2013 Annual Report - makuanggroup.commakuanggroup.com/pdf/馬光102年報1015校完稿.pdf · vi....

Stock code: 4139

MA KUANG HEALTHCARE HOLDING LIMITED

2013

Annual Report

Website of this annual report: Market Observation Post System

(http://newmops.tse.com.tw/)

Information reporting website designated by Financial Supervisory

Commission: same as above

Website of the Company’s annual report: same as above Published date: May 30, 2014

I. Name, title, telephone number and email of the designated spokesman within

the territory of the R.O.C.:

Name Title Tel. Email Huang, Chuan Sheng President (07)555-0864 [email protected]

II. Name, title, telephone number and email of the designated acting spokesman

within the territory of the R.O.C.:

Name Title Tel. Email Wei, Cheng-An Audit

Supervisor(07)555-0864 [email protected]

III. Name, title, telephone number and email of the litigant and agent ad litem

within the territory of the R.O.C.:

Name Title Tel. Email Huang,

Fu-Hsiang Chairman (07)555-0864 [email protected]

IV. List of Board members:

Title Name Nationality Prime experience and education

Chairman Huang,

Fu-Hsiang R.O.C.

1. President, Association of Traditional Chinese Medicine Practitioners in Pingtung County, Taiwan2. EMBA, National Sun Yat-sen University College of Management 3. MD, China Medical University School of Post Baccalaureate Chinese Medicine

Director

Huang,

Chuan

Sheng

R.O.C.

1. Licensed traditional Chinese physician in Singapore 2. MBA, National University of Singapore School of Business

Director Huang,

Po-Wen R.O.C.

1. CPA, Nexia Sun Rise CPAs & Co. 2. Supervisor, Dacome International Ltd. 3. Supervisor, Yih-Dah Co., Ltd. 4. Adjunct Instructor, Department of Financial and Economic Law, National University of Kaohsiung5. Adjunct Instructor, Department of Business Administration, National Sun Yat-sen University 6. Executive Supervisor, Kaohsiung Lifeline Association 7. Supervisor, National Federation of Certified Public Accountants Association of the Republic of China 8. Master of Accountancy, George Washington University School of Business 9. Bachelor of Accountancy, National Cheng KungUniversity Department of Accountancy

Director Hwang,

Yih-Ray R.O.C.

1. Managing Director, Solomon CPAs & Co. 2. President, Association of CPAs in Kaohsiung City, Taiwan 3. Ph.D., Jinan University 4. MBA, University of Massachusetts College of Management

Independent

Director

Chen,

San-Er R.O.C.

1. Executive Director, Association of Attorneys-at-Law in Kaohsiung City, Taiwan 2. Master of Laws, National Chengchi University College of Law 3. Bachelor of Laws, National Chengchi University Department of Law

Independent

Director

Hseu,

Shun-Fa R.O.C.

1. President, Association of CPAs in Kaohsiung City, Taiwan 2. Executive Officer, First Examination Division, National Taxation Bureau of Kaohsiung, Ministry of Finance, Taiwan 3. Independent Director, QST International Corp.4. Master of Accountancy, University of Memphis5. Bachelor of Arts, National Chengchi University Department of Public Administration

Independent

Director

Lee,

Liang-Chien R.O.C.

1. Dean & Adjunct Professor, Department ofFinance, I-Shou University 2. Dean & Secretary General, Center for GeneralEducation, I-Shou University 3. CEO, EMBA Program, College of Management,I-Shou University 4. Independent Director, SciVision Biotech Inc. 5. Ph.D. in Management, National Cheng Kung University

V. Address and telephone number of head offices and branches: (I) Head office: Ma Kuang Healthcare Holding Limited. (hereinafter referred

to as “MKH” or “the Company”) Address: 3rd Floor, Harbour Centre, PO BOX 613, George Town, Grand Cayman, British West Indies. Tel.: (8867)555-0864

(II) Singapore operational headquarter: Ma Kuang Healthcare Group Pte. Ltd. (hereinafter referred to as “MKH-SG”) Address: 190 Middle Road, Fortune Centre #20-08, Singapore 188979 Tel.: (0065)6884-4772

(iii) Taiwan branch: Address: 3F, No. 209, Huarong Road, Gushan District, Kaohsiung City. Tel.: (07)555-0864

VI. Name, address, website and telephone number of shareholders' service agent: Name: Jih Sun Securities Co., Ltd. Website: www.jihsun.com.tw Address: 11F, No. 10, Section 1, Chongqing South Road, Taipei City Tel.: (02)2382-6789

VII. Name, firm name, address, website and telephone number of certified public accountants of the recent annual financial report: Name of accountant: Chen, Zheng-Chu and Li, Fang-Wen Website: www.ey.com/tw Firm name: Ernst & Young Tel.: (8867) 238-0011 Address: 17F, No. 2, Chung Cheng 3rd Road, Kaohsiung City

VIII. Names of exchanges where overseas securities are listed and methods of inquiry: none

IX. Company website: www.makuang.com.sg

Contents

Page

I. LETTER TO SHAREHOLDERS ............................................................................................. 1

II. COMPANY PROFILE ............................................................................................................ 4

I. COMPANY AND GROUP PROFILE ............................................................................................. 4

II. GROUP STRUCTURE AND HISTORY ........................................................................................ 4

III. RISKS ................................................................................................................................ 6

III. CORPORATE GOVERNANCE REPORT ............................................................................ 7

I. CORPORATE ORGANIZATION SYSTEM ..................................................................................... 7

II. INFORMATION ON DIRECTORS, SUPERVISORS, PRESIDENT, VICE PRESIDENT, ASSISTANT

MANAGERS AND CHIEFS OF EACH DEPARTMENT AND BRANCH ................................................ 9

III. CORPORATE GOVERNANCE OPERATION ............................................................................. 25

IV. INFORMATION OF ACCOUNTANT’S FEE ................................................................................ 52

V. CHANGES OF ACCOUNTANTS .............................................................................................. 54

VI. IF THE COMPANY’S CHAIRMAN, PRESIDENT, OR ANY MANAGERIAL OFFICER IN CHARGE OF

FINANCE OR ACCOUNTING MATTERS HAS IN THE MOST RECENT YEAR HELD A POSITION AT THE

ACCOUNTING FIRM OF ITS CERTIFIED PUBLIC ACCOUNTANT OR AT AFFILIATED ENTERPRISE,

THEIR NAMES, TITLES AND EMPLOYMENT PERIODS SHALL BE DISCLOSED ............................. 55

VII. EQUITY TRANSFERS AND EQUITY PLEDGES (OR CHANGES THERETO) DURING THE PRECEDING

FISCAL YEAR OR IN THE CURRENT FISCAL YEAR UP TO THE DATE OF PRINTING OF THE ANNUAL

REPORT, INVOLVING EQUITY INTERESTS BELONGING TO DIRECTORS, SUPERVISORS,

MANAGERIAL OFFICERS, AND SHAREHOLDERS WITH A STAKE OF 10 PERCENT OR MORE IN THE

COMPANY ........................................................................................................................ 55

VIII. INFORMATION DISCLOSING THE RELATIONSHIP BETWEEN ANY OF THE COMPANY’S TOP TEN

SHAREHOLDERS ............................................................................................................... 57

IX. TOTAL NUMBER OF SHARES AND TOTAL EQUITY STAKE HELD IN ANY SINGLE ENTERPRISE BY THE

COMPANY, ITS DIRECTORS AND SUPERVISORS, MANAGERIAL OFFICERS, AND ANY COMPANIES

CONTROLLED EITHER DIRECTLY OR INDIRECTLY BY THE COMPANY ....................................... 59

X. PROCEDURES FOR HANDLING MATERIAL INFORMATION ........................................................ 60

IV. FUND-RAISING ACTIVITIES ............................................................................................. 61

I. CAPITAL AND SHARES ......................................................................................................... 61

II. ISSUANCE OF CORPORATE BONDS....................................................................................... 67

III. ISSUANCE OF PREFERRED STOCKS .................................................................................... 68

IV. ISSUANCE OF GLOBAL DEPOSITORY RECEIPT ...................................................................... 68

V. PROGRESS OF EMPLOYEES’ STOCK WARRANT ..................................................................... 68

VI. STATUS OF NEW EMPLOYEE RESTRICTED SHARES .............................................................. 68

VII. NAMES, ACQUISITION AND SUBSCRIPTION OF MANAGERIAL OFFICERS THAT OBTAIN EMPLOYEE

WARRANT CERTIFICATES AND TOP TEN EMPLOYEES THAT OBTAIN WARRANT CERTIFICATES .. 68

VIII. NAMES AND ACQUISITION OF MANAGERIAL OFFICERS AND TOP TEN EMPLOYEES THAT OBTAIN

THE NEW EMPLOYEE RESTRICTED SHARE ........................................................................... 68

IX. MERGING OR ENTRUSTED FOR OTHER COMPANIES ISSUING THE NEW SHARE ....................... 68

X. PLAN FOR CAPITAL INVESTMENT AND UTILIZATION ............................................................... 68

V. OPERATIONS OVERVIEW ................................................................................................ 69

I. BUSINESS CATEGORIES ....................................................................................................... 69

II. ANALYSIS OF MARKET AND PRODUCTION & MARKETING SITUATION ........................................ 77

III. NUMBER OF EMPLOYEES EMPLOYED FOR THE TWO MOST RECENT FISCAL YEARS, AND DURING

THE CURRENT FISCAL YEAR UP TO THE DATE OF PRINTING OF THE ANNUAL REPORT, THEIR

AVERAGE YEARS OF SERVICE, AVERAGE AGE, AND EDUCATION LEVELS ................................ 84

IV. INFORMATION ON ENVIRONMENTAL PROTECTION EXPENDITURES ......................................... 85

V. LABOR RELATIONS ............................................................................................................. 86

VI. MAJOR CONTRACTS .......................................................................................................... 89

VI. FINANCIAL STATUS ......................................................................................................... 91

I. BALANCE SHEET AND INCOME STATEMENT WITH NAME OF CPAS AND THEIR AUDITED OPINIONS

FOR THE RECENT 5 YEARS ................................................................................................ 91

II. FINANCIAL ANALYSIS OF RECENT FIVE YEARS ....................................................................... 97

III. AUDIT COMMITTEE’S REVIEW REPORT FOR THE MOST RECENT YEAR'S FINANCIAL STATEMENT

..................................................................................................................................... 101

IV. FINANCIAL STATEMENT FOR THE MOST RECENT FISCAL YEAR, INCLUDING AN AUDITOR'S REPORT

PREPARED BY A CERTIFIED PUBLIC ACCOUNTANT, A TWO-YEAR COMPARATIVE BALANCE SHEET

AND INCOME STATEMENT, STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY, CASH FLOW

STATEMENT, AND ANY RELATED NOTES OR ATTACHED TABLES .......................................... 102

V. CONSOLIDATED FINANCIAL STATEMENT FOR THE PARENT COMPANY AND SUBSIDIARIES FOR THE

MOST RECENT YEAR, CERTIFIED BY A CPA ...................................................................... 102

VI. IF THE COMPANY OR ITS AFFILIATES HAVE EXPERIENCED FINANCIAL DIFFICULTIES IN THE MOST

RECENT FISCAL YEAR OR DURING THE CURRENT FISCAL YEAR UP TO THE DATE OF PRINTING OF

THE ANNUAL REPORT, THE ANNUAL REPORT SHALL EXPLAIN HOW SAID DIFFICULTIES WILL

AFFECT THE COMPANY'S FINANCIAL SITUATION ................................................................. 195

VII. REVIEW AND ANALYSIS OF THE COMPANY'S FINANCIAL STATUS, BUSINESS

PERFORMANCE, AND RISKS ....................................................................................... 197

I. FINANCIAL STATUS ............................................................................................................ 197

II. BUSINESS PERFORMANCE ................................................................................................ 198

III. CASH FLOW .................................................................................................................... 199

IV. IMPACTS OF MAJOR CAPITAL EXPENDITURES IN THE MOST RECENT FISCAL YEAR ON FINANCIAL

POSITION AND OPERATIONS ............................................................................................ 201

V. REINVESTMENT POLICY FOR THE MOST RECENT FISCAL YEAR, THE MAIN REASONS FOR THE

PROFITS / LOSSES GENERATED THEREBY, THE PLAN FOR IMPROVING RE-INVESTMENT

PROFITABILITY, AND INVESTMENT PLANS FOR THE COMING YEAR ....................................... 201

VI. RISK ANALYSIS AND ASSESSMENT DURING THE MOST RECENT FISCAL YEAR OR DURING THE

CURRENT FISCAL YEAR UP TO THE DATE OF PRINTING OF THE ANNUAL REPORT .................. 204

VII. OTHER IMPORTANT ISSUES ............................................................................................ 215

VIII. SPECIAL ITEMS TO BE INCLUDED ............................................................................. 215

I. INFORMATION RELATED TO AFFILIATES ............................................................................... 215

II. PRIVATE PLACEMENT OF MARKETABLE SECURITIES DURING THE MOST RECENT FISCAL YEAR OR

DURING THE CURRENT FISCAL YEAR UP TO THE DATE OF PRINTING OF THE ANNUAL REPORT 215

III. HOLDING OR DISPOSAL OF SHARES IN THE COMPANY BY THE COMPANY'S SUBSIDIARIES DURING

THE MOST RECENT FISCAL YEAR OR DURING THE CURRENT FISCAL YEAR UP TO THE DATE OF

PRINTING OF THE ANNUAL REPORT .................................................................................. 215

IV. INCOMPLETE OTC COMMITMENTS ................................................................................... 216

V. OTHER NECESSARY ITEMS TO BE SUPPLEMENTED AND EXPLAINED ...................................... 216

IX. ANY OF THE SITUATIONS LISTED IN ARTICLE 36.2.2 OF THE SECURITIES AND

EXCHANGE ACT THAT MATERIALLY AFFECTS SHAREHOLDERS' EQUITY OR THE

PRICE OF THE COMPANY'S SECURITIES DURING THE MOST RECENT FISCAL

YEAR OR DURING THE CURRENT FISCAL YEAR UP TO THE DATE OF PRINTING OF

THE ANNUAL REPORT ................................................................................................. 217

1

I. Letter to Shareholders

Dear Sir / Madam:

2013 was a year of opportunities and growth with the development of

medical bases and active cooperation in the same business. The revenue is

gradually improved as expected and the subsequent operating performance is

also satisfactory. We will continue to create a growth and win-win environment

and provide the best health care service for the public as the only listed health

care service channel in the country. With over 20 years of professional

experience and service concept, we will commit to providing the best quality

health care service and helping people to achieve optimal health in their daily

lives. We will also continue to uphold this concept to actively promote the

value of Ma Kuang's uniqueness.

The operating result of 2013 and operating plan of 2014 are reported as

follows:

(1) Operating result of 2013 and operating plan of 2014:

1. Revenue and net profit after tax: Unit: NT$1,000

2. Financial revenue, expenditure and profitability: Unit: NT$1,000

FY 2013 2012

Financial

structure (%)

Debt ratio 28.71 24.54

Long-term funds to fixed

assets 252.92 487.05

Solvency (%)Current ratio 226.88 424.47

Quick ratio 203.49 383.49

Profitability

(%)

Return on assets (%) 0.81 5.56

Return on equity (%) 0.84 8.41

Basic earnings per share

(NTD) 0.17 1.28

2013 2012

Increased /

decreased

amount

Percent

change

Net consolidated

operating revenue 415,652 355,100 60,552 17.05%

Consolidated

operating profit 26,683 114,421 (87,738) 76.68%

Consolidated net

profit after tax 4,732 34,930 (30,198) (86.45)%

2

3. Execution of business target: it does not apply for the Company did not

publish the financial forecast in 2013.

4. Business development:

In Taiwan, Ma Kuang Health Lohas Museum is building in Donggang, Pingtung in 2014 and is expected to provide the health management and cosmetic medicine, etc. in 2015. In addition to providing high quality health services to local people, medical tourism services will also be promoted. In order to provide people with better health care services, the resources will be integrated continually, including cosmetic medicine, dentistry and confinement center, etc.

In Singapore, we currently have 22 health care facilities and 2 Chinese medicine beauty institutions. The chain Chinese medicine clinic mainly provides the traditional Chinese medicine outpatient service and related product selling. In addition, the company's Wong Yiu Nam Medical Hall Pte. Ltd is active in the development of TCM modernization by building a network mall to provide a more convenient service to local people. The scale of health management service will be expanded continuously in 2014 so that more services can be obtained by local people closely. Besides, two Singapore management institutes will be acquired in 2014 to provide the transnational health care skill education training and exchange, continuously improve the service level and attract overseas students, from which Ma Kuang can select the outstanding talents.

The mainland China continues to promote health care reform in recent years, and the Twelfth Five-year Plan also lists the improvement of people’s medical level and health as important projects. Since 2012, Ma Kuang has established a chain community health care network in Tianjin, which has 15 bases. In 2014, in addition to continuously establishing the chain service base, we also plans to open the general hospital of Grade II and establish the patient distribution cooperation mechanism with many Grade III Class A hospitals in Tianjin to create a better health care service network for the community. Moreover, MKH-SG will step into the pension, health management and professional health care training, etc. to raise the health service to a more comprehensive health care service level.

With the establishment and promotion of the Twelfth Five-year Plan in Chinese mainland, there are unlimited business opportunities for the medical field as these policies promote and strengthen its demand in Chinese mainland market. The Company has a long-term strategy, carefully selects local partners, focuses on the health industry for many

3

years and accumulates over twenty years of professional experience. We will provide people around the world with a more convenient health care service through the integration of resources and expansion of the service scope in a chain way in the future. We will continue to expand the service scope in Taiwan, Singapore & Malaysia and mainland China and refine the professional service through the transnational education mechanism to become a multinational chain healthcare group in Asia, which pays equal attention to quantity and quality.

We hope that each shareholder can adhere to your support and affirmation for the Company, and continue to provide us with your encouragement and advice. All employees of the Company will do our best to create a profitable return for our shareholders. Finally, on behalf of all employees of Ma Kuang Healthcare Holding Limited, we would like to express our most sincere gratitude and blessings to all shareholders.

Sincerely, May you good health! Wish you all the best!

Chairman Huang, Fu-Hsiang

Managerial Officer Huang, Chuan Sheng

Accounting Supervisor Lee, Pei-Ling

4

II. Company Profile

I. Company and group profile

(i) Establishment date of invest-holding company: July 14, 2009

(ii) Address and telephone number of head office and operational

headquarter:

1. Cayman Islands headquarter:

Address: 3rd Floor, Harbour Centre, PO BOX 613, George Town,

Grand Cayman, British West Indies.

Tel.: (8867)553-5511

2. Singapore operational headquarter

Address: 190 Middle Road, Fortune Centre #20-08, Singapore 188979

Tel.: (0065)6884-4772

II. Group structure and history

(i) Group structure

May 30, 2014

(ii) Group history

Year Events

September 1999 Established the first clinic in Middle Road, Singapore.

September 2000 Expanded to 10 clinics and become the chain Chinese medicine

100%

100% 100% 100% 100% 64.62%

MA KUANG HEALTHCARE HOLDING LIMITED.

(Hereinafter referred to as “MKH” or “the Company”)

(July 14, 2009)

MA KUANG HEALTHCARE

GROUP PTE. LTD.

(Hereinafter referred to as “MKH-SG”)

(December 9, 2004)

MA KUANG CHINESE

MEDICINE & RESEARCH CENTRE

PTE. LTD

(Hereinafter referred to as “MKS-SG”)

(April 19, 1999)

MA KUANG CHINESE

MEDICINE & RESEARCH CENTRE

SDN. BHD

(Hereinafter referred to as “MKM-MY”)

(October 23, 2002)

MA KUANG BIOTECH

INVESTMENTS

PTE. LTD.

(Hereinafter referred to as “MKB-SG”)

(April 30, 2002)

WONG YIU NAM MEDICAL

HALL PTE .LTD.

(Hereinafter referred to as “WYN-SG”)

(October 31, 1981)

MA KUANG HEALTHCARE

GROUP PTE. LTD. TAIWAN BRANCH

(June 23, 2010)

TIANJIN PHARMCEUTICAL-MA KUANG

MEDICAL INVESTMENT MANAGEMENT

CO., LTD.

(Hereinafter referred to as “TP-MK”)

(September 27, 2011)

MA KUANG INTERNATIONAL

DEVELOPMENT PTE. LTD.

(December 12, 2012)

100%

5

clinic center which has the most clinics in Singapore.

July 2003 Expanded to 20 clinics.

July 2003 Successfully enter the TCM market in Malaysia.

April 2004 Obtained ISO9001:2000 certificate issued by Singapore

Productivity and Standards Board.

June 2004 Won the “Singapore Promising Brand Award” of 2014 issued by

Singapore Association of Small and Medium Enterprises and

Lianhe Zaobao.

June 2004 Expanded to 30 clinics.

October 2004 The company founder and CEO Mr. Huang, Chuan Sheng won

the “Entrepreneur of the Year Award” of Singapore.

March 2005 Ma Kuang Chinese Medicine Group was on the list of “2004

Enterprise 50” and awarded “SuperBrands 2004/2005” of

Singapore.

September 2005 The company founder Mr. Huang, Chuan Sheng won the

“Entrepreneur of the Year” issued by National University of

Singapore.

October 2005 Won the “Singapore Promising Brand Award” of 2005 issued by


Lianhe Zaobao again.

October 2006 MKH-SG won the “Singapore Promising Brand Award” issued by


Lianhe Zaobao for the third successive year.

July 2009 Established Ma Kuang Healthcare Holding Limited in the British

Cayman Islands with amount received of NT$105,000,000.

August 2009 Ma Kuang Healthcare Holding Limited issued an SEO of

NT$30,000,000 after which the amount received reached

NT$135,000,000.

October 2009 Signed up for emerging trading in October 28.

December 2009 Acquired WYN-SG (Wong Yiu Nam Medical Hall Pte. Ltd.).

December 2010 Passed the examination conducted by GTSM’s Listing

Qualification Committee and become the first Singapore company

which is approved by Taiwan GTSM.

April 2011 The Company issued an SEO of NT$18,000,000 after which the amount received reached NT$153,000,000.

April 2011 The stocks listed on the GTSM. July 2011 The Company issued the capitalization of profits of

NT$12,000,000 after which the amount received reached NT$165,000,000.

6

November 2011 Established TCM Massotherapy Centre (Bras Basah branch)

November 2011 Joint venture with Tianjin Pharmaceutical Group at a capital of RMB 50 million to setup Tianjin Pharmaceutical-Ma Kuang Medical Investment Management Co., Ltd. The ratio of shareholdings of Ma Kuang and Tianjin Pharmaceutical Company is 60% to 40%.

December 2011 Established the first trial operational community hospital in Tianjin: Tianjin Ma Kuang medical chain BinHai New District FuRui community clinic.

March 2012 The Company issued an SEO of NT$35,000,000 after which the amount received reached NT$200,000,000.

April 2012 Huang XingGuo, mayor of Tianjin, visited Ma Kuang NanPu outpatient clinic.

December 2012 Established Ma Kuang International Development Pte. Ltd.

December 2012 Ma Kuang officially expanded the chain community health care service in Tianjin, established 5 clinics to provide the traditional Chinese and western medicine service, and obtained medical insurance licenses.

May 2013 Singapore Ministry of National Development cum Minister of Trade and Industry Lee Yi Shyan visited Ma Kuang FangJing outpatient clinic.

December 2013 Built 15 community hospitals, located throughout the six districts within Tianjin and BinHai New District.

December 2013 Ma Kuang International Development Pte. Ltd. signed a construction contract with Guo Juan Construction Co. Ltd. and started building Ma Kuang LOHAS Center in January 2014.

A. Merger and acquisition activities, strategic investments in affiliated

enterprises and corporate reorganization for the most recent fiscal year

or during the current fiscal year up to the date of printing of the annual

report: none.

B. A major quantity of shares belonging to directors, supervisors, or

shareholders holding greater than a 10 percent stake in the company is

transferred or otherwise changes hands; any change in managerial

control; any material change in operating methods or type of business;

and any other matters of material significance that could affect

shareholders' equity; if there is information related to earlier fiscal years

that can help provide a significantly clearer understanding of the

company's situation for the most recent fiscal year or during the current

fiscal year up to the date of printing of the annual report: none.

III. Risks: refer to VI. Risk analysis and assessment and VII. Other important

issues in Chapter VII of this annual report for details.

7

III Corporate Governance Report

I Corporate organization system

(i) Corporate organization

(ii) Major business of each department

Department Function description

Chairman Hold the board meeting and determine the

company’s operation guidelines.

President Responsible for the overall planning and

strategy formulation of the Group.

Auditing Office Take charge of the relevant internal audit.

Operation

Department

Logistics

Department

Set the general purchase quantity, price and delivery time and control the materials and cost to maintain the quality and supply of office and production materials and the smooth operation of the company and production unit.

Human

Resources

Department

Formulate the policy, provide the training and carry out the assessment and personnel administration for human resources.

Beauty

Department

Define the direction of service and sales

strategy and manage the development of

market and business.

President

Singapore General Administration Division

Operation Department Financial Department Investment Department Auditing Office

Logistics

Department

Human Resources

Department

Beauty

Department

Medical

Department

Marketing

Department

Information

Department

Shareholder’s Meeting

Board of Directors

Chairman

8

Medical

Department

Arrange the daily work and provide the training for clinic assistants to ensure the normal operation of the general hospital and each branch.

Marketing

Department

Build a brand and image and increase their value. Manage the customer service and continuously improve the service quality and reputation.

Information

Department

Plan and maintain the information software and hardware, import and maintain the system software, and establish the internal network environment.

Financial Department

Plan, implement, manage and improve the finance, accounting and tax. Timely provide the accounting information of the management as a reference of operating strategy.

Investment Department Implement and assess each investment

plan based on the company strategy.

9

II. Information on directors, supervisors, president, vice president, assistant managers and chiefs of each department and branch

(i) Information on directors and supervisors

1. Name, experience & education, shareholding and nature of directors (the Company does not have a supervisor)

Unit: shares; % Statistics as at April 28, 2014

Title Name Date of first

appointment

Date of

appointment Term

Shareholding on

election Current

shareholding

Shareholding by

spouse and minor

children

Shareholding

under others’

title Prime experience and education

Current

positions in the

Company and

other companies

Being the spouse or

relative within 2 tiers of

other managers, directors

or supervisors

SharesRatio of

shareholdi

ng

Shares

Ratio

of

shareh

olding

Shares Ratio of

shareh

olding

SharesRatio of

shareh

olding

Title Name Relation

ship

Chairman Huang,

Fu-Hsiang5/27/2010 6/20/2013

Three

years437,000 3.24% 650,441 2.30% 0 0% 0 0%

President, Association of Traditional

Chinese Medicine Practitioners in

Pingtung County, Taiwan

EMBA, National Sun Yat-sen University

College of Management

MD, China Medical University School of

Post Baccalaureate Chinese Medicine

President, Taiwan

Ma Kuang Chinese

Medical Clinic

Direct

or

Huang,

Chuan

Sheng

Brother

Director

Huang,

Chuan

Sheng

5/27/2010 6/20/2013 Three

years273,050 2.02% 482,955 1.71% 2,054,469 7.27% 0 0%

Licensed traditional Chinese physician

in Singapore

MBA, National University of Singapore

School of Business

President of the

Company

Chair

man

Huang,

Fu-Hsiang Brother

Director

Huang,

Po-Wen 5/27/2010 6/20/2013

Three

years490,000 3.63% 855,251 3.03% 468,747 1.66% 0 0%

Adjunct Instructor, Department of

Business Administration, National Sun

Yat-sen University

Executive Supervisor, Kaohsiung

Lifeline Association

Supervisor, National Federation of

Certified Public Accountants

Association of the Republic of China

Master of Accountancy, George

Washington University School of

Business

Bachelor of Accountancy, National

CPA, Nexia Sun

Rise CPAs & Co.

Supervisor,

Dacome

International Ltd.

Supervisor,

Yih-Dah Co., Ltd.

Adjunct Instructor,

Department of

Financial and

Economic Law,

National University

None None None

10


appointment

Date of

appointment Term

Shareholding on

election Current

shareholding

Shareholding by

spouse and minor

children

Shareholding

under others’


Current

positions in the

Company and

other companies

Being the spouse or



or supervisors

SharesRatio of

shareholdi

ng

Shares

Ratio

of

shareh

olding

Shares Ratio of

shareh

olding

SharesRatio of

shareh

olding

Title Name Relation

ship

Cheng Kung University Department of

Accountancy

of Kaohsiung

Director Hwang,

Yih-Ray 5/27/2010 6/20/2013

Three

years200,000 1.48% 1,027,155 3.64% 0 0% 0 0%

President, Association of CPAs in

Kaohsiung City, Taiwan

Ph.D., Jinan University

MBA, University of Massachusetts

College of Management

Managing Director,

Solomon CPAs &

Co.

None None None

Independent

Director

Chen,

San-Er 5/27/2010 6/20/2013

Three

years0 0% 0 0% 0 0% 0 0%

Executive Director, Association of

Attorneys-at-Law in Kaohsiung City,

Taiwan

Master of Laws, National Chengchi

University College of Law

Bachelor of Laws, National Chengchi

University Department of Law

Attorney, Shi Fang

Lian Ying Law FirmNone None None

Independent

Director

Hseu,

Shun-Fa 5/27/2010 6/20/2013

Three

years0 0% 0 0% 0 0% 0 0%

President, Association of CPAs in

Kaohsiung City, Taiwan

Executive Officer, First Examination

Division, National Taxation Bureau of

Kaohsiung, Ministry of Finance, Taiwan

Independent Director, QST International

Corp.

Master of Accountancy, University of

Memphis

Bachelor of Arts, National Chengchi

University Department of Public

Administration

CPA, Jing Ye CPAs

& Co.

Supervisor, Fwu

Kuang Enterprises

Co., Ltd.

None None None

11


appointment

Date of

appointment Term

Shareholding on

election Current

shareholding

Shareholding by

spouse and minor

children

Shareholding

under others’


Current

positions in the

Company and

other companies

Being the spouse or



or supervisors

SharesRatio of

shareholdi

ng

Shares

Ratio

of

shareh

olding

Shares Ratio of

shareh

olding

SharesRatio of

shareh

olding

Title Name Relation

ship

Independe

nt Director

Lee,

Liang-Chien5/27/2010 6/20/2013

Three

years0 0% 0 0% 0 0% 0 0%

Dean & Adjunct Professor, Department

of Finance, I-Shou University

Dean & Secretary General, Center for

General Education, I-Shou University

Ph.D. in Management, National Cheng

Kung University

Adjunct Professor,

Department of

Finance, I-Shou

University

CEO, EMBA

Program, College of

Management,

I-Shou University

Independent

Director, Epoch

Energy Technology

Corporation

Independent

Director, SciVision

Biotech Inc.

None None None

12

2. Professional expertise and independence status of directors:

Qualifications

Name

Meet one of the following professional

qualification requirements, together with

at least five years work experience

Independence status (Note 1)

Num

ber of serve as an independent director of public

companies

An instructor or

higher position in

a department of

commerce, law,

finance,

accounting, or

other academic

department

related to the

business needs

of the company

in a public or

private junior

college, college

or university

A judge, public

prosecutor, attorney,

certified public

accountant, or other

professional or

technical specialist

who has passed a

national examination

and been awarded a

certificate in a

profession necessary

for the business of the

company

Have work

experience in the

areas of

commerce, law,

finance, or

accounting, or

otherwise

necessary for the

business of the

company

1 2 3 4 5 6 7 8 9 10

Huang,

Fu-Hsiang

0

Huang, Chuan

Sheng

0

Huang, Po-Wen 0

Hwang, Yih-Ray 0

Chen, San-Er 0

Hseu, Shun-Fa 1

Lee,

Liang-Chien

2

Note 1: During the two years before being elected or during the term office, directors or supervisors shall meet the following terms with “ ” mark.

(1) Neither employees of the company nor its affiliates.

(2) Neither a director or a supervisor of the company nor its affiliates, unless the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares.

(3) Not an individual shareholder who holds shares, together with those held by the person's spouse, minor children, or held under others’ names, in an aggregate amount of 1% or more of the total outstanding shares of the company among the top 10 shareholders who are natural persons in terms of the same volume held.

13

(4) Not a spouse or relative within the second degree of kinship, or lineal relative with the third degree of kinship, of any of the persons in the preceding three subparagraphs.

(5) Not directors, supervisors, or employees of a corporate shareholder that directly holds 5% or more of the total outstanding shares of the company or ranks among the top 5 corporate shareholders in the terms of share volume held.

(6) Not directors, supervisors, or managerial officer, or shareholder holding 5% or more shares of a specific company or institution and who has financial or business dealings with the company.

(7)Not a professional, or owner, partner, director, supervisor, or managerial officer and the spouse thereof of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting or consulting services to the company or to any affiliates, excluding members of the Remuneration Committee who implement the authority according to the Article 7 of the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded over the Counter.

(8)Not a spouse or relative within the second degree of kinship within directors.

(9)Not any of the circumstances in the subparagraphs of Article 30 of the Company

Act.

(10)Not elected in the capacity of a government agency, a juristic person, or arepresentative thereof, as provided in the Article 30 of the Company Act.

14

(ii). Information on president, vice president, assistant managers and chiefs of each department and branch

1. Information on president, vice president, assistant managers and chiefs of each department

Unit: shares; % Statistics as at April 28, 2014

Title Name Date effective

Shareholding

Shareholding by

spouse and minor

children

Shareholding

under others’ title

Prime experience and education Current positions in other

companies

Being the spouse or relative

within 2 tiers of the

managerial officer

Employee

stock option

certificates

obtained by

the

managerial

officer

Shares

Ratio of

shareho

lding

Shares

Ratio of

shareho

lding

Shares

Ratio of

shareho

lding

Title Name

Relat

ions

hip

President

Huang,

Chuan

Sheng

4/7/2000 482,955 1.71% 2,054,469 7.27% 0 0%

Licensed traditional Chinese physician in Singapore MBA, National University of Singapore School of Business

Director of MKH-SG, MKS-SG, MKB-SG, WYN-SG, MKM-MY and MKMB-MY, etc.

Chairm

an

Huang,

Fu-Hsiang

Broth

er None

Operations

Manager

Yan,

Jin-Zhi7/12/2001 0 0% 0 0% 0 0%

Department of Sociology, National Chengchi university

None None None None None

Financial

Manager

Lee,

Pei-Ling11/01/2013 0 0% 0 0% 0 0%

Director of Audit Department, Price

Waterhouse Coopers

Deputy Manager of Underwriting

Department, Core Pacific Securities

Co. Ltd.

Manager of Investment Department,

SinoPac Securities

Department of Accounting, National

Chengchi university

None None None None None

Audit Supervisor Wei, 3/26/2013 0 0% 0 0% 0 0% Assistant Manager of Auditing Office,

Chia Her Industrial Co.,Ltd. None None None None None

15

Cheng-A

n

Department of Business

Administration, Chung Hua University

16

2. Main operating body: Singapore Healthcare Group Co., Ltd.

Title

(Note 1) Name Date effective

Shareholding on

election Current shareholding

Shareholding by spouse

and minor children

Shareholding

under others’

title Prime experience and

education

(Note 2)

Current

positions in

the

Company

and other

companies

Being the spouse or relative

within 2 tiers of other

managers, directors or

supervisors

Shares

Ratio of

sharehol

ding

Shares

Ratio of

sharehol

ding

Shares

Ratio of

sharehol

ding

Share

s

Ratio of

shareh

olding

Title NameRelation

ship

President

Huang,

Chuan

Sheng

4/7/2000 273,050 2.02% 482,955 1.71% 2,504,469 7.27% 0 0%

Licensed traditional

Chinese physician in

Singapore

MBA, National University

of Singapore School of

Business

None Chairman

Huang,

Fu-Hsian

g

Brother

Operations

Manager –

Singapore

Yan,

Jin-Zhi7/12/2001 0 0% 0 0% 0 0% 0 0%

Department of Sociology,

National Chengchi

university None None None None

17

Financial

Manager

Lee,

Pei-Ling11/01/2013 0 0% 0 0% 0 0% 0 0%

Director of Audit

Department, Price

Waterhouse Coopers

Deputy Manager of

Underwriting Department,

Core Pacific Securities

Co. Ltd.

Manager of Investment

Department, SinoPac

Securities

Department of

Accounting, National

Chengchi university

None None None None

Note 1: Information of president, vice president, assistant managers, chiefs of each department and branch, and personnel whose position equals to president, vice president or assistant manager regardless of the title shall be disclosed.

Note 2: Personnel who have the work experience related to current position in certified accountancy office of audit or affiliated enterprises during above period shall clearly state the title and the position.

18

(iii) Remuneration of the directors, supervisors, president and vice president

1. Remuneration paid to the directors, supervisors, president and vice president in the most recent fiscal year (2013) (the

Company does not have a supervisor)

(1) Remuneration to directors (including independent directors) in 2013

Unit: NT$1,000; %

Title Name

Remuneration of directors

Ratio of total remuneration

(A+B+C+D) to net income (%)

Relevant remuneration received by directors who are also employees


(A+B+C+D+E+F+G) to net

income (%)

Re

mu

ne

ratio

n p

aid

to d

irecto

rs from

an in

veste

d co

mp

an

y oth

er th

an the

com

pan

y’s

sub

sidia

ry

Remuneration (A)

Severance pay (B)

Bonus to directors (C)

Allowances (D)

Salary, bonuses

and allowance

s (E)

Severance pay (F)

Profit sharing-employee bonus (G)

Exerci

sable

emplo

yee

stock

option

s (H)

New

emplo

yee

restrict

ed

shares

obtain

ed (I)

The Company

All companies in

the financia

l statements

The Company

All companies in the financ

ial state

ments

The Company

All companies in

the financi

al statem

ents

The Compan

y

All companies in

the financia

l statements

The Compa

ny

All companies in

the financi

al statem

ents

The Company

All companies in the financial

statement

s

The Company

All companies in

the financi

al statem

ents

The Company

Companies in the

consolidated financial

statements

The Company

All compan

ies in the

financial

statements

The Company

All companies in the financial statements

Cash dividends

Stock dividends

Cash dividends

Stock dividends

19

Chairman

Huang

,

Fu-Hsi

ang

180 180 15 15 4.12% 4.12% 4.12% 4.12% None

Director

Huang

,

Chuan

Sheng

286 180 180 18 18 4.18%10.23

% 3,093 266 325 325

11.05

% 88.10%

None

Director

Huang

,

Po-We

n

180 180 18 18 4.18% 4.18% 4.18% 4.18%

None

Director

Hwan

g,

Yih-Ra

y

180 180 18 18 4.18% 4.18% 4.18% 4.18%

None

Independe

nt Director

Chen,

San-Er 240 240 21 21 5.52％ 5.52％ 5.52％ 5.52％ None

Independe

nt Director

Hseu,

Shun- 240 240 15 15 5.39％ 5.39％ 5.39％ 5.39％ None

Independe

nt Director

Lee,

Liang- 240 240 18 18 5.45％ 5.45％ 5.45％ 5.45％ None

20

Remuneration Range Table

Range of remuneration to directors

Name of directors

Amount of total remuneration (A+B+C+D)

Amount of total remuneration (A+B+C+D+E+F+G)

The Company All companies in the

financial statement IThe Company

All companies in the

financial statement J

Under NT$2 million

Huang, Fu-Hsiang; Huang, Chuan Sheng; Huang, Po-Wen; Hwang, Yih-Ray; Chen, San-Er; Hseu, Shun-Fa; Lee, Liang-Chien

Huang,Fu-Hsiang;Huang,Po-Wen; Huang,Chuan Sheng; Hwang, Yih-Ray; Chen, San-Er; Hseu, Shun-Fa; Lee, Liang-Chien

Huang, Fu-Hsiang; Huang, Po-Wen; Hwang, Yih-Ray; Chen, San-Er; Hseu, Shun-Fa; Lee, Liang-Chien

Huang, Fu-Hsiang; Huang, Po-Wen; Hwang, Yih-Ray; Chen, San-Er; Hseu, Shun-Fa; Lee, Liang-Chien

NT$2 million (included) ~ NT$5 million (not included) Huang, Chuan Sheng Huang, Chuan Sheng

NT$5 million (included) ~ NT$10 million (not included)





Over NT$100 million

Total 7 7 7 7

(2) Remuneration to supervisors: it is not applicable for the Company does not have a supervisor.

21

(3) Remuneration to the president and vice president in 2013

Unit: NT$1,000

Title Name

Salary (A) Severance pay (B) Bonuses and

allowances (C) Profit sharing-employee bonus (D)


(A+B+C+D) to net income

(%)

Total of employee

warrant certificates

obtained

Remuneratio

n paid to

directors

from an

invested

company

other than

the

company’s

subsidiary

The

Comp

any

Companies in

the

consolidated

financial

statements

The

Com

pany

Companies in the

consolidated

financial

statements

The

Com

pany

Companies in

the consolidated

financial

statements

The Company

Companies in the

consolidated financial

statements

The

Company

Companies in the

consolidated

financial

statements

Th

e

Co

mp

an

y

Companies in

the

consolidated

financial

statements

Cash

dividends

Stock

dividends

Cash

dividends

Stock

dividends

President

Huang,

Chuan

Sheng

0 2,855 0 266 0 238 325 0 325 0 6.87% 77.85% 0 0 None

Note: The figures in the “Severance pay” column are the proposed amount.

Remuneration Range Table Range of remuneration to president and vice president of the

Company

Name of president and vice president

The Company All companies in the financial statement E

Under NT$2 million

NT$2 million (included) ~ NT$5 million (not included) Huang, Chuan Sheng Huang, Chuan Sheng


22





Over NT$100 million

Total 1 1

23

(4) Members of the management team receiving employee bonus & bonus

distribution:

Unit: NT$1,000

Title

Name

Stock

dividends

Cash

dividends

(Note)

Total

Ratio of total

remuneration

to net income

(%)

Managerial

Officer President

Huang,

Chuan

Sheng

0 325 325 6.87%

Note: The proposed amount allotted for this year is calculated based on

the ratio of actual amount allotted last year.

(iv) Separately compare and describe total remuneration as a percentage of net income as paid by the Company, and by each other company included in the consolidated financial statements, during the past two fiscal years to its directors, president and vice president, and analyze and describe remuneration policies, standards, and packages, the procedure for setting remuneration, and linkage to performance and future risks:

(1) Separately compare total remuneration as a percentage of net income

as paid by the Company, and by each other company included in the

consolidated financial statements, during the past two fiscal years to its

directors, president and vice president:

Unit: NT$1,000

FY 2013

2012

Title

Total remuneration of all companies in

the financial statements

Ratio of total remuneration to net income (%)

Total remuneration of all companies in

the financial statements

Ratio of total remuneration to net

income (%)

Director - - - -

President 3,684 77.85% 3,003 8.59%

The remuneration paid to the president of the Company can be divided into salary and bonuses, etc., which can be adjusted and allotted appropriately according to the operating performance of the Company, but the salary is excluded.

(2) Information related to the policies, standards and portfolios for the

remuneration paid to the directors and president, the procedures for

determining remuneration, and the correlation with business

performance and future risks.

24

The remuneration paid to the directors by the Company can be

divided into director reward and business execution expense:

A. The director reward shall be in accordance with Article 56 of Articles

of Association: “The reward of the directors shall from time to time be

determined by the Company in general meeting. The directors shall

also be entitled to be paid their travelling, hotel and other expenses

properly incurred by them in going to, attending and returning from

meetings of the directors, or any committee of the directors, or

general meetings of the Company, or otherwise in connection with the

business of the Company, or to receive a fixed allowance in respect

thereof as may be determined by the directors from time to time, or a

combination partly of one such method and partly the other.”

B. The business execution expense shall be in accordance with Article

79 of Articles of Association: “Subject to these Articles, any director of

officer may act by himself or his firm in a professional capacity for the

Company, and he or his firm shall be entitled to remuneration for

professional services as if he were not a director or officer provided

that nothing herein contained shall authorize a director or officer or his

firm to act as auditor of the Company.”

The reward is highly relevant with the business performance of the

company, setting of which is based on the allotment of the bonus of

the year.

The remuneration paid to the president of the Company can be

divided into salary and bonuses, etc., which shall be added with the

employee bonus and checked by the chairman authorized by the

Board of Directors according to the relevant salary auditing

regulations of the Company. The remuneration paid to the president

can be adjusted and allotted appropriately according to the operating

performance of the Company, but the salary is excluded. The

employee bonus is highly relevant with the business performance of

the company, setting of which is based on the allotment ratio of the

bonus of the year.

The procedures for determining remuneration, and the correlation

with business performance and future risks:

The relevant remuneration shall be approved by the shareholder’s

meeting and adjusted based on the consideration of actual business

performance and evaluation of future risks.

25

III. Corporate governance operation

(i) Operation of Board of Directors

The Board of Directors of the Company held 11 meetings in 2013 and

during the current fiscal year up to the date of printing of the annual report,

and modified the Articles of Association according to a resolution of

shareholder’s meeting held in May 27, 2010. The board seats are increased

from two at the time of establishment to seven, and the records of

attendance by directors are shown as follows: The Board of Directors convened 11 meetings in 2013 and during the current fiscal year up to the date of printing of the annual report, and the records of

attendance by directors and supervisors are shown as follows:

Title Name (Note 1)

Attendance in person

(B)

Attendance by proxy

Actual attendance

rate (%) [B/A] (Note

2)

Remarks

Chairman Huang,

Fu-Hsiang

10 1 90.9%

Director Huang,

Chuan

Sheng

7 1 63.6%

Director Huang,

Po-Wen

10 0 90.9%

Director Hwang,

Yih-Ray

9 0 81.8%

Independe

nt Director

Chen,

San-Er

10 0 90.9%

Independe

nt Director

Hseu,

Shun-Fa

10 0 90.9%

Independe

nt Director

Lee,

Liang-Chie

n

10 0 90.9%

Other noticeable particulars: (1) All items listed in Article 14.3 of the Securities and Exchange Act, as well as

objections or reservations from the independent directors with regards to items discussed in the board meeting that are also documented or stated shall state clearly the dates, the term, content of the items, comments of all independent directors, and responses to their comments: the company does not have any item above.

(2) In the case when directors need to shy away from any resolutions in which

26

they are interested parties, directors’ names, content of the resolution, reasons for temporary absence and the voting participation shall be included: the company does not have any item above.

(3) Goals (such as, establish the Audit Committee, improve the information transparency, etc.) to reinforce functions of Board of Directors during the year and the prior years and the status of implementation: 1. In terms of reinforcing functions of the Board of Directors, the Company has

established “Procedural Rules of Board Meetings”, under which the Board of Directors operates thereafter. In addition, the Company selects three independent directors to improve the corporate governance.

2. In terms of improving the information transparency, the Company has spokesmen and acting spokesmen, and specialist staffs who are responsible for information gathering and disclosing, etc.

(Note) The 2nd session of the 19th meeting of the Board of Directors was held in March 26, 2013; the 2nd session of the 20th meeting of the Board of Directors was held in May 10, 2013; the 2nd session of the 21th interim meeting of the Board of Directors was held in May 22, 2013; the 3rd session of the 1st meeting of the Board of Directors was held in June 20, 2013; the 3rd session of the 2nd meeting of the Board of Directors was held in August 5, 2013; the 3rd session of the 3rd meeting of the Board of Directors was held in October 4, 2013; the 3rd session of the 4th meeting of the Board of Directors was held in November 7, 2013; the 3rd session of the 5th meeting of the Board of Directors was held in March 25, 2014; the 3rd session of the 6th meeting of the Board of Directors was held in May 13, 2014; the 3rd session of the 7th interim meeting of the Board of Directors was held in May 22, 2014; the 3rd session of the 8th meeting of the Board of Directors was held in May 30, 2014.

Note 1: The name of institutional shareholders and its representatives shall be disclosed for the directors and supervisors who are a legal person.

Note 2: (1) For the directors and supervisors who resigned before the end of the fiscal year, their resignation dates shall be indicated in the “Remark” column, and their actual attendance rates (%) shall be calculated according to the number of board meetings and their attendances in person during the service.

(2) For the directors and supervisors who were reelected before the end of the fiscal year, the new and old directors and supervisors shall be listed, and those directors and supervisors shall be indicated as new, old and reelection in the “Remark” column as well as their reelection dates. Their actual attendance rates (%) shall be calculated according to the number of board meetings and their attendances in person during the service.

27

(ii) Audit Committee implementation or supervisors attend practices of Board

of Directors

1. Audit Committee implementation

The Company established the Audit Committee in February 14,

2011, which held 10 meetings as follows in 2013 and during the

current fiscal year up to the date of printing of the annual report:

Title Name Attendance in person

Attendance by proxy

Actual attendance

rate (%) Remarks

Chairman of Audit

Committee

Hseu, Shun-Fa

9 1 90%

Auditor Lee,

Liang-Chien 9 90%

Auditor Chen, San-Er

9 90%

Other noticeable particulars:

I. All items listed in Article 14.5 of the Securities and Exchange Act, as well as other

resolutions that are not approved by the Audit Committee but agreed by more than

two-thirds of all directors shall state clearly the dates, the term, content of the items,

resolution results of the Audit Committee, and responses to their comments: none.

II. In the case when independent directors need to shy away from any resolutions in

which they are interested parties, independent directors’ names, content of the

resolution, reasons for temporary absence and the voting participation shall be included:

none.

III. Communication between internal audit supervisors and accountants: the audit unit of

the Company shall submit the audit report and audit defect improvement report to the

Audit Committee according to the audit plan. After the annual review of the accountant,

the audit report shall be submitted to the Audit Committee for review and the accountant

shall be invited to attend the Audit Committee meeting for discussion.

2. It does not apply, as the Company has not elected the supervisor yet

during the current fiscal year up to the date of printing of the annual

report.

28

(iii) Difference between actual corporate governance and Corporate Governance

Best-Practice Principles for TWSE/GTSM Listed Companies, and causes

Item Implementation

Deviations from

Corporate Governance

Best-Practice

Principles for

TWSE/GTSM Listed

Companies and

reasons

I. Company’s shareholding structure

and shareholders’ equity

(i) Methods used by the Company

to deal with shareholders’

recommendations or disputes and

other problems

(i) The Group has already set up a

specialized shareholders agent to

deal with shareholding matters. In

addition, spokesmen and acting

spokesmen are provided to deal with

shareholders’ recommendations.

No significant difference (ii) Control of the Company over the

list of major shareholders who

actually control the Company and

the ultimate controllers of the

major shareholders.

(ii) The company has the list in the

left, and will report the shareholding

of directors, supervisors and

shareholders who hold 10%

according to the regulations.

(iii) Approach of establishing risk

managing mechanism and the

firewall between the Company

and its affiliates

(iii) It will be carried out according to

the relevant internal control system

of the Group.

II. Composition and responsibilities

of the Board of Directors

(i) Establishment of independent

directors by the Company

(i) 3 independent directors have been

assigned according to the Articles of

Association, took office after the

approval of shareholder’s meeting

in 2013 and exercise their functions

and powers according to the

relevant regulations. No significant difference

(ii) Regular evaluation of the

independence of the certified

CPAs

(ii)The certified public accountants

shall be evaluated regularly by the

Board of Directors and provide the

independence statement, to ensure

their independence.

29

Item Implementation

Deviations from


Best-Practice

Principles for

TWSE/GTSM Listed

Companies and

reasons

III. Establishment of the

communication medium with

interest parties

The Company can be accessible by

telephone, fax, email and in writing,

etc. anytime.

No significant difference

IV. Information transparency

(i) Establishment of the website,

disclosure of the corporate

finance and governance by the

Company

(i) The Company reports or

announces the important

information and financial affairs,

etc. on the Market Observation

Post System (MOPS) for the

investors’ reference according to

the regulations. No significant difference

(ii) The Company has established

the Remuneration Committee and

Audit Committee, and carries out

the operation according to the

regulations.

(ii) The company information shall be

collected and disclosed by the

Financial Department, Information

Department, and spokesman or

acting spokesman.

V.The Company has established

the Remuneration Committee and

Audit Committee, and carries out

the operation according to the

regulations.

The Company has established the

Remuneration Committee and Audit

Committee, and carries out the

operation according to the

regulations.

No significant difference

VI. If the company establishes the corporate governance best-practice principles according to

“Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies”, please explain

its operation and deviations from the established corporate governance best-practice principles:

The Company establishes a complete internal control system, subsidiary management measures,

management control operation of insider trading prevention, processing procedures of the company

internal important information and spokesman system, etc., and effectively follows them.

30

Item Implementation

Deviations from


Best-Practice

Principles for

TWSE/GTSM Listed

Companies and

reasons

VII. Other important information to facilitate better understanding of the corporate governance practices (such as,

employee rights, employment care, investor relations, supplier relations, stakeholders’ rights, directors’ and

supervisors’ training records, implementation of risk management policies and risk evaluation measures,

implementation of customer policies, and purchasing liability insurance for directors and supervisors, etc.):

(i) Rights and relations of stakeholders:

Require employees to obey moral standards, improve employees’ cultivation and ethical behavior standards,

and expect that the employees can obey the code of ethics in the daily work and all businesses, to gain trust

of our customers and stakeholders and ensure the sustainable operation and development of the company.

1. Employee rights and employment care: create a comfortable, healthy and safe working environment,

guarantee employees’ rights, and protect employees’ benefits, health and operation safety.

2. Implementation of customer policies: the company attaches great importance to customer satisfaction and

takes providing the customers with the most comprehensive service as the ultimate goal. The satisfaction

survey shall be carried out for the customers regularly to know their ideas and needs as the basis for

improvement.

3. Investors: the spokesman and acting spokesman system has been set up in terms of the investor

relationship management, to immediately and thoroughly reply the shareholders’ inquiry, actively increase

communication with investors and improve the transparency of business operation.

(ii) Implementation of risk management policies and risk evaluation measures

1. External corporate factors: such as, purchase source, requirements of creditors, competitor actions,

economic environment, political environment, laws and regulations, and force majeure caused by the

nature

2. Internal corporate factors: such as, changes in human resources, financial activities, employee relations,

information system, etc.

The risk shall be identified through implementation and auditing of all operations in “Accounting and

Management System” and prevented through self-risk evaluation results and improvement measures, while

the external and internal level risk shall be controlled through the internal audit system, annual audit plan and

all meetings, to ensure that the goals can be reached as scheduled.

(iii) The Company does not insure for directors.

(iv) The directors, supervisors, president, vice president, and financial, accounting and internal auditing

personnel of the Company regularly take relevant training courses and are reported on the Market

Observation Post System according to the laws, to respond to the current new accounting standards, new

31

Item Implementation

Deviations from


Best-Practice

Principles for

TWSE/GTSM Listed

Companies and

reasons

bulletin and new law.

VIII. Any self-evaluation reports for corporate governance or corporate governance reports written by appointed

professional institutions shall state the results of self-evaluation (or outsourced evaluation), major weakness (or

recommendations) and status of follow-up improvements:

No significant defect has been found in the corporate governance self-evaluation result of the Company.

Continuing education of directors in 2013

Title Name Course name Hours

Director Huang,

Po-Wen

Signs of (Kaohsiung) venture enterprises

and analysis of disciplinary cases in

recent 3 years

3h

Independent

Director

Chen,

San-Er

Corporate integrity management and

social responsibility forum

3h

Independent

Director

Lee,

Liang-Chien

Corporate integrity management and

social responsibility forum

3h

Note: The Company provides directors with the information to note regarding relevant laws and regulations at

any time, and the management team of the Company also gives a brief report on the business and other

relevant information to directors regularly.

Continuing education of managerial officers in 2013

Title Name Course name Hours

Audit

supervisor

Wei,

Cheng-An

Enhance audit value through effective

implementation of "operational audit"

6h

Audit

supervisor

Wei,

Cheng-An

Real application workshop of audit practice

EXCEL skills

6h

(iv) If the company establishes the Remuneration Committee, its composition,

duties and operation shall be disclosed:

1. Information on members of Remuneration Committee

32

Note 1: “Title” shall be filled with “Director”, “Independent Director” or “Others”.

Note 2: During the two years before being elected or during the term office, each member shall meet the following terms with “ ” mark.

1. Neither employees of the company nor its affiliates.

Title

Qualific

ations

Name

Meet one of the following

professional qualification

requirements, together with at

least five years work

experience

Independence status (Note 2) N

umber of serve as a m

ember of the R

emuneration C

om

mittee of public

companies

Remar

ks

(Note 3)

An instructor or higher position in a department of commerce, law, finance, accounting, or other academic department related to the business needs of the company in a public or private junior college, college or university

A judge, public prosecutor, attorney, certified public accountant, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the business of the company

Have work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the company

1 2 3 4 5 6 7 8

Independ

ent

Director

Hseu, Shun-Fa

Independ

ent

Director

Lee, Liang-Ch

ien

3

Independ

ent

Director

Chen, San-Er

1

33

2. Neither directors and supervisors of the company nor its affiliates, unless the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares.

3. Not an individual shareholder who holds shares, together with those held by the person's spouse, minor children, or held under others’ names, in an aggregate amount of 1% or more of the total outstanding shares of the company among the top 10 shareholders who are natural persons in terms of the same volume held.

4. Not a spouse or relative within the second degree of kinship, or lineal relative with the third degree of kinship, of any of the persons in the preceding three subparagraphs.

5. Not directors, supervisors, or employees of a corporate shareholder that directly holds 5% or more of the total outstanding shares of the company or ranks among the top 5 corporate shareholders in the terms of share volume held.

6. Not directors, supervisors, or managerial officer, or shareholder holding 5% or more shares of a specific company or institution and who has financial or business dealings with the company.

7. Not a professional, or owner, partner, director, supervisor, or managerial officer and the spouse thereof of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting or consulting services to the company or to any affiliates,

8. Not any of the circumstances in the subparagraphs of Article 30 of the Company Act.

Note 3: Members titled with director shall meet the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company whose Stock is Listed on the Stock Exchange or Traded over the Counter, Section 5, Article 6.

2. Operation status of Remuneration Committee

The Company established the Remuneration Committee in February 14,

2011, which held 2 meetings as follows during the current fiscal year up to

the date of printing of the annual report:

Title Name Attendance in person

Attendance by proxy

Actual attendance

rate (%) Remarks

Chairman of

Remuneration

Committee

Lee, Liang-Chien

2 0 100%

Member of Remuneration

Committee

Hseu, Shun-Fa

2 0 100%

Member of Remuneration

Committee

Chen, San-Er

2 0 100%

34

Other noticeable particulars:

(1) If the advice from the Remuneration Committee is rejected or amended by the

Board of Directors, the meeting minutes shall record the date and session of

the board meeting, content of the resolution, resolution of the meeting and the

response of the company regarding the opinion of the Remuneration

Committee: none.

(2) Resolutions approved by the Remuneration Committee where members have

expressed opposition or qualified opinions that have been noted in the record

or declared in writing, meeting minutes shall record date and session of the

Remuneration Committee, content of the resolution, all members’ opinions

and the response regarding the opinions: none.

(v) Performing social responsibility: systems and measures that the company has

adopted with respect to environmental protection, community participation,

contribution to society, social and public interests, consumer rights and

interests, human rights, safety and health, other corporate social

responsibilities and activities, and the status of implementation.

Item Implementation status

Deviations from

Corporate Social

Responsibility Best

Practice Principles for

TWSE/GTSM Listed

Companies and

reasons I. Exercising corporate

governance (i) The company declares

its corporate social responsibility policy and examines the results of the implementation.

(i) Although the Company does not make its own rule of corporate social responsibility, still continues to perform the corporate social responsibility, and will establish relevant policies depending on the circumstances in the future.

If there are any laws or practical necessary considerations, it shall be carried out according to “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies" and relevant regulations.

(ii) The company establishes exclusively (or concurrently) dedicated units to be in charge of proposing and enforcing the corporate social responsibility policies.

(ii) Although the Company does not establish exclusively (or concurrently) dedicated units to be in charge of proposing and enforcing the corporate social responsibility policies, the relevant departments handle relevant matters as per their respective duties.

If there are any laws or practical necessary considerations, it shall be carried out according to “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies" and relevant regulations.

35


Deviations from

Corporate Social

Responsibility Best


TWSE/GTSM Listed

Companies and

reasons (iii) The company

organizes regular training on business ethics and promotion of matters prescribed in the preceding article for directors, supervisors and employees, and shall incorporate the foregoing into its employee performance appraisal system to establish a clear and effective reward and discipline system.

(iii) The Company holds the board meeting quarterly and the employee symposium irregularly to advocate enterprise ethics, which are combined with the Company’s internal website. In addition, the Company sets up “Employee Manual”, which records specific rewards and penalties system.

No significant

difference

II. Fostering a sustainable environment

(i) The company endeavors to utilize all resources more efficiently and uses renewable materials which have a low impact on the environment.

(i) The company has specialized persons to plan for overall environmental resources and improve the utilization efficiency of all resources; renewable materials that have impact on the environment are not used, as the Chinese medicine clinic is not the highly polluted industry.

No significant

difference

(ii) The company establishes proper environmental management systems based on the characteristics of their industries.

(ii) The Company regularly collects and evaluates the effect of operating activities on the natural environment, and sets measurable goals.

No significant

difference

(iii) The company establishes dedicated units or assigns dedicated personnel for environment management to maintain the environment.

(iii) The company is a Chinese medicine clinic with no pollutant, poison and waste emission, therefore no dedicated personnel for environment management has been assigned; it will be carried out according to the laws if necessary in the future.

No significant

difference

36


Deviations from

Corporate Social

Responsibility Best


TWSE/GTSM Listed

Companies and

reasons

(iv) The corporate monitors the impact of climate change on its operations and shall establish company strategies for energy conservation and carbon and greenhouse gas reduction.

(iv) Turn off lights when leaving, provide the paperless operation and use energy efficient lights.

No significant

difference

III. Preserving public welfare

(i) The company complies with and respects labor laws and internationally – recognized workers’ rights, measures and procedures adopted to protect the legal rights of employees, and ensures equality in employment and how these measures are implemented.

(i) According to the provisions of the Labor Standards Act and relevant labor laws, the company sets up Staff Code and holds the employee symposium irregularly, to provide employees with the channel for expressing their views and make them fully understand the company’s operating activities.

No significant

difference

(ii) The company provides safe and healthy work environments for its employees, and organizes training on safety and health for its employees on a regular basis.

(ii) The company establishes “Clinic Facilities Placement Procedures”, to make clinic facilities and equipment well planned and ensure a safe working environment for employees. In addition, the company insures the hospital and workplace accident insurance for all employees, to protect the health and safety of workers.

No significant

difference

(iii) Presence of a communication channel between the company and its employees, and the means through which employees are notified of material changes in the

(iii) The company convenes the internal labor management conciliation commission meeting irregularly, and meeting minutes are made to keep all employees informed after full communication between two parties in terms of

No significant

difference

37


Deviations from

Corporate Social

Responsibility Best


TWSE/GTSM Listed

Companies and

reasons company’s operations. resolutions in the meeting.

(iv) The company establishes and discloses policies on consumer rights and interests and provides a clear and effective procedure for accepting consumer complaints.

(iv) The Company belongs to the service industry and complies with government regulations, and no deceptive, misleading, fraudulent or any other behaviors that destroy the customer trust and damage customer interests will be allowed.

No significant

difference

(v) The company cooperates with its suppliers to jointly foster a stronger sense of corporate social responsibility.

(v) The company will take the implementation of environmental protection into account when choosing the procurement, to work together to enhance the corporate social responsibility.

No significant

difference

(vi) The company, through commercial activities, non-cash property endowments, volunteer service or other free professional services, participates in community development and charities events.

(vi) In the spirit of “taking from the community, reporting back to the society”, the Company responds to social charity and sponsored activities for disadvantaged groups occasionally. More employment opportunities will be provided actively and more attention will be given for social disadvantaged groups in the future.

No significant

difference

IV. Enhancing information disclosure

(i) The measures of disclosing relevant and reliable information relating to their corporate social responsibility.

(i) The Company will disclose the implementation of social responsibility in the annual report.

No significant

difference

(ii) The company produces corporate social responsibility reports

(ii) The company does not produce corporate social responsibility reports, and will consider its

No significant

38


Deviations from

Corporate Social

Responsibility Best


TWSE/GTSM Listed

Companies and

reasons disclosing the status of their implementation of the corporate social responsibility policy.

necessity depending on the circumstances in the future.

difference

V. If the company has established corporate social responsibility principles based on

“Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed

Companies”, please describe any discrepancy between the principles and their

implementation:

The Company does not make its own rules for “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies”, therefore the relevant operations will be implemented according to “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies”.

39


Deviations from

Corporate Social

Responsibility Best


TWSE/GTSM Listed

Companies and

reasons VI. Other important information to facilitate better understanding of the company’s corporate

social responsibility practices (e.g., systems and measures that the company has

adopted with respect to environmental protection, community participation, contribution

to society, social and public interests, consumer rights and interests, human rights,

safety and health, other corporate social responsibilities and activities, and the status of

implementation):

(i) The relevant personnel regulations (such as “Staff Code”) of the Company are in

compliance with the Labor Standards Law, and the relevant work of employees is

carried out by specialized persons. The “Staff Code” of the Company has standards of

protecting relevant rights and obligations of employees and applicants, and sets

sexual harassment prevention standards, complaints and punishment, to protect

employees’ rights at work.

(ii) The Company values the relationship with our customers and develops the

“Emergency Management Workflow”, to resolve customer problems in the quickest

way.

(iii) The Company believes that the corporate has an impact on the country’s social

responsibility. In addition to occasionally donating to disadvantaged groups, providing

employment opportunities to people with disabilities (the company currently does not

have the personnel of this kind), working hard operating the business, providing a

stable and high quality employment environment to employees and seeking the

maximum benefits for our shareholders and relevant stakeholders, the Company will

actively participate in social charity activities and sponsored activities for social

disadvantaged groups in future in the spirit of “taking from the community, reporting

back to the society”, and actively performs the corporate social responsibility while

engages in the business operation, to comply with the international trend of a balance

environment, society and corporate governance development.

Exchange rate: 23.792

Item Time Donation unit Amount

1 Feb-13 Singapore Children's Society NTD237,920 (SGD 10,000)

2 Mar-13 City Love Concert NTD4,758 (SGD 200)

VII. If the products or corporate social responsibility reports have received assurance from external institutions, they shall state so below: NA.

(vi) Implementation of business integrity and measures:

40

The Company operates in accordance with the laws and regulations of

relevant competent authorities, and makes decisions by giving priorities to

the interests of shareholders and the company and based on internal rules

stipulate by the company.


Deviations from

Ethical

Corporate

Management

Best Practice

Principles for

TWSE/GTSM

Listed

Companies and

reasons

I. Policies and strategies established to

ensure business integrity

(i) The company’s commitment to business

integrity, as conveyed in policies and

external documents, and commitments by

the Board of Directors and the

management to ensure business integrity.

(ii) Initiatives taken by the company to

prevent dishonest behavior and the

procedures, code of conducts, and

training programs introduced as part of the

initiative.

(iii) Measures taken by the company to

prevent bribery and illegal political

donations in business areas those are

more prone to the risks of dishonesty.

1. The company put forward the

corporate business integrity

principles in the board meeting on

March 26, 2013 and has

established them.

2. The Company stipulates the

scope of prevention plan: (1)

bribery; (2) providing illegal political

contributions; (3) improper

charitable donation or sponsorship;

(4) providing the unreasonable

management service, hospitality or

other illegitimate benefits.

3. Each donation and sponsorship

amount shall be reported to the

authorized level for approval, to

comply with relevant laws and

internal processes.

No significant

difference

41


Deviations from

Ethical

Corporate

Management

Best Practice

Principles for

TWSE/GTSM

Listed

Companies and

reasons

II. Actions to ensure business integrity

(i) The company shall avoid engaging

customers with history of dishonesty in

business dealings; in addition, an

integrity clause must be included in any

commercial contracts signed by the

company.

(ii) Availability of an internal unit responsible

for ensuring business integrity within the

company, and supervision by the Board

of Directors.

(iii) Policies established by the company to

prevent conflicts of interest, and internal

channels created for raising concerns.

(iv) Accounting policies and internal controls

implemented as effective means of

ensuring business integrity, and auditing

activities performed by internal audit

personnel.

1. The directors, supervisors,

managerial officers or any

personnel that has substantial

control ability of the Company shall

not directly or indirectly provide,

promise, require or accept any

illegitimate benefits, or make

dishonest behaviors that breach the

trust, is illegal or violate fiduciary

duties in business activities, in order

to gain or maintain the interest.

2. When trading with stakeholders,

the conditions shall not be superior

to other similar units.

3. The strict accounting system,

specialized accounting unit and

financial report shall be checked by

certified public accountants, to

ensure the fairness of financial

statements.

4. The internal control self-check

system shall be established and

carried out according to the

regulations stipulated by competent

authorities, to maintain the effective

internal control system of the

operation.

No significant

difference

42


Deviations from

Ethical

Corporate

Management

Best Practice

Principles for

TWSE/GTSM

Listed

Companies and

reasons

III. Existence of a misconduct reporting

channel, and disciplinary policies against

violators of business integrity.

The company takes the Auditing

Office as the reporting channel, and

discloses the title, name, date,

content and result of the violator on

the company’s internal website as

the punishment in violation of

business integrity policies.

No significant

difference

IV. Enhancing information disclosure

(i) Availability of a website for disclosing

information relating to business integrity.

(ii) Other means of information disclosure

undertaken by the company (such as the

establishment of an English website,

appointing dedicated personnel to collect

and disclose information, etc.).

1. The company discloses its

implementation of business integrity

principles in the annual report and

prospectus.

2. The internal regulations are

disclosed appropriately on the

internal network so that they can be

consulted and followed at any time.

No significant

difference

V. For the company that has established business integrity policies in accordance with “Ethical

Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies”, please

describe the current practice and any deviations from the best practice principles: none.

43


Deviations from

Ethical

Corporate

Management

Best Practice

Principles for

TWSE/GTSM

Listed

Companies and

reasons

VI. Other information relevant to understanding the company’s business integrity (e.g.: declaration

of the company's commitment to business integrity to vendors, policies and training programs,

reviews over the company’s business integrity principles, etc.):

1. Strengthen the promotion of ethics and moralities of purchasing staffs and adjust their positions

from time to time depending on the circumstances.

2. Implement purchasing activities and compare the prices with many companies.

3. Regularly promote the importance of ethics and carry out the regular evaluation for operating

and maintenance businesses.

(vii) If the company has adopted corporate governance best practice principles or

related by laws, disclose how these are to be searched: Please refer to Point

4 “Information transparency” of “Difference between actual corporate

governance and Corporate Governance Best-Practice Principles for

TWSE/GTSM Listed Companies, and causes” on Page 18 of this annual

report

(viii) Other significant information that will provide a better understanding of the

state of the company’s implementation of corporate governance may also be

disclosed: please refer to Point 6&7 of “Difference between actual corporate

governance and Corporate Governance Best-Practice Principles for

TWSE/GTSM Listed Companies, and causes” on Page 18 of this annual

report for better understanding the Company’s corporate governance

operation.

(ix) Items to be disclosed in relation to the system of internal controls

44

1. Internal control system statement

Ma Kuang Healthcare Holding Limited Internal Control System Statement

Date: March 25, 2014

Based on the self-examination results of the internal control system for 2013,

the Company therefore declares the following: I. The Company’s Board of Directors and managerial officer understand

their responsibilities of developing, implementing and maintaining

the Company’s internal control system, and such a system has

been established. The purpose of establishing the internal control

system is to reasonably assure the following objectives: the

effectiveness and efficiency of business operation (including

earnings, operating performance and the safeguard of company

assets); the reliability of the financial and related reports; and the

compliance of the relevant laws/regulations and company policies.

II. Due to the innate limitation in designing a faultless internal control system,

this system can only assure the reasonableness of the above three

objectives have been fairly achieved. In addition, the effectiveness of

internal control system could alter over time due to business

environmental or situation changes. Since the Company’s internal control

system has included self-examination capability, the Company will make

immediate corrections when errors are detected.

III. The evaluation of effectiveness of the internal control system design

and implementation is made in accordance with “Guidelines for the

Establishment of Internal Control Systems by Public Companies”

(the Guidelines). The Guidelines are made to examine the following

areas during the management and control process: (1) control

environment, (2) risk assessment and response, (3) control

activities, (4) information and communication, and (5) monitoring.

Details of each examination area can be found in the Guidelines.

IV. The Company has examined the effectiveness of each respected

area in the internal control system based on the Guidelines.

V. The examination result indicated that the Company’s internal control

system (including subsidiary governance) has effectively assured that the

following objectives have been reasonably achieved for the period of

December 31, 2013: i. the degree that effectiveness and efficiency of

business operation; ii. the reliability of the financial and related reports; iii.

the compliance of the relevant laws/regulations and company policies.

VI. This Declaration is a significant item in the Company annual report

and prospectus available to the general public. If it contains false

45

information or omits any material contents, the Company is in

violation of Article 20, Article 32, Article 171 and Article 174 set

forth in the ROC Security and Exchange Law.

VII. And herein declared that, this statement has been passed by the Board of

Directors of the Company on March 25, 2014; 0 people disagree among 7

directors attended, and the rest all agrees the content of this statement.

Ma Kuang Healthcare Holding Limited

Chairman: Huang, Fu-Hsiang Signature

President: Huang, Chuan Sheng Signature

46

2. Where a company has retained a CPA to audit its internal control system, the

auditor's report issued by the CPA shall be disclosed:

Review Report of Internal Control System

The accompanying internal control system related to the financial reporting

and safeguarding of asset security of Ma Kuang Healthcare Holding Limited as of

March 26, 2014 was the effective statement of design and implementation on

January 1, 2013 to December 31, 2013 and was reviewed by us. Maintaining an

effective internal control system and evaluating its effectiveness is the

responsibility of the Company’s management, while expressing opinions on the

effectiveness of the Company’s internal control system and internal control

system statement of public companies based on the review result is our

responsibility.

We plan and implement the review work according to “Guidelines for the

Establishment of Internal Control Systems by Public Companies” and generally

accepted audit principles, to reasonably assure whether the company’s internal

control system above maintains effectiveness in all major aspects. This review

includes the understanding of the company’s internal control system, evaluation

on the management’s evaluation process for the effectiveness of overall internal

control system, testing and evaluation of design and implementation effectiveness

of the internal control system, and other review procedures that we think are

necessary. We believe that this review can provide a reasonable basis for the

opinions expressed.

Any internal control system has its own inherent limitation, therefore the

above internal control system of Ma Kuang Healthcare Holding Limited still has

the error or fraud that has occurred but fails to prevent or detect. In addition, as

the future circumstance may change and the compliance with the internal control

system may also be reduced, the internal control system that is valid in this period

does not mean that it will be certainly effective in the future.

In our opinion, evaluated according to the evaluation of effectiveness of the

internal control in the “Guidelines for the Establishment of Internal Control

Systems by Public Companies”, the design and implementation of Ma Kuang

Healthcare Holding Limited's internal control system with respect to its financial

reporting and safeguarding of asset security dated from January 1, 2013 to

December 31, 2013 can maintain the effectiveness in all major aspects; the above

47

internal control system issued by Ma Kuang Healthcare Holding Limited on March

26, 2014, which is evaluated as association with its financial reporting and

safeguarding of asset security, is the effective statement of design and

implementation and is suitable in all major aspects.

Ernst & Young Financial report of the public company approved by competent authorities Auditing and Certification No.: Gin-Gwen-Jen (6)

Letter No. 0970038990 Gin-Gwen-Jen (Shen) Letter No. 1010045851

CPA:

March 26, 2014

48

(x) Where, during the most recent fiscal year or during the current fiscal year up to

the date of printing of the annual report, any penalties have been imposed in

accordance with the law upon the company or its in-house personnel, or the

company has taken disciplinary action against its in-house personnel for

violations of the company's internal control regulations, the annual report shall

describe the principal problem(s) and what it has done to improve the

situation: none.

(xi) Major resolutions approved by the company's Board of Directors or at

meetings of its shareholders during the most recent fiscal year or during the

current fiscal year up to the date of printing of the annual report:

49

Ma Kuang Healthcare Holding Limited

Major resolutions of general shareholder’s meetings and board meetings

Date / meeting Major resolutions

March 26, 2013 /

board meeting

1. Discuss and approve the operating plan of the year 2013 nd the business report of the year 2012.

2. Discuss and approve the “Internal Control System Statement” of the year 2012 issued by the Company.

3. Discuss and approve the proposal of amendment to the “Procedural Rules of Board Meetings”.

4. Discuss and approve the change proposal B of the certified public accountant of the financial statement in the fourth quarter of the year 2012.

5. Discuss and approve the proposal of appointing Ernst & Young to audit and certify the financial statement and public expense of the year 2013.

6. Discuss and review the consolidated financial statement of the year 2012 of the Company.

7. Discuss and approve the proposal of profit sharing of the year 2012.

8. Discuss the proposal of a new share issue through capitalization of the profit and capital reserve of the year 2012 of the Company.

9. Discuss and approve the proposal of amendment to the “Procedures of Granting of Loans”.

10. Discuss and approve the proposal of amendment to the “Operational Procedures for Endorsements and Guarantees”.

11. Discuss and approve the proposal of amendment to the “Articles of Association”.

12. Discuss and approve the proposal of amendment to the “Rules of Procedure for Shareholder Meetings”.

13. Discuss and approve the proposal of establishment of the “Business Integrity Principles”.

14. Reelect all directors at the general shareholder’s meeting. 15. Discuss and examine the proposal of releasing the

prohibition on directors from participation in competitive business.

16. Discuss and approve the Board of Directors’ nomination of a candidate for the director and independent director.

17. Discuss and examine the proposal of appointment and removal of the internal audit supervisor.

18. Discuss the proposal of setting the time, place and reason of the general shareholder’s meeting as well as the book closure period of 2013 of the Company.

May 10, 2013 /

board meeting

Important financial and business reports: 1. Consolidated financial statement of the first quarter of 2013 of the Company.

50


May 22, 2013 /

interim meeting of

the board

1. Discuss the proposal of providing the endorsement of NT$30 million to its subsidiary Ma Kuang International Development Pte. Ltd. by the Company.

2. Discuss the proposal of providing the endorsement of additional NT$60 million to its subsidiary Ma Kuang International Development Pte. Ltd. by the Company.

3. Discuss the proposal of applying for the bank’s financing limit by the Company.

4. Discuss and examine the proposal B of adding the loan fund of the subsidiary Ma Kuang Healthcare Group Pte. Ltd. to the subsidiary Ma Kuang International Development Pte. Ltd.

5. Discuss the proposal of the procurement business cooperation agreement to be signed between the subsidiary Ma Kuang International Development Pte. Ltd. and 15 hospitals of Taiwan medical and health network.

6. Discuss the proposal of the investment cooperation agreement to be signed between the subsidiary Ma Kuang Biotech Investments Pte. Ltd. and New Star Biotechnology Co. Ltd.

June 20, 2013 /

shareholder’s

meeting

1. Adopt the proposal of 2012 consolidated financial statements and 2012 financial statements.

2. Adopt the proposal of profit sharing of the year 2012. 3. Adopt the proposal of the cash injection plan change of the year 2011. 4. Discuss and examine the proposal of amendment to the “Procedures of Granting of Loans” of the Company. 5. Discuss and examine the proposal of amendment to the “Operational Procedures for Endorsements and Guarantees” of the Company. 6. Discuss and examine the proposal of amendment to the “Articles of Association” of the Company. 7. Discuss and examine the proposal of amendment to the “Rules of Procedure for Shareholder Meetings”. 8. Discuss and examine the

proposal of a new share

Implementation: approved. Implementation: distributed employee bonuses of NT$ 427,640 and director remuneration of NT$ 1,440,000. Implementation: approved and completed according to the resolution of shareholders’ meeting. Implementation: modified Article 4~7, approved and completed according to the resolution of shareholders’ meeting.

Implementation: approved and completed according to the resolution of shareholders’ meeting. Issued new shares through capitalization and traded on the OTC on August

51

Date / meeting Major resolutions issue through capitalization of the profit and capital reserve of the year 2012 of the Company.

9. Reelect all directors. 10. Discuss and examine the proposal of releasing the prohibition on directors from participation in competitive business.

21, 2013. Implementation: approved and completed according to the resolution of shareholders’ meeting. Elected the chairman in the 3rd session of the 1st meeting of the Board of Directors.

Implementation: approved and completed according to the resolution of shareholders’ meeting.

June 20, 2013 /

board meeting

1. Discuss the proposal of selecting the chairman. Discuss the proposal of establishing the Audit Committee and selecting its members.

3. Discuss the proposal of establishing the Remuneration Committee and selecting its members.

4. Discuss and approve the proposal of setting the ex-rights date of capitalization of the profit and capital reserve of the year 2012 of the Company.

5. Discuss the proposal of cancelling the endorsement of NT$60 million to its subsidiary Ma Kuang International Development Pte. Ltd. by the Company.

6. Discuss and approve the proposal B of loaning to the subsidiary Ma Kuang International Development Pte. Ltd.

7. Discuss the proposal B of providing the endorsement to its subsidiary Ma Kuang International Development Pte. Ltd. by the Company.

August 5, 2013 /

board meeting

1. Discuss and examine the proposal of appointment and removal of the financial and accounting supervisor of the Company.

2. Adopt the proposal of “Consolidated financial statements of the first half of 2013” of the Company.

3. Discuss the proposal of changing the acting spokesman of the Company.

4. Discuss the proposal B of changing the board secretary of the Company.

5. Discuss and approve the proposal of the remuneration allocation to directors of the year 2012 of the Company.

6. Discuss and approve the proposal of cash dividends to managerial officers of the year 2012 of the Company.

October 4, 2013 /

board meeting

7. Discuss and examine the proposal of changing the cash injection to the investment in the Mainland China for its subsidiary “Ma Kuang Healthcare Group Pte., Ltd.” by the Company.

8. Discuss and examine the proposal of acquiring and disposing the stock of Compal Electronics, Inc. by the Company.

52


November 7, 2013

/ board meeting

1. Discuss and examine the proposal of appointment and removal of the financial and accounting supervisor of the Company.

2. Report the quarterly report of the third quarter of 2013 of the Company.

3. Discuss and examine the proposal of selling the Toa Payoh government shop house by the sub-subsidiary Ma Kuang Chinese Medicine & Research Center Pte. Ltd.

4. Discuss the proposal of applying for the bank’s financing limit by the Company.

5. Discuss and examine the proposal of the internal audit plan of 2014 of the Company.

March 25, 2014 /

board meeting

1. Discuss and approve the proposal of the operating plan of the year 2014.

2. Discuss and approve the “Internal Control System Statement” of the year 2013 issued by the Company.

3. Discuss and approve the proposal of appointing Ernst & Young to audit and certify the financial statement and public expense of the year 2014.

4. Discuss and review the consolidated financial statement and business report of the year 2013 of the Company.

5. Discuss and approve the proposal of profit sharing of the year 2013.

6. Discuss and approve the proposal of amendment to “Regulations Governing the Acquisition and Disposal of Assets”.

7. Discuss the proposal of a new share issue through capitalization of the profit and capital reserve of the year 2013 of the Company.

8. Discuss the proposal of setting the time, place and reason of the general shareholder’s meeting as well as the book closure period of 2014 of the Company.

9. Discuss and approve the proposal B of loaning the fund of the subsidiary Ma Kuang Healthcare Group Pte. Ltd. to the subsidiary Tianjin Pharmaceutical Group Ma Kuang Medical Investment Management Co., Ltd.

10. Discuss and approve the proposal B of the subsidiary Ma Kuang Healthcare Group Pte. Ltd.’s investment in SGP International Management Academy.

11. Discuss the approval of the proposal B of the board secretary of the Company.

12. Discuss the assignment of the personnel engaging in evaluating and supervising derivatives transactions.

May 13, 2014 /

board meeting

1. Discuss and review the consolidated financial statement of the first quarter of 2014 of the Company.

2. Discuss and review the proposal B of the subsidiary Ma Kuang Healthcare Group Pte. Ltd.’s investment in TianJin LeiYi Laser TECH Co.,Ltd.

53

Date / meeting Major resolutions 3. Discuss the proposal of providing the endorsement of

NT$30 million to its subsidiary Ma Kuang International Development Pte. Ltd. by the Company.

4. Discuss the proposal of changing the address of the Company.

May 22, 2014 /

interim meeting of

the board

1. Discuss and review the proposal B of the subsidiary Ma Kuang Healthcare Group Pte. Ltd.’s investment in Ascensia Academy.

2. Discuss and review the proposal B of the subsidiary Ma Kuang Healthcare Group Pte. Ltd.’s investment in SGP International Management Academy.

3. Discuss and examine the proposal B of adding the loan fund of the subsidiary Ma Kuang Healthcare Group Pte. Ltd. to the subsidiary Ma Kuang International Development Pte. Ltd.

4. Discuss and examine the proposal B of loaning to the subsidiary Ma Kuang International Development Pte. Ltd.

(xii) Where, during the most recent fiscal year or during the current fiscal year up

to the date of printing of the annual report, directors or supervisors have

expressed a dissenting opinion with respect to a major resolution passed by

the Board of Directors, and said dissenting opinion has been recorded or

prepared as a written declaration: none.

(xiii) Summary of the resignation or dismissal of the personnel (including chairman,

president, accounting supervisor, financial supervisor, internal audit

supervisor and R&D supervisor, etc.) associated with the company during the

most recent fiscal year or during the current fiscal year up to the date of

printing of the annual report:

Title Name Date of

appointed

Date of

dismissed

Reasons for

resignation or

dismissal

Financial

supervisor

Chen,

Yu-Hui

02/11/2009 08/31/2013 Family planning

54

IV. Information of accountant’s fee

(i) Fee information Accounting

firm Name of accountant Audit period Remarks

Ernst &

Young

Chen,

Zheng-Chu Li, Fang-Wen 01/01/2013~12/31/2013

Unit: NT$1,000 Fee item

Range of amount Auditing

fee Non-auditing

fee Total

1 Under 2 million

2 2 million (included) ~ 4 million V V

3 4 million (included) ~ 6 million

4 6 million (included) ~ 8 million

5 8 million (included) ~ 10

million

6 Over 10 million (included)

Note: There is no "non-auditing fee" in 2013.

(ii) If the ratio of non-auditing fee to auditing fee paid to certified public

accountants, their accounting firm and relevant companies’ accounts is over one

fourth, the auditing fee and non-auditing service content shall be disclosed.

Unit: NT$1,000

Accounting

firm

Name of

accountant

Auditing

fee

Non-auditing fee Audit period

of

accountant

Remarks System

design

Corporate

registration

Human

resourcesOthers Subtotal

Ernst & Young

Chen, Zheng-Chu

3,500

3,500

2013

Li, Fang-Wen

(iii) If the change of accounting firm and the audit fee of the changing year is less

than the previous year, the amount, percentage and reason shall be

disclosed: none.

(iv) A decrease over 15% than the previous year for auditing fee, the amount,

percentage and reason shall be disclosed: none.

55

V. Changes of accountants

(i) Exiting accountants

Date of change 03/26/2013

Reasons for changes

made & relevant

explanations Internal work adjustment of Ernst & Young

Service contract

terminated by

appointer or

accountant / not

accepting continued

appointment

Accountant

Event Accountant Appointer

Termination of

appointment

NA Not accepting

(continued)

appointment

Unqualified opinions

in audit reports

certified within the

last 2 years and their

reasons

NA

Any disagreement

with the issuer's

opinions

Yes

Accounting principles or practices

Disclosure of financial statements

Auditing scope or steps

Others

None ●

Reason: NA

Other things

disclosed (disclosure

required by articles

10.5.1.4 of this

guideline)

None

56

(ii) Replacement accountants

Accounting firm Ernst & Young

Name of accountant Chen, Zheng-Chu and Li, Fang-Wen

Date of appoint 03/26/2013

Consultations on accounting

measures or principles concerning

specific transactions or on likely

opinions in financial statements

None

Written opinions by succeeding

accountant on disagreements with

outgoing accountant None

(iii) Response by exiting accountants regarding Article 10, paragraph 5, item 1 and

item 2, point 3 of this guideline: NA.

VI. If the company’s chairman, president, or any managerial officer in charge of

finance or accounting matters has in the most recent year held a position at

the accounting firm of its certified public accountant or at affiliated enterprise,

their names, titles and employment periods shall be disclosed: none.

VII. Equity transfers and equity pledges (or changes thereto) during the preceding

fiscal year or in the current fiscal year up to the date of printing of the annual

report, involving equity interests belonging to directors, supervisors,

managerial officers, and shareholders with a stake of 10 percent or more in

the company

(i) Changes in equity transfers and equity pledges of directors, supervisors,

managerial officers and major shareholders:

Title Name

2013 As of April 28, 2014

Changes in

shareholding

Changes in

pledged

shareholding

Changes in

shareholding

Changes in

pledged

shareholding

Chairman Huang, Fu-Hsiang 132,390 400,000 - -

57

Director &

president Huang, Chuan Sheng 98,300 - - -

Director Huang, Po-Wen 174,077 - - -

Director Hwang, Yih-Ray 559,509 - - -

Financial

manager Lee, Pei-Ling - - - -

Major shareholder

Jui Wei

Investments Pte Ltd. 1,089,388 960,000 (218,000) -

(ii) Information on the relationship between counterparts that directors,

supervisors, managerial officers and major shareholders transfer the equity: none.

VIII. Information disclosing the relationship between any of the company’s top ten

shareholders

Information on the relationship between any of the company’s top ten shareholders

April 28, 2014; unit: shares; %

Name (Note 1)

Shareholding Shareholding by spouse and minor

children

Total shareholding under others’

title

Names and the relationship among the top ten shareholders in the relationship of related parties or spouses, blood relatives within the second degree of kinship. (Note 3)

Remarks

Shares

Ratio of

shareholdin

g (Note 2)

Shares

Ratio of

shareho

lding

(Note 2)

Shar

es

Ratio of

shareholdi

ng (Note

2)

Title

(or name) Relationship

Jui Wei Investments

Pte Ltd. Representative: Huang,

Chuan Sheng

9,614,649 34.03% Xue,

Ru-Wen

Spouse of representati

ve

Xue, Ru-Wen 1,233,803 4.37% 1,303,621 4.61%

Jui Wei Investments

Pte Ltd.

Xue, Ru-Wen is

its chairman

Huang, Chuan Sheng

Spouse

Hwang, Yih-Ray 1,027,155 3.64% None None

Huang, Zhang-Yi 878,401 3.11% 48,718 0.17%

Huang, Fu-Hsiang Brother

58

Huang, Chuan Sheng

Brother

Huang, Su-Qin

Sister and brother

Huang, Bi-Xia

Affinity

Huang, Po-Wen 855,251 3.03% 468,747 1.66%

Huang, Lan Sister and brother

Huang, Su-Qin 837,591 2.96% 138,446 0.49%

Huang, Fu-Hsiang

Sister and brother

Huang, Chuan Sheng

Sister and brother

Huang, Zhang-Yi

Sister and brother

Huang, Bi-Xia

Affinity

Huang, Fu-Hsiang 650,441 2.30%

Huang, Chuan Sheng

Brother

Huang, Zhang-Yi

Brother

Huang, Su-Qin

Sister and brother

Huang, Bi-Xia

Affinity

Huang, Bi-Xia 601,558 2.13%

Huang, Fu-Hsiang

Affinity

Huang, Chuan Sheng

Affinity

Huang, Zhang-Yi

Affinity

Huang, Su-Qin

Affinity

Huang, Lan 514,758 1.82% Huang, Po-Wen

Sister and brother

Huang, Chuan Sheng 482,955 1.71% 2,054,469 7.27%

Xue, Ru-Wen

Spouse

Huang, Zhang-Yi

Brother

Huang, Su-Qin

Sister and brother

Huang, Fu-Hsiang

Brother

Huang, Bi-Xia

Affinity

Note 1: All top ten shareholders shall be listed, and names of corporate shareholders and their representatives shall also be listed for those who are corporate shareholders.

Note 2: Calculating the ratio of shareholding means that it is calculated based on the shareholding under you, spouse, minor children and others’ title.

Note 3: The relationship between aforementioned shareholders, including natural and legal persons, shall be disclosed according to regulations governing the preparation of financial reports by issuers.

59

IX. Total number of shares and total equity stake held in any single enterprise by

the company, its directors and supervisors, managerial officers, and any

companies controlled either directly or indirectly by the company

Omnibus shareholding ratio

Unit: shares; %

Invested

venture

(Note)

The Company’s

investment

Investment

subsidiaries directly

or indirectly

controlled and

managed by

directors,

supervisors and

managerial officers

Omnibus investment

Shares Ratio of shareholding

Shares Ratio of shareholding

Shares Ratio of sharehol

ding

Ma Kuang Healthcare Group Pte.Ltd.

9,628,425 100% 0 0% 9,628,425 100%

Ma Kuang Chinese Medicine &Research Centre Pte.Ltd

1,460,000 100% 0 0% 1,460,000 100%

Ma Kuang Chinese Medicine &Research Centre Sdn.Bhd

1,500,000 100% 0 0% 1,500,000 100%

Ma Kuang Biotech Investments Pte.Ltd

150,000 100% 0 0% 150,000 100%

Wong YiuNam Medical Hall Pte.Ltd

320,000 100% 0 0% 320,000 100%

Tianjin Pharmaceutical Group Ma Kuang Medical Investment Management Co., Ltd.

0 51.3% 0 0% 0 51.3%

60

Ma Kuang International Development Pte. Ltd.

7,400,000 100% 0 0% 7,400,000 100%

Note 1: Investments accounted for using equity method

X. Procedures for handling material information:

The Company establishes the procedures for handling material information, with

which the responsible department conducts the review with the relevant personnel

and supervisors to remind them of the existence of the material information to be

disclosed according to the laws and promote relevant regulations. In addition, in

order to make the personnel within the Company have regulations to be followed,

the Company establishes the "Insider Trading Control Measures". To reduce the

risk of insider trading, the Company also provides the educational training and

propaganda to executives and colleagues.

61

IV. Fund-Raising Activities

I. Capital and shares

(i) Capital sources

1. Capital formation history

Unit: NT$

Month /

year

Offeri

ng

price

Authorized capital Paid-in capital Remarks

Shares Amount Shares Amount Sources of

capital

Written off with

property other

than cash

Others

07/2009 10 100,000,000 1,000,000,000 2 20 Share capital

establishment

0 None

07/2009 10 100,000,000 1,000,000,000 10,500,000 105,000,000 Seasoned equity

offerings

0 None

08/2009 10 100,000,000 1,000,000,000 13,500,000 135,000,000 Seasoned equity

offerings

0 None

04/2011 10 100,000,000 1,000,000,000 15,300,000 153,000,000 Seasoned equity

offerings

0 None

07/2011 10 100,000,000 1,000,000,000 16,500,000 165,000,000 Profit to capital

increment

0 None

04/2012 10 100,000,000 1,000,000,000 20,000,000 200,000,000 Seasoned equity

offerings

0 None

08/2012 10 100,000,000 1,000,000,000225,000,000

225,000,000 Profit to capital

increment

0 None

07/2013 10 100,000,000 1,000,000,000 282,500,000 282,500,000

Surplus & profit

to capital

increment

0

None

2. Category of shares

April 28, 2014

3. Information related to shelf registration: none.

Category of

shares

Authorized capital

Remarks Outstanding shares Unissued

shares Total

Listed Unlisted

Common

shares 28,250,000 - 71,750,000 100,000,000

62

(ii) Structure of shareholders

Unit: shares; April 28, 2014

Structure of

shareholders

Government

institutions

Financial

institutions

Other

institutional

shareholder

Personal

shareholder

Foreign

institutions

and

personal

shareholder

Total

Number of

holders

0 0 6 541 4 551

Shares 0 0 4,409,140 179,676,630 98,414,230 225,000,000

Ratio of

shareholding

0% 0% 1.56% 63.6% 34.84% 100.00%

Note: The Company has no share held by the mainland Chinese; refers to the

record date of the most recent shareholding distribution provided by the

stock agency

(iii) Distribution of shareholding

(Common shares) Unit: people; shares; April 28, 2014

Classification of

shareholding

Number of

shareholde

rs

Shares Ratio of

shareholding

(%)

1 ~ 999 153 29,529 0.10%

1,000 ~ 5,000 211 460,492 1.64%

5,001 ~ 10,000 44 322,382 1.14%

10,001 ~ 15,000 24 307,073 1.09%

15,001 ~ 20,000 17 303,947 1.08%

20,001 ~ 30,000 20 494,206 1.75%

30,001 ~ 40,000 9 299,862 1.06%

40,001 ~ 50,000 6 281,051 0.99%

50,001 ~ 100,000 21 1,591,080 5.63%

100,000 ~ 200,000 22 3,250,122 11.50%

200,001 ~ 400,000 12 3,318,203 11.75%

400,001 ~ 600,000 4 1,893,204 6.70%

600,001 ~ 800,000 2 1,251,999 4.43%

800,001 ~ 1,000,000 3 2,571,243 9.10%

Over 1,000,001 3 11,875,607 42.04%

Total 551 28,250,000 100.00%

Note: Record date of the most recent shareholding distribution provided by the

stock agency

63

(iv) Major shareholders

Shareholders with the equity ratio of above 5% or top ten shareholders

(Common shares) Unit: shares; %; April 28, 2014

Shares

Major shareholders Shares Ratio of

shareholding

(%)

Jui Wei Investments Pte Ltd. 9,614,649 34.03%

Xue, Ru-Wen 1,233,803 4.37%

Hwang, Yih-Ray 1,027,155 3.64%

Huang, Zhang-Yi 878,401 3.11%

Huang, Po-Wen 855,251 3.03%

Huang, Su-Qin 837,591 2.96%

Huang, Fu-Hsiang 650,441 2.30%

Huang, Bi-Xia 601,558 2.13%

Huang, Lan 514,758 1.82%

Huang, Chuan Sheng 482,955 1.71%

Note: Record date of the most recent shareholding distribution provided by

the stock agency

(v) Net assets per share, EPS, dividends and market price per share in most recent two

fiscal years

FY

Item 2012 2013 As of March 31, 2014

Market price per share

Highest 117.5 120 102

Lowest 71.2 68 75.1

Average 82.86 88.83 90.25

Net assets per share

Before distribution 24.51 20.50 21.94 After distribution 19.52 18.37 21.94

Earning per share

Average outstanding stock

27,261,250 28,249,999 28,250,000

Earning per share 1.28 0.17 1.27

Dividend per share

Cash dividend －－－

Stock grant

Allotment by earning

1.5555 0.16 －

Allotment by capital surplus

－－－

64

Accumulated undistributed dividends

－－－

Analysis for return on

investment

Price to earnings ratio (Note 1)

64.73 522.53 －

Price to dividends ratio (Note 2)

－－－

Cash dividends yield (Note 3) －－－

Note 1: Price to earnings ratio = average closing price of the said year / earning per share. Note 2: Price to dividends ratio = average closing price of the said year / cash dividends per share. Note 3: Cash dividends yield = cash dividends per share / average closing price of the said year. Note 4: The proposal of 2012 profit sharing has been adopted by the board meeting, but has not

been approved by the shareholder’s meeting; if the company’s outstanding shares change at the record date of profit sharing due to the treasury stock or seasoned equity offerings prior to the record date of profit sharing, the dividend distribution of shareholders will be adjusted according to the actual outstanding shares at the record date of profit sharing.

(vi) Dividend policy and implementation of the company 1. Dividend policy specified in the Articles of Association of the Company

The dividend policy of the company was amended according to the requirements of Financial Supervisory Commission, Executive Yuan, that is, establishment of Article 87 of the Articles of Association, which is approved at the board meeting on February 14, 2011 and at the shareholder’s meeting on April 11, 2011. The Article 87 was required to be amended according to the requirements of competent authorities last year, which is approved at the board meeting on March 26, 2013 and at the shareholder’s meeting on June 2013, therefore the specific dividend policy of this article is disclosed as follows:

(1) Article 85 On the premise of meeting the law of Cayman company, the Company shall

list the specific part of the surplus as “special reserve” after paying all taxes and duties and approved through the ordinary resolution of the shareholder’s meeting, and its purpose shall be approved through the ordinary resolution of the shareholder’s meeting.

Unless otherwise specified in the Cayman company law, listing requirement or this article, the capital reserve shall not be used, except for those used for covering company losses. It shall not be supplemented with the capital reserve when the capital loss needs to be covered for those other than insufficient special reserve.

(2) Article 86 According to the Cayman company law and this article, the dividend and

bonus shall be assigned to shareholders in any currency value at the end of fiscal year if the Company has earnings.

(3) Article 87

According to the preceding article, Cayman company law and listing

requirement, if the total annual budget still has a surplus after paying the

65

relevant taxes, making up for losses (including losses in the previous year) and

listing the special reserve (if any), it shall be distributed in the following

proportion approved through the ordinary resolution of the shareholder’s

meeting:

The employee bonus shall account for 1%~10%; when the employee bonus

is distributed in the form of company stock, the recipient shall be an

employee of subsidiaries who meets certain criteria, which is established or

amended at the board meeting.

The director remuneration shall account for 5% at most.

If there is a surplus, except for retaining as undistributed earnings by the

Board of Directors, 30 to 100% shall be allotted from the surplus plus

undistributed earnings of previous years as shareholders’ dividends, which

shall be paid according to the shareholding ratio of shareholders. As the

Company is at the business expansion stage and taking the future capital

needs and long-term financial planning into consideration, the stock dividend

shall account for 10 to 100% of total dividends and the cash dividend shall

account for 90 to 0% of total dividends.

2. Implementation of dividend distribution proposed by shareholders' meeting:

The future dividend distribution process of the Company shall be in

accordance with the Articles of Association; at the end of each business year,

the profit sharing proposal shall be formulated by the chairman by considering

the profitability and future operation needs of the company, and will be carried

out after approved at the board meeting and adopted at the shareholder’s

meeting.

The Company’s earning of 2013 was approved at the board meeting on

March 25, 2014, and a stock dividend is distributed for NT$0.16 per share (a

total of NT$4.52 million, calculated according to 28.25 million shares).

After the above-mentioned capital increase proposal is approved at the

shareholder’s meeting and approved by competent authorities, the record date

of distribution will be set at the board meeting.

(vii) Effects of stock dividends on the operation results, earnings per share and

shareholders’ returns on investment:

NA.

(viii) Employees’ bonus and remuneration for directors and supervisors

1. Ratio or range for employees’ bonus and remunerations for directors and

supervisors listed in the Company’s Articles of Association:

If the total annual budget still has a surplus after paying the relevant taxes,

66

making up for losses (including losses in the previous year) and listing the

special reserve (if any), it shall be distributed in the following proportion

approved through the ordinary resolution of the shareholder’s meeting:

(1) The employee bonus shall account for 1%~10%; when the employee bonus

is distributed in the form of company stock, the recipient shall be an

employee of subsidiaries who meets certain criteria, which is established

or amended at the board meeting.

(2) The director remuneration shall account for 5% at most.

(3) If there is a surplus, except for retaining as undistributed earnings by the

Board of Directors, 30 to 100% shall be allotted from the surplus plus

undistributed earnings of previous years as shareholders’ dividends, which

shall be paid according to the shareholding ratio of shareholders. As the

Company is at the business expansion stage and taking the future capital

needs and long-term financial planning into consideration, the stock

dividend shall account for 10 to 100% of total dividends and the cash

dividend shall account for 90 to 0% of total dividends.

2. The difference between estimated and actual employee bonuses and

remuneration to directors and supervisors as well as stock dividends

distributed shall be handled by accountants as follows:

(1) Basis for estimated employee bonuses and remuneration to directors and

supervisors: estimated at a certain rate within the range of ratio listed in the

articles.

(2) Calculation basis for shares of stock dividends distributed: none.

(3) Accountants’ decision on the difference between the actual distributed

amount and the estimated amount: listed as the actual distributed annual

cost adjustment.

3. Information of proposed distribution of employees’ bonus approved by the

Board of Directors:

(1) The distribution is as follows after the 2013 profit sharing proposal of the

Company is approved by the Board of Directors:

Proposed distribution of employees’ cash dividends: NT$50,000

Proposed distribution of remuneration to directors and supervisors:

NT$234,000

Distribution of employees’ cash and stock dividends as well as

remuneration to directors and supervisors; its difference, reason and result

shall be disclosed if there is a difference between the estimated annual

amount of listed cost and the amount above: none.

67

(2) Ratio of the proposed distribution of employees’ stock dividends to the sum

of profit after tax and total employee bonus:

NA (the Company does not distribute any stock dividend to employees).

(3) Pro forma earnings per share of any proposed distribution of employees'

bonus, and director / supervisor compensation:

NA.

4. If there is a difference between the actual distribution (including shares,

amount and share price) of employee bonus and supervisor remuneration of

the previous year and the listed employee bonus and remuneration to

directors and supervisors, it difference, reason and result shall be disclosed.

As 2012 profit sharing proposal of the company has been approved at the

general shareholder’s meeting on June 20, 2013, NT$427,000 of cash

dividend is distributed to employees, NT$1.44 million of remuneration is

distributed to directors, and the actual distribution is in conformity with the

profit sharing proposal approved at the shareholder's meeting.

Unit: NT$

Title Name Amount

President Huang, Chuan

Sheng

427,640 Other

non-managerial

officer

A

B

C

Total 427,640

Note: The employee bonus is distributed with cash dividends and only to four

employees in 2012.

(ix) Repurchase of the company’s shares: none.

II. Issuance of corporate bonds

(i) Corporate bond: none.

(ii) Convertible corporate bond: none.

(iii) Exchangeable corporate bond: none.

(iv) Issuance of warrant bond: none.

(v) Issuance of private corporate bond during the most recent fiscal year: none.

68

III. Issuance of preferred stocks

(i) Preferred stock: the Company does not issue any preferred stock.

(ii) Preferred stock with warrant: the Company does not issue any preferred stock

with warrant.

IV. Issuance of global depository receipt

The Company has not yet issued any GDR.

V. Progress of employees’ stock warrant

The Company does not exercise employees’ stock warrant.

VI. Status of new employee restricted shares

The Company does not issue any new employee restricted share.

VII. Names, acquisition and subscription of managerial officers that obtain employee

warrant certificates and top ten employees that obtain warrant certificates NA

VIII. Names and acquisition of managerial officers and top ten employees that obtain

the new employee restricted share

NA IX. Merging or entrusted for other companies issuing the new share

None. X. Plan for capital investment and utilization

None

69

V. Operations Overview

I. Business categories

(i) Business scope

1. Main businesses of the company and subsidiaries

(1) Engaged in TCM treatment - gynecology and pediatrics, orthopedics needle

injuries, internal medicine, acupuncture, TuiNa, Chinese medicinal materials

selling and medicine smoking, etc.

(2) Wholesale the health supplement and provide various training courses and

consultations.

2. Business proportion

Unit: NT$1,000; % FY

Product categories Sales revenue

2013 2012

Amount % Amount %

Outpatient revenue 295,575 71.11 258,220 72.72

Sales of Chinese

medicinal materials 70,735 17.02 38,094 10.72

Sales of healthcare

products 10,852 2.61 3,214 0.91

Service revenue and

management revenue 29,814 7.17 42,162 11.87

Commission revenue 2,755 0.66 11,406 3.21

Others 6,784 1.63 2,329 0.66

Total revenue 416,515 100.21 355,425 100.09

Refund and discount - 863 -0.21 - 325 -0.09

Net sales 415,652 100.00 355,100 100.00

3. Current catalogue of the Company and subsidiaries

(1) Outpatient

● General medicine

◎ Gynecology and pediatrics ◎ Andrology Cosmetology ◎ Acupunctu

◎ TuiNa

● Dermatology

● Healthcare products selling

◎ Male ◎ Female ◎ Elderly ◎ Immunity enhancement ◎ Beauty

● Specialist clinic

- TCM orthopedics TuiNa

70

◎ Chiropractic ◎ Chinese medicine TuiNa ◎ Acupoint TuiNa

- Orthopedics TuiNa

◎ TCM orthopedics TuiNa ◎ TCM infantile TuiNa ◎ TCM therapeutic TuiNa

◎ TCM weight TuiNa ◎ General TuiNa ◎ Partially TuiNa ◎ Several TuiNa

◎ Half body TuiNa ◎ Full body TuiNa

- Slimming and beauty

◎ Health management ◎ Chinese medical cosmetology testing service

◎ Obesity and muscle condition diagnose ◎ Edema diagnose ◎ Nutritional

assessment ◎ Weight management

◎ Physical balance ◎ Weight control ◎ Basic metabolism ◎ Health

evaluation

(2) Selling of scientific Chinese medicine and Chinese medicinal material.

(3) Outsourcing and procurement service.

(4) Medical system.

(5) clinic management, consultation and guidance.

4. New products (services) to be developed by the Company and subsidiaries

Looking ahead, Ma Kuang group intends to focus on the marketing and selling

of the following three types of natural and herbal health products:

(1) General healthcare products;

(2) Healthcare products that can bolster a person's immune system;

(3) Beauty supplements;

Where, all healthcare products and those that can enhance immunity are

designed for consumers with all genders and ages that have a health

consciousness; the main target customer for beauty supplements is female.

(ii) Overview of industry: the current status and development of the industry, the links

between the upstream, midstream, and downstream segments of the industry

supply chain, and development trends and competition for the company's products.

1. Current status and development of industry

The company mainly operates in Singapore, supplemented by medical

services in Taiwan and regarding Tianjin, China as the major target of current

and recent developments; the key industries and development of the Company

are described as follows:

Currently, the Singapore company has a total population of about 5 million

people and adopts a western–based health care, and people still have to

receive the Chinese medicine treatment at their own expenses. Singapore

adopts the western model of social operation framework and has a

western-based medicine industry complemented and supplemented by the

traditional Chinese medicine; until recent years, with the rapid growth of

71

Chinese proprietary medicine in the world market, many Singaporeans get to

know the Chinese medicine, and Singapore Association of Traditional Chinese

Physicians also often organize or participate in Chinese medicine academic

conferences in the South-East Asia Region. According to China’s Health

Department of Jiangxi Province estimates, up to 2006, the number of patients

receiving the Chinese medicine treatment in Singapore accounts for about 45%

of the total population, and 10,000 people receive the Chinese medicine

treatment in the country every day, accounting for about 12% of the total

outpatients. Currently, TCM patients still have to receive the treatment at their

own expenses, and private clinics still cannot enjoy government subsidies and

be supported by the health insurance program.

Currently, there are more than 600 Chinese medicine clinics throughout city

streets and commercial buildings in Singapore. Among more than 5 million

people of Singapore, over 70% of them are Chinese, so the Chinese medicine is

widely favored; many Malays, Indians and Europeans (all are Singapore

residents) believe the Chinese medicine as well.

In Singapore, when treating patients, Chinese medicine hospitals and

Chinese medicine clinics rely solely on the methods of “looking, smelling and

hearing, questioning and palpating” and differentiation without any western

medicines (the diagnosis and laboratory test report of the western hospital can

be used as reference). The TCM medicine is subject to strict laws, and only

Chinese medicinal material and Chinese proprietary medicine are allowed to be

used, to truly take advantages of TCM differentiation and treatment.

The Chinese medicine, acupuncture and TuiNa service are provided, and

the foot massage with health care is also available in some clinics.

On the whole, the Chinese medicine has been regarded as a very common

treatment; however, the different health policies of national governments limit

the development of the Chinese medicine industry and no entrepreneurial and

large-scale operator occur at present, therefore the enterprise who devotes to

the Chinese medicine industry still has huge market potential.

2. Links between upstream, midstream, and downstream segments of the industry

supply chain

Located in the midstream and downstream of the industry, the

Upstream Midstream Downstream Market

Medicinal plant

and animal

Traditional

Chinese

medicine

Scientific Chinese

medicine

Chinese medicine

hospital

Chinese medicine

shop

Traditional Chinese

medicine

Consumer Chinese

medicinal herbs

preparation

Traditional

Chinese medicine

preparation

72

Group is mainly engaged in Chinese medicine outpatient services and

selling of traditional Chinese medicines and healthcare products, which is of

the distribution type. Medicinal plants, animals and mineral are raised and

collected by the upstream industry, and processed and dried to traditional

Chinese medicinal materials, which are processed and concentrated to

scientific Chinese medicines and Chinese proprietary medicines selling to

consumers through TCM pharmacies and Chinese medicine hospitals.

3. Development trends and competition for product market

(1) TCM diagnosis service, acupuncture and TuiNa

TCM diagnosis service

The Group provides the TCM treatment service for common diseases,

such as common cold, cough and flu, as well as other diseases, which

includes hypertension, diabetes, kidney diseases, skin diseases and infertility,

etc. Unlike the western medicine, the methods (Chinese proprietary medicine

or technology, such as acupuncture, TuiNa, cupping and TDP lamp, etc.)

provided by Ma Kuang group can treat various diseases and relevant

symptoms, determine the imbalance part, and differentiate the treatment with

no side effects. TCM also provides the non-surgical method to treat certain

diseases.

Acupuncture

Acupuncture refers to using a tiny silver needle to penetrate the skin by a

Chinese doctor to stimulate a certain acupuncture point of the body for

medical purposes. The Chinese doctor believes that many acupuncture points

are connected to all parts of the body. Acupuncture is believed to balance “yin”

and “yang” of the body so that the body can maintain normal, flow and smooth,

thus recovering the health. In particular, the acupuncture can work wonders in

human illness prevention and mitigation, health care and diet, etc. that the

western medical does not have. In the USA, the Food and Drug Administration

approved the use of acupuncture in the treatment by the medical staff in 1966.

Currently, the WHO has established several cooperative research centers of

traditional medicine and pharmacology.

TuiNa

TuiNa can be used to treat certain diseases, such as muscle aches, fatigue,

stress and insomnia, etc.

(2) Selling of Chinese medicinal materials and healthcare products

Currently, Ma Kuang group sells nearly 30 healthcare products, such as

Ma Kuang Antrodia King, Care Joints, Guei Lug Ell Shian Wan and Tian Ma

73

Buu Shin Dan, etc.; in addition, WYN-SG of the Group also engaged in selling

of traditional Chinese medicinal materials.

In recent years, European and American countries invest heavily in the

research of TCM science, making the traditional Chinese medicine gradually

combine with the technology, and explains its effects and methods with the

scientific method; but its essence and basic therapy do not change, therefore

the Company expects that the future Chinese medicine therapy and product

will improve and develop continuously at a steady rate without a substantial

change and innovation.

(iii) Technology and R&D:

The Group is engaged in Chinese Medicine Services and selling of

Chinese medicinal materials and healthcare products, and does not have any

R&D plan of producing our own products during the most recent fiscal year or

during the current fiscal year up to the date of printing of the annual report.

(iv) Long-term and short-term business development plans:

Item Short-term development plan Long-term development plan

Operating

strategy

1. Through access medical, clinical

experience, customer opinion

survey as well as research and

discussion with industry peers,

assess the market demand and

cooperate with medical

institutions and manufacturing

companies to produce

high-quality healthcare products.

Develop the shop in shop with our

own clinics, open counters for

healthcare products, develop the

virtual channel, and enhance the

brand awareness and market

recognition of our own products

through marketing practices. Sell

new Chinese proprietary

medicines as an agent in the

name of Ma Kuang group. And

promote and sell healthcare

products with Ma Kuang brand

1. Improve the service quality;

Ma Kuang Healthcare will

be committed to improving

the service standard of the

medical industry, everyone,

whether physicians, nurses

or even logistics service

teams, shall always think

things from the customer's

point of view, value

comments raised by the

customer and pursue the

greatest customer

satisfaction.

2. Provide more diversified

products and services,

expand related areas and

plan & develop the market

for healthcare products and

the diet therapy by focusing

on the medical treatment

74

more effectively combined with

individual independent

pharmacies and personal care

stores.

2. Provide the on-site service for

treatment; the Company intends

to set up a Chinese medicine

team, to provide the on-site

service for patients who cannot go

out for treatment or have physical

disabilities so that patients can

enjoy a more complete medical

service, to expand the business

scope of the company and

increase profits.

3. Expand service bases More

professional medical networks will

be established in Singapore and

Tianjin according to this model in

the future, to meet the current

market demand for the

modernized TCM.

and taking advantage of

resources of physical

examination centers and

medical colleges, as well as

expand the product

marketing by taking the

regional branch as the

marketing channel.

3. Invest in the teaching and

research field, create a

good medical research and

learning environment to

attract excellent students to

study here, and cooperate

with local medical schools in

terms of human resource

development to develop

recognized professional

degrees, select talents and

continuously provide the

professional training.

4. Continuously

internationalize the brand;

continue to focus on

developing the derivative

market in the area, extend

outward by using the niche,

and create a better

corporate image in the

future.

Financial

and

operational

management

1. Cooperating with the future

operation development and

through the sound financial

planning and operational

management, distribute company

resources comprehensively to

maximize the benefits of company

resources

1. Strengthen the internal

control system and

corporate governance

structure, and protect

stockholders’ rights;

establishment of the system

can materialize the

professional experience of

75

2. Build the corporate's financial

strength by means of the capital

market, and rapidly accumulate

the capability that expands the

operating scale.

the management team and

improve the effectiveness of

corporate governance.

2. Through funding sources of

diversified capital market,

strength the financial

structure and group

constitution, and develop

the long-term development

strength; cooperating with

the growth of operating

scale, enrich the

management team and

improve the awareness and

image of the company.

Under a reasonable return

on investment, seek

strategic alliances between

same or different industries,

to secure the company’s

position in the industry and

expand the enterprise scale.

Human

resources

1. Establish a complete system of

employee benefits and enhance

the employees’ cohesion.

2. Promote the education and

training, encourage the

continuing education, strength

the staff function, strength

managerial skills of the top and

middle management, and

improve strategic planning

capabilities of the top

management.

1. Inspire the staff potential,

strength the internal

organizational

management and improve

the operational

performance.

3. Business goals

Currently, the world’s patient population only accounts for 10% of the total

population, but the “sub-healthy” population with the daily care and preventive

76

health care accounts for 75% of the total population, therefore, in addition to

continuously expanding the existing chain of medical clinics in the future, the

Group will also take “sub-healthy” healthcare products as an important

development goal, actively develop health care and medical beauty products,

increase the company’s profits and pursue the maximum interests of

shareholders.

4. Competitive strategies

The Group’s core business is to provide the TCM consulting service and

product, and face the competition in the quality and cost from existing

competitors and new market players, including Chinese medicine clinic in the

public hospital, charitable medicine clinic, and Chinese medicine clinic attached

to the pharmacy.

(1) Singapore market

Singapore Chinese medicine clinics do not have the similar health care

system as Taiwan, so they can be managed in a commercial business mode,

target specific customer group and increase the profitability. Therefore, the

Company is much more competitive than the general traditional independent

operating Chinese medicine clinic and Chinese medicine shop.

(2) Taiwan market

Deeply rooted in Taiwan TCM system for more than two decades, Ma

Kuang has a strong leadership in TCM in terms of its management intensity, and

develops a certain degree of loyal customers, expertise and services to

cooperate with the brand’s derivative effect. These advantages are enough to

become a operating niche for the local medical management service.

(3) Chinese market

Currently, China highly encourages and guides the private capital to

develop medical and health services, and actively promotes the development of

non-public medical and healthcare institutions, and form a health care system

with multiple categories of investors and diversified investment modes.

Meanwhile, efforts have been made to regulate the access conditions of foreign

capital for sponsoring health care institutions, and complete sector-wide

administration policies featuring fairness and justice, with the purpose of

improving the local healthcare quality and serious shortage of medical

resources; after the rigorous market research, the Company sets up community

health establishment plans by understanding and obtaining preferential local

health policies through channels and cooperating with government policies, and

develops a mutual promotion and development medical pattern with local

governments; the Company introduces the medical expertise and service quality,

high-quality healthcare team, and perfect and convenient healthcare system in

77

Singapore and Malaysia; open the network according to the needs of local

residents to facilitate the people for medical treatment; the professional fresh

healthcare system that meets the market demand and complies with

management policies has a strong competitive in the local medical market.

II. Analysis of market and production & marketing situation

(i) Market analysis

1. Geographic areas where the main products (services) of the company are

provided (supplied)

Unit: NT$1,000

FY

Region

2011 2012 2013

Amount Ratio Amount Ratio

Singapore

&

Malaysia

277,035 89.78% 301,799 84.99% 308,651 74.26%

Taiwan 31,548 10.22% 35,406 9.97% 55,853 13.44%

Tianjin 17,895 5.04% 51,148 12.30%

Total 308,583 100.00% 355,100 100.00% 415,652 100.00%

2. Market share

Currently, Singapore’s TCM visiting people reaches more than 1 million

every year, and the Group’s average number of consultations are over 150,000

people in the past three years, which accounts for about 10%~15% of

Singapore’s TCM clinics, leading the industry in the number of bases and visits.

3. Demand and supply conditions for the market in the future and market's growth

potential

With the increasing acceptance of alternative therapies, TCM healthcare

products’ booming development is accelerated in the global market, are

considered as herbs or botanical medicines having health benefits, and can be

processed into various food types (tablets, capsules, powders or drinks) through

the food technology (such as extraction, purification and drying) so that they can

be obtained and drinked by the average customer easily in daily life. It is

expected that the market demand for relevant products will reach $1.3 billion in

2015, and the product range covers the modulation of the immune system,

prevention of the cardiovascular disease, and increasing of the energy and

mental agility, etc.

78

Overview of global market demand for TCM products Unit: $1million

Item / FY 1995 2000 2005 2010e 2015e Ginkgo Biloba 62 123 158 196 251Ginseng 41 68 94 122 151Garlic 46 66 85 116 165St. John’s Wort 39 64 80 87 96Echinacea 31 50 64 81 99Saw Palmetto 18 29 40 54 78Others 107 193 266 354 460

Total 344 593 787 1,010 1,300

Source: The Freedonia Group, 2006; organized by Biotechnology Industry Study Centre, Taiwan

Institute of Economic Research

The global market demand for TCM products can be seen from the table

above, and the compound annual growth rate reaches 11.5% in 1995 to 2000,

indicating that the industry is flourishing. But the growth has slowed down since

2000 with the annual growth rate of about 5%, mainly due to the rise of

customers’ health consciousness; in addition to valuing the effect of various

healthcare products, increasing attention has been paid to their safety, thus

gradually decreasing the purchasing behavior generated by the false

propaganda.

In recent years, as the people using the traditional Chinese medicine,

acupuncture and TuiNa for treatment continue to rise all over the world, some

countries and regions also clearly stipulate the legal qualification of TCM and

acupuncture therapy. Changes in the international market also contribute to

relevant investments in the TCM industry. Traditional Chinese doctors are

undergoing a profound change in their position in the world, and traditional

Chinese medicines have become a rapidly developing traditional industry.

4. Competitive niche

(1) After decades of development, the Group has a record of treating more than 1

million patients in Singapore and Malaysia, of which about 70% is patients with

subsequent visits. Nearly 500 customers visit each chain hospital of Ma Kuang

Healthcare every day. The brand image has been deeply rooted in people’s

minds.

(2) The Group has a strong team of traditional Chinese physicians, many of whom

are leading physicians with more than 10 years of average clinical experience

from Taiwan, China, etc., which are the Company’s largest competitive niche.

(3) Setting up a wide and integrated TCM clinic network, the Company has 22

TCM clinics in Singapore and 3 TCM clinics in Malaysia. Most clinics are

79

located in the suburb of relatively high population density to facilitate the

patient for seeking medical advice and attract business. In addition, each clinic

sets up a connected ERP system to computerize medical records of patients

and make them receive the most complete and proper treatment in each clinic.

(4) The Company obtained ISO9001 quality certification in 2006; the medical

consultation and treatment, medical record management and storage, product

procurement and after-sales service, and maintenance and service of the

medical equipment can ensure that patients can enjoy high quality and

consistent Chinese medicine services.

(5) Ma Kuang Healthcare is a leading brand in the Chinese medicine industry of

Singapore and Malaysia, will continue to focus on developing the derivative

market in the area, extend outward by using the niche, and create a better

corporate image in the future.

5. Positive and negative factors for future development and the company's

response to such factors

(1) Positive factors

Singapore market

A. The brand and service lead the industry with a good corporate image, and

the company is in a leading position in the market;

B. The Singapore government encourages the investment and actively assists

the corporate in developing towards the international market.

Chinese market

A. Encourage and guide the private capital to develop medical and health

services, and introduce social funds to establish non-profit medical

institutions according to laws.

B. Establish comprehensive classification management policies and

preferential tax policies for the medical institution.

C. Strength the supervision of sponsoring health care institutions in the society

according to laws.

(2) Negative factors and response

Risks related to human resources

The excellent physicians developed by the Group has certain patient

resources, so the physicians have a large mobility and customers are lost as

the physicians may start their own businesses.

Response:

To address this risk, in addition to improving the service attitude of

medical team, the company shall strength the patient loyalty by using the

brand effect, and use the management system for traditional Chinese

80

physicians to deepen their identity and cohesion for the company, thus

minimizing the influence of this risk.

Country risk

Currently, Ma Kuang Healthcare has established the chain institution in

Singapore and Malaysia. Ma Kuang Healthcare is planning to expand to

other countries and regions with the commercial potential. Inherent risks in

the foreign business investment include: sudden changes in the local

government’s regulatory laws, difficulties in the management of overseas

businesses and personnel, social and political instability, fluctuations in the

currency exchange rate, potential adverse tax, defect in the protection of

intellectual property rights, tariffs and other trade barriers, etc.

Response:

For this risk, the company will continuously carry out a good

communication with direct reporting units in those countries where the

company operates, know the latest information and upcoming laws, integrate

the resources in Asia through the most appropriate channel, and make the

best of inter-state cooperation mode, to control the operational direction and

financial condition.

(ii) Usage and manufacturing processes for main products

The Group is principally engaged in Chinese medicine outpatient services and

selling of traditional Chinese medicines and healthcare products; the TCM

diagnosis process is as shown in the figure below, where four diagnostic methods

are the combined name of basic methods of TCM to diagnose the illness, including

“looking, smelling and hearing, questioning and palpating”. “Looking” refers to

observing the physical condition of a patient, including complexion and tongue,

etc.; “smelling and hearing” refers to listening to a patient’s talking, coughing and

breathing, and smelling whether the mouth or body of a patient stinks;

“questioning” refers to asking a patient's symptoms and disease history, etc.;

“palpating” refers to diagnosing whether there is any unusual symptom by feeling

the pulse with hands and pressing the abdomen.

Obtaining information

Analysis and interpretation

Diagnosis

Treatment plan

MedicationAcupuncture

Evaluation

TCM diagnosis process

81

Through four diagnostic methods, examine all signs and symptoms of the

disease, understand the cause and nature of the disease and its relationship with

internal organs to provide a sufficient basis for the differentiation, and then provide

the medicine by the physician according to the symptom to treat the disease of the

patient.

(iii) Supply situation for major raw material

Major raw material Supplies Supply situation

Scientific Chinese

medicine

Tianjin Zhongxin

Pharmaceutical Group

Co., Ltd.; Kaiser

Pharmaceutical Co., Ltd.;

Chuang Song Zong

Pharmaceutical Co., Ltd.

Good

(iv) A list of any suppliers and clients accounting for 10 percent or more of the

company's total procurement (sales) amount in either of the two most recent fiscal

years, the amounts bought from (sold to) each, the percentage of total

procurement (sales) accounted for by each, and an explanation of the reason for

increases or decreases in the above figures

1. Name of supplies accounting for more than 10% of gross purchases during any

of the two most recent fiscal years, its purchasing amount and ratio, as well as

reasons for change: Unit: NT$1,000; %

2012 2013 First quarter of 2014

Item Name Amount Ratio to

annual net

purchases

(%)

Relation

ship

with the

issuer

Name Amount Ratio to

annual net

purchases

(%)

Relation

ship with

the

issuer

Name Amount Ratio to net

purchases

of the

current

fiscal year

up to the

previous

quarter (%)

Relation

ship

with the

issuer

1

Luyuan 9,566 17.54 None

Zhongxin

Pharmaceuti

cal

20,411 18.39 None

Zhongxin

Pharmaceutic

al

9,054 27.35 None

2 Sheng 7,481 13.72 None Chuang 20,207 18.20 None Chuang Song 5,147 15.55 None

82

Foong Song Zong Zong

3 Others 37,482 68.73 None Kaiser 18,252 16.44 None Kaiser 4,170 12.60 None

Others 52,133 46.97 Others 14,731 44.50

Net

purchas

es

54,529 100.00 Net

purchases 111,003 100.00

Net

purchases 33,102 100.00

Zhongxin Pharmaceutical Group Co., Ltd., the domestic sales center of

which is Tianjin Zhongxin Pharmaceutical Group Co., Ltd., is a historical major

pharmaceutical group featuring the TCM innovation, and they listed in Singapore

and Shanghai in 1997 and 2001 respectively. (Stock code in Shanghai Stock

Exchange: 600329). Owning more than 40 branch companies and subsidiaries

with holding and participating stock, the company’s business covers a wide range

of fields including Chinese proprietary medicines, Chinese medicinal materials,

pharmaceutical raw materials and western medicines, bioengineering medicines

and nutritious & health products, etc., forming a complete industrial chain, product

chain and talent chain. Also, the company makes some joint venture companies

with some well-known pharmaceutical enterprises in the world, such as Teva

Israel, Baxter America and Shin Poong Seoul Korea, etc. Zhongxin

Pharmaceutical takes the TCM innovation as business development ideas,

focuses on the independent innovation and R&D, and has been at the forefront of

the TCM modernization development. The company integrates and optimizes the

world’s most advanced TCM equipment and technology to form a unique TCM

modern integrated development platform. The company fully implements GAP,

GLP, GCP, GMP and GSP standards, to achieve the full quality control and ensure

that the products are safe and effective. Considering its product integrity and good

quality control, it becomes the largest supplier for the development of our

company’s medical business unit in Tianjin.

Luyuan was the agent of Chuang Song Zong Pharmaceutical Co., Ltd. in

Singapore, however due to excessive heavy metals in traditional Chinese

medicines and pesticides detected in the orange peel in 2009, Sheng Foong is

selected to be our agent instead. Except part of scientific Chinese medicines that

Sheng Foong Pharmaceutical Co. Ltd. does not have the medicine certificate, the

remaining is supplied by Sheng Foong Pharmaceutical Co.Ltd. instead. The

Department of Health announced test results in the first half of 2011, Luyuan’s

products do no harm to the human health; taking medicine habits of physicians

and patients into consideration, Luyuan (Chuang Song Zong) has still been our

main manufacturer since 2012; its products are widely used by major Chinese

83

medicine hospitals in Taiwan and favored by physicians due to its good product

quality, therefore it is still the top ten manufacturers of the Company in 2013.

Founded in 1972, Kaiser Pharmaceutical Co., Ltd. is one of famous scientific

Chinese medicine companies and its factory is mainly located in Tainan; in

addition to Taiwan, business bases are also established in Singapore and

Belgium. As Taiwan’s first scientific Chinese medicine company approved by the

German government for importing, Kaiser’s products include concentrated

Chinese medicine products (single active ingredient preparation, multiple active

ingredients preparation, pill, lozenge), TCM healthcare products (instant tea, fully

soluble products, heath care capsule) and Chinese prescription healthcare

products, etc. As the Company starts to be engaged in the procurement business

of medicines in 2013, Kaiser becomes our supplier, which becomes the

third-largest supplier of the Company in 2013.

The main products purchased by the Group include the medical diagnosis

and treatment related western medicines, Chinese proprietary medicines,

scientific Chinese medicine powders, Chinese medicinal materials and medical

consumables, etc., which are purchased from manufacturers of the best quality;

however, due to familiarity with this industry, although there are fixed suppliers, the

company has a dominant position as there are numerous sources of supply on the

market and most of them have a good cooperative relationship with the company,

thus avoiding the risk associated with any consolidation of purchasing operations.

In addition, the Company maintains a long-term friendly cooperative relationship

with each supplier, to ensure stability and reliability of supply sources and quality.

2. A list of any suppliers and clients accounting for 10 percent or more of the

company's total sales amount in either of the two most recent fiscal years, the

amounts sold to each, the percentage of total sales accounted for by each, and

an explanation of the reason for increases or decreases in the above figures:

2013 As of the first quarter of 2014

Item Name

Amount Ratio to

annual

net sales

(%)

Relationship with

the issuer

Name

Amount Ratio to net

sales of the

current fiscal

year up to the

previous quarter

(%)

Relationship with

the issuer

1 Ma Kuang

medical

and health

network

55,853 13.44 Other

stakeholders

Ma Kuang

medical

and health

network

19,559 17.66 Other

stakeholder

s

Others 359,799 86.56 Others 91,174 82.34

84

Net sales 415,652 100.00 Net sales 110,733 100.00

(v) Indication of the production volume for the two most recent fiscal years:

It is not applicable as the Company is mainly engaged in Chinese medicine

diagnosis and treatment services and selling of Chinese medicinal materials and

healthcare products without manufacturing any product.

(vi) Indication of the volume of units sold for the two most recent fiscal years:

Unit: NT$1,000

FY Sales

Product categories

2013 2012

Domestic

sales Export sales

Domestic

sales Export sales

value value value value

Chinese medicine

outpatient － 295,575 － 258,220

Medicines

(materials) selling 32,783 37,952 －

38,094

Healthcare products

selling 7,625 3,227 － 3,214

Medical

management and

consultation

8,755 21,059 35,406 6,756

Medicine

commission － 2,755 － 11,406

Others 6,690 94 － 2,329

Refund and discount － (863) － (325)

Total 55,853 359,799 35,406 319,694

Note: Due to wide varieties and different units, the sales volume cannot be counted

for healthcare products and Chinese medicinal materials.

III. Number of employees employed for the two most recent fiscal years, and during the

current fiscal year up to the date of printing of the annual report, their average

years of service, average age, and education levels:

FY 2012 2013 As of April 30,

2014

85

(Note)

Number of

employees

Managerial

officer 12 12 13

Administrative

staff 42 74 81

Chiopractor 32 27 27

Physician 59 85 87

Nursing

personnel 71 125 128

Total 216 323 336

Average age 37.6 38.24 39.45

Average years of service 3.1 3.4 3.8

Education

level (%)

PhD 3 2 3

MA 18 19 21

College 151 235 244

High school 22 54 52

Below high

school 22 13 16

IV. Information on environmental protection expenditures

1. According to laws and regulations if it is required to apply for a permit for

installing anti-pollution facilities, or permit of pollution drainage, or to pay

anti-pollution fees, or to organize and set up an exclusively responsible

unit/office for environmental issues, the description of the status of such

applications, payment or establishment shall be made: none.

2. Setting forth the company's investment on the major anti-pollution facilities, the

use purpose of such facilities and the possible effects to be produced: none.

3. Describing the process undertaken by the company on environmental pollution

improvement for the most recent two fiscal years and up to the date of printing of

the annual report; if there had been any pollution dispute, its handling process

shall also be described: none.

4. Describing the loss (including damages compensation paid) suffered by the

company due to environmental pollution incidents occurred in the most recent 2

fiscal years and up to the date of printing of the annual report, the total

penalty/fine amount, as well as disclosing its future preventive policies (including

improvement measures) and possible expenses to be incurred (including

possible loss if no preventive measures are taken, and the penalties and

estimated damage compensation amount; if reasonable estimation cannot be

made, explanation on the facts why it cannot be made shall be stated): none.

86

5. Explaining the current condition of pollution and the impact of its improvement to

the profits, competitive position and capital expenditures of the company, as well

as the projected major environment-related capital expenses to be made for the

coming two fiscal years: none.

V. Labor relations

(i) Setting forth all employee benefits, continuing education, training, retirement

systems, and the status of their implementation, as well as the status of

agreements between labor and management, and all measures aimed at

preserving the rights and interests of employees:

1. Employee benefits

(1) Annual leave: the general employee has 7 days off in the first year, after

which it increases 1 day every year with the maximum not exceeding 14 days;

the employee above managerial level has 14 days off every year, after which

it increases 1 day every year with the maximum not exceeding 28 days. The

annual leave that is not used up is allowed to bring into the next year, must be

completed before the end of February next year and may not be brought into

the third year; the ones that are not used up will be converted to the holiday

salary, which will be paid to the employee. The annual leave for physicians

and chiopractors will be in accordance with the agreement; for every year, if

the annual leave is not used up, the remaining will be converted to the salary.

(2) Marriage leave: the employee has 3 days off if married legally.

(3) Maternity leave and childcare leave: based on the Singapore government

announcement.

(4) All employees are insured for hospitalization and workplace accidents and

employee safety protection measures are established so that employees can

work in a safe and growing environment.

Item Content

Police-citizen

connection

system

Buttons that are connected to the police station are installed in the hospital and

can be pressed immediately in case of an emergency (such as, troublemaker,

robbery, etc.) to inform the police station to deal with it. Therefore, the safety of

the nursing personnel and employee can be ensured.

Health

examination of

employee

The health examination shall be performed for the new employee when

registered.

One health examination shall be performed for the in-service employee for

every 2 years.

87

Standard

precautions

Hand washing and hand disinfection equipment

Keeping hands clean is an important thing of protecting patients and for the nursing

personnel to avoid the spread of common bacteria in the hospital and reduce the

infection in the hospital, which is the most simple, important and economical step for

control the infection in the hospital.

When hands are obviously dirty and polluted by the body fluid and blood: wash hands

with soap or disinfectant to wash away the dirt and temporary flora with mechanical

forces and remove the indigenous flora with chemical forces.

Timing of hand washing and disinfection

1. Before and after caring for patients.

2. Before and after taking intrusive medical measures.

3. Before and after contacting with the non-intact skin, such as injured skin wound and

mucous membrane.

4. After taking off the gloves.

5. During caring for patients.

6. After contacting with the microorganism resource. Such as: blood and body fluid.

7. After contacting with contaminated items or environment.

8. During caring for contaminated body parts and cleaning parts of patients.

9. Before and after eating. Before preparing the medicine.

Equipment specification

1. Work clothes: the staff shall wear work clothes in the TCM institution.

2. Mask: masks over the surgical operation level shall be equipped for the use of TCM

personnel and patients who need.

3. Gloves: disposable sterile gloves shall be used.

4. Cleaning supplies: include cleaning products, disinfection cleaning products and

tissue papers, etc.

5. Equipment: the equipment, such as stethoscope, cupping cup and scraping plate,

etc., that are contacted with the body of the patient shall be cleaned and

disinfected before and after the use.

The disposable equipment shall be used for treating patients with legal

infectious diseases.

Needle protection

Needle collecting box: used syringe needles and acupuncture needles shall be directly

thrown into the needle collecting box to prevent the nursing personnel from being

pinned.

⊙ Unknown pollution sources are treated as the suspected positive; the sexual

behavior or blood donation shall be avoided during the observation.

⊙ Be sure to check the would itself and the antigen and antibody of the patient first for

whose who are punctured. If the patient does not have the test result, register in the

infectious disease department, family medicine department or emergency department

of Department of Health’s Fengyuan Hospital immediately to let the physician give the

test sheet for the test.

88

2. Continuing education and training: provide the education and training for the

new employee and various educations and trainings for all employees regularly.

Item Time Name Object Number of

participants

1 May-13 TCM gynecology – Dr. Du,

Hui-Lan

Traditional

Chinese

physician

33

2 Aug-13 TCM medical therapy –

Professor Gao, Zong-Gui

Traditional

Chinese

physician

39

3 Dec-13

Orthopedics and traumatology

of TCM - trainer Huang,

Zhang-Yi

Traditional

Chinese

physician /

chiopractor

40

4 Sep-13

Nursing training for work

procedure - department

manager

Clinic assistant 40

5 May-13 Nursing training for marketing

logistics - department managerClinic assistant 42

3. Retirement system and implementation:

The Company establishes a retirement plan, and allocate a certain

percentage of the total amount of salaries paid as the accumulation fund and

submit it to the special account of the government for storage and use according to

the local “Labor Standards Act” of Singapore and Malaysia, i.e. Central Provident

Fund (“CPF” for short by the local people). The accumulation fund adopts the

defined contribution.

(1) The contribution basis of the accumulation fund in Singapore is as follows:

Type Years of

service

Contribution

rate of

company

Contribution

rate of

individual

Total

Non-Singapore

PR

Can choose whether the contribution is needed

PR 1 5.00％ 4.00％ 9.00％

2 9.00％ 15.00％ 24.00％

3 16.00％ 20.00％ 36.00％

Citizen No

restriction

16.00％ 20.00％ 36.00％

(2) The contribution basis of employees provident fund (“EPF” for short by the

89

local people) in Malaysia is as follows:

Non- permanent employee: no contribution is allowed.

Non-Malaysia citizen: can choose whether the contribution is needed.

Malaysia citizen: 11% of employee contribution, 12% of company

contribution.

(3) The contribution basis of the five social insurance and one housing fund in

Mainland China is as follows:

Participate in the pension plan of the local government according to local laws

and regulations, contribute a certain percentage of employee wages (11%) as

the pension and store it in the local government, which belong to defined

contribution plans; the pension amount contributed is listed as the cost of the

current fiscal year during which the employee provides service.

4. Status of agreements between labor and management, and all measures

aimed at preserving the rights and interests of employees:

The Company attaches great importance to the rights and interests of

employees as well as the advices of employees; employees can communicate

to the Human Resources Department or appropriate exclusives in the open

communication way, to maintain a good relationship.

(ii) Describing the loss suffered by the company due to labor disputes occurring in

the most recent two fiscal years and up to the date of printing of the annual

report, and disclosing the estimated amount expected to be incurred for the

present and future as well as the preventive measures. If a reasonable

estimate cannot be made, an explanation of why it cannot be made shall be

provided.

1. Losses suffered by the company due to labor disputes occurring in 2013 and

up to the date of printing of the annual report: none.

2. Estimated amount expected to be incurred for the present and future as well as

the preventive measures:

In addition to improving the employee treatment, benefit and working

environment, the company complies with employment provisions of Ministry of

Manpower Singapore, to avoid and prevent labor disputes.

VI. Major contracts

Contract

nature

Party Commencement date

and expiration date of

contract

Main content Restrictive

clause

Long-term E.Sun Bank 01/15/2013-01/28/2015 NT$58.45 million is None

90

financing

contract

borrowed for the land

financing with the interest

rate of 2.5%; the monthly

interest is NT$121,771 from

February 1, 2014, and the

principal will be paid at one

time when the contract

expires.

Long-term

financing

contract

Bank of Shanghai 06/13/2013-06/13/2016

$1.8 million is borrowed with

the interest rate of 2.3604%;

the interest is paid every

month and the principal is

paid every quarter

None

Purchasing

agreement

Chuang Song Zong

Pharmaceutical Co.,

Ltd.

03/01/2012-02/28/2014

Purchasing agreement of

scientific Chinese medicine

(overseas procurement) with

purchase amount of NT$20

million within the contract

period.

Reselling to

the peer in the

Singapore

market is not

permitted

without the

consent of the

supplier.

Purchasing

agreement

Chuang Song Zong

Pharmaceutical Co.,

Ltd.

07/01/2013-06/30/2014



(domestic procurement) with

purchase amount of NT$20

million within the contract

period.

None

Purchasing

agreement

Chuang Song Zong

Pharmaceutical Co.,

Ltd.

03/01/2014-10/31/2015



(overseas and domestic

procurement) with purchase

amount of NT$20 million

within the contract period.

None

Purchasing

agreement

Kaiser

Pharmaceutical Co.,

Ltd.

06/13/2012-



with the amount of NT$20

million.

None

Joint venture

contract

Tianjin

Pharmaceutical

20 years from the day of

issuing the business license

Establish a joint venture with

Tianjin Pharmaceutical None

91

Group of the joint venture Group in Tianjin for business

cooperation.

Capital

increase

contract

Tianjin

Pharmaceutical

Group

Tianjin Joviality

Investment

Management

Company Limited

CITIC International

Assets Management

Limited

Tianjin

Pharmaceutical

Group Ma Kuang

Medical Investment

Management Co.,

Ltd.

07/17/2012-

The registered capital of

Tianjin Pharmaceutical

Group Ma Kuang Medical

Investment Management

Co., Ltd. increases NT$100

million.

None

VI. Financial Status

I. Balance sheet and income statement with name of CPAs and their audited opinions

for the recent 5 years

(i) Brief balance sheets and comprehensive income statements under International

Financial Reporting Standards

1. Brief balance sheet under International Financial Reporting Standards

Unit: NT$1,000

FY

Item

2012 2013

As of March 31,

2014

Current assets 599,949 409,219 567,606

Property, plant and equipment 125,530 259,170 214,033

Intangible assets 31,873 33,319 33,751

Other assets 72,307 203,509 151,475

Total assets 829,659 905,217 966,865

Current liabilities Before

distribution 141,341 180,368 211,946

92

After

distribution 141,341 180,368 211,946

Non-current liabilities 62,290 79,481 84,464

Total liabilities

Before

distribution 203,631 259,849 296,410

After

distribution 203,631 259,849 296,410

Equity attributable to owners of the parent

company 551,525 579,076 619,757

Common stock 225,000 282,500 282,500

Capital surplus 286,135 278,237 275,441

Retained earnings

Before

distribution 40,666 10,398 46,200

After

distribution 40,666 10,398 46,200

Other equity (276) 7,941 15,616

Treasury stock 0 0 0

Non-controlling interests 74,503 66,292 50,698

Total equity Before

distribution 626,028 645,368 670,455

After

distribution 626,028 645,368 670,455

Note 1: The financial statements of each fiscal year above have been audited or reviewed by the CPA.

Note 2: The earnings of 2013 have not been distributed through the resolution of the shareholder’s meeting, so the amount after distribution uses the one before distribution.

93

2. Brief comprehensive income statement under International

Financial Reporting Standards

Unit: NT$1,000

FY

Item

2012 2013 First quarter

of 2014

Net sales 355,100 415,652 110,733

Gross profit 114,421 26,683 3,923

Operating income 17,152 (70,419) (25,301)

Non-operating income and expense 10,742 26,112 53,148

Profit before tax 27,894 (44,307) (27,847)

Net income of continued operations 15,651 (48,139) 20,607

Losses of discontinued operations 0 0 0

Net profit (loss) 15,651 (48,139) 20,607

Other comprehensive income

(net of tax) (2,522)

11,425 7,276

Total comprehensive income 13,129 (36,714) 27,883

Net income attributed to owners of the

parent company

34,930 4,732 35,802

Net income attributed to

non-controlling interests

(19,279) (52,871) (15,195)

Total comprehensive income

attributed to owners of the parent

company

34,654 12,949 43,477

Total comprehensive income

attributed to non-controlling interests

(21,525) (49,663) (15,594)

Earning per share 1.28 0.17 1.27

Note: The financial statements of each fiscal year above have been audited or reviewed by the CPA.

94

(ii) Brief balance sheets and income statements under accounting principles

generally accepted in the Republic of China

1. Brief balance sheet under accounting principles generally accepted in the

Republic of China

Unit: NT$1,000

FY

Item

Financial information of recent five years (Note 1)

2009 (economic substance)

2009

(legal form)2010 2011 2012 2013

Current assets 90,861 90,861 134,430 443,663 599,949

NA

Funds and investments －－－－－

Fixed assets 70,148 70,148 66,737 79,626 160,911

Intangible assets 32,201 32,201 31,849 31,610 31,873

Other assets 10,509 10,509 13,492 27,750 36,926

Total assets 203,719 203,719 246,508 582,649 829,659

Current

liabilities

Before

distribution 38,761 38,761 51,258 101,864 141,341

After

distribution 38,761 38,761 51,258 101,864 141,341

Long-term liabilities 44,362 44,362 42,414 103,600 59,865

Other liabilities 1,889 1,889 1,159 2,286 2,425

Total

liabilities

Before

distribution 85,012 85,012 94,831 207,750 203,631

After

distribution 85,012 85,012 94,831 207,750 203,631

Common stock 135,000 135,000 135,000 165,000 225,000

Capital surplus －－－ 83,135 286,135

Retained

earnings

Before

distribution (15,810) (15,810) 14,127 30,118 40,048

After

distribution (15,810) (15,810) 14,127 30,118 40,048

Unrealized gain or loss

on financial instruments －－－－－

Cumulative translation

adjustments (483) (483) 2,550 618 342

Net loss not recognized

as pension costs －－－－－

95

Total

shareholder

s’ equity

Before

distribution 118,707 118,707 151,677 278,871 551,525

After

distribution 118,707 118,707 151,677 278,871 551,525

Note 1: The information of each fiscal year is based on (pro forma) consolidated financial

statements audited by the CPA.

Note 2: The Company was established in July 14, 2009 and completed the shareholding

restructuring in September 2009; the financial statement of economic substance in 2009

includes incomes and expenses of all subsidiaries recognized from January 1, 2009; and

the financial statement of legal form in 2009 is prepared according to the Interpretation

Letter No. Ji-Mi-Zih-344 issued by Accounting Research and Development Foundation of

the Republic of China and includes incomes and expenses of all subsidiaries recognized

from July 14, 2009.

2. Brief income statement under accounting principles generally accepted

in the Republic of China

FY

Item

Financial information of recent five years (Note 1)

2009

(economic

substance)

2009

(legal form)2010 2011 2012 2013

Net sales 245,531 115,030 292,540 308,583 355,100

NA

Gross profit 73,450 34,411 96,767 132,620 114,421

Operating income 44,579 19,464 32,569 35,803 17,152

Non-operating income and

profit

7,199 3,372 8,605 7,125 10,134

Non-operating expense

and loss

3,420 1,602 4,486 5,738 10,392

Income before tax of

continued operations 48,358 21,234 36,688 37,190 27,894

Gain and loss of continued

operations 40,731 17,661 29,937 27,991 34,930

Gain and loss from

distributed operations －－－－－

Extraordinary gain and loss －－－－－

Cumulative effect of

changes in accounting

principles

－－－－－

Net income 40,731 17,661 29,937 27,991 34,930

Earning per share 3.02 1.31 2.04 1.57 1.28

96

Note 1: The information of each fiscal year is based on (pro forma) consolidated

financial statements audited by the CPA.


restructuring in September 2009; the financial statement of economic substance in

2009 includes incomes and expenses of all subsidiaries recognized from January 1,

2009; and the financial statement of legal form in 2009 is prepared according to the

Interpretation Letter No. Ji-Mi-Zih-344 issued by Accounting Research and

Development Foundation of the Republic of China and includes incomes and

expenses of all subsidiaries recognized from July 14, 2009.

Note 3: The calculation of earning per share is adjusted retroactively accounting to

the ratio of capital increase after capitalization of profits.

(iii) Name of CPAs and their audited opinions for the recent 5 years

FY Accounting firm CPA Audited opinion

2009 Ernst & Young Chen, Zheng-Chu;

Hou, Rong-Xian

Unqualified

opinions.


Lin, Hong-Guang

Unqualified

opinions.


Lin, Hong-Guang

Unqualified

opinions.


Li, Fang-Wen

Unqualified

opinions.


Li, Fang-Wen

Unqualified

opinions. Note: The Company was established in July 14, 2009.

97

II. Financial analysis of recent five years (i) Financial analysis under International Financial Reporting Standards

FY

Item

2012

2013 First quarter of 2014

Financial

structure

(%)

Debt ratio 24.54 28.71 30.66

Long term funds to property, plant and

equipment 487.05 252.92 327.56

Solvency

(%)

Current ratio 424.47 226.88 267.81

Quick ratio 383.49 203.49 249.28

Number of times of interest assurances 6.15 -16.29 35.71

Operating

ability

Turnover rate of accounts receivable

(times) 8.30 9.54 1.91

Average cashing days of receivables 43.96 38.25 191.10

Turnover rate of inventories (times) 9.11 12.99 3.54

Turnover rate of accounts payable

(times) 23.84 14.09 3.03

Number of average sales days 40.06 28.10 103.11

Turnover of property, plant and

equipment rate (times) 2.83 1.60 0.52

Turnover rate of total assets (times) 0.43 0.46 0.11

Profitabilit

y

Return on assets (%) 5.56 0.81 3.89

Return on equity (%) 8.41 0.84 5.78

Operating income to

capital stock (%)

Operating

income 7.62 -24.93 -4.08

PBT 12.40 -15.68 4.49

Net profit ratio (%) 9.84 1.14 32.33

Earning per share (NTD) 1.28 0.17 1.27

Cash flow Ratio of cash flow (%) 26.87 -1.00 -11.43

Ratio of cash flow adequacy (%) 50.42 12.36 12.36

Ratio of cash reinvestment (%) 6.12 -0.28 -3.36

Leverage Operation leverage 20.70 -5.9 -4.38

Financial leverage 1.44 0.96 0.97

Note: The financial statements of each fiscal year above have been audited

or reviewed by the CPA.

98

(ii) Financial analysis under accounting principles generally accepted in the

Republic of China

FY (Note 1)

Item (Note 2)

Financial analysis of recent five years (Note 1)

2009

(economic

substance)

2010 2011 2012 2013

Financial

structure (%)

Debt ratio 41.73 38.47 35.66 24.54

NA

Long-term funds to fixed assets 232.46 290.83480.33

379.96

Solvency (%)

Current ratio 234.41 262.26 435.54 424.47

Quick ratio 163.22 152.31 398.04 383.49

Number of times of interest

assurances 29.25 18.90 12.58 6.30

Operating

ability

Turnover rate of accounts

receivable (times) 252.6 123.59 21.83 16.95

Average cashing days of

receivables 1.44 2.95 16.72 21.53

Turnover rate of inventories

(times) 11.30 9.34 7.19 8.08

Turnover rate of accounts

payable (times) 37.09 18.14 17.69 21.15

Number of average sales days 32.30 39.08 50.76 45.17

Turnover rate of fixed assets

(times) 3.50 4.27 3.88 2.21

Turnover rate of total assets

(times) 1.33 1.30 0.74 0.50

Profitability

Return on assets (%) 22.89 14.03 7.39 5.56

Return on equity (%) 41.43 22.14 13.00 8.41

Operating income

to capital stock (%)

Operating

income 33.02 24.13 21.70 7.62

PBT 35.82 27.18 22.54 12.4

Net profit ratio (%) 16.59 10.23 9.07 9.84

Earning per share (NTD) 3.02 2.04 1.57 1.28

Cash flow

Ratio of cash flow (%) 87.94 57.88 -60.29 23.05

Ratio of cash flow adequacy

(%) －－－ 54.40

Ratio of cash reinvestment (%) 15.59 11.60 -12.21 4.91

Leverage Operation leverage 5.51 8.98 8.62 20.70

Financial leverage 1.04 1.07 1.10 1.44

Note 1: The information of each fiscal year is based on (pro forma) consolidated financial

statements audited by the CPA


restructuring in September 2009; the financial statement of economic substance in

99

2009 includes incomes and expenses of all subsidiaries recognized from January 1,

2009; and the financial statement of legal form in 2009 is prepared according to the

Interpretation Letter No. Ji-Mi-Zih-344 issued by Accounting Research and

Development Foundation of the Republic of China and includes incomes and

expenses of all subsidiaries recognized from July 14, 2009.

Note 3: The calculation of earning per share is adjusted retroactively accounting to the ratio

of capital increase after capitalization of profits.

Calculation formula of financial analysis: 1. Financial structure

(1) Debt ratio = total liabilities / total assets.

(2) Long-term funds to fixed assets = (shareholders’ equity + long-term liabilities) /

net fixed assets.

2. Solvency

(1) Current ratio = current assets / current liabilities.

(2) Quick ratio = (current assets – inventories – prepayments) / current liabilities.

(3) Number of times of interest assurances = (income before tax + interest

expense) / interest expense.

3. Operating ability

(1) Turnover rate of accounts receivable (times) = net sales / average accounts

receivable (include accounts receivable and notes receivable from sales)

(2) Average cashing days of receivables = 365 / turnover rate of accounts

receivable.

(3) Turnover rate of inventories = cost of sales / average inventories.

(4) Turnover rate of accounts payable (times) = cost of sales / average accounts

payable (include accounts payable and notes payable from operation).

(5) Number of average sales days = 365 / turnover rate of inventories.

(6) Turnover rate of fixed assets = net sales / net fixed assets.

(7) Turnover rate of total assets = net sales / total assets.

4. Profitability

(1) Return on assets = [net income + interest expense × (1 – tax rate)] / average

total assets.

(2) Return on equity = net income / average shareholders’ equity.

(3) Net profit ratio = net income / net sales.

(4) Earning per share = (net income – preferred stock dividend) / average

weighted outstanding stock.

5. Cash flow

(1) Ratio of cash flow = net cash provided by operating activities / current

liabilities.

100

(2) Ratio of cash flow adequacy = net cash provided by operating activities for

latest 5 years / (capital expenditure + inventories in increase + cash dividend) for

latest 5 years.

(3) Ratio of cash reinvestment = (net cash provided by operating activities - cash

dividend) / (gross value of fixed assets + long-term investments + other assets +

working capital).

6. Leverage:

(1) Operation leverage = (Net sales – variable operating cost and expense) /

operating income.

(2) Financial leverage = operating income / (operating income - interest expense).

101

III. Audit Committee’s review report for the most recent year's financial

statement

Audit Committee’s Review Report

The consolidated balance sheet, income statement, statement of changes in

shareholders' equity and cash flow statement have been audited by Ernst & Young and

the audit report are proposed accordingly; they have been reviewed by us and no

discrepancy has been found, therefore the report is issued in accordance with the

Company Act and Articles of Association for supervision

Auditor: Hseu, Shun-Fa

March 25, 2014

Chen, San-Er

Lee, Liang-Chien

102

IV. Financial statement for the most recent fiscal year, including an auditor's

report prepared by a certified public accountant, a two-year comparative

balance sheet and income statement, statement of changes in

shareholders' equity, cash flow statement, and any related notes or

attached tables: they are not applicable as the Company issues

consolidated financial statements of the parent company and subsidiaries.

V. Consolidated financial statement for the parent company and subsidiaries

for the most recent year, certified by a CPA

108

Ma Kuang Healthcare Holding Limited and Subsidiaries

Notes to Consolidated Financial Statements

01/01/2013~12/31/2013 & 01/01/2012~12/31/2012

(Unless otherwise stated, the amount unit is NT$1,000)

(i) Corporate history

(1) Ma Kuang Healthcare Holding Limited (hereinafter referred to as “the

Company”) was established in the British Cayman Islands on July 14,

2009.

(2) The Company and subsidiaries (hereinafter referred to as “the Group”)

are mainly engaged in Chinese medicine diagnosis and treatment,

healthcare products business, operation and management of medical

institutions, and leasing of property, etc. The Company’s shares have

been listed and traded on the over-the-counter securities exchange of

ROC since April 29, 2011.

(ii) Approval of consolidated financial statements

The Group’s consolidated financial statements of 01/01/2012~12/31/2012

& 01/01/2013~12/31/2013 were approved by the Board of Directors and

authorized for issue on March 25, 2014.

(iii) Application of new, amended and revised standards and interpretations

1. Up to the date of issuing the financial statements, the Group has not

applied the following new, revised and amended International

Financial Reporting Standards, International Accounting Standards

and International Financial Reporting Interpretations that are

approved by the Financial Supervisory Commission (hereinafter

referred to as FSC) but are not applied:

International Financial Reporting Standard 9 Financial Instruments

The International Accounting Standards Board will replace the International Accounting Standard 39 Financial Instruments: Recognition and Measurement with the International Financial Reporting Standard 9 Financial Instruments, which will be carried out gradually in three main phases with each completed phase replacing the International Accounting Standard 39 Financial Instruments: Recognition and Measurement. The first phase is classifying and

109

measuring the financial assets and liabilities, and this part of standard will take effect after January 1, 2015; the Board will revise the impairment method and hedge accounting gradually. When we adopt the International Financial Reporting Standard in 2013, the International Financial Reporting Standard 9 Financial Instruments shall not be adopted in advance, and the implementation date will be prescribed separately by the FSC. The first adoption of the first phase of International Financial Reporting Standard 9 Financial Instruments will affect the Group’s classification and measurement of financial assets, but not affect the classification and measurement of financial liabilities. The effect of the revision of other two phases on the Group could not be reasonably estimated.

2. Standards or interpretations that are published by the International

Accounting Standards Board but not approved by the FSC:

(1) Improvements to 2010 International Financial Reporting Standards

International Financial Reporting Standard 1 First-time Adoption

of International Financial Reporting Standards

The improvements of 2010 International Financial Reporting

Standards make the following amendments to the International

Financial Reporting Standard 1:

If the first-time adopter changes its accounting policies or

exemptions in the International Financial Reporting Standard 1

adopted in terms of the parts covered by the first financial

statement under International Financial Reporting Standards, the

changes in each such interim financial statement shall be

explained and the adjustments specified in the Paragraph 32

shall be updated in accordance with Paragraph 32 of this

standard.

In addition, if the measurement date occurs after the transition

date, the first-time adopter shall still use the fail value measured

by a specific matter as the deemed cost during the period

covered by the first financial statement under International

Financial Reporting Standards. The other identified costs shall

also apply to the operation of property, plant or equipment that

are subject to the rate, and the first-time adopter shall only carry

out the impairment test by using each item specified by this

110

exemption at the transition date. The first-time adopter shall

choose to use the carrying amount generally accepted by

previous accounting principles of this project as the identified

cost at the transition date. The above amendments are effective

for annual periods beginning on or after January 1, 2011.

International Financial Reporting Standard 3 Business

Combinations

Under this amendment, the contingent consideration arising from

the business combination before the adoption of International

Financial Reporting Standard 3 (2008 revision) at the acquisition

date shall not be handled in accordance with the International

Financial Reporting Standard 3 (2008 revision). In addition, the

evaluation alternatives of non-controlling interests are applicable

current ownership interests, and its holders are the ones who are

entitled to enjoy net assets of the enterprise according to their

shares in case of liquidation; the non-controlling interests other

than those aforementioned shall only be measured by the fair

value. The acquiring company does not have this obligation, but

the substituted share-based payment shall be regarded as a new

share-based payment, which is recognized in the consolidated

financial statement. For outstanding share-based payments that

are not valid with no obligation arising from the business

combination and are not replaced – if acquired, they are part of

non-controlling interests; if not, they shall be measured regarding

the acquisition date as the grant date, and part of them are listed

as non-controlling interests, the decision of which is the same as

the distinction principle of the replacement with obligation. The

above amendments are effective for annual periods beginning on

or after July 1, 2010.

International Financial Reporting Standard 7 Financial

Instruments: Disclosures

This amendment requires the qualitative disclosure included in

the quantification disclosure of financial instruments, so that the

user can link to the relevant disclosure, forming the full picture of

the nature and extent of risks arising from financial instruments.

This amendment is effective for annual periods beginning on or

111

after January 1, 2011.

International Accounting Standard 1 Presentation of Financial

Statements

This amendment requires that the information on other

comprehensive income shall be reported in the Statement of

Changes in Equity or Notes according to the item for each

component of the equity. This amendment is effective for annual

periods beginning on or after January 1, 2011.

International Accounting Standard 34 Interim Financial Reporting

Under this amendment, the fact that there is no need to provide

relatively insignificant updates in the Notes to Interim Financial

Statements as the user has the opportunity to obtain the recent

annual report of the enterprise shall be described. In addition, the

stipulations on partial disclosures related to financial instruments

and / or liabilities / assets are added. This amendment is effective


International Financial Reporting Interpretation 13 Customer

Loyalty Programmes

Under this amendment, the customer discount or rewards money

of rewards points that are provided by the fair value consideration

of rewards points and not earned by the original sales transaction

can be exchanged. This amendment is effective for annual


(2) Limited exemption from comparative IFRS 7 disclosures for

first-time adopters (amendments to International Financial

Reporting Standard 1 First-time Adoption of International

Financial Reporting Standards)

The first-time adopter is allowed to use the same transition

provisions for the current preparer of preparing the financial

statements specified in the IFRS of “Improvements of Financial

Instruments: Disclosures” (amendments to IFRS 7). This

amendment is effective for annual periods beginning on or after

July 1, 2010.

112

(3) Severe hyperinflation and removal of relevant fixed dates for

first-time adoption (amendments to International Financial



This amendment provides the guidance about how to state the

functional currency that was and is the one under

hyperinflationary economies in the financial statement. This

amendment also removes fixed dates related to the

derecognition or first day’s profit or loss from the IFRS 1, and

changes the date to the transition date. The above amendments

are effective for annual periods beginning on or after July 1,

2011.

(4) Amendments to the International Financial Reporting Standard 7

Financial Instruments: Disclosures

This amendment requires the additional quantitative and

qualitative disclosure of financial assets transferred when all

financial assets with continued participation or partial financial

assets are transferred. This amendment is effective for annual

periods beginning on or after July 1, 2011.

(5) Deferred tax: recovery of underlying assets (amendments to

International Accounting Standard 12 Income Taxes)

This amendment provides a rebuttable presumption, i.e.

measuring the investment property at fair value, and its deferred

tax will be recognized according to the sale basis, unless the

operating mode of the enterprise shows that the purpose of

holding this investment property is consumption of its economic

benefits over time. This amendment also provides

non-depreciable assets measured by the revaluation model in

the IAS 16, and its deferred tax shall be measured according to

the sale basis. This amendment leads to the revocation of the

Interpretation 21 Income Taxes – Recovery of Revalued

Non-Depreciable Assets. This amendment is effective for annual


(6) International Financial Reporting Standard 10 Consolidated

Financial Statements

113

The IFRS 10 replaces the IAS 27 and Interpretation 12, and the

changes mainly include importing the new integrated control

mode to solve the practical difference between IAS 27 and

Interpretation 12. The changes also include determining

“whether” another entity shall be recorded in the consolidated

statement without changing “how” the consolidated statement is

prepared by the enterprise. This standard is effective for annual


(7) International Financial Reporting Standard 11 Joint Arrangements

The IFRS 11 replaces the IAS 31 and Interpretation 13, and the

changes mainly include removing the proportionate consolidation

of jointly controlled entities to increase the comparability of IFRS,

so that the protocol structure is no longer the most important

factor for deciding the classification as joint operation or joint

venture (carry out according to the IAS 28 if it is joint venture).

This standard is effective for annual periods beginning on or after

January 1, 2013.

(8) International Financial Reporting Standard 12 Disclosure of

Interests in Other Entities

The IFRS 12 mainly integrates the standards of disclosure of

subsidiaries, joint arrangements, associates and unconsolidated

structured entities, and specifies these standards in a single

international financial reporting standard. This standard is

effective for annual periods beginning on or after January 1,

2013.

(9) International Financial Reporting Standard 13 Fair Value

Measurement

The IFRS 13 mainly defines the fair value, measures the

framework at fair value in a single international financial reporting

standard, and stipulates the disclosure regarding the fair value

measurement, to reduce the applicable complexity and improve

the consistency when measuring the fair value. The requirements

about when the fair value measurement or disclosure is adopted

in other standards remain unchanged. This standard is effective


114

(10) Presentation of items of other comprehensive income

(amendments to International Accounting Standard 1

Presentation of Financial Statements)

This amendment requires that each line item reported in the

other comprehensive income section shall be classified and

grouped according to the fact whether it is reclassified in profit or

loss later. This amendment is effective for annual periods

beginning on or after July 1, 2012.

(11) Modifications to International Accounting Standard 19 Employee

Benefits

The main modifications include that: (1) the actuarial gains and

losses of the defined benefit plan are changed from the deferred

recognition through the “corridor” to recognition under the other

comprehensive income; (2) the amount recognized under profit

or loss only includes the current and prior service costs,

settlement profits or losses, and net interest of net defined benefit

liabilities (assets); (3) the disclosure of the defined benefit plan

includes the quantitative information of sensitivity analysis on

each significant actuarial assumption; (4) the benefit offer that the

enterprise cannot be withdrawn any more and restructuring

charges recognized within the scope of International Accounting

Standard 37 Provisions, Contingent Liabilities and Contingent

Assets and involving the payment of termination benefit,

whichever is the earlier, shall be recognized as the termination

benefit, etc. This modified standard is effective for annual periods

beginning on or after January 1, 2013.

(12) Government borrowing (amendments to International Financial



This amendment makes certain specifications for the retroactive

adjustment of IFRS 9 (or IAS 39) and IAS 20. The first-time

adopter must prospectively apply the IAS 20 for the government

borrowing occurred at the transition date; if the enterprise has

maintained the required relevant information when the borrowing

is received in the account for the first time, the enterprise may

115

also select the retrospective application of IFRS 9 (or IAS 39)

and IAS 20 in the government borrowing. This amendment is


2013.

(13) Disclosures - offsetting financial assets and financial liabilities

(amendments to International Financial Reporting Standard 7

Financial Instruments: Disclosures)

This amendment requires that the enterprise shall disclose the

information on the setoff right and related arrangements, and the

foregoing disclosure shall provide the information that help

assess the effect of offsetting on the financial position of the

enterprise. Except that all recognized financial instruments are

offset according to the International Accounting Standard 32

Financial Instruments: Presentation, the new disclosure

specification is also applicable to the financial instruments

recognized according to the executable master netting

arrangement or similar protocol specifications. This amendment

is effective for annual periods beginning on or after January 1,

2013.

(14) Offsetting financial assets and financial liabilities (amendments to

International Accounting Standard 32 Financial Instruments:

Presentation)

This amendment clarifies the relevant provisions of “At present

the recognized amount can be offset by legally enforceable

rights” in the International Accounting Standard 32, which is


2014.

(15) International Financial Reporting Interpretation 20 Stripping Costs

in the Production Phase of a Surface Mine

This Interpretation applies to the waste removal cost (production

stripping cost) resulted from the surface mining activities in the

production phase. When the benefit of stripping activity is

realized in the form of inventories, the enterprise shall handle the

cost of this stripping activity according to the principle of

inventories. When the benefit is obtained by improving the

mineral products, this cost shall be recognized as non-current

116

assets (stripping activity assets) under certain standards. The

stripping activity assets shall be added or gained as existing

assets. This interpretation is effective for annual periods


(16) Improvements to 2009-2011 International Financial Reporting

Standards



This amendment clarifies the following requirements: if the

enterprise has stopped the adoption of IFRSs, the enterprise

shall readopt the IFRS 1 (even adopted before) or retroactively

adopt the applicable IFRSs according to the IAS 8 when

readopting the IFRSs, and it shall be regarded as if the enterprise

had never stopped adopting the IFRSs. This amendment is


2013.

International Accounting Standard 1 Presentation of Financial

Statements

This amendment clarifies that (1) the difference between the

disclosure additional comparative information and the minimum

requirement comparative information shall be disclosed. The

comparative period of minimum requirement refers to the prior

period; (2) when the additional comparative information is

provided in the comparative period of minimum requirement, the

enterprise shall include the comparative information in the

relevant notes to consolidated financial statements, but a

complete set of financial statements is not required to be

provided during the additional comparative period; (3) when the

enterprise’s retrospective application of an accounting policy or

retrospective restatement of the items in the financial statement,

or classification of the items in financial statement have a

significant impact on the information of the previous financial

condition statement, the initial financial condition statement

during the earliest comparative period shall be presented, but the

notes related to the initial financial condition statement during the

117

earliest comparative period are not required to be provided. This


January 1, 2013.

International Accounting Standard 16 Property, Plant and

Equipment

This amendment clarifies the spare parts and maintenance

facilities that comply with the definitions for the property, plant

and equipment instead of inventories. This amendment is


2013.


Presentation

Modify the existing income tax requirements for equity instrument

holders, and requires that the enterprise shall handle it in

accordance with the International Accounting Standard 12

Income Taxes. This amendment is effective for annual periods


International Accounting Standard 34 Interim Financial Reporting

This amendment clarifies the requirements for segment

information on total assets and liabilities of each reportable

segment, to strength the consistency with International Financial

Reporting Standard 8 Operating Segments. Also, the total assets

and liabilities of a particular segment are only provided if its

amount is regularly provided to the chief operating decision

maker and significant changes are made on the disclosure

compared to the financial statement of the previous year. This


January 1, 2013.

(17) Amendments to the International Financial Reporting Standard 10

Consolidated Financial Statements

The amendment to investment entity is mainly to provide a

exception related to the consolidation in the IFRS 10, and the

parent company complying with the definition of investment entity

measures the investment in subsidiaries at fair value through

profit or loss, rather than incorporating it into the consolidated

118

statement. This amendment also specifies the disclosure related

to the investment entity. This amendment is effective for annual


(18) Amendments to the International Accounting Standard 36

Impairment of Assets

For the amendment published in May 2011, this amendment

requires that the enterprise shall only disclose the recoverable

amount of the entity asset (including the goodwill) or cash

generating unit when recognizing or reversing the impairment

loss during the reporting. In addition, this amendment requires

disclosure of the valuation technique, fair value hierarchy and

critical assumption,etc.adopted when determining the

recoverable amount of impaired assets by subtracting the cost to

sell from the fail value. This amendment is effective for annual


(19) International Financial Reporting Interpretation 21 Levies

This Interpretation provides the relevant guidance about when

the levies calculated according to the requirements of taxes

levied by the government (including levies calculated according

to the IAS 37 Provisions, Contingent Liabilities and Contingent

Assets and the ones with the defined time and amount) shall be

estimated as the liabilities. This interpretation is effective for

annual periods beginning on or after January 1, 2014.

(20) Contract novation of derivative and continuation of hedge

accounting

This amendment specifies that the applicable hedge accounting

has no need to be stopped under certain conditions if the

derivative contract is novated. This amendment is effective for

annual periods beginning on or after January 1, 2014.

(21) International Financial Reporting Standard 9 Financial

Instruments - hedge accounting

The amendment related to the accounting treatment of financial

instruments is published, which includes: (1) completion of the

third stage hedge accounting project of the International Financial

119

Reporting Standard 9 Financial Instruments to replace the original

hedge accounting requirements in the International Accounting

Standard 39Financial Instruments: Recognition and

Measurement, and to enable the enterprise to better reflect risk

management activities in the financial statements; (2) permission

to adopt the requirement for changes not recognized in profits or

losses in the “Own Credit” of International Financial Reporting

Standard 9 Financial Instruments; (3) deletion of the requirement

that January 1, 2015 is the mandatory effective date of the


Instruments.

(22) Amendment to International Accounting Standard 19 Employee

Benefits – defined benefit plan: employee contribution

This amendment provides the optional simplified accounting

treatment for employees or third parties’ contribution to the

defined benefit plan if their contributions are independent of

service years of employees (for example, according to the fixed

percentage of employees’ salaries). This amendment is effective

for annual periods beginning on or after July 1, 2014.


Standards

International Financial Reporting Standard 2 Share-based

Payment

Amend the definitions of “Vesting Condition” and “Market

Condition” and add the definitions of “Performance Condition”

and “Service Condition” (the definitions of “Performance

Condition” and “Service Condition” were included in the definition

of “Vesting Condition” before the amendment). The amendment

above applies to the share-based payment transaction occurred

after July 1, 2014.


Combinations

This amendment includes (1) deletion of “Other applicable

international financial reporting standards” in the contingent

consideration classification of the business combination; (2)

120

deletion of “International Accounting Standard 37 Provisions,

Contingent Liabilities and Contingent Assets or other appropriate

international financial reporting standards”, and specifying that

the contingent consideration of non-financial assets or

non-financial liabilities shall be measured at fair value at each

reporting date and the changes in the fair value shall be

recognized in profits or losses; and (3) amendments to the


Instruments to clarify that the contingent consideration of

financial assets or financial liabilities can only be measured at fair

value and presented in profits or losses according to the


Instruments. This amendment is effective for business

combinations with the acquisition date after July 1, 2014.

International Financial Reporting Standard 8 Operating

Segments

Require that the management’s judgment criteria of aggregating

operating segments shall be disclosed, and clarify that the

adjustment of total assets of the reportable segment to total

assets of the enterprise shall be disposed only when the assets

of the segment are provided regularly. This amendment is

effective for annual periods beginning on or after July 1, 2014.

International Financial Reporting Standard 13 Fair Value

Measurement

This added conclusion basis is to clarify the removal of

Paragraph B5.4.12 of International Financial Reporting Standard

9 Financial Instruments and Paragraph AG79 of International

Accounting Standard 39 Financial Instruments: Recognition and

Measurement because of previous conforming amendments to


Measurement, not because of deliberate modifications to

relevant measurements.

International Accounting Standard 16 Property, Plant and

Equipment

This amendment clarifies that the accumulated depreciation at

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the revaluation date shall be recalculated according to the

difference between total carrying amount and net carrying

amount when the property, plant and equipment are revalued.


after July 1, 2014.

International Accounting Standard 24 Related Party Disclosures

This amendment clarifies that an entity is the related party of

reporting entity if the entity provides the service of key

management personnel to the reporting entity or its parent

company. This amendment is effective for annual periods


International Accounting Standard 38 Intangible Assets

This amendment clarifies that the accumulated amortization at

the revaluation date shall be recalculated according to the

difference between total carrying amount and net carrying

amount when intangible assets are revalued. This amendment is



Standards



This amendment clarifies that the first-time adopter has to

choose the published or executed applicable standard in the first

international statement under IFRSs or choose the published but

not yet executed standard or amendment that can be applied in

advance (if allowed) in the conclusion basis.


Combinations

This amendment clarifies that the exceptions specified in

Paragraph 2(a) of International Financial Reporting Standard 3

Business Combinations shall include all types of joint

arrangements defined in the International Financial Reporting

Standard 11 Joint Arrangements and only apply to financial

statements of joint arrangement entities. This amendment is

122



Measurement

This amendment states that the scope shall include other

contracts in the scope of International Accounting Standard 39

Financial Instruments: Recognition and Measurement and


Instruments when the Paragraph 52 of IFRS 13 measures the fair

value of financial assets and financial liabilities group at a net

basis, no matter whether these contracts comply with the

definitions of financial assets or financial liabilities in the


Presentation. This amendment is effective for annual periods


International Accounting Standard 40 Investment Property

This amendment clarifies whether a specific transaction complies

with the definition of International Financial Reporting Standard 3

Business Combinations and whether this property complies with

the definition of International Accounting Standard 40 Investment

Property at the same time, and that an independent analysis

shall be carried out according to these two standards separately.


after July 1, 2014.

(25) International Financial Reporting Standard 14 Regulatory

Deferral Accounts

For those who adopt the IFRSs in the rate regulations for the first

time, these entities are allowed to continue to recognize the

amount related to the rate regulation according to generally

accepted previous accounting principles; but for improving the

comparability with the preparation of adopted IFRSs, the IFRS 14

requires that such amount shall be reported separately. This

standard is effective for annual periods beginning on or after

January 1, 2016.

The above is standards or interpretations that are published by the

123

International Accounting Standards Board but not approved by the

FSC, and their actual application date shall be subject to the

requirements of FSC; evaluating the above new published or

amended standards or interpretations by the Group has no

significant impact on the Group.

(iv) Summarized illustration and reference point of important accounting

policies

1. Statement of compliance

The Group's consolidated financial statements of 2013 and 2012 have

been prepared in accordance with the Guidelines Governing the

Preparation of Financial Reports by Securities Issuers, and the

International Financial Reporting Standards, International Accounting

Standards, and International Financial Reporting Interpretations

accepted by the FSC. 2. Basis of preparation

The consolidated financial statements have been prepared on the

historical cost basis except for financial instruments that are measured at

fair values. Unless otherwise stated, the unit of consolidated financial

statements is NT$1,000.

3. Overview of consolidation

Principles for preparing consolidated financial statements

The subsidiaries are fully incorporated into the consolidated financial

statements from the acquisition date (i.e. the date on which control is

transferred to the Group), until the control of subsidiaries is lost. The

accounting period and accounting policies of subsidiaries' financial

statements shall be in line with those of the parent company. All group's

internal account balances, transactions, and unrealized internal gains &

losses and dividends generated by the group's internal transactions are

eliminated.

If changes in shareholdings of subsidiaries do not cause control of

subsidiaries to be lost, the changes in equity shall be handled as the

equity transaction.

The total comprehensive income of subsidiaries is attributed to owners

of the parent company and non-controlling interests, even if the

non-controlling interests cause the deficit balance. If the Group losses the control of its subsidiaries: (1) Derecognize the assets (including goodwill) and liabilities of

liabilities;

124

(2) Derecognize the carrying amount of any non-controlling interests;

(3) Recognize the fair value of consideration obtained;

(4) Recognize the fair value of any investments retained;

(5) Recognize any gains or losses as current incomes;

(6) Reclassify the item amount recognized in other comprehensive

income by the parent company in the current income.

The entities preparing the consolidated financial statements are as followings:

Investor Investee Main business

% of ownership

12/31/

2013

12/31/

2012

01/01

/2012

The

Company

Ma Kuang Healthcare

Group Pte. Ltd.

(referred to as “MKH

company”)

Investment holding,

consultant management of

TCM clinics, and medicine

sales.

100％ 100％ 100％

MKH

company

Ma Kuang Chinese

Medicine & Research

Centre Pte. Ltd.

(referred to as “MKS

company”)

TCM treatment - gynecology

and pediatrics, orthopedics

needle injuries, internal

medicine, acupuncture,

TuiNa, Chinese medicinal

materials selling and

medicine smoking, etc.

100％ 100％ 100％

MKH

company

Ma Kuang Biotech

Investments Pte. Ltd.

(referred to as “MKB

company”)

Chinese medical

cosmetology service, health

supplement wholesaling and

various training courses,

etc.

100％ 100％ 100％

MKH

company

Makuang Chinese

Medicine & Research

Centre Sdn. Bhd.

(referred to as “MKM

company”)

Medical management and

selling of scientific Chinese

medicine, etc.

100％ 100％ 100％

MKH

company

Wong Yiu Nam Medical

Hall Pte. Ltd.

(referred to as “WYN

company”)

Selling of Chinese medicinal

materials.

100％ 100％ 100％

125

MKH

company

Tianjin Pharmaceutical

Group Ma Kuang

Medical Investment

Management Co., Ltd.

(referred to as “TPMK”)

Comprehensive medical

operation and management.

51.3％ 60％ 60％

MKH

company

Ma Kuang International

Development Pte. Ltd.

(referred to as “MKI”)

Property leasing and

medicine sales.

100％ 100％－

MKH

company

Makuang Biotech Sdn.

Bhd.

(referred to as “MKM－

B company”)

TCM consultation. －－ (Completed the

liquidation on

September 6,

2012)

100％

4. Foreign currency transaction

The consolidated financial statements of the Group are expressed in

the functional currency SGD of the Company. Each entity within the

group decides its functional currency at its sole discretion, in which its

financial statements are expressed.

The foreign currency transaction of entities within the group is

recognized by retranslating it to the functional currency at the

exchange rate at the trade date. At the end of each reporting period,

monetary items that are denominated in foreign currencies are

retranslated at the closing rate of the day; non-monetary items

measured at fair value that are denominated in foreign currencies are

retranslated at the rates prevailing at the date when the fair value was

determined; non-monetary items measured by the historical cost that

are denominated in foreign currencies are retranslated at the rates

prevailing at the original trade date.

Except for those described below, exchange differences arising on the

settlement or retranslation of monetary items are included in profit or

loss when incurred.

(1) For the foreign currency borrowing arising from obtaining the

qualifying asset, if its resulting exchange difference is considered as

the adjustment of interest cost as part of the borrowing cost, it shall be

capitalized as the cost of this asset.

(2) The foreign currency items that comply with the International

Accounting Standard 39 Financial Instruments: Recognition and

Measurement shall be handled according to the accounting policies

126

of financial instruments.

(3) The exchange difference arising from monetary items as part of the

reporting entity’s net investment on the foreign operation is

originally recognized in other comprehensive income and

reclassified in profit or loss from entity when disposing this net

investment.

When the gain or loss of non-monetary items is recognized in other

comprehensive income, any exchange component of the gain or loss

is recognized in other comprehensive income. When the gain or loss

of non-monetary items is recognized in profits or losses, any exchange

component of the gain or loss is recognized in profits or losses.

5. Translation of foreign currency financial statements

When preparing the consolidated financial statements, the assets and

liabilities of the foreign operation are retranslated as SGD at the

closing rate at the balance sheet date, and the income and expense

item are retranslated at the current average rate. The exchange

difference arising from the retranslation is recognized in other

comprehensive income; when disposing the foreign operation, the

cumulative exchange difference of the separate component

recognized in other comprehensive income and accumulated in the

equity is reclassified in profit or loss from entity when recognizing and

disposing profit or loss. When the control or joint control is lost and the

significant influence is made on the foreign operation but the shared

equity is retained, it shall be handled according to the disposal policy.

Without losing the control, when the partial disposal includes the

subsidiaries of the foreign operation, the cumulative exchange

difference recognized in other comprehensive income shall be

reattributed to non-controlling interests of the foreign operation

proportionally, rather than recognized in profit or loss; without losing

the significant influence or joint control, when the partial disposal

includes the associate or jointly controlled entity of the foreign

operation, the cumulative exchange difference shall be reclassified in

profit or loss proportionally.

The goodwill arising on the acquisition of the foreign operation by the

Group and fair value adjustment on the carrying amount of its assets

and liabilities shall be regarded as assets and liabilities of the foreign

operation and reported in its functional currency.

6. Current / non-current assets and liabilities

127

Assets shall be classified as current in any of the following circumstances;

otherwise, they shall be classified as non-current:

(1) assets that are expected to be realized, sold or consumed in the normal operating cycle.

(2) assets that are held mainly for trading purposes. (3) assets that are expected to be realized within twelve months after

the reporting period. (4) Cash or cash equivalents, except for those that are restricted

when the assets are exchanged or used to pay off the liabilities at least twelve months after the reporting period.

Liabilities shall be classified as current in any of the following

circumstances; otherwise, they shall be classified as non-current:

(1) liabilities that are expected to be paid off in the normal operating cycle.

(2) liabilities that are held mainly for trading purposes. (3) liabilities that are expected to be due and paid off within twelve

months after the reporting period. (4) liabilities which the settlement period cannot be deferred

unconditionally at least twelve months after the reporting period. If the settlement is caused by choosing the terms of liabilities by the counterparty to issue the equity instrument, its classification will not be affected.

7. Cash and cash equivalents

The cash and cash equivalents are cash on hand, demand deposits,

and short-term and high liquidity investments that can be readily

converted to the fixed cash and have very little risk of changes in

value.

8. Financial instruments

The financial assets and financial liabilities are recognized only when

the Group becomes a party to the contractual provisions of the

financial instrument.

The financial assets and financial liabilities that comply with the


Recognition and Measurement are measured at fair value at the initial

recognition, directly attributed to transaction costs acquired or issued

through financial assets and financial liabilities (except for those

classified as financial assets and financial liabilities measured at fair

value through profit or loss), and added or deducted from the fair value

of financial assets and financial liabilities.

(1) Financial assets

128

The recognition and derecognition of the Group’s all financial assets with regular way purchase or sale are carried out by the CPA at the trade date. The financial assets of the Group can be classified into financial assets measured at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets, and loans and receivables. The classification is determined by its nature and purpose at the initial recognition of financial assets. Financial assets measured by fair value through profit or loss Financial assets measured at fair value through profit or loss include assets held for trading and initial recognition, i.e. designation as at fair value through profit or loss. A financial liability is classified as held for trading if: A. it is acquired principally for the purpose of selling in the short

term; B. on initial recognition it is part of a portfolio of identified financial

instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

C. it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

If a contract contains one or more embedded derivatives, the entire hybrid (combined) contract may be designated as a financial asset at fair value through profit or loss; or a financial asset may be designated as at fair value through profit or loss when doing so results in more relevant information, because either: A. such designation eliminates or significantly reduces a

measurement or recognition inconsistency; or B. a group of financial assets, financial liabilities or both is

managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel.

Such financial assets are measured by fair value, and gains or losses resulting from their remeasurements are recognized as profit or loss, which include any dividend or interest generated by financial assets (included in those received in the year of investment). For such financial assets, if there is no active market quotation and a reliable fail value cannot be measured, they shall be measured at the amount deducting the impairment loss from the cost, and financial assets measured at the cost shall be reported in the balance sheets. Available-for-sale financial assets

129

Available-for-sale financial assets are non-derivative, designated as available-for-sale, or not classified as financial assets measured at fair value through profit or loss, held-to-maturity investments, or loans and receivables. The partial exchange difference of changes in the carrying amount of available-for-sale monetary financial assets, interest income calculated at the effective interest rate for available-for-sale financial assets, and dividend income of available-for-sale equity investments are recognized in profit or loss. The changes in the carrying amount of remaining available-for-sale financial assets are recognized in the equity before derecognizing this investment; when derecognizing, the accumulation number previously recognized in the equity is reclassified in profit or loss. For the investment of equity instrument, if there is no active market quotation and a reliable fail value cannot be measured, they shall be measured at the amount deducting the impairment loss from the cost, and financial assets measured at the cost shall be reported in the balance sheets. Held-to-maturity financial assets If non-derivative financial assets have fixed or determinable payments and the Group has the positive intention and is able to hold to maturity, they shall be classified as held-to-maturity financial assets, excluding the following items: those designated as measurement at fair value through profit or loss at the initial recognition, designated as available-for-sale and meeting the definition of loans and receivables. Such financial assets are measured with the amount deducting the impairment loss from the amortized cost at the effective interest rate after the initial measurement. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or transaction costs. The amortization of effective interest rate is recognized in profit or loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, and must meet the following conditions: the holder cannot recover almost all initial investments because of not classifying into assets measured at fair value through profit or loss, not designating as available-for-sale and factors other than credit deterioration. Such financial assets are presented independently in the balance sheet as accounts receivable and bond investment with no active market, and measured with the amount deducting the impairment loss from the amortized cost at the effective interest rate after the initial measurement. The amortized cost is calculated by taking the discount or premium and transaction cost when acquired into consideration. The amortization of effective interest rate is

130

recognized in profit or loss. Impairment of financial assets In addition to financial assets measured at fair value through profit or loss, other financial assets are evaluated for its impairment at the end of each reporting period; financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. Except that accounts receivable are reduced via the allowance account for decrease in the carrying amount of financial assets, the remaining are deducted from the carrying amount directly and its losses are recognized in profit or loss. When the fair value of available-for-sale equity investments is lower than the cost and has a significant or permanent decline, it will be considered to be an impairment. The impairment of other financial assets may include: (1) significant financial difficulty of the issuer or counterparty; or (2) a breach of contract, such as a default or delinquency in interest or principal payments; or (3) it becoming probable that the borrower will enter bankruptcy or financial reorganization; or (4) the disappearance of an active market for financial assets because of the issuer’s financial difficulties. For held-to-maturity financial assets and loans and receivables measured at amortized cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial asset that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exits for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. Interest income is accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recognized in profit or loss, if there is no realistic prospect of future recovery and all collaterals

131

have been realized or transferred to the Group, loans together with the associated allowance are written off. Receivables together with the associated allowance are written off when there is no realistic prospect of future recovery.

If, in a subsequent year, the amount of the estimated impairment loss

increases or decreases because of an event occurring after the

impairment was recognized, the previously recognized impairment

loss is increased or reduced by adjusting the allowance account. If a

future write-off is later recovered, the recovery is credited to profit or

loss.

In the case of equity investments classified as available-for-sale,

where there is evidence of impairment, the cumulative loss -

measured as the difference between the acquisition cost and the

current fair value, less any impairment loss on that investment

previously recognized in profit or loss - is removed from other

comprehensive income and recognized in profit or loss. Impairment

losses on equity investments are not reversed through profit or loss;

increases in their fair value after impairment are recognized directly in

other comprehensive income.

In the case of debt instruments classified as available-for-sale, the

amount recorded for impairment is the cumulative loss measured as

the difference between the amortized cost and the current fair value,

less any impairment loss on that investment previously recognized in

profit or loss. Future interest income continues to be accrued based

on the reduced carrying amount of the asset, using the rate of

interest used to discount the future cash flows for the purpose of

measuring the impairment loss. The interest income is recognized in

profit or loss. If, in a subsequent year, the fair value of a debt

instrument increases and the increase can be objectively related to

an event occurring after the impairment loss was recognized in profit

or loss, the impairment loss is reversed through profit or loss.

Derecognition of financial assets

A financial asset is derecognized when:

(1) The rights to receive cash flows from the asset have expired.

(2) The Group has transferred the asset and substantially all the

risks and rewards of the asset have been transferred.

(3) The Group has neither transferred nor retained substantially

all the risks and rewards of the asset, but has transferred control

of the asset.

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On derecognition of a financial asset in its entirety, the difference

between the carrying amount and the consideration received or

receivable including any cumulative gain or loss that had been

recognized in other comprehensive income, is recognized in profit or

loss.

If the assets transferred are part of a larger financial assets and the

parts transferred meet the derecognition wholly, the Group will

allocate the original carrying amount of financial assets to each part

based on the relative fair value of continuously recognized parts and

derecognized parts at the transfer date. The difference between the

carrying amount allocated to derecognized parts and the

consideration received for derecognized parts including any

cumulative gain or loss allocated to derecognized parts that had

been recognized in other comprehensive income, is recognized in

profit or loss. The Group allocates the cumulative gain or loss that

had been recognized in other comprehensive income to each part

based on the relative fair value of continuously recognized parts and

derecognized parts.

(2) Financial liabilities and equity instruments

Classification of liabilities or equity

The Group classifies the instrument issued as a financial liability or

an equity instrument in accordance with the substance of the

contractual arrangement and the definitions of a financial liability, and

an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest

in the assets of an entity after deducting all of its liabilities. The equity

instrument issued by the Group is recognized with the amount

deducting the direct issuance cost from proceeds acquired.

Compound instruments

The Group evaluates the terms of the convertible bonds issued to

determine whether it contains both a liability and an equity

component. Furthermore, the Group assesses if the economic

characteristics and risks of the put and call options contained in the

convertible bonds are closely related to the economic characteristics

and risk of the host contract before separating the equity element. For the liability component excluding the derivatives, its fair value is determined based on the rate of interest applied at that time by the market to instruments of comparable credit status. The liability

133

component is classified as a financial liability measured at amortized cost before the instrument is converted or settled. For the embedded derivative that is not closely related to the host contract (for example, if the exercise price of the embedded call or put option is not approximately equal on each exercise date to the amortized cost of the host debt instrument), it is classified as a liability component and subsequently measured at fair value through profit or loss unless it qualifies for an equity component. The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. Its carrying amount is not remeasured in the subsequent accounting periods. If the convertible bond issued does not have an equity component, it is accounted for as a hybrid instrument in accordance with the requirements under IAS 39 Financial Instruments: Recognition and Measurement. Transaction costs are apportioned between the liability and equity components of the convertible bond based on the allocation of proceeds to the liability and equity components when the instruments are initially recognized. On conversion of a convertible bond before maturity, the carrying amount of the liability component being the amortized cost at the date of conversion is transferred to equity. Financial liabilities Financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial liabilities at fair value through profit or loss or financial liabilities measured at amortized cost upon initial recognition. Financial liabilities measured at fair value through profit or loss Financial liabilities measured at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. A financial liability is classified as held for trading if: A. it is acquired principally for the purpose of selling in the short

term; B. on initial recognition it is part of a portfolio of identified financial

instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

C. it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

If a contract contains one or more embedded derivatives, the entire hybrid (combined) contract may be designated as a financial liability

134

at fair value through profit or loss; or a financial liability may be designated as at fair value through profit or loss when doing so results in more relevant information, because either: A. such designation eliminates or significantly reduces a

measurement or recognition inconsistency; or B. a group of financial assets, financial liabilities or both is managed

and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel.

Gains or losses on the subsequent measurement of liabilities at fair value through profit or loss, including interest paid, are recognized in profit or loss. If the financial liabilities at fair value through profit or loss do not have quoted prices in an active market and their fair value cannot be reliably measured, then they are classified as financial liabilities measured at cost on balance sheet and carried at cost as at the reporting date. Financial liabilities at amortized cost Financial liabilities measured at amortized cost include interest bearing loans and borrowings that are subsequently measured using the effective interest rate method after initial recognition. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate method amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or transaction costs. Derecognition of financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified (whether or not attributable to the financial difficulty of the debtor), such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

(3) Offsetting of financial assets and liabilities Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle

135

the liabilities simultaneously. (4) Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

9. Derivative financial instrument

The Group uses derivative financial instruments to hedge its foreign

currency risks and interest rate risks. A derivative is classified in the

balance sheet as financial assets or liabilities at fair value through

profit or loss (held for trading) except for derivatives that are

designated effective hedging instruments which are classified as

derivative financial assets or liabilities for hedging.

Derivative financial instruments are initially recognized at fair value on

the date on which a derivative contract is entered into and are

subsequently remeasured at fair value. Derivatives are carried as

financial assets when the fair value is positive and as financial

liabilities when the fair value is negative. Any gains or losses arising

from changes in the fair value of derivatives are taken directly to profit

or loss, except for the effective portion of cash flow hedges, which is

recognized in equity.

Derivatives embedded in host contracts are accounted for as separate

derivatives and recorded at fair value if their economic characteristics

and risks are not closely related to those of the host contracts and the

host contracts are not held for trading or designated at fair value

though profit or loss. These embedded derivatives are measured at

fair value with changes in fair value recognized in profit or loss.

10. Inventories

Inventories are valued at lower of cost and net realizable value item by

item.

Costs incurred in bringing each inventory to its present location and

condition are accounted for as follows:

Commodity – purchase cost on weighted average cost formula

Net realizable value is the estimated selling price in the ordinary

course of business, less estimated costs necessary to make the sale.

136

11. Investments accounted for using the equity method

The Group’s investment in its associate is accounted for using the

equity method other than those that meet the criteria to be classified

as held for sale. An associate is an entity over which the Group has

significant influence.

Under the equity method, the investment in the associate is carried in

the balance sheet at cost and adjusted thereafter for the

post-acquisition change in the Group’s share of net assets of the

associate. After the interest in the associate is reduced to zero,

additional losses are provided for, and a liability is recognized, only to

the extent that the Group has incurred legal or constructive obligations

or made payments on behalf of the associate. Unrealized gains and

losses resulting from transactions between the Group and the

associate are eliminated to the extent of the Group’s related interest in

the associate.

When changes in the net assets of an associate occur and not those

that are recognized in profit or loss or other comprehensive income

and do not affects the Group’s percentage of ownership interests in

the associate, the Group recognizes such changes in equity based on

its percentage of ownership interests. The resulting capital surplus

recognized will be reclassified to profit or loss at the time of disposing

the associate on a pro-rata basis.

When the associate issues new stock, and the Group’s interest in an

associate is reduced or increased as the Group fails to acquire shares

newly issued in the associate proportionately to its original ownership

interest, the increase or decrease in the interest in the associate is

recognized in Additional Paid in Capital and Investment in associate.

When the interest in the associate is reduced, the cumulative amounts

previously recognized in other comprehensive income are reclassified

to profit or loss or other appropriate items. The aforementioned capital

surplus recognized is reclassified to profit or loss on a pro rata basis

when the Group disposes the associate.

The financial statements of the associate are prepared for the same

reporting period as the Group. Where necessary, adjustments are

made to bring the accounting policies in line with those of the Group.

The Group determines at each reporting date whether there is any

objective evidence that the investment in the associate is impaired in

accordance with IAS 39 Financial Instruments: Recognition and

137

Measurement. If this is the case the Group calculates the amount of

impairment as the difference between the recoverable amount of the

associate and its carrying value and recognizes the amount in the

‘share of profit or loss of an associate’ in the statement of

comprehensive income in accordance with IAS 36 Impairment of

Assets. In determining the value in use of the investment, the Group

estimates:

(1) Its share of the present value of the estimated future cash flows expected to be generated by the associate, including the cash flows from the operations of the associate and the proceeds on the ultimate disposal of the investment; or

(2) The present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.

Because goodwill that forms part of the carrying amount of an

investment in an associate is not separately recognized, it is not tested

for impairment separately by applying the requirements for impairment

testing goodwill in IAS 36 Impairment of Assets.

Upon loss of significant influence over the associate, the Group

measures and recognizes any retaining investment at its fair value.

Any difference between the carrying amount of the associate upon

loss of significant influence and the fair value of the retaining

investment and proceeds from disposal is recognized in profit or loss.

The Group recognizes its interest in the jointly controlled entities using

the equity method other than those that meet the criteria to be

classified as held for sale. A jointly controlled entity is a joint venture

that involves the establishment of a corporation, partnership or other

entity.

12. Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated

depreciation and accumulated impairment losses, if any. Such cost

includes the cost of dismantling and removing the item and restoring

the site on which it is located and borrowing costs for construction in

progress if the recognition criteria are met. Each part of an item of

property, plant and equipment with a cost that is significant in relation

to the total cost of the item is depreciated separately. When significant

parts of property, plant and equipment are required to be replaced in

intervals, the Group recognized such parts as individual assets with

specific useful lives and depreciation, respectively. The carrying

138

amount of those parts that are replaced is derecognized in accordance

with the derecognition provisions of IAS 16 Property, Plant and

Equipment. When a major inspection is performed, its cost is

recognized in the carrying amount of the plant and equipment as a

replacement if the recognition criteria are satisfied. All other repair and

maintenance costs are recognized in profit or loss as incurred.

Depreciation is calculated on a straight-line basis over the estimated

economic lives of the following assets:

Renting right of buildings

63 years (year of renting right)

Machinery and equipment

3~5 years

Computer equipment

2~5 years

Office equipment

2~5 years

Transportation equipment

4 years

Leasehold improvements

2~8 years

Other equipment

3~5 years

An item of property, plant and equipment and any significant part

initially recognized is derecognized upon disposal or when no future

economic benefits are expected from its use or disposal. Any gain or

loss arising on derecognition of the asset is recognized in profit or

loss.

The assets’ residual values, useful lives and methods of depreciation

are reviewed at each financial year end and adjusted prospectively, if

appropriate.

13. Borrowing costs

Borrowing costs directly arising from obtaining, manufacturing or

producing the qualifying asset shall be capitalized as part of this asset

cost. All other borrowing costs are recognized as expense over the

period of occurrence. Borrowing costs are resulting interests and other

costs related to the capital borrowed.

14. Intangible assets

Intangible assets acquired separately are measured on initial

recognition at cost. The cost of intangible assets acquired in a

business combination is its fair value as at the date of acquisition.

139

Following initial recognition, intangible assets are carried at cost less

any accumulated amortization and accumulated impairment losses, if

any. Internally generated intangible assets, excluding capitalized

development costs, are not capitalized and expenditure is reflected in

profit or loss for the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or

indefinite.

Intangible assets with finite lives are amortized over the useful

economic life and assessed for impairment whenever there is an

indication that the intangible asset may be impaired. The amortization

period and the amortization method for an intangible asset with a finite

useful life is reviewed at least at the end of each financial year.

Changes in the expected useful life or the expected pattern of

consumption of future economic benefits embodied in the asset is

accounted for by changing the amortization period or method, as

appropriate, and are treated as changes in accounting estimates.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are

recognized in profit or loss when the asset is derecognized.

A summary of the policies applied to the Group’s intangible assets is

as follows:

Computer

software cost

Goodwill

Useful lives Finite (2~5

years)

Indefinite

Amortization method

used

Amortized on

a straight-line

basis

－

Internally generated or

acquired

Acquired Acquired

15. Leases

Group as a lessee

Finance leases which transfer to the Group substantially all the risks

and benefits incidental to ownership of the leased item, are capitalized

140

at the commencement of the lease at the fair value of the leased

property or, if lower, at the present value of the minimum lease

payments. Lease payments are apportioned between finance charges

and reduction of the lease liability so as to achieve a constant rate of

interest on the remaining balance of the liability. Finance charges are

recognized in profit or loss.

A leased asset is depreciated over the useful life of the asset. However,

if there is no reasonable certainty that the Group will obtain ownership

by the end of the lease term, the asset is depreciated over the shorter

of the estimated useful life of the asset and the lease term.

Operating lease payments are recognized as an expense on a

straight-line basis over the lease term.

Group as a lessor

Leases in which the Group does not transfer substantially all the risks

and benefits of ownership of the asset are classified as operating

leases. Initial direct costs incurred in negotiating an operating lease

are added to the carrying amount of the leased asset and recognized

over the lease term on the same basis as rental income. Rental

revenue generated from operating lease is recognized over the lease

term using the straight line method. Contingent rents are recognized

as revenue in the period in which they are earned.

16. Impairment of non-financial assets

The Group assesses at the end of each reporting period whether there

is any indication that an asset in the scope of IAS 36 Impairment of

Assets may be impaired. If any such indication exists, or when annual

impairment testing for an asset is required, the Group will carry out the

test in the unit generated by the individual asset or cash attributed to

assets. For the result of impairment test, if the carrying amount of the

unit generated by the asset or cash attributed to assets exceeds its

recoverable amount, the asset is considered impaired. A recoverable

amount is net fair value or value in use, whichever is higher.

For assets excluding goodwill, an assessment is made at each

reporting date as to whether there is any indication that previously

recognized impairment losses may no longer exist or may have

decreased. If such indication exists, the Group estimates the asset’s

or cash-generating unit’s recoverable amount. A previously recognized

impairment loss is reversed only if there has been an increase in the

estimated service potential of an asset which in turn increases the

141

recoverable amount. However, the reversal is limited so that the

carrying amount of the asset does not exceed its recoverable amount,

nor exceed the carrying amount that would have been determined, net

of depreciation, had no impairment loss been recognized for the asset

in prior years.

A cash generating unit, or groups of cash-generating units, to which

goodwill has been allocated is tested for impairment annually at the

same time, irrespective of whether there is any indication of

impairment. If an impairment loss is to be recognized, it is first

allocated to reduce the carrying amount of any goodwill allocated to

the cash generating unit (group of units), then to the other assets of

the unit (group of units) pro rata on the basis of the carrying amount of

each asset in the unit (group of units). Impairment losses relating to

goodwill cannot be reversed in future periods for any reason.

An impairment loss of continuing operations or a reversal of such

impairment loss is recognized in profit or loss.

17. Provisions

Provisions are recognized when the Group has a present obligation

(legal or constructive) as a result of a past event, it is probably that an

outflow of resources embodying economic benefits will be required to

settle the obligation and a reliable estimate can be made of the

amount of the obligation. Where the Group expects some or all of a

provision to be reimbursed, the reimbursement is recognized as a

separate asset but only when the reimbursement is virtually certain. If

the effect of the time value of money is material, provisions are

discounted using a current pre-tax rate that reflects the risks specific

to the liability. Where discounting is used, the increase in the provision

due to the passage of time is recognized as a borrowing cost.

18. Revenue recognition

Revenue is recognized to the extent that it is probable that the

economic benefits will flow to the Group and the revenue can be

reliably measured. Revenue is measured at the fair value of the

consideration received or receivable. The following specific

recognition criteria must also be met before revenue is recognized:

Sale of goods

Revenue from the sale of goods is recognized when all the following

conditions have been satisfied: (a) the significant risks and rewards of

ownership of the goods have passed to the buyer; (b) neither

142

continuing managerial involvement nor effective control over the

goods sold have been retained; (c) the amount of revenue can be

measured reliably; (d) it is probable that the economic benefits

associated with the transaction will flow to the entity; and (e) the costs

incurred in respect of the transaction can be measured reliably.

Interest income

For all financial assets measured at amortized cost (including loans

and receivables and held-to-maturity financial assets) and

available-for-sale financial assets, interest income is recorded using

the effective interest rate method and recognized in profit or loss.

Dividend income

The relevant dividend income is recognized when the Group’s right to

receive the payment is established.

19. Government grants

Government grants are recognized where there is reasonable

assurance that the grant will be received and all attached conditions

will be complied with. Where the grant relates to an asset, it is

recognized as deferred income and released to income in equal

amounts over the expected useful life of the related asset. When the

grant relates to an expense item, it is recognized as income over the

period necessary to match the grant on a systematic basis to the costs

that it is intended to compensate.

Where the Group receives non-monetary grants, the asset and the

grant are recorded gross at nominal amounts and released to the

statement of comprehensive income over the expected useful life and

pattern of consumption of the benefit of the underlying asset by equal

annual installments. Where loans or similar assistance are provided by

governments or related institutions with an interest rate below the

current applicable market rate, the effect of this favorable interest is

regarded as additional government grant.

20. Post-employment benefits

The post-employment benefits of the overseas subsidiaries and the

branches are provided in accordance with the respective local

regulations. Overseas subsidiaries and the branches make

contribution to the plan based on the requirements of local regulations,

which is recognized in current expense.

(1) The contribution basis of the accumulation fund in Singapore

(“CPF” for short by the local people) is as follows:

143

Type Years of

service

Contribution

rate of

company

Contribution

rate of

individual Total Non-Singapore

PR

Can choose whether the

contribution is needed

PR 1 5％ 4％ 9％

2 9％ 15％ 24％

3 16％ 20％ 36％

Citizen No

restriction

16％ 20％ 36％

(2) The contribution basis of employees provident fund (“EPF” for

short by the local people) in Malaysia is as follows:

A. Non- permanent employee: no contribution is allowed.

B. Non-Malaysia citizen: can choose whether the contribution is

needed.

C. Malaysia citizen: 11% of employee contribution, 12% of

company contribution.

(3) The contribution basis of the five social insurance and one

housing fund in Mainland China is as follows:

Participate in the pension plan of the local government according

to local laws and regulations, and contribute a certain percentage

of employee wages (11%) as the pension.

(4) The contribution basis of the pension for employees in the

Republic of China is as follows:

The monthly contribution rate of pension for employees of

subsidiaries and branches in the Republic of China shall be no

less than 6% of employees’ monthly salary.

21. Share-based payment transactions

The cost of equity-settled transactions between the Group and its

employees is recognized based on the fair value of the equity

instruments granted. The fair value of the equity instruments is

determined by using an appropriate pricing model.

The cost of equity-settled transactions is recognized, together with a

corresponding increase in other capital reserves in equity, over the

period in which the performance and/or service conditions are fulfilled.

The cumulative expense recognized for equity settled transactions at

each reporting date until the vesting date reflects the extent to which

144

the vesting period has expired and the Group’s best estimate of the

number of equity instruments that will ultimately vest. The income

statement expense or credit for a period represents the movement in

cumulative expense recognized as at the beginning and end of that

period.

No expense is recognized for awards that do not ultimately vest,

except for equity-settled transactions where vesting is conditional

upon a market or non-vesting condition, which are treated as vesting

irrespective of whether or not the market or non-vesting condition is

satisfied, provided that all other performance and/or service conditions

are satisfied.

Where the terms of an equity-settled transaction award are modified,

the minimum expense recognized is the expense as if the terms had

not been modified, if the original terms of the award are met. An

additional expense is recognized for any modification that increases

the total fair value of the share-based payment transaction, or is

otherwise beneficial to the employee as measured at the date of

modification.

Where an equity-settled award is cancelled, it is treated as if it vested

on the date of cancellation, and any expense not yet recognized for

the award is recognized immediately. This includes any award where

non-vesting conditions within the control of either the entity or the

employee are not met. However, if a new award is substituted for the

cancelled award, and designated as a replacement award on the date

that it is granted, the cancelled and new awards are treated as if they

were a modification of the original award, as described in the previous

paragraph.

The dilutive effect of outstanding options is reflected as additional

share dilution in the computation of diluted earnings per share.

22. Income taxes

Income tax expense (income) is the aggregate amount included in the

determination of profit or loss for the period in respect of current tax

and deferred tax.

Current income tax

Current income tax assets and liabilities for the current and prior

periods are measured at the amount expected to be recovered from or

paid to the taxation authorities, using the tax rates and tax laws that

have been enacted or substantively enacted by the end of the

145

reporting period. Current income tax relating to items recognized in

other comprehensive income or directly in equity is recognized in other

comprehensive income or equity and not in profit or loss.

For subsidiaries in ROC of the Group, the 10% income tax for

undistributed earnings is recognized as income tax expense in the

subsequent year when the distribution proposal is approved by the

Shareholders’ meeting.

Deferred tax

Deferred tax is provided on temporary differences at the reporting date

between the tax bases of assets and liabilities and their carrying

amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary

differences, except:

(1) Where the deferred tax liability arises from the initial recognition of

goodwill or of an asset or liability in a transaction that is not a

business combination and, at the time of the transaction, affects

neither the accounting profit nor taxable profit or loss;

(2) In respect of taxable temporary differences associated with

investments in subsidiaries and associates, where the timing of the

reversal of the temporary differences can be controlled and it is

probable that the temporary differences will not reverse in the

foreseeable future. Deferred tax assets are recognized for all deductible temporary

differences, carry forward of unused tax credits and unused tax losses,

to the extent that it is probable that taxable profit will be available

against which the deductible temporary differences, and the carry

forward of unused tax credits and unused tax losses can be utilized,

except:

(1) Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;

(2) In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that

146

are expected to apply in the year when the asset is realized that are

expected to apply in the year when the asset is realized or the liability

is settled, based on tax rates and tax laws that have been enacted or

substantively enacted at the reporting date. The measurement of

deferred tax assets and deferred tax liabilities reflects the tax

consequences that would follow from the manner in which the Group

expects, at the end of the reporting period, to recover or settle the

carrying amount of its assets and liabilities. Deferred tax relating to

items recognized outside profit or loss is recognized outside profit or

loss. Deferred tax items are recognized in correlation to the underlying

transaction either in other comprehensive income or directly in equity.

Deferred tax assets are reassessed at each reporting date and are

recognized accordingly.

Deferred tax assets and deferred tax liabilities are offset, if a legally

enforceable right exists to set off current income tax assets against

current income tax liabilities and the deferred taxes relate to the same

taxable entity and the same taxation authority.

23. Business combinations and goodwill

Business combinations are accounted for using the acquisition method.

The consideration transferred, the identifiable assets acquired and

liabilities assumed are measured at acquisition date fair value. For

each business combination, the acquirer measures any

non-controlling interest in the acquiree either at fair value or at the

non-controlling interest’s proportionate share of the acquiree’s

identifiable net assets. Acquisition-related costs are accounted for as

expenses in the periods in which the costs are incurred and are

classified under administrative expenses.

When the Group acquires a business, it assesses the assets and

liabilities assumed for appropriate classification and designation in

accordance with the contractual terms, economic circumstances and

pertinent conditions as at the acquisition date. This includes the

separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date

fair value of the acquirer’s previously held equity interest in the

acquiree is remeasured to fair value at the acquisition date through

profit or loss, and resulting gains or losses are recognized as current

incomes.

Any contingent consideration to be transferred by the acquirer will be

147

recognized at the acquisition-date fair value. Subsequent changes to

the fair value of the contingent consideration which is deemed to be an

asset or liability, will be recognized in accordance with IAS 39

Financial Instruments: Recognition and Measurement either in profit or

loss or as a change to other comprehensive income. However, if the

contingent consideration is classified as equity, it shall not be

remeasured until it is finally settled within equity.

Goodwill is initially measured as the amount of the excess of the

aggregate of the consideration transferred and the non-controlling

interest over the net fair value of the identifiable assets acquired and

the liabilities assumed. If this aggregate is lower than the fair value of

the net assets acquired, the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any

accumulated impairment losses. Goodwill acquired in a business

combination is, from the acquisition date, allocated to each of the

Group’s cash-generating units that are expected to benefit from the

combination, irrespective of whether other assets or liabilities of the

acquiree are assigned to those units. Each unit or group of units to

which the goodwill is so allocated represents the lowest level within

the Group at which the goodwill is monitored for internal management

purpose and is not larger than an operating segment before

aggregation.

Where goodwill forms part of a cash-generating unit and part of the

operation within that unit is disposed of, the goodwill associated with the

operation disposed of is included in the carrying amount of the operation.

Goodwill disposed of in this circumstance is measured based on the

relative recoverable amounts of the operation disposed of and the

portion of the cash generating unit retained.

24. Seasonal variation

The operation of the Group is seasonal, as the market has a higher demand for the group’s products in the second half, result in a higher operating income in the second half compared with the one in the first half.

(v) Significant accounting judgments, estimates and assumptions

The preparation of the Group’s consolidated financial statements require

management to make judgments, estimates and assumptions that affect

the reported amounts of revenues, expenses, assets and liabilities, and

the disclosure of contingent liabilities, at the end of the reporting period.

148

However, uncertainty about these assumption and estimate could result

in outcomes that require a material adjustment to the carrying amount of

the asset or liability affected in future periods.

Estimates and assumptions

The key assumptions concerning the future and other key sources of

estimation uncertainty at the reporting date, that have a significant risk of

causing a material adjustment to the carrying amounts of assets and

liabilities within the next financial year are discussed below.

(1) Fair value of financial instruments

Where the fair value of financial assets and financial liabilities

recorded in the balance sheet cannot be derived from active

markets, they are determined using valuation techniques including

the income approach (for example the discounted cash flows model)

or market approach. Changes in assumptions about these factors

could affect the reported fair value of the financial instruments.

Please refer to Note (vi) for details.

(2) Impairment of non-financial assets

An impairment exists when the carrying value of an asset or cash

generating unit exceeds its recoverable amount, which is the higher

of its fair value less costs to sell and its value in use. The fair value

less costs to sell calculation is based on available data from binding

sales transactions in an arm’s length transaction of similar assets or

observable market prices less incremental costs that would be

directly attributable to the disposal of the asset. The value in use

calculation is based on a discounted cash flow model. The cash

flows projections are derived from the budget for the next five years

and do not include restructuring activities that the Group is not yet

committed to or significant future investments that will enhance the

asset’s performance of the cash generating unit being tested. The

recoverable amount is most sensitive to the discount rate used for

the discounted cash flow model as well as the expected future

cash-inflows, to determine the main assumption on different

cash-generating unit’s recoverable amount, including sensitivity

analysis. Please refer to Note (vi) for details.

(3) Income tax

Uncertainties exist with respect to the interpretation of complex tax

regulations and the amount and timing of future taxable income.

Given the wide range of international business relationships and the

149

long-term nature and complexity of existing contractual agreements,

differences arising between the actual results and the assumptions

made, or future changes to such assumptions, could necessitate

future adjustments to tax income and expense already recorded.

The Group establishes provisions, based on reasonable estimates,

for possible consequences of audits by the tax authorities of the

respective counties in which it operates. The amount of such

provisions is based on various factors, such as experience of

previous tax audits and differing interpretations of tax regulations by

the taxable entity and the responsible tax authority. Such differences

of interpretation may arise on a wide variety of issues depending on

the conditions prevailing in the respective Group company's

domicile.

Deferred tax assets are recognized for all carry forward of unused

tax losses, unused tax credits and deductible temporary differences

to the extent that it is probable that future taxable profit will be

available or there are sufficient taxable temporary differences

against which the unused tax losses, unused tax credits or

deductible temporary differences can be utilized. The amount of

deferred tax assets determined to be recognized is based upon the

likely timing and the level of future taxable profits and taxable

temporary differences together with future tax planning strategies.

Please refer to Note (vi) for more details on unrecognized deferred

tax assets as of December 31, 2013.

(vi) Contents of significant accounts

1. Cash and cash equivalents

Item 12/31/2013 12/31/2012 01/01/2012

Cash on hand $1,308 $1,717 $602

Demand deposit 229,925 414,764 284,988

Total $231,233 $416,481 $285,590

2. Financial assets measured by fair value through profit or loss – current

(1) Details are as follows:

Item 12/31/2013 12/31/2012 01/01/2012

Held for trading:

Stock $56,496 $68,000 $46,030

(2) Financial assets held for trading of the Group were not pledged.

150

3. Investment in debt security with no active market – current


Item 12/31/2013 12/31/2012 01/01/2012

Fixed deposit $11,535 $2,562 $8,337

(2) Partial investments in debt security with no active market of Group

were pledged. Please refer to Note (viii) for details.

4. Notes receivable and notes receivable-related parties

A. Details are as follows:

Item 12/31/2013 12/31/2012 01/01/2012

Notes receivable

arising from operating

activities －－ $4,250

Notes receivable

arising from

non-operating activities －－ 31,000

Notes

receivable-related

parties － $12,628 －

Less: allowance for

doubtful debts －－－

Total － $12,628 $35,250

B. Notes receivable of the Group were not pledged.

5. Accounts receivable and accounts receivable-related parties


Item 12/31/2013 12/31/2012 01/01/2012

Accounts receivable $26,010 $7,605 $2,946

Less: allowance for

doubtful debts (1,624) －－

Subtotal 24,386 7,605 2,946

Item 102.12.31 101.12.31 101.1.1

Accounts

receivable-related

parties 35,981 9,548 20,701

Less: allowance for

doubtful debts (2,498) (469) (2,675)

151

Subtotal 33,483 9,079 18,026

Total $57,869 $16,684 $20,972

(2) Accounts receivable of the Group were not pledged.

(3) Accounts receivable are generally on 60-120 day terms. The

movements in the provision for impairment of accounts receivable

and accounts receivable-related parties and their aging analysis are

as follows: (please refer to Note (xii) for the disclosure of credit risk)

Individually

impaired

Collectively

impaired

Total

01/01/2013 － $469 $469

Charge for the current

period

－ 3,607 3,607

Write off －－－

Effect of exchange

rate changes

－ 46 46

12/31/2013 － $4,122 $4,122

01/01/2012 － $2,675 $2,675

Charge (reversal) for

the current period

－ (2,206) (2,206)

Write off －－－

Effect of exchange

rate changes

－－－

12/31/2012 － $469 $469

The Group did not have any individually impaired loss of accounts

receivable as at December 31, 2013 and 2012.

(4) The aging analysis of net accounts receivable is as follows:

Period

Neither past

due nor

impaired

Past due but not impaired

60-75 days 75-80 days Total

12/31/2013 $17,889 － $6,497 $24,386

12/31/2012 $7,605 －－ $7,605

01/01/2012 $2,946 －－ $2,946

(5) The aging analysis of net accounts receivable-related parties is as

follows:

Period

Neither past

due nor

impaired

Past due but not impaired

60-75 days 75-80 days Total

152

12/31/2013 $23,491 － $9,992 $33,483

12/31/2012 $6,012 $2,140 $927 $9,079

01/01/2012 $5,868 $2,622 $9,536 $18,026

6. Net inventory


Item 12/31/2013 12/31/2012 01/01/2012

Commodity $30,613 $29,291 $23,540

Less: allowance for

inventory valuation

losses －－－

Net $30,613 $29,291 $23,540

(2) The inventory cost recognized as expense is NT$388.969 million and

NT$240.679 million in 2013 and 2012 respectively.

(3) Inventories of the Group were not pledged.

7. Investments accounted for using the equity method

(1) The following table lists the investments accounted for using the

equity method of the Group: 12/31/2013 12/31/2012 01/01/2012

Investee Amount

Ratio of

shareho

lding

Amou

nt

Ratio of

shareho

lding Amount

Ratio of

shareho

lding

Investments in

associates:

Xingrui Biotechnology

Co. Ltd.

$53,374 37.93％－－－－

(2) Investments in associates:

(a) The profit or loss of an associate recognized by using the equity

method is as follows: (based on the financial statements audited by

other independent accountants of such investee)

Investee 2013 2012

Xingrui Biotechnology

Co. Ltd.

$6,577 －

(b) The Group invested Xingrui Biotechnology Co. Ltd. which mainly

engages in the skin care service and cosmetics wholesale in 2013 with

the original investment amount of NT$44 million and acquired 44%

equity of the company. The Group has no control of Xingrui

153

Biotechnology Co. Ltd., therefore the profit or loss of the company is

not included in the consolidated financial statements.

(c) The aforementioned investment in associate was not pledged.

(d) The following table illustrates summarized financial information of

the Group’s investment in associate: 12/31/2013 12/31/2012 01/01/2012

Total assets (100％) $127,525 －－

Total liabilities (100％) $25,643 －－

2013 2012

Revenue (100%) $59,661 －

Profit (loss) (100%) $16,952 －

8. Property, plant and equipment

Land Buildings

Machinery

and

equipmen

t

Computer

equipmen

t

Transpo

rtation

equipme

nt

Office

equipme

nt

Leasehold

improvemen

ts

Other

equipme

nt

Constructio

n in

progress

Total

Cost:

01/01/20

13 - $83,414 $6,213 $19,676 $1,156 $1,263 $70,096 $4,012 $30,236 $216,066

Additions $90,633 - 5,985 1,554 - 1,761 25,453 4,146 20,773 150,305

Disposal

s - - - (135) - - - - - (135)

Effect of

exchang

e rate

changes - 1,170 255 (124) 68 (600) (187) 75 1,776 2,433

Other

changes - (27,597) - - - - 55,070 - (27,473) -

12/31/201

3 $90,633 $56,987 $12,453 $20,971 $1,224 $2,424 $150,432 $8,233 $25,312 $368,669

01/01/20

12 - $56,644 $1,402 $19,275 $1,191 $1,078 $63,094 $2,906 $10,056 $155,646

Additions - 25,591 4,848 140 - 162 5,661 1,182 20,474 58,058

Disposal

s - - - (14) - - - - - (14)

Effect of

exchang

e rate - 1,179 (37) 364 (35) 23 1,341 (76) (294) 2,465

154

Land Buildings

Machinery

and

equipmen

t

Computer

equipmen

t

Transpo

rtation

equipme

nt

Office

equipme

nt

Leasehold

improvemen

ts

Other

equipme

nt

Constructio

n in

progress

Total

changes

Other

changes - - - (89) - - - - - (89)

12/31/20

12 - $83,414 $6,213 $19,676 $1,156 $1,263 $70,096 $4,012 $30,236 $216,066

Depreciat

ion and

impairme

nt

01/01/20

13 - $6,486 $819 $19,098 $313 $1,127 $61,786 $907 - $90,536

Depreciat

ion - 911 2,042 401 297 232 13,838 1,415 - 19,136

Impairme

nt loss - - - - - - - - - -

Disposal

s - - - (93) - - - - - (93)

Effect of

exchang

e rate

changes - 81 23 (122) 27 (8) (35) (46) - (80)

Other

changes - (2,045) - - - - 2,045 - - -

12/31/20

13 - $5,433 $2,884 $19,284 $637 $1,351 $77,634 $2,276 - $109,499

01/01/20

12 - $3,567 $55 $18,477 $25 $874 $53,181 $101 - $76,280

Depreciat

ion - 2,841 761 358 290 233 7,434 774 - 12,691

Impairme

nt loss - - - - - - - - - -

Disposal

s - - - (1) - - - - - (1)

Effect of

exchang - 78 3 353 (2) 20 1,171 32 - 1,655

155

Land Buildings

Machinery

and

equipmen

t

Computer

equipmen

t

Transpo

rtation

equipme

nt

Office

equipme

nt

Leasehold

improvemen

ts

Other

equipme

nt

Constructio

n in

progress

Total

e rate

changes

Other

changes - - - (89) - - - - - (89)

12/31/201

2 - $6,486 $819 $19,098 $313 $1,127 $61,786 $907 - $90,536

Net

carrying

amount:

12/31/201

3 $90,633 $51,554 $9,569 $1,687 $587 $1,073 $72,798 $5,957 $25,312 $259,170

12/31/201

2 - $76,928 $5,394 $578 $843 $136 $8,310 $3,105 $30,236 $125,530

01/01/20

12 - $53,077 $1,347 $798 $1,166 $204 $9,913 $2,805 $10,056 $79,366

(1) Capitalized borrowing costs and their interests of property, plant and

equipment are as follows:

Item 2013 2012 Construction in progress $1,133 －

Capitalization rate of borrowing costs

2.5％－

(2) Please refer to Note (viii) for more details on property, plant and

equipment under pledge.

(3) The Company and its subsidiary - Ma Kuang International

Development Pte. Ltd. purchased the land at NT$89.99 million on

November 20, 2012 after approved by the Board of Directors, and

obtained the ownership of this land on January 15, 2013; this land is

located in Land No. 409, 410, 730, 744, 745, Xinren Section,

Donggang Township, Pingtung County. NT$32.99 million has been

paid for the purchase as of December 31, 2012 and recorded in the

non-current assets - prepayments for equipment.

9. Intangible assets

(1) Details are as

follows:

Computer

software cost Goodwill Total

156

Cost:

01/01/2013 $6,047 $28,770 $34,817

Addition-acquired

separately 1,254 －

1,254

Exchange

differences 48 1,010

1,058

12/31/2013 $7,349 $29,780 $37,129

01/01/2012 $4,953 $28,770 $33,723

Addition-acquired

separately 900 －

900

Reclassification of

fixed assets 89 －

89

Exchange

differences 105 －

105

12/31/2012 $6,047 $28,770 $34,817

Amortisation and

impairment:

01/01/2013 $2,944 － $2,944

Amortisation 868 － 868

Exchange

differences (2) －

(2)

12/31/2013 $3,810 － $3,810

01/01/2012 $2,113 － $2,113

Amortisation 755 － 755

Reclassification of

fixed assets 89 － 89

Exchange

differences (13) － (13)

12/31/2012 $2,944 － $2,944

Net carrying

amount:

12/31/2013 $3,539 $29,780 $33,319

12/31/2012 $3,103 $28,770 $31,873

01/01/2012 $2,840 $28,770 $31,610

(2) Amortization expense of intangible assets under the statement of

comprehensive income:

157

2013 2012

Operating cost $644 $88 Operating expense 224 667 Total $868 $755

10. Impairment test of goodwill and intangible assets with indefinite useful

lives

The goodwill of the Group is allocated to each cash-generating unit or

cash-generating unit group expected to benefit from the synergies of

the combination, and the important assumptions of the impairment test

are as follows:

The recoverable amount of the cash-generating unit has been

determined based on the value in use, which is calculated by using the

cash flow projection based on the financial budget of five years

approved by the management at the pre-tax discount rate; and the

cash flow projection has reflected the changes in demand for related

products. Based on this analysis at the end of the year, the Group

considers that the goodwill of NT$29.78 million remains unimpaired.

Key assumptions used to calculate the value in use

The value in use of the cash-generating unit is most sensitive to the

following assumptions:

(1) Gross margin

(2) Discount rate

(3) Revenue growth during the budget extrapolating

Gross margin – the gross margin is evaluated based on the gross

margin of the current fiscal year during the financial budget and by

taking the future market trend into consideration.

Discount rate – the discount rate represents the current market’s

evaluation on the risks specific to each cash-generating unit (individual

risk on the time value of the currency and related assets not included

in the evaluation of the cash flow). The calculation of the discount rate

is derived from its weighted average cost of capital (WACC) based on

the specific situation of the Group’s operating segment. The liabilities

and equity are also taken into consideration by WACC. The cost of the

equity is derived from the expected return on the investment by the

Group’s investors, and the cost of the liability is based on

interest-bearing loans that the Group is obligated to repay.

Revenue growth estimate – the growth rate is evaluated based on the

158

historical experience, and the long-term average growth rate

estimated by the Group has been adjusted by taking the speed of

product innovation and overall economic condition into consideration.

Sensitivity of assumption change

For the evaluation on the value in use of the cash-generating unit, the

Group believes that the aforementioned key assumptions do not have

possible changes to the extent that the carrying amount of this unit

exceeds its recoverable amount significantly.

11. Short-term and long-term loans

(1) The details of short-term loans are as follows:

Interest rates 12/31/2013 12/31/2012 01/01/2012Unsecured bank loans

－－ $12,154 －

Secured bank loans

2.54％~3.10％$74,925 －－

Total $74,925 $12,154 －

The unsecured bank loans are bank overdrafts that can be repaid at

any time.

(2) The details of long-term loans are as follows:

Nature Lender

s 12/31/2013

12/31/2012

01/01/201

2 Maturity date and terms of repayment

Bank

credit

loan

OCBC

Bank

－ $1,296 $3,288 The monthly repayment of principal and

interest is SGD 6,908.79 from September

1, 2009, and they are repaid in 48

repayments. They have been repaid on

March 11, 2013.

Compa

ny credit

loan

ORIX

Leasing

Limited

－ 9,546 20,472 The monthly repayment of principal and

interest is SGD 44,512.92 from October 4,

2011, and they are repaid in 24


March 1, 2013.

〃 ORIX

Leasing

Limited

－ 9,037 － The monthly repayment of principal and

interest is SGD 29,172.32 from August 15,



March 6, 2013.

159

Secured

bank

loan

OCBC

Bank

－－ 38,884 The monthly repayment of principal and

interest is SGD 10,412.51 from January 2,


repayments; the monthly repayment of

principal and interest is adjusted to SGD

11,148.28 from January 4, 2010. The loan

has been provided by DBS Bank on

January 31, 2012 instead.

〃 Shangh

ai

Commer

cial

Bank

－ 16,389 39,756 The quarterly repayment of principal is

USD 187,500 from October 3, 2011, and it

is repaid in 8 repayments; the interest is

repaid monthly. It has been paid off on

February 1, 2013.

〃 Shin

Kong

Commer

cial

Bank

－ 23,606 36,348 The quarterly repayment of principal and

interest is about USD 100,000 from

January 11, 2012, and they are repaid in

12 repayments. They have been repaid on

January 31, 2013.

〃 Jih Sun

Internati

onal

Bank

－ 19,424 30,290 The quarterly repayment of principal and

interest is USD 83,333 from January 17,



January 31, 2013.

〃 DBS

Bank

－ 38,449 － The monthly repayment of principal and

interest is SGD 8,203 from March 1, 2012,

and they are repaid in 240 repayments;

the monthly repayment of principal and

interest is adjusted to SGD 8,677 from

September 1, 2012. They have been

repaid on March 1, 2013.

〃 E.Sun

Bank

$49,450 －－ The monthly repayment of interest is NTD

103,000 from January 28, 2013, and the

principal will be repaid upon maturity on

January 28, 2015.

160

〃

Shangh

ai

Commer

cial

Bank

44,925

－－ The quarterly repayment of principal is

USD 150,000 from June 13, 2013, and it is

repaid in 12 repayments; the interest is

repaid monthly.

Subtotal 94,375 117,747 169,038

Less:current

portion (17,970) (57,882) (65,438)

Total $76,405 $59,865 $103,600

Interest rates 2.41％~2.50％ 2.28％~7.00％ 2.41％~7.00％

(3) Partial lands and buildings are taken as the guarantee for the secured

bank loan, and please refer to Note (viii) for the guarantee.

12. Equity

(1) Common shares

A. As of December 31, 2013 & 2012 and January 1, 2012, the

authorized common share was NT$1 billion at par value of 10 NT$10

per share with 100 million shares.

B. Based on a resolution at the board meeting held on March 27, 2012

and the general shareholder’s meeting held on June 26, 2012, the

Company increased its capital by transferring retained earnings

amounting to NT$25 million, and set September 11, 2012 as the

ex-rights date. The newly issued shares totaled 2.5 million shares at

par value of NT$10 per share. The registration procedure related to

this issuance has been completed.

C. Based on a resolution at the board meeting held on March 26, 2013

and the general shareholder’s meeting held on June 20, 2013, the

Company increased its capital by transferring retained earnings

amounting to NT$35 million, declared stock dividend amounting to

NT$22.5 million with the capital surplus, and set July 17, 2013 as the

ex-rights date. The newly issued shares totaled 5.75 million shares at

par value of NT$10 per share. The registration procedure related to

this issuance has been completed.

D. As of December 31, 2013 & 2012 and January 1, 2012, the capital

stock issued by the Company was NT$282.5 million, NT$225 million

and NT$165 million respectively at par value of NT$10 per share with

28.25 million, 22.5 million and 16.5 million shares respectively. Each

161

share has one vote and the right to receive the dividend.

(2) Capital surplus

Item 12/31/2013 12/31/2012 01/01/2012

Common stock premium $263,635 $286,135 $83,135

Difference between charge from acquisition

and disposal of subsidiaries' equity and

carrying value 11,806 －－

Changes in net of associates recognized by

using equity method 2,796 －－

Total $278,237 $286,135 $83,135

Under the Company Law, the capital surplus may only be used to

offset a deficit. In case of no losses, the capital surplus, generated

from shares issuance in excess of par value, may be transferred to

capital as stock dividends within a certain amount once a year. The

aforementioned capital surplus also may be distributed in cash

according to the original shareholding of shareholders.

(3) Appropriation of earnings and dividend policy

A. The Articles of Association of the Company provide that the legal

reserve shall be set aside from the annual net income less any

accumulated deficit. The remainder, less special reserve, together

with accumulated earnings of prior years, shall be distributed as

follows:

a. Remuneration to directors and supervisors: no more than 5%.

b. Bonus to employees: 1%~10%.

c. The remainder is dividend to shareholders.

B. Following the adoption of IFRSs, the Company on April 6, 2012

issued Order No. Jin-Guan-Zheng-Fa-1010012865, which sets out

the following provisions for compliance: on a public company's

first-time adoption of the IFRSs, for any unrealized revaluation

gains and cumulative translation adjustments (gains) recorded to

shareholders’ equity that the company elects to transfer to retained

earnings by application of the exemption under IFRS 1 First-time

Adoption of International Financial Reporting Standards, the

company shall set aside an equal amount of special reserve.

Following a company’s adoption of the IFRS for the preparation of

its financial reports, when distributing distributable earnings, if the

company has already set aside special reserve according to the

requirements in the preceding point, it shall set aside supplemental

162

special reserve based on the difference between the amount

already set aside and other net deductions from shareholders’

equity. For any subsequent reversal of other net deductions from

shareholders’ equity, the amount reversed may be distributed.

C. As of January 1, 2013, special reserve set aside for the first-time

adoption of IFRSs amounted to NT$618,000. Furthermore, the

Company did not reverse special reserve to retained earnings

during the year ended December 31, 2013 as a result of the use,

disposal or reclassification of related assets. As of December 31,

2013, special reserve set aside for the first-time adoption of IFRSs

amounted to NT$618,000. D. The Company estimated the amounts of the employee bonuses

and remuneration to directors and supervisors for the years ended December 31, 2013 and 2012 to be NT$284,000 and NT$1.868 million, respectively. Its estimation is based on the percentage specified in the Articles by taking the current net profit after tax and legal reserve, etc. into consideration. The estimated employee bonuses and remuneration to directors and supervisors are recognized as operating costs or operating expense for the period. If the board modified the estimates significantly in the subsequent periods, the Company will recognize the change as an adjustment to current income. The difference between the estimates and the resolution of shareholders’ meeting will be recognized in profit or loss of the subsequent year. The number of shares distributed is determined by dividing the amount of bonuses by the closing price (after considering the effect of dividends) of shares on the day preceding the shareholders’ meeting.

E. The surplus appropriation and distribution as well as dividend per share for 2013 and 2012 were proposed and approved through the board meeting and shareholders’ meeting held on March 25, 2014 and June 20, 2013, respectively. The details are as follows:

Surplus appropriation and

distribution Dividend per share

(NT$) 2013 2012 2013 2012

Legal reserve －－－－ Special reserve －－－－ Common stock dividend $4,520 $35,000 － $0.155Remuneration to directors and supervisors 234 1,440 －－ Employee bonus-cash 50 428 －－ Total $4,804 $36,868 The board meeting held on March 25, 2014 proposed that the stock dividend distributed through the capital surplus is NT$28.25 million.

163

The actual employee bonuses distributed through earnings and remuneration to directors and supervisors in 2012 were not materially different from the amount recorded through the expense in the financial statement of 2012. The information about employees’ bonuses and remuneration to directors and supervisors which were resolved by the board meeting and shareholders’ meeting is available at the Market Observation Post System website.

(4) Non-controlling interests Item 2013 2012

Beginning balance $74,503 $96,028 Gain/loss attributable to NCIs (52,871) (19,279)Other comprehensive income attributable to NCIs:

Exchange differences resulting from translating the financial statements of a foreign operation

3,208

(2,246)

Difference between charge from acquisition and disposal of subsidiaries' equity and carrying value

41,452

－

Ending balance $66,292 $74,503

13. Operating revenue 2013 2012 Outpatient revenue $295,575 $258,220Sales of Chinese

medicinal materials 70,735 38,094Sales of healthcare

products 10,852 3,214Service revenue 29,814 42,162Commission revenue 2,755 11,406Others 6,784 2,329Total 416,515 355,425Less: sales returns,

discounts and allowances (863) (325)Net sales $415,652 $355,100

14. Operating leases

1. Group as lessee

The Group has entered into commercial leases on clinics, and there

are no restrictions placed upon the Group by entering into these

leases.

Future minimum rentals payable as at December 31 2013, December

164

31, 2012, and January 1, 2012 are as follows: 12/31/2013 12/31/2012 01/01/2012

Not later than one year $91,460 $93,338 $52,519

Later than one year

and not later than five

years 240,288 244,154 163,465

Later than five years 81,835 118,841 106,806

Total $413,583 $456,333 $322,790

Cost and expense recognized for operating leases are as follows:

2013 2012

Minimum rentals payable $111,678 $74,362

2. Group as lessor

The Group has entered into commercial property leases with

remaining terms of between one and two years. All leases have

restrictions.

Future minimum rentals payable under non-cancellable operating

leases as at December 31 2013, December 31, 2012, and January

1, 2012 are as follows:

12/31/2013 12/31/2012 01/01/2012

Not later than one year 4,684 4,451 2,379

Later than one year

and not later than five

years 2,482 2,429 3,153

Later than five years －－－

Total 7,166 6,880 5,532

The contingent rent recognized as income is NT$6.65 million and

NT$4.76 million in 2013 and 2012 respectively.

15. Summary statement of employee benefits, depreciation and

amortization expenses by function:

Function

Nature

2013 2012

Operating

costs

Operating

expenses Total

Operating

costs

Operating

expenses Total

Employee benefits

165

expense

Salaries $126,905 $27,466 $154,371 $100,692 $30,866 $131,558

Labor and health

insurance － $2,786 $2,786 － $264 $264

Pension $13,509 $2,397 $15,906 $10,659 $2,335 $12,994

Other employee

benefits expense $2,826 $8,629 $11,455 $1,860 $4,815 $6,675

Depreciation $12,432 $6,704 $19,136 $8,183 $4,508 $12,691

Amortization $644 $224 $868 $88 $667 $755

16. Non-operating income and expenses

(1) Other income 2013 2012

Interest income $549 $1,134

Dividend income 1,697 －

Rental income 6,650 4,760

Other incomes – others 5,631 3,214

Total $14,527 $9,108

(2) Other gains and losses 2013 2012

Gains (losses) on disposal of fixed assets ($20) $1

Gains (losses) on disposal of investment 3,989 4,952

Gains (losses) on foreign exchange (4,023) 7,073

Gains (losses) on financial assets at fair

value through profit or loss

7,892

(5,132)

Other losses – others (27) －

Total $7,811 $6,894

(3) Financial cost 2013 2012

Interest on borrowings

from bank ($2,803) ($5,260)

17. Components of other comprehensive income

Components of other comprehensive income for the year ended

December 31, 2013:

Arising during the

period

Reclassification

adjustments during the

period

Other

comprehens

ive income

Income tax

expense Net of tax

166

Arising during the

period

Reclassification


period

Other

comprehens

ive income

Income tax

expense Net of tax

Exchange

differences resulting

from translating the

financial statements

of a foreign

operation $11,425 － $11,425

－ $11,425

Components of other comprehensive income for the year ended December 31,

2012:

Arising during the

period

Reclassification


period

Other

comprehens

ive income

Income tax

expense Net of tax

Exchange

differences resulting

from translating the

financial statements

of a foreign

operation ($2,522) － ($2,522) － ($2,522)

18. Income tax

(1) The major components of income tax expense (income) for the year ended

December 31, 2013 and 2012 are as follows:

Income tax expense (income) recognized in profit or loss

2013 2012 Current income tax expense (income):

Current income tax charge $6,374 $13,872Adjustments in respect of current

income tax of prior periods (2,332) (1,349)

Others 20 (43)Deferred tax expense (income):

Deferred tax expense (income) relating to origination and reversal of temporary differences

(230) (237)

Income tax expense $3,832 $12,243

167

(2) A reconciliation between tax expense and the product of accounting profit

multiplied by applicable tax rates is as follows:

2013 2012

Accounting profit (loss) before tax from continuing operations

($44,307) $27,894

Tax at the domestic rates applicable to profits in the country concerned

$6,144 $13,635

Adjustments in respect of current income tax of prior periods

(2,332) (1,349)

Others 20 (43)

Total income tax expense (income) recognized in profit or loss

$3,832 $12,243

(3) Deferred tax assets (liabilities) relate to the following:

2013

Beginning balance as

at January 1, 2013

Deferred tax

income (expense) recognized in profit

or loss

Deferred tax income (expense) recognized

in other comprehensive income

Exchange difference

s

Ending balance

as at December 31, 2013

Temporary differences Depreciation tax differences

Depreciation of property, plant and equipment

($825) $167 － $98 ($560)

Unrealized profit and loss on exchange

－ (339) －－ (339)

Loss from doubtful accounts

－ 402 －－ 402

Deferred tax (expense) / income

$230 － $98

Net deferred tax assets / (liabilities)

($825) ($497)

Reflected in balance sheet as follows:

Deferred income tax assets － $402

Deferred income tax liabilities ($825) ($899)

2012

168

Beginning balance as

at January 1, 2013

Deferred tax

income (expense) recognized in profit

or loss

Deferred tax income (expense) recognized

in other comprehensive income

Exchange difference

s

Ending balance

as at December 31, 2013

Temporary differences Depreciation tax differences

Depreciation of property, plant and equipment

($1,041) $237 － ($21) ($825)

Deferred tax (expense) / income

$237 － ($21)

Net deferred tax assets / (liabilities)

($1,041) ($825)

Reflected in balance sheet as follows:

Deferred income tax assets －－

Deferred income tax liabilities ($1,041) ($825)

(4) Assessment of income tax returns

As of December 31, 2013, the domestic and foreign subsidiaries of

the Group has completed the declaration on schedule according to

tax laws of each country, and the income tax declaration of the

Taiwan branch of Singapore Ma Kuang Business Management

Consulting Co. Ltd. was approved until 2011.

19. Earnings per share

Basic earnings per share amounts are calculated by dividing net profit

for the year attributable to ordinary equity holders of the parent entity by

the weighted average number of ordinary shares outstanding during the

year.

Diluted earnings per share amounts are calculated by dividing the net

profit attributable to ordinary equity holders of the parent entity by the

weighted average number of ordinary shares outstanding during the

year plus the weighted average number of ordinary shares that would

be issued on conversion of all the dilutive potential ordinary shares into

ordinary shares.

Calculation of basic and diluted earnings per share: 2013 2012 (1) Basic earnings per share

Net profit attributable to ordinary equity holders of $4,732 $34,930

169

the parent company (in thousand NTD) Weighted average number of ordinary shares outstanding for basic earnings per share (in thousands) 28,250 27,261

Basic earnings per share (NTD) $0.17 $1.28

2013 2012

(2) Diluted earnings per share Loss attributable to ordinary equity holders of the parent company (in thousand NTD)

$4,732 $34,930

Net profit attributable to ordinary equity holders of the parent company after dilution (in thousand NTD)

$4,732 $34,930

2013 2012

Weighted average number of ordinary shares outstanding for basic earnings per share (in thousands) 28,250 27,261

Dilution effect:

Employee bonus-share (in thousands) 14 18

Weighted average number of ordinary shares outstanding after dilution (in thousands) 28,264 27,279

Diluted earnings per share (NTD) $0.17 $1.28

20. Changes in parent’s interest in subsidiaries

Acquisition of new shares in a subsidiary not in proportionate to

ownership interest

Tianjin Pharmaceutical Group Ma Kuang Medical Investment

Management Co., Ltd. issued a new share through capitalization on

January 18, 2013, but the Group did not subscribe it, therefore its

voting share is reduced to 51.3%. The cash acquired by the Group is

NT$53.258 million, and the non-controlling interests are increased to

NT$41.452 million. The difference between the cash acquired and

non-controlling interests added is NT$11.806 million, which has been

recognized in the equity.

21. Post-employment benefits

Defined contribution plan

The domestic subsidiaries and branch branches of the Group

shall make the pension plan, which belongs to the defined contribution

plan, according to the Labor Pension Act. According to this Act, the

170

Group will make a monthly contribution of no less than 6% of the

monthly wages of the employees. The Group has contributed the

amount equaling to 6% of employees’ wages to the individual

retirement account of Bureau of Labor Insurance every month

according to the pension plan stipulated in this Act.

The foreign subsidiaries of the Group shall make the pension plan,

which belongs to the defined contribution plan, based on the

requirements of local regulations. Please see Note(iv)20 for details.

The cost recognized as the contribution plan expense is NT$

15.906 million and NT$ 12.994 million in 2013 and 2012 respectively.

(vii) Related party transactions

Significant related party transactions:

(1) Operating revenue 2013 2012

Other related

parties $55,853 $35,406

The sales price to the related parties was determined through

mutual agreement based on the market conditions; the outstanding

amount at the end of the quarter is unsecured, interest-free and

must be settled in cash. The accounts receivable of related parties

were not guaranteed.

(2) Purchase 2013 2012

Other related parties $3,454 －

The purchase price from related parties was determined through

mutual agreement based on reference market conditions of both

parties; there are no significant differences between payment terms

to related parties and those to general suppliers.

(3)Notes

receivable-related

parties 12/31/2013 12/31/2012 01/01/2012

Other related parties － $12,628 －

Less: allowance for

doubtful debts －－－

Net － $12,628 －

171

(4)Accounts

receivable-related

parties 12/31/2013 12/31/2012 01/01/2012

Other related parties $35,981 $9,548 $20,701

Less: allowance for

doubtful debts (2,498) (469) (2,675)

Net $33,483 $9,079 $18,026

(5)Other

receivables-related

parties 12/31/2013 12/31/2012 01/01/2012

Other related parties － $14,313 －

(6) Compensation of key

management personnel 2013

2012

Short-term

employee benefits $4,583 $4,636

Post-employment

benefits 267 258

Total $4,850 $4,894

(7) As of December 31, 2013, the Group has paid a performance bond

of NT$120 million (recorded in the “Other non-current assets -

deposits-out”) due to contracting of other related parties’ purchasing

and service business, to acquire the merchandise purchase and

procurement of medicine materials and medical consumables; other

related parties guarantee that the total purchase amount will be no

less than the agreed total price in the contract period (June 1, 2013

to May 31, 2018), otherwise, the Group will demand immediate

return of the performance bond. As of December 31, 2013, this bond

has acquired the promissory note of NT$120 million signed by other

related parties as collateral.

(8) As of December 31, 2013, part of the main management has

become the joint guarantor for loans from financial institutions.

172

(viii) Assets pledged as collateral

The following table lists assets of the Group pledged as collateral:

Carrying amounts Contents

of

secured

debt Item 12/31/2013 12/31/2012 01/01/2012 Investment in debt security

with no active market –

current

$8,985 $2,562 $2,504

Short-ter

m loansProperty, plant and

equipment

Land

70,140 －－

Long-ter

m loans

Buildings

－ 76,928 53,077

Long-ter

m loans

Other non-current assets -

deposit in bank

6,159 17,721 12,117

Long-ter

m loans

Total $85,284 $97,211 $67,698

(ix) Commitments and contingencies

1. The subsidiaries of the Company signed the supply agreement with

medicine supplies with the total price (including tax) of NT$20 million,

to obtain the same medicine at more favorable prices than the peers

and issue the guaranteed note for the advance payment. As of

December 31, 2013, the amount of instrument that has not yet cashed

is NT$18.367 million.

2. The total price arising from building construction and construction

contracts for buildings is NT$70 million, which has not been paid as of

December 31, 2013. 3. The disposal of the property was approved through resolution by the

board meeting of the Company's subsidiary and the transaction

amount is SGD 3.5 million (about NT$82.866 million), but the

transactions details have not yet determined.

173

(x) Significant disaster loss

None.

(xi) Significant subsequent events

The agreement on disposal of investments accounted for using the

equity method was signed on January 25, 2014 by the subsidiary of the

Company at NT$52.8 million.

(xii) Other

1. Categories of financial instruments

Financial assets 12/31/2013 12/31/2012 01/01/2012

Financial assets at fair value through

profit or loss:

Held for trading $56,496 $68,000 $46,030

Loans and receivables:

Cash and cash equivalents

(excludes cash on hand)

$229,925 $414,764

$284,988

Investment in debt security with no

active market – current

11,535 2,562

8,337

Accounts receivable and other

accounts receivable 66,965 54,779 65,506

Other non-current assets -

deposits-out

143,253 19,205 15,633

Other non-current assets - deposit

in bank

6,159 17,721 12,117

Subtotal 457,837 509,031 386,581

Total $514,333 $577,031 $432,611

Financial liabilities 102.12.31 101.12.31 101.1.1

Financial liabilities at amortized cost:

Short-term loan $74,925 $12,154 －

Accounts payable and other accounts

payable

75,392 63,231

$33,936

Long-term loan (includes the current

portions)

94,375 117,747

169,038

174

Financial liabilities 102.12.31 101.12.31 101.1.1

Total $244,692 $193,132 $202,974

2. Financial risk management objectives and policies

The Group’s risk management objectives are to manage market risk,

credit risk and liquidity risk related to its operating activities. The Group

identifies measures and manages the aforementioned risks based on

policy and risk preference.

The Group has established appropriate policies, procedures and

internal controls for financial risk management. Before entering into

significant financial activities, due approval process by the Board of

Directors and similar Audit Committee must be carried out based on

related protocols and internal control procedures. The Group complies

with its financial risk management policies at all times.

3. Market risk

Market risk is the risk that the fair value or future cash flows of a

financial instrument will fluctuate because of changes in market prices.

Market risks comprise of currency risk, interest rate risk, and other

price risk (such as equity price risk).

In practice, it is rarely the case that a single risk variable will change

independently from other risk variables, there is usually

interdependencies between risk variables. However the sensitivity

analysis disclosed below does not take into account the

interdependencies between risk variables.

Foreign currency risk

The Group’s exposure to the risk of changes in foreign exchange rates

relates primarily to the Group’s operating activities (when revenue or

expense are denominated in a different currency from the Group’s

functional currency) and the Group’s net investments in foreign

subsidiaries.

The Group has certain foreign currency receivables to be denominated in

the same foreign currency with certain foreign currency payables,

therefore natural hedge is received. Furthermore, as net investments in

foreign subsidiaries are for strategic purposes, they are not hedged by

the Group.

The foreign currency sensitivity analysis of the possible change in

foreign exchange rates on the Group’s profit is performed on

significant monetary items denominated in foreign currencies as at the

end of the reporting period. The information of the sensitivity analysis

175

is as follows:

When NTD strengthened against SGD by 1%, the profit for the years

ended December 31, 2013 and 2012 decreased by NTD 8.963 million

and NTD 6.777 million respectively.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a

financial instrument will fluctuate because of changes in market

interest rates. The Group’s exposure to the risk of changes in market

interest rates relates primarily to the Group’s loans and receivables at

variable interest rates, bank borrowings with fixed interest rates and

variable interest rates.

The Group manages its interest rate risk by having a balanced

portfolio of fixed and variable loans and borrowings and entering into

interest rate swaps. Hedge accounting does not apply to these swaps

as they do not qualify for it. The interest rate sensitivity analysis is

performed on items exposed to interest rate risk as at the end of the

reporting period, including investments and borrowings with variable

interest rates and interest rate swaps. At the reporting date, an

increase/decrease of 1% of interest rate in a reporting period could

cause the profit for the years ended December 31, 2013 and 2012 to

decrease/increase by NTD 606,000 and NTD 3.092 million,

respectively.

Equity price risk

The Group’s listed and unlisted equity securities are susceptible to

market price risk arising from uncertainties about future values of the

investment securities. The Group manages the equity price risk

through diversification and placing limits on individual and total equity

instruments. Reports on the equity portfolio are submitted to the

Group’s senior management on a regular basis. The Group’s Board of

Directors reviews and approves all equity investment decisions.

A decrease of 1% in the price of the listed equity securities held for

trading could increase/decrease the Group’s profit for the years ended

December 31, 2013 and 2012 by about NTD 565,000 and NTD

680,000, respectively.

4. Credit risk management

Credit risk is the risk that a counterparty will not meet its obligations

under a contract, leading to a financial loss. The Group is exposed to

credit risk from operating activities (primarily for accounts receivables

176

and notes receivables) and from its financing activities, including bank

deposits and other financial instruments.

Customer credit risk is managed by each business unit subject to the

Group’s established policy, procedures and control relating to

customer credit risk management. Credit limits are established for all

customers based on their financial position, rating from credit rating

agencies, historical experience, prevailing economic condition and the

Group’s internal rating criteria etc. Certain customer’s credit risk will

also be managed by taking credit enhancing procedures, such as

requesting for prepayment or insurance.

As of December 31, 2013, December 31, 2012, and January 1, 2012,

amounts receivables from top ten customers represented 98%, 91%

and 88% of the total accounts receivables of the Group, respectively.

The credit concentration risk of other accounts receivables is

insignificant.

Credit risk from balances with banks, fixed income securities and other

financial instruments is managed by the Group’s treasury in

accordance with the Group’s policy. The Group only transacts with

counterparties approved by the internal control procedures, which are

banks and financial institutions, companies and government entities

with good credit rating and with no significant default risk.

Consequently, there is no significant credit risk for these counter

parties.

5. Liquidity risk management

The Group’s objective is to maintain a balance between continuity of

funding and flexibility through the use of cash and cash equivalents,

highly liquid equity investments and bank borrowings, etc. The table

below summarizes the maturity profile of the Group’s financial

liabilities based on the contractual undiscounted payments and

contractual maturity. The payment amount includes the contractual

interest. The undiscounted payment relating to borrowings with

variable interest rates is extrapolated based on the estimated interest

rate yield curve as of the end of the reporting period.

Non-derivative financial instruments

Less than 1

year 2-3 years 4-5 years

More than 5

years Total 12/31/2013 Loans $97,209 $78,221 －－ $175,430Payables $75,035 －－－ $75,035

177

Less than 1

year 2-3 years 4-5 years

More than 5

years Total 12/31/2012 Loans $71,513 $59,865 －－ $131,378Payables $63,129 －－－ $63,129 01/01/2012 Loans $70,634 $104,689 －－ $175,323Payables $33,703 －－－ $33,703

6. Fair value of financial instruments

(1) Methods and assumptions applied in determining the fair value of

financial instruments

The fair value of the financial assets and liabilities are included at

the amount at which the instrument could be exchanged in a current

transaction between willing parties, other than in a forced or

liquidation sale. The following methods and assumptions were used

to estimate the fair values:

A. The carrying amount of cash and cash equivalents, accounts

receivables, payables and other current liabilities approximate

their fair value.

B. For financial assets and liabilities traded in an active market with

standard terms and conditions, their fair value is determined

based on market quotation price (including listed equity securities

and bonds) at the reporting date.

C. Fair value of equity instruments without market quotations

(including unquoted public company and private company equity

securities) are estimated using the market method valuation

techniques based on parameters such as recent fund raising

activities, valuation of similar companies, individual company’s

development, market conditions and other economic indicators.

D. The fair value of derivative financial instrument is based on

market quotations. For unquoted derivatives that are not options,

the fair value is determined based on discounted cash flow

analysis using interest rate yield curve for the contract period. Fair

value of option-based derivative financial instruments is obtained

using the option pricing model.

E. The fair value of other financial assets and liabilities is

determined using discounted cash flow analysis, the interest rate

and discount rate are selected with reference to those of similar

178

financial instruments.

(2) Fair value of financial instruments carried at amortized cost

The Group considers that the carrying amounts of carried at

amortized cost financial assets and financial liabilities recognized in

the consolidated financial statements approximate their fair values.

(3) Fair value measurements recognized in the balance sheet

The following table provides an analysis of financial instruments that

are measured subsequent to initial recognition at fair value, grouped

into Levels 1 to 3 based on the degree to which the fair value is

observable:

Level 1: fair value measurements are those derived from quoted

prices (unadjusted) in active markets for identical

assets or liabilities;

Level 2: fair value measurements are those derived from inputs

other than quoted prices included within Level 1 that

are observable for the asset or liability, either directly

(i.e. as prices) or indirectly (i.e. derived from prices);

and

Level 3: fair value measurements are those derived from

valuation techniques that include inputs for the asset or

liability that are not based on observable market data

(unobservable inputs).

12/31/2013 Level 1 Level 2 Level 3 Total Financial assets: Financial assets measured by fair


Share $56,496 －－ $56,49612/31/2012 Level 1 Level 2 Level 3 Total Financial assets: Financial assets measured by fair


Share $68,000 －－ $68,00001/01/2012 Level 1 Level 2 Level 3 Total Financial assets: Financial assets measured by fair


Share $46,030 －－ $46,030

There were no transfers between Level 1 and 2 for the year ended

179

December 31, 2013 and 2012, respectively.

7. Significant assets and liabilities denominated in foreign currencies

The exchange rates used to translate assets and liabilities

denominated in foreign currencies are disclosed as follows:

12/31/2013

Foreign currency (in

thousand)

Exchange rate SGD (in

thousand)

Financial

assets

Monetary

items:

NTD $6,059 23.6796 $256 RMB $3,489 4.7864 $729

Non-monetary

items: NTD $56,496 23.6796 $2,386

Financial

liabilities Monetary

items: NTD $79,450 23.6796 $3,355 USD $1,500 0.7906 $1,897

12/31/2012


thousand)


thousand)

Financial

assets

Monetary

items:

NTD $43,065 23.8292 $1,807 RMB $21,462 5.0981 $4,210

Non-monetary

items: NTD $68,000 23.8292 $2,854

Financial

liabilities

180

12/31/2013


thousand)


thousand)

Monetary

items: USD $2,039 0.8192 $2,489

01/01/2012


thousand)


thousand)

Financial

assets

Monetary

items:

NTD $2,576 23.3332 $110 RMB $47,926 4.8484 $9,885

Non-monetary

items: NTD $46,030 23.3332 $1,973

Financial

liabilities Monetary

items: USD $3,513 0.7703 $4,561

8. Capital management

The primary objective of the Group’s capital management is to ensure

that it maintains a strong credit rating and healthy capital ratios in

order to support its business and maximize shareholder value. The

Group manages its capital structure and makes adjustments to it, in

light of changes in economic conditions. To maintain or adjust the

capital structure, the Group may adjust dividend payment to

shareholders, return capital to shareholders or issue new shares.

(xiii) Other disclosure

1. Information on significant transactions and investees

(1) Financing provided to others: refer to Attachment I.

(2) Endorsement/Guarantee provided to others: refer to Attachment II.

(3) Securities held: refer to Attachment III.

(4) Individual securities acquired or disposed of with accumulated

181

amount exceeding the lower of NTD 100 million or 20 percent of the

capital stock: refer to Attachment IV.

(5) Acquisition of real estate in the amount exceeding the lower of NTD

100 million or 20 percent of capital stock: none.

(6) Disposal of real estate up to the amount exceeding the lower of NTD

100 million or 20 percent of capital stock: none.

(7) Related party transactions for purchases and sales amounts

exceeding the lower of NTD 100 million or 20 percent of capital

stock: none.

(8) Receivables from related parties with amounts exceeding the lower

of NTD 100 million or 20 percent of capital stock: none.

(9) Engage in derivative transactions: none.

(10) Intercompany Relationships and Significant Intercompany

Transactions: refer to Attachment V.

2. Information on investees: name and position of the investee company,

etc.: refer to Attachment VI.

3. Information on investments in mainland China:

(1) Information on investments in mainland China: refer to Attachment

VII.

(2) With the investee companies directly or indirectly through a third

country following the occurrence of significant transactions, prices,

payment terms and unrealized gains and losses were as follows:

A. Ending balance and percentage, purchase amount and

percentage of related payables: none.

B. Sales amount and percentage of the balance and percentage of

the related receivables: none.

C. Gains and loss on the transaction amount of property: none.

D. Endorsement guarantees or collateral ending balance and

purpose: none.

E. Financing, the total ending balance, and current interest rates

range: none.

F. Other for profit or loss or financial position have a significant

impact on the transactions: none.

(xiv) Segment information

For management purposes, the Group is organized into business units

based on the regions and has three reportable operating segments as

follows:

(1) Singapore and Malaysia: Chinese medicine diagnosis, Chinese

182

medical cosmetology service, consultant management of TCM

clinics, medical management, and selling of Chinese medicinal

material and scientific Chinese medicine, etc.

(2) Taiwan: selling of Chinese medicinal material and scientific

Chinese medicine, and property sales and leasing.

(3) Mainland China: comprehensive medical operation and medical

management.

Management monitors the operating results of its business units

separately for the purpose of making decisions about resource allocation

and performance assessment. Segment performance is evaluated

based on operating profit or loss and is measured based on accounting

policies consistent with those in the consolidated financial statements.

However, the non-operating income and expense and income tax in the

consolidated statements are managed on a group basis and are not

allocated to operating segments.

1. Segment revenue and operating result

2013

Revenue

Singapore

and

Malaysia Taiwan

Mainland

China

Adjustment

and

elimination Consolidated

External

customer $308,651 $55,853 $51,148 － $415,652

Inter-segment

(Note 1) 31,604 7,092 － ($38,696) －

Total revenue $340,255 $62,945 $51,148 ($38,696) $415,652

Segment

profit or loss

(Note 2)

$33,559 $4,897 ($107,804) $25,041 ($44,307)

(Note 1) Inter-segment revenues are eliminated on consolidation.

(Note 2) The profit or loss of each operating segment does not include

the non-operating income and expense of NT$26.112 million and

tax expense of NT$3.832 million. The operating profit or loss of

the segment includes the sales of NT$1.071 million and

non-operating income and expense of NT$26.112 million.

2012

Revenue

Singapore

and

Malaysia Taiwan

Mainland

China

Adjustment

and

elimination Consolidated

183

External

customer $301,799 $35,406 $17,895 － $355,100

Inter-segment

(Note 1) 26,875 11,270 － ($38,145) －

Total revenue $328,674 $46,676 $17,895 ($38,145) $355,100

Segment

profit or loss

(Note 2)

$42,622 $24,370 ($50,178) $11,080 $27,894

(Note 1) Inter-segment revenues are eliminated on consolidation.

(Note 2) The profit or loss of each operating segment does not include

the non-operating income and expense of NT$10.742 million and

tax expense of NT$12.243 million. The operating profit or loss of

the segment includes the sales of NT$338,000 and non-operating

income and expense of NT$10.742 million.

2. Geographical information

Revenue from external customers: 2013 2012

Singapore and Malaysia $308,651 $301,799

Taiwan 55,853 35,406

Mainland China 51,148 17,895

Total $415,652 $355,100

The revenue information above

is based on the location of the

customer.

Non-current assets: 12/31/2013 12/31/2012 01/01/2012

Singapore and Malaysia 112,062 107,497 109,450Taiwan 272,379 50,721 12,117 Mainland China 111,155 71,492 17,419

Total 495,596 229,710 138,986

3. Information about major customers

Customer accounting for 10 percent or more of the

net consolidated operating revenue

2013 2012

Customer A from the Taiwan segment $55,853 $35,406

(xv) First-time adoption of IFRS

For all periods up to and including the year ended December 31, 2012,

the Group prepared its financial statements in accordance with generally

accepted accounting principles in R.O.C. (R.O.C. GAAP). The

consolidated financial statements for the year ended December 31, 2013

184

are the first the Group has prepared in accordance with IFRSs.

Accordingly, the Group has prepared financial statements which comply

with IFRSs and the Regulations Governing the Preparation of Financial

Reports by Securities Issuers for periods beginning January 1, 2013 as

described in the accounting policies. Furthermore the first interim

financial statements prepared under IFRS also comply with the

requirements under IFRS 1 First-time Adoption of International Financial

Reporting Standards. The Group’s opening balance sheet was prepared

as at January 1, 2012, the Group’s date of transition to IFRSs.

Exemptions applied in accordance with IFRS 1 First-time Adoption of

International Financial Reporting Standards

IFRS 1 First-time Adoption of International Financial Reporting

Standards allows first-time adopters certain exemptions from the

retrospective application of certain IFRS. The Group has applied the

following exemptions:

1. IFRS 3 Business Combinations has not been applied to acquisitions

of subsidiaries or of interests in associates and joint ventures that

occurred before January 1, 2012. By applying this exemption,

immediately after the business combination, the carrying amount in

accordance with R.O.C. GAAP of assets acquired and liabilities

assumed in that business combination, shall be their deemed costs in

accordance with IFRSs at that date. The subsequent measurement of

these assets and liabilities will be in accordance with IFRSs. Under

IFRS 1 First-time Adoption of International Financial Reporting

Standards, the carrying amount of goodwill in the opening balance

sheet shall be its carrying amount in accordance with R.O.C. GAAP at

December 31, 2011, after testing for impairment and reclassifying

amounts to intangible assets that are required to be recognized. The

Group has performed goodwill impairment testing as at the date of

transition to IFRSs in accordance with IFRS 1 First-time Adoption of

International Financial Reporting Standards and no impairment loss

has been recognized as at that date.

2. Accumulated balance of exchange differences resulting from

translating the financial statements of a foreign operation is deemed to

be zero as at the date of transition to IFRSs.

Impacts of transitioning to IFRSs

185

The following tables contain reconciliation of balance sheets as at

January 1, 2012 (the date of transition to IFRSs) and December 31, 2012

and statements of comprehensive income for the year ended December

31, 2012:

196

VI. If the company or its affiliates have experienced financial difficulties in the

most recent fiscal year or during the current fiscal year up to the date of

printing of the annual report, the annual report shall explain how said

difficulties will affect the company's financial situation: the Company does

not have this item.

197

VII. Review and Analysis of the Company's Financial

Condition, Financial Performance, and Risks

I. Financial status

Analysis and Comparison Table of Financial Status

Unit: NT$1,000

FY

Item 2013 2012

Difference

Amount %

Current assets 409,219 599,949 -190,730 -31.79

Property, plant and

equipment

259,170 125,530133,640 106.46

Intangible assets 33,319 31,873 1,446 4.54

Other assets 203,509 72,307 131,202 181.45

Total assets 905,217 829,659 75,558 9.11

Current liabilities 180,368 141,341 39,027 27.61

Non-current

liabilities

79,481 62,29017,191 27.60

Total liabilities 259,849 203,631 56,218 27.61

Common stock 282,500 225,000 57,500 25.56

Capital surplus 278,237 286,135 -7,898 -2.76

Retained earnings 10,398 40,666 -30,268 -74.43

Other equity 7,941 (276) 8,217 -2,977.17

Equity attributable

to owners of the

parent company

579,076 551,525 27,551 4.99

Non-controlling

interests

66,292 74,503-8,211 11.02

Total shareholders’

equity

645,368 626,02819,340 3.09

198

Analysis of deviation over 20% and exceeding NT$10 million:

a) Current assets: cash and cash equivalents were decreased resulted from the current procurement of the property and equipment, as well as the payment of the performance bond.

b) Property, plant and equipment: the capital expenditure was increased substantially over the same period last year resulted from the current procurement of the lands in Donggang and the addition of 10 clinics (hospitals) in Tianjin.

c) Other assets: it was increased substantially over the same period last year resulted from the payment of the performance bond due to contracting of other related parties’ purchasing and service business.

d) Current liabilities: the relevant accounts payable were increased resulted from the addition of the purchasing business, and the short-term business turnover capital was also increased due to a expanded operation compared with the same period of the previous year.

e) Non-current liabilities: it was increased mainly because of bank loans.

f) Common stock: the current capitalization of profits is NT$35 million, and the profit to capital increment is NT$22.5 million.

g) Retained earnings: the earnings were decreased significantly, because more capital expenditures and operating expenses were required to be paid for operating the clinics (hospitals) expanded in Tianjin.

II. Business performance

(i) Analysis of financial performance for the two most recent fiscal years

Unit: NT$1,000

FY

Item

2013 2012 Difference

Amount %

Net sales 415,652 355,100 60,552 17.05

Gross profit 26,683 114,421 -87,738 -76.68

Operating income (70,419) 17,152 -87,571 510.56

Non-operating

income and

expense

26,112 10,742 15,370 143.08

Profit before tax (44,307) 27,894 -72,201 -258.84

Net income (48,139) 15,651 -63,790 -407.58

199

Net income attributed

to owners of the

parent company

4,732 34,930 -30,198 -86.45

Analysis of deviation over 20% and exceeding NT$10 million:

1. Operating margin and operating income: the business in Tianjin is still

under expansion, therefore the input cost of the clinic, such as rent

and physician salary, was increased significantly over the same period

last year, but the revenue was not increased accordingly as the

medical insurance license has not yet obtained, resulting in reduction

in the current operating margin and operating income.

2. Non-operating income and expenses: the current non-operating

income and expenses were increased over the same period last year

resulted from increase in the current dividend income, increase in

investment gains recognized by using the equity method, and effect of

fluctuation in the exchange rate.

(ii) Expected sales quantity and its basis, and possible effect on the

company's future financial operations and preventive measures:

Please refer to Chapter V "II. Analysis of market and production &

marketing situation" of this annual report for details.

III. Cash flow

(i) Analysis of change in cash flow in the current year (2013)

Unit: NT$1,000

Balance of

cash-beginning

(1)

Net cash flow from operating activities

in the year (2)

Cash flow from

other activities

in the year (3)

Remaining (Shortfall) of cash

(1)+(2)+(3)

Measures for covering

the shortfall of cash

Investment

plan

Financing

plan

416,481 (1,796) (183,452) 231,233 －－

Analysis of change in cash flow in the current year

Operating activities: the current net cash outflow was NT$1.796 million; a

modest cash outflow was generated because a lot of

operating expenses was spent for business expansion in

Tianjin.

Investing activities: the current net cash outflow was NT$281.936 million,

which was incurred by procurement of fixed assets and

payment of the performance bond.

200

Financing activities: the current net cash inflow was NT$90.686 million, which

was incurred by increase in bank loans and disposal of

subsidiaries' equity.

(ii) Corrective measures to be taken in response to illiquidity

1. No illiquidity occurs in the current year.

A net cash outflow was not produced, because the Company expected a cash inflow generated by the operating profit, responded to the future operational development financing plan and issued an SEO in the current year.

2. Analysis of cash flow for the two most recent fiscal years:

FY

Item

2013 2012 Increased /

decreased

percentage

(%)

Ratio of cash flow -1.00 26.87 -103.72

Ratio of cash flow

adequacy

12.36 50.42 -75.49

Ratio of cash

reinvestment

-0.28 6.12 -95.42

Analysis of deviation:

1.Ratio of cash flow (%) = net cash provided by operating activities / current

liabilities: the changes of two periods were made because a lot of

operating expenses was spent for business expansion in Tianjin,

therefore a modest cash outflow was generated, resulting in a lower

current ratio of cash flow compared with the same period of the previous

year.

2.Ratio of cash flow adequacy (%): the changes of two periods were made

because a net cash outflow was generated due to current operating

activities and the capital expenditure and long-term investment were

increased compared with the same period of the previous year, resulting

in a lower current ratio of cash flow adequacy compared with the same

period of the previous year.

3.Ratio of cash reinvestment (%): the changes of two periods were made

201

(iii) Analysis of cash flow for the coming year

Unit: NT$1,000

Balance of

cash-beginning

(1)

Net cash

flow from

operating

activities in

the year (2)

Cash flow

from other

activities in

the year

(3)

Remaining

(Shortfall)

of cash

(1)+(2)+(3)

Measures for covering the

shortfall of cash

Investment

plan

Financing plan

282,497 29,032 61,664 373,193 - -

Note 1: Include the effect of exchange rate changes.

Analysis of change in cash flow in the coming year

Operating activities: the cash inflow was NT$29.032 million, which was generated

by the sales growth resulted from increase in the current revenue of Tianjin,

business expanding to the medical management service and expansion in the

service range.

Investing activities: the cash outflow generated by the reinvestment and

procurement of fixed assets are mainly considered.

Financing activities: the net cash inflow was resulted from issuance of an SEO

and capital of bank financing

IV. Impacts of major capital expenditures in the most recent fiscal year on

financial position and operations

It is not applicable as the Company does not have any major capital

expenditures in the most recent fiscal year.

V. Reinvestment policy for the most recent fiscal year, the main reasons for

the profits / losses generated thereby, the plan for improving

re-investment profitability, and investment plans for the coming year

(i) Reinvestment policy of the Company:

With the main purpose of increasing the operating base or product line,

the current reinvestment policy of the Company is carried out by the

relevant executive department according to the “Investment Cycle” and

because a net cash outflow was generated due to current operating

activities and the capital expenditure and long-term investment were

increased compared with the same period of the previous year, resulting

in a lower ratio of cash reinvestment compared with the same period of

the previous year.

202

“Regulations Governing the Acquisition and Disposal of Assets” in the

internal control system, which have been approved through discussion by

the board meeting or shareholder’s meeting.

(ii) Main reasons for the profits or losses generated by the reinvestment in the

current fiscal year: Unit: NT$1,000

Company

name

Recognized profit (loss) of

2003

Reinvestment

policy

Reason for profit or

loss

Improvement

plan

MKH-SG SGD 676 Operational

headquarter of group Good performance NA

MKS-SG SGD 1,410 C u s t o m e r s e r v i c e o f S i n g a p o r e Good performance NA

MKB-SG SGD (393)

Health management

and Chinese medical

cosmetology service

The health management and beauty

business began since 2011, and many

losses were suffered that year due to the

immature operating mode; as the

improvement plan was implemented in

2013, the losses have been substantially

reduced to SGD (393), and we continue to

move towards the target of maintaining a

balance of the income and the expenditure.

MKM-MY SGD (26) Selling of scientific

Chinese medicines

Cooperated with the shift in the development focus to China, the Malaysia company only provides the selling of scientific Chinese medicines with the purpose of the stable operation, and considers the future development depending on the market and laws.

WYN-SG SGD 316 Selling of Chinese

medicinal materials Good performance NA

TPMK SGD (2,380) Medical business of Tianjin

The medical service business has started

the operation since February 2012, and the

establishment progress was not as

expected due to opening of the medical

insurance and revenue structure. Efforts

were made to establish 6 designated

health insurance units in early 2014, and

11 designated health insurance units have

203

Company

name

Recognized profit (loss) of

2003

Reinvestment

policy

Reason for profit or

loss

Improvement

plan

been obtained combined with the current 5

units, making the Company a chain

medical institution having the largest

number of designated health insurance

units in Tianjin. The revenue of the current

fiscal year will be increased on a large

scale.

MKI SGD 543 Property sales and purchasing business Good performance NA

(iii) Improvement plan:

MKB-SG was mainly engaged in the product wholesale and

education & training; in order to implement the concept of moving

towards the professional, sophisticated and comprehensive service, the

Company started the health management and beauty business since

2011, and much losses were suffered that year due to the immature

operating mode; as the improvement plan was implemented since 2012,

we continue to move towards the target of maintaining a balance of the

income and the expenditure.

The operating losses were suffered due to unfamiliarity with the

local laws and regulations by the Malaysia company; as the operating

mode was adjusted according to the local laws and regulations and the

internal employees were stabilized properly in 2011, the loss condition

was improved significantly; cooperated with the shift in the development

focus to China in 2012, the Malaysia company only provides the selling

of scientific Chinese medicines with the purpose of the stable operation,

and considers the future development depending on the market and

laws.

The operation target of TPMK is to provide the medical service in

China, including management consulting, community medical service

and specialized hospital, etc. Efforts were made by the team to start the

operation for the medical service business in Tianjin since February

2012; in addition to putting a lot of capital expenditures for business

expansion in Tianjin at present, 11 designated health insurance units

have been obtained in early 2014, and it is estimated that the current

204

operating condition will be greatly improved.

(iv) Investment plan in the coming year: the Company does not have a

definite investment plan in the coming year.

VI. Risk analysis and assessment during the most recent fiscal year or during

the current fiscal year up to the date of printing of the annual report

(i) Impact upon the company's balance sheet of inflation and changes in

interest and exchange rates, and the measures the company plans to

adopt in response:

1. Impact upon the company's balance sheet of changes in the

interest rate, and the measures the company plans to adopt in

response:

The main source of the Company’s interest income is the interest on bank deposits, and the interest expense is mainly incurred from the bank housing loan and bank borrowing. The Group’s interest income is NT$1.134 million and NT$549,000 in 2012 and 2013 respectively, and the interest expense is NT$5.26 million and NT$2.803 million respectively, accounting for about 1% of net sales; as the ratio is not high, changes in the interest rate do not have a significant impact on the Group. Countermeasures:

If there is a big fluctuation in the future interest rate and the

Company still has a demand for the loan, in addition to shifting to

other financing instruments in the capital market to raise funds,

loans at a fixed interest rate or floating interest rate will be chosen

by observing the interest rate trend to avoid the risk of interest rate

fluctuations.

2. Impact upon the company's balance sheet of changes in the

exchange rate, and the measures the company plans to adopt in

response:

The income and expense of the Group mainly use the

Singapore dollar, and the proportion of non-SGD currency is not

large, therefore a considerable part of the currency will have a

natural hedging effect. The effect of the related foreign currency’s

appreciation / depreciation on the Group is as follows: when NTD

strengthened against SGD by 1%, the profit for the years ended

205

December 31, 2013 and 2012 decreased by NTD 8.963 million and

NTD 6.777 million respectively.

Countermeasures:

A. Maintaining an adequate level of foreign currency reserve

based on predicted exchange rate to provide for subsidiaries’

operating activities and to lower the impact of adverse exchange

fluctuations on to the net income.

B. Continually monitoring exchange rate fluctuations and

maintaining close contacts with main banks to provide

management with sufficient information as basis for managing

exchange rate fluctuations.

3. Impact upon the company's balance sheet of inflation, and the

measures the company plans to adopt in response:

The inflation does not have a significant impact on the Group's

profit or loss in the past, and the Group will adjust the sales price

properly if the purchase cost is increased due to the inflation. In

addition, the Group reviews and collects the relevant information

for the reference of management decision-making by referring to

the economic data and report of the government and research

institution on a regular and irregular basis.

(ii) High-risk investments, highly leveraged investments, loans to other

parties, endorsements, guarantees, and derivatives transactions; the main

reasons for the profits / losses generated thereby; and response measures

to be taken in the future:

1. High-risk investments and highly leveraged investments; the main

reasons for the profits / losses generated thereby; and response

measures to be taken in the future:

The Group has established the “Procedures of Granting of Loans”,

“Operational Procedures for Endorsements and Guarantees”,

“Regulations Governing the Acquisition and Disposal of Assets” and

“Policies and Procedures for Financial Derivatives Transactions”, etc.

as the basis for the relevant activities of the Group. The Group does

not have high-risk investments and highly leveraged investments in

the most recent fiscal year or during the current fiscal year up to the

date of printing of the annual report.

206

If the Group will be engaged in the high-risk investments, highly

leveraged investments, derivatives transactions, endorsement /

guarantee provided to other parties other than the Group, or loans to

other parties other than the Group in the future, the Group will assess

it carefully according to the relevant provisions to reduce the financial

risk of the Group. However, the Group focuses on the operation of the

main business without expanding to high-risk industries and the

principle of financial policies is conservative without highly leveraged

investments, therefore the risk is limited.

2. Loans to other parties; the main reasons for the profits / losses

generated thereby; and response measures to be taken in the future:

The loans to other parties between subsidiaries of the Group are in

accordance with the relevant provisions of the Company, and the

collection progress is tracked regularly, therefore they have no impact

on the profit or loss in the consolidated financial statements of the

Company.

3. Endorsements and guarantees; the main reasons for the profits /

losses generated thereby; and response measures to be taken in the

future:

In addition to endorsements and guarantees provided between

internal companies, the Group does not have other endorsements and

guarantees in the most recent fiscal year or during the current fiscal

year up to the date of printing of the annual report; as the

endorsements and guarantees provided between internal companies

are in accordance with the relevant provisions of the Company, they

have no impact on the profit or loss in the consolidated financial

statements of the Company.

4. Derivatives transactions; the main reasons for the profits / losses

generated thereby; and response measures to be taken in the future:

The Group does not have derivatives transactions in the most

recent fiscal year or during the current fiscal year up to the date of

printing of the annual report, will assess the operation of relevant

hedging strategies regularly depending on the operation condition of

the Company, and carry out them in accordance with the relevant

provisions.

(iii) Future research and development projects, and expenditures expected in

connection therewith:

207

The Group is engaged in Chinese medicine outpatient services and

selling of Chinese medicinal materials and healthcare products, and does

not have any future research and development projects, and expenditures

expected in connection.

The Group is engaged in Chinese medicine outpatient services and

selling of Chinese medicinal materials and healthcare products, and does

not have any R&D plan of producing our own products during the most

recent fiscal year or during the current fiscal year up to the date of printing

of the annual report.

(iv) Impact upon the company's financial operations of important policy and

legal developments at home and abroad, and the measures the company

plans to adopt in response:

Registered in the Cayman Islands, the Company is mainly operated

in Singapore and provides the comprehensive Chinese traditional medical

treatment and service. The Cayman Islands is only the Company's

registration place without any real economic activities, and the Company's

financial operations will not be affected by changes in the local policies

and laws in the Cayman Islands or Singapore.

(v) Impact on the company's financial operations of developments in science,

technology, and industry, and the measures the company plans to adopt

in response:

The group always pays attention to changes in the relevant medical

technology of the industry, grasps the latest market trend, and assesses

its impact on the operation of the company; the Group does not have any

significant industry changes resulting in a significant impact on the

Group's financial operations in the most recent fiscal year or during the

current fiscal year up to the date of printing of the annual report.

(vi) Impact of changes in the company's image upon its crisis management,

and the measures the company plans to adopt in response:

Since the establishment, the Group continues to actively strengthen

the internal management and improve the quality management capacity;

the Group's brand image has a leading position in Singapore and

Malaysia, but the company still seeks continuous improvement to

reinforce the customer's loyalty to the company's brand. There is no

208

significant change in the Group's image in the most recent fiscal year or

during the current fiscal year up to the date of printing of the annual report.

(vii) Expected benefits and potential risks of any merger or acquisition, and

measures to be adopted in response:

It is not applicable as the Group does not have any clear and special

acquisition of the companies other than the Group in the most recent fiscal

year or during the current fiscal year up to the date of printing of the

annual report.

(viii) Expected benefits and potential risks of any plant expansion, and


It is not applicable as the Group does not have any plant expansion

plan in the most recent fiscal year or during the current fiscal year up to

the date of printing of the annual report.

(ix) Risks associated with any consolidation of sales or purchasing operations,

and measures to be adopted in response:

1. Risks associated with any consolidation of purchasing operations, and


Currently, the main purchasing products of the Group include

scientific Chinese medicine powders related to the medical diagnosis

and treatment, healthcare products, Chinese medicinal materials and

medical consumables, etc, which are purchased from manufacturers of

the best quality; however, due to familiarity with this industry, although

there are fixed suppliers, the Group has a dominant position as there

are numerous sources of supply on the market and most of them have a

good cooperative relationship with the Group, thus avoiding the risk

associated with any consolidation of purchasing operations. In addition,

the Group maintains a long-term friendly cooperative relationship with

each supplier, to ensure stability and reliability of supply sources and

quality.

2.Risks associated with any consolidation of sales operations, and


Currently, the Group is primarily engaged in medical services, and

the core business is to provide the TCM consulting service and product,

which is the health management service for the general public; in

addition, there are no customer responsible for sales accounting for

209

over 5% of the revenue, therefore the Group does not have any risks

associated with any consolidation of sales operations in the most recent

fiscal year or during the current fiscal year up to the date of printing of

the annual report.

(x) Risk from major transfer or swap of stocks by the Company’s directors,

supervisors or major shareholders with over 10% of the Company’s total

outstanding shares, and countermeasures:

Up to the date of printing of the annual report, the Company has 1

shareholder (i.e. Jui Wei Investments Pte Ltd.) with 10% of the Company’s

total outstanding shares, and the average shareholding ratio of the

remaining top ten shareholders is 2.79%; the aforementioned shareholder

is a legal investment company, therefore there is no risk from major

transfer or swap of stocks.

(xi) Risk from the change in management of the Company, and

countermeasures:

The Group does not have any change in management in the most

recent fiscal year or during the current fiscal year up to the date of printing

of the annual report. In addition to strengthening various corporate

governance measures, the Group also introduces independent directors

to improve the protection of shareholders' interests. The Group has

recruited qualified talents for each operating base and organizes the

excellent recruitment team as a strong and powerful back-up for the

management; in case of any change in management, it will not have a

significant impact on various managements of the Group.

(xii) Major litigations, non-contentious matters or administrative actions,

concluded or pending, involving any of the directors, supervisors,

presidents, responsible persons in fact, shareholders holdings more than

10% of the outstanding shares and subsidiaries, the result of which may

significantly affect shareholders’ equity or the stock price of the Company.

Disclosure shall be made with the facts in dispute, course of action,

commencing date of the legal proceeding, principal litigants and the

status up to the publication date of the annual report:

1. Major litigations, non-contentious matters or administrative actions,

concluded or pending, in the two most recent fiscal years and during

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the current fiscal year up to the date of printing of the annual report,

the result of which may significantly affect shareholders’ equity or the

stock price of the Company; disclosure shall be made with the facts in

dispute, course of action, commencing date of the legal proceeding,

principal litigants and the status: none.

2. Major litigations, non-contentious matters or administrative actions,

concluded or pending, in the two most recent fiscal years and during

the current fiscal year up to the date of printing of the annual report,

involving any of the directors, supervisors, presidents, responsible

persons in fact, shareholders holdings more than 10% of the

outstanding shares and subsidiaries, the result of which may

significantly affect shareholders’ equity or the stock price of the

Company: none.

3. Occurrence of items listed in Article 157 of the Securities and

Exchange Act on directors, supervisors, presidents, responsible

persons in fact, and shareholders holdings more than 10% of the

outstanding shares in the two most recent fiscal years and during the

current fiscal year up to the date of printing of the annual report, and

the status: none.

(xiii) Other major risks, and countermeasures:

1. Medical disputes

Engaged in the Chinese medicine diagnosis and treatment

services and selling of Chinese medicinal materials and healthcare

products, the Group may have medical disputes arising from the

human error or product defects during the operation, resulting in the

need for compensation or settlement or situations affecting the

reputation of the company, which is an important risk of the Group

during the operation.

For this risk, the Group has insured the third party liability for

patients or products sold, strengthens the training of the medical

team and improves the quality of personnel to reduce the negligence

that may arise in the medical procedure, and has specialized persons

responsible for handling customer complaints and settling disputes,

to protect the interests of customers and prevent the risk of medical

disputes from affecting the normal operation of the company.

211

2. Mobility risk of traditional Chinese physicians

The excellent team of physicians is the largest asset of the

Group; each physician has certain patient resources and they may

start their own businesses, resulting in a large mobility of physicians

and an issue of losing customers.

For this risk, the Group will strength the patient loyalty by using

the brand effect, design a sound performance salary system and

flexible shift system, and also communicate to the individual

physician to solve the problem, in order to provide physicians with

good benefits and a good working environment and to deepen their

identity and cohesion for the company, thus minimizing the influence

of this risk.

3. Protection of shareholders' interests

The Company Act of the Cayman Islands is different from the

one of the Republic of China. Although the Company has amended

the Articles of Association in accordance with reference examples in

the "Important Matters Concerning the Protection of Shareholder

Interests" specified by the GTSM, the laws of the Cayman Islands

and Republic of China have different requirements for the company

operation, and investors can not apply the legal interests of the

company invested in Taiwan to the company invested in the Cayman

Islands; investors shall really learn and consult with experts about

shareholder interests that can not be obtained by the company

invested in the Cayman Islands.

4. Overall economy, changes in the political and economic environment,

relevant laws, foreign exchange control and taxes of foreign issuers'

registration state and the main operating country, risks related to

derecognition of the effect of civil judgment made by the courts in the

Republic of China, and countermeasures:

The main operating body of the Group is registered in Singapore,

which mainly provides the comprehensive Chinese traditional medical

treatment and service; the Cayman Islands is only the registration

state of the Group without any real economic activities. The overall

economy, changes in the political and economic environment, relevant

laws, foreign exchange control and taxes of the British Cayman

Islands and Singapore, and risks related to derecognition of the effect

of civil judgment made by the courts in the Republic of China are as

212

follows:

(1) British Cayman Islands

Overall economy and changes in the political and economic

environment

The Cayman Islands are located in the south of Miami,

Florida, and are a British territory in the Caribbean Sea. The

Cayman Islands enjoy a lasting political stability, and their capital

George Town is located on the Cayman Islands as the

administrative, commercial and financial center. The local

offshore company is classified into non-resident company and

exempted company. The exempted company can relocate its

domicile while the non-resident company can not do it, therefore

the general offshore company adopts the exempted company.

As the world’s fifth largest financial center ranking after

Hongkong, London and New York, the Islands have more than

600 Banks, and have many legal, accounting and professional

service institutions to provide the prompt and efficient service. In

addition to the tourism industry, the Islands have few other

industries, therefore special focus has been paid on the business,

finance and banking, etc., and the local financial service is well

developed.

Foreign exchange control, laws and taxes risk

The Cayman Islands adopt a fixed exchange rate system

without foreign exchange control. In terms of the laws and taxes,

the Cayman Islands currently do not levy the personal or

corporate income tax or value-added tax.

The Company shall comply with the Articles of Association of

the company and the Company Act of the Cayman Islands, etc.,

but the Cayman Islands’ laws regarding the protecting of the

minority interests are different from the laws in other jurisdiction

areas of Taiwan. Although the Company has amended the

Articles of Association according to the Securities and Exchange

Act and Company Act of Taiwan and within the limits allowed by

the laws of the Cayman Islands, the protection of shareholder

interests may still be different from the companies established

based on the laws of Taiwan.

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(2) Singapore

Overall economy and changes in the political and economic

environment

Singapore is 137 kilometers north of the equator, and has a

tropical climate with high temperatures all year round; with the

total area of only 633 km2 and the population of about 4.58 million,

Singapore is an emerging developed country and one of the Four

Asian Tigers. Singapore is a highly regulated country with

effective administration, complete laws and regulations as well as

liberalized finance, and is a comprehensive communication,

banking and trade center, in which most well-known international

Banks, accountant and law firms establish offices, therefore

Singapore is ideal for the international trade and investment as it

is a stable and good cost-effective judicial district.

Affected by the world massive financial crisis in 2008 and

serious loss of confidence, Singapore’s economic growth rate

was -2% in 2009; along with the continuous improvement in the

economy and gradual stabilization in the global financial market,

its trade and global industrial production are recovered. The

Singapore Ministry of Trade and Industry forecasts that the

economic growth rate of Singapore will be 2%~4% in 2014.

Foreign exchange control, laws and taxes risk

As one of the world’s major economies, Singapore has an

open economy without the foreign exchange control; in order to

attract the foreign investment, the Singapore government

provides a significant number of benefits and conveniences in

taxes, and the Agreement for the Avoidance of Double Taxation

and the Prevention of Fiscal Evasion with Respect to Taxes on

Income has been signed between Taiwan and Singapore. After

evaluating the local tax laws of Singapore, the Company currently

does not have any finance affected by changes in the relevant

laws and tax regulations, will collect and assess the effect of

changes in Singapore’s relevant tax policies and tax laws on the

finance and business of the company on an irregular basis, and

will also consult with professionals about appropriate

countermeasures to reduce the tax risk.

214

(3) Risks related to the registration state and the main operating

country’s derecognition of the effect of civil judgment made by the

courts in the Republic of China

British Cayman Islands (hereinafter referred to as “Cayman”)

According to the legal opinion issued by the Cayman lawyers,

the common law principles stipulate that, in terms of a final foreign

judgment related to a particular person’s definite sum of money

(but not including taxes, penalties, fines or penalties with the

similar nature), if its payment obligation has been confirmed by

the qualified court, it can be enforced by the Grand Court of

Cayman in principle if the following conditions are met: (1) the

foreign court has jurisdiction in this event according to the private

international law of Cayman; and (2) the judgment shall not be

contrary to public policies under Cayman laws and may not be

made under fraud or breach of natural Justice procedures.

In summary, the laws of the Company’s registration state

(Cayman) admit the effect of civil judgment made by the courts in

the Republic of China if the aforementioned conditions are met,

but it shall be enforced by the Grand Court of Cayman.

Singapore

According to the legal opinion issued by the Singapore

lawyers, the civil judgment made by the Taiwan court does not

apply the Reciprocal Enforcement of Commonwealth Judgments

Act or Reciprocal Enforcement of Foreign Judgments Act; if the

judgment requires to be executed in Singapore, the plaintiff shall

take the writ action against the defendant in Singapore according

to the common law. However, the foreign judgment shall meet the

following conditions: (1) the judgment shall be the final judgment

made by the Taiwan court according to the civil law of Taiwan; (2)

the court making the judgment shall have the recognized

international jurisdiction according the Singapore laws; (3) the

judgment is made on a fixed or definite sum of money. If the

judgment meets the aforementioned conditions, it can considered

as a final decision recognized by the Singapore laws, unless the

judgment is questioned to have one of the following

circumstances: (1) it violates the natural Justice recognized by the

Singapore court; (2) it belongs to the estoppel, and the content of

215

the judgment is contrary to the existing judgment made by the

Singapore district court; (3) it violates the important public policy

of Singapore; (4) the content of the judgment covers the

execution of foreign punishment, taxes or other public law matters

directly or indirectly; (5) the judgment is made by fraud; (6) the

dispute on admission or execution of the judgment lies on the

consideration of Singapore’s important public policies; (7) when

the Singapore cash law considers the judgment to be separated,

the disputed part can not be admitted while the undisputed part

can be admitted or executed.

VII. Other important issues

None.

VIII. Special Items to be Included

I. Information related to affiliates

Please see Page 67~130 for affiliation reports, consolidated business reports

and consolidated financial statements of affiliated enterprises prepared

according to the “Criteria Governing Preparation of Affiliation Reports,

Consolidated Business Reports and Consolidated Financial Statements of

Affiliated Enterprises” in the current fiscal year.

II. Private placement of marketable securities during the most recent fiscal

year or during the current fiscal year up to the date of printing of the annual

report

None.

III. Holding or disposal of shares in the company by the company's subsidiaries

during the most recent fiscal year or during the current fiscal year up to the

date of printing of the annual report

None.

216

IV. Incomplete OTC commitments

OTC commitments Status Committed to add the “the company cannot give up increasing the capital for Makuang Healthcare Group Pte. Ltd. (hereinafter referred to as “MKH-SG”) in the following years; MKH-SG cannot give up increasing the capital for MakuangChinese Medicine&Research Centre Pte. Ltd (hereinafter referred to as “MKS-SG”), Makuang Chinese Medicine & Research Centre Sdn. Bhd (hereinafter referred to as “MKM-MY”), Makuang Biotech Investments Pte. Ltd. (hereinafter referred to as “MKB-SG”) and Wong Yiu Nam Medical Hall Pte. Ltd.(hereinafter referred to as “WYN-SG”) in the following years; MKM-MY cannot give up increasing the capital for Makuang Biotechsdn. Bhd (hereinafter referred to as “MKMB-MY”) in the following years; if the company will give up increasing the capital for public companies or disposing the equity of public companies in the future considering strategic alliances or other matters agreed by the GTSM, it shall be approved through special resolution by the board meeting of Ma Kuang Healthcare Holding Limited” in the “Regulations Governing the Acquisition and Disposal of Assets”; thereafter, if these measures are revised, they shall be disclosed on the Market Observation Post System and reported to the GTSM for future reference.

The Company has added the commitments listed on the left to Article 9.1 of Regulations Governing the Acquisition and Disposal of Assets on April 11, 2011.

Committed that if the election method of directors specified in the Articles of Association is needed to be revised, the convening procedure of shareholder’s meeting shall be carried out according to the relevant provisions of the Articles of Association, and a reference table of revisions shall be included in the convening reason.

The Company has added the requirements - “The notification onchanges in the election method of directors shall provide a reference table of revisions and shall not be proposed through extempore motion” in Article 28(c) of the Articles of Association in the shareholder’s meeting held on April 11, 2011.

V. Other necessary items to be supplemented and explained

Significant differences between Article 21.2.2 of “Regulations Governing

the Offering and Issuance of Securities by Foreign Issuers” and

regulations on protection of shareholders’ interests in the Republic of

China during the most recent fiscal year or during the current fiscal year

up to the date of printing of the annual report:

The Articles of Association of the Company has been issued in the

over-the-counter securities exchange of ROC, which is within the limits

allowed by the Cayman laws; the Company amended the “Checklist of

Protection of Shareholders’ Interests in the Registration Place of Foreign

Issuers” (hereinafter referred to as “Checklist of Protection of

Shareholders’ Interests”) and set the specific requirements for protection

of shareholders’ interests in April 2012. However, there are differences

between the following matters and the Checklist of Protection of

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Shareholders’ Interests due to the Cayman laws:

1. Supervisors

As the Company Act of the Cayman Islands does not involve the

supervisor and the relevant regulations of Republic of China does not

expressly define or require that foreign companies must set up the

supervisor, the Articles of Association of the Company does not set the

requirements for “supervisors”. However, according to Article 53C of

the Company's Articles of Association, the Company shall establish

the Audit Committee (hereinafter referred to as “the Committee”), and

the members of the Committee shall be all independent directors. The

number of the Committee shall not be less than three, one of whom is

the convener and at least one of whom shall have the accounting or

financial expertise. Regulations on its resolution method and

resolutions that shall be agreed by the Audit Committee shall be

stipulated accordingly, which shall also comply with Item 160 of

Checklist of Protection of Shareholders’ Interests.

2. Execution and solicitation of proxies The Checklist of Protection of Shareholders’ Interests stipulates that the relevant regulations governing the use of proxies for attendance at shareholder meetings shall be established according to Article 5, 6, 6.1, 7, 8.4 and 10 of “Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies”; the Cayman company law does not have regulations on execution and solicitation of proxies, but in order to comply with the laws of ROC, the Company has outlined the following requirements in the Article 48 of Articles of Association: Without contradicting the Articles, the use of proxy and proxy contest shall comply with the “Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies” and applicable regulations of the R.O.C. when the shock of the Company is traded at the places of business of securities firms.

IX. Any of the Situations Listed in Article 36.2.2 of the Securities and Exchange Act That Materially Affects Shareholders' Equity or the Price of the Company's Securities During the Most Recent Fiscal Year or During the Current Fiscal Year Up To the Date of Printing of the Annual Report None.

Ma Kuang Healthcare

Holding Limited

Person in Charge: Huang, Fu-Hsiang

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