industry Co., SINOPHARM Medicine Co., Ltd., China Medicine Foreign Trade Co., China Medical Appliance Co., China Drugs Group, SINOPHARM Medicine Holding Co., Ltd., SINOPHARM Exhibition Co., Ltd., Sichuan Antibiotics Industrial Institute of China National Pharmaceutical Group Corporation, Union Engineering Co. of China Medicine Group and SINOPHARM Advertising Co., Ltd. 5. The property and controlling relationship between the actual controller of the Company and the Company is as follows: The State-owned Assets Supervision & Administration Commission of the State Council 100% China National Pharmaceutical Group Corporation 51% SINOPHARM Medicine Holding Co., Ltd. 39.14% Shenzhen Accord Pharmaceutical Co., Ltd. 6. In the report period, there existed no change in the controlling shareholder CHAPTER IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES Section I. Directors, supervisors and senior executives 1. Name list of directors, supervisors and senior executives Beginning Terminati Shares Shares Reason Total Incentive equity bestowed in Draw the Names Titles Sex Age held date of ng date of held of remunerati the report period remunerat Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 13 - office office at the at the change on drew ion from term term year-b year-end from the Share other Shares egin Company market sharehold availa Amount Exerc in the price er units or ble for exercise ise report in associates exercis d already price period report- or not ing (RMB’000 end 0) Chen Sep.11, Sep.11, Chairman Male 49 0 0 Yes Weigang 2007 2010 Sep.11, Sep.11, Wei Yulin Director Male 50 0 0 Yes 2007 2010 Sep.11, Sep.11, Lu Jun Director Male 49 0 0 Yes 2007 2010 Sep.11, Sep.11, Jiang Ning Director Male 48 0 0 Yes 2007 2010 Sep.11, Sep.11, Wu Ai’min Director Male 38 0 0 Yes 2007 2010 Director, Sep.11, Sep.11, Shi Jinming General Male 40 0 0 62 No 2007 2010 Manager Independent Femal Sep.11, Sep.11, Chen Shu 53 0 0 6.68 No Director e 2007 2010 Independent Femal Sep.11, Sep.11, Peng Juan 43 0 0 6.68 No Director e 2007 2010 Independent Sep.11, Sep.11, Liao Li Male 41 0 0 2.68 No Director 2007 2010 Song Sep.11, Sep.11, Supervisor Male 39 0 0 Yes Tingfeng 2007 2010 Guan Femal Sep.11, Sep.11, Supervisor 37 0 0 Yes Xiaohui e 2007 2010 Wang Sep.11, Sep.11, Supervisor Male 50 0 0 21 No Huaiqin 2007 2010 Deputy Sep.11, Sep.11, Tan Guoshu General Male 53 0 0 52 No 2007 2010 Manager Deputy Sep.11, Sep.11, Ou Jianneng General Male 49 0 0 52 No 2007 2010 Manager Deputy Yan Sep.11, Sep.11, General Male 48 0 0 52 No Zhigang 2007 2010 Manager Deputy Sep.11, Sep.11, Lin Xinyang Male 43 0 0 52 No General 2007 2010 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 14 - Manager Wei Sep.11, Sep.11, CFO Male 44 0 0 50 No Pingxiao 2007 2010 Secretary of Sold Chen Sep.11, Sep.11, the Board of Male 40 14900 11175 out 29 No Changbing 2007 2010 Directors shares Total - - - - - - 386.04 - - - 2. Particulars about the position held by directors and supervisors in Shareholding Company 1) In the report period, the position held by directors, supervisors and senior executives in Shareholding Company Units with position or Relationship with Name Position Office term concurrent position the Company SINOPHARM Medicine Controlling Deputy General Wei Yulin From Jan., 2003 Holding Co., Ltd. shareholder Manager SINOPHARM Medicine Controlling Deputy General Lu Jun From April, 2003 Holding Co., Ltd. shareholder Manager SINOPHARM Medicine Controlling Deputy General Jiang Ning From Jan., 2004 Holding Co., Ltd. shareholder Manager SINOPHARM Medicine Controlling Deputy General Wu Aimin From Nov., 2006 Holding Co., Ltd. shareholder Manager SINOPHARM Medicine Controlling Chief Financial Song Tingfeng From Dec., 2006 Holding Co., Ltd. shareholder Officer 2) In the report period, position and concurrently post of directors, supervisors and senior executives in the units barring the shareholders units Units with position or concurrent Relationship with the Name Position position Company Controlling shareholder of China National Pharmaceutical Deputy General China National Medicines Group Corporation Manager Corporation Ltd. Sinopharm Medicine Guoda Subsidiary of controlling Chen Legal Representative Pharmacy Co., Ltd. shareholder Weigang Sinopharm Medicine Holding Subsidiary of controlling Legal Representative Medical Logistics Co., Ltd shareholder Sinopharm Medicine Holding Subsidiary of controlling Legal Representative Beijing Huahong Co., Ltd shareholder Secretary Of Party Sinopharm Medicine Holding Subsidiary of controlling Commitee, General Wei Yulin Tianjin Co., Ltd. shareholder Manager And Chairman Sinopharm Medicine Guoda Subsidiary of controlling Lu Jun General Manager Pharmacy Co., Ltd. shareholder Superintendent Of Sichuan Antibiotics Industrial Sichuan Antibiotics Institute; Industrial Institute; Jiang Ning No relationship Sichuan Antibiotics Industrial General Manager Of Institute Co., Ltd. Sichuan Antibiotics Industrial Institute Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 15 - Co., Ltd. Song China Resources (Jilin) Independent No relationship Tingfeng Bio-chemical Co., Ltd. Director Controlling shareholder of Guan Shanghai Fosun Financial Vice-Chief China National Medicines Xiaohui Pharmaceutical(Group) Co., Ltd. Supervisor Corporation Ltd. Sinopharm Medicine Holding Subsidiary of controlling Shi Jinming Chairman Guangzhou Co., Ltd shareholder Guangdong Accord Drugstore Co., Ltd.; Subsidiary of controlling Ou Jianneng General Manager Shenzhen Accord Pharmaceutical shareholder Chains Co., Ltd. Shenzhen Zhijun Pharmaceutical Subsidiary of controlling Yan Zhigang General Manager Co., Ltd. shareholder Chen Shu Guangdong Lawyers Association No relationship Secretary-General Management School of Shanghai Department Deputy Peng Juan No relationship Jiao Tong University Director Management School of Tsinghua Liao Li No relationship Deputy Dean University 3. Main work experience of present directors, supervisors and senior executives: (1) Member of the Board of Directors Chairman of the Board——Mr. Chen Weigang, MBA and senior economist, worked at China Medicine Group (Shanghai) Company from Apr. 1976, took the turns of officer of enterprise management office, commissar of League Commission, associate dean or dean of GMO, manager of business department, manager associate and deputy manager, etc.; he takes the position of secretary of CPC and GM of China Medicine Group (Shanghai) Company from Dec. 1998 to Jan., 2003; and secretary of CPC and GM of SINOPHARM Medicine Holding Co., Ltd. from Jan. 2003; from Feb., 2006, takes the post of deputy general manager of China Medicine Group Headquarter; and takes the post of chairman of the 5th Board of the Company from Sep. 2007. Director——Mr. Wei Yulin, born in 1975, MBA, Practising Apothecary, worked at Tianjing Pharmaceutial Company as salesman from Oct.1976 to Nov.1981; centre Lab Technician in Tianjin Hebei Pharmaceutial Plant from Dec.1981 to Aug.1984; took the turns of salesman of Leechdom Department in Sinopharm Tianjin Medicine Station, deputy general manager and general manager of pharmaceutical company in development zone from Sep.1984 to June 1998; deputy general manager, standing deputy general manager, party secretary and general manager of Sinopharm Tianjing Co., Ltd from July 1998 to Jan.2003; sine Jan.2003 he was the deputy general manager of Sinopharm Medicine Holding Co., Ltd, and concurrently party secretary, general manager and chairman of China National Holding Tianjin Co., Ltd; since Sep.2007, he was the director of the 5th board of directors of the Company. Director ——Mr. Lu Jun, born in 1958, MBA, Instructor, soldier of army, teacher of politics staff room in Second Military Chemical University from Feb.1976 to Oct.1988; instructor of Second Military Chemical University from Oct.1988 to Aug.1998; general manager of Sinopharm Shanghai Likang Pharmaceutial Co., Ltd from Aug.1998 to Jan.2001; general manager of Shanghai Guoda Pharmacy Chains Co., Ltd from Jan.2001 to Dec.2004; since April 2003, he took the turns of assistant general manager, deputy general manager of Sinopharm Medicine Holding Co., Ltd and concurrently general manager of leechdom retail business department and minister of investment and planning department of Sinopharm Medicine Holding Co., Ltd and general manager of China National Holding Guoda Pharmacy Co., Ltd. Since Sep.2007, he was the director of the 5th board of Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 16 - directors of the Company. Director ——Mr. Jiang Ning, born in 1960, bachelor degree, researcher, went to the country side in Shaxua Community of Hechuan County in Sichuan Province from 1976 to 1980; from 1980 to 2004, he took the turns of lab technician, research jackaroo, assistant, assistant researcher, deputy researcher, chief engineer and researcher in Sichuan Antibiotics Industrial Institute; since 2004, he was the deputy general manager of Sinopharm Medicine Holding Co., Ltd, concurrently was the dean of ichuan Antibiotics Industrial Institute and general manager of ichuan Antibiotics Industrial Institute Co., Ltd. Since Sep.2007, he was the director of the 5th board of directors of the Company. Director——Mr. Wu Ai’min, an accountant with bachelor degree, took the turns of senior manager of Jiangsu Property Assessment Firm, copartner of Jiangsu Renhe Property Assessment Company, financial chief supervisor and manager of investment center of Xuzhou Huaihai Food Town, and so on from Aug. 1992; takes the position of financial chief supervisor of SINOPHARM Medicine Holding Co., Ltd. from Jul. 2003; and takes the post of director of the 5th Board of Directors of the Company from Sep. 2007. Director & General Manger——Mr. Shi Jinming, bachelor degree, took the turns of manager of China Medicine (Group) Guangzhou Yuexing Company, manager of medicine department of SINOPHARM Medicine Co., Ltd., deputy GM of China Medicine (Group) Guangzhou Yuexing Company and concurrently manager of Yuexing Company from Mar. 1995; he successively takes the post of GM of SINOPHARM Medicine Holding (Guangzhou) Co., Ltd. from Apr. 2003 ; GM of the Company from Feb. 2004, takes concurrently the post of chairman of SINOPHARM Medicine Holding (Guangzhou) Co., Ltd. from Jan. 2007, and he takes the post of director and general manager of the 5th Board of Directors of the Company from Sep., 2007. Independent director——Ms. Chen Shu, bachelor, ever worked as cadre, secretary of court, judger and vice president, etc. at People’s Court of Huangling County, Shanxi province, from Oct. 1985 took the post of section chief of Law Firm of Liwan District, Guangzhou City, vice administrator of administration of justice till now; copartner and section chief of Guangzhou Law Firm from Jan. 1995; copartner and section chief of Guangzhou Jinpeng Law Firm from Feb. 1996; chief secretary of Guangzhou Lawyer Association and concurrently vice president of China National Lawyer Association and vice president of Guangdong province Lawyer Association, as well as NPC deputy of the 10th session from Mar. 2002 till now; and she takes the post of independent director of the 5th Board of Directors of the Company from Sep., 2007. Independent director——Ms. Peng Juan, born in 1964, associate professor, mayor research direction is finance strategy and management, marketing auditing and financing marketing. From 1997 taught at financing and accounting department of management institute of Shanghai Jiaotong University till now, now is in charge of deputy dean and concurrently secretary of CPC; and she takes the post of independent director of the 5th Board of Directors of the Company from Sep., 2007. Independent director——Mr. Liao Li, born in 1966, Doctro, Professor, he took the position of assistant chief engineer in Guangzhou Wanbao Manufacture of Ash Residue Cooler Industrial Co., Ltd from Sep.1989 to July 1991; from Aug.1995 to June 1997, instructor of Management School of Tsinghua University; from Sep.1999 to June 2000, assistant Chairman of Hongkong Esquel Group; from July 2001 he was the associate professor and professor of finance and international trade department in Management School of Tsinghua University, standing deputy dean of China Finance Research Centre of Tsinghua University, standing director of Chinese Monetary Society, deputy dean of Management School of Tsinghua University. He takes the post of independent director of the 5th Board of Directors of the Company from Sep., 2007. (2) Members of supervisors: Convener of the Supervisory Committee——Mr. Song Tingfeng, Doctor of Accouting, CPA, Certified Public Assets Estimator; dean of accout staff room and chairman of department union in Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 17 - Anshan Normal University from Sep.1990 to July 1996; CPA, Certified Public Assets Estimator of Liaoning Huaxin Certified Public Accountants from Nov.1996 to May 1998; CPA in Zhejiang Tianjian Certified Public Accountants from July 1998 to May 1999; dean of finance management committee and deputy dean of asset supervision centre in Beijing Double Crane Pharmaceutical Co., Ltd from Nov.1999 to June 2003, CFO in China National Medicine Corporation Ltd from July 2003 to Dec.2006; CFO of Sinopharm Holding Co., Ltd and independent director of China Resources (Jilin) Bio-chemical Co., Ltd. From Dec.2006. He took the supervisor of the 5th supervisory committee of the Company since Sep.2007. Supervisor——Ms. Guan Xiaohiu, Master of Accounting, CPA and Economist; clerk of Jiangxi Subbranch of Industrial and Commercial Bank of China from July 1992 to April 2000; financing manager of business department of Shanghai Fosun Pharmaceutical(Group) Co., Ltd. From May 2000 to Jan.2002; CFO of Shanghai Fosun Pharmaceutical Co., Ltd from Jan.2002 to Nov.2004; deputy CFO of Shanghai Fosun Pharmaceutical(Group) Co., Ltd from Nov.2004. She took the supervisor of the 5th supervisory committee of the Company since Sep.2007. Employee Supervisor——Mr. Wang Huaiqin, bachelor, professional political commissar, assistant accountant; he served in army, took the turns of soldier, amanuensis, secretariat and Platoon Sergeant from Dec.1976 to Sep.1983; secretary in charge of political works in team 205 of Second Architecture Engineering Company of Shenzhen Construction Group from Sep.1983 to Aug.1985; office director of Daily Health Products Company and concurrently chairman of Wokers’ Union, person in charge of finance, office director of Medicinal Oil Plant, finance minister and concurrently chairman of Wokers’ Union, section chief of Personnel Allotment Department and concurrently chairman of Wokers’ Union of Shenzhen Medicines Production Supply Corportion from Aug.1985 to Dec.2000; chief of human resources department, deputy minster and concurrently chairman of Wokers’ Union of Shenzhen Accord Pharmaceutical Co., Ltd from Dec.2000 to June 2005; director and concurrently deputy office director of party and Masses Work Department, and the chairman of the first Wokers’ Union of Shenzhen Accord Pharmaceutical Co., Ltd till June 2005. He took the supervisor of the 5th supervisory committee of the Company since Sep.2007. (3) Senior executives: Director and General Manager——Mr. Shi Jinming Referring to the aforesaid introduction of members of directors for details. Deputy General Manger——Mr. Tan Guoshu, on-study postgraduate, assistant economist and politic engineer, ever took the post of deputy director of Gongxiaoshe, Dalonghua, Fengshun County, manager of affiliated corporation, deputy GM of Labor Service Company, Labor Bueau, Fengshun, GM of Labor Service Company, Boned Zone, Shatoujiao District, Shenzhen, deputy GM of Shenzhen Best Machinery Electronic Company, organization charger of Labor Service Company of Shenzhen Food Headquarter, and so on; from Apr. 1996 took the post of deputy director, minister of personnel minister and GM associate, etc. of supervision administration office of Shenzhen Medicine Produce & Supply Headquarter, and concurrently GM of Shenhzen Xiannuo Medicine Company, manager of Shatoujiao Medicine Company and manager of Nanshan Medicine Company, etc. during that time; held the position of minister of talents resources department of the Company and later concurrently vice secretary of DSC of the Company from Jan. 2001, and deputy GM and later concurrently Vice party secretary of the Company from Jun. 2003. Deputy General Manager——Mr. Ou Jianneng, chief chemist with on-job master degree, from Jul. 1981 took the post of Huioyang medicine testing institute, Guangdong, Shenzhen Jianmin Medicine Company, Shenzhen Medicine Company and Shenzhen Medicine Produce & Supply Headquarter; manager of sales center of the Company from Jan. 2001; took the post of standing deputy GM of Medicine Logistics department and minister of compound management department of the Company from May 2003, took the post of GM of Shenzhen Accord Pharmaceutical Chains Co., Ltd., and held the position of deputy GM of the Company from Jun. 2003. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 18 - Deputy General Manager——Mr. Yan Zhigang, MBA, chief chemist, took the turns of technician, section chief of QC department, deputy GM and manager, etc. of Guizhou Medicine Company from Jul. 1983; held the position of plant manager of Shenzhen Medicinal Oil Plant, deputy GM of Shenzhen Medicine Company, deputy GM of Shenzhen Accord Pharmacy Franchise Company from Jun. 1996; from Feb. 2000 took the post of plant manager of Shenhzhen Pharmaceutical Factory, general manager of Shenzhen Zhijun Pharmaceutical Co., Ltd.; and took the post of deputy GM of the Company from Jan. 2005. Deputy General Manger——Mr. Lin Xinyang, certified chemist with bachelor degree, from Jan. 1996 took the turns of deputy GM of Nanfang Pharm. Co., deputy GM of China Medicine Group (Guangzhou) Company Yuexing Company, general supervisor of PD of SINOPHARM Medicine Holding Guangzhou Company; took the post of deputy GM of SINOPHARM Medicine Holding Guangzhou Company from Jan. 2004; took the post of deputy GM of the Company from Jan. 2005. Chief Financial Officer——Mr. Wei Pingxiao, MBA, a China accountant, took the turns of Financial department of State-owned Beijing Electronic Tube Plant, Modern Electronic Shenzhen Industrial Company, China Electronic Industrial Headquarter from Aug. 1985; and took the turns of deputy section chief of financial department of China Electronic Information Industry Group, financial director of AMOI, section chief of planning financial department of China Electronic Finance Leasing Company, Deputy GM of AMOI Beijing branch, financial charger of AMOI and director of its subsidiary from Apr. 1993; and hold the post of financial general supervisor of the Company since Dec., 2004. Secretary of the Board——Mr. Chen Changbing, master degree, ever took the post of Zhuhai Guangli Industrial Co., Ltd., from 1999 took the post of deputy office director of Shenzhen Medicine Produce and Supply Headquarter; the post of secretary of the Board of the Company from Dec. 2000; and took the post of secretary of the 4th Board of the Company from Sep. 2007, concurrently took the post of majordomo in Investment Management Department of the Company. 4. Particulars about elections of directors, supervisors and engaging of senior executives in the report period 1) In the report period, the board of directors of the Company examined and approved the Proposal on Election of Changing Office Term of Board of Directors on Aug.8, 2007, and held the 1st Extroardinary Shareholders’ General Metting 2007 on Sep.11, 2007 in which Chen Weigang, Wei Yulin, Lu Jun, Jiang Ning, Wu Aimin and Shi Jinming were elected directors of the 5th board of directors of the Company; and Chen Shu, Peng Juan and Liao Li were elected independent directors of the 5th board of directors of the Company. 2) In the report period, the supervisor committee of the Company examined and approved the Proposal on Election of Changing Office Term of Supervisor Committee on Aug.8, 2007, and held the 1st Extroardinary Shareholders’ General Metting 2007 on Sep.11, 2007 in which Song Tingfeng and Guan Xiaohui were elected supervisors of the 5th supervisor committee of the Company. And Wang Huaiqin were elected employee representative supervisor of the 5th supervisor committee of the Company in Employee Representative Conference of the Company. 3) With the examination and approval of the 1st meeting of 5th board of directors of the Company in Sep.11, 2007, Mr. Chen Weigang was elected Chairman of the 5th board of directors of the Company; Mr. Shi Jinming was engaged as General Manager of the Company; Mr. Tan Guoshu, Mr. Ou Jianneng, Mr. Yan Zhigang and Mr. Lin Xinyang were engaged as Deputy General Manage of the Company; Mr. Wei Pingxiao was engaged as CFO of the Company; and Mr. Chen Changbing was engaged as Secretary to the Board of Directors of the Company. 4) With the examination and approval of the 1st meeting of 5th supervisor committee of the Company in Sep.11, 2007, Mr. Song Tingfeng was elected Convenor of the 5th supervisor committee of the Company. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 19 - Section II. Number of employees and professional quality At end of the year 2007, the Company (including the subsidiaries) had totally 3,854 on-the-job employees. Profession/occupation composition Education Background Proportion Proportion Profession Number Education Number (%) (%) Production 301 7.63% Master degree or 75 1.9% personnel above Salespersons 2288 58.02% Bachelor degree 756 19.17% 97 2.46% 3-years regular 1006 25.51% Technicians college graduate 174 4.41% Polytechnic school 1272 32.25% Financial personnel graduate Administrative 1084 27.48% 835 21.17% Senior high school personnel and graduate or below others Total 3944 100% Total 3944 100% At the end of the report period, the Company had totally 388 retirees, whose pensions were taken by Local Social Insurance Bureau. The Company took on the expenses of 92 employees who retired early. CHAPTER V. ADMINISTRATIVE STRUCTURE Section I. Company Administration In the report period, according to spirit of Notice on the Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (ZJGSZi No.28 [2007]) by CSRC and requirements of Notice on the Matters concerning Carrying out a Special Campaign for Corporate Governance of Listed Companies in Shenzhen District (SZJGSZi No.14 [2007]), the Company established special campaign leading group to have overall and deep self inspection of its system standardization and operation structure and made Self Inspection Report and Change Plan of the Company on July 11, 2007. In accordance with the change, change requirements made by Shenzhen Securities Regulatory Bureau, and change suggestions from investors and the public, the Company earnestly carried out the change and took the change measures. Change Summary Report for Special Corporate Governance Campaign was issued on Oct. 31, 2007. According to requirements of Company Law, Securities Law and relevant laws and regulations promulgated by CSRC, the Company perfected consistently the Company’s administration structure and standardized its operation. And details are as follows: 1. Shareholders and Shareholders’ General Meeting: The Company operated in a standardized way, safeguards rights and interests of all shareholders especially those medium and small shareholders, and ensured they all fully implement their own rights; The Company established the Rules of Procedures of the Shareholders’ General Meeting, called and held shareholders’ general meeting strictly according to the rules for shareholders’ general meeting progmulgated by CSRC. 2. Relationship between the controlling shareholder and the listed Company: Strictly according to Code of Corporate Governance for Listed Companies, Stock Listing Rules of Shenzhen Security Exchange and Articles of Association, the controlling shareholder standardized shareholders’ behavior and perform shareholders’ right by shareholders’ general meeting. The controlling shareholder had “Five Separations” from the first largest Shareholder in Respect of Business, Personnel, Assets, Organization and Finance, and its internal structure took independent operation. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 20 - 3. Directors and the Board of Directors: The Company strictly conformed to related laws and regulations of Company Law as well as Articles of Association, and the board of directors’ number and its staff structure meet requirements of laws and regulations. Strictly according to Company Law, Independent Director System and Rules of Procedures on Directors’ Meeting, the Company held directors’ meeting and every director earnestly attended it as well as examined every rules of procedure to perform their duties and take responsibility. Independent directors performed their duties independently, maintained the whole interest of the Company, especially gave attention to minority shareholders legal right, and made independent suggestions on important and significant events. 4. Supervisors and the Supervisory Committee: Strictly according to related laws and regulations of Company Law and Articles of Association, the election and number of supervisors as well as its formation are in compliance with requirements of laws, regulations and the Company Law and Articles of Association. The Supervisory Committee strictly conformed to related regulations of Articles of Association and Rules of Procedures for Supervisors’ Meeting to hold supervisors’ meeting. And every supervisor earnestly attended supervisors’ meeting, performed seriously their duties, and supervised significant events, related transactions and financial affairs and made suggestions. 5. Performance Evaluation, Encouragement and Binding Mechanism: The Company made the annual operation evaluation plan to take system with basic salary plus annual year-end benefit bonus for its senior executors. The Company is gradually established Performance Evaluation, Encouragement and Binding Mechanism for senior executives. Currently, no stock equity encouragement, management level purchase and stock having plans for senior executors were taken. 6. Relations with the Relevant Beneficiaries: The Company could fully respect and safeguard the legal rights and interests of the banks, other creditors, employees, consumers and other parties of related interests, and jointly promoted sustainable and healthy development with these parties. 7. Information Disclosure: The Company authorized the secretary of the Board to take change of information disclosing, receiving visits and inquiries of the shareholders. The Company established Management System of Information Disclosure Office Procedure on Investor Investment Relationship, and relevant person could strictly disclose the relevant information in a real, accurate, complete and timely way according to the law, regulations and the Articles of Association in order to ensure all the shareholders have equal opportunity to obtain the information. Chosen newspapers Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn disclosed information exactly, accurately and timely for the Company to ensure all shareholders get related information fairly. Section II. Particulars about existing non standard governance of the Company As a state owned share controlling listed company, the Company implemented related regulations on state asset management of controlling shareholders and actual controlling shareholders. Details are as follows: Relationship Parties of between parties of Date or Sort of No. information information Basis of the reported period of information reported to reported to and information reporting listed companies SINOPHARM Demand of consolidated The 1st largest Financial 1 Medicine Holding statement of the 1st large Scheduled shareholder statement Co., Ltd. shareholder Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 21 - Management methods on State-owned equity China Medicine Actual Report of asset transfer and equity 2 Temporary Group Headquarter shareholder evaluation, etc. investment of China Medicine Group Headquarter According to requirements of Notice on Strengthening Supervision of Private Information Provide By Listed Companies to Majority Shareholders and Actual Share Controllers and Supplementary Notice on Strengthening Supervision of Private Information Provide By Listed Companies to Majority Shareholders and Actual Share Controllers, the board of directors as well as supervisory commit examined and passed Rules of Procedures for Implementing Inside Information Staff Reserve and Governance of Non Standard Information Disclosure in Sep. 2007, which agrees the Company send financial reports to its majority shareholders regularly on carrying out related regulations of state owned capital management, as well as implement secrete systems and inside information staff reserve system when reserving to majority shareholders on disposition of state owned capital and send Accepting Non Public Information Staff Reserve Sheet to Shenzhen Security Bureau. Section III. Performance of the Independent Directors (I) The presences to the meetings of board by independent directors In year 2007, the Company held 6 meetings of board (Including the meetings by communications), and the presences to the meetings of board by independent directors were as follows: Name of Times are Presence in Entrusted independent supposed to Absence Remarks person ( presence directors be attendance Entrusted Peng Juan in Chen Shu 6 5 1 0 writing to attend and vote Peng Juan 6 6 0 0 He was added as an independent director of the Company in Sep. Liao Li 2 1 1 0 2007 and entrusted Chen Shu in writing to attend and vote. (II)With holding the spirit of being responsible for the middle and small shareholders, strictly performed the obligations of fairness and diligence; made their useful suggestion and opinion on the operation decision-making, lawsuits and financial management; did not have objections for the proposals examined by board of directors and other events; examined earnestly the significant events issued by independent directors and made independent judge and independent opinion in writing form on Share Merger Reform, significant related transactions, engagement of CPAs and, etc; performed their relevant duties on protecting the legal interests of middle and small shareholders. Independent directors made important use in the operation in special committees in board of directors. At the same time, the Company can ensure right of knowing for independent directors and other directors. Section IV. Particulars about the Company’s “Five Separations” from the first largest Shareholder in Respect of Business, Personnel, Assets, Organization and Finance: 1. In respect of business: The Company is completely independent from the controlling shareholder in business, the Company has independent and integrated business system, and autonomous operation capacity; The Company owned independent purchase and sales system. The purchasing center, subsidiaries and production enterprises are responsible for purchasing all medicine, Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 22 - appliance and raw resources used in production and distributing products. Production, supply and distribution departments and R&D are separate from each other. The Company was independent legal person facing the market. 2. In respect of personnel: (1) The Company is absolutely independent in the management of labor, personnel and salaries. Office address, organization and production sites are different from the controlling shareholder. There existed no such situation of operating and working together with controlling shareholder. (2) Senior executives of the Company are full time employees in the Company without taking concurrent position in Shareholding Company, and receive salary from the Company. (3) The controlling shareholder recommends directors according to legal procedures. The appointment and removing of personnel made in Board meetings and shareholders’ general meetings can be effectively implemented. 3. In term of assets: The Company is completed independent from its controlling shareholder in term of assets and independently operates. The Company not only possesses independent production system, auxiliary production system and complementary facilities, but also enjoys such intangible assets as industrial property right, trademark, non-patent technology, etc. 4. In term of finance: (1) The Company has established independent financial department, independent and complete accounting system and financial management system. (2) The Company cam make the financial decision independently without interfere of its controlling shareholder. (3) The Company has independent bank account without depositing fund into accounts of the controlling shareholder, finance company or settlement center controlled by related parties (4) The Company pays the tax in compliance with laws. Section V. Performance Valuation, Encouragement and Binding Mechanism for Senior Executives The Company established Salary and Evaluation Committee on the 1st meeting of the 5th directors’ meeting on 11th Sep. of 2007, and the committee carried out work according to the newly made Salary and Evaluation Committee Working System. According to requirements of establishing modern enterprise system, the Company has established a fair and transparent procedure and system of engaging for senior executives so as confirm the rights and obligations of senior executive. The Company implemented the performance checking system by the month from the year 2008, and carried out the level checking system for the senior executives, whose results were directly related to their benefit wages. According to the Articles of Association, Rules of Procedures of Board of Directors and Rules of Procedures of Supervisory Committee, the Board and Supervisory Committee carried through the process supervision on the routine performance for senior executives; the Company is establishing the relevant encouragement and binding mechanism gradually in order to further exert the enthusiasm and creativity of senior executives, urge the senior executives to perform the obligations of being honest and diligent. Section VI. Establishment and Completeness on Internal Control System 1. Brief Introduction of Internal Control of the Company In accordance with relevant regulations of Notice of Issues on Concerning Campaign to Strengthen Corporate Governance of Listed Companies (GZCQZi [2007] No.28) made by CSRC and Guidelines for Internal Control of Listed Companies by Shenzhen Stock Exchange, on emphasis of stabilizing its internal control system, the Company fully ensured the improvement of internal control system and its execution and effective supervision, combining the self-examination of campaign and change activity in year 2007. In the report period, the Company compared every regulation in Articles of Association to Guidelines for Articles of Listed Companies (2006 revision) and made new Articles of Association Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 23 - which was examined and passed in the 17th meeting of the 4th directors’ meeting, and then was voted as well as passed in the 1st temporary shareholders’ general meeting of 2007 on 11th Sep. 2007. At the same time, according to new Articles of Association, the Company further modified, supplemented and perfected Rules of Procedures for Shareholders’ General Meeting, Rules of Procedures for Directors’ Meeting and Rules of Procedures for Supervisors’ Meeting and General Manager’s Detailed Working Rules. A series of standard governance systems were also added, including Independent Director Working System, Strategy Committee of Board of Directors’ Working System, Nomination Committee of Board of Directors’ Working System, Auditing Committee of Board of Directors’ Working System, Salary and Evaluation Committee of Board of Directors’ Working System, Capital Collection Work System, Management Measures for Related Transaction, Working System for Board of Directors’ Secretary and Information Disclosure Management System. The Company conformed to these to provide good basis for the ordinary operation of its internal control system. 2. Important Activity of Internal Control of the Company In the report period, the Company carried out special governance campaign and made Governance Working Plan on Corporate Governance of Shenzhen Accord Pharmaceutical Co., Ltd on April 27, 2007. The Company set up a special governance group assigned the chairman of the board to be the 1st responsible person, organized related people to study spirit of related files issued by CSRC and Shenzhen Stock Exchange for this governance activity in the directors and general manager’s work meeting, which increased directors, supervisors and senior executors’ knowledge for its administration. According to arrangements of special governance campaign, board of directors’ office, general manager’s office, human resource department, financial department, capital managing department, auditing department, investment managing department, operation managing department, hospital sales department and purchase department of the Company made self inspection according to every regulation of the 100 regulations in the No.28 documents by CSRC. Relevant department made corresponding change measures for the existing problems found in the inspection. According to comments from investors and the public and site check result by Shenzhen Security Supervisory Bureau, the Company had overall self inspection on its administration including internal control system, made change methods and had overall change to requirements. Details of key control campaign are as follows: (1) Particulars on Holding Subsidiary’s Internal Control (I)The Company assigned directors, supervisors and important executors to its subsidiaries, and identified their responsibility limit. (II)The Company held operation analysis meeting regularly to discus its subsidiaries’ month, quarter and semi-annual operation budget execution, analyze problems, and prevent risks. (III)The Company strengthened control through budget management. (IV)The Company perfected evaluation system to have effective performance evaluation. (2) Internal control of related transaction: According to prior related transaction report, communication, examination vote, and few existing untimely disclosure procedure, the Company made Related Transaction Management Measures and change post-admit to pre-examination and approval to ensure the related transaction to be in time and standard on the decision making procedure. Newly made Related Transaction Management Measures made detailed regulations on the principle of related transaction, connected parties and related transaction, decision making procedure of related transaction, information disclosure procedure and implementation feedback, at the same time prior examination responsibility for independent directors before voting was identified. (3) External guarantee internal control The internal control of external guarantee is on the principle of legality, prudence, mutual benefit and security and strictly control guarantee risk. On examining guarantee issues, the Company strictly carried out examination procedure and earnestly analysis financial status, operation status of warrantee to make independent suggestions or supervisory committee’s suggestions. In the report Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 24 - period, there was no other external guarantee except for the guarantee to its share controlling companies. (4) Capital collecting internal control In this report period, there was no use of collecting capital. The Company has made Capital Collection Management Measures of Shenzhen Accord Pharmaceutical Co., Ltd. to standardize the use and management of capital collection. (5) Information disclosure internal control The Company made Internal Report System for Significant Events and report processes, modified Information Disclosure Management Measures of Shenzhen Accord Pharmaceutical Co., Ltd. to specify information disclosure procedure, further make sure responsible person for significant event reports, identify management and responsibility of information disclosure and made detail regulations on information communication, file management, secret keeping and penalty. In accordance with newly made Investor Relationship Management Measures, investor relationship managers can accept investors and requests strictly to related regulations, thus ensuring all shareholders have equal right to obtain information of the Company. (6) Financial management internal control According to Financial Accounting Standards, Financial Accounting System, Internal Financial Control Standards, the Company made following financial management systems with combination of its detailed particulars: (i)Financial Management System and Capital Budget Management Regulations had clear regulations on budget, capital flow, and fixed asset, long term investment, invisible asset, operation income, cost expense and profit distribution. (ii)Expense Management Regulation and Expense Budget Management Regulations clearly made limits for staffs of all levels’ responsibility, standardized every financial expense, process of cancel after verification and controlled its plan and budget to increase efficiency of capital use. (iii)Financial Accounting Report Management Regulation made must contained content of every report in detail to know efficiency of every operation timely and accurately, thus providing service for its decision making. (iv)Currency Capital Management Regulation, Capital Collecting Management Regulation, Debt Guarantee Management Regulation and Invoice Management Regulation have strictly standardized financial principle and ensured financial security of the Company. Financial Management System is the basic behavior codes for every financial activity of the Company and standardizes plan, implementation, control, analysis prediction and evaluation of financial income and expense for the Company to ensure investors and creditors’ legal right. (7) Financial calculation and financial basis working system In order to standard financial calculation work, according to Enterprise Financial System and Enterprise Financial Standards issued by Financial Department, the Company made financial calculation and financial basis working system with combination of its actual conditions. (i) Financial Calculation Regulation, Cost Management Regulation standardized financial calculation of the Company, ensured the accuracy, completeness, clarity and consistency of its basis financial information to reflect the financial status. (ii) Computerized Financial Management Regulation and Financial Files Management Regulation standardized basis financial data, disposal and storage of financial documents for its financial staffs to ensure security for its basis financial documents, thus making the promptness and order for its daily financial work. (8) Internal auditing risk control The Company modified and perfected Internal Auditing Management System, Internal Auditing Files Management Regulation, Internal Auditing Draft Management Regulation and internal special auditing, retire auditing and other business processes as well as internal auditing operation procedure details and implemented, strengthened internal supervision of the Company, standardized Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 25 - its internal auditing to make the internal audit systematic and standard. (9) Human resource: Human resource is the key factor to influence the enterprise development. The Company made Human Resource Management System including Staff Recruiting and Assigning System, Full Member Management System and Staff Change Management System and other human resource policies as well as Performance Management System, Salary Management System, Staff Work Attendance Records and Holiday Management System to mobilize the activity and creativity of its staff in internal control and operation managing activity. 3. Existing Problems (1)The holding methods of prior shareholders’ general meeting were only site meetings and didn’t take web voting methods to vote. The Company had planned to take web voting methods to vote in the future shareholders’ general meeting to protect participating right for minority shareholders. (2) Increasing activity for information disclosure and consistency of active information disclosure. The Company established and completed related systems for information disclosure, made making, examining and disclosing process for regular report as well as report, communication, examination and disclosure process for significant events. In order to protect investors’ interest, the Company will strengthen related work for active information disclosure to ensure openness, equality and transparency. 4. Board of directors’ comments on its internal control system Establishing, completing and effectively implementing internal control system is the responsibility of its senior executors. The Company has established reasonable and complete internal control system which was test to be effective. Along with its development, the Company will further continue perfecting internal control system according to its development change and supervisory requirements, and ensured implementation of the system to make its promoting, supervising and controlling use for the health operation of the Company as well as to ensure legal right for its majority shareholders. 5. Supervisory Committee’s self evaluation comments on its internal control system According to related regulations of Guidelines of Internal Control System for Listed Companies and Notice on Carrying out 2007 Annual Report for Listed Companies by Shenzhen Stock Exchange, supervisory committee of the Company made self evaluation comments and issued the following suggestions: (1) According to related regulations of CSRC and Shenzhen Stock Exchange, with the basic principle of internal control system, the Company established and completed internal control system with combination of its actual conditions to ensure ordinary operation of the Company as well as financial security. (2) In the report period, there was no objection of Guidelines of Internal Control System for Listed Companies and internal control system. The supervisory committee thought its self evaluation of internal control system is exact, accuracy and complete, reflects the actual conditions of its internal control system. 6. Independent directors’ self evaluation comments on its internal control system In the report period, under the leading and decision making of its board of directors, the Company made and perfected internal control system. And the making procedures as well as its contents meet related laws and regulations. Key activity of internal control system conformed to its internal control system, and the Company mad special systems on financial management, related transaction, external guarantee and information disclosure to ensure the ordinary operation for the Company and protect interest for all shareholders. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 26 - CHAPTER VI. PARTICULARS ABOUT THE SHAREHOLDER’S GENERAL MEETING In the report period, the Company held three Shareholders’ General Meetings: I. The 2006 Annual Shareholders’ General Meeting The 2006 Annual Shareholders’ General Meeting was held at the meeting hall on the 5/F of the Company, No. 15, Ba Gua Si Road, Futian Dis. Shenzhen on May 18, 2007. The relevant notice was published on Securities Times and Hong Kong Wen Wei Po dated May 18, 2007. II. The 1st Extraordinary Shareholder’s General Meeting of 2007 The 1st Extraordinary Shareholder’s General Meeting was held at the meeting hall on the 5/F of the Company, No. 15, Ba Gua Si Road, Futian Dis. Shenzhen on Sep.11 2007. The relevant notice was published on Securities Times and Hong Kong Wen Wei Po dated Sep.11 2007. III. The 2nd Extraordinary Shareholder’s General Meeting of 2007 The 2nd Extraordinary Shareholder’s General Meeting was held at the meeting hall on the 5/F of the Company, No. 15, Ba Gua Si Road, Futian Dis. Shenzhen on Nov.13 2007. The relevant notice was published on Securities Times and Hong Kong Wen Wei Po dated Nov.13 2007. CHAPTER VII REPORT OF THE BOARD OF DIRECTORS Section I. General operation of the Company in the report period 2007 is the key year for Shenzhen Accord Pharmaceutical Co., Ltd. to fully implement development target of “becoming the 1st pharmaceutical brand in the southern part of China” and “becoming excellent pharmaceutical listed company”, and promote resource combination of Guangdong and Guangxi. By deepening internal change, adjusting strategic idea, changing operation strategy, the Company realized increase of three competitive advantages: efficiency, type and client, as well as enhance of comprehensive abilities of operation, profit making and growth. On the guideline of clients and market as well as scientific development opinion, with the basis of ability development organization, the Company updated working thoughts, standardized operation system on the foot of execution efficiency, specified business operation, promoted enterprise culture construction of “harmony and consistency”, which made double harvests of management efficiency and operation performance. The Company realized the fixed target about Coordination of Guangdong and Guangxi, and new structure of Shenzhen Accord Pharmaceutical Co., Ltd. worked on medicine distribution, medicine manufacture industry and chain store retailing. Main work is as follows: 1. Three years development plan of Guangdong and Guangxi distribution, medicine making industry and chain store retailing was made. (1) Distribution will take Guangzhou as its key point, district as its management line. Through unified operation, the Company will finish key district distribution of the southern of China, especially the district distribution of Guangdong province to make “Big Southern Stage” of medicine commercial industry and form scale advantage of strong point and fluent website. (2) With the key of Zhijun Pharmaceutical Co., Ltd. for the industry, the Company will take its research advantage of Sichuan Anti-bacteria Research to widen its products line, make accessory for related raw material production, and enhance its level to build a unified manufacture chain. The Company will take chance to chose new industry and fasten opening international market and make effort to be top 20 of the pharmaceutical industry of China. (3) Chain store retailing, with Shenzhen Accord Pharmaceutical Co., Ltd. as its stage, formed chain equity structure management, and will make efforts to have 600 chain stores in total of 2010 in the districts of Guangdong and Guangxi to show its brand influence and terminal control of Shenzhen Accord Pharmaceutical Co., Ltd. 2. Obvious increase effects on distribution resource conformation (1) Guangzhou distribution: With the key of putting operation optimizing and terminal perfection, Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 27 - the Company overall increase market share and control to provide mature environment for distribution departments of Guangdong and Guangxi and have solid foundation. (2) Shenzhen distribution: With the key of increasing purchase organization and management efficiency, the Company increased sales management and service, strengthen risk and credit control and make effort to develop other business for public hospitals. (3) Liuzhou distribution: On the opportunity of conformation of Guangdong and Guangxi, the Company will take the unified operation stage and learn the successful experience of China Control’s Guangzhou Office to optimize its resource distribution, grasp management quality increase and group moral. Sales and profit of 2007 made a new record, and pure sales increase get to 51.3% and 43.6% repectively. 3. Overall increase of Zhi Jun Pharmaceutical Co., Ltd. (1) The whole movement of new factory which was enlarged from 1700 meter square to 45000 meter square in Guanlan was finished. Production ability for manufacturing line of njection powder and oral liquid increased one time and production ability for manufacturing line of oral solid increased three to five times. (2) Five targets of production, sales and research and so on were finished well. Successfully accomplishes the five targets in production, marketing and R&D: GMP recognition for the newly-built three workshop and five production lines of injection powder, oral liquid and oral solid has been finished; realized the target that cefuroxime sodium for injection, cefuroxime sodium tablets and cefepime hydrochloride for injection took the largest occupation in the domestic market, and the top three occupation for cefixime capsules, cefoxitin sodium for injection and cefepime; sales proportion of the significant breeds in cefuroxime series rised to above 50%, and obvious effects showed with the prosperity of the advanced industry with large scale; Shenzhen Branch of Sichuan Antibiotic Industrial Institute was officially established, and it made official cooperation with Shenzhen Zhijun Pharmaceutical Institute which had received Certificate (sub-provincial level) of Shenzhen Enterprise Technical Center; among the various enterprises participating the bidding, Shenzhen Zhijun Pharmaceutical Co., Ltd jumped out and won the authorization by Hong Kong Hospital Authority to become the first enterprise in main land to produce injection powder for 1.2 million governmental hospitals. (3) Zhijun Pharmaceutical Co., Ltd. entered the great health industry to fully promote unified chain operation and internationalization and had real steps. 4. Establish a wider development stage for Shenzhen Accord Pharmaceutical Co., Ltd. (1) With the topic of “Diligent, steadfast, coordinate and creative”, the Company established Guangdong Accord Pharmaceutical Co., Ltd. to fasten its development plan, optimize systems and procedures, establish two protecting system of quality and background and strengthen basic management. (2) The company slowed down outlets enlargement, established headquarter management model, narrowed management scale effectively, strengthened plan and operation of variety and made effort to increase operation quality by effective single shop sales and linkage sales. 5. Financial management further changed to management and financing (1) In 2007, the Company perfected construction of internal control system, further standardized financial calculation, financial analysis and management, made financial systems and relevant management systems for different industries and districts of 2007, and paid attention to the match of news systems and new standards. Modification for center financing of Guangdong and Guangxi was finished. According to conformation progress rate arrangement and business link-up, the Company strengthened staff training and adjusted to requirement of every calculation and management under new financial codes to ensure link-up of old and new codes and transfer for different work. (2)The Company strengthened financial analysis and financial management, strictly combined financial analysis and operation management, supervised and analyzed exactness of budget as well Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 28 - as effectiveness of budget implementation for monthly expense and asset, to increase use effectiveness of capital use and avoid operation risks. The Company strengthened expense budget management and expense control, and expense rate of 2007 decreased compared to the same time of last year. (3) Establishing unified capital stage and implementing collective management of capital. The Company made and implemented Internal Transaction Management Measures and Internal Capital Calculation Management Measures, promoted “unified capital operation” of Guangdong and Guangxi, unified capital plan and management, took collective capital advantage, decreased capital disposition and save capital cost. 6. Human resource system kept optimizing (1) Adjusting structure and position management. According to conformation requirements of Guangdong and Guangxi, the Company adjusted its organization structure and perfected department function and position explanation. (2) Optimizing performance and salary system. The Company adjusted performance evaluation plan for the 1st and 2nd level departments to obliviously increase performance management effects. (3) The Company paid attention to training and development, created study organization and increased managing skills for medium executors as well as career ability for salesman. Section II. Operation Result and main business of the Company (I)The scope of main operations was R&D and production of pharmaceuticals, wholesales and chain retails of Chinese and western patent medicine, Chinese traditional medicine, biological products, bio-chemical medicine, health care products and medical apparatus and instruments. The scope of main operations of the holding enterprise of the Company SINOPHARM Medicine Holding (Guangzhou) Co., Ltd. is: agency and distribution of the import drugs and drugs from joint-venture enterprises. (II) Formation of income from main operations 1. Formation of income from main operations classified according to industries and products Unit: RMB’0000 Main operations classified according to industries Increase/decr Increase/decrea Increase/decrea Classified according Gross ease in Operating se in operating se in gross to industries or Operating cost profit operating cost income income over the profit ratio over products ratio (%) over the last last year (%) the last year (%) year (%) Industry－medicine 74,224.92 47,554.06 35.93% 42.31% 62.20% -7.86% Commerce－ 675,237.27 642,722.37 4.82% 4.86% 4.36% 0.46% medicine wholesales Commerce－ 32,735.28 24,825.72 24.16% 5.20% 2.51% 1.99% medicine retail Non-medical trade 4,270.68 3,378.26 20.90% 18.99% 21.41% -1.58% Lease 1,420.00 517.42 63.56% -6.36% 11.54% -5.85% Subtotal 787,888.15 718,997.83 8.74% 7.59% 6.89% 0.60% Conteracting between internal business 103,880.73 102,281.15 1.54% -37.25% -37.66% 0.64% departments of the Company Total 684,007.42 616,716.68 9.84% 20.69% 21.26% -0.42% Main operations classified according to products Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 29 - Respiratory antitussive 22,898.00 3,568.54 84.42% -2.19% -12.74% 1.89% medicines Cef- series products 44,360.78 38,454.28 13.31% 56.70% 54.19% 1.41% Including: the amount of related 6,923.45 3,984.05 42.46% 0.44% -17.74% 12.72% transaction 2. Income from main operations classified according to areas Unit: RMB’0000 Income from main Area Cost of main operations operations Domestic sales 683,448.39 20.66% Oversea sales 559.03 69.72% Total 684,007.42 20.69% 3. Major suppliers and customers Unit: RMB’0000 Total amount of purchase of the top Proportion in the total five suppliers 152,291 amount of purchase 20.87% Total amount of sales of the top five Proportion in the total sales customers 59,975 amount of sales 8.77% (III)Constitution of the assets for the Company in the report period Unit: RMB’0000 Dec.31, 2007 Dec.31, 2006 Increasing Item Proportion in Proportion in ratio in the Amount the total Amount the total total assets assets (%) assets (%) Total assets 290,608.81 100% 264,288.57 100% 0.00% Monetary fund 25,483.44 8.77% 20,534.18 7.77% 1.00% Notes receivable 16,683.83 5.74% 20,746.18 7.85% -2.11% Accounts receivable 128,664.91 44.27% 113,439.71 42.92% 1.35% Accounts paid in 5,412.22 1.86% 9,241.23 3.50% -1.64% advance Fixed assets 34,063.91 8.72% 19,762.23 7.48% 1.24% Construction in 753.15 0.26% 9,160.73 3.47% -3.21% process Total liability 238,851.10 82.19% 223,036.04 84.39% -2.20% Short-term loans 25,439.64 8.75% 29,698.60 11.24% -2.49% Notes payable 49,478.82 17.03% 41,917.59 15.86% 1.17% Taxation payable 1,981.13 0.68% 322.00 0.12% 0.56% Long-term loans 7,772.00 2.67% 9,772.00 3.70% -1.03% Reasons for changing on constitution of the assets compared to last year: (1)Total assets takes the proportion of 8.77% in the total assets, with 1.00 percentage point increased over that of period-begin. The reason for the change is that: the sales scope of the Company is enlarging, so the capital return at period-end is increasing. (2)Notes receivable takes the proportion of 5.74% in the total assets, with 2.11 percentage point decreased over that of period-begin. The reason for the change is that: the Company has increased Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 30 - the proportion of gathering by cash and the notes transfer by endorsement. (3)Accounts receivable takes the proportion of 44.27% in the total assets, with 1.35 percentage point increased over that of period-begin. The reason for the change is that: the sales scope of the Company is enlarging. (4)Accounts paid in advance takes the proportion of 1.86% in the total assets, with 1.64 percentage point decreased over that of period-begin. The reason for the change is that: the accounts paid in advance for last year were mainly the one for construction in process. Within the year, the project has already been finished and transferred to item of fixed assets. (5)Fixed assets takes the proportion of 8.72% in the total assets, with 1.24 percentage point increased over that of period-begin. The reason for the change is that: the Pharmaceutical R&D base construction of Shenzhen Zhijun Pharmaceutical Co., Ltd, subsidiary of the Company, has been finished and transferred in. (6)Construction in process takes the proportion of 0.26% in the total assets, with 3.21 percentage point decreased over that of period-begin. The reason for the change is that: the Pharmaceutical R&D base construction of Shenzhen Zhijun Pharmaceutical Co., Ltd, subsidiary of the Company, has been finished and transferred into item of fixed assets. (7) Short-term loans takes the proportion of 8.75% in the total assets, with 2.49 percentage point decreased over that of period-begin. The reason for the change is that: the discounted bank draft and trade acceptance draft have decreased sharply over that of last year-end. (8) Taxation payable takes the proportion of 0.68% in the total assets, with 0.56 percentage point increased over that of period-begin. The reason for the change is that: the operation in this period is quite well, so the taxation payable climbs up greatly. (9) Long-term loans takes the proportion of 2.67% in the total assets, with 1.03 percentage point decreased over that of period-begin. The reason for the change is that: a loan of RMB 20 million has been returned to Anlian Branch of China Merchant Bank. (IV) Changes on operating expenses, Administrative expenses, financial expenses and income tax Unit: RMB’0000 Increase/decrease Item 2007 2006 Reason for significant change ratio(％) Operating 33,152.70 30,027.46 10.41% The sales scope of the Company is expenses enlarging, so the expense related to Administrative 18,897.27 16,554.48 14.15% operation is increasing. expenses Financial The borrowing in this period has 2,986.55 2,267.34 31.72% expenses increased and interest rate has risen. Guangzhou South Medical Equipment Co.,Ltd, a subsidiary of the Company, Investment sold the shares of SINOPHARM 3,408.70 696.69 389.27% incomes Medicine Holding held by them, and investment income of RMB 25,590,000 has been obtained. SINOPHARM Medicine Holding (Liuzhou) Co., Ltd, a subsidiary of the Non-operating 2,348.43 112.03 1996.25% Company, sold land and disposal incomes income of RMB 16,690,000 has been obtained. The operation in this period is quite well, so the income tax climbs up Income tax 5,233.33 3,079.17 69.99% greatly; meanwhile, stock transfer and land selling and other factors also Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 31 - brought sharp increase in income tax. (V) The operation and performance analysis of the main holding companies and joint stock companies of the Company 1. Shenzhen Zhijun Pharmaceutical Co., Ltd: exclusively-owned subsidiary of the Company, with the registered capital of RMB 69,000,000 and main business in production for raw medicine of chemical products, processing for Chinese traditional patent medicine and R&D, production and operation of chemical material of medicine. It mainly produces medicine for respiratory system and anti-infection and the main products are isedyl cough syrup and Cefuroxime Sodium. Until Dec 31st of 2007, the total assets amount to RMB 585,562,700, RMB 677,731,000 for the realized operation income in 2007, RMB 76,773,700 for operation profit and RMB 68,046,200 for net profit. 2. SINOPHARM Medicine Holding (Guangzhou) Co., Ltd: with the registered capital of RMB 50 million and the Company holds 90% of its equity. It mainly businesses in import and export of Chinese traditional patent medicine, chemical preparations, antibiotics, bio-chemical medicine, biological medicine, diagnosis medicine, biological medicine with features of treatment and diagnosis, shaped packing food, chemical products, and various commodity and technique hold by self-support and st agency. Until Dec 31 of 2007, the total assets amount to RMB 1,734,929,100, RMB 4,941,703,400 for the realized operation income in 2007, RMB 101,082,400 for operation profit and RMB 75,774,900 for net profit. 3. Shenzhen Main Luck Pharmaceuticals INC: with the registered capital of USD 5 million and the Company holds 35.19% of its equity. Its main business covers development, research, production and operation of anticancer medicine preparations. Until Dec 31st of 2007, the total assets amount to RMB 217,603,900, RMB 239,901,700 for the realized operation income in 2007, RMB 37,679,300 for operation profit and RMB 29,634,100 for net profit. Section III. R&D investment and self-innovation of the Company 1. R&D investment and self-innovation of the Company: In year 2007, the subordinates Shenzhen Zhijun Pharmaceutical Co., Ltd invested totaling up to RMB 30 million in Guanlan Plant of Bao’an, the enterprise technology center with the construction area of 3,000 kilometers has been built and put into use which could satisfy various pharmaceutical research such as Chemical Synthesis, conventional preparation research, sustained-release preparation research, quality research and analysis testing. Zhijun Pharmaceutical has obtained the approval of projects on 12 new products such as Cefbuperazone Sodium and sterile powder for injection( with the pinyin name of “Shoufang”, means medicines which are firstly took research and applied with coming into the overseas market but not domestic market), Cefsulodin Sodium and sterile powder for injection ( with the pinyin name of “Shoufang”, means medicines which are firstly took research and applied with coming into the overseas market but not domestic market), etc, and 5 new products with characteristics made significant progress; at the same time, 7 ones were obtained productions and 5 ones were obtained clinics. In year 2007, Zhijun Pharmaceutical invested R&D amounted to RMB 18,340,000 with an increase of 47.67 percent year-to-year. 2. Energy saving and reduce emission: Shenzhen Zhijun Pharmaceutical Co., Ltd developed cycling economic construction in Guanlan Plant of Shenzhen Bao’an, saved energy, and friendly environmental. The projects with energy saving and reducing emissions which were built and put into use included: reclaimed water reuse project, sewage disposal project, variable air rate of central air conditioning intelligent end-controller, remote monitor and charge calculation project, energy-saving and lighting project, heat water supply of Solar Water Heating project, reclamation of condensate water of heat and steam project, energy-saving control system of variable air rate of central air conditioning water, An In-line Cleaning System of central air conditioning condensator, Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 32 - project of sunbreaker glued to architecture glass, and project of disposal of exhaust gas and noise from generator, etc. Section IV. The Prospect for the future of the Company The year 2008 is the second set-up year for Three Years Development, also the key year for practical operation of the integration strategic of the Company. The Company will completely liberate idea, make exploitation and innovation, promote operation of integration without hesitation, control risks in operation, investment and personnel in full round, eliminate all difficulties for development and integration, input innovation into business operation consideration, and realize endogenous and extensive growth in economic profit of the Company. Accord Pharmaceutical locates itself in the new environment of medicine market with big change and bid adjustment. Faced with the unprecedented opportunities and challenges, the Company should make its best to do the following important works: 1. Quicken the construction, operation system, personnel cooperation of the new organization of Accord Pharmaceutical, strengthen the area linkage, cooperation, enjoy and obedience between the various boards, realize complementary advantages between management thought, operation thought and management method, realize high efficient management of the head office and cooperative effect of various industry and member enterprises, and finally advance the integration competition ability and competition advantage. 2. Quicken the business integration between Guangdong and Guangxi provinces and quicken the operation efficiency of the distribution departments, do well in the linking and organizing of networks, development and enjoy of products, management and gradation of customers standardization, arrange and implementation of the overall strategic. In inviting public bidding of purchase by netting, the Company should bring the resources advantage in breeds into an advanced appearance, and enlarge the bidding for the self-owned products of industries and enterprises, to really realize the integration operation combined by purchase, distribution, logistics, retails, information flow and capital flow. 3. The industry department will carry out future strategic business prospectively, increase input in R&D of products, and try to make significant progress and breakthrough in aspects of product quality, international recognition, integration in industry chain, big healthy area and area of inputting new products and its relevant development at the same time when it shortens the accommodating period, takes hand in the current operation, continuously adjusts the producing and selling structure of products and controls the operation cost. 4. Quicken the development of Accord Drugstore. On the basis of strategic adjustment, consolidation in ability and management during the first Three Years Development, the Company puts development as the first place in the second Three Years Development. With active research, the developing mode which takes merger as main line is formed. Strive to create the new pattern with synchronization development in market scale effect, brand influence and profit-making ability. 5. Steadily enhance the integration operation of capital, strengthen planed management of capital, continuously improve the efficiency of capital using, control capital risks and lower down capital cost. 6. Reinforce the establishment of enterprise spirit and create the harmonious home of Accord Pharmaceutical with all efforts. In 2008, though the medicine economy keeps comparative fast development, the competition in medicine market will be more fury at the same time. Faced with the new opportunities and challenges, the Company will continuous integrate its resources, optimize its organization structure and managing pattern, improve its operation efficiency, lower down its operation cost, and improve its operation quality in full round; by trans-region development, continuously increase the market occupation rate and control power, further enlarge its scale efficiency, raise its place in medicine Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 33 - industry of the south region of China, boost up its enterprise core competition and brand competition advantage and strive to realize the target of the First Brand Medicine in South China. Section V. Influence of changes in market operating environment, macro-policies and regulations on the Company 1. The medicine economy will keep steady growth in 2008, and the macro adjustment and control policy will influence the medicine industry in some degree. Countermeasure of the Company: in 2008, the Company will strengthen the power in researching the state macro economy and change of political environment, and make countermeasure to deal with the policy risks in time according to the adjustment and change of the national policy. 2. The release of the medical reform policy will not only promote and enlarge new market capacity, also bring continuous change to the medical industry pattern. At one side, on the basis of the medical insurance of urban employees, the full execution of the community medical treatment and the new country cooperative medical treatment system shows that China is steadily promoting the system of Medical Insurance for all, in long term, the total demand for medicine will increase and the medicine industry will receive benefit. At another side, the prepared plan for reform of the medical treatment system directly influences the development for the all medicine economy. The newly increased medicines which are priced by government, the price-adding rate regulated for controlling the circulation and the independent policy between cure and medicine which may appear, will all bring deep influences to the medicine industry. Countermeasure of the Company: the Company will continuously to further and specialize the reform in sale system, tries to set the purchase idea of Grade One Distributor. Through the efforts to get the place of the grade one dealer, the Company tries to enlarge its scale and raise its gross profit rate, taking advantage of the factory’s resources; also, fully makes use of the united purchase platform of Guangdong and Guangxi, and increases the occupation proportion of domestic products and local products and perfects the structure of breeds on the basis of maintaining the present joint venture imported breeds; fully takes advantage of multi-terminal and multi-area, and forms the customers network with cover of carpet by adopting the diversified cooperative method. In the South area, the Company realizes direct or indirect control on the three terminals (hospital, drugstore and the 3rd terminal), reinforces the exploitation power in market and actively promotes the sales for advanced breeds. 3. The stricter supervision on medicine, the new policy for medicine register and the remedy of GMP will boost the standardized development of the industry. The special renovation work for medicine market will run through the whole year of 2007 and the effect that the work brings to the standardization of medicine market will be reflected in 2008. Medicine supervision policy which is made with aim to strengthen the safety supervision of medicine and to standardize the market order will be released in succession. Rational attitude to face the strict supervision policy environment and standardized development of medicine enterprises is the main melody for the future development of medicine economy. Countermeasure of the Company: the Company will continuously supervise its subsidiaries to manage well in the production and circulation of medicines and continuously keep the advantage of the Company in quality and safety of the products, according to the laws and regulations in areas of production and circulation of medicines. Section VI. Investment and application of raised proceeds I. particulars about the main equity investment No equity investment. II. Application of raised proceeds In the report period, the Company had no proceeds raised through share offering or there was no such situation that the proceeds raised through previous share offering went down to the report Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 34 - period for application. III. The material progress of significant non-raised proceeds In 2007, the GMP inspection and movement work of the pharmaceutical R&D and manufacture base has been finished by the Company’s subsidiary-Shenzhen Zhijun Pharmaceutical Co., Ltd. the accumulated investment amount for the project of the pharmaceutical R&D and manufacture base reaches at RMB 0.172 billion which is 73% of the budgeted total investment amount. Section VII Routine work of the Board of Directors Particulars about the meetings held by the Board of Directors of the Company in this year: (1) On Mar 28th of 2007, the 15th meeting of the 4th Board of Directors was held. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Mar 30th of 2007. (2) On Apr 20th of 2007, the 16th meeting of the 4th Board of Directors was held. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Apr 23rd of 2007. (3) On Jul 10th of 2007, the Board held temporary meeting by communication. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Jul 11th of 2007. (4) On Aug 8th of 2007, the 17th meeting of the 4th Board of Directors was held. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Aug 10th of 2007. (5) On Sep 11th of 2007, the 1st meeting of the 5th Board of Directors was held. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Sep 12th of 2007. (6) On Oct 22nd of 2007, the 2nd meeting of the 5th Board of Directors was held by communication. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Oct 23rd of 2007. Section VIII. Implementation of the resolutions of the Board of Directors in the report period (1) Implementation of the daily related transaction made between the Company and its big shareholders and related enterprise During the report period, the proposal on Daily Related Transaction between the Company and Related enterprise has been examined and approved by the 2006 General Shareholders’ Meeting of the Company dated May 18th of 2007. In 2007, the Company has purchased goods from the related enterprises with RMB 1,001,165,200, and RMB 521,696,900 for selling goods. These two amounts are respectively 84.83% and 100.38% of the granted amounts authorized by the General Shareholders’ Meeting. (2) Implementation of the 2006 profit distribution plan On May 18th of 2007, the Company decided to send cash dividends of RMB 0.9(tax included) per every 10 shares to its all shareholders, taking the total shares 288,149,400 of the Company at the end of 2006 as the base. This is the 2006 profit distribution plan of the Company examined and approved by the 2006 General Shareholders’ Meeting. The Board has released the notice of Implementation of the 2006 Dividend of the Company on Jul 4th of 2007(published on Securities Times and Hong Kong Wen Wei Po and the web net http://www.cninfo.com.cn dated Jul 4th of 2007.) the Company implemented the 2006 profit distribution plan and the dividends for public shareholders have been already sent to their accounts respectively on Jul 10th of 2007(A share) and Jul 12th of 2007(B share). Section IX. The consolidated report of performance of the Audit Committee of the Board of Directors The Audit Committee’s Summary On The 2007 Audit Work Made By Shulun Pan Certified Public Accountants Co., Ltd. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 35 - The Board of Directors of the Company: After we have examined the 2007 Audit Work Plan presented by the financial department of the Company on Dec 23rd of 2007, we make full negotiation with the person in charge from Shulun Pan Certified Public Accountants Co., Ltd. on issue of the above audit work plan and we reached accord opinion that the plan was made with consideration of every details and responsibility was dispatched to individual person, which can offer guarantee for the successful accomplishment of the 2007 audit work. Shulun Pan Certified Public Accountants Co., Ltd.entered for audit on Jan 4th of 2008 according to the agreement of the above audit work plan. The audit personnel have finished the spot audit work of the various companies which are in range of the consolidated statement on Jan 18th of 2008. The person in charge of the project made continuance and full negotiation with the enterprise and the Audit Committee on aspects of consolidation of statements, accounting adjustment, application of accounting policy, and some accounting work needing further perfection found in the audit, which brought further understanding for the both two parties in the operation, financial disposal of the Company and the application and implementation of the new Accounting Standard for Enterprise, also provided a more matured judgment in the fair audit result issued by the CPA for annual audit. During the spot audit made by the CPA of annual audit, we members of the Audit Committee pay high attention to the problems found in the audit and make important negotiation on the following points by phone inquiry and face-to-face talk: 1. Whether all the trades have been recorded, the trades are real and the information is complete; 2. Whether the financial report is formed in accordance to the new Accounting Standard for Enterprise, requirements of supervisory department of securities and the financial system of the Company; 3. Could the year-inventory of the Company be finished successfully and whether the inventory conclusion fully reflect the assets quality; 4. Obedience of the financial department on laws, regulations, other external demands, and policy, designation and other internal demands from the administrative level; 5. Whether the internal control system of the Company has been established or perfected; 6. Whether the various departments of the Company cooperate with the CPA to get the sufficient and adequate evidence for the audit. The CPA for annual audit gave positive comment on the above questions and issued the audit report with standard unqualified opinion dated Feb 25th of 2008. We hold that the CPA for annual audit has already implemented the audit work in strict accordance to the regulations of independent audit standard for Chinese CPA. The audit time is sufficient; the audit personnel with qualified ability are collocated rationally. The audit report issued can fully reflect the financial status of the Company on Dec 31st of 2007 and operation achievement of the Company in 2007, and the audit opinion complies with the actual situation of the Company. The Audit Committee of the Board of Shenzhen Accord Pharmaceutical Co., Ltd Feb 26th of 2008 Section X. Performance of the Remuneration Committee of the Board of Directors With examination on the consolidated statement of the 2007 remuneration of the directors, supervisors and senior executives of the Company presented by the human resources department of the Company, the Remuneration Committee of the Company issue the following audit opinion: the decision-making procedure of the remuneration of the directors, supervisors and senior executives of the Company is in accordance to the regulations; the standard of the remuneration of the directors, supervisors and senior executives of the Company is in accordance to the regulations of remuneration system; the remuneration of the directors, supervisors and senior executives of the Company disclosed in the 2007 Annual Report is real and accurate. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 36 - Section XI. 2007 Profit Distribution Plan and Converting Capital Reserve into Share Capital The 2007 Final Financial Account of the Company has been confirmed by Shulun Pan Certified Public Accountants Co., Ltd. Referring to the 2007 consolidated statement, the net profit attributable to the owners of the parent company is RMB 124,914,225.45. And as to the statement of the parent company, the net profit is RMB 90,207,590.32. The Company carries out the new Accounting Standard for Enterprise since Jan 1st of 2007 and the data carried in the parent company’s statements are adopted when distributing profit. According to the relevant regulation of the Accounting Standard for Enterprise and its No.1 Explanation, the previous gains and losses receive adjustment. After adjustment, the undistributed profit of the parent company at the year-begin of 2007 amounts to RMB -19,282,710.29 and RMB 90,207,590.32 for the current realized profit. Deducting the statutory public reserve RMB 7,092,488.00 and the 2006 dividends RMB 25,902,701.26 which is sent to shareholders in the middle of 2007, the Company has undistributed profit of RMB 37,929,690.77 at the period-end. The 2007 Preplan of Profit Distribution of the Company is: there is neither profit distribution in 2007 nor converting capital reserve into share capital. The undistributed profit is used to makeup the circulating capital of the Company and kept for distribution in the future years. The said distribution preplan should be submitted to the 2007 Annual Shareholders’ General Meeting for consideration and approval. Section XII. Other events related to disclosure In the report period, the Company appoints Securities Times and Hong Kong Wen Wei Po as the appointed media for information disclosure and there is no change of the appointed media for information disclosure. Chapter VIII. Report of the Supervisory Committee I. Works of the Supervisory Committee In 2007, the Supervisory Committee of Shenzhen Accord Pharmaceutical Co., Ltd earnestly performs its duty according to the regulations of the Company Law, the Article of Association of the Company and Rules of Procedure of the Supervisory Committee. Totally four meeting have been held by the Supervisory Committee of the Company during the report period and follow the details: 1. The 6th meeting of the 4th session Supervisory Committee of the Company was held on Mar 28th of 2007 and the following proposals were examined and approved in this meeting: (1) The 2006 Report of Supervisory Committee of the Company (2) The 2006 Financial Settlement Report of the Company (3) The 2006 Profit Distribution Plan of the Company (4) The 2006 Annual Report and Summary (A, B) (5) The Proposal on Daily Related Transaction between the Company and its Related Parties (6) The Proposal on the 2007 Routine Operation Plan of the Company (7) The Proposal on Guarantee Providing for the Bank Authorization to SINOPHARM Medicine Holding (Guangzhou) Co., Ltd (8) The Proposal on the Exploitation Plan of the Project of Guangzhou Chepo of SINOPHARM Medicine Holding (Guangzhou) Co., Ltd (9) The Proposal on New Construction of Two Powder Product Line and One Packing Production Line for Packing with Aluminum in the Pharmaceutical R&D and Manufacture Base of Zhijun Pharmaceutical The resolutions of the meeting were published on Securities Times and Hong Kong Wen Wei Po dated Mar 30th of 2007. 2. The 7th meeting of the 4th session Supervisory Committee of the Company was held on Aug 8th of Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 37 - 2007 and the following proposals were examined and approved in this meeting: (1) Proposal on Amending the Article of Association of the Company (2) Proposal on the 2007 Semi-annual Report of the Company (3) Proposal on Amending the Rules of Procedure of Shareholder Meeting (4) Proposal on Amending the Rules of Procedure of the Supervisory Committee (5) Proposal on Stipulating the Managing Method for Related Transaction (6) Proposal on Stipulating the Managing Method for Raised Proceeds (7) Proposal on Change Election of the Supervisory Committee The resolutions of the meeting were published on Securities Times and Hong Kong Wen Wei Po dated Aug 10th of 2007. 3. On Aug 8th of 2007, the Company held the temporary meeting of the 4th session Supervisory Committee. In this meeting, it was announced that Mr. Wang Huaiqin was elected as supervisor of employee representative of the 5th session Supervisory Committee of the Company, with votes from the meeting of the employee representative. The notice has been published on Securities Times and Hong Kong Wen Wei Po dated Aug 10th of 2007. 4. On Sep 11th of 2007, the Company held the 1st meeting of the 5th session Supervisory Committee. Proposal on Implementation of the Reform Demand Presented by Shenzhen Securities Regulatory Committee and proposal on Election for Convoker of the Supervisory Committee have been examined and approved in this meeting. The resolutions of the meeting were published on Securities Times and Hong Kong Wen Wei Po dated Sep 11th of 2007. II. Independent opinion on the operation of the Company issued by the Supervisory Committee In the report period, the members of the Supervisory Committee present all meetings of the Board of the Company, perform their supervisory duty on the content and procedure of the Article of the Association carried out by the Board, and also supervise the execution of the resolutions of the Board by the operation personnel. (1) Operation by law According to the relevant regulations and laws of the nation, the Supervisory Committee makes inspection on the operation by law of the Company, decision-making procedure of the Company, and performance of duty of the senior executives. It believes that: the Company makes standardized operation strictly according to the Company Law, the Securities Law, the Article of Association and other laws and regulations. Meanwhile, the Company strictly executes the various resolutions and authorization of the shareholder meeting. During the report period, the Company further imperfects the internal control system of the Company in accordance to the relevant requirements. In the procedure of operation, the decision-making procedure is legal and there is no behavior breaking relevant regulations and laws of the Article of Association of the Company and behavior violating the profit of the Company and shareholders when the directors and managers implement their office duty. (II) The financial management of the Company The Supervisory Committee checked the financial system and financial management of the Company and audited the 2007 Annual Report. It holds that: the financial system of the Company is comparative perfect, the management is standardized, the financial report objectively and truly reflects the financial statue and operation achievement of the Company and the profit distribution plan complies with the actual condition of the Company. Shulun Pan Certified Public Accountants Co., Ltd. issued the audit report with standard unqualified opinion and no explanation. (III) Application of raised proceeds There is no application of raised proceeds in the report period. (IV) The purchases and sales of assets In the report period, the price for the purchases and sales of assets of the Company is reasonable. There is neither secret transaction, behavior hurting the equity of some part shareholders nor Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 38 - behavior bringing assets losses to the Company. (V) Significant related transaction of the Company in the report period The related transaction of the Company is equal and rational and of obedience to the market principle. There is behavior hurting the equity of the Company and non-related shareholders and profit of the Company; the Board of the Company implements their duty of earnest, trust and responsibility when they make the resolutions related to related transactions. No behavior violating laws, regulations and the Articles of Association has been found. CHAPTER IX. SIGNIFICANT EVENTS Section I. Significant lawsuits and arbitrations There had been no significant lawsuits or arbitrations in the report period. Section II. Purchases and sales of assets In the report period, there is neither purchases and sales of assets happened in the Company nor that happened in the previous years but last to this report period. Section III. Important related transactions I. Daily related transactions Unit: RMB’0000 Sell product and supply labor force to the Purchase and accept labor force from related parties related parties Related parties Proportion in the Proportion in the Transaction amount amount of the same Transaction amount amount of the same transaction transaction Shanghai Sinopharm Wai Gaoqiao 0.00 0.00% 68,014.41 8.68% Medicine Co., Ltd. Sinopharm Medicine Holding 0.00 0.00% 11,917.28 1.52% Shanghai Co., Ltd. Sinopharm Medicine Holding Co., 404.63 0.06% 11,213.03 1.43% Ltd. Guangdong South Pharmaceutical 217.55 0.03% 3,994.64 0.51% Foreign Trade Corporation Sinopharm Medicine Holding 4,626.26 0.68% 225.23 0.03% Nanning Co., Ltd Sinopharm Medicine Holding 4,537.10 0.66% 1,200.77 0.15% Tianjin Co., Ltd. Sales Subdivision of China National Pharmaceutical Foreign 0.00 0.00% 704.30 0.09% Trade Corp. Sinopharm Medicine Guoda 61.19 0.01% 1,391.02 0.18% Pharmacy Co., Ltd. Guangdong Dong Fang Uptodate 205.40 0.03% 861.02 0.11% & Special Medicines Co. Ltd. Suzhou Medicine Foreign 79.06 0.01% 121.32 0.02% Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 39 - Development Co., Ltd. Sinopharm Medicine Holding 5,459.45 0.80% 36.33 0.00% Hunan Tianjian Co., Ltd China National Group Corporation 0.00 0.00% 30.17 0.00% of Traditional & Herbal Medicine Sinopharm Traditional Chinese 0.74 0.00% 401.32 0.05% Medicine (Shenzhen) Co. Ltd Beijing Zhongxin Medical 0.00 0.00% 8.56 0.00% Trading Compan China National Pharmaceutical 0.00 0.00% 0.73 0.00% Foreign Trade Corporation Sinopharm Group Medicine 599.45 0.08% -3.61 0.00% Holding Hubei Xinlong Co., Ltd Sinopharm Medicine Holding 20,016.19 2.93% 0.00 0.00% Shenyang Co., Ltd. Sinopharm Medicine Holding 6,464.53 0.95% 0.00 0.00% Hubei Co., Ltd. China National Pharmaceutical Group Southwest Medicine Co., 5,482.41 0.80% 0.00 0.00% Ltd. Sinopharm Medicine Holding 1,732.29 0.25% 0.00 0.00% Beijing Co., Ltd. Sinopharm Medicine Holding Co., 627.00 0.09% 0.00 0.00% Ltd. Tianjin East Bokang Medical 599.73 0.09% 0.00 0.00% Trade Co., Ltd. Sinopharm Medicine Holding 421.48 0.06% 0.00 0.00% Jiangsu Co., Ltd. Sinopharm Medicine Holding 402.12 0.06% 0.00 0.00% Shanxi Co., Ltd. Sinopharm Medicine Holding 94.55 0.01% 0.00 0.00% Beijing Huahong Co., Ltd. China National Pharmaceutical Group Northwest Medicine Co., 87.09 0.01% 0.00 0.00% Ltd. Sinopharm Medicine Holding 29.61 0.00% 0.00 0.00% Zhejiang Co., Ltd. Guangxi Wuzhou Huawu 18.42 0.00% 0.00 0.00% Medicinal Materials Co., Ltd Sinopharm Medicine Holding Jingzhou Xinlong Pharmaceutical 1.50 0.00% 0.00 0.00% Co., Ltd. Guangdong Renbo Medical 1.94 0.00% 0.00 0.00% Equipment Co., Ltd. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 40 - Total 52,169.69 7.63% 100,116.52 12.78% Of which: In the report period, the related transaction amount of the Company providing sales and labor service to the controlling shareholders and its subsidiaries was RMB 517,263,800. II. Other related transactions (1) Guarantee provided for the related parties: until Dec 31st of 2007, the contingent liability formed by the guarantee for loans of the related parties and other units provided by the Company Guarantee Expiry date Financial influence Units providing guarantee Units receiving guarantee amount(RMB’0000) for liability of the Company Related parties: Shenzhen Accord Shenzhen Zhijun No disadvantage 10,000 2008.08.17 Pharmaceutical Co., Ltd Pharmaceutical Co., Ltd influence Shenzhen Accord Sinopharm Medicine No disadvantage Pharmaceutical Co., Ltd Holding (Guangzhou) 31,000 2007.12.31 influence Co., Ltd. Shenzhen Accord Sinopharm Medicine No disadvantage Pharmaceutical Co., Ltd Holding (Guangzhou) 7,320 2008.12.31 influence Co., Ltd. Shenzhen Zhijun Shenzhen Accord No disadvantage 5,000 2008.09.06 Pharmaceutical Co., Ltd Pharmaceutical Co., Ltd influence Shenzhen Zhijun Shenzhen Accord No disadvantage 5,000 2008.11.07 Pharmaceutical Co., Ltd Pharmaceutical Co., Ltd influence Shenzhen Zhijun Shenzhen Accord No disadvantage 10,000 2008.11.27 Pharmaceutical Co., Ltd Pharmaceutical Co., Ltd influence Shenzhen Zhijun Shenzhen Accord No disadvantage 5,000 2008.11.22 Pharmaceutical Co., Ltd Pharmaceutical Co., Ltd influence Shenzhen Zhijun Shenzhen Accord No disadvantage 10,000 2009.12.28 Pharmaceutical Co., Ltd Pharmaceutical Co., Ltd influence Shenzhen Zhijun Pharmaceutical Co., Ltd Shenzhen Accord No disadvantage and Sinopharm Medicine 6,000 2008.12.29 Pharmaceutical Co., Ltd influence Holding (Guangzhou) Co., Ltd. Shenzhen Zhijun Shenzhen Zhijun No disadvantage 300(USD) 2008.03.06 Pharmaceutical Co., Ltd Medicine Trade Co., Ltd influence Shenzhen Zhijun Shenzhen Zhijun No disadvantage 300(USD) 2008.04.12 Pharmaceutical Co., Ltd Medicine Trade Co., Ltd influence Guangdong Huixin Sinopharm Medicine No disadvantage Investment Co., Ltd Holding (Guangzhou) 13,650 2008.06.15 influence Co., Ltd. (2)The subsidiary of the Company- Sinopharm Medicine Holding (Guangzhou) Co., Ltd is in charge of the buyer’s discount interest occurred by the discount of the notes payable issued by the subsidiary to the following related companies: RMB 643,100 for Sinopharm (CNCM Ltd), RMB 7.2031 million for Shanghai Sinopharm Wai Gao Qiao Co., Ltd, and RMB 1.2079 million for Shanghai Branch of Sinopharm Medicine Holding Co., Ltd. The related transaction has got approval in the 3rd meeting of the 5th Board of Directors dated Mar 25th of 2008. (3) The subsidiary of the Company- Sinopharm Medicine Holding (Guangzhou) Co., Ltd has borrowed capital of RMB 0.11 billion from Sinopharm Medicine Holding Co., Ltd in 2007. It should take assets occupation fee of RMB 5.6921 million for 2007. The related transaction has got approval in the 2nd meeting of the 5th Board of Directors dated Oct 22nd of 2007. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 41 - III. Creditor’s rights and liabilities between related parties and the Company: Unit: RMB’0000 Capital provided for related Capital provided by related parties parties Related parties Occurrence Occurrence Balance Balance amount amount Total 60,605.30 8,787.32 121,127.69 23,636.93 The details are as follows: Unit: RMB’0000 Supply fund to the Company from Provide fund for related party related party Occurring Related parties Occurring amount Balance amount Balance Account payable: Sinopharm Medicine Holding 23,418.94 3,366.09 0.00 0.00 Shenyang Co., Ltd. Sinopharm Medicine Holding 6,387.56 1,340.84 0.00 0.00 Hunan Tianjian Co., Ltd China National Pharmaceutical Group Southwest Medicine Co., 6,414.41 1,068.99 0.00 0.00 Ltd. Sinopharm Medicine Holding 7,613.02 917.30 0.00 0.00 Hubei Co., Ltd. Sinopharm Medicine Holding 2,026.78 376.46 0.00 0.00 Beijing Co., Ltd. Sinopharm Medicine Holding 4,981.19 172.04 0.00 0.00 Nanning Co., Ltd. Sinopharm Medicine Holding 5,308.41 988.31 0.00 0.00 Tianjin Co., Ltd. Sinopharm Medicine Holding 470.48 119.07 0.00 0.00 Shanxi Co., Ltd. Tianjin East Bokang Medical 701.69 102.98 0.00 0.00 Trade Co., Ltd. Sinopharm Medicine Holding Co., 733.59 90.14 0.00 0.00 Ltd. Sinopharm Group Medicine 688.19 56.87 0.00 0.00 Holding Hubei Xinlong Co., Ltd China National Medicines 460.84 54.18 0.00 0.00 Corporation Ltd. China National Pharmaceutical Group Northwest Medicine Co., 101.90 49.57 0.00 0.00 Ltd. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 42 - Guangdong Dong Fang Uptodate 240.32 35.14 0.00 0.00 & Special Medicines Co. Sinopharm Medicine Holding 519.09 25.82 0.00 0.00 Jiangsu Co., Ltd Hubei Xinlong Guoda Pharmacy 1.75 0.00 0.00 0.00 Co.,Ltd. Guangdong South pharmaceutical 254.53 0.00 0.00 0.00 Foreign Trade Corporation Sinopharm Medicine Guoda 71.59 0.00 0.00 0.00 Pharmacy Co., Ltd. Sinopharm Medicine Holding 0.87 0.00 0.00 0.00 Shenzhen TCM Guangdong Renbo Medical 2.27 0.00 0.00 0.00 Equipment Co., Ltd. Sinopharm Medicine Holding 47.85 0.00 0.00 0.00 Zhejiang Co., Ltd Sinopharm Medicine Holding 110.63 0.00 0.00 0.00 Beijing Huahong Co., Ltd Other account receivable: Sinopharm Medicine Guoda 15.71 12.71 0.00 0.00 Pharmacy Co., Ltd. Sinopharm Medicine Holding 10.75 10.75 0.00 0.00 Shenzhen TCM Account paid in advance: 0.00 0.00 0.00 0.00 Sinopharm Medicine Holding 22.94 0.06 0.00 0.00 Nanning Co., Ltd Account payable: Shanghai Sinopharm Wai Gaoqiao 0.00 0.00 79,429.54 11,167.08 Medicine Co., Ltd. China National Medicines 0.00 0.00 12,236.42 613.13 Corporation Ltd. Sinopharm Medicine Guoda 0.00 0.00 1,780.08 122.44 Pharmacy Co., Ltd. Sales Subdivision of China National Pharmaceutical Foreign 0.00 0.00 824.03 116.13 Trade Corp. Guangdong Dong Fang Uptodate 0.00 0.00 989.54 98.01 & Special Medicines Co. Sinopharm Medicine Holding 0.00 0.00 1,407.22 74.78 Tianjin Co., Ltd Sinopharm Medicine Holding 0.00 0.00 469.84 55.72 Shenzhen TCM Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 43 - China National Pharmaceutical 0.00 0.00 0.75 32.40 Foreign Trade Corporation China National Group Corporation 0.00 0.00 30.17 27.57 of Traditional & Herbal Medicine Beijing Zhongxin Medical Trading 0.00 0.00 9.14 17.31 Company Guangdong South pharmaceutical 0.00 0.00 4,561.86 8.44 Foreign Trade Corporation Sinopharm Medicine Holding 0.00 0.00 13,951.52 6.85 Shanghai Co., Ltd Suzhou Medicine Foreign 0.00 0.00 141.94 3.81 Development Co., Ltd. Sinopharm Medicine Group Shanghai Medical Equipment Co., 0.00 0.00 4.70 2.70 Ltd. Sinopharm Medicine Holding 0.00 0.00 1,529.30 2.41 Nanning Co., Ltd Hubei Medical Materials 0.00 0.00 0.00 0.47 Corporation Sinopharm Medicine Holding 0.00 0.00 42.51 0.01 Hunan Tianjian Co., Ltd Sinopharm Medicine Holding 0.00 0.00 -4.22 0.00 Hubei Xinlong Co., Ltd Shenzhen Main Luck 0.00 0.00 547.65 0.00 Pharmaceutical Inc. Yunnan Medicinal Materials Co., 0.00 0.00 1.15 0.00 Ltd. Guangdong Tianliang Medicine 0.00 0.00 -0.03 0.00 Co., Ltd. Sinopharm Medicine Holding Co., 0.00 0.00 1.07 0.00 Ltd Huahe Pharmaceutical Holding 0.00 0.00 -0.09 0.00 Co., Ltd. Sinopharm Medicine Holding 0.00 0.00 0.04 0.00 Shanghai Co., Ltd Sinopharm Medicine Industry 0.00 0.00 -0.13 0.00 Holding Co., Ltd. Sinopharm Group Chemical 0.00 0.00 27.39 0.00 Reagent Co., Ltd. Sinopharm Medicine Industry 0.00 0.00 31.30 0.00 Holding Co., Ltd. Other account payable: Sinopharm Medicine Holding Co., 0.00 0.00 3,000.00 11,000.00 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 44 - Ltd. Sichuan Antibiotics Industrial 0.00 0.00 0.00 285.18 Institute Co., Ltd. Sinopharm Medicine Holding 0.00 0.00 0.00 2.49 Shenzhen TCM Sinopharm Medicine Holding 0.00 0.00 35.00 0.00 Medical Logistics Co., Ltd Guangzhou Company, Sinopharm Medicine Holding Medical 0.00 0.00 80.00 0.00 Logistics Co., Ltd Total 60,605.30 8,787.32 121,127.69 23,636.93 Of which: In the report period, the occurring amount which the Company provided funds to the controlling shareholder and its subsidiaries was RMB 601,127,200 and the balance was RMB 87,521,800. Section IV. Important contracts and implementation I. Significant contracts (I) There is no signed external investment contract or financial expenditure which has not been implemented or completely implemented. (II) The already-signed contract with big amount is being implemented or in preparation to implement. The account payable agreed in the engineering contract signed by Shenzhen Zhijun Pharmaceutical Co., Ltd, a subsidiary of the Company, could be found in the following table, and this account belongs to the necessary expenditure for the normal operation of the company: Period Amount payable Within a year RMB 2.6462 million (III) The already-signed equipment purchase contract with big amount is being implemented or in preparation to implement. The account payable agreed in the equipment purchase contract signed by Shenzhen Zhijun Pharmaceutical Co., Ltd, a subsidiary of the Company, could be found in the following table, and this account belongs to the necessary expenditure for the normal operation of the company: Period Amount payable Within a year RMB 13,818,900 (IV) The already-signed lease contract and financial influence is being implemented or in preparation to implement. As to the house property leased by the subsidiary of the Company, the account payable agreed in the lease contract could be found in the following table, and this account belongs to the necessary expenditure for the normal operation of the company: Period Lease amount payable Within a year RMB 22,560,100 1 – 2 years RMB 18,004,800 2 – 3 years RMB 14,120,800 Above 3 years RMB 9,527,000 Total RMB 64,212,700 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 45 - II. Significant guarantee Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Complete Name of the Date of happening Guarantee for Amount of Guarantee Guarantee Implemen Company (date of signing related parts guarantee type term tation or guaranteed agreement) (yes or not) not Total amount of guarantee in the report 0.00 period Total balance of guarantee at the end 0.00 of the report period Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries in the report 7,320.00 period Total balance of guarantee for controlling subsidiaries at the end of 48,320.00 the report period Particulars about the total guarantee of the Company (Including the guarantee for the controlling subsidiaries) Total amount of guarantee 48,320.00 The proportion of the total amount of guarantee in the net assets of the 99.81% Company Including: Amount of guarantee for shareholders, actual controller and its related parties 0.00 The debts guarantee amount provided for the guarantee of which the assets-liability ratio exceeded 70% 48,320.00 directly or indirectly Proportion of total amount of guarantee in net assets of the Company 24,114.29 exceeded 50% Total amount of the aforesaid three guarantees 48,320.00 III. Entrustment of cash assets management In the report period, the Company has not entrusted others with cash assets management, nor had it done so in previous periods and lasted into the report period. Section V. Commitments of the Company or shareholders holding over 5% shares of the Company Special commitments by the former shareholders of non-tradable shares in Reform of Non-tradable Shares and the implementation Commitment Shareholders Commitments Remarks implementation (1) Not selling original non-tradable equities through stock exchange in 24 months from the It does not reach SINOPHARM Medicineday they become tradable. (2) Original Implementing the requirements Holding Co., Ltd. non-tradable equities sold after the 24 months of implementation. through stock exchange take up no more than 10% of the Company’s total shares in the Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 46 - following 12 months, and the price is no lower than 110% of the stock weighted average price, that is RMB5.05, of the 30 trading days before Accord Pharmaceutical’s Board of Directors publish the reform plan (from the day of implementing Non-tradable Shares Reform to the day when Sinopharm Medicine Holding sells equities, Ex Warrant/Ex Dividend on the price will be implemented if dividend, allotment or transferring of public capital to equity and so on happens ). Until May 10th of 2007, the requirement of implementation for the (1)Not trading or transferring within 12 months commitment (1) from the day when Reform Plan is carried out; has been reached the commitment on basis of the aforementioned time limited, and the (1) has been commitment has implemented and Shenzhen Bao’an Districtoriginal non-tradable equities sold through stock been the requirement of Shiyan Town Economicexchange take up no more than 5% of the implemented; the implementation for Development Corporation Company’s total shares in the following 12 requirement of the commitment months; (2) no mare than 10% within 24 implementation (2) has not been for the reached months. commitment (2) has not been reached and the commitment is being implemented. Ended May 10, 2007, the commitment Shenzhen Bao’an Shangwu reached the Not trading or transferring within 12 months Economic Development requirements of Implemented Co., Ltd. from the day when Reform Plan is carried out. implementation, and it was accomplished already. Ended May 10, 2007, the commitment reached the Shenzhen WangzongNot trading or transferring within 12 months requirements of Implemented Industrial Co., Ltd. from the day when Reform Plan is carried out. implementation, and it was accomplished already. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 47 - Ended May 10, 2007, the commitment reached the Nanjing Junyue InvestmentNot trading or transferring within 12 months requirements of Implemented and Consultation Co., Ltd. from the day when Reform Plan is carried out. implementation, and it was accomplished already. Ended May 10, 2007, the commitment reached the Wuxi Huaxin InvestmentNot trading or transferring within 12 months requirements of Implemented Management Co., Ltd. from the day when Reform Plan is carried out. implementation, and it was accomplished already. Ended May 10, 2007, the commitment Shanghai Shisheng reached the Not trading or transferring within 12 months Enterprise Development requirements of Implemented Co., Ltd. from the day when Reform Plan is carried out. implementation, and it was accomplished already. Not trading or transferring within 12 months Ended May 10, from the day when Reform Plan is carried out. If 2007, the the shares held by Shanghai Huaxia Yifu commitment Investment Management Co., Ltd could be sold Shanghai Huaxia Yifu reached the for listed transaction, the company should pay Investment Management requirements of Implemented Co., Ltd. back the shares and relevant account Sinopharm implementation, Medicine Holding Co., Ltd paid for on its behalf and it was in the Share Merger Reform, and also get the accomplished written agreement from Sinopharm Medicine already. Holding Co., Ltd. Section VI. Engagement of Certified Public Accountants I. Engagement of Certified Public Accountants In the report period, resolution was made in the 1st temporary shareholder meeting of 2007 of the Company dated Sep 11th of 2007, and it was agreed to re-engage Shulun Pan Certified Public Accountants Co., Ltd.as the audit organization for auditing A, B shares of the Company in 2007. Relevant notice has been published on Securities Times and Hong Kong Wen Wei Po dated Sep 12th of 2007. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 48 - II. Remuneration paid to Certified Public Accountants The auditing fees the Company paid to the Certified Public Accountants for the Annual Report 2007 totaled RMB 0.95 million, and the fees for the business trips the Certified Public Accountants took for the Company’s auditing affairs had been paid by the Company. III. Years of auditing service the audit institutions had provided the Company Since initially signing audit business agreement in 2004, Shulun Pan Certified Public Accountants Co., Ltd. has provided auditing service consistently for the Company for 4 years. Section VII. Other important events 1. In the report period, the Company, the Board of Directors and directors had not been inspected by CSRC, or received administrative penalty, or circulating criticism, nor had them ever been criticized publicly by Stock Exchange. 2. In the report period, the family of the Secretary of the Board Mr. Chen Changbing bought 14,900 shares of Accord Pharmaceutical in his account on Jan 5th of 2007, and Mr. Chen Changbing quickly froze the shares as he know the details. On May 21st, 3,725 shares of the frozen ones have been released and sold out by him on the same day. After deducting the occurred expense in trading, the actual profit is RMB 22,570.87. On Oct 9th, Mr. Chen Changbing handed all the profit RMB 22,570.87 in to the Company. Section VIII. In the report period, the received research and interview of the Company. In the report period, the Company respectively receives the research of investors from fund company and securities company. In the reception, according to the regulations of Guideline on Fair Information Disclosure for Listed Companies promulgated by Shenzhen Stock Exchange, the Company has not disclosed or leaked non-public significant information to specific parties privately, selectively or in advance. This guarantees the equality for the information disclosure of the Company. Activities form of receiving research, communication and interview in the report period: The The received The received Contents discussed and received The received parties place way materials supplied date Operation of the Accord Jan 15th of Zhu Hongyu from Company and visiting the Pharmaceutical Spot research 2007 Galaxy Funds Company, no data Building provided Condition of the Accord Mar 8th of He juying from Citic medicine industry and Pharmaceutical Spot research 2007 Securities visiting the Company, no Building data provided Get known of the Accord movement of the Apr 8th of Yi Jingming from Pharmaceutical Spot research production base and visit 2007 Guotai Junan Building the Company, no data provided Accord Condition of the May 28th of Xu Wenfeng from Pharmaceutical Spot research medicine industry, no 2007 Guodu Securities Building data provided Duan Lianlian from Present at the live th Accord Changjiang Securities; meeting of the 2007 Sep 11 of Pharmaceutical Spot research He juying from Citic temporary shareholders 2007 Building Securities; Zhou Yue meeting and provided from China Jianyin with data about the Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 49 - Investment Securities shareholder meeting Accord Condition of the Nov 22nd of Zou Min from BOC Pharmaceutical Spot research medicine industry, no 2007 International Building data provided Zhang Mingfang and Accord Condition of the Dec 7th of Jiang Xiulei from Pharmaceutical Spot research medicine industry, no 2007 China Merchants Building data provided Securities Section IV. Explanation on change of accounting policy, accounting estimation and calculating method compared with the latest annual report According to the notice (CK (2006) No.3) on Publishing the Accounting Standard for Enterprise No. 1-Inventory and other 38 Specific Standards stipulated by the Ministry of Finance, the Company decides to execute the new Accounting Standard for Enterprise from Jan 1st of 2007; items in financial statements has received retroactive adjustment according to the relevant contents from the chapter 5 to chapter 19 in the Accounting Standard for Enterprise No. 38-First Time Implementing Accounting Standard for Enterprise and demands in Accounting Standard for Enterprise Explanation No.1. (I) Change of accounting policy 1. According to the regulation of Accounting Standard for Enterprise No.18-Income Tax, the calculation method for income tax should be changed to balance sheet debt method from the original tax payable method. The accumulated influenced amount brought by this change of accounting policy is RMB 1,765,592.63, in which RMB 1,355,791.95 is adjusted in surplus reserve at period-begin and RMB 409,800.68 for the undistributed profit at period-begin. 2. According to the regulation of Accounting Standard for Enterprise No.20-Enterprises Merger, as to the long-term equity investment occurred from merger of enterprises which are under the same control, all the unamortized equity investment balance should be offset. The accumulated influenced amount brought by this change of accounting policy is RMB -53,262,485.95, in which RMB-15,233,102.54 is adjusted in capital public reserve at period-begin, and RMB -83,419,602.89 for surplus reserve and RMB 45,390,219.48 for the undistributed profit at period-begin. 3. As to the plan of releasing employment relation with employees on the first execution day, only when it meet the confirmation demand for projected liability according to the Accounting Standard for Enterprise No.9-Wages, the liability which occurred from the compensation for releasing employment relation with employees should be confirmed. The accumulated influenced amount brought by this change of accounting policy is RMB -9,562,043.91, in which RMB -1,355,791.95 is adjusted in surplus reserve at period-begin and RMB -8,206,251.96 for the undistributed profit at period-begin. Meanwhile, RMB -4,389,869.68 is adjusted in the undistributed profit at period-begin from the compensation amount which is paid in one time for releasing employment relation with employees and originally written into item of long-term deferred expense. 4. On the first execution day, enterprise should group the financial assets held by them to held-to-maturity investment and financial assets available for sale etc, in which: financial assets available for sale should be measured by fair value on the first execution day, and also the balance between the book value and fair value should be adjusted to retained earnings. Through this change in accounting policy, RMB 7,317,105.65 is adjusted in capital public reserve at period-begin. 5. As to the item of uncertain investment losses, the Company should offset the item of undistributed profit in the consolidated balance sheet, items of net profit and net profit attributable to owners of parent company in the consolidated profit statement. Through this change in accounting policy, RMB -37,091,611.08 is adjusted in undistributed profit at period-begin. (II) Change in accounting estimation There is no change in accounting estimation during the report period. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 50 - Section X. Significant accounting errors, corrected amount, the reason and influence In the report period, there were no significant accounting errors and corrections. Section XI. Explanation on change of consolidated scope compared with the latest annual report 1. There were totaling 2 new consolidated units this year. One is 1. In this year, there increased 2 consolidated units, with the original reasons were as follows: The underling subsidiary of the Company Sinopharm Medicine Holding Liuzhou Co., Ltd newly established sole proprietorship company Guangxi Accord Chinese Herbal Pieces Co., Ltd in year 2007. In 2007, the Company newly established Guangdong Accord Pharmaceutical Vocational Training Center. 2. In this year, there decreased 2 consolidated units, with the original reasons were as follows: The subsidiaries of Guangdong Huixin Investment Co., Ltd which is the underling subsidiary of the Company Guangdong Guangxing Industrial and Trade Development Co., Ltd and Guangzhou Southern Huabo Co., Ltd have been cancelled in the year of 2006. Section XII. Index for information notice on significant events No. Disclosure date Events disclosed Notice on Adding Capital for Increasing Shares and Name Change of the 1 2007-02-07 Subsidiary Resolution Notice of the 6th Meeting of the 4th Session Supervisory Committee; Notice on Capital Exchange between the Company and the Related Parties, and the Explanation on External Guarantee of the Company; Notice on Examination Report on Adjustment Table of Equity Balance between the New and Old Accounting Standard for Enterprise; 2 2007-03-30 Notice on Independent Opinion on the Guarantees of the Company Issued by the Independent Directors; Resolution Notice of the 15th Meeting of the 4th Session Supervisory Committee; Notice on Resignation of Independent Directors Issued by the Board; Notice on the 2006 Annual Report and Summary (Chinese and English version) Notice on Holding the 2006 Shareholders General Meeting; 3 2007-04-11 Notice on the 2006 Daily Related Transaction and Prediction of the Amount of the 2007 Daily Related Transaction 4 2007-04-23 The 1st Quarterly Report of 2007 (Chinese and English) Notice on Establishment of the Mutual-act Platform for the Special Activity in 5 2007-05-08 Administration of the Company 6 2007-05-09 Notice for the Circulation of the Shares with Restricted Condition 7 2007-05-15 Notice on the Sales of the Shares with Restricted Condition by the Holder 8 2007-05-17 The 2nd Notice on Holding the 2006 Shareholders General Meeting 9 2007-05-19 Resolution and Law Opinion Notice of the 2006 Shareholders General Meeting 10 2007-05-23 Notice on the Sales of the Shares with Restricted Condition by the Holder 11 2007-07-04 Notice on the Implementation of the 2006 Dividends Self-inspection Report in Administration of the Company, Reform Plan and 12 2007-07-11 Management System of Information Disclosure Statement and Complementary Statement of the Nominators of the Independent Directors; Working System of the Remuneration Committee of the Board; Working Detailed Rules for the Secretary of the Board; Working System of the 13 2007-08-10 Nomination Committee of the Board; Working System of the Strategic Committee of the Board; Working System of the Audit Committee of the Board; Working System of Independent Directors; Working Detailed Rules for the General Manager; Management of the Raised Proceeds; Management of Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 51 - Related Transaction; the 2007 Semi-annual Report and Summary (Chinese and English); Resolution Notice of the 17th Meeting of the 4th Board of Directors; Resolution Notice of the 7th Meeting of the 4th Session Supervisory Committee; Notice on Holding the 2007 1st Temporary Shareholders Meeting; Notice on Application for the Comprehensive Authorized Grant and Relevant Guarantee; Statement of the Nominators of the Independent Directors; Notice of the Supervisory Committee Resolution Notice of the 2007 1st Temporary Shareholders Meeting; Rules of Procedure of the Supervisory Committee; Rules of Procedure of the 14 2007-09-12 Shareholder General Meeting; Rules of Procedure of the Board of Directors; the Articles of Association of the Company Reform Report on the Spot Inspection of Shenzhen Securities Regulatory 15 2007-09-14 Committee; Resolution Notice of the 1st Meeting of the 5th Board of Directors; Resolution Notice of the 1st Meeting of the 5th Supervisory Committee 16 2007-09-26 Notice on Investment Income by Selling Equityby its Subsidiary Notice on the Predicted Increase in Performance of the Previous Three Quarter 17 2007-10-16 of 2007 Resolution Notice of the 2nd Meeting of the 5th Board of Directors; Notice on Guarantee Provided for the Controlling Subsidiary of the Grant Authorized by 18 2007-10-23 Bank; Notice on Related Transaction; the 3rd Quarterly Report of 2007(Chinese and English) 19 2007-10-27 Notice on Holding the 2nd Temporary Shareholders Meeting of 2007 20 2007-11-01 Summary Report on the Reform of the Activity of Special Administration 21 2007-11-14 Resolution Notice of the 2nd Temporary Shareholders Meeting of 2007 The aforesaid events have been disclosed on Securities Times, Hong Kong Wen Wei Po and the website http://www.cninfo.com.cn. CHAPTER X. FINANCIAL REPORT Section I. AUDITORS’ REPORT AUDITORS’ REPORT PCPAR (2008) No.10786 To all shareholders of Shenzhen Accord Pharmaceutical Co., Ltd.: We have audited the accompanying financial statements of Shenzhen Accord Pharmaceutical Co., Ltd. (hereinafter referred to as ‘the Company’), which comprise the balance sheet and consolidated balance sheet as of December 31, 2007, the income statement and consolidated income statement, the cash flow statement and consolidated cash flow statement, the statement of changes in owners’ (shareholders’) equity and the consolidated statement of changes in owners’ (shareholders’) equity, for the year then ended, and notes to the financial statements. Management’s responsibility for the financial statements Management is responsible for the preparation of these financial statements in accordance with Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 52 - Accounting Standards for Business Enterprises (Version 2006). This responsibility includes: ¾ Designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; ¾ Selecting and applying appropriate accounting policies; and ¾ Making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Chinese Certified Public Accountants Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider the internal control relevant to the preparation of the financial statements 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 internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprises (Version 2006) and present fairly, in all material respect, the financial position of the Company as of December 31, 2007, the results of its operations and cash flows for the year then ended. Shu Lun Pan Certified Public Accountants Co., Ltd. Certified Public Accountant of China Name Lu Guohao Name Tan Hongmei Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 53 - Shanghai, China Date: March 14, 2008 This auditors’ report and the accompanying notes to the financial statements are English translation of the Chinese auditors’ report. In case of doubt as to the presentation of these documents, the Chinese version shall prevail. Section II. Financial statements Balance Sheet Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. December 31, 2007 Unit: RMB Amount at period-end Amount at period-begin Items Merger Parent Company Merger Parent Company Current assets: Monetary funds 254,834,432.81 54,841,676.10 205,341,835.52 51,149,747.14 Settlement provisions Capital lent Transaction finance asset Notes receivable 166,838,281.78 575,727.24 207,461,757.47 27,417,436.43 Accounts receivable 1,286,649,082.59 266,608,019.71 1,134,397,089.98 232,925,656.56 Accounts paid in 54,122,228.36 1,845,633.24 92,412,252.18 3,932,363.78 advance Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivable Interest receivable Dividend receivable 228,443.24 228,443.24 Other receivables 32,748,343.14 100,105,321.32 36,052,214.72 155,515,089.60 Purchase restituted finance asset Inventories 574,318,139.76 71,473,576.82 489,540,293.95 72,299,571.82 Non-current asset due within one year Other current assets Total current assets 2,369,738,951.68 495,678,397.67 2,165,205,443.82 543,239,865.33 Non-current assets: Granted loans and advances Finance asset available 9,130,117.38 for sales Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 54 - Held-to-maturity securities Long-term account receivable Long-term equity 57,373,856.63 262,526,712.89 53,115,470.32 263,799,863.26 investment Investment property 37,094,592.40 2,291,009.00 39,289,145.88 2,441,664.20 Fixed assets: 340,639,114.64 45,496,890.76 197,622,254.53 49,369,991.82 Construction in progress 7,531,515.44 253,886.24 91,607,284.84 253,886.24 Engineering material Disposal of fixed asset Consumable biological asset Oil and gas asset Intangible assets 53,299,711.82 29,437,449.09 47,664,008.98 30,444,684.41 Expense on Research and Development Goodwill Long-term expenses to 12,625,298.34 338,545.86 8,325,557.52 817,001.65 be apportioned Deferred income tax 13,675,921.06 15,579,312.96 asset Other non-current asset 14,109,171.88 15,347,094.62 Total non-current asset 536,349,182.21 340,344,493.84 477,680,247.03 347,127,091.58 Total assets 2,906,088,133.89 836,022,891.51 2,642,885,690.85 890,366,956.91 Current liabilities: Short-term loans 254,396,407.94 55,000,000.00 296,986,007.95 37,417,436.43 Loan from central bank Absorbing deposit and interbank deposit Capital borrowed Transaction financial liabilities Notes payable 494,788,218.16 91,246,553.68 419,175,924.81 110,205,719.50 Accounts payable 1,054,606,346.77 214,598,852.16 956,987,248.04 261,167,008.52 Accounts received in 15,666,567.23 1,732,574.54 30,835,803.43 26,057.63 advance Selling financial asset of repurchase Commission charge and commission payable Wage payable 104,917,442.34 22,849,376.49 93,876,725.25 20,885,867.01 Taxes payable 19,811,311.90 -157,294.23 3,220,047.64 3,682,359.72 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 55 - Interest payable 329,027.27 145,100.64 295,758.00 Dividend payable 3,746,270.05 Other accounts payable 323,560,290.20 114,127,379.52 289,624,952.97 184,807,048.45 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Long-term liabilities due within 1 year Other current liabilities Total current liabilities 2,271,821,881.86 499,542,542.80 2,091,002,468.09 618,191,497.26 Non-current liabilities: Long-term loans 77,720,000.00 97,720,000.00 Bonds payable Long-term account 113,625.83 1,054,352.56 payable Special accounts 1,800,000.00 800,000.00 1,800,000.00 800,000.00 payable Projected liabilities 898,409.16 1,300,000.00 Deferred income tax 13,071,193.57 14,397,698.79 liabilities Other non-current 23,085,874.07 23,085,874.07 liabilities Total non-current liabilities 116,689,102.63 800,000.00 139,357,925.42 800,000.00 Total liabilities 2,388,510,984.49 500,342,542.80 2,230,360,393.51 618,991,497.26 Owner’s equity (or shareholders’ equity): Paid-in capital (or share 288,149,400.00 288,149,400.00 288,149,400.00 288,149,400.00 capital) Capital public reserve 4,801,131.71 2,508,769.94 10,128,077.65 2,508,769.94 Less: Inventory shares Surplus public reserve 7,092,488.00 7,092,488.00 Provision of general risk Retained profit 184,071,092.39 37,929,690.77 92,152,056.20 -19,282,710.29 Balance difference of foreign currency translation Total owner’s equity attributable to parent 484,114,112.10 335,680,348.71 390,429,533.85 271,375,459.65 company Minority interests 33,463,037.30 22,095,763.49 Total owner’s equity 517,577,149.40 335,680,348.71 412,525,297.34 271,375,459.65 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 56 - Total liabilities and owner’s 2,906,088,133.89 836,022,891.51 2,642,885,690.85 890,366,956.91 equity Profit Statement Prepared by Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. January-December, 2007 Unit: RMB This period Same period of last year Items Merger Parent Company Merger Parent Company I. Total operating income 6,878,305,483.32 1,236,948,653.24 5,708,713,814.45 1,240,485,435.73 Including: Operating income 6,878,305,483.32 1,236,948,653.24 5,708,713,814.45 1,240,485,435.73 Interest income Insurance gained Commission charge and commission income II. Total operating cost 6,743,064,633.98 1,248,505,099.97 5,597,920,221.38 1,263,665,221.01 Including: Operating cost 6,171,204,306.69 1,166,634,525.46 5,090,717,555.28 1,187,855,348.02 Interest expense Commission charge and commission expense Cash surrender value Net amount of expense of compensation Net amount of withdrawal of insurance contract reserve Bonus expense of guarantee slip Reinsurance expense Operating tax and extras 12,245,830.36 547,571.00 10,380,057.10 692,339.71 Sales expenses 331,526,963.41 34,439,954.72 300,274,632.45 20,077,860.70 Administration 188,972,655.10 44,065,623.81 165,544,763.81 40,367,988.53 expenses Financial expenses 29,865,492.85 661,836.20 22,673,359.96 412,514.18 Losses of devaluation of 9,249,385.57 2,155,588.78 8,329,852.78 14,259,169.87 asset Add: Changing income of fair value(Loss is listed with “-”) Investment income 34,086,953.88 98,338,366.71 6,966,879.49 67,354,176.38 (Loss is listed with “-”) Including: Investment 8,209,843.29 -1,074,707.13 6,461,651.70 -528,006.98 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 57 - income on affiliated company and joint venture Exchange income (Loss is listed with “-”) III. Operating profit (Loss 169,327,803.22 86,781,919.98 117,760,472.56 44,174,391.10 is listed with “-”) Add: Non-operating 23,484,253.71 3,943,239.07 1,120,284.76 79,693.70 income Less: Non-operating 1,760,729.82 517,568.73 3,076,493.63 268,384.61 expense Including: Disposal loss 636,427.92 307,564.63 701,128.22 267,146.49 of non-current asset IV. Total Profit (Loss is 191,051,327.11 90,207,590.32 115,804,263.69 43,985,700.19 listed with “-”) Less: Income tax 52,333,330.06 30,791,663.97 V. Net profit (Net loss is 138,717,997.05 90,207,590.32 85,012,599.72 43,985,700.19 listed with “-”) Net profit attributable to owner’s equity of parent 124,914,225.45 80,224,503.01 company Minority shareholders’ 13,803,771.60 4,788,096.71 gains and losses VI. Earnings per share i. Basic earnings per share 0.434 0.313 0.278 0.153 ii. Diluted earnings per share 0.434 0.313 0.278 0.153 Cash Flow Statement Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. January-December, 2007 Unit: RMB This period Same period of last year Items Merger Parent Company Merger Parent Company I. Cash flows arising from operating activities: Cash received from selling commodities and providing 8,085,599,499.72 1,439,359,660.64 6,474,284,434.24 1,395,666,908.40 labor services Net increase of customer deposit and interbank deposit Net increase of loan from central bank Net increase of capital Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 58 - borrowed from other financial institution Cash received from original insurance contract fee Net cash received from reinsurance business Insured savings and net increase of investment Net increase of disposal of transaction financial asset Cash received from interest, commission charge and commission Net increase of capital borrowed Net increase of returned business capital Write-back of tax received 2,548,876.31 21,960.81 Other cash received 52,658,123.94 101,749,994.73 39,385,095.05 84,177,282.11 concerning operating activities Subtotal of cash inflow 8,140,806,499.97 1,541,109,655.37 6,513,691,490.10 1,479,844,190.51 arising from operating activities Cash paid for purchasing commodities and receiving 7,339,461,307.31 1,455,126,883.48 5,704,246,545.06 1,264,303,273.27 labor service Net increase of customer loans and advances Net increase of deposits in central bank and interbank Cash paid for original insurance contract compensation Cash paid for interest, commission charge and commission Cash paid for bonus of guarantee slip Cash paid to/for staff and 251,959,425.42 33,609,313.69 202,087,381.21 24,049,344.20 workers Taxes paid 173,647,167.23 14,249,465.84 158,627,080.03 11,319,068.27 Other cash paid 288,040,520.00 147,862,737.38 267,000,622.00 93,615,312.62 concerning operating activities Subtotal of cash outflow 8,053,108,419.96 1,650,848,400.39 6,331,961,628.30 1,393,286,998.36 arising from operating activities Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 59 - Net cash flows arising 87,698,080.01 -109,738,745.02 181,729,861.80 86,557,192.15 from operating activities II. Cash flows arising from investing activities: Cash received from 26,588,726.02 0.65 685,070.00 685,070.00 recovering investment Cash received from 3,457,479.92 99,413,073.19 2,922,492.43 64,043,624.34 investment income Net cash received from disposal of fixed, intangible and 28,017,753.45 415,971.93 1,917,138.34 421,370.00 other long-term assets Net cash received from disposal of subsidiaries and other units Other cash received concerning investing activities Subtotal of cash inflow 58,063,959.39 99,829,045.77 5,524,700.77 65,150,064.34 from investing activities Cash paid for purchasing fixed, intangible and other 71,410,213.94 3,694,492.21 118,219,681.23 2,408,200.70 long-term assets Cash paid for investment 30,000.00 44,550,000.00 Net increase of mortgaged loans Net cash received from 16,141,553.32 117,138,060.00 subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow 71,410,213.94 3,724,492.21 134,361,234.55 164,096,260.70 from investing activities Net cash flows arising -13,346,254.55 96,104,553.56 -128,836,533.78 -98,946,196.36 from investing activities III. Cash flows arising from financing activities Cash received from absorbing investment Including: Cash received from absorbing minority shareholders’ investment by subsidiaries Cash received from loans 305,000,000.00 85,000,000.00 339,520,000.00 Cash received from issuing bonds Other cash received 4,788,000.00 2,626,000.00 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 60 - concerning financing activities Subtotal of cash inflow 309,788,000.00 85,000,000.00 342,146,000.00 from financing activities Cash paid for settling debts 274,000,000.00 40,000,000.00 306,600,000.00 Cash paid for dividend and profit distributing or interest 61,717,855.64 27,673,764.58 49,125,972.19 11,969,087.29 paying Including: Dividend and profit of minority shareholder 374,028.45 paid by subsidiaries Other cash paid 3,253,708.44 concerning financing activities Subtotal of cash outflow 335,717,855.64 67,673,764.58 358,979,680.63 11,969,087.29 from financing activities Net cash flows arising -25,929,855.64 17,326,235.42 -16,833,680.63 -11,969,087.29 from financing activities IV. Influence on cash due to 1,070,627.47 -115.00 -5,857.53 -1,197.05 fluctuation in exchange rate V. Net increase of cash and 49,492,597.29 3,691,928.96 36,053,789.86 -24,359,288.55 cash equivalents Add: Balance of cash and cash equivalents at the period 205,341,835.52 51,149,747.14 169,288,045.66 75,509,035.69 -begin VI. Balance of cash and cash 254,834,432.81 54,841,676.10 205,341,835.52 51,149,747.14 equivalents at the period -end Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report Statement on Changes of Owners' Equity Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. Dec.31, 2007 Amount in this report period Owners' equity belonged to the parent company Owners' equity belon Paid-up Paid-up Minorit Total Items Less: Less: General capital Capital Surplus Retaine y owners’ capital Capital S Treasur reserves risk Others (Share reserves d profit Treasur re y Stock provision interest equity capital) (Share reserves y Stock capital) I. Balance at the end of the last 288,149,40 17,741,872. 71 year 288,149,40 18,044,074. 83,419,602. 96,039,768. -37,920,889 447,731,95 0.00 48 0.00 54 89 76 .45 6.74 Add: Changes of accounting -15,233,102 -7 policy -7,915,996. -83,419,602 -3,887,712. 37,920,889. 22,095,763. -35,206,659 .54 89 .89 56 45 49 .40 Error correction of the last period - II. Balance at the beginning of 288,149,40 2,508,769.9 this year 288,149,40 10,128,077. 92,152,056. 22,095,763. 412,525,29 0.00 4 0.00 65 - - - 20 - 49 7.34 III. Increase/ Decrease in this -5,326,945. 7,092,488.0 91,919,036. 11,367,273. 105,051,85 7,619,307.7 year (Decrease is listed 94 0 19 81 2.06 1 with'"-") 124,914,22 13,803,771. 138,717,99 (I) Net profit 5.45 60 7.05 (II) Profits and losses -5,326,945. 1,683,800.7 -3,643,145. 7,619,307.7 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report calculating into owners' equity 94 1 23 1 1. Net changing amount of fair -7,317,105. -8,130,117. 7,317,105.6 value of financial assets -813,011.73 65 38 5 available for sale 2. Effect of changes of other owners' equity of invested units under equity method 3.Effect of income tax related to owners' equity 1,990,159.7 2,496,812.4 4,486,972.1 4. Others 302,202.06 1 4 5 -5,326,945. 124,914,22 15,487,572. 135,074,85 7,619,307.7 Total of (I)and (II) 94 5.45 31 1.82 1 (III) Owners' devoted and decreased capital 1. Owners' devoted capital 2. Amount calculated into owners' equity paid in shares 3. Others 7,092,488.0 -32,995,189 -4,120,298. -30,022,999 (IV) Profit distribution 0 .26 50 .76 1. Withdrawal of surplus 7,092,488.0 -7,092,488. reserves 0 00 2. Withdrawal of general risk provisions 3.Distribution for owners -25,902,701 -4,120,298. -30,022,999 (shareholders) .26 50 .76 4.Others (V) Carrying forward internal owners' equity 1.Capital reserves conversed to capital (share capital) Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2. Surplus reserves conversed to capital (share capital) 3.Remedying loss with profit surplus 4.Others IV. Balance at the end of this 288,149,40 4,801,131.7 7,092,488.0 184,071,09 33,463,037. 517,577,14 288,149,40 10,128,077. report period 0.00 1 0 2.39 30 9.40 0.00 65 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 64 - Section III. NOTES TO THE FINANCIAL STATEMENTS SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. NOTES TO THE FINANCIAL STATEMENTS 1 Corporate information 1.1 History and evolutions of the Company Shenzhen Accord Pharmaceutical Co., Ltd. (hereinafter referred to as ‘the Company’), formerly known as Shenzhen Health Mineral Water Co., Ltd., was approved by the People’s Government of Shenzhen with SFBF (1993) No.356 document to establish on February 1, 1993 through stock restructure as a company limited by shares. In March 1993, with the approval from the Shenzhen branch of the People’s Bank of China, the Company issued 30 million A-shares (among which 16.5 million public offer, 3.5 million employee shares and 10 million corporation shares) and 20 million B-shares. After this issuance, the Company’s share capital was CNY 105 million. Through transfer of capital surplus to share capital and bonus issues for years, the share capital of the Company increased to CNY 288,149,400 up to December 31, 2004. The employee shares, domestic public shares and foreign public shares have all been listed on the Shenzhen Stock Exchange. In November 2000, the Company signed Assets Exchange Agreement with Shenzhen Investment Management Company, the original main shareholder of the Company, to exchange equivalently all the original assets and liabilities of the Company as of August 31, 2000 for 100% stock holding of 11 pharmaceutical companies, part of the properties and 51% stock holding in Shenzhen Tefa Modern Computer Co., Ltd., held by Shenzhen Investment Management Company. On December 29, 2000, the above assets exchange proposal was passed by shareholder’s voting in the second extraordinary general meeting in 2000. The transaction was completed on January 8, 2001. On June 18, 2001, the Company changed its name to Shenzhen Accord Pharmaceutical Co., Ltd., in the Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 65 - pharmaceutical manufacturing industry. On February 18, 2004, the Company’s original main shareholder, Shenzhen Investment Management Company, signed Stock Transfer Agreement with Sinopharm Holdings Co., Ltd. (formerly known as Sinopharm Group Medicine Holding Co., Ltd. ) to transfer all the 43.33% stock holdings in the Company to Sinopharm Holdings Co., Ltd.. The legal procedures of the above stock transfer were completed on December 9, 2004. At the same time, as approved by GZCQ (2004) No.525 document from the State-owned Assets Supervision and Administration Commission of the State Council and ZJGSZ (2004) No.94 document from the China Securities Regulatory Commission, the nature of these shares was transferred from state-owned stock to state-owned legal entity stock and Sinopharm Holdings Co., Ltd. became the top shareholder of the Company. On April 14, 2006, the Company’s proposal on reformation of segregated stocks was approved. To gain liquidity for the restricted stocks of the Company, the holders of the restricted stocks of the Company agreed to pay the following consideration: based on the stock registration as of April 27, 2006, the Company issued bonus shares on April 28, 2006 at the ratio of 3 shares to every 10 A-shares to liquidated A-share holders which went public on the same day. After this bonus issue, the total number of shares of the Company remained unchanged with corresponding changes in the composition of share holdings. As of December 31, 2007, the Company had 288,149,400 shares in total, among which 121,935,432 shares were with restrictions on liquidity and accounted for 42.32% of the total number of shares, and 166,213,968 shares were without restriction on liquidity and accounted for 57.68% of the total number of shares. The Company is registered with Shenzhen Administration for Industry & Commerce with business license number 440301103040048, and the serial number of the license is N24657. The operation period of the Company is from August 2, 1986 to August 2, 2036. The registered capital of the Company is CNY 288,149,400 and the legal representative of the Company is Chen Weigang. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 66 - 1.2 Business scopes of the Company The scopes of business of the Company are: wholesale of Chinese patent drugs, raw materials for chemical medicine, chemical material drugs, antibiotics, bio-chemical drugs, diagnosis drugs, treatment & diagnosis biological drugs; research, development and consultation services of pharmaceutical packaging materials and pharmaceutical industry products; investment on setting up entities (application on projects separately); domestic trading and supplies (excluding solely licensed, solely controlled or monopolized products); import and export business (in accordance with SMGSZZ No.198 license on foreign trade corporations); category III disposable bacterial-free medical treatment instruments; equipments and instruments for operation units, emergency units and diagnosis units, medical macromolecule materials and products, clinical check up and analysis apparatus and diagnosis reagents, medical sutures and bonds, oral section materials, medical assay and basic equipments and instruments; category II medical electronic equipment, medical X-ray appurtenances and parts, medical ultrasonic instruments and relevant equipments, antisepsis and antibacterial equipments and instruments, medical sanitation materials and dressings. 2 Principal accounting policies, estimates and errors of previous period 2.1 Statement of complying with Accounting Standards for Business Enterprises The financial statements prepared by the Company meet the requirements of the enterprise accounting standards, and exactly and completely reflect the financial status, operation result, change in owner’s equity and cash flow, etc of the Company. 2.2 Basis for the preparation On the basis of continuity and obeying substance of transactions and events, the Company makes accounting comfirmation and measurement in accordance with ‘the Accounting Standard of P.R.C for Business Enterprise—Basic Standard’ and other accounting standards, and the financial statements are prepared on this basis. The beginning balance of balance sheet and the income statement during the comparable period are prepared in accordance with ZJF [2006] No. 36 document and Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 67 - the stipulation of ZJKJZ [2007] No.10 document, and with the retroactive adjustment principle, the items, stipulated in the articles 5 to 19 of the No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards and the "Accounting Standards for Business Enterprises Explanation Notice No. 1", have been adjusted. 2.3 Fiscal year The fiscal year of the Company is the solar calendar year, which is from January 1 to December 31. 2.4 Recording currency Recording currency is CNY. 2.5 Calculation natures and statement items with the changes of calculation natures in the report period In calculating the accounting factors, the Company adopts the historical cost method; in case the determined accounting factor amount can be obtained or reliably calculated, the replacement cost, net realizable value, current value or fair value of the individual accounting factor may be adopted. There is no change about calculation nature of statement items during current report period. 2.6 Confirmation standard for cash equivalent In preparing the cash flow statement, the cash equivalents of the Company include the investments with short period (it usually expires within three months from the purchase date), characteristics of high liquidity, easy conversion to certain amount of cash and little risk of value change. 2.7 Transactions of foreign currencies Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 68 - Foreign currency transactions are converted into CNY for recording purpose at the exchange rate on the first day of the period when the transaction occurs. Adjustments are made to foreign currency accounts in accordance with the exchange rate prevailing on the balance sheet date. Value of non currency item recorded at fair value by foreign currency is adjusted in accordance with the exchange rate prevailing on fair value confirm date. Conversion differences arising from those specific borrowings are to be capitalized as part of the cost of the construction in progress in the period before the fixed assets being acquired and constructed has not yet reached working condition for its intended use. Conversion differences arising from other accounts are charged to financial expenses. 2.8 Financial assets or financial liabilities (a) Classification of financial assets or financial liabilities Based on the purpose of obtaining the financial assets and assuming the liabilities, financial assets or financial liabilities may be classified into: the financial assets or financial liabilities that are calculated in the fair values and whose changes are accrued to current profit and loss, including the trading financial assets or financial liabilities; the held-to-maturity investments; receivables; available-for-sale financial assets; and other financial liabilities, etc. (b) Confirmation and measurement of financial assets or financial liabilities (1) The financial assets or financial liabilities that are calculated in the fair values and whose changes are accrued to current profit and loss The fair values (excluding cash dividends that have been declared but have not been distributed and bond interests that have exceeded the expiry dates but have not been drawn) are deemed as the initial confirmation amount on acquisition. Relevant transaction expenses are charged to profit and loss of the period. The interests or cash dividends obtained during the holding period are recognized as investment income. Change of fair values is charged to profit and loss of the period at the year end. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 69 - Difference between the fair value and initial book value is recognized as investment income upon disposal. Adjustment is made to gain or loss from changes in fair values. (2) Held-to-maturity investments The sum of fair values (excluding bond interests that have exceeded the expiry dates and have not been drawn) and relevant transaction expenses are deemed as the initial confirmation amount. During the holding period, interest income is recognized as investment income based on the amortized cost and actual interest rate (if the difference between the actual interest rate and the nominal interest rate, calculation is based on the nominal interest rate). The actual interest rates are determined upon acquisition and remain unchanged during the expected holding period or a shorter period applicable. Difference between the amount received and book value of the investment is charged to profit and loss of the period upon disposal. (3) Receivables: For the receivables from sales of goods or rendering of services and other debt instruments of other corporations except for those quoted in active market held by the Company, including: accounts receivable, notes receivable, advances to suppliers, other receivables, etc, the prices specified in the contracts or agreements with the purchasers are deemed as the initial confirmation amount. Difference between the amount received and book value of the receivables is charged to profit or loss of the period upon recovery or disposal. (4) Available-for-sale financial assets The sum of fair values (excluding cash dividends that have been declared but have not been distributed and bond interests that have exceeded the expiry dates but have not been drawn) and relevant transaction expenses is deemed as the initial confirmation amount. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 70 - The interests and cash dividends generated during the holding period are accrued to investment income. At year end, available-for-sale financial assets are calculated in the fair values and the changes in fair values are accrued to the capital reserves (other capital reserves). Difference between the amount received and the book value of the financial assets is recognized as investment gain or loss upon disposal. At the same time, the accumulated changes in fair value previously recognized in the owner’s equity are transferred into investment gain or loss. (5) Other financial liabilities The sum of fair values and relevant transaction expenses to get them is deemed as the initial confirmation amount. The subsequent calculation adopts the amortized cost method. (c) Confirmation and measurement of transform of financial assets The Company should terminate recognizing these financial assets when the transform occurs and almost all risk and return of the financial assets ownership have been transferred to the transferee; The Company should not terminate recognizing this financial assets if almost all risk and return of the financial assets ownership have been remained. Essence is more important than form when judging whether the transform meets the requirements of the financial assets termination recognition conditions mentioned above. The Company divides the transform of financial assets into entire transfer and partial transfer. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following two items shall be recorded in the profit and loss of the current period: (1) The book value of the transferred financial asset; Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 71 - (2) The sum of consideration received from the transfer, and the accumulative amount of the changes in the fair values originally recorded in the owner's equities (in the case that the financial asset involved in the transfer is an available-for-sale financial asset). For partial transfers of financial assets that meet the recognition conditions of termination in recognition, the book value of the whole financial assets are spitted into the terminated portion and the exterminated portion according to their respective relative fair values (under this situation, the retained service assets are deemed as a part of the exterminated financial assets), and the difference between the following two items shall be recorded in the profit and loss of the current period: (1) Book value of the terminated portion (2) The sum of the consideration of the terminated portion and the accumulated changes in fair value previously recognized in the owner’s equity related to the terminated portion (in the case that the assets transferred are available-for-sale financial assets) For transfers of financial assets that do not meet the conditions of termination in recognition, the financial assets remain recognition and the consideration received is recognized as financial liabilities. (d) Confirmation of fair values of main financial assets and financial liabilities For the active financial assets or financial liabilities in the market, the Company will use the quotations as their fair values. (e) Impairment loss on financial assets (1) Impairment of available-for-sale financial assets: If at the year end the fair values of the available-for-sale financial assets decline significantly, or the trend of the decline is expected to be non-temporary after consideration of all relevant factors, the assets are deemed impaired and impairment loss is recognized together with the amount transferred from the accumulated decreases in fair values previously recognized in the owner’s equity. (2) Impairment of held-to-maturity financial assets: The treatment of impairment loss on held-to-maturity investments is in line with the impairment loss of the receivables. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 72 - 2.9 Recognition standard and provision method of provision for bad and doubtful debts of accounts receivable If there is objective evidence at the year end to indicate that impairment exists in accounts receivable, their carrying amount should be decreasingly recorded as recoverable amount. The decreased amount should be recognized as impairment loss of assets and be recorded into profit and loss of the current period. Recoverable amount is recognized through discounting original actual rate of its future cashflow(excluding credit loss that has not occurred) with consideration of the value of related guarantee (deducting estimated disposal expenses and etc.). Original actual rate is actual rate calculated when recognizing the accounts receibable at first. Since there is tiny difference between estimated future cashflow and present value of short-term accounts receivable, the estimated future cashflow will not be discounted when recognizing related impairment loss. Conduct impairment testing separately on accounts receivable with relatively higher individual price at the end of the period. If there is objective evidence to indicate that impairment exists, recognize impairment loss and provide for bad and doubtful debts in accordance with the difference between its future cash flow and carrying amount. Individual material receivables are receivables that amount to 5,000,000 or above. In general, no bad debts are provided for receivables from related companies and internal of the Company. For individual receivables not material, the Company categorizes them together with the receivables tested unimpaired into groups using aging of the accounts as a similar risk factor, and assigns a certain percentage of the end of the period balance of the receivable groups (individual impairment test may be carried out) to determine the impairment loss and provide for bad debts. Besides, the Company appropriates bad debt reserve with aging analysis method according to relevant information such as actual financial status and debt repaying capability etc. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 73 - Aging of accounts receivable Appropriation proportion Within 1 year --- 1 to 2 years 5% 2 to 3 years 10% More than 3 years 20% 2.10 Inventory: (a) Inventory classification Raw materials, low cost and short-lived articles, merchandise inventories, finished goods and delivered goods etc. (b) The pricing method of acquiring and sending Inventories of industry enterprises are valued at actual cost on acquisition and are calculated using one-off weighted average method at the end of the month when issued. Inventories of commercial wholesale enterprises are valued at actual cost on acquisition and are calculated using one-off weighted average method at the end of the month when issued. Inventories of commercial retail enterprises are valued using selling price method when acquired. Differences between purchasing and selling price of merchandise to be amortized are calculated according to the selling price of issued merchandise inventory. The cost that should be carried forward is calculated when inventories are issued. The low cost and short-lived articles adopt the one-off amortization method. (c) System of stock inventories Industry enterprises and commercial wholesale enterprises adopt perpetual inventory system, and commercial retail enterprises adopt physical inventory system. (d) Recording method of provision for inventory devaluation At the end of the year, after overall check of the inventory, draw or adjust provision Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 74 - for inventory devaluation according to the lower of the cost of inventory and net realizable values of inventory. In normal operation process, net realizable values of commodities inventories for direct sales including finished goods, commodities and materials for sales are determined by the estimated selling prices minus the estimated selling expenses and relevant taxes and fees; In normal operation process, net realizable values of materials that need further processing are determined by the estimated selling prices of the finished goods minus estimated cost to completion, estimated selling expenses and relevant taxes. For the inventory held to implement sales contract or work contract, its net realizable value is calculated on the basis of contract price. For the balance of inventory beyond the amount of the sales contract, its net realizable value is calculated on the basis of general selling price. Provision for inventory devaluation is provided for based on individual inventory item at end of the period. For inventory that has large quantity and low unit price, the provision for inventory devaluation is provided for based on categories of the inventory. For inventory related to the products manufactured and sold in the same district, with same or similar use or purpose, and difficult to account for separately from other items, the provision for inventory devaluation is provided for on an combined basis. When the factors that influence the decreased bookkeeping of inventory value have disappeared, switch back from the provision for inventory devaluation amount that previously appropriated and the amount that switched back is charged to profit and loss of current period. 2.11 Classification and measurement of investment real estate Investment real estate is defined as the real estate with the purpose to earn rent or capital appreciation or both, including rented land use rights, land use rights which are held and prepared for transfer after appreciation and rented buildings. The Company adopts the cost model to value investment real estate. For investment real estate for lease accounted for under the cost model, the same depreciation policies as those of the Company’s fixed assets are adopted. For land use right for lease, the same amortization policies as those of the intangibles are adopted. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 75 - 2.12 Fixed assets, depreciation and provision for impairment loss (a) Recognition standard of fixed assets: Fixed assets are tangible assets that are held for use in the production or supply of services, for rental to others, or for administrative purposes; they have useful lives over one fiscal year. And they shall be recognized only when both of the following conditions are satisfied: (1) It is probable that economic benefits associated with the assets will flow to the enterprise; and (2) The cost of the fixed assets can be measured reliably. (b) Classification of fixed assets: The Company’s fixed assets are classified as buildings and constructions, machinery equipment, transportation equipment, other equipment and fixed assets fitment. (c) Initial measurement of fixed assets Fixed assets are recorded at the actual cost on acquisition. The cost of fixed assets purchased includes purchase price, related tax, transportation expenses, loading and uploading expenses, installment expenses and specialist service expenses attributable to the assets that arise before the assets are completed and put into use. Where payment for the purchase price of a fixed asset is deferred beyond normal credit terms, such that the arrangement is in substance of a financing nature, the cost of the fixed asset shall be determined based on the present value of the purchase price, The difference between the purchase price and its present value shall be recognized in profit or loss over the period of credit. The cost of a self-constructed fixed asset comprises those expenditures necessarily incurred for bringing the asset to working condition for its intended use. For fixed assets formed through obtaining them by the debtor paying for debt in debt restructure, recognize its recording value as fair value of the fixed assets, and record the difference between the carrying amounts of debt restructure and the fixed assets used for paying debt into profit and loss of the current period. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 76 - In the circumstance of the non monetary assets exchange has commercial nature and fair value of surrendered or received assets can be measured reliably, recording value of received assets should be recognized as fair value of surrendered assets unless there is clear evidence to indicate that fair value of received assets is more reliable; for non monetary assets exchange which doesn’t meet the requirement of premise mentioned above, cost of received assets should be recognized as carrying amount and related tax expenses payable of surrendered assets and should not be recognized as profit and loss. Recording value of fixed assets obtained by absorbing and consolidated by enterprise under the same control should be recognized as carrying amount of the consolidated party; recording value of fixed assets obtained by absorbing and consolidated by enterprise under different control should be recognized as fair value. Recording value of financing leasehold should be recognized as fair value of leasing assets and present value of lowest leasing payment when leasing occurs whichever is lower. (d) Depreciation method Depreciation of fixed assets is provided for on a straight-line basis, the depreciation rate is recognized in accordance with category, estimated useful life and estimated residual rate of fixed assets. Fixed assets renovations expenses that meet the criteria of capitalization are depreciated on an individual basis over the interval of two renovations or remaining useful life of the fixed assets, whichever is shorter. Estimated useful life and annual depreciation rate of fixed assets by categories are as follows: Estimated useful Estimated net residual Annual depreciation Category life (year) value rate (%) rate(％) Buildings and constructions 20-35 5 2.71-4.75 Machinery equipment 10-14 5 6.79-9.5 Transportation equipment 5-10 5 9.5-19 Other equipment 5-10 5 9.5-19 Fixed assets fitment Within 5 --- Above 20% Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 77 - 2.13 Calculation method of construction in progress (a) Classification of construction in progress The Construction in progress will be calculated based on the classification of proposed projects. (b) Transfer time of construction in progress to fixed assets For the construction in progress, all expenses occurring before they are ready for the use will be the book values as the fixed assets. In case the construction in progress has been ready for use but the final accounts for completion have not been handled, from the date when such projects has been ready for use, the Company will evaluate the values and determine the costs based on the project budgets, prices or actual costs of projects, etc and the depreciation amount will also be withdrawn; when the final accounts for completion are handled, the Company will adjust the originally evaluated values subject to the actual costs, but will not adjust the withdrawn depreciation amount 2.14 Intangible assets and R&D expenses: (a) Calculation method of intangible assets When acquiring, the intangible assets are recorded according to actual cost. For those the price of intangible assets deferred paid exceed normal credit condition so substantively has financing character, the cost of intangible assets is confirmed on the basis of present value of purchasing price. The book values of intangible assets to be obtained by the absorption merger from the enterprises which are under the same control will be determined based on the book values of merging party; the book values of intangible assets to be obtained by the absorption merger from the enterprises which are not under the same control will be determined based on their fair values. (b) Usage life and amortization of intangible assets (1) Estimation of useful life for intangible assets with finite useful life： Softwares are amortized within five years; patents are amortized over beneficial period; l and use rights are amortized over the useful period stipulated in the certificate. (2) The Company has no intangible assets with uncertain useful life. At the end of each year, the Company will recheck the usage life of intangible assets Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 78 - with the limited usage life and amortization method will be rechecked. (3) Amortization of intangible assets In case their usage life is limited, the Company will evaluate the usage years or the quantity of calculation units such as the capacity constituting the usage life; in case it’s impossible to evaluate the usage life when the intangible assets bring the benefits to enterprises, it will be deemed that the usage life of such intangible assets is uncertain and amortization is unavailable. (c) The confirmation and calculation of internal R&D expenses Except the development phase expenses meet following conditions are confirmed as intangible assets, the others are confirmed as expenses: (1) Completing the intangible assets to make it can be used or sold has technical feasibility; (2) Have intention of completing the intangible assets and use or sell; (3) The manners of intangible assets producing economic interest including it can be verified that the products produced with the intangible assets have market or the intangible assets itself has market, for the intangible assets that for internal using, should verify its feasibility; (4) Have essential technique, financial resource and other resources to support completing the development of intangible assets, and have ability to use or sell the intangible assets; (5) The expense that belongs to development phase of the intangible assets can be dependably calculated. 2.15 Amortization method and period of long-term deferred expenses Long-term deferred expenses are amortized evenly over the beneficial period. (a) Prepaid rental of leasehold improvement for operation is amortized evenly over the period stipulated in the leasing contract; (b) Leasehold improvement for operation on leased property is amortized evenly over the remaining leasing period or the remaining useful life whichever is shorter. 2.16 Impairment on other main assets except for inventories, investment properties Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 79 - and financial assets (a) Long-term equity investment In case the cost method is used to calculate the long-term equity investments which are not quoted in the active market or whose fair values cannot be reliably calculated, the depreciation loss will be determined based on the difference between the book values and current values determined by the discounting of future cash flow in line with the current market return rate of similar financial assets. For the other long-term equity investments, in case the calculation results of receivable amounts indicate that the receivable amount of this long-term equity investment is less than their book values, the difference will be confirmed as the asset depreciation losses. Once the depreciation loss of long-term equity investment is confirmed, they will not be reversed. (b) Long-term non-financial assets For long-term non-financial assets such as fixed assets, construction in progress, intangibles, etc, the Company assesses whether signs of possible impairment exist at end of each year. Impairment tests are performed on goodwill arises from business combinations and intangibles with uncertain useful life regardless of whether signs of possible impairment exist. For assets with signs of impairment, recoverable amounts are estimated. Recoverable amounts are determined as the fair value of the assets after netting off costs of disposal, and the current value of projected future cash flows generated by the assets, whichever is higher. When the recoverable amount of an asset is lower than the book value of the asset, the book value of the asset is reduced to its recoverable amount. The amount reduced is recognized as impairment loss on assets in the current profit and loss statement, and provision for impairment loss on assets is recorded at the same time. Future depreciation or amortization of assets is adjusted after recognition of impairment loss so that the adjusted book value of the assets (less estimated residual value) is amortized systematically over their remaining useful life. Impairment loss on long-term non-financial assets such as fixed assets, construction in progress, intangibles, etc shall not be reversed once recognized. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 80 - When there are signs of possible impairment on assets, the Company estimates the recoverable amount of the assets on an individual basis. 2.17 Long-term Equity Investment (a) Initial Calculation (1) Long-term equity investment caused by the enterprise merger In case the long-term equity investment are made to obtain the equities of the enterprises under the same control and the Company pays the cash, transfers the non-cash assets or bears the liabilities as the consideration for the merger, the book value share on the merging date to obtain the owners’ equities of the merging party will be deemed as the initial investment cost of long-term equity investment. The difference between the initial investment cost of long-term equity investment and paid cash, transferred non-cash assets and book values of liabilities will be supplemented by the capital reserve; in case the capital reserve is not enough, the remaining gains will be adjusted. In case the Company issues the equity securities as the merger consideration, the book value share on the merging date to obtain the owners’ equities of the merging party will be deemed as the initial investment cost of long-term equity investment. If the book value amount of the issued shares is deemed as the capital, the difference between the initial investment cost of long-term equity investment and the book value amount of the issued shares will be supplemented by the capital reserve; in case the capital reserve is not enough, the remaining gains will be adjusted. All direct expenses related to the enterprise merger, including the auditing expense, evaluation expense, legal service expense, etc will be accrued to the current profit and loss. In case the long-term equity investment are made to obtain the equities of the merging enterprises which are not under the same control, the merger cost will be the paid assets, existing liabilities and fair values of the issued equity securities on the purchasing date to purchase the control right of such enterprises. In case the absorption merger method is employed, the difference between the enterprise merger cost and the identifiable net asset values of such enterprises will be confirmed as the Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 81 - goodwill or accrued to the current profit and loss. In case the controlling merger is employed and the enterprise merger cost is more than the identifiable net asset values of such enterprises in the merger, the difference between them will be confirmed as the goodwill in the consolidated balance sheet. In case the enterprise merger cost is less than the identifiable net asset values of such enterprises in the merger, the difference between them will be accrued to the current profit and loss. All direct expenses related to the enterprise merger will be accrued to the enterprise merger cost. (2) Other types of long-term equity investment In case the cash investment is made to obtain the long-term equity, the actual payment amount will be deemed as the initial investment cost. The initial investment cost also includes the direct expenses related to the long-term equity investment, taxes and other necessary expenses. In case the long-term equity investment is made by issuing the equity securities, the fair values of issued equity securities will be deemed as the initial investment cost. For the long-term equity investment made by the investors, the values agreed in the investment contracts or agreements will be deemed as the initial investment cost, except that the contracts or agreements provide that the values are not fair. In case the long-term equity investment is made by exchanging the non-currency assets, and this exchange has the commercial substance and the fair values of said assets can be reliably calculated, the fair values of the assets and relevant taxes will be deemed as the initial investment cost; the difference between the fair values of the assets and book values will be accrued to the current profit and loss; in case the non-currency asset exchange does not have the above two conditions, the book values of the assets and relevant taxes will be deemed as the initial investment cost. In case the long-term equity investment is made by the mode of liability restructure, the fair values of the obtained equities will be deemed as the initial investment cost; the difference between the initial investment cost and book values of liabilities will be accrued to the current profit and loss. The cost method is employed to calculate the long-term equity investment of Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 82 - subcompanies and will be adjusted in accordance with the equity method in the preparation of the consolidated financial statements. The cost method is used to calculate the long-term equity investments in the invested units which are not under the common control or of important impact, are not quoted in the active market or whose fair values cannot be reliably calculated. In employing the cost method, add or return the cost used for adjusting the long-term equity investment. The current investment gains are only limited to the distributed amount of accumulative net profit generated by the investment in the invested units since the investment completion. The profits or cash dividends exceeding the above amount that are declared to be distributed by the invested units will be deemed as the return of initial investment cost, deducting the book values of investments. (b) Judgment criteria of joint control and significant influence in the invested companies If, in accordance with provisions in the contracts, the Company enjoys joint control over certain economic activities only when taking part in significant financial and operational decisions with investors in need of share of control who unanimously agree, the Company is deemed to enjoy joint control with other parties over the invested companies. If the Company is authorized to take part in decision making with regard to the financial and operational policies, but is unable to control or control jointly with other parties over the invested company, the Company is deemed to be able to exercise significant influence over the invested companies. (c) Subsequent measurement and income recognition When the Company is able to exercise significant influence or joint control, the difference of cost of initial investment in excess of the proportion of the fair value of the net identifiable assets in the invested companies is not adjusted against the initial cost of long-term equity investment. The difference of cost of initial investment in short of the proportion of the fair value of the net identifiable assets in the invested companies is charged into the current profit and loss statement. . The Company’s long-term equity investments in subsidiaries are accounted for by the cost method and adjusted according to the equity method when preparing consolidated financial statements. Long-term equity investment when the Company has neither joint control nor significant influence in the invested companies and there is no quotation available on the active market, and the fair value of which cannot be reliably measured are accounted for under the cost method. Long-term equity investment when the Company has joint control or significant Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 83 - influence over the invested companies is accounted for under the equity method. Investment income recognized under the cost method is limited to the proportion of the accumulated profit of the invested companies after the investment. Any excess of profit or cash dividend received over the above amount is recognized as withdrawals of initial investments. Recognition of share of losses of the invested companies under the equity method is treated in the following steps: First, reduce the book value of the long-term equity investment. Second, when the book value is insufficient to cover the share of losses, investment losses are recognized up to a limit of book values of other long-term equity which form net investment in substance by reducing the book value of long term receivables, etc. Finally, after all the above treatments, if the Company is still responsible for any additional liabilities in accordance with the provisions stipulated in the investment contracts or agreements, estimated liabilities are recognized and charged into current investment loss according to the liabilities estimated. If the invested company achieve profit in subsequent periods, the treatment is in the reversed steps described above after deduction of any unrecognized investment losses, i.e., reduce book value of estimated liabilities recognized, restore book values of other long-term equity which form net investment in substance, and in long-term equity investment, and recognize investment income at the same time. Treatment of other equity changes except for net profit or loss in the invested companies: For other equity changes except for net profit or loss in the invested companies, if the proportion of investments remain unchanged, the Company calculates the proportion it shall enjoy or bear and adjust book value of long-term equity investment, and increase or decrease capital surplus – other capital surplus at the same time. 2.18 Capitalization of loan expenses (a) Confirmation principle of capitalization of loan expenses In case the loan expenses occurring in the Company may directly be attributable to the construction and productions of assets complying with the capitalization conditions , they will be capitalized and accrued to the relevant capital costs; other loan expenses will be confirmed as the expenses based on the actual amount in the Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 84 - time of occurrence and accrued to the current profit and loss. The assets complying with the capitalization conditions mean the assets such as fixed assets, real estates for investment and inventory, etc that need a long time of construction and production activities before being ready for use or for sales. The loan expenses begin to be capitalized under the following circumstances: （1）The asset payments that have been made include the payments such as the paid cashes, transferred non-currency assets or borne liabilities with the interests to construct or produce the assets complying with the capitalization conditions; （2） The loan expenses have occurred; （3） The necessary construction or production activities to make the assets ready for use or sales have been launched. In case during the construction or production period the assets complying with the capitalization conditions are abnormally suspended and the suspension period exceeds 3 months continuously, the capitalization of loan expenses will also be suspended. The capitalization of loan expenses for the assets that have been constructed or produced and are ready for use or sales will be stopped. (b) Capitalization period of loan expenses In case the assets that have been constructed and produced comply with the capitalization conditions, all expenses occurring before this asset complies with the expected use or sales status will be accrued to the cost of this assets; all expenses occurring after this asset complies with the expected use or sales status will be directly accrued to the current financial expense. (c) Calculation method about capitalization amount of loan expenses The interest expenses for special loans (after the deduction of interest income generated by the unused loan capitals or the investment return obtained from the temporary investments) and auxiliary expenses will be capitalized before the assets complying with the capitalization conditions are ready for the expected use or sales. The interest amount of general loans to be capitalized will be determined by multiplying the weighed average amount of the asset payments by which the Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 85 - accumulated assets exceed the special loans with the capitalization rate of general loans. The capitalization rate will be determined based on the weighed average interest rate of general loans. In case the loans have the discounts or premiums, the Company will adjust the interest amount in each period based on the amortized discount and premium amount in each accounting period in accordance with the actual interest rate method. 19. Recognition of Income (a) Sale of goods: Revenue from the sale of goods is recognized when the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; it is probable that the economic benefits associated with the transaction will flow to the enterprise; and the relevant amount of revenue and costs can be measured reliably. (b) Rendering of service In case on the preparation date of balance sheet the results about service transaction can be reliably evaluated, the labor income will be confirmed by the completion percentage method. In case the service transaction results on the preparation date of balance sheet cannot be reliably evaluated, they will be determined in the following methods: (1) In case the service costs that have occurred can be compensated, the service income will be confirmed based on such service costs and the same amounts will be settled as the service costs. (2) In case the service costs that have occurred cannot be compensated, such service costs will be accrued to the current profit and loss and will not be confirmed as the service costs. (c) Use right of transferred assets In case the economic benefits related to the transaction will probably flow into the enterprise and the income amounts can be reliably calculated, the Company will Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 86 - determine the income amount about use right of transferred assets by the following means: (1) The interest income amount will be calculated and determined based on the use time of currency capital from the Company by others and actual interest rate. (2) The income amount of use expenses will be calculated and determined subject to the charging time and method agreed in the relevant contracts and agreements. (3) Rental income from lease of properties a. Lease contracts, agreements or other notice of settlement b. Have executed liabilities as stipulated in the contract, issued rental invoices and the proceeds have been or will be received with certainty. c. Cost can be reliably measured d. Ascertain through calculations in accordance with provisions stipulated in the relevant contracts or agreements. 2.20 Confirmation of deferred income tax assets 2.21 Accounting policies, accounting evaluation changes and correction of accounting errors and relative effects Since January 1, 2007, the Company has implemented the enterprise accounting standard systems and guidelines issued by the nation. In accordance with the principle stipulated in the articles 5 to 19 of No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards and the "Accounting Standards for Business Enterprises Explanation Notice No. 1", the items of the statements have been adjusted. As accounting policy changes mentioned above, relative effects on statements are as follows: Available-fo Deferred Deferred income Long-term Employee Long term r Unrecognized Item ncome tax Total tax liabilities nvestment benefits payable deferred assets -sale financial nvestment loss assets assets Effect on capital --- --- -15,233,102.54 --- --- 7,317,105.65 --- -7,915,996.89 reserve Effect on beginning balance of undistributed 14,723,521.54 -12,957,928.91 -38,029,383.41 -9,562,043.91 -4,389,869.68 --- -37,091,611.08 -87,307,315.45 profit of 2007 Including: effect on 13,322,123.36 -12,912,322.68 45,390,219.48 -8,206,251.96 -4,389,869.68 --- -37,091,611.08 -3,887,712.56 ending balance of Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 87 - undistributed profit of 2007 Effect on net profit of -5,184,685.23 1,193,854.70 8,894,496.33 -1,963,931.84 1,293,835.36 --- --- 4,233,569.32 current period There is no significant accounting evaluation changes and correction of accounting errors in 2007. 3 Taxation 3.1 Main taxes and tax rates Taxable items or tax basis Tax applicable Tax rate Sales revenue of the products Value added tax 17%，13%，6%， 0% Leasing income, storage income etc. Business tax 5% Transportation and conveyance incomes Business tax 3% Amount of turnover tax Urban maintenance and 1% or 7% construction tax Amount of turnover tax Education surcharge 3% or 4% Taxable income Income tax 15% or 33%. 3.2 Tax reduction In accordance with GDSH [2007] No. 302 document, Guangxi Accord Drugstore Chain Co., Ltd, a subsidiary of the Company, enjoys beneficial state tax policy of a reduced corporate income tax rate of 15% under the ‘encouraged category’ for a period from 2006 to 2010. 4 Business combination and the consolidated financial statements The Company adopts the Accounting Policies for Business Enterprises No.33 – Consolidated Financial Statements issued in February 2006. All subsidiaries under the Company’s control are included in the scope of consolidation. The consolidated financial statements are prepared by the parent company based on the individual financial statements of the parent company as well as the subsidiaries included in the scope of consolidation, with reference made to other relevant Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 88 - information and after adjustment to the investments in subsidiaries under equity method. During consolidation, internal equity investments and subsidiaries’ owner’s equity, internal investment income and subsidiaries’ profit distribution, internal transactions, internal debts and credits are eliminated. Subsidiaries adopt the same accounting policy with the parent company. Figures in this section are in CNY ’0000 unless otherwise stated. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 4.1 Subsidiaries acquired through business combination under the same control Full name of the invested company Place of Nature Registered Scope of business Actual Ne registration capital investment as at investment in end of the year subsidiary in substance Shenzhen Zhijun Pharmaceutical Co., Shen Industry 6900 Original chemical medicine manufacture, Chinese 10,606.17 10,606.17 Ltd. Zhen patent medicine processing, chemical raw material of medicine, the imports and exports business which transacted according to examined and approved certificate Shenzhen Pharmaceutical Co., Ltd Shenzhen Commerce 500 Wholesale in chemical material drugs, antibiotics, 5,348.29 5,348.29 bio-chemical drugs, blood products, raw material for chemical medicine, Chinese patent drugs and diagnosis drugs Shenzhen Medicine Trade Co Shenzhen Commerce 188 Wholesale and retail of drugs and textiles 847.85 847.85 Shenzhen Accord Pharmaceutical Shenzhen Commerce 600 Chinese patent medicine, western medicine, 711.65 711.65 Logistics Co., Ltd. medicine treatment apparatus Shenzhen Accord Medicine Shenzhen Commerce 1,080 Chinese patent medicine, western medicine, --- -- Chain Co., Ltd. medicine treatment apparatus Shenzhen Zhijun Medicine Trade Shenzhen Commerce 189 Purchase and sale of Chinese traditional 171.52 171.52 Co., Ltd. medicinal materials, Chinese patent medicine, chemical raw material for medical treatment, antibiotic preparation, chemical medicine preparation etc. Guangdong Accord Drugstore Shenzhen Commerce 5,000 Chinese patent medicine, chemical raw material 4,515.70 4,515.70 Co., Ltd. medicine, chemical medicine preparation, antibiotics, biochemical medicine, diagnosis drugs, biological products of treatment and diagnosis. Guangzhou Accord Medical Business Shenzhen Service 3 Training 3 3 Skills Training Center Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- Full name of the invested company Place of Nature Registered Scope of business Actual Ne registration capital investment as at investment in end of the year subsidiary in substance Sinopharm Medicine Holding Guangzhou Commerce 5,000 Chinese patent medicine, chemical medicine 10,673.11 10,673.11 Guangzhou Co., Ltd. preparation, antibiotics, biochemical medicine, biological products, diagnosis medicine, treatment diagnosis biological products, finalized packing food, chemical products, self-support and surrogate the imports and exports of various merchandise and skills. Sinopharm Medicine Holding Guangzhou Commerce 2,000 Drugs, medical apparatus sales 980 980 Xinlong (Guangdong) Co., Ltd. Sinopharm Medicine Holding Liuzhou Commerce 2,053.06 Chinese traditional medicinal materials, Chinese --- -- Liuzhou Co., Ltd. patent medicine, Chinese traditional medicine in pieces, chemical raw material, chemical medicine preparation, antibiotics, biochemical drugs, psychotropic drugs, chemical raw material drug and its preparation. (that involving specific examination and approve should be operated based on the scope that checked and ratified by the license) Guangxi Accord Drugstore Chain Liuzhou Commerce 200 Sales of Chinese patent medicine, western --- -- Co., Ltd. medicine, medical equipment, daily general merchandise, alcohol, beverage, costume etc. Liuzhou Chinese Herbal Pieces Liuzhou Industry 4 Chinese herbal pieces --- -- Factory Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- Full name of the invested company Place of Nature Registered Scope of business Actual Ne registration capital investment as at investment in end of the year subsidiary in substance Guangxi Accord Chinese Herbal Liuzhou Industry 200 Chinese herbal pieces --- -- Pieces Co., Ltd. Guangdong Huixin Investment Co., Guangzhou Commerce 5,000 Project investment, property management and --- -- Ltd leasing, medical information consultancy, car park management Guangzhou Nanfang Medicine Guangzhou Commerce 200 Drug sales --- -- Corporation Guangzhou Accord Drugstore Guangzhou Commerce 200 Drug retail and medicine information consultancy --- -- Chain Co., Ltd. Guangdong Yuexing Medicine Guangzhou Commerce 300 Sales of medicine andmedical treatment apparatus --- -- Co., Ltd. Guangdong Hengchang Logistics Guangzhou Service 54 Storage loading and unloading --- -- Co., Ltd Guangzhou Uptodate & Special Guangzhou Commerce 50 Drug sales --- -- Medicines Co. Guangzhou Qingyun Hotel Co., Ltd. Guangzhou Service 30 Service & retail --- -- Guangdong Dong Enterprise Guangzhou Commerce 50 Property leasing & management --- -- Development Co., Ltd. Guangzhou Nanfang Medical Guangzhou Commerce 200 Sale of medical treatment apparatus --- -- Treatment Equipment Company Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 92 - Notes 1: The Company was previously a subordinate enterprise of the Company that owned by the whole people, whose former name was Shenzhen Pharmaceutical Plant, in Oct.2006, the Company changed its system into individual proprietorship limited company, and in Dec.2006, it changed its name into Shenzhen Zhijun Pharmaceutical Co., Ltd., the registered capital alternated into CNY 32,190,000. In June 2007, the Company transferred capital public reserve into capital, after alternated; the registered capital is CNY 69,000,000. Notes 2: The Company was previously a subordinate enterprise of the Company thatowned by the whole people, whose former name was Shenzhen Medicine Co. In Aug 2007, the Company changed its system into individual proprietorship limited company, and changed its name into Shenzhen Pharmaceutical Co., Ltd, the registered capital alternated into CNY 5,000,000. In Jan 2008, the Company changed its name into Shenzhen Jianmin Pharmaceutical Co., Ltd. Notes 3: The Company ceased operation since 2003 and is not consolidated. Notes 4: The Company was formerly a wholly owned subsidiary of the Company, in Dec.2005, it changed its system into limited company, with registered capital alternated into CNY 6,000,000, its 90% shares are held by the Company and 10% shares are held by subordinate subsidiary Shenzhen Zhijun Pharmaceutical Co., Ltd. Notes 5: The Company is respectively held by the Company with 75% shares and subordinate subsidiary Shenzhen Zhijun Pharmaceutical Co., Ltd. with 25% shares. In May 2007, the shareholders of the Company alternated to 10% shares are held by the Company and 90% shares are held by subordinate subsidiary Guangdong Accord Drugstore Co., Ltd. Notes 6: The Company was formerly known as Shenzhen Baokang Medicine Co., Ltd, it changed its name into Shenzhen Zhijun Medicine Trade Co., Ltd. in Jun.2007. The Company Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 93 - held its 47.09% shares and subordinate subsidiary Shenzhen Zhijun Pharmaceutical Co., Ltd. held 52.91% respectively. Notes 7: The register capital of the Company was amounting to CNY 500,000, with 75% shares held by subordinate subsidiary of the Company Shenzhen Medicine Co., Ltd. and 25% shares held by subordinate subsidiary Shenzhen Zhijun Pharmaceutical Co., Ltd. respectively. In Oct.2006, the shareholders and holding proportion alternated to 90% shares held by the Company and 10% shares held by subordinate subsidiary Sinopharm Medicine Guangzhou Co., Ltd. In Nov.2006, the Company increased capital to CNY 50,000,000, of which the Company invested CNY 45,000,000 and accounting for 90%, Sinopharm Medicine Holding Guangzhou Co., Ltd. invested CNY 5,000,000 and accounting for 10%. The Company was the formerly Shenzhen Accord Medicine Co., Ltd., on Jan.31, 2007, it changed name into Guangdong Accord Drugstore Co., Ltd. Notes 8: 90% shares of the Company are held by the Company and 10% shares are held by subordinate subsidiary Shenzhen Zhijun Pharmaceutical Co., Ltd. respectively. Notes 9: On Jun.21, 2005, the board of the Company purchased the Company with SYZDZi (2005) No.23 resolution passed, on the same day, signed Equity Transfer Agreement with Sinopharm Medicine Holding Co., Ltd. On Nov.4, 2005, China Securities Regulatory Commission issued opinion which agreed this significant asset purchase event. On Dec.20, 2005, the extraordinary shareholders’ general meeting of the Company examined and approved the aforesaid purchase event. On Jan.17, 2006, the administrative alteration registration procedure of purchasing 90% equity of Sinopharm Medicine Holding Guangzhou Co., Ltd. has finally been completed. Notes 10: 51% shares of the Company are held by Sinopharm Medicine Holding Guangzhou Co., Ltd. and 49% shares are held by Sinopharm Medicine Holding Xinlong (Hubei) Co., Ltd. On Jun.29, 2006, the Company signed Equity Transfer Agreement with Sinopharm Medicine Holding Xinlong (Hubei) Co., Ltd., and purchased 49% equity of Xinlong (Guangdong) Co., Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 94 - Ltd. with CNY 9,800,000. Notes 11: 51% shares of the Company are held by Sinopharm Medicine Holding Guangdong Co., Ltd., while the other 49% are held by other non-related parties. Notes 12: These companies are subordinate wholly-owned subsidiaries of Sinopharm Medicine Holding (Liuzhou) Co., Ltd. On May 30, 2007, Liuzhou Huikang Chain Co, Ltd. changed its name into Guangxi Accord Drugstore Chain Co., Ltd., with registered capital increased from CNY 500,000 to CNY 2,000,000. Notes 13: The Company was previously a people-owned subordinate enterprise of Sinopharm Medicine Holding (Guangzhou) Co., Ltd. In November 2007, the Company restructured into limited liability company invested solely by legal person and changed its name into Guangdong Huixin Investment Co., Ltd. Notes 14: These companies are wholly-owned subsidiaries of Guangdong Huixin Investment Co., Ltd (formerly Sinopharm Medicine Holding (Guangzhou) Co., Ltd). In December 2007, Guangdong Nanfang Storage & Transportation Co., Ltd changed its nature from people-owned enterprise into limited liability company invested solely by legal person and changed its name into Guangdong Hengchang Logistics Co., Ltd. Notes 15: Formerly Guangdong Huixin Investment Co., Ltd (formerly Sinopharm Medicine Holding (Guangzhou) Co., Ltd) and Guangzhou Accord Drugstore Chain Co., Ltd. Held 90% and 10% of the Company’s shares respectively. In 2007, Guangzhou Accord Drugstore Chain Co., Ltd. transferred its 6% and 4% shareholding in the Company to Guangdong Huixin Investment Co., Ltd and Sinopharm Medicine Holding (Guangzhou) Co., Ltd respectively. Subsequently Guangdong Huixin Investment Co., Ltd transferred its 96% shareholding in the Company to Sinopharm Medicine Holding (Guangzhou) Co., Ltd. Currently the Company is a wholly-owned subsidiary of Sinopharm Medicine Holding (Guangzhou) Co., Ltd. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 95 - Notes 16: These companies were de-registered in 2007. (a) Judgment criteria of “consolidation of corporations under the same control” Consolidation of corporations under the same control means corporation taken into consolidation were under the same ultimate control before and after consolidation, and the control is not temporary. (b) Actual controlling party of the “same controller” To the subsidiaries acquired through business combination under the same control, the actual controller of the same control is Shenzhen Investment Management Co. (the former main shareholder of the Company) and Sinopharm Medicine Holding Co., Ltd. 2. Changes in the scope of consolidation during the year (a) Two additional companies were taken into consolidation for the following reasons: Sinopharm Medicine Holding (Liuzhou) Co., Ltd, a subsidiary of the Company, has set up a new wholly-owned company, Guangxi Accord Chinese Herbal Pieces Co., Ltd. The Company has newly set up Guangzhou Accord Medical Business Skills Training Center in 2007. (b) Two companies were excluded from consolidation for the following reasons: Subsidiary of the Company, Guangdong Huixin Investment Co., Ltd’s subsidiaries Guangzhou Qingyun Hotel Co., Ltd and Guangdong Dong Enterprise Development Co., Ltd were de-registered during 2007. 3. Minority shareholders’ equity and interest Current year Minority shareholders Other increases / decreases As of December Profit Other equity As of December Minority shareholders’ equity 31, 2006 Gain or loss distribution changes 31, 2007 Sinopharm Medicine Holding (Guangzhou) Co., Ltd 10,996,201.42 7,160,793.01 3,746,270.05 -591,882.88 13,818,841.50 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 96 - Sinopharm Medicine Holding (Liuzhou) Co., Ltd 11,099,562.07 6,642,978.59 374,028.45 2,275,683.59 19,644,195.80 Total 22,095,763.49 13,803,771.60 4,120,298.50 1,683,800.71 33,463,037.30 5 Notes to the main items of financial statements (Monetary unit is CNY and the amount is the ending balance unless otherwise stated.) 5.1 Cash and cash equivalents Item As of December 31, 2007 As of December 31, 2006 Cash on hand 1,622,171.38 375,132.99 Cash in bank 199,445,283.52 180,315,508.34 Other monetary funds 53,766,977.91 24,651,194.19 Total 254,834,432.81 205,341,835.52 Classification of other monetary funds: Item of other monetary funds as of December 31, 2007 Amount Security deposit for bank acceptance bills 53,454,694.07 Other security deposit 312,283.84 Total 53,766,977.91 5.2 Notes receivable Category As of December 31, 2007 As of December 31, 2006 Bank acceptance bills 11,599,008.53 83,413,102.27 Commercial acceptance bills 155,239,273.25 124,048,655.20 Total 166,838,281.78 207,461,757.47 (a) Discounted and undue commercial acceptance bills amounted to 79,396,407.94. (b) Endorsed and undue notes receivable amounted to 140,182,116.85. 5.3 Accounts receivable (a) Structure of accounts receivable Item As of December 31, 2007 As of December 31, 2006 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 97 - Proporti Proporti Provision Provision on of on of Book balance rate for Provision Book balance rate for bad Provision total total bad debt debt amount amount 1) Significant individual amount whose provision has 428,997,102.08 33.21% 0.04% 156,252.28 339,261,554.07 29.76% 0.00% --- been recognized. 2) Insignificant individual amount whose provision has 12,251,666.39 0.95% 41.50% 5,084,610.04 9,636,402.15 0.85% 55.07% 5,307,006.54 been recognized. 3) Other amounts with the symbol of credit risk 850,641,176.44 65.84% 0.00% --- 790,987,570.50 69.39% 0.02% 181,430.20 identified by aging Among which: 850,641,176.44 65.84% 0.00% --- 787,698,619.21 69.10% 0.00% --- Within one year 1-2 years --- --- --- --- 3,078,755.15 0.27% 5.00% 153,937.75 2-3 years --- --- --- --- 145,467.79 0.01% 10.00% 14,546.78 Over 3 years --- --- --- --- 64,728.35 0.01% 20.00% 12,945.67 Total 1,291,889,944.91 100.00% 5,240,862.32 1,139,885,526.72 100.00% 5,488,436.74 (b) Accounts receivable with significant individual amount Among which larger amounts enterprise Amount Rate Reason Sinopharm Medicine Not exceeding credit period or Holding Shenyang Co., Ltd. 29,577,748.44 0% credit amount Not exceeding credit period or Shenzhen People’s Hospital 22,976,517.09 0% credit amount Shenzhen Hospital of Not exceeding credit period or Beijing University 17,164,659.41 0% credit amount Guangdong People’s Not exceeding credit period or Hospital 16,901,205.61 0% credit amount Shenzhen Tongchun Not exceeding credit period or Medicinal Co., Ltd. 14,293,200.06 0% credit amount (c) Accounts receivable actually written off in this year amounted to 2,152,176.13. (d) Among the ending balance, due from shareholders that hold more than 5% (including 5%) shares of the Company amounted to 901,364.64. For particulars see Note 7. (e) Top five of accounts receivable as of December 31, 2007 Rank of creditor Amount Aging Proportion of total Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 98 - receivable accounts Sinopharm Medicine Holding Shenyang Co., Ltd. 29,577,748.44 Within 1 year 2.29% Shenzhen People’s Hospital 22,976,517.09 Within 1 year 1.78% Shenzhen Hospital of Beijing University 17,164,659.41 Within 1 year 1.33% Guangdong People’s Hospital 16,901,205.61 Within 1 year 1.31% Shenzhen Tongchun Medicinal Co., Ltd. 14,293,200.06 Within 1 year 1.11% (f) The ending balance of related parties accounts for 6.78％ of the total amount of accounts receivable by the end of year. For particulars see Note 7. 5.4 Advances to suppliers (a) Analysis of aging As of December 31, 2007 As of December 31, 2006 Aging Proportion of Proportion of Amount Amount total amount total amount Within 1 year 54,122,228.36 100% 92,412,252.18 100% (b) Among the ending balance, there is no amount due from shareholders that hold more than 5% (including 5%) shares of the Company. (c) Ending balance of Advances to suppliers decreased by 38,290,023.82 as compared with opening balance. The decrease rate is 41.43%. Main reason for such decrease is: The beginning balance is mainly prepayment of the construction in progress and these constructions were completed and have been transferred into fixed assets in 2007. 5.5 Dividends receivable Item Amount Dividends receivable with aging within 1year 228,443.24 Including：SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. 228,443.24 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 99 - 5.6 Other receivables (a) Structure of other receivables As of December 31, 2007 As of December 31, 2006 Item Provision Provision Proportion of rate for bad Proportion of rate for bad Book balance total amount debt Provision Book balance total amount debt Provision 1) Significant individual amount whose provision has been recognized 18,234,579.90 36.87% 79.70% 14,532,747.94 22,234,579.90 42.44% 52.89% 11,760,000.00 2) Insignificant individual amount whose provision has been recognized 5,148,732.85 10.41% 37.71% 1,941,834.84 4,399,961.01 8.40% 100.00% 4,399,961.01 3) Other amounts with the symbol of credit risk identified by aging 26,074,884.70 52.72% 0.90% 235,271.53 25,755,459.51 49.16% 0.69% 177,824.69 Among which: Within one year 22,611,624.25 45.72% 0.00% --- 23,860,192.58 45.54% 0.00% --- 1-2 years 2,825,255.42 5.71% 5.00% 141,262.77 991,334.50 1.89% 3.66% 36,319.44 2-3 years 335,922.41 0.68% 10.00% 33,592.24 324,211.98 0.62% 7.27% 23,561.16 Over 3 years 302,082.62 0.61% 20.00% 60,416.52 579,720.45 1.11% 20.34% 117,944.09 Total 49,458,197.45 100.00% 16,709,854.31 52,390,000.42 100.00% 16,337,785.70 (b) Other receivables with significant individual amount: List of significant individual amount Proportion Amount rate Reason Shenzhen Medicines and Health Uncertainty of full Products I/E Co., Ltd. 9,254,579.90 60% amount return Shenzhen Yinghai Technology Investment Co., Ltd. 8,980,000.00 100% Uncertainty of return (c) Other receivables actually written off in this year amounted to 1,705,795.34. (d) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of other receivables. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 100 - (e) Top five of other receivables as of December 31, 2007 Proportion of Rank of creditor Nature/Content Amount Aging total amount Shenzhen Medicines and Health Products I/E Co., Ltd. Current account 9,254,579.90 2-3 years 18.71% Shenzhen Yinghai Technology Receivables from Over 3 Investment Co., Ltd. equity transaction 8,980,000.00 years 18.16% Sino-American Shanghai Squibb Within Pharmaceuticals Ltd. Current account 3,826,598.53 1year 7.74% Liuzhou Housing Fund Managment Within 1 Center Current account 2,000,811.62 year 4.05% Beijing Medical Treatment Equipment Company Current account 420,000.00 2-3 years 0.85% (f) The ending balance of related parties accounts for 0.48% of the total amount of other receivables by the end of year. 5.7 Inventories and provision for inventory devaluation As of December 31, 2007 As of December 31, 2006 Item Amount Provision Amount Provision Raw materials 97,042,410.89 310,242.80 36,045,421.84 --- Low cost and short-lived articles 692,747.59 138,250.00 1,070,742.78 --- Merchandise inventory 419,661,788.78 2,917,008.74 394,004,472.16 3,464,531.67 Finished goods 63,748,313.27 5,117,908.38 36,060,299.36 462,898.84 Sent out merchandise 1,656,289.15 --- 26,520,009.07 233,220.75 Total 582,801,549.68 8,483,409.92 493,700,945.21 4,160,651.26 (a) Provision for inventory devaluation As of December Decreases As of December Item 31, 2006 Provided Returned Written off 31, 2007 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- 101 - Raw materials --- 310,242.80 --- --- 310,242.80 Low cost and short-lived articles --- 138,250.00 --- --- 138,250.00 Finished goods 462,898.84 4,655,009.54 --- --- 5,117,908.38 Merchandise inventories 3,464,531.67 --- --- 547,522.93 2,917,008.74 Sent out merchandise 233,220.75 --- 223,220.75 --- --- Total 4,160,651.26 5,103,502.34 223,220.75 547,522.93 8,483,409.92 (b) Inventories actually written off in this year amounted to 657,717.31, among which the amount recorded into general and administrative expenses was 110,194.38. 5.8 Available-for-sale financial assets Fair value as of Fair value as of Item December 31, 2007 December 31, 2006 Available-for-sale equity tool --- 9,130,117.38 Among which：available-for-sale stocks with trade restriction --- 9,130,117.38 5.9 Long-term equity investments As of December 31, 2007 As of December 31, 2006 Provision for Provision for impairment impairment Item Book balance loss Book balance loss Long-term equity investments 65,980,749.00 8,606,892.37 62,279,897.63 9,164,427.31 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007- (a) Main information of invested units Shares in the registered capital the Company’s Business of the invested voting share in Net ass Name of invested unit Registry Character unit（%） invested unit of December 3 Associated enterprises China Associate Co., Ltd. Shenzhen --- 0.17% --- 155,601 China Central City Pharmacy Associates Shenzhen --- --- --- Shenzhen Futian Pharmaceutical Co., Ltd. Shenzhen --- 40.00% --- Liaoning & Accord Pharm Chain Store Co., Ltd. Liaoning Commerce 30.00% 0.00% SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. Shenzhen Industry 47.39% 47.39% 46,430 Dongyuan & Accord Pharm Chain Store Co., Ltd. Guangdong Commerce 45.00% 0.00% Shenzhen Wanle Pharmaceutical Co., Ltd. Shenzhen Industry 35.19% 35.19% 97,270 Guangzhou Sinopharm Xinli Information Technology Co., Ltd. Guangdong Service 20.65% 20.65% Explanation of the difference between voting shares and proportion of shareholding: Proportion of Voting Name of invested unit shareholding share Reason Liaoning & Accord Pharm No actual control and intend to sell Chain Store Co., Ltd. 30.00% 0.00% out No actual control and provided a Dongyuan & Accord Pharm 100% provision for impairment Chain Store Co., Ltd. 45.00% 0.00% loss (b) Long-term equity investments recognized by cost method Book balance Initial Book balance as of Provision for investment as of December Increases/d December 31, impairment Name of invested unit amount 31, 2006 ecreases 2007 loss China Associate Co., Ltd. 284,173.70 284,173.70 --- 284,173.70 --- China Central City Pharmacy Associates 50,000.00 50,000.00 --- 50,000.00 50,000.00 Shenzhen Futian Pharmaceutical Co., Ltd. 471,027.36 471,027.36 --- 471,027.36 471,027.36 Dongyuan & Accord Pharm Chain Store Co., Ltd. 2,250,000.00 396,638.32 --- 396,638.32 396,638.32 Liaoning & Accord Pharm Chain Store Co., Ltd. 1,894,900.00 1,894,900.00 --- 1,894,900.00 --- Shenzhen Medicine Trade Co. 7,689,226.69 7,689,226.69 --- 7,689,226.69 7,689,226.69 Total 12,639,327.75 10,785,966.07 --- 10,785,966.07 8,606,892.37 (c) Long-term equity investments recognized by equity method Initial Increases/decreases investment As of December Including: distributed As of December Name of invested unit amount 31, 2006 Total cash dividends 31, 2007 Associated enterprises SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. 20,939,177.10 23,306,507.22 -1,303,150.37 228,443.24 22,003,356.85 Shenzhen Wanle Pharmaceutical Co., Ltd. 4,457,400.00 27,233,251.08 5,958,175.00 3,326,375.42 33,191,426.08 Guangzhou Sinopharm Xinli Information Technology Co., Ltd. 2,065,000.00 954,173.26 -954,173.26 --- ---- Total 27,689,651.43 51,493,931.56 3,700,851.37 3,554,818.66 55,194,782.93 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 105 - - (d) Provision for diminution in value of long-term equity investment As of As of December 31, December 31, Reaso Name of invested unit 2006 Increases decreases 2007 n China Central City Pharmacy Associates 50,000.00 --- --- 50,000.00 Note1 Shenzhen Futian Pharmaceutical Co., Ltd. 471,027.36 --- --- 471,027.36 Note1 Guangzhou Sinopharm Xinli Information Technology Co., Ltd. 954,173.26 --- 954,173.26 --- Dongyuan & Accord Pharm Chain Store Co., Ltd. --- 396,638.32 --- 396,638.32 Note2 Shenzhen Medicine Trade Co. 7,689,226.69 --- --- 7,689,226.69 Note3 Total 9,164,427.31 396,638.32 954,173.26 8,606,892.37 Notes 1 ： The investment of China Central City Pharmacy Associates and Shenzhen Futian Pharmaceutical Co., Ltd. provided 100% provision for impairment loss because these invested units were operated poorly or could not be contacted for a long period and the Company had no information about their current situation. Notes 2：The Company had lost control of this invested unit and this unit was operated poorly, so 100% provision for impairment loss was provided for. Notes 3：This invested unit has no operation for years, so 100% provision for impairment loss is provided. 5.10 Investment real estate Increases Decreases Real estate for Investment real As of self-use or estate transferred December 31, transferred from into real estate for As of December Item 2006 Purchase inventory Disposal self-use 31, 2007 1、Total original value 47,606,668.54 --- --- 432,000.00 --- 47,174,668.54 （1）Constructions rented out 43,491,818.66 --- --- 432,000.00 --- 43,059,818.66 （2）Land use right rented out 4,114,849.88 --- --- --- --- 4,114,849.88 2 、 Total depreciation provided or accumulated amortization 8,317,522.66 --- 1,816,097.48 53,544.00 --- 10,080,076.14 （1）Constructions rented out 7,995,912.15 --- 1,727,565.86 53,544.00 --- 9,669,934.01 （2）Land use right rented out 321,610.51 --- 88,531.62 --- --- 410,142.13 3 、 Total depreciation or amortization of current year --- --- 1,816,097.48 --- --- 1,816,097.48 （1）Constructions rented out --- --- 1,727,565.86 --- --- 1,727,565.86 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 106 - - （2）Land use right rented out --- --- 88,531.62 --- --- 88,531.62 4、Accumulated provision for impairment loss on investment real estate --- --- --- --- --- --- （1）Constructions rented out --- --- --- --- --- --- （2）Land use right rented out --- --- --- --- --- --- 5、Total book value of investment real estate 39,289,145.88 --- -1,816,097.48 378,456.00 --- 37,094,592.40 （1）Constructions rented out 35,495,906.51 --- -1,727,565.86 378,456.00 --- 33,389,884.65 （2）Land use right rented out 3,793,239.37 --- -88,531.62 --- --- 3,704,707.75 Original value of pledged investment real estate amounted to 35,290,814.93, accumulated depreciation 5,311,590.46 and book value 29,979,224.47. 5.11 Original cost of fixed assets and accumulated depreciation (a) Original cost of fixed assets As of December 31, As of December 31, Category 2006 Increases decreases 2007 Buildings and constructions 210,018,972.92 81,151,973.82 160,430.00 291,010,516.74 Machinery equipment 87,225,400.30 53,369,106.07 8,583,023.26 132,011,483.11 Transportation equipment 33,311,142.29 7,950,127.00 9,909,825.20 31,351,444.09 Other equipment 50,588,551.09 32,386,842.59 4,796,893.49 78,178,500.19 Fixed assets fitment 5,844,578.66 --- --- 5,844,578.66 Total 386,988,645.26 174,858,049.48 23,450,171.95 538,396,522.79 Among which: 1) Transferred from CIP: 160,694,600.15. 2) Pledged: 65,284,109.94. (b) Accumulated depreciation As of December 31, As of December Category 2006 Increases Provision Decreases 31, 2007 Buildings and constructions 69,420,594.75 --- 10,738,026.67 124,244.05 80,034,377.37 Machinery equipment 63,605,203.71 --- 8,708,222.34 8,383,841.98 63,929,584.07 Transportation equipment 20,414,236.15 --- 3,531,467.03 8,719,392.88 15,226,310.30 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 107 - - Other equipment 32,662,417.41 --- 4,518,639.83 2,806,084.84 34,374,972.40 Fixed assets fitment 1,723,247.97 --- 1,168,916.04 --- 2,892,164.01 Total 187,825,699.99 --- 28,665,271.91 20,033,563.75 196,457,408.15 (c) Provision for impairment loss on fixed assets As of December 31, As of December Category 2006 Increases Decreases 31, 2007 Buildings and constructions 1,300,000.00 --- --- 1,300,000.00 Transportation equipment 240,690.74 --- 240,690.74 --- Total 1,540,690.74 --- 240,690.74 1,300,000.00 Notes：Reason for the decrease of provision for impairment loss on fixed assets at end of the period is that the assets provided provision for impairment loss had been disposed. (d) Book value of fixed assets Category As of December 31, 2006 As of December 31, 2007 Buildings and constructions 139,298,378.17 209,676,139.37 Machinery equipment 23,620,196.59 68,081,899.04 Transportation equipment 12,656,215.40 16,125,133.79 Other equipment 17,926,133.68 43,803,527.79 Fixed assets fitment 4,121,330.69 2,952,414.65 Total 197,622,254.53 340,639,114.64 (e) Fixed assets fully depreciated and still in use Accumulated Category Original cost depreciation Net book value Buildings and constructions 2,674,765.37 2,608,807.97 65,957.40 Machinery equipment 38,142,802.84 37,414,572.99 728,229.85 Transportation equipment 5,095,282.26 4,522,290.99 572,991.27 Other equipment 19,187,651.74 18,164,428.71 1,023,223.03 Total 65,100,502.21 62,710,100.66 2,390,401.55 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 108 - - (f) Pledged fixed assets Accumulated Category Original cost depreciation Net book value Buildings and constructions 65,284,109.94 20,668,306.68 44,615,803.26 (g) Ending balance of fixed assets increased by 151,407,877.53 as compared with opening balance. The decrease rate is 39.12%. Main reason for such decrease is: Medicine R&D base project of subsidiary company Shenzhen Zhijun Pharmaceutial Co., Ltd. has been transferred into fixed assets. 5.12 Construction in progress As of Decreases As of Proportion of Name of project Budget December 31, Increases Transfer into December Fund resources project input Other decrease 2006 fixed assets 31, 2007 in budget Chepuo Project No 6,640,750.20 15,485.00 --- --- 6,656,235.20 Self funds N/A Construction in Yufeng No 182,843.44 --- 182,843.44 --- --- Self funds N/A and Gubu Planting of cassia and Fiscal No 253,886.24 --- --- --- 253,886.24 N/A honeysuckle appropriation Self funds and Medicine R&D base 236.63 loan from 84,529,804.96 100,895,327.16 160,511,756.71 24,291,981.41 621,394.00 78.36% project million financial institution Total 91,607,284.84 100,910,812.16 160,694,600.15 24,291,981.41 7,531,515.44 The amount of borrowing cost capitalization included in construction in progress is as follows: As of December Other As of December Name of project 31, 2006 Increases Transfer into fixed assets decreases 31, 2007 Medicine R&D base project 1,933,268.05 769,371.75 2,702,639.80 --- -- The capitalization ratio of the amount of borrowing cost capitalization is 5.985%. 5.13 Intangible assets (a) Original cost of intangible assets Original cost as of Original cost as of Item December 31, 2006 Increases Decreases December 31, 2007 Software 6,847,945.48 781,781.13 1,342,040.94 6,287,685.67 Land use right 46,881,359.04 8,566,319.00 1,491,244.16 53,956,433.88 Trade mark use 115,250.00 12,000.00 --- 127,250.00 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 109 - - right Total 53,844,554.52 9,360,100.13 2,833,285.10 60,371,369.55 (b) Accumulated amortization As of December As of December Item 31, 2006 Amortization Decreases 31, 2007 Software 4,449,770.03 1,214,301.61 1,342,040.94 4,322,030.70 Land use right 1,686,588.03 1,105,414.53 100,041.57 2,691,960.99 Trade mark use right 44,187.48 13,478.56 --- 57,666.04 Total 6,180,545.54 2,333,194.70 1,442,082.51 7,071,657.73 (c) Book value of intangible assets As of December 31, As of December 31, Remained Item 2006 2007 amortization Period software 2,398,175.45 1,965,654.97 12－57 months Land use right 45,194,771.01 51,264,472.89 38－48years Trade mark use right 71,062.52 69,583.96 52－56months Total 47,664,008.98 53,299,711.82 5.14 Long-term deferred expenses Original As of Remained occurred December 31, accumulated As of December amortization Item amount 2006 Increases Amortization amortization 31, 2007 Period Leasehold improvement 18,356,967.51 7,057,448.19 7,745,088.93 3,167,515.03 6,721,945.42 11,635,022.09 1－60 months Management consulting expenses 1,325,273.60 1,031,012.13 --- 458,227.56 752,489.03 572,784.57 16 months Others 1,415,929.00 237,097.20 390,000.00 209,605.52 998,437.32 417,491.68 1－32 months Total 21,098,170.11 8,325,557.52 8,135,088.93 3,835,348.11 8,472,871.77 12,625,298.34 Ending balance of long-term deferred expenses increased by 4,299,740.82 as compared with opening balance. The decrease rate is 51.65%. Main reason for such decrease is: subsidiary Shenzhen Accord Medicine Chain Co., Ltd. decorated the leasehold in 2007. 5.15 Deferred income tax assets and liabilities (a) Recognized deferred income tax assets As of December As of December Item 31, 2007 31, 2006 Provision for bad debt on accounts receivable 7,771.72 255,077.65 Provision for bad debt on other receivables 169,035.39 1,530,291.35 Provision for inventory devaluation 230,697.37 418,932.42 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 110 - - Provision for impairment loss on long-term equity investments 93,784.92 93,784.92 Provision for impairment loss on fixed assets 325,000.00 325,000.00 Loss brought forward 2,156,652.29 6,181,534.22 Employee benefits payable (unpaid) 2,494,878.99 1,890,019.07 Income tax paid accrued sales expenses 7,338,090.85 3,550,257.50 Compensation for retired employees 860,009.53 1,334,415.83 Total 13,675,921.06 15,579,312.96 (b) Recognized deferred income tax liabilities As of December As of December Item 31, 2007 31, 2006 Difference for assets verification amortization 12,924,224.44 13,890,962.86 Provision for bad debt on accounts receivable 146,969.13 506,735.93 Total 13,071,193.57 14,397,698.79 5.16 Other non-current assets Item As of December As of December 31, 2006 Increases Decreases 31, 2007 Specific reserved medicine 15,347,094.62 --- 1,237,922.74 14,109,171.88 5.17 Short-term borrowings Category As of December 31, 2007 As of December 31, 2006 Mortgage borrowings 50,000,000.00 54,000,000.00 Guaranteed borrowings 125,000,000.00 70,000,000.00 Discounted bank acceptance bills --- 48,937,352.75 Discounted commercial acceptance bills 79,396,407.94 124,048,655.20 Total 254,396,407.94 296,986,007.95 Particulars about mortgage and pledge are disclosed in Note 8 (b). 5.18 Notes payable As of December Amount expired in As of December Item 31, 2007 the next fiscal year 31, 2006 Bank acceptance bills 319,876,081.78 319,876,081.78 178,216,534.52 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 111 - - Commercial acceptance bills 174,912,136.38 174,912,136.38 240,959,390.29 Total 494,788,218.16 494,788,218.16 419,175,924.81 5.19 Accounts payable As of December 31, 2007 As of December 31, 2006 1,054,606,346.77 956,987,248.04 (a) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of accounts payable. (b) The ending balance of related parties amounted to 123,492,564.90. For particulars see Note 7 (c) The accounts payable with the aging over 3 years amount to 12,115,762.22, which include large number of enterprises with little amount of payables and hereby will not be specifically listed. 5.20 Advances from customers As of December 31, 2007 As of December 31, 2006 15,666,567.23 30,835,803.43 (a) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of Advances from customers. (b) There is no ending balance of related party.. (c) There is no advance from customers with aging over 1year and with large amount. 5.21 Employee benefits payable (a) Employee benefits payable As of As of Paid during Item December 31, Increases December 31, current year 2006 2007 1. Salary, bonus and allowance 69,601,963.02 208,263,578.98 194,799,156.95 83,066,385.05 2. Welfare expenses for staff 9,293,326.86 10,657,118.30 18,098,441.60 1,852,003.56 3. Social insurance fees -31,868.69 28,280,012.92 28,188,543.27 59,600.96 4. Housing fund 125,246.67 2,879,356.72 2,486,889.24 517,714.15 5. Trade union expenses and staff 5,127,289.40 7,624,075.73 5,234,155.33 7,517,209.80 education expenses 6. Non-monetary welfare --- --- --- --- 7. Compensation for the 9,623,663.47 4,276,822.63 2,337,041.73 11,563,444.37 cancellation of work relationship 8. Others 137,104.52 371,789.65 167,809.72 341,084.45 Including：Shares paid in cash --- --- --- --- Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 112 - - Total 93,876,725.25 262,352,754.93 251,312,037.84 104,917,442.34 (b) Among the ending balance of employee benefits payable, the amount accrued in according to the work efficiency is 10,553,452.71. 5.22 Taxes and surcharges payable Item As of December 31, As of December 31, 2007 2006 VAT -7,337,910.56 -5,213,971.42 Business tax 933,265.38 577,883.38 City maintenance & construction 387,134.02 138,585.18 tax Income tax 22,295,804.08 6,621,478.89 Real estate tax 356,957.90 203,297.19 Stamp duty 380,667.24 --- Individual income tax 757,178.34 569,268.58 Education surcharge 358,605.53 224,404.68 River maintenance expenses --- 1,243.55 Flood prevention and security 1,244,917.16 74,759.17 fund Others 434,692.81 23,098.44 Total 19,811,311.90 3,220,047.64 Ending balance of Taxes and surcharges payable increased by 16,591,264.26 as compared with opening balance. The increase rate is 515.25%. Main reason for such increase is: income tax increased by 15,674,325.19. 5.23 Interests payable As of December 31, Item As of December 31, 2007 2006 Interests of bank borrowing 329,027.27 295,758.00 5.24 Dividends payable As of December 31, Name of investor 2007 Reason for due to China National Pharmaceutical Shanghai 3,746,270.05 Unpaid Corporation Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 113 - - 5.25 Other payables Item As of December 31, 2007 As of December 31, 2006 Other payables 323,560,290.20 289,624,952.97 (a) Among the ending balance, due from shareholders that hold more than 5% (including 5%) shares of the Company amounted to 110,000,000.00. For particulars see Note 7. (b) Ending balance of related parties amounted to 112,876,746.71. For particulars see Note7. (c) Large amounts are: Item Amount Nature/Content Sales expenses 155,642,176.38 Unpaid sales expenses Sinopharm Medicine Holding Co. 110,000,000.00 Current account Shenzhen Huihua Medicinal Co., Ltd. 7,748,722.46 Current account Guangdong Wanjin Pharmaceutical Co., 7,145,600.04 Current account Ltd. Deposit from Risk deposit 5,300,000.00 employees 5.26 Long-term borrowings Term of As of December As of December Name of enterprise Currency loan 31, 2007 31, 2006 China Merchants Bank Anlian branch CNY Guaranteed 77,720,000.00 97,720,000.00 5.27 Long-term payables As of December 31, Category 2007 As of December 31, 2006 Financial compensation for 113,625.83 1,054,352.56 employees 5.28 Specific items payable As of As of Project name of December Carry December appropriation 31, 2006 Increases forward 31, 2007 Specific funds appropriation from government 800,000.00 --- --- 800,000.00 Discount from 1,000,000.0 --- --- 1,000,000.0 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 114 - - government 0 0 1,800,000.0 1,800,000.0 Total 0 --- --- 0 5.29 Provisions As of Increases or As of December Item December 31, decreases 31, 2007 2006 Fine for social 1,300,000.00 -401,590.84 898,409.16 insurance 5.30 Other non-current liabilities As of December As of December Item 31, 2007 31, 2006 Central Medicine reserve 23,085,874.07 23,085,874.07 fund 5.31 Share capital As of December 31, 2006 Increases（+）or Decreases（-） As of December 31, 2007 Shares transferred Item Issuance of Gift from Amount Proportion Other Subtotal Amount Proportion new shares share public reserve fund 1 ． Shares with trading restriction (1) State-owned shares --- --- --- --- --- --- --- --- --- (2) State-owned legal entity 39.14% 112,786,386.00 39.14% --- --- --- --- --- 112,786,386.00 shares (3) Other domestic shares 49,126,134.00 17.05% --- --- --- -39,977,088.00 -39,977,088.00 9,149,046.00 3.18% including ： Shares held by 3.18% 49,126,134.00 17.05% --- --- --- -39,977,088.00 -39,977,088.00 9,149,046.00 non-state-owned legal entity Domestic natural person’s --- --- --- --- --- --- --- --- --- shares (4) Foreign shares --- --- --- --- --- --- --- --- --- including：Foreign legal entity --- --- --- --- --- --- --- --- --- shares Foreign natural person’s --- --- --- --- --- --- --- --- --- shares Total shares with trade 42.32% 161,912,520.00 56.19% - - - -39,977,088.00 -39,977,088.00 121,935,432.00 restriction Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 115 - - 2 ． Shares with no trade restriction (1) CNY ordinary shares 71,351,280.00 24.76% --- --- --- 39,977,088.00 39,977,088.00 111,328,368.00 38.63% (2) Domestically listed 19.05% 54,885,600.00 19.05% --- --- --- --- --- 54,885,600.00 foreign shares (3) Overseas listed foreign --- --- --- --- --- --- --- --- --- shares (4) Others --- --- --- --- --- --- --- --- --- Total shares with no trade 57.68% 126,236,880.00 43.81% --- --- --- 39,977,088.00 39,977,088.00 166,213,968.00 restriction 3．Total shares 288,149,400.00 100.00% --- --- --- --- --- 288,149,400.00 100.00% Note: On May 10, 2007 the restricted shares of the Company were fully unrestricted and thereby the share structure was changed. 5.32 Capital reserves Item Unadjusted as Adjusted Adjusted as of Increases Decreases As of of December amount December 31, December 31, 31, 2006 2006 2007 Share capital 15,233,102.54 -15,233,102.54 --- --- --- ---- premium Equity 160,650.00 7,317,105.65 7,477,755.65 2,131,711.77 7,458,657.71 2,150,809.71 investment reserve Other capital 2,650,322.00 --- 2,650,322.00 --- --- 2,650,322.00 reserves Total 18,044,074.54 -7,915,996.89 10,128,077.65 2,131,711.77 7,458,657.71 4,801,131.71 5.33 Surplus reserves Item Unadjusted as of Adjusted Adjusted as of Increases Decreases As of December 31, amount December 31, December 31, 2006 2006 2007 Statutory 63,684,154.51 -63,684,154.51 --- 7,092,488.00 --- 7,092,488.00 Surplus Reserves Discretionary 19,735,448.38 -19,735,448.38 --- --- --- --- Surplus Reserves Total 83,419,602.89 -83,419,602.89 --- 7,092,488.00 --- 7,092,488.00 5.34 Undistributed profit Item Amount Proportion of extract and distribution Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 116 - - Unadjusted undistributed profit at the 96,039,768.76 --- beginning of period Adjustment of undistributed profit at the -3,887,712.56 --- beginning of period（increases+, decreases-） Adjusted undistributed profit at the beginning 92,152,056.20 --- of period Plus：Net profit of current year 124,914,225.45 --- Other transferred in --- --- Minus：Extract for statutory surplus reserves 7,092,488.00 10% Extract for discretionary surplus --- --- reserves Dividends payable for ordinary shares 25,902,701.26 --- Dividends for ordinary shares transferred into --- --- capitals Undistributed profit at the ending of period 184,071,092.39 --- Adjustment of undistributed profit at the beginning of period amounted to -3,887,712.56, including: The retroactive adjustment of the financial statements amounted to -3,887,712.56 of the undistributed profit at the beginning of period according to ZJF [2006] No. 3 document, “ About Issuance of and other 38 Specific standards and the "Accounting Standards for Business Enterprises Explanation Notice No. 1. (For particulars see Note 2.21) 5.35 Sales from operations and Cost of operations Current year Previous year Item Principle Other Principle Other Sub-total Sub-total activities activities activities activities Sales from 6,840,074,246. 6,878,305,483. 5,667,611,804.6 41,102,009.7 5,708,713,814.4 38,231,236.35 operations 97 32 8 7 5 Cost of 6,167,166,882.1 6,171,204,306. 5,085,765,495.4 5,090,717,555.2 4,037,424.54 4,952,059.87 operations 5 69 1 8 36,149,949.9 Gross profit 672,907,364.82 34,193,811.81 707,101,176.63 581,846,309.27 617,996,259.17 0 (a) Sales from operations and Cost of operations listed by business distribution Sales from operations Cost of operations Item Current year Previous year Current year previous year Industry — Medicine 742,249,196.10 521,579,211.28 475,540,579.65 293,181,718.03 Commerce - Medicine wholesale 6,752,372,662.83 6,439,380,955.25 6,427,223,702.94 6,158,754,925.82 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 117 - - Commerce - Medicine retail 327,352,829.48 311,179,340.75 248,257,241.39 242,187,758.24 Non-medicine trade 42,706,792.22 35,892,088.27 33,782,605.51 27,825,909.40 Leasehold 14,200,027.04 15,164,796.41 5,174,245.42 4,638,778.72 Subtotal 7,878,881,507.67 7,323,196,391.96 7,189,978,374.91 6,726,589,090.21 Writing-off in the Company 1,038,807,260.70 1,655,584,587.28 1,022,811,492.76 1,640,823,594.80 Total 6,840,074,246.97 5,667,611,804.68 6,167,166,882.15 5,085,765,495.41 (b) The total amount of top five sales is 599,752,349.70, which accounts for 8.77% of the total sales of current year. 5.36 Taxes and surcharges on operations Item Current year Previous year Business tax 3,986,954.02 3,415,603.22 City maintenance 4,474,750.05 3,302,804.95 & construction tax Education 3,725,757.60 3,639,422.39 surcharge Others 58,368.69 22,226.54 Total 12,245,830.36 10,380,057.10 5.37 Financial expenses Sort Current year Previous year Interest expenses 29,917,023.45 24,101,356.27 Less: Interest income 2,286,381.46 2,812,862.34 Exchange loss 115.00 5,857.53 Less: Exchange gain 1,290,183.25 358,764.20 Others 3,524,919.11 1,737,772.70 Total 29,865,492.85 22,673,359.96 Financial expenses of current year increased by 7,192,132.89 as compared with previous year. The increase rate is 31.72%. Main reason for such increase is: The increase of loans and interest rate. 5.38 Impairment loss on assets Item Current year Previous year Bad debt loss 3,982,465.66 12,103,623.79 Impairment loss on inventory 4,870,281.59 1,436,652.16 Impairment loss on long-term 396,638.32 --- Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 118 - - equity investments Impairment loss on fixed assets --- -3,360,423.17 Impairment loss on construction --- -1,850,000.00 in progress Total 9,249,385.57 8,329,852.78 5.39 Investment income Subject or name of Current year Previous year the invested unit 1 、 Investment income of 25,719,830.52 financial assets 98,175.00 (1) Investment income from 25,588,726.02 --- disposal of financial assets (2) Distributed cash dividends 131,104.50 98,175.00 of financial assets 2 、 Investment income from 8,367,123.36 6,868,704.49 equity investments (1) Recognized with equity 8,209,843.29 6,461,651.70 method ①SinoPharm Holdings -1,074,707.13 -896,438.24 Shenzhen Chinese Medicine Co., Ltd. ②Shenzhen Wanle 9,284,550.42 7,282,199.23 Pharmaceutical Co., Ltd. ③Shenzhen Zhongxi --- 75,890.71 Pharmaceutical Co., Ltd. (2) Disposal of investment 157,280.07 407,052.79 income ①Guangdong Dongshi 157,280.07 --- Enterprise Development Co., Ltd. ②Shenzhen Zhongxi --- 292,540.55 Pharmaceutical Co., Ltd. ③Guangzhou Guangxing --- 114,513.06 Industry & Trade Development Company Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 119 - - ④Guangzhou South Huabo --- -0.82 Company Total 34,086,953.88 6,966,879.49 The Company has no material restriction of receiving investment income above. 5.40 Non-operating profit Item Current year Previous year 1、Total income from disposal 838,223.61 of non-current assets 18,145,895.84 Including ： Income from 838,223.61 disposal of fixed assets 1,457,098.42 Income from disposal --- of intangible assets 16,688,797.42 6,600.00 2、Subsidy from government 3,500,000.00 275,461.15 3、Others 1,838,357.87 1,120,284.76 Total 23,484,253.71 Non-operating profit of current year increased by 22,363,968.95 as compared with previous year. The increase rate is 1996.28%. Main reason for such increase is: Sub-company Sinopharm Medicine Holding Liuzhou Co., Ltd. sold land use right and the relative income amounted to 6,688,797.42. 5.41 Non-operating expenses Item Current year Previous year 1. Total loss for disposal of 636,427.92 701,128.22 non-current assets including：Loss for disposal of 636,427.92 701,128.22 fixed assets 2. Beneficent donation 201,359.07 34,667.44 3. Special loss ---- 11,820.00 4. Loss for inventory 6,798.06 --- shortage 5. Others 916,144.77 2,328,877.97 Total 1,760,729.82 3,076,493.63 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 120 - - 5.42 Income tax expenses Item Current year Previous year Income tax expenses of current year 51,756,443.38 29,900,100.37 Deferred income tax expenses 576,886.68 891,563.60 Total 52,333,330.06 30,791,663.97 5.43 Government subsidies Sort and amount of subsidies from government Sort Current year Previous year Patent supporting appropriation 0.00 6,600.00 Medicine reserve appropriation 3,500,000.00 --- Total 3,500,000.00 6,600.00 5.44 Notes to cash flow statement (a) Other cash receipts related to operating activities: 52,658,123.94. including： Item current year Interest income 2,286,381.46 Government subsidies 3,500,000.00 Current account 40,252,443.21 (b) Other cash payments related to operating activities: 288,040,520.00. including： Item current year Service charge 3,524,919.11 Research and development 15,567,611.52 expenses Transportation expenses 20,791,262.19 Advertisement expenses 20,210,781.76 Rentals 36,315,413.13 Other expenses 162,963,075.62 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 121 - - (c) Other cash receipts related to financing activities: 4,788,000.00. Item current year Financial subsidiary of 4,788,000.00 Medicine R&D base (d) Supplementary information Item current year Net profit 124,914,225.45 Plus: Gain and loss of current period of minority shareholders 13,803,771.60 Provision for asset impairment 9,249,385.57 Depreciation of fixed assets, depletion of oil and natural gas assets and 30,481,369.39 depreciation of bearer biological assets Amortization of intangible assets 2,333,194.70 Amortization of long-term deferred expenses 3,835,348.11 Loss from disposals of fixed assets, intangible assets and other long-term -17,509,467.92 assets (deduct: increase) Loss on disposal of fixed assets (deduct: increase) --- Loss from changes in fair values (deduct: increase) --- Financial expenses (deduct: increase) 28,846,395.98 Investment loss (deduct: increase) -34,086,953.88 Decreases in deferred income tax assets (deduct: increase) 1,903,391.90 Increases in deferred income tax liabilities (deduct: decrease) -1,326,505.22 Decreases in inventories (deduct: increase) -88,410,204.66 Decreases in operating receivables (deduct: increase) 96,076,946.60 Increases in operating payables (deduct: decrease) -82,412,817.61 Others --- Net cash flows from operating activities 87,698,080.01 6. Notes to the main items of financial statement of parent company (Monetary unit is CNY and the amount is the ending balance unless otherwise stated.) 6.1 Accounts receivable a) Structure of accounts receivable As of December 31, 2007 As of December 31, 2006 Provision Provision Item Proportion of Proportion of Book balance rate for bad Provision Book balance rate for bad Provision total amount total amount debt debt Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 122 - - 1) Significant individual amount 106,087,812.66 39.60% 0.15% 156,252.28 164,490,650.66 69.97% --- --- whose provision has been recognized. 2) Insignificant individual amount 6,352,393.27 2.37% 18.23% 1,157,860.00 7,023,336.30 2.99% 29.68% 2,084,336.03 whose provision has been recognized. 3) Other amounts with the symbol of 155,481,926.06 58.03% 0.00% --- 63,561,048.09 27.04% 0.10% 65,042.46 credit risk identified by aging Among which: 155,481,926.06 58.03% 0.00% --- 62,472,820.92 26.58% 0.00% --- Within one year 1-2 years --- 0.00% --- --- 1,003,479.40 0.43% 5.00% 50,173.97 2-3 years --- 0.00% --- --- 20,810.62 0.01% 10.00% 2,081.06 Over 3 years --- 0.00% --- --- 63,937.15 0.02% 20.00% 12,787.43 Total 267,922,131.99 100.00% 1,314,112.28 235,075,035.05 100.00% 2,149,378.49 (b) Accounts receivable with significant individual amount List of significant individual Proportion Amount Reason amount rate Not exceeding credit period or credit Shenzhen People’s Hospital 22,976,517.09 --- amount Shenzhen Hospital of Beijing Not exceeding credit period or credit 17,164,659.41 --- University amount Xixiang People’s Hospital of Not exceeding credit period or credit 13,880,674.63 --- Shenzhen Baoan District amount People’s Hospital of Shenzhen Not exceeding credit period or credit 13,073,413.66 --- Nanshan District amount Shenzhen Second People’s Not exceeding credit period or credit 13,067,198.88 --- Hospital amount (c) Accounts receivable actually written off in this year amounted to 342,839.71. (d) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of accounts receivable. (e) Top five of accounts receivable as of December 31, 2007 Rank of creditor As of December 31, 2007 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 123 - - Proportion of total Amount Aging amount Within one Shenzhen People’s Hospital 22,976,517.09 8.58% year Shenzhen Hospital of Beijing Within one 17,164,659.41 6.41% University year Xixiang People’s Hospital of Within one 13,880,674.63 5.18% Shenzhen Baoan District year People’s Hospital of Shenzhen Within one 13,073,413.66 4.88% Nanshan District year Shenzhen Second People’s Within one 13,067,198.88 4.88% Hospital year (f) The ending balance of related parties accounts for 1.95% of the total amount of accounts receivable by the end of year. 6.2 Other receivables (a) Structure of other receivables As of December 31, 2007 As of December 31, 2006 Item Provision Provision Proportion of Proportion of Book balance rate for bad Provision Book balance rate for bad Provision total amount total amount debt debt 1) Significant individual amount whose 109,822,400.01 95.71% 13.23% 14,532,747.94 157,234,579.90 93.43% 7.48% 11,760,000.00 provision has been recognized. 2) Insignificant individual amount whose 116,055.85 0.10% --- --- 8,132,420.46 4.83% 12.04% 979,281.98 provision has been recognized. 3) Other amounts with the symbol of credit risk 4,801,087.91 4.19% 2.11% 101,474.51 2,917,068.25 1.74% 1.02% 29,697.03 identified by aging Among which: 2,996,261.67 2.61% 0.00% - 2,477,959.56 1.47% 0.00% --- Within one year 1-2 years 1,580,162.24 1.38% 5.00% 79,008.11 314,318.69 0.19% 2.30% 7,218.03 2-3 years 224,664.00 0.20% 10.00% 22,466.40 24,790.00 0.02% 10.00% 2,479.00 Over 3 years --- 0.00% --- --- 100,000.00 0.06% 20.00% 20,000.00 Total 114,739,543.77 100.00% 14,634,222.45 168,284,068.61 100.00% 12,768,979.01 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 124 - - (b) Other receivables with significant individual amount Proportion List of significant individual amount Amount rate Reason SinoPharm Holdings Guangzhou Co., 60,000,000.0 Current account Ltd. 0 --- with related parties Shenzhen Accord Medicine Chain 14,587,820.1 Current account Co., Ltd. 1 --- with related parties SinoPharm Holdings Liuzhou Co., 12,000,000.0 Current account Ltd. 0 --- with related parties Shenzhen Medicines and Health Uncertainty of full Products I/E Co., Ltd. 9,254,579.90 60% amount return Shenzhen Yinghai Technology Uncertainty of Investment Co., Ltd. 8,980,000.00 100% return (c) Other receivables actually written off in this year amounted to 1,092,665.98. (d) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of other receivables. (e) Top five of other receivables as of December 31, 2007 Proportion Rank of creditor Nature/Content Amount Aging of total amount SinoPharm Holdings Guangzhou 60,000,000.0 Within one Current account 52.29% Co., Ltd. 0 year Shenzhen Accord Medicine 14,587,820.1 Within one Current account 12.71% Chain Co., Ltd. 1 year SinoPharm Holdings Liuzhou 12,000,000.0 Within one Current account 10.46% Co., Ltd. 0 year Shenzhen Medicines and Health Current account 9,254,579.90 2-3 years 8.07% Products I/E Co., Ltd. Shenzhen Yinghai Technology Receivables from 8,980,000.00 Over 3 years 7.83% Investment Co., Ltd. equity transaction (f) The ending balance of related parties accounts for 79.92% of the total amount of other Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 125 - - receivables by the end of year. 6.3 Long-term equity investments As of December 31, 2007 As of December 31, 2006 Provision for Provision for Book balance Book balance impairment loss impairment loss 270,215,939.58 7,689,226.69 274,819,118.52 11,019,255.26 (a) Long-term equity investments recognized by cost method Book balance Book balance Provision Initial as of Increases/decrease as of for Name of invested unit investment December 31, s December impairment amount 2006 31, 2007 loss Shenzhen Zhijun Pharmaceutial 73,903,284.87 73,903,284.87 --- 73,903,284.87 --- Co., Ltd. Shenzhen Pharmaceutical Co., 45,054,911.04 45,054,911.04 --- 45,054,911.04 --- Ltd. Shenzhen Accord Medicine 5,400,000.00 5,400,000.00 --- 5,400,000.00 --- Materials Co., Ltd. Shenzhen Accord Pharmaceutical Logistic Co., 900,000.00 900,000.00 --- 900,000.00 --- Ltd. SinoPharm Holdings 58,283,114.68 58,283,114.68 --- 58,283,114.68 --- Guangzhou Co., Ltd. GUANGDONG ACCORD 45,135,253.97 45,135,253.97 --- 45,135,253.97 --- PHARMSTORE CO.,LTD. Shenzhen Accord Medicine 3,842,340.66 3,842,340.66 -3,330,028.57 512,312.09 --- Chain Co., Ltd. Shenzhen Zhijun 988,035.31 988,035.31 988,035.31 Pharmaceutical Trade Co. SinoPharm Holdings Guangdong New Dragon Co., 8,421,544.08 8,421,544.08 --- 8,421,544.08 --- Ltd. Shenzhen Accord Pharmaceutical Professional 30,000.00 --- 30,000.00 30,000.00 --- Skills Training Center Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 126 - - Liaoning & Accord Pharm 1,894,900.00 1,894,900.00 --- 1,894,900.00 --- Chain Store Co., Ltd. Shenzhen Medicine Trade Co. 7,689,226.69 7,689,226.69 --- 7,689,226.69 7,689,226.69 Total 251,542,611.30 251,512,611.30 -3,300,028.57 248,212,582.73 7,689,226.69 (b) Long-term equity investments recognized by equity method Book balance Increases/decreases Book balance Initial as of Among which: as of Name of invested unit investment December 31, Total distributed cash December 31, amount 2006 dividends 2007 Affiliated enterprise: SinoPharm Holdings Shenzhen 20,939,177.10 23,306,507.22 -1,303,150.37 228,443.24 22,003,356.85 Chinese Medicine Co., Ltd. (c) Provision for diminution in value of long-term equity investments As of As of Name of invested unit December 31, Increases Decreases December 31, 2006 2007 Shenzhen Accord Medicine Chain Co., 3,330,028.57 --- 3,330,028.57 --- Ltd. Shenzhen Medicine Trade Co. 7,689,226.69 --- --- 7,689,226.69 Total 11,019,255.26 --- 3,330,028.57 7,689,226.69 6.4 Sales from operations and Cost of operations Current year Previous year Item Other Principle activities Other activities Sub-total Principle activities Sub-total activities Sales from 1,234,058,804.24 2,889,849.00 1,236,948,653.24 1,235,289,968.87 5,195,466.86 1,240,485,435.73 operations Cost of 1,166,483,870.26 150,655.20 1,166,634,525.46 1,187,855,348.02 --- 1,187,855,348.02 operations Gross 67,574,933.98 2,739,193.80 70,314,127.78 47,434,620.85 5,195,466.86 52,630,087.71 profit (a) Sales from operations and Cost of operations listed by activities Sales from operations Cost of operations Item Current year Previous year Current year Previous year Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 127 - - Commerce - Medicine 1,234,058,804.24 1,235,289,968.87 1,166,483,870.26 1,187,855,348.02 wholesale (b) The total amount of top five sales is 370,578,671.80, which accounts for 29.96% of the total sales of current year. 6.5 Investment income Name of project or invested unit Current year Previous year Equity investments income a) Cost method 99,413,073.19 67,882,183.36 (1) Shenzhen Zhijun Pharmaceutical Co.Ltd. 60,625,715.86 66,091,712.46 (2) Shenzhen Pharmaceutical Co., Ltd. 3,727,825.19 1,585,864.15 (3) Shenzhen Accord Pharmaceutical Logistics 1,199,352.49 Company 182,157.27 （4）SinoPharm Holdings Guangzhou Co., Ltd. 33,716,430.48 --- （5）Shenzhen Accord Logistics Co., Ltd. 123.96 --- （6）Shenzhen Zhijun Pharmaceutical Trade Co., Ltd. 143,625.21 22,449.48 b) Equity method -1,074,707.13 -820,547.53 （1）SinoPharm Holdings Shenzhen Chinese Medicine -1,074,707.13 Co., Ltd. -896,438.24 （2）Shenzhen Zhongxi Pharmaceutical Co., Ltd. --- 75,890.71 c) Disposal 0.65 292,540.55 （1）Shenzhen Accord Medicine Chain Co., Ltd. 0.65 --- （2）Shenzhen Zhongxi Pharmaceutical Co., Ltd. --- 292,540.55 Total 98,338,366.71 67,354,176.38 The investment income of the Company can be exchanged without significant limitation. 7. Related party and related party transactions 7.1 Related party with controlling relationship a) Related party with controlling relationship Related party controlling the Company Legal Organization Company Registered address Principal business Relationship Economic nature repres- bar code entative Sinopharm No 660 Mid Si Enterprise investment Controlling Limited liability Zheng Medicine chuan Road, holdings, pharmaceutical shareholder of company (domestic 74618434-4 Hong Holding Co., Shanghai enterprise management the Company joint-investment) Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 128 - - Ltd engagement and asset restructuring, wholesale of Chinese patent drugs, chemical medicine, etc domestic trading (except specialized permission required), logistics and relevant consultation The proportion of shareholding and voting power held by the parent company in the Company are 39.14% and 39.14% respectively. The ultimate holding company of the Company is Sinopharm Medicine Group Co.For related parties controlled by the Company, see Note 4. b) Registered capital and changes in registered capital of related party with controlling relationship （in CNY ’0000）： At beginning of Increase during Decrease during At end of the Company the year year year year Sinopharm Medicine Holding Co., Ltd 102,795 60,909 --- 163,704 Shenzhen Zhijun Pharmaceutical Co., Ltd 3,219 3,681 --- 6,900 Shenzhen Pharmaceutical Corporation 125 375 --- 500 Shenzhen Accord Medical Materials Co., Ltd 600 --- --- 600 Shenzhen Zhijun Pharmaceutical Trade Co., Ltd. 189 --- --- 189 Shenzhen Accord Pharm Chain Store Co., Ltd 1,080 --- --- 1,080 Shenzhen Accord Pharmaceutical Co., Ltd 5,000 --- --- 5,000 Shenzhen Medicines Trade Co. 188 --- --- 188 Shenzhen Accord Medicine Logistics Co., Ltd 100 --- --- 100 SinoPharm Holdings Guangzhou Co., Ltd. 5,000 --- --- 5,000 SinoPharm Holdings Guangdong New Dragon Co., Ltd. 2,000 --- --- 2,000 SinoPharm Holdings Liuzhou Co., Ltd. 2,053.06 --- --- 2,053.06 GUANGXI ACCORD 50 150 --- 200 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 129 - - At beginning of Increase during Decrease during At end of the Company the year year year year PHARM.CHAINSTORE CO.,LTD. Guangxi Accord Chinese Herbal Pieces Co., Ltd. --- 200 --- 200 Liuzhou Chinese Pharmacy Plant 4 --- --- 4 Guangdong Huixin Investment Co.,Ltd. 5,000 --- --- 5,000 Guangzhou Southern Pharmaceutical Company 200 --- --- 200 Guangzhou Accord Pharm Chain Store Co., Ltd. 200 --- --- 200 Guangdong Yuexing Pharmaceutical Co., Ltd. 300 --- --- 300 Guangdong Hengchang Logistics Co., Ltd. 54 --- --- 54 Guangzhou New Pharmaceutical Company 50 --- --- 50 Guangzhou Qingyun Hotel Co., Ltd. 30 --- 30 --- Guangdong Dongshi Enterprise Development Co., Ltd. 50 --- 50 --- Guangzhou Nanfang Medical Treatment Equipment Company 200 --- --- 200 c) Shareholdings and changes in shareholdings of related parties with controlling relationship （in CNY ’0000） At beginning of the year Increase during year Decrease during year At end of the year Percentage Percentage Percentage Percentage Company Amount (%) Amount (%) Amount (%) Amount (%) SinoPharm Holdings Co., Ltd. 11,278.64 39.14 --- --- --- --- 11,278.64 39.14 Shenzhen Zhijun Pharmaceutical Co., Ltd. 3,219.00 100 3,681.00 --- --- --- 6,900.00 100 Shenzhen Pharmaceutical Co., Ltd. 1,378.97 100 --- --- 878.97 --- 500.00 100 Shenzhen Accord Medicine Materials Co., Ltd. 600.00 100 --- --- --- --- 600.00 100 Shenzhen Zhijun Medicine Trade Co., Ltd. 189.00 100 --- --- --- --- 189.00 100 Shenzhen Accord Medicine Chain Co., Ltd. 1,080.00 100 --- --- --- --- 1,080.00 100 GUANGDONG ACCORD PHARMSTORE CO.,LTD. 5,000.00 100 --- --- --- --- 5,000.00 100 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 130 - - Shenzhen Medicine Trade Co. 188.00 100 --- --- --- --- 188.00 100 Shenzhen Accord Pharmaceutical Logistic Co., Ltd. 100.00 100 --- --- --- --- 100.00 100 SinoPharm Holdings Guangzhou Co., Ltd. 4,500.00 90 --- --- --- --- 4,500.00 90 SinoPharm Holdings Guangdong New Dragon Co., Ltd. 2,000.00 100 --- --- --- --- 2,000.00 100 SinoPharm Holdings Liuzhou Co., Ltd. 1,047.06 51 --- --- --- --- 1,047.06 51 GUANGXI ACCORD PHARM.CHAINSTORE CO.,LTD. 50.00 100 150.00 --- --- --- 200.00 100 Guangxi Accord Chinese Herbal Pieces Co., Ltd. --- --- 200.00 100 --- --- 200.00 100 Liuzhou Chinese Pharmacy Plant 4.00 100 --- --- --- --- 4.00 100 Guangdong Huixin Investment Co.,Ltd. 5,000.00 100 --- --- --- --- 5,000.00 100 Guangzhou Southern Pharmaceutical Company 200.00 100 --- --- --- --- 200.00 100 Guangzhou Accord Pharm Chain Store Co., Ltd. 200.00 100 --- --- --- --- 200.00 100 Guangdong Yuexing Pharmaceutical Co., Ltd. 300.00 100 --- --- --- --- 300.00 100 Guangdong Hengchang Logistics Co., Ltd. 54.00 100 --- --- --- --- 54.00 100 Guangzhou New Pharmaceutical Company 50.00 100 --- --- --- --- 50.00 100 Guangzhou Qingyun Hotel Co., Ltd. 30.00 100 --- --- 30.00 100 --- --- Guangdong Dongshi Enterprise Development Co., Ltd. 50.00 100 --- --- 50.00 100 --- --- Guangzhou Nanfang Medical Treatment Equipment Company 100.00 100 --- --- --- --- 100.00 100 d) Related parties without controlling relationship Company Relationship Beijing Zhongxin Pharmaceutical Co. Same ultimate controlling shareholder Guangdong East Uptodate & Special Medicines Co. Same ultimate controlling shareholder Guangdong South Pharmaceutical Foreign Trade Co. Same ultimate controlling shareholder Guangdong Erbo Medical Equipment Co., Ltd. Same ultimate controlling shareholder Guangdong Tianliang Pharmaceutical Co., Ltd. Same ultimate controlling shareholder Guangdong Zhongyue Medicine Associates Same ultimate controlling shareholder Guangxi Guoda Pharmacy Franchise Co., Ltd Same ultimate controlling shareholder Guangxi Wuzhou Huawu Medicine Co., Ltd. Same ultimate controlling shareholder Nanning Medicines Wholesales of Guangxi Zhuang Autonomous Region Same ultimate controlling shareholder Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 131 - - Company Relationship China National Pharmaceutical Industry Co., Ltd. Same ultimate controlling shareholder Sinopharm Beijing Medical Treatment Equipment Co., Ltd. Same ultimate controlling shareholder Sinopharm Guorui Pharmaceutical Co., Ltd. Same controlling shareholder Sinopharm Chemical Reagent Co., Ltd. Same controlling shareholder Union China national medical equipment shanghai Co.,Ltd Same ultimate controlling shareholder Sinopharm Medicine Westnorth Pharmaceutical Co., Ltd. Same controlling shareholder Sinopharm Medicine Westwouth Pharmaceutical Co., Ltd. Same controlling shareholder China National Medicines Co., Ltd. Same controlling shareholder Sinopharm medicine holding Co.,Ltd.shanghai branch Same controlling shareholder Sinopharm Medicine Holding Shanghai Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Wuhan Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Beijing Huahong Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Beijing Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Hubei Xinlong Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Hubei Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Hunan Tianjian Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Jiangsu Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Jingzhou Xinlong Medicine Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Nanning Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Shanxi Co., Ltd. Same controlling shareholder SinoPharm Holdings Shenzhen Chinese Medicine Co., Same controlling shareholder & Ltd. associated company Sinopharm Medicine Holding Shenyang Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Tianjin Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Zhejiang Co., Ltd. Same controlling shareholder Hebei Medicinal Material Company Same ultimate controlling shareholder Sinopharmholding guoda xinlong drugstores Same controlling shareholder Huahe Pharmaceutical Co., Ltd. Same ultimate controlling shareholder Shanghai Sinopharm Wai Gao Qiao Co., Ltd. Same controlling shareholder Shenzhen Wanle Pharmaceutical Co., Ltd. Associated company Sichuan Industrial Institute of Antibiotics Co., Ltd. Same controlling shareholder Suzhou Medicine Foreign Development Co., Ltd. Same controlling shareholder Tianjin East Bokang Medicine Trade Co., Ltd. Same controlling shareholder Yunnan Pharmaceutical Logistics Co., Ltd. Same ultimate controlling shareholder Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 132 - - Company Relationship China National Group Co. of Traditional & Herbal Medicine Same ultimate controlling shareholder China national pharmaceutical tianjin corporation Same controlling shareholder China national pharmaceutical foreign trade corporation Same ultimate controlling shareholder China National Pharmaceutical Foreign Trade Corporation Sales Affiliate Same ultimate controlling shareholder China National Pharmaceutical Shanghai Corporation Same controlling shareholder 7.2 Related party transactions a) Transactions between subsidiaries controlled and consolidated and such subsidiaries with their parent companies have been eliminated b) Pricing policy of related party transaction is the adoption of market price c) Purchases from related parties Scale of transactions This year Last year Company Amount (’0000) Amount (’0000) Shanghai Sinopharm Wai Gao Qiao Co., Ltd. 68,014.41 42,693.30 Sinopharm medicine holding Co.,Ltd.shanghai branch 11,917.28 24,853.97 China National Medicines Co., Ltd. 11,213.03 10,786.87 Guangdong South Pharmaceutical Foreign Trade Co. 3,994.64 2,596.69 Sinopharm Medicine Holding Nanning Co., Ltd. 225.23 239.82 Sinopharm Medicine Holding Tianjin Co., Ltd. 1,200.77 805.55 China National Pharmaceutical Foreign Trade Corporation Sales Affiliate 704.3 693.44 Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. 1,391.02 189.00 Guangdong East Uptodate & Special Medicines Co. 861.02 705.30 Suzhou Medicine Foreign Development Co., Ltd. 121.32 832.38 Sinopharm Medicine Holding Hunan Tianjian Co., Ltd. 36.33 --- China National Group Co. of Traditional & Herbal Medicine 30.17 10.61 SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. 401.32 422.18 Beijing Zhongxin Pharmaceutical Co. 8.56 2.18 China national pharmaceutical foreign trade corporation 0.73 --- Shenzhen Wanle Pharmaceutical Co., Ltd. --- 82.35 Guangdong Tianliang Pharmaceutical Co., Ltd. --- 38.27 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 133 - - Sinopharm Shanghai Medical Treatment Equipment Co., Ltd. --- 2.59 China National Pharmaceutical Industry Co., Ltd. --- 0.17 Sinopharm Medicine Holding Hubei Xinlong Co., Ltd. -3.61 1,147.36 Huahe Pharmaceutical Co., Ltd. --- 0.11 Total 100,116.52 86,102.14 d) Sales to related parties Scale of transactions This year Last year Company Amount (0000) Amount (0000) Sinopharm Medicine Holding Shenyang Co., Ltd. 20,016.19 11,924.41 Sinopharm Medicine Holding Hubei Co., Ltd. 6,464.53 2,925.46 Sinopharm Medicine Westwouth Pharmaceutical Co., Ltd. 5,482.41 3,368.97 Sinopharm Medicine Holding Hunan Tianjian Co., Ltd. 5,459.45 4,739.41 Sinopharm Medicine Holding Nanning Co., Ltd. 4,626.26 2,848.29 Sinopharm Medicine Holding Beijing Co., Ltd. 1,732.29 1,097.53 Sinopharm Medicine Holding Tianjin Co., Ltd. 4,537.10 3,731.24 SinoPharm Holdings Co., Ltd. 627.00 2,199.05 Tianjin East Bokang Medicine Trade Co., Ltd. 599.73 332.25 Sinopharm Medicine Holding Hubei Xinlong Co., Ltd. 599.45 1,993.54 Sinopharm Medicine Holding Jiangsu Co., Ltd. 421.48 198.81 Sinopharm Medicine Holding Shanxi Co., Ltd. 402.12 149.84 China National Medicines Co., Ltd. 404.63 828.03 Guangdong South Pharmaceutical Foreign Trade Co. 217.55 539.77 Guangdong East Uptodate & Special Medicines Co. 205.4 249.13 Sinopharm Medicine Holding Beijing Huahong Co., Ltd. 94.55 40.11 Sinopharm Medicine Westnorth Pharmaceutical Co., Ltd. 87.09 4.23 Suzhou Medicine Foreign Development Co., Ltd. 79.06 --- Sinopharm Medicine Holding Zhejiang Co., Ltd. 29.61 15.45 Guangxi Wuzhou Huawu Medicine Co., Ltd. 18.42 --- Sinopharm Medicine Holding Wuhan Co., Ltd. --- 1,673.27 Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. 61.19 920.77 Sinopharm Medicine Holding Jingzhou Xinlong Medicine Co., Ltd. 1.5 4.37 SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. 0.74 1.14 Guangdong Tianliang Pharmaceutical Co., Ltd. --- 0.93 Guangdong Erbo Medical Equipment Co., Ltd. 1.94 117.49 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 134 - - Guangxi Guoda Pharmacy Franchise Co., Ltd --- 0.18 Guangdong Zhongyue Medicine Associates --- 0.14 Total 52,169.69 39,903.81 e) Balance of current account of related parties Amount at end of year Or: Percentage in total (’0000) receivables (payables) (%) End of this End of last End of this End of last Item year year year year Account receivables： Sinopharm Medicine Holding Shenyang Co., Ltd. 3,366.09 3,361.59 2.61 2.95 Sinopharm Medicine Holding Hunan Tianjian Co., Ltd. 1,340.84 1,273.33 1.04 1.11 Sinopharm Medicine Westwouth Pharmaceutical Co., Ltd. 1,068.99 989.42 0.83 0.86 Sinopharm Medicine Holding Hubei Co., Ltd. 917.30 481.91 0.71 0.42 Sinopharm Medicine Holding Beijing Co., Ltd. 376.46 162.78 0.29 0.14 Sinopharm Medicine Holding Nanning Co., Ltd. 172.04 1,798.81 0.13 1.58 Sinopharm Medicine Holding Tianjin Co., Ltd. 988.31 155.25 0.76 0.14 Sinopharm Medicine Holding Shanxi Co., Ltd. 119.07 35.71 0.09 0.03 Tianjin East Bokang Medicine Trade Co., Ltd. 102.98 64.93 0.08 0.06 SinoPharm Holdings Co., Ltd. 90.14 101.82 0.07 0.09 Sinopharm Medicine Holding Hubei Xinlong Co., Ltd. 56.87 419.85 0.04 0.37 China National Medicines Co., Ltd. 54.18 47.69 0.04 0.04 Sinopharm Medicine Westnorth Pharmaceutical Co., Ltd. 49.57 0.07 0.04 0.00 Guangdong East Uptodate & Special Medicines Co. 35.14 16.41 0.03 0.01 Sinopharm Medicine Holding Jiangsu Co., Ltd. 25.82 53.26 0.02 0.05 Sinopharm Medicine Holding Wuhan Co., --- 103.88 --- 0.09 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 135 - - Amount at end of year Or: Percentage in total (’0000) receivables (payables) (%) End of this End of last End of this End of last Item year year year year Ltd. Guangdong South Pharmaceutical Foreign Trade Co. --- 88.15 --- 0.08 Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. --- 82.36 --- 0.07 SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. --- 1.12 --- 0.00 Guangdong Erbo Medical Equipment Co., Ltd. --- 0.91 --- 0.00 Sinopharm Medicine Holding Zhejiang Co., Ltd. --- 0.53 --- 0.00 Guangxi Guoda Pharmacy Franchise Co., Ltd --- 0.21 --- 0.00 Total 8,763.80 9,239.99 6.78 8.09 Other receivables： Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. 12.71 --- 0.26 --- China National Medicines Co., Ltd. 10.75 --- 0.22 --- Total 23.46 --- 0.48 --- Advance to suppliers： Sinopharm Medicine Holding Nanning Co., Ltd. 0.06 --- 0.00 --- Accounts payable： Shanghai Sinopharm Wai Gao Qiao Co., Ltd. 11,167.08 4,609.15 10.59 4.82 China National Medicines Co., Ltd. 613.13 1,439.10 0.58 1.50 Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. 122.44 44.13 0.12 0.05 China National Pharmaceutical Foreign Trade Corporation Sales Affiliate 116.13 90.33 0.11 0.09 Guangdong East Uptodate & Special Medicines Co. 98.01 152.66 0.09 0.16 Sinopharm Medicine Holding Tianjin Co., Ltd. 74.78 81.45 0.07 0.09 SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. 55.72 141.50 0.05 0.15 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 136 - - Amount at end of year Or: Percentage in total (’0000) receivables (payables) (%) End of this End of last End of this End of last Item year year year year China national pharmaceutical foreign trade corporation 32.40 0.00 0.03 0.00 China National Group Co. of Traditional & Herbal Medicine 27.57 17.73 0.03 0.02 Beijing Zhongxin Pharmaceutical Co. 17.31 27.98 0.02 0.03 Guangdong South Pharmaceutical Foreign Trade Co. 8.44 125.97 0.01 0.13 Sinopharm Medicine Holding Shanghai Co., Ltd. 6.85 4,001.64 0.01 4.18 Suzhou Medicine Foreign Development Co., Ltd. 3.81 0.20 0.00 0.00 Sinopharm Shanghai Medical Treatment Equipment Co., Ltd. 2.70 6.08 0.00 0.01 Sinopharm Medicine Holding Nanning Co., Ltd. 2.41 97.99 0.00 0.10 Hebei Medicinal Material Company 0.47 --- 0.00 --- Sinopharm Medicine Holding Hunan Tianjian Co., Ltd. 0.01 --- 0.00 --- Sinopharm Medicine Holding Hubei Xinlong Co., Ltd. --- 175.51 --- 0.18 Shenzhen Wanle Pharmaceutical Co., Ltd. --- 90.39 --- 0.09 Sinopharm Beijing Medical Treatment Equipment Co., Ltd. --- 1.22 --- 0.00 Sinopharm Medicine Holding Hubei Co., Ltd. --- 1.15 --- 0.00 Guangdong Erbo Medical Equipment Co., Ltd. --- 1.03 --- 0.00 Yunnan Pharmaceutical Logistics Co., Ltd. --- 0.98 --- 0.00 Guangdong Tianliang Pharmaceutical Co., Ltd. --- 0.76 --- 0.00 SinoPharm Holdings Co., Ltd. --- 0.63 --- 0.00 Huahe Pharmaceutical Co., Ltd. --- 0.45 --- 0.00 Sinopharm Medicine Holding Beijing Co., Ltd. --- 0.40 --- 0.00 Sinopharm Guorui Pharmaceutical Co., Ltd. --- 0.37 --- 0.00 China National Pharmaceutical Shanghai --- 0.35 --- 0.00 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 137 - - Amount at end of year Or: Percentage in total (’0000) receivables (payables) (%) End of this End of last End of this End of last Item year year year year Corporation Guangxi Wuzhou Huawu Medicine Co., Ltd. --- 0.28 --- 0.00 Nanning Medicines Wholesales of Guangxi Zhuang Autonomous Region --- 0.28 --- 0.00 China National Pharmaceutical Industry Co., Ltd. --- 0.11 --- 0.00 Sinopharm Medicine Holding Beijing Huahong Co., Ltd. --- 0.09 --- 0.00 Sinopharm Chemical Reagent Co., Ltd. --- 0.08 --- 0.00 Total 12,349.26 11,109.99 11.71 11.60 Other payables： SinoPharm Holdings Co., Ltd. 11,000.00 8,000.00 34.00 27.62 Sichuan Industrial Institute of Antibiotics Co., Ltd. 285.18 --- 0.88 --- SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. 2.49 --- 0.01 --- Total 11,287.67 8,000.00 34.89 27.62 f) Other related party transactions (1) Refer to Note 9 for details of guarantees provided for related parties. (2) SinoPharm Holdings Guangzhou Co., Ltd. , a subsidiary of the Company, undertakes to bear the buyer’s discount arising from the discounted notes payables issued by the said subsidiary to the following related parties in 2007: China National Medicines Co., Ltd. 64.31 (CNY’0000), Shanghai Sinopharm Wai Gao Qiao Co., Ltd. 720.31 (CNY’0000), Sinopharm medicine holding Co.,Ltd.shanghai branch 120.79 (CNY’0000). (3) SinoPharm Holdings Guangzhou Co., Ltd., a subsidiary of the Company, has capital borrowings from SinoPharm Holdings Co., Ltd. since 2003. Total capital occupancy charges for the year 2007 amount to 569.21 (CNY’0000). 8. Contingencies: Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 138 - - 8.1 Contingent liability from unsettled lawsuit or arbitration: ShenZhen Accordance Pharm.chain Store Inc., subsidiary company of the Company, is punished accordingly for violating relevant provisions of Shenzhen Administration Center of Social Insurance Fund and in accordance with the punishment decision for violating rules of SSBF〔2006〕No.83 Notice released by the center, the Company withdrew projected liabilities of CNY 1,300,000.00 in 2006, and paid CNY 401,590.84 in 2007, the rest remaining unpaid. 8.2 Up to December 31, 2007, the contingent liabilities of the Company from providing debt guarantee for related parties and other units are as follows: Guarantee Influnence on Amount Due Date of Financial Status of Name of Guarantor Name of Guarantee (CNY’0000) Debt the Company Related parties: Shenzhen Accord Pharmaceutical Shenzhen Zhijun No unfavorable Co., Ltd. Pharmaceutical Co., Ltd. 10,000 2008.08.17 influence Shenzhen Accord Pharmaceutical Sinopharm Medicine Holding No unfavorable Co., Ltd. Guangzhou Co., Ltd. 31,000 2007.12.31 influence Shenzhen Accord Pharmaceutical China National Medicine Group No unfavorable Co., Ltd. Guangzhou Co., Ltd. 7,320 2008.12.31 influence Shenzhen Zhijun Pharmaceutical Shenzhen Accord No unfavorable Co., Ltd. Pharmaceutical Co., Ltd. 5,000 2008.09.06 influence Shenzhen Zhijun Pharmaceutical Shenzhen Accord No unfavorable Co., Ltd. Pharmaceutical Co., Ltd. 5,000 2008.11.07 influence Shenzhen Zhijun Pharmaceutical Shenzhen Accord No unfavorable Co., Ltd. Pharmaceutical Co., Ltd. 10,000 2008.11.27 influence Shenzhen Zhijun Pharmaceutical Shenzhen Accord No unfavorable Co., Ltd. Pharmaceutical Co., Ltd. 5,000 2008.11.22 influence Shenzhen Zhijun Pharmaceutical Shenzhen Accord No unfavorable Co., Ltd. Pharmaceutical Co., Ltd. 10,000 2009.12.28 influence Shenzhen Zhijun Pharmaceutical Co., Ltd. And Sinopharm Medicine Holding Guangzhou Shenzhen Accord No unfavorable Co., Ltd. Pharmaceutical Co., Ltd. 6,000 2008.12.29 influence Shenzhen Zhijun Pharmaceutical Shenzhen Zhijun No unfavorable Co., Ltd. Pharmaceutical Trade Co., Ltd. 300(USD) 2008.03.06 influence Shenzhen Zhijun Pharmaceutical Shenzhen Zhijun 300(USD) 2008.04.12 No unfavorable Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 139 - - Co., Ltd. Pharmaceutical Trade Co., Ltd. influence Guangdong Huixin Investment Sinopharm Medicine Holding No unfavorable Co.,Ltd. Guangzhou Co., Ltd. 13,650 2008.06.15 influence 9. Commitments 9.1 There are no investment contracts and related capital expenditure signed but not yet executed or not fully executed. 9.2 Significant outsourcing contracts signed and being or to be executed: Amount payables under a construction outsourcing contract signed by Shenzhen Zhijun Pharmaceutical Co., Ltd., a subsidiary of the Company, are as follows. This is a necessary expenditure in the normal course of the Company’s operation. Period Amount payable Within one year 2,646,200 9.3 Significant equipment purchasing contracts signed and being or to be executed: Amount payables under an equipment purchasing contract signed by Shenzhen Zhijun Pharmaceutical Co., Ltd., a subsidiary of the Company, are as follows. This is a necessary expenditure in the normal course of the Company’s operation. Period Amount payable Within one year 13,818,900 9.4 Lease contracts signed and being or to be executed and their financial impacts: Amount payables under lease contracts signed by subsidiaries of the Company for leased properties are as follows. This is a necessary expenditure in the normal course of the Company’s operation. Period Amount payable Within one year 22,560,100 1-2 years 18,004,800 2-3 years 14,120,800 Above 3 years 9,527,000 Total 64,212,700 9.5 There are no acquisition agreements signed and being or to be executed. 9.6 There are no restructuring plans signed and being or to be executed. Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 140 - - 9.7 Other significant financial commitments: Pledge of assets The Company has pledged buildings and constructions with original cost of CNY 100,574,924.87 as of December 31, 2007 to provide security for the short-term bank loan of CNY 50,000,000.00. 9.8 Execution of prior commitments: All have been executed according to the contracts 10. Post balance sheet events 10.1 Post balance sheet profit distribution proposal In accordance with Resolution of the 3rd meeting of the 5th Board of Directors, the Company shall draw 10% of the profit after taxation and the taxable loss brought forward as reserve surplus, and then the remaining profits will not be distributed and no capital reserve will be transferred into shares. This proposal of distribution will be delivered to the general meeting of the shareholders for approval. 11. Other events No other events need to be disclosed 12. Non-recurring gains and losses of the year (CNY) Item Amount Gain and loss in disposal of non-current assets 31,515,473.38 Governmental allowance accrued to the current gain and loss 3,500,000.00 Net amount of other non-operating income and expenses 708,602.14 Effect of enterprise income tax -10,237,744.87 Total 25,486,330.65 Notes 1: Profit factors of the minority of shareholders have been deducted from the data listed above. Notes 2: Effect of income tax has been deducted from the data listed above. 13. Return on net asset and earnings per share Profit of the reporting period Return on equity Earnings per share Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 141 - - Fully diluted return Weighted Basic earnings Diluted earnings on equity average per share per share Net profit attributable to ordinary shareholders of the Company 25.80% 28.26% 0.43 0.43 Net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss 20.54% 22.49% 0.34 0.34 Calculation process The above data is calculated using the following formulae: Fully diluted return on equity Fully diluted return on equity = P/E Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E is the year end equity attributable to ordinary shareholders of the Company. Net profit attributable to ordinary shareholders of the Company does not include the amount of gain or loss of minority shareholders. For net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss, non-recurring gain or loss of parent company (after taking into consideration the income tax effects) and the proportion of non-recurring gain or loss (after taking into consideration the income tax effects) of all subsidiaries owned by ordinary shareholders of parent company are deducted on the basis of consolidated net profit after deducting gain or loss of minority shareholders. The year end equity attributable to ordinary shareholders of the Company does not include equity of minority shareholders. Weighted average return on equity Weighted average return on equity = P/(E0+NP/2+Ei*Mi/M0–Ej*Mj/M0+-Ek*Mk/M0) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E0 is the year beginning equity attributable to ordinary shareholders of the Company; Ei is increased equity attributable to ordinary shareholders of the Company which arises from new issuance of shares or conversion of debt instruments to stocks in the reporting period; Ej is reduced equity attributable to ordinary shareholders of the Company due to stock repurchase or cash dividend in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that equity is increased to the year end of the reporting period; Mj is the number of months from the next month that equity is decreased to the year end of the reporting period; Ek is the change Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 142 - - of equity resulting from other transactions or events; Mk is the number of months from the next month that other change of equity occurs to the year end of the reporting period. Basic earnings per share Basic earnings per share = P/S S = S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; S is weighted average number of ordinary shares outstanding; S0 is the total number of shares at the beginning of the year; S1 is the number of increased shares as a result of capitalization of reserves or scrip dividend during the reporting period; Si is the number of increased shares as a result of new issuance of shares or conversion of debt instruments to stocks during the reporting period; Sj is the number of reduced shares as a result of stock repurchase; Sk is the number of consolidated shares in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that the number of shares is increased to the year end of the reporting period; Mj is the number of months from the next month that the number of shares is decreased to the year end of the reporting period. Diluted earnings per share Diluted earnings per share = [P+(any recognized interest related to dilutive potential ordinary shares-conversion expenses)*(1-income tax rate)]/(S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk +weighted average number of increased ordinary shares arising from warrants, stock options and convertible debts) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss. In calculating the diluted earnings per share, the Company has taken into consideration the effects of all dilutive potential ordinary shares, until the diluted earnings per share reach the lowest amount. 14. Supplementary Materials 14.1 2006 Annual Difference Adjustment Statement Of Consolidated Net Profit According to No. 7 Questions and Answers about the Standardization of Information Disclosure of Companies Making Public Offering of Securities – Comparison about Preparation and Disclosure of Accounting Information in the Transition Period of New and Old Accounting Standards (hereinafter referred to as " No. 7 Questions and Answers about the Standardization "), the Company prepares the Income Statement of the Same Period Last Year and the Balance Sheet of the Beginning of 2007(both after the adjustment), and lists the Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 143 - - retrospective adjustment on the Income Statement of the Same Period Last Year as follows: Item Amount Net profit in 2006 (old accounting standards) 72,555,229.24 Total effect of retroactive adjustment of items 7,669,273.77 Including: one-off retirement allowance shifted to administrative expense 1,293,835.36 Projected expenses of inner retirement 83,292.81 Unconfirmed investment loss -2,984,969.70 Amortization on equity investment difference 8,802,599.27 Income tax expenses 474,516.03 Net profit in 2006 (new accounting standards) 80,224,503.01 Assume that the Company will fully implement the reference information of new accounting standards Total effect of other items -5,210,423.17 Including: return for long-term loss of asset depreciation -5,210,423.17 Net profit in 2006 in simulation (new accounting standards) 75,014,079.84 14.2 Difference adjustment of shareholder equities at the beginning of 2007 In accordance with the Accounting Standards for Enterprises No.38 - First Implementation of Enterprise Accounting Standards Interpretation No.1 to the Accounting Standards for Enterprises (No. 14 [2007] of the Ministry of Finance), the adjustment process of owner’s equity, the items and influenced amount (both revised), together with their reasons, are listed as follows: Comparison about Disclosure of Difference Adjustment of Shareholder Equities under Old and New Accounting Standards Amount Disclosed in Amount Disclosed in No. Item 2007 Annual Report 2006 Annual Report Difference Reason Shareholder equities on December 31, 2006 （ old accounting standards） 447,731,956.74 447,731,956.74 --- 1 Difference of long-term equity investments -53,262,485.95 -53,262,485.95 --- Including ： Difference of long-term equity investments resulting from consolidation under same control -53,262,485.95 -53,262,485.95 --- Other lender difference of long-term equity investments accounted with the method of equity --- --- --- Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 144 - - 2 Investment real estate measured according to fair value --- --- --- Additional depreciation of previous year for expected 3 disposal costs of asset --- --- --- Termination indemnity under confirming conditions of 4 provisions -9,562,043.91 --- -9,562,043.91 Note 1 5 Share-based payments --- --- --- Restructuring obligation under confirming conditions of 6 provisions --- --- --- 7 Consolidation of entities --- --- --- Including：book value of goodwill of consolidation under same control --- --- --- Write back of devaluation of goodwill upon new accounting standards --- --- --- Financial asset measured according to fair value whose change is accrued to the current gain and loss; 8 Available-for-sale financial asset 7,317,105.65 --- 7,317,105.65 Note 2 Financial liability measured according to fair value whose 9 change is accrued to the current gain and loss --- --- --- 10 Increased equity due to the split of financial tools --- --- --- 11 Derivative financial tools --- --- --- 12 Income tax 1,765,592.63 7,410,670.30 -5,645,077.67 Note 3 13 Minority shareholders’ equity 22,095,763.49 23,909,356.50 -1,813,593.01 Note 4 Special retrospective adjustments on the listed company of 14 Share B and Share H --- --- --- 15 Others -3,560,591.31 --- -3,560,591.31 Note 5 Shareholder equities on January 1, 2007（new accounting standards） 412,525,297.34 425,789,497.59 -13,264,200.25 Notes on the difference adjustment of shareholder equities at the beginning of 2007 listed above: a) Measurement in the indemnity of the inner retirement in previous year that satisfies confirming conditions of provisions. b) In accordance with Interpretation No.1 to the Accounting Standards for Enterprises issued by the Ministry of Finance, corporate shares that were formerly included in long-term equity investments are included in available-for-sale financial assets after adjustment. The change of owner’s equity is measured according to fair value. c) Income tax results from recalculation of differed income tax asset and liability in the current year. d) Difference yielded after re-measurement e) Retirement compensation fees of the previous year are totally included in the current profit and loss this year, resulting in the difference of CNY -4,389,869.68; confirmed in the end of 2006, this year the unconfirmed investment loss of ShenZhen Accordance Pharm.Chain Store Inc., is reconsolidated and included in undistributed profit of the previous year according to Interpretation No.1 to the Accounting Standards for Enterprises issued by the Ministry of Finance. After consolidation, the minority shareholders of Sinopharm Medicine Holding Guangzhou Co., Ltd afford 10%, resulting in the difference of CNY 829,278.37. 14.3 Approval of Financial Statement Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 145 - - This financial statement is passed and issued by the Board of Direction on, March 25, 2008. Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Shenzhen Accord Pharmaceutical Co., Ltd. Annual Report 2007 - 146 - - CHAPTER XI. DOCUMENTS FOR REFERENCE 1. Accounting Statement carrying the signatures and seals of the legal representative, financial chief and person in charge of accounting; 2. Original of Auditors’ Report carrying the seals of Certified Public Accountants, and signatures and seals of the CPAs; 3. Originals of all the documents and notifications of the Company ever disclosed in the report period in Securities Times and Wen Wei Po designated by CSRC; 4. Original of the Annual Report carrying the signature of the Chairman of the Board. 5. The Place Where the document placed: Office of Secretariat of the Board of Directors, Accord Pharm Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen. Chairman of the Board: Chen Weigang Board of Directors of Shenzhen Accord Pharmaceutical Co., Ltd. March 25, 2008