Osim FR 050407.indd

Process and Performanceas the growth strategyOSIM INTERNATIONAL LTDAnnual Report 2006

Our People Grow With UsOSIM has continued to grow over the years as a result of our winning strategyof Process and Performance.In managing our rapid growth, we have continued to look after our people.We have created a Process in which our people grow with us, because weknow that they make a difference. This is the Process of grooming our staff,bringing out their best potential so that their individual drive to succeed inturn drives our success. It is the Performance of each and every individualthat drives us forward and contributes to our growth as a whole.

Customer Service Department“I put on a smile anddo my best to serve all mycustomers’ needs.”Ms Julia ChooCustomer Service Manager

Quality and Assurance“Every piece of product thatleaves OSIM has to be of thehighest quality.”Mr Mohd. RaihanQC Technician

Sales Department“I look forward to breakingmy personal best records,yet again.”Mr Vincent LiuSales Supervisor

International Franchise“I strive to make OSIM ahousehold name all over theworld.”Mr Dennis YapAssistant Manager, International Franchise

Research & Development“Every product that I designhas to serve its purpose, andlook good in the living room.”Mr Roy ZhouIndustrial Designer, Product Design

Marketing“It’s exciting to know that ourplans help the sales team toconsistently break records.”Ms Lynn TanAssistant Manager, Marketing

Contents17 CEO’s Message22 The Role Models27 Result of Our Growth Strategy29 Performance Review33 An Environment of Growth35 Corporate Highlights Contents61 Financial Contents

“Throughout the Group, we put processesin place to groom our people ...CEO’s Message 17 Annual Report 2006

... ensuring that as we grow,they grow.”Mr Ron Sim Chye HockFounder, Chairman and Chief Executive OfficerCEO’s Message 18 Annual Report 2006

CEO’s MessageDear ShareholdersFoundation Laid For Future GrowthThe Group achieved record business growth in FY2006.Group revenue grew 24% to $623 million. Group EBITDArose 41% to $77 million.In 2006, we made good progress towards building a globalhealthy lifestyle business. In establishing this businessfoundation, the Group is focused on executing a mediumtermgrowth strategy. As with any endeavour of this duration,some short-term volatility in performance from quarter toquarter should be expected. In view of this, full year resultsover the medium term are a better indicator of groupperformance.2006 Business Review: Strong PerformanceThe OSIM core business registered broad-based growth inall key markets. Full year revenue increased 24% to $623million. In the second half of 2006, inferior quality andunsubstantiated product claims by imitators caused adversemedia publicity and negative market sentiments in NorthAsia. This disrupted our performance in North Asia in Q42006 but I believe this incident, in the longer term, willfurther differentiate the OSIM brand in terms of innovationand quality.New innovative healthy lifestyle products were launchedthroughout the year, including the uPilot massage chair,iGogo massaging MP3 player and the uZap Mini, an innovativefollow-up to the successful uZap. The OSIM outlets registereda net increase of 98 retail units to 686 as we continued toadd to our global point-of-sale network. Inclusive of Brookstoneand GNC stores under Global Active Limited (GAL), wecompleted 2006 with 1,135 outlets in 362 cities over 28countries. With our expanding international franchise, a newOSIM outlet was opened at the exclusive Harrods departmentstore in London in 2006.With the benefit of a restructuring in FY2005, the net profitof $4.5 million in FY2006 confirmed that the turnaround isfirmly in place at GAL. I expect the improvement to besustainable into the current year.At Brookstone, we put in place new leadership early in 2006.The latest results are encouraging. Brookstone posted recordrevenue of US$512 million in FY2006, up 9% over theCEO’s Message 19 Annual Report 2006

previous year. Q4 2006 revenue rose 13% to US$256 million.Equally impressive is the Q4 same store growth of 6.7%,making it the third successive quarter of same store growth.The figures clearly confirm that the business is gainingtraction. In 2006, Brookstone was profitable, cash positiveand growing.Throughout the Group, we put processes in place to groomour people, ensuring that as we grow, they grow. We recognisethat the performance of each and every individual not onlycontinues to contribute to our growth, but played a substantialrole in our performance in the year.To reward shareholders, your Directors have proposed a finaldividend of 1.48 cents per share or $8 million in payout.Combined with the interim dividend of $7 million, the totaldividend payout of $15 million for FY2006 represents anincrease of 115% over FY2005.CEO’s Message 20 Annual Report 2006

Taking OSIM To The Next LevelIn 2007, we will continue to capitalise on the foundation wehave laid to build a global healthy lifestyle business. Throughour international franchise, we expect to expand our globalpresence from 28 countries at end 2006 to more than 33countries by end 2007.As we move into new countries, we will also seek to deepenour penetration and increase our market share in the countriesin which we are already present by opening suitable outletsin existing and new cities. In all, we expect to collectivelyadd more than 100 outlets under OSIM, Brookstone andGNC in 2007.The OSIM core business will focus on executing the consistentlaunch of two new key innovative healthy lifestyle productsevery quarter to benefit from our expanding global point-ofsalesnetwork.Productivity or revenue per outlet is an important indicatorof the quality of our growth. We will continue to work on themarketing process and selling culture to improve the overallefficiency of our outlets. In particular, the Group is workingclosely with Brookstone management to steadily improvequarterly performance, especially the first three quarters ofthe year, first to reduce the losses in the first three quartersand eventually target for quarterly profitability.With our processes in place through 2007 to promote growthand performance, we will continue to nurture our people toperform at their best to bring OSIM to the next level. Whilewe expect our performance to remain volatile from quarterto quarter, barring unforeseen circumstances, the Groupexpects profit after tax for the full year of 2007 to be higherthan 2006.Thank YouWe have encountered many challenges in the past 12 months,and I am pleased to acknowledge the dedication of ourmanagement and staff in meeting these challenges. To eachand every member of Team OSIM, I express my heartfeltappreciation for your commitment and hard work. On behalfof my fellow directors, I would also like to thank our bankers,business associates, suppliers and shareholders for theirsteadfast support and encouragement.Ron Sim Chye HockFounder & CEOCEO’s Message 21 Annual Report 2006

The Role ModelsThe Role Models 22 Annual Report 2006

Board of DirectorsMr Ron Sim Chye HockFounder, Chairman and ChiefExecutive OfficerMr CharlieTeo Chay LeeExecutive Director andChief Operating Officer(HQ & South Asia)Mr RichardLeow Lian SoonExecutive Director andChief Operating Officer(North Asia)Mr Peter Lee Hwai KiatExecutive Director,Chief Financial Officer andCompany SecretaryBoard of Directors 23 Annual Report 2006

Ms Teo Sway HeongNon-Executive DirectorMr MichaelKan Yuet Yun, PBMIndependentNon-Executive Director(Chairman of Audit Committee)Mr Khor Peng SoonIndependentNon-Executive DirectorMr Ong Kian MinIndependentNon-Executive Director(Chairman of RemunerationCommittee and NominatingCommittee)Board of Directors 24 Annual Report 2006

ManagementMr Ron Sim Chye HockFounder, Chairman and ChiefExecutive OfficerMr Charlie Teo Chay LeeExecutive Director andChief Operating Officer(HQ & South Asia)Mr RichardLeow Lian SoonExecutive Director andChief Operating Officer(North Asia)Management 25 Annual Report 2006

Mr Peter Lee Hwai KiatMs Celine ChaMr Tan Kia TongMr Lee Hann Yang,Executive Director,Chief Financial Officer andCompany SecretaryChief Merchandising OfficerChief Technology OfficerHead ofInternational FranchiseManagement 26 Annual Report 2006

Result of Our Growth Strategy 27 Annual Report 2006

Result of our Growth StrategyThe Growth of Brand OSIMBrand OSIM Attracts Positive PeopleBrand OSIM is about the experience of total well-being. It isabout living an inspiring life. We channel our Brand at eachand every customer touch point, communicating our valuesthrough our products, our outlets, our brand image and ourservice excellence and in-depth knowledge of holistic health.Brand OSIM embraces four main Focuses: Health Focus,Hygiene Focus, Nutrition Focus and Fitness Focus. Our storeconcepts channel these Focuses and deliver to our customersaround the world the values of living an inspiring life througha healthy lifestyle.And this comes through in our Brand Value of PositiveThinking. Our can-do attitude towards everything we doinspires all who connect with us. This vibrant culture createsan environment that attracts positive people – our people –people who care.Bringing an Inspiring Life to YouOSIM reported growth revenue of $622.9 million and a netprofit of $33.8 million for FY2006. These figures representthe success of our growth strategy which focuses on Processand Performance to motivate our people and accelerategrowth.We attribute our phenomenal expansion first and foremostto our people. It has been their individual successes andprogressive performances that have enabled us to continuealong our path of growth.The OSIM network covers more than 360 cities in 28 countriesacross the globe. We have recently focused our expansionplans on our overseas markets, with the intent of bringingour philospohy of inspiring life and the concept of holistichealthy lifestyle to the world.It is with our people that we will achieve our goal of becominga global leader in healthy lifestyle products. So that we maycontinue to grow, we have ensured solid processes are inplace to train our staff and to open communication acrossborders, learning from one another and instilling a worldwidepassion to excel.As the world turns to healthy lifestyle alternatives to manageand prevent disease, there has never been a better time forOSIM to deliver our experiences of total well-being with ourinnovative products and solutions for holistic health.Result of Our Growth Strategy 28 Annual Report 2006

Performance Review 29 Annual Report 2006

Performance ReviewIn building a global brand with operations currently in 362cities in 28 countries, the Group focuses on executing amedium term growth strategy. In doing so, the financialresults of the Group will experience volatility from quarter toquarter. In this respect, a better indication of groupperformance would be the full year financial results.In FY2006, group revenue rose 24% to $623 million. Higherconsumer demand was recorded across the growing globalnetwork of point-of-sales outlets for the Group’s full range ofmassage chairs and innovative healthy lifestyle products.Revenue by Region – Full Year2006 2005Region S$m % S$m % % ChangeNorth Asia 341.9 55% 291.0 58% +17%South Asia 203.5 33% 150.2 30% +36%America/Africa/Europe/Middle East/Oceania 77.5 12% 61.3 12% +26%Total 622.9 100% 502.5 100% +24%For FY 2006, revenue growth was broad-based across all regions. China, Taiwan and Malaysia all registered strong growth.There were also increased sales to International Franchisees and Brookstone.Performance Review 30 Annual Report 2006

Global Network of OutletsRegion 31 Dec 2006 31 Dec 2005North Asia 329 312South Asia 323 231America/Africa/Europe/Middle East/Oceania 34 45Total OSIM Outlets 686 588GNC Outlets 139 144Brookstone Outlets 310 304Total 1,135 1,036In FY2006, the Group had a net increase of 98 new OSIMoutlets while at the same time continuing the ongoingconsolidation of individual Focus outlets into larger and moreefficient OSIM Focus outlets to achieve higher same storesales. Inclusive of the GNC and Brookstone outlets, theGroup has direct control over 1,135 outlets globally as atend December 2006. This scale is a key strength of OSIMin maximizing returns from the sale of innovative healthylifestyle products to customers on a global scale.Result at a Glance(S$ million) 2006 2005 % ChangeRevenue 622.9 502.5 24%EBITDA 76.7 54.5 41%Associates & joint venture (11.2) 11.3Profit before tax 43.6 51.4 (15%)Tax (7.8) (5.8)Minority Interests (2.0) 1.1Net profit 33.8 46.7 (28%)Net margin 5.4% 9.3%Excluding OSIM Brookstone Cumulative Dividend / Interest ExpenseNet profit 47.5 50.1(5%)Net margin 7.6% 10.0%Performance Review 31 Annual Report 2006

ProfitabilityIn FY2006, buoyant revenue growth and improving operatingefficiencies resulted in group EBITDA rising 41% to $77million. The improvement in performance was firmly supportedby an expanding OSIM global point-of-sales network and theintroduction of numerous innovative healthy lifestyle productsduring the year.With the benefit of a restructuring in FY2005, Global ActiveLimited turned around from a loss of $4 million in FY2005to a net profit of $4.5 million in FY2006.Higher finance expenses were incurred in FY2006 due tobank borrowings to fund the acquisition of the stake in OSIMBrookstone LP.The Group equity accounts the results of its Joint VentureOSIM Brookstone LP. In FY2006, Brookstone’s revenue wasa record US$512 million and net profit was US$2 million.The company posted its third successive positive same storegrowth in 4Q FY2006. It achieved an annual 1.8% positivesame store growth, a significant improvement over thenegative 8% recorded in 2005.More importantly, Brookstone is profitable and cash positivein FY2006. It paid US$22m of bond interest expenses duringthe year. Notwithstanding Brookstone’s profitability underUS accounting rules, when OSIM equity accounts its shareof Brookstone’s results under SFRS (Singapore FinancialReporting Standards), the rules are different from US GAAPand it has to recognise payment (“OBH cumulative dividend”)to preference shareholders as a financial interest expense,thereby resulting in a share of loss in joint venture of $12.6million.After accounting for Associates & Joint Venture using thismethodology, Group net profit after tax declined 28% to$33.8 million in FY2006.Excluding OBH cumulative dividend, Group net profit aftertax would have been $47.5 million in FY2006 or a decreaseof 5% vs 2005.Performance Review 32 Annual Report 2006

An Environment of Growth 33 Annual Report 2006

An Environment of GrowthMarch 2006 Re-launched uZap, an innovative product featuring theTwin Power Osimotion (TPO) to give an effective oscillatingmassage for tummy, butt and thighs.April 2006 Announced group result with 79% increase in revenueto $155.2 million for the first quarter ended 31 March2006. Introduced iDesire ROBO, the world’s 1st voice-controlfull body massage chair during the OSIM annual fair atTakashimaya square.May 2006 Signed a new master franchisee: Cambodia. Incorporated OSIM International (Australia) Pty Ltd.July 2006 Announced group achievement of 53% increase inturnover to $338.6 million for 6 months to 30 June 2006.Proposed interim dividend of 1.30 cents per share. Increased shareholding in OSIM (Taiwan) Co. Ltd from90% to 92.5% Title sponsorship of OSIM Singapore International Triathlon2006.October 2006 Announced 35% increase in revenue to $477.3 millionfor the 9 months ended 30 September 2006.November 2006 Signed a new master franchisee: Bahrain.December 2006 Recipient of Singapore Brand Award 2006 for the 5thconsecutive year.January 2007 Launched uPilot, the designer massage chair featuringthe patented ROBO-Stic technology for the ultimatemassage control.February 2007 Announced full year results for financial year 2006 withrevenue growth of 24% to $622.9 million. A final dividendof 1.48 cents per share was recommended. Launched uPapa, a power drum-massager that poundsaway muscle aches and strain.Aug 2006 Launched iMedic PRO, a mid-range full body massagechair with international actor, Louis Koo.An Environment of Growth 34 Annual Report 2006

Corporate Highlights37 Financial Highlights45 Global Network47 Corporate Information48 Directors and Management51 Corporate Governance Report

Financial HighlightsOur goal is to grow to 3,000 outlets by 2013Summarised Profit & Loss AccountYear Ended 2002 2003 2004 2005 2006S$’000 S$’000 S$’000 S$’000 S$’000RestatedTurnover 239,162 287,362 332,157 502,504 622,936Operating profit 37,251 37,236 40,636 55,309 81,911Profit before tax 22,491 29,087 35,325 51,416 43,612Net profit after tax 17,145 24,077 30,575 46,693 33,802Analysis:Turnover growth 43% 20% 16% 51% 24%Net profit growth 28% 40% 27% 53% (28%)Earnings per share 3.90 5.40 6.84 8.68 6.25(cents)Turnover Record revenue of $623 million due to continuefocus on a strong OSIM brand, effective and directcontrol over an expanding global point-of-salesnetwork and higher consumer demand forinnovative healthy lifestyle products.Earnings OSIM, Brookstone and Global Active are profitable. When OSIM equity accounts its share ofBrookstone's result under SFRS (SingaporeFinancial Reporting Standards), the rules aredifferent from US GAAP. It has to recognisecumulative dividend payment to preferenceshareholders as a finance interest expense. Afteraccounting for Associates and Joint Venture usingthis methology, Group net profit after tax declined28% to $33.8 million in FY 2006.700,000Turnover (S$’000)50,000Net Profit After Tax (S$’000)10.00Earnings Per Share (cents)600,000500,000400,000300,000200,000100,0002002200320042005200645,00040,00035,00030,00025,00020,00015,00010,0005,000200220032004200520069.008.007.006.005.004.003.002.001.00200220032004200520060.00Financial Highlights 37 Annual Report 2006

Summarised Balance SheetYear Ended 2002 2003 2004 2005 2006S$’000 S$’000 S$’000 S$’000 S$’000RestatedShareholders' equity 75,145 94,940 121,329 166,380 170,122Minority interests 1,386 1,780 1,979 7,436 6,21776,531 96,720 123,308 173,816 176,339Represented by:Fixed assets 61,923 24,046 28,718 42,136 49,038Associated companies 4,369 16,793 20,833 166,037 140,738and a Joint VentureGoodwill on consolidation 2,822 1,697 571 21,055 22,073Intangible assets 123 123 123 18,087 17,772Other non current assets - 5,311 657 10,899 16,45969,237 47,970 50,902 258,214 246,080Current assets 99,687 111,874 166,499 203,686 173,696Current liabilities (68,672) (62,219) (89,075) (189,959) (171,095)Net current assets/(liabilities) 31,015 49,655 77,424 13,727 2,601Less: Non-current liabilitiesTerm loans (22,198) (316) (4,482) (90,462) (66,639)Deferred taxation (261) - - (4,084) (4,254)Others (1,262) (589) (536) (3,579) (1,449)(23,721) (905) (5,018) (98,125) (72,342)76,531 96,720 123,308 173,816 176,339Other ratios:Total assets 168,924 159,844 217,401 461,900 419,776Return on total assets 10.1% 15.1% 14.1% 10.1% 8.1%Return of equity 22.8% 25.4% 25.2% 28.1% 19.9%Net asset value per share (cents) 16.9 21.3 27.1 37.1 31.4Shareholders’ Equity Shareholders’equity grew mainly due to profitsfor the year but is reduced by translationdifference from USD currency and dividends Minority interest has decreased due toincrease shareholding of subsidiaries inTaiwan and Global Active Limited (GAL)Assets Fixed assets have increased mainly due toincrease in number of outlets Joint venture decreased mainly due to OSIMBrookstone LP cumulative dividends andtranslation difference from USD currencyCurrent Liabilities Current liabilities have decreased mainly dueto less working capital loansNon Current Liabilities Term loans have decreased mainly due torepayment made during the year180,000Shareholders’ Equity (S$’000)500,000Total Assets (S$’000)40.0Net Asset Value Per Share (cents)160,000140,000120,000100,00080,00060,00040,00020,00020022003200420052006450,000400,000350,000300,000250,000200,000150,000100,00050,0002002200320042005200635.030.025.020.015.010.05.020022003200420052006Financial Highlights 38 Annual Report 2006

Number of OutletsOSIM OutletsNorth AsiaSouth AsiaAmerica/Africa/Europe/MiddleEast/OceaniaGNC OutletsBrookstone2006 2005 Growth329 312 5%323 231 40%34 45 (24%)686 588 17%139 144 (3%)310 304 2%1,135 1,036 10%350300250200150100500Number of Outlets2006200520062005North Asia South Asia America/Africa/Europe/Middle East/Oceania2006 2005 2006 2005GNCOutlets2006 2005BrookstoneOutletsOutlets The Group is expanding the global platform and currently has direct control over1,135 outlets globally Net increase of 98 outlets in 2006 Our goal is to attain 3,000 outlets globally by 2013Turnover by Geographical Segments (S$m)North AsiaSouth AsiaAmerica/Africa/Europe/MiddleEast/Oceania2006 2005 Growth341.9 291 17%203.5 150.2 35%77.5 61.3 26%622.9 502.5 24%Turnover by Geographical Segments Broad-based growth across all key markets and revenue contribution from GlobalActive Limited (“GAL”), OSIM Brookstone LP and international franchisees The Group will continue the ongoing consolidation of individual focus outlet intolarger and more efficient OSIM Focus outlets to achieve higher same store sales350300250200150100500Turnover by Geographical Segments (S$m)20062005North Asia20062005South Asia20062005America/Africa/Europe/Middle East/OceaniaFinancial Highlights 39 Annual Report 2006

Quarterly AnalysisTurnover 2006 2005 % Change overprevious periodFirst Quarter 155,221 86,816 79%Second Quarter 183,345 134,456 36%Third Quarter 138,738 133,481 4%Fourth Quarter 145,632 147,751 (1%)622,936 502,504 24%Profit before tax 2006 2005 % Change overprevious periodRestatedFirst Quarter 3,864 9,354 (59%)Second Quarter 19,332 13,824 40%Third Quarter (7,938) 12,656 (163%)Fourth Quarter 28,354 15,582 82%43,612 51,416 (15%)Net profit after tax 2006 2005 % Change overprevious periodFirst Quarter 430 8,123 (95%)Second Quarter 13,287 11,991 11%Third Quarter (9,836) 10,428 (194%)Fourth Quarter 29,921 16,151 85%33,802 46,693 (28%)Turnover Broad based revenue growth of 24 % was driven by strong consumerdemand for full range of OSIM chairs and other healthy lifestyleproducts across the global point-of-sales network. In 3Q and 4Q, inferior quality and unsubstantiated product claimsby imitators caused adverse media publicity and negative marketsentiments. We believe that this market disruption will further differentiate theOSIM brand over the longer term in terms of innovation and quality.Profit before and after tax OSIM, Brookstone and Global Active are profitable. When OSIM equity accounts its share of Brookstone's result underSFRS, the rules are different from US GAAP. It has to recognisecumulative dividend payment to preference shareholders as afinance interest expense. After accounting for Associates and JointVenture using this methology, Group net profit after tax declined28% to $33.8 million in FY 2006. Taxes were moderated with International Business Headquarters(IHQ) tax incentives200,000Turnover by Quarter (S$’000)35,000Profit before Tax by Quarter (S$’000)35,000Profit after Tax by Quarter (S$’000)180,000160,000140,000120,000100,00080,00060,00040,00020,0002006200620052006 20052006 20052005Q1 Q2 Q3 Q430,00025,00020,00015,00010,0005,000-(5,000)(10,000)2006200620052005 2005200520062006Q1 Q2 Q3 Q430,00025,00020,00015,00010,0005,000-(5,000)(10,000)(15,000)2006200520062005 2005200520062006Q1 Q2 Q3 Q4Financial Highlights 40 Annual Report 2006

Capital ExpenditureCapexS$’000 Leasehold Land & Buildings 21 Plant and Machinery 17 Computers 1,520 Motor Vehicles 1,135 Shop Renovations 16,090 Furniture and Fittings 4,285 Office Equipment 81823,886Furnitureand FittingsOfficeEquipmentLeaseholdLand &BuildingsComputersMotor VehiclesPlant andMachineryShopRenovationsGroup Cash Flow (S$m)2006 2005Operating profit before working capital changes 79.4 57.5Net cash flows generated from operating activities 56.9 85.9Net cash flows used in investing activities (34.0) (187.9)Net cash flows used in financing activities (45.0) 95.8Net increase/(decrease) in cash and cash equivalents (22.1) (6.2)Cash and cash equivalents at beginning of year 56.1 61.4Net effect of exchange rate changes (4.2) 0.9Cash and cash equivalents at end of year 29.8 56.1 Net cash flows from operating activities hasdecreased due to lower improvement in workingcapital changes Net cash flows used in investing activities foroutlets renovation and purchase of shares insubsidiaries Net cash flows used in financing activities hasdecreased due to repayment of bank loansand dividendsFinancial Highlights 41 Annual Report 2006

Risk FactorsIndustry specific risksCompany specific risks1. Changes in consumer tastesAs with all other consumer products, sales of our products aredependent on consumers’ demand for our products and aresusceptible to changes in consumer tastes. There is no assurancethat our intensive efforts in niche marketing, brand managementand product innovation will continue to enable us to satisfy theevolving consumer tastes.2. Susceptibility to downturns in economic cyclesThe nature of our healthy lifestyle products make us moresusceptible to reduced demand in times of economic downturnthan other kinds of businesses because our products may notbe considered as essential health products.3. Health epidemics, terror alerts, terror attacks and other acts ofviolence or war may adversely affect sales.A large part of our outlets are located at high traffic malls andairports. Any of the above events will lead to a decrease inconsumer traffic in malls and airports and consequently mayhave a material adverse effect on sales.4. Inferior quality and unsubstantiated product performance claimsby imitators may lead to adverse media publicity and negativemarket sentimentsA number of our products have always attracted imitationproducts traders. Their inferior quality and unsubstantiatedproduct performance claims may lead to adverse media publicityand negative market sentiments and may have a materialadverse effect on sales.5. Foreign exchange risksWhile our sales are mainly denominated in the respective localcurrencies in which the sales arise, namely the S$, RM, HK$,RMB, NT$, A$ and US$, our costs of procurement of productsfrom our contract manufacturers are incurred mainly in US$,Yen and Euro. There is therefore an exchange transaction risk.6. Expansion of business and franchisee networkWe plan to open OSIM Focus and Chair Spa stores in existingand new geographical markets and sign on new franchisees.There are risks that these initiatives may not be successful.7. The results of Brookstone are highly dependant on sales duringthe fourth quarter of the year.A high percentage of our joint venture company, Brookstone’ssales are transacted during the fourth quarter of the year. Asa result, Brookstone’s annual profits are substantially madeduring the year end. If there should be any unfavourable externalevents or deviation from projected demand for products, thesecould have a material adverse effect on Brookstone’s sales andprofitability.Financial Highlights 42 Annual Report 2006

Corporate Structure as at 21 February 2007OSIM International Ltd100% 100% 100%OSIMInternationalTrading(Shanghai)Co LtdNutritionFocus (USA)Inc.*OSIM (HK)CompanyLimited30%Daito-OSIMHealthcare(Shanghai)Co Ltd30%Daito-OSIMHealthcare(Suzhou)Co Ltd80% 92.5% 81.24% 49% 30%OSIM (M)Sdn BhdOSIM (Taiwan)Co LtdGlobal ActiveLimitedOSIM (Thai)Co LtdDaito-OSIM(Thailand)Co Ltd60% 100% 55.5%Associated CompaniesOSIMInternational(Australia)Pty LtdOSIM (China)Co., LtdOSIMBrookstoneHoldings, L.P.SubsidiariesJoint Venture* Dormant CompanyFinancial Highlights 43 Annual Report 2006

Share Price and Volume (million)2.52.01.51.00.530.0Jan 03 Jan 04 Jan 05 Jan 06 Jan 0720.010.00.0Market Value GrowthOur share price has climbed steadily since IPO by more than 5times. Our goal is to continue to grow our market value throughsustainable financial results and excellance corporate governance.Market Value Ratios Based on 28 February 2007Price/Earnings16.48 timesMarket ValueS$558 millionShare Price S$Lowest closing price since IPO 0.16Highest closing price since IPO 2.16Closing price on 28 February 2007 1.03Financial CalendarFebruary 2007 Announcement of final results for financial year 31 December 2006April 2007 Dispatch of annual reports to shareholdersApril 2007 Held Annual general meeting ("AGM)April 2007 Announcement of first quarter results for financial year 31 December 2007May 2007 Payment of final dividends (subject to shareholders' approval at AGM) and Extraordinary general meeting (“EGM”)July 2007 Announcement of first half results for financial year 31 December 2007September 2007 Payment of interim dividends (subject to shareholders' approval)October 2007 Announcement of third quarter results for financial year 31 December 2007January 2008 Announcement of final results for financial year 31 December 2007Financial Highlights 44 Annual Report 2006

OSIM Global NetworkSINGAPORECHINATAIWANITALYOSIM INTERNATIONAL LTD65 Ubi Avenue 1OSIM HeadquartersSingapore 408939Tel: (65) 6747 6866Fax: (65) 6747 6769Email: IR@osim.com.sgGLOBAL ACTIVE LIMITED9 Ubi CrescentSingapore 408572Tel: (65) 6749 7206Fax: (65) 6745 2623HONG KONG & MACAUOSIM (HK) CO LTDRoom 1812-22, 18/FNo 1 Hung To RoadKwun Tong, KowloonHong KongTel: (852) 2790 2300Fax: (852) 2342 8510MALAYSIA & BRUNEIOSIM (M) SDN BHDNo 4 Jalan 13/6ASection 1346200 Petaling Jaya Selangor,MalaysiaTel: (603) 7965 9888Fax: (603) 7965 9999OSIM (China) CO LTD– Beijing office4F,Unit 3,Bldg 1,D AreaZhaowei Industry Park,No.14Jiuxianqiao Road.,ChaoyangDistrict, Beijing,100016ChinaTel: (86-10) 8456 5789Fax: (86-10) 8456 5810OSIM (China) CO LTD– Shanghai office2/F Information BuildingNo 149 Chunxiao RoadZhangjiang Hi-Tech ParkPudong New AreaShanghai 201203, ChinaTel: (86-21) 5027 1883Fax: (86-21) 5027 1833OSIM (China) CO LTD– GuangZhou office10F West Tower,Tianhe Entertainment Plaza,623 Tianhe Road,Tianhe DistrictGuangzhou 510620, ChinaTel: (86-20) 8753 2421Fax: (86-20) 8753 0404OSIM (China) CO LTD– ShenZhen office605, Jingguang Center,1002 Yanhe Road,Luohu District,Shenzhen 518003, ChinaTel: 0755 8237 8094Fax: 0755 8237 8137OSIM (TAIWAN) CO LTD11F, No 176, Jian Yi RoadFar East Century Park(Building G)Chung Ho City, Taipei Hsien,Taiwan R.O.CTel: (886-2) 8227 1589Fax: (886-2) 8227 1556AUSTRALIAOSIM INTERNATIONAL(AUSTRALIA) PTY LTDP.O.Box 258 Chatswood,Chatswood, NSW 2067,AustraliaTel: 61 2 9411 8498Fax: 61 2 9415 3166INDIAOSIM INDIA - A Division ofPARAMOUNT SURGIMED LTD1, L.S.C.Okhla Industrial Area.Okhla Main RoadOkhla Phase II,New Delhi 110020IndiaTel: (91-11) 4107 0000Fax: (91-11) 4161 6555OSIM ITALIA S.R.L.Via Campobello 7PomeziaRoma 0400ItaliaTel: 39 338467 7600PAKISTANBEE ENTERPRISES LTD170-Y, COMMERCIAL AREA,PHASE-IIID.H.A., LAHORE, PAKISTAN.Tel: (92-42) 844-6746,(92-42) 845-6746Fax: (92-42) 572-6054PHILIPPINESASIAN THERAPEUTICS INC2/F Belson BuildingNo. 271 EDSA,Mandaluyong City1501 PhilippinesTel: 632 723-6746Fax: 632 721-5940SAUDI ARABIAAL-SAWANI GROUPP. O. Box 9411, Jeddah 21413Kingdom of Saudi ArabiaTel: 9662 691 2612Fax: 9662 691 1320OSIM Global Network 45 Annual Report 2006

SPAINOSIM ESPANAAvda. Sierra de Grazalema 13Pol. Ind.La PasadaVillanueva de la CañadaMadrid 28691SpainTel: 34 902 430 799Fax: 34 918 125 728SOUTH AFRICAOSIM (SOUTH AFRICA) CCOSIM, Shop 343, Rosebank MallBath Avenue,Rosebank, Johannesburg2193 South AfricaTel: 27 11 880 1551Fax: 27 33 234 4578SOUTH KOREAOSIM KOREA INC.Myung Shin Bldg., 2F366-16 Shindang-dong,Jung-gu, SeoulKorea 100-829 KoreaTel : 82-2-724-4900Fax : 82-2-724-4901UNITED ARABEMIRATESRSH (MIDDLE EAST) LLCJuma Al Majid CommercialBuilding (Top Floor)Trade Center RoadPO Box 20764, Bur DubaiDubai - UAETel: (971) 4 396 6676Fax: (971) 4 396 6679UNITED KINGDOMFK MARKETING LTDThe Weston CentreWeston RoadCrewe CheshireCW1 6FLUnited KingdomTel: 44 870 770 9383 /44 1270 25 33 77Fax: 44 1270 25 33 99VIETNAMDTL INTERNATIONALTRADING & SERVICE CORPNo. 16, Dinh Tien HoangDistrict 1,Ho Chi Minh City(S. R. Vietnam)Tel: 84 8 910 1711 / 1713Fax: 84 8 910 1712CANADAHEALTH FOCUS HOLDINGSINC.150-12340 Horseshoe WayRichmond, B.C. V7A 471CanadaTel: (604) 271 6746Fax: (604) 271 6777THAILANDOSIM (THAILAND) CO LTDNo.17 Soi Pattanakarn 13,Pattanakarn Road,Kwang Suanluang,Khet SuanluangBangkok 10250ThailandTel: 66 2 717 4648Fax: 66 2 717 4650USABROOKSTONE, INC.One Innovation WayMerrimack, NH 03054USATel: 1-800-846-3000Fax: 1-603-577-8003INDONESIAPT OPTIMAL SEMANGAT INTIMAKMURJL Jembatan DuaNo. 6 Jakarta-Utara, 14450IndonesiaTel: (62-21) 666 02345Fax: (62-21) 661 8943CAMBODIAM.D. (R) IMPEX CO LTDOlympic Market, AO/02-03,Street 199Phnom Penh,Kingdom of CambodiaTel: 855 121 999 230BAHRAINELHAM AL HAYAT WLLStore 1200Building 2102, Road 2825Seef 428Postal address:PO Box 214Manama BahrainTel: 973 1758 1331Fax: 973 1758 1331OSIM Global Network 46 Annual Report 2006

Corporate InformationBoard of DirectorsAudit CommitteeRegistered OfficePrincipal BankersExecutive ChairmanMr Ron Sim Chye HockExecutive DirectorsMr Charlie Teo Chay LeeMr Leow Lian SoonMr Peter Lee Hwai KiatNon-Executive DirectorMs Teo Sway HeongIndependent Non-ExecutiveDirectorsMr Michael Kan Yuet YunMr Ong Kian MinMr Khor Peng SoonChief OfficersChairmanMr Ron Sim Chye HockMr Charlie Teo Chay LeeMr Leow Lian SoonMr Peter Lee Hwai KiatMr Tan Kia TongMs Celine ChaChairmanMr Michael Kan Yuet YunMr Ong Kian MinMr Khor Peng SoonRemunerationCommitteeChairmanMr Ong Kian MinMr Michael Kan Yuet YunMr Khor Peng SoonMr Ron Sim Chye HockMr Charlie Teo Chay LeeNominating CommitteeChairmanMr Ong Kian MinMr Michael Kan Yuet YunMr Khor Peng SoonMr Ron Sim Chye HockMr Charlie Teo Chay Lee65 Ubi Avenue 1OSIM HeadquartersSingapore 408939AuditorsErnst & YoungCertified Public Accountants1 Raffles QuayNorth TowerLevel 18Singapore 048583Partner-in-chargeMr Steven Phan Swee KimCompany SecretaryMr Peter Lee Hwai KiatRegistrar And ShareTransfer OfficeB.A.C.S. Private Limited63 Cantonment RoadSingapore 089758ABN-AMRO BankDBS Bank LtdDeutsche Bank AGMizuho Corporate Bank, LtdOverseas Chinese BankingCorporationRHB Bank BerhadStandard Chartered BankSumitomo Mitsui BankingCorporationCorporate Information 47 Annual Report 2006

Directors & ManagementExecutive DirectorsMr Ron Sim Chye Hock48, Founder, Chairman and Chief Executive OfficerHe is the driving force behind the company. Since its inception, hehas remained at the helm of things. The company’s strategy, itsgoals and directions are redefined by no other than the man himself,and leading by example he continues to inspire his people as thecompany embarks on to more challenging paths. He has beengiven recognition by some prestigious institutions. Among them:the Wisconsin International University conferred him Doctor ofPhilosophy in Business Administration in 2001 and the AmericanUniversity of Hawaii awarded him Doctor of Philosophy in MarketingManagement in 2002. He was voted Ernst & Young Entrepreneurof the Year 2003 and in the same year won The Business Times“Businessman of the Year”. He is a board member of SentosaDevelopment Corporation and IE Singapore.Mr Charlie Teo Chay Lee48, Executive Director and Chief Operating Officer(HQ & South Asia)Mr Teo has a firm grasp of OSIM’s massive operations. Havingplayed a pivotal role in the company’s formative years, his insightfulleadership has made the Singapore headquarters a role model forits subsidiaries. He joined the Group in 1989 and was appointedto the Board in 2000.Mr Richard Leow Lian Soon47, Executive Director and Chief Operating Officer (North Asia)His experience in the Hong Kong operations made his being incharge of the Greater China territory a perfect choice, but nonethelessa huge task to fulfill like the proverbial David taking on Goliath.Highly regarded for his exemplary leadership not to mention hisyouthful energy, Mr Leow spearheads the operations withconsummate dedication. He joined the Group in 1987 and wasappointed to the Board in 2000.Mr Peter Lee Hwai Kiat43, Executive Director and Chief Financial Officerand Company SecretaryMr Lee puts his 18 years of expertise in finance as he managesthe Group’s financial strategy and control, investor relations, humanresources and administration, and management information system.Prior to holding this position, he was the Group Financial Controllerof Golden Village – a joint venture between Australia’s VillageRoadshow and Hong Kong’s Golden Harvest. He graduated fromthe National University of Singapore with a degree on Bachelor ofAccountancy and obtained his MBA from Manchester BusinessSchool in 2005. He is a Certified Public Accountant in Singapore.Mr Lee joined OSIM in 2000 and was appointed to the Board in2005.Directors & Management 48 Annual Report 2006

Non Executive DirectorMs Teo Sway Heong44, Non-Executive DirectorMs Teo contributed considerably to the Group’s growth during itsformative years as its administration and human resources head.Appointed to the Board in March 2000, she continues to participateactively in the company’s endeavours.Independent Non Executive DirectorsMr Michael Kan Yuet Yun PBM,68, Independent Non-Executive Director(Chairman of Audit Committee)From 1969 to 1999, Mr Kan was the Finance Director of BritishTobacco Co (Singapore) Ltd and Singapore Tobacco Co (Pte) Ltd(“BAT group”). He graduated with Honours from the University ofSydney (Bachelor of Economics). He is a member of the Instituteof Charted Accountants in England and Wales and the Institute ofCertified Public Accountants of Singapore. Mr Kan sits on the boardsof several other Singapore companies. He is also actively involvedin community service as the Chairman of the Children’s Aid Society.He was conferred The Pingkat Bakti Masyarakat (PBM) in 1998National Day Awards. Mr Kan was appointed to the Board in 2000.Mr Khor Peng Soon56, Independent Non-Executive DirectorMr Khor was appointed to the Board in 2000. His credentials speakvolumes. He was a Managing Director of Temasek Holdings (Pte)Ltd, held positions in the Sembawang Group of Companies, Ernst& Young, and the Economic Development Board and TelecomsMalaysia. He was a Colombo Plan scholar in 1969; was conferreda Bachelor of Mechanical Engineering (First Class Honours) by theUniversity of Auckland, New Zealand in 1972 and a MastersEngineering Science (Industrial Engineering) from the Universityof New South Wales, Australia in 1981.Mr Ong Kian Min46, Independent Non-Executive Director(Chairman of Remuneration Committee and Nominating Committee)Mr Ong is an Advocate and Solicitor practising as a Consultant witha Singapore law firm, Drew & Napier LLC. He is a member of theBar of England and Wales since 1988 and the Singapore Bar since1989. He was also awarded the President Scholarship and PoliceScholarship in 1979 and holds a Bachelor of Laws (Honours)external degree from the University of London and a Bachelor ofScience (Honours) degree from the Imperial College of Scienceand Technology in England. Mr Ong is a Member of Parliamentsince January 1997 serving as Chairman of the GovernmentParliamentary Committee (GPC) for Transport and as a member ofthe GPC for Finance, Trade and Industry. Mr Ong was appointedto the Board in 2000.Directors & Management 49 Annual Report 2006

ManagementMr Tan Kia Tong51, Chief Technology OfficerSpearheading the Group’s robust R&D, Mr Tan has pushed thecompany’s product development capabilities to formidable rankingin the world. In collaboration with other international teams, theGroup has achieved some of the world’s firsts in design andtechnologies, thanks to Mr Tan’s uncompromising determination.He obtained his Master of Science (MSc) in Electrical & ElectronicEngineering at the University of Bradfort/UMIST in 1980. He is aChartered Engineer and a Member of the Institution of Engineeringand Technology, UK and was awarded the Public AdministrationMedal (Bronze) in 2000. Mr Tan has been with the Group since2002.Mr Lee Hann Yang33, Head of International FranchiseMr Lee joined OSIM in Aug 2005 as Business Analyst. Prior to hisresponsibilities as Head of International Franchise, he was involvedin the business analysis of Brookstone, Global Active and InternationalFranchise. Mr Lee has 10 years of experience in the areas offinance, mergers and acquisitions, and held the position of GroupFinance Manager in SEB Corporation Pte Ltd, a subsidiary underVenture Corporation Limited, as well as Auditor in Ernst & Young.He graduated with Honours from Nanyang Technological University(Bachelor of Accountancy), and is a Certified Public Accountantin Singapore.Ms Celine Cha39, Chief Merchandising OfficerMs Cha is instrumental in the merchandising department’s stellarachievements. Rising from the ranks, she has a deep understandingof the company’s merchandising strategies and has demonstratedthe capability to implement them. Ms Cha joined OSIM in 1995.She was promoted to Chief Merchandising Officer in June 2005.Directors & Management 50 Annual Report 2006

Corporate Governance Report 51 Annual Report 2006

Corporate Governance ReportOSIM was the winner in the Most TransparentCompany Award (Commerce) in SecuritiesInvestors Association (Singapore)’s Investors’Choice Awards in 2003, 2004 and 2005.The Directors and management of OSIM are committed tohigh standards of corporate governance in order to protectthe interests of our employees, customers and shareholders.The SGX-ST’s Listing Manual requirement (the “listingrequirement”), introduced with effect from 1 July 2002,requires that an issuer which holds its Annual GeneralMeeting (“AGM”) on or after 1 January 2003 (the “effectivedate”) should describe its corporate governance practiceswith specific reference to the Code of Corporate Governance(“Code”) in its annual report. It must disclose any deviationfrom any guideline of the Code together with an appropriateexplanation for such deviation in the annual report.This Report describes OSIM’s corporate governanceprocesses and activities that were in place throughout thefinancial year. For proper reference, the relevant provisionsof the Code under discussion are identified in bold.Board of DirectorsPrinciple 1: Board’s Conduct of its AffairsThe principal functions of the Board are:1) Approving the broad policies, strategies and financial objectivesof the Company and monitoring the performance ofmanagement;2) Overseeing the processes for evaluating the adequacy ofinternal controls, risk management, financial reporting andcompliance;3) Approving the nominations of board directors and appointmentof key personnel;4) Approving annual budgets, major funding proposals, investmentand divestment proposals; and5) Assuming responsibility for corporate governance.Matters which are specifically reserved to the full Board for decisionare those involving a conflict of interest for a substantial shareholderor a director, material acquisitions and disposal of assets, corporateor financial restructuring and share issuances, dividends and otherreturns to shareholders and matters which require Board approvalas specified under the Company’s interested person transactionpolicy.The Board conducts regular scheduled meetings on a quarterlybasis. When circumstances require, ad-hoc meetings are arranged.Board meetings are conducted in Singapore and attendance byDirectors are regular. There is therefore no requirement to conductmeetings by way of a tele-conference or video-conference. Theattendance of the directors at meetings of the Board and Boardcommittees, as well as the frequency of such meetings, is disclosedin this Report.Corporate Governance Report 52 Annual Report 2006

The Company worked closely with a professional corporate secretarialfirm, Lim & Associates, to provide its Directors with regular updateson the latest governance and listing policies. All Directors are alsoupdated regularly concerning any changes in company policies.The Company also has an on-going training budget for the existingDirectors to fund the Directors’ participation at industry conferencesand seminars, and to fund directors’ attendance at any course ofinstruction/training programme in connection with their duties asdirectors, if such participation or attendance is required. This budgetmay be utilised by each Director subject to approval by the Chairman.The Company has adopted a policy that Directors are also welcometo request further explanations, briefings or informal discussionson any aspects of the Company’s operations or business issuesfrom the management. The Chairman and CEO will make thenecessary arrangements for the briefings, informal discussions orexplanations required by the director.Principle 2: Board Composition and BalanceThe Board consists of three non-executive and independent Directors,one non-executive Director and four executive Directors. Theindependence of each director is reviewed annually by the nominatingcommittee (“NC”), which was constituted on 27 December 2002.The NC adopts the Code’s definition of what constitutes anindependent director in its review. As a result of the NC’s reviewof the independence of each director, the NC is of the view thatthe non-executive directors of OSIM are independent directors(except for Ms Teo Sway Heong), and further, that no individual orsmall group of individuals dominate the Board’s decision makingprocess. Key information regarding the directors is given in the“Directors and Chief Officers” section of this annual report. TheNC is of the view that the current Board comprises persons who,as a group, provide core competencies necessary to meet theCompany’s targets.The NC is of the view that the current size of its board of directorsis appropriate, taking into account the nature and scope of theCompany’s operations.Principle 3: Role of Chairman and Chief Executive OfficerThe Company has the same Chairman and CEO, Mr Ron Sim ChyeHock and he is an executive director.OSIM believes that the independent directors have demonstratedhigh commitment in their role as directors and have ensured thatthere is a good balance of power and authority. As such, there isno need for the role of the Chairman and CEO to be separated.The Chairman and CEO is the most senior executive in the Companyand bears executive responsibility for the Company’s business, aswell as the responsibility for the workings of the Board. The Chairmanand CEO ensures that board meetings are held when necessaryand sets the board meeting agenda in consultation with the directors.The Chairman and CEO reviews most board papers before they arepresented to the Board and ensures that board members areprovided with complete, adequate and timely information. As ageneral rule, board papers are sent to directors in advance in orderfor directors to be adequately prepared for the meeting. Managementstaff who have prepared the papers, or who can provide additionalinsight into the matters to be discussed, are invited to present thepaper or attend at the relevant time during the board meeting. TheChairman assists to ensure that procedures are introduced tocomply with the Code.Corporate Governance Report 53 Annual Report 2006

Principle 6: Access to InformationIn order to ensure that the Board is able to fulfill its responsibilities,management provides the board members with regular updates ofthe financial position of the Company. A quarterly report of theCompany’s activities is also provided to the Board. Analysts’ reportson the Company are forwarded to the directors on an on-goingbasis as and when received. The directors have also been providedwith the phone numbers and email particulars of the Company’ssenior management and company secretary to facilitate independentaccess.Should directors, whether as a group or individually, needindependent professional advice, the company secretary will, upondirection by the Board, appoint a professional advisor selected bythe group or the individual, and approved by the Chairman andCEO, to render the advice. The cost of such professional advicewill be borne by the Company.The company secretary attends all board meetings and is responsibleto ensure that board procedures are followed. It is the companysecretary’s responsibility to ensure that the Company complies withthe requirements of the Companies Act. Together with the othermanagement staff of SGX, the company secretary is responsiblefor compliance with all other rules and regulations which areapplicable to the Company.Please refer to the “Corporate Information” section of the annualreport for the composition of the Company’s Board of Directors,and Board committees.Board CommitteesNominating Committee (“NC”)Principle 4: Board MembershipThe chairman of the NC, Mr Ong Kian Min, is an independent nonexecutivedirector. There are five members in the NC, three ofwhom are independent non-executive directors.The NC’s principal functions are:1) To identify candidates and review all nominations for theappointment or re-appointment of members of the Board ofDirectors; the CEO of the Company; and the members of thevarious Board committees, for the purpose of proposing suchnominations to the Board for its approval;2) To determine the criteria for identifying candidates and reviewingnominations for the appointments referred to in paragraph 1.One of the criteria for the appointment of a director is theindependent status of the candidate;3) To decide how the Board’s performance may be evaluated andpropose objective performance criteria for the Board’s approval;and4) To assess the effectiveness of the Board as a whole, and thecontribution by each individual director to the effectiveness ofthe Board.5) To evaluate whether or not a director is able to and has beenadequately carrying out his/her duties as director of the company,when he/she has multiple board representationsCorporate Governance Report 54 Annual Report 2006

New directors are at present appointed by way of a board resolution,after the NC approves their appointment. Such new directors mustsubmit themselves for re-election at the next AGM of the Company.Article 92 of the Articles requires one third of the Board to retireby rotation at every AGM.Principle 5: Board PerformanceThe NC, in considering the re-appointment of any director, evaluatesthe performance of the director. The Chairman & CEO will assesseach director’s contribution to the Board, and discuss the resultswith the chairman of the NC. The assessment parameters includesattendance record at meetings of the Board and Board committees,intensity of participation at meetings, the quality of interventionsand special contributions.The NC will evaluate the Board’s performance as a whole. Theassessment process adopted both quantitative and qualitativecriteria, such as return on equity, the success of the strategic andlong-term objectives set by the Board, and the effectiveness of theBoard in monitoring management’s performance against the goalsthat have been set by the Board. The NC will be working with anexternal professional firm on the evaluation criteria.Audit Committee (“AC”)Principle 11: Audit CommitteePrinciple 12: Internal ControlsThe AC comprises three members, all of whom are independentnon-executive directors. The chairman of the AC, Mr Michael KanYuet Yun, is by profession a Chartered Accountant. The othermembers of the AC have many years of experience in businessmanagement, finance and legal services. The NC is of the view thatthe members of the AC have sufficient financial managementexpertise and experience to discharge the AC’s functions.The AC performs the following main functions:1) Reviews the audit plans of the internal and external auditors ofthe Company and ensures the adequacy of the company’ssystem of accounting controls and the co-operation given bythe Company’s management to the external and internal auditors;2) Reviews the quarterly and annual financial statements and theauditors’ report on the annual financial statements of the Groupand the Company before their submission to the board ofdirectors;3) Reviews effectiveness of the Group and the Company’s materialinternal controls, including financial, operational and compliancecontrols and risk management via reviews carried out by theinternal auditors;4) Meets with the external auditors, other committees, andmanagement in separate executive sessions to discuss anymatters that these groups believe should be discussed privatelywith the AC;5) Reviews legal and regulatory matters that may have a materialimpact on the financial statements, related compliance policiesand programmes and any reports received from regulators;6) Reviews the cost effectiveness and the independence andobjectivity of the external auditors;7) Reviews the nature and extent of non-audit services providedby the external auditors;8) Recommends to the board of directors the external auditors tobe nominated, approves the compensation of the externalauditors, and reviews the scope and results of the audit;Corporate Governance Report 55 Annual Report 2006

9) Reports actions and minutes of the AC to the board of directorswith such recommendations as the AC considers appropriate;and10) Reviews interested person transactions in accordance with therequirements of the Singapore Exchange Securities TradingLimited (SGX-ST)’s Listing Manual.The AC has the express power to conduct or authorise investigationsinto any matters within its terms of reference. Minutes of the ACmeetings are regularly submitted to the Board for its informationand review.The AC, having reviewed all non-audit services provided by theexternal auditors to the Group, is satisfied that the nature and extentof such services would not affect the independence of the externalauditors. The AC has also conducted a review of interested persontransactions.The AC also conducts a review to ensure that there are no improperactivities of the Company (if any).The AC convened four meetings during the year with full attendancefrom all members. The AC has also met with internal and externalauditors, without the presence of the Company’s management, atleast once a year.The Company’s external auditors, Ernst & Young (“EY”), carry out,in the course of their statutory audit, a review of the effectivenessof the Company’s material internal controls, including financial,operational and compliance controls, and risk management annuallyto the extent of their scope as laid out in their audit plan. Materialnon-compliance and internal control weaknesses noted during theiraudit, and the auditors’ recommendations, are reported to the AC.The Internal Audit follows up on EY’s recommendations as part ofits role in the review of the Company’s internal control systems.The AC has reviewed the Company’s risk assessment, and basedon the IA audit reports and management controls in place, it issatisfied that there are adequate internal controls in the Company.The AC expects the risk assessment process to be a continuingprocess.The AC has also instructed the Company to embark on the EnterpriseRisk Management (“ERM”) initiatives for better assessment andmanagement of the company risks. The Company has engagedKPMG as its consultant for the development of ERM framework.Principle 13: Internal AuditsThe Internal Audit (“IA”) function is currently performed by anAudit & Risk Management (“A&RM”) team. The A&RM team reportsdirectly to the chairman of the AC on audit matters, and to theChief Financial Officer on administrative matters. The AC reviewsA&RM team’s reports on a quarterly basis. The AC also reviewsand approves the annual audit plans and resources to ensure thatthe A&RM team has the necessary resources to adequately performits functions. The A&RM team has adopted the Standards forProfessional Practice of Internal Auditing set by The Institute ofInternal Auditors.To ensure the adequacy of the internal audit function, the ACreviews the A&RM team’s activities on a half yearly basis. In 2002,the team, together with PricewaterhouseCoopers and the supervisionof the AC, has completed the development of the MinimumAcceptable Controls and Control Self-Assessment programmes forthe Company. The assessment exercises are done on an ongoingbasis.Corporate Governance Report 56 Annual Report 2006

In 2006, the Audit & Risk Management team, together with KPMG,has developed the Enterprise Risk Management framework in theCompany.The Company is expected to roll out both Control Self-Assessmentand Enterprise Risk Management programmes to its subsidiariesof the Company over time.Remuneration Committee (“RC”)Principle 7: Procedures for Developing Remuneration PoliciesPrinciple 8: Level and Mix of RemunerationPrinciple 9: Disclosure on RemunerationThe RC was formed on 27 December 2002 by combining theprevious Compensation Committee and OSIM Share Option SchemeCommittee.The RC consists of five directors, of whom three are non-executiveand independent directors. The RC is chaired by Mr Ong Kian Min,an independent and non-executive director.The RC’s principal responsibilities are to:1) Approve the structure of the compensation programme fordirectors and senior management to ensure that the programmeis competitive and sufficient to attract, retain and motivatesenior management of the required quality to run the Companysuccessfully;2) Review directors’ and senior management’s compensationannually and determine appropriate adjustments; and3) Administer the OSIM Employee Share Option Scheme (the“OSIM ESOS”). Any matter pertaining or pursuant to the OSIMESOS and any dispute and uncertainty as to the interpretationof the OSIM ESOS, any rule, regulation or procedure thereunderor any rights under the OSIM ESOS shall be determined by theRC.The CEO and executive directors’ remuneration packages includea variable bonus element which is performance-related.Directors’ fees are set in accordance with a remuneration frameworkcomprising basic fees. Executive directors do not receive directors’fees. Non-executive directors are paid directors’ fees, subject toapproval at the AGM.For competitive reasons, the Company is not disclosing eachindividual director’s remuneration. Instead, we are disclosing theband of remuneration in note 31 to the financial statements.Number of directors of the Company in remuneration bands:2006 2005$500,000 and above 1 3$250,000 to $499,000 2 -Below $250,000 5 58 8Corporate Governance Report 57 Annual Report 2006

The Company adopts a remuneration policy for staff comprising afixed component and a variable component. The fixed componentis in form of a base salary. The variable component is in the formof a variable bonus that is linked to the Company and individualperformance. Another element of the variable component is thegrant of share options to staff under the OSIM ESOS. This seeksto align the interests of staff with that of the shareholders. Staffappraisals are conducted twice in a year.Communication with ShareholdersPrinciple 10: Accountability and AuditPrinciple 14: Communication with ShareholdersPrinciple 15: Greater Shareholder ParticipationThe Company has adopted quarterly results reporting since thethird quarter of 2001. OSIM holds a media and analysts briefingof its quarterly, half-year and full-year results. The results arepublished through the SGXNET, news releases and the Company’swebsite and investor relations sites Zaobao.com, Wallstraits, IRASIAand Shareinvestor. All information on the Company’s new initiativesare first disseminated via SGXNET followed by a news release,which is also available on the website.Price sensitive information is first publicly released, either beforethe Company meets with any group of investors or analysts orsimultaneously with such meetings. Results and annual reportsare announced or issued within the mandatory period and areavailable on the Company’s website. The Company does not practiseselective disclosure. The Company communicates with its investorson a regular basis and attends to their queries. It also retained anInvestor Relations consultant and a Public Relations firm. Allshareholders of the Company receive the annual report and noticeof AGM. The notice is also advertised in newspapers and madeavailable on the SGXNET. At AGMs, shareholders are given theopportunity to air their views and ask directors or managementquestions regarding the Company.The Articles allow a member of the Company to appoint one or twoproxies to attend and vote instead of the member.Dealings in SecuritiesThe Company has adopted internal codes pursuant to the SGX-STBest Practices Guide applicable to all its officers in relation todealings in the Company’s securities. Its officers are not allowedto deal in the Company’s shares during the period commencingone month before the announcement of the Company’s quarterlyresults and ending on the date of the announcement of the results.In addition all employees and directors of the companies arerequired to observe the insider trading laws at all times.Interested Person TransactionsThe Company has adopted an internal policy in respect of anytransactions with interested persons and has set out the proceduresfor review and approval of the Company’s interested persontransactions.Corporate Governance Report 58 Annual Report 2006

The aggregate value of interested person transactions entered into during the financial year under review is as follows:SalesHealth Focus (California) IncOSIM (Guangzhou) Co., LtdOSIM (Langfang) Co., LtdOSIM (Shanghai) Co., Ltd *P.T OSIM Selaras Indonesia Makmur ^FK MarketingPurchasesOSIM (Guangzhou) Co., LtdOSIM (Langfang) Co., LtdOSIM (Shanghai) Co., LtdProfessional FeesSpouse of DirectorAggregate value of all IPT during the financialyear under review (excluding transactions< $100,000 & transactions conducted undershareholders' mandate pursuant to Rule 920)12 months ended 31 Dec2006 2005$'000$'000- -- -- -- -- -- -- -- -- -- -- 157- 157Aggregate value of all IPT conductedunder shareholder's mandatepursuant to Rule 920(excluding transactions < $100,000)12 months ended 31 Dec2006 2005$'000$'000211 3,99717,027 12,8979,891 16,670- 15,362- 2,8481,148 -28,277 51,774- 894- 167- 141- 1,202- -- -* OSIM (China) Co., Ltd became a subsidiary in December 2005 and was previously known as OSIM (Shanghai) Co., Ltd.^ In financial year 2006, P. T OSIM Selaras Indonesia Makmur ceased to be a director-related companyCorporate Governance Report 59 Annual Report 2006

Material ContractsNo material contracts to which the company or its subsidiary, is aparty and which involve interests of the Chief Executive Officers,each director or controlling shareholders subsisted at the end ofthe financial year or have been entered into since the end of theprevious financial year.DIRECTORS’ Attendance at Board and Committee MeetingsMeeting of Board Audit Committee Nominating Committee Remuneration CommitteeTotal held in FY2006 4 4 1 1Ron Sim Chye Hock 4 N.A. 1 1Charlie Teo Chay Lee 4 N.A. 1 1Richard Leow Lian Soon 4 N.A. N.A. N.A.Peter Lee Kwai Kiat 4 N.A. N.A. N.A.Teo Sway Heong 4 N.A. N.A. N.A.Michael Kan Yuet Yun 4 4 1 1Ong Kian Min 4 4 1 1Khor Peng Soon 4 4 1 1N.A. = Not applicableBest Practices GuideThe Company has complied materially with the Best PracticesGuide issued by SGX-ST.Peter Lee Hwai KiatCompany SecretaryCorporate Governance Report 60 Annual Report 2006

Financial Contents64 Directors’ Report71 Statement by Directors72 Independent Auditors’ Report74 Balance Sheets76 Consolidated Profit and Loss Account77 Statements of Changes in Equity80 Consolidated Cash Flow Statement83 Notes to the Financial Statements170 Major Properties171 Shareholdings Statistics173 Notice of Annual General Meeting177 Appendix187 Proxy Form

2006

Directors’ ReportFor the Year ended 31 December 2006(Amounts in Singapore dollars)The directors are pleased to present their report to the members together with the audited consolidated fi nancial statements of OSIMInternational Ltd (the “Company”) and its subsidiaries (collectively, the “Group”) and the balance sheet and statement of changes in equityof the Company for the fi nancial year ended 31 December 2006.DirectorsThe directors of the Company in offi ce at the date of this report are:Ron Sim Chye HockTeo Sway HeongCharlie Teo Chay LeeRichard Leow Lian SoonMichael Kan Yuet YunOng Kian MinKhor Peng SoonPeter Lee Hwai KiatArrangements to enable directors to acquire shares and debenturesExcept for the OSIM Share Option Scheme, neither at the end of nor at any time during the fi nancial year was the Company a party toany arrangement whose objects are, or one of whose object is, to enable directors of the Company to acquire benefi ts by means of theacquisition of shares or debentures of the Company or any other body corporate.Directors’ interests in shares and debenturesThe following directors, who held offi ce at the end of the fi nancial year, had, according to the register of directors’ shareholdings required tobe kept under section 164 of the Singapore Companies Act, Cap. 50, an interest in shares and share options of the Company and relatedcorporations, as stated below:1 January2006Held by director as at31 December200621 January2007Other shareholdings in which thedirector is deemed to have an interest31 December20061 January200621 January2007OSIM International LtdOrdinary sharesRon Sim Chye Hock 231,967,124 122,901,938 122,901,938 3,382,874 160,218,058 160,218,058Teo Sway Heong 3,382,874 4,059,448 4,059,448 231,967,124 279,060,548 279,060,548Charlie Teo Chay Lee 1,875,000 1,462,000 1,462,000 – – –Richard Leow Lian Soon 1,875,000 2,250,000 2,250,000 56,250 67,500 67,500Michael Kan Yuet Yun 318,748 382,498 382,498 – – –Ong Kian Min 281,248 337,497 337,497 – – –Khor Peng Soon 30,000 36,000 36,000 – – –Peter Lee Hwai Kiat 60,000 72,000 72,000 – – –Directors’ Report 64Annual Report 2006

Directors’ Report (cont’d)Directors’ interests in shares and debentures (cont’d)At 1 January2006At 31 December2006At 21 January2007Exercise price$ExpirydateOSIM International LtdOptions to subscribe for ordinary sharesCharlie Teo Chay Lee 206,250 247,500 247,500 0.178 14.01.2011206,250 247,500 247,500 0.236 14.01.2012165,000 198,000 198,000 0.442 26.12.201279,200 95,040 95,040 0.917 15.02.2014Richard Leow Lian Soon 206,250 – – 0.213 14.01.2011206,250 – – 0.283 14.01.2012165,000 – – 0.530 26.12.201279,200 40 40 0.917 15.02.2014Peter Lee Hwai Kiat 112,500 135,000 135,000 0.178 14.01.2011112,500 135,000 135,000 0.236 14.01.2012120,000 144,000 144,000 0.442 26.12.201257,600 69,120 69,120 0.917 15.02.2014Michael Kan Yuet Yun 18,000 21,600 21,600 0.917 15.02.2009Ong Kian Min 37,500 45,000 45,000 0.442 26.12.200718,000 21,600 21,600 0.917 15.02.2009Khor Peng Soon 18,000 21,600 21,600 0.917 15.02.2009By virtue of section 7 of the Singapore Companies Act, Cap. 50, both Ron Sim Chye Hock and Teo Sway Heong are deemed to have interestsin the shares held by the Company in its subsidiaries.Except as disclosed in this report, no director who held offi ce at the end of the fi nancial year had an interest in shares, share options,warrants or debentures of the Company, or of related corporations, either at the beginning of the fi nancial year, or at the end of the fi nancialyear.Directors’ contractual benefitsExcept as disclosed in the fi nancial statements, since the end of the previous fi nancial year, no director of the Company has received orbecome entitled to receive a benefi t by reason of a contract made by the Company or a related corporation with the director, or with a fi rmof which the director is a member, or with a company in which the director has a substantial fi nancial interest.Directors’ Report 65Annual Report 2006

Directors’ Report (cont’d)Share optionsThe OSIM Share Option Scheme (the “Option Scheme”) is administered by the Remuneration Committee comprising the followingmembers:Ong Kian Min (Chairman)Ron Sim Chye HockCharlie Teo Chay LeeMichael Kan Yuet YunKhor Peng SoonOnly confi rmed full-time employees as well as directors of the Group (other than Ron Sim Chye Hock and Teo Sway Heong) who are notcontrolling shareholders and their associates are eligible to receive options granted under the Option Scheme.The aggregate number of ordinary shares subject to outstanding options granted under the Option Scheme will not at any time exceed 15%of the issued share capital of the Company. The exercise price of the options shall be determined by the Remuneration Committee andfi xed at:(i)(ii)a price (the “Market Price”) equal to the average of the last dealt prices of the Company’s share, as determined by reference to theFinancial News or other publication published by the SGX-ST for the 3 consecutive trading days immediately preceding the date ofgrant, rounded up to the nearest whole cent in the event of fractional prices; ora price which is set at a discount to the Market Price, provided that:(a)(b)the maximum discount shall not exceed 20% of the Market Price (or such other percentage or amount as may be determinedby the Remuneration Committee and permitted by the SGX-ST); andthe shareholders of the Company in general meeting shall have authorised the making of offers and grants of options underthe Option Scheme at a discount not exceeding the maximum discount as aforesaid.Where the exercise price as determined above is less than $0.05, the exercise price shall be $0.05.The exercise period of options with exercise price at Market Price commences on the fi rst anniversary of the date of grant while the exerciseperiod of options with exercise price at a discount to the Market Price commences on the second anniversary of the date of grant. Optionsgranted to executive directors and employees expire on the tenth anniversary of the date of grant while options granted to non-executivedirectors and employees of associated companies expire on the fi fth anniversary of the date of grant.Directors’ Report 66Annual Report 2006

Directors’ Report (cont’d)Share options (cont’d)The movement in share options during the fi nancial year is as follows:Group and Company2006 2005At beginning of year 6,815,281 8,393,281Adjustment to share options arising from the bonus issue 1,124,863 –Granted during the year – –Lapsed during the year (431,800) (219,750)Exercised during the year (2,768,559) (1,358,250)At end of year 4,739,785 6,815,281During the fi nancial year ended 31 December 2006, 2,768,559 ordinary shares were issued at a weighted average exercise price of $0.06,upon the exercise of options granted pursuant to the Option Scheme.Details of all the options to subscribe for ordinary shares of the Company pursuant to the Option Scheme as at 31 December are asfollows:Exercise priceNumber of optionsExpiry date 2006 # 2005 2006 2005$ $26.12.2007 0.442 0.530 45,000 82,50015.02.2009 0.917 1.100 64,800 78,00014.01.2011 0.178 0.213 585,000 699,37629.08.2011 – 0.218 – 56,25014.01.2012 0.236 0.283 720,565 969,85515.08.2012 0.506 0.607 143,000 280,40026.12.2012 0.442 0.530 768,480 1,144,30018.06.2013 0.488 0.586 120,800 348,00015.02.2014 0.917 1.100 2,292,140 3,156,6004,739,785 6,815,281# Adjustments were made to the exercise price of the options, following the bonus issue of shares on the basis of 1 bonus share for every5 ordinary shares held in the capital of the Company.Since the commencement of the Option Scheme till the end of the fi nancial year:• No options have been granted to the controlling shareholders of the Company and their associates;• No participant has received 5% or more of the total options available under the Option Scheme;• No options that entitle the holder to participate, by virtue of the options, in any share issue of any other corporation have beengranted; and• No options have been granted at a discount.Directors’ Report 67Annual Report 2006

Directors’ Report (cont’d)Share options (cont’d)Details of the options to subscribe for ordinary shares of the Company granted to directors and employees of the Group and associatedcompanies pursuant to the Option Scheme are as follows:OptionsgrantedduringfinancialyearAggregate optionsgranted (includingbonus issue) sincecommencementof the OptionScheme to end offinancial yearAggregateoptionsexercised sincecommencementof the OptionScheme to endof financial yearAggregateoptionslapsed sincecommencementof the OptionScheme to endof financial yearAggregateoptionsoutstandingas at endof financialyearExerciseprice($)Name of directors Exercise periodCharlie Teo Chay Lee 15.01.2002 - 14.01.2011–247,500– –247,500 0.17815.01.2003 - 14.01.2012 – 247,500 – – 247,500 0.23627.12.2003 - 26.12.2012 – 198,000 – – 198,000 0.44216.02.2005 - 15.02.2014 – 95,040 – – 95,040 0.917Richard 15.01.2002 - 14.01.2011 – 247,500 (247,500) – – –Leow Lian Soon 15.01.2003 - 14.01.2012 – 247,500 (247,500) – – –27.12.2003 - 26.12.2012 – 198,000 (198,000) – – –16.02.2005 - 15.02.2014 – 95,040 (95,000) – 40 0.917Peter Lee Hwai Kiat 15.01.2002 - 14.01.2011 – 135,000 – – 135,000 0.17815.01.2003 - 14.01.2012 – 135,000 – – 135,000 0.23627.12.2003 - 26.12.2012 – 144,000 – – 144,000 0.44216.02.2005 - 15.02.2014 – 69,120 – – 69,120 0.917Michael 15.01.2002 - 14.01.2006 – 39,063 (39,063) – – –Kan Yuet Yun 15.01.2003 - 14.01.2007 – 39,063 (39,063) – – –27.12.2003 - 26.12.2007 – 31,250 (31,250) – – –16.02.2005 - 15.02.2009 – 21,600 – – 21,600 0.917Ong Kian Min 15.01.2002 - 14.01.2006 – 46,876 (46,876) – – –15.01.2003 - 14.01.2007 – 46,876 (46,876) – – –27.12.2003 - 26.12.2007 – 45,000 – – 45,000 0.44216.02.2005 - 15.02.2009 – 21,600 – – 21,600 0.917Khor Peng Soon 16.02.2005 - 15.02.2009 – 21,600 – – 21,600 0.917Staff 15.01.2002 - 14.01.2006 – 30,000 (30,000) – – –15.01.2002 - 14.01.2011 – 1,649,057 (1,294,682) (151,875) 202,500 0.17830.08.2002 - 29.08.2011 – 412,186 (348,436) (63,750) – –15.01.2003 - 14.01.2007 – 46,875 (46,875) – – –15.01.2003 - 14.01.2012 – 2,424,620 (1,852,180) (234,375) 338,065 0.23616.08.2003 - 15.08.2012 – 1,048,200 (695,600) (209,600) 143,000 0.50627.12.2003 - 26.12.2007 – 54,000 (54,000) – – –27.12.2003 - 26.12.2012 – 2,720,830 (1,875,450) (418,900) 426,480 0.44219.06.2004 - 18.06.2013 – 1,215,000 (835,200) (259,000) 120,800 0.48816.02.2005 - 15.02.2009 – 28,800 (28,800) – – –16.02.2005 - 15.02.2014 – 4,140,200 (1,136,060) (876,200) 2,127,940 0.91716,141,896 (9,188,411) (2,213,700) 4,739,785Directors’ Report 68Annual Report 2006

Directors’ Report (cont’d)Audit committeeThe Audit Committee (the “AC’) comprises three independent non-executive directors, one of whom is also the Chairman of the Committee.The members of the AC are:Michael Kan Yuet YunOng Kian MinKhor Peng Soon(Chairman)(Non-executive Director)(Non-executive Director)The AC performs the functions in accordance with section 201B(5) of the Singapore Companies Act, Cap. 50, including the following:• Reviews the audit plans of the internal and external auditors of the Company and ensures the adequacy of the Company’s system ofaccounting controls and the co-operation given by the Company’s management to the external and internal auditors;• Reviews the quarterly and annual fi nancial statements and the auditors’ report on the annual fi nancial statements of the Group andthe Company before their submission to the board of directors;• Reviews effectiveness of the Group and the Company’s material internal controls, including fi nancial, operational and compliancecontrols and risk management via reviews carried out by the internal auditors;• Meets with the external auditors, other committees, and management in separate executive sessions to discuss any matters thatthese groups believe should be discussed privately with the AC;• Reviews legal and regulatory matters that may have a material impact on the fi nancial statements, related compliance policies andprogrammes and any reports received from regulators;• Reviews the cost effectiveness and the independence and objectivity of the external auditors;• Reviews the nature and extent of non-audit services provided by the external auditors;• Recommends to the board of directors the external auditors to be nominated, approves the compensation of the external auditors,and reviews the scope and results of the audit;• Reports actions and minutes of the AC to the board of directors with such recommendations as the AC considers appropriate; and• Reviews interested person transactions in accordance with the requirements of the Singapore Exchange Securities Trading Limited(SGX-ST)’s Listing Manual.The AC, having reviewed all non-audit services provided by the external auditors to the Group, is satisfi ed that the nature and extentof such services would not affect the independence of the external auditors. The AC has also conducted a review of interested persontransactions.The AC convened four meetings during the year with full attendance from all members. The AC has also met with internal and externalauditors, without the presence of the Company’s management, at least once a year.Further details regarding the audit committee are disclosed in the Report on Corporate Governance.Directors’ Report 69Annual Report 2006

Directors’ Report (cont’d)AuditorsErnst & Young have expressed their willingness to accept re-appointment as auditors.On behalf of the board of directors,Ron Sim Chye HockDirectorCharlie Teo Chay LeeDirectorSingapore26 March 2007Directors’ Report 70Annual Report 2006

Statement by DirectorsPursuant to Section 201(15)We, Ron Sim Chye Hock and Charlie Teo Chay Lee, being two of the directors of OSIM International Ltd, do hereby state that, in the opinionof the directors,(i)(ii)the accompanying balance sheets, consolidated profi t and loss account, statements of changes in equity and consolidated cash fl owstatement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of theCompany as at 31 December 2006 and of the results, changes in equity and cash fl ows of the Group and the changes in equity ofthe Company for the year ended on that date; andat the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and whenthey fall due.On behalf of the board of directors,Ron Sim Chye HockDirectorCharlie Teo Chay LeeDirectorSingapore26 March 2007Statement by Directors 71Annual Report 2006

Independent Auditors’ Reportto the Members of OSIM International LtdWe have audited the accompanying fi nancial statements of OSIM International Ltd (the “Company”) and its subsidiaries (collectively, the“Group”) set out on pages 74 to 169, which comprise the balance sheets of the Group and the Company as at 31 December 2006, thestatements of changes in equity of the Group and the Company, the profi t and loss account and cash fl ow statement of the Group for theyear then ended, and a summary of signifi cant accounting policies and other explanatory notes.Directors’ Responsibility for the Financial StatementsThe Company’s directors are responsible for the preparation and fair presentation of these fi nancial statements in accordance with theprovision of the Singapore Companies Act, Cap 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes:designing, implementing and maintaining internal control relevant to the preparation and fair presentation of fi nancial statements thatare free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and makingaccounting estimates that are reasonable in the circumstances.Auditors’ ResponsibilityOur responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance withSingapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit toobtain reasonable assurance whether the fi nancial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. Theprocedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the fi nancialstatements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating theoverall presentation of the fi nancial statements.We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.Independant Auditors’ Report 72Annual Report 2006

Independent Auditors’ Report to the Members of OSIM International LtdOpinionIn our opinion,(i)(ii)the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company areproperly drawn up in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore FinancialReporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2006and the results, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on thatdate; andthe accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singaporeof which we are the auditors have been properly kept in accordance with the provisions of the Act.ERNST & YOUNGCertifi ed Public AccountantsSingapore26 March 2007Independant Auditors’ Report 73Annual Report 2006

Balance Sheetsas at 31 December 2006Note Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000(Restated)Equity attributable to equity holders of the CompanyShare capital 3 42,501 22,449 42,501 22,449Share premium – 18,046 – 18,046Accumulated profi ts 145,947 124,035 111,266 90,336Enterprise expansion funds 4 545 545 – –Capital reserves 5 1,401 1,446 765 1,164Hedging reserve 6 (1,394) (3,236) (1,394) (3,073)Revaluation reserve 7 5,237 5,237 – –Premium on purchase of minority interests’ shares 8 (7,033) (965) – –Foreign currency translation reserve 9 (17,082) (1,177) – –170,122 166,380 153,138 128,922Minority interests 6,217 7,436 – –Total equity 176,339 173,816 153,138 128,922Non-current assetsFixed assets 10 49,038 42,136 13,249 13,182Subsidiaries 11 – – 78,118 59,763Associated companies and a joint venture 12 140,738 166,037 146,473 146,829Intangible assets 13 39,845 39,142 84 123Long-term investment 14 930 – 930 –Long-term receivables 15 10,619 7,618 1,915 1,545Deferred tax assets 35 4,910 3,281 – –246,080 258,214 240,769 221,442Current assetsLoans to associated companies 16 510 – 510 –Stocks 17 91,658 71,545 17,286 15,577Trade debtors 18 39,625 36,262 9,402 8,959Other debtors and deposits 19 6,167 6,858 2,435 1,837Prepaid operating expenses 2,910 3,263 1,060 1,003Due from subsidiaries (trade) 20 – – 12,857 21,598Due from subsidiaries (non-trade) 20 – – 3,032 3,167Due from affi liated companies (trade) 20 1,074 15,383 – 2,315Due from affi liated companies (non-trade) 20 1 397 1 255Due from associated companies (trade) 20 410 6,047 396 1,842Due from associated companies (non-trade) 20 704 457 692 156Due from joint venture (trade) 20 871 4,539 871 4,539Fixed deposits 21 5,719 31,046 5,100 29,558Cash and bank balances 21 24,047 27,889 8,041 9,223173,696 203,686 61,683 100,029The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Balance Sheets 74Annual Report 2006

Balance Sheets as at 31 December 2006 (cont’d)Note Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000(Restated)Current liabilitiesTrade creditors 22 20,547 21,695 3,357 11,616Other creditors and accruals 23 42,741 47,815 11,898 21,972Provisions 24 6,527 5,797 2,904 2,746Due to subsidiaries (trade) 20 – – 58 –Due to subsidiaries (non-trade) 20 – – 7,764 117Due to affi liated companies (trade) 20 – 9,593 – 52Due to affi liated companies (non-trade) 20 1,219 18 – –Due to associated companies (trade) 20 20,650 5,984 17,930 4,708Due to associated companies (non-trade) 20 6 – 6 –Due to joint venture (trade) 20 7 – 7 –Short-term bank loans 25 11,658 14,155 – –Provision for income tax 9,933 7,383 4,920 5,441Bank loans – current portion 26 23,635 23,491 20,000 20,000Obligations under fi nance leases – current portion 27 1,185 1,552 – –Bills payable to banks (unsecured) 32,987 49,618 19,404 45,867Bank overdrafts 21 – 2,858 – –171,095 189,959 88,248 112,519Net current assets/(liabilities) 2,601 13,727 (26,565) (12,490)Non-current liabilitiesBank loans – non-current portion 26 66,639 90,462 60,000 80,000Obligations under fi nance leases – non-current portion 27 1,128 3,150 – –Provision for pension benefi ts 28b 321 429 – –Deferred tax liabilities 35 4,254 4,084 1,066 3072,342 98,125 61,066 80,030Net assets 176,339 173,816 153,138 128,922The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Balance Sheets 75Annual Report 2006

Consolidated Profit and Loss Accountfor the year ended 31 December 2006NoteGroup2006 2005$’000 $’000(Restated)Revenue 29 622,936 502,504Other operating income 30 8,995 7,210Changes in inventories of fi nished goods 20,066 35,530Finished goods purchased (254,005) (247,105)Employee benefi ts expense 28 (86,050) (71,410)Depreciation and amortisation expenses (16,056) (12,250)Other operating expenses 32 (235,220) (172,210)Profit before taxation and financial expenses and income 60,666 42,269Financial expenses 33a (7,091) (3,879)Financial income 33b 1,220 1,75854,795 40,148Share of profi ts of associated companies and a joint venture before fi nancial expenses 2,536 14,654Share of fi nancial expenses of a joint venture 34 (13,719) (3,386)Share of (losses)/profi ts of associated companies and a joint venture afterfi nancial expenses (11,183) 11,268Profit before taxation 43,612 51,416Taxation 35 (7,824) (5,817)Net profit for the year 35,788 45,599Attributable to:Equity holders of the Company 33,802 46,693Minority interests 1,986 (1,094)35,788 45,599Earnings per share (cents)Basic 36 6.25 8.68Diluted 36 6.21 8.63The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Consolidated Profi t and Loss Account 76Annual Report 2006

Statements of Changes in Equityfor the year ended 31 December 20062006GroupSharecapital(Note 3)Share Accumulatedpremium profitsAttributable to equity holders of the CompanyEnterpriseexpansionfunds(Note 4)Capitalreserves(Note 5)Hedgingreserve(Note 6)RevaluationReserve(Note 7)Premium onpurchase ofminorityinterests’ shares(Note 8)Foreigncurrencytranslationreserve(Note 9)MinorityinterestsTotalequityTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At 31 December 2005 aspreviously stated 22,449 18,046 124,035 545 1,446 (3,236) – (953) (1,175) 161,157 8,395 169,552Fair value adjustments tothe identifiable assets andliabilities of a subsidiaryacquired in 2005 – – – – – – 5,237 (12) (2) 5,223 (959) 4,264At 1 January 2006 asrestated 22,449 18,046 124,035 545 1,446 (3,236) 5,237 (965) (1,177) 166,380 7,436 173,816Net change in hedgingreserve (Note 6) – – – – – 1,842 – – – 1,842 22 1,864Net effect of exchangedifferences (Note 9) – – – – – – – – (15,905) (15,905) (80) (15,985)Net income/(loss) recogniseddirectly in equity – – – – – 1,842 – – (15,905) (14,063) (58) (14,121)Net profit for the year – – 33,802 – – – – – – 33,802 1,986 35,788Total recognised incomeand expenses for the year – – 33,802 – – 1,842 – – (15,905) 19,739 1,928 21,667Dividends on ordinary shares(Note 37) – – (11,536) – – – – – – (11,536) – (11,536)Transfer of share premiumto share capital 18,046 (18,046) – – – – – – – – – –Transfer to capital reserves – – (354) – 354 – – – – – – –Lapse of employee shareoptions (Note 5b) – – – – (43) – – – – (43) – (43)Exercise of employee shareoptions 2,006 – – – (356) – – – – 1,650 – 1,650Acquisition of subsidiaries – – – – – – – – – – (1,392) (1,392)Increase in shareholdingsin a subsidiary – – – – – – – – – – (2,171) (2,171)Premium on purchase ofminority interests’ shares(Note 8) – – – – – – – (6,068) – (6,068) – (6,068)Issue of shares to a minorityshareholder (Note 11e) – – – – – – – – – – 416 416At 31 December 2006 42,501 – 145,947 545 1,401 (1,394) 5,237 (7,033) (17,082) 170,122 6,217 176,339The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Statements of Changes in Equity 77Annual Report 2006

Statements of Changes in Equity for the year ended 31 December 2006 (cont’d)2005GroupSharecapital(Note 3)Share Accumulatedpremium profitsAttributable to equity holders of the CompanyEnterpriseexpansionfunds(Note 4)Capitalreserves(Note 5)Hedgingreserve(Note 6)Revaluationreserve(Note 7)Premium onpurchase ofminorityinterests’ shares(Note 8)Foreigncurrencytranslationreserve(Note 9)MinorityinterestsTotalequityTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At 1 January 2005 22,381 17,257 84,337 545 1,441 3,247 – – (2,427) 126,781 2,059 128,840Net change in hedgingreserve (Note 6) – – – – – (6,483) – – – (6,483) (23) (6,506)Fair value adjustments tothe identifiable assets andliabilities of a subsidiaryacquired in 2005 (Note 7) – – – – – – 5,237 – – 5,237 – 5,237Net effect of exchangedifferences (Note 9) – – – – – – – – 1,250 1,250 (5) 1,245Net (loss)/incomerecognised directlyin equity – – – – – (6,483) 5,237 – 1,250 4 (28) (24)Net profit for the year – – 46,693 – – – – – – 46,693 (1,094) 45,599Total recognised incomeand expenses for the year – – 46,693 – – (6,483) 5,237 – 1,250 46,697 (1,122) 45,575Dividends on ordinaryshares (Note 37) – – (6,995) – – – – – – (6,995) – (6,995)Share-based compensationexpense (Note 5b) – – – – 99 – – – – 99 – 99Exercise of employee shareoptions 68 789 – – (94) – – – – 763 – 763Acquisition of subsidiaries – – – – – – – – – – 7,095 7,095Increase in shareholdingsin a subsidiary – – – – – – – – – – (596) (596)Premium on purchase ofminority interests’ shares(Note 8) – – – – – – – (965) – (965) – (965)At 31 December 2005 22,449 18,046 124,035 545 1,446 (3,236) 5,237 (965) (1,177) 166,380 7,436 173,816The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Statements of Changes in Equity 78Annual Report 2006

Statements of Changes in Equity for the year ended 31 December 2006 (cont’d)2006CompanyAttributable to equity holders of the Company Total equityShareCapital Hedgingcapital Share Accumulated reserves reserve(Note 3) premium profits (Note 5) (Note 6)$’000 $’000 $’000 $’000 $’000 $’000At 1 January 2006 22,449 18,046 90,336 1,164 (3,073) 128,922Net change in hedging reserve (Note 6) – – – – 1,679 1,679Net profi t recognised directly in equity – – – – 1,679 1,679Net profi t for the year – – 32,466 – – 32,466Total recognised income and expensesfor the year – – 32,466 – 1,679 34,145Dividends on ordinary shares (Note 37) – – (11,536) – – (11,536)Transfer of share premium to share capital 18,046 (18,046) – – – –Lapse of employee share options (Note 5b) – – – (43) – (43)Exercise of employee share options 2,006 – – (356) – 1,650At 31 December 2006 42,501 – 111,266 765 (1,394) 153,1382005CompanySharecapital(Note 3)Attributable to equity holders of the CompanyCapitalreserves(Note 5)Hedgingreserve(Note 6)Total equitySharepremiumAccumulatedprofits$’000 $’000 $’000 $’000 $’000 $’000At 1 January 2005 22,381 17,257 60,273 1,159 3,109 104,179Net change in hedging reserve (Note 6) – – – – (6,182) (6,182)Net loss recognised directly in equity – – – – (6,182) (6,182)Net profi t for the year – – 37,058 – – 37,058Total recognised income and expensesfor the year – – 37,058 – (6,182) 30,876Dividends on ordinary shares (Note 37) – – (6,995) – – (6,995)Share-based compensation expense (Note 5b) – – – 99 – 99Exercise of employee share options 68 789 – (94) – 763At 31 December 2005 22,449 18,046 90,336 1,164 (3,073) 128,922The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Statements of Changes in Equity 79Annual Report 2006

Consolidated Cash Flow Statementfor the year ended 31 December 2006NoteGroup2006 2005$’000 $’000(Restated)Cash flows from operating activitiesProfi t before taxation 43,612 51,416Adjustments for:Share of losses/(profi ts) of associated companies and a joint venture 11,183 (11,268)Depreciation of fi xed assets 10 14,469 11,066Loss on disposal of fi xed assets 1,414 558Intangible assets written off 13 110 –Amortisation of intangible assets 13 1,587 1,184Impairment loss on goodwill 13 – 2,841Impairment loss on fi xed assets 10 90 100Negative goodwill on increase in shareholdings in a subsidiary 11di – (615)Losses on deemed changes in shareholdings in a subsidiary and a joint venture - net 11e, 12a 1,067 –Share-based compensation expense 5b (43) 99Financial income 33b (1,220) (1,758)Financial expenses 33a 7,091 3,879Operating profit before working capital changes 79,360 57,502(Increase)/decrease in:Stocks (19,517) (3,163)Trade debtors (3,362) (1,137)Other debtors, deposits and prepaid operating expenses (2,827) 5,735Due from affi liated companies (trade) 14,309 11,606Due from affi liated companies (non-trade) 396 (20)Due from associated companies (trade) 5,636 124Due from associated companies (non-trade) (247) (116)Due from joint venture (trade) 3,668 (4,539)(Decrease)/increase in:Trade creditors (1,157) 65Other creditors and accruals (3,728) 8,741Due to affi liated companies (trade) (9,593) 9,564Due to affi liated companies (non-trade) 1,201 (617)Due to associated companies (trade) 14,672 2,500Due to joint venture (trade) 7 –Provision for pension benefi ts (107) 23Bills payable to banks (16,634) 5,310Cash flows generated from operations 62,077 91,578Income tax paid (5,141) (5,715)Net cash flows generated from operating activities 56,936 85,863The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Consolidated Cash Flow Statement 80Annual Report 2006

Consolidated Cash Flow Statement for the year ended 31 December 2006 (cont’d)NoteGroup2006 2005$’000 $’000(Restated)Cash flows from investing activitiesPurchase of fi xed assets A (23,014) (9,171)Proceeds from disposal of fi xed assets 565 1,262Interest received 1,048 1,020Dividend received from an associated company 952 2,966Purchase of shares in subsidiaries 11ci, 11di (4,943) (28,001)Acquisition of additional interests in subsidiaries 11cii, 11dii (7,762) (1,325)Purchase of shares in associated company and joint venture – (154,553)Issue of shares to a minority shareholder 11e 484 –Acquisition of intangible assets 13 (228) (114)Loan to an associated company (207) –Repayment of loan from an associated company 53 –Purchase of unquoted investment (930) –Net cash flows used in investing activities (33,982) (187,916)Cash flows from financing activitiesReceipts from new bank loans 30,143 140,762Repayment of bank loans (55,161) (33,611)Repayment of fi nance lease obligations (3,253) (1,190)Dividends paid on ordinary shares by the Company 37 (11,536) (6,995)Proceeds from issuance of ordinary shares B 1,650 763Payment of loan arrangement fees 33a – (1,050)Interest paid (6,941) (2,829)Net cash flows (used in)/generated from financing activities (45,098) 95,850Net decrease in cash and cash equivalents (22,144) (6,203)Net effect of exchange rates changes (4,167) 864Cash and cash equivalents at beginning of year 56,077 61,416Cash and cash equivalents at end of year (Note 21) 29,766 56,077The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Consolidated Cash Flow Statement 81Annual Report 2006

Consolidated Cash Flow Statement for the year ended 31 December 2006 (cont’d)Note A: Fixed assetsDuring the fi nancial year, the Group acquired fi xed assets with an aggregate cost of $23,886,000 (2005: $10,715,000) of which $872,000(2005: $1,544,000) were acquired by means of fi nance leases. Cash payments of $23,014,000 (2005: $9,171,000) were made to purchasefi xed assets. The Group has provided for additional restoration cost of $390,000 (2005: $2,880,000) for plant and machinery and shoprenovations.Note B: Issue of sharesDuring the fi nancial year, 2,768,559 (2005: 1,358,250) ordinary shares were issued for cash upon the exercise of options under the OSIMShare Option Scheme (Note 3). This resulted in a cash infl ow of $1,650,000 (2005: $763,000).The accompanying accounting policies and explanatory notes form an integral part of the fi nancial statements.Consolidated Cash Flow Statement 82Annual Report 2006

Notes to the Financial Statements31 December 20061. Corporate informationOSIM International Ltd (the “Company”) is a limited liability company, which is domiciled and incorporated in Singapore and listedon the Singapore Exchange Securities Trading Limited.The registered offi ce and principal place of business of the Company is located at 65, Ubi Avenue 1, OSIM Headquarters, Singapore408939.The principal activities of the Company are those of marketing, distributing and franchising of healthy lifestyle products. Theprincipal activities of its subsidiaries are as shown in Note 11 to the fi nancial statements.There have been no signifi cant changes in the nature of these activities during the fi nancial year.2. Summary of significant accounting policies2.1 Basis of preparationThe consolidated fi nancial statements of the Group and the balance sheet and statement of changes in equity of the Companyhave been prepared in accordance with Singapore Financial Reporting Standards (“FRS”).The fi nancial statements have been prepared on a historical cost basis except for derivative fi nancial instruments andavailable-for-sale fi nancial assets that have been measured at their fair values. In addition, the carrying amounts of assetsand liabilities that are designated as hedging items in a fair value hedge are adjusted for fair value changes attributable to thehedged risks.The fi nancial statements are presented in Singapore dollars (SGD or $) and all values are rounded to the nearest thousand($’000) except when otherwise indicated.The accounting policies have been consistently applied by the Group and the Company and are consistent with those usedin previous fi nancial year.Notes to the Financial Statements 83Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.2 FRS and INT FRS not yet effectiveThe Group and the Company have not applied the following FRS and INT FRS that have been issued but not yet effective:FRS 1 : Amendment to FRS 1 (revised),Presentation of fi nancial statements(Capital Disclosures)Effective date(Annual periods beginningon or after)1 January 2007FRS 40 : Investment Property 1 January 2007FRS 107 : Financial Instruments: Disclosures 1 January 2007FRS 108 : Operating Segments 1 January 2009INT FRS 107 : Applying the Restatement Approach under FRS 29, Financial 1 March 2006Reporting in Hyperinfl ationary EconomiesINT FRS 108 : Scope of FRS 102, Share-based Payment 1 May 2006INT FRS 109 : Reassessment of Embedded Derivatives 1 June 2006INT FRS 110 : Interim Financial Reporting and Impairment 1 November 2006INT FRS 111 : Group and Treasury Share Transactions 1 March 2007INT FRS 112 : Service Concession Arrangements 1 January 2008The directors expect the adoption of the above pronouncements will have no material impact to the fi nancial statements inthe period of initial application, except for FRS 107 and amendments to FRS 1 as indicated below:FRS 107, Financial Instruments: Disclosures and amendment to FRS 1 (revised), Presentation of financial statements(Capital Disclosures)FRS 107 introduces new disclosures to improve the information about fi nancial instruments. It requires the disclosureof qualitative and quantitative information about exposure to risks arising from fi nancial instruments, including specifi edminimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. Theamendment to FRS 1 requires the Group to make new disclosures to enable users of fi nancial statements to evaluate theGroup’s objectives, policies and processes for managing capital. The Group will apply FRS 107 and the amendment for FRS1 from annual period beginning 1 January 2007.Notes to the Financial Statements 84Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.3 Significant accounting estimates and judgmentsEstimates, assumptions concerning the future and judgments are made in the preparation of the fi nancial statements. Theyaffect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, anddisclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, includingexpectations of future events that are believed to be reasonable under the circumstances.a) Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheetdate, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilitieswithin the next fi nancial year are discussed below:i) Impairment of goodwillThe Group determines whether goodwill is impaired at least on an annual basis. This requires an estimationof the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in userequires the Group to make an estimate of the expected future cash fl ows from the cash-generating unit andalso to choose a suitable discount rate in order to calculate the present value of those cash fl ows. The carryingamount of the Group’s goodwill at 31 December 2006 was $22,073,000 (2005: $21,055,000). More detailsare given in Note 13.ii)Income taxesThe Group has exposure to income taxes in numerous jurisdictions. Signifi cant judgement is involved indetermining the group-wide provision for income taxes. There are certain transactions and computationsfor which the ultimate tax determination is uncertain during the ordinary course of business. The Grouprecognises liabilities for expected tax issues based on estimates of whether additional taxes will be due.Where the fi nal tax outcome of these matters is different from the amounts that were initially recognised, suchdifferences will impact the income tax and deferred tax provisions in the period in which such determinationis made.In addition, the Company was awarded the Development and Expansion Incentive (“DEI”) under theInternational Headquarters (“IHQ”) Award on 8 September 2004. The commencement date is 1 January2005 and is for a period of 5 years. The qualifying income from IHQ activities during the 5-year period willenjoy a concessionary tax rate, subject to fulfi llment of the criteria as stipulated in the Economic DevelopmentBoard’s offer letter. As at 31 December 2006, the Company has met the fi rst criteria and is currently on trackto achieving the remaining two criteria. The management believes that they will meet all the DEI criteria withinthe qualifying period by 31 December 2008.Notes to the Financial Statements 85Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.3 Significant accounting estimates and judgments (cont’d)a) Key sources of estimation uncertainty (cont’d)ii)Income taxes (cont’d)The carrying amount of the Group’s tax payables, deferred tax liabilities, deferred tax assets and income taxrecoverable as at 31 December 2006 were summarised as follows:Provision for income tax : $9,933,000 (2005: $7,383,000)Deferred tax liabilities : $4,254,000 (2005: $4,084,000)Deferred tax assets : $4,910,000 (2005: $3,281,000)Income tax recoverable : $1,188,000 (2005: $2,452,000)iii)iv)Depreciation of fixed assetsFixed assets are depreciated on a straight-line basis over their estimated useful lives. Management estimatesthe useful lives of these fi xed assets, except for freehold and leasehold buildings, to be within 1 to 10 years.The carrying amount of the Group’s fi xed assets at 31 December 2006 was $49,038,000 (2005: $42,136,000).Changes in the expected level of usage and technological developments could impact the economic usefullives and the residual values of these assets, therefore future depreciation charges could be revised.Provision for warrantiesProvision for warranties is accrued based on the estimated costs of fulfi lling the total obligation, includinghandling and transportation costs. The amount of the provision for warranty is estimated based on salesvolumes and past experience of the level of repairs and return. The estimation basis is reviewed on an ongoingbasis and revised where appropriate. The provision for warranties at 31 December 2006 was $1,716,000(2005: $1,383,000).v) Provision for redemption of customers’ reward pointsProvision for redemption of customers’ reward points is accrued based on the estimated value of thereward points given to customer upon purchase, which approximates the cost of the products to the Group.The provision for redemption of customers’ reward point at 31 December 2006 was $1,028,000 (2005:$679,000).vi)Provision for restoration costsProvision for restoration costs is accrued based on the expected cost of restoring the leasehold premises,retails outlets and warehouse to their state and condition as at the commencement of the lease and to thesatisfaction of the landlord. The provision for restoration costs at 31 December 2006 was $3,783,000 (2005:$3,735,000).Notes to the Financial Statements 86Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.3 Significant accounting estimates and judgments (cont’d)b) Critical judgements made in applying accounting policiesThe following is the judgement made by management in the process of applying the Group’s accounting policies thathave the most signifi cant effect on the amounts recognised in the fi nancial statements:Impairment of financial assetsThe Group follows the guidance of FRS 39 on determining when a fi nancial asset is considered impaired. Thisdetermination requires signifi cant judgement. The Group evaluates, among other factors, the duration and extent towhich the fair value of a fi nancial asset is less than its cost; and the fi nancial health of and the near-term businessoutlook of the issuer of the instrument, including factors such as industry performance, changes in technology andoperational and fi nancing cash fl ows.2.4 Functional and foreign currencya) Functional currencyThe management has determined the currency of the primary economic environment in which the Company operates(i.e. functional currency), to be SGD. Sales prices and major costs of providing goods and services including majoroperating expenses are primarily infl uenced by fl uctuations in SGD.b) Foreign currency transactionsTransactions in foreign currencies are measured in the respective functional currencies of the Company and itssubsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximatingthose ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translatedat the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the datewhen the fair value was determined.Exchange differences arising on the settlement of monetary items or on translating monetary items at the balancesheet date are recognised in the profi t and loss account except for exchange differences arising on monetary itemsthat form part of the Group’s net investment in foreign subsidiaries, which are recognised initially in a separatecomponent of equity as foreign currency translation reserve in the consolidated balance sheet and recognised in theconsolidated profi t and loss account on disposal of the subsidiary.Notes to the Financial Statements 87Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.4 Functional and foreign currency (cont’d)c) Foreign currency translationOn consolidation, the results and fi nancial position of foreign operations are translated into SGD using the followingprocedures:• Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balancesheet date; and• Income and expenses for each income statement are translated at average exchange rates for the year, whichapproximates the exchange rates at the dates of the transactions.All resulting exchange differences are recognised in a separate component of equity as foreign currency translationreserve.On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to thatforeign operation is recognised in the profi t and loss account as a component of the gain or loss on disposal.2.5 Subsidiaries and principles of consolidationa) SubsidiariesA subsidiary is an entity over which the Group has the power to govern the fi nancial and operating policies so as toobtain benefi ts from its activities. The Group generally has such power when it, directly or indirectly, holds more than50% of the issued share capital, or controls more than half of the voting power, or controls the composition of theboard of directors.In the Company’s separate fi nancial statements, investments in subsidiaries are accounted for at cost less anyimpairment losses.b) Principles of consolidationThe consolidated fi nancial statements comprise the fi nancial statements of the Company and its subsidiaries as at thebalance sheet date. The fi nancial statements of the subsidiaries used in the preparation of the consolidated fi nancialstatements are prepared for the same reporting date as the holding company. Consistent accounting policies areapplied for like transactions and events in similar circumstances.All intra-group balances, transactions, income and expenses and profi ts and losses resulting from intra-grouptransactions that are recognised in assets, are eliminated in full.Notes to the Financial Statements 88Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.5 Subsidiaries and principles of consolidation (cont’d)b) Principles of consolidation (cont’d)Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control,and continue to be consolidated until the date that such control ceases.Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured asthe fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange,plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities and contingent liabilitiesassumed in a business combination are measured initially at their fair values at the acquisition date, irrespective ofthe extent of any minority interest.Any excess of the cost of the business combination over the Group’s interest in the net fair value of the identifi ableassets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with theaccounting policy for goodwill stated in Note 2.12.Any excess of the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilitiesover the cost of business combination is recognised in the profi t and loss account on the date of acquisition.Minority interests represent the portion of profi t or loss and net assets in subsidiaries not held by the Group. They arepresented in the consolidated balance sheet within equity, separately from the parent shareholders’ equity, and areseparately disclosed in the consolidated profi t and loss account.2.6 Associated companiesAn associated company is an entity, not being a subsidiary or a joint venture, in which the Group has signifi cant infl uence.This generally coincides with the Group having 20% or more of the voting power, or has representation on the board ofdirectors.The Group’s investments in associated companies are accounted for using the equity method. Under the equity method, theinvestment in associated company is carried in the balance sheet at cost plus post-acquisition changes in the Group’s shareof net assets of the associated company. The Group’s share of the profi t or loss of the associated company is recognised inthe consolidated profi t and loss account. Where there has been a change recognised directly in the equity of the associatedcompany, the Group recognises its share of such changes. After application of the equity method, the Group determineswhether it is necessary to recognise any impairment loss with respect to the Group’s net investment in the associatedcompany. The associated company is equity accounted for from the date the Group obtains signifi cant infl uence until thedate the Group ceases to have signifi cant infl uence over the associated company.Goodwill relating to an associated company is included in the carrying amount of the investment.Notes to the Financial Statements 89Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.6 Associated companies (cont’d)Any excess of the Group’s share of the net fair value of the associated company’s identifi able assets, liabilities and contingentliabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead includedas income in the determination of the Group’s share of the associated company’s profi t or loss in the period in which theinvestment is acquired.When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company,including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations ormade payments on behalf of the associated company.The most recent available audited fi nancial statements of the associated companies are used by the Group in applying theequity method. Where the dates of the audited fi nancial statements used are not co-terminous with those of the Group,the share of results is arrived at from the last audited fi nancial statements available and un-audited management fi nancialstatements to the end of the accounting period. Consistent accounting policies are applied for like transactions and eventsin similar circumstances.In the Company’s separate fi nancial statements, investments in associated companies are accounted for at cost lessimpairment losses.2.7 Joint venturesThe Group’s investments in joint venture are accounted for using the equity method. Under the equity method, the investmentin joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets ofthe joint venture. The Group’s share of the profi t or loss of the joint venture is recognised in the consolidated profi t and lossaccount. Where there has been a change recognised directly in the equity of the joint venture, the Group recognises its shareof such changes. After application of the equity method, the Group determines whether it is necessary to recognise anyimpairment loss with respect to the Group’s net investment in the joint venture. The joint venture is equity accounted for fromthe date the Group obtains signifi cant infl uence until the date the Group ceases to have joint control over the joint venture.In the Company’s separate fi nancial statements, interests in joint ventures are accounted for at cost less impairment losses.2.8 Affiliated companiesAn affi liated company is a company, not being a subsidiary or an associated company, in which one or more of the directorsor shareholders of the Company have a signifi cant equity interest or exercise signifi cant infl uence.2.9 Related partiesParties are considered to be related if one party has the ability to control the other party or exercise signifi cant infl uence overthe other party in making fi nancial and operating decisions.Notes to the Financial Statements 90Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.10 Fixed assetsFixed assets are initially recorded at cost. Subsequent to recognition, fi xed assets are stated at cost less accumulateddepreciation and any accumulated impairment losses.When an asset is revalued, any increase in the carrying amount is credited directly to the asset revaluation reserve. However,the increase is recognised in the profi t and loss account to the extent that it reverses a revaluation decrease of the sameasset previously recognised in the profi t and loss account. When an asset’s carrying amount is decreased as a result of arevaluation, the decrease is recognised in the profi t and loss account. However, the decrease is debited directly to the assetrevaluation reserve to the extent of any credit balance existing in the reserve in respect of that asset.Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and thenet amount is restated to the revalued amount of the asset. The revaluation surplus included in the asset revaluation reservein respect of an asset is transferred directly to accumulated profi ts on retirement or disposal of the asset.Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation of an asset begins when it isavailable for use and is computed on a straight-line basis over the estimated useful life of the asset as follows:Freehold buildings 2% - 3%Leasehold buildings 1.42% - 3%Plant and machinery 10%Computers 18% - 100%Motor vehicles 18% - 40%Shop renovations 33 1 / 3%Furniture and fi ttings 10% - 33 1 / 3%Offi ce equipment 10% - 20%Capital work-in-progress is not depreciated as these assets are not available for use.The carrying values of fi xed assets are reviewed for impairment when events or changes in circumstances indicate that thecarrying value may not be recoverable.The residual values, useful life and depreciation method are reviewed at each fi nancial year-end to ensure that the amount,method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of thefuture economic benefi ts embodied in the fi xed assets.Fixed asset is derecognised upon disposal or when no future economic benefi ts are expected from its use or disposal.Any gain or loss arising on derecognition of the asset is included in the profi t and loss account in the year the asset isderecognised.Notes to the Financial Statements 91Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.11 LeasesFinance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leaseditem, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of theminimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportionedbetween the fi nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remainingbalance of the liability. Finance charges are charged to the profi t and loss account. Contingent rents, if any, are charged asexpenses in the periods in which they are incurred.Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if thereis no reasonable certainty that the Group will obtain ownership by the end of the lease term.Operating lease payments are recognised as an expense in the profi t and loss account on a straight-line basis over the leaseterm. The aggregate benefi t of incentives provided by the lessor is recognised as a reduction of rental expense over the leaseterm on a straight-line basis.2.12 Intangible assetsa) GoodwillGoodwill acquired in a business combination is initially measured at cost being the excess of the cost of the businesscombination over the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities.Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill isreviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carryingvalue may be impaired.For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected tobenefi t from the synergies of the combination, irrespective of whether other assets or liabilities of the Group areassigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:• Represents the lowest level within the Group at which the goodwill is monitored for internal managementpurposes; and• Is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format.A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are tested forimpairment annually and whenever there is an indication that the unit may be impaired, by comparing the carryingamount of the unit, including the goodwill, with the recoverable amount of the unit. Where the recoverable amountof the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment lossis recognised.Notes to the Financial Statements 92Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.12 Intangible assets (cont’d)a) Goodwill (cont’d)Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operationwithin that unit is disposed of, the goodwill associated with the operation disposed of is included in the carryingamount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of inthis circumstance is measured based on the relative values of the operation disposed of and the portion of the cashgeneratingunit retained.Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 aretreated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreignoperations and translated at the closing rate at the balance sheet date.Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 aredeemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the dateof acquisition.The Group does not reverse in a subsequent period, any impairment loss recognised for goodwill.b) Club membershipClub membership is measured at cost less accumulated amortisation and any impairment loss. Club membership isamortised on a straight-line basis over the estimated useful life of 22 years.c) Other intangible assetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assetsacquired in a business combination is their fair values as at the date of acquisition. Following initial recognition,intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.The useful lives of intangible assets are assessed to be either fi nite or indefi nite. Intangible assets with fi nite lives areamortised on a straight-line basis over the estimated economic useful lives and assessed for impairment wheneverthere is an indication that the intangible asset may be impaired. The amortisation period and the amortisation methodfor an intangible asset with a fi nite useful life are reviewed at least at each fi nancial year-end. The amortisationexpense on intangible assets with fi nite lives is recognised in the profi t and loss account through the ‘depreciationand amortisation expenses’ line item.Intangible assets with indefi nite useful lives are tested for impairment annually or more frequently if the eventsor changes in circumstances indicate that the carrying value may be impaired either individually or at the cashgeneratingunit level. Such intangibles are not amortised. The useful life of an intangible asset with indefi nite life isreviewed annually to determine whether the useful life assessment continues to be supportable.Notes to the Financial Statements 93Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.12 Intangible assets (cont’d)c) Other intangible assets (cont’d)The following classes of intangible assets are acquired by the Group through the acquisition of subsidiaries:i) Franchise rights and trademarksFranchise rights are paid to the franchisor, General Nutrition International, Inc. (“GNC”), in respect ofevery retail store opened by the Group and entitle the Group the right to operate each retail store using thefranchisor’s trademarks, trade names and operating system. Franchise rights are amortised over 20 years ona straight-line basis.Trademark registration costs relate to fees paid to register the “L.A.C” trademark and are amortised over 20years on a straight-line basis.ii)Distribution rightsDistribution rights relate to fees paid to GNC for the exclusive rights to distribute GNC products to otherretailers, distributors and merchants in Singapore and rights granted to third parties to distribute certainproducts exclusively in a specifi ed territory for a limited period of time. The distribution fees paid to GNC areamortised over 20 years on a straight-line basis, and the third party distribution rights are amortised over theagreement period ranging from 1 to 4 years.Gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposalproceeds and the carrying amount of the asset and are recognised in the profi t and loss account when the asset isderecognised.2.13 Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any suchindication exists, or when annual impairment testing for an asset (i.e. an intangible asset with an indefi nite useful life, anintangible asset not yet available for use, or goodwill acquired in a business combination) is required, the Group makes anestimate of the asset’s recoverable amounts.Notes to the Financial Statements 94Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.13 Impairment of non-financial assets (cont’d)An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value inuse and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independentof those from other assets or groups of assets. In assessing value in use, the estimated future cash fl ows are discounted totheir present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and therisks specifi c to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is consideredimpaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in theprofi t and loss account or treated as a revaluation decrease for assets carried at revalued amount to the extent that theimpairment loss does not exceed the amount held in the asset revaluation reserve for that same asset.An assessment is made at each reporting date as to whether there is any indication that previously recognised impairmentlosses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, therecoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change inthe estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that isthe case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceedthe carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for theasset in prior years. Reversal of an impairment loss is recognised in the profi t and loss account unless the asset is carried atrevalued amount, in which case the reversal in excess of impairment loss previously recognised through the profi t and lossaccount is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods toallocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. TheGroup does not reverse in a subsequent period, any impairment loss recognised for goodwill.2.14 Financial assetsFinancial assets are classifi ed as either fi nancial assets at fair value through profi t or loss, loans and receivables, held-tomaturityinvestments, or available-for-sale fi nancial assets, as appropriate. Financial assets are recognised on the balancesheet when, and only when, the Group becomes a party to the contractual provisions of the fi nancial instrument.When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of fi nancial assets not at fairvalue through profi t or loss, directly attributable transaction costs. The Group determines the classifi cation of its fi nancialassets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each fi nancial year-end.All regular way purchases and sales of fi nancial assets are recognised on the trade date i.e. the date that the Group commitsto purchase the asset. Regular way purchases or sales are purchases or sales of fi nancial assets that require delivery ofassets within the period generally established by regulation or convention in the marketplace concerned.Notes to the Financial Statements 95Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.14 Financial assets (cont’d)a) Financial assets at fair value through profit or lossFinancial assets classifi ed as held for trading (including derivative fi nancial instruments) are classifi ed as fi nancialassets at fair value through profi t or loss. Financial assets are classifi ed as held for trading if they are acquired for thepurpose of selling in the near term. Derivative fi nancial instruments are also classifi ed as held for trading unless theyare designated as effective hedging instruments. Gain or losses on fi nancial assets classifi ed at fair value throughprofi t or loss are recognised in the profi t and loss account.b) Loan and receivablesNon-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market areclassifi ed as loans and receivables. Such assets are carried at amortised cost using the effective interest method,less impairment losses. Gains and losses are recognised in profi t and loss account when the loans and receivablesare derecognised or impaired, as well as through the amortisation process.The Group classifi es the following fi nancial assets as loan and receivables:• cash and cash equivalents• trade and other debtors, including amounts due from subsidiaries, associated companies, affi liated companiesand a joint venture, loans to associated companies and long-term depositsc) Available-for-sale financial assetsThe Group classifi es its long-term investment as available-for-sale fi nancial assets.Available-for-sale fi nancial assets are those non-derivative fi nancial assets that are designated as available-for-saleor are not classifi ed in any of the other categories. After initial recognition, available-for-sale fi nancial assets aremeasured at fair value with gains or losses being recognised in the fair value adjustment reserve until the investmentis derecognised or until the investment is determined to be impaired at which time the cumulative gain or losspreviously reported in equity is included in the profi t and loss account.The fair value of investments that are actively traded in organised fi nancial markets is determined by referenceto the relevant Exchange’s quoted market bid prices at the close of the business on the balance sheet date. Forinvestments where there is no active market, fair value is determined using valuation techniques. Investments inequity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliablymeasured are measured at cost less impairment losses.Notes to the Financial Statements 96Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.15 Impairment of financial assetsThe Group assesses at each balance sheet date whether there is any objective that a fi nancial asset or group of fi nancialassets is impaired.a) Assets carried at amortised costIf there is objective evidence that an impairment loss on fi nancial assets carried at amortised cost has been incurred,the amount of the loss is measured as the difference between the asset’s carrying amount and the present value ofestimate future cash fl ows discounted at the fi nancial asset’s original effective interest rate. The carrying amount ofthe asset is reduced through the use of an allowance account. The amount of the loss is recognised in the profi t andloss account.If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectivelyto an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed.Any subsequent reversal of an impairment loss is recognised in the profi t and loss account, to the extent that thecarrying value of the asset does not exceed its amortised cost at the reversal date.b) Assets carried at costIf there is objective evidence that an impairment loss on a fi nancial asset carried at cost has been incurred, the amountof the loss is measured as the difference between the asset’s carrying amount and the present value of estimatedfuture cash fl ows discounted at the current market rate of return for a similar fi nancial asset. Such impairment lossesare not reversed in subsequent periods.c) Available-for-sales financial assetsIf an available-for-sale fi nancial asset is impaired, an amount comprising the difference between its cost (net of anyprincipal payment and amortisation) and its current fair value, less any impairment loss previously recognised in theprofi t and loss account, is transferred from equity to the profi t and loss account. Reversals of impairment loss inrespect of equity instruments are not recognised in the profi t and loss account. Reversals of impairment losses ondebt instruments are reversed through the profi t and loss account, if the increase in fair value of the instrument canbe objectively related to an event occurring after the impairment loss was recognised in the profi t and loss account.Notes to the Financial Statements 97Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.16 StocksStocks are valued at the lower of cost (determined on a weighted average basis) and net realisable value.Net realisable value is the estimated selling price in the ordinary course of business less estimated costs necessary to makethe sale.Allowance is made for deteriorated, damaged, obsolete and slow-moving stocks.2.17 Trade and other receivablesTrade and other receivables, including amounts due from subsidiaries, associated companies, affi liated companies and jointventure, and loans to associated companies are classifi ed and accounted for as loans and receivables under FRS 39. Theaccounting policy for this category of fi nancial assets is stated in Note 2.14.An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect thedebt. Bad debts are written off when identifi ed. Further details on the accounting policy for impairment of fi nancial assetsare stated in Note 2.15.2.18 Financial liabilitiesFinancial liabilities include trade and other amounts payable, which are normally settled on 30-90 day terms, and payablesto subsidiaries, associated companies, affi liated companies and interest-bearing loans and borrowings. Financial liabilitiesare recognised on the balance sheet when, and only when the Group becomes a party to the contractual provisions ofthe fi nancial instrument. Financial liabilities are initially recognised at fair value of considerations received less directlyattributable transaction costs and subsequently measured at amortised cost using the effective interest method.Gains and losses are recognised in the profi t and loss account when the liabilities are derecognised as well as through theamortisation process. The liabilities are dereognised when the obligation under the liability is discharged or cancelled orexpired.2.19 Cash and cash equivalentsCash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid investments that arereadily convertible to known amounts of cash and which are subject to an insignifi cant risk of changes in values. These alsoinclude bank overdrafts that form an integral part of the Group’s cash management.Notes to the Financial Statements 98Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.20 Borrowing costsBorrowing costs are generally expensed as incurred. Borrowing costs are capitalised if they are directly attributable to theacquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activitiesto prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred.Borrowing costs are capitalised until the assets are ready for their intended use. If the resulting carrying amount of the assetexceeds its recoverable amount, an impairment loss is recorded.2.21 Derecognition of financial assets and liabilitiesa) Financial assetsA fi nancial asset is derecognised where the contractual rights to receive cash fl ows from the asset have expired.On derecognition of a fi nancial asset in its entirety, the difference between the carrying amount and the sum of theconsideration received (including any new asset obtained less any new liability assumed) and any cumulative gain orloss that has been recognised directly in equity is recognised in the profi t and loss account.b) Financial liabilitiesA fi nancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.2.22 ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event,it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliableestimate can be made of the amount of the obligation.If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that refl ects, whereappropriate, the risks specifi c to the liability. Where discounting is used, the increase in the provision due to the passage oftime is recognised as fi nance costs.Provisions are reviewed at each balance sheet date and adjusted to refl ect the current best estimate. If it is no longerprobable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation, the provision isreversed.Notes to the Financial Statements 99Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.22 Provisions (cont’d)a) Provision for warrantiesThe Group and the Company provides free repair services and free replacement of major components of its productsfor a period of twelve months after sales.The costs of the warranty obligation under which the Group and the Company agree to remedy defects in its productsare accrued at the time the related sales are recognised. Provision for warranty is accrued based on the estimatedcosts of fulfi lling the total obligation, including handling and transportation costs. The costs are estimated bymanagement based on historical experience. The assumptions used to estimate warranty accruals are reviewedperiodically in light of actual experience.b) Provision for redemption of customers’ reward pointsThe Group issues “VIP cards” to customers who enroll as VIP members. Customers holding VIP cards are awardedreward points upon the purchase of the Group’s products. These reward points are not transferable or exchangeablefor cash but can be used by VIP members to redeem products. The Group recognises the estimated liability ofthe cost of the products to be redeemed by the customers using the reward points given on the purchases made.The provision is calculated based on the estimated value of the reward points, which approximates the cost of theproducts to the Group.c) Provision for restoration costsIn accordance with the lease agreements, the Group and the Company has an obligation to restore the retail outlets,warehouses and leasehold properties to their state and condition as at the commencement of the lease and to thesatisfaction of the landlord. A provision is recognised at the balance sheet date for expected restoration costs basedon past experience of sale outlets and warehouses closure.2.23 Employee benefitsa) Defined contribution plansThe Group participates in the national pension schemes as defi ned by the laws of the countries in which it hasoperations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fundscheme in Singapore, a defi ned contribution pension scheme. Contributions to national pension schemes arerecognised as an expense in the period in which the related service is performed.Notes to the Financial Statements 100Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.23 Employee benefits (cont’d)b) Employee leave entitlementEmployee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimatedliability for leave is recognised for services rendered by employees up to balance sheet date.c) Defined benefit plansThe cost of providing defi ned benefi t plan is determined using actuarial valuation method. Actuarial gains andlosses are recognised as income or expense when the cumulative unrecognised actuarial gains or losses for eachplan exceed 10% of the defi ned benefi t obligation and the fair value of the plan assets. These gains or losses arerecognised over the expected average remaining working lives of the employees participating in the plans.d) Employee share option plansEmployees of the Group receive remuneration in the form of share options as consideration for services rendered(‘equity-settled transactions’).The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on whichthe share options are granted. In valuing the share options, no account is taken of any performance conditions, otherthan conditions linked to the price of the shares of the Company (‘market conditions’), if applicable.The cost of equity-settled transactions is recognised, together with a corresponding increase in the employee shareoption reserve, over the period in which the performance and/or service conditions are fulfi lled, ending on the dateon which the relevant employees become fully entitled to the award (‘the vesting date’). The cumulative expensesrecognised for equity-settled transactions at each reporting date until the vesting date refl ects the extent to whichthe vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimatelyvest. The charge or credit to the profi t and loss account for a period represents the movement in cumulative expenserecognised as at the beginning and end of that period.No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon amarket condition, which are treated as vested irrespective of whether or not the market condition is satisfi ed, providedthat all other performance conditions are satisfi ed.Notes to the Financial Statements 101Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.24 Revenue recognitionRevenue is recognised to the extent that probable the economic benefi ts will fl ow to the Group and the revenue can bereliably measured.a) Sale of goodsRevenue is recognised upon the transfer of signifi cant risk and rewards of ownership of the goods to the customer,which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognised to the extentwhere there are signifi cant uncertainties regarding recovery of the consideration due, associated costs or the possiblereturn of goods.b) Franchise feesFranchise fees are recognised upon the execution of the Master Franchise Agreements.c) Royalty incomeRoyalty income is recognised upon the sale of goods by franchise outlets and the amount is determined based on acertain percentage of net sales in accordance with the terms of the Master Franchise Agreements.d) Interest incomeInterest income is recognised as interest accrues (using the effective interest method) unless collectibility is indoubt.e) Dividend incomeDividend income is recognised when the Group’s right to receive payment is established.2.25 Income taxesa) Current taxCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to berecovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are thosethat are enacted or substantively enacted by the balance sheet date.Notes to the Financial Statements 102Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.25 Income taxes (cont’d)b) Deferred taxDeferred income tax is provided using the liability method on temporary differences at the balance sheet date betweenthe tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes.Deferred tax liabilities are recognised for all taxable temporary differences, except:• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability ina transaction that is not a business combination and, at the time of the transaction, affects neither theaccounting profi t nor taxable profi t or loss; and• In respect of taxable temporary differences associated with investments in subsidiaries, associated companiesand interests in joint ventures, where the timing of the reversal of the temporary differences can be controlledand it is probable that the temporary differences will not reverse in the foreseeable future.Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused taxcredits and unused tax losses, to the extent that it is probable that taxable profi t will be available against which thedeductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilisedexcept:• Where the deferred income tax asset relating to the deductible temporary difference arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at the time of thetransaction, affects neither the accounting profi t nor taxable profi t or loss; and• In respect of deductible temporary differences associated with investments in subsidiaries, associatedcompanies and interest in joint ventures, deferred tax assets are recognised only to the extent that it is probablethat the temporary differences will reverse in the foreseeable future and taxable profi t will be available againstwhich the temporary differences can be utilised.The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extentthat it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the deferred income taxasset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and arerecognised to the extent that it has become probable that future taxable profi t will allow the deferred tax asset to berecovered.Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year whenthe asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantivelyenacted at the balance sheet date.Notes to the Financial Statements 103Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.25 Income taxes (cont’d)b) Deferred tax (cont’d)Income tax relating to items recognised directly in equity is recognised in equity.Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current taxassets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxationauthority.c) Sales taxRevenues, expenses and assets are recognised net of the amount of sales tax except:• Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority,in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expenseitem as applicable; and• Receivables and payables that are stated with the amount of sales tax included.The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivablesor payables in the balance sheet.2.26 SegmentsFor management purposes, the Group is organised on a world-wide basis into two major operating businesses. The divisionsare the basis on which the Group reports its primary segment information.Segment revenue, expenses and results include transfers between business segments and between geographical segments.Such transfers are accounted for on an arm’s length basis.2.27 Government grantsGrants and subsidies from government are recognised at their fair value where there is a reasonable assurance that thegrant/subsidy will be received and all attaching conditions will be complied with. When the grant or subsidy relates to anexpense item, it is recognised as income over the periods necessary to match them on a systematic basis to the costs whichit is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account andis released to the profi t and loss account over the expected useful life of the relevant asset by equal annual installments.Notes to the Financial Statements 104Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.28 Derivative financial instruments and hedging activitiesThe Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to hedge itsrisks associated with foreign currency and interest rates fl uctuations. Such derivative fi nancial instruments are initiallyrecognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fairvalue. Derivative fi nancial instruments are carried as assets when the fair value is positive and as liabilities when the fairvalue is negative.Any gains or losses arising from changes in fair value on derivative fi nancial instruments that do not qualify for hedgeaccounting are taken to the profi t and loss account for the year.The fair value of forward currency contracts and interest rate swaps is based on fair valuation reports from reputable fi nancialinstitutions.At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which theGroup wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Thedocumentation include identifi cation of the hedging instrument, the hedged item or transaction, the nature of the risk beinghedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in thehedged item’s fair value or cash fl ows attributable to the hedged risk. Such hedges are expected to be highly effective inachieving offsetting changes in fair value or cash fl ows and are assessed on an ongoing basis to determine that they havebeen highly effective throughout the fi nancial reporting periods for which they were designated.a) Fair value hedgesFor the purpose of hedge accounting, the Group has entered into hedges that is classifi ed as fair value hedges.A hedge is classifi ed as a fair value hedge when it is used to hedge the exposure to changes in the fair value of arecognised asset or liability or an unrecognised fi rm commitment that is attributable to a particular risk and couldaffect profi t or loss.For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the riskbeing hedged, the derivative is remeasured at fair value and gains and losses from both are taken to the profi t andloss account.For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised throughthe profi t and loss account over the remaining term to maturity. Any adjustment to the carrying amount of a hedgedfi nancial instrument for which the effective interest method is used is amortised to the profi t and loss account.Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjustedfor changes in its fair value attributable to the risk being hedged.Notes to the Financial Statements 105Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.28 Derivative financial instruments and hedging activities (cont’d)a) Fair value hedges (cont’d)When an unrecognised fi rm commitment is designated as a hedged item, the subsequent cumulative change inthe fair value of the fi rm commitment attributable to the hedged risk is recognised as an asset or liability with acorresponding gain or loss recognised in the profi t and loss account. The changes in the fair value of the hedginginstrument are also recognised in the profi t and loss account.The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated orexercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Anyadjustment to the carrying amount of a hedged fi nancial instrument for which the effective interest method is used isamortised to the profi t and loss account. Amortisation begins as soon as an adjustment exists but no later than whenthe hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.b) Cash flow hedgesFor the purpose of hedge accounting, the Group has entered into hedges that is classifi ed as a cash fl ow hedge. Ahedge is classifi ed as a cash fl ow hedge when it is used to hedge the exposure to variability in cash fl ows that is eitherattributable to a particular risk associated with a recognised asset or liability or highly probable forecast transactionand could affect profi t or loss.For cash fl ow hedge, the effective portion of the gain or loss on the hedging instrument is recognised directly in thehedging reserve, while the ineffective portion is recognised in the profi t and loss account.Amounts taken to hedging reserve are transferred to the profi t and loss account when the hedged transaction affectsprofi t or loss, such as when hedged fi nancial income or fi nancial expense is recognised or when a forecast sale orpurchase occurs. Where the hedged item is the cost of a non-fi nancial asset or liability, the amounts taken to hedgingreserve are transferred to the initial carrying amount of the non-fi nancial asset or liability.If the forecast transaction is no longer expected to occur, amounts previously recognised in hedging reserve aretransferred to the profi t and loss account. If the hedging instrument expires or is sold, terminated or exercised withoutreplacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in hedging reserveremain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amountis taken to the profi t and loss account.2.29 Cumulative preference sharesCumulative preference shares that exhibit the characteristics of a liability are recognised as a liability and accordingly thecorresponding dividends on these preference shares are charged as an interest expense in the profi t and loss account.Preference shares of a joint venture of the Group that have the potential to become redeemable upon occurrence of certainevents as stipulated in the partnership agreement are recorded as a liability.Notes to the Financial Statements 106Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)3. Share capitalGroup and Company2006 2005$’000 $’000Issued and fully paid:At beginning of year448,987,590 (2005: 447,629,340) ordinary shares 22,449 22,381Issued during the year:89,953,240 (2005: Nil) ordinary shares issued by way of bonus sharesin proportion of 1 share for every 5 shares held – –Transfer from share premium reserve 18,046 –Exercise of options under the OSIM Share Option Scheme :Nil (2005: 112,500) ordinary shares each at $0.213 per share – 6Nil (2005: 305,250) ordinary shares each at $0.283 per share – 15Nil (2005: 455,000) ordinary shares each at $0.530 per share – 23Nil (2005: 186,000) ordinary shares each at $0.586 per share – 9Nil (2005: 56,500) ordinary shares each at $0.607 per share – 3Nil (2005: 243,000) ordinary shares each at $1.10 per share – 12254,249 (2005: Nil) ordinary shares at $0.178 per share 45 –56,250 (2005: Nil) ordinary shares at $0.218 per share 12 –330,750 (2005: Nil) ordinary shares at $0.236 per share 78 –93,750 (2005: Nil) ordinary shares at $0.283 per share 27 –439,800 (2005: Nil) ordinary shares at $0.442 per share 194 –143,200 (2005: Nil) ordinary shares at $0.488 per share 70 –102,400 (2005: Nil) ordinary shares at $0.506 per share 52 –181,900 (2005: Nil) ordinary shares at $0.530 per share 96 –104,000 (2005: Nil) ordinary shares at $0.586 per share 61 –45,400 (2005: Nil) ordinary shares at $0.607 per share 28 –717,560 (2005: Nil) ordinary shares at $0.917 per share 658 –299,300 (2005: Nil) ordinary shares at $1.10 per share 329 –Effects of adopting FRS 102 356 –At end of year541,709,389 (2005: 448,987,590) ordinary shares 42,501 22,449The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry onevote per share without restriction.Notes to the Financial Statements 107Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)3. Share capital (cont’d)The Company has one employee share option scheme (Note 28) under which options to subscribe for the Company’s ordinaryshares have been granted to employees.On 30 January 2006, in accordance with the Companies (Amendment) Act 2005, the concepts of “par value” and “authorisedcapital” were abolished and on that date, the shares of the Company ceased to have a par value. The amount standing to the creditof the Company’s share premium reserve became part of the Company’s share capital.4. Enterprise expansion fundsUp to fi nancial year ended 31 December 2002, in accordance with the relevant laws and regulations of the People’s Republic ofChina (“PRC”), OSIM International Trading (Shanghai) Co., Ltd (“the subsidiary”) appropriated tax refunds from accumulated profitsto enterprise expansion fund. The enterprise expansion fund may be used to increase the registered capital of the subsidiary, subjectto approval from the PRC authorities. The enterprise expansion fund is not available for dividend distribution to the shareholders.5. Capital reservesa) China statutory reserveIn accordance with the relevant laws and regulations of the People’s Republic of China (“PRC”), OSIM International Trading(Shanghai) Co., Ltd and OSIM (China) Co., Ltd (“the subsidiaries”) are required to set up a statutory reserve by way ofappropriations from its statutory net profi t. The subsidiaries are required to allocate at least 10% of its net profi t to thestatutory reserve until the balance of the statutory reserve reaches 50% of its registered capital. The statutory reserve maybe used to offset accumulated losses or increase the registered capital of the subsidiary, subject to approval from the PRCauthorities. The statutory reserve is not available for dividend distribution to the shareholders.GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000At beginning 282 282 – –Appropriation of profi ts during the year 354 – – –At end of year 636 282 – –Notes to the Financial Statements 108Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)5. Capital reserves (cont’d)b) Employee share option reserveIncluded in the capital reserves is the employee share option reserve. Employee share option reserve represents the equitysettledshare options granted to employees. The reserve is made up of the cumulative value of services received fromemployees recorded over the vesting period commencing from the grant date of equity-settled share options, and is reducedby the expiry, lapse and exercise of the share option.GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000At beginning of year 1,164 1,159 1,164 1,159Grant of equity-settled share options – 99 – 99Lapse of share options (43) – (43) –Exercise of share options (356) (94) (356) (94)At end of year 765 1,164 765 1,164Total capital reserves 1,401 1,446 765 1,1646. Hedging reserveHedging reserve records the portion of the fair value changes on derivative fi nancial instruments designated as hedging instrumentsin cash fl ow hedges that is determined to be an effective hedge.GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000At beginning of year (3,236) 3,247 (3,073) 3,109Net change 1,842 (6,483) 1,679 (6,182)At end of year (Note 43di) (1,394) (3,236) (1,394) (3,073)Net change arises from:• Net gain/(loss) on fair value changes during the year 2,804 (8,970) 2,558 (8,553)• Recognised in the profi t and loss account on occurrenceof hedged transactions (962) 2,487 (879) 2,3711,842 (6,483) 1,679 (6,182)Notes to the Financial Statements 109Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)7. Revaluation reserveThe revaluation reserve records the adjustment to the fair value of subsidiaries’ identifi able net assets at the date of acquisitionsattributable to previously held ownership interests.Group2006 2005$’000 $’000(Restated)At beginning of year as previously stated – –Fair value adjustments to the identifi able assets and liabilities of a subsidiary acquired in 2005 5,237 –At beginning of year as restated 5,237 –Fair value adjustments to the identifi able assets and liabilities of a subsidiary acquired in 2005(Note 11di) – 5,237At end of year 5,237 5,2378. Premium on purchase of minority interests’ sharesWith effect from the fi nancial year ended 31 December 2005, the Group adopted the entity concept method to account for theacquisitions of shares from minority shareholders of subsidiaries. Any acquisition is treated as being a transaction between theowners and the difference between the purchase consideration and the share of the assets and liabilities acquired from minorityinterests of subsidiary is recorded as premium on purchase of minority interests’ shares.Group2006 2005$’000 $’000(Restated)At beginning of year as previously stated (953) –Fair value adjustments to the identifi able assets and liabilities of a subsidiary acquiredin 2005 (12) –At beginning of year as restated (965) –Goodwill arising from purchase of minority interests’ shares inprior years (net of accumulated amortisation up to 2005) (Note 13) – (571)Goodwill arising from purchase of minority interests’ sharesduring the year (Note 11cii , Note 11dii) (6,068) (505)Negative goodwill arising from purchase of minority interests’share during the year (Note 11dii) – 111At end of year (7,033) (965)Notes to the Financial Statements 110Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)9. Foreign currency translation reserveThe foreign currency translation reserve records exchange differences arising from the translation of the fi nancial statements offoreign operations whose functional currencies are different from that of the Group’s presentation currency.Group2006 2005$’000 $’000(Restated)At beginning of year as previously stated (1,175) (2,427)Fair value adjustments to the identifi able assets and liabilities of a subsidiary acquired in2005 (2) –At beginning of year as restated (1,177) (2,427)Net effect of exchange differences arising from translation of fi nancial statements offoreign operations(15,905) 1,250At end of year (17,082) (1,177)Notes to the Financial Statements 111Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)10. Fixed assetsGroupFurnitureandfittingsCapitalwork-inprogressFreehold Freehold Leasehold Plant andMotor ShopOfficeland buildings buildings machinery Computers vehicles renovationsequipmentTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000CostAs at 1 January 2005 3,931 2,516 3,207 7,733 5,364 2,671 20,214 5,363 2,138 – 53,137Additions – 52 – 2,001 1,081 172 6,145 3,645 499 – 13,595Disposals (171) (957) – (6) (190) (123) (5,427) (371) (52) – (7,297)Acquisition of subsidiaries(Note 11di) – – 3,353 189 793 180 3,371 4,758 199 – 12,843Net exchange differences 2 12 6 – 46 20 170 (118) 13 – 151As at 31 December 2005and 1 January 2006 3,762 1,623 6,566 9,917 7,094 2,920 24,473 13,277 2,797 – 72,429Reclassification – – – – 140 – – (140) – – –Additions – – – 17 1,520 1,135 16,482 4,284 817 21 24,276Disposals – – – (3) (283) (676) (8,182) (719) (80) – (9,943)Acquisition of subsidiaries(Note 11ci) – – – 4 63 19 83 311 10 – 490Net exchange differences (295) (128) (7) – (235) (76) (1,142) (186) (100) – (2,169)As at 31 December 2006 3,467 1,495 6,559 9,935 8,299 3,322 31,714 16,827 3,444 21 85,083Accumulateddepreciation andimpairmentAs at 1 January 2005– 187 1,129 2,349 3,979 1,746 11,440 2,817 772 – 24,419Depreciation charge forthe year– 46 141 1,094 1,096 464 6,034 1,844 347 – 11,066Disposals – (188) – (1) (82) (118) (4,840) (211) (37) – (5,477)Impairment loss (Note 32) – – 100 – – – – – – – 100Net exchange differences – 2 – – 28 17 116 16 6 – 185As at 31 December 2005and 1 January 2006 – 47 1,370 3,442 5,021 2,109 12,750 4,466 1,088 – 30,293Depreciation charge forthe year – 30 162 1,114 1,501 491 7,947 2,777 447 – 14,469Disposals – – – (1) (250) (625) (6,699) (338) (51) – (7,964)Impairment loss (Note 32) 33 14 – – – 2 41 – – – 90Net exchange differences (1) (5) (1) – (141) (53) (529) (68) (45) – (843)As at 31 December 2006 32 86 1,531 4,555 6,131 1,924 13,510 6,837 1,439 – 36,045Net carrying amountAs at 31 December 2006 3,435 1,409 5,028 5,380 2,168 1,398 18,204 9,990 2,005 21 49,038As at 31 December 2005 3,762 1,576 5,196 6,475 2,073 811 11,723 8,811 1,709 – 42,136Notes to the Financial Statements 112Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)10. Fixed assets (cont’d)CompanyLeaseholdbuildingsPlant andmachinery ComputersMotorvehiclesShoprenovationsFurnitureand fittingsOfficeequipment Total$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000CostAs at 1 January 2005 3,051 7,733 2,254 1,331 4,846 2,350 812 22,377Additions – 2,000 257 70 2,294 636 – 5,257Disposals – – – – (1,278) (98) – (1,376)As at 31 December 2005and 1 January 2006 3,051 9,733 2,511 1,401 5,862 2,888 812 26,258Additions – – 281 623 3,163 679 – 4,746Disposals – – – (449) (2,678) (24) – (3,151)As at 31 December 2006 3,051 9,733 2,792 1,575 6,347 3,543 812 27,853Accumulated depreciationand impairmentAs at 1 January 2005 1,118 2,349 2,170 834 2,569 1,157 293 10,490Depreciation charge forthe year 91 1,059 213 240 1,610 469 82 3,764Disposals – – – – (1,166) (12) – (1,178)As at 31 December 2005and 1 January 2006 1,209 3,408 2,383 1,074 3,013 1,614 375 13,076Depreciation charge forthe year 91 1,059 255 267 1,780 522 81 4,055Disposals – – – (449) (2,062) (16) – (2,527)As at 31 December 2006 1,300 4,467 2,638 892 2,731 2,120 456 14,604Net carrying amountAs at 31 December 2006 1,751 5,266 154 683 3,616 1,423 356 13,249As at 31 December 2005 1,842 6,325 128 327 2,849 1,274 437 13,182Notes to the Financial Statements 113Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)10. Fixed assets (cont’d)Assets held under fi nance leasesAs at 31 December 2006, the carrying amount of fi xed assets held under fi nance leases are as follows:Group2006 2005$’000 $’000Motor vehicles 398 176Offi ce equipment – 116Plant and machinery 21 28Computers 163 180Shop renovations 2,195 857Furniture and fi ttings – 3,5502,777 4,907Assets pledged as securityIn addition to assets held under fi nance leases, the Group’s freehold and leasehold land and buildings with carrying amounts of$7,980,000 (2005: $8,543,000) are mortgaged to secure the Group’s bank loans (Notes 25 and 26).Impairment of assetsImpairment loss on fi xed assets was recognised in the following line item of the profi t and loss account as follows:Group2006 2005$’000 $’000Other operating expenses (Note 32) 90 1 100 21The impairment loss recognised by the Group represents the write down of certain fi xed assets of a subsidiary company to theirrecoverable amount as certain retail outlets were loss-making or were intended to be closed down. The recoverable amount wasdetermined on the basis of value-in-use calculation at the cash-generating unit.2The impairment loss recognised by the Group represents the write down of leasehold building to its recoverable amount. Therecoverable amount of the leasehold building was determined by reference to open market value on an existing use basis. TheDirectors of a subsidiary have engaged Dovebid Valuation Services, Inc., an independent professional valuer, to determine thefair market value of its leasehold building. The date of the valuation was 9 December 2005.Notes to the Financial Statements 114Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiariesa) These comprise:Company2006 2005$’000 $’000Unquoted equity shares, at cost 78,118 59,763b) Details of subsidiaries are as follows:Name of companyHeld by the CompanyPrincipal activitiesCountry ofincorporationPercentage ofequity held Cost of investment2006 2005 2006 2005% % $’000 $’000OSIM InternationalTrading (Shanghai) Co.,Ltd #Import, trading anddistribution of healthylifestyle productsPeople’s Republic ofChina100 100 295 295OSIM (M) Sdn Bhd #OSIM (HK) CompanyLimited #OSIM (Taiwan) Co., Ltd #Sale and marketing ofhealthy lifestyle productsSale and marketing ofhealthy lifestyle productsSale and marketing ofhealthy lifestyle productsMalaysia 80 80 5,677 5,677Hong Kong 100 100 12,070 12,070Taiwan 92.50 90 7,156 2,225Nutrition Focus (USA)Inc ++Dormant British Virgin Islands 100 100 – –Global Active Limited #Specialty retailerand distributor ofnutraceutical productsSingapore 81.24 67.17 41,196 33,434OSIM (China) Co., Ltd #Sale and marketing ofhealthy lifestyle productsPeople’s Republic ofChina100 100 11,008 6,062OSIM International(Australia) Pty Ltd +Sale and marketing ofhealthy lifestyle productsAustralia 60 – 716 –78,118 59,763Notes to the Financial Statements 115Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)Name of companyHeld through Global Active LimitedPrincipal activitiesCountry ofincorporationPercentage ofequity held2006 2005% %Nutri Active Pte Ltd #Victoria House Pte Ltd #Wholesale of nutraceutical productsand supplementsRetailing of nutraceutical products andsupplementsSingapore 81.24** 67.17**Singapore 81.24** 67.17**VHE China Limited & Dormant Hong Kong 81.24** 67.17**VHE Shanghai Limited ^Wholesale of nutraceutical productsand supplementsPeople’s Republicof China81.24** 67.17**Nutrition Imports Pty Ltd + Wholesale of nutraceutical productsand supplementsAustralia 81.24** 67.17**Green Valley Nutrition Pty Ltd +USB Inc^^Retailing of nutraceutical products andsupplementsRetailing of nutraceutical products andsupplementsAustralia 81.24** 67.17**Guam 81.24** 67.17**Held through Victoria House Pte LtdVictoria House Sdn Bhd ##Nutri Active Sdn Bhd ##Retailing of nutraceutical productsand supplementsWholesale of nutraceutical productsand supplementsMalaysia 69.05** Note AMalaysia 69.05** Note A#Audited by member fi rms of Ernst & Young Global, in the respective countries.+ Audited by Banks Group Assurance Pty Ltd, Chartered Accountants, Australia.##Audited by Deloitte KassimChan, Certifi ed Public Accountants, Malaysia.& Audited by S.H.Leung & Co., Hong Kong.^ Audited by SBA Stone Forest Corporate Advisory (Shanghai) Co., Ltd, People’s Republic of China.++Cost of investment of Nutrition Focus (USA) Inc is $2 and it is not required to be audited under the laws of its country ofincorporation.^^ Not required to be audited under the laws of its country of incorporation.** Group’s effective shareholdingsNotes to the Financial Statements 116Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)c) Acquisition of subsidiaries in financial year ended 31 December 2006During the fi nancial year ended 31 December 2006, a subsidiary of the Company, Global Active Limited (“GAL”) acquiredthe following subsidiaries:Name of companyEffectiveinterestacquiredDate ofacquisition Consideration Note% $’000Victoria House Sdn Bhd 1 29 April 2006 35,837 ANutri Active Sdn Bhd 1 29 April 2006 13,439 A49,276Note AVictoria House Sdn Bhd (“VHSB”) and Nutri-Active Sdn Bhd (“NASB”) were previously associated companiesof GAL who held 50% of the shares in VHSB and NASB. In April 2006, GAL acquired another 1% of both theissued and paid up capital of VHSB and NASB, which resulted in VHSB and NASB becoming subsidiaries of GAL.Subsequent to April 2006, GAL acquired an additional 34% of voting shares of VHSB and NASB (Note 11cii).Notes to the Financial Statements 117Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)c) Acquisition of subsidiaries in financial year ended 31 December 2006 (cont’d)i) Effect of acquisition of interests in subsidiariesIn 2006, the fair values of the identifi able assets and liabilities of subsidiaries as at the date of acquisition were:CarryingRecognised on amount beforeacquisition # combination$’000 $’000Fixed assets 490 490Intangible assets (Note 13) 1,155 540Stocks 715 944Other debtors, deposits and prepayments 422 641Due from fellow subsidiaries of the Group 4,404 4,404Cash and bank balances 253 2537,439 7,272Trade creditors (9) (9)Other creditors and accruals (228) (228)Due to GAL (5,147) (5,147)Due to fellow subsidiaries of the Group (4,404) (4,404)Lease obligations (12) (12)(9,800) (9,800)Net identifi able liabilities (2,361) (2,528)Goodwill arising on acquisition (Note 13) 1,018(1,343)Minority interests 1,392Purchase consideration 49Cash paid 49Due to GAL 5,147Net cash acquired with the subsidiaries (253)Net cash outfl ow on acquisition 4,943#The purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets is currentlybeing assessed and is expected to be fi nalised within 12 months from the date of acquisition.Notes to the Financial Statements 118Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)c) Acquisition of subsidiaries in financial year ended 31 December 2006 (cont’d)i) Effect of acquisition of interests in subsidiaries (cont’d)From the dates of acquisition, the acquired subsidiaries contributed net losses of $654,000 to the net profi t of theGroup. The management believes that the disclosure of the revenue and profi t of the Group had the combinationtaken place at the beginning of the year, would not provide meaningful information as these subsidiaries were lossmakingprior to their acquisitions.ii)Acquisition of additional interests in subsidiaries• OSIM (Taiwan) Co., LtdIn June 2006, the Company subscribed for additional issued and paid up capital in OSIM (Taiwan) Co., Ltdamounting to $4,931,000. This resulted in a deemed increase in equity interests of 2.5% and a decrease inpremium on purchase of minority interests’ shares of $50,000 2 . As at 31 December 2006, the total percentageof equity held in OSIM (Taiwan) Co., Ltd is 92.5%.• Global Active LimitedIn January 2006, the Company acquired additional shares of GAL totalling 14.07% from the minorityshareholders. The cash consideration for acquiring the additional interests was $7,762,000 and this resultedin an increase in premium on purchase of minority interests’ shares of $5,076,000 2 . As at 31 December2006, the total percentage of equity held in GAL is 81.24%.• OSIM (China) Co., LtdIn August 2006, the Company increased the paid-up capital of its wholly-owned subsidiary company, OSIM(China) Co., Ltd through a capital injection of $4,946,000 in cash.• Victoria House Sdn BhdSubsequent to April 2006, GAL acquired an additional 34% of the issued and paid up capital of VHSBfrom the minority shareholders. The purchase consideration was $2,057,000 and comprises a conversion ofamount receivable from the subsidiary of $1,708,000 and cash consideration of $349,000 1 . The acquisitionresulted in an increase in premium on purchase of minority interests’ shares of $1,037,000 2 for GAL and forthe Group. As at 31 December 2006, the total effective interests held in VHSB by GAL and the Group are 85%and 69.05% respectively.Notes to the Financial Statements 119Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)c) Acquisition of subsidiaries in financial year ended 31 December 2006 (cont’d)ii)Acquisition of additional interests in subsidiaries (cont’d)• Nutri-Active Sdn BhdSubsequent to April 2006, GAL acquired an additional 34% of the issued and paid up capital of NASB fromthe minority shareholders. The purchase consideration was $772,000 and comprises a conversion of amountreceivable from the subsidiary of $641,000 and cash consideration of $131,000 1 . The acquisition resulted inan increase in premium on purchase of minority interests’ shares of $5,000 2 for GAL and for the Group. As at31 December 2006, the total effective interests held in NASB by GAL and the Group are 85% and 69.05%respectively.1The above acquisitions of additional equity interests in these subsidiary companies were to be satisfi ed by adeferred cash settlement of $480,000 (Note 23).2The above acquisitions of additional equity interests from minority shareholders resulted in an increase inpremium on purchase of minority interests’ shares of $6,068,000 (Note 8).d) Acquisition of subsidiaries in financial year ended 31 December 2005During the fi nancial year ended 31 December 2005, the Company acquired the following subsidiaries:Name of companyEffectiveinterestacquiredDate ofacquisition Consideration Note% $’000Global Active Limited 25.6 28 April 2005 14,122 AOSIM (China) Co., Ltd 100 1 December 2005 1,045 B15,167Note ANote BGAL was previously an associated company of the Company who held 40.05% of the shares in GAL. In April2005, the Company acquired another 25.60% of the voting shares of GAL, which resulted in GAL becoming asubsidiary of the Company. Subsequent to 28 April 2005, the Company acquired an additional 1.52% of thevoting shares of GAL (Note 11dii).In December 2005, the Company acquired OSIM (Shanghai) Co., Ltd, a company specialising in sale andmarketing of healthy lifestyle products. Following the acquisition, OSIM (Shanghai) Co., Ltd was renamed asOSIM (China) Co., Ltd. Prior to the acquisition, one of Directors’ spouse held 90% equity interests in OSIM(Shanghai) Co., Ltd.Notes to the Financial Statements 120Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)d) Acquisition of subsidiaries in financial year ended 31 December 2005 (cont’d)i) Effect of acquisition of interests in subsidiariesIn 2005, the fair value of the identifi able assets and liabilities of subsidiaries as at the date of acquisition were:CarryingRecognised on amount beforeacquisition* combination$’000 $’000(Restated)Fixed assets 12,843 12,843Investment in associated company 488 –Deferred tax assets 900 863Intangible assets (Note 13) 19,034 5,957Stocks 32,671 32,960Trade debtors 10,213 10,213Other debtors, deposits and prepayments 4,781 4,613Due from associated companies 4,398 4,398Due from affi liated companies 143 143Fixed deposits 829 829Cash and bank balances 2,167 2,16788,467 74,986Trade creditors (16,457) (16,457)Other creditors and accruals (9,277) (8,994)Due to fellow subsidiaries of the Group (11,638) (11,638)Due to affi liated companies (30) (30)Provision for income tax (1,539) (1,539)Bank overdraft (4,192) (4,192)Bank loans (9,493) (9,493)Lease obligations (4,298) (4,298)Bills payable to banks (4,129) (4,129)Deferred tax liabilities (4,074) (285)Revaluation reserve (Note 7) (5,237) –(70,364) (61,055)Net identifi able assets 18,103 13,931Notes to the Financial Statements 121Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)d) Acquisition of subsidiaries in financial year ended 31 December 2005 (cont’d)i) Effect of acquisition of interests in subsidiaries (cont’d)Goodwill arising on acquisition (Note 13) 23,896Negative goodwill arising on acquisition (Note 30) (615)41,384Amount previously recorded as associated company (18,772)Minority interests (7,445)Purchase consideration 15,167Cash outflow on acquisition:Cash paid 15,167Due to fellow subsidiaries of the Group 11,638Negative cash balance acquired with the subsidiaries 1,196Net cash outfl ow on acquisition 28,001CarryingRecognised on amount beforeacquisition* combination$’000 $’000(Restated)* During the year, the purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assetsrelating to the acquisition of Global Active Limited in 2005 was fi nalised.From the dates of acquisition, the acquired subsidiaries contributed net losses of $3,374,000 to the net profi t of theGroup. The management believes that the disclosure of the revenue and profi t of the Group had the combinationtaken place at the beginning of the year, would not provide meaningful information as these subsidiaries were lossmakingprior to their acquisitions.ii)Acquisition of additional interests in subsidiaries• Global Active LimitedSubsequent to April 2005, the Company acquired additional shares of GAL totaling 1.52% from the minorityshareholders. The cash consideration for acquiring the additional interests was $840,000 1 and this resulted inan increase in premium on purchase of minority interests’ shares of $505,000 (Note 8). As at 31 December2005, the total percentage of equity held in GAL is 67.17%.Notes to the Financial Statements 122Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)11. Subsidiaries (cont’d)d) Acquisition of subsidiaries in financial year ended 31 December 2005 (cont’d)ii)Acquisition of additional interests in subsidiaries (cont’d)• OSIM (Taiwan) Co., LtdIn August 2005, the Company acquired an additional 5% of the issued and paid up capital of OSIM (Taiwan)Co., Ltd from the minority shareholders. The cash consideration for the acquisition was $485,000 1 and thisresulted in a decrease in premium on purchase of minority interests’ shares of $111,000 (Note 8). As at 31December 2005, the total percentage of equity held in OSIM (Taiwan) Co., Ltd is 90%.1Total purchase consideration for the above acquisitions amounted to $1,325,000 which was fully settled incash.• OSIM (China) Co., LtdOn 27 December 2005, the Company increased the paid-up capital of its wholly-owned subsidiary company,OSIM (China) Co., Ltd through a capital injection of $5,017,000 in cash.e) Incorporation of new subsidiary• OSIM International (Australia) Pty LtdIn June 2006, the Company set up a new subsidiary, OSIM International (Australia) Pty Ltd, in Australia. The costof investment was $716,000. The principle activities of the subsidiary are the sale and marketing of healthy lifestyleproducts. In July 2006, OSIM International (Australia) Pty Ltd issued additional shares to a minority interest at$484,000. This resulted in a gain in deemed changes in shareholdings of $68,000 (Note 32). As at 31 December2006, the total percentage of equity held in OSIM International (Australia) Pty Ltd is 60%.Notes to the Financial Statements 123Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)12. Associated companies and a joint venturea) These comprise:GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Unquoted equity shares, at cost 146,961 146,961 146,473 146,473Share of post-acquisition profi ts of associatedcompanies and a joint venture 12,363 23,421 – –Dividends received from associated companies (5,577) (4,625) – –153,747 165,757 146,473 146,473Translation reserve (11,874) (76) – –Loans to associated companies 510 356 # 510 356 #Transfer of long term loan to current account (510)^ – (510)^ –Losses on deemed changes in shareholdings in a jointventure (Note 32) (1,135) – – –140,738 166,037 146,473 146,829Analysis of accumulated amortisation of goodwill:At beginning of year – 1,511 – –Reclassifi cation due to an associated companybecoming a subsidiary – (1,511) – –At end of year – – – –# In 2005, loans to associated companies were unsecured and interest free. The loans to associated companies had norepayment terms and were repayable only when the cash fl ows of the associated companies permitted. Accordingly, theloans were classifi ed as non-current assets.^ In 2006, the loans due from associated companies are reclassifi ed to current assets as the loans are expected to berepayable within the next twelve months from the balance sheet date.Notes to the Financial Statements 124Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)12. Associated companies and a joint venture (cont’d)b) Details of associated companies are as follows:Name of companyHeld by the CompanyPrincipal activitiesCountry ofincorporation andplace of businessPercentage of equityheld Cost of investment2006 2005 2006 2005% % $’000 $’000Daito-OSIM Healthcare(Suzhou) Co., Ltd *Manufacturer andexporter of healthylifestyle productsPeople’s Republicof China30 30 346 346Daito-OSIM Healthcare(Shanghai) Co., Ltd #Manufacturer andexporter of healthylifestyle productsPeople’s Republicof China30 30 261 261Daito-OSIM (Thailand) Co.,Ltd ^Manufacturer andexporter of healthylifestyle productsKingdom ofThailand30 30 452 452OSIM (Thai) Co., Ltd +Sale and marketing ofhealthy lifestyle productsKingdom ofThailand49 49 116 1161,175 1,175* Audited by Welsen Certified Public Accountants Co., Ltd, People’s Republic of China.# Audited by Shanghai Shenzhou Certifi ed Public Accountants Company Limited, People’s Republic ofChina.^ Audited by Future Group Auditing, Certifi ed Public Accountants, Kingdom of Thailand.+ Audited by Sunantanawat Karnbanchee, Certifi ed Public Accountants, Kingdom of Thailand.Notes to the Financial Statements 125Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)12. Associated companies and a joint venture (cont’d)b) Details of associated companies are as follows (cont’d):Name of companyHeld through Global Active LimitedPrincipal activitiesCountry ofincorporationPercentage ofequity held2006 2005% %Nutri Active Sdn Bhd++Victoria House Sdn Bhd++QAF Victoria Sdn Bhd^^Wholesale of nutraceutical productsand health supplementsRetailing of nutraceutical productsand health supplementsRetailing of nutraceutical productsand health supplementsMalaysia – 33.59**Malaysia – 33.59**Brunei 40.62** 33.59**++ Became subsidiaries of Global Active Limited in April 2006.^^ Audited by Deloitte & Touche, Certifi ed Public Accountants, Brunei.** Group’s effective shareholdingsc) The summarised fi nancial information of the associated companies is as follows:Associated companies 2006 2005$’000 $’000Assets and liabilities:Current assets 98,197 86,408Non-current assets 13,300 13,537Total assets 111,497 99,945Current liabilities (71,393) (64,232)Non-current liabilities (30) (203)Total liabilities (71,423) (64,435)Results:Turnover 269,463 248,803Profi t for the year 10,089 13,822Notes to the Financial Statements 126Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)12. Associated companies and a joint venture (cont’d)d) Details of joint venture are as follows:Name of companyPrincipal activitiesCountry ofincorporationPercentage ofequity held Cost of investment2006 2005 2006 2005% % $’000 $’000Held by the CompanyOSIM-BrookstoneHoldings, LP (“OBH”) #Innovative productdevelopment and sale ofspecialty lifestyle productsUnited States ofAmerica55.5 54.2 145,298 145,298#Audited by member fi rm of Ernst & Young Global.By virtue of a partnership agreement, the Company only has joint control, together with the rest of the joint-venture partners,over the fi nancial and operating policies of OBH.Upon the occurrence of certain events as stipulated in the partnership agreement, the management of OBH will be entitledto receive common shares of OBH. If such an event was to occur, this would have the effect of diluting the Group’s interestin the joint venture.At the end of the fi nancial year, the Group’s percentage of equity held in OBH was 55.5%. The change in shareholdingis due to repurchase of shares from certain shareholders. This resulted in losses on deemed changes in shareholding of$1,135,000.e) The aggregate amounts of each of the current assets, non-current assets, current liabilities, non-current liabilities, incomeand expenses related to the Group’s interests in the jointly-controlled entity are as follows:Joint venture 2006 2005$’000 $’000Assets and liabilities:Current assets 156,645 159,549Non-current assets 348,825 377,110Total assets 505,470 536,659Current liabilities (67,949) (69,576)Non-current liabilities (338,130) (344,658)Total liabilities (406,079) (414,234)Results:Revenue 445,846 202,882Expenses (128,615) (47,301)(Loss)/profi t for the year (13,397) 10,412Notes to the Financial Statements 127Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)13. Intangible assetsFranchiserights andtrademarksDistributionrightsClubmembershipGroupTotal$’000 $’000 $’000 $’000CostAs at 1 January 2005 – – 123 123Acquisition of subsidiary (Note 11di) 18,145 1,863 – 20,008Acquired during the year 80 34 – 114As at 31 December 2005 as previously stated 18,225 1,897 123 20,245Fair value adjustments to the identifi able assets andliabilities of a subsidiary acquired in 2005 (Note 11di)(974) – – (974)As at 31 December 2005 and 1 January 2006 as restated 17,251 1,897 123 19,271Acquisition of subsidiaries (Note 11ci) 1,096 59 – 1,155Acquired during the year 59 169 – 228Written off during the year – (110) – (110)Net exchange differences (1) – – (1)As at 31 December 2006 18,405 2,015 123 20,543Accumulated amortisationAs at 1 January 2005 – – – –Amortisation for the year 651 533 – 1,184As at 31 December 2005 and 1 January 2006 651 533 – 1,184Amortisation for the year 734 814 39 1,587As at 31 December 2006 1,385 1,347 39 2,771Net carrying amountAs at 31 December 2006 17,020 668 84 17,772As at 31 December 2005 as restated 16,600 1,364 123 18,087Average remaining amortisation period (years) - 2006 18 18 15Average remaining amortisation period (years) - 2005 19 19 16Notes to the Financial Statements 128Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)13. Intangible assets (cont’d)Amortisation expenses of intangible assets (excluding goodwill on consolidation) is included in the following line item in the profi t andloss account:Group2006 2005$’000 $’000Depreciation and amortisation expenses 1,587 1,184Goodwill on consolidationGroup 2006 2005$’000 $’000(Restated)Cost:At beginning of year as previously stated 19,549 3,376Fair value adjustments to the identifi able assets and liabilities of a subsidiary acquired in 2005 4,347 –At beginning of year as restated 23,896 3,376Elimination of accumulated amortisation – (2,805)Additions:Acquisition of subsidiaries (Note 11ci and 11di) 1,108 23,896Transfer to premium on purchase of minority interests’ shares (Note 8) – (571)At end of year 24,914 23,896Accumulated amortisation and impairment:At beginning of year 2,841 2,805Elimination of accumulated amortisation – (2,805)Impairment loss – 2,841At end of year 2,841 2,841Net carrying amount of goodwill on consolidation 22,073 21,055Total intangible assets 39,845 39,142Notes to the Financial Statements 129Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)13. Intangible assets (cont’d)ClubmembershipCompany 2006 2005$’000 $’000CostAt beginning and end of year 123 123Accumulated amortisation AmortisationAt beginning of year – –Amortisation for the year 39 –At end of year 39 –Net carrying amountAt end of year 84 123Impairment lossImpairment loss on goodwill was recognised in the following line item of the profi t and loss account as follows:Group2006 2005$’000 $’000Other operating expenses (Note 32) – 2,841 11In 2005, an impairment loss of $2,841,000 was recognised to write-off the net carrying amount of goodwill attributable to theUSB Inc.’s Guam, Korean and Japanese market segments due to an expected reduction in sales volume as a result of reducedcustomer demand.Impairment testing of goodwillGoodwill acquired through business combinations has been allocated to four individual cash-generating units for impairment testingas follows:• Singapore segment;• Australia segment;• USB segment; and• Malaysia segmentNotes to the Financial Statements 130Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)13. Intangible assets (cont’d)Impairment testing of goodwill (cont’d)Carrying amount of goodwill allocated to each of the Group’s cash-generating unit is as follows:Goodwill on consolidation2006 2005$’000 $’000(Restated)Singapore segment 10,373* 10,373Australia segment 9,604* 9,604USB segment 1,078* 1,078Malaysia segment 1,018 # –22,073 21,055* During the year, the purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets relating to theacquisition of Global Active Limited in 2005 was fi nalised.#The purchase price allocation to goodwill, intangible assets (excluding goodwill) and other assets relating to the acquisitions ofVictoria House Sdn Bhd and Nutri-Active Sdn Bhd in 2006 is currently being assessed and is expected to be fi nalised within 12months from the date of acquisition.The recoverable amount of a cash-generating unit is determined based on value-in-use calculation, using cash fl ow projectionsbased on fi nancial budgets approved by management covering a fi ve year period. The discount rate applied to the cash fl owprojections is 12% (2005: 12% to 20%). The weighted average growth rates used are consistent with the average growth rate of theindustry.14. Long-term investmentGroup and Company2006 2005$’000 $’000Unquoted investment (Available-for-sale)Equity shares (unquoted), at cost 930 –Unquoted shares are denominated in Japanese Yen. Unquoted shares stated at cost have no market prices and the fair valuecannot be reliably measured using valuation techniques.Notes to the Financial Statements 131Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)15. Long-term receivablesGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Long-term deposits 10,259 7,618 1,555 1,545Other debtors (Note 19) 360 – 360 –10,619 7,618 1,915 1,545Long-term deposits relate to deposits placed for the lease of retail outlets and building.As at 31 December 2006, the following foreign currency denominated amounts are included in long-term receivables of theGroup:• $15,000 (2005: $100,000) denominated in United States dollars;• $2,761,000 (2005: $1,442,000) denominated in Hong Kong dollars;• $2,127,000 (2005: $975,000) denominated in Ringgit Malaysia;• $1,208,000 (2005: $900,000) denominated in New Taiwan dollars;• $603,000 (2005: $256,000) denominated in China Renminbi;• $294,000 (2005: $373,000) denominated in Australian dollars; and• $360,000 (2005: $Nil) denominated in Sterling pounds.16. Loans to associated companiesLoans to associated companies are unsecured, interest-free and repayable within the next twelve months from the balance sheetdate. Loans to associated companies are to be settled in cash.17. StocksGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Finished goods89,408 66,77915,037 10,811Goods in transit 2,250 4,766 2,249 4,766Total stocks at lower of cost and net realisable value 91,658 71,545 17,286 15,577In 2006, the Group wrote down inventories of $Nil (2005: $2,402,000) that was recognised in the “other operating expenses” in theprofi t and loss account. An amount of inventory of $595,000 (2005: $Nil) that was previously written off had been sold and includedin the “other operating income” in the profi t and loss account.Notes to the Financial Statements 132Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)18. Trade debtorsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Trade debtors 41,226 38,872 9,402 9,793Allowance for doubtful debts (1,601) (2,610) – (834)39,625 36,262 9,402 8,959Trade debtorsTrade debtors are non-interest bearing and are generally on 30 to 90 day terms. They are recognised at their original invoiceamounts which represents their fair values on initial recognition.As at 31 December 2006, the following foreign currency denominated amounts are included in trade debtors of the Group:• $4,455,000 (2005: $3,759,000) denominated in United States dollars;• $8,784,000 (2005: $10,692,000) denominated in Hong Kong dollars;• $3,536,000 (2005: $3,030,000) denominated in Ringgit Malaysia;• $6,068,000 (2005: $8,085,000) denominated in New Taiwan dollars;• $8,832,000 (2005: $3,681,000) denominated in China Renminbi; and• $974,000 (2005: $111,000) denominated in Australian dollars.Allowance for doubtful debtsFor the year ended 31 December 2006, an impairment loss of $Nil (2005: $2,296,000) are recognised in the “other operatingexpenses” in the profi t and loss account subsequent to a debt recovery assessment performed on trade debtors as at 31 December2006.Notes to the Financial Statements 133Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)19. Other debtors and depositsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Deposits 1,836 1,716 244 62Advances to employees 45 6 – –Other debtors 2,548 1,946 1,641 523Income tax recoverable 1,188 2,452 – 514Fair value of interest rate swaps (Note 43d) 910 738 910 7386,527 6,858 2,795 1,837Other debtors and deposits due:Within 12 months 6,167 6,858 2,435 1,837After 12 months (Note 15) 360 – 360 –6,527 6,858 2,795 1,83720. Due from/(to) subsidiaries/affiliated companies/associated companies/a joint ventureThese amounts are unsecured, interest free, repayable within the next twelve months from the balance sheet date and are to besettled in cash.21. Cash and cash equivalentsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Cash and bank balances 24,047 27,889 8,041 9,223Bank overdrafts – (2,858) – –Fixed deposits 5,719 31,046 5,100 29,558Cash and cash equivalents in the consolidatedcash fl ow statement 29,766 56,077 13,141 38,781Cash at banks earns interest at fl oating rate on daily bank deposit rate of 0.29% (2005: 0.18%) per annum. Fixed deposits aremade for varying period between one day and three months depending on the immediate cash requirements of the Group, and earninterests at the respective fi xed deposit rates. The weighted average effective interest rate of fi xed deposits is 4.31% (2005: 2.35%)per annum.Notes to the Financial Statements 134Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)21. Cash and cash equivalents (cont’d)Fixed deposits amounting to $498,000 (2005: $931,000) are pledged as collateral for the bank loans of a subsidiary as disclosed inNote 25.Bank overdrafts are included in the determination of cash and cash equivalents because they form an integral part of the Group’scash management. They are repayable on demand and have a weighted average effective interest rate of Nil% (2005: 6.75%) perannum. Interest rates of bank overdrafts reprice at an interval of Nil month (2005: 3 months).Cash and cash equivalents denominated in foreign currencies as at 31 December are as follows:• $970,000 (2005: $15,727,000) denominated in United States dollars;• $3,836,000 (2005: $3,659,000) denominated in Japanese Yen;• $1,451,000 (2005: $3,874,000) denominated in Hong Kong dollars;• $3,548,000 (2005: $2,457,000) denominated in Ringgit Malaysia;• $1,492,000 (2005: $1,734,000) denominated in New Taiwan dollars;• $7,000,000 (2005: $9,680,000) denominated in China Renminbi;• $801,000 (2005: overdraft of $273,000) denominated in Australian dollars; and• $28,000 (2005: $Nil) denominated in Sterling pounds.22. Trade creditorsTrade creditors are non-interest bearing and are normally settled on 30 to 90 day terms.As at 31 December 2006, the following foreign currency denominated amounts are included in trade creditors of the Group:• $13,135,000 (2005: $7,307,000) denominated in United States dollar;• $740,000 (2005: $3,667,000) denominated in Japanese Yen;• $23,000 (2005: $474,000) denominated in Euro;• $181,000 (2005: $1,206,000) denominated in New Taiwan dollars;• $4,848,000 (2005: $2,780,000) denominated in Australian dollars; and• $25,000 (2005: $Nil) denominated in Ringgit Malaysia.Notes to the Financial Statements 135Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)23. Other creditors and accrualsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Other creditors 13,740 10,839 3,365 3,443Accrued operating expenses 13,457 19,695 3,884 11,771Deposits received 6,272 4,754 1,710 1,150Custom duties payable 240 39 – –Accrued payroll costs 6,836 7,935 1,223 1,334Deferred cash settlements* 480 – – –Fair value of forward contracts (Note 43d) 1,716 4,553 1,716 4,27442,741 47,815 11,898 21,972* Deferred cash settlements form part of the consideration for the acquisition of additional equity interests in subsidiary companiesand are non-interest bearing (Note 11cii).24. ProvisionsGroupProvision forwarranties(Note A)Provision forredemption ofcustomers’ rewardpoints(Note B)Provision forrestoration costs(Note C)Total2006 2005 2006 2005 2006 2005 2006 2005$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At beginning of year 1,383 1,270 679 635 3,735 – 5,797 1,905Provided during the year 1,555 1,365 887 544 390 3,735 2,832 5,236Utilised during the year (964) (1,257) (542) (398) – – (1,506) (1,247)Unused amounts reversed during the year (185) – – (102) (307) – (492) (102)Net exchange differences (73) 5 4 – (35) – (104) 5At end of year 1,716 1,383 1,028 679 3,783 3,735 6,527 5,797Notes to the Financial Statements 136Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)24. Provisions (cont’d)CompanyProvision forwarranties(Note A)Provision forredemption ofcustomers’ rewardpoints(Note B)Provision forrestoration costs(Note C)Total2006 2005 2006 2005 2006 2005 2006 2005$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At beginning of year 239 902 – – 2,507 – 2,746 902Provided during the year 598 239 – – 91 2,507 689 2,746Utilised during the year (431) (902) – – – – (431) (902)Unused amounts reversed during the year – – – – (100) – (100) –At end of year 406 239 – – 2,498 2,507 2,904 2,746Note AProvision for warrantiesThe Group provides a maximum of one year warranty to its customers on certain of its products, during which faultyproducts are repaired or replaced. The amount of the provision for warranty is estimated based on sales volumes andpast experience of the level of repairs and return. The estimation basis is reviewed on an ongoing basis and revised whereappropriate.As at 31 December 2006, the Group provided $1,716,000 (2005: $1,383,000) for expected warranty claims onmerchandise sold during the year. The provision is expected to be incurred in the next fi nancial year.The above provision has not been discounted as the effect of discounting is not signifi cant.Note BProvision for redemption of customers’ reward pointsCustomers, who are VIP members of a subsidiary, are awarded reward points upon purchase of the subsidiary’s products.The provision is calculated based on the estimated value of the reward points, which approximates the cost of the productsto the subsidiary. As at 31 December 2006, the Group provided $1,028,000 (2005: $679,000) for the estimated liabilityof the cost of the products to be redeemed by the customers using the reward points given on the purchases made. Theprovision is expected to be incurred in the next fi nancial year.Note CProvision for restoration costsProvision for restoration costs $3,783,000 (2005: $3,735,000) is the estimated costs of restoring leasehold premises,retails outlets and warehouse, which are capitalised and included in the cost of fi xed assets. The provision is expected tobe incurred at the end of the lease terms.Notes to the Financial Statements 137Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)25. Short-term bank loansGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Secured bank loan – New Taiwan dollars 2,350 8,160 – –Unsecured bank loan – Hong Kong dollars – 1,122 – –Unsecured bank loan – China Renminbi – 4,120 – –Unsecured bank loan – Australian dollars 3,278 753 – –Unsecured bank loan – Singapore dollars 6,030 – – –11,658 14,155 – –The secured short-term bank loans are secured by fi xed deposits amounting to $498,000 (2005: $931,000) (Note 21) and freeholdland and building of a subsidiary (Note 10). These loans bear interest at the rates of 2.35% to 2.55% (2005: 1.990% to 3.380%)per annum and are repayable within the next twelve months from the balance sheet date.The unsecured short-term bank loans bear interest at the rates of 4.600% to 6.750% (2005: 2.000% to 5.030%) per annum andare repayable within the next twelve months from the balance sheet date.26. Bank loansEffectiveinterest rateper annum Maturities Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000Bank loan A – New Taiwan dollars 5.51% 2019 3,444 3,982 – –Bank loan B – Ringgit Malaysia 8.02% 2007 212 513 – –Bank loan C – Singapore dollars 7.96% 2026 2,357 2,434 – –Bank loan D – Singapore dollars 6.83% 2008 3,182 5,727 – –Bank loan E – Singapore dollars 6.12% 2010 80,000 100,000 80,000 100,000Bank loan F – Singapore dollars 6.50% 2008 1,079 1,297 – –90,274 113,953 80,000 100,000Due within 12 months (23,635) (23,491) (20,000) (20,000)Due after 12 months 66,639 90,462 60,000 80,000Notes to the Financial Statements 138Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)26. Bank loans (cont’d)Bank loan A, taken up by a subsidiary, is repayable in 180 equal monthly installments over a period of 15 years from the date ofdrawdown. This loan is secured by the freehold land and building of a subsidiary (Note 10) and bears interest at the rate of 3.185%(2005: 2.245%) per annum.Bank loan B, taken up by a subsidiary, is repayable in 36 equal monthly installments over a period of 3 years from the date ofdrawdown. This loan is unsecured and bears interest at the rate of 6.000% (2005: 6.000%) per annum with monthly rest effectivefrom the date of drawdown.Bank loan C, taken up by a subsidiary, is repayable monthly over a period of 25 years from the date of drawdown. In 2005, this loanwas secured by the leasehold building of a subsidiary (Note 10) and a corporate guarantee from a fellow subsidiary. The loan boreinterest at the rate of 4.850% per annum, and thereafter at the bank’s prevailing prime rate calculated on monthly rests basis. Theterms of the bank loan were revised in September 2006 and bears interest at the rate of 4.85% per annum for the fi rst year, 5.00%per annum for the second year, and thereafter at 1.00% per annum above the lending bank’s prevailing prime rate calculated onmonthly rests basis.Bank loan D, taken up by a subsidiary, is repayable in 12 quarterly installments over a period of 3 year from the date of drawdown. In2005, the loan was supported by a corporate guarantee from a fellow subsidiary and bore interest at the rate of 2.250% per annumplus bank’s cost of fund. The terms of this bank loan were revised in September 2006 and bears interest at the rate of 2.00% perannum above the lending bank’s cost of fund.Bank loan E, taken up by the Company, is repayable half yearly over a period of 5 years from the date of drawdown. This is asyndicated loan supported by corporate guarantees from fellow subsidiaries. The loan’s interest rate is at SGD Swap Offer Rate plus0.700% per annum.Bank loan F, taken up by a subsidiary, is repayable monthly over a period of 3 years from August 2006. This loan is secured by theleasehold building of a subsidiary (Note 10). In 2005, this loan bore interest at the rate of 5.946% per annum. The terms of thisbank loan were revised in September 2006 and bears interest at 2.25% per annum above the lending bank’s cost of fund.27. Obligations under finance leasesThe Group has fi nance leases for motor vehicles, offi ce equipment, plant and machinery, computers, shop renovations and furnitureand fi ttings (Note 10). Lease terms range from 1 year to 5 years and do not contain restrictions concerning dividends, additionaldebt or further leasing. These leases have varying terms of renewal, purchase options and escalation clauses. The effective interestrates in the leases range from 3.80% to 11.08% (2005: 3.80% to 11.08%) per annum.Notes to the Financial Statements 139Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)27. Obligations under finance leases (cont’d)Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:GroupMaturitiesMinimum leasepaymentsPresent value ofpaymentsInterest$’000 $’000 $’0002006Not later than 1 year 2007 1,328 143 1,185More than 1 year and not later than 5 years 2011 1,146 90 1,056More than 5 years 2012 75 3 722,549 236 2,3132005Not later than 1 year 2006 1,747 195 1,552More than 1 year and not later than 5 years 2010 3,323 173 3,1505,070 368 4,70228. Employee benefitsEmployee benefi ts expense (including executive directors):Group2006 2005$’000 $’000Wages, salaries, bonuses and other costs 78,938 66,166Central Provident Fund contributions 7,147 4,777Pension costs (Note 28b) 8 368Employee share option expense (43) 9986,050 71,410a) OSIM Share Option SchemeShare options are granted to confi rmed full time employees and directors of the Group who are not controlling shareholders.The options will vest if the employee remains in service for one year period from the date of grant. The exercise price of theoptions is equal to the market price of the shares on the date of grant. The contractual life of the options granted to executivedirectors and employees is ten years. There are no cash settlement alternatives.Notes to the Financial Statements 140Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)28. Employee benefits (cont’d)a) OSIM Share Option Scheme (con’t)The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and the movements in, shareoptions during the year:No. WAEP No. WAEP2006 2006 2005 2005‘000 $ ‘000 $Outstanding at beginning of year* 6,815 0.74 8,393 0.76Adjustment as a result of bonusissue during the year 1,125 0.60 – –Lapsed during the year (432) 0.86 (220) 0.77Exercised during the year 1 (2,768) 0.60 (1,358) 0.56Outstanding at end of year 2 4,740 0.62 6,815 0.74Exercisable at end of year 4,740 0.62 6,815 0.74* Included within these balance are equity-settled options that have not been recognised in accordance with FRS 102 asthese equity-settled options were granted on or before 22 November 2002. These options have not been subsequentlymodifi ed and therefore do not need to be accounted for in accordance with FRS 102.1The weighted average share price at the date of exercise for the options exercised was $1.6867 (2005: $1.2600).2The range of exercise prices for options outstanding at the end of the year was $0.178 to $0.917 (2005: $0.213 to$1.100). The weighted average remaining contractual life for these options is 6.11 years (2005: 7.13 years).The fair value of share options as at the date of grant is estimated by an external valuer using a Trinomial option pricingmodel, taking into account the terms and conditions upon which the options were granted. The inputs to the model usedare shown below:2006 and 2005Dividend yield (%) 22.00Expected volatility (%) 34.00Historical volatility (%) 34.00Risk-free interest rate (%) 1.346 to 1.792Expected life of option (years) 2 to 10Weighted average share price ($) 1.34Notes to the Financial Statements 141Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)28. Employee benefits (cont’d)a) OSIM Share Option Scheme (con’t)The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that mayoccur. The expected volatility refl ects the assumption that the historical volatility is indicative of future trends, which may alsonot necessarily be the actual outcome. No other features of the option grant were incorporated into the measurement of fairvalue.b) Pension benefits planThis relates to the amount of pension cost provided for by a subsidiary in Taiwan. This subsidiary has a retirement plancovering all its regular employees. Benefi ts under the plan are based on the length of service and estimated based pay atthe time of retirement. The subsidiary made a monthly contribution at certain percentage of the salaries to the pension fund,which is administered by a pension committee and deposited in its name with the Central Trust of China.Certain pension information is as follows:i) Net periodic pension costs are as follows:Group2006 2005$’000 $’000Service cost 38 142Interest cost 41 249Actual returns on plan assets (39) (65)Net amortisation and deferral (32) 42Net pension costs 8 368Notes to the Financial Statements 142Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)28. Employee benefits (cont’d)b) Pension benefits plan (cont’d)ii)Based on the actuarial report which measures the pension assets and liabilities, the reconciliation between thefunding status of pension plan and accrued pension liability was as follows:Group2006 2005$’000 $’000Benefi t obligationNon-vested benefi t obligation 511 363Effect of projected future salary increase 1,164 864Projected benefi t obligation 1,675 1,227Fair value of plan assets (1,166) (1,154)Status of pension plan 509 73Unrecognised net transitional obligation (213) (245)Unamortised actuarial gain 25 601Provision for pension benefi ts 321 429iii)Changes in the present value of the projected benefi t obligation are as follows:Group2006 2005$’000 $’000Benefi t obligation at beginning of year 1,227 1,847Service cost 38 142Interest cost 41 249Actuarial losses/(gains) on obligation 486 (1,018)Exchange differences on foreign plan (117) 7Benefi t obligation at end of year 1,675 1,227Notes to the Financial Statements 143Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)28. Employee benefits (cont’d)b) Pension benefits plan (cont’d)iv)Changes in the fair value of plan assets are as follows:Group2006 2005$’000 $’000Fair value at beginning of year (1,154) (805)Expected returns (39) (65)Contribution by employer (85) (345)Actuarial losses 18 57Exchange differences on foreign plan 94 4Fair value at end of year (1,166) (1,154)v) Actuarial assumptions are as follows:Group2006 2005% %Discount rate used in determining present values 2.75 3.50Future salary increase rate 5.00 5.00Expected rate of return of plan assets 2.75 3.5029. RevenueIncome from sale of goods is recognised upon delivery of goods and acceptance by customers.Notes to the Financial Statements 144Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)30. Other operating incomeGroup2006 2005$’000 $’000Royalty income 1,809 1,635Repair income 2,126 2,155Government development grant 627 775Negative goodwill arising on acquisition of a subsidiary – 615Reversal of write-down of inventories 595 –Others 3,838 2,0308,995 7,21031. Directors’ remunerationNumber of directors of the Company in remuneration bands are as follows:2006 2005$500,000 and above 1 3$250,000 to $499,000 2 –Below $250,000 5 5Total 8 8Notes to the Financial Statements 145Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)32. Other operating expensesThe following items have been included in arriving at other operating expenses:Group2006 2005$’000 $’000Non-audit fees paid to:- Auditors of the Company 49 70- Other auditors* 356 738Impairment loss on goodwill (Note 13) – 2,841Impairment loss on fi xed assets (Note 10) 90 100Loss on disposal of fi xed assets 1,414 558Losses on deemed changes in shareholdings in a subsidiary and a jointventure – net (Note 11e, 12a) 1,067 –Foreign currency losses/(gains), net 4,032 (1,536)* Includes $293,000 (2005: $700,000) paid to Ernst & Young fi rms outside Singapore.33. Financial expenses and financial income(a)Group2006 2005$’000 $’000Financial expensesInterest expenses- bank loans 4,279 1,514- lease obligations 367 199- bills payable 2,302 1,023- bank overdraft 143 937,091 2,829Loan arrangement fees – 1,0507,091 3,879Notes to the Financial Statements 146Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)33. Financial expenses and financial income (cont’d)(b)Group2006 2005$’000 $’000Financial income- Interest income- fi xed deposits 934 963- bank balances 95 36- gain on interest rate swaps 172 738- others 19 211,220 1,75834. Share of financial expenses of a joint ventureShare of fi nancial expenses of a joint venture relates to the Group’s share of dividends accrued on the joint venture’s cumulativepreference shares, which are accounted for in accordance with the accounting policy stated in Note 2.29. The preference sharescarry a dividend of 12% (2005: 12%) per annum and the dividend rights are cumulative.35. Taxationa) Major components of income tax expenseThe major components of income tax expense for the years ended 31 December 2006 and 2005 are:Group2006 2005$’000 $’000Current income tax- current year 11,017 6,917- (over)/under provision in respect of previous years (1,704) 10Deferred tax- Movement in temporary differences (1,740) (1,329)- underprovision in respect of previous years 251 219Income tax expenses recognised in profi t and loss account 7,824 5,817Notes to the Financial Statements 147Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)35. Taxation (cont’d)b) Reconciliation between tax expenses and accounting profit 1A reconciliation between the tax expense and the product of accounting profi t multiplied by the applicable tax rate for theyears ended 31 December 2006 and 2005 is as follows:Group2006 2005$’000 $’000Accounting profi t before income tax 43,612 51,416Tax at the domestic rates applicable to profits in the countries where the Group operates 10,621 18,309Adjustments:Permanent differences/expenses not deductible for tax purpose 851 1,522Income not subject to taxation (21) (122)Difference in corporate tax rate and IHQ concessionary tax rate (3,644) (4,277)(Over)/underprovision in respect of previous years (1,453) 229Deferred tax assets not recognised 255 941Utilisation of deferred tax assets previously not recognised (354) –Recognition of deferred tax assets previously not recognised – (327)Share of results of associated companies and a joint venture 1,569 (10,458)Income tax expense recognised in the profi t and loss account 7,824 5,8171The reconciliation is prepared by aggregating separate reconciliations for each national jurisdiction.Notes to the Financial Statements 148Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)35. Taxation (cont’d)c) Deferred tax assets and liabilities as at 31 December relate to the following:ConsolidatedBalance SheetGroupConsolidatedProfit & Loss AccountCompanyBalance Sheet2006 2005 2006 2005 2006 2005$’000 $’000 $’000 $’000 $’000 $’000Deferred tax liabilitiesExcess of net book value overtax written down value offi xed assets (2,563) (1,699) 864 1,479 (1,247) (440)Fair value adjustments onacquisition of subsidiary (2,299) (2,827) (528) – – –Gross deferred tax liabilities (4,862) (4,526) (1,247) (440)Deferred tax assetsExcess of tax written downvalue over net book value offi xed assets 111 202 91 (98) – –Provisions 1,082 1,007 (75) (15) 181 410Unutilised tax losses 2,210 811 (1,399) (1,703) – –Unrealised profi ts on sale ofinventory to relatedcompanies 2,115 1,703 (412) (811) – –Gross deferred tax assets 5,518 3,723 181 410Net deferred tax assets/(liabilities) 656 (803) (1,066) (30)Net exchange differences (30) 38Deferred income tax expenses (1,489) (1,110)Notes to the Financial Statements 149Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)35. Taxation (cont’d)Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax against current tax liabilitiesand when the deferred taxes relate to the same taxation authority. The amounts determined after appropriate offsetting are includedin the balance sheets as follows:GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Net deferred tax assets 4,910 3,281 – –Net deferred tax liabilities (4,254) (4,084) (1,066) (30)656 (803) (1,066) (30)Unrecognised tax lossesThe Group has tax losses approximately $3,931,000 (2005 : $4,650,000) that are available for offset against future taxable profi ts ofthe companies in which the losses arose, for which no deferred tax asset is recognised due to uncertainty of its recoverability. Theuse of these tax losses is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislationof the respective countries in which the companies operate.Tax consequences of proposed dividendsThere are no income tax consequences attached to the dividends to the shareholders proposed by the Company but not recognisedas a liability in the fi nancial statements (Note 37).Group and CompanyOn 25 January 2002, the Company was awarded the Development and Expansion Incentive (“DEI”) under the Business Headquarters(“BHQ”) Programme for 6 years with effect from 1 January 1999. The qualifying income from BHQ activities during the 6-yearperiod will enjoy a concessionary tax rate, subject to the fulfi llment of the criteria as stipulated in Economic Development Board’soffer letter.The Company was awarded the DEI under the International Headquarters (“IHQ”) Award on 8 September 2004. The commencementdate is 1 January 2005 and is for a period of 5 years. The qualifying income from IHQ activities during the 5-year period will enjoya concessionary tax rate, subject to fulfi llment of the criteria as stipulated in the Economic Development Board’s offer letter.On 15 February 2007, the Singapore Government announced a revision in the Singapore corporate tax rate from 20% to 18%.In accordance with FRS 12, Income Taxes, and FRS 10, Events After the Balance Sheet Date, this is a non-adjusting subsequentevent.Notes to the Financial Statements 150Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)35. Taxation (cont’d)OSIM International Trading (Shanghai) Co. Ltd and OSIM (China) Co., LtdAs a wholly foreign-owned enterprise registered in the Zone, Pudong New Area, the companies are subject to PRC income tax at therate of 15%.OSIM (Taiwan) Co., LtdPursuant to the Income Tax Law (“ITL”), beginning with 1998, annual distributable net earnings as determined under the ITL that arenot distributed to shareholders in the following year are subject to additional income tax at a rate of 10%. The 25% income tax andadditional 10% tax paid by the Company for 1998 and onwards may be used by individual resident shareholders of the Companyas individual income tax credits. Pursuant to the ITL, the additional 10% income tax paid may be used by the shareholders, otherthan domestic corporate shareholders as tax credits when the undistributed earnings are ultimately distributed.36. Earnings per shareBasic earnings per share amounts are calculated by dividing profi t for the year that is attributable to ordinary equity holders of theCompany by the weighted average number of ordinary shares outstanding during the year.Diluted earnings per share amounts are calculated by dividing profi t for the year that is attributable to ordinary equity holders of theCompany by the weighted average number of ordinary shares outstanding during the year plus the weighted average number ofordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.Notes to the Financial Statements 151Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)36. Earnings per share (cont’d)The following table refl ects the profi t and loss account and share data used in the computation of basic and diluted earnings pershare for the years ended 31 December:Group2006 2005$’000 $’000Profi t for the year attributable to ordinary equity holders of the Companyused in computation of basic and diluted earnings per share 33,802 46,693Group2006 2005Number of shares’000 ’000(Restated)Weighted average number of shares 450,504 448,396Adjustment for bonus issue 89,936 89,798Weighted average number of ordinary shares for basic earnings per share computation 540,440 538,194Dilutive effect of share options 3,818 3,111Weighted average number of ordinary shares adjusted for the effect of dilution 544,258 541,305Notes to the Financial Statements 152Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)36. Earnings per share (cont’d)For the purposes of calculating the diluted earnings per share, the weighted average number of ordinary shares in issue is adjustedto take into account the dilutive effect arising from the exercise of all outstanding share options granted to employees where suchshares would be issued at a price lower than the fair value (average share price during the fi nancial year). The difference betweenthe number of shares to be issued at the exercise prices under the options and the number of shares that would have been issuedat the fair value based on the assumed proceeds from the issue of these shares are treated as ordinary shares issued for noconsideration. The number of such shares issued for no consideration is added to the weighted average number of ordinary sharesoutstanding in the computation of diluted earnings per share.In accordance with FRS 33, Earnings Per Share, the weighted average number of shares for comparative fi gure has been adjustedto refl ect the bonus issue of 1 bonus share for every 5 existing ordinary shares assuming that the bonus issue had been taken placeas of 1 January 2005.37. DividendsDeclared and paid during the year:Group and Company2006 2005$’000 $’000Dividends on ordinary shares:- A fi nal exempt (one-tier) dividend of 1 cent (2005: 0.80 cents) per share of the previousfi nancial year 4,498 3,587- A special exempt (one-tier) dividend of Nil cents (2005: 0.20 cents) per share of theprevious fi nancial year – 896- An interim exempt (one-tier) dividend of 1.30 cents (2005: 0.56 cents) per share of thecurrent fi nancial year 7,038 2,51211,536 6,995Proposed but not recognised as a liability as at 31 December:Dividends on ordinary shares, subject to shareholders’ approval at the AGM:- A fi nal exempt (one-tier) dividend of 1.48 cents (2005: 1 cent) per share of the currentfi nancial year 8,017 4,490Notes to the Financial Statements 153Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)38. Related party disclosuresAn entity or individual is considered a related party of the Group for the purposes of the fi nancial statements if: i) it possesses theability (directly or indirectly) to control or exercise signifi cant infl uence over the operating and fi nancial decisions of the Group or viceversa; or ii) it is subject to common control or common signifi cant infl uence.a) Sale and purchase of goods and serviceIn addition to those related party information disclosed elsewhere in the fi nancial statements, the following signifi canttransactions between the Group and related parties who are not members of the Group took place during the year on termsagreed between the parties:Related parties Sales of goods Purchase of goods Receiving of services Royalty income2006 2005 2006 2005 2006 2005 2006 2005$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Associated companies 2,776 3,251 64,540 60,500 – – 259 247Joint venture 24,645 8,836 – – – – – –Affi liated companies 28,277 51,774 26 1,202 – – – 150Other directors’ interest* – – – – – 157 – –* In 2005, a professional fee of $157,000 was paid to a spouse of Director for providing consultancy service to theGroup.b) Compensation of key management personnelGroup2006 2005$’000 $’000Short-term employee benefi ts 2,303 6,953Central Provident Fund contributions 66 71Directors’ fees 148 198Share-based compensation expense – 18Total compensation paid to key management personnel 2,517 7,240Comprise amounts paid to:- Directors of the Company 1,955 6,705- Other key management personnel 562 5352,517 7,240The remuneration of key management personnel are determined by the remuneration committee having regards to theperformance of individuals and market trends.Notes to the Financial Statements 154Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)38. Related party disclosures (cont’d)b) Compensation of key management personnel (cont’d)Directors’ interests in an employee share option planAt 1 January 2006 and 31 December 2006, the following directors held options to purchase ordinary shares of the Companyunder the OSIM Share Option Scheme as follows:At 1 January2006At 31 December2006Exerciseprice$ExpiryDateOptions to subscribe for ordinary sharesCharlie Teo Chay Lee 206,250 247,500 0.178 14.01.2011206,250 247,500 0.236 14.01.2012165,000 198,000 0.442 26.12.201279,200 95,040 0.917 15.02.2014Richard Leow Lian Soon 206,250 – 0.213 14.01.2011206,250 – 0.283 14.01.2012165,000 – 0.530 26.12.201279,200 40 0.917 15.02.2014Peter Lee Hwai Kiat 112,500 135,000 0.178 14.01.2011112,500 135,000 0.236 14.01.2012120,000 144,000 0.442 26.12.201257,600 69,120 0.917 15.02.2014Michael Kan Yuet Yun 18,000 21,600 0.917 15.02.2009Ong Kian Min 37,500 45,000 0.442 26.12.200718,000 21,600 0.917 15.02.2009Khor Peng Soon 18,000 21,600 0.917 15.02.2009No share options were granted to the directors during the fi nancial year.Apart from the remuneration paid and share options granted to directors and key management, the Group did not enter intoany signifi cant transactions with related parties who are not members of the Group except as disclosed in Note 11d.Notes to the Financial Statements 155Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)39. Non-cancellable operating lease commitmentsThe Group and the Company have lease commitments with respect to the rental of shop and offi ce premises. The leases have varyingterms, escalation clauses and renewal rights. The lease commitments include commitments for basic operating lease payments,as well as commitments for additional contingent rental payable when turnover of certain retail outlets exceeds pre-determinedlevels. Lease terms do not contain restrictions on the Group’s activities concerning dividends, additional debt or further leasing.Operating lease payments recognised in the consolidated profi t and loss account during the year amounted to $52,930,000 (2005:$39,776,000).Future minimum lease payments payable under non-cancellable operating leases as at 31 December are as follows:GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Not later than 1 year 44,630 38,661 10,681 10,490Later than 1 year but not later than 5 years 85,279 51,795 21,699 18,263Later than 5 years 13,458 17,262 13,458 17,262143,367 107,718 45,838 46,01540. Capital commitmentsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Capital expenditure for shop renovationsapproved but not contracted 7,975 7,628 1,450 2,920Notes to the Financial Statements 156Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)41. Segment informationReporting formatThe primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affectedpredominantly by differences in the products and services produced. Secondary information is reported geographically.Business segmentsThe Group comprises 2 main business segments:Retail : Outlets and counters operated by the Group in selected shopping centers and departmental stores where theproducts are sold directly to end user customers.Distribution : Products distributed by the Group and franchisees in overseas markets.Geographical segmentsThe Group’s geographical segments are based on the location of the Group’s assets. Sales to external customers disclosed ingeographical segments are based on the geographical location of its customers.Allocation basis and transfer pricingSegment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated ona reasonable basis. Unallocated items comprise mainly corporate assets, income tax and deferred tax assets and deferred taxliabilities, interest-bearing loans and related expenses.Transfer prices between business segments are set on arm’s length basis in a manner similar to transactions with third parties.Segment revenue, expenses and results include transfers between business segments. These transfers are eliminated onconsolidation.Notes to the Financial Statements 157Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)41. Segment information (cont’d)Business segmentsThe Group is organised on a worldwide basis into two main operating divisions, namely retail and distribution. The following tablespresent revenue and results information regarding the Group’s business segments for the years ended 31 December 2006 and2005:Retail Distribution Elimination Group2006 $’000 $’000 $’000 $’000RevenueSales to external customers 570,183 52,753 – 622,936Inter-segment sales – 234,161 (234,161) –Total revenue 570,183 286,914 (234,161) 622,936ResultsSegment results 31,529 35,727 (6,590) 60,666Financial expenses, net (5,871)Share of results of associated companiesand a joint venture (13,342) 2,159 – (11,183)Tax expense (7,824)Net profi t for the year 35,788AssetsSegment assets 155,409 95,716 – 251,125Investment in associated companiesand a joint venture 129,298 11,440 – 140,738Unallocated assets 27,913Total assets 419,776LiabilitiesSegment liabilities 51,914 40,104 – 92,018Unallocated liabilities 151,419Total liabilities 243,437Notes to the Financial Statements 158Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)41. Segment information (cont’d)Business segments (cont’d)Retail Distribution Elimination Group2006 $’000 $’000 $’000 $’000Other segment informationCapital expenditure• Fixed assets 22,860 1,516 – 24,376*• Intangible assets 1,311 72 – 1,383Depreciation of fi xed assets 10,949 3,520 – 14,469Impairment loss of fi xed assets 90 – – 90Amortisation of intangible assets 1,428 159 – 1,587Write back of impairment loss on trade debtors (38) – – (38)Write back of allowance for stocks obsolescence (595) – – (595)Stocks written off 2,189 – – 2,189Retail Distribution Elimination Group2005 $’000 $’000 $’000 $’000RevenueSales to external customers 412,099 90,405 – 502,504Inter-segment sales – 163,514 (163,514) –Total revenue 412,099 253,919 (163,514) 502,504ResultsSegment results 13,695 36,982 (8,408) 42,269Financial expenses, net (2,121)Share of results of associatedcompanies and a joint venture 8,080 3,188 – 11,268Tax expense (5,817)Net profi t for the year 45,599Notes to the Financial Statements 159Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)41. Segment information (cont’d)Business segments (cont’d)Retail Distribution Elimination Group2005 $’000 $’000 $’000 $’000AssetsSegment assets 138,333 133,194 – 271,527Investment in associatedcompanies and a joint venture 155,030 11,007 – 166,037Unallocated assets 24,336Total assets 461,900LiabilitiesSegment liabilities 45,287 46,044 – 91,331Unallocated liabilities 196,753Total liabilities 288,084Other segment informationCapital expenditure• Fixed assets 15,398 7,305 – 22,703*• Intangible assets 13,614 5,534 – 19,148Depreciation of fi xed assets 7,620 3,446 – 11,066Amortisation of intangible assets 994 190 – 1,184Impairment loss of fi xed assets – 100 – 100Impairment loss on trade debtors 1,462 834 – 2,296Allowance for stocks obsolescence 2,402 – – 2,402Stocks written off 1,109 – – 1,109Notes to the Financial Statements 160Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)41. Segment information (cont’d)Geographical segmentsTurnover, assets and capital expenditure are allocated based on the location of the business operations.North AsiaSouth AsiaAmerica / Africa / Europe /Middle East / Oceania Eliminations Total2006 2005 2006 2005 2006 2005 2006 2005 2006 2005$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000TurnoverSales to external customers 341,965 291,027 203,502 150,178 77,469 61,299 – – 622,936 502,504Inter-segment sales 50,831 4,812 183,330 158,701 – – (234,161) (163,513) – –392,796 295,839 386,832 308,879 77,469 61,299 (234,161) (163,513) 622,936 502,504Other segment informationSegment assets 156,359 136,962 84,450 126,460 10,316 8,105 – – 251,125 271,527Investment in associatedcompanies and a joint venture 11,093 10,381 1,064 1,077 128,581 154,579 – – 140,738 166,037Unallocated assets 27,913 24,336Total asset 419,776 461,900Capital expenditure• Fixed assets 11,929 5,086 10,985 11,933 1,462 5,684 – – 24,376* 22,703*• Intangible assets 31 3,956 1,179 7,856 173 7,336 – – 1,383 19,148* This does not include provision for restoration costs of $390,000 (2005: $3,735,000), of which $Nil (2005: $855,000) wasacquired through a subsidiary during the year.42. Financial risk management objectives and policiesThe Group’s principal fi nancial instruments, other than derivative fi nancial instruments, comprise bank loans and overdraft, financeleases and hire purchase contracts, and cash and short term deposits. The main purpose of these fi nancial instruments is to fi nancethe Group’s operations. The Group has various other fi nancial assets and liabilities such as trade receivables and trade payables,which arise directly from its operations.The Group also enters into derivative transactions, including principally interest rate swaps and forward currency contracts. Thepurpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of fi nancing.It is, and has been throughout the year under review, the Group’s policy that no trading in derivative fi nancial instruments shall beundertaken.Notes to the Financial Statements 161Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)42. Financial risk management objectives and policies (cont’d)The main risks arising from the Group’s fi nancial instruments are interest rate risks (both fair value and cash fl ow), liquidity risk,foreign currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarisedbelow. The Group’s accounting policies in relation to derivative fi nancial instruments are set out in Note 2.28.a) Interest rate riskThe Group obtains additional fi nancing through bank borrowings and leasing arrangements. The Group’s policy is to obtainthe most favourable interest rates available without increasing its foreign currency exposure. Surplus funds are placed withreputable banks and/or fi nancial institutions.The Group’s policy is to manage its exposure to interest risks using a mix of fi xed and variable rate debts. The Group’s policyis to keep between 30% to 75% of its bills payable for working capital at fi xed rates of interest. As at 31 December 2006, aftertaking into account an interest rate swap, approximate 61% (2005: 40%) of the Group’s bills payables for working capital areat fi xed rate.The Group’s policy is to hedge 100% of the term loan for investment in joint venture. As at 31 December 2006, the Grouphas entered into two interest rate swaps to hedge 100% (2005: 100%) of the term loan.b) Liquidity riskIn the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequateby management to fi nance the Group’s operations and mitigate the effect of fl uctuations in cash fl ows.c) Foreign exchange riskThe Group’ foreign exchange risk arises both from its subsidiaries operating in foreign countries, which generate revenueand incur costs denominated in foreign currencies and from those operations of its local subsidiaries which are in foreigncurrencies.The Group uses foreign exchange contracts in managing its foreign exchange risk resulting from cash fl ows from anticipatedtransactions and fi nancing arrangements denominated in foreign currencies, primarily the United States dollars and JapaneseYen. Transaction risk is calculated in each foreign currency and includes foreign currency denominated assets and liabilitiesand fi rm and probable purchase and sale commitments.Notes to the Financial Statements 162Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)42. Financial risk management objectives and policies (cont’d)d) Credit riskCredit risk, or the risk of counterparties defaulting, is managed through the application of credit approvals, credit limits andmonitoring procedures.The carrying amount of cash and cash equivalents, trade debtors and other debtors represent the Group’s maximum exposureto credit risk in relation to fi nancial assets. No other fi nancial assets carry a signifi cant exposure to credit risk.As the nature of the Group’s business is in retail, the majority of outstanding trade receivables are due from department storesand fi nancial institutions.43. Financial instrumentsa) Credit riskThere are no signifi cant concentrations of credit risk within the Group or the Company.b) Fair valuesFair value is defi ned as the amount at which the fi nancial instrument could be exchanged in a current transaction betweenknowledgeable willing parties in an arm’s length transaction, other than in a forced or liquidation sale.The following methods and assumptions are used to estimate the fair value of each class of fi nancial instruments:• Cash and cash equivalents and other current financial assets and liabilitiesThe carrying amounts approximate fair values due to the relatively short-term maturity of these instruments.• Short-term borrowingsThe carrying amount approximates fair value because of the short period to maturity.• Long-term borrowingsThe fair values of the long-term bank loans are based on the quoted market price for the same or similar issues or onthe current rates available for debt with the same maturity profi le. The fair value of non-current loans, borrowings orother payables with variable interest rates approximates their carrying amounts.• Long-term receivablesThe fair value of long-term receivables is determined by discounting estimated cash fl ows using current marketincremental lending rates for similar types of lending.Notes to the Financial Statements 163Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)43. Financial instruments (cont’d)b) Fair values (cont’d)• Lease obligationsThe fair value of lease obligations is determined by discounting the relevant cash fl ows using current interest rates forsimilar instruments at balance sheet date.• Forward currency contractsThe fair value of forward currency contracts is determined by reference to current forward exchange rates for contractswith similar maturity profi les.As at 31 December 2006, the fair values of fi nancial assets and liabilities which do not approximate the carrying amount in thebalance sheets of the Group and the Company are presented in the following table:Carryingamount2006 2005Estimatedfair valueCarryingamountEstimated fairvalue$’000 $’000 $’000 $’000GroupFinancial assets:Long-term investment in equity shares (unquoted) 930 (i) – –Long-term receivables 10,619 11,046 7,618 7,923Financial liabilities:Obligations under fi nance leases 2,313 1,188 4,702 4,293CompanyFinancial assets:Long-term investment in equity shares (unquoted) 930 (i) – –Long-term receivables 1,915 1,994 1,545 1,607(i) It is not practicable to determine with suffi cient reliability, the fair value of the unquoted equity shares held as long-terminvestments as they do not have quoted market prices in an active market, nor are other methods of reasonable estimating thefair values readily available.Notes to the Financial Statements 164Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)43. Financial instruments (cont’d)c) Interest rate riskThe following tables sets out the carrying amount, by maturity, of the Group’s and the Company’s fi nancial instruments thatare exposed to interest rate risk:2006 Within 1 year 1 to 5 years Over 5 yearsGroup $’000 $’000 $’000Fixed RateLease obligations 1,185 1,056 72Interest rate swap (fair value hedge) – 910 –The following tables sets out the carrying amount, by maturity, of the Group’s and the Company’s fi nancial instruments thatare exposed to interest rate risk:Within 1 year 1 to 5 years Over 5 years$’000 $’000 $’000Floating RateFixed deposits 5,719 – –Cash at bank 24,047 – –Short-term bank loans 11,658 – –Bank loans 23,635 66,639 –Bills payable 32,987 – –CompanyFixed RateInterest rate swap (fair value hedge) – 910 –Floating RateFixed deposits 5,100 – –Cash at bank 8,041 – –Bank loans 20,000 60,000 –Bills payable 19,404 – –Notes to the Financial Statements 165Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)43. Financial instruments (cont’d)c) Interest rate risk (cont’d)Within 1 year 1 to 5 years Over 5 years$’000 $’000 $’0002005GroupFixed RateLease obligations 1,552 3,150 –Interest rate swap (fair value hedge) – 738 –Floating RateFixed deposits 31,046 – –Cash at bank 27,889 – –Bank overdraft 2,858 – –Short-term bank loans 14,155 – –Bank loans 23,491 88,467 1,995Bills payable 49,618 – –CompanyFixed RateInterest rate swap (fair value hedge) – 738 –Floating RateFixed deposits 29,588 – –Cash at bank 9,223 – –Bank loans 20,000 80,000 –Bills payable 45,867 – –Interest on fi nancial instruments subject to fl oating rates is contractually repriced at intervals of less than 3 months. Interest onfi nancial instruments at fi xed rates are fi xed until the maturity of the instruments. The other fi nancial instrument of the Group andthe Company that are not included in the above tables are not subject to interest rate risks.Notes to the Financial Statements 166Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)43. Financial instruments (cont’d)d) Derivative financial instruments and hedging activitiesDerivative fi nancial instruments included in the balance sheets at 31 December are as follows:2006 2005Group Assets Liabilities Assets Liabilities$’000 $’000 $’000 $’000Forward currency contracts* – 1,716 – 4,553Interest rate swaps* 910 – 738 –910 1,716 738 4,553* The above forward currency contracts and interest rate swaps are entered into for hedging purposes and hedge accountingis applied except for the interest rate swaps because strict effectiveness criteria are not being met.i) Cash flow hedgesHedge of highly probable forecasted sales and purchasesAs at 31 December 2006, the Group held forward currency contracts designated as hedges of the currency riskrelated to highly probable forecasted purchases (2005: forecasted sales and purchases), which are expected tomaterialise in the twelve months following the balance sheet date.The terms of the forward currency contracts have been negotiated to match the terms of the forecastedtransactions.Certain of these derivatives were assessed to be ineffective as at 31 December 2005, and accordingly their underlyingunrealised gain of $48,000 was recognised in the profi t and loss account for the year.The revaluation of derivatives assessed to be highly effective hedging instruments resulted in a net unrealised loss of$1,394,000 (2005: $3,236,000), which was included in the hedging reserve (Note 6).Notes to the Financial Statements 167Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)43. Financial instruments (cont’d)d) Derivative financial instruments and hedging activities (cont’d)ii)Fair value hedgesHedge of financial liabilitiesAs at 31 December 2006, the Group held forward currency contracts (entered into during 2006) designated ashedges of the currency risk related to recognised fi nancial liabilities.The terms of these contracts have been negotiated to match the terms of the fi nancial liabilities.These derivatives were assessed to be highly effective and the change in fair value of the fi nancial liability attributableto the hedged risk, amounting to $322,000 (2005: $1,317,000), is recognised as a liability at 31 December 2006with a corresponding loss recognised in the profi t and loss account. This loss has been offset by an equivalent gainon the hedged risks.iii)Other hedges for which hedge accounting is not appliedAs at 31 December 2006, the Group has entered into two interest rate swaps to hedge the term loan. The notionalamount of each swap is $40,000,000 (2005: $50,000,000) whereby it pays fi xed interest rate and receives variablerate on the notional amount.As at 31 December 2006, the Group also entered into an interest rate swap to hedge a portion of the Group’s billspayables for working capital. The notional amount of this swap is $20,000,000 (2005: $20,000,000).The fair value of these derivatives as at 31 December 2006 amounts to $910,000 (2005: $738,000) has beenrecognised in the balance sheet as a fi nancial asset and as income in the profi t and loss account for the year.Notes to the Financial Statements 168Annual Report 2006

Notes to the Financial Statements - 31 December 2006 (cont’d)44. Comparative figuresComparatives in the fi nancial statements have been changed from the previous year due to the fi nalisation of the purchase priceallocation to goodwill, intangible assets (excluding goodwill) for Global Active Limited during current year.GroupPreviouslyRestatedreported2005 2005$’000 $’000Balance Sheet of the GroupIntangible assets 39,142 35,769Deferred tax liabilities (4,084) (5,258)Revaluation reserve (5,237) –Premium on purchase of minority interests’ shares 965 953Foreign currency translation reserve 1,177 1,175Minority interests (7,436) (8,395)Presented in the Notes to the Financial StatementsIntangible assets – net carrying amount (Note 13):Franchise rights and trademarks 16,600 17,574Goodwill arising on acquisition 21,055 16,70845. Authorisation of financial statements for issueThe fi nancial statements for the year ended 31 December 2006 were authorised for issue in accordance with a resolution of thedirectors on 26 March 2007.Notes to the Financial Statements 169Annual Report 2006

Major PropertiesUnexpiredterm ofDescription Location Area (sq m) Tenure (years) lease (years)Strata units in commercial building Rochor Canal Road, 86 99 75# 01-08 and # 01-41Sim Lim Square,Singapore 188504Strata units in commercial building 6 Xuanwumenwai Street, 186.10 50 38Junefi eld Plaza,Tower 1 15th fl oor,Unit 1526 & 1527Beijing, PRCResidential condominium Unit 8C, 1523-2 165.40 68 56Dong Fang Road, PudongNew Area, Shanghai, PRCStrata units in commercial building 11F, 11F-1, 11F-2 and 11F-3, 1,571.81 Freehold NANo.176, Jian Yi Road,Chung Ho City, Taipei, TaiwanLand (1) Jian Kang section, 779/10000 Freehold NAChung Ho City,share ofTaipei, Taiwan 30,072.47Industry property 9 Ubi Crescent Singapore 408572 615.90 60 50Note:(1)This is the land on which the building at 11F, 11F-1, 11F-2 and 11F-3, No.176, Jian Yi Road, was constructed on.Major Properties 170Annual Report 2006

Shareholdings StatisticsAs at 8 March 2007ISSUED AND FULLY PAID UP CAPITAL : $NO. OF SHARES ISSUED : 541,728,189CLASS OF SHARES : ORDINARY SHARESVOTING RIGHTS : 1 VOTE PER SHARESIZE OFNO. OFSHAREHOLDINGS SHAREHOLDERS % NO. OF SHARES %1 - 999 298 8.84 136,004 0.031,000 - 10,000 2,163 64.17 10,831,290 2.0010,001 - 1,000,000 883 26.19 38,099,872 7.031,000,001 & ABOVE 27 0.80 492,661,023 90.94TOTAL 3,371 100.00 541,728,189 100.00TOP TWENTY SHAREHOLDERS NO. OF SHARES %CITIBANK NOMINEES S’PORE PTE LTD 173,422,691 32.01RON SIM CHYE HOCK 74,207,938 13.70DBS NOMINEES PTE LTD 56,135,418 10.36HSBC (SINGAPORE) NOMINEES PTE LTD 55,596,317 10.26RAFFLES NOMINEES PTE LTD 23,513,357 4.34DBSN SERVICES PTE LTD 23,342,703 4.31DB NOMINEES (S) PTE LTD 13,260,000 2.45ARANDA INVESTMENTS PTE LTD 12,000,000 2.22MORGAN STANLEY ASIA (S’PORE) SECURITIES PTE LTD 11,726,600 2.16CENTURY PRIVATE EQUITY HOLDINGS (S) PTE LTD 11,700,000 2.16TEO SWAY HEONG 4,059,448 0.75TAY SIM KIM 3,621,800 0.67UNITED OVERSEAS BANK NOMINEES PTE LTD 3,435,230 0.63HSIEH WEN-HSU OR YANG PAO-FENG 3,413,560 0.63OCBC SECURITIES PRIVATE LTD 2,877,620 0.53FAMILY CO. LTD. 2,696,400 0.50PHILLIP SECURITIES PTE LTD 2,566,863 0.47CHOU JEN CHUNG 2,250,000 0.42ORIENTAL EXPORT & IMPORT CO LTD 2,070,000 0.38HL BANK NOMINEES (S) PTE LTD 1,939,360 0.36TOTAL 483,835,305 89.31Shareholdings Statistics 171Annual Report 2006

Shareholdings Statistics as at 8 March 2007 (cont’d)SUBSTANTIAL SHAREHOLDERS Direct Interest Deemed InterestRon Sim Chye Hock 122,901,938 160,218,058Templeton Worldwide, Inc (Note 1) - 33,989,268Franklin Resources, Inc (Note 1) - 33,989,268The Capital Group Companies, Inc (Note 2) - 34,595,000Note:(1)Templeton Worldwide, Inc (“Templeton”) is the wholly owned subsidiary of Franklin Resources, Inc and the deemed interestrelates to shares held in various investment funds (and under various nominee accounts).(2)The Capital Group Companies, Inc’s deemed interest relates to shares held in the name of DBS Nominees Pte Ltd.PERCENTAGE OF SHAREHOLDING IN PUBLIC’S HANDApproximately 34% of the Company’s shares are held in the hand of public. Accordingly, the Company has compiled with the Rule 723 of theListing Manual of the SGX-St.Shareholdings Statistics 172Annual Report 2006

Notice of Annual General MeetingNOTICE IS HEREBY GIVEN that the Annual General Meeting of OSIM International Ltd (“the Company”) will be held at 65 Ubi Avenue 1,OSIM Headquarters, Singapore 408939 on Friday, 27 April 2007 at 6.30pm for the following purposes:AS ORDINARY BUSINESS1. To receive and adopt the Directors’ Report and the Audited Accounts of the Company for the year ended 31 December 2006together with the Auditors’ Report thereon. (Resolution 1)2. To declare a fi nal one-tier tax exempt dividend of 1.48 cents per ordinary share for the year ended 31 December 2006 (2005: 1.00cents per share). (Resolution 2)3. To re-elect the following Directors retiring pursuant to Article 92 of the Company’s Articles of Association:Mr Michael Kan Yuet Yun (Resolution 3)Mr Ong Kian Min (Resolution 4)* Mr Michael Kan Yuet Yun will, upon re-appointment as a Director of the Company, remain Chairman of the Audit Committee,a member of the Nominating and Remuneration Committees and will be considered independent.* Mr Ong Kian Min will, upon re-appointment as a Director of the Company, remain Chairman of the Nominating andRemuneration Committees, a member of the Audit Committee and will be considered independent.4. To approve the payment of Directors’ fees of S$147,500 for the year ended 31 December 2006 (2005: S$168,500).(Resolution 5)5. To re-appoint Messrs Ernst & Young as the Company’s Auditors and to authorise the Directors to fi x their remuneration.(Resolution 6)6. To transact any other ordinary business which may properly be transacted at an Annual General Meeting.Notice of Annual General Meeting 173Annual Report 2006

Notice of Annual General Meeting (cont’d)AS SPECIAL BUSINESSTo consider and if thought fi t, to pass the following resolutions as Ordinary Resolutions, with or without any modifi cations:7. Authority to issue shares up to 50 per centum (50%) of the issued shares in the capital of the CompanyThat pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore ExchangeSecurities Trading Limited, the Directors be authorised and empowered to:(a) (i) issue shares in the Company (“shares”) whether by way of rights, bonus or otherwise; and/or(ii)make or grant offers, agreements or options (collectively, “Instruments”) that might or would require shares to beissued, including but not limited to the creation and issue of (as well as adjustments to) options or other instrumentsconvertible into shares, at any time and upon such terms and conditions and for such purposes and to such personsas the Directors may in their absolute discretion deem fi t; and(b)(notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of anyInstrument made or granted by the Directors while this Resolution was in force,provided that:(1) the aggregate number of shares (including shares to be issued in pursuance of the Instruments, made or granted pursuantto this Resolution) and Instruments to be issued pursuant to this Resolution shall not exceed fi fty per centum (50%) ofthe issued shares in the capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which theaggregate number of shares and Instruments to be issued other than on a pro rata basis to existing shareholders of theCompany shall not exceed twenty per centum (20%) of the issued shares in the capital of the Company (as calculated inaccordance with sub-paragraph (2) below);(2) (subject to such calculation as may be prescribed by the Singapore Exchange Securities Trading Limited) for the purposeof determining the aggregate number of shares and Instruments that may be issued under sub-paragraph (1) above, thepercentage of issued shares and Instruments shall be based on the number of issued shares in the capital of the Companyat the time of the passing of this Resolution, after adjusting for:(a)(b)(c)new shares arising from the conversion or exercise of the Instruments or any convertible securities;new shares arising from the exercising share options or vesting of share awards outstanding and subsisting at the timeof the passing of this Resolution; andany subsequent consolidation or subdivision of shares;(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manualof the Singapore Exchange Securities Trading Limited for the time being in force (unless such compliance has been waivedby the Singapore Exchange Securities Trading Limited) and the Articles of Association of the Company; andNotice of Annual General Meeting 174Annual Report 2006

Notice of Annual General Meeting (cont’d)7. Authority to issue shares up to 50 per centum (50%) of the issued shares in the capital of the Company (cont’d)(4) unless revoked or varied by the Company in a general meeting, such authority shall continue in force (i) until the conclusionof the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company isrequired by law to be held, whichever is earlier or (ii) in the case of shares to be issued in pursuance of the Instruments, madeor granted pursuant to this Resolution, until the issuance of such shares in accordance with the terms of the Instruments.[See Explanatory Note (i)] (Resolution 7)8. Authority to issue shares under the OSIM Share Option SchemeThat pursuant to Section 161 of the Companies Act, Cap. 50, the Directors be authorised and empowered to offer and grant optionsunder the OSIM Share Option Scheme (“the Scheme”) and to issue from time to time such number of shares in the capital ofthe Company as may be required to be issued pursuant to the exercise of options granted by the Company under the Scheme,whether granted during the subsistence of this authority or otherwise, provided always that the aggregate number of additionalordinary shares to be allotted and issued pursuant to the Scheme shall not exceed fi fteen per centum (15%) of the issued sharesin the capital of the Company from time to time and that such authority shall, unless revoked or varied by the Company in a generalmeeting, continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the nextAnnual General Meeting of the Company is required by law to be held, whichever is earlier.[See Explanatory Note (ii)] (Resolution 8)9. Renewal of Shareholders’ Mandate for Interested Person TransactionsThat for the purposes of Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited:(a)(b)(c)approval be given for the renewal of the mandate for the Company, its subsidiaries and target associated companies or any ofthem to enter into any of the transactions falling within the types of Interested Person Transactions as set out in the Appendixto the Annual Report dated 12 April 2007 (the “Appendix”) with any party who is of the class of Interested Persons describedin the Appendix, provided that such transactions are carried out in the normal course of business, at arm’s length and oncommercial terms and in accordance with the guidelines of the Company for Interested Person Transactions as set out in theAppendix (the “Shareholders’ Mandate”);the Shareholders’ Mandate shall, unless revoked or varied by the Company in a general meeting, continue in force until theconclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of theCompany is required by law to be held, whichever is earlier; andauthority be given to the Directors to complete and do all such acts and things (including executing all such documents asmay be required) as they may consider necessary, desirable or expedient to give effect to the Shareholders’ Mandate as theymay think fi t.[See Explanatory Note (iii)] (Resolution 9)Notice of Annual General Meeting 175Annual Report 2006

Notice of Annual General Meeting (cont’d)By Order of the BoardLee Hwai KiatCompany SecretarySingapore, 12 April 2007Explanatory Notes:(i) The Ordinary Resolution 7 in item 7 above, if passed, will empower the Directors from the date of this Meeting until the date of thenext Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or such authorityis varied or revoked by the Company in a general meeting, whichever is the earlier, to issue shares, make or grant instrumentsconvertible into shares and to issue shares pursuant to such instruments, up to a number not exceeding, in total, 50% of the issuedshares in the capital of the Company, of which up to 20% may be issued other than on a pro-rata basis to existing shareholdersFor determining the aggregate number of shares that may be issued, the percentage of issued shares in the capital of the Companywill be calculated based on the issued shares in the capital of the Company at the time this Ordinary Resolution is passed afteradjusting for new shares arising from the conversion or exercise of the Instruments or any convertible securities, the exercise ofshare options or the vesting of share awards outstanding or subsisting at the time when this Ordinary Resolution is passed and anysubsequent consolidation or subdivision of shares.(ii)(iii)The Ordinary Resolution 8 in item 8 above, if passed, will empower the Directors of the Company, from the date of this Meetinguntil the next Annual General Meeting, or the date by which the next Annual General Meeting is required by law to be held or suchauthority is varied or revoked by the Company in a general meeting, whichever is the earlier, to issue shares in the Company pursuantto the exercise of options granted or to be granted under the Scheme up to a number not exceeding in total (for the entire durationof the Scheme) fi fteen per centum (15%) of the issued shares in the capital of the Company from time to time.The Ordinary Resolution 9 proposed in item 9 above, if passed, will authorise the Interested Person Transactions as described inthe Appendix and recurring in the year and will empower the Directors to do all acts necessary to give effect to the Shareholders’Mandate. This authority will, unless previously revoked or varied by the Company in a general meeting, expire at the conclusion ofthe next Annual General Meeting of the Company or the date by which the next Annual General Meeting is required by law to be heldwhichever is the earlier.Notes:1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint a proxy to attend andvote in his/her stead. A proxy need not be a Member of the Company.2. The instrument appointing a proxy must be deposited at the Registered Offi ce of the Company at 65 Ubi Avenue 1, OSIMHeadquarters, Singapore 408939 not less than forty-eight (48) hours before the time appointed for holding the Meeting.Notice of Annual General Meeting 176Annual Report 2006

AppendixOSIM INTERNATIONAL LTD(Incorporated In The Republic of Singapore with Limited Liability)(Company Registration No. 198304191N)APPENDIX IN RELATION TO DETAILS OF THEPROPOSED RENEWAL OF THE SHAREHOLDERS’ MANDATE FORINTERESTED PERSON TRANSACTIONS12 April 2007This Appendix is circulated to Shareholders of OSIM International Ltd (the “Company”) together with the Company’s Annual Report. Itspurpose is to provide Shareholders with the relevant information relating to, and to seek Shareholders’ approval for, the renewal of theShareholders’ mandate to be tabled at the Annual General meeting to be held on 27 April 2007 at 6.30pm at 65 Ubi Avenue 1 OSIMHeadquarters Singapore 408939.The Notice of Annual General Meeting and a Proxy Form are enclosed with the Annual Report. The Singapore Exchange Securities TradingLimited takes no responsibility for the correctness of any of the statements made, reports contained/referred to, or opinions expressed inthis Appendix.Appendix 177Annual Report 2006

Appendix (cont’d)DEFINITIONSIn this appendix (“Appendix”), the following defi nitions apply throughout unless otherwise stated:“AGM” : the annual general meeting of the Company to be convened on 27 April 2007, notice of whichis set out in the Annual Report 2006 despatched together with this Appendix.“Audit Committee” : the audit committee of the Company as at the date of thie Appendix, comprising of Mr MichaelKan Yuet Yun (Chairman), Mr Khor Peng Soon and Mr Ong Kian Min.“CDP” : the Central Depository (Pte) Limited“Companies Act” : the Companies Act, Chapter 50, of Singapore as amended by the Companies (Amendment)Act“Company” or “OSIM” : OSIM International Ltd“Directors” : the Directors of the Company for the time being.“Group” : the Group refers to the Company, its subsidiaries, joint ventures and associated companies“Interested Persons Transactions” : defi ned in paragraph 3.2 of this Appendix“Latest Practicable Date” : the latest practicable date prior to the printing of this Appendix, being 8 March 2007“Listing Manual” : the listing manual of the SGX-ST, which became effective on July 1, 2002, including amendmentsmade thereto up to the date of this Appendix.“Notice of AGM” : the notice of AGM as set out on pages 173 to 176 of this Annual Report“NTA” : net tangible assets“SGX-ST” : the Singapore Exchange Securities Trading Limited“Shares” : ordinary shares in the capital of the Company.“Share Options” : options to subscribe for new Shares granted pursuant to share option schemes/plans implementedby the Company.“Shareholders”: registered holders of Shares, except that where the registered holder is CDP, the term“Shareholders” shall, where the context admits, mean the Depositors whose Securities Accountare credited with Shares.Appendix 178Annual Report 2006

Appendix (cont’d)“Shareholders’ Mandate” : defi ned in paragraph 2.4 of this Appendix“$” and “cents” : Singapore dollars and cents, respectively.“%” or “per cent” : Per centum or percentageThe terms “Depositor” and “Depository Agent” shall have the meanings ascribed to them respectively in Section 130A of the CompaniesAct.Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, whereapplicable, include the feminine and neuter genders. References to persons shall include corporations.Any reference in this Appendix to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any worddefi ned under the Companies Act or any statutory modifi cation thereof and not otherwise defi ned in this Appendix shall have the samemeaning assigned to it under the Companies Act or any statutory modifi cation thereof, as the case may be.Any reference to a time of day in this Appendix is made by reference to Singapore time unless otherwise stated.Appendix 179Annual Report 2006

Appendix (cont’d)PROPOSED RENEWAL OF THE SHAREHOLDERS’ MANDATEFOR INTERESTED PERSON TRANSACTIONS1. INTRODUCTION1.1 The purpose of this Appendix is provide the Shareholders of the Company with information relating to, and to seek Shareholders’approval at the AGM to renew the Shareholders’ Mandate that will enable the Company to enter into transactions with the InterestedPersons in compliance with Chapter 9 of the Listing Manual.1.2 Pursuant to Chapter 9 of the Listing Manual, the Shareholders’ Mandate was renewed at an annual general meeting held on 28 April2006, will continue in force until the forthcoming annual general meeting. Accordingly, the Directors propose that the Shareholders’Mandate be renewed at the AGM to Shareholders’ Mandate to be held on 27 April 2007. The Shareholders’ Mandate will take effectfrom the date of the passing of the Ordinary Resolution approving the Shareholders’ Mandate until the next Annual General Meetingof the Company1.3 There are no modifi cations to the existing Shareholders’ Mandate in relation to the nature of Interested Person Transactions whichcovers the following categories of transactions:1.3.1 franchising, distribution and licensing agreements1.3.2 the sale of healthy lifestyle products1.4 There are no modifi cations to the review procedures for such transactions (as described in paragraph 3.4)2. CHAPTER 9 OF THE LISTING MANUAL2.1 Chapter 9 (“Chapter 9”) of the Listing Manual of the SGX-ST deals with transactions in which a listed company or any of itssubsidiaries or associated companies (that are not listed on the SGX-ST or an approved exchange, provided that the listed group, orthe listed group and its interested person(s) (as defi ned in paragraph 2.5.1) has control over) proposes to enter with a party who isan Interested Person (as defi ned below) of the listed company.2.2 Save for transactions which are not considered to put the listed company at risk and which are therefore excluded from the ambit ofChapter 9, shareholder approval and/or an immediate announcement would be required in respect of transactions with InterestedPersons if certain fi nancial thresholds are reached or exceeded. Specifi cally, an immediate announcement is required for thefollowing transactions of a certain threshold where:-2.2.1 the value of a proposed transaction is equal to or exceeds 3% of the Group’s latest audited NTA; or2.2.2 the aggregate value of all transactions entered into with the same Interested Person during the same fi nancial year, is equalto or more than 3% of the Group’s latest audited NTA. An announcement will have to be made immediately of the latesttransaction and all future transactions entered into with that same interested person during the fi nancial year,Appendix 180Annual Report 2006

Appendix (cont’d)and shareholder approval (in addition to an immediate announcement) is required where:-2.2.3 the value of a proposed transaction is equal to or exceeds 5% of the latest Group’s audited NTA; or2.2.4 the aggregate value of all transactions (including the subject transaction) entered into with the same Interested Person duringthe same fi nancial year, is equal to or more than 5% of the Group’s latest audited NTA. The aggregation will exclude anytransaction that has been approved by shareholders previously, or is the subject of aggregation with another transaction thathas been approved by shareholders.2.3 For the purposes of aggregation, Interested Persons Transactions below $100,000 each are to be excluded.2.4 Part VIII of Chapter 9 allows for a listed company to seek a mandate (the “Shareholders’ Mandate”) from its shareholders forrecurrent transactions with Interested Person of a revenue or trading nature necessary for its day-to-¬day operations such as salesof supplies and materials, but not in respect to the purchase or sale of assets, undertakings or businesses.2.5 For the purposes of Chapter 9:-2.5.1 an “interested person” means a director, chief executive offi cer or controlling shareholder of the listed company, or anassociate of such director, chief executive offi cer or controlling shareholder;2.5.2 a “controlling shareholder” is a person who holds directly or indirectly 15% or more of the nominal amount of all voting sharesin the listed company (unless otherwise excepted by SGX-ST) or in fact exercises control over a company; and2.5.3 an “associate” in relation to any director, chief executive offi cer or controlling shareholder (being an individual) means hisimmediate family (i.e., spouse, children, adopted children, step-children, siblings and parents), the trustees of any trustof which he or his immediate family is a benefi ciary or, in the case of a discretionary trust, is a discretionary object, andany company in which he and his immediate family together (directly or indirectly) have an interest of 30% or more. An“associate” in relation to a controlling shareholder (being a company) means any other company which is its subsidiary orholding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company orcompanies taken together (directly or indirectly) have an interest of 30% or more.3. SHAREHOLDERS’ MANDATE3.1 Background3.1.1 The principal activities of OSIM are marketing, distributing and franchising of a comprehensive range of healthy lifestyleproducts. Other than Daito-OSIM Healthcare Appliance (Suzhou) Co., Ltd, and Daito-OSIM (Thailand) Co., Ltd, all theGroup’s production needs are outsourced, for example, to contract manufacturers in Japan and Taiwan as the Group focuseson its strengths in marketing and brand management. As at the Latest Practicable Date, the Group has 1,135 point-of-salesoutlets over 28 countries worldwide.3.1.2 It is envisaged that in the normal course of business of the Group, transactions involving the sale, purchase, provision orsupply of services and/or products between the Group and Interested Persons will likely occur from time to time. Suchtransactions include, but are not limited to, licensing and distribution agreements, franchise agreements, transactions of arevenue and trading nature.Appendix 181Annual Report 2006

Appendix (cont’d)3.1.3 The Directors are seeking the approval from Shareholders for the proposed renewal, of the Shareholders’ Mandate for theGroup to enter, in their normal course of business, with the class of Interested Persons described in paragraph 3.3, into theInterested Person Transactions described in paragraph 3.2, provided that such transactions are made at arm’s length andon the Group’s normal commercial terms and not prejudicial to the interests of the Company and its minority Shareholders.3.1.4 The Shareholders’ Mandate will take effect from the date of the passing of Ordinary Resolution 9 to be proposed at the AGMuntil the next annual general meeting of the Company. Thereafter, approval from Shareholders for a subsequent renewal ofthe Shareholders’ Mandate will be sought at each subsequent Annual General Meeting of the Company.3.2 Nature and Scope of the Interested Person Transactions Contemplated under the Shareholders’ Mandate3.2.1 Franchising, distribution and licensing agreementsWithin the ambit of this category are franchising arrangements with FK Marketing Ltd, and distribution and licensingagreements with the PRC affi liates (as defi ned in paragraph 3.3.1).3.2.2 Sales of healthy lifestyle productsThis category covers the sale of healthy lifestyle products such as, but not limited to, massage chairs, foot refl exology rollers,handheld massagers and fi tness equipments to Interested Persons, including, without limitation, agreements for the sale,supply and distribution of such products.3.3 Class of Interested Persons3.3.1 Interested Person refers to a director, chief executive offi cer or controlling shareholder of OSIM, or an associate (as defi nedin paragraph 2.5.3 of the Appendix) of such director, chief executive offi cer or controlling shareholder. The Shareholders’Mandate, if renewed, will apply to the following class of Interested Persons only:- OSIM (Langfang) Co., Ltd- OSIM (Guangzhou) Co., Ltd- OSIM (Beijing) Co., Ltd(the above collectively known as the “PRC affi liates”)- FK Marketing LtdNote: Ms Tao Dong Mei, who is the wife of Mr Leow Lian Soon, has a 90 per cent interest in the shares of OSIM (Langfang)Co., Ltd. As such, Mr Leow Lian Soon is deemed to have a 90 percent interest in the shares of the same company. MsTao Dong Mei and OSIM (Langfang) Co., Ltd each owns 50 per cent in both OSIM (Guangzhou) Co., Ltd and OSIM(Beijing) Co., Ltd. Mr Francis Leow Lian Teck who is the brother of Mr Leow Lian Soon owns 50 percent interest in theshares of FK Marketing Ltd. Accordingly, Mr Leow Lian Soon is deemed to have a 50 percent interest in the shares ofthe aforementioned three companies.3.3.2 Any person or company who, at the point in time when the transaction is proposed to be entered into, is an associate ofany one or more of the persons named above. The term “associate” has the meaning set out in paragraph 2.5.3 of theAppendix.3.3.3 Transactions with Interested Persons which do not fall within the ambit of the Shareholders’ Mandate shall be subject to therelevant provisions of Chapter 9 of the Listing Manual.Appendix 182Annual Report 2006

Appendix (cont’d)3.4 Review Procedures for Interested Person Transactions3.4.1 To ensure that the Interested Person Transactions arising in the normal course of business of the Group are undertaken atarm’s length and on the Group’s normal commercial terms, and will not be prejudicial to the interests of the Company andits minority Shareholders, the following guidelines will be implemented for the review and approval of Interested PersonTransactions under the proposed renewal of the Shareholders’ Mandate:-(a)(b)Franchising, distribution and licensing agreementsNo franchising, distribution and licensing fees are payable by the PRC Affi liates.Sales of healthy lifestyle productsThe sale of healthy lifestyle products by the Group shall not be approved unless the pricing policy and the terms areno more favourable to the Interested Person than the usual commercial terms extended to unrelated third partiestaking into consideration factors such as, but not limited to, market conditions, brand awareness and tax structures,in the relevant markets.The selling price of products is reviewed by the Chief Executive Offi cer, the Chief Operating Offi cer and the ChiefFinancial Offi cer on a regular basis.The following transactions are subject to review by the Audit Committee and approval by the Board of Directors:-(i)(ii)transactions of value above $1 million; ortransactions with the same Interested Person with aggregated value of above 3% of the Company’s NTA. TheAudit Committee will review the transactions which are subject to the aggregation.3.4.2 Each Interested Person Transaction will be properly documented and submitted to Audit Committee which will review suchtransactions on a quarterly basis to ensure that they are carried out on normal arm’s length and commercial terms.3.4.3 In addition to the guidelines set out above, the Audit Committee of the Company will also undertake the following periodic reviews:(a)(b)(c)the Audit Committee will carry out an annual review to ascertain that the established guidelines and procedures forthe Interested Person Transactions have been compiled with; andthe Audit Committee will consider from time to time whether the established guidelines and procedures for theInterested Person Transactions have become inappropriate or are unable to ensure that the transactions will be onthe Group’s normal commercial terms and will not be prejudicial to the interests of the Company and its minorityShareholders.If a member of the Audit Committee has an interest in an Interested Person Transaction to be reviewed by the AuditCommittee, he will abstain from any decision-making in respect of that transaction and the review and approval ofthat transaction will be undertaken by the remaining members of the Audit Committee.Appendix 183Annual Report 2006

Appendix (cont’d)4. Rationale and BenefitThe Shareholders’ Mandate will enhance the ability of companies in the Group to pursue business opportunities which are timesensitivein nature, and will eliminate the need for OSIM to announce, or to announce and convene separate general meetings oneach occasion to seek Shareholder prior approval for the entry by the relevant company in the Group into such transactions. Thiswill substantially reduce the expenses associated with the convening of general meetings on an ad hoc basis, improve administrativeeffi cacy considerably, and allow manpower resources and time to be channeled towards attaining other corporate objectives.5. Validity Period of the Shareholders MandateThe renewal of the Shareholders Mandate will take effect from the passing of the ordinary resolution relating thereto, and will (unlessrevoked or varied by the Company in general meeting) continue in force until the next Annual General Meeting of the Companyfollowing thereafter. Approval from Shareholders will be sought for the renewal of the Shareholders Mandate at the subsequentAnnual General Meeting of the Company and each Annual General Meeting thereafter, subject to satisfactory review by the AuditCommittee of its continued application to the transactions with Interested Persons.6. Disclosure of Interested Person Transactions pursuant to Shareholders Mandate6.1. The Company will announce the aggregate value of transactions conducted with Interested Persons pursuant to the ShareholdersMandate for the quarterly fi nancial periods which the Company is required to report on pursuant to the Listing Manual and withinthe time required for the announcement of such report.6.2. Disclosure will also be made in the Company’s Annual Report of the aggregate value of transactions conducted with InterestedPersons pursuant to the Shareholders Mandate during the fi nancial year, and in the Annual Reports for subsequent fi nancial yearsthat the Shareholders Mandate continues in force, in accordance with the requirements of Chapter 9 of the Listing Manual.7. INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS7.1 Directors As at the Latest Practicable Date, the direct and indirect interests of each of the Directors in the Shares and Share Optionsof the Company are as follows:-Number of SharesNumber of sharesDirect InterestIndirect Interestcomprised inNumber % (1) Number % (1) outstanding ShareOptionsRon Sim Chye Hock 122,901,938 22.69 160,218,058 29.58 -Teo Sway Heong 4,059,448 0.75 279,060,548 51.51 -Teo Chay Lee 1,462,000 0.27 - - 788,040Leow Lian Soon 2,250,000 0.42 67,500 0.01 40Lee Hwai Kiat 72,000 0.01 - - 483,120Michael Kan Yuet Yun 382,498 0.07 - - 21,600Ong Kian Min 337,497 0.06 - - 66,600Khor Peng Soon 36,000 0.01 - - 21,600Note:-(1)Based on the total issued and fully paid-up ordinary share capital of 541,728,189 shares as at the Latest Practicable Date.Appendix 184Annual Report 2006

Appendix (cont’d)7.2 Substantial Shareholders As at 8 March 2007, being the Latest Practicable Date, the only substantial Shareholder of the Companyis Mr Ron Sim Chye Hock who has a direct interest in 122,901,938 shares and a deemed interest in 160,218,058 shares, togethercomprising 52.27 per cent of the total issued and fully paid-up ordinary share capital of the Company.7.3 Mr Ron Sim Chye Hock and Mr Leow Lian Soon will abstain, and have undertaken to ensure that their associates will abstain, fromvoting at the AGM in respect of the Shares held by them respectively on Resolution 9 in the Notice of AGM on page 175 of the AnnualReport relating to the proposed renewal of the Shareholders’ Mandate.8. STATEMENT OF THE AUDIT COMMITTEEThe Audit Committee of the Company has reviewed the terms of the proposed Shareholders’ Mandate subject to renewal. Havingconsidered, inter alia, the scope, the guidelines on review procedures, the rationale and the benefi ts of the Shareholders’ Mandate,the Audit Committee confi rms that(i)(ii)the review procedures for determining the prices of Interested Person Transactions have not changed since approval for theShareholders’ Mandate was last given; andthe review procedures referred to in the above paragraph are suffi cient to ensure that the Interested Person Transactions willbe transacted on normal commercial terms and will not be prejudicial to the Shareholders nor disadvantageous to the Group.However, should the Audit Committee subsequently no longer be of this opinion, the Company will revert to the Shareholdersfor a fresh mandate based on new review procedures for transactions with Interested Persons.An independent fi nancial adviser’s opinion is not required for renewal of this general mandate as the Audit Committee has confi rmedthat the methods and procedures for determining the transaction prices have not changed since the last Shareholders’ approval andthe foregoing said methods and procedures are suffi cient to ensure that the transactions will be carried out on normal commercialterms and will not be prejudicial to the interests of the Company and its minority shareholders.9. DIRECTORS’ RECOMMENDATIONThe Directors who are considered independent for the purpose of the proposed renewal of the Shareholders’ Mandate are Mr KhorPeng Soon, Mr Michael Kan Yuet Yun and Mr Ong Kian Min (the “Independent Directors”). The Independent Directors are of theopinion that it is in the interests of the Group to be permitted to enter into the transactions in their normal course of business with theclass of Interested Persons described in paragraph 3.3 of this Appendix provided that such transactions are made at arm’s lengthand on normal commercial terms and will not be prejudicial to the interest of the Company and its minority Shareholders, and inaccordance with the guidelines set out in paragraph 3.4 of this Appendix. They accordingly recommend that Shareholders vote infavour of Resolution 9 set out in the Notice of AGM on page 175 of this Annual Report.10. APPROVALS AND RESOLUTIONSYour approval for the proposed renewal of the Shareholders’ Mandate is sought at the Company’s AGM to be held at 65 Ubi Avenue1, OSIM Headquarters, Singapore 408939 on 27 April 2006 at 6.30 pm.Appendix 185Annual Report 2006

Appendix (cont’d)11. ACTION TO BE TAKEN BY SHAREHOLDERSIf a Shareholder is unable to attend the AGM and wishes to appoint a proxy to attend and vote on his behalf, he should complete,sign and return the enclosed Proxy Form in accordance with the instructions printed thereon as soon as possible and, in any event,so as to arrive at the registered offi ce of the Company at 65 Ubi Avenue 1, OSIM Headquarters, Singapore 408939 not later than48 hours before the time fi xed for the AGM. Completion and return of the Proxy Form by a Shareholder does not preclude him fromattending and voting at the AGM if he so wishes.12. DOCUMENTS FOR INSPECTIONThe following documents may be inspected at the registered offi ce of the Company during normal business hours from the datehereof up to and including the date of the AGM:-(i) the Memorandum and Articles of Association of the Company; and(ii) the Annual Report of the Company and of the Group for the fi nancial year ended 31 December 2006.13. DIRECTORS’ RESPONSIBILITY STATEMENTThe Directors collectively and individually accept responsibility for the accuracy of the information given in this Appendix andconfi rm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and the opinionsexpressed in this Appendix are fair and accurate in all material respects as at the date hereof and that there are no other materialfacts the omission of which would make any statement in this Appendix misleading.Yours faithfullyOSIM INTERNATIONAL LTDRon Sim Chye HockChairmanfor and on behalf of the BoardAppendix 186Annual Report 2006

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OSIM INTERNATIONAL LTDCompany Registration No. 198304191N(Incorporated in The Republic of Singapore with limited liability)PROXY FORM(Please see notes overleaf before completing this Form)IMPORTANT:1. For investors who have used their CPF monies to buy OSIM International Ltd’s shares, this Reportis forwarded to them at the request of the CPF Approved Nominees and is sent solely FORINFORMATION ONLY.2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents andpurposes if used or purported to be used by them.3. CPF investors who wish to attend the Meeting as an observer must submit their requests throughtheir CPF Approved Nominees within the time frame specified. If they also wish to vote, they mustsubmit their voting instructions to the CPF Approved Nominees within the time frame specifi ed toenable them to vote on their behalf.I/We,ofbeing a member/members of OSIM International Ltd (the “Company”), hereby appoint:Name NRIC/Passport No. Proportion of ShareholdingsNo. of Shares %Addressand/or (delete as appropriate)Name NRIC/Passport No. Proportion of ShareholdingsNo. of Shares %Addressor failing the person, or either or both of the persons, referred to above , the Chairman of the Meeting as my/our proxy/proxies to vote forme/us on my/our behalf at the Annual General Meeting (the “Meeting”) of the Company to be held on 27 April 2007 at 6.30 p.m. and at anyadjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder.If no specifi c direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, theproxy/proxies will vote or abstain from voting at his/her discretion. The authority herein includes the right to demand or to join in demandinga poll and to vote on a poll.(Please indicate your vote “For” or “Against” with a tick [√] within the box provided.)No. Resolutions relating to: For Against1 Directors’ Report and Audited Accounts for the year ended 31 December 20062 Payment of proposed final dividend3 Re-election of Mr Michael Kan Yuet Yun as a Director4 Re-election of Mr Ong Kian Min as a Director5 Approval of Directors’ fees amounting to S$147,5006 Re-appointment of Messrs Ernst & Young as Auditors7 Authority to allot and issue new shares8 Authority to allot and issue shares under the OSIM Share Option Scheme9 Renewal of Shareholders’ Mandate for Interested Person TransactionsDated this day of 2007Signature of Shareholder(s)or, Common Seal of Corporate ShareholderTotal number of Shares in:(a) CDP Register(b) Register of MembersNo. of Shares

Notes :1. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (asdefi ned in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you haveShares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares enteredagainst your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert theaggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register ofMembers. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held byyou.2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attendand vote in his/her stead. A proxy need not be a member of the Company.3. Where a member appoints two proxies, the appointments shall be invalid unless he/she specifi es the proportion of his/her shareholding(expressed as a percentage of the whole) to be represented by each proxy.4. Completion and return of this instrument appointing a proxy shall not preclude a member from attending and voting at the Meeting.Any appointment of a proxy or proxies shall be deemed to be revoked if a member attends the meeting in person, and in such event,the Company reserves the right to refuse to admit any person or persons appointed under the instrument of proxy to the Meeting.5. The instrument appointing a proxy or proxies must be deposited at the registered offi ce of the Company at 65 Ubi Avenue 1, OSIMHeadquarters, Singapore 408939 not less than 48 hours before the time appointed for the Meeting.6. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing.Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or underthe hand of an offi cer or attorney duly authorised. Where the instrument appointing a proxy or proxies is executed by an attorney onbehalf of the appointor, the letter or power of attorney or a duly certifi ed copy thereof must be lodged with the instrument.7. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fi t toact as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore.General:The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible, orwhere the true intentions of the appointor are not ascertainable from the instructions of the appointor specifi ed in the instrument appointinga proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing aproxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his name in the Depository Registeras at 48 hours before the time appointed for holding the Meeting, as certifi ed by The Central Depository (Pte) Limited to the Company.

SINGAPOREOSIM International Ltd65 Ubi Avenue 1, OSIM HeadquartersSingapore 408939Tel: (65) 6747 6866 Fax: (65) 6748 9192Email: IR@osim.com.sgwww.OSIM.comOSIM GLOBAL NETWORK China Australia India Macau South Africa USA Hong Kong Brunei Indonesia Myanmar South Korea Vietnam Malaysia Bahrain Ireland Pakistan Spain Taiwan Cambodia Italy Philippines UAE Thailand Canada Kuwait Saudi Arabia UK