PBF — Audit Report / Information 2022

Nov 14, 2022

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Stock Code:1760

PANION & BF BIOTECH INC. AND SUBSIDIARIES

Consolidated Financial Statements

With Independent Auditors’ Report For the Years Ended December 31, 2022 and 2021

Address: 16F., No. 3, Park St., Nangang Dist., Taipei City, Taiwan (R.O.C.) Telephone: (02)2655-8218

The independent auditors' report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors' report and consolidated financial statements, the Chinese version shall prevail.

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Table of contents

Contents 1. Cover Page 2. Table of Contents 3. Representation Letter 4. Independent Auditors’ Report 5. Consolidated Statements of Financial Position 6. Consolidated Statements of Comprehensive Income 7. Consolidated Statements of Changes in Equity 8. Consolidated Statements of Cash Flows 9. Notes to the Consolidated Financial Statements (1) Company history (2) Approval date and procedures of the consolidated financial statements (3) Application of new and revised standards, amendments and interpretations (4) Summary of significant accounting policies (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty (6) Explanation of significant accounts (7) Related-party transactions (8) Pledged assets (9) Commitments and contingencies (10) Losses due to major disasters (11) Subsequent events (12) Other (13) Other disclosures (a) Information on significant transactions (b) Information on investees (c) Information on investment in mainland China (d) Major shareholders (14) Segment information

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Representation Letter

The entities that are required to be included in the combined financial statements of PANION & BF BIOTECH INC. as of and for the year ended December 31, 2022 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10, "Consolidated Financial Statements." endorsed by the Financial Supervisory Commission of the Republic of China. In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, PANION & BF BIOTECH INC. and Subsidiaries do not prepare a separate set of combined financial statements.

Company name: PANION & BF BIOTECH INC. Chairman: CHANG, LEE CHIOU Date: March 30, 2023

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KPMG

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Independent Auditors’ Report

To the Board of Directors of PANION & BF BIOTECH INC.:

Opinion

We have audited the accompanying consolidated financial statements of PANION & BF BIOTECH INC. ("the Company") and its subsidiaries (collectively referred to as “the Group”), which comprise the consolidated statements of financial position as of December 31, 2022 and 2021, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2022 and 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards ("IFRSs"), International Accounting Standards ("IASs"), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and Standards on Auditing of the Republic of China. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2022. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1. Revenue recognition

Please refer to notes 4(n) and 7(q) for the related disclosures on revenue recognition.

Description of key audit matter:

Revenue is one of the key performance indicators for evaluating the financial and operational performance of the Group. The risk for the revenue being recognized in an incorrect period or being recognized with incorrect amounts presents a material misstatement to the consolidated financial statements. Therefore, revenue recognition was considered one of the key audit matters in our audit.

KPMG, a Taiwan partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

4-1

How the matter was addressed in our audit:

Testing the effectiveness of the internal control over sales and receivable collection processes, including the evaluation of when to recognize the revenue from those significant contracts with customers; evaluating the sales to the top ten customers by considering the product type, the significant unusual changes in their receivables turnover ratio, and the changes, such as amount and ranking, in the current period to the last quarter, and to the same period in the prior year; selecting sales transactions throughout the year and within a period before and after the year-end, and vouching them with the related supporting documents to evaluate whether the revenue has been recognized in the correct accounting period and assess if the significant sales returns and allowances occur in the subsequent period.

2. Subsequent measurement of inventories

Please refer to notes 4(h), 5 and 6(c) for the related disclosures on subsequent measurement of inventories.

Description of key audit matter:

The inventories of the Group are mainly pharmaceutical drugs, health supplements, chemical products and test reagents. The products may be outdated or no longer meet the market demand due to the rapid development of new products. In addition, the price competition in the same industry, and the demand on related products and their prices which may fiercely fluctuate, may result in a risk wherein the cost of inventories may exceed its net realizable value. The subsequent measurement of inventories relies on the management’ s subjective judgment using internal and external evidences. Therefore, the subsequent measurement of inventories was considered one of the key audit matters in our audit.

How the matter was addressed in our audit:

Assessing the rationality of accounting policy for inventory subsequent measurement; obtaining the documents on inventory subsequent measurement to determine whether they are in compliance with the accounting policy; understanding the rationality of sales prices adopted by the management, selecting samples and verifying the accuracy of net realizable value of inventories by examining relevant documents, and determining the reasonableness of the inventory provision recognized by the management.

Other Matter

The Company has prepared its parent company only financial statements as of and for the years ended December 31, 2022 and 2021, on which we have issued an unmodified opinion.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including members of the Audit Committee) are responsible for overseeing the Group’s financial reporting process.

4-2

Auditors' Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Standards on Auditing of the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Standards on Auditing of the Republic of China, we exercise professional judgment and professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit 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 Group's internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

4-3

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2022 and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Lily Lu and Min-Ju Chao.

KPMG

Taipei, Taiwan (Republic of China) March 30, 2023

Notes to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

The independent auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors’ report and consolidated financial statements, the Chinese version shall prevail.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) PANION & BF BIOTECH INC. AND SUBSIDIARIES

Consolidated Statements of Financial Position

December 31, 2022 and 2021

(Expressed in Thousands of New Taiwan Dollars)

Assets Current assets: 1100 Cash and cash equivalents (note 6(a)) 1110 Financial assets measured at fair value through profit and loss－current (note 6(d)) 1150 Notes receivable (notes 6(b) and (q)) 1160 Notes receivable－related parties (notes 6(b), (q) and 7) 1170 Accounts receivable, net (notes 6(b) and (q)) 1180 Accounts receivable－related parties (notes 6(b), (q), 7 and 9) 1200 Other receivables 1220 Current income tax assets 130x Inventories (note 6(c)) 1410 Prepayments 1479 Other current assets Total current assets Non-current assets: 1510 Financial assets measured at fair value through profit and loss－non- current (note 6(d)) 1600 Property, plant and equipment (notes 6(g) and 8) 1755 Right-of-use assets (note 6(h)) 1780 Intangible assets (note 6(i)) 1840 Deferred tax assets (note 6(m)) 1915 Prepayments for equipment 1920 Refundable deposits (note 8) Total non-current assets 1xxx Total assets	December 31, 2022 Amount % $ 464,257 15 - - 92,537 3 31,435 1 208,299 7 21,760 1 1,292 - 5,386 - 545,648 17 22,703 1 5,972 - 1,399,289 45 75,097 2 1,496,625 48 58,761 2 15,967 1 21,122 1 6,864 - 19,814 1 1,694,250 55 $ 3,093,539 100	December 31, 2021 Amount % 279,103 10 69,787 2 81,046 3 35,936 1 207,114 7 9,804 - 1,854 - 27,745 1 528,525 18 30,500 1 3,117 - 1,274,531 43 84,027 3 1,440,446 48 80,905 3 19,645 1 21,258 1 2,922 - 29,361 1 1,678,564 57 2,953,095 100 Liabilities and Equity Current liabilities: 2100 Short-term loans (note 6(j)) 2322 Current portion of long-term loans (notes 6(j) and 8) 2170 Accounts payable 2200 Other payables (notes 6(r), 7 and 9) 2230 Current income tax liabilities 2280 Current lease liabilities (note 6(k)) 2399 Other current liabilities Total current liabilities Non-Current liabilities: 2540 Long-term loans (notes 6(j) and 8) 2570 Deferred tax liabilities (note 6(m)) 2580 Non-current lease liabilities (note 6(k)) 2640 Net defined benefit liability－non-current (note 6(l)) 2645 Guarantee deposits 2650 Credit balance of investments accounted for using equity method (notes 6(f) and 9) Total non-current liabilities Total liabilities 31xx Equity attributable to owners of parent (notes 6(n) and (o)): 3110 Common stock 3200 Capital surplus Retained earnings: 3310 Legal reserve 3320 Special reserve 3350 Unappropriated earnings Subtotal Other equity: 3410 Foreign currency translation differences for foreign operations Total equity Total liabilities and equity	December 31, 2022		December 31, 2021 Amount % 265,000 9 36,526 1 130,232 4 219,433 7 5,410 - 33,193 1 50,699 2 740,493 24 116,068 4 73,924 3 51,774 2 17,477 1 8,666 - 11,679 - 279,588 10 1,020,081 34 857,391 29 903,755 31 63,848 2 37,283 1 108,108 4 209,239 7 (37,371) (1) 1,933,014 66 2,953,095 100
			Amount %
			$ 395,000 13 - - 125,265 4 292,795 9 27,163 1 29,634 1 51,724 2 921,581 30 22,900 1 73,100 2 34,797 1 11,122 - 6,302 - 16,624 1 164,845 5 1,086,426 35 857,391 28 871,174 28 74,519 3 37,371 1 188,497 6 300,387 10 (21,839) (1) 2,007,113 65 $ 3,093,539 100

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) PANION & BF BIOTECH INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2022 and 2021

(Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Common Share)

4000 Operating revenue (notes 6(q) and 7) 5000 Operating costs (notes 6(c), (l) and 9) 5900 Gross profit 6000 Operating expenses (notes 6(b), (l) and 7): 6100 Selling expenses 6200 Administrative expenses 6300 Research and development expenses 6450 Impairment loss for expected credit loss Total operating expenses 6900 Operating income 7000 Non-operating income and expenses (notes 6(d), (f), (k) and (s)): 7100 Interest income 7010 Other income 7020 Other gains and losses 7050 Finance costs 7370 Share of losses from joint ventures 7635 Loss on financial assets measured at fair value through profit and loss Total non-operating income and expenses Profit from continuing operations before tax 7950 Less: Income tax expenses (note 6(m)) Net income 8300 Other comprehensive income (loss) (notes 6(f), (l) and (m)): 8310 Items that will not be reclassified subsequently to profit or loss 8311 Gains on remeasurements of defined benefit plans 8349 Less: income tax related to items that will not be reclassified subsequently to profit or loss Total items that will not be reclassified subsequently to profit or loss 8360 Items that may be reclassified subsequently to profit or loss 8361 Foreign currency translation differences for foreign operations 8370 Share of other comprehensive income of joint ventures 8399 Less: income tax related to items that will be reclassified subsequently to profit or loss Total items that may be reclassified subsequently to profit or loss 8300 Other comprehensive income, net of tax Total comprehensive income Earnings per share (note 6(p)) 9710 Basic earnings per share (expressed in New Taiwan dollars) 9810 Diluted earnings per share (expressed in New Taiwan dollars)	2022 Amount % $ 2,398,648 100 1,080,052 45 1,318,596 55 422,151 18 233,907 10 248,496 10 78 - 904,632 38 413,964 17 1,793 - 20,812 1 6,288 - (7,585) - (8,181) (1) (93,682) (4) (80,555) (4) 333,409 13 151,064 6 182,345 7 6,038 - 1,207 - 4,831 - 12,296 1 3,236 - - - 15,532 1 20,363 1 $ 202,708 8 $ 2.13 $ 2.12	2021 Amount % 1,901,211 100 989,073 52 912,138 48 396,673 21 190,322 10 157,711 8 2,090 - 746,796 39 165,342 9 638 - 40,265 2 3,261 - (14,681) (1) (12,173) (1) - - 17,310 - 182,652 9 78,250 4 104,402 5 2,886 - 577 - 2,309 - (118) - 30 - - - (88) - 2,221 - 106,623 5 1.32 1.32

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) PANION & BF BIOTECH INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity For the years ended December 31, 2022 and 2021 (Expressed in Thousands of New Taiwan Dollars)

Equity attributable to owners of parent

Balance at January 1, 2021 Appropriation and distribution: Legal reserve Special reserve appropriated Cash dividends Cash dividends from capital surplus Net income for the year Other comprehensive income for the year Total comprehensive income for the year Issue of shares Share-based payments Balance at December 31, 2021 Appropriation and distribution: Legal reserve Special reserve appropriated Cash dividends Cash dividends from capital surplus Net income for the year Other comprehensive income for the year Total comprehensive income for the year Balance at December 31, 2022	Common stock		Capital surplus				Retained earnings	Retained earnings	Retained earnings			Foreign currency translation differences for foreign operations	Foreign currency translation differences for foreign operations	Total equity 1,239,967 - - (15,348) (38,369) 104,402 2,221 106,623 628,425 11,716 1,933,014 - - (96,028) (32,581) 182,345 20,363 202,708 2,007,113
					Legal reserve		Special reserve	Unappropriated earnings			subtotal
	$ 767,391 - - - - - - - 90,000 - 857,391 - - - - - - - $ 857,391		391,983 - - - (38,369) - - - 538,425 11,716 903,755 - - - (32,581) - - - 871,174		61,154 2,694 - - - - -		28,877 - 8,406 - - - -		27,845 (2,694) (8,406) (15,348) - 104,402 2,309 106,711 - - 108,108 (10,671) (88) (96,028) - 182,345 4,831 187,176 188,497		117,876 - - (15,348) - 104,402 2,309 106,711 - - 209,239 - - (96,028) - 182,345 4,831 187,176 300,387		(37,283) - - - - - (88) (88) - - (37,371) - - - - - 15,532 15,532 (21,839)
					-		-
					- -		- -
					63,848 10,671 - - - - -		37,283 - 88 - - - -
					-		-
					74,519		37,371

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese)

PANION & BF BIOTECH INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2022 and 2021

(Expressed in Thousands of New Taiwan Dollars)

Cash flows from operating activities: Income before tax Adjustments: Adjustments to reconcile profit and loss Depreciation expense Amortization expense Impairment loss for expected credit loss Net loss (gain) on financial assets measured at fair value through profit or loss Interest expense Interest income Dividend income Share-based payment transactions Share of losses of joint ventures accounted for using equity method (Gain) loss on disposal of property, plant and equipment Gain on lease modification Rent Concessions Total adjustments to reconcile profit and loss Changes in operating assets and liabilities relating: Net changes in operating assets: Financial assets mandatorily measured at fair value through profit or loss Notes receivable Notes receivable－related parties Accounts receivable Accounts receivable－related parties Other receivables Inventories Prepayments Other current assets Total changes in operating assets Changes in operating liabilities: Accounts payable Other payables Other current liabilities Net defined benefit liability Total net changes in operating liabilities Total net changes in operating assets and liabilities Total adjustments Cash inflow generated from operations Income taxes paid Net cash flows from operating activities Cash flows from investing activities: Proceeds from disposal of financial assets at fair value through profit or loss Acquisition of investments accounted for using equity method Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease (Increase) in refundable deposits Increase in prepayments for equipment Interest received Dividends received Net cash flows used in investing activities Cash flows from financing activities: Increase in short-term loans Decrease in short-term loans Proceeds from long-term loans Repayments of long-term loans Increase (decrease) in guarantee deposits Repayment of the principal portion of lease liabilities Cash dividends paid Proceeds from issue of common stock Interest paid Net cash flows used in financing activities Effect of movements in exchange rates on cash and cash equivalents held Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year	2022 $ 333,409 159,451 4,096 78 93,682 7,585 (1,793) (2,980) - 8,181 (6,278) (614) - 261,408 (29,964) (11,491) 4,501 2,258 (11,956) 567 (15,883) 9,632 (2,815) (55,151) (5,692) 65,264 62 (317) 59,317 4,166 265,574 598,983 (109,111) 489,872 15,000 - (191,913) 24,720 9,685 (6,731) 1,793 2,980 (144,466) 1,705,000 (1,575,000) 22,900 (152,594) (2,432) (29,015) (128,609) - (7,638) (167,388) 7,136 185,154 279,103 $ 464,257	2021 182,652 139,526 4,097 2,090 (6,722) 14,681 (638) (6,378) 11,716 12,173 436 (142) (54)
		170,785
		30,711 (14,806) 23,997 2 23,609 50,168 32,332 6,779 (2,617)
		150,175
		(31,936) 4,885 1,826 (252)
		(25,477)
		124,698
		295,483
		478,135 (76,910)
		401,225
		- (43,010) (153,058) - (9,047) (16,950) 638 6,378
		(215,049)
		1,930,590 (2,130,590) 54,380 (602,327) 1,974 (31,800) (53,717) 628,425 (14,695)
		(217,760)
		575
		(31,009) 310,112
		279,103

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) PANION & BF BIOTECH INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

(1) Company history

PANION & BF BIOTECH INC. (the “Company”) was established on January 7, 1976, as a corporation limited by shares in accordance with the Republic of China (“ROC”) Company Act. The Company is a PIC/S GMP certified manufacturer. The Company and its subsidiaries (collectively referred to as "the Group") is mainly engaged in the manufacture and sales of pharmaceutical, cosmeceutical, diagnostic, medical device and active pharmaceutical ingredients.

(2) Approval date and procedures of the consolidated financial statements:

The consolidated financial statements were authorized for issuance by the Board of Directors on March 30, 2023.

(3) Application of new and revised standards, amendments and interpretations:

• (a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. which have already been adopted.

The Group has initially adopted the following new amendments, which do not have a significant impact on its consolidated financial statements, from January 1, 2022:

• －

• ●Amendments to IAS 16 “Property, Plant and Equipment Proceeds before Intended Use”

• －

• ●Amendments to IAS 37 “Onerous Contracts Cost of Fulfilling a Contract”

• ●Annual Improvements to IFRS Standards 2018–2020

• ●Amendments to IFRS 3 “Reference to the Conceptual Framework”

• (b) The impact of IFRS issued by the FSC but not yet effective

The Group assesses that the adoption of the following new amendments, effective for annual period beginning on January 1, 2023, would not have a significant impact on its consolidated financial statements:

• ●Amendments to IAS 1 “Disclosure of Accounting Policies”

• ●Amendments to IAS 8 “Definition of Accounting Estimates”

• ●Amendments to IAS 12 “ Deferred Tax related to Assets and Liabilities arising from a Single Transaction”

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (c) The impact of IFRSs issued by the International Accounting Standards Board (“IASB”) but not yet endorsed by the FSC

The Group does not expect the following new and amended standards, which have been issues by ISAB but have yet to be endorsed by the FSC, to have a significant impact on its consolidated financial statements:

• ●Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture”

• ●IFRS 17 “ Insurance Contracts” and amendments to IFRS 17 “ Insurance Contracts”

• ●Amendments to IAS 1 “Classification of Liabilities as Current or Non-current”

• ●Amendments to IAS 1 “Non-current Liabilities with Covenants”

• ●IFRS16 “Requirements for Sale and Leaseback Transactions”

(4) Summary of significant accounting policies:

The significant accounting policies applied in the preparation of the consolidated financial statements are set out below. These accounting policies have been applied consistently to all periods presented in these consolidated financial statements.

(a) Statement of compliance

The accompanying consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as the Regulations) and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafter referred to as the IFRSs endorsed by the FSC).

• (b) Basis of preparation

• (i) Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis except otherwise specified in the notes to accounting policies.

• (ii) Functional and presentation currency

Each individual consolidated entity determined its functional currency based on the primary economic environment in which the entity operates. The consolidated financial statements are presented in New Taiwan dollars, which is the Company’s functional currency. All financial information presented in New Taiwan dollars has been rounded to the nearest thousand.

• (c) Basis of consolidation

• (i) Principles of preparation of the consolidated financial statements

The consolidated financial statements comprise of the Company and subsidiaries.

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Profits or losses applicable to non-controlling interests in a subsidiary are allocated to the noncontrolling interests even if doing so causes the non-controlling interests to have a deficit

All intra-group transactions, balances, and any unrealized income and expenses are eliminated in full whilst preparing the consolidated financial statements.

Changes in the Group’ s ownership interests in a subsidiary that do not result in a loss of control over a subsidiary are accounted for as equity transactions.

• (ii) List of Subsidiaries in the consolidated financial statements

List of Subsidiaries in the consolidated financial statements was as follows:

Name of Investor	Name of subsidiary	Business activities	Percentage of ownership December 31, 2022 December 31, 2021 Remark % 100.00 % 100.00 % 100.00 % 100.00 (note 3) % 53.19 % 53.19 % 100.00 % 100.00 (notes 1) % 46.81 % 46.81 % 100.00 % 100.00 (note 3) % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00
			December 31, 2022
The Company The Company The Company The Company Bowlin Biotech Corp. Bowlin Holding Co., Ltd. (Cayman) Bowlin Holding Co., Ltd. (Cayman) Bowlin Holding Co., Ltd. Pou Ling Sang Kei Macau Sociedade Unipessoal Limitada Bowlin Holding (HK) Co., Limited	Bowlin Biotech Corp. Bowlin Holding Co., Ltd. (Cayman) (Bowlin Cayman”) Bowlin Holding Co., Ltd. Cheng Fong Chemical Co., Ltd.(“CFC”) Bowlin Holding Co., Ltd. Bowlin Holding (HK) Co., Limited (Bowlin HK”) Pou Ling Sang Kei Macau Sociedade Unipessoal Limitada Zhuhai Baozhan Trade Co., Ltd. Zhuhai Baoyi Biotech Co., Ltd. Zhuhai Panion Innovation Biotech Co., Ltd	Investment Investment Investment Manufacture and sales of active pharmaceutical ingredient Investment Investment International trading and product agency Sales of cosmeceutical, international trading and product agency International trading and product agency International trading and product agency	% 100.00 % 100.00 % 53.19 % 100.00 % 46.81 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of Investor	Name of subsidiary	Business activities	Percentage of ownership December 31, 2022 December 31, 2021 Remark % 100.00 % 100.00 (note 2 and 3)
			December 31, 2022
Bowlin Holding (HK) Co., Limited	Zhuhai Panion & BF Biotech Inc.	Manufacture of cosmeceutical and chemical	% 100.00

• Note 1:During CFC’s Board of Directors meeting held on January 7, 2022, CFC resolved to increase its capital and issue 30,000 thousand new shares, each with a par value of $10, amounting to $300,000 thousand. The Company subscribed all the new shares. The registration was completed on January 28, 2022.

• Note 2:In 2021, Bowlin Holding Co., Ltd. transferred its entire shares in Zhuhai Panion & BF Biotech Inc. to Bowlin Holding (HK) Co., Limited.

• Note 3:During Bowlin Cayman’ s Board of Directors meeting held on January 14, 2022, Bowlin Cayman resolved to increase its capital and issue 1,700 thousand new shares, each with a par value of USD 1, amounting to USD 1,700 thousand. The Company subscribed all the new shares. Bowlin Cayman then made its investment of capital amounting to USD 1,600 thousand to Bowlin HK. Bowlin HK thereafter made its investment of capital amounting to USD 900 thousand to Zhuhai Panion & BF Biotech Inc. The alternation registered procedures have been completed.

(d) Foreign currencies

(i) Foreign currency transactions

Transactions in foreign currencies are translated into the respective functional currencies of Group entities at the exchange rates at the dates of the transactions. At the end of each subsequent reporting period, monetary items denominated in foreign currencies are translated into the functional currencies using the spot rate at that date. Exchange differences are recognized in profit or loss.

Non-monetary items denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation.

(ii) Foreign operations

The assets and liabilities of foreign operations are translated into the presentation currency at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into the presentation currency at the average exchange rate. Exchange differences are recognized in other comprehensive income.

When a foreign operation is disposed of such that control, significant influence, or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.

(Continued)

13

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(e) Classification of current and non-current assets and liabilities

Cash or cash equivalents, excluding the asset that is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period, and assets held for trading purposes and expected to be converted to cash within twelve months after the reporting period are classified as current assets; all other assets are classified as non-current assets.

Liabilities that are held primarily for the purpose of trading and must be settled within twelve months after the reporting period are classified as current liabilities; all other liabilities are classified as non-current liabilities.

• (f) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

The Group’s time deposits are held for short-term commitments rather than for investment or other purposes. These time deposits are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. As such, the time deposits are recorded under cash and cash equivalents.

• (g) Financial instruments

• (i) Financial assets

The Group classifies financial assets into the following categories: financial assets measured at amortized cost and financial assets measured at fair value through profit or loss (FVTPL).

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

• 1) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

• ‧ it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• ‧ its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

(Continued)

14

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• 2) Financial assets measured at fair value through profit or loss

All financial assets not classified as measured at amortized cost or fair value through other comprehensive income (FVOCI) are measured at FVTPL. On initial recognition, the Group may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss

3) Impairment of financial assets

The Group recognizes loss allowances for expected credit losses (ECL) on financial assets measured at amortized cost (including cash and cash equivalents, notes and accounts receivable, other receivables, and refundable deposits, etc.) and contract assets.

Loss allowance for notes and accounts receivable are measured at an amount equal to lifetime ECL. Other financial assets measured at amortized cost are considered reasonable and supportable information that are relevant and available, without undue cost or effort. This includes both quantitative and qualitative information, as well as analysis, based on the Group's historical experience, informed credit assessment, and forward-looking information. Loss allowance for other financial assets measured at amortized cost are measured by using the 12-month ECL, in which the credit risk did not increase significantly since initial recognition. If, on the other hand, there has been a significant increase in credit risk since initial recognition, a loss allowance is recognized at an amount equal to the lifetime ECL

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. The Group recognizes the amount of expected credit losses (or reversal) in profit or loss.

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof; the Group usually determines the financial assets with no reasonable expectations of recovery when the debtors’ assets or income sources cannot generate sufficient cash flows to repay the financial assets. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due.

4) Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the assets expire or when the Group transfers substantially all the risks and rewards of ownership of the financial assets.

(Continued)

15

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Financial liabilities and equity instruments

• 1) Classification of debt or equity

Debt or equity instruments issued by the Group are classified as financial liabilities or equity in accordance with the substance of the contractual arrangements and the definition of financial liabilities and equity instruments.

2) Equity instruments

An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued are recognized as the amount of consideration received, less the direct cost of issuing.

3) Financial liabilities

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

• 4) Derecognition of financial liabilities

The Group derecognizes a financial liability when its contractual obligation has been discharged or cancelled or has expired. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

• 5) Offsetting of financial assets and liabilities

The Group presents financial assets and liabilities on a net basis when the Group has the legally enforceable right to offset and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

(h) Inventories

The cost of inventories consists of all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.

Inventories are measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. When the cost of inventories is higher than the net realizable value, inventories are written down to net realizable value, and the write-down amount is charged to current year's cost of goods sold. If net realizable value increases in the future, the cost of inventories is reversed within the original write-down amount, and such reversal is treated as a reduction of cost of goods sold.

(Continued)

16

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Investments accounted for using equity method

Investments accounted for using the equity method include investments in associates and joint ventures. Associates are those entities in which the Group has significant influence, but not control or joint control, over their financial and operating policies. A joint venture is a joint arrangement whereby the Group has joint control of the arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control, and the Group has rights to the net assets of the arrangement.

Investments in associates and joint ventures are accounted for using the equity method and are recognized initially at cost. The cost of the investments includes transaction costs. The carrying amount of the investment in associates and joint ventures includes goodwill arising from the acquisition less any accumulated impairment losses.

The consolidated financial statements include the Group’ s share of the profit or loss and other comprehensive income of those associates and joint ventures, after adjustments to align their accounting policies with those of the Group, from the date on which significant influence commences until the date on which significant influence ceases. The Group recognizes any changes of its proportionate share in the investee within capital surplus, when an associate or a joint venture’ s equity changes due to reasons other than profit and loss or comprehensive income, which did not result in changes in actual proportionate share.

Unrealized gains resulting from transactions between the Group and an associate or a joint venture are eliminated only to the extent of unrelated Group’s interests in the associate or the joint venture. Unrealized losses are eliminated in the same way as unrealized gains, but only if there is no evidence of impairment losses.

When the Group’s share of losses of an associate or a joint venture equals or exceeds its interests in an associate or a joint venture, it discontinues recognizing its share of further losses. After the recognized interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or the joint venture.

The Group discontinues the use of the equity method and measures the retained interest at fair value from the date when its investment ceases to be an associate or a joint venture. The difference between the fair value of retained interest and proceeds from disposing, and the carrying amount of the investment at the date the equity method was discontinued is recognized in profit or loss. The Group accounts for all the amounts previously recognized in other comprehensive income in relation to that investment on the same basis as would have been required if the associates or the joint ventures had directly disposed of the related assets or liabilities. If a gain or loss previously recognized in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss when the equity method is discontinued. If the Group’s ownership interest in an associate or a joint venture is reduced while it continues to apply the equity method, the Group reclassifies the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest to profit or loss.

(Continued)

17

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

When the Group subscribes to additional shares in an associate or a joint venture at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment will differ from the amount of the Group’s proportionate interest in the net assets of the associate or the joint venture. The Group records such a difference as an adjustment to investments, with the corresponding amount charged or credited to capital surplus. The aforesaid adjustment should first be adjusted under capital surplus. If the capital surplus resulting from changes in ownership interest is not sufficient, the remaining difference is debited to retained earnings. If the Group’s ownership interest is reduced due to the additional subscription to the shares of the associate by other investors, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate will be reclassified to profit or loss on the same basis as would be required if the associate had directly disposed of the related assets or liabilities.

(j) Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. Interest expenses that are directly attributable to bringing the asset to the condition necessary for its intended use are capitalized as costs of the assets.

Subsequent expenditures should be recognized as part of the carrying amount of an item of property, plant and equipment, if it is probable that the future economic benefits associated with the expenditure will flow to the Group and the amount can be reliably measured. The carrying amount of the replaced part should be derecognized. Routine maintenance expenditures for items of property, plant and equipment are recognized in profit or loss as incurred.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately, unless the useful life and the depreciation method of a significant part of an item of property, plant and equipment are the same as those of another significant part of that same item.

The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and it shall be recognized as other gains and losses.

Except that land is not depreciated, depreciation is calculated on the cost of an asset less its residual value and is recognized in profit or loss on a straight-line basis over the estimated useful lives. The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:

follows:
Buildings	6~50 years
Machinery equipment	1~21 years
Other equipment	1~20 years

Depreciation methods, useful lives, and residual values are reviewed at each annual reporting date and adjusted if appropriate when the expectations differ from the previous estimates.

(Continued)

18

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(k) Lease

• (i) Identifying a lease

At inception of a contract, the Group assesses whether a contract is, or contains, a lease

• (ii) As a leasee

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at, or before, the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use asset is periodically reduced by using the impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate. Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term and in future lease payments the lease liability is remeasured. The Group remeasures the lease liabilities with a corresponding adjustment to the carrying amount of the right-of-use asset, or in profit and loss, if the carrying amount of the right-of-use asset has been reduced to zero.

The Group has elected not to recognize the right-of-use assets and lease liabilities for its shortterm leases that have a lease term of 12 months or less and leases of low-value assets. The Group recognizes the lease payments associated with these leases as an expense on a straightline basis over the lease term.

As a practical expedient, the Group elects not to assess whether all rent concessions that meet all the following conditions are lease modifications or not:

• 1) the rent concessions occurring as a direct consequence of the COVID-19 pandemic;

• 2) the change in lease payments that resulted in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;

• 3) any reduction in lease payments that affects only those payments originally due on, or before, June 30, 2022; and

• 4) there is no substantive change in other terms and conditions of the lease.

In accordance with the practical expedient, the effect of the change in the lease liability is reflected in profit or loss in the period in which the event or condition that triggers the rent concession occurs

(Continued)

19

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(l) Intangible assets

Patent is measured at cost, less accumulated impairment losses. Amortization begins when the asset is available for use, with the estimated useful lives 5 to 15 years on a straight-line basis, and is recognized in profit or loss.

Residual values, useful lives and amortization methods are reviewed at each annual reporting date. Any changes will be treated as changes in the accounting estimates.

Goodwill is measured at cost, less accumulated impairment losses. The Group conducts an impairment test at the end of each annual reporting period. An impairment loss is recognized by the amount which the carrying amount exceeds its recoverable amount. Reversal of an impairment loss in the subsequent periods for goodwill is prohibited.

－ (m) Impairment non-financial assets

With regard to non-financial assets (other than inventories, deferred tax assets and employee benefits), the Group assesses at the end of each reporting period whether there is any indication that an impairment loss has occurred and estimates the recoverable amount for assets with an indication of impairment. If it is not possible to determine the recoverable amount for the individual asset, then the Group will have to determine the recoverable amount for the asset's cash-generating unit.

The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value less costs to sell or its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss shall be recognized immediately in profit or loss.

The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the entity shall estimate the recoverable amount of that asset. Impairment loss is reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount, increasing the individual asset's or cash-generating unit's carrying amount to its estimated recoverable amount. The reversal of an impairment loss of an individual asset or cash-generating unit cannot exceed the carrying amount of the individual asset or cash-generating unit, less any depreciation or amortization, had it not recognized an impairment loss.

(n) Revenue from contracts with customers

Revenue is measured based on the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer. The Group recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Group’s main types of revenue are explained below.

(Continued)

20

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Sale of goods

The Group recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract.

A receivable is recognized when the goods are delivered as this is the point in time that the Group has a right to an amount of consideration that is unconditional.

(ii) Patent licensing

The Group grants its patent licenses to customers, and receives royalty fees based on the contract terms. The Group recognizes revenue when the performance obligation has been satisfied, the control of the licenses has been transferred, and the customer can direct the use of the licenses and obtains the benefits. A sales-based royalty fee is recognized only when the later of the subsequent sale occurs, and the performance obligation to which the royalty fees has been allocated has been satisfied.

(iii) Financing components

The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

(o) Employee benefits

(i) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

(ii) Defined benefit plans

The Group's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date (market yields of high-quality corporate bonds or government bonds) on bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the same currency in which the benefits are expected to be paid.

(Continued)

21

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realizable during the life of the plan, or on settlement of the plan liabilities.

When the benefits of a plan are improved, expenses resulting from the portion of the increased benefit relating to past service by employees are recognized immediately in profit or loss.

Remeasurements of the net defined benefit liability (asset), which comprise (1) actuarial gains and losses; (2) the return on plan assets excluding the amounts included in net interest on the net defined benefit liability (assets); and (3) any change in the effect of the asset ceiling, excluding the amounts included in net interest on the net defined benefit liability (assets); the Group recognizes the remeasurements of the defined benefit liability (asset) in other comprehensive.

The Group recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, any change in the present value of the defined benefit obligation, and any related actuarial gains or losses and past service cost that had not previously been recognized.

(iii) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(p) Share-based payments

The grate-date fair value of equity-settled share-based payments awards granted to employees is recognized as employee expenses, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards whose related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

(Continued)

22

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(q) Government Grants

The Group recognizes government grants related to assets as deferred income at fair value if there is reasonable assurance that they will be received, and the Group will comply with the conditions associated with the grant; they are then recognized in profit or loss as other income on a systematic basis. Grants that compensate the Group for expenses or losses incurred are recognized in profit or loss on a systematic basis in the periods in which the expenses or losses are recognized.

(r) Income taxes

Income taxes comprise current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss.

Current taxes comprise the expected tax payables or receivables on the taxable profits (losses) for the year and any adjustment to the tax payable or receivable in respect of previous years.

Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes shall not be recognized for the exceptions below:

• (i) Assets and liabilities that are initially recognized but are not related to the business combination and have no effect on net income or taxable gains (losses) during the transaction.

• (ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse.

• (iii) Initial recognition of goodwill.

Deferred taxes are measured at tax rates that are expected to be applied to temporary differences when they reserve, using tax rates enacted or substantively enacted at the reporting date.

The Group offsets deferred tax assets and liabilities only if the following criteria are both met:

• (i) The Group has a legally enforceable right to set off current tax assets against current tax liabilities; and

• (ii) The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:

• 1) levied by the same taxable entity; or

• 2) different taxable entities which intend to settle current tax assets and liabilities on a net basis, or to realize the assets and liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

(Continued)

23

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Deferred tax assets are recognized for the carry forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefits will be realized.

The Company and a domestic subsidiary file income tax returns under the linked tax system and elect to file income tax returns under the linked tax system with the Company as the taxpayer, and to file additional income tax returns on undistributed earnings with the subsidiary that have been held for 12 months or more in a taxable year in accordance with the Income Tax Act. The Company proportionately allocates the effect on current income tax expense (gain), deferred income tax and income tax payable (refund receivable) resulting from the adoption of the linked tax system between the Company and the subsidiary, and such that have been eliminated when preparing the consolidated financial statements.

(s) Business Combinations

The Company accounts for business combinations using the acquisition method. The goodwill arising from an acquisition is measured as the excess of (i) the consideration transferred (which is generally measured at fair value) and (ii) the amount of non-controlling interest in the acquiree, both over the identifiable net assets acquired at the acquisition date. If the amount calculated above is a deficit balance, the Company recognized that amount as a gain on a bargain purchase in profit or loss immediately after reassessing whether it has correctly identified all of the assets acquired and all of the liabilities assumed.

All acquisition-related transaction costs are expensed as incurred, except for the issuance of debt or equity instruments.

(t) Earnings per share

The Group discloses its basic and diluted earnings per share attributable to common stockholders of the Company. Basic earnings per share is calculated as the profit attributable to common stockholders of the Company divided by the weighted average number of common stocks outstanding. Diluted earnings per share is calculated as the profit attributable to common stockholders of the Company divided by the weighted average number of common stock outstanding after adjustment for the effects of all potentially dilutive ordinary shares.

(u) Operating Segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group), and consists of standalone financial information. Operating results of the operating segment are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance.

(Continued)

24

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty:

In preparing these consolidated financial statements, the management has made judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed by the management on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

There are no critical judgments in applying accounting policies that have a significant effect on the amounts recognized in these consolidated financial statements

Subsequent measurement of inventories is the main accounting assumption and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next year.

Subsequently, inventories are measured at the lower of cost or net realizable value. The Group assesses the net realizable value of inventories for normal waste, short shelf life, and unmarketable items at the end of the reporting period and then writes down the cost of inventories to net realizable value. There may be significant changes in the net realizable value of inventories due to future market prices and, future demand and supply.

(6) Explanation of significant accounts:

• (a) Cash and cash equivalents

Cash on hand Demand deposits and foreign currency demand deposits Time deposits Cash and cash equivalents in the consolidated statement of cash flows	December 31, 2022 $ 467 308,446 155,344 $ 464,257	December 31, 2021
		729 256,046 22,328
		279,103

Please refer to note 6(t) for the disclosure of the Group’s interest rate risk and the sensitivity analysis related to the financial assets and liabilities.

• (b) Notes receivable, accounts receivable, and overdue receivables

Notes receivable Notes receivable－related parties Accounts receivable Accounts receivable－related parties Overdue receivables Less: loss allowance (overdue receivables included)	December 31, 2022 $ 92,537 31,435 210,062 21,760 1,577 3,340 $ 354,031	December 31, 2021 81,046 35,936 208,868 9,804 1,388 3,142 333,900 (Continued)

25

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group applies the simplified approach of IFRS 9 to provide for its expected credit losses, i.e., the use of lifetime expected credit loss provision for notes receivable, accounts receivable, and overdue receivable. To measure the expected credit losses, notes receivable, accounts receivable, and overdue receivable have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information. The Group’ s analysis of the expected credit loss of the Taiwan segment’s notes receivable, accounts receivable, and overdue receivable was as follows:

Not past due Past due 1~30 days Past due 31~60 days Past due 61~90 days Past due over 181 days Not past due Past due 1~30 days Past due 31~60 days Past due 61~90 days Past due over 181 days	December 31, 2022	December 31, 2022
	Gross carrying amount Weight average expected credit loss rate $ 317,195 0% 686 0.11% 397 0.32% 43 0.39% 1,577 100% $ 319,898 December 31, 2021		Loss allowance for lifetime expected credit loss
			- 1 - - 1,577
			1,578
		Weight average expected credit loss rate 0~1% 0.15% 0.44% 0.54% 100%	Loss allowance for lifetime expected credit loss
			- 5 - - 1,388
			1,393

(Continued)

26

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group’s analysis of the expected credit loss of the China, Hong Kong, and Macau segment’s notes receivable, accounts receivable, and overdue receivable was as follows:

Not past due Past due 1~30 days Past due 31~60 days Past due 61~90 days Past due 91~120 days Past due 151~180 days Past due over 181 days Not past due Past due 1~30 days Past due 31~60 days Past due 61~90 days Past due 91~120 days Past due over 181 days	December 31, 2022	December 31, 2022
	Gross carrying amount Weight average expected credit loss rate $ 19,318 0~0.71% 11,749 0~3.24% 1,363 0~4.60% 1,912 0~7.36% 864 0~11.22% 1,323 26.75~55.47% 944 100% $ 37,473 December 31, 2021		Loss allowance for lifetime expected credit loss
			95 68 63 141 97 354 944
			1,762
		Weight average expected credit loss rate 0~0.05% 0~1.58% 0~3.63% 0~4.54% 0~6.38% 100%	Loss allowance for lifetime expected credit loss
			24 46 110 40 48 1,481
			1,749

The movement in the loss allowance for impairment with respect to notes receivable, accounts receivable, and overdue receivable was as follows:

Balance at the beginning of the period Impairment loss Amount written off Foreign exchange losses Balance at the end of the period	2022 $ 3,142 78 - 120 $ 3,340	2021 4,119 2,090 (3,039) (28) 3,142

The Group had not pledged its notes receivable, accounts receivable, and overdue receivable as collateral or factor them for cash.

(Continued)

27

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(c) Inventories

Merchandise and finished goods Work in process Raw materials Supplies	December 31, 2022 $ 246,488 97,124 135,159 66,877 $ 545,648	December 31, 2021
		219,069 102,725 126,758 79,973
		528,525

In addition to the normal cost of goods sold, the following items were included in the Group's operating costs:

Losses on market price decline Physical count variance Unallocated production overhead Total The Group had not pledged its inventory as collateral Financial assets measured at fair value through profit or loss Mandatorily measured at fair value through profit or loss Current: Beneficiary certification Non-current: Unlisted stocks – domestic companies G Innings Medical Ltd. Neolink Capital Corp. Subtotal Listed Stocks TA YUAN COGENERATION COMPANY, LIMITED	2022 $ 53,062 31 34,530 $ 87,623 December 31, 2022 $ - 2,728 32,465 35,193 39,904 $ 75,097	2021
		42,472 237 33,268
		75,977
		December 31, 2021
		69,787
		2,728 50,795
		53,523
		30,504
		84,027

(d) Financial assets measured at fair value through profit or loss

Neolink Capital Corp. carried out a capital reduction in December 2022, wherein the amount of $15,000 thousand share capital had been returned to the Group, and 1,500 thousand of its shares which were held by the Group, were cancelled. As a result, the Group recovered the original investment cost of $15,000 thousand and reduced the number of shares by 1,500 thousand shares.

(Continued)

28

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group invested beneficiary certificate Spectra SPC Powerfund through Ayers Alliance Group Limited. On December 22, 2022, the Group submitted its request for a complete fund-redemption of the investment of 950,519 units. However, the fund redemption payment has not been received prior to the stipulated payment date. An event of default occurs.

The Group received notification related to Spectra SPC Powerfund from Ayers Alliance Group Limited on March 3, 2023, informing that, based upon the terms of its offering memorandum, the Board of Spectra SPC has declared a suspension of calculation of Net Asset Value of Spectra SPC attributed to Spectra SPC Powerfund and a deferral of redemption of Participating Shares with immediate effect from March 1, 2023 until further notice.

Based on Ayers Alliance Group Limited’s notification in March 2023:

• (i) Ayers Alliance Group Limited is experiencing issues arising out of the highly unusual delay in the settlement of obligations by third parties towards Ayers Alliance Group Limited.

• (ii) Starting from March 13, 2023, Ayers Alliance Group Limited will not be accepting any deposits from existing clients and will not be onboarding any new clients.

• (iii) All Ayers Alliance Group Limited clients’ accounts will be inactive.

The Group has already submitted a request to Ayers Alliance Group Limited for a complete fundredemption of the investment in the Spectra SPC Powerfund in accordance with the agreement. However, the fund redemption payment has not been received prior to the stipulated payment date. Despite several requests by the Group, Ayers Alliance Group Limited and Spectra SPC Powerfund have still not provided the Group with the basic information such as the address of their operation unit and contact details. In addition, considering all the factors including whether Ayers Alliance Group Limited and Spectra SPC Powerfund will continue to operate, the existence of the company and the fair value of the assets of Spectra SPC Powerfund, the financial asset losses of $99,751 thousand have been recorded on December 31, 2022.

(e) Subsidiary Acquisition

In order to obtain stable sources of Active Pharmaceutical Ingredients (“API”) by upward integration and expand the supplies to the Asian and global market, the Company have resolved to acquire 100% of the shares in Cheng Fong Chemical Co., Ltd. (“CFC”) during the extraordinary general meeting on October 29, 2020. The acquisition price was $563,513 thousand with the acquisition effective date of November 30, 2020. The registration of the transactions was completed on December 10, 2020. However, after discussing with the representative from CFC’ s original shareholders, it was confirmed on June 30, 2021 that $853 thousand would be deducted from the final payment by mutual agreement between the Company and the original shareholders because of the loss compensation in accordance with the share conversion agreement.

(Continued)

29

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(f) Investments accounted for using equity method

The Group's investments accounted for using the equity method was as follows:

Credit balance of investments accounted for using equity method: Joint ventures	December 31, 2022 $ 16,624	December 31, 2021
		11,679

(i) Joint ventures

Weigao Panion Biotech Holding Company Limited is the Group’s only joint ventures. Its main business activities are the research and development of new drugs and sales in China.

On March 16, 2021, the Board of Directors of the Company resolved to participate in the capital increase of Weigao Panion Biotech Holding Company Limited, by increasing its investment amounting to $21,560 thousand (about CNY 5,000 thousand), and then to invest Shandong Weigao Panion Pharmaceutical Company Limited through Weigao Panion Biotech Holding Company. The investment was made on June 10, 2021, and the registration of the above investment was completed.

On November 12, 2020, the Board of Directors of the Company resolved to participate in the capital increase of Weigao Panion Biotech Holding Company Limited, by increasing its investment amounting to $21,450 thousand (about CNY 5,000 thousand), and then to invest Shandong Weigao Panion Pharmaceutical Company Limited through Weigao Panion Biotech Holding Company. The investment was made on January 4, 2021, and the registration of the above investment was completed.

The following table summarizes the financial information of Weigao Panion Biotech Holding Company Limited as included in its own financial statements,

Percentage ownership interest Non-current assets Current assets Non-current liabilities Current liabilities Net assets Cash and cash equivalents Non-current financial liabilities (excluding accounts payable and other payables and provision) The Group’s share of net assets Elimination of unrealized profit on downstream sales Carrying amount of interest in joint venture

(Continued)

30

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Operating revenue Net losses for the year from the continuing operations Other comprehensive income Total comprehensive income The Group’s share of total comprehensive income Elimination of unrealized profit on downstream sales The Group’s share of total comprehensive income	2022 $ - $ (18,593) 7,353 $ (11,240) $ (4,946) - $ (4,946)	2021 - (27,667) 69 (27,598) (12,143) - (12,143)

(ii) Collateral

The Group did not pledge any collateral on investments accounted for using the equity method.

(g) Property, plant and equipment

The cost, depreciation, and impairment of the property, plant and equipment of the Group were as follows:

Cost of deemed cost: Balance at January 1, 2022 Additions Disposals Reclassification Effect of movements in exchange rates Balance at December 31, 2022 Balance at January 1, 2021 Additions Disposals Reclassification Effect of movements in exchange rates Balance at December 31, 2021 Depreciation and impairment: Balance at January 1, 2022 Depreciation Disposals Effect of movements in exchange rates Balance at December 31, 2022	Land $ 798,978 - (14,538) - - $ 784,440 $ 798,978 - - - - $ 798,978 $ - - - - $ -	Buildings and Constructions 375,782 2,901 (46,041) 3,149 - 335,791 377,815 1,083 (4,570) 1,454 - 375,782 196,982 14,281 (44,670) - 166,593	Machinery equipment 674,671 40,056 (347,630) 48,612 286 415,995 564,637 31,573 (20,717) 99,053 125 674,671 496,215 56,814 (346,271) 235 206,993	Other equipment 426,958 30,833 (92,633) 52,410 1,138 418,706 385,447 25,108 (11,514) 27,418 499 426,958 224,204 57,103 (91,459) 608 190,456	Constructions in process 81,458 125,657 - (101,380) - 105,735 29,848 100,625 - (49,016) 1 81,458 - - - - -	Total 2,357,847 199,447 (500,842) 2,791 1,424 2,060,667 2,156,725 158,389 (36,801) 78,909 625 2,357,847 917,401 128,198 (482,400) 843 564,042

(Continued)

31

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Balance at January 1, 2021 Depreciation Disposals Effect of movements in exchange rates Balance at December 31, 2021 Carrying amount: Balance at December 31, 2022 Balance at December 31, 2021	Land $ - - - - $ - $ 784,440 $ 798,978	Buildings and Constructions 187,087 14,465 (4,570) - 196,982 169,198 178,800	Machinery equipment 473,942 42,465 (20,294) 102 496,215 209,002 178,456	Other equipment 186,122 49,335 (11,501) 248 224,204 228,250 202,754	Constructions in process - - - - - 105,735 81,458	Total 847,151 106,265 (36,365) 350 917,401 1,496,625 1,440,446

December 31, 2022 and 2021, the property, plant and equipment of the Group had been pledged as collateral for long-term loans and credit lines; please refer to note 8.

(h) Right-of-use assets

The cost, depreciation, and impairment of the land, buildings and constructions, and other equipment that the Group leases were as follows

Cost: Balance at January 1, 2022 Additions Lease modification Effect of movements in exchange rates Balance at December 31, 2022 Balance at January 1, 2021 Additions Lease modification Effect of movements in exchange rates Balance at December 31, 2021 Depreciation and impairment: Balance at January 1, 2022 Depreciation Lease modification Effect of movements in exchange rates Balance at December 31, 2022	Land, buildings and constructions $ 158,080 27,433 (42,380) 1,866 $ 144,999 $ 145,912 13,350 (1,977) 795 $ 158,080 $ 80,074 30,066 (22,761) 961 $ 88,340	Other equipment 4,214 567 (413) - 4,368 3,801 413 - - 4,214 1,315 1,187 (236) - 2,266	Total 162,294 28,000 (42,793) 1,866 149,367 149,713 13,763 (1,977) 795 162,294 81,389 31,253 (22,997) 961 90,606

(Continued)

32

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Land, buildings

	Land, buildings
Balance at January 1, 2021 Depreciation Effect of movements in exchange rates Balance at December 31, 2021 Carrying amount: Balance at December 31, 2022 Balance at December 31, 2021	and constructions $ 47,679 32,034 361 $ 80,074 $ 56,659 $ 78,006	Other equipment 88 1,227 - 1,315 2,102 2,899	Total
			47,767 33,261 361
			81,389
			58,761
			80,905

(i) Intangible assets

The cost, amortization, and impairment of the Group’s intangible assets were as follows:

Cost: Balance at January 1, 2022 Effect of movements in exchange rates Balance at December 31, 2022 Balance at January 1, 2021 Effect of movements in exchange rates Balance at December 31, 2021 Amortization and impairment Balance at January 1, 2022 Amortization Balance at December 31, 2022 Balance at January 1, 2021 Amortization Balance at December 31, 2021 Carrying Amount: Balance at December 31, 2022 Balance at December 31, 2021	Patent $ 18,087 - $ 18,087 $ 18,087 - $ 18,087 $ 16,083 560 $ 16,643 $ 15,522 561 $ 16,083 $ 1,444 $ 2,004	Goodwill 3,792 418 4,210 3,850 (58) 3,792 - - - - - - 4,210 3,792	Other 17,680 - 17,680 17,680 - 17,680 3,831 3,536 7,367 295 3,536 3,831 10,313 13,849	Total 39,559 418 39,977 39,617 (58) 39,559 19,914 4,096 24,010 15,817 4,097 19,914 15,967 19,645

(Continued)

33

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (j) Long-term loans and short-term loans

• (i) Short-term loans

Secured bank loans Unsecured bank loans Total Secured Bank Loans Unsecured bank loans Total		December	31, 2022	31, 2022
	Currency	Range of interest rates (%)	Year of maturity Amount 2023 $ 195,000 2023 200,000 $ 395,000 31, 2021
	NTD NTD	1.725~2.025 1.531 December
	Currency	Range of interest rates (%)	Year of maturity Amount 2022 $ 215,000 2022 50,000 $ 265,000	Amount
	NTD NTD	1.10~1.62 1.1

As of December 31, 2022 and 2021, the unused credit lines of the Group’s short-term loans amounted to $605,000 thousand and $450,000 thousand, respectively.

• (ii) Long-term loans

Secured bank loans Current Non-current Total Unused long-term credit lines		December	31, 2022
	Currency	Range of interest rates (%)	Year of maturity Amount 2024~2027 $ 22,900 $ - 22,900 $ 22,900 $ 527,100
	NTD	2.075%

Secured bank loans Current Non-current Total Unused long-term credit lines		December	31, 2021
	Currency	Range of interest rates (%)	Year of maturity Amount 2022~2027 $ 152,594 $ 36,526 116,068 $ 152,594 $ 65,620
	NTD	1.67

• (iii) Bank loan collateral

For the details of assets pledged as collateral, please refer to note 8.

(Continued)

34

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(k) Lease liabilities

The carrying amounts of the Group’s lease liabilities were as follows:

Current Non-current	December 31, 2022 $ 29,634 $ 34,797	December 31, 2021
		33,193
		51,774

For the maturity analysis, please refer to note 6(t) financial instruments

The amounts recognized in profit or loss were as follows:

Interest on lease liabilities Expenses relating to short-term leases Rent concessions relating to COVID 19 pandemic	2022 $ 1,074 $ 9,101 $ -	2021
		1,665
		7,616
		54

The amounts recognized in the statement of cash flows for the Group were as follows:

Total cash outflow for leases	2022 $ 39,242	2021
		41,040

(l) Employee benefits

(i) Defined benefit plans

The present value of the defined benefit obligations and the fair value adjustments of the plan assets for the Company were as follows:

Present value of the defined benefit obligations Fair value of plan assets Net defined benefit asset	December 31, 2022 $ 61,530 (50,408) $ 11,122	December 31, 2021 64,754 (47,277) 17,477

The Company makes defined benefit plan contributions to the pension fund account at Bank of Taiwan and Chunghwa Post Co., Ltd. that provides pensions for employees upon retirement. The plans (covered by the Labor Standard) entitle a retired employee to receive an annual payment based on years of service and average salary for the six months prior to retirement.

1) Composition of plan assets

The Company allocates pension funds in accordance with the "Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund", and such funds are managed by the Bureau of Labor Funds, Ministry of Labor. With regard to the utilization of the funds, minimum earnings shall be no less than the earnings attainable from the two-year time deposits with the interest rates offered by local banks.

(Continued)

35

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company’ s Bank of Taiwan labor pension reserve account balance amounted to $50,408 thousand as of December 31, 2022. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

• 2) Movements in present value of the defined benefit obligations

The movements in present value of the Company's defined benefit obligations were as follows

Defined benefit obligation at January 1 Current service costs and interest Remeasurements of the net defined benefit asset －Actuarial gains and losses arising from Benefits paid Defined benefit obligation at December 31	2022 $ 64,754 673 (2,342) (1,555) $ 61,530	2021 66,664 736 (2,336) (310) 64,754

• 3) Movements in fair value of plan assets

The movements in the fair value of the Company's plan assets were as follows:

Fair value of plan assets at January 1 Interest income Remeasurements of the net defined benefit asset －The return on plan assets (excluding amounts included in the interest during this period) Contributions made Benefits paid Fair value of plan assets at December 31	2022 $ 47,277 276 3,696 714 (1,555) $ 50,408	2021 46,049 273 550 715 (310) 47,277

• 4) Expenses recognized in profit or loss

The Company's expenses recognized on profit or loss were as follows

Current service costs Net interest on the defined benefit asset Operating costs and expenses	2022 $ 290 107 $ 397	2021
		336 127
		463

(Continued)

36

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

5) Actuarial assumptions

The Company’s significant actuarial assumptions used in calculating the present value of the defined benefit obligation at the reporting date were as follow:

Discount rate Future salary increases	December 31, 2022 December 31, 2021 % 1.500 % 0.625 % 3.000 % 3.000

The expected contribution to be made by the Company to the defined benefit plans for the one-year period after the 2022 reporting date is $700 thousand.

The weighted average lifetime of the defined benefits plans is9.98 years.

6) Sensitivity analysis

As of December 31, 2022 and 2021, the effect of changes in the principle actuarial assumptions on the present value of the defined benefit obligations were as follows:

At December 31, 2022 Discount rate Future salary increases At December 31, 2021 Discount rate Future salary increases	Impact on the defined benefit obligations Increased 0.25% Decreased 0.25% $ (786) 809 779 (758) (941) 977 936 (905)

The above sensitivity analysis is based on the effect of changes in a single assumption under the condition that other assumptions remain constant. In practice, many changes in assumptions may be linked together. The method used for the sensitivity analysis and calculation of the net defined benefit pension asset is the same.

The method used for sensitivity analysis for this year is the same as the method used in the previous year.

(ii) Defined contribution plans

The Group allocates 6% of each employee's monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under this defined contribution plan, the Company allocates a fixed amount to the Bureau of Labor Insurance without additional legal or constructive obligation.

The Group's pension costs under the defined contribution method were $14,784 thousand and $13,990 thousand for the years ended December 31, 2022 and 2021, respectively.

(Continued)

37

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(m) Income taxes

(i) Income tax expenses

The Group’s income tax expenses consisted of the following:

		2022	2021
Current income tax expense
Current period	$	148,739	83,610
Adjustment for prior periods		4,220	3
		152,959	83,613
Deferred tax expense
The origination and reversal of temporary differences		(1,895)	(5,363)
Income tax expense from continuing operations	$	151,064	78,250
The Group’s income tax expense (benefit) recognized
		2022	2021
Items that may not be reclassified into profit and loss:
Remeasurements of defined benefit plan	$	1,207	577
Reconciliations of the Group's income tax expense and	income	before tax were as follows:
		2022	2021
Income before tax	$	333,409	182,652
Income tax using the Company's domestic tax rate	$	66,682	36,530
Effect of tax rates in foreign jurisdiction		31,012	27,771
Adjustments according to tax laws		49,115	13,946
Adjustments on prior years’ tax expense		4,220	3
Other		35	-
Income tax expense	$	151,064	78,250

(Continued)

38

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Deferred tax assets and liabilities

1) Unrecognized deferred tax assets

The Group is able to control the timing of the reversal of the temporary differences associated with investments in subsidiaries as of December 31, 2022 and 2021, and considers it probable that the temporary differences will not reverse in the foreseeable future. Hence, such temporary differences are not recognized under deferred tax liabilities. Details are as follows:

Aggregate amount of temporary differences related to investments in subsidiaries Unrecognized deferred tax liabilities	December 31, 2022 $ - $ -	December 31, 2021
		53,768
		10,754

The Group is not able to assure that the temporary differences associated with investments in subsidiaries, as of December 31, 2022 and 2021, will be reversed in the foreseeable future, or to consider it is probable that taxable profit will be sufficient to allow the temporary differences to be deducted. A deferred tax asset for these temporary differences is therefore not recognized. Details are as follows:

Aggregate amount of temporary differences related to investments in subsidiaries Unrecognized deferred tax assets	December 31, 2022 $ 67,981 $ 13,596	December 31, 2021
		-
		-

Deferred tax assets have not been recognized in respect of the following items:

The carryforward of unused tax losses	December 31, 2022 $ 217,633	December 31, 2021
		191,944

Tax laws allow net losses, as assessed by the tax authorities, to offset taxable income over a period of ten years for local tax reporting purposes. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilize the benefits therefrom.

(Continued)

39

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

As of December 31, 2022, the information of the Group’s unused tax losses for which no deferred tax assets were recognized are as follows:

Year of loss 2014 2015 2016 2017 2018 2019 2020 2021	Unused tax loss Expiry date $ 15,345 2024 20,007 2025 45,021 2026 45,932 2027 11,656 2028 25,423 2029 27,498 2030 26,751 2031 $ 217,633

• 2) Recognized deferred tax assets and liabilities

Changes in the amount of deferred tax assets and liabilities were as follows:

Deferred tax assets

Defined benefit plans Loss from investment using equity method Balance at January 1, 2022 $ 3,495 10,220 Recognized in profit or loss (1,747) 1,636 Recognized in other comprehensive income (1,207) - Balance at December 31, 2022 $ 541 11,856 Balance at January 1, 2021 $ 4,123 7,786 Recognized in profit or loss (51) 2,434 Recognized in other comprehensive income (577) - Balance at December 31, 2021 $ 3,495 10,220 Deferred tax liabilities Balance at January 1, 2022 Recognized in profit or loss Balance at December 31, 2022 Balance at 2021 (as of balance at January 1, 2021)	Allowance for inventory devaluation loss 6,934 1,791 - 8,725 3,775 3,159 - 6,934	Others Total 609 21,258 (609) 1,071 - (1,207) - 21,122 788 16,472 (179) 5,363 - (577) 609 21,258 Reserve for land value increment tax $ 73,924 (824) $ 73,100 $ 73,924	Total 21,258 1,071 (1,207)
			21,122
			16,472 5,363 (577)
			21,258

(Continued)

40

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Income tax examination

The tax authorities have examined the income tax returns of the Company through 2020.

(n) Share capital and other equity

(i) Issuance of common stock

As of December 31, 2022 and 2021, the total value of authorized ordinary shares amounted to $1,000,000 thousand, with a par value of $10 per share, of which 85,739 thousand shares were outstanding. All issued shares were paid up upon issuance.

Reconciliation of shares outstanding was as follows:

Balance at January 1 Issued for cash Balance at December 31		(In thousands of shares) 2022 2021 85,739 76,739 - 9,000 85,739 85,739

On June 24, 2021, a resolution was passed by the Board of Directors for the issuance of 9,000 thousand new shares for cash with issue price of $70 per share. The Company received approval from the FSC for this capital increase on July 21, 2021 (Rule No. 1100349127), with September 24, 2021 as the effective date of capital increase. The relevant statutory registration procedures were completed.

(ii) Capital surplus

The balances of the Company's capital surplus were as follows:

The balances of the Company's capital surplus were as	follows:
Paid-in capital in excess of par value Employee share options	December 31, 2022 $ 865,694 5,480 $ 871,174	December 31, 2021
		898,275 5,480
		903,755

In accordance with the ROC Company Act, realized capital surplus can be used to increase share capital or to distribute as cash dividends after offsetting losses. The aforementioned capital surplus includes share premiums and donation gains. In accordance with the Securities Offering and Issuance Guidelines, the amount of capital surplus to increase share capital shall not exceed 10 percent of the actual share capital amount.

(Continued)

41

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company's Articles of Incorporation revised on June 9, 2020 provided that the Company may distribute legal reserve and capital surplus in compliance with laws and regulations. For distribution by way of new shares issuance, a resolution shall be passed during the general meeting of shareholders; for distribution by way of cash, a resolution shall be passed by the Board of Directors with at least two thirds of the directors present and a majority of the directors agree, and shall be reported to the general meeting of shareholders.

Details of cash dividends from capital surplus, please refer to note 6(n) (iii) retained earnings.

(iii) Retained earnings

The Company's Articles of Incorporation provided that, when allocating the net profits for each fiscal year, the Company should first pay income tax, offset its prior years' deficits, and appropriate 10% of net income to legal reserve until the accumulated legal reserve capital equals the Company’ s paid-in capital. The Company may also appropriate special reserve capital based on business needs and in compliance with laws and regulations. After the above appropriations, current and prior-period earnings that remain undistributed will be proposed for distribution by the Board of Directors. For distribution by way of new shares issuance, a resolution shall be passed during the general meeting of shareholders; for distribution by way of cash, a resolution shall be passed by the Board of Directors with at least two thirds of the directors present and a majority of the directors agree, and shall be reported to the general meeting of shareholders.

The Company’ s dividend policy adopts the principle of prudence with consideration of its profitability and financial structure and future development. The Company stipulated a dividend policy that distributes at least 40% of accumulated earnings as shareholders’ dividends and at least 10% of distribution shall be by way of cash. However, the Board of Directors may adjust the percentage of distribution based on the actual operating performances upon the approval from the general meeting of the shareholders.

1) Legal reserve

If the Company experienced profit for the year, the distribution of the statutory earnings reserve, either by new shares or by cash, shall be decided at the shareholders' meeting, and the distribution amount is limited to the portion of legal reserve which exceeds 25 percent of the paid in capital.

2) Special reserve

In accordance with the rules issued by the FSC, a portion of current period earnings and undistributed prior period earnings shall be reclassified as special reserve during earnings distribution. The amount to be reclassified should be equal to the difference between the total net current period reduction of other shareholders' equity. Similarly, a portion of undistributed prior period earnings shall be reclassified as special earnings reserve (which does not qualify for earnings distribution) to account for cumulative changes to other shareholders' equity pertaining to prior periods. Amounts of subsequent reversals pertaining to the net reduction of other shareholders' equity shall qualify for additional distributions.

(Continued)

42

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Distribution of earnings

The amounts of cash dividends on the appropriations of 2021 and 2020 earnings and the distribution of cash dividends from capital surplus were approved during the board meeting on March 15, 2022 and March 16, 2021, respectively. The appropriations and dividends per share were as follows:

Dividends distributed to common stockholders: Cash－retained earnings Cash－capital surplus Total	2021 Amount per share Total amount $ 1.12 96,028 0.38 32,581 $ 128,609	2021 Amount per share Total amount $ 1.12 96,028 0.38 32,581 $ 128,609	2020	2020
	Amount per share		Amount per share 0.20 0.50	Total amount
	$ 1.12 0.38			15,348 38,369
				53,717

The amounts of cash dividends on the appropriation of 2022 earnings and the distribution of cash dividends from capital surplus were approved by the Board of Directors on March 30, 2023. The appropriations and dividends per share were as follows:

		2022	2022
		Amount per
		share	Total amount
Dividends distributed to common stockholders:
Cash－retained earnings	$	1.95	167,191
Cash－capital surplus		0.05	4,287
Total		$	171,478
Share-based payments
The Group’s cash capital increase reserved for employee subscription for 2021 was			as follows:
		Unit: thousand shares
		Cash capital increase reserved
		for employee subscription
		Employees	Management
Grant date		2021.7.21	2021.7.28
Number of shares granted		723	177
Contract term		-
Recipients		Employees of the Company and its
		affiliated who meet	the specific
		conditions

(o) Share-based payments

Vesting conditions

Immediately vested

(Continued)

43

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Determining the fair value of equity instruments granted

The Group used Black-Scholes Option Pricing Model in measuring the fair value of the sharebased payments at the grant date. The measurement inputs were as follows:

Fair value at the grant date (New Taiwan Dollars) Share price at grant date (New Taiwan Dollars) Exercise price (New Taiwan Dollars) Expected volatility (%) Expected life (years) Risk-free interest rate (%)	Cash capital increase reserved for employee subscription
	Employees Management $13.70 8.70 $84.00 79.00 $70.00 38.00 0.002 0.39

• (ii) Description of share-based payment arrangements

Unit: thousand shares

Outstanding at January 1 Granted during the year (number) Exercised during the year (number) Expired during the year (number) Exercisable at December 31	2021 Weighted average exercise price Number of options $ - - 70.00 900 (70.00) (535) - (365) - -
	Weighted average exercise price $ - 70.00 (70.00) - -

(iii) Expense recognized in profit or loss

For the year ended December 31, 2021, the Group recorded the cost of the above share-based payment amounting to $11,716 thousand under operating costs and expenses.

(p) Earnings per share

The calculation of the Company's basic and diluted earnings per share were as follows:

i) Basic earnings per share

2022 Net income attributable to common shareholders of the Company $ 182,345 Weighted-average number of common shares outstanding 85,739 Basic earnings per share (New Taiwan Dollar) $ 2.13	2021
	104,402
	79,180
	1.32

(Continued)

44

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) Diluted earnings per share

2022 Net income attributable to common shareholders of the Company $ 182,345 Weighted-average number of common shares outstanding 85,739 Influence of potentially dilutive shares Remuneration to employees 89 Weighted-average number of shares outstanding (diluted) 85,828 Diluted earnings per share (New Taiwan Dollar) $ 2.12	2021
	104,402
	79,180 56
	79,236
	1.32

(q) Revenue from contracts with customers

(i) Disaggregation of revenue

Primary geographical markets: Taiwan United States China, Hong Kong, and Macau Other Major products/services lines: Pharmaceutical Supplement Cosmeceutical Diagnostic Medical device Active pharmaceutical ingredients Milestone payments Sales royalty fees		2022
	Taiwan segment $ 1,878,863 401,088 7,442 8,907 $ 2,296,300 $ 724,221 183,929 58,919 724,634 4,769 189,909 8,831 401,088 $ 2,296,300	China, Hong Kong, and Macau segment - - 102,348 - 102,348 - - 102,348 - - - - - 102,348	Total
			1,878,863 401,088 109,790 8,907
			2,398,648
			724,221 183,929 161,267 724,634 4,769 189,909 8,831 401,088
			2,398,648

(Continued)

45

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Primary geographical markets: Taiwan United States China, Hong Kong, and Macau Other Major products/services lines: Pharmaceutical Supplement Cosmeceutical Diagnostic Medical device Active pharmaceutical ingredients Sales royalty fees		2021
	Taiwan segment $ 1,374,947 320,000 4,058 20,645 $ 1,719,650 $ 719,660 163,910 81,830 313,144 4,515 116,802 319,789 $ 1,719,650	China, Hong Kong, and Macau segment - - 181,561 - 181,561 - - 181,561 - - - - 181,561	Total
			1,374,947 320,000 185,619 20,645
			1,901,211
			719,660 163,910 263,391 313,144 4,515 116,802 319,789
			1,901,211

(ii) Contract balances

Notes receivable Notes receivable－related party Accounts receivable Accounts receivable－related party Overdue receivables Less: allowance for impairment Total	December 31, 2022 $ 92,537 31,435 210,062 21,760 1,577 3,340 $ 354,031	December 31, 2021 81,046 35,936 208,868 9,804 1,388 3,142 333,900	January 1, 2021
			66,267 59,933 213,436 33,413 - 4,119
			368,930

For details on notes receivable, accounts receivable, and allowance for impairment, please refer to note 6(b).

(Continued)

46

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(r) Remuneration to employees and directors

The Company's articles of incorporation provided that, the Company should contribute no less than 2% of profit as employee remuneration and less than 5% as directors' remuneration when there is profit for the year. However, if the Company has accumulated deficits, the profit should be reserved to offset the deficit.

The remuneration to employees can be in the form of stock or cash, wherein the recipients may include the employees of the Company’s affiliated who meet certain specific conditions set forth by the Board of Directors. The remuneration to directors can only be in the form of cash.

For the years ended December 31, 2022 and 2021, the Company accrued its remuneration to employees amounting to $14,587 thousand and $3,847 thousand, respectively, and remuneration to directors amounting to $18,233 and $5,770, respectively. These amounts are calculated by using the Company's pre-tax net profit for the period before deducting the amount of the remuneration to the employees and directors, multiplied by the distribution ratio of remuneration to the employees and directors under the Company's articles of association. The remunerations were expensed under operating expenses during each period. Related information would be available at the Market Observation Post System website. The amounts, as stated in these parent company only financial statements, are identical to those of the actual distributions for 2022 and 2021.

(s) Non-operating income and expenses

• (i) Interest income

Interest income from bank deposits (ii) Other income Dividend income Other income－others Rent income Others Subtotal of other income – others Total other income	2022 $ 1,793 2022 $ 2,980 13,925 3,907 17,832 $ 20,812	2021
		638
		2021
		6,378
		20,156 13,731
		33,887
		40,265

(Continued)

47

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (iii) Other gains and losses

Gains (losses) on disposal of property, plant and equipment Gains on lease modification Foreign exchange losses, net Gains on financial assets measured at fair value through profit and loss Others Other gains and losses, net Financial costs Interest expenses	2022 $ 6,278 614 (320) - (284) $ 6,288 2022 $ 7,585	2021 (436) 84 (3,066) 6,722 (43) 3,261 2021 14,681

(iv) Financial costs

• (t) Financial instruments

• (i) Credit risk

  • 1) Credit risk exposure

The carrying amount of financial assets represents the maximum amount exposed to credit risk.

2) Concentration of credit risk

The Group’ s notes and accounts receivable concentrated on related parties, which accounted for 15% and 14% of the total notes and accounts receivable as of December 31, 2022 and 2021, respectively.

(Continued)

48

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Liquidity Risk

The following table shows the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

December 31, 2022 Non-derivative financial liabilities Short-term loans Accounts payable Other payable Long-term loans (including due in one year) Lease liabilities Guarantee deposit December 31, 2021 Non-derivative financial liabilities Short-term loans Accounts payable Other payables Long-term loans (including due in one year) Lease liabilities Guarantee deposit	Carrying amount $ 395,000 125,265 292,795 22,900 64,431 6,302 $ 906,693 $ 265,000 130,232 219,433 152,594 84,967 8,666 $ 860,892	Contractua l cash flows 397,291 125,265 292,795 24,357 65,517 6,302 911,527 266,833 130,232 219,433 159,147 86,925 8,666 871,236	Less than 1 year 397,291 125,265 292,795 474 30,321 - 846,146 266,833 130,232 219,433 38,790 34,332 - 689,620	1-5 years - - - 23,883 35,196 6,302 65,381 - - - 105,942 52,593 8,666 167,201	More than 5 years
					- - - - - -
					-
					- - - 14,415 - -
					14,415

The Group does not expect the cash flows included in the maturity analysis to occur significantly earlier or at significantly different amounts.

(Continued)

49

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Currency Risk

• 1) Exposure to Foreign Currency Risk

The Group’s significant exposure to foreign currency risk were as follows:

Financial assets Monetary items USD JPY CNY Non-monetary items USD Financial Liabilities Monetary items USD CNY	December 31, 2022 Foreign Currency Exchange Rate TWD $ 5,868 30.7250 180,294 3,394 0.2323 788 522 4.4060 2,300 - 30.7250 - 9 30.7250 277 109 4.4060 480	December 31, 2022 Foreign Currency Exchange Rate TWD $ 5,868 30.7250 180,294 3,394 0.2323 788 522 4.4060 2,300 - 30.7250 - 9 30.7250 277 109 4.4060 480	December 31, 2021	December 31, 2021
	Foreign Currency $ 5,868 3,394 522 - 9 109	Exchange Rate 30.7250 0.2323 4.4060 30.7250 30.7250 4.4060	Foreign Currency 2,462 1,494 889 2,526 217 4	Exchange Rate TWD 27.6770 68,141 0.2406 359 4.3430 3,861 27.6770 69,913 27.6770 6,006 4.3430 17

• 2) Sensitivity Analysis

The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, financial assets measured at fair value through profit and loss, accounts receivable and accounts payable that are denominated in foreign currency.

A strengthening (weakening) of 1%of the NTD against the USD, JPY, and CNY as of December 31, 2022 and 2021 would have increased (decreased) the net income before tax for the years ended December 31, 2022 and 2021 by $1,826 thousand and $663 thousand, respectively. The analysis assumes that all other variables remain constant and is performed on the same basis for both periods.

• 3) Foreign Exchange gain and loss on monetary items

Due to the numerous types of functional currency of the Group, the Group disclose its exchange gains and losses of monetary items aggregately. The Group’s exchange gain (loss), including realized and unrealized, were $(320) thousand and $(3,066) thousand for the years ended December 31, 2022 and 2021, respectively.

(Continued)

50

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Interest rate analysis

The Group’s exposure to interest rate risk were as follows:

Instruments with variable interest rates Bank deposits Long and short-term loans	Carrying Amount	Carrying Amount
	December 31, 2022 $ 463,790 $ 417,900	December 31, 2021
		278,374
		417,594

The following sensitivity analysis is based on the risk exposure of the interest rate on derivative and non-derivative financial instruments on the reporting date. Regarding assets with variable interest rates, the analysis is on the basis of the assumption that the amount of assets outstanding at the reporting date was outstanding throughout the year. The rate of change is expressed as the interest rate increases or decreases by 1% when reporting to management internally, which also represents the management of the Group’s assessment on the reasonably possible interval of interest rate change.

If the interest rate had increased or decreased by 1% with all other variable factors remaining constant, the Group’s net income before tax will have increased or decreased by $459 thousand and $1,392 thousand, for the years ended December 31, 2022 and 2021, respectively.

(v) Fair value information

• 1) Categories and fair value of financial instruments

The carrying amount and fair value of the financial assets and liabilities, including the information on fair value hierarchy were as follows; however, except as described in the following paragraphs, for financial instruments not measured at fair value whose carrying amount is reasonably close to the fair value, disclosure of fair value information is not required:

Financial assets at fair value through profit or loss Mandatorily measured at fair value through profit or loss Financial assets at fair value through profit or loss Mandatorily measured at fair value through profit or loss		December 31, 2022	December 31, 2022	December 31, 2022
	Carrying Amount $ 75,097		Fair Value
		Level 1 Level 2 39,904 - December 31, 2021		Level 3 35,193	Total 75,097
			Fair Value
		Level 1 100,291	Level 2 -	Level 3 53,523	Total 153,814

(Continued)

51

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• 2) Valuation techniques and assumptions used in fair value determination -Non-derivative financial instruments

If a financial instrument has a quoted price in an active market, the market price is established as the fair value. Quoted prices from an exchange and actively traded government bonds traded over the counter are used as the basis for the fair value measurement of listed equity instruments and debt instruments with quoted prices in active markets.

A financial instrument is regarded as being quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’ s length basis. If the above-mentioned conditions are not met, the market would be considered as inactive. Generally, wide bid ask spreads, increases in bid ask spreads or low transaction volumes are indicators of an inactive market.

For equity instruments that there is no quoted price available, the Group uses the discounted cash flow model to estimate their fair values. The estimation is based on the investee’ s expected future cash flows, discounted to their present value using the discount rate that reflects the time value of money and the riskiness of the investment.

• 3) Fair value hierarchy

The Group used the fair value that can be observed in the market to measure the value of assets and liabilities. Fair values levels are based on the degree in which the fair value can be observed and grouped into Levels 1 to 3 as follows:

• a) Level 1: quoted prices (unadjusted) in active markets for identified assets or liabilities.

• b) Level 2: inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

• c) Level 3: inputs for assets or liabilities that are not based on observable market data (unobservable inputs).

• 4) Reconciliation of Level 3 fair values

Balance at January 1, 2022 Recognize in profit or loss Return of capital Reclassified from Level 1 Balance at December 31, 2022	Mandatorily measured at fair value through profit or loss $ - (99,751) - 99,751 $ -	Unquoted equity instruments 53,523 (3,330) (15,000) - 35,193	Total 53,523 (103,081) (15,000) 99,751 35,193

(Continued)

52

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Balance at January 1, 2021 Recognize in profit or loss Balance at December 31, 2021	Mandatorily measured at fair value through profit or loss $ - - $ -	Unquoted equity instruments 52,728 795 53,523	Total
			52,728 795
			53,523

In accordance with IFRS 13 Fair Value Measurement, the reliability and restrictions of information used in measuring fair value should be regularly evaluated. The Group can no longer obtain the quoted price of Spectra SPC Powerfund, and the current volume and level of activity of the fund exists significant uncertainty. The Group, therefore, reclassified its level of fair value hierarchy from Level 1 to Level 3, and recorded the losses under loss on financial assets measured at fair value through profit and loss.

• 5) Quantified information on significant unobservable inputs (Level 3) used in fair value measurement

Item Financial assets at fair value through profit or loss－ equity investments without an active market	Valuation Technique Income Approach	Significant Unobservable Inputs
		�Discount rate (7.000% for both periods) �Sustainable growth rate (1.50% and 1.45% at December 31, 2022 and 2021)

• Discount for lack of marketability (30%for both periods)

• Minority interest discount (26.49% for both periods)

Inter-relationship between significant unobservable inputs and fair value measurement

• The estimated fair value would decrease if the discount rate were higher

• The higher the sustainable growth rate, the higher the estimated fair value

• The estimated fair value would decrease if the liquidity discount were higher

• The estimated fair value would decrease if the minority interest discount were higher

Financial assets at Asset � Net Asset Value fair value through Approach － profit or loss venture capital

The estimated fair value would increase if the net asset value were higher.

(Continued)

53

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Item Financial assets at fair value through profit or loss– foreign fund	Valuation Technique Asset approach	Significant Unobservable Inputs Inter-relationship between significant unobservable inputs and fair value measurement �Net asset value, liquidity, marketability and credit risk adjustment (including risk of default) were 100% �The estimated fair value would increase if the net asset value were higher �The estimated fair value would decrease if the liquidity discount were higher

• The estimated fair value would decrease if the credit risk were higher

• (vi) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible alternative assumptions

The Group’ s measurement for fair values for financial instruments is reasonable. However, a different valuation technique or possible changes to one or more assumptions would have different effects. For fair value measurement in Level 3, changing in assumptions would have the following effects:

December 31, 2022 Financial assets at fair value through profit or loss Equity investments without an active market December 31, 2021 Financial assets at fair value through profit or loss Equity investments without an active market	Inputs Discount rate Sustainable growth rate Discount rate Sustainable growth rate	Increase/ Profit or loss decrease Favorable Unfavorable 1% $ 149 (102) 1% 115 (78) 1% $ 527 (367) 1% 402 (281)

The favorable and unfavorable effects represent the changes in fair value, and fair value is based on a variety of unobservable inputs calculated using a valuation technique.

(Continued)

54

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(u) Financial risk management

• (i) Overview

The Group has exposure to the following risks arising from financial instruments:

• 1) Credit risk

• 2) Liquidity risk

• 3) Market risk

This note discloses information about the Group's exposure to each of the above risks, the objectives, policies and processes for measuring and managing risks, and the Group's management of capital. Please see other related notes for quantitative information.

(ii) Risk management framework

The Board of Directors of the Group is full responsible for the establishment and management of the Company's risk management framework and policies.

The Group's risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group's Board of Directors oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The audit committee is assisted in its oversight role by Internal Audit which undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Board of Directors.

(iii) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers.

1) Receivables

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group's customer base, including the default risk of the customer segmentation to which customers belong, as these factors may have an influence on credit risk.

(Continued)

55

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Group's standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and, in some cases, bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval; these limits are reviewed on a periodic basis.

The Group discloses the estimation of notes and accounts receivable’ s loss with allowance for bad debt account. Allowance for bad debt account is composed with specific losses and batch of unrecognized losses components. Unrecognized losses components are determined by historically statistical data from similar financial assets.

2) Investments

The credit risk exposure in the bank deposits, fixed income investment and other financial instruments are measured and monitored by the Group's finance department and reported to the management by authority. Since those who transact with the Group are banks with good credit standing, there are no noncompliance issues. Hence, there is no significant credit risk.

3) Guarantees

As of December 31, 2022 and 2021, the Group has no outstanding guarantees.

(iv) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’ s approach to managing liquidity is to ensure, as far as possible, that it always has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group uses activity-based costing to estimate the cost of its products and services, which assists it in monitoring cash flow requirements and optimizing its cash return on investments. The Group aims to maintain the level of its cash and cash equivalents at an amount in excess of the expected cash flows on operating expenses and financial liabilities. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The Group has unused short-term bank facilities of $1,132,100 thousand and $515,620 thousand, respectively, as of December 31, 2022 and 2021

(v) Market risk

Market risk is the risk that changes in interest rate, foreign exchange rates or the price of financial products will affect the Group’ s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group’s bank deposits are exposed to the cash flow risk arising from changes in interest rates. However, the impact of the cash flow risk arising from changes in interest rate is not expected to be significant.

(Continued)

56

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(v) Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. Capital consists of ordinary shares, capital surplus, retained earnings, and other equity of the Group. The Board of Directors monitors the return on capital as well as the level of dividends to common stockholders.

Debt-to-capital ratios as of December 31, 2022 and 2021 were as follows

Total liabilities Less: cash and cash equivalents Net debt Total equity Debt-to-capital ratio	December 31, 2022 $ 1,086,426 464,257 $ 622,169 $ 2,007,113 % 31	December 31, 2021
		1,020,081 279,103
		740,978
		1,933,014
		% 38

As of December 31, 2022, there were no changes in the Group's approach of capital management.

• (w) Investing and financing activities not affecting current cash flow

The Group’s investing and financing activities which did not affect the current cash flow in the years ended December 31, 2022 and 2021, were derived from the acquisition of its right-of-use assets from its lease liabilities

• (x) Reconciliations of liabilities arising from financing activities

The reconciliations of liabilities arising from financing activities in the years ended December 31, 2022 and 2021 were as follows:

Short-term loans Lease liabilities Long-term loans (including due in a year) Total liabilities from financing activities	January 1, 2022 $ 265,000 84,967 152,594 $ 502,561	Cash flows 130,000 (30,141) (129,694) (29,835)		Non-Cash	Changes	Interest Expense - 1,074 - 1,074	December 31, 2022
			Acquisition of right-of-use assets - 28,000 - 28,000	Lease modification - (20,410) - (20,410)	Effect of movements in exchange rates - 941 - 941
							395,000 64,431 22,900
							482,331

(Continued)

57

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Short-term loans Lease liabilities Long-term loans (including due in a year) Total liabilities from financing activities	January 1, 2021 $ 465,000 104,737 700,541 $ 1,270,278	Cash flows (200,000) (33,479) (547,947) (781,426)		N	on-Cash Changes	on-Cash Changes	Rent Concessions - (54) - (54)	December 31, 2021
			Acquisition of right-of- use assets - 13,763 - 13,763	Lease modification - (2,119) - (2,119)	Effect of movements in exchange rates - 454 - 454	Interest Expense - 1,665 - 1,665
								265,000 84,967 152,594
								502,561

(7) Related-party transactions:

(a) Name and relationship with related parties

The following are entities that have had transactions with related parties during the periods covered in the consolidated financial statements.

in the consolidated financial statements.
Name of related party	Relationship with the Group
Shining Biomedical Company Ltd.	Other related party
Te-Yang Tsai	First degree relative of the Company’s general
	manager
Yubo IP Studio	Its responsible person is a first degree relative of the
	Company’s general manager
Weigao Panion Biotech Holding	Joint venture
Company Limited
Shandong Weigao Panion Pharmaceutical	Joint venture
Company Limited
Shanghai Weigao Panion Pharmaceutical	Joint venture
Company Limited
Panion Charity Foundation	Other related party

• (b) Significant transactions with related parties

• (i) Sales

The amounts of significant sales transactions between the Group and its related parties were as follows:

Other related parties Shining Biomedical Company Ltd.	2022 $ 124,504	2021
		126,369

The terms with related parties were not significantly different from those provided to other customers.

(Continued)

58

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Interest income

The interest charged by the Group to its related parties were as follows:

(iii) (iv) (v) (vi)	2022 Other related parties Shining Biomedical Company Ltd. $ - Consultant Fees The consultant fees that the Group paid to its related parties as follows: 2022 Other related parties $ 2,042 Donation The donations that the Group made to its related parties were as follows: 2022 Other related parties $ 300 Receivable due from related parties The receivables due from related parties were as follows: Account Relationship December 31, 2022 Notes receivable – Other related parties related party Shining Biomedical Company Ltd. $ 31,435 Accounts receivable – Other related parties related party Shining Biomedical Company Ltd. 21,760 $ 53,195 Payable due to related parties The payables due from related parties were as follows: Account Relationship December 31, 2022 Other payables Other related parties $ 643	2021
		35
		2021
		1,971
		2021
		-
		December 31, 2021
		35,936 9,804
		45,740
		December 31, 2021
		727

(Continued)

59

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(c) Key management personnel compensation

Key management personnel compensation comprised:

Key management personnel compensation comprised:
Short-term employee benefits Post-employment benefits	2022 $ 88,099 1,081 $ 89,180	2021
		52,155 914
		53,069

(8) Pledged assets:

The carrying values of pledged assets were as follows:

Pledged Assets Property, plant, and equipment: Land Buildings Time deposits (recorded in refundable deposits)	Object Short & long-term loans Short & long-term loans Performance guarantee	December 31, 2022 $ 784,440 169,198 - $ 953,638	December 31, 2021
			798,978 178,800 3,000
			980,778

(9) Commitments and contingencies:

• (a) In July 2001, the Company signed a patent license agreement with Chen Hsing Hsu to obtain the right to put the patent on Nephoxil, a new drug for kidney disease, into practice, and further amended the agreement in August 2005. The terms and conditions in the agreement stipulated that the Company shall pay Chen Hsing Hsu royalty fees based on the net sales of the licensed products. For the years ended December 31, 2022 and 2021, the Company recorded its royalty payments due to Chen Hsing Hsu arising from the patent license agreement under operating costs.

The patents on Nephoxil in the United States, Taiwan and Japan have all expired as of November 14, 2022. The Company has terminated the above patent license agreement in accordance with the terms set forth in the agreement. The termination was effective upon the aforementioned patent expiration date.

• (b) The Company and Shandong Weigao Pharmaceutical Company Limited (“ Shandong Weigao” ) entered into a joint venture agreement on February 24, 2015 to establish a Company Weigao Panion Biotech Holding Company (“ Weigao Panion” ), with the companies holding of 49% and 51%, respectively. The Company then invested in Shandong Weigao Panion Pharmaceutical Company Limited (“Shandong Weigao Panion”) through Weigao Panion. The Company granted licenses to Shandong Weigao Panion through Weigao Panion with its patent rights to develop, manufacture and exclusively sell Nephoxil in mainland China, and the license fees for the rights granted were amounted to CNY 150,000 thousand, including the down payment of CNY 30,000 thousand and the milestone payment of CNY 120,000 thousand. The Company recognized the down payment and the milestone payment of each phase based on the development progress of Nephoxil, and reinvested part of the milestone payment in Weigao Panion, and Shandong Weigao would also invest according to the original shareholdings.

(Continued)

60

PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company had recognized revenue of $42,975 thousand (including the milestone payment of CNY 10,000 thousand), $44,388 thousand (including the milestone payment of CNY 10,000 thousand), $23,200 thousand (including the milestone payment of CNY 5,000 thousand) and $84,490 thousand (including the down payment of CNY 12,000 thousand and the milestone payment of CNY 4,900 thousand) in the years ended December 31, 2020, 2019, 2018 and 2015, respectively. The unrealized profit balances were $84,608 thousand for both periods (recorded under the Company’s credit balance of investments accounted for using equity method).

The Company entered into a consulting contract with the third parties separately. The contract provided that the Company shall pay relevant expenses to each third party based on the down payment and the milestone payments of each stage in accordance with the above-mentioned patent license agreement, amounting to a total of CNY 10,500 thousand. The Company made consulting costs payments of $1,719 thousand (CNY 400 thousand), $1,776 thousand (CNY 400 thousand), $928 thousand (CNY 200 thousand) and $25,749 thousand (CNY 5,176 thousand) in the years 2020, 2019, 2018 and 2015, respectively. In addition, the contract stipulated that each counterparty to the contract may subscribe to buy 2.5% of Weigao Panion shares at the same cost as the Company’s original investment cost to Weigao Panion. The subscriptions were completed in 2016.

(10) Losses due to major disasters: None.

(11) Subsequent events: please refer to notes 6(d) and (n).

(12) Other:

• (a) A summary of personnel costs, depreciation, depletion and amortization is as follows:

Function Account	2022	2022		2021	2021	2021
	Operating cost	Operating expenses	Total	Operating cost	Operating expenses	Total
Personnel costs Salaries Labor and health insurance Pension Remuneration to directors Other personnel expense Depreciation Amortization	143,161 16,253 5,941 - 8,469 93,815 -	291,219 26,837 9,240 26,940 10,031 65,636 4,096	434,380 43,090 15,181 26,940 18,500 159,451 4,096	136,388 16,176 5,647 - 7,851 84,185 -	248,802 23,538 8,806 14,430 9,169 55,341 4,097	385,190 39,714 14,453 14,430 17,020 139,526 4,097

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (b) The Company is the patentee and the licensor of the patents related to Auryxia (ferric citrate) in the United States, and the above-mentioned patents have been authorized by the Food and Drug Administration (FDA) and published in the Orange Book (“ Approved Drug Products with Therapeutic Equivalences”). Since the fourth quarter of 2018, seven generic drug companies, listed here in the order received: Lupin Atlantis Holdings SA, Teva Pharmaceuticals USA Inc., Chemo Research SL, Mylan Pharmaceuticals Inc., Lupin Limited, Watson Laboratories Inc. and Par Pharmaceuticals Inc. had filed the drug registration to sell their products, i.e., Auryxia’ s generic drugs with the FDA, claiming that their products were not infringing all, or part of, the Company’s Orange Book listed patents or claiming that the Company’s Orange Book listed patents to be wholly or partly ineffective or invalid. The Company, its licensee, Keryx Biopharmaceuticals Inc. (hereinafter Keryx, currently the subsidiary of Akebia Therapeutics Inc.), and Professor Chen Hsing Hsu, had filed the related patents’ infringement litigations as co-plaintiff against the above seven companies to assert their interests, claiming that the generic drug registration of the above seven companies shall not be approved during the patent terms or before the patents expire.

In August 2019, the Company and Keryx had settled the aforementioned patent infringement litigations and entered into the settlement and the license agreement with Par Pharmaceuticals Inc.(“Par”) to solve the lawsuit caused by the Auryxia’s generic drug registration, and the Company and Keryx granted a license to Par to market its generic drug of Auryxia in the United States from March 20, 2025 or any earlier point of time provided that the customary conditions in the similar type of the settlements are satisfied. In addition, the settlement and the license agreement are confidential and shall be under the review of the Federal Trade Commission and the United States Department of Justice. Thereafter, the Company and Keryx had settled with Teva Pharmaceuticals USA Inc. and Watson Laboratories Inc. in April 2020, with Lupin Atlantis Holdings SA and Lupin Limited in September 2020, with Chemo Research SL in March 2021, and with Mylan Pharmaceuticals Inc. in September 2021. In summary, the Company had settled with all the above seven generic drug companies, and the terms and the conditions of each agreement are substantially identical.

In February 2023, Zydus Worldwide DMCC as the eighth generic drug company has submitted Abbreviated New Drug Application to the United States Food and Drug Administration seeking approval to commercially market generic versions of Auryxia. Zydus claims that no valid and enforceable claims of parts of the Company’ s and Keryx’ s Orange Book listed patents will be infringed by its product. The Company, as co-plaintiff, with its licensee Keryx has filed a complaint for patent infringement against Zydus Worldwide DMCC, Zydus Pharmaceuticals (USA) Inc., and Zydus Lifesciences Limited, requesting the effective date of FDA approval of ANDA be the date which is not earlier than the later of the expiration of the patents-in-suit.

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(13) Other disclosures:

• (a) Information on significant transactions:

The following is the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group:

• (i) Loans to other parties:

Number	Name of lender	Name of borrower	Account name	Related party	Highest balance of financing to other parties during the period	Ending balance	Actual usage amount during the period	Range of interest rates during the period	Purposes of fund financing for the borrower	Transaction amount for business between two parties	Reasons for short-term financing	Allowance for bad debt	Collateral	Collateral	Individual funding loan limits	Maximum limit of fund financing
													Item	Value
0	The Company	Cheng Fong Chemical Co., Ltd.	Other receivables －related party	Yes	50,000	-	-	1.25	2	-	Operating Capital	-	-	-	200,711	802,845

• Note 1: The upper limit of the aggregate amount of the loans to all parties is forty percent (40%) of the Company’s net worth.

• Note 2: The upper limit of total amount of the loans to a single party is ten percent (10%) of the Company’s net worth.

• Note 3: The Company’s loan to Cheng Fong Chemical Co., Ltd. was expired on November 11, 2022.

• (ii) Guarantees and endorsements for other parties: None.

• (iii) Securities held as of December 31, 2022 (excluding investment in subsidiaries, associates and joint ventures):

				(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)
Name of holder	Category and name of security	Relationship with company	Account title	Ending balance				Highest amount of shareholding or capital contribution during the year	Remark
				Shares/Unit	Book value	Percentage of ownership	Fair value
The Company The Company The Company Cheng Fong Chemical Co., Ltd.	Beneficiary certification: Spectra SPC Powerfund Stock: G Innings Medical Ltd. Neolink Capital Corp. Ta Yuan Cogeneration Company, Limited	- - - -	Financial assets measured at fair value through profit or loss－current Financial assets measured at fair value through profit or loss－non- current Financial assets measured at fair value through profit or loss－non- current Financial assets measured at fair value through profit or loss－non- current	950,519 420,000 3,500,000 959,231	- 2,728 32,465 39,904	% - % 9.00 % 4.00 % 1.00	- 2,728 32,465 39,904	116,804 2,728 50,350 39,904

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of TWD300 million or 20% of the capital stock: None.

• (v) Acquisition of individual real estate with amount exceeding the lower of TWD300 million or 20% of the capital stock: None.

• (vi) Disposal of individual real estate with amount exceeding the lower of TWD300 million or 20% of the capital stock: None.

• (vii) Related-party transactions for purchases and sales with amounts exceeding the lower of TWD100 million or 20% of the capital stock:

								(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)
Name of company	Related party	Nature of relationship	Transaction details				Transactions wit from	h terms different others	Notes receivable/ Accounts receivable (Notes payable/ Accounts payable)		Remarks
			Purchase /Sale	Amount	Percentage of total purchases (sales)	Payment terms	Unit price	Payment terms	Ending balance	Percentage of total notes receivable/account s receivable (Notes payable/ Accounts payable)
The Company	Shining Biomedical Company Ltd. p	Other related arty	(Sales)	(124,504)	% (6)	120 days	Not significant different from those to third party	Not significant different from those to third party	53,195	% 18

Note 1: Related-party transactions have been eliminated in the preparation of the consolidated financial statements.

• (viii) Receivables from related parties with amounts exceeding the lower of TWD100 million or 20% of the capital stock: None.

• (ix) Trading in derivative instruments: None.

• (x) Business relationships and significant intercompany transactions:

				(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)
No. (Note 1)	Name of company	Name of counter-party	Nature of relationship (Note 2)	Intercompany transactions
				Account name	Amount	Trading terms	Percentage of the consolidated net revenue or total assets
1 1	Zhuhai Panion & BF Biotech Inc. Zhuhai Panion & BF Biotech Inc.	Zhuhai Baozhan Trade Co., Ltd Zhuhai Panion Innovation Biotech Co., Ltd	3 3	Advances from Customers Sales	49,873 30,289	Not significant different from those to third party Not significant different from those to third party	1.61% 1.26%

Note 1: numbering is as follows:

1. Parent company is numbered as “0”

2. Subsidiaries are numbered sequentially in Arabic numerals according to companies.

Note 2: The types of nature of relationship are numbered as follows:

1. 1 represents downstream transactions.

2. 2 represents upstream transactions.

3. 3 represents side stream transactions.

Note 3: for balance sheet items, over 1 % of total consolidated assets, and for profit or loss items, over 1 % of total consolidated operating revenue

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(b) Information on investees:

The following is the information on investees for the years ended December 31, 2022 (excluding information on investees in Mainland China):

Mainland China):	Mainland China):	Mainland China):	Mainland China):
									(In Thousands of New Taiwan Dollars)
Name of investor	Name of investee	Location	Scope of business	Original cost		Ending balance			Highest amount of shareholding or capital contribution during the year	Net income of investee	Investment income (losses) (note 5)	Note
				December 31, 2022	December 31, 2021	Shares	Percentage of ownership	Book value
The Company The Company The Company The Company The Company Bowlin Biotech Corp. Bowlin Holding Co., LTD. (Cayman) Bowlin Holding Co., LTD. (Cayman)	Bowlin Biotech Corp. Bowlin Holding Co., Ltd. (Cayman) Bowlin Holding Co., Ltd. Cheng Fong Chemical Co., Ltd. Weigao Panion Biotech Holding Company Limited Bowlin Holding Co., Ltd. Bowlin Holding (HK) Co., Limited Pou Ling Sang Kei Macau Sociedade Unipessoal Limitada	United States of America Cayman Island Africa Taiwan Hong Kong Africa Hong Kong Macau	Investment Investment Investment Manufacture and sales of active pharmaceutical ingredient Investment Investment Investment Trading	69,990 123,743 74,795 863,513 127,770 69,608 109,985 9,213	69,990 76,184 74,795 563,513 127,770 69,608 64,553 9,213	2,305 4,250,000 2,500,000 42,132,000 33,567,071 2,200,000 3,770,000 -	% 100.00 % 100.00 % 53.19 % 100.00 % 44.00 % 46.81 % 100.00 % 100.00	32,992 107,515 37,470 836,944 (16,624) 34,281 98,651 5,805	69,990 123,743 74,795 863,513 127,770 69,608 109,985 9,213	(36,639) (43,477) (78,273) 17,823 (18,593) (78,273) (42,203) 327	(36,616) (43,477) (41,607) 1,665 (8,181) - - -	Note 1 Note 1 Note 1 Note 1 Note 1 & 3 Note 1 & 4 Note 1 & 4

Note 1: It has been eliminated when preparing the consolidated financial statements.

Note 2: Amounts in foreign currencies were translated based on the exchange rate at the reporting date (USD 1 to NTD 30.725).

Note 3: The investment income (losses) that Bowlin Biotech Corp. recognized due to its investment in Bowlin Holding Co., Ltd. was included in the investment income (losses) that the Company recognized due to its investment in Bowlin Biotech Corp.

Note 4: The investment income (losses) that Bowlin Holding Co., Ltd. (Cayman). recognized due to its investment in Bowlin Holding (HK) Co., Limited and Pou Ling Sang Kei Macau Sociedade Unipessoal Limitada was included in the investment income (losses) that the Company recognized due to its investment in Bowlin Holding Co., Ltd. (Cayman).

Note 5: The investment income (losses) was recognized under the equity method based on the financial statements audited by the auditor of the Company.

(c) Information on investment in mainland China:

(i) The names of investees in Mainland China, the main businesses and products, and other information:

					(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)	(In thousands of New Taiwan Dollars)
Name of investee	Main businesses and products	Total amount of capital surplus	Method of investment (note 1)	Accumulated outflow of investment from Taiwan as of January 1, 2022	Investment flows		Accumulated outflow of investment from Taiwan as of December 31, 2022	Net income (losses) of the investee	Percentage of ownership	Highest amount of shareholding or capital contribution during the year	Investment income (losses) (note 2)	Book value (note 3)	Accumulated remittance of earnings in current period
					Outflow	Inflow
Zhuhai Baozhan Trade Co., Ltd Zhuhai Panion & BF Biotech Inc. Zhuhai Baoyi Biotech Co., Ltd	Trading Manufacture of cosmeceutical Trading	71,882 91,390 4,647	Note 1-2(1) Note 1-2(2) Note 1-2(3)	71,882 65,564 4,647	- 25,826 -	- - -	71,882 91,390 4,647	(48,997) (31,136) 290	% 100.00 % 100.00 % 100.00	71,882 91,390 4,647	(48,997) (31,136) 290	67,911 (5,875) 3,468	- - -

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of investee	Main businesses and products	Total amount of capital surplus	Method of investment (note 1)	Accumulated outflow of investment from Taiwan as of January 1, 2022	Investment flows	Investment flows	Accumulated outflow of investment from Taiwan as of December 31, 2022	Net income (losses) of the investee	Percentage of ownership	Highest amount of shareholding or capital contribution during the year	Investment income (losses) (note 2)	Book value (note 3)	Accumulated remittance of earnings in current period
					Outflow	Inflow
Zhuhai Panion Innovation Biotech Co., Ltd Shandong Weigao Panion Pharmaceutica l Company Limited Shanghai Weigao Panion Pharmaceutica l Company Limited	Trading Manufacture and sales of drugs Manufacture and sales of drugs	33,402 238,483 15,342	Note 1-2(2) Note 1-2(4) Note 1-3	33,402 126,971 -	- - -	- - -	33,402 126,971 -	(12,128) (18,267) (5,456)	% 100.00 % 44.00 % 44.00	33,402 126,971 -	(12,128) (8,037) (2,401)	32,944 43,083 3,227	- - -

Note 1: The method of investment is divided into the following of four categories.

• (1) Invest directly in a company in Mainland China

• (2) Trough the establishment of third-region companies then investing in Mainland China

• 1) Through Bowlin Holdings Co., Ltd. then investing in Mainland China

• 2) Through Bowlin Holding (HK) Co., Limited. then investing in Mainland China

• 3) Through Pou Ling Sang Kei Macau Sociedade Unipessoal Limitada then investing in Mainland China

• 4) Through Weigao Panion Biotech Holding Company Limited then investing in Mainland China

• (3) Other methods: through Shandong Weigao Panion Pharmaceutical Company Limited then investing in Mainland China

Note 2: The investment income (losses) was recognized under the equity method based on the financial statements audited by the auditor of the Company.

Note 3: It has been eliminated when preparing the consolidated financial statements.

Note 4: Amounts in foreign currencies were translated based on the exchange rate at the reporting date (USD 1 to NTD 30.725).

(ii) Limitation on investment in Mainland China:

Company Name	Accumulated Investment in Mainland China as of December 31, 2022	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment
The Company	328,292	328,292	1,204,268 (Note 1)

Note 1:Sixty percent (60%) of the Company’s net worth.

• Note 2:Amounts in foreign currencies were translated based on the exchange rate at the reporting date (USD 1 to TWD 30.725 and CNY 1 to NTD 4.406).

• (iii) Significant transactions in China:

The significant direct and indirect transactions between the Company and the investees in Mainland China, which had been eliminated when preparing the consolidated financial statements, please refer to note 13(a)(x) business relationships and significant intercompany transactions.

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (d) Major shareholders:

		Unit: share
Shareholding Shareholder’s Name	Shares	Percentage
PANION INVESTMENTS CO., LTD. Citi Custodian UOB Kay Hian (Hong Kong) - Customer Dedicated Account	15,869,336 7,057,000	% 18.50 % 8.23

(14) Segment information:

• (a) General information

Taiwan segment: mainly engages in the product sales to medical institutions, pharmacies and consumer channels, develops new products and authorizes contracts in Taiwan.

China, Hong Kong, and Macau segment: mainly engages in the product sales to medical institutions and consumer channels in China, Hong Kong and Macau.

(b) Information about reportable segments and their measurement and reconciliations

The Group uses the internal management report that the chief operating decision maker reviews as the basis to determine resource allocation and make a performance evaluation. The internal management report includes profit before taxation, but not including any extraordinary activity because taxation and extraordinary activity are managed on a group basis, and hence they are not able to be allocated to each reportable segment. In addition, not all reportable segments include depreciation and amortization of significant non-cash items. The reportable amount is similar to that in the report used by the chief operating decision maker.

The operating segment accounting policies are similar to those described in note 4 “ significant accounting policies.”

The Group’s operating segment information and reconciliation are as follows:

Operating revenue Revenue from external customers Inter-segment revenue Total revenue Reportable segment profit or loss Reportable segment assets Reportable segment liabilities		2022	2022	Total 2,398,648 - 2,398,648 333,409 3,093,539 1,086,426
	Taiwan segment $ 2,296,300 5,619 $ 2,301,919 $ 429,847 $ 2,845,920 $ 1,017,082	China, Hong Kong and Macau segment 102,348 2,042 104,390 (96,438) 247,619 69,344	Adjustment or elimination - (7,661) (7,661) - - -

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Operating revenue Revenue from external customers Inter-segment revenue Total revenue Reportable segment profit or loss Reportable segment assets Reportable segment liabilities		2021	2021
	Taiwan segment $ 1,719,650 10,125 $ 1,729,775 $ 249,324 $ 2,622,763 $ 928,404	China, Hong Kong and Macau segment 181,561 1,101 182,662 (66,672) 330,332 91,677	Adjustment or elimination - (11,226) (11,226) - - -	Total
				1,901,211 -
				1,901,211
				182,652
				2,953,095
				1,020,081

• (c) Product and service information

Revenue from the external customers of the Group was as follows:

Product and services	2022 $ 724,221 183,929 161,267 724,634 4,769 189,909 8,831 401,088 $ 2,398,648	2021
Pharmaceutical Supplement Cosmeceutical Diagnostic Medical device Active pharmaceutical ingredients Milestone payments Sales royalty fee		719,660 163,910 263,391 313,144 4,515 116,802 - 319,789
		1,901,211

(d) Geographical information

In presenting information on the basis of geography, segment revenue is based on the geographical location of customers and segment assets are based on the geographical location of the assets.

Geographical information	2022 $ 1,878,863 401,088 109,790 8,907 $ 2,398,648	2021
Revenue from external customers Taiwan United States China, Hong Kong and Macau Other		1,374,947 320,000 185,619 20,645
		1,901,211

(Continued)

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PANION & BF BIOTECH INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Geographical information	December 31, 2022 $ 1,516,157 62,060 $ 1,578,217	December 31, 2021
Non-current assets Taiwan China		1,444,811 99,107
		1,543,918

Non-current assets include property, plant and equipment, right-of-use assets, intangible assets, and prepayments for equipment, not including financial instruments and deferred tax assets.

(e) Information on major customers

Client A of the Taiwan segment Client B of the Taiwan segment	2022 $ 401,088 341,550 $ 742,638	2021
		319,789 -
		319,789