Independent Auditors’ Report

Consolidated Financial Statements

Balance sheets

Statements of income

Statements of shareholder’s equity

Statements of cash flows

Notes to consolidated financial statements

December 31,

Assets (Note 10)

Current

Cash and cash equivalents

Accounts receivable:

Trade, net of allowance for doubtful accounts of $540,000 and $536,000 (Note 11)

Related parties (Note 8)

Inventories (Note 2)

Deferred income taxes (Note 6)

Loans to related parties (Note 7)

Prepaid expenses and other

Total current assets

Property and equipment, net (Note 3)

Loans to related parties (Note 7)

Intangible assets, net

Other assets

Deferred income taxes (Note 6)

Total assets

Liabilities and Shareholder’s Equity

Current

Accounts payable

Due to related parties (Note 8)

Accrued restructuring costs and charges (Note 4)

Other accrued expenses (Note 5)

Related party loans (Note 9)

Total current liabilities

Deferred income taxes (Note 6)

Related party loan (Note 9)

Other long-term liabilities (Note 12)

Total liabilities

Commitments and contingencies (Notes 3, 4, 12 and 13)

Shareholder’s equity

Common stock (Note 16)

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss (Note 15)

Total shareholder’s equity

Total liabilities and shareholder’s equity

Year ended December 31,

Net sales (Note 11)

Cost of sales (Note 8)

Gross profit

Operating expenses:

Selling, general and administrative (Note 8)

Research and development

Restructuring recovery (Notes 4 and 13)

Total operating expenses

Income from operations

Other income (expense):

Interest, net

Gains (losses) arising from foreign currency translation

Miscellaneous, net

Total other income (expense), net

Income before income taxes

Income tax expense (Note 6)

Net income

Accumulated

Other

Comprehensive

Balance, December 31, 2009

Net income

Translation adjustment

Minimum pension liability adjustment (net of tax of $40,526)

Comprehensive income

Balance, December 31, 2010

Net income

Translation adjustment

Minimum pension liability adjustment (net of tax of $41,312)

Comprehensive income

Dividend

Balance, December 31, 2011

Year ended December 31,

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Loss on disposal of property and equipment

Deferred income taxes

Provision for pension

Payment of pension

Provision for (recovery of) losses on accounts receivable

Decrease (increase) in assets:

Accounts receivable

Inventories

Prepaid expenses and other

Due from related parties

Increase (decrease) in liabilities:

Accounts payable

Accrued expenses and other

Net cash provided by operating activities

Cash flows from investing activities:

Additions to property and equipment

Additions to intangible assets

Repayment of note from affiliated entity

Proceeds on disposal of property and equipment

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Loan from related party

Dividend paid

Advances on related party loan

Change in other non-current liabilities

Net cash used in financing activities

Effect of exchange rates on cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Business – Sobel USA Inc. (the “Company”), is a holding company within the VION Holding N.V. (“VION” or “Parent”) group of companies. The Company owns one operating subsidiary, Banner Pharmacaps, Inc. and its subsidiaries (“Banner”) which include Banner Pharmacaps Canada Ltd. (“Canada”) and Pharmacaps Mexicana SA de CV (“Mexico”).

Banner manufactures soft elastic gelatin capsules, primarily containing prescription and non-prescription pharmaceuticals, vitamins and dietary supplements.

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries. All material inter-company accounts and transactions are eliminated.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fiscal Year – The Company reports on a calendar year basis. The consolidated financial statements reflect Banner’s financial position and results of operation for their fiscal year that ends on the Saturday of each year closest to December 31.

Foreign Currency Translation – Foreign currency denominated assets and liabilities of subsidiaries with local functional currencies are translated to United States dollars at year-end exchange rates. Revenues and expenses of foreign subsidiaries are translated at average exchange rates prevailing during the year. The effects of translation are recorded in the accumulated other comprehensive income (loss) component of shareholder’s equity.

Transactions denominated in foreign currency are translated using the exchange rate in effect at the transaction date. Gains and losses arising from subsequent fluctuations in exchange rates are included in other income (expense).

Distributor and Royalty Agreements – The Company has agreements with various distributors that allow the Company to share in product profits. The Company recognizes these profits once the distributor ships the product and title passes to their customer. Royalty revenues received from third parties are based on contractual agreements and are included in net sales.

Shipping and Handling Charges – Amounts billed to customers for shipping and handling costs are included in net sales. Related freight expenses are included in selling, general and administrative expenses and were approximately $2,318,000 and $1,934,000 in 2011 and 2010.

Trade Accounts Receivable and Credit Risk – Accounts receivable are customer obligations due under normal trade terms. Substantially all of the Company’s trade receivables are from pharmaceutical, biotech and retail companies.

The Company performs continuing credit evaluations of its customers’ financial condition and generally does not require collateral. Management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve based on management’s assessment of their customers’ overall financial position. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company has a limited number of customers with individually large amounts due at any given balance sheet date. See Note 11 for major customers. Any unanticipated change in one of those customers’ credit worthiness, or other matters affecting the collectability of amounts due from such customers, could have a material effect on the results of operations in the period in which such changes or events occur. Based on all available information, management believes the allowance for doubtful accounts is adequate. However, actual write-offs could exceed the recorded allowance.

Inventories – Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

Property and Equipment – Property and equipment are carried at cost. Depreciation is computed over the estimated useful lives of the assets by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. Assets are depreciated for financial reporting purposes based on estimated useful lives as follows: Buildings and improvements (25-40 years); Machinery and equipment (3-12 years).

Long-Lived Assets – Long-lived assets, such as property and equipment and intangible assets, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. No impairment charges were incurred in 2011 and 2010.

Intangible Assets – The Company amortizes its finite lived intangible assets, primarily trademarks, over the estimated useful life of 7 years.

Fair Value Measurements – The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short maturity of those instruments. The recorded value of the Company’s related party loans approximate their fair values based on the variable interest rates and the current rates available to the Company for debt of similar remaining maturities.

The Company had no significant assets or liabilities measured at fair value on a recurring basis during 2011 and 2010.

Income Taxes – Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in deferred tax assets and liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Tax benefits are recorded only for tax positions that would be more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company’s policy is to classify any interest or penalties as income tax expense, if applicable.

Research and Development Expenses – Research and development (R&D) costs are expensed as incurred. These expenses consist of the Company’s proprietary R&D efforts.

Advertising Costs – Costs for newspaper, television, radio and other media are expensed as incurred. The costs for these types of advertising were approximately $2,387,000 in 2011 and $1,710,000 in 2010.

Other Comprehensive Income (Loss) – Other comprehensive income (loss) includes translation adjustments arising from the translation of the assets and liabilities of the Company’s foreign subsidiaries as well as changes in Plan assets and benefit obligations of Mexico’s defined benefit plans not included in net periodic benefit cost.

Comparative Financial Statements – Certain 2010 amounts have been classified to conform to the 2011 presentation. These reclassifications had no effect on previously reported net income.

Subsequent Events – Management has evaluated events occurring subsequent to the balance sheet date through March 26, 2012, the date that the consolidated financial statements were available to be issued, determining no events require adjustment to or additional disclosure in the consolidated financial statements.

2.

Inventories

Inventories are summarized as follows:

Depreciation expense was $7,929,000 and $7,524,000 for 2011 and 2010.

Management estimates that costs to complete projects in progress at December 31, 2011 will be approximately $400,000.

Accrued restructuring costs at December 31, 2011 and 2010 are as follows:

Sobel USA Inc. files a consolidated tax return in the United States which includes Banner. Canada and Mexico file separately in their respective countries.

Income taxes consists of the following components:

The following reconciles taxes at the U.S. federal statutory rate with actual tax expense:

There were no interest or penalties paid by the Company in 2011 and 2010.

At December 31, 2011, the Company had Canadian net operating loss carryforwards of approximately $2.2 million (CAN $2.3 million) which expire between 2027 and 2029. Realization of deferred tax assets associated with Canada’s net operating loss and income tax credit carryforwards are dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance has been recorded against these assets since management believes there is a risk that such amounts may expire unused. Realization of any of the deferred tax assets is not assured and such amounts could be reduced in the near term if management’s estimates of taxable income during the carryforward period are significantly reduced or alternative tax strategies are no longer viable.

The Company is subject to federal, state and local income tax examinations for tax years ended in 2008 through 2011. Mexico is subject to income tax examinations for tax years ended 2006 through 2011. Canada is subject to tax examinations for tax years ended 2005 through 2011.

The Canadian Revenue Agency is currently reviewing the Company’s 2005, 2006, and 2007 returns. The outcome of this examination cannot be determined at this time.

The Company purchased materials from parties related through common ownership totaling $15,473,000 and $12,714,000 during 2011 and 2010.

An administration charge of $331,000 and $346,000 from the Parent was recorded in 2011 and 2010. These charges are included in the selling, general and administrative expenses in the consolidated statements of income.

The Company received an administration fee of $672,000 and $633,000 from an entity related through common ownership in 2011 and 2010. These fees are netted against selling, general and administrative expenses in the consolidated statements of income.

In June 2010, Banner entered into an unsecured credit agreement with an entity affiliated by common ownership for up to $10,000,000. The line expired in June 2011.

In December 2010, Canada entered into an unsecured loan agreement with an entity affiliated by common ownership for up to CAN $8,500,000. The line expires in December 2012 but may be extended annually if agreed to by both parties. However, the ultimate payment date will be no later than November 2015. Borrowings bear interest at one-month LIBOR plus a spread determined quarterly based on the rate that the Parent pays on its bank debt (2.9% at December 31, 2011). Approximately U.S. $8,304,000 (CAN $8,498,000) and $8,278,000 (CAN $8,253,000) was owed at December 31, 2011 and 2010.

In April 2011, Banner borrowed $55,000,000 under an unsecured loan agreement from an entity affiliated by common ownership. Principal and accrued interest is due December 2013. Borrowings bear interest at one-month LIBOR plus a spread determined quarterly based on the rate that the Parent pays on its bank debt (2.0% at December 31, 2011).

11.

Major Customers

Two customers accounted for 39% of net sales during 2011 and 50% of accounts receivable at December 31, 2011. Two customers accounted for 37% of net sales during 2010 and 56% of accounts receivable at December 31, 2010.

12.

Employee Benefit Plans

Defined Contribution Plan

The Company maintains defined contribution retirement savings plans. The matching contributions to the savings plan and the profit sharing plan are determined at the discretion of the Board and were $1,167,000 in 2011 and $980,000 in 2010.

Defined Benefit Pension Plan

Mexico sponsors a funded defined benefit pension plan for all full time permanent employees. Benefits paid to retirees are based on years of credited service and compensation during the last twelve months of service. The Company’s funding policy is to match required employee contributions.

A summary of the plan’s funded status is as follows: