Winshine Science : (1) RESULTS OF INTERNAL CONTROL REVIEW; AND (2) CONTINUED SUSPENSION OF TRADING

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WINSHINE SCIENCE COMPANY LIMITED

瀛 晟 科 學 有 限 公 司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 209)

1. RESULTS OF INTERNAL CONTROL REVIEW; AND
2. 1. CONTINUED SUSPENSION OF TRADING

This announcement is made by the board (the "Board") of directors (the "Directors") of Winshine Science Company Limited (the "Company", together with its subsidiaries, the "Group") pursuant to Rule 13.09 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") (the "Listing Rules") and the provisions of inside information under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

References are made to the Company's announcements (i) dated 28 March 2019, 16 April 2019, 19 June 2019, 2 September 2019 and 2 October 2019 in relation to the delay in publication of the annual results and despatch of annual report of the Group for the year ended 31 December 2018 and the trading suspension of the shares of the Company on the Stock Exchange; (ii) dated 6 May 2019, 8 May 2019 and 10 June 2019 in relation to the change of auditors; and (iii) dated 25 June 2019 in relation to the resumption guidance (the "Resumption Guidance") (collectively, the "Announcements"). Unless otherwise defined, terms used in this announcement shall have the same meanings as those defined in the Announcements.

As disclosed in the announcement of the Company dated 19 June 2019, in regards to the audit issues (i) direct confirmation received by the Former Auditors from a debtor of the Group; and (ii) advancement of funds, the Internal Control Adviser was engaged to perform an internal control review of the Company and selected subsidiaries of the Company for the period from 1 January 2019 to 30 April 2019 (the "Internal Control Review"). On 29 October 2019, the Internal Control Adviser issued a report on its findings.

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SUMMARY OF RESULTS

Set out below is a summary of the internal control deficiencies identified by the Internal Control Adviser during the Internal Control Review, their corresponding recommendations and the corresponding response of the Group.

Internal control	Recommendations by
No. deficiencies	the Internal Control Adviser

Group's response

1. Integrity and ethical values

1. Untimely update and absence of policies and procedures for entity level controls
2. Inaccurate and inadequate reporting mechanism for misconduct

The Group should review current policies and guidelines in place to update and align with current organisation structure.

The Group should update the correspondence address for reporting misconduct in the Group's current whistleblowing policy, and set up a dedicated email address for the Group's employees and outsiders to report any misconduct.

The Group has followed this recommendation and implemented the required policies and procedures.

The Group has followed this recommendation and implemented an updated whistleblowing policy.

1. Written policies and guidelines of the Company are not accessible to employees in the People's Republic of China ("PRC")
2. Some of the contract terms of the Group's employees do not properly protect the Company's interest
3. Non-complianceof the staff handbook on the requirement for conflict of interest declaration

The Group should make the Company's policies and guidelines available for all employees to access.

The Group should review the Group's standard employment contracts to include adequate contract terms or create an acknowledge form on the rules set by the Company.

The Group should enforce the external and internal conflicts of interests declaration and reporting requirement as stipulated in the Group's staff handbook.

The Group has followed this recommendation and distributed the internal control manual to new and existing employees in the PRC.

The Group has followed this recommendation and updated its employment contracts.

The Group has followed this recommendation and established an annual declaration of conflict of interest form.

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Internal control	Recommendations by
No. deficiencies	the Internal Control Adviser

1. Delegation of authority and responsibility

6.	Incomprehensive job	The Group should establish a formal
	responsibilities and	authority matrix with threshold
	authority matrix to govern	amount against each category of
	the review and approval	transactions and defined approval
	of transactions	requirements, and periodically
		review the appropriateness of the
		authority matrix and assess if
		change is required.

1. Receipts and accounts receivable management

7.	Certain written financial	The Group should review current
	policies and procedures	policies and guidelines in place to
	yet to be established and	update and align with current
	no regular update on the	practice, and establish the policies
	policies and procedures	and procedures and circulate to the
		concerned staff thereafter.

8.	Customer due diligence	The Group should establish
	and loan approval	formalized policies and procedures
	procedures need to be	to govern customer due diligence
	enhanced	process, and establish a mechanism
		to review and approve loans.

9.	Customers selection and	The Group should establish
	maintenance can be	formalized policies and procedures
	enhanced	to govern customer selection and
		maintenance process, including a
		mechanism for customers
		evaluation.

Group's response

The Group has followed this recommendation and established an authorisation and responsibility manual.

The Group has followed this recommendation and implemented additional internal policies and procedures including but not limited to the processing and recording of receipts, selection of customers, contract management and execution, and price setting and discounts approval.

The Group has followed this recommendation and implemented additional policies and procedures to govern customer due diligence process and loan approval procedures.

The Group has followed this recommendation and enhanced the relevant customers selection and maintenance procedures.

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Internal control	Recommendations by
No. deficiencies	the Internal Control Adviser	Group's response

10. Price setting of rent and approval processes can be enhanced

The Group should establish formalized policies and procedures to govern price setting of rent and approval process, including a mechanism to review and approve price, and retain price setting and approval documentation.

The Group has followed this recommendation and implemented additional policy to govern the price setting of rent and its approval process.

11. Mechanism of loan	The Group should establish separate
disbursement to third	bank accounts for its subsidiaries
parties is inconsistent	for the disbursement of loans to
with the underlying	third parties.
facility letter

1. Cash and treasury management

The Group has followed this recommendation and shall continuously fully comply with the requirements.

12. The Group's internal control manual does not properly address certain areas of cash and treasury management

The Group should enhance its internal control manual and relevant written policies and procedures to better govern the concerned areas, and circulate the policies and procedures to the concerned staff thereafter.

The Group has followed this recommendation and implemented additional policy to better address the cash and treasury management.

13. Lack of segregation of	The Group should establish a
duties over online banking	mechanism to review and approve
transactions	its online banking transactions.

The Group has followed this recommendation and changed the authorized signatories of several of its bank accounts.

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Internal control	Recommendations by
No. deficiencies	the Internal Control Adviser

Group's response

14. Absence of independent approval of fund transfers and lack of segregation of duties over internet bank transactions

The Group should set up policies and procedures on fund transfer for investment activities, approve and support fund transfers with the Board's approval, establish a mechanism to review and approve the online banking transaction, and request the banks to set additional personnel to authorise the proper online banking transactions.

The Group has followed this recommendation and implemented policies that govern the approval process of fund transfers.

15. Transaction limit set for online banking transaction can be enhanced

The Group should set the upper limit for online banking transaction to a justifiable amount or set the authorisation matrix when additional bank authorisation is required for transaction over certain amount.

The Group has followed this recommendation and is in the process of setting the limit for online banking transaction authorisation to decrease the risk of misappropriation of the funds of the Group.

16.	Fund transferred without	The Group should set up guidelines
	proper supporting	on short-term fund transfer, and
	documents	prepare the supporting documents
		for short-term fund transfer with
		independent approval from the
		Board.
17.	Improper segregation of	The financial stamp and legal
	duties on seal	representative's stamp should be
	management	kept by different personnel.

The Group has followed this recommendation and implemented internal policies that govern short-term fund transfers.

The Group has followed this recommendation and shall continuously fully comply with the requirements.

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Internal control	Recommendations by
No. deficiencies	the Internal Control Adviser	Group's response

1. Absence of payment requisition form for payment approval
2. Bank transaction was not timely recorded

The Group should prepare and	The Group has followed
approve the payment requisition	this recommendation and
form for payment approval.	shall continuously fully
Unauthorised payment should be	comply with the
reported to the Company for	requirements.
investigation.
The Group should record the	The Group has followed
accounting transactions in a timely	this recommendation and
manner.	shall continuously fully
	comply with the
	requirements.

20.	Inadequate control over	The Group should conduct cash	The Group has followed
	cash management	counts on a regular basis as required	this recommendation and
		by the Group's internal control	shall continuously fully
		manual with proper retention of	comply with the
		cash count record, establish the	requirements.
		relevant review mechanism to
		determine that the usage of cash is
		supported by adequate justification
		and approved by the appropriate
		authority, and establish the relevant
		mechanism to follow up with the
		return of cash advance.
21.	Bank reconciliations	The Group should conduct and	The Group has followed
	process should be	review the bank reconciliations	this recommendation and
	enhanced	process as required by the Group's	shall continuously fully
		internal control manual and any	comply with the
		difference noted should be	requirements.
		investigated timely. Written review
		records on bank reconciliations
		should also be retained.

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Internal control	Recommendations by
No. deficiencies	the Internal Control Adviser	Group's response

22. Absence in cash flow	The Group should prepare and
forecast	review cash flow forecast timely to
	ensure that there is sufficient cash
	flow to support the daily business
	operation, and assign personnel to
	check on unauthorised bank
	transaction on bank statement which
	is different from the cash flow
	forecast and report to the
	Company's senior management
	timely.

The Group has followed this recommendation and will prepare cash flow forecast timely.

1. Absence of review evidence on monthly financial statements and vouchers
2. Bank accounts' authorised signatures are not updated timely

The Group should retain written review evidence on financial statements and accounting vouchers.

The Group should change the bank accounts' authorised signatories on a timely basis or close the bank accounts no longer in use in due course.

The Group has followed this recommendation and shall continuously fully comply with the requirements.

The Group has followed this recommendation and is in the process of communicating with certain banks to change the authorised signatories of its bank accounts.

1. Procurement and expense management

25. Policies and procedures to govern procurement and expense management need to be enhanced

The Group should review and assess if the current policies and guidelines in place need to align with the current practice, and assess if the Group needs to establish additional policies and procedures.

The Group has followed this recommendation and implemented the required policies and procedures.

26. Lack of supplier selection	The Group should establish supplier
and evaluation mechanism	selection and periodic evaluation
including quotation	mechanism including quotation
requirement	requirement, and retain written
	review evidence on supplier
	selection and quotation evaluation.

The Group has followed this recommendation and implemented the recommended supplier selection and periodic evaluation mechanism.

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Internal control

No. deficiencies

1. Self-reviewof directors' expenses and lack of supporting documents for directors' expense reimbursements
2. No mechanism to arrange for independent review of service agreement or procurement contracts
3. Absence of payment application forms
4. Process on financial budget can be enhanced

Recommendations by

the Internal Control Adviser

The Group should request applicant to provide sufficient supporting documents and justification for expense reimbursements, and request for independent review on payment processing.

The Company should request its subsidiaries to submit service agreement to the Company for review and approval, and retain the relevant review evidence.

The Group should retain written review evidence on payment application forms.

The Group should enhance the policies and procedures stipulated in the Group's internal control manual regarding budgeting, and retain written review evidence on the Group's financial budget.

Group's response

The Group has followed this recommendation and shall continuously fully comply with the requirements.

The Group has followed this recommendation and implemented the required policies and procedures.

The Group has followed this recommendation and shall continuously fully comply with the requirements.

The Group has followed this recommendation and enhanced the concerned policies and procedures.

31. Cash disbursement	The Group should enhance the
procedure should be	relevant cash disbursement
enhanced	procedure by requiring the recipient
	to sign on the relevant payment
	vouchers or cash disbursement
	sheets and retain the written
	evidence.

The Group has followed this recommendation and enhanced the concerned procedures.

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A follow-up review has been conducted by the Internal Control Adviser, the Group has implemented enhanced internal control measures to remedy all major internal control deficiencies identified by the Internal Control Adviser, except for item 24 as described above as more time is needed for the bank to proceed with their administrative procedures. The Special Investigation Committee will ensure that the Group implements the recommendations to the fullest extent possible.

Having considered the results of the Internal Control Review, the Board believe that should the remedial measures as recommended by Internal Control Adviser be fully implemented, (i) the internal control system of the Company will be sufficient to meet its obligation under the Listing Rules and (ii) the Company's proposed actions are sufficient and adequate to address all the major deficiencies identified in the Internal Control Review.

CONTINUED SUSPENSION OF TRADING

At the request of the Company, trading in the shares of the Company on the Stock Exchange has been suspended since 9:00 a.m. on 1 April 2019 and will remain suspended until further notice pending fulfilment of the Resumption Guidance.

Shareholders and potential investors of the Company are advised to exercise caution when dealing in the shares of the Company.

By Order of the Board

Winshine Science Company Limited

Zhao Deyong

Chairman

Hong Kong, 30 October 2019

As at the date of this announcement, the Board comprises three Executive Directors, namely Mr. Zhao Deyong (Chairman), Mr. Liu Michael Xiao Ming (Chief Executive Officer) and Mr. Luo Lianjun; one Non-executive Director, namely Mr. Lin Shaopeng; and three Independent Non-executive Directors, namely Mr. Kwok Kim Hung Eddie, Mr. Ng Wai Hung and Ms. Shi Xiaolei.

• For identification purpose only

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