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 $536,000 and $938,000 (Note 11)

Related parties (Note 8)

Inventories (Note 2)

Deferred income taxes (Note 6)

Loans to related parties (Note 9)

Prepaid expenses and other

Total current assets

Property and equipment, net (Note 3)

Loans to related parties (Note 9)

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 payable (Note 7)

Total current liabilities

Deferred income taxes (Note 6)

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 charge (Notes 4 and 13)

Amortization of intangibles

Total operating expenses

Income from operations

Other income (expense):

Interest, net

Losses arising from foreign currency translation

Miscellaneous, net

Total other expense, net

Income before income taxes

Income tax expense (Note 6)

Net income

Accumulated
Other

Comprehensive

Balance, December 31, 2008

Net income

Translation adjustment

Minimum pension liability adjustment (net of tax of $14,000)

Comprehensive income

Balance, December 31, 2009

Net income

Translation adjustment

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

Comprehensive income

Balance, December 31, 2010

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

Receipt of related party interest

Loss on disposal of property and equipment

Deferred income taxes

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 to affiliated entity

Proceeds on disposal of property and equipment

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Repayment of loan from parent

Advances on credit agreement by affiliate

Change in other non-current liabilities

Net cash provided by (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 NV (“Vion” or “Parent”) group of companies. The Company owns one operating subsidiary, Banner Pharmacaps, Inc. and its subsidiaries (“Banner”). Banner’s subsidiaries include Banner Pharmacaps Canada Ltd. (“Canada”) and Pharmacaps Mexicana SA de CV (“Mexico”). Banner’s dormant subsidiary, Banner Pharmacaps, Ltd. was liquidated in 2010.

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.

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 stockholder’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).

Revenue Recognition – Revenue is recognized when products are shipped or delivered to the customer (based on shipping terms) and ownership has been transferred to the customer. Customers are primarily located within North and South America, Africa, Europe and the Pacific Rim.

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 $1,934,000 and $1,622,000 in 2010 and 2009.

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 and biotech companies, as well as retail organizations.

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 might exceed the recorded allowance.

Cash and Cash Equivalents – The Company considers investments with an original maturity of three months or less when purchased to be cash equivalents. The Company deposits its cash in several financial institutions. The balances at times may exceed insured limits.

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).

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. The Company adopted the standards on uncertainty contained in Accounting Standards Codification Topic 740 (“ASC 740”) on January 1, 2009. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosures. The Company’s policy is to classify any interest or penalties recognized in accordance with ASC 740 as income tax expense. The adoption of these standards did not have any impact on the Company’s consolidated financial statements.

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 $1,710,000 in 2010 and $1,859,000 in 2009.

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.

Summary of Significant Accounting

Policies (Concluded)

Comparative Financial Statements – Certain 2009 amounts have been classified to conform to the 2010 presentation.

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.

Subsequent Events – Management has evaluated events occurring subsequent to the balance sheet date through February 23, 2011, 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.

Property and

Equipment

Depreciation expense was $7,524,000 and $6,714,000 for 2010 and 2009.

The Company estimates that costs to complete projects in progress at December 31, 2010 will be approximately $478,000.

Accrued restructuring costs and charges include costs associated with the closure in 2002 of Banner’s Chatsworth, California facility. Also, see Note 13.

Accrued restructuring costs at December 31, 2010 and 2009 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 Company has not recorded deferred income taxes applicable to undistributed earnings of consolidated foreign subsidiaries that are indefinitely reinvested in foreign operations. It is not practical to estimate the amount of taxes that might be payable on the eventual remittance of such earnings. Upon remittance, certain countries impose withholding taxes that, subject to certain limitations, are available for use as tax credits against a U.S. tax liability.

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 2009 and 2010.

At December 31, 2010, the Company had Canadian net operating loss carryforwards of approximately $2.6 million which expire between 2015 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.

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 expires in June 2011. Borrowings under the line bear interest at LIBOR plus 1.7% (1.96% at December 31, 2010). There was no outstanding amount due at December 31, 2010.

In December 2010, Canada entered into an unsecured credit agreement with an entity affiliated by common ownership for up to CAN $8,500,000. The outstanding amount due at the end of 2010 was approximately CAN $8,235,000. The line expires in December 2011. Borrowings under the line bear interest at CAN LIBOR plus 1.7% (2.79% at December 31, 2010).

During 2010, the Company repaid the $33 million loan from the Parent.

The Company purchased materials from parties related through common ownership aggregating $12,714,000 and $9,940,000 during 2010 and 2009.

An administration charge of $346,000 and $312,500 from the Company’s Parent was recorded in 2010 and 2009. These charges are included in the selling, general and administrative expenses in the consolidated statements of income.

The Company received an administration fee of $633,000 and $577,000 from an entity related through common ownership in 2010 and 2009. These fees are netted against selling, general and administrative expenses in the consolidated statements of income.

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 $980,000 in 2010 and $905,000 in 2009.

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.

Amounts recognized in accumulated other comprehensive loss consist of prior service cost and unrecognized gain or loss.

The following are assumptions used to determine benefit obligations:

The Company’s overall investment strategy is to invest in bond mutual funds.

The Company’s expected long-term return on plan assets assumption is based on a periodic review and modeling of the plans’ asset allocation and liability structure over a long-term period. The expected long-term rate of return on assets was selected from within the reasonable range of rates determined by (1) historical real returns, net of inflation, for the asset classes covered by the investment policy and (2) projections of inflation over the long-term period during which benefits are payable to plan participants.