Are Bank Fees Deductible On Taxes

CHINA MEIHUA BIOLOGICAL TECHNOLOGY PLC – Final Results.

                     CHINA MEIHUA BIOLOGICAL TECHNOLOGY PLC
                       ("China Meihua" or the
"Company")
                                ANNUAL RESULTS
                      FOR THE YEAR ENDED 31 DECEMBER 2012
CHAIRMAN'S STATEMENT 

I am pleased to present China Meihua Biological Technology
plc’s audited results for the twelve months to the year end 31

December
 see month.
 2012.

China Meihua was admitted to the
ISDX

ISDX Integrated Services Digital Exchange
 Markets in
October
 see month.
 2008 as a
distributor of
probiotics

Bacteria that are beneficial to a person’s health, either through protecting the body against pathogenic bacteria or assisting in recovery from an illness.

Mentioned in: Colonic Irrigation, Dysentery, Gastroenteritis
,
lactase
 /lac·tase/ () a ß-galactosidase occurring in the brush border membrane of the intestinal mucosa that catalyzes the cleavage of lactose to galactose and glucose; it is part of the ß-glycosidase enzyme complex.
,
yoghurt

 
fermentation
 process by which the living cell is able to obtain energy through the breakdown of glucose and other simple sugar molecules without requiring oxygen. Fermentation is achieved by somewhat different chemical sequences in different species of organisms.
 agents and
other related products under the 25 years exclusive distribution
agreement with
Harbin
 , Rus. Kharbin, city (1994 est. pop. 2,505,200), capital of Heilongjiang prov., China, on the Songhua River. It is the major trade and communications center of central Manchuria, the junction of the two most important
 Meihua Biotechnology Joint Stock Co., Limited
(“Harbin Meihua”). On 1 March 2011, China Meihua successfully
acquired Ying
Wei
 , river, c.450 mi (720 km) long, rising in SE Gansu prov. and flowing E through Gansu and Shaanxi provs. to the Huang He.
 Limited (the new holding company of Harbin Meihua
Biological Technology Joint Stock Co. Limited). We believe that the
acquisition will enable China Meihua to further exploit the market in
which it operates; taking advantage of both
synergy

 benefits and Harbin
Meihua’s established reputation. We have seen the result in 2012
with increased turnover by 11% as compared to 2011.

In the 12 month period to 31 December 2012, the Group’s revenue
was [pounds sterling]848,748 (2011: [pounds sterling]799,324) and its
net loss for the year was [pounds sterling]1,546,509 (2011: [pounds
sterling]608,004). Although the revenue in the 12 month period has only
increased by 6% comparing to last year’s, the gross profit has
increased by more than 66% over the period. However, with increased
finance costs and administrative expenses, the Group recorded a bigger
net loss during this period. But the Group has continued exploring
opportunities to grow its market share and reach new customers. A
recently patented Bama longevity
bacterium
 /bac·te·ri·um/ () pl. bacte´ria   [L.] in general, any of the unicellular prokaryotic microorganisms that commonly multiply by cell division, lack a nucleus or membrane-bound organelles, and possess a cell
 has been added to
yogurt
 see fermented milk.


yogurt

Semisolid, fermented, often flavoured milk food. Yogurt is known and consumed in almost all parts of the world.
 fermentation agents and probiotics to produce several
high-end

adj. Informal
1. Appealing to sophisticated and discerning customers:

2.
 new
products. A series of new
flavoured

 yogurt fermentation agents will also
be released to the market soon. A new agreement with
Beijing
  or  , city (1994 est. urban pop. 6,093,300; 1994 est. total pop. 7,240,700), capital of the People’s Republic of China. It is in central Hebei prov.
 In&On
Ltd to promote the Group’s products through new media has been
signed which has already generated positive results. It is expected that
there will be a breakthrough with the sales of the Group’s existing
and new products in 2013 to enhance its revenue. The directors have been
constantly negotiating with its creditors for the
refinancing

 of the
loan facilities and are confident that the Group has the adequate
resources to continue in operation for the
foreseeable
  
tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees
To see or know beforehand:
 future.

The annual general meeting of the Company will be held at No. 8-8,

Shanghai Street

, Daoli District, Harbin,
Heilongjiang
 or   [Chin.,=black dragon river (the Amur)], province (1994 est. pop. 35,570,000), c.
 Province, China on
28 June 2013.

Wenjuan
Xiao

 

Chairman

For more information please contact:

Hongwei Zhang

China Meihua Biological Technology plc

 0161 969 3540 Katy Mitchell WH Ireland Limited 0161 832 2174 

CHINA MEIHUA BIOLOGICAL TECHNOLOGY PLC

 DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 

The directors present their report and financial statements for the
year ended 31 December 2012.

Principal activities, trading review and future developments

The Group’s principal activity continued to be the
manufacturing and distribution of probiotics, lactase, yoghurt
fermentation agents and other related products.

Further details regarding the future development and performance
about the Group can be found in the Chairman’s Statement on page
3.

Business review including operational and financial issues

The Board examines a number of
Key Performance Indicators

 in
evaluating the performance of the business. The most important of these
are:

                                                                  2012
2011 Revenue                                                    [pounds
sterling]848,748    [pounds sterling]799,324 Loss before interest, tax,
depreciation and                  [pounds sterling]682,815   [pounds
sterling]13,785 amortisation Number of employees
140       128 

It is considered that the development of the Company and its
position as at 31 December 2012 are fairly set out in the accompanying
accounts.

Results and dividends

The Group recorded a loss after tax of [pounds sterling]1,546,509
(2011: [pounds sterling]608,004). Further information on the result for
the period is included within the Chairman’s Statement on page
3.

The directors do not recommend a dividend payment for the
period.

Risks and uncertainties

There are a number of potential risks and uncertainties, which could
have a material impact on the Group’s performance and could cause
actual results to differ materially from expected and historic results.
The Board monitors risks on an ongoing basis and implements appropriate
procedures and processes to try and
mitigate

v.
To moderate in force or intensity.


miti·gation n.
 the adverse consequences of
such risks.

The business faces two principal risks.

Firstly, the Group may need to raise additional capital to fund its
future expansion. There can be no assurance that the Group will be able
to obtain such funding.

Secondly, the Group’s operating subsidiaries’ functional
currency is
Chinese Yuan

 (”RMB”), the fluctuations
in
RMB

RMB Rolf Maier Bode
RMB Ren Min Bi  
 could have an adverse effect on the Group’s business and
operating results.

Due to the nature of these risks, they cannot be
mitigated
  
v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates

v.tr.
To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve.

v.intr.
To become milder.
.

 DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 

Directors

The directors who have held office during the period are:

 Executive Directors Wenjuan Xiao Fengxiang Lin Wenyan Duan Li
Huang Non-Executive Directors Dr H Zhang Directors' interests 

The interests (all of which are beneficial unless otherwise stated),
whether direct or indirect, of the directors and their families in
respect of the issued share capital is disclosed under substantial
shareholders on page 6.

The directors, other than
Rupert
 1352–1410, German king (1400–1410), elector palatine of the Rhine. He was elected German king after the deposition of Wenceslaus. Seeking the imperial crown, Rupert went to Italy.
 Purser, an ex-director, do not hold
any options over shares in the Company. The Company has granted Rupert
Purser an option to subscribe 2 per cent of the issued share capital of
the Company at date of Admission to ISDX market. The options can be
exercised at any time during the period from the date of the second
anniversary of Admission until the final day of the fifth year following
Admission. The exercise price is the Admission price on first day of
trading.

On 22 October 2010, Rupert Purser has resigned as the non executive
director but his share option still remains effective till its
expiry
date

 expire n → ;
(on label) →

 expire n →  
 on 23 October 2013.

Employment policies

The Group pursues a policy of equal opportunities to all employees
and potential employees. The Group has continued its policy of giving
fair consideration to applications for employment made by disabled
persons bearing in mind the requirements for skills and aptitude for the
job. In the areas of planned employee training and career development,
the Group strives to ensure that disabled employees receive equal
treatments, including opportunities for promotion. Every effort is made
to ensure that continuing employment and opportunities are also provided
for employees who become disabled. It is the Group’s policy to take
views of employees into account in making decisions, and wherever
possible to encourage the involvement of employees in Group’s
performance.

Payments to suppliers

The Group’s policy for the year ended 31 December 2012 is for
all suppliers to fix terms of payment when agreeing the terms of each
transaction and
to abide by

 the agreed terms of payment.

Going concern

During the year ended 31 December 2012, the Group made a loss of
[pounds sterling]1,546,509 (2011: [pounds sterling]608,004) and had net
liabilities of [pounds sterling]3,209,199 at 31 December 2012 (2011:
[pounds sterling]1,733,380). The Group experienced great challenges in
achieving the expected sales volume and pricing, thus the Group did not
reach its profitable potential as high input costs affected
profitability and cash position.

The current economic environment is difficult and the company has
reported operating losses for the last few years. The directors consider
that the outlook presents significant challenges in terms of profit
margin and
administrative costs

n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided.
. In addition, the Group bank borrowings
are expiring and the directors have commenced discussion with few
bankers and other financial lenders for the renewal of loan facilities.
It is likely that these discussions will not be completed for some time.
The directors are also pursuing alternative sources of funding in case
the loan facilities are not forthcoming, but have not yet secured a
commitment.

The directors have concluded that the combination of these

circumstances

 represents a material uncertainty that casts significant
doubt upon the Group’s ability to continue as a going concern.
Nevertheless after making enquiries and considering the uncertainties
described above, the directors and shareholders have expressed their
willingness to continue supporting the Group for the foreseeable future.
Moreover, the directors are of the opinion that the Group will obtain
its renewal loan facility without any
impair
  
tr.v. im·paired, im·pair·ing, im·pairs
To cause to diminish, as in strength, value, or quality:
 on the basis the market
value of the land and buildings owned by the Group would be higher than
its
carrying value

 (see note 12). For these reasons, the directors
continue to adopt the going concern basis of accounting in preparing the
group financial statements.

 DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 

Annual general meeting

The Annual General Meeting of the Company will be held on 28 June
2013 at No 8-8 Shanghai Street, Daoli District, Harbin, P.R. China.

Substantial shareholders

As at 28 May 2013, the Company had been notified of the following
beneficial interest of 3% or more in its shares:

 Name of holder                                   Number of
% of issued
                                                     shares       share
capital Wenjuan Xiao                                    35,885,430 **
56.84% Fengxiang Lin                                    8,590,050
13.61% Sunny Orient Limited                             6,300,000
9.98% Yanli Wang                                       2,835,000
4.49% Qingtong Wang                                    2,268,000
3.59% Xiujie Zheng                                     2,268,000
3.59% Tianxiang Xiao                                   2,268,000
3.59% Wensheng Xiao                                    2,268,000
3.59% 

** The 35,885,430 ordinary shares held by Wenjuan Xiao included
1,803,060 ordinary shares held by Ziquan
Lin
   , Maya Ying Born 1959.

American sculptor and architect whose public works include the Vietnam Veterans Memorial in Washington, D.C. (1982).

Noun 1.
,
spouse
  A legal marriage partner as defined by state law
 of Wenjuan
Xiao.

Statement of directors’ responsibilities

Company law requires the directors to prepare financial statements
for each financial year, which give a true and fair view of the state of
affairs of the Company and Group and of the profit or loss of the Group
for that period. In preparing those financial statements, the directors
are required to:

   * select suitable accounting policies and then apply them
consistently;
  * make judgments and estimates that are reasonable and prudent;
  * state whether applicable accounting standards have been followed,
subject
    to any material departures disclosed and explained in the financial
    statements; and
  * prepare the financial statements on the going concern basis unless
it is
    inappropriate to presume that the Company will continue in business.
   

The directors confirm that they have complied with the above
requirements in preparing these financial statements.

The directors are responsible for keeping proper accounting records,
which disclose with reasonable accuracy at any time the financial
position of the Company and the Group to enable them to ensure that the
financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and the Group and
hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.

Statement of disclosure to
auditor
 n. an accountant who conducts an audit to verify the accuracy of the financial records and accounting practices of a business or government. A proper audit will point out deficiencies in accounting and other financial operations.
 

The directors have confirmed that:

   * so far as the directors are aware, there is no relevant audit
information
    of which the Company's auditors are unaware, and
  * they have taken all the steps they ought to have taken as directors
in
    order to make themselves aware of any relevant audit information and
to
    establish that the Company's auditors are aware of that
information. DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 

Auditors

A resolution proposing the
reappointment
 Hospital practice The renewal of medical staff membership and privileges of a practitioner whose previous service on the medical staff has met the staff’s standard of Pt care. See Appointment.
 of
UHY

 
Hacker

 Young as
auditors of the Company and authorising the Board to determine their

remuneration

 will be put to the Annual General Meeting.

 By order of the Board W Xiao Director 31 May 2013 INDEPENDENT
AUDITORS' REPORT TO THE SHAREHOLDERS OF CHINA MEIHUA BIOLOGICAL
TECHNOLOGY PLC 

We have audited the financial statements of China Meihua Biological
Plc for the year ended 31 December 2012, which comprise the
Consolidated
income statement

An income statement that combines the income statements of two or more organizations. As with other consolidated statements, a consolidated income statement eliminates any funds owed to or due from firms within the same group.
, the Consolidated and Parent Company balance sheets,
the Consolidated and Parent Company statements of changes in equity, the
Consolidated and Parent Company cash flow statements and the related
notes. The financial reporting framework that has been applied in their
preparation is applicable law and
International Financial Reporting
Standards

 (IFRSs) as adopted by the European Union.

This report is made solely to the Company’s members, as a body,
in
accordance

 with chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditors

As explained more fully in the Statement of responsibilities of
those charged with
governance

, set out on page 6, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our responsibility
is to audit the financial statements in accordance with relevant legal
and regulatory requirements and
International Standards on Auditing

 (UK
and
Ireland
 Irish Eire  [to it are related the poetic Erin and perhaps the Latin Hibernia], island, 32,598 sq mi (84,429 sq km), second largest of the British Isles.
). Those standards require us to comply with the Auditing
Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is
provided on the APB’s website at
www.frc.
org

.uk/apb/scope/private.cfm.

Qualified opinion on financial statements

The Group’s financing arrangement of RMB25 million is expiring
and the amount outstanding is payable on 20 August 2013. The Group may
be unable to re-negotiate or obtain the replacement financing in time as
described in note 1.3. This situation indicates the existence of a
material uncertainty that may cast significant doubt on the Group’s
ability to continue as a going concern and therefore the Group may be
unable to realise its assets and discharge its liabilities in the normal
course of business. The financial statements (and notes
thereto
  
adv.
1. To that, this, or it.

2. Archaic In addition to that; furthermore.


Adverb

Formal

1. to that or it

2.
) do not
fully disclose this fact. In addition, this matter means that we have
been unable to obtain sufficient evidence that the directors are
justified in adopting the going concern basis in preparing these
financial statements.

Opinion on financial statements

In our opinion, except for the possible effects of the matter
described in the Basis for Qualified Opinion paragraph:

   * the financial statements give a true and fair view of the state of
the
    Group's and of the Parent Company's affairs as at 31
December 2012 and of
    the Group's loss for the year then ended;
  * the Group financial statements have been properly prepared in
accordance
    with IFRSs as adopted by the European Union;
  * the Parent company financial statements have been properly prepared
in
    accordance with IFRSs as adopted by the European Union and as
applied with
    the provisions of the Companies Act 2006;and
  * the financial statements have been prepared in accordance with the
    requirements of the Companies Act 2006. INDEPENDENT AUDITORS'
REPORT TO THE SHAREHOLDERS OF CHINA MEIHUA BIOLOGICAL TECHNOLOGY PLC 

Opinion on other matters
prescribed
  
v. pre·scribed, pre·scrib·ing, pre·scribes

v.tr.
1. To set down as a rule or guide; enjoin. See Synonyms at dictate.

2. To order the use of (a medicine or other treatment).
 by the Companies Act 2006

In our opinion the information given in the Directors’ Report
for the financial year for which the financial statements are prepared
is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where
the Companies Act 2006 requires us to report to you if, in our
opinion:

   * adequate accounting records have not been kept by the Parent
Company, or
    returns adequate for our audit have not been received from branches
not
    visited by us; or
  * the Parent Company financial statements are not in agreement with
the
    accounting records and returns; or
  * certain disclosures of directors' remuneration specified by law
are not
    made; or
  * we have not received all the information and explanations we require
for
    our audit. Julie Wilson Senior Statutory Auditor 

For and on behalf of UHY Hacker Young

 Chartered Accountants Statutory Auditors Quadrant House 4 Thomas
More Square London E1W 1YW 31 May 2013 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2012

                                              Notes           2012
2011
                                                                [pounds
sterling]             [pounds sterling] Revenue
3          848,748       799,324 Cost of sales
(578,013)     (636,733) Gross profit / (loss)
270,735       162,591 Other operating income
-         8,121 Other gains and losses                         4
-     2,126,646 Royalty fees                                   5
-       (5,535) Distribution costs
(226,209)     (227,054) Administrative expenses
(982,091)     (739,451) Impairment loss
-   (1,629,942) Operating Loss
(937,565)     (304,624) Interest income
350           463 Finance costs
(609,294)     (303,843) Loss before tax                                6
(1,546,509)     (608,004) Income tax expense
9                -             - Loss for the period
(1,546,509)     (608,004) Other comprehensive income Exchange difference
arising on translation                 70,690       150,959 of foreign
operations Total comprehensive income for the year
(1,475,819)     (457,045) Loss attributable to: Owners of the parent
(1,483,538)     (575,723) Non-controlling interest
(62,971)      (32,281)
                                                      (1,546,509)
(608,004) Total comprehensive income attributable to: Owners of the
parent                                  (1,409,904)     (440,802)
Non-controlling interest                                 (65,915)
(16,243)
                                                      (1,475,819)
(457,045) Loss per share                                 10        Pence
Pence Basic and diluted                                          (2.35)
(1.07) 

The notes on pages 15 to 33 form part of these financial
statements.

All amounts are derived from
continuing operations

Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the
.

CONSOLIDATED AND PARENT COMPANY BALANCE SHEET

 AT 31 DECEMBER 2012
                         Notes           2012          2011
2012        2011
                                           [pounds sterling]
[pounds sterling]             [pounds sterling]           [pounds
sterling]
                                       Group         Group       Company
Company Non-current assets Intangible assets        11          454,504
498,698             -           - Property, plant and      12
3,194,195     3,266,218             -           - equipment Investment
in            13                -             -         2,705
693,597 subsidiary
                                   3,648,699     3,764,916         2,705
693,597 Current assets Inventories              14          634,350
456,105             -           - Trade and other          15
1,368,412     1,293,185        68,718      84,322 receivables Cash and
cash            16        1,480,565       167,475         1,254
48 equivalents
                                   3,483,327     1,916,765        69,972
84,370 Total assets                       7,132,026     5,681,681
72,677     777,967 Current liabilities Borrowings               22
(5,866,950)   (2,629,169)             -           - Trade and other
17      (3,790,283)   (3,488,435)     (789,782)   (727,712) payables
                                 (9,657,233)   (6,117,604)     (789,782)
(727,712) Non-current liabilities Borrowing                22
(336,894)     (932,725)             -           - Deferred income
23        (347,098)     (364,732)             -           -
                                   (683,992)   (1,297,457)             -
- Total liabilities               (10,341,225)   (7,415,061)
(789,782)   (727,712) Net liabilities                 (3,209,199)
(1,733,380)     (717,105)      50,255 Equity Share capital            19
631,364       631,364       631,364     631,364 Share premium
28,636        28,636        28,636      28,636 Translation reserves
148,781        75,147             -           - Retained earnings
(4,166,479)   (2,682,941)   (1,377,105)   (609,745)
                                (3,357,698)    (1,947,794)     (717,105)
50,255 Non-controlling          21          148,499       214,414
-           - interest Total equity                    (3,209,199)
(1,733,380)     (717,105)      50,255 

The notes on pages 15 to 33 form part of these financial
statements.

The financial statements were approved by the Board of Directors and
authorised for issue on 31 May 2013.

 Wenjuan Xiao Director 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

                 Share    Share  Translation     Retained  Minority
Total
                       premium     reserves     earnings  Interest
              capital
                    [pounds sterling]        [pounds sterling]
[pounds sterling]            [pounds sterling]         [pounds sterling]
[pounds sterling] Balance at 31  50,000        -     (59,774)
(2,107,218)         -  (2,116,992) December 2010 Comprehensive income
Loss for the        -        -            -    (575,723)  (32,281)
(608,004) year Other comprehensive income Currency            -        -
134,921            -    16,038      150,959 translation differences
Total               -        -      134,921    (575,723)  (16,243)
(457,045) comprehensive income Transactions with owners Issue of
581,364   28,636            -            -         -      610,000 share
Acquisition         -        -            -            -   230,657
230,657 of subsidiaries Total         581,364   28,636            -
-   230,657      840,657 transactions with owners Balance at 31 631,364
28,636       75,147  (2,682,941)   214,414  (1,733,380) December 2011
Comprehensive income Loss for the year        -       -        -
(1,483,538)  (62,971)  (1,546,509) Other comprehensive income Currency
-       -   73,634            -   (2,944)       70,690 translation
differences Total                    -       -   73,634  (1,483,538)
(65,915)  (1,475,819) comprehensive income Balance at 31      631,364
28,636  148,781  (4,166,479)   148,499  (3,209,199) December 2012 

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

                                         Share    Share   Retained
Total
                                      capital  premium   earnings
                                            [pounds sterling]
[pounds sterling]          [pounds sterling]          [pounds sterling]
Balance at 31 December 2010            50,000        -  (478,650)
(428,650) Comprehensive income Loss for the year
-        -  (131,095)  (131,095) Total comprehensive income
-           (131,095)  (131,095) Transactions with owners Issue of share
581,364   28,636          -    610,000
                                                                            

Total transactions with owners 581,364 28,636 – 610,000

 Balance at 31 December 2011           631,364   28,636  (609,745)
50,255 Comprehensive income Loss for the year
-       -    (767,360)  (767,360) Total comprehensive income
-            (767,360)  (767,360) Balance at 31 December 2012
631,364  28,636  (1,377,105)  (717,105) 

CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012

                                        Group                    Company
                                 2012        2011           2012
2011
                                   [pounds sterling]           [pounds
sterling]             [pounds sterling]          [pounds sterling] Cash
flows from operating activities
                                                                              

Loss on ordinary activities (937,565) (304,624) (767,360) (131,095)
before interest and taxation

 Adjustments for: Amortisation of intangible         31,723
109,067             -          - assets Depreciation of property,
223,026     182,113             -          - plant and equipment
Goodwill negative                       - (2,126,646)             -
- Impairment loss                         -   1,629,942             -
- Permanent diminution                    -           -       690,892
-
                                 (682,816)   (510,148)      (76,468)
(131,095) Changes in working capital: Inventories
(189,859)   (136,991)             -          - 

Trade and other
receivables

 (121,226) 1,905,275 15,604 (57,464)

 Trade and other payables          437,568 (1,610,078)
62,070    154,506 Cash from/(used in)             (556,333)   (351,942)
1,206   (34,053) operations Income taxes paid                       -
-              -         - Net cash from/(used in)         (556,333)
(351,942)         1,206   (34,053) operating activities Cash flows from
investing activities Purchase of property, plant     (261,403)
(22,195)             -          - and equipment Interest received
350         463             -          - Net cash outflow arising from
-   (510,452)             -  (510,452) acquisition Net cash used in
investing      (261,053)   (532,184)             -  (510,452) activities
Cash flows from financing activities Proceeds from share capital
-     547,000             -    547,000 Financial costs
(507,211)   (303,843)             -          - Borrowings (Net)
2,641,950     639,753             -          - Loan repayment from
-           -             -          - subsidiary Net cash from
financing         2,134,739     882,910             -    547,000
activities
                                                                               

Net change in cash and cash 1,317,353 1,216 1,206 (2,495)
equivalents

 Cash and cash equivalents at      167,475      15,300
48      2,543 beginning of year Exchange effect
(4,263)     150,959             -          - 

Cash and cash equivalents at 1,480,565 167,475 1,254 48 end of
year

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2012

* SIGNIFICANT ACCOUNTING POLICIES

1. General information

China Meihua Biological Technology Plc is a company incorporated in

England and Wales

 under the Companies Act 2006. The address of the
registered office is given on page 1. The nature of the Group’s
operations and its principal activities are set out in the
Directors’ Report on page 4. These financial statements are
presented in pounds sterling.

The principal activity of the company is that of an investment
holding company. The principal activities of its subsidiaries are set
out in note 13.

On 25
February
 see month.
 2011, the company and its subsidiary Harbin Yinghua
Biological Technology Co., Limited (”Harbin
Yinghua”) executed an assignment (the “Assignment”)
with Ying Wei Limited (“Ying Wei”) and Sunny
Orient

v.
1. To locate or place in a particular relation to the points of the compass.

2. To align or position with respect to a point or system of reference.

3.
 Limited
(“Sunny Orient”), the parent company of Ying Wei. Both Ying
Wei and Sunny Orient are incorporated in BVI. Pursuant to which Harbin
Yinghua
assigned
  
tr.v. as·signed, as·sign·ing, as·signs
1. To set apart for a particular purpose; designate:

2.
 to Ying Wei all its rights and obligations under the
option agreement dated 23 October 2008 that made between Harbin Yinghua
and the shareholders of Harbin Meihua Biotechnology Joint Stock Co.,
Limited (”Harbin Meihua”) to acquire the 95% of
the entire share capital of Harbin Meihua for a consideration of [pounds
sterling]1. The Assignment also provides that Sunny Orient will
immediately transfer Ying Wei (the new holding company of Harbin Meihua)
back to the company. Sunny Orient is owned and controlled by Lili
Yang
 () [Chinese] in Chinese philosophy, the active, positive, masculine principle that is complementary to yin; see yin, under principle.
,
the spouse of Dr. Hongwei Zhang, a non executive director of the
company.

On 1 March 2011, the company acquired the entire share capital of
Ying Wei for a total consideration of [pounds sterling]580,000. The
consideration was settled by issuing 6,300,000 new ordinary shares of
the company at [pounds sterling]0.01 per share and [pounds
sterling]517,000 in cash. In the same period, the company issued
51,700,000 new ordinary shares at [pounds sterling]0.01 per share to the
existing shareholders raising [pounds sterling]517,000 in cash. The
company also further issued 136,364 new ordinary shares at [pounds
sterling]0.22 per share raising [pounds sterling]30,000 for working
capital.

1.2 Statement of compliance and basis of preparation

These financial statements have been prepared in accordance with
International Financial Reporting Standards adopted by the European
Union (”
IFRS

IFRS Inter Frame Relay Service
IFRS Indiana Facilities Registry System
“),
IFRIC

 interpretations and the AIM Rules.

The financial statements have been prepared on the historical costs
basis except for the
revaluation

 of certain non-current assets and
financial instruments as required.

At the date of authorisation of these financial statements, the
Group has not adopted the following standards and interpretations as
they are either not effective of not applicable to the Group’s
business.

   * Amendments to IFRS 7 Financial Instruments: Disclosures
  * IAS 27 Separate Financial Statements (2011)
  * IAS 28 Investments in Associates and Joint Ventures (2011)
  * IFRS 9 Financial Instruments
  * IFRS 10 Consolidated Financial Statements
  * IFRS 12 Disclosure of Interests in Other Entities
  * IFRS 13 Fair Value Measurement
  * Amendments to IAS 19 Employee Benefits
  * Amendments to IAS 1 Presentation of Items of Other Comprehensive
Income
  * Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and
    Financial Liabilities
  * Amendments to IAS 32 Offsetting Financial Assets and Financial
Liabilities
  * Annual improvements to IFRSs (2009 - 2011)
   

The management does not anticipate that the adoption of the above
IFRS (including
consequential
  
adj.
1. Following as an effect, result, or conclusion; consequent.

2. Having important consequences; significant:
 amendments) and interpretations will
result in any material impact to the financial statements in the period
of initial application.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012

1.3 Going concern

During the year, the Group made a loss of [pounds sterling]1,546,509
(2011: [pounds sterling]608,004) and had net liabilities of [pounds
sterling]3,209,199 at 31 December 2012 (2011: [pounds
sterling]1,733,380). The Group experienced great challenge in achieving
the expected sales volume and pricing, thus the Group did not reach its
profitable potential as high input costs affected profitability and cash
position.

The current economic environment is difficult and the company has
reported operating losses for the last few years. The directors consider
that the outlook presents significant challenges in terms of profit
margin and administrative costs. In addition, the Group bank borrowings
are expiring and the directors have commenced discussion with few
bankers and other financial lenders for the renewal of loan facilities.
It is likely that these discussions will not be completed for some time.
The directors are also pursuing alternative sources of funding in case
the loan facilities are not forthcoming, but have not yet secured a
commitment.

The directors have concluded that the combination of these
circumstances represents a material uncertainty that casts significant
doubt upon the Group’s ability to continue as a going concern.
Nevertheless after making enquiries and considering the uncertainties
described above, the directors and shareholders have expressed their
willingness to continue supporting the Group for the foreseeable future.
Moreover, the directors are of the opinion that the Group will obtain
its renewal loan facility without any impair on the basis the market
value of the land and buildings owned by the Group would be higher than
its carrying value (see note 12). For these reasons, the directors
continue to adopt the going concern basis of accounting in preparing the
group financial statements.

1.4 Basis of consolidation

The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company (its
subsidiaries). Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as
to obtain benefits from its activities.

Non-controlling interests in the
net assets

See owners’ equity.
 of consolidated
subsidiaries are identified separately from the Group’s equity
therein. Minority interests consist of the amount of those interests at
the date of the original business combination (see below) and the
minority’s share of changes in equity since the date of the
combination. Losses applicable to the minority in excess of the
minority’s interest in the subsidiary’s equity are allocated
against the interests of the Group except to the extent that the
minority has a binding obligation and is able to make an additional
investment to cover the losses.

The results of subsidiaries acquired or
disposed
  
v. dis·posed, dis·pos·ing, dis·pos·es

v.tr.
1. To place or set in a particular order; arrange.

2.
 of during the
period are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal,
as appropriate.

Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those
used by the Group.

All intra-group transactions, balances, income and expenses are
eliminated on consolidation.

1.5 Business combinations

The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. The consideration transferred in a
business combination is measured at the aggregate of the fair values, at
the date of exchange, of assets given, liabilities incurred or assumed,
and equity instruments issued by the Group in exchange for control of
the acquire. Acquisition related costs are generally recognised in
profit or loss. The acquiree’s identifiable assets, liabilities and
contingent liabilities that meet the conditions for recognition under
IFRS 3: Business Combinations are recognised at their fair value at the
acquisition date, except for non-current assets (or disposal groups)
that are classified as held for sale in accordance with IFRS 5:
Non-Current Assets Held for Sale and
Discontinued Operations

, which are
recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and
initially measured as the excess of the consideration transferred over
the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities recognised. If, after

reassessment

, the Group’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent
liabilities exceed the consideration transferred, the excess is
recognised immediately in the profit and loss as a bargain purchase.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

Non-controlling interests that are present ownership interest and

entitle
  
tr.v. en·ti·tled, en·ti·tling, en·ti·tles
1. To give a name or title to.

2. To furnish with a right or claim to something:
 their holders to a
proportionate
  
adj.
Being in due proportion; proportional.

tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates
To make proportionate.
 share of the entity’s net
assets in the event of
liquidation

 may be initially measured either at
fair value or at the non- controlling interests’ proportionate
share of the recognised amounts of the acquiree’s identifiable net
assets. The choice of measurement basis is made on a
transaction-by-transaction basis. Other types of non-controlling
interests are measured at fair value, when applicable, on the basis
specified in another IFRS.

1.6 Revenue recognition

Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for
goods and services

 provided in the normal course of business, net of discounts,
VAT

See value-added tax (VAT).
 and
other sales related taxes.

Sales of goods are recognised when goods are delivered and title has
passed.

Sales of services are recognised in the accounting periods in which
the services are rendered, by reference to stage of completion of the
specific project assessed on the basis of the actual service provided as
a proportion of the total services to be provided as at the balance
sheet date.

1.7
Segment reporting

A type of financial reporting in which the firm discloses information by identifiable industry segments. For example, Union Pacific Corporation reports revenues, income, assets, depreciation, and capital expenditures for each of four
 

Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker. The
chief operating decision-maker is responsible for allocating resources
and assessing performance of the operating segments.

1.8 Foreign currencies

The Group-operating subsidiary’s financial statements were
drawn up in Chinese Yuan (RMB), the main functional currency for the
Group. Therefore the financial information in the financial statements
has been translated from RMB to pound sterling at the relevant exchange
rates for reporting in the United Kingdom.

Functional and presentational currency

Items included in the financial information of each of the
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional
currency’). The consolidated financial information is presented in
Sterling (‘[pounds sterling]’), which is the Company’s
presentational currency.

Transactions and balances

Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at period end
exchange rates of the
monetary assets and liabilities

 denominated in
foreign currencies are recognised in the income statement.

Group companies

The results and financial position of all the Group entities (none
of which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentational currency are
translated into the presentational currency as follows:

   * assets and liabilities for each balance sheet presented are
translated at
    the closing rate at the date of that balance sheet;
  * income and expenses for each income statement are translated at
average
    exchange rates (unless this average is not a reasonable
approximation of
    the cumulative effect of the rates prevailing on the transaction
dates, in
    which case income and expenses are translated at the rate on the
dates of
    the transactions); and
  * all resulting exchange differences are recognised as a separate
component
    of equity.
   

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

The presentational currency of the Group is Pounds Sterling and
therefore the financial statements have been translated from RMB to
[pounds sterling] at the following exchange rates:

Closing rate [pounds sterling]1: RMB 10.07 (2011: [pounds
sterling]1: RMB 9.82);

Average rate [pounds sterling]1: RMB 10.00 (2011: [pounds
sterling]1: RMB 10.35)

1.9 Borrowing costs

Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their
intended use or sale, are added to the cost of those assets, until such
time as the assets are substantially ready for their intended use or
sale. Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is
deducted
  
v. de·duct·ed, de·duct·ing, de·ducts

v.tr.
1. To take away (a quantity) from another; subtract.

2. To derive by deduction; deduce.

v.intr.
 from the borrowing costs eligible for
capitalisation

.

All other borrowing costs are recognised in profit or loss in the
period in which they are incurred.

1.10 Taxation

The tax expense represents the sum of the tax currently payable and
deferred tax.

The tax currently payable is based on taxable profit for the period.
Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are
taxable or
deductible

 in other years and it further excludes items that
are never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date, and any adjustment to
tax payable in respect of previous periods.

Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax rates used in the

computation

 of taxable profit, and is accounted for using the balance
sheet method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises from
the initial recognition of goodwill or from the initial recognition
(other than in a business combination) of
other assets

Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately.
 and liabilities
in a transaction that affects neither the tax profit nor the accounting
profit.

The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income statement,
except when it relates to items charged or credited directly to equity,
in which case it is recognised in equity.

Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.

1.11 Property, plant and equipment

Property, plant and equipment are stated in the balance sheet at
cost less any subsequent
accumulated depreciation

The total amount of depreciation that has been recorded for an asset since its date of acquisition. For example, a computer with a 5-year estimated life that was purchased for $2,000 would have accumulated depreciation of $800 [(
 and any recognised

impairment

 loss.

Cost includes purchase price and all directly attributable costs of
bringing the asset to its present location and condition necessary to
operate as intended.

Depreciation is provided at rates calculated to write off the cost
less estimated
residual value

The price at which a fixed asset is expected to be sold at the end of its useful life.
 of each asset over its estimated useful
economic life as follows:

Leasehold
 n.
 land and building over the lease period

Plant and machinery 5 – 20 years

Fixtures, fittings and equipment 5 – 8 years

Motor vehicles 5 – 15 years

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount (refer note 1.12).

Gains and losses on disposals are determined by comparing the
disposal proceeds with the carrying amount and are included in the
income statement.

1.12 Impairment of tangible
fixed assets
 npl

 npl

 fix npl
 and intangible assets

At each balance sheet date, the Group reviews the carrying amounts
of its tangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the cash-generating unit to
which the asset belongs. An
intangible asset

 with an
indefinite

 useful
life is tested for impairment annually and whenever there is an
indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimates of future
cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount of
the asset (cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately, unless the
relevant asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount
of the asset (cash-generating unit) is increased to the
revised estimate

 of its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset (cash-generating unit)
in prior years. A reversal of an impairment loss is recognised as income
immediately, unless the relevant asset is carried at a revalued amount,
in which case the reversal of the impairment loss is treated as a
revaluation increase.

1.13 Intangible assets

Internally-generated intangible assets – research and development
expenditure

Expenditure on research activities is recognised as an expense in
the period in which it is incurred.

An internally generated intangible asset arising from development of
technical know-how is recognised only if all of the following conditions
are met:

   * the technical feasibility of completing the intangible asset so
that it
    will be available for use or sale.
  * its intention to complete the intangible assets and use or sell it.
  * its ability to use or sell the intangible asset.
  * it is probable that the assets created will generate future economic
    benefits.
  * the availability of adequate technical, financial and other
resources to
    complete the development and to use or sell the intangible asset.
  * the development cost of the asset can be measured reliably.
   

Internally generated intangible assets are amortised on a straight
line basis over their estimated useful lives. Where no internally
generated intangible asset can be recognised, development expenditure is
charged to income statement in the period in which it is incurred.

Amortisation

 is provided at rates calculated to write off the cost
less estimated residual value of each intangible asset over its
estimated useful economic life of up to
twenty years

 and this is charged
to income statement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

Technical know-how

An intangible shall be recognised only if:

   * It is probable that the expected future economic benefits that are
    attributable to the assets will flow to the entity; and
  * The cost of the asset can be measured reliably.
   

Technical know-how is measured at fair value and is amortised on

straight-line

adj.
1. Lying in a straight line.

2. Relating to a device whose linkage produces or copies motion in straight lines.

3.
 basis over their estimated useful life of twenty
years.

1.14 Investment in subsidiaries

Investments in subsidiaries are stated at cost less provision for
permanent
diminution in value
 n. in the event of a breach of contract, the decrease in value of property due to the failure to construct something exactly as specified in the contract.
.

1.15 Inventories

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

Net realisable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the
estimated costs necessary to make the sale. Cost includes all costs of
purchase, costs of conversion and other costs incurred in bringing the
inventories to their present location and condition. The cost of
inventories and work in progress, other than those for which specific
identification of costs are appropriate, is assigned by using the

first-in, first-out

n.
A method of inventory accounting in which the oldest remaining items are assumed to have been the first sold. In a period of rising prices, this method yields a higher ending inventory, a lower cost of goods sold, a higher gross
 (
FIFO

 basis). When the inventories and work in
progress are sold, the carrying amount of those inventories and work in
progress are recognised as an expense in the same period as the
revenue.

The amount of any
write-down

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

1.16 Financial instruments

Financial instruments are recognised in the Group’s balance
sheet when the Group becomes a party to the contractual provisions of
the instrument.

Trade receivables

Trade receivables are measured at initial recognition at fair value,
and are subsequently measured at amortised cost using the effective
interest rate method. Appropriate allowances for estimated irrecoverable
amounts are recognised in profit or loss when there is objective
evidence that the asset is impaired. The allowance recognised is
measured as the difference between the asset’s carrying amount and
the present value of estimated future cash flows discounted at the
effective interest rate computed at initial recognition.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and demand deposits,
and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value and have an original maturity of
three months or less.

Financial liabilities and equity

Financial liabilities and equity instruments are classified

according to

prep.
1. As stated or indicated by; on the authority of:

2. In keeping with:

3.
 the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a
residual interest

 in the assets of the Group after deducting all of its liabilities.

Trade payables

Trade payables are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective interest
rate method.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

Borrowings

Borrowings are recognised initially at the proceeds received and
subsequently measured at amortised cost. Any difference between
net
proceeds

 and
redemption value

 is recognised in the income statement over
period of the borrowings using effective interest method. Borrowings are
classified as
current liabilities

 unless the Group has an
unconditional

 right to
defer
  
v. de·ferred, de·fer·ring, de·fers

v.tr.
1. To put off; postpone.

2. To postpone the induction of (one eligible for the military draft).

v.intr.
 settlement for at least 12 months from the balance sheet
date.

Equity instruments

Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.

1.17 Government grants

Government grants are recognised as income over the periods
necessary to match them with the related costs which they are intended
to compensate; and are recognised only when there is reasonable
assurance that:

a. the company will comply with the conditions attached to them;
and

b. the grants will be received.

Government grants related to asset is recognised by deducting the
grant from the assets carrying value and it is amortised over the
remaining useful life of the asset.

Under
Chinese law

, the grant of RMB 18,609,850 is required to be
treated as a special reserve and would be included in equity, and not as
a reduction in the cost.

1.18 Share-based payments

The Group issues equity-settled share-based payments to certain
employees and directors, which are measured at fair value at the date of
grant.

The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the

vesting

 period, based on the Group’s estimate of shares that will
eventually vest and adjusted for the effect of non market-based vesting
conditions. At each balance sheet date, the Group revises its estimate
of the number of equity instruments expected to vest. The impact of the
revision of the original estimates, if any, is recognised in profit and
loss over the remaining vesting period, with a corresponding adjustment
to the equity-settled employee benefits reserve.

Equity-settled share-based payment transactions with other parties
are measured at fair value of the goods or services received, except
where the fair value cannot be estimated reliably, in which case they
are measured at the fair value of the equity instruments granted,
measured at the date the entity obtains the goods or the
counterparty

 render the service.

For cash-settled share-based payments, a liability equal to the
portion of the goods or services received is recognised at the current
fair value determined at each balance date.

Fair value is measured by use of
Black Scholes model

. The expected
life used in the model has been adjusted, based on management’s
best estimate, the effects of non-transferability, exercise restriction,
and
behavioural

 consideration.

* 1.19 Critical accounting estimates and judgements

Estimates and judgements are
continually
  
adj.
1. Recurring regularly or frequently:

2.
 evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The
resulting accounting estimates and assumptions will, by definition,
seldom equal the related actual results. The estimates and assumptions
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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

Intangible assets – Impairment review

The Group assesses the impairment of intangible assets subject to
amortisation or depreciation whenever events or changes in circumstances
suggest that the carrying amount of the asset may not be recoverable or
may have been impaired. The Group
amortise

 the intangible assets, using
the
straight-line method

, over their estimated useful lives. The
estimated useful life reflects management’s estimate of the period
that the Group intends to derive future economic benefits from the use
of the Group’s intangible assets. Factors that may trigger an
impairment review include the following:

i. Significant underperformance relative to historical or projected
operating

results.

ii. Significant changes in the manner of the use of the assets or
the overall

business strategy.

iii. Significant negative industry or macro-economic trends.

The key assumptions used in the value in use calculations for the
technical know-how included with intangible assets are revenue
growth
rates

, estimated useful life and appropriate discount rates.

Management has assessed the net present value and thereby impairment
on variety of bases and assumptions. The impairment test are
particularly sensitive to changes in the key assumptions and changes to
the assumptions could result in impairment; however all of the varying
bases indicate a net present value in excess of the carrying value of
the intangible assets.

The key assumptions in the value in use calculations are as
follows:

Revenue Growth Rate 5%

Discount Factor 6%

Estimated useful life 16 years

A decrease of 10% in the key assumptions rates would result in the
request for an impairment of the intangible asset.

Depreciation of property, plant and equipment

The Group depreciates the property, plant and equipment, using the
straight-line method, over their estimated useful lives after taking
into account of their estimated residual values. The estimated useful
life reflects management’s estimate of the period that the Group
intends to derive future economic benefits from the use of the
Group’s property, plant and equipment. The residual value reflects
management’s estimated amount that the Group would currently obtain
from the disposal of the asset, after deducting the estimated costs of
disposal, as if the asset were already of the age and in the condition
expected at the end of its useful life. Changes in the expected level of
usage and technological developments could affect the economics, useful
lives and the residual values of these assets which could then

consequentially
  
adj.
1. Following as an effect, result, or conclusion; consequent.

2. Having important consequences; significant:
 impact future depreciation charges. The carrying amounts
of the Group’s property, plant and equipment as at 31 December 2012
was [pounds sterling]3.2 million (2011: [pounds sterling]3.3
million).

Net realisable value of inventories

Net realisable value of inventories is the estimated selling price
in the ordinary course of business, less estimated costs of completion
and selling expenses. These estimates are based on the current market
condition and the historical experience of manufacturing and selling
products of similar nature. It could change significantly as a result of
changes in customer demand and competitor actions in response to severe
industry cycle. Management reassesses these estimates at each balance
sheet date. The carrying amount of the Group’s inventories as at 31
December 2012 was [pounds sterling]634,350 (2011: [pounds
sterling]456,105).

2 LOSS FOR PARENT COMPANY

The loss after tax for the period included in the accounts of the
Company amounts to [pounds sterling]767,360 (2011: [pounds
sterling]131,095) and has been included in the Group’s statement of
comprehensive income. As allowed by the provisions of Section 408 of the
Companies Act 2006, the Company has not published its own separate
statement of comprehensive income.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

3 SEGMENT INFORMATION

Management has determined there is only a single operating segment,
which is the manufacture, sales, marketing and distribution of
probiotics, lactase, yoghurt fermentation agents and other related
products, which are mainly undertaken in P. R. China.

4 OTHER GAINS AND LOSSES

Other gains and losses represent negative goodwill arising on the
acquisition of Ying Wei Group. This is a bargain purchase where prior to
the acquisition, Harbin Meihua was a loss making company. As a result of
this, the purchase price was discounted.

5 ROYALTY FEES

Royalty fees payable represent 10% of revenue paid to Harbin Meihua
under the term of the Distribution Agreement signed, which was
superseded by the execution of Assignment on note 1.1.

6 LOSS BEFORE TAX

 Loss from operations has been arrived at after            2012
2011 charging:
                                                              [pounds
sterling]            [pounds sterling] Staff costs (see note 7)
689,384      662,560 Foreign exchange difference
(12,162)       23,741 Depreciation
223,026      182,113 Amortisation
31,723      109,067 Impairment loss
-    1,629,942 Research costs
77,964       22,617 Operating lease rentals - property, plant and
-            - equipment 

The analysis of auditors’ remuneration is as follows:

                                                           2012
2011
                                                             [pounds
sterling]            [pounds sterling] Fees payable to the
Company's auditor for the audit of the Company's annual
accounts                   6,000        6,000 Fees payable to the
Company's auditor for the audit of the Company's subsidiaries
pursuant to         15,000       15,000 legislation Total audit fees
21,000       21,000 7 STAFF COSTS The average monthly number of
employees (including        2012         2011 directors) was:
                                                        Number
Number Office and management                                        7
7 Sales and marketing                                         24
21 Production                                                  65
62 Research & development                                      10
10 Administration                                              34
28
                                                           140
128 Their aggregate remuneration comprised:                      [pounds
sterling]            [pounds sterling] Wages and salaries
639,703      632,113 Social security cost
49,681       30,447
                                                       689,384
662,560 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

 8 DIRECTORS' EMOLUMENTS
                                                           2012
2011
                                                             [pounds
sterling]            [pounds sterling] Emoluments for qualifying
services                      73,843       72,155
                                                        73,843
72,155 9 INCOME TAX EXPENSE
                                                           2012
2011
                                                              [pounds
sterling]           [pounds sterling] Current tax charge Tax charge for
the year                                       -           - Deferred
tax (note 18)                                        -           -
                                                              -
- Current tax reconciliation Loss before taxation
(1,483,538)   (608,004) Current tax charge at rate of 25%
(370,885)   (152,001) Factor affecting income tax charge: Unrelieved tax
losses carried forward                   370,885     152,001
                                                              -
- 

The ultimate parent company is regarded as tax resident for the tax
purposes in the UK. It has estimated losses of [pounds sterling]507,997
(2011: [pounds sterling]431,529) available for carry forward against
future profits.

Ying Wei is regarded as resident for the tax purposes in BVI. There
are no applicable taxes in BVI for the company.

A company is deemed to be resident in PRC if it is established in
PRC or its effective management is in PRC. Residents are taxed on their
worldwide income. Non residents are taxed on PRC source income and
income effectively connected with their establishments in PRC.

The Group’s
operating subsidiary

 in P. R. China Domestic is
subject to income tax of 25%. It has estimated losses of RMB 43,265,000
(2011: RMB 29,950,000) available for carry forward against future
profits.

10
EARNING PER SHARE

 

Basic loss per share is calculated by dividing the loss attributable
to equity shareholders of the company by the weighted average number of
ordinary shares in issue during the year.

 Diluted loss per share is calculated by adjusting the weighted
average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares. There are no dilutive potential
ordinary shares in the company.
                                                           2012
2011 Earnings                                                     [pounds sterling]             [pounds sterling]
                                                                            

Earnings for the purposes of basic earnings (1,483,538) (575,723)
per share being net profit attributable to

 equity holders of the parent Number of shares 

Weighted average number of ordinary shares 63,136,364 53,738,979 for
the purposes of basic and
diluted
  
tr.v. di·lut·ed, di·lut·ing, di·lutes
1. To make thinner or less concentrated by adding a liquid such as water.

2. To lessen the force, strength, purity, or brilliance of, especially by admixture.
 

earnings per share Earnings per share Basic and diluted (pence)
(2.35)        (1.07) 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

 11 INTANGIBLE ASSETS
                                      Technical    Development
Total
                                                        costs
                                      know-how Cost
[pounds sterling]              [pounds sterling]             [pounds
sterling] At 1 January 2010 and                        -              -
- 2011 Acquisition of                       1,883,340        201,854
2,085,194 subsidiaries Exchange differences                   192,515
18,628       211,143 At 31 December 2011                  2,075,855
220,482     2,296,337 At 1 January 2012                    2,075,855
220,482     2,296,337 Exchange differences                  (98,823)
(8,586)     (107,409) At 31 December 2012                  1,977,032
211,896     2,188,928 Amortisation At 1 January 2010 & 2011
-              -             - Impairment loss
1,629,942              -     1,629,942 Current year charge
99,123          9,944       109,067 Exchange differences
54,813          3,817        58,630 At 31 December 2011
1,783,878         13,761     1,797,639 At 1 January 2012
1,783,878         13,761     1,797,639 Current year charge
19,107         12,616        31,723 Exchange differences
(91,525)        (3,413)      (94,938) At 31 December 2012
1,711,460         22,964     1,734,424 Carrying amount At 31 December
2012                    265,572        188,932       454,504 At 31
December 2011                    291,977        206,721       498,698 

The technical know-how represents ”Kluyveromyces
fragilis” lactase production know-how transferred from the
director, Xiao Wenjuan.

Development costs represent expenditure incurred in respect of
development of the lactase above.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012- continued

12 PROPERTY, PLANT AND EQUIPMENT

              Assets under      Land   Building  Plant and     Motor
Fixtures      Total
                                                           vehicles
and
             construction                       machinery
equipment Cost                    [pounds sterling]         [pounds
sterling]          [pounds sterling]          [pounds sterling]
[pounds sterling]          [pounds sterling]          [pounds sterling]
At 1 January            -         -          -          -         -
2,751      2,751 2011 Acquisition        14,431   409,185  1,762,331
862,305    84,099     32,980  3,165,331 of subsidiaries Additions
7,279         -          -      9,896         -      5,020     22,195
Exchange            1,512    36,143    170,256    117,729    13,653
8,740    348,033 differences At 31              23,222   445,328
1,932,587    989,930    97,752     49,491  3,538,310 December 2011 At 1
January       23,222   445,328  1,932,587    989,930    97,752
49,491  3,538,310 2012 Additions             853         -    222,332
23,572    14,129        517    261,403 Transfer         (23,156)
-     23,156          -         -          -          - Disposal
-         -          -          -         -      (920)      (920)
Exchange            (431)  (15,787)   (88,603)   (74,725)   (9,571)
(6,922)  (196,039) differences At 31                 488   429,541
2,089,472    938,777   102,310     42,166  3,602,754 December 201 2
Accumulated depreciation At 1 January            -         -          -
-         -        862        862 2011 Charge for              -
7,644     42,342    105,710    16,045     10,372    182,113 the year
Exchange                -     4,981     23,270     46,414     8,039
6,413     89,117 differences At 31                   -    12,625
65,612    152,124    24,084     17,647    272,092 December 2011 At 1
January            -    12,625     65,612    152,124    24,084
17,647    272,092 2012 Charge for              -     9,495     56,925
125,239    20,324     11,043    223,026 the year Disposal
-         -          -          -         -      (920)      (920)
Exchange                -   (4,837)   (22,502)   (44,375)   (7,739)
(6,186)   (85,639) differences At 31                   -    17,283
100,035    232,988    36,669     21,584    408,559 December 201 2
Carrying amount At 31                 488   412,258  1,989,437
705,789    65,641     20,582  3,194,195 December 201 2 At 31
23,222   432,703  1,866,975    837,806    73,668     31,844  3,266,218
December 2011 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

13 INVESTMENTS IN SUBSIDIARIES

                                                                Company
                                                             2012
2011 Investment costs
[pounds sterling]             [pounds sterling] As at 1 January
113,597       113,597 Additions
580,000       580,000 As at 31 December
693,597       693,597 Permanent diminution From 1 January
-             - Charge for the year
(690,892)             - As at 31 December
(690,892)             - Carrying value As at 31 December
2,705       693,597 

Details of the Company’s subsidiaries at 31 December 2012 are
as follows:

 Name of                     Place of   Proportion      Proportion
Nature of
                                                                        business subsidiary             incorporation of ownership of voting
power
                                                             held
                                 (or     interest
                       registration)                            %
                                                %
                       and operation Harbin Yinghua           P. R.
China          100             100        Sales, Biological
   marketing and
                                                                   distribution Technology Co., Limited Ying Wei Limited         P. R. China
100             100    Investment
                                                                        holding Held by subsidiaries: Harbin Meihua            P. R. China
95              95  Manufacture, Biological
sales,
                                                                  marketing and Technology Co.,
distribution Limited 14 INVENTORIES
                                      Group       Group     Company
Company
                                       2012        2011        2012
2011
                                          [pounds sterling]
[pounds sterling]           [pounds sterling]           [pounds
sterling] Raw materials                       196,913     116,740
-           - Finished goods for re-sale          437,437     339,365
-           -
                                    634,350     456,105           -
- 

Included above amount of [pounds sterling]387,000 (2011: [pounds
sterling]316,717) is development of living
organism
 /or·gan·ism/ () an individual living thing, whether animal or plant.


pleuropneumonia-like organisms  any of various bacteria of the genus Mycoplasma,
 which represents
agricultural activity. The company has departed from using fair value
under
IAS

 41 because fair value cannot be reliably measured.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

15 TRADE AND OTHER RECEIVALBES

                                         Group        Group     Company
Company
                                         2012         2011        2012
2011
                                            [pounds sterling]
[pounds sterling]           [pounds sterling]          [pounds sterling]
Trade receivables                      26,838       63,423           -
- Amount due from subsidiary                  -            -      37,299
38,273 undertakings Amount due from connected              23,457
11,587           -          - party Other receivables
1,137,674      880,850      31,419     34,112 Prepayments and accrued
180,443      337,325           -     11,937 income
                                    1,368,412    1,293,185      68,718
84,322 

Included in other receivables is of [pounds sterling]842,325 (2011:
[pounds sterling]432,749) due from the directors of the Company (refer
note 25).

The directors consider that the carrying amount of trade and other
receivables approximates their fair value.

16 CASH AND CASH EQUIVALENTS

Cash and cash equivalents were denominated in the following
currencies:

                                      Group       Group      Company
Company
                                      2012        2011         2012
2011
                                         [pounds sterling]
[pounds sterling]            [pounds sterling]            [pounds
sterling] Great Britain Pounds                 1,254          48
1,254           48 Hong Kong Dollars                       24
1,061            -            - Renminbi
1,479,287     166,366            -            -
                                 1,480,565     167,475        1,254
48 

Bank balances and cash comprise cash held by the Group and
short-term bank deposits with an original maturity of three months or
less. The carrying amount of these assets approximates their fair
value.

17 TRADE AND OTHER PAYABLES

                                       Group        Group     Company
Company
                                       2012         2011        2012
2011
                                          [pounds sterling]
[pounds sterling]           [pounds sterling]           [pounds
sterling] Trade creditors                     130,844      119,522
9,282      33,162 Amount due to subsidiary                  -
-     575,385     551,313 undertaking Amount due to related company
1,687,187    1,767,484           -           - Taxation and social
security         24,598       16,005           -           - Other
payables                    1,431,979    1,221,196           -
- 

Accruals

 and deferred income 515,675 364,228 205,115 143,237

                                   3,790,283    3,488,435     789,782
727,712 

Included in other payables is of [pounds sterling]Nil (2011: [pounds
sterling]Nil) total amount owed to the directors of the Company (refer
note 25).

The directors consider that the carrying amount of trade payables
approximates to their fair value.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

18 DEFERRED TAX

There were no deferred tax liabilities recognised by the Group.

A deferred tax asset of approximately [pounds sterling]1.2m (2011:
[pounds sterling]0.75m) has not been recognized in respect of timing
differences
relating to
 relate prep

 relate prep → ,  
 losses not utilized and carried forward at the
year end as there is
insufficient evidence
 n. a finding (decision) by a trial judge or an appeals court that the prosecution in a criminal case or a plaintiff in a lawsuit has not proved the case because the attorney did not present enough convincing evidence.
 that the amount will be
recovered in future years.

 19 SHARE CAPITAL
                                       2012        2012           2011
2011
                                    Number           [pounds sterling]
Number           [pounds sterling] Ordinary shares of [pounds
sterling]0.01 each - brought forward               63,136,364
631,364      5,000,000      50,000 - share issue
-           -     58,136,364     581,364
                                63,136,364     631,364     63,136,364
631,364 Authorised                     500,000,000   5,000,000
500,000,000   5,000,000
As at 31 December 2012, the Company had granted an option over ordinary
shares as follows:- Date of grant            Exercise Vesting period
Expiry date No. of options
                            price 4 September 2008              20p
immediately 23 October 2013        100,000 

20
OPERATING LEASE

 ARRANGEMENTS

 At the balance sheet date, the Group had outstanding commitments
for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
                                                              2012
2011
                                                                [pounds
sterling]             [pounds sterling] Land and buildings After five
years                                                -             - 

Operating lease payments represent rentals payable by the Group for
certain of its office properties, motor vehicles, office furniture and
equipments.

 21 NON-CONTROLLING INTEREST
                                                              2012
2011
                                                                [pounds
sterling]             [pounds sterling] At 1 January/On acquisition
214,414       230,657 Loss for the year
(62,971)      (32,281) Exchange difference
(2,944)        16,038 At 31 December
148,499       214,414 

The non-controlling interest of the group is mainly owned by Wenjuan
Xiao, Fengxiang Lin and Ziquan Lin. Both Wenjuan Xiao and Fengxiang Lin
are directors of the Company and Ziquan Lin is the spouse of Wenjuan
Xiao.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

 22 BORROWINGS
                                      Group                      Company
                                  2012          2011          2012
2011
                                   RMB           RMB           RMB
RMB Bank borrowing               5,033,357     2,017,053             -
- Other borrowing              1,170,487     1,544,841             -
- Total borrowing              6,203,844     3,561,894             -
- The borrowings are repayable as follow: On demand or within one year
5,866,950    2,629,169             -           - Between one and two
years        82,438      357,438             -           - Between two
to five years       223,818      334,594             -           - Over
five years                  30,638      240,693             -
-
                              6,203,844    3,561,894             -
- 

The above borrowings are secured by:

1. Leasehold land and building at Qunli Developing Zone, 22 Km
Airport Road,

Daoli District;

2. Leasehold property at 8-8 Shanghai Street, Daoli District;

3. Personal property of Fengxiang Lin; and

4. Personal property of Wenjuan Xiao.

The average interest rate paid is 8% (2011: 6%)

The other borrowings consist of collateral bank loans secured by the
personal properties of Fengxiang Lin and Wenjuan Xiao. Full details of
the transactions with directors are disclosed in note 25.

The bank loans are arranged at fixed interest rates and expose the
company to fair value interest rate risk. The directors consider that
the carrying amount of the borrowings approximate to their fair
value.

23 DEFERRED INCOME

Deferred income represents the fair value of government grant
attributable to land at 22km Airport Road, Daoli District. This amount
is released to income statement over the period of 50 years.

24 ULTIMATE CONTROLLING PARTY

The ultimate controlling party is Wenjuan Xiao by virtue of her
shareholding in the Company.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

25 RELATED PARTY TRANSACTIONS – continued

Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on consolidation
and are not disclosed in this note. Details of transactions between the
Group and other related parties are disclosed below:

1. On 10 October 2008, a Distribution Agreement of 25 year has been
signed

    between Harbin Yinghua Biological Technology Co., Limited
("Harbin
     Yinghua") and Harbin Meihua Biotechnology Joint Stock Co.,
Limited ("Harbin
    Meihua"). Pursuant to which Harbin Yinghua is appointed as the
exclusive
    distributor for all the Harbin Meihua's products. The cost
payable to
    Harbin Meihua is equal to the cost of the products manufactured, the
    administrative expenses and financial expenses of Harbin Meihua. In
    addition to the cost, a royalty fee of 10 percent of the revenue in
Harbin
    Yinghua is payable to Harbin Meihua. Harbin Meihua is a company in
which
    the directors, Wenjuan Xiao and Fengxiang Lin have material
interest.
   

The above was superseded by the execution of the Assignment on note
1.1.

2. During the period, the costs and royalty fee paid to Harbin
Meihua amounted

to [pounds sterling]440,064 (2011: [pounds sterling]130,805) and
[pounds sterling]nil (2011: [pounds sterling]5,534) respectively. As
at

balance sheet date, the amount due from Harbin Meihua is [pounds
sterling]575,385 (2011: [pounds sterling]

551,313).

 As at balance sheet date, the transaction balance with the
company directors as follow:
                                                              2012
2011
                                                                [pounds
sterling]             [pounds sterling] Included in other receivables:
Wenjuan Xiao                                              671,927
83,791 FengXiang Lin                                             172,508
351,278 Wenyan Duan                                               (2,110)       (2,320) Amount due from/(to) the director
842,325       432,749 Included in other borrowing: Wenjuan Xiao
(674,143)     (336,859) FengXiang Lin
(172,776)     (827,342) Wenyan Duan
-             -
                                                        (846,919)
(1,164,201) Net amount due from/ (to): Wenjuan Xiao
(2,216)     (253,068) FengXiang Lin
(268)     (476,064) Wenyan Duan
(2,110)       (2,320)
                                                          (4,594)
(731,452) Sunny Orient Limited 

At the balance sheet date, the amount due from Sunny Orient Limited
(“Sunny Orient”) is [pounds sterling]1,687,187 (2011: [pounds
sterling]1,767,484). Sunny Orient is a related company owned by Lili
Yang, the wife of Dr. Hongwei Zhang, a non-executive director of the
company. The amount due is
unsecured loan

 and interest free.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

26 FINANCIAL INSTRUMENTS

The Group’s and the Company’s principal financial
instruments comprise cash and cash equivalents, trade and other
receivables and trade and other payable. The Group’s and the
Company’s accounting policies and method adopted, including the
criteria for recognition, the basis on which income and expenses are
recognised in respect of each class of
financial assets

, financial
liability and equity instrument are set out in Note 1. The Group and the
Company do not use financial instruments for speculative purposes.

The principal financial instruments used by the Group and the
Company, from which financial instrument risk arises, are as
follows:

                                         Group                  Company
                                  2012        2011        2012
2011
                                    [pounds sterling]           [pounds
sterling]           [pounds sterling]           [pounds sterling] Trade
and other receivables      1,368,412   1,293,185      68,718      84,322
Cash and cash equivalents        1,480,565     167,475       1,254
48 Trade and other payables       (3,790,283) (3,488,435)   (789,782)
(727,712)
                                 (941,304) (2,027,775)   (719,810)
(643,342) 

There are no investments held to maturity or financial assets
available for sale. There are no fair value adjustments to assets or
liabilities through profit and loss. There are no financial assets that
are either past due or impaired.

Credit risk management

The Group’s credit risk is primarily attributable to its trade
receivables and the amount due from directors. The Group has adopted a
policy of only dealing with
creditworthy
  
adj.
Having an acceptable credit rating.


credit·wor
 
counterparties

 and obtaining
sufficient collateral where appropriate, as a means of
mitigating
  
v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates

v.tr.
To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve.

v.intr.
To become milder.
 the
risk of financial loss from defaults. The amounts presented in the
balance sheet are net of allowances for doubtful receivables, estimated
by the Group’s management based on prior experience and their
assessment of the current economic environment. Moreover, the net effect
of the transaction with the directors does not impose any credit risk
(see note 25).

The Group does not have any significant credit risk exposure to any
single counterparty or any company of counterparties having similar
characteristics.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient
cash. Management monitors forecasts of the Company’s liquidity
reserve, comprising cash and cash equivalents, on the basis of expected
cash flow. Each Group company is mainly financed by equity,
self-generated cash flows and loans from related party. At 31 December
2012, the Group held cash and cash equivalents of [pounds
sterling]1,480,565 (2011: [pounds sterling]167,475).

Interest rate risk

The Group’s policy is to fund its operations through the use of

retained earnings

 and equity.

The Group’s exposure to changes in interest rates relates
primarily to cash at bank. Cash is held either on current or short term
deposits at floating rate of interest determined by the relevant
bank’s prevailing base rate. The Group seeks to obtain a favourable
interest rate on its cash balances through the use of premium
accounts.

Fair values

There is no significant difference between the carrying amounts
shown in the balance sheet and the fair values of the Group’s
financial instruments. For current trade and other receivables/payables
with a remaining life of less than one year, the nominal amount is
deemed to reflect fair value.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012 – continued

Foreign currency risk management

The Group undertakes certain transactions denominated in foreign
currencies, hence exposures to exchange rate fluctuations arise.

The carrying amounts of the Group’s foreign currency
denominated monetary assets and monetary liabilities at the reporting
date are as follows:

                                                  Liabilities
Assets
                                              2012      2011      2012
2011
                                                 [pounds sterling]
[pounds sterling]         [pounds sterling]         [pounds sterling]
RMB                                      7,445,089 5,987,411 2,816,281
1,973,809 

Chinese Yuan (“RMB”) is not a freely convertible currency.
Therefore the payment of dividends by the Group may be restricted by
currency restrictions enforced by the P. R. China government.

The following table details the Group’s sensitivity to a five
percent decrease in Sterling against the RMB. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items
and adjusts their translation at the period end for a 5 per cent change
in foreign currency rates.

 Change in currency rate (- 5%)
RMB
                                                                 currency impact
                                                                 2012
2011
                                                                    [pounds sterling]         [pounds sterling] Profit or loss
243,621   211,242 Other equity in other
(220,419) (191,124) comprehensive income 

A five percent strengthening of Sterling against the RMB at 31
December 2012 would have an equal and opposite effect to the amounts
shown above, on the basis all other variables remain constant.

Capital risk management

The Group manages its capital to ensure that entities in the Group
will be able to continue as a going concern while attempting to maximise
the return to
stakeholders

 through the
optimisation

 of the equity
balance. In order to maintain or achieve an optimal capital structure,
the Group may issue new shares.

The capital structure of the Group consists of cash and cash
equivalents and equity attributable to equity holders of the parent,
comprising issued capital, reserves and retained earnings.

The Board reviews the capital structure on an annual basis.

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