一致Ｂ(200028)2008年年度报告（英文版）

Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 深圳一致药业股份有限公司 Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report March, 2009 1 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 CONTENT IMPORTANT NOTES---------------------------------------------------------------------------------------------------3 CHAPTER I. COMPANY PROFILE---------------------------------------------------------------------------------4 CHAPTER II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS--------5 CHAPTER III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS--------------------------------------------------------------------------------------------------------7 CHAPTER IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES-------------------------------------------------------------------------------------------------------11 CHAPTER V. ADMINISTRATIVE STRUCTURE----------------------------------------------------------------19 CHAPTER VI. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING-----------23 CHAPTER VII. REPORT OF THE BOARD OF DIRECTORS-----------------------------------------------23 CHAPTER VIII. REPORT OF THE SUPERVISORY COMMITTEE---------------------------------------40 CHAPTER IX. SIGNIFICANT EVENTS----------------------------------------------------------------------------41 CHAPTER X. FINANCIAL REPORT--------------------------------------------------------------------------------52 CHAPTER XI. DOCUMENTS AVAILABLE FOR REFERENCE-------------------------------------------169 2 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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. Shi Jinming, General Manager Mr. Yan Zhigang, 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. Director Ms. Fu Mingzhong did not attend the meeting due to business, but she entrusted Director Mr. Wu Aimin to attend and vote on her behalf; Director Mr. Wei Yulin did not attend the meeting due to business, but he entrusted Director Mr. Wu Aimin to attend and vote on his behalf; other directors attended the board meeting on auditing the Annual Report. No director, supervisor and senior executive would claim that he or she could not guarantee the authenticity, accuracy or completeness of the annual report’s contents or that he or she holds different opinions. 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. 3 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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: Shi Jinming 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. Address: 5/F, No. 61, Nanjing East Road, Shanghai 4 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 CHAPTER II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS Section I. Main business highlights Unit: RMB Increase/decrease this year 2008 2007 2006 compared with that last year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Operating income 8,360,350,198.18 6,878,305,483.32 6,878,305,483.32 21.55% 5,708,713,814.45 5,708,713,814.45 Total profit 203,497,726.90 191,051,327.11 191,051,087.11 6.51% 115,804,263.69 115,804,189.15 Net profit attributable to shareholders of the listed 154,807,067.87 124,914,225.45 124,913,985.45 23.93% 80,224,503.01 80,224,428.47 company Net profit attributable to shareholders of the listed company after deducting 139,335,035.00 99,427,894.80 99,427,654.80 40.14% 81,756,363.32 81,756,288.78 non-recurring gains and losses Net cash flow arising from 246,580,438.99 87,698,080.01 87,697,840.01 181.17% 181,729,861.80 181,729,787.26 operating activities Increase/decrease at the end of this year compared At the end of 2008 At the end of 2007 At the end of 2006 with that at the end of last year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Total assets 3,683,974,196.77 2,906,088,133.89 2,911,091,112.38 26.55% 2,642,885,690.85 2,647,888,909.34 Owners’ 627,986,713.06 484,114,112.10 489,117,090.59 28.39% 390,429,533.85 395,432,752.34 equity(Shareholders’ equity) Share capital 288,149,400.00 288,149,400.00 288,149,400.00 0.00% 288,149,400.00 288,149,400.00 Section II. Major accounting highlights Unit: RMB Increase/decrease this year compared 2008 2007 2006 with that last year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Basic earnings per share 0.537 0.434 0.434 23.73% 0.278 0.278 (RMB/Share) Diluted earnings per share 0.537 0.434 0.434 23.73% 0.278 0.278 (RMB/Share) Basic earnings per share after deducting non-recurring gains and 0.484 0.345 0.345 40.29% 0.284 0.284 losses (RMB/Share) Fully diluted return on 24.65% 25.80% 25.54% -0.89% 20.55% 20.29% equity (%) Weighted average return on 27.33% 28.26% 27.94% -0.61% 20.03% 19.81% equity (%) Fully diluted return on equity after deducting non-recurring gains and 22.19% 20.54% 20.33% 1.86% 20.94% 20.68% losses (%) Weighted average return on equity after deducting 24.59% 22.49% 22.24% 2.35% 20.41% 20.18% non-recurring gains and 5 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 losses (%) Net cash flow per share arising from operating 0.856 0.304 0.304 181.58% 0.631 0.631 activities (RMB/Share) Increase/decrease at the end of this At the end of 2008 At the end of 2007 year compared At the end of 2006 with that at the end of last year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Net asset per share attributable to shareholders of listed 2.179 1.680 1.697 28.40% 1.355 1.372 company (RMB/Share) 【Note】Item of deducting non-recurring gains/losses and amount Unit: RMB Items of non-recurring gains and losses Amount Note( If applicable) Gains and losses from the disposal of non-current asset 4,972,517.28 Governmental subsidy calculated into current gains and losses, while closely related with the business of the Company, excluding the fixed-amount or fixed-proportion 7,054,099.00 governmental subsidy according to the unified national standard Switch back of provision for devaluation of account receivable which was singly taken devaluation test 4,419,372.88 Other non-operating income and expenditure beside for the above items 1,046,085.24 Influenced amount of minority shareholders’ gains/losses -165,852.47 Impact on income tax -1,854,189.06 Total 15,472,032.87 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 influences on on net profit as of year 2008 and the net asset ended year 2008 of the Company. Section IV. Changes in shareholders’ equity and reasons in the report year Unit: RMB Total Capital Surplus public Items Share capital Retained profit shareholders’ reserve reserve equity Amount at the period-begin 288,149,400.00 9,801,131.71 7,092,488.00 184,074,070.88 489,117,090.59 Increase in the report --- 254,706.86 9,303,064.31 154,807,067.87 164,364,839.04 period Decrease in the report --- 5,000,000.00 7,092,488.00 13,402,728.57 25,495,216.57 period Amount at the period-end 288,149,400.00 5,055,838.57 9,303,064.31 325,478,410.18 627,986,713.06 Reason for change Note 1 Note 2 Note 3 Note 1: Capital reserve: On Aug. 28, 2008, the Company purchased Guangxi Accord Pharmaceutical Co., Ltd under the common control; in accordance with the regulations on Accounting Standards for Enterprises No. 20 - Business Combinations, the adjustment was taken in comparative statements in 2007; the capital reserve at the end of last year was RMB 4,801,131.71 with an increase of 5,000,000.00, and was adjusted to RMB 9,801,131.71; after accomplishing the purchase, it was listed as the item of decrease of capital reserve. The increased capital reserve of RMB 254,706.86 in the report period was resulted from increasing the equity proportion of its subordinate Sinopharm Medicine Holding Liuzhou Co., Ltd before combination when purchasing 6 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 10 percent minority shareholders’ equities of the subordinate Sinopharm Medicine Holding Guangzhou Co., Ltd. Note 2: Surplus public reserve: The increase of surplus public reserve in the report period was resulted from the withdrawal of surplus public reserve by the Company in accordance with the Articles of the Associations; the decrease of surplus public reserve in the report period was resulted from that the Company purchased Guangxi Accord Pharmaceutical Co., Ltd under the common control and 10 percent minority shareholders’ equities of its subordinate Sinopharm Medicine Holding Guangzhou Co., Ltd, and caused the offsets of surplus public reserve. Note 3: Retained profit: purchase the enterprise under the common control Guangxi Accord Pharmaceutical Co., Ltd, took adjustment on comparative statement in year 2007; the undistributed profit at the end of last year was RMB184, 071,092.39 with an increase of RMB 2,978.49, and was adjusted to RMB 184,074,070.88. The increase of retained profit in the report period was resulted from that the Company and its surbodinate companies realized net profit. The decrease of retained profit in the report period was resulted from that: one, the Company withdrew the surplus public reserve RMB 9,303,064.31; the other, retained earnings RMB 4,099,664.26 was decreased by adjustment while the Compnay premium purchased 10 percent minority shareholders’ equities of its subordinate Sinopharm Medicine Holding Guangzhou Co., Ltd. CHAPTER III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS Section I. Statement of change in share capital (Ended Dec. 31, 2008, Unit: Share) Before the change Increase/Decrease of this time (+, -) After the change Capitalizati New shares Bonus on of Amount Proportion Others Subtotal Amount Proportion issued shares public reserve I. Restricted shares 121,946,607 42.32% -37,966,780 -37,966,780 83,979,827 29.14% 1. State-owned shares 2. State-owned legal person’s shares 112,786,386 39.14% -28,814,940 -28,814,940 83,971,446 29.14% 3. Other domestic shares 9,149,046 3.18% -9,149,046 -9,149,046 0 0.00% Including: Domestic non-state-owned 9,149,046 3.18% -9,149,046 -9,149,046 0 0.00% legal person’s shares Domestic natural person’s shares 4. Foreign shares Including: Foreign legal person’s shares Foreign natural person’s shares 5. Senior executives’ shares 11,175 0.00% -2,794 -2,794 8,381 0.00% II. Unrestricted shares 166,202,793 57.68% 37,966,780 37,966,780 204,169,573 70.86% 1. RMB Ordinary shares 111,317,193 38.63% 37,966,780 37,966,780 149,283,973 51.81% 2. Domestically listed foreign shares 54,885,600 19.05% 54,885,600 19.05% 3. Overseas listed foreign shares 4. Others III. Total shares 288,149,400 100.00% 288,149,400 100.00% 7 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Statement on changes of restricted shares Unit: Share Restricted Restricted shares Increased Restricted Name of Reason for shares at released in restricted shares shares at Releasing date shareholders restriction year-begin current year in current year year-end SINOPHARM Share Merger Medicine Holding 112,786,386 28,814,940 83,971,446 May 16, 2008 Reform Co., Ltd. Shenzhen Baoan District Shiyan Share Merger Town Economic 9,149,046 9,149,046 0 May 16, 2008 Reform and Development Corporation Total 121,935,432 37,963,986 83,971,446 － － 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 has 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 SINOPHARM Medicine Holding Co., Ltd. and Shenzhen Baoan District Shiyan Town Economic and Development Corporation on May 16, 2008. The released circulating shares with restricted sales were 37,963,986 shares. Section III. About shareholders 1. Ended Dec. 31, 2008, the Company had totally 18,022 shareholders, including 9,299 shareholders of A-share and 8,723 shareholder of B-share. 2. Particulars about the shares held by the top ten shareholders (Ended Dec. 31, 2008) Total shareholders 18,022 Particulars about shares held by the top ten shareholders Nature of Proportion of Amount of Amount of restricted Shares pledged or Names of shareholders shareholder share held share held shares held frozen SINOPHARM MEDICINE State-owned 39.14% 112,786,386 83,971,446 0 HOLDING CO., LTD. legal person BANK OF CHINA － Domestic FRANKLIN TEMPLETON non-state-owned 3.19% 9,187,902 0 0 SEALAND POTENTIAL legal person COMBINATION FUND BANK OF CHINA － CHINA Domestic MERCHANTS PIONEER non-state-owned 2.65% 7,636,374 0 0 FUND legal person CHINA INDUSTRIAL AND Domestic COMMERCIAL BANK － non-state-owned 2.52% 7,274,185 0 0 CHINA MERCHANTS CORE legal person VALUE MIXED FUND BANK OF CHINA － Domestic DACHENG WEALTH non-state-owned 2.08% 6,006,939 0 0 MANAGEMENT 2020 legal person LIFECYCLE FUND CHINA CONSTRUCTION Domestic 2.01% 5,800,000 0 0 BANK － HUAAN HONGLI non-state-owned 8 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 STOCK FUND legal person BANK OF CHINA － Domestic AIG-HUATAI PROSPEROUS non-state-owned 1.79% 5,154,266 0 0 CHINA EQUITY FUND legal person CHINA INDUSTRIAL AND Domestic COMMERCIAL BANK － non-state-owned 1.72% 4,963,365 0 0 BOSHI SELECTIVE STOCK legal person FUND CHINA INDUSTRIAL AND Domestic COMMERCIAL BANK － non-state-owned 1.70% 4,912,540 0 0 GUANGFA JUFENG STOCK legal person FUND CHINA INDUSTRIAL AND Domestic COMMERCIAL BANK－BOC non-state-owned 1.52% 4,375,188 0 0 CONTINUOUS GROWTH legal person FUND Particulars about shares held by the top ten unrestricted shareholders Name of shareholder Amount of unrestricted shares held Type of share SINOPHARM MEDICINE HOLDING CO., 28,814,940 RMB common share LTD. BANK OF CHINA－FRANKLIN TEMPLETON SEALAND POTENTIAL COMBINATION 9,187,902 RMB common share FUND BANK OF CHINA － CHINA MERCHANTS 7,636,374 RMB common share PIONEER FUND CHINA INDUSTRIAL AND COMMERCIAL BANK－CHINA MERCHANTS CORE VALUE 7,274,185 RMB common share MIXED FUND BANK OF CHINA － DACHENG WEALTH 6,006,939 RMB common share MANAGEMENT 2020 LIFECYCLE FUND CHINA CONSTRUCTION BANK － HUAAN 5,800,000 RMB common share HONGLI STOCK FUND BANK OF CHINA － AIG-HUATAI 5,154,266 RMB common share PROSPEROUS CHINA EQUITY FUND CHINA INDUSTRIAL AND COMMERCIAL 4,963,365 RMB common share BANK－BOSHI SELECTIVE STOCK FUND CHINA INDUSTRIAL AND COMMERCIAL 4,912,540 RMB common share BANK－GUANGFA JUFENG STOCK FUND CHINA INDUSTRIAL AND COMMERCIAL 4,375,188 RMB common share BANK－BOC CONTINUOUS GROWTH FUND BANK OF CHINA － CHINA MERCHANTS PIONEER FUND and CHINA Explanation on associated INDUSTRIAL AND COMMERCIAL BANK－CHINA MERCHANTS CORE VALUE relationship or accordant action MIXED FUND belong to China Merchants Fund Management Co., Ltd., it is unknown among the aforesaid that there exists no associated relationship or belongs to the consistent actionist among the shareholders 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 9 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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 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 National Pharmaceutical Foreign Trade Corp., China Medical Device Industry Company, China National Group Corp. of Traditional & Herbal Medicine, Sichuan Antibiotics Industrial Institute of China National Pharmaceutical Group Corporation, Union Engineering Co. of China National Pharmaceutical Group Corporation, Sinopharm Medicine Holding Co.,Ltd., Reed Sinopharm Exhibitions Co. Ltd., National Pharmaceutical Industry Corporation and SINOPHARM Advertising Co., Ltd. 5. The property and controlling relationship between the actual controller of the Company and the Company is as follows: 10 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 The State-owned Assets Supervision & Administration Commission of the State Council 100% China National Shanghai Fosun Pharmaceutical (Group) Co., Ltd. Pharmaceutical Group Corporation 100% Shanghai Qishen Investment Management Co., Ltd. 51% 49% Sinopharm Industry Investment Co., Ltd. 4% 96% 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 Total remunerati Drawing on drawn remunerat from the ion from Terminating Shares held Company sharehold Beginning date Shares held Reason for Name Title Sex Age date of office at in the ers’ units of office term at year -end change term year-begin report or other period related (RMB’000 units or 0)(before not tax) 11 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Shi Jinming Chairman Male 41 Sep. 11, 2007 Sep. 11, 2010 Naught 68.30 No Fu Director Female 58 April 25, 2008 Sep. 11, 2010 Naught Yes Mingzhong Wei Yulin Director Male 51 Sep. 11, 2007 Sep. 11, 2010 Yes Lu Jun Director Male 50 Sep. 11, 2007 Dec. 26, 2008 Naught Yes Wu Ai’min Director Male 39 Sep. 11, 2007 Sep. 11, 2010 Naught Yes Jiang Ning Director Male 49 Sep. 11, 2007 Sep. 11, 2010 Naught Yes Independent Chen Shu Female 54 Sep. 11, 2007 Sep. 11, 2010 Naught 8.00 No Director Independent Peng Juan Female 44 Sep. 11, 2007 Sep. 11, 2010 Naught 8.00 No Director Independent Liao Li Male 42 Sep. 11, 2007 Sep. 11, 2010 Naught 8.00 No Director Song Supervisor Male 40 Sep. 11, 2007 Sep. 11, 2010 0 0 Naught Yes Tingfeng Guan Supervisor Female 38 Sep. 11, 2007 Sep. 11, 2010 0 0 Naught Yes Xiaohui Director, Yan General Male 49 Dec. 26, 2008 Sep. 11, 2010 0 0 Naught 58.50 No Zhigang Manager Deputy Lin General Male 41 Dec. 26, 2008 Sep. 11, 2010 0 0 Naught 57.80 No Zhaoxiong Manager Deputy Tan General Male 54 Sep. 11, 2007 Sep. 11, 2010 0 0 Naught 56.50 No Guoshu Manager Deputy Liu Jun General Female 51 Dec. 26, 2008 Sep. 11, 2010 0 0 Naught 54.50 No Manager Deputy Lin Min General Male 44 Dec. 26, 2008 Sep. 11, 2010 0 0 Naught 54.50 No Manager Deputy Lin General Male 44 Sep. 11, 2007 Sep. 11, 2010 0 0 Naught 56.50 No Xinyang Manager Deputy Ou General Male 50 Sep. 11, 2007 Dec. 26, 2008 0 0 Naught 56.50 No Jianneng Manager Wei CFO Male 45 Sep. 11, 2007 Sep. 11, 2010 0 0 Naught 51.00 No Pingxiao Secretary of Chen Legitimate the Board of Male 41 Sep. 11, 2007 Sep. 11, 2010 11,175 8,381 28.50 No Changbing Directors Reduction Wang Supervisor Male 51 Sep. 11, 2007 Sep. 11, 2010 0 0 Naught 26.20 No Huaiqin Total - - - - - - 592.80 - 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 Secretary of Party SINOPHARM Medicine Controlling Fu Mingzhong Committee, From Feb. 2006 Holding Co., Ltd. shareholder General Manager Wei Yulin SINOPHARM Medicine Controlling Deputy General From Jan. 2003 12 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Holding Co., Ltd. shareholder Manager SINOPHARM Medicine Controlling Deputy General Lu Jun From June 2004 Holding Co., Ltd. shareholder Manager Deputy General Manager, SINOPHARM Medicine Controlling From Nov. 2006/ Wu Aimin Secretary of the Holding Co., Ltd. shareholder from March 2008 Board of Directors SINOPHARM Medicine Controlling Deputy General Shi Jinming From Jan. 2009 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 China National Pharmaceutical Group Corporation Actual controller of the Director Fu Mingzhong China National Medicines Corporation Company Director Ltd. Affiliated enterprise of the Sinopharm Logistics Co., Ltd. Company; Chairman Wei Yulin China National Medicines Corporation Affiliated enterprise of the Director Ltd. Company Sinopharm Medicine Guoda Pharmacy Affiliated enterprise of the Lu Jun Chairman Co., Ltd. Company China National Medicines Corporation Affiliated enterprise of the Wu Aimin Director Ltd. Company Sinopharm Medicine Holding Nanning Affiliated enterprise of the Shi Jinming Chairman Co., Ltd. Company Affiliated enterprise of the Jiang Ning Sichuan Antibiotics Industrial Institute Chief Scientist Company China Resources (Jilin) Bio-chemical Independent Song Tingfeng No relationship Co., Ltd. Director Shareholder of Shanghai Fosun Pharmaceutical(Group) Financial Vice-Chief Guan Xiaohui SINOPHARM Medicine Co., Ltd. Supervisor Holding Co., Ltd. Shareholding of the Shenzhen Main Luck Pharmaceuticals Company; Vice-chairman; Yan Zhigang INC; Affiliated enterprise of the Director Sichuan Antibiotics Industrial Institute Company Chen Shu Guangdong Lawyers Association No relationship Secretary-General Management School of Shanghai Jiao Department Deputy Peng Juan No relationship Tong University Director Management School of Tsinghua Liao Li No relationship Deputy Dean University 13 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 3. Main work experience of present directors, supervisors and senior executives: (1) Member of the Board of Directors Chairman——Mr. Shi Jinming, EMBA of Sun Yat-Sen University, studied in Shanghai University of Finance and Economics majored Commerce Economics from Sep. 1985 to July 1989. He ever worked in China Medicine (Group) Guangzhou Company from July 1989; 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 took the post of GM of SINOPHARM Medicine Holding (Guangzhou) Co., Ltd. from Apr. 2003 to Dec. 2006 ; director and GM of the Company from Feb. 2004 to Dec. 2008, took concurrently the post of chairman of SINOPHARM Medicine Holding (Guangzhou) Co., Ltd. from Jan. 2007, and he took the post of chairman of the 5th Board of Directors of the Company from Dec., 2008 and concurrently takes the post of deputy general manager of SINOPHARM Medicine Holding Co., Ltd since Jan. 2009. Director——Ms. Fu Mingzhong, Postgraduate, senior economist; began to work in Harbin General Pharmaceutical Factory No.2 Factory with taking the post of leader of Crystallization workshop from Oct. 1970; worked in Harbin General Pharmaceutical Factory No.3 Factory with successively taking the posts of director of injection workshop, director of Quality Management Office, director of Office, deputy factory director, member of party committee from June 1972; from March 1992, she was the director of Harbin Pharmaceutical Group LTD, general manager and party secretary of Harbin Pharmaceutical Corporation; deputy general manger and member of party committee of China National Pharmaceutical Group Corporation from Dec. 1997; successively director of China National Pharmaceutical Group General Corporation, and standing deputy general manager and member of party committee of China National Pharmaceutical Industry Corporation from Jan. 1999; chairman, member of party committee, secretary of party committee of China National Medicines Corporation Ltd from Jan. 2001 to Feb. 2008; secretary of party committee and general manager of China National Medicines Corporation Ltd since Feb. 2006; she was the chairman of the 5th board of directors of the Company from April 2008 to Dec. 2008; director of the the 5th board of directors of the Company since Dec. 2008. Director——Mr. Wei Yulin, EMBA, Licensed Pharmacist, 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 and chairman of Sinopharm Tianjing Co., Ltd from July 1998 to April 2006; since March 2008, he held the post of chairman of Sinopharm Logistics Co., Ltd; he was the deputy general manager of Sinopharm Medicine Holding Co., Ltd from Jan. 2003; he was the director of the 5th board of directors of the Company since Sep. 2007. 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 June 2004, he held the posts of general manager and chairman of Sinopharm Medicine Guoda Pharmacy Co., Ltd.; since April 2003, he took the turns of assistant general manager, deputy general manager of 14 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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. From Sep. 2007 to Dec. 2008, he was the director of the 5th board of directors of the Company. Director ——Mr. Jiang Ning, 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, EMBA, accountant, 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; from March 2008, concurrently took the post of secretary of the board of directors of SINOPHARM Medicine Holding Co., Ltd.; and takes the post of director of the 5th Board of Directors of the Company from Sep. 2007. Director——Mr. Yan Zhigang, bachelor of parmacy, MBA, chief engineer and Licensed Pharmacist, 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 to Dec. 2008, took the post of plant manager of Shenhzhen Pharmaceutical Factory, secretary of party branch and general manager of Shenzhen Zhijun Pharmaceutical Co., Ltd.; since Feb. 2000, took the post of vice-chairman of Shenzhen Main Luck Pharmaceuticals Inc.; from Jan. 2005 to Dec. 2008, he concurrently was the deputy general manager of Shenzhen Accord Pharmaceutical Co., Ltd; from Oct. 2007, he is concurrently director of Sichuan Antibiotics Industrial Institute Co., Ltd.; since Dec. 2008, he is the general manager of the Company; and takes the post of director of the 5th Board of Directors of the Company from Feb. 2009. Independent director——Ms. Chen Shu, bachelor degree, 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 and 11th 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, Doctor degree, associate professor, mayor research direction is finance strategy and management, marketing auditing and financing marketing. From July 1988 to July 1997, she was the instructor in Accounting Department of Shanghai Maritime University. From Aug. 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 15 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Company from Sep. 2007. Independent director——Mr. Liao Li, Doctor degree, 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, Senior Economist, CPA, Certified Public Assets Estimator; dean of accout staff room and chairman of department union in 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 post of supervisor of the 5th supervisory committee of the Company since Sep. 2007. Supervisor——Ms. Guan Xiaohui, Master of Accounting, Certified Public Accountant 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, 3-years regular college graduate, 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: General Manager——Mr. Yan Zhigang, referring to the aforesaid introduction of members of 16 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 directors for details. Deputy General Manger——Mr. Lin Zhaoxiong, male, born in 1967, senior MBA, Pharmacist-in-charge. He began to work in Guangzhou Medicine Industry Research Institute in July 1990; worked in Hangzhou MSD Pharmaceutical Co., Ltd from Jan. 1993 to Oct. 1997; Guangdong Huajian Pharmaceutical Co., Ltd from Nov. 1997 to Dec. 1998; worked in SINOPHARM Medicine Holding Guangzhou Co., Ltd. with successively taking the posts of deputy general manger and manager of Pharmacy Department, and manger of Pharmaceutical Company and majordomo of Operation Management Department from Jan. 1999 to Dec. 2003; deputy general manager of SINOPHARM Medicine Holding Guangzhou Co., Ltd from Jan. 2004 to Dec. 2006; from Dec. 2006 till now, he took the post of general manger of SINOPHARM Medicine Holding Guangzhou Co., Ltd. Deputy General Manger——Mr. Tan Guoshu, on-study postgraduate, assistant economist and political commissar, 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 Manger——Ms. Liu Jun, Female, born in 1957, Economist, began to work in 1974; ever worked in China National Pharmaceutical Group Guangzhou Corporation with successively taking the posts of deputy dean and dean of Manager Office, deputy general manager, vice party secretary, general party secretary and chairman of Labor Union from June 1976 till now; from Oct. 2003 till now, she took the posts of general party secretary, deputy general manager and chairman of Labor Union of SINOPHARM Medicine Holding Guangzhou Co., Ltd. Deputy General Manger——Mr. Lin Min, born in 1964, senior MBA, Pharmaceutical Engineer, Licensed Pharmacist, worked in GuangDong Medical College from July 1986 to April 1992; took the posts of marketing minister, assistant to general manager of Guangdong Global Pharmaceutical Company Ltd. from April 1992 to Dec. 1997; deputy factory director of Manufacturing Factory of Guangdong Pharmaceutical University from Jan. 1998 to Dec. 2000; ever worked in China National Pharmaceutical Group Guangzhou Corporation with successively taking the posts of assistant to manager, deputy general manger of Pharmacy Department and deputy general manger of purchasing in Pharmaceutical Company from Jan. 2001 to Nov. 2003; supervisor of Guangzhou pharmacy sales of SINOPHARM Medicine Holding Guangzhou Co., Ltd from Nov. 2003 to Jan. 2005; general manager of SINOPHARM Medicine Holding Liuzhou Co., Ltd from March 2006 to Nov. 2007; from Jan. 2005 till now, deputy general manager of SINOPHARM Medicine Holding Guangzhou Co., Ltd. Deputy General Manger——Mr. Lin Xinyang, MBA, Licensed Pharmacist, 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 17 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Company from Jan. to Dec. 2004; took the post of deputy GM of the Company from Jan. 2005. Chief Financial Officer——Mr. Wei Pingxiao, MBA, an 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 secretary of the 3rd and 4th Board of the Directors of the Company from Dec. 2000; and took the post of secretary of the 5th Board of the Directors 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) On March 27, 2008, the 3rd meeting of the 5th board of directors of the Company agreed that Mr. Chen Weigang did not take the positions of Chairman and Director due to work change any longer, and nominated Ms. Fu Mingzhong for the candidate as the director of the 5th board of directors of the Company which would be submitted into the 2007 Shareholders’ General Meeting for approval held on April 25, 2008. (2) On April 25, 2008, in the 4th meeting of the 5th board of directors of the Company, Ms. Fu Mingzhong was elected as the Chairman of the 5th board of directors as well as Legal Representative of the Company. (3) On Dec. 26, 2008, the 7th meeting of the 5th board of directors of the Company agreed that Ms. Fu Mingzhong resigned her post of Chairman due to work arrangement; Mr. Shi Jinming was elected as the Chairman of the 5th board of directors as well as Legal Representative of the Company; agreed that Mr. Lu Jun did not take the post of Director due to work change, Mr. Shi Jinming did not take the post of General Manager of the Company due to work change, Mr. Ou Jianneng did not take the post of Deputy General Manager of the Company due to work change. According to the requirements of operation development of the Company, Mr. Yan Zhigang was engaged as the General Manager of the Company, and Mr. Lin Zhaoxiong, Ms. Liu Jun and Mr. Lin Min were additionally engaged as the Deputy General Managers of the Company. Section II. Number of employees and professional quality At end of the year 2008, the Company (including the subsidiaries) had totally 4,164 on-the-job employees. Profession/occupation composition Education Background Proportion Proportion Profession Number Education Number (%) (%) Production Master degree or 621 14.91% above 82 1.97% personnel Salespersons 1835 44.06% Bachelor degree 875 21.01% Technicians 52 1.25% 3-years regular 1201 28.84% 18 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 college graduate Polytechnic school Financial personnel 176 4.22% 1210 29.06% graduate Administrative Senior high school personnel and 1480 35.56% 796 19.12% graduate or below others Total 4164 100% Total 4164 100% At the end of the report period, the Company had totally 407 retirees, whose pensions were taken by Local Social Insurance Bureau. The Company took on the expenses of 124 employees who retired early. CHAPTER V. ADMINISTRATIVE STRUCTURE Section I. Company Administration According to the unified deployment of CSRC and specified arrangement on Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies by Shenzhen Securities Regulatory Bureau, the Company started special corporate governance campaign in 2007. According to self-inspection, public appraisal and reform requirement of Shenzhen Securities Regulatory Bureau after spot inspection, the Company earnestly carried out the reform and took measures. After completing the reform, the Company disclosed Summary Report for Special Corporate Governance Campaign on Oct. 31, 2007. Coming into 2008, the special corporate governance campaign of the Company came to the phase of reform ending and comprehensive conclusion. According to the requirement of notice [2008] No. 27 issued by CSRC, the Company made a further inspection, highly focused and deeply promoted each work of the special corporate governance campaign, seriously analyzed and concluded the work, existing problems and achievement in each phase of the special campaign, exerted to establish relevant long effective system of the Company’s administration to consolidate and exalt the achievement of the campaign. The result showed that, the problems founded in self-inspection, public appraisal and spot inspection of Shenzhen Securities Regulatory Bureau were completely reformed. On Jul. 18, 2008, the Extraordinary Meeting of the Fifth Board of Directors discussed and approved Reform Report for Special Corporate Governance Campaign of Shenzhen Accord Pharmaceutical Co., Ltd. and the resolution was published on Jul. 19, 2008. Section II. Particulars about existing non standard governance of the Company As a state-owned sharecontrolling listed company, the Company implemented related regulations on state asset management of controlling shareholders and actual controlling shareholders. Details are as follows: Relationship between parties of Date or Parties of information Sort of No. information Basis of the reported period of reported to information reported to with information reporting listed companies SINOPHARM Demand of consolidated The 1st largest Financial 1 Medicine Holding statement of the 1st largest Scheduled shareholder statement Co., Ltd. shareholder 19 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Management methods on Report of State-owned equity China National Actual asset transfer and equity 2 Pharmaceutical Temporary shareholder evaluation, investment of China Group Corporation etc. National Pharmaceutical Group Corporation According to the 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 committee examined and passed Rules of Procedures for Implementing Inside Information Staff Reserve and Governance of Non Standard Information Disclosure in Sep. 2007, in which agreed the Company send financial reports to its majority shareholders regularly on carrying out related regulations of state-owned asset management, as well as implement secret-keeping systems and inside information staff reserve system when reserving to majority shareholders on disposition of state-owned asset and send Accepting Non Public Information Staff Reserve Sheet to Shenzhen Securities Regulatory Bureau. Section III. Performance of the Independent Directors (I) The presences to the meetings of board by independent directors In year 2008, the Company held 8 meetings of board (Including the meetings by communication), and the presences to the meetings of board by independent directors were as follows: Name of Times are Presence Entrusted independent supposed to Absence Remarks in person presence directors be attended Chen Shu 8 8 0 0 Entrusted Chen Shu in Peng Juan 8 7 1 0 written form to attend and vote Entrusted Peng Juan in Liao Li 8 7 1 0 written form to attend and vote (II) In the report period, with holding the spirit of being responsible for the medium and small shareholders, independent directors 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 significant related transactions, routine related transactions, engagement of CPAs, etc; performed their relevant duties on protecting the legal interests of medium and small shareholders. Independent directors made important plays in the operation in special committees in board of directors. At the same time, the Company can ensure rights of knowing for independent directors and other directors. Section IV. Particulars about the Company’s “Five Separations” from the largest Shareholder in respect of Business, Assets, Organization, Personnel and Finance: The Company completely separated with the largest shareholder in respect of business, assets, organization, personnel and finance, and had independent and complete self-control business ability. 1. In respect of business: The Company was completely independent from the controlling shareholder in business, the Company had independent and integrated business system, and 20 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 autonomous operation capacity; the Company owned independent purchase and sales system. The purchasing center, subsidiaries and production enterprises are responsible for purchasing all medicine, appliance and raw resources used in production and distributing products. Production, supply and distribution departments and R&D were separated from each other. The Company was independent legal person facing the market. The Company would try to decrease related transaction between the Company and the largest shareholders and other controlling subsidiaries or between other related company and the Company; non-avoidable related transaction would accord with the principles of Public, Fair and Just. 2. In respect of personnel: The largest shareholder and actual controller commended directors and managers according to legal procedures, which was no particulars about intervening appointment and removal of human resource decided by the Board of Directors and General Shareholders’ Meeting; the Company set independent human resource department in charge of examination, training and salary audit work of all the employees, and established each rules and regulations which the employees should obey and made employees’ handbook. The employees’ labor, human resources, salary and relevant social security including endowment insurance and medical insurance were independently managed. 3. In respect of organization: The production management and administration management (including labor, human resource and salary management) was completely independent with the largest shareholder and actual controller: official organization and production management place separated with the largest shareholder, with no particulars about Two Labels, One Group, mixed operation or office work; the Company set complete legal person administration organization, and gradually perfected and regulated in operation, the board of directors, supervisory committee and manager team worked independently and took their own responsibilities according to relevant regulations of Articles of the Association. 4. In respect of assets: The Company was completed independent from its controlling shareholder in term of assets and independently operates. The Company not only possessed independent production system, auxiliary production system and complementary facilities, but also enjoyed such intangible assets as industrial property right, trademark, non-patent technology, etc. 5. In respect of finance: (1) The Company established independent financial department and independent financing checking system. (2) The Company established more standard and independent financing and accounting system and financial management system for branch and subsidiary companies. (3) The Company independently opened account in bank, with no particulars about depositing capitals in the account of large shareholders and financial company and accounting department controlled by other related parties. (4) The Company could independently made finance decision, with no particulars about the largest shareholder intervening capital usage. (5) The financial personnel of the Company were independent, who did not take pert-time job or draw remuneration from the largest shareholder. (6) The Company paid tax legally and independently. Section V. Performance Valuation, Incentive and Restriction Mechanism for Senior Executives Senior executives of the Company took responsibility for the board of directors, in the report period, the board of directors implemented the performance checking mechanism that the remuneration of 21 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 senior executives related with their performance checking, with achievement as direction, and made relevant reward and punishment according to target completion. The Company would actively research mechanisms which effectively incent senior executives. The Company implemented the performance checking system by the month from the year 2008, and carried out the performance checking system for the senior executives by seven financial indexes, five management indexes, six adding marks indexes and four decreasing marks indexes and starting comprehensive management checking appraisal. The Company is establishing and perfecting the relevant incentive and restriction 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. The Company had no incentive mechanism for senior executives such as stock option, purchase of management team and equity held by owner. Section VI. Establishment and Completeness on Internal Control System (I) Self-evaluation report of the board of directors on its internal control system For standardizing development and in order to control risk, ensure regulatory operation and protect legal interests of shareholders, according to the regulations of Basic Standard for Enterprise Internal Control issued by Finance Ministry and CSRC and Guidelines for Internal Control of Listed Company issued by Shenzhen Exchange, and combined with own actual situation, self characteristics and management demand, the Company established a set of complete internal control system of enterprise management, and constantly perfected and revised to made the internal control system of the Company run to be perfect during the development of business of the Company. After discussing and evaluating the effectiveness of internal control, the Company provided Self-Evaluation Report of Internal Control (Details could be found on Juchao Website). The report had been approved by the board of directors, and the opinions of independent directors and supervisory committee were as follows. (II) Independent directors’ independent opinions on self-evaluation of on its internal control system In 2008, the Company established and perfected internal control system according to actual operation, and the procedure and contents accorded with the requirement of relevant laws and regulations and securities supervisory department, had formed complete and serious internal control system. The Company basically established perfected internal control system, which covered business control, accounting system control, internal audit control, information system control and environment control, could adapt to the management requirement and development demand of the Company. Key activity of internal control system of the Company conformed to its internal control system, and the Company mad strict control on financial management, related transaction, external guarantee and information disclosure to ensure the orderly operation for the Company, play effective functions on operation risks and protect interest for all shareholders meanwhile. (III) Supervisory Committee’s opinions on self-evaluation of its internal control system According to the requirement of relevant laws, regulations and standard document of Ministry of Finance, CSRC and Shenzhen Exchange, following basic principles of internal control and combined with self situation, the Company established and perfected internal control system, the administration structure of legal person was perfect, internal control system was complete, which could ensure formal and orderly operation and assets’ safety of the Company. In the report period, there was no particular about disobeying Guidelines for Internal Control of Listed Company issued by Shenzhen Exchange or the Company’ internal control system. the supervisory committee thought that, the self-evaluation of internal control was accurate, true and complete, which inflected the actual situation of the Company’ internal control. 22 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 CHAPTER VI. PARTICULARS ABOUT THE SHAREHOLDER’S GENERAL MEETING In the report period, the Company held three Shareholders’ General Meetings: I. The 2007 Annual Shareholders’ General Meeting The 2007 Annual Shareholders’ General Meeting was held at the meeting hall on the 5/F of the Company, No. 15, Ba Gua Si Road, Futian District of Shenzhen on April 25, 2008. The relevant notice was published on Securities Times and Hong Kong Wen Wei Po dated April 26, 2008. II. The 1st Extraordinary Shareholder’s General Meeting of 2008 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 District of Shenzhen on Sep. 1, 2008. The relevant notice was published on Securities Times and Hong Kong Wen Wei Po dated Sep.2, 2008. III. The 2nd Extraordinary Shareholder’s General Meeting of 2008 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 District of Shenzhen on Nov. 11, 2008. The relevant notice was published on Securities Times and Hong Kong Wen Wei Po dated Nov. 12, 2008. CHAPTER VII. REPORT OF THE BOARD Section I. General operation of the Company in the report period Year 2008 was a key year for Shenzhen Accord Pharmaceutical Co., Ltd. to start its second Three Years Development and operate its integration strategy in practice. According to the working spirit Re-breakthrough, Re-innovation and Re-development made at year begin, and taking realization of optimized values of enterprise and optimized interests of shareholders as springboard, as well as taking rapid, good and long-term development of the enterprise as target, the Company continuously promoted harmonization construction by furthering internal integration, grasping risk management and injecting innovation into management thought. New breakthroughs were made in various works of the Company, which made sure that the Company stepped into the second rapid development period as scheduled. Since the formal operation of the new management & control pattern and organization structure in year-begin, to the second organization structure adjustment which took accelerating distribution integration as mainline since year-end, every work was operated with efficiency firstly considered. Under the condition that no existing experience could be referred, with approximately one-year operation, adjustment, negotiation, thinking and exploration, the integrated management & control pattern gradually became matured. For achievements obtained in risk management & control and experience share such as capital, account receivable, inventory, and intelligence communication between different regions in field of purchase, sale and customer service particularly in spread implementation of instruments such as plan management, target management and performance management, teams coming from different region with different history and civilization background identified with each other and gradually got harmonized. Harmonized and high-efficient organization atmosphere was getting dense day by day. I. In 2008, the Company mainly finished the following works in medicine distribution and pharmaceutical industry: 1. Medicine distribution: strengthened core business and further integrated business According to the position made in strategy development and meeting the market demand, the Company further integrated business. Taking channel network construction and regional strategic layout as focus, and keeping hospital pure sales market, meanwhile, the distribution business department also greatly expanded terminal distribution market, developed commercial attemper market, and redefined rapid business field of Sinopharm Medicine Holding Guangdong Xinlong Co., Ltd., Guangxi Accord Pharmaceutical Co., Ltd. and Shenzhen Jianmin Pharmaceutical Co., Ltd., and programmed and promoted construction of subsidiaries and distribution sites in cities 23 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 around Pearl River Delta Region such as Foshan and Dongguan, and in east and west of Guangdong province. In the aspect of industry structure: proportion of pure sales and terminal distribution in hospital to the pharmaceutical distribution was 57.84% in year 2008 with some rises compared with that in year 2007, in which the proportion of pure sales in hospital to the distribution remained the same compared with that in 2007, and the proportion of terminal distribution to the distribution climbed 1.7 percentage points compared with that in year 2007 with an increase number of RMB 0.26 billion. From the key areas of Shenzhen and Guangzhou, sales growth ratio of the third terminal business of Shenzhen Jianmin Pharmaceutical Co., Ltd exceeded 39%, number of newly-increased customers had a fast growth; number of newly-increased terminal customers of Sinopharm Medicine Holding Guangzhou Co., Ltd. in 2008 accounted for 77% in total number of newly-increased customers; meanwhile, strived for distribution qualification in Haizhu and Luogang districts in Guangzhou city for community distribution, thus its sales performance obviously raised. In 2008, sales through community distribution increased 269% compared to that of last year, and 289% for variety quantity traded. In aspect of variety resource share: 1) variety quantity shared by Guangdong and Guangxi provinces increased 28% in 2008 compared to that of 2007. Sinopharm Medicine Holding Guangzhou Co., Ltd. had totally sold exceeding 400 varieties to Guangxi province in 2008, sales amount increased 20% compared to that of last year; 2) taking advantage of variety resource in Guangzhou Company general distribution and regional distribution, the commercial variety structure of Shenzhen distribution got greatly improved and commercial sales scale presented rapid development in general. Until end of December, commercial sales increased 52.7% and gross profit increased 61.4% compared with those of the same period of last year; 3) obvious effect was obtained in leading imported joint venture variety to Guangxi. Many imported joint-venture varieties led in 2008 enjoyed great rise in sales in Guangxi. Besides, adapting to market change in medicine distribution business, the Company received the following significant achievements by accelerating strategic layout in key regions and detailing market exploration: successful sales contract of Wyeth Pei’er Bacterin in south of China, official establishment of Sinopharm Medicine Holding Foshan Co., Ltd. as well as purchase and establishment of Dongguan Accord Pharmaceutical Co., Ltd., according to its operation strategy that Take New Business Exploration First, Pour Efforts in Many Works at the Same Time and Develop Network to Build Terminal Control. Efficiency gained by marketing strategy sinking was bigger day by day. 2. Pharmaceutical industry: Laterally extended product line and vertically completed industry chain Zhijun Pharmaceutical realized develop current target that laterally extending product line and completing industry chain basically by focusing on current operation and future development. In current operation: 1) accelerating normal operation of Guanlan new factory. Within the year since moved, the already-constructed product line could successfully finish the complicated works such as product ownership transfer and location change. Meanwhile, through continuous optimization, upgrade and reform, all product lines had reached or even exceeded the capacities original designed, among which, the capacity of cefepime fixed product line exceeded the original-designed one over 100%; 2) with reform in Yima line before international authentication, meanwhile, move of Luomake line was finished and approved GMP authentication in June; 3) two made-in-China powder needle lines were built in November and approved GMP authentication in December. In sales: 1) in the situation that supply of codein material decreased 20%, through adjusting product structure and intensified proportion in solid preparation, the Company completely built high, middle and low level sales network. Through strengthening third terminal construction, and strengthening and adjusting examination and incentive method for sales personnel, the Company realized sale 24 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 amount exceeding RMB 900 million for the whole year, recovering rate of payment for goods reached 99% and sales increased 18.18% compared to that of the same period of last year; 2) promoted international authentication and cooperation with foresight, and introduced in the patent stomach medicine Revanex from Yuhan Corporation from South Korea; 3) the Company successfully purchased 75% equity of Suzhou Wanqing Pharmaceutical Co., Ltd., which laid foundation for industry chain integration in pharmaceutical industry. II. Innovate management thought 1. Discentralized management realized through shrinking equity management chain To reduce internal cross share-holding, compress management levels and cut down management cost, by public hanging out in Assets and Equity Exchange, the Company finished internal equity adjustment conformity for the following 12 level III and IV companies with cross share-holding: Accord Medicinal Materials, Guangdong Xinlong, Sinopharm Liuzhou, Shenzhen Accord Logistics, Guangdong Accord Drugstore, Main Luck Pharmaceuticals, Guangdong Yuexing, Huixin Investment, Hengchang Logistics, Sinopharm Foshan, Zhijun Medicine Trade as well as Shenzhen Accord Chain. 2. Strengthen management & control function in operation The Company carried out discussion and stipulation for business strategic development program, carried out discussion for running pattern of new business and new market, strengthened management in budget, risk and capital, and through optimizing procedure system and smoothing key business, the Company greatly improved operation quality and efficiency; by smoothing key business points and setting index for risk alarm, the Company made analysis on difference, and formed special report, to reach balanced operation in purchase and sale business; strengthened control in risk of account receivable, optimized mechanism of credit alarm, and led the third party-professional consultation corporation to appraise and optimize Guangdong and Guangxi procedure system together. 3. Strengthen financial management function The Company made and perfected systems of statement management, account check for account receivable, account payable management for purchase, expense budget management, calculation of retail shops, monetary fund management and inventory check management; emended relevant procedures of examine-and-approve for budget, expense cancellation disposal, capital attemper, payment paid for purchase, asset purchase as well as asset cancellation; generally constructed and gradually standardized three level statement management systems of Consolidated Statement of Accord Pharmaceutical, Statement of Undertaking Department and Monomer Statement of Legal Person Unit. The Company put emphasis on risk asset management over capital, account receivable and inventory, ensuring fore-control for work of risk management. 4. Optimize and advance information technology and network to get early information in competition A series of IT develop programming was formed, and the Company made implementation plan separated by years for IT programming target and also operation maintenance of IT system, successfully finished transfer of new version CMS business systems in Shenzhen and Guangxi province, generally established marketing database for distribution and retail, carried out research on supply chain system for Guangzhou community hospitals, finished construction of finance NC platform and second development for part function, and finished optimization and popular use of human resource management system. 5. Promote and practice plan management in full round 25 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 In 2008, on the basis of sharing three-years plan management experiences of Sinopharm Medicine Holding Guangzhou Co., Ltd, the various regional distributors and Zhijun Pharmaceutical carried out plan management work in succession. The general target of the Company was finally reached from clearing working target and task function of the Company, to take-over part task of the Company by various levels, then to communication between departments and finally to periodical follow and feedback. Since this year, plan management played an more and more important role day by day, and it had became an assistant tool for employee, department and senior executives to finish their working target with high efficiency, and an important guarantee to guide and assistant employees to better finish works. In 2008, after honored as Innovation Enterprise Award since 30 Years from Reform and Opening-up Policy and Enterprise with Outstanding Contribution Award since 30 Years from Reform and Opening-up Policy by Guangdong medicine industry, Accord Pharmaceutical was awarded as the Top 10 Potential Listed Companies of Guangdong province and Top 10 Listed Companies with Strongest Profit-making Ability of Guangdong province in achievement conference of Top 10 Listed Companies of Guangdong province held by Guangdong enterprise summit in 2008. Its brand influence in south area was getting up day by day. 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. (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/decrease Classified according Gross ease in Operating se in operating in gross profit to industries or Operating cost profit operating cost income income over the ratio over the last products ratio (%) over the last last year (%) year (%) year (%) Industry－medicine 87,717.07 64,753.72 26.18% 18.18% 36.17% -9.75% Commerce － medicine wholesales 816,457.65 777,742.29 4.74% 20.91% 21.01% -0.07% Commerce － medicine retail 34,224.58 26,356.95 22.99% 4.55% 6.17% -1.17% Non-medicinel trade 5,955.31 4,546.54 23.66% 39.45% 34.58% 2.76% Lease 1,402.36 856.98 38.89% -1.24% 65.62% -24.67% Subtotal 945,756.97 874,256.48 7.56% 20.04% 21.59% -1.18% Counteracting between internal business departments 113,694.68 111,880.11 1.60% 9.45% 9.38% 0.06% of the Company Total 832,062.29 762,376.37 8.38% 21.65% 23.62% -1.46% Main operations classified according to products Respiratory antitussive medicines 16,915.47 3,116.96 81.57% -26.13% -12.65% -2.84% Cef- series products 60,569.83 52,661.05 13.06% 36.54% 36.94% -0.26% Including: the amount of related transaction 8,180.56 4,480.46 45.23% 18.16% 12.46% 2.77% 26 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 2. Income from main operations classified according to areas Unit: RMB’0000 Income from main Increase/decrease in operating Area operations income over the last year (%) Domestic sales 831,193.14 21.62% Oversea sales 869.15 55.47% Total 832,062.29 21.65% 3. Major suppliers and customers Unit: RMB’0000 Total amount of purchase of the top five Proportion in the total 226,805 29.75% suppliers amount of purchase Total amount of sales of the top five sales Proportion in the total 66,589 8.00% customers amount of sales (III)Constitution of the assets for the Company in the report period Unit: RMB’0000 Dec. 31, 2008 Dec. 31, 2007 Proportion in Proportion in Increasing ratio Item Amount the total Amount the total in the total assets assets (%) assets (%) Total assets 368,397.42 100% 291,109.11 100% Monetary fund 34,525.95 9.37% 25,483.74 8.75% Up 0.62 percentage point Notes receivable 22,187.63 6.02% 16,683.83 5.73% Up 0.29 percentage point Accounts receivable 172,671.19 46.87% 128,664.91 44.20% Up 2.67 percentage points Accounts paid in advance 4,003.49 1.09% 5,412.22 1.86% Down 0.77 percentage point Inventory 73,566.16 19.97% 57,431.81 19.73% Up 0.24 percentage point Down 1.52 percentage Fixed assets 37,487.04 10.18% 34,063.91 11.70% points Construction in process 1,875.70 0.51% 753.15 0.26% Up 0.25 percentage point Total liabilities 303,460.40 82.37% 238,851.10 82.05% Up 0.32 percentage point Short-term loans 37,894.83 10.29% 25,439.64 8.74% Up 1.55 percentage points Notes payable 79,151.33 21.49% 49,478.82 17.00% Up 4.49 percentage points Accounts payable 135,702.69 36.84% 105,460.63 36.23% Up 0.61 percentage point Tax payable 1,438.00 0.39% 1,981.13 0.68% Down 0.29 percentage points Down 3.73 percentage Other accounts payable 27,173.19 7.38% 32,356.03 11.11% points Down 1.86 percentage Long-term loans 3,000.00 0.81% 7,772.00 2.67% points Reasons for changes on constitution of the assets formation compared to that of last year: (1)Monetary fund took 9.37% of the total assets, 0.62 percentage point up compared to that of period-begin, which was mainly due to that: in one side, the sales scale of the Company expanded which increased capital reflow at period-end; in the other side, the Company increased discount for notes. (2)Notes receivable took 6.02% of the total assets, 0.29 percentage point up compared to that of period-begin, which was mainly due to that: payment with notes increased as the sale scale of the Company expanded. (3)Accounts receivable took 46.87% of the total assets, 2.67 percentage points up compared to that of period-begin, which was mainly due to that: accounts receivable increased as the sale scale of the 27 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Company expanded. (4)Accounts paid in advance took 1.09% of the total assets, 0.77 percentage point down compared to that of period-begin, which was mainly due to that: in one side, the account paid in advance of last year included account paid for the construction in process and equipment. Since part construction had been finished in the year, then the aforesaid account should be transferred to fixed assets; at the other side, the Company advanced its negotiation ability with suppliers, thus payment paid in advance for purchasing goods reduced. (5)Inventory took 19.97% of the total assets, 0.24 percentage point up compared to that of period-begin, which was mainly due to that: as the sale scale expanded, market demand increased and inventory reserve increased. (6) Fixed assets took 10.18% of the total assets, 1.52 percentage point down compared to that of period-begin. While net fixed assets of year-end had increased RMB 34,231,300 compared to that of year-begin, which was mainly due to that: the pharmaceutical R&D base project (which was originally recorded as construction in process) and the project of technical reform of the subsidiary of the Company-Shenzhen Zhijun Pharmaceutical Co., Ltd, was transferred into fixed assets with RMB 32,596,200 since finished. (7)Construction in process took 0.51% of the total assets, 0.25 percentage point up compared to that of period-begin, which was mainly due to that: more RMB 42,547,300 was invested for the pharmaceutical R&D base project and the project of technical reform of the subsidiary of the Company-Shenzhen Zhijun Pharmaceutical Co., Ltd. in this report period and RMB 32,596,200 was transferred to fixed assets, thus RMB 9,951,100 was increased in construction in process. (8) Short-term loans took 10.29% of the total assets, 1.55 percentage points up compared to that of period-begin, which was mainly due to that: the Company increased acceptance discount and newly increased account payable factoring business. (9) Notes payable took 21.49% of the total assets, 4.49 percentage points up compared to that of period-begin, which was mainly due to that: as the sale scale expanded in the year, the Company advanced capital utilization efficiency by means of intensifying implementation power in notes. (10) Account payable took 36.84% of the total assets, 0.61 percentage point up compared to that of period-begin, which was mainly due to that: market demand increased, inventory reserve increased and purchase power increased. (11)Tax payable took 0.39% of the total assets, 0.29 percentage point down compared to that of period-begin, which was mainly due to that: influenced by new tax law on declining income tax rate, the income tax rate of the subsidiaries of the Company located in Guangzhou and Liuzhou regions changed to be 25% from the original 33%, which greatly cut down income tax payable. (12)Other account payable took 7.38% of the total assets, 3.73 percentage points down compared to that of period-begin, which was mainly due to that: loan of RMB 110 million at period-begin which should be returned to the Company’s controlling shareholder-Sinopharm Medicine Holding Co., Ltd. was returned in this report period; at year end, the unpaid sales expense by the Company’s subsidiary- Shenzhen Zhijun Pharmaceutical Co., Ltd. had decreased RMB 27.34 million compared to that of last year-end. (13)Long-term loans took 0.81% of the total assets, 1.86 percentage points down compared to that of period-begin, which was mainly due to that: the three-years loan of RMB 57.72 million provided by China Merchants Bank of Anlian Branch would be matured on Aug 24th of 2009, so it was transferred to non-current liability due within one year. (IV) Changes on operation expenses, administration expenses, financial expenses and income tax Unit: RMB’0000 Increase/decrease Item 2008 2007 Reason for significant change ratio(％) 28 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Strengthened expense management by effective method such as budget, reduced logistics and Operation 29,832.68 33,152.70 -10.01% business expenses, controlled rational expense expenditure of expense and effectively reduced propaganda expenses. Main influence factors were increasing input in Administration R&D expense of the Company’s 20,491.56 18,897.27 8.44% expenses subsidiary-Zhijun Pharmaceutical and increasing depreciation expense in the new factory. Too high interest rate brought great increase in Financial 5,352.67 2,986.57 79.22% cost; besides, loans increased this year and note expenses discount to bank increased. Guangzhou South Medical Equipment Co., Ltd, a subsidiary of the Company, sold the shares of SINOPHARM Medicine Holding held by them, and obtained investment income of RMB 25.59 Investment 1,651.09 3,408.70 -51.56% million in 2007. Investment income for 2008 of income RMB 16.56 million was mainly arising from contribution from the Company’s affiliated company-Main Luck Pharmaceutical due to its growing performance. SINOPHARM Medicine Holding (Liuzhou) Co., Ltd, a subsidiary of the Company, sold land and obtained disposal income of RMB 16.69 million in 2007; received governmental subsidy of RMB Non-operating 1,977.44 2,348.43 -15.80% 3.5 million. In 2008, the Company totally income received RMB 13,180,600 as governmental subsidy for medicine reserve and scientific research, the income from the disposal of fixed assets was RMB 5,561,800. Influenced by new tax law on declining income tax rate, the income tax rate of the subsidiaries of the Company located in Guangzhou and Liuzhou Income tax 4,104.36 5,233.33 -21.57% regions changed to be 25% from the original 33%, which greatly cut down income tax payable. (V) The operation and performance analysis of the main holding companies and joint stock companies of the Company 1. Shenzhen Zhijun Pharmaceutical Co., Ltd: an exclusively-owned subsidiary of the Company, with the registered capital of RMB 69 million and main business was 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 produced medicine for respiratory system and anti-infection and the main products are isedyl cough syrup and Cefuroxime Sodium. Until Dec 31st of 2008, the total assets amounted to RMB 700,261,900, RMB 775,384,000 for the realized operation income in 2008, and RMB 89,204,000 for operation profit and RMB 86,297,000 for net profit. 2. SINOPHARM Medicine Holding (Guangzhou) Co., Ltd: with the registered capital of RMB 50 million and an exclusively-owned subsidiary of the Company. It mainly engaged 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 agency. Until Dec 31st of 2008, the total assets amounted to RMB 2,073,779,600, RMB 6,129,932,800 for the realized operation income in 2008, and RMB 111,046,100 for operation profit and RMB 87,637,200 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 covered development, research, production and operation of anticancer medicine preparations. Until Dec 31st of 2008, the total assets amounted 29 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 to RMB 254,316,300, RMB 293,069,700 for the realized operation income in 2008, and RMB 43,824,200 for operation profit and RMB 38,586,500 for net profit. Section III. Input for R&D and self-innovation of the company 1. Particulars about the R&D and self-innovation: In 2008, Shenzhen Zhijun Pharmaceutical Co., Ltd. signed patent transfer contract with Yuhan Corporation of South Korea, thus introduction for the stomach medicine Revanex which had world-wide patent was finished; self R&D product Ambroxol Oral Solution had went into market for sales; as to variety declaration, 4 production licenses for the two varieties Sulbactam Sodium and Cefonicid Sodium had been received, meanwhile, 5 clinic licenses were issued. 2. Particulars about energy saving and reduction of emission: In December of 2008, Shenzhen Zhijun Pharmaceutical Co., Ltd. successfully passed Shenzhen Clean Production Check-and-accept organized by Shenzhen Trade and Industry Bureau, Environment Protection Bureau and Shenzhen Technology and Information Bureau. The specialist team made a full-round auditing in Zhijun Pharmaceutical according to Cleaner Production Promotion Law of the People's Republic of China, Temporary Method for Implementing Clean Production Check-and-accept of the State Development and Reform Commission and Environment Protection Bureau, Check-and-accept Management Method for Guangdong Clean Production Enterprise, as well as Detailed Rules for Implementing Clean Production Check-and-accept Work of Shenzhen, and the following came the result: the company paid attention to clean production and carried out clean production examination willingly. Emission of exhaust gas and waste water reached standard, and solid waste was disposed properly, meeting the requirements for standardization; resource utilization rate was comparatively high and resource was managed well. Zhijun Pharmaceutical started off clean production examination work for this period in April of 2008. According to various procedure of clean production examination, it promoted clean production work completely, elected and ensured 18 clean production schemes, which yielded obvious economic benefit and environment benefit. In 2008, in work of furthering technical reform and promoting energy saving and reducing consumption, Zhijun Pharmaceutical continued to promoted technical reform and finished 8 technical reform (water-saving item for stoppling machine in powder needle workshop; reform in oral solution batching system, etc.), besides, another 6 technical reform was undertaking (reform in powder box for powder needle line and reform for energy-saving of centrifugal refrigeration machine, etc.). Technical reform greatly improved production efficiency and reduced consumption. Section IV. Working plan of the Company for 2009 The year 2009, is a key year for Accord Pharmaceutical to realize RMB 10 billion sales income, and also a significant year for the second Three Year Development. The Company would do the best to prevent and solve risks brought by change of market environment, actively graspes develop opportunity of industry integration change, adjusts strategic layout, accelerats and promots integration of management & control, integration of industry chain and integration of distribution & operation. The Company concentrates on developing trend of industry and distribution with strong advantage, builds the core competition advantage and realizes healthy, long-term and sustainable development. I. Promot integration of management & control, integration of industry chain and integration of distribution & operation of the Company In 2009, the Company would make the second structure adjustment with advancing integration of distribution as mainline, further promotes the development strategy layout with integration of management & control, integration of industry chain and integration of distribution & operation of the Company as focus, further defines integration of management & control, further centralizes operation resource for integration and further obtaines benefit from integration operation. The 30 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Company advocates integration operation as main rhythm and was prudent in making benefit. 1. Promote integration of management & control of the Company The Company adjustes organ structure and defined management & control function of the following four centers: (1)Operation management center: conducts two level management pattern that took head instruction as center and business department. The head is in charge of promotion of programming, supervision and control, information technology and phase important work; and the business department is in charge of daily detailed operation. (2)Finance management center: the head office directs and harmonizs, and business is managed vertically; the head directs investment, capital is centralized and managed on a unified platform; as to finance management, in the condition that the head office guided as a whole and directed in category, business is vertically managed according to line function; accounting calculation is mainly region calculation. (3)Human resource center: beeline management plus professional guidance. Taking integration operation as center, to define clearly responsibility role and perfect responsibility system; practices ability demand and advances organization ability; strengthens performance management, and optimizes appraisal system; builds cooperation and harmonization organization atmosphere. (4)Administration management center: management from the head office plus practical operation of apanage. Plays function as administration hinge and administration management of the Company; takes on administration management work in Shenzhen Region; offers guidance for administration management work of other regions, strengthens integration of management & control, provides guarantee support for business growth. 2. Promotes industry chain conformity of Zhijun (1)The Company rapidly carries out integration work about Suzhou Wanqing Pharmaceutical Co., Ltd. after purchase. And the Company makes raw material of Wanqing meet the variety of Zhijun, thus complementary benefit could be made. Fully take advantage of approval document for raw material of Wanqing, to enlarge and complete variety of medicines made by Zhijun, especially focuses on field of anti-infection; (2)Accelerate research & development register for the patent medicine Revanex, aiming to enter field of digestive system as early as possible; (3)Translate science research fruit by means of project cooperation and introduction; (4)Looked for pharmaceutical factory or product or so new item which shares conforming strategy development with Zhijun in way of capital operation such as purchase; (5)Programme and construct well the industry platform with Guanlan as the base, explore its capacity deeply, save energy and reduced consumption, strengthen examination on consumption and yield, and improve average efficiency. When constructed, it should be considered that the industry platform could catch the developing step of international level, besides, the present land resources should be fully well used, to build a production base with high efficiency and limited investment. All these would advance a lasting and rapid growth for industry. 3. Promoted distribution integration operation (1)To integrate purchase resources of Accord Pharmaceutical with principle of Unified Programming, Unified Inventory, Unified Information and Unified Management; taking purchase as lead, the Company drove business operation; (2)The Company builds common management & control and operation platform in purchase function such as purchase strategy, programming execution, regional harmonization, bidding affair, product development, inventory programming and customer service. (3)Break layout of regional interest, restructure commercial organization and realize commercial 31 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 unified operation; (4)The Company fully consideres regional difference between hospital markets, so it carries out pure sale business management taking region as line. 4. Ensure complete start-off of Guangzhou Medicine Logistics Center, and successfully finish work of moving and conforming storage (1)Promote integration operation of logistics and finish construction of integration management system of logistics; (2)Try to implement multi-storehouses management pattern; by unified WMS system and logistics platform, with the condition that owning the third party logistics, the Company implements management that consignor with multi-storehouses and storehouse with multi-consignors; (3)Try transfer allocation pattern between logistics centers and allocation stations. By unifying WMS and TMS systems and combining with the standard label for delivery box of cargo from storage, the Company conveniently realizs transfer allocation function between logistics centers and allocation stations and share transport resources. II. Kept sustainable development of distribution and industry The Company adjusts strategic position, concentrates on spanning growth of distribution and industry with strong advantage, studied the influence over the Company brings by medical reform and policy of inviting public bid with foresight, makes strategy layout in south area with foresight and keeps sustainable development trend of distribution and industry. Through adjusting operation strategy, the Company implements management advance with procedure index of operation quality as emphasis. (1)Zhijun Pharmaceutical aims to become the best cephalosporin producer in China with the most complete variety and the best quality. Besides carrying out business with foresight and strategy, it does its best to adjust structure of marketing pattern and product structure, to remain trend of sustainable development; (2)Special promotion team wii be established. Third terminal promotion new pattern which could be examined was established, develops third terminal customers and pulls forward third terminal sakes; (3)Fine management on production will be promoted. The present production crafts technics are continuously optimized and reformed. The Company also improves automatic level for the later section of production line; (4)Promoted structure optimization and adjustment of business such as hospital, commerce and terminal; promoted structure optimization and adjustment of product such as imported joint venture products and domestic-made products; promoted structure optimization and adjustment of assets such as account receivable and inventory; ensured definite targets such as particular variety, customer, network and risk control; (5)Actively adjusts variety structure, greatly promotes develop and sales of breeds with competition ability, implements network detailing, put efforts in exploring excellent customers of hypo-terminal, perfectes and optimizes regional network layout and realizes scale cover for regional markets. III. Build harmonized homestead together The main rhythm integration operation endowed Build Harmonized Homestead Together with more and deeper meaning to build enterprise spirit. Members of the team recognize each other, management thought is harmonized, responsibility system with clear responsibility and unified target is established, the warm organization atmosphere that enterprise cares for employees and both of the two grew together was formed, which become the power and source for concentration and reaching top point. 1. Carry out enterprise spirit construction with Build Harmonized Homestead Together as main 32 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 theme (1)Firmly holding the target that made the enterprise bigger, stronger and longer, the Company plays function of party group organization, plays pioneering example effect of party member, solidifies and centralizes all employees, looks for reality and practice, grows with the time, advances management and economic benefit of the Company; (2)The Company combines culture construction activity with working target and operation focus, advocates Execution culture, cultivates Performance culture, promotes Efficiency culture, and fully improves comprehensive character of employees. The Company advocates Being Example and Coach in executives circle; advocates Doing the Best Myself in all employees, cultivates Four Owning employees owning target, responsibility, ability and contribution; (3)The Company builds organization atmosphere with cooperation and harmonization, increases landscape orientation communication and negotiation between different business, regions and departments, sets integration thought, learns and supports each other; (4)On the basis of ensuring national interest, maintaining social interest, and maximizing interests of enterprise and shareholders, the Company takes employees’ interest into full consideration, combines closely development of enterprise with employees’ individual interest to inspire employees’ potential and strengthen enterprise coherence and centripetal force. 2. Establish big security structure (1)The Company perfects its security responsibility system, set ssecurity production committee of Accord Pharmaceutical, and practices security responsibility in full round; (2)The Company cultivates security risk awareness of its employees, and gradually establishes long-term effective mechanism for security production. Section V. Influence over the Company caused by changes of market operation environment, and macro policy and laws 1. Market risk The various policy and laws standardizing development of the industry drove up threshold for the industry and accelerated riffle for this industry; consume demand for medicine, demand for clinic, upgrade in breed structure and change in terminal demand were gradually passed to the upper stream; part central enterprises quickened step in merger and restructure of local medicine enterprises, craft brother in medicine industry continued to increase investment in medicine commerce, sales scale and growth speed of big-brand enterprises were accelerating. Change in business operation pattern of agents, merger and acquisition and restructure, as well as entrance of foreign capital made the competition in medicine industry more furious, and made expansion of the Company’s network and market occupancy bear heavier burden. Overall health insurance, new rural coadjutant medical care covering the whole area and raise of subsidy, such governmental policies warming market began to become the focuses that the industry paid attention to; inviting public bid by hanging out in network of hospitals and zero-difference trial spot in Guangdong hospitals led the gross profit to decline continuously; and market risk also existed in unified allocation of community. Countermeasure of the Company: took close eyes on industry trend, controlled significant market, held opportunity obtained by early information; took close eyes on medical reform scheme, and medicine demand growth trend of different regions with different policy and environment after the basic medicine catalogue issued; adapted vivid, prudent and effective countermeasures to face the problems steadily. Narration classified according to type of operation was as follows: (1)Zhijun Pharmaceutical 1) Fully ran sale channel resource for national medicine, under the integration operation, the Company enlarged market bidding proportion, took close eyes on policy trend of fixed producer enterprises producing national basic medicine. Resources were operated in full round and the 33 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Company tried to enter the aforesaid scope; 2) Further adjusted breed layout and took Cef-series products as leading market; another 3 products which were sold over RMB 100 million in a year would be increased; carved out a way for new products by slope policy; stopped production of the products and breeds which were not welcome in market; 3) Strengthened cooperation with suppliers and local agents, and tried to further centralize market channel of popular breeds. (2)Distribution market 1) Under the unified guidance of the Company, the hospital’s 2009 public bidding invitation team by hanging out in network was established. Preparation work for public bidding invitation by hanging out in network was fully harmonized and planned as a whole; 2)Quickened running south layout in distribution market, to ensure that one success gained from one purchase, took over an enterprise and occupied one market; 3) Made careful research on operation pattern of quick batch channel; taking rapid response and special operation as principle, the Company really showed advantage of quick batch in integration operation; 4)Purchase center should summarize community allocation experience, explore sales market of new rural coadjutant medical care, do well in breed programming support and cultivate new growth point; 5) Unified management for sales business of bacterin in Guangdong and Guangxi provinces. 2. Capital risk Outside: impacted by international financial crisis, the entire environment was bad. The growth scope of national fiscal income obviously decreased, and growth speed of Chinese economy slipped. Inside: the Company hasn’t carried out financing in capital market, and the entire asset- liability ratio was a little high; according to development programming, capital demand for operation items of industry chain integration and strategy distribution in south area was comparatively high; period of hospitals’ account receivable extended, and payment condition presented by suppliers was rigorous, operation cash flow risk became larger; commercial customers increased and financing ability of private companies was sufficient, which threatened capital security of the Company. Countermeasure of the Company: 1) Using the properly loose monetary policy, in the situation that discount rate kept falling, the Company would strengthen strategic cooperation with financial organization, develop financing channel, strive for favor interest rate and reduce capital cost, by taking advantage of brand and network in capital operation; 2) Built budget management and risk management systems and Capital Management Department of Finance Management Center was in charge of unifying capital operation; 3) Capital Management Department of Finance Management Center prepared annual, quarter as well as month rolling budgets in strict accordance to operation capital match of the annual budget, and it held balance meeting of capitals from various type of operation, in order to support rapid development of business with reasonable, balanced and sufficient capital; 4) Paid close attention to credit and capital chain of middle and small commercial customers thus made risk prevention in advance; 5) In strategy, it preferred to sacrifice part interest rather than to sacrifice capital security. Budget exceeding red line was strictly controlled, put an end to bad debt and firmly eliminated account receivable over one year. 3. Cost risk Faced with pressure of deflation, depreciation of Renminbi, and continuously exasperated credit 34 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 environment, the Company would be directly influenced on its capital security by the risk-prevention ability of upper and lower stream customers, thus concealed operation cost would experience an enlarging risk; expansion in financing scale brought increase in capital cost; production scale of Zhijun Pharmaceutical was expanded, thus its depreciation and human resource cost increased; price of materials for production kept rising, which brought rise in production cost; increase in capacity, and capital for production line reform and authentication increased; input in scientific investigation, international authentication and construction of new factory zone increased; as the unique inventory management new pattern purchased for distribution integration, no present experience on how to evade capital risk existed; expense occurred in relocation, integrity, and conformity for new logistics center increased. Countermeasure of the Company: 1) Strengthened appraisal and argumentation of investment item, to ensure that return from investment could reach the scheduled achievement; 2) Took close eyes on policy change, fully took advantage of capital planned as a whole of integration of the Company to reduce financing cost by multi-channels. 3) Strengthened inventory management, made periodic analysis on inventory. Those inventory goods which were not popular or approached the valid time should be promptly disposed and examined, aiming to minimize inventory loss; 4) Made industry cost management in full aspects from personnel to production, purchase and quality as well, etc. ensured quality of raw materials, advanced average efficiency and reduced material consumption; 5) Strengthened programming and operation management of logistics center and reduced cost. 4. Risk of person with ability It was predicted that growth rate downward pressure of national economy would be intensified and unemployment rate for 2009 in national wide would reach 14%. Though many big-sized enterprises reduced the stafftrimmer and salary, executive personnel reserve for various levels and special personnel reserve for various type of operation were insufficient as Accord Pharmaceutical developed rapidly. Phenomenon against development of the Company such as narrow introduction channel and bigger-lost of person with ability brought risk for long-term development of the Company. The question that how to retain and attract person with ability by intelligence mechanism of sharing development fruit and finally to realize synchronization between growth of person with ability and development of enterprise was another challenge faced by the Company. Countermeasure of the Company: 1) Doing well in programming person with ability with foresight according to the Company’s development strategy; 2) Set person with ability mechanism of the Company, to absorb and retain person with ability and effectively control risk of person with ability; 3) Carried out training work for level teams with advancing organization ability as object, thus to cultivate person with ability; 4) Promoted standardized management for programming of human resource, adjusted management thought in performance and remuneration, and built multi-channel for growth of person with ability; 5) In building enterprise spirit, good environment for growth of person with ability should be well built. Through setting typical model and example, the Company helped employees in different position to find their own stages to show their talent. Section VI. Investment and application of raised proceeds I. particulars about the main investment The Company had no external investment in 2008. II. Application of raised proceeds 35 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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 period for application. III. The actual progress of significant non-raised proceeds In 2008, the Company’s subsidiary-Shenzhen Zhijun Pharmaceutical Co., Ltd.’s accumulated investment amount for the project of the pharmaceutical R&D and manufacture base reaches at RMB 0.204 billion and accomplished and has been put into use; the total amount for the budget of technicial reform project was RMB 35.61 million which achieved 90.62% of the budgeted process. 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. 25, 2007, the 3rd meeting of the 5th Board of Directors was held; the following proposals were examined and approved: (1) Report on Board of Directors in 2007 of Shenzhen Accord Pharmaceutical Co., Ltd.; (2) Report on Financial Settlement in 2007 of Shenzhen Accord Pharmaceutical Co., Ltd.; (3) 2007 Annual Report and Its Summary of Shenzhen Accord Pharmaceutical Co., Ltd.; (4) Plan on Profit Distribution in 2007 of Shenzhen Accord Pharmaceutical Co., Ltd.; (5) Proposal on Adjustment of Related Items in Balance Sheet in Period-begin of 2007 of Shenzhen Accord Pharmaceutical Co., Ltd.; (6) Operation Plan in 2008 of Shenzhen Accord Pharmaceutical Co., Ltd.; (7) Report on Duties of Independent Directors in 2007; (8) Regulations on Annual Audit of Audit Committee of the Board of Directors; (9) Working System for Annual Report of Independent Directors; (10) Examination Scheme on Operation Performance in 2008; (11) Proposal on Cancelling Bad Assets in 2007 of Shenzhen Accord Pharmaceutical Co., Ltd.; (12) Proposal on Applying Comprehensive Lines of Credit from Bank and Supplying Guarantee for Applying Bank Credit for Subordinate Company; (13) Proposal on Routine Transaction in 2008 among Shenzhen Accord Pharmaceutical Co., Ltd. and Subordinate Company and Related Parties; (14) Proposal on Transferring 30% Equities of Liaoning Accord Medicines Chains Co., Ltd.; (15) Proposal on Increase to Hold 10% Equities of Sinopharm Medicine Holding Guangzhou Co., Ltd.; (16) Proposal on Introducing Patent Medicine of South Korean Yuhan Corporation by Zhijun Pharmaceutical Co., Ltd.; (17) Proposal on Reengaging Audit Institution of Annual Report; (18) Report on Self-evaluation of Internal Control in 2007 of Shenzhen Accord Pharmaceutical Co., Ltd.; (19) Report on Social Responsibilities in 2007 of Shenzhen Accord Pharmaceutical Co., Ltd.; (20) Proposal on Revising Articles of the Association; (21) Proposal on Increase to Supplement Directors; (22) Proposal on Purchasing Liability Insurances for Directors, Supervisors and Senior Executives; (23) Proposal on Holding 2007 Annual Shareholders’ General Meeting. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated March 27, 2008. 2. On Apr. 25, 2008, the 4th Meeting of the 5th Board of Directors was held which discussed and approved the following proposals: (1) Proposal on Electing Chairman of the Board; (2) Proposal on Adjusting Members of Strategy Committee; 36 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 (3) The First Quarterly Report 2008. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Apr. 26, 2008. 3. On May 20, 2008, the Board of Directors held extraordinary meeting by communication voting, which discussed and approved the Proposal on Purchasing 100% Equities of Guangzhou Sinopharm Medicine Co., Ltd., The related matter on the purchase was published on Securities Times and Hong Kong Wen Wei Po dated August 30, 2008. 4. On June 25, 2008, the Board of Directors held extraordinary meeting by telephong voting, which discussed and approved Proposal on Short-term Loan to Sinopharm Medicine Holding Co., Ltd. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated June 27, 2008. 5. On July 18, 2008, the Board of Directors held extraordinary meeting by telephong voting, which discussed and approved Reform Report for Special Corporate Governance Campaign of Shenzhen Accord Pharmaceutical Co., Ltd. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated July 19, 2008. 6. On Aug. 6, 2008, the 5th Meeting of the 5th Board of Directors was held which discussed and approved the following proposals: (1) The Semi-annual Report 2008 of the Company; (2) Proposal on the Company and Underling Company Applying the Bank for Lines of Credit and Providing Guarantee; (3) Proposal on Guangdong Huixin Investment Co., Ltd. Canceling the Long-term Equity Investment. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Aug. 8, 2008. 7. On Oct. 22, 2008, the 6th Meeting of the 5th Board of Directors was held which discussed and approved the following proposals: (1) The Third Quarterly Report 2008 of the Company; (2) Proposal on Providing Guarantee for Sinopharm Medicine Holding Guangzhou Co., Ltd. on Applying Bank of Communication Guangzhou Branch for Comprehensive Credit; (3) Proposal on Zhijun Pharmaceutical Co., Ltd. Investing to Build the Second Workshop of Oral Solid Cephalosporin; (4) Proposal on Cleaning and Integrating the Equity of Three or Four Level Underling Companies; (5) Proposal on Holding the 2nd Extraordinary Shareholders’ General Meeting 2008. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Oct. 24, 2008. 8. On Dec. 26, 2008, the 7th Meeting of the 5th Board of Directors was held which discussed and approved the following proposals: (1) Proposal on Selling Assets of the Company’s Retailing Operation; (2) Proposal on Purchasing 100% Equity of Sinopharm Medicine Holding Nanning Co., Ltd.; (3) Proposal on Purchasing 100% Equity of Dongguan Dongfeng Traditional Chinese Pharmaceutical Co., Ltd.; (4) Proposal on Purchasing 75% Equity of Suzhou Wanqing Pharmaceutical Co., Ltd.; 37 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 (5) Proposal on Signing Cooperation Agreement on Exploration and Maintenance Service of Information System with Related Party; (6) Proposal on Applying Bank of Communications Shenzhen Dongmen Branch for Comprehensive Credit; (7) Proposal on Adjusting Members of Operation Team; (8) Proposal on Electing Chairman of the Board; (9) Proposal on Increase to Supplement Directors; (10) Proposal on Holding the 1st Extraordinary Shareholders’ General Meeting 2009. The resolution of the meeting was published on Securities Times and Hong Kong Wen Wei Po dated Dec. 30 and Dec. 31 of 2008. Section VIII. Implementation of the resolutions of the Board of Directors and Shareholders’ General Meeting 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 2007 General Shareholders’ Meeting of the Company dated May 18th of 2007. In 2008, the Company actually has purchased goods from the related enterprises totalling RMB 1,019,117,900, and RMB 695,504,500 for selling goods. These two occurring amounts are respectively 78.39% and 99.36% of the granted amounts authorized by the General Shareholders’ Meeting. (2) Implementation of the profit distribution plan In order to make up the current funds of the Company, profit distribution was not taken at the end of the report period. (3) Implementation of plan on issuing new shares In the report period, the Company did not implement plan on allotment and increasingly issuing new shares. Section IX. The performances of the Audit Committee of the Board of Directors 1. In the report period, the Audit Committee set under the Board of Directors actively perfomed their responsibilities in accordance with Company Law, Code of Corporate Governance for Listed Companies in China, Articles of the Association, Regulations on Annual Report of Audit Committee of the Board of Directors and other related regulations. 2. The Audit Committee set under the Board of Directors audited the 2008 financial report of the Company and expressed their second auditing opinions in accordance with Regulations on Annual Report of Audit Committee of the Board of Directors, and the detailed opinions were as follows: (1) Audited the financial statements before the annual certified public accountant entered the Company, Audit Committee thought: All the transactions of the Company were recorded, the transaction matters were real, the materials were complete, the accounting policy was chosen properly, accounting estimation was reasonable, no material misstatement and failed report was discovered; occupation of fund of the Company by the large shareholder was not discovered; guarantee not through the procedure of audit and abnomal related transaction of the Company were not discovered. The relevant data in financial statement prepared by the Company basically reflected the assets liabilities ended as of Dec. 31, 2008 and operating results of year 2008, agreed to begin to carry out financial audit of year 2008 based on the financial statement. (2) After the annual certified public accountant entered the Company, supervision in written form was taken; after annual certified public accountant issued the first audit opinions, they once again examined the firstly-audited annual financial statement; the Audite Committee thought: through 38 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 communicating with annual certified public accountant on first audit opinion, the Audit Committee agreed to keep the original audit opinions, and thought the Company has dealt with post balance sheet event strictly in accordance with New Accounting Standards for Business Enterprise; the financial statement of the Company was prepared complying with New Accounting Standards for Business Enterprise and relevant financial system of the Company, and reflected the financial status as of Dec. 31, 2008 and operating results of year 2008 in all significant aspects; and agreed to compile 2008 Annual Report and Its Summary of the Company based on the financial statement and submitted to board meeting for examination after the Committee examined. 3. The Audit Committee set under the Board of Directors communicated and supervised the audit works of CPAs in accordance with Regulations on Annual Report of Audit Committee of the Board of Directors; after Shulun Pan Certified Public Accountants Co., Ltd. issued the 2008 annual auditor’s report, the Audit Committee of the Board of Directors held site meeting on March 10, 2008, in which the audit work of this year by Shulun Pan Certified Public Accountants Co., Ltd. was summarized and formed the resolution on re-engaging CPAs for next year and the resolution was as follows: with the supervising and inquiring Shulun Pan Certified Public Accountants Co., Ltd. on 2008 Annual Report from the Audit Committee, Audit Committee expressed their affirmations on audit service of annual report offerd by Shulun Pan Certified Public Accountants Co., Ltd. and agreed to reengage, and agreed to submit Proposal on Reengaging Audit Institution of Annual Report to Board of Directors for examination and approval. Section X. Examining opinions on remunerations of senior executives from the Remuneration Committee and Audit Committee of the Board of Directors With examination on the consolidated statement of the remuneration of the directors, supervisors and senior executives of the Company in 2008 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 2008 Annual Report is real and accurate. Section XI. Preplan on Profit Distribution and Converting Capital Reserve into Share Capital in 2008 (1) The 2008 Financial Settlement of the Company has been audited and confirmed by Shulun Pan Certified Public Accountants Co., Ltd. The net profit realized by the parent company in 2008 was RMB 93,030,643.10, in accordance with the regulation of Company Law and Articles of the Association, withdrawal of surplus public reserve was RMB 9,303,064.31based on 10% of net profit, plus the undistributed profit at year-begin RMB 37,929,690.77, the Company has profit of RMB 121,657,269.56 available for distribution for shareholders ended as Dec. 31, 2008. The 2008 Preplan of Profit Distribution of the Company is: taking the total 288,149,400 shares as of Dec. 31, 2008 as the radix, cash bonus of RMB 1.00 (tax included) each 10 share will be distributed to the whole shareholders. It is predicated that the distributed dividend would be RMB 28,814,940.00, and the remained RMB 92,842,329.56 would be transferred to the next year. The Company did not take capitalization of capital reserve in year 2008. (2) Particulars about the distribution of the Company in previous three years Net profit Proportion of cash Year Distribution plan realized distribution in net profit Cash bonus of RMB 0.38(tax included) each 10 share was 2005 36,824,230.25 29.71% distributed which totalled up RMB 10, 940,962.61. 39 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Cash bonus of RMB 0.90 (tax included) each 10 share was 2006 80,224,428.47 32.29% distributed which totalled up RMB 25,902,701.26. 2007 124,913,985.45 No distribution and no capitalization 0.00% 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 2008, the Supervisory Committee of Shenzhen Accord Pharmaceutical Co., Ltd. earnestly performed 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 meetings have been held by the Supervisory Committee of the Company during the report period and followed the details: 1. The 3rd meeting of the 5th Supervisory Committee of the Company was held on Mar. 25th, 2008 and the following proposals were examined and approved in this meeting: (1) The 2007 Report of the Supervisory Committee of the Company (2) The 2007 Financial Settlement Report of the Company (3) The 2007 Annual Report and Summary (A, B) The resolutions of the meeting were published on Securities Times and Hong Kong Wen Wei Po dated Mar. 27th, 2008. 2. The 4th meeting of the 5th Supervisory Committee of the Company was held on Aug. 6th, 2008 and the following proposals were examined and approved in this meeting: (1) The 2008 Semi-annual Report and Summary of the Company (2) Proposal on Applying the Bank for Increasing and Adjusting Credit Line (3) Proposal on Guangdong Huixin Investment Co., Ltd. Canceling the Long-term Equity Investment The resolutions of the meeting were published on Securities Times and Hong Kong Wen Wei Po dated Aug. 8th, 2008. 3. The 5th meeting of the 5th Supervisory Committee of the Company was held on Oct. 22nd, 2008 and the following proposals were examined and approved in this meeting: (1) The Third Quarterly Report 2008 of the Company (2) Proposal on Providing Guarantee for Sinopharm Medicine Holding Guangzhou Co., Ltd. for Applying Comprehensive Credit from Bank of Communications Guangzhou Branch (3) Proposal on Zhijun Pharmaceutical Co., Ltd. Investing to Build the Second Workshop of Oral Solid Cephalosporin (4) Proposal on Cleaning and Integrating the Equity of Three and Four Level Underling Companies The resolutions of the meeting were published on Securities Times and Hong Kong Wen Wei Po dated Oct. 24th, 2008. 4. The 6th meeting of the 5th Supervisory Committee of the Company was held on Dec. 26th, 2008 and the following proposals were examined and approved in this meeting: (1) Proposal on Selling Assets of the Company’s Retailing Operation (2) Proposal on Purchasing 100% Equity of Sinopharm Medicine Holding Nanning Co., Ltd. (3) Proposal on Purchasing 100% Equity of Dongguan Dongfeng Traditional Chinese Pharmaceutical Co., Ltd. (4) Proposal on Purchasing 75% Equity of Suzhou Wanqing Pharmaceutical Co., Ltd. (5) Proposal on Signing Cooperation Agreement on Exploration and Maintenance Service of 40 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Information System with Related Party The resolutions of the meeting were published on Securities Times and Hong Kong Wen Wei Po dated Dec. 30th, 2008 and Dec. 31st, 2008. II. Independent opinion on the operation of the Company issued by the Supervisory Committee In the report period, the members of the Supervisory Committee presented all meetings of the Board of the Company, performed their supervisory duty on the content and procedure of the Article of the Association carried out by the Board, and also supervised the execution of the resolutions of the Board by the operation personnel. (1) Operation by law In 2008, according to the relevant regulations of the Company Law, Securities Law, Listing Rules of Stock Market and Articles of Association, the board of directors legally managed, operated, made decisions in law and constructed and perfected internal control system. The procedures of holding shareholders’ meeting and meeting of the board of directors accorded with relevant regulations, and there was 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 implemented their office duty. (II) Check on financial management of the Company In the report period, the Supervisory Committee seriously checked the financial status of the Company and thought that the financial management was standardized, the financial report objectively and truly reflected the financial status and operation achievement of the Company and the profit distribution plan for 2008 complied with the actual condition of the Company. The financial report 2008 was true and accurate, and fairly reflected the present financial status and operation achievement. The audit report with standard unqualified opinion issued by Shulun Pan Certified Public Accountants Co., Ltd. was objective and just. (III) Application of raised proceeds There was 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 was reasonable. There was neither secret transaction nor behavior hurting the interests of shareholders. (V) Related transaction The daily related transaction and other related transaction of the Company were equal and rational and of obedience to the market principle. There was no behavior hurting profit of non-related shareholders and the Company; the Board of the Company implemented their duty of earnest, trust and responsibility when they made the resolutions related to related transactions. The manager tier could effectively implement the resolutions of the board of directors and shareholders’ meeting on related transaction. There was no behavior violating laws, regulation or the Articles of Association in the process of related transaction. (VI) Self-evaluation of internal control Details could be found in Section VI (III) of Chapter V - Supervisory Committee’s opinions on Self-evaluation of its Internal Control System. CHAPTER IX. SIGNIFICANT EVENTS Section I. Significant lawsuits and arbitrations (administration department) There were no significant lawsuits or arbitrations of the Company in the report period. Section II. Purchases and sales of assets Unit: RMB’0000 The other Assets Purchase Purchase Net profit Net profit Related Explanation on Assets Credit The 41 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 party of purchased date price contributed contributed to transaction price setting rights and related transaction or to the the Company or not(If concern liability relationsh final Company from the yes, note ed concerne ip controller from the year-begin to the transfer d purchase the principle red shifted date to the year-end(applic of price owners fully or year-end able for setting) hip not enterprise fully or merger under not the common control) Guangxi Taking the book Guoda amount of net Drugstore asset as of July Chains Co., 31, 2007 as the The same Ltd./ Guangxi reference final Nanning Accord August 28, evidence, the controllin 500.30 7.54 6.04 Yes Yes Yes Medicines Pharmaceutical 2008 price was g Wholesales Co., Ltd. formed by open sharehold of Guangxi bidding in er Zhuang Assets and Autonomous Equity Region Exchange. Taking the assessment value as of Sep. 30, 10 percent 2007 as the China Same equities of reference National controllin Sinopharm Nov. 10, evidence, the Pharmaceutic 3,066.11 392.71 392.71 Yes Yes No g Medicine 2008 price was al Shanghai sharehold Holding formed by open Corporation er Guangzhou bidding in Co., Ltd. Assets and Equity Exchange. In the report period, there was no sale of assets happened in the Company nor that happened in the previous years but lasted 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 product 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 42 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Sinopharm Medicine Holding 25,697.17 3.09% 0.00 0.00% Shenyang Co., Ltd. Sinopharm Group Medicine Holding 7,457.76 0.90% 0.00 0.00% Hubei Co., Ltd. Sinopharm Medicine Holding 7,157.53 0.86% 1,470.15 0.19% Nanning Co., Ltd. China National Pharmaceutical Group 5,890.56 0.71% 389.08 0.05% Southwest Medicine Co., Ltd. Sinopharm Medicine Holding Tianjin 5,471.53 0.66% 564.52 0.07% Co., Ltd. Sinopharm Medicine Holding Beijing 3,722.84 0.45% 0.00 0.00% Co., Ltd. Hubei Yibao International Medicine 3,478.89 0.42% 0.00 0.00% Co., Ltd. Sinopharm Medicine Holding Beijing 1,024.98 0.12% 0.00 0.00% Huahong Co., Ltd. Tianjin East Bokang Medical Trade 787.47 0.09% 0.00 0.00% Co., Ltd. Sinopharm Medicine Holding Jiangsu 584.45 0.07% 0.00 0.00% Co., Ltd. Sinopharm Medicine Holding Shanxi 512.01 0.06% 0.00 0.00% Co., Ltd. Sinopharm Medicine Holding 479.76 0.06% 0.00 0.00% (Zhengzhou) Jiurui Co., Ltd. Sinopharm Medicine Holding Co., 473.00 0.06% 1,572.41 0.21% Ltd. Sinopharm Group Medicine Holding 339.12 0.04% 8,702.20 1.14% Co., Ltd. Shanghai Sinopharm Wai Gaoqiao 132.89 0.02% 84,783.31 11.12% Medicine Co., Ltd. China National Pharmaceutical Group 58.03 0.01% 0.00 0.00% Northwest Medicine Co., Ltd. Sinopharm Medicine Holding Medical 48.87 0.01% 0.00 0.00% Logistics Co., Ltd. Sinopharm Medicine Guoda 37.74 0.00% 119.39 0.02% Pharmacy Co., Ltd. Sinopharm Medicine Holding Suzhou 23.33 0.00% 0.00 0.00% Co., Ltd. Sinopharm Medicine Holding 12.87 0.00% 0.00 0.00% Zhejiang Co., Ltd. Guangxi Guoda Chain Drugstore Co., 3.44 0.00% 0.00 0.00% Ltd. Sinopharm Medicine Holding Hunan 6,156.21 0.74% 0.00 0.00% Co., Ltd. Sinopharm Medicine Holding 0.00 0.00% 425.12 0.06% Shanghai Co., Ltd. Guangdong Dong Fang Uptodate & 0.00 0.00% 1,034.73 0.14% Special Medicines Co. Ltd. Sinopharm Traditional Chinese 0.00 0.00% 113.24 0.02% Medicine (Shenzhen) Co. Ltd China National Pharmaceutical 0.00 0.00% 1,947.45 0.26% Foreign Trade Corp. Sinopharm Group United Medical 0.00 0.00% 610.20 0.08% Equipment Co., Ltd. Sinopharm Group Chemical Reagent 0.00 0.00% 23.03 0.00% Co., Ltd. Shenzhen Main Luck Pharmaceutical 0.00 0.00% 156.96 0.02% Inc. Total 69,550.45 8.36% 101,911.79 13.37% Of which: In the report period, the related transaction amount of the Company selling products and providing labor service to the controlling shareholders and its subsidiaries was RMB 660,681,200. II. Other related transactions (1) Guarantee provided for the related parties: until Dec. 31st, 2008, the contingent liability formed 43 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 by the guarantee for loans of the related parties and other units provided by the Company Financial Guarantee Begin date of End date of Units providing guarantee Units guaranteed amount Used part influence of guarantee guarantee the Company Related parties: Sinopharm Medicine Holding No Guangzhou Co., Ltd., disadvantage Shenzhen Zhijun The Company 80,000,000.00 62,706,685.86 2008.9.30 2009.9.30 influence Pharmaceutical Co., Ltd. Shenzhen Zhijun No Pharmaceutical Co., Ltd. disadvantage The Company 50,000,000.00 30,171,729.25 2008.12.19 2009.12.19 influence Shenzhen Zhijun No Pharmaceutical Co., Ltd. disadvantage The Company 50,000,000.00 33,235,496.51 2008.12.16 2009.12.16 influence Shenzhen Zhijun No Pharmaceutical Co., Ltd. disadvantage The Company 100,000,000.00 --- 2007.12.29 2009.12.28 influence The Company, Shenzhen The Company, No Zhijun Pharmaceutical Co., Shenzhen Zhijun disadvantage 100,000,000.00 91,255,491.94 2008.12.10 2009.12.10 influence Ltd. Pharmaceutical Co., Ltd. No Shenzhen Zhijun disadvantage The Company 80,000,000.00 42,133,155.35 2008.8.28 2009.8.28 influence Pharmaceutical Co., Ltd. The Company, Sinopharm The Company, Medicine Holding Guangzhou Sinopharm Medicine No Co., Ltd., Shenzhen Zhijun Holding Guangzhou disadvantage 80,000,000.00 --- 2008.05.16 2009.05.16 influence Pharmaceutical Co., Ltd. Co., Ltd., Shenzhen Zhijun Pharmaceutical Co., Ltd. The Company Shenzhen Zhijun No disadvantage Pharmaceutical Co., 60,000,000.00 30,000,000.00 2008.08.19 2011.08.19 influence Ltd. The Company Shenzhen Zhijun No disadvantage Pharmaceutical Co., 100,000,000.00 57,720,000.00 2005.08.17 2009.08.17 influence Ltd. The Company Shenzhen Zhijun No disadvantage Pharmaceutical Co., 50,000,000.00 47,239,045.56 2008.05.28 2009.04.24 influence Ltd. No The Company Sinopharm Medicine disadvantage 50,000,000.00 40,658,682.35 2008.11.11 2009.09.03 Holding Guangzhou influence 44 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Financial Guarantee Begin date of End date of Units providing guarantee Units guaranteed amount Used part influence of guarantee guarantee the Company Co., Ltd. The Company Sinopharm Medicine No disadvantage Holding Guangzhou 55,000,000.00 54,865,888.77 2008.5.29 2009.5.29 influence Co., Ltd. The Company Sinopharm Medicine No disadvantage Holding Guangzhou 73,200,000.00 69,075,912.77 2007.10.22 2008.12.31 influence Co., Ltd. The Company Sinopharm Medicine No disadvantage Holding Guangzhou 450,000,000.00 70,000,000.00 2008.01.01 2008.12.31 influence Co., Ltd. The Company Sinopharm Medicine No disadvantage Holding Guangzhou 80,000,000.00 39,983,323.31 2008.09.01 2009.09.01 influence Co., Ltd. The Company Sinopharm Medicine No disadvantage Holding Guangzhou 30,000,000.00 4,984,700.92 2008.12.17 2009.12.16 influence Co., Ltd. No The Company disadvantage Accord drugstores 10,000,000.00 1,059,961.44 2008.10.20 2009.10.20 influence (2)In 2008, the subsidiary of the Company- Sinopharm Medicine Holding Guangzhou Co., Ltd. was 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 311,200 for Sinopharm (CNCM Ltd), RMB 13,727,400 for Shanghai Sinopharm Wai Gaoqiao Co., Ltd. The related transaction had got approval in the 3rd meeting of the 5th Board of Directors dated Mar. 25th, 2008. (3) The subsidiary of the Company- Sinopharm Medicine Holding (Guangzhou) Co., Ltd had borrowed capital from Sinopharm Medicine Holding Co., Ltd since 2003. It should take capital occupation fee of RMB 6,616,500 for 2008; the newly borrowed capital was borrowed by the Company from 2008, and the Company totally took capital occupation fee of RMB 1,619,000 in 2008. (4) The Company purchased 10% equity of Sinopharm Medicine Holding (Guangzhou) Co., Ltd. from China National Medicine Group Shanghai Co., Ltd. with the price of RMB 30,661,100 in this year. (5) The Company purchased 100% equity of Guangxi Accord from Guangxi Nanning Medicine Wholesale Station and Guangxi Guoda Drugstore Chains Co., Ltd. with the price of RMB 5,003,000. III. Creditor’s rights and liabilities between related parties and the Company: Unit: RMB’0000 45 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Capital provided by related parties to the Capital provided for related parties Related parties Company Occurrence amount Balance Occurrence amount Balance Total 73,217.65 11,643.93 179,099.82 23,531.70 The details were as follows: Unit: RMB’0000 Capital provided by related parties to the Capital provided for related parties Related parties Company Occurrence amount Balance Occurrence amount Balance Account receivable: 0.00 0.00 0.00 0.00 Sinopharm Medicine Holding Shenyang 30,064.96 5,601.39 0.00 0.00 Co., Ltd. Sinopharm Medicine Holding Hunan 7,202.76 1,321.52 0.00 0.00 Co., Ltd. China National Pharmaceutical Group 6,891.96 1,321.60 0.00 0.00 Southwest Medicine Co., Ltd. Sinopharm Medicine Holding Tianjin 6,401.69 916.92 0.00 0.00 Co., Ltd. Sinopharm Medicine Holding Beijing 4,355.72 809.73 0.00 0.00 Co., Ltd. Sinopharm Medicine Holding Nanning 8,374.31 288.86 0.00 0.00 Co., Ltd. Sinopharm Medicine Holding Shanxi 599.06 171.73 0.00 0.00 Co., Ltd. Tianjin East Bokang Medical Trade Co., 921.34 133.58 0.00 0.00 Ltd. Sinopharm Medicine Holding Co., Ltd. 553.41 103.73 0.00 0.00 China National Medicines Group 317.29 38.27 0.00 0.00 Corporation Ltd. China National Pharmaceutical Group 67.96 17.41 0.00 0.00 Northwest Medicine Co., Ltd. Guangdong Dong Fang Uptodate & 353.15 55.11 0.00 0.00 Special Medicines Co., Ltd. Sinopharm Medicine Holding Jiangsu 650.71 92.81 0.00 0.00 Co., Ltd. Sinopharm Medicine Holding Beijing 1,199.23 84.95 0.00 0.00 Huahong Co., Ltd. Sinopharm Medicine Holding Guoda 44.16 40.20 0.00 0.00 Drugstore Co., Ltd. Sinopharm Medicine Holding Suzhou 27.29 4.54 0.00 0.00 Co., Ltd. Sinopharm Medicine Holding Zhejiang 15.06 1.43 0.00 0.00 Co., Ltd. Shanghai Sinopharm Wai Gaoqiao 154.11 154.11 0.00 0.00 Medicine Co., Ltd. Sinopharm Medicine Holding 561.32 92.21 0.00 0.00 (Zhengzhou) Jiurui Co., Ltd. Hubei Yibao International Medicine 4,070.31 387.98 0.00 0.00 Co., Ltd. Guangxi Guoda Chain Drugstore Co., 3.89 0.21 0.00 0.00 Ltd. Sinopharm Medicine Holding Hubei 372.67 5.64 0.00 0.00 Co., Ltd. Other account receivable: 0.00 0.00 0.00 0.00 Sinopharm Medicine Holding Guoda 15.29 0.00 0.00 0.00 Drugstore Co., Ltd. Account payable: 0.00 0.00 0.00 0.00 Shanghai Sinopharm Wai Gaoqiao 0.00 0.00 142,253.47 11,022.08 Medicine Co., Ltd. Sinopharm Medicine Holding Co., Ltd. 0.00 0.00 1,901.90 1,850.56 China National Medicines Group 0.00 0.00 11,582.43 641.80 Corporation Ltd. China National Pharmaceutical Foreign 0.00 0.00 2,333.77 535.92 Trade Corporation 46 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Sinopharm Medicine Holding Shanghai 0.00 0.00 1,725.84 438.81 Co., Ltd. Sinopharm Medicine Holding Guoda 0.00 0.00 1,346.52 344.36 Pharmacy Co., Ltd. Sinopharm Medicine Holding Nanning 0.00 0.00 2,468.18 252.86 Co., Ltd. Guangdong Dong Fang Uptodate & 0.00 0.00 2,389.90 234.70 Special Medicines Co., Ltd. Sinopharm Medicine Holding Tianjin 0.00 0.00 484.07 80.64 Co., Ltd. Shenzhen Main Luck Pharmaceutical 0.00 0.00 2,130.17 47.09 Inc. Beijing Zhongxin Medical Operation 0.00 0.00 0.00 7.14 Company Sinopharm Medicine Group Shanghai 0.00 0.00 0.00 1.62 Medical Equipment Co., Ltd. Sinopharm Medicine Holding Shenzhen 0.00 0.00 206.85 0.93 TCM Co., Ltd. Sinopharm Medicine Group Beijing 0.00 0.00 0.00 0.88 Medical Equipment Co., Ltd. Sinopharm Medicine Holding Beijing 0.00 0.00 0.00 0.40 Co., Ltd. Guangdong Renbo Medical Equipment 0.00 0.00 0.00 0.05 Co., Ltd. Sinopharm Group United Medical 0.00 0.00 1,017.04 -21.08 Equipment Co., Ltd. China National Pharmaceutical Group 0.00 0.00 455.23 0.00 Southwest Medicine Co., Ltd. Sinopharm Group Chemical Reagent 0.00 0.00 65.27 0.00 Co., Ltd. Other account payable: 0.00 0.00 0.00 0.00 Sinopharm Medicine Holding Nanning 0.00 0.00 5.00 0.00 Co., Ltd. Sinopharm Medicine Holding Co., Ltd. 0.00 0.00 7,000.00 6,000.00 Sichuan Antibiotics Industrial Institute 0.00 0.00 0.00 285.18 Co., Ltd. China National Pharmaceutical Group 0.00 0.00 1,533.06 1,533.06 Shanghai Co., Ltd. Sinopharm Medicine Holding Guoda 0.00 0.00 192.21 192.21 Drugstore Co., Ltd. Sinopharm Medicine Holding Medical 0.00 0.00 8.91 80.00 Logistics Co., Ltd Sinopharm Medicine Holding Shenzhen 0.00 0.00 0.00 2.49 TCM Co., Ltd. Total 73,217.65 11,643.93 179,099.82 23,531.70 Of which: In the report period, the occurring amount which the Company provided funds to the controlling shareholder and its subsidiaries was RMB 687,750,100 and the balance was RMB 112,006,300. In the report period, the Company has not provided non-operating capital for the controlling shareholder and its subsidiaries. Section IV. Important contracts and implementation I. Significant contracts (I) There was no signed external investment contract or financial expenditure which had not been implemented or completely implemented. (II) There was no signed let contract with big amount being implemented or in preparation to implement. (III) The signed equipment purchase contract with big amount was being implemented or in preparation to implement. The account payable agreed in the equipment purchase contract signed by Zhijun Pharmaceutical Co., Ltd, a subsidiary of the Company, could be found in the following table, and this account 47 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 belonged to the necessary expenditure for the normal operation of the Company: Period Amount payable Within a year RMB 6,541,600 1 to 2 years RMB 451,700 (IV) The signed lease contract and financial influence which was 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 belonged to the necessary expenditure for the normal operation of the Company: Period Lease amount payable Within a year RMB 22,029,600 1 to 2 years RMB 16,230,000 2 to 3 years RMB 8,144,100 Above 3 years RMB 4,367,400 Total RMB 50,771,100 (V) There was no signed merger agreement being implemented or in preparation to implement. (VI) There was no signed reorganization plan being implemented or in preparation to implement. (VII) There was no other significant financial commitment. (VIII) Implementation of commitment in the past. All commitments had been implemented according to contact. II. Significant guarantee Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Name of the Date of happening Complete Guarantee for Amount of Guarantee Guarantee Company (date of signing Implementat related party guarantee type term guaranteed agreement) ion or not (yes or 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 96,500.00 period Total balance of guarantee for controlling subsidiaries at the end of 113,820.00 the report period Particulars about the total guarantee of the Company (Including the guarantee for the controlling subsidiaries) Total amount of guarantee 113,820.00 The proportion of the total amount of guarantee in the net assets of the 181.25% Company Including: Amount of guarantee for shareholders, 0.00 actual controller and its related parties The debts guarantee amount provided for the guarantee of which the 113,820.00 assets-liability ratio exceeded 70% directly or indirectly Proportion of total amount of 82,420.66 48 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 guarantee in net assets of the Company exceeded 50% Total amount of the aforesaid three 113,820.00 guarantees III. Entrustment of cash assets management In the report period, the Company had not entrusted others to manage cash assets, nor had it done so in previous periods and lasted into this report period. Section V. Commitments of the Company or shareholders holding over 5% shares of the Company Special commitments and the implementation by the former non-circulating shareholders in Share Merger Reform Commitment Shareholders Commitments Remarks implementation (1) Not selling original non-tradable equities through stock exchange in 24 months from the day they become tradable. (2) Original non-tradable equities sold through stock exchange after the 24 months since the day they got circulation right in list market should take up no more than 10% of the Company’s total shares in the following 12 months, and the price is no lower than It did not reach the Sinopharm Medicine 110% of the stock weighted average price, that is Implementing requirements of Holding Co., Ltd. RMB5.05, of the 30 trading days before Accord implementation. Pharmaceutical’s Board of Directors publish the Reform Plan (from the day of Share Merger 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 ). (1)Not trading or transferring within 12 months from the day when the Reform is carried out; on basis of the The aforesaid Shenzhen Bao’an District Shiyan aforementioned time limited, original non-tradable commitment was Town Economic Development equities sold through stock exchange should take up no completely Corporation more than 5% of the Company’s total shares in the implemented till following 12 months; (2) and no more than 10% within May16, 2008. 24 months. Section VI. Engagement of Certified Public Accountants I. Engagement of Certified Public Accountants On Mar. 25th, 2008, the 3rd meeting of the 5th board of directors decided to reengage Shulun Pan Certified Public Accountants Co., Ltd. as the audit institution of the Company for 2008, and it was approved in the Shareholders’ General Meeting 2007 on Apr. 25th, 2008; Relevant notice was published on Securities Times and Hong Kong Wen Wei Po dated Apr. 26th, 2008. II. Remuneration paid to Certified Public Accountants The auditing fees the Company paid to the Certified Public Accountants for the Annual Report 2008 totaled to 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 for 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 5 years. Section VII. Other important events In the report period, the Company, the board of directors, supervisory committee, senior executives, 49 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 shareholders, and actual controllers did not be inspected or administratively punished by CSRC, not be prohibited by security market, cognized as improper to be punished by other administrative department or be publicly criticized by Stock Exchange. Section VIII. In the report period, the received research and interview of the Company In the report period, the Company respectively received 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 had not disclosed or leaked non-public significant information to specific parties privately, selectively or in advance. This guaranteed 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 date place materials supplied way Accord Attended the Annual Spot China Merchants April 25, 2008 Pharmaceutical Shareholders’ General Meeting research securities Co., LTD. Building of the Company Accord Attended the Annual Spot GF SECURITIES April 25, 2008 Pharmaceutical Shareholders’ General Meeting research CO.,LTD. Building of the Company Franklin Templeton Accord Attended the Annual Spot Sealand Fund April 25, 2008 Pharmaceutical Shareholders’ General Meeting research Management Co., Building of the Company Ltd. Section IX. Explanation on change of accounting policy, accounting estimation and calculating method compared with the latest annual report (I) Change of accounting policy There was no change of accounting policy in the report period. (II) Change in accounting estimation There was no change of accounting estimation in the report period. 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 was totally 1 new consolidated unit this year, that was Guangxi Accord Pharmaceutical Co., Ltd. purchased in 2008. 2. It decreased totally 2 consolidated units this year, which were Guangzhou Qingyun Hotel Co., Ltd. and Guangdong Dongshi Enterprise Development Co., Ltd. written off in 2007, subsidiaries of the Company’s underling subsidiary-Huixin Investment. Section XII. Index for information notice on significant events No. Disclosure date Events disclosed Resolution of the Third Meeting of the Fifth Board of Directors Resolution of the Third Meeting of the Fifth Supervisory Committee 1 March 27, 2008 2007 Annual Report and the Summary (Chinese and English version included) 50 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 2007 Annual Auditing Report and Financial Report Current Accounts of Related Parties and Checking Report of External Guarantee 2007 Self-evaluation Report of Internal Control 2007 Report on Social Responsibility Independent Directors’ 2007 Work Report Independent Directors’ Working System for Annual Report Annual Auditing Procedures for Auditing Committee of the Board Notice on Preestimated 2008 Daily Related Transaction Plan Notice on Applying Comprehensive Credit Line from the Bank and Offering Guarantee on Applying Bank Credit for its Subordinate Related Transaction Notice on Purchasing 10% Equity of Sinopharm Medicine Holding Guangzhou Co., Ltd. Notice on Independent Directors’ Opinion Notice on Holding 2007 Annual Shareholders’ General Meeting Complemented Notice on Holding 2007 Annual Shareholders’ General 2 March 29, 2008 Meeting Resolution of the Fourth Meeting of the Fifth Board of Directors the First Quarterly Report 2008 3 April 26, 2008 Resolution of 2007 Shareholders’ General Meeting Articles of Association of the Company (modified) 4 May 15, 2008 Suggestive Notice of Listing and Circulating of Restricted Shares 5 May 20, 2008 Notice of Donating Medicine to Sichuan Earthquake Disaster Area Notice of Related Transactions of Loan from Sinopharm Holding 6 June 28, 2008 Company Limited. Resolution of the Extraordinary Meeting of the 5th Board of Directors 7 July 19, 2008 Reform Report for Special Corporate Governance Campaign Self-inspection Summary Report for Capital occupation of large 8 July 31, 2008 shareholders and related parties Resolution of the 5th Meeting of the 5th Board of Directors Resolution of the 4th Meeting of the 5th Supervisory Committee 9 Aug. 8, 2008 The Semi-annual Report 2008 and its Summary (Chinese and English version included) The Semi-annual Financial Report 2008 10 Aug. 15, 2008 Notice of Holding the 1st Extraordinary Shareholders’ Meeting 2008 11 Aug. 30, 2008 Notice of Assets Purchase and Related Transaction Resolution of the 1st Extraordinary Shareholders’ Meeting 2008 12 Sep. 2, 2008 Legal Opinion Report of the 1st Extraordinary Shareholders’ Meeting 2008 Resolution of the 6th Meeting of the 5th Board of Directors Resolution of the 5th Meeting of the 5th Supervisory Committee The Third Quarterly Report 2008 and its Summary (English version) 13 Oct. 24, 2008 Notice of Holding the 2nd Extraordinary Shareholders’ Meeting 2008 Notice of Providing Guarantee for the Controlling Subsidiary Company Applying for Bank Credit Resolution of the 2nd Extraordinary Shareholders’ Meeting 14 Nov. 12, 2008 Notice of Change of Controlling Shareholders 15 Nov.14, 2008 Notice for Clarification 16 Dec. 4, 2008 Notice of Shareholders’ Reducing Shares 51 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Notice of Controlling Subsidiary Company being Elected as High and 17 Dec. 23, 2008 New Technology Enterprise Resolution of the 7th Meeting of the 5th Board of Directors Resolution of the 6th Meeting of the 5th Supervisory Committee 18 Dec. 30, 2008 Related Transaction Notice of Signing Contract for Usage, Development and Maintenance of CMS Information System Complementary Notice of Resolution of the 7th Meeting of the 5th Board of Directors Notice of Purchasing 100% Equity of Dongguan Dongfeng TCM Co., Ltd. Related Transaction Notice of Selling Retailing Business Assets 19 Dec. 31, 2008 Notice of Assets Purchase Related Transaction Notice of Purchasing 100% Equity of SinoPharm Medicine Holding Nanning Co., Ltd. Complementary Notice of the 6th Meeting of the 5th Supervisory Committee The aforesaid events had been disclosed on Securities Times, Hong Kong Wen Wei Po and the website http://www.cninfo.com.cn. CHAPTER X. FINANCIAL REPORT AUDITORS’ REPORT PCPAR (2009) No.10598 To all the 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, 2008, 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 Accounting Standards for Business Enterprises. This responsibility includes:  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;  Selecting and applying appropriate accounting policies; and  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 52 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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 and present fairly, in all material respect, the financial position of the Company as of December 31, 2008, 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 LU Guohao Certified Public Accountant of China TAN Hongmei Shanghai, China Date: March 17, 2009 53 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Balance Sheet Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. December 31, 2008 Unit: RMB Balance at period-end Balance at year-begin Items Merger Parent Company Merger Parent Company Current assets: Monetary funds 345,259,516.47 62,369,583.65 254,837,411.30 54,841,676.10 Settlement provisions Capital lent Transaction finance asset Notes receivable 221,876,250.45 254,500.00 166,838,281.78 575,727.24 Accounts receivable 1,726,711,922.82 243,301,803.10 1,286,649,082.59 266,608,019.71 Accounts paid in advance 40,034,923.45 4,919,683.46 54,122,228.36 1,845,633.24 Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivable Interest receivable Dividend receivable 228,443.24 228,443.24 Other receivables 32,606,307.59 242,415,823.08 37,748,343.14 100,105,321.32 Purchase restituted finance asset Inventories 735,661,642.08 94,249,578.90 574,318,139.76 71,473,576.82 Non-current asset due within one year Other current assets Total current assets 3,102,150,562.86 647,510,972.19 2,374,741,930.17 495,678,397.67 Non-current assets: Granted loans and advances Finance asset available for sales Held-to-maturity securities Long-term account receivable Long-term equity investment 69,578,981.80 323,756,562.92 57,373,856.63 262,526,712.89 54 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Investment property 22,848,031.69 2,140,353.75 37,094,592.40 2,291,009.00 Fixed assets 374,870,446.95 36,732,350.96 340,639,114.64 45,496,890.76 Construction in progress 18,756,982.97 253,886.24 7,531,515.44 253,886.24 Engineering material Disposal of fixed asset Productive biological asset Oil and gas asset Intangible assets 57,607,282.99 30,622,772.31 53,299,711.82 29,437,449.09 Expense on Research and Development Goodwill Long-term expenses to be 16,414,181.91 276,057.82 12,625,298.34 338,545.86 apportioned Deferred income tax asset 7,869,895.86 13,675,921.06 Other non-current asset 13,877,829.74 14,109,171.88 Total non-current asset 581,823,633.91 393,781,984.00 536,349,182.21 340,344,493.84 Total assets 3,683,974,196.77 1,041,292,956.19 2,911,091,112.38 836,022,891.51 Current liabilities: Short-term loans 378,948,301.38 80,171,729.25 254,396,407.94 55,000,000.00 Loan from central bank Absorbing deposit and interbank deposit Capital borrowed Transaction financial liabilities Notes payable 791,513,252.27 129,298,292.87 494,788,218.16 91,246,553.68 Accounts payable 1,357,026,915.55 268,335,731.42 1,054,606,346.77 214,598,852.16 Accounts received in advance 18,487,835.55 4,626,342.73 15,666,567.23 1,732,574.54 Selling financial asset of repurchase Commission charge and commission payable Wage payable 74,195,821.61 14,678,407.64 104,917,442.34 22,849,376.49 Taxes payable 14,379,964.47 -963,780.92 19,811,311.90 -157,294.23 Interest payable 742,393.70 39,700.00 329,027.27 145,100.64 Dividend payable 3,746,270.05 3,746,270.05 Other accounts payable 271,731,949.89 119,209,791.88 323,560,290.20 114,127,379.52 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Long-term liabilities due within 57,720,000.00 1 year Other current liabilities 55 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Total current liabilities 2,968,492,704.47 615,396,214.87 2,271,821,881.86 499,542,542.80 Non-current liabilities: Long-term loans 30,000,000.00 77,720,000.00 Bonds payable Long-term account payable 51,261.00 113,625.83 Special accounts payable 800,000.00 800,000.00 1,800,000.00 800,000.00 Projected liabilities 898,409.16 Deferred income tax liabilities 12,174,180.87 13,071,193.57 Other non-current liabilities 23,085,874.07 23,085,874.07 Total non-current liabilities 66,111,315.94 800,000.00 116,689,102.63 800,000.00 Total liabilities 3,034,604,020.41 616,196,214.87 2,388,510,984.49 500,342,542.80 Owner’s equity (or shareholders’ equity): Paid-in capital (or share capital) 288,149,400.00 288,149,400.00 288,149,400.00 288,149,400.00 Capital public reserve 5,055,838.57 2,508,769.94 9,801,131.71 2,508,769.94 Less: Inventory shares Surplus public reserve 9,303,064.31 12,781,301.82 7,092,488.00 7,092,488.00 Provision of general risk Retained profit 325,478,410.18 121,657,269.56 184,074,070.88 37,929,690.77 Balance difference of foreign currency translation Total owner’s equity attributable to 627,986,713.06 425,096,741.32 489,117,090.59 335,680,348.71 parent company Minority interests 21,383,463.30 33,463,037.30 Total owner’s equity 649,370,176.36 425,096,741.32 522,580,127.89 335,680,348.71 Total liabilities and owner’s equity 3,683,974,196.77 1,041,292,956.19 2,911,091,112.38 836,022,891.51 Profit Statement Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. January-December, 2008 Unit: RMB Amount in this period Amount in last period Items Merger Parent Company Merger Parent Company I. Total operating income 8,360,350,198.18 1,393,395,233.76 6,878,305,483.32 1,236,948,653.24 Including: Operating income 8,360,350,198.18 1,393,395,233.76 6,878,305,483.32 1,236,948,653.24 Interest income Insurance gained Commission charge and commission income II. Total operating cost 8,192,562,587.02 1,402,155,815.39 6,743,064,873.98 1,248,505,099.97 Including: Operating cost 7,627,811,018.21 1,324,050,202.14 6,171,204,306.69 1,166,634,525.46 Interest expense Commission charge and 56 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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 11,132,572.30 567,924.96 12,245,830.36 547,571.00 Sales expenses 298,326,776.58 38,226,318.17 331,526,963.41 34,439,954.72 Administration expenses 204,915,589.20 41,371,738.60 188,972,655.10 44,065,623.81 Financial expenses 53,526,702.97 35,768.35 29,865,732.85 661,836.20 Losses of devaluation of asset -3,150,072.24 -2,096,136.83 9,249,385.57 2,155,588.78 Add: Changing income of fair value(Loss is listed with “-”) Investment income (Loss is 16,510,914.22 95,694,628.72 34,086,953.88 98,338,366.71 listed with “-”) Including: Investment income on affiliated company and joint 16,507,296.06 -47,794.59 8,209,843.29 -1,074,707.13 venture Exchange income (Loss is listed with “-”) III. Operating profit (Loss is 184,298,525.38 86,934,047.09 169,327,563.22 86,781,919.98 listed with “-”) Add: Non-operating income 19,774,350.12 6,143,458.54 23,484,253.71 3,943,239.07 Less: Non-operating expense 575,148.60 46,862.53 1,760,729.82 517,568.73 Including: Disposal loss of 492,133.28 32,132.03 626,437.92 307,564.63 non-current asset IV. Total Profit (Loss is listed 203,497,726.90 93,030,643.10 191,051,087.11 90,207,590.32 with “-”) Less: Income tax 41,043,599.94 52,333,330.06 V. Net profit (Net loss is listed 162,454,126.96 93,030,643.10 138,717,757.05 90,207,590.32 with “-”) Net profit attributable to 154,807,067.87 93,030,643.10 124,913,985.45 90,207,590.32 owner’s equity of parent company Minority shareholders’ gains 7,647,059.09 13,803,771.60 and losses VI. Earnings per share i. Basic earnings per share 0.537 0.323 0.434 0.313 ii. Diluted earnings per share 0.537 0.323 0.434 0.313 57 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Cash Flow Statement Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. January-December, 2008 Unit: RMB Amount in this period Amount in last period Items Merger Parent Company Merger Parent Company I. Cash flows arising from operating activities: Cash received from selling commodities and providing labor 9,482,544,445.66 1,654,449,631.15 8,085,599,499.72 1,439,359,660.64 services Net increase of customer deposit and interbank deposit Net increase of loan from central bank Net increase of capital 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 1,147,948.71 2,548,876.31 Other cash received concerning 28,677,323.33 18,311,540.59 52,658,123.94 101,749,994.73 operating activities Subtotal of cash inflow arising 9,512,369,717.70 1,672,761,171.74 8,140,806,499.97 1,541,109,655.37 from operating activities Cash paid for purchasing commodities and receiving labor 8,555,202,289.04 1,457,665,870.25 7,339,461,307.31 1,455,126,883.48 service Net increase of customer loans and advances Net increase of deposits in 58 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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 278,835,376.12 39,084,324.95 251,959,425.42 33,609,313.69 workers Taxes paid 167,927,252.04 9,801,028.19 173,647,167.23 14,249,465.84 Other cash paid concerning 263,824,361.51 169,043,027.67 288,040,760.00 147,862,737.38 operating activities Subtotal of cash outflow arising 9,265,789,278.71 1,675,594,251.06 8,053,108,659.96 1,650,848,400.39 from operating activities Net cash flows arising from 246,580,438.99 -2,833,079.32 87,697,840.01 -109,738,745.02 operating activities II. Cash flows arising from investing activities: Cash received from recovering 26,588,726.02 0.65 investment Cash received from investment 4,534,232.29 99,987,068.69 3,457,479.92 99,413,073.19 income Net cash received from disposal of fixed, intangible and other 10,405,932.56 34,613.39 28,017,753.45 415,971.93 long-term assets Net cash received from disposal 1,922,100.00 1,922,101.00 of subsidiaries and other units Other cash received concerning investing activities Subtotal of cash inflow from 16,862,264.85 101,943,783.08 58,063,959.39 99,829,045.77 investing activities Cash paid for purchasing fixed, 84,982,286.53 1,956,678.00 71,410,213.94 3,694,492.21 intangible and other long-term assets Cash paid for investment 30,000.00 Net increase of mortgaged loans Net cash received from 20,333,528.49 134,598,033.49 subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow from 105,315,815.02 136,554,711.49 71,410,213.94 3,724,492.21 investing activities Net cash flows arising from -88,453,550.17 -34,610,928.41 -13,346,254.55 96,104,553.56 investing activities 59 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 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 646,549,462.94 220,000,000.00 305,000,000.00 85,000,000.00 Cash received from issuing bonds Other cash received concerning 56,762,100.00 56,762,100.00 4,788,000.00 financing activities Subtotal of cash inflow from 703,311,562.94 276,762,100.00 309,788,000.00 85,000,000.00 financing activities Cash paid for settling debts 611,566,139.63 225,000,000.00 274,000,000.00 40,000,000.00 Cash paid for dividend and 50,581,025.64 6,790,184.72 61,717,855.64 27,673,764.58 profit distributing or interest paying Including: Dividend and profit of minority shareholder paid by 374,028.45 subsidiaries Other cash paid concerning 110,000,000.00 financing activities Subtotal of cash outflow from 772,147,165.27 231,790,184.72 335,717,855.64 67,673,764.58 financing activities Net cash flows arising from -68,835,602.33 44,971,915.28 -25,929,855.64 17,326,235.42 financing activities IV. Influence on cash due to 1,130,818.68 1,070,627.47 -115.00 fluctuation in exchange rate V. Net increase of cash and cash 90,422,105.17 7,527,907.55 49,492,357.29 3,691,928.96 equivalents Add: Balance of cash and cash 254,837,411.30 54,841,676.10 205,345,054.01 51,149,747.14 equivalents at the period -begin VI. Balance of cash and cash 345,259,516.47 62,369,583.65 254,837,411.30 54,841,676.10 equivalents at the period -end 60 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 Statement on Changes of Owners' Equity Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Amount in this report period Owners' equity attributable to the parent company Owners' equity at Paid-up Total Paid-up Items Less: General Minority Less: capital Capital Surplus Retained owners’ capital Capital Treasury risk Others interest Treasur (Share reserves reserves profit equity (Share reserves Stock provision Stock capital) capital) I. Balance at the end of the last 288,149, 9,801,13 7,092,48 184,074, 33,463,0 522,580, 288,149, 23,044,0 year 400.00 1.71 8.00 070.88 37.30 127.89 400.00 74.54 Add: Changes of accounting -7,915,9 policy 96.89 Error correction of the last period Others II. Balance at the beginning of 288,149, 9,801,13 7,092,48 184,074, 33,463,0 522,580, 288,149, 15,128,0 this year 400.00 1.71 8.00 070.88 37.30 127.89 400.00 77.65 III. Increase/ Decrease in this -4,745,2 2,210,57 141,404, -12,079,5 126,790, -5,326,9 year (Decrease is listed 93.14 6.31 339.30 74.00 048.47 45.94 with'"-") 154,807, 7,647,05 162,454, (I) Net profit 067.87 9.09 126.96 (II) Profits and losses 254,706. -7,092,4 -4,099,66 -10,937, -5,326,9 calculating into owners' equity 86 88.00 4.26 445.40 45.94 1. Net changing amount of fair -7,317,1 value of financial assets 05.65 available for sale 2. Effect of changes of other Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 owners' equity of invested units under equity method 3. Effect of income tax related to owners' equity 254,706. -7,092,4 -4,099,66 -10,937, 1,990,15 4. Others 86 88.00 4.26 445.40 9.71 254,706. -7,092,4 150,707, 7,647,05 151,516, -5,326,9 Total of (I)and (II) 86 88.00 403.61 9.09 681.56 45.94 (III) Owners' devoted and -5,000,0 -5,000,0 decreased capital 00.00 00.00 -5,000,0 -5,000,0 1. Owners' devoted capital 00.00 00.00 2. Amount calculated into owners' equity paid in shares 3. Others 9,303,06 -9,303,06 (IV) Profit distribution 4.31 4.31 1. Withdrawal of surplus 9,303,06 -9,303,06 reserves 4.31 4.31 2. Withdrawal of general risk provisions 3. Distribution for owners (shareholders) 4. Others (V) Carrying forward internal -19,726,6 -19,726, owners' equity 33.09 633.09 1. Capital reserves conversed to capital (share capital) 2. Surplus reserves conversed to capital (share capital) 3. Remedying loss with profit surplus Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2008 -19,726,6 -19,726, 4. Others 33.09 633.09 IV. Balance at the end of the 288,149, 5,055,83 9,303,06 325,478, 21,383,4 649,370, 288,149, 9,801,13 report period 400.00 8.57 4.31 410.18 63.30 176.36 400.00 1.71 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 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 shares, 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 Page 64 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS pharmaceutical manufacturing industry. On February 18, 2004, the Company’s original main shareholder, Shenzhen Investment Management Company, signed a Stock Transfer Agreement with Sinopharm Holdings Co., Ltd. (formerly known as Sinopharm Group Medicine Holding Co., Ltd, hereinafter referred to as Sinopharm Medicine Holding ) to transfer all the 43.33% stock holdings in the Company to Sinopharm Medicine Holding. 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, 2008, the Company had 288,149,400 shares in total, among which 83,979,827 shares were with restrictions on liquidity and accounted for 29.14% of the total number of shares, and 204,169,573 shares were without restriction on liquidity and accounted for 70.86% 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 Page 65 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS August 2, 2036. The registered capital of the Company is CNY 288,149,400. The legal representative of the Company was changed from Chen Weigang to Fu Mingzhong on May 13, 2008, who was later replaced by Shi Jinming on January 8, 2009. 1.2 Business scope of the Company The scope of business of the Company is: wholesale of Chinese patent drugs, raw materials for chemical medicine, chemical material drugs, antibiotics, bio-chemical drugs, wholesale of biological products (including vaccines) (its Pharmaceutical Trade License is valid until December 14, 2009); trade of health food (its Hygiene License is valid until March 24, 2009); 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); 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; import and export business (excluding the items banned by laws, administrative regulations, or the State Council. The restricted items can only be traded after obtaining a license). 2 Basis for the preparation of financial statements and statement of complying with Accounting Standards for Business Enterprises 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 Page 66 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS accounting standards, and the financial statements are prepared on this basis. 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, changes in owner’s equity and cash flow, etc of the Company. 3 Principal accounting policies, estimates and errors of previous period 3.1 Fiscal year The fiscal year of the Company is the solar calendar year, which is from January 1 to December 31. 3.2 Recording currency Recording currency is CNY. 3.3 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 in the calculation nature of statement items during current reporting period. 3.4 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. 3.5 Transactions of foreign currencies Foreign currency transactions are converted into CNY for recording purpose at the Page 67 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS exchange rate on the first day of the period when the transaction occurs. The balance of foreign currency accounts is converted in accordance with the exchange rate prevailing on the balance sheet date. The 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 accounted into current profit or loss. Value of non currency item recorded at historical cost by foreign currency is adjusted in accordance with the exchange rate prevailing on the date of transaction, without changes in the value of its recorded currency. 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, with the conversion differences accounted into current profit or loss, or capital surplus. 3.6 Accounting method of 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. Page 68 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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. 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 Page 69 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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. 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. Page 70 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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 year: (1) The book value of the transferred financial asset; (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 split 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 year: (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 Page 71 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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. 3.7 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 year. Recoverable amount is recognized through discounting original actual rate of its future cash flow(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 receivable at first. Since there is tiny difference between estimated future cash flow and present value of short-term accounts receivable, the estimated future cash flow 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 as of December 31, 2008, the Company conducts individual impairment tests. The receivables which are tested unimpaired(including material and non-material receivables) will be re-tested in Page 72 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS group of receivables with similar credit risk features. In addition to the receivables provided for impairment loss separately, the Company appropriates bad debt reserve on the basis of the actual loss ratio of previous same or similar receivables that have similar credit risk features in aging analysis, with the actual financial status taken into consideration Aging of accounts receivable Appropriation proportion Within 1 year --- 1 to 2 years 5% 2 to 3 years 10% More than 3 years 20% 3.8 Accounting method of inventory: (a) Inventory classification Inventory is classified into 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 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. The low cost and short-lived articles adopt the one-off amortization method. (c) System of stock inventories Perpetual inventory method is adopted. (d) Recording method of provision for inventory devaluation At the end of the year, after overall check of the inventory, draw or adjust provision Page 73 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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 year. 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 year. 3.9 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 Page 74 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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. 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., and all the direct expenses related to the enterprise merger. In case the enterprise merger is realized through several steps of exchanges and transactions, the merger cost will be the sum total of the merger cost of every single transaction. In case the future events which may affecting the merger cost are agreed on in the merger agreement, the future events on the purchasing date, which will probably occur and whose influences on merger cost can reliably measured in value, shall 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( with the already announced but not distributed cash dividend or profits deducted) will be deemed as the initial investment cost, except that the contracts or agreements provide that the values are not fair. Page 75 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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 out-coming assets will be deemed as the initial investment cost, unless there are solid evidences indicating the fair values of the incoming assets are more reliable; in case the non-currency asset exchange does not meet the above two premises, the book values of the assets and relevant taxes will be deemed as the initial investment cost of the incoming long-term equity investment. 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. (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 Page 76 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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 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. 3.10 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 Page 77 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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. For those suffer impairment losses, the Company estimates their recoverable value. If the recoverable value is lower than its book value, relevant impairment loss is recognized. 3.11 Valuation and depreciation methods of fixed assets (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 into 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. Page 78 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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 year. 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 of fixed assets 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 Page 79 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS follows: Category Estimated useful Estimated net Annual life (year) residual value rate depreciation (%) rate(％) Buildings and 20-35 5 2.71-4.75 constructions 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% 3.12 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 standard and 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 transfer them into fixed assets. The depreciation amount will also be withdrawn in accordance with the Company’s depreciation policy of fixed assets. 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 3.13 Accounting method of intangible assets (a) Calculation method of intangible assets Intangible assets are recorded at the actual cost on acquisition. The cost of intangible assets purchased includes purchase price, related tax, other expenses attributable to the assets that arise before the assets are completed and put into use. For those the price of intangible assets deferred paid exceed normal credit Page 80 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS condition so substantively has financing character, the cost of intangible assets is confirmed on the basis of present value of purchasing price. For intangible assets formed through obtaining them by the debtor paying for debt in debt restructure, recognize its recording value as fair value of the intangible assets, and record the difference between the carrying amounts of debt restructure and the intangible assets used for paying debt into profit and loss of the current year. 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. 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： Software is amortized within five years; patents are amortized over beneficial period; land use rights are amortized over the useful period stipulated in the certificate. At the end of each year, the Company will recheck the usage life of intangible assets with the limited usage life and amortization method will be rechecked. After the rechecking, no changes have occurred to the usage life of intangible assets and amortization method. (2) The Company has no intangible assets with uncertain useful life. (3) Amortization of intangible assets Page 81 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS In case their usage life is limited, the Company will amortize the intangible assets on a straight line basis within the period during which they can bring economic benefits to enterprises; in case it’s impossible to evaluate the period during which the intangible assets can bring economic benefits to enterprises, it will be deemed that the usage life of such intangible assets is uncertain and amortization is unavailable. (c) Research phase expenses and classification standard of development phase expenses of R&D projects The development phase expenses of internal R&D projects are confirmed as intangible assets unless they can meet following conditions: (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. 3.14 Amortization method and period of long-term deferred expenses Long-term deferred expenses are amortized evenly over the beneficial period, among which: (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. 3.15 Impairment on other main assets except for inventories, investment real estate Page 82 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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 such as fixed assets, construction in progress, intangibles and good will 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 (after the deduction of estimated residual value) is amortized systematically over their remaining useful life. Impairment loss on long-term non-financial assets such as fixed assets, construction Page 83 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS in progress, intangibles, etc shall not be reversed once recognized. When there are signs of possible impairment on assets, the Company estimates the recoverable amount of the assets on an individual basis. 3.16 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 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. In case some of the projects for the assets complying with the capitalization conditions have been completed and are ready for use separately, the capitalization of loan expenses for these projects will be stopped. Page 84 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS (b) Capitalization period of loan expenses The capitalization period refers to the time from the starting of the capitalization of loan expenses to the ending of the capitalization, excluding the time of suspension of capitalization. (c) Calculation method of 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 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. 3.17 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; the amount of revenue can be reliably measured; it is probable that the economic benefits associated with the transaction will flow to the enterprise; and the relevant costs that have already occurred or are going to occur can be measured reliably. (b) Rendering of service Page 85 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 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 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. 3.18 Confirmation of deferred income tax assets The Company uses the profit before income tax to offset the variance of temporary Page 86 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS difference as a limit to confirm the deferred tax assets that produced by the variance of temporary differences which can be offset. 3.19 Accounting policies, accounting evaluation changes and correction of accounting errors and relative effects There is no significant accounting evaluation changes and correction of accounting errors in 2008. 4 Taxation 4.1 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 Corporate Income tax 10%，15%，18%， 25% 4.2 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. In accordance with SKX [2008] No. 325 document, Shenzhen Zhijun Pharmaceutical Co., Ltd, a subsidiary of the Company, enjoys beneficial state tax policy of a reduced corporate income tax rate of 15%, for being granted the title of High-tech Company. In accordance with GF [2007] No. 39 document, since January 1, 2008, enterprises Page 87 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS which enjoy beneficial low tax policies shall be subject to the statutory tax rate five years after the implementation of the new tax law, among which: enterprises that enjoy a tax rate of 15% will be subject to 18% in 2008. Therefore, the Company and its subsidiaries, Shenzhen Zhijun Pharmaceutical Trade Co., Ltd, Shenzhen Accord Pharmaceutical Co., Ltd, Shenzhen Jianmin Pharmaceutical Co., Ltd, Shenzhen Accord Pharmaceutical Chain Co., Ltd, Guangdong Accord Drugstore Co., Ltd, Shenzhen Accord Pharmaceutical Logistics Co., Ltd, are subject to a tax rate of 18%. Guangdong Accord Pharmaceutical Vocational Skills Training Center belongs to the education industry and is therefore subject to a tax rate of 10%. 5 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 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. In case the consolidated costs are larger than the fair values of the net identifiable assets obtained from the seller during consolidation, the differences are recognized as goodwill. In case the consolidated costs are smaller than the fair values of the net identifiable assets obtained from the seller during consolidation, the differences are accrued to the profit or loss of the current year. Subsidiaries adopt the same accounting policy with the parent company. Figures in this section are in CNY ’0000 unless otherwise stated. Page 88 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 5.1 Subsidiaries acquired through business combination under the same control Full name of the invested Place of Nature Registered Scope of business Actual Balance of company registration capital investment net as at end of investment the year in subsidiary Shenzhen Zhijun Shenzhen Industry 6,900 Original chemical medicine manufacture, 10,606.17 10,606.17 Pharmaceutical Co., Ltd. Chinese patent medicine processing, (hereinafter referred to as chemical raw material of medicine, the “ Zhijun Pharm.”) imports and exports business which transacted according to examined and approved certificate Shenzhen Jianmin Shenzhen Commerce 500 Wholesale in chemical material drugs, 5,348.29 5,348.29 Pharmaceutical Co., Ltd antibiotics, bio-chemical drugs, blood (hereinafter referred to as products, raw material for chemical “ Jianmin Pharm.”) medicine, Chinese patent drugs and diagnosis drugs Shenzhen Medicine Trade Shenzhen Commerce 188 Wholesale and retail of drugs and textiles 847.85 847.85 Co Page 89 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Full name of the invested Place of Nature Registered Scope of business Actual Balance of company registration capital investment net as at end of investment the year in subsidiary Shenzhen Accord Shenzhen Commerce 600 Chinese patent medicine, western 816.47 816.47 Pharmaceutical Co., Ltd. medicine, medicine treatment apparatus (hereinafter referred to as “ Accord Pharm.”) Shenzhen Accord Medicine Shenzhen Commerce 1,080 Chinese patent medicine, western --- --- Chain Co., Ltd. (hereinafter medicine, medicine treatment apparatus referred to as “ Accord Chain.”) Shenzhen Zhijun Medicine Shenzhen Commerce 189 Purchase and sale of Chinese traditional 373.4 373.4 Trade Co., Ltd. (hereinafter medicinal materials, Chinese patent referred to as “ Zhijun medicine, Medicine Trade.”) chemical raw material for medical treatment, antibiotic preparation, chemical medicine preparation etc. Page 90 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Full name of the invested Place of Nature Registered Scope of business Actual Balance of company registration capital investment net as at end of investment the year in subsidiary Guangdong Accord Shenzhen Commerce 5,000 Chinese patent medicine, chemical raw 5,020.51 5,020.51 Drugstore material Co., Ltd. (hereinafter medicine, chemical medicine preparation, referred to as “ Accord antibiotics, biochemical medicine, Drugstore.”) diagnosis drugs, biological products of treatment and diagnosis. Shenzhen Accord Medicine Shenzhen Service 100 Warehousing services, transportation, 101.91 101.91 Logistics Co. Ltd cargo package & sorting , ordinary road (hereinafter referred to as freight “ Accord Logistics.”) Guangzhou Accord Medical Shenzhen Service 3 Training 3 3 Business Skills Training Center(hereinafter referred to as “ Training Center.”) Page 91 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Full name of the invested Place of Nature Registered Scope of business Actual Balance of company registration capital investment net as at end of investment the year in subsidiary Sinopharm Medicine Guangzhou Commerce 5,000 Chinese patent medicine, chemical 13,388.83 13,388.83 Holding medicine preparation, antibiotics, Guangzhou Co., Ltd. biochemical medicine, (hereinafter referred to as biological products, diagnosis medicine, “Sinopharm Guangzhou.”) treatment diagnosis biological products, finalized packing food, chemical products, self-support and surrogate the imports and exports of various merchandise and skills. Sinopharm Medicine Guangzhou Commerce 2,000 Drugs, medical apparatus sales 980 980 Holding Xinlong (Guangdong) Co., Ltd. (hereinafter referred to as “ Guangdong Xinlong”) Guangxi Accord Nanning Commerce 500 Sales of medicine 498.79 498.79 Pharmaceutical Co., Ltd (hereinafter referred to as “ Guangdong Accord”) Page 92 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Full name of the invested Place of Nature Registered Scope of business Actual Balance of company registration capital investment net as at end of investment the year in subsidiary Sinopharm Medicine Liuzhou Commerce 2,053.06 Chinese traditional medicinal materials, 2,220.58 2,220.58 Holding Chinese patent medicine, Chinese Liuzhou Co., Ltd. traditional medicine in pieces, chemical (hereinafter referred to as raw material, chemical medicine “Sinopharm Liuzhou”) 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 Liuzhou Commerce 200 Sales of Chinese patent medicine, --- --- Chain Co., Ltd. (hereinafter western referred to as “ Guangdong medicine, medical equipment, daily Chain”) general merchandise, alcohol, beverage, costume etc. Page 93 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Full name of the invested Place of Nature Registered Scope of business Actual Balance of company registration capital investment net as at end of investment the year in subsidiary Liuzhou Chinese Herbal Liuzhou Industry 4 Chinese herbal pieces --- --- Pieces Factory (hereinafter referred to as “Liuzhou Chinese Herbal Pieces”) Guangxi Accord Chinese Liuzhou Industry 200 Chinese herbal pieces --- --- Herbal Pieces Co., Ltd. (hereinafter referred to as “Guangxi Chinese Herbal Pieces”) Guangdong Huixing Guangzhou Commerce 5,000 Project investment, property management --- --- Investment Co., and leasing, medical information Ltd(hereinafter referred to as consultancy, car park management “Huixing Investment”) Sinopharm Medicine Guangzhou Commerce 200 Drug sales --- --- Holding Foshan Co., Ltd (hereinafter referred to as “Sinopharm Foshan”) Guangzhou Accord Guangzhou Commerce 200 Drug retail and medicine information --- --- Drugstore Chain Co., Ltd. consultancy (hereinafter referred to as “Guangzhou Chain”) Page 94 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Full name of the invested Place of Nature Registered Scope of business Actual Balance of company registration capital investment net as at end of investment the year in subsidiary Guangdong Yuexing Guangzhou Commerce 300 Sales of medicine andmedical treatment --- --- Medicine apparatus Co., Ltd. (hereinafter referred to as “Yuexing Medicine”) Guangdong Hengchang Guangzhou Service 54 Storage loading and unloading --- --- Logistics Co., Ltd(hereinafter referred to as “Hengchang Logistics”) Guangzhou Uptodate & Guangzhou Commerce 50 Drug sales --- --- Special Medicines Co. Guangzhou South Medical Guangzhou Commerce 200 Sale of medical treatment apparatus --- --- Treatment Equipment Company(hereinafter referred to as “South Medical Treatment Equipment”) Page 95 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Note 1: Jianmin Pharm. was previously a subordinate enterprise of the Company that owned by the whole people, whose former name was Shenzhen Medicine Co. In Aug 2007, Jianmin Pharm. 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, Jianmin Pharm. changed its name into Shenzhen Jianmin Pharmaceutical Co., Ltd. Note 2: Shenzhen Medicine Co., Ltd ceased operation since 2003 and is not consolidated. Note 3: In 2008 the Company purchased 10% of the shares of Accord Medicine which was previously held by Zhijun Pharm., and Accord Medicine thus became a wholly-owned subsidiary of the Company. Note 4: Accord Chain is respectively held by the Company with 75% shares and subordinate subsidiary Zhijun Pharm. with 25% shares. In May 2007, the shareholders of the Company alternated with 10% shares are held by the Company and 90% shares are held by subordinate subsidiary Accord Drugstore. In 2008, the Company transferred the 10% it held to Accord Drugstore, and Accord Chain has thus become a wholly-owned subsidiary of Accord Drugstore. Notes 5: The Company originally held 47.09% and its subordinate subsidiary Zhijun Pharm. held 52.91% respectively of Zhijun Medicine Trade’s shares. In 2008, the Company purchased the shares held by Zhijun Pharm., and Zhijun Medicine Trade has therefore become a wholly-owned subsidiary of the Company. Note 6: In 2008, the Company purchased the 10% shares of Accord Drugstore which was previously held by Sinopharm Guangzhou, and Accord Drugstore has therefore become a wholly-owned subsidiary of the Company. Page 96 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Note 7: The Company originally held 90% and its subordinate subsidiary Zhijun Pharm. held 10% respectively of Accord Logistics. In 2008, the Company purchased the 10% shares held by Zhijun Pharm., and Accord Logistics has therefore become a wholly-owned subsidiary of the Company. Note 8: In 2008, the Company purchased the 10% shares of Sinopharm Guangzhou which was previously held by China Pharmaceutical Group Shanghai Company, and Sinopharm Guangzhou has therefore become a wholly-owned subsidiary of the Company. Note 9: Originally, 51% shares of Sinopharm Liuzhou was held by Sinopharm Guangzhou, a subordinate subsidiary of the Company. In 2008, these shares were purchased by the Company, and other shares are held by unrelated parties. Note 10: These three companies are wholly-owned subsidiaries of Sinopharm Liuzhou, a subordinate subsidiary of the Company. Liuzhou Chinese Herbal Pieces Co., Ltd was de-registered in December 2008. Note 11: Huixing Investment is a wholly-owned subsidiary of Sinopharm Guanghzhou which is a subsidiary of the Company. Note 12: Sinopharm Foshan is a wholly-owned subsidiary of Huixing Investment. In 2008, it changed its system into corporate-owned limited liability company, and changed its name into Guanghzhou Guoxing Pharmaceutical Co., Ltd. which was later changed into Sinopharm Foshan Co., Ltd. Note 13: Guangzhou Chain is a wholly-owned subsidiary of Huixin Investment. In 2008, Accord Drugstore purchased 100% shares of its equity, and Guangzhou Chain has therefore become a wholly-owned subsidiary of Accord Drugstore. Note 14: Yuexing Medicine is a wholly-owned subsidiary of Sinopharm Guanghzhou which Page 97 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS is a subsidiary of the Company. Note 15: Hengchang Logistics is a wholly-owned subsidiary of Huixing Investment. Note 16: South Medical Treatment Equipment was de-registered in 2008. (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 is not the actual controlling party of the Company now) and Sinopharm Medicine Holding Co., Ltd. 5.2 Added and deducted subsidiaries in current fiscal year a. Added subsidiaries during consolidation of corporations under the same control (1) The book values of the assets and liabilities of the consolidated corporations on the balance sheet date and acquisition date, judgment criteria of “consolidation of corporations under the same control”, and description of actual controller. Page 98 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Book value of total Book value of total assets Judgment liabilities Actual criteria of Balance controlling Name of Balance “consolidation sheet date party of the subsidiary sheet date of Acquisition Acquisition of corporations of “same previous date date under the same previous controller” fiscal year control” fiscal year corporations Sinopharm taken into Medicine consolidation Holding Co., Guangxi were under the Ltd. 5,002,978.49 5,341,380.70 --- 353,460.99 Accord same ultimate control before and after consolidation (2) Revenue, net profit and cash flow of the consolidated corporations during the period from the beginning of the current year to the date of acquisition. From the beginning of the current year to the date of acquisition Name of Acquisition date Operating net cash subsidiary Revenue Net profit Net cash flow flow Guangxi Accord August 31, 2008 283,317.94 -15,058.78 499,125.95 507,045.60 5.3 Changes in the scope of consolidation in current year (a) One additional company was taken into consolidation for the following reason: The Company has purchased Guangxi Accord Chinese Herbal Pieces Co., Ltd in 2008. (b) Two companies were excluded from consolidation for the following reason: Subsidiary of the Company, Guangdong Huixing Investment Co., Ltd’s subsidiaries Guangzhou Qingyun Hotel Co., Ltd and Guangdong Dong Enterprise Development Co., Ltd were de-registered during 2007. (c) Companies newly added into the consolidation during the reporting period Page 99 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Total Net assets on Net assets at Net profit from date Name of Remar share-holdin the date of the end of the of purchase to the subsidiary ks g proportion purchase year end of the year Guangxi Accord 100% 4,987,919.71 5,063,339.02 75,419.31 3. Minority shareholders’ equity and interest Current year Minority As of shareholders Other increases / decreases Minority shareholders’ December 31, Profit Other equity As of December equity 2007 Gain or loss distribution changes 31, 2008 Sinopharm Medicine Holding (Guangzhou) 13,818,841.50 5,907,791.59 --- -19,726,633.09 --- Co., Ltd Sinopharm Medicine Holding (Liuzhou) Co., 19,644,195.80 1,739,267.50 --- --- 21,383,463.30 Ltd Total 33,463,037.30 7,647,059.09 --- -19,726,633.09 21,383,463.30 Note: Other equity changes are caused by the Company’s purchase of the 10% equity of Sinopharm Guangzhou held by minority shareholders. 6 Notes to the main items of financial statements (Monetary unit is CNY and the amount is the ending balance unless otherwise stated.) 6.1 Monetary fund Item As of December 31, 2008 As of December 31, 2007 Cash on hand 442,155.45 1,622,171.38 Cash in bank 306,747,671.83 199,448,262.01 Other monetary funds 38,069,689.19 53,766,977.91 Total 345,259,516.47 254,837,411.30 Page 100 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Classification of other monetary funds: As of December 31, As of December 31, 2008 2007 Security deposit for bank acceptance bills 38,036,982.00 53,454,694.07 Other security deposit 32,707.19 312,283.84 Total 38,069,689.19 53,766,977.91 The ending balance of monetary fund has 90,422,105.17 more than the beginning balance, an increase of 35.48%, which is mainly due to loans and increase in discount in banks in the current year. 6.2 Notes receivable As of December 31, As of December 31, Category 2008 2007 Bank acceptance bills 82,060,808.18 11,599,008.53 Commercial acceptance bills 139,815,442.27 155,239,273.25 Total 221,876,250.45 166,838,281.78 (a) Discounted and undue commercial acceptance bills amounted to 107,383,652.99, and discounted and undue bank acceptance bills amounted to 41,409,595.83. (b) Endorsed and undue notes receivable as of December 31, 2008. Category of bills Period of m Amount aturation (m onth) Bank acceptance bills Within 1 99,828,395.39 Bank acceptance bills 1-2 84,460,957.99 Bank acceptance bills 2-3 94,910,398.09 Page 101 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Bank acceptance bills 3-6 53,777,201.16 Total 332,976,952.63 (c) Among the notes receivable as of December 31, 2008, there are no notes receivable which belong to the shareholders that hold over 5% (inclusive) of the voting shares of the Company. (d) The ending balance of notes receivable has 55,037,968.67 more than the beginning balance, an increase of 32.99%, which is mainly due to increase in the Company’s revenue. 6.3 Accounts receivable (a) Structure of accounts receivable As of December 31, 2008 As of December 31, 2007 Proportion Provision Proportion Provision Book balance in total Provision rate for bad Book balance in total Provision rate for bad Aging amount debt amount debt Within one year (inclusive) 1,728,602,303.19 100.00% 1,890,380.37 0.11% 1,289,992,392.54 99.85% 3,399,229.22 0.26% 1-2 years(2 years inclusive) --- --- --- --- 97,552.37 0.01% 41,633.10 42.68% 2-3 years(3 years inclusive) --- --- --- --- 1,800,000.00 0.14% 1,800,000.00 100.00% Over 3 years --- --- --- --- --- --- --- --- Total 1,728,602,303.19 100.00% 1,890,380.37 1,291,889,944.91 100.00% 5,240,862.32 As of December 31, 2008 As of December 31, 2007 Proportion Provision Provision Provision Book balance Proportion of Book balance of total rate for Provision rate for total amount Item amount bad debt bad debt 1) Significant individual amount with separate 408,783.47 1.62% 156,252.28 1.25% 25,245,382.74 1.46% 6,814,139.61 0.53% provision for impairment loss 2) Insignificant individual amount with separate 1,481,596.90 38.86% 5,084,610.04 11.80% 3,836,743.82 0.22% 14,540,413.11 1.13% provision for impairment loss 3) Other amounts which are classified into the same group with similar credit risk 1,699,520,176.63 98.32% --- --- 1,270,535,392.19 98.34% --- --- features Among which: significant individual amount 648,410,048.52 37.51% --- --- 408,151,799.22 31.59% --- --- Insignificant individual amount 1,051,110,128.11 60.81% --- --- 862,383,592.97 66.75% --- --- Page 102 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Among which: Insignificant individual amounts which have high risk after classified into the same group --- --- --- --- --- --- --- --- with similar credit risk features Total 1,728,602,303.19 100.00% 1,890,380.37 1,291,889,944.91 100.00% 5,240,862.32 (b) Changes in the provision for bad debts in accounts receivable Beginning bo Provision in Decreases Ending book ok current yea Year balance r Returned Written off balance 2007 1,904,601.71 --- 2,152,176.13 5,488,436.74 5,240,862.32 2008 2,496,839.34 952,866.09 5,240,862.32 99,223.48 1,890,380.37 (c) Accounts receivable with significant individual amount Ranking of significant Provision individual amounts Amount Rate Reason Sinopharm Medicine Not exceeding credit period or credit 0% Holding Shenyang Co., Ltd. 56,013,900.56 amount No. 3 Hospital Affiliated to Not exceeding credit period or credit 0% Sun Yat-sen University 26,516,738.30 amount No. 1 Hospital Affiliated to Not exceeding credit period or credit 0% Sun Yat-sen University 24,712,967.78 amount Guangdong People’s Not exceeding credit period or credit 0% Hospital 20,730,971.93 amount Not exceeding credit period or credit 0% Shenzhen People’s Hospital 25,092,950.27 amount (d) Accounts receivable which were provided for bad debt fully or in large proportion in previous periods and are recovered fully or partially in current year. Amount of Way of Reason for Reasonableness recovery or recovery previous for previous Name of company claim provision provision proportion proportion Shenzhen Pharmaceutical Health 1,800,000.00 Cash Unreturned for Reasonable Products Import & Export Co., a long-term Page 103 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Ltd. (e) Accounts receivable actually written off in this year amounted to 952,866.09. (f) Among the accounts receivable as of December 31, 2008, the accounts, which are attributed to the shareholders that hold over 5 % (inclusive) voting share of the Company, amount to 1,037,335.58. Name of company As of December 31, 2008 As of December 31, 2007 Book balance Provision for Book balance Provision for bad debt bad debt Sinopharm Medicine --- 901,364.64 --- Holding Co. Ltd. 1,037,335.58 (g) Accounts receivable of related parties amount to 116,439,281.52, which accounts for 6.74％of the accounts receivable as of December 31, 2008. For particulars see Note 8. (h) Top five of accounts receivable as of December 31, 2008 Proportion of total Rank of creditor Amount Aging receivable accounts Sinopharm Medicine Holding Shenyang Co., Ltd. Within 1 year 3.24% 56,013,900.56 No. 3 Hospital Affiliated to Sun Yat-sen University Within 1 year 1.53% 26,516,738.30 Shenzhen People’s Hospital Within 1 year 1.45% 25,092,950.27 No. 1 Hospital Affiliated to Sun Yat-sen University Within 1 year 1.43% 24,712,967.78 Guangdong People’s Hospital Within 1 year 1.20% 20,730,971.93 (i) The ending balance of accounts receivable is 440,062,840.23 more than the beginning balance, an increase of 34.20%, which is due to the growth of the Company’s revenue in this fiscal year. 6.4 Advances to suppliers (a) Analysis of aging Aging As of December 31, 2008 As of December 31, 2007 Page 104 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Proportion in Proportion in Amount Amount total amount total amount Within 1 year 37,746,811.89 94.28% 54,122,228.36 100% 1-2 years 2,288,111.56 5.72% --- --- Total 40,034,923.45 100.00% 54,122,228.36 100% (b) Among the ending balance, there is no amount due from shareholders that hold more than 5% (inclusive) shares of the Company. (c) Significant advances to suppliers as of December 31, 2008 Total and proportion of top five significant advances As of December 31, 2008 As of December 31, 2007 Amount Proportion % Amount Proportion % 16,632,099.74 41.54% 26,203,713.41 48.42% 6.5 Other receivables (a) Structure of other receivables As of December 31, 2008 As of December 31, 2007 Proportion Provision Proportion Provision Book balance in total Provision rate for bad Book balance in total Provision rate for bad Aging amount debt amount debt Within one year (inclusive) 30,524,008.45 66.91% 398,285.06 1.30% 25,071,707.72 46.04% 532,182.27 2.12% 1-2 years(2 years inclusive) 436,394.78 0.96% 164,715.35 37.74% 4,164,225.27 7.64% 329,358.67 7.91% 2-3 years(3 years inclusive) 244,203.67 0.53% 93,370.86 38.23% 9,714,678.64 17.84% 5,734,282.40 59.03% Over 3 years 14,417,695.42 31.60% 12,359,623.46 85.73% 15,507,585.82 28.48% 10,114,030.97 65.22% Total 45,622,302.32 100.00% 13,015,994.73 54,458,197.45 100.00% 16,709,854.31 As of December 31, 2008 As of December 31, 2007 Proportion Item Book Proportion Provision Provision Provision in balanc in rate Book balance Provision rate for total e total amount for bad debt bad debt amount 1) Significant individual amount with separate 14,074,579.90 30.85% 12,036,747.94 85.52% 18,234,579.90 33.48% 14,532,747.94 79.70% provision for impairment loss Page 105 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 2) Insignificant individual amount with separate 853,772.31 1.87% 853,772.31 100.00% 8,086,359.61 14.85% 1,910,078.12 23.62% provision for impairment loss 3) Other amounts which are classified into the same group 30,693,950.11 67.28% 125,474.48 0.41% 28,137,257.94 51.67% 267,028.25 0.95% with similar credit risk features Among which: significant individual amount --- --- --- --- --- --- --- --- Insignificant individual 30,693,950.11 67.28% 125,474.48 0.41% 28,137,257.94 51.67% 267,028.25 0.95% amount Among which: Insignificant indiviudal amounts which have high risk after classified --- --- --- --- --- --- --- --- into the same group with similar credit risk features Total 45,622,302.32 100.00% 13,015,994.73 54,458,197.45 100.00% 16,709,854.31 (b) Changes in the provision for bad debt in other receivables Beginning Decreases Ending book Year book balance Provision Returned Written off balance 2007 2,077,863.95 --- 1,705,795.34 16,337,785.70 16,709,854.31 2008 2,675,280.11 1,249,665.40 16,709,854.31 231,085.93 13,015,994.73 (c) Other receivables with significant individual amount or insignificant amount but provided for impairment loss separately Rank of significant individual Amount Provision Reason amount rate Shenzhen Yinghai Sci. & Tech. 8,980,000.00 100% Uncertainty in recovery Investment Co., Ltd Shenzhen Pharmaceutical and Uncertainty in full Health Products Imp. & Exp. Co., 5,094,579.90 60% Ltd recovery (d) Other receivables actually written off in this year amounted to 1,249,665.40. Page 106 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS (e) Other accounts receivable which were provided for bad debt fully or in large proportion in previous periods and are recovered fully or partially in current year Amount of Reason for previous Reasonableness Way of Name of debtor recovery or provision proportion for previous recovery claim provision proportion Shenzhen Pharmaceutical and Unreturned for a Reasonabl Health Products Imp. & Exp. 4,160,000.00 Cash long-term, partially e Co., Ltd unrecoverable (f) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company in other receivables. (g) Among the ending balance of other receivables, there are no receivables of related parties. (h) Top five debtors in the ending balance of other receivables Rank of debtor Nature/Content Amount Aging Proportion of total amount Shenzhen Yinghai Technology Receivables from Over 3 8,980,000.0 19.68% Investment Co., Ltd. equity transaction years 0 Shenzhen Medicines and Health Over 3 Current account 5,094,579.9 11.17% Products I/E Co., Ltd.. years 0 Payment for pate Within Korean Yuhan Corporation 3,529,434.9 7.74% nt cooperation 1year 5 Liuzhou Housing Fund Management Within 1 Current account 2,000,811.6 4.39% Center year 2 Xi’an Janssen Pharmaceutical Co., Within 1 Current account 1.10% Ltd 500,000.00 year Page 107 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS 6.6 Inventories and provision for inventory devaluation As of December 31, 2008 As of December 31, 2007 Item Amount Provision Amount Provision Raw materials 68,775,616.60 1,626,979.60 97,042,410.89 310,242.80 Low cost and short-lived --- 692,747.59 138,250.00 828,925.46 articles Merchandise 664,363,573.18 2,596,307.36 483,410,102.05 8,034,917.12 inventory Sent out 5,976,340.80 1,656,289.15 --- merchandise 59,527.00 Total 739,944,456.04 4,282,813.96 582,801,549.68 8,483,409.92 (a) Provision for inventory devaluation As of Decreases December 31, As of December Item 2007 Provided Returned Written off 31, 2008 1,626,979.60 --- 310,242.80 Raw materials 310,242.80 1,626,979.60 Low cost and short-lived 43,070.29 --- 181,320.29 138,250.00 --- articles Merchandise 85,333.79 --- 5,523,943.55 inventories 8,034,917.12 2,596,307.36 Sent out --- 59,527.00 --- --- 59,527.00 merchandise 8,483,409.92 1,814,910.68 --- 6,015,506.64 Total 4,282,813.96 (b) Inventories actually written off in this year amounted to 534,313.35. 6.7 Long-term equity investments Page 108 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS Item As of December 31, 2008 As of December 31, 2007 Book balance Provision for Book balance Provision for impairment impairment loss loss Long-term equity investments recognized by 67,399,908.10 --- 55,194,782.93 --- equity method Associated enterprises 67,399,908.10 --- 55,194,782.93 --- Long-term equity investments recognized by 10,735,966.07 8,556,892.37 10,785,966.07 8,606,892.37 cost method Total 78,135,874.17 8,556,892.37 65,980,749.00 8,606,892.37 Page 109 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. FOR THE YEAR ENDED DECEMBER 31, 2008 NOTES TO THE FINANCIAL STATEMENTS (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% --- 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% 46,329 Dongyuan & Accord Pharm Chain Store Co., Ltd. Guangdong Commerce 45.00% 0.00% Shenzhen Wanle Pharmaceutical Co., Ltd. Shenzhen Industry 35.19% 35.19% 129,121 Page 110 Explanation of the difference between voting shares and proportion of shareholding: Proportion of Voting Name of invested unit shareholding share Reason Liaoning & Accord Pharm. Chain No actual control and intend to sell Store Co., Ltd. 30.00% 0.00% out No actual control and provided a Dongyuan & Accord Pharm Chain 100% provision for impairment Store Co., Ltd. 45.00% 0.00% loss (b) Long-term equity investments recognized by equity method Initial Increases/decreases As of December As of December Name of invested unit investment Including: distributed 31, 2007 31, 2008 amount Total cash dividends Associated enterprises Sinopharm Holdings Shenzhen Chinese Medicine Co., Ltd. 20,939,177.10 22,003,356.85 -47,794.59 --- 21,955,562.26 Shenzhen Wanle Pharmaceutical Co., Ltd. 4,457,400.00 33,191,426.08 12,252,919.76 4,302,170.89 45,444,345.84 Total 12,205,125.17 4,302,170.89 67,399,908.10 25,396,577.10 55,194,782.93 (c) Long-term equity investments recognized by cost method Initial Book balance as Book balance as Provision for Increases/de Name of invested unit investment of December 31, of December 31, impairment creases amount 2007 2008 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 --- --- 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 -50,000.00 10,735,966.07 8,556,892.37 Page - 111 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (d) Provision for impairment loss long-term equity investment As of As of Name of invested unit December 31, Increases decreases December 31, Reason 2007 2008 China Central City Pharmacy 50,000.00 --- 50,000.00 --- Associates Note1 Shenzhen Futian Pharmaceutical 471,027.36 --- --- 471,027.36 Co., Ltd. Note2 Dongyuan & Accord Pharm. Chain 396,638.32 --- 396,638.32 Store Co., Ltd. Note3 Shenzhen Medicine Trade Co. 7,689,226.69 --- --- 7,689,226.69 Note4 Total 8,606,892.37 --- 50,000.00 8,556,892.37 Note 1：The Company had lost control of this invested unit and this unit was operated poorly, so 100% provision for impairment loss was provided for and was written off in this year. Note 2：The investment of Shenzhen Futian Pharmaceutical Co., Ltd provided 100% provision for impairment loss because the invested unit was operated poorly or could not be contacted for a long period and the Company had no information about their current situation Note 3 The Company has lost control of Dongyuan & Accord Pharm Chain Store Co., Ltd which has been in bad operation, so 100% provision for impairment loss is provided. Note 4：This invested unit has no operation for years, so 100% provision for impairment loss is provided. 6.8 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 2007 Purchase inventory Disposal self-use 31, 2008 1、Total original value 47,174,668.54 --- 444,799.30 550,000.00 16,168,775.96 30,900,691.88 Page - 112 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report （1）Constructions rented out 43,059,818.66 --- 444,799.30 550,000.00 15,136,286.33 27,818,331.63 （2）Land use right rented out 4,114,849.88 --- --- --- 1,032,489.63 3,082,360.25 2 、 Total depreciation provided or accumulated amortization 10,080,076.14 --- 1,820,453.64 56,684.46 3,791,185.13 8,052,660.19 （1）Constructions rented out 9,669,934.01 --- 1,694,382.07 56,684.46 3,628,403.27 7,679,228.35 （2）Land use right rented out 410,142.13 --- 126,071.57 --- 162,781.86 373,431.84 3、Total depreciation or amortization of current year --- --- 1,633,823.15 --- --- 1,633,823.15 （1）Constructions rented out --- --- 1,507,751.58 --- --- 1,507,751.58 （2）Land use right rented out --- --- 126,071.57 --- --- 126,071.57 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 37,094,592.40 --- -1,375,654.34 493,315.54 12,377,590.83 22,848,031.69 （1）Constructions rented out 33,389,884.65 --- -1,249,582.77 493,315.54 11,507,883.06 20,139,103.28 3,704,707.75 --- -126,071.57 869,707.77 2,708,928.41 （2）Land use right rented out --- 6.9 Original cost of fixed assets and accumulated depreciation (a) Original cost of fixed assets As of December 31, As of December 31, Category 2007 Increases Decreases 2008 Buildings and 291,010,516.74 35,284,916.44 10,839,684.48 315,455,748.70 constructions Machinery 132,011,483.11 20,467,439.85 130,519,486.67 equipment 18,975,443.41 Transportation 31,351,444.09 2,299,310.40 33,237,268.69 equipment 4,185,135.00 78,178,500.19 8,540,260.13 96,660,404.46 Other equipment 27,022,164.40 Fixed assets 5,844,578.66 --- 7,619,325.33 fitment 1,774,746.67 538,396,522.79 42,146,694.86 583,492,233.85 Total 87,242,405.92 Among which: transferred from CIP: 33,133,345.60. (b) Accumulated depreciation Category As of December 31, Increases Provision Decreases As of December 31, Page - 113 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 2007 2008 Buildings and constructions 80,034,377.37 3,628,403.27 13,219,397.43 3,210,787.19 93,671,390.88 Machinery equipment 9,697,368.43 19,771,823.88 53,855,128.62 63,929,584.07 --- Transportation equipment 15,226,310.30 --- 3,580,305.26 2,070,838.94 16,735,776.62 Other equipment 11,895,459.99 7,278,094.28 38,992,338.11 34,374,972.40 --- Fixed assets fitment 1,174,988.66 --- 4,067,152.67 2,892,164.01 --- Total 3,628,403.27 39,567,519.77 32,331,544.29 207,321,786.90 196,457,408.15 (c) Provision for impairment loss on fixed assets As of December 31, As of December Category 2007 Increases Decreases 31, 2008 Buildings and constructions 1,300,000.00 --- --- 1,300,000.00 Total 1,300,000.00 --- --- 1,300,000.00 (d) Book value of fixed assets Category As of December 31, 2007 As of December 31, 2008 Buildings and constructions 220,484,357.82 209,676,139.37 Machinery equipment 76,664,358.05 68,081,899.04 Transportation equipment 16,501,492.07 16,125,133.79 Other equipment 57,668,066.35 43,803,527.79 Fixed assets fitment 3,552,172.66 2,952,414.65 Total 374,870,446.95 340,639,114.64 (e) Fixed assets fully depreciated and still in use Accumulated Category Original cost depreciation Net book value Buildings and constructions 2,173,275.00 1,692,936.83 480,338.17 Page - 114 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Machinery equipment 12,812,701.42 12,617,420.39 195,281.03 Transportation equipment 4,621,444.19 4,209,207.05 412,237.14 Other equipment 18,202,244.68 17,550,094.32 652,150.36 Total 37,809,665.29 36,069,658.59 1,740,006.70 6.10 Construction in progress As of December 31, 2008 As of December 31, 2007 Projects Book balance Provision Book value Book balance Provision Book value for for impairment impairment loss loss Chepuo Project 6,750,695.20 --- 6,750,695.20 6,656,235.20 --- 6,656,235.20 Renovation of old buildings 1,179,895.79 --- 1,179,895.79 --- --- --- Planting of cassia and honeysuckle 253,886.24 --- 253,886.24 253,886.24 --- 253,886.24 Medicine R&D base project --- --- --- 621,394.00 --- 621,394.00 Technical Innovation 10,572,505.74 --- 10,572,505.74 --- --- --- Total 18,756,982.97 --- 18,756,982.97 7,531,515.44 --- 7,531,515.44 Decreases Proportion As of As of Fund of project Name of project Budget December Increases Transfer into December 31, Other decrease resources input in 31, 2007 fixed assets 2008 budget Chepuo Project No Self funds N/A 6,656,235.20 94,460.00 --- --- 6,750,695.20 Renovation of old No Self funds N/A --- 1,717,075.04 537,179.25 --- 1,179,895.79 Page - 115 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report buildings Planting of cassia Fiscal No N/A and honeysuckle 253,886.24 --- --- --- 253,886.24 appropriation Self funds and Medicine R&D base 236.63 loan from 100% project million 621,394.00 10,277,646.55 10,899,040.55 --- --- financial institution Self funds and Technical 35.61 loan from 90.62% Innovation million --- 32,269,631.54 21,697,125.80 --- 10,572,505.74 financial institution Total 7,531,515.44 44,358,813.13 33,133,345.60 --- 18,756,982.97 The amount of borrowing cost capitalization included in construction in progress is as follows: As of As of December 31, Transfer into Other December 31, Name of project 2007 Increases fixed assets decreases 2008 Medicine R&D base project --- 750,680.69 750,680.69 --- --- Technical Innovation --- 768,600.00 --- --- 768,600.00 Total --- 1,519,280.69 750,680.69 --- 768,600.00 The capitalization ratio of the amount of borrowing cost capitalization is 6.1056%. 6.11 Intangible assets (a) Original cost of intangible assets Original cost as of Original cost as of December 31, December 31, Item 2007 Increases Decreases 2008 Software 6,287,685.67 2,727,515.00 588,609.47 8,426,591.20 Land use right 53,956,433.88 4,201,703.01 58,158,136.89 --- Trade mark use right 127,250.00 28,800.00 156,050.00 --- Total 60,371,369.55 6,958,018.01 588,609.47 66,740,778.09 (b) Accumulated amortization Page - 116 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report As of December As of December Item Increases Amortization Decreases 31, 2008 31, 2007 Software 4,322,030.70 --- 1,448,035.62 588,609.47 5,181,456.85 Land use right 2,691,960.99 162,781.86 1,019,138.48 --- 3,873,881.33 Trade mark use right 57,666.04 --- 20,490.88 --- 78,156.92 Total 7,071,657.73 162,781.86 2,487,664.98 588,609.47 9,133,495.10 (c) Book value of intangible assets Remained As of December As of December amortization Item 31, 2007 31, 2008 Period software 1,965,654.97 3,245,134.35 1-59 months Land use right 51,264,472.89 54,284,255.56 37-50years Trade mark use right 69,583.96 77,893.08 56-58months Total 53,299,711.82 57,607,282.99 6.12 Long-term deferred expenses Original As of Remained Accumulated As of December Item occurred December 31, Increases Amortization Decreases amortization amortization 31, 2008 amount 2007 Period Leasehold improvement 24,357,088.02 11,635,022.09 7,884,549.84 3,739,746.88 75,301.99 8,652,564.96 15,704,523.06 1-59 months Management 4 months consulting expenses 1,325,273.60 572,784.57 --- 458,227.56 --- 1,210,716.59 114,557.01 Others 6-50 months 1,804,455.42 417,491.68 388,526.42 210,916.26 --- 1,209,353.58 595,101.84 Total 27,486,817.04 12,625,298.34 8,273,076.26 4,408,890.70 75,301.99 11,072,635.13 16,414,181.91 Page - 117 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 6.13 Deferred income tax assets and liabilities (a) Recognized deferred income tax assets As of December As of December Item 31, 2008 31, 2007 Provision for bad debt on accounts receivable 4,513.79 7,771.72 Provision for bad debt on other receivables 218,470.55 169,035.39 Provision for inventory devaluation 110,459.44 230,697.37 Provision for impairment loss on long-term equity investments 94,205.47 93,784.92 Provision for impairment loss on fixed assets 188,130.65 325,000.00 Loss brought forward --- 2,156,652.29 Employee benefits payable (unpaid) 2,965,250.00 2,494,878.99 Income tax paid accrued sales expenses 3,788,255.14 7,338,090.85 Compensation for retired employees 500,610.82 860,009.53 Total 7,869,895.86 13,675,921.06 Temporary variant amounts corresponding with the assets or liabilities that cause the difference as of December 31, 2008. Item Temporary variant amounts Provision for bad debt on accounts receivable 22,568.94 Provision for bad debt on other receivables 900,753.77 Provision for inventory devaluation 470,209.24 Provision for impairment loss on long-term equity investments 471,027.36 Provision for impairment loss on fixed assets 752,522.59 Employee benefits payable (unpaid) 13,645,000.00 Income tax paid accrued sales expenses 23,885,634.27 Compensation for retired employees 2,002,443.28 Total 42,150,159.45 Page - 118 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (b) Recognized deferred income tax liabilities As of December As of December Item 31, 2008 31, 2007 Difference for assets verification amortization 12,924,224.44 12,174,180.87 Provision for bad debt on accounts receivable 146,969.13 --- Total 12,174,180.87 13,071,193.57 Temporary variant amounts corresponding with the assets or liabilities that cause the difference as of December 31, 2008 Item Temporary variant amounts Depreciation of fixed assets 48,696,723.48 6.14 Other non-current assets As of Item As of December December 31, 31, 2007 Increases Decreases 2008 Specific reserved medicine 14,109,171.88 --- 231,342.14 13,877,829.74 6.15 Provision for impairment loss of assets Book balance Decreases Book balance as of as of Item Provision December Returned Written off December 31, 2007 31, 2008 1)Provision for bad debt 21,950,716.63 330,309.41 5,172,119.45 2,202,531.49 14,906,375.10 2)Provision for inventory --- 8,483,409.92 1,814,910.68 6,015,506.64 4,282,813.96 devaluation Page - 119 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 3)Provision for impairment loss of long-term equity --- --- 8,606,892.37 50,000.00 8,556,892.37 investment 4) Provision for impairment loss of 1,300,000.00 --- --- --- 1,300,000.00 fixed assets Total 40,341,018.92 29,046,081.43 2,145,220.09 5,172,119.45 8,268,038.13 6.16 Short-term borrowings Category As of December 31, 2008 As of December 31, 2007 Mortgage borrowings --- 50,000,000.00 Guaranteed borrowings 230,155,052.56 125,000,000.00 Discounted bank acceptance bills 41,409,595.83 --- Discounted commercial acceptance 107,383,652.99 79,396,407.94 bills Total 378,948,301.38 254,396,407.94 The ending balance of short-term borrowings has grown by 124,551,893.44 than the beginning balance, an increase of 48.96%, which is due to the increase of discounted bills and the adding of factoring business of accounts payable. 6.17 Notes payable As of As of Item December 31, December 31, 2008 2007 Bank acceptance bills 319,876,081.78 523,365,906.00 Commercial acceptance bills 174,912,136.38 268,147,346.27 Total 494,788,218.16 791,513,252.27 (a). In the ending balance, there are no notes payable attributable to shareholders which hold over 5% Page - 120 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (inclusive) of the voting share of the Company. (b). In the ending balance, there are no notes payable attributable to related parties. (c). The ending balance of notes payable has grown by 296,725,034.11 than the beginning balance, an increase of 59.97％, which is due to the growth of business of the Company, which leads to the increase of use of notes. 6.18 Accounts payable As of December 31, As of December 31, 2007 2008 1,357,026,915.55 1,054,606,346.77 (a) In the ending balance, there are no accounts payable attributable to shareholders which hold over 5% (inclusive) of the voting share of the Company.. (b) The ending balance of related parties amounted to 154,387,534.69, for particulars see Note 8. (c) The accounts payable with the aging over 3 years amount to 29,364,880.34, which include large number of enterprises with little amount of payables and hereby will not be specifically listed. 6.19 Advances from customers As of December 31, As of December 31, 2007 2008 18,487,835.55 15,666,567.23 (a) In the ending balance, there are no advances from customers attributable to shareholders which hold over 5% (inclusive) of the voting share of the Company. (b) There is no ending balance of related party.. (c) There is no advance from customers with aging over 1year and with large amount. 6.20 Employee benefits payable (a) Employee benefits payable As of As of December 31, Paid during Item Increases December 31, 2007 current year 2008 1. Salary, bonus and allowance 83,066,385.05 200,017,896.68 225,214,848.39 57,869,433.34 2. Welfare expenses for staff 1,852,003.56 10,923,928.91 12,463,994.47 311,938.00 3. Social insurance fees 59,600.96 27,886,151.78 27,600,372.49 345,380.25 including：(1) Medical insurance 57,547.57 8,345,051.77 8,396,449.51 6,149.83 (2) Basic old-age insurance 82.43 17,093,462.50 16,752,351.78 341,193.15 (3)Annuity payment - 38,830.00 38,830.00 - (4) Unemployment insurance 99.70 1,129,715.32 1,129,091.02 724.00 (5) Work injury insurance 1,871.26 728,512.10 710,806.08 19,577.28 (6) Maternity insurance - 550,580.09 572,844.10 -22,264.01 Page - 121 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 4. Housing fund 517,714.15 3,180,209.57 3,260,448.89 437,474.83 5. Trade union expenses and staff education expenses 7,517,209.80 6,574,451.00 7,116,183.38 6,975,477.42 6. Non-monetary welfare 7. Compensation for the cancellation of work relationship 11,563,444.37 -681,703.18 3,009,741.19 7,872,000.00 8. Worker bonus and benefits fund 9. Others 341,084.45 212,820.63 169,787.31 384,117.77 Including：Shares paid in cash Total 104,917,442.34 248,113,755.39 278,835,376.12 74,195,821.61 Among the ending balance of employee benefits payable, the amount accrued in according to the work efficiency is 13,175,198.21. 6.21 Taxes and surcharges payable Item As of December 31, As of December 31, 2008 2007 VAT -3,166,689.12 -7,337,910.56 Business tax 933,265.38 966,340.16 City maintenance & construction tax 387,134.02 218,898.83 Income tax 12,890,441.53 22,295,804.08 Real estate tax 356,957.90 282,980.01 Stamp duty 380,667.24 99,746.13 Land use tax --- 423,633.76 Individual income tax 757,178.34 799,022.02 Education surcharge 358,605.53 123,239.39 Page - 122 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report River maintenance expenses --- 2,254.20 Flood prevention and security fund 1,488,000.56 1,244,917.16 Others 434,692.81 252,097.00 Total 14,379,964.47 19,811,311.90 6.22 Interests payable As of December 31, Item As of December 31, 2008 2007 Interests of bank borrowing 742,393.70 329,027.27 6.23 Dividends payable As of December 31, Name of investor 2008 Reason China Pharmaceutical Group Shanghai 3,746,270.05 Unpaid Corporation 6.24 Other payables Item As of December 31, 2008 As of December 31, 2007 Other payables 271,731,949.89 323,560,290.20 (a) Among the ending balance, due from shareholders that hold more than 5% (including 5%) shares of the Company amounted to 60,000,000.00. For particulars see Note 8. (b) Ending balance of related parties amounted to 80,929,396.71. For particulars see Note 8. (c) Significant other payables as of December 31, 2008: Item Amount Nature/Content Sales expenses 138,545,504.9 Unpaid sales expenses 2 Sinopharm Medicine Holding Co. Ltd Borrowing 60,000,000.00 China Pharmaceutical Group Unpaid equity transfer Page - 123 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Shanghai Corporation 15,330,550.00 expenses Sichuan Antibiotics Industry Unpaid R & D expenses Research Institute Co., Ltd 2,851,805.95 Shenzhen Maple Leaf Decoration Unpaid Decoration Design Co., Ltd 662,389.45 expenses 6.25 Non-current liabilities maturing within one year As of December As of December Item 31, 2008 31, 2007 Long-term borrowing 57,720,000.00 --- a. Long-term borrowings maturing within one year Category of As of December As of December borrowing 31, 2008 31, 2007 Guaranteed 57,720,000.00 --- borrowing Name of loaner Beginning Ending date As of December 31, As of December 31, 2008 date 2007 Interest Currenc Interest Currenc Amoun Amount rate y rate y t China Merchants Bank, Anlian 2006.8.2 2009.8.2 6.804 57,720,000. CNY --- --- --- 4 4 % 00 Branch 6.26 Long-term borrowings Currenc Term of As of December As of December Name of loaner y loan 31, 2008 31, 2007 China Merchants CNY Guaranteed 30,000,000.00 77,720,000.00 Bank Anlian branch Name of loaner Beginning Ending date As of December 31, 2008 As of December31, 2007 date Page - 124 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Interest Currenc Interest Amount Currency Amount rate y rate China Merchants 2008.8.2 2011.8.2 7.56% CNY 30,000,000.00 --- CNY --- Bank Anlian branch 1 1 China Merchants 2006.8.2 2009.8.2 --- --- --- 6.804% CNY 77,720,000.00 Bank Anlian branch 4 4 Total 30,000,000.00 77,720,000.00 6.27 Long-term payables As of December 31, Category 2008 As of December 31, 2007 Financial compensation for 51,261.00 113,625.83 employees 6.28 Specific items payable As of As of Project name of December December appropriation 31, 2007 Increases Carry-over 31, 2008 Specific funds appropriation from government 800,000.00 --- --- 800,000.00 Discount from 1,000,000.0 government (Note) 0 --- 1,000,000.00 --- Total 1,800,000.0 0 --- 1,000,000.00 800,000.00 Note: The carry-over of this fiscal year is conducted after the completion of projects. 6.29 Provisions As of Increases or As of December Item December 31, decreases 31, 2008 2007 Fine for social insurance 898,409.16 -898,409.16 ----- The decrease of the year is fine for social insurance and not necessary for re-payment, and is therefore Page - 125 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report written off. 6.30 Other non-current liabilities As of December 31, 2008 As of December 31, Item 2007 Central Medicine reserve 23,085,874.07 23,085,874.07 fund 6.31 Share capital The share capital which has been registered, issued and obtained by the Company is as follows: As of December 31, 2008 As of December 31, 2007 Number of shares Amount Number of Amount shares A share ( Face value 1 233,263,800. CNY per share) 233,263,800 233,263,800.00 233,263,800 00 B share ( Face value 1 CNY per share) 54,885,600 54,885,600.00 54,885,600 54,885,600.0 0 Total 288,149,400. 288,149,400 288,149,400.00 288,149,400 00 Changes in the share capital of the Company in current year are as follows: As of December 31, 2007 Increases（+）or Decreases（-） As of December 31, 2008 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 shares --- --- --- 112,786,386.00 39.14% -28,806,559.00 -28,806,559.00 83,979,827.00 29.14% (3) Other domestic shares 9,149,046.00 3.18% --- --- --- -9,149,046.00 -9,149,046.00 --- --- including ： Shares held by non-state-owned legal entity --- --- --- 9,149,046.00 3.18% -9,149,046.00 -9,149,046.00 --- --- Domestic natural person’s shares --- --- --- --- --- --- --- --- --- (4) Foreign shares --- --- --- --- --- --- --- --- --- including：Foreign legal entity shares --- --- --- --- --- --- --- --- --- Page - 126 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Foreign natural person’s shares --- --- --- --- --- --- --- --- --- Total shares with trade restriction 121,935,432.00 42.32% --- --- --- -37,955,605.00 -37,955,605.00 83,979,827.00 29.14% 2 ． Shares with no trade restriction (1) CNY ordinary shares 111,328,368.00 38.63% --- --- --- 37,955,605.00 37,955,605.00 149,283,973.00 51.81% (2) Domestically listed foreign shares --- --- --- --- --- 54,885,600.00 19.05% 54,885,600.00 19.05% (3) Overseas listed foreign shares --- --- --- --- --- --- --- --- --- (4) Others --- --- --- --- --- --- --- --- --- Total shares with no trade restriction --- --- --- 37,955,605.00 37,955,605.00 204,169,573.00 166,213,968.00 57.68% 70.86% 3．Total shares 288,149,400.00 100.00% --- --- --- --- --- 288,149,400.00 100.00% Note: In accordance with the Notice of Implementation of the Equity Division Reform Plan of Shenzhen Accord Pharmaceutical Co., Ltd., the schedule of shares with trade restrictions is as follows: 39,977,088 shares can be listed for circulation 12 months after the date of obtaining listed circulation right (i.e., applied for listed circulation after April 28, 2007); 37,963,986 shares can be listed for circulation 24 months after the date of obtaining listed circulation right (i.e., applied for listed circulation after April 29, 2008); 83,971,446 shares can be listed for circulation 36 months after the date of obtaining listed circulation right (i.e., applied for listed circulation after April 29, 2009). As of December 31, 2008 ended, 77,941,074 shares with trade restrictions can be listed for circulation, among which 28,814,940 shares are held by the Company's holding company - Sinopharm Holdings. The first batch of circulation share with trade restrictions amounting to 39,977,088 shares have been listed for circulation on May 10, 2007; the second batch of circulation share with trade restrictions amounting to 37,963,986 shares have been listed for circulation on May 16, 2008 Listed in circulation. 6.32 Capital reserves Item As of Increases Decreases As of December December 31, 31, 2007 2008 1. Capital premium （ share premium） （ 1 ） Influences of consolidation of enterprises 5,000,000. --- 5,000,000.0 --- 00 under the same control 0 Subtotal 5,000,000. 5,000,000.0 00 ---- 0 ---- Page - 127 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 2.Other capital reserves （1）Other changes in owner’s equity except net profit and loss 2,150,809. 71 254,706.86 --- 2,405,516.57 in invested units （2）Others 2,650,322. 00 --- --- 2,650,322.00 Subtotal 4,801,131. 71 254,706.86 --- 5,055,838.57 Total 9,801,131. 5,000,000.0 71 254,706.86 0 5,055,838.57 6.33 Surplus reserves As of December Increases Decreases As of December Item 31, 2007 31, 2008 Statutory Surplus Reserves 7,092,488.00 9,303,064.31 7,092,488.00 9,303,064.31 6.34 Undistributed profit Item Amount Proportion of extract and distribution Undistributed profit at the 184,074,070.88 beginning of the year Note Plus：Net profit attributable to the parent company of current 154,807,067.87 year Minus ： Extract for statutory 9,303,064.31 surplus reserves 10% Plus:other transfers -4,099,664.26 Undistributed profit at the end 325,478,410.18 of the year Note: Due to changes in the scope of consolidation under the same control, the beginning balance of current year grew by 2,978.49 than the ending balance of last year. 6.35 Operating Revenue and Cost Page - 128 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Item Current year Previous year Revenue Cost Revenue Cost Principal business 8,320,622,898.92 7,623,763,700.13 6,840,074,246.97 6,167,166,882.15 Other business 39,727,299.26 4,047,318.08 38,231,236.35 4,037,424.54 Total 8,360,350,198.18 7,627,811,018.21 6,878,305,483.32 6,171,204,306.69 (a) Operating revenue and cost listed by category of principal business Operating revenue Operating cost Item Current year Previous year Current year Previous year Industry — Medicine 742,249,196.10 475,540,579.65 877,170,724.69 647,537,184.47 Commerce - Medicine wholesale 6,752,372,662.83 6,427,223,702.94 8,164,576,473.09 7,777,422,917.14 Commerce - Medicine retail 327,352,829.48 248,257,241.39 342,245,837.33 263,569,459.31 Non-medicine trade 42,706,792.22 33,782,605.51 59,553,061.57 45,465,423.39 Leasehold 14,200,027.04 5,174,245.42 14,023,620.89 8,569,785.64 Subtotal 7,878,881,507.67 7,189,978,374.91 9,457,569,717.57 8,742,564,769.95 Writing-off in the Company 1,038,807,260.70 1,022,811,492.76 1,136,946,818.65 1,118,801,069.82 Total 6,840,074,246.97 6,167,166,882.15 8,320,622,898.92 7,623,763,700.13 (b) Operating revenue of principal business of the Company from its top five clients Name or rank of clients Total revenue of Proportion in the total revenue of principal business principal business of the the Company Sinopharm Medicine 256,971,716.35 3.09% Holding Shenyang Co., Ltd Guangdong People’s 137,589,792.21 1.65% Hospital Shenzhen People’s Hospital 103,277,787.16 1.24% No. 1 Hospital Affiliated to 92,070,648.53 1.11% Sun Yat-sen University Shenzhen Hospital Affiliated to Beijing 75,982,953.00 0.91% University 6.36 Taxes and surcharges on operations Page - 129 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Item Current year Previous year Business tax 3,986,954.02 4,837,397.52 City maintenance & construction 4,474,750.05 tax 3,240,913.20 Education surcharge 3,725,757.60 3,034,405.17 Others 19,856.41 58,368.69 Total 12,245,830.36 11,132,572.30 6.37 Financial expenses Category Current year Previous year Interest expenses 51,094,061.38 29,917,023.45 Less: Interest income 2,946,787.43 2,286,381.46 Exchange loss 52,668.08 115.00 Less: Exchange gain 1,130,818.68 1,290,183.25 Others 6,457,579.62 3,525,159.11 Total 53,526,702.97 29,865,732.85 Financial expenses of current year increased by 23,660,970.12 as compared with previous year, with a rate of 79.22％, which is mainly due to the sharp growth in costs caused by relatively high interest rate, and to the increase of loans from banks and of discounted bills. 6.38 Impairment loss on assets Item Current year Previous year Bad debt loss -4,964,982.92 3,982,465.66 Impairment loss on inventory 1,814,910.68 4,870,281.59 Impairment loss on long-term --- 396,638.32 equity investments Total -3,150,072.24 9,249,385.57 6.39 Investment income Page - 130 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Subject or name of Current year Previous year the invested unit 1、Investment income of financial assets （1）Investment income from holding of financial assets available for sale --- 131,104.50 （2）Investment income from disposal of --- 25,588,726.02 financial assets available for sale 2 ． Income from long-term equity investment (1) Recognized with cost method (1 company in total ) 3,618.16 --- (2) Recognized with equity method 16,507,296.06 8,209,843.29 (2 companies in total ) (3) Investment income from disposal of long-term equity investment --- 157,280.07 16,510,914.22 Total 34,086,953.88 Among which (1) Income from long-term equity investment recognized with cost method includes： Name of invested unit Current year Previous year China Associate Co., 3,618.16 --- Ltd. (2) Income from long-term equity investment recognized with equity method includes： Name of invested unit Current year Previous year Shenzhen Wanle Pharmaceutical Co., Ltd. 16,555,090.65 9,284,550.42 Sinopharm Holdings Shenzhen Chinese Medicine -1,074,707.13 -47,794.59 Co., Ltd. Total 16,507,296.06 8,209,843.29 (3)Income from disposal of long-term equity investment Name of invested unit Current year Previous year Guangdong Dongshi Enterprise Development Co., --- 157,280.07 Ltd. The Company has no material restriction of receiving investment income above. Page - 131 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 6.40 Non-operating profit Item Current year Previous year 1、Total income from disposal of non-current 5,561,792.93 18,145,895.84 assets Including：Income from disposal of fixed assets 5,561,792.93 1,457,098.42 Income from disposal of intangible assets 16,688,797.42 --- 2、Subsidy from government 13,180,599.00 3,500,000.00 3、Others 1,031,958.19 1,838,357.87 Total 19,774,350.12 23,484,253.71 . 6.41 Non-operating expenses Previous Item Current year year 1. Total loss for disposal of non-current 636,427.92 assets 589,275.65 including：Loss for disposal of fixed assets 636,427.92 589,275.65 2. Beneficent donation 201,359.07 427,103.98 3. Loss for inventory shortage --- 6,798.06 4. Others 916,144.77 -441,231.03 Total 1,760,729.82 575,148.60 6.42 Income tax expenses Item Current year Previous year Income tax expenses of current year 51,756,443.38 36,134,587.44 Deferred income tax expenses 4,909,012.50 576,886.68 Total 41,043,599.94 52,333,330.06 Illustration of the relationship between income tax expenses and accounting profits Item Current year Previous year Total profits 203,497,726.90 191,051,087.11 Tax amount calculated by statutory tax rate 36,629,590.84 28,657,663.07 Page - 132 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Influnces on tax amount of different tax rates in other subsidiaries 4,793,696.26 22,419,108.28 Influences on tax amount of income exempted from taxation -2,828,119.65 -1,255,068.50 Influences on tax amount of costs, expanses and loss that shall not be deducted. -2,061,291.38 4,199,238.12 Influences on tax amount of making up for losses in previous years -1,884,091.42 -3,484,114.05 Influences on tax amount of the settlement of enterprise income tax of previous year 1,005,285.37 --- Influences of deferred income tax assets 5,806,025.20 1,903,391.90 Influences of deferred income tax liabilities -897,012.70 -1,326,505.22 Influences on tax amount of unrecognized deductable losses and deductable temporary differences 479,517.42 1,219,616.46 Income tax expenses 41,043,599.94 52,333,330.06 6.43 Government subsidies Category and amount of subsidies from government Category Current year Previous year 3,500,000.00 Medicine reserve appropriation 6,126,500.00 Financial support to enterprises --- for R & D investment 1,800,000.00 Financial support to enterprise 3,000,000.00 --- technical center Subsidies for R&D 2,020,000.00 --- Others 234,099.00 --- 3,500,000.0 13,180,599.00 Total 0 6.44 Notes to cash flow statement (a) Other cash receipts related to operating activities Item Current year Interest income 2,946,787.43 Special fund for earthquake relief 6,481,370.00 Government subsidies 13,180,599.00 Current account 5,000,000.00 Others 1,068,566.90 Page - 133 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Total 28,677,323.33 (b) Other cash payments related to operating activities Item Current year Transportation expenses 49,245,503.39 Rentals 35,792,453.94 R& D expenses 23,708,795.65 Advertisement expenses 16,731,703.36 Service charge 6,457,579.62 Other expenses 131,888,325.55 Total 263,824,361.51 (c) Other cash receipts related to financing activities Item Current year Borrowings from Sinopharm 56,762,100.00 Holdings (d) Other cash payments related to financing activities Item Current year Return borrowings from Sinopharm 110,000,000.00 Holdings (e) Supplementary information of cash flow statement Item Current year Previous year 1. Adjust net profit to the cash flow of operating activities Net profit 162,454,126.96 138,717,757.05 Plus: Provision for asset impairment -3,150,072.24 9,249,385.57 Depreciation of fixed assets, depletion of oil and natural gas 41,201,342.92 30,481,369.39 assets and depreciation of bearer biological assets Amortization of intangible assets 2,487,664.98 2,333,194.70 Amortization of long-term deferred expenses 4,408,890.70 3,835,348.11 Loss from disposals of fixed assets, intangible assets and -4,972,517.28 -17,509,467.92 other long-term assets (deduct: increase) Loss on disposal of fixed assets (deduct: increase) --- --- Page - 134 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Loss from changes in fair values (deduct: increase) --- --- Financial expenses (deduct: increase) 49,963,242.70 28,846,395.98 Investment loss (deduct: increase) -16,510,914.22 -34,086,953.88 Decreases in deferred income tax assets (deduct: increase) 5,806,025.20 1,903,391.90 Increases in deferred income tax liabilities (deduct: decrease) -897,012.70 -1,326,505.22 Decreases in inventories (deduct: increase) -162,927,070.86 -88,410,204.66 Decreases in operating receivables (deduct: increase) -468,827,126.91 96,076,946.60 Increases in operating payables (deduct: decrease) 637,543,859.74 -82,412,817.61 Others --- --- Net cash flows from operating activities 246,580,438.99 87,697,840.01 2. Significant investment and financing activities unrelated to cash income and payment Debts transformed into assets --- --- Convertible bonds of the Company which will be --- --- mature within one year Financing of fixed assets on lease --- --- 3. Net changes in cash and cash equivalents Ending balance of cash 345,259,516.47 254,837,411.30 Deduct: Beginning balance of cash 254,837,411.30 205,345,054.01 Plus: ending balance of cash equivalents --- --- Deduct: beginning balance of cash equivalents --- --- Net increases of cash and cash equivalents 90,422,105.17 49,492,357.29 (f) Related information of subsidiaries and other operating units purchased or disposed in current year Item Current year Previous year 1. Related information of purchased subsidiaries and other operating units (1) Prices of purchased subsidiaries and other --- 5,002,978.49 operating units (2) Cash and cash equivalents paid in the purchase of --- 5,002,978.49 subsidiaries and other operating units Deduct: Cash and cash equivalents held by --- --- subsidiaries and other operating units (3) Net cash and cash equivalents paid in the purchase --- 5,002,978.49 of subsidiaries and other operating units (4) Net assets of the purchased subsidiaries 4,987,919.71 --- Current assets 5,333,586.44 --- Non-current assets 7,794.26 --- Current liabilities 353,460.99 --- Non-current liabilities --- --- Page - 135 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 2. Related information of disposed subsidiaries and --- --- other operating units (1) Prices of disposed subsidiaries and other operating --- --- units (2) Cash and cash equivalents received in the disposal --- --- of subsidiaries and other operating units Deduct: Cash and cash equivalents held by --- --- subsidiaries and other operating units (3) Net cash and cash equivalents received in the --- --- disposal of subsidiaries and other operating units (4) Net assets of the disposed subsidiaries --- --- Current assets --- --- Non-current assets --- --- Current liabilities --- --- (g) Structure of cash and cash equivalents As of As of December Item December 31, 31, 2008 2007 1. Cash 345,259,516.47 254,837,411.30 Including: cash on hand 442,155.45 1,622,171.38 Bank deposits ready for payment 306,747,671.83 199,448,262.01 Other monetary capital ready for payment 38,069,689.19 53,766,977.91 Deposits in Central Bank ready for payment --- --- Due from banks --- --- Inter-bank offers --- --- 2. Cash equivalent --- --- Including: bond investment maturing within three months --- --- 3. Ending balance of cash and cash equivalents 345,259,516.47 254,837,411.30 Including: restricted cash and cash equivalents used by the parent company or subsidiaries within the Group --- --- 7 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.) 7.1 Accounts receivable Page - 136 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (a) Structure of accounts receivable As of December 31, 2008 As of December 31, 2007 Proportion Provision Proportion Provision Book balance in total Provision rate for bad Book balance in total Provision rate for bad Aging amount debt amount debt Within one year 244,968,183.47 100.00% 1,666,380.37 0.68% 267,922,131.99 100.00% 1,314,112.28 0.49% (inclusive) 1-2 years(2 years --- --- --- --- --- --- --- --- inclusive) 2-3 years(3 years --- --- --- --- --- --- --- --- inclusive) Total 244,968,183.47 100.00% 1,666,380.37 267,922,131.99 100.00% 1,314,112.28 As of December 31, 2008 As of December 31, 2007 Proportion Provision Proportion Provision Book balance of total Provision rate for Book balance of total Provision rate for Item amount bad debt amount bad debt 1) Significant individual amount with separate provision for 408,783.47 1.62% 156,252.28 2.29% 25,245,382.74 10.30% 6,814,139.61 2.54% impairment loss 2) Insignificant individual amount with separate 1,257,596.90 43.97% 1,157,860.00 18.23% 2,859,980.56 1.17% 6,352,393.27 2.37% provision for impairment loss 3) Other amounts which are classified into the same group with similar credit risk 216,862,820.17 88.53% --- --- 254,755,599.11 95.09% --- --- features Among which: significant individual amount 85,996,833.45 35.11% --- --- 99,273,673.05 37.06% --- --- Insignificant individual amount 130,865,986.72 53.42% --- --- 155,481,926.06 58.03% --- --- Among which: Insignificant individual amounts which have high risk after classified --- --- --- --- --- --- --- --- into the same group with similar credit risk features Total 244,968,183.47 100.00% 1,666,380.37 267,922,131.99 100.00% 1,314,112.28 (b) Changes in the provision for bad debts in accounts receivable Beginning book Provision in Decreases Ending book Year balance current year Returned Written off balance 2007 2,149,378.49 --- 492,426.50 342,839.71 1,314,112.28 2008 1,314,112.28 363,845.97 --- 11,577.88 1,666,380.37 Page - 137 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (c) Accounts receivable with significant individual amount Ranking of significant individual Proportion Amount Reason amounts rate Not exceeding credit period or credit Shenzhen People’s Hospital 18,882,931.9 0% amount 2 Shenzhen No. 2 People’s Not exceeding credit period or credit Hospital 15,852,544.2 0% amount 8 Shenzhen Hospital Affiliated to Not exceeding credit period or credit Beijing University 12,844,685.9 0% amount 1 Xixiang People’s Hospital of Not exceeding credit period or credit Shenzhen Bao’an District 0% amount 8,772,185.23 People’s Hospital of Shenzhen Not exceeding credit period or credit Nanshan District 0% amount 7,408,881.78 (d) Accounts receivable actually written off in this year amount to 11,577.88. (e) There is no shareholders’ amounts with more than 5% (including 5%) voting shares of the Company of accounts receivable. (f) As of December 31, 2008, accounts receivable due to related parties amount to 4,446,165.33, which accounts for 1.81% of the ending balance. (g) Top five of accounts receivable as of December 31, 2008 As of December 31, 2008 Rank of debtors Proportion of total Amount Aging amount Shenzhen People’s Hospital Within one 18,882,931.9 7.71% year 2 Shenzhen No. 2 People’s Hospital Within one 15,852,544.2 6.47% year 8 Shenzhen Hospital Affiliated to Within one Beijing University 12,844,685.9 5.24% year 1 Xixiang People’s Hospital of Within one 3.58% Page - 138 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Shenzhen Bao’an District 8,772,185.23 year People’s Hospital of Shenzhen Within one Nanshan District 3.02% 7,408,881.78 year 7.2 Other receivables (a) Structure of other receivables As of December 31, 2008 As of December 31, 2007 Proportion Provision Proportion Provision Book balance in total Provision rate for bad Book balance in total Provision rate for bad Aging amount debt amount debt Within one year (inclusive) 240,313,262.87 94.44% --- 0.00% 94,700,137.63 82.53% --- 0.00% 1-2 years(2 years inclusive) 68,135.00 0.03% 3,406.75 5.00% 1,580,162.24 1.38% 79,008.11 5.00% 2-3 years(3 years inclusive) 1,179.81 0.00% 1,179.81 100.00% 9,479,243.90 8.26% 5,575,214.34 58.81% Over 3 years 14,074,579.90 5.53% 12,036,747.94 85.52% 8,980,000.00 7.83% 8,980,000.00 100.00% Total 254,457,157.58 100.00% 12,041,334.50 114,739,543.77 100.00% 14,634,222.45 As of December 31, 2008 As of December 31, 2007 Proportion Provision Proportion Provision Book balance of total Provision rate for bad Book balance of total Provision rate for Item amount debt amount bad debt 1) Significant individual amount with separate provision for 12,036,747.94 85.52% 14,532,747.94 79.70% 14,074,579.90 5.53% 18,234,579.90 15.89% impairment loss 2) Insignificant individual amount with separate 1,179.81 100.00% --- --- --- --- 1,179.81 0.00% provision for impairment loss 3) Other amounts which are classified into the same group 3,406.75 0.00% 101,474.51 0.11% with similar credit risk 240,381,397.87 94.47% 96,504,963.87 84.11% features Among which: significant --- --- individual amount 225,441,663.00 88.60% 91,587,820.11 79.82% Insignificant individual amount 3,406.75 0.02% 101,474.51 2.06% 14,939,734.87 5.87% 4,917,143.76 4.29% Among which: Insignificant individual amounts which have high risk after classified --- --- --- --- --- --- --- --- into the same group with similar credit risk features Total 254,457,157.58 100.00% 12,041,334.50 114,739,543.77 14,634,222.45 100.00% (b) Changes in the provision for bad debts in accounts receivable Beginning book Provision in cur Decreases Ending book Year balance rent year Returned Written off balance Page - 139 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 2007 12,768,979.01 2,957,909.42 --- 1,092,665.98 14,634,222.45 2008 14,634,222.45 --- 2,592,887.95 --- 12,041,334.50 (c) Other accounts receivable which are significant or those insignificant but provided for impairment loss separately Rank of significant Amount Provision Reason individual accounts rate Current account of related Sinopharm Guangzhou 0% 175,377,083.96 parties Current account of related Sinopharm Liuzhou 0% 33,600,000.00 parties Current account of related Accord Chain 0% 16,464,579.04 parties Shenzhen Yinghai Technology Investment Co., 100% Uncertainty in recovery 8,980,000.00 Ltd. Shenzhen Pharmaceutical Health Products Imp. & 60% Uncertainty in full recovery 5,094,579.90 Exp. Co., Ltd. (d) No other accounts receivable are written off this year. (e) Other accounts receivable which were provided for bad debt fully or in large proportion in previous periods and are recovered fully or partially in current year. Amount of Way of Reason for previous Reasonableness recovery or recovery provision proportion for previous Name of company claim provision proportion Shenzhen Pharmaceutical Unreturned for a Health Products Import & 4,160,000.00 Cash long-term, possibility Reasonable Export Co., Ltd. of partial loss (f) Among the ending balance of other accounts receivable, no accounts are attributed to the shareholders that hold over 5 % (inclusive) voting share of the Company. (g) Other accounts receivable which are due to related parties amount to 237,278,091.81, which accounts for 93.25％ of the ending balance of other accounts receivable. Page - 140 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (h) Top five other receivables Proportion Rank of creditor Nature/Content Amount Aging of total amount Sinopharm Guangzhou Current account 175,377,083 Within one 68.92% .96 year Sinopharm Liuzhou Current account Within one 33,600,000. 13.20% year 00 Shenzhen Accord Medicine Current account Within one Chain Co., Ltd. 16,464,579. 6.47% year 04 Shenzhen Yinghai Technology Current account 8,980,000.0 Over 3 years 3.53% Investment Co., Ltd. 0 Shenzhen Pharmaceutical Health Receivables from Products Imp. & Exp. Co., Ltd. equity transfer 5,094,579.9 Over 3 years 2.00% 0 The ending balance of other accounts receivable is 142,310,501.76 more than the beginning balance, an increase of 142.16％, which is due to the increase in the accounts receivable of the Company from its subsidiaries. 7.3 Long-term equity investments Item As of December 31, 2008 As of December 31, 2007 Book balance Provision for Book balance Provision for impairment impairment loss loss Long-term equity investment 299,906,100.66 --- --- in subsidiaries 238,628,456.04 Long-term equity investments calculated on an equity basis --- --- --- --- Joint ventures 21,955,562.26 --- --- 22,003,356.85 Long-term equity investments 9,584,126.69 7,689,226.69 9,584,126.69 7,689,226.69 Page - 141 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report calculated on a cost basis Total 331,445,789.61 7,689,226.69 270,215,939.58 7,689,226.69 (a) Investment in subsidiaries Balance as of Balance as of Beginning Name of subsidiaries December 31, Increases Decreases December 31, balance 2007 2008 Zhijun Pharm. 73,903,284.8 --- --- 73,903,284.8 73,903,284.87 7 7 Jianmin Pharm. 45,054,911.0 --- --- 45,054,911.0 45,054,911.04 4 4 1,050,875.9 Accord Medicine --- 5,400,000.00 5,400,000.00 3 6,450,875.93 Accord Logistics --- 900,000.00 900,000.00 119,062.68 1,019,062.68 Sinopharm 30,661,100. 58,283,114.6 85,440,323.6 Guangzhou 58,283,114.68 00 3,503,891.05 8 3 Accord Drugstore 45,135,253.9 5,048,092.5 50,183,346.5 45,135,253.97 7 4 1 Accord Chain Store 512,312.09 512,312.09 512,312.09 - Zhijun Medicine 2,018,831.1 --- Trade 3,006,866.42 988,035.31 3,006,866.42 1 Guangdong --- --- Xinlong 8,421,544.08 8,421,544.08 8,421,544.08 Training Center --- --- 30,000.00 30,000.00 30,000.00 Guangxi Accord --- 4,987,919.7 --- 4,987,919.71 4,987,919.71 1 21,407,965. Sinopharm Liuzhou 21,407,965.7 --- --- 21,407,965.7 79 9 9 65,293,847. 299,906,100. Total 267,043,172. 238,628,456.0 76 4,016,203.14 66 65 4 Page - 142 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (b) Long-term equity investments recognized by equity method Balance as Increases/decreases Initial of Including: Balance as of investment December distributed cash of December Name of invested unit amount 31, 2007 Total dividends 31, 2008 Joint ventures Sinopharm Holdings Shenzhen Chinese Medicine 20,939,177. 22,003,356. --- Co., Ltd. 10 85 -47,794.59 21,955,562.26 (c) Long-term equity investments recognized by cost method Book Book Initial balance as balance as Increases or Provision for Name of invested unit investment of of decreases impairment amount December December 31, 2007 31, 2008 Liaoning & Accord 1,894,900.0 1,894,900. Pharm. Chain Store --- 1,894,900.0 --- 0 00 Co., Ltd. 0 Shenzhen Medicine 7,689,226.6 7,689,226. 7,689,226.6 --- 7,689,226.6 Trade Co., Ltd 9 69 9 9 9,584,126.6 9,584,126. 7,689,226.6 Total --- 9,584,126.6 9 69 9 9 (d) Provision for impairment loss long-term equity investment As of As of Name of invested unit December 31, Increases Decreases December 31, 2007 2008 Shenzhen Medicine Trade Co. 7,689,226.69 --- --- 7,689,226.69 7.4 Operating revenue and cost Item Current year Previous year Revenue Cost Revenue Cost Principal 1,390,636,317. 1,323,846,549 business 1,234,058,804.24 72 .69 1,166,483,870.26 Page - 143 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Other business 2,758,916.04 203,652.45 2,889,849.00 150,655.20 1,393,395,233. 1,324,050,202 Total 76 .14 1,236,948,653.24 1,166,634,525.46 (a) Operating revenue and cost listed by category of principal business Revenue of principal business Cost of principal business Item Current year Previous year Current year Previous year Commerce - Medicine 1,390,636,317.72 1,234,058,804.24 1,323,846,549.69 1,166,483,870.26 wholesale (b) Operating revenue of principal business of the Company from its top five clients Proportion in the total Total revenue of revenue of principal Name or rank of clients principal business business of the the Company Shenzhen People’s Hospital 5.52% 76,755,518.53 Shenzhen No. 2 People’s Hospital 5.26% 73,148,940.20 Shenzhen Hospital Affiliated to Beijing 4.46% University 62,088,497.92 Shenzhen Nanshan District People’s Hospital 3.47% 48,255,173.68 Shenzhen Chinese Medicine Hospital 2.48% 34,479,009.98 7.5 Investment income Subject or name of Current year Previous year the invested unit Income from long-term equity investment (1) Recognized with cost method (7 company in total ) 96,254,734.40 99,413,073.19 (2) Recognized with equity method (1 companies in total ) -47,794.59 -1,074,707.13 Page - 144 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (3) Investment income from disposal of long-term equity investment -512,311.09 0.65 Total 95,694,628.72 98,338,366.71 Among which (1) Income from long-term equity investment recognized with cost method includes： Name of invested Current year Previous year unit Zhijun Pharm. 63,172,883.92 60,625,715.86 Jianmin Pharm. 3,727,825.19 Accord Medicine 1,008,897.99 1,199,352.49 Sinopharm Guangzhou 31,535,019.45 33,716,430.48 Accord Logistics 11,961.59 123.96 Zhijun Medicine Trade 197,121.50 143,625.21 Accord Drugstore 328,849.95 Total 96,254,734.40 99,413,073.19 (2) Income from long-term equity investment recognized with equity method includes： Name of invested unit Current year Previous year Sinopharm Holdings Shenzhen -47,794.59 -1,074,707.13 Chinese Medicine Co., Ltd (3)Income from disposal of long-term equity investment Page - 145 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Name of invested unit Current year Previous year Accord Chain Store -512,311.09 0.65 The Company has no material restriction of receiving investment income above 7.6 Supplementary information of cash flow statement Item Current year Previous year 1. Adjust net profit to the cash flow of operating activities Net profit 93,030,643.10 90,207,590.32 Plus: Provision for asset impairment -2,096,136.83 2,155,588.78 Depreciation of fixed assets, depletion of oil and natural gas assets and depreciation of bearer biological assets 5,517,748.59 6,811,434.50 Amortization of intangible assets 1,286,976.78 1,367,450.02 Amortization of long-term deferred expenses 92,997.04 386,247.73 Loss from disposals of fixed assets, intangible assets and other long-term assets (deduct: increase) 32,123.03 -21,617.17 Loss on disposal of fixed assets (deduct: increase) --- --- Loss from changes in fair values (deduct: increase) --- --- Financial expenses (deduct: increase) 6,684,784.08 1,916,278.96 -98,338,366.7 Investment loss (deduct: increase) -95,694,628.72 1 Decreases in deferred income tax assets (deduct: increase) --- --- Increases in deferred income tax liabilities (deduct: decrease) --- --- Decreases in inventories (deduct: increase) -22,908,907.23 1,135,889.14 Decreases in operating receivables (deduct: increase) -46,864,008.99 49,625,867.63 Page - 146 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report -164,985,108. Increases in operating payables (deduct: decrease) 58,085,329.83 22 Others --- --- -109,738,745. Net cash flows from operating activities -2,833,079.32 02 2. Significant investment and financing activities unrelated to cash income and payment Debts transformed into assets --- --- Convertible bonds of the Company which will be mature within one year --- --- Financing of fixed assets on lease --- --- 3. Net changes in cash and cash equivalents Ending balance of cash 62,369,583.65 54,841,676.10 Deduct: Beginning balance of cash 54,841,676.10 51,149,747.14 Plus: ending balance of cash equivalents --- --- Deduct: beginning balance of cash equivalents --- --- Net increases of cash and cash equivalents 7,527,907.55 3,691,928.96 8 Related party and related party transactions 8.1 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 Enterprise investment holdings, pharmaceutical enterprise management Sinopharm 6F, No. 221, Fuz engagement and asset Controlling Limited liability Medicine hou Rd., Huangp restructuring, wholesale of shareholder of company (domestic Yu Lulin 74618434-4 Holding Co., u District, Shang Chinese patent drugs, the Company joint-investment) Ltd hai chemical medicine, etc, domestic trading (except specialized permission Page - 147 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 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）： As of Decemb As of December Name of company er 31, 2007 Increases Decreases 31, 2008 Sinopharm Medicine Holding 163,704 --- --- 163,704 Co., Ltd Shenzhen Zhijun 6,900 --- --- 6,900 Pharmaceutical Co., Ltd Shenzhen Jianmin 500 --- --- 500 Pharmaceutical Co., Ltd Shenzhen Accord Medical 600 --- --- 600 Materials Co., Ltd Shenzhen Zhijun Pharmaceutical Trade Co., Ltd. 189 --- --- 189 Shenzhen Accord Pharm. 1,080 --- --- 1,080 Chain Store Co., Ltd Shenzhen Accord Drugstore 5,000 --- --- 5,000 Co., Ltd Shenzhen Medicines Trade Co. 188 --- --- 188 Shenzhen Accord Medicine 100 --- --- 100 Logistics Co., Ltd Sinopharm Holdings 5,000 --- --- 5,000 Guangzhou Co., Ltd. Sinopharm Holdings 2,000 --- --- 2,000 Guangdong Xinlong Co., Ltd. Sinopharm Holdings Liuzhou 2,053.06 --- --- 2,053.06 Co., Ltd. Guangxi Accord Pharm. Chain 200 --- --- 200 Page - 148 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report As of Decemb As of December Name of company er 31, 2007 Increases Decreases 31, 2008 Store Co., Ltd. Guangxi Accord Chinese 200 --- --- 200 Herbal Pieces Co., Ltd. Liuzhou Chinese Herbal Pieces 4 --- 4 --- Plant Guangdong Huixing 5,000 --- --- 5,000 Investment Co., Ltd. Sinopharm Holdings Foshan 200 --- --- 200 Co., Ltd. Guangzhou Accord Pharm. 200 --- --- 200 Chain Store Co., Ltd. Guangdong Yuexing 300 --- --- 300 Pharmaceutical Co., Ltd. Guangdong Hengchang 54 --- --- 54 Logistics Co., Ltd. Guangzhou Uptodate & 50 --- 50 --- Special Medicines Co., Ltd. Guangzhou South Medical Treatment Equipment 200 --- 200 --- Company (c) Shareholdings and changes in shareholdings of related parties with controlling relationship （in CNY ’0000） As of December 31, As of December 31, Name of Increases Decreases 2008 2007 Percentage Percentage Percentage Percentage Company Amount (%) Amount (%) Amount (%) Amount (%) Sinopharm Medicine 11,278.64 39.14 --- --- --- --- 11,278.64 39.14 Holding Co., Ltd Shenzhen 6,900.00 100 --- --- --- --- 6,900.00 100 Zhijun Page - 149 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report As of December 31, As of December 31, Name of Increases Decreases 2008 2007 Percentage Percentage Percentage Percentage Company Amount (%) Amount (%) Amount (%) Amount (%) Pharmaceutical Co., Ltd Shenzhen Jianmin 500.00 100 --- --- --- --- 500.00 100 Pharmaceutical Co., Ltd Shenzhen Accord Medical 600.00 100 --- --- --- --- 600.00 100 Materials Co., Ltd Shenzhen Zhijun Pharmaceutical 189.00 100 --- --- --- --- 189.00 100 Trade Co., Ltd. Shenzhen Accord Pharm. 1,080.00 100 --- --- --- --- 1,080.00 100 Chain Store Co., Ltd Shenzhen Accord 5,000.00 100 --- --- --- --- 5,000.00 100 Drugstore Co., Ltd Shenzhen Medicines 188.00 100 --- --- --- --- 188.00 100 Trade Co. Shenzhen Accord Medicine 100.00 100 --- --- --- --- 100.00 100 Logistics Co., Ltd Page - 150 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report As of December 31, As of December 31, Name of Increases Decreases 2008 2007 Percentage Percentage Percentage Percentage Company Amount (%) Amount (%) Amount (%) Amount (%) Sinopharm Holdings 4,500.00 90 --- --- --- --- 4,500.00 90 Guangzhou Co., Ltd. Sinopharm Holdings Guangdong 2,000.00 100 --- --- --- --- 2,000.00 100 Xinlong Co., Ltd. Sinopharm Holdings 1,047.06 51 --- --- --- --- 1,047.06 51 Liuzhou Co., Ltd. Guangxi Accord Pharm. 200.00 100 --- --- --- --- 200.00 100 Chain Store Co., Ltd. Guangxi Accord Chinese 200.00 100 --- --- --- --- 200.00 100 Herbal Pieces Co., Ltd. Liuzhou Chinese 4.00 100 --- --- 4.00 100 --- --- Herbal Pieces Plant Guangdong Huixing 5,000.00 100 --- --- --- --- 5,000.00 100 Investment Co., Ltd. Page - 151 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report As of December 31, As of December 31, Name of Increases Decreases 2008 2007 Percentage Percentage Percentage Percentage Company Amount (%) Amount (%) Amount (%) Amount (%) Sinopharm Holdings 200.00 100 --- --- --- --- 200.00 100 Foshan Co., Ltd. Guangzhou Accord Pharm. 200.00 100 --- --- --- --- 200.00 100 Chain Store Co., Ltd. Guangdong Yuexing 300.00 100 --- --- --- --- 300.00 100 Pharmaceutical Co., Ltd. Guangdong Hengchang 54.00 100 --- --- --- --- 54.00 100 Logistics Co., Ltd. Guangzhou Uptodate & Special 50.00 100 --- --- 50.00 100 --- --- Medicines Co., Ltd. Guangzhou South Medical Treatment 100.00 100 --- --- 100.00 100 --- --- Equipment Company (d) Related parties without controlling relationship Name of company Relationship Beijing Zhongxin Pharmaceutical Co. Same ultimate controlling shareholder Page - 152 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Name of company Relationship Guangdong East Uptodate & Special Medicines Co. Same ultimate controlling shareholder Guangdong Erbo Medical Equipment Co., Ltd. Same ultimate controlling shareholder Guangxi Wuzhou Huawu Medicine Co., Ltd. Same ultimate controlling shareholder Sinopharm Beijing Medical Treatment Equipment Co., Ltd. Same ultimate controlling shareholder Sinopharm Chemical Reagent Co., Ltd. Same controlling shareholder Union China National Medical Equipment Same ultimate controlling shareholder Corp. Sinopharm Shanghai Medical Equipment Same ultimate controlling shareholder Co., Ltd Sinopharm Medicine Northwest Same controlling shareholder Pharmaceutical Co., Ltd. Sinopharm Medicine Southwest Same controlling shareholder Pharmaceutical Co., Ltd. China National Medicines Co., Ltd. Same controlling shareholder Sinopharm Medicine Logistics Co., Ltd. Same controlling shareholder Sinopharm Medicine Holding Same controlling shareholder (Zhengzhou) Jiurui Co., Ltd. Sinopharm Medicine Holding Beijing Same controlling shareholder Huahong Co., Ltd. Sinopharm Medicine Holding Beijing Co., Same controlling shareholder Ltd. Sinopharm Medicine Holding Guoda Same controlling shareholder Drugstore Co., Ltd. Sinopharm Medicine Holding Hubei Co., Same controlling shareholder Ltd. Sinopharm Medicine Holding Hunan Co., Same controlling shareholder Ltd. Sinopharm Medicine Holding Jiangsu Co., Same controlling shareholder Ltd. Sinopharm Medicine Holding Nanning Same controlling shareholder Co., Ltd. Sinopharm Medicine Holding Shanxi Co., Same controlling shareholder Ltd. Sinopharm Medicine Holding Shanghai Same controlling shareholder Co., Ltd. SinoPharm Holdings Shenzhen Chinese Same ultimate controlling shareholder and Page - 153 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Name of company Relationship Medicine Co., Ltd. joint venture Sinopharm Medicine Holding Shenyang Same controlling shareholder Co., Ltd. Sinopharm Medicine Holding Suzhou Co., Same controlling shareholder Ltd. Sinopharm Medicine Holding Tianjin Co., Same controlling shareholder Ltd. Sinopharm Medicine Holding Zhejiang Same controlling shareholder Co., Ltd. Hebei Medicinal Material Company Same ultimate controlling shareholder Hubei Yibao International Medicine Co., Same ultimate controlling shareholder Ltd. Shanghai Sinopharm Wai Gao Qiao Co., Same controlling shareholder Ltd. Shenzhen Wanle Pharmaceutical Co., Ltd. Joint venture Sichuan Industrial Institute of Antibiotics Same ultimate controlling shareholder Co., Ltd. Tianjin East Bokang Medicine Trade Co., Same controlling shareholder Ltd. China National Group Co. of Traditional Same ultimate controlling shareholder & Herbal Medicine China National Pharmaceutical Foreign Same ultimate controlling shareholder Trade Corporation China National Pharmaceutical Shanghai Same controlling shareholder Corporation Guangxi Zhuang Autonomous Region Nanning Pharmaceutical Wholesale Same ultimate controlling shareholder Station Guangxi Guoda Drugstore Chain Co., Ltd Same ultimate controlling shareholder Guangdong South Pharmaceutical Foreign Same ultimate controlling shareholder Trade Co. China National Pharmaceutical Foreign Same ultimate controlling shareholder Trade Corporation Sales Affiliate 8.2 Related party transactions a) Transactions between subsidiaries controlled and consolidated and such subsidiaries with their parent companies have been eliminated b) Market price is adopted as the pricing policy related party transaction Page - 154 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report c) Purchases from related parties Scale of transactions This year Last year Name of Company Amount (’0000) Amount (’0000) Shanghai Sinopharm Wai Gao Qiao Co., Ltd. 68,014.41 84,783.31 Sinopharm Medicine Holding Shanghai Co., Ltd. 11,917.28 425.12 China National Medicines Co., Ltd. 11,213.03 8,702.20 Guangdong South Pharmaceutical Foreign Trade Co. 3,994.64 --- Sinopharm Medicine Holding Nanning Co., Ltd. 225.23 1,470.15 Sinopharm Medicine Holding Tianjin Co., Ltd. 1,200.77 564.52 China National Pharmaceutical Foreign Trade Corporation Sales Affiliate --- 704.30 Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. 1,391.02 119.39 Guangdong East Uptodate & Special Medicines Co. 861.02 1,034.73 Sinopharm Medicine Holding Suzhou Co., 121.32 Ltd. --- Sinopharm Medicine Holding Hunan Co., 36.33 Ltd. --- China National Group Co. of Traditional & 30.17 Herbal Medicine --- SinoPharm Holdings Shenzhen Chinese 401.32 Medicine Co., Ltd 113.24 This year Last year Name of Company Amount (’0000) Amount (’0000) Beijing Zhongxin Pharmaceutical Co. 8.56 --- China National Pharmaceutical Foreign Trade Corporation 0.73 1,947.45 Sinopharm Medicine Holding Co., Ltd --- 1,572.41 Union China National Medical Equipment --- Page - 155 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Co., Ltd 610.20 Sinopharm Southwest Pharmaceutical Co., --- Ltd 389.08 Sinopharm Chemical Reagent Co., Ltd --- 23.03 Sinopharm Medicine Holding Hubei --- -3.61 Xinlong Co., Ltd.(Note) Shenzhen Wanle Pharmaceutical Co., Ltd. --- 156.96 Total 101,911.79 100,116.52 Note: the company has become unrelated party this year. d) Sales to related parties Scale of transactions This year Last year Name of Company Amount (’0000) Amount (’0000) Sinopharm Medicine Holding Shenyang Co., Ltd. 25,697.17 20,016.19 Sinopharm Medicine Holding Hubei Co., Ltd. 7,457.76 6,464.53 Sinopharm Medicine Holding Nanning Co., 7,157.53 4,626.26 Ltd. Sinopharm Medicine Southwest 5,890.56 5,482.41 Pharmaceutical Co., Ltd. Sinopharm Medicine Holding Tianjian Co., 5,471.53 4,537.10 Ltd. Sinopharm Medicine Holding Beijing Co., 3,722.84 1,732.29 Ltd. Hubei Yibao International Medicines Co., 3,478.89 --- Ltd Sinopharm Medicine Holding Beijing 1,024.98 94.55 Huahong Co., Ltd Tianjin East Bokang Medicine Trade Co., 599.73 Ltd. 787.47 Sinopharm Medicine Holding Jiangsu Co., 421.48 Ltd. 584.45 Sinopharm Medicine Holding Shanxi Co., 402.12 Ltd. 512.01 Sinopharm Medicine Holding (Zhengzhou) --- Jiurui Co., Ltd. 479.76 Page - 156 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report This year Last year Name of Company Amount (’0000) Amount (’0000) Sinopharm Medicine Holding Co., Ltd. 627.00 473.00 China National Medicines Co., Ltd. 404.63 339.12 Shanghai Sinopharm Wai Gao Qiao Co., --- Ltd. 132.89 Sinopharm Medicine Northwest 87.09 Pharmaceutical Co., Ltd. 58.03 Sinopharm Medicine Logistics Co., Ltd. --- 48.87 Sinopharm Medicine Holding Guoda 61.19 Drugstore Co., Ltd. 37.74 Sinopharm Medicine Holding Suzhou Co., 79.06 Ltd. 23.33 Sinopharm Medicine Holding Zhejiang Co., 29.61 Ltd. 12.87 Guangxi Guoda Drugstore Chain Co., Ltd. --- 3.44 Sinopharm Medicine Holding Hunan Co., 6,156.21 5,459.45 Ltd. Sinopharm Medicine Holding Hubei 599.45 Xinlong Medicine Co., Ltd. (Note) --- Guangdong South Pharmaceutical Foreign 217.55 Trade Co. Ltd. --- Guangdong East Uptodate & Special 205.4 Medicines Co. Ltd. --- Guangxi Wuzhou Huawu Medicine Co., 18.42 Ltd. --- Sinopharm Medicine Holding Jingzhou 1.5 Xinlong Medicine Co., Ltd. (Note) --- SinoPharm Holdings Shenzhen Chinese 0.74 Medicine Co., Ltd. --- Guangdong Erbo Medical Equipment Co., 1.94 Ltd. --- Total 69,550.45 52,169.69 Note: the company has become unrelated party this year. e) Balance of current account of related parties Page - 157 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Or: Percentage in total receivables (payables) Amount at end of year (’0000) (%) Item End of last End of this End of last End of this year year year year Account receivables： Sinopharm Medicine Holding Shenyang Co., Ltd. 3,366.09 3.24 2.61 5,601.39 Sinopharm Medicine Holding Hunan Tianjian Co., Ltd. 1,340.84 0.76 1.04 1,321.52 Sinopharm Medicine Southwest Pharmaceutical Co., Ltd. 1,068.99 0.76 0.83 1,321.60 Sinopharm Medicine Holding Hubei Co., Ltd. 917.3 0.00 0.71 5.64 Sinopharm Medicine Holding Beijing Co., Ltd. 376.46 0.47 0.29 809.73 Sinopharm Medicine Holding Nanning Co., Ltd. 172.04 0.17 0.13 288.86 Sinopharm Medicine Holding Tianjin Co., Ltd. 988.31 0.53 0.76 916.92 Sinopharm Medicine Holding Shanxi Co., Ltd. 119.07 0.10 0.09 171.73 Tianjin East Bokang Medicine Trade Co., Ltd. 102.98 0.08 0.08 133.58 SinoPharm Holdings Co., Ltd. 90.14 0.06 0.07 103.73 Sinopharm Medicine Holding Hubei Xinlong Co., Ltd (Note 1) --- 56.87 --- 0.04 China National Medicines Co., Ltd. 54.18 0.02 0.04 38.27 Sinopharm Medicine Northwest Pharmaceutical Co., Ltd. 49.57 0.01 0.04 17.41 Guangdong East Uptodate & Special Medicines Co. 35.14 0.03 0.03 55.11 Sinopharm Medicine Holding Jiangsu Co., Ltd. 25.82 0.05 0.02 92.81 Hubei Yibao International Medicines --- 0.22 --- Page - 158 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Or: Percentage in total receivables (payables) Amount at end of year (’0000) (%) Item End of last End of this End of last End of this year year year year Co., Ltd 387.98 Shanghai Sinopharm Wai Gao Qiao --- 0.09 --- Co., Ltd 154.11 Sinopharm Medicine Holding Guoda --- 0.02 --- Drugstore Co., Ltd 40.20 Sinopharm Medicine Holding --- 0.05 --- (Zhengzhou) Jiurui Co., Ltd 92.21 Sinopharm Medicine Holding Beijing --- 0.05 --- Huahong Co., Ltd 84.95 Sinopharm Medicine Holding --- 0.00 --- Zhejiang Co., Ltd 1.43 Guangxi Guoda Drugstore Chain Co., --- --- 0.00 Ltd 0.21 Sinopharm Medicine Holding Suzhou --- 0.00 --- Co., Ltd 4.54 Total 11,643.93 8,763.80 6.71 6.78 Other receivables： Sinopharm Medicine Holding Guoda Drugstore Co., Ltd. --- 12.71 --- 0.23 China National Medicines Co., Ltd. --- 10.75 --- 0.20 Guangxi Zhuang Autonomous Region Nanning Pharmaceutical Wholesale --- 400.00 --- 7.35 Station Guangxi Guoda Drugstore Chain Co., --- 100.00 --- 1.84 Ltd Total --- 523.46 --- 9.62 Advance to suppliers： Sinopharm Medicine Holding Nanning Co., Ltd. --- 0.06 --- --- Accounts payable： Shanghai Sinopharm Wai Gao Qiao 11,167.08 8.12 10.59 Co., Ltd. 11,022.08 Sinopharm Medicine Holding Co., --- 1.36 --- Ltd 1,850.56 China National Medicines Co., Ltd. 613.13 0.47 0.58 Page - 159 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Or: Percentage in total receivables (payables) Amount at end of year (’0000) (%) Item End of last End of this End of last End of this year year year year 641.80 China National Pharmaceutical 32.40 0.39 0.03 Foreign Trade Corporation 535.92 Sinopharm Medicine Holding 6.85 0.33 0.01 Shanghai Co., Ltd. 438.81 Sinopharm Medicine Holding Guoda 122.44 0.26 0.12 Drugstore Co., Ltd. 344.36 Sinopharm Medicine Holding 2.41 0.19 --- Nanning Co., Ltd. 252.86 Guangdong East Uptodate & Special 98.01 0.17 0.09 Medicines Co., Ltd 234.70 Sinopharm Medicine Holding Tianjin 74.78 0.06 0.07 Co., Ltd. 80.64 Shenzhen Wanle Pharmaceutical Co. --- 0.04 --- Ltd 47.09 Beijing Zhongxin Pharmaceutical Co. 17.31 0.01 0.02 Ltd 7.14 Sinopharm Shanghai Medical 2.70 0.00 0.00 Treatment Equipment Co., Ltd. 1.62 SinoPharm Holdings Shenzhen 55.72 0.00 0.05 Chinese Medicine Co., Ltd. 0.93 Sinopharm Beijing Medical --- 0.00 --- Treatment Equipment Co., Ltd. 0.88 Sinopharm Medicine Holding Beijing --- 0.00 --- Co., Ltd. 0.40 Guangdong Erbo Medical Equipment 0.05 --- 0.00 --- Co., Ltd China National Pharmaceutical Foreign Trade Corporation Sales --- 116.13 --- 0.11 Affiliate China National Group Corp. of --- 27.57 --- 0.03 Traditional & Herbal Medicine Guangdong South Pharmaceutical --- 8.44 --- 0.01 Foreign Trade Co., Ltd Sinopharm Medicine Holding Suzhou --- 3.81 --- --- Co., Ltd. Hebei Medical Materials Co., Ltd. --- 0.47 --- --- Page - 160 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Or: Percentage in total receivables (payables) Amount at end of year (’0000) (%) Item End of last End of this End of last End of this year year year year Sinopharm Medicine Holding Hunan --- 0.01 --- --- Co., Ltd. Union China Medical Equipment --- -0.02 --- Corp. -21.08 Total 15,438.76 12,349.26 11.38 11.71 Other payables： SinoPharm Holdings Co., Ltd. 11,000.00 22.27 34.00 6,000.00 Sichuan Industrial Institute of Antibiotics Co., Ltd. 285.18 285.18 1.06 0.88 SinoPharm Holdings Shenzhen Chinese Medicine Co., Ltd. 2.49 2.49 0.01 0.01 --- --- Sinopharm Shanghai Co., Ltd. 5.69 1,533.06 SinoPharm Medicine Holding Guoda --- 0.71 --- Drugstore Co., Ltd. 192.21 --- Sinopharm Logistic Co., Ltd 0.30 --- 80.00 Total 8,092.94 11,287.67 30.04 34.89 Note 1: The company has become unrelated party this year. Note 2: The aging of all current accounts with related parties is within one year, and thus they are not provided for bad debt. 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 2008: China National Medicines Co., Ltd. 31.12 (CNY’0000), Shanghai Sinopharm Wai Gao Qiao Co., Ltd. 1,372.74 (CNY’0000). Page - 161 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report (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 2008 amount to 661.65 (CNY’0000). In 2008, the Company has new borrowings and undertakes relevant capital occupancy charges of 161.90 (CNY’0000). (4) The Company purchases 10% shares of Sinopharm Guangzhou which were previously held by Sinopharm Shanghai Co., Ltd, with a price of 3,066.11 (CNY’0000) in this fiscal year. (5) The Company purchases 100% shares of Guangxi Accord which were previously held by Guangxi Zhuang Autonomous Region Nanning Pharmaceutical Wholesale Station and Guangxi Guoda Drugstore Chain Co., Ltd in this fiscal year. 9. Contingencies: Up to December 31, 2008, the contingent liabilities of the Company from providing debt guarantee for related parties and other units are as follows: Name of Name of Guarantee Start Date Due Date Influence on Guarantor Guarantee Amount Amount used of of Financial Status (CNY’0000) Guarantee Guarantee of the Company Related parties: Sinopharm No unfavorable Guangzhou, The 80,000,000.00 62,706,685.86 2008.9.30 2009.9.30 influence Zhijun Pharm. Company The No unfavorable Zhijun Pharm. 2008.12.19 2009.12.19 Company 50,000,000.00 30,171,729.25 influence The No unfavorable Zhijun Pharm. 50,000,000.00 2008.12.16 2009.12.16 Company 33,235,496.51 influence The No unfavorable Zhijun Pharm. 100,000,000.00 --- 2007.12.29 2009.12.28 Company influence The No unfavorable The Company, Company, 2008.12.10 2009.12.10 influence Zhijun Pharm. Zhijun 100,000,000.00 91,255,491.94 Pharm. The No unfavorable Zhijun Pharm. 80,000,000.00 2008.8.28 2009.8.28 Company 42,133,155.35 influence Page - 162 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report Name of Name of Guarantee Start Date Due Date Influence on Guarantor Guarantee Amount Amount used of of Financial Status (CNY’0000) Guarantee Guarantee of the Company The No unfavorable The Company, Company, influence Sinopharm Sinopharm 80,000,000.00 --- 2008.05.16 2009.05.16 Guangzhou, Guangzhou, Zhijun Pharm. Zhijun Pharm. Zhijun No unfavorable The Company 60,000,000.00 2008.08.19 2011.08.19 Pharm 30,000,000.00 influence Zhijun No unfavorable The Company 100,000,000.00 57,720,000.00 2005.08.17 2009.08.17 Pharm influence Zhijun No unfavorable The Company 2008.05.28 2009.04.24 Pharm 50,000,000.00 7,239,045.56 influence Sinopharm No unfavorable The Company 2008.11.11 2009.09.03 Guangzhou 50,000,000.00 40,658,682.35 influence Sinopharm No unfavorable The Company 2008.5.29 2009.5.29 Guangzhou 55,000,000.00 54,865,888.77 influence Sinopharm No unfavorable The Company 2007.10.22 2008.12.31 Guangzhou 73,200,000.00 69,075,912.77 influence Sinopharm No unfavorable The Company 2008.01.01 2008.12.31 Guangzhou 450,000,000.00 70,000,000.00 influence Sinopharm No unfavorable The Company 2008.09.01 2009.09.01 Guangzhou 80,000,000.00 39,983,323.31 influence Sinopharm No unfavorable The Company 4,984,700.92 2008.12.17 2009.12.16 Guangzhou 30,000,000.00 influence Accord No unfavorable The Company 10,000,000.00 2008.10.20 2009.10.20 Drugstore 1,059,961.44 influence 10. Commitments 10.1 There are no investment contracts and related financial expenditure signed but not yet executed or not fully executed. 10.2 There are no significant outsourcing contracts signed and being or to be executed: Page - 163 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 10.3 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 654,160,000 1-2 years 45,170,000 10.4 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 2,202,960,000 1-2 years 1,623,000,000 2-3 years 814,410,000 Above 3 years 436,740,000 Total 5,077,110,000 10.5 There are no acquisition agreements signed and being or to be executed. 10.6 There are no restructuring plans signed and being or to be executed. 10.7 There are no other significant financial commitments: 10.8 Execution of prior commitments: All have been executed according to the contracts 11 Post balance sheet events 11.1 Post balance sheet profit distribution proposal In accordance with Resolution of the 8th Meeting of the Fifth Board of Directors held on March 17, 2009, the Company proposes to distribute cash dividends of CNY 1.00 (tax inclusive) per 10 shares to all the shareholders on the basis of the total equity, i.e. 288,149,400 shares, held by the Company as of December Page - 164 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 31, 2008, with an estimated total amount of distributed cash dividends of CNY 28,814,940.00. No capital reserve will be transferred to shares in the Company in the fiscal year of 2008. 11.2 Post balance sheet consolidation or disposal of subsidiaries a. The Company purchases 100% shares of Dongguan Dongfeng Chinese Medicine Co., Ltd. with a price of 274.20 (CNY’0000) in Jan. 2009. b. The Company purchases 75% shares of Suzhou Wanqing Pharmaceutical Co., Ltd. with a price of 10,350.00 (CNY’0000) in Mar. 2009. 12 Other events No other events need to be disclosed 13 Supplementary Materials 13.1 Non-recurring profit and loss attributable to ordinary shareholders of the year (profit +, loss－) Item Amount 1. Profit and loss of non-current assets disposal, including the offset amount which has been 4,972,517.28 provided for asset impairment loss 2. Tax refund and exemption without authorized approval or formal approval document --- 3. Government subsidy recorded into profit and loss of current year，with the exception of the government subsidy closely related to company business and obtained by quota and quantity, 7,054,099.00 according to the national unification standard 4.Fund possession cost reported in the current profit and loss and charged by non-financial --- enterprises 5.The investment cost in the acquisition of subsidiaries and joint ventures is smaller than the amount of the profit and loss generated by the fair value of net identifiable assets of the invested --- units enjoyed by the Company 6. Non-currency assets exchange profit and loss --- 7. Profit and loss of assets entrusted for investment or management --- 8. Accrual of provision for assets impairment of all kinds of irresistible factors ,such as natural --- disasters 9.Profit and loss of debt restructure --- 10.Company recombination expenses, such as expenses for resettling employees, integration --- expenses and etc. 11. Profit and loss of the part created by obviously unfair transaction price over fair value --- 12. Net profit and loss of subsidiary in the current year created by enterprise merger under the --- same control from beginning of the fiscal year to the date of the merger Page - 165 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 13. Profit and loss caused by contingencies borne no relation to the main operation of the company --- 14. Except the effective hedge related to normal business operations, gains and losses arising from changes in the fair value of the tradable financial assets and liabilities held by the Company, as --- well as the return on investment during the disposal of tradable financial assets and liabilities, and financial assets available for sale. 15. Return of provision for impairment of the accounts receivable which are subject to separate 4,419,372.88 impairment test. 16. Profit and loss obtained in commissioned external loans --- 17. Profit and loss arising from changes in the fair value of investment real estate which adopts the --- fair value model in the follow-up calculation. 18. Influences on current profit and loss of the one-time adjustment to the current profit and loss in --- accordance with the requirements of tax and accounting laws and regulations. 19.Trustee fee gained during entrusted operation --- 20. Other operating revenues and expenditures in addition to the above items 1,046,085.24 21. Other items of profit and loss that meet the definition of non-recurring profit and loss --- 22. Influence of minority shareholders’ profit and loss -165,852.47 23. Influence of income tax -1,854,189.06 Total 15,472,032.87 13.2 Return on net asset and earnings per share Return on net profit Earnings per share Profit of the reporting period Weighted Basic earnings per Diluted earnings Fully diluted average share per share Net profit attributable to ordinary 24.65% 27.33% 0.54 0.54 shareholders of the Company Net profit attributable to ordinary shareholders of the Company after 22.19% 24.59% 0.48 0.48 deducting non-recurring gain or loss a. 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 Page - 166 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 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 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. Page - 167 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 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. b. Potential ordinary shares which are not diluted in this fiscal year but probably become diluted in later periods 14 Approval of Financial Statement This financial statement is passed and issued by the Board of Directors of the Company on March 17, 2009. Shenzhen Accord Pharmaceutical Co., Ltd. March 17, 2009 Page - 168 - Shenzhen Accord Pharmaceutical Co., Ltd. 2008 Annual Report 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 Hong Kong 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: Shi Jinming Board of Directors of Shenzhen Accord Pharmaceutical Co., Ltd. March 20, 2009 Page - 169 -