PW Medtech Group Limited - Proxy Solicitation & Information Statement 2017

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your Shares in PW Medtech Group Limited (普华和順集团公司), you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, licensed securities dealer, registered institution in securities, or other agent through whom the sale or transfer was affected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

PW MEDTECH GROUP LIMITED 普華和順集團公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1358)

VERY SUBSTANTIAL ACQUISITION AND VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE PROPOSED SUBSCRIPTION FOR CBPO SHARES IN CONSIDERATION OF THE DISPOSAL BUSINESS AND

NOTICE OF EGM

A letter from the Board is set out on pages 5 to 22 of this circular. Notice convening the EGM to be held on December 1, 2017 (Friday) at 10:00 a.m. at 1002–1003, Block C, Focus Square, No. 6 Futong East Avenue, Wangjing, Chaoyang District, Beijing, PRC is set out on pages EGM-1 to EGM-2 of this circular. A form of proxy for use at the EGM is also enclosed.

Whether or not you intend to attend the EGM, you are requested to complete the proxy form enclosed with the notice of the EGM in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM (i.e. not later than 10:00 a.m. (Hong Kong time) on Wednesday, November 29, 2017) or the adjourned meeting (as the case may be). Completion and return of the proxy form will not prevent the Shareholders from attending and voting in person at the EGM (or any adjournment thereof) should they so wish.

November 14, 2017

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Appendix I —	Accountant’s Report of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II —	Rewiew Report of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III —	Additional Financial Information of the Group . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV —	Financial Information of the CBPO Group . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V —	Unaudited Pro Forma Financial Information of the New Group . . .	V-1
Appendix VI —	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		EGM-1

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DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

‘‘Agreements’’ the Share Exchange Agreement and the Investor Rights Agreement ‘‘Articles of Association’’ the articles of association of the Company, as amended, supplemented or modified from time to time

‘‘Board’’ the board of Directors
‘‘CBPO’’ China Biologic Products Holdings, Inc., a Cayman Islands exempted company, which changed its domicile from Delaware to the Cayman Islands on July 21, 2017 and has been listed on the NASDAQ since 2009
‘‘CBPO Group’’ CBPO and its subsidiaries

‘‘CBPO Share(s)’’ a total of 5,521,000 new shares of CBPO (subject to adjustment) to be issued by CBPO to the Company upon Closing pursuant to the Share Exchange Agreement ‘‘Closing’’ the closing under the Share Exchange Agreement ‘‘Company’’ PW Medtech Group Limited (普华和順集团公司), an exempted company incorporated under the laws of the Cayman Islands with limited liability on May 13, 2011

‘‘connected person(s)’’ has the meaning ascribed thereto under the Listing Rules
‘‘controlling shareholder(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Director(s)’’ the director(s) of the Company
‘‘Disposal’’ the proposed disposal of the entire issued share capital of Health Forward held by the Company to CBPO in exchange for the CBPO Shares pursuant to the Share Exchange Agreement
‘‘Disposal Business’’ the regenerative medical biomaterial business, which was carried out by Tianxinfu and its subsidiaries
‘‘Disposal Group’’ Health Forward and its subsidiaries

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DEFINITIONS

‘‘EGM’’

the extraordinary general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving the Subscription and the Disposal and the transactions contemplated under the Agreements

‘‘Group’’ the Company and its subsidiaries from time to time
‘‘Health Forward’’ Health Forward Holdings Limited, a company incorporated under the laws of Hong Kong on January 21, 2010, and a direct wholly-owned subsidiary of the Company as at the Latest Practicable Date
‘‘HKFRS(s)’’ Hong Kong Financial Reporting Standard(s)
‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC
‘‘Investor Rights Agreement’’
the investor rights agreement intended to be entered into between the Company and CBPO at the Closing in relation to the Company’s rights and obligations as a shareholder of CBPO after the Closing
‘‘Latest Practicable Date’’ November 7, 2017, being the latest practicable date for the purpose of ascertaining certain information contained in this circular
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time)
‘‘NASDAQ’’ The NASDAQ Stock Market LLC
‘‘New Group’’
the Group immediately after the completion of both the Disposal and the Subscription
‘‘Poison Pill Plan’’ the amended and restated preferred shares rights agreement of CBPO dated July 31, 2017, pursuant to which CBPO declared a dividend of one right (the ‘‘Right’’) for each outstanding ordinary share and each Right will entitle its holder to purchase at an exercise price of US$550 (the ‘‘Exercise Price’’) for a number of ordinary share of CBPO having a then-current market value of twice the Exercise Price. The Rights will become exercisable if any person acquires 15% or more of the ordinary shares of CBPO without the approval of the board of directors of CBPO

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DEFINITIONS

‘‘PRC’’ or ‘‘China’’
the People’s Republic of China, which expression for the purpose of this circular, except where the context requires otherwise, does not include Hong Kong, the Macau Special Administrative Region and Taiwan
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)
‘‘Share(s)’’ ordinary share(s) of US$0.0001 each in the issued share capital of the Company
‘‘Share Exchange Agreement’’ the share exchange agreement entered into between the Company and CBPO on October 12, 2017 in relation to the Subscription and the Disposal
‘‘Shareholder(s)’’ holder(s) of Shares
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Subscription’’
the proposed subscription for the CBPO Shares by the Company at the subscription price of US$93.0 (equivalent to approximately RMB611.9) per CBPO Share pursuant to the Share Exchange Agreement
‘‘subsidiary(ies)’’ has the meaning ascribed to it under the Listing Rules
‘‘Tianxinfu’’ Tianxinfu (Beijing) Medical Appliance Co., Ltd.* (天新福(北京)醫療器材股份有限公司), a company established on January 18, 2002 in the PRC with limited liability. As at the Latest Practicable Date, Tianxinfu is owned as to 80% by Health Forward and 20% by Xinyu Yongshuo Management and Consulting LLP (新餘永碩管理諮詢合夥企業(有限合夥)), an independent third party except for its interest in Tianxinfu
‘‘Transaction’’ the Subscription and the Disposal
‘‘U.S.’’ the United States of America
‘‘U.S. GAAP’’
accounting principles generally accepted in the U.S.
‘‘US$’’ United States dollars, the lawful currency of the U.S.
‘‘%’’ per cent

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DEFINITIONS

In this circular, the English names of the PRC entities are translation of their Chinese names, and are included herein for identification purpose only. In the event of any inconsistency, the Chinese names shall prevail.

For the purpose of this circular, unless otherwise stated, the conversion of US$ into RMB is based on the approximate exchange rate of US$1.00 = RMB6.58, being the central parity rate published by the People’s Bank of China on October 12, 2017.

For identification purpose only

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LETTER FROM THE BOARD

PW MEDTECH GROUP LIMITED 普華和順集團公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1358)

Executive Directors: Ms. Yue’e ZHANG Mr. JIANG Liwei

Non-executive Director: Mr. LIN Junshan

Registered Office: The Grand Pavilion Commercial Centre Oleander Way, 802 West Bay Road P.O. Box 32052 Grand Cayman KY1-1208 Cayman Islands

Independent Non-executive Directors:

Mr. ZHANG Xingdong Mr. CHEN Geng Mr. WANG Xiaogang

Principal Place of Business in

Hong Kong:

Level 54, Hopewell Centre 183 Queen’s Road East Hong Kong

November 14, 2017

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE PROPOSED SUBSCRIPTION FOR CBPO SHARES IN CONSIDERATION OF THE DISPOSAL BUSINESS AND

NOTICE OF EGM

1. INTRODUCTION

Reference is made to the announcement of the Company dated October 12, 2017 (the ‘‘Announcement’’) in relation to the proposed subscription for CBPO Shares in consideration of the Disposal Business.

On October 12, 2017 (after trading hours), the Company and CBPO entered into the Share Exchange Agreement, pursuant to which the Company agreed to subscribe for the CBPO Shares in consideration of the Disposal Business in the form of the entire issued share capital of Health Forward, which in turn owns 80% equity interest in Tianxinfu, at a total value of approximately US$513.45 million (equivalent to approximately RMB3.38 billion) with a subscription price of US$93.0 (equivalent to approximately RMB611.9) per CBPO Share. Immediately following the Closing, the Company is expected to become the single largest shareholder of CBPO, with the CBPO Shares representing approximately 16.66% of the enlarged issued share capital of CBPO.

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LETTER FROM THE BOARD

At the Closing, the Company and CBPO intend to enter into the Investor Rights Agreement in relation to the Company’s rights and obligations as a shareholder of CBPO after the Closing. The Investor Rights Agreement provides, among others, that the Company may designate one director to the board of directors of CBPO as long as the shares of CBPO beneficially owned by the Company represent at least 10% of the issued and outstanding share capital of CBPO immediately after the Closing.

The highest applicable percentage ratio (as defined in the Listing Rules) in respect of the Subscription is more than 100% and the highest applicable percentage ratio in respect of the Disposal is more than 75%. As a result, the Subscription constitutes a very substantial acquisition and the Disposal constitutes a very substantial disposal for the Company and accordingly the Subscription and the Disposal are subject to the announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The purpose of this circular is to provide you with, among other things (i) the audited financial information on CBPO for the three financial years ended December 31, 2016 and the unaudited financial information for the six months ended June 30, 2016 and 2017 prepared under U.S. GAAP; (ii) a line-by-line reconciliation of CBPO’s financial information for the differences between CBPO’s accounting policies under U.S. GAAP and the Company’s accounting policies under HKFRS; (iii) accountant’s report on the Group for the three financial years ended December 31, 2016, including the relevant financial information of the Disposal Business; (iv) the unaudited financial information for the six months ended June 30, 2017 of the Group, including the relevant financial information of the Disposal Business; and (v) the pro forma financial information of the New Group.

2. THE AGREEMENTS

A summary of the principal terms of the Share Exchange Agreement is set out below:

Date

October 12, 2017

Parties

(1) The Company; and
(2) CBPO;

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, CBPO and its ultimate beneficial owners are third parties independent of the Company and its connected persons, except for Mr. Marc Chan who is a beneficial owner of CBPO and a substantial shareholder of the Company. According to the latest Disclosure of Interest notice filed by Mr. Marc Chan with the Stock Exchange on August 23, 2017 and the Schedule 13G filed on February 8, 2017 by Parfield International Ltd., of which Mr. Marc Chan is the director and sole owner and assuming no subsequent changes, as at the Latest

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LETTER FROM THE BOARD

Practicable Date, Mr. Marc Chan is (i) a substantial Shareholder indirectly holding approximately 26.03% of the issued share capital of the Company; and (ii) a shareholder of CBPO indirectly holding approximately 5.9% of the issued share capital of CBPO. As confirmed by CBPO, Mr. Marc Chan made his first public filing with respect to his beneficial ownership in CBPO on November 5, 2015 as a result of purchases of existing shares of CBPO and CBPO did not issue any new shares to Mr. Marc Chan.

To the best knowledge and belief of the Company after having made all reasonable enquiries, (i) other than Mr. Marc Chan’s shareholding interests in CBPO, there is no relationship between any of the Company, its controlling Shareholder, directors and connected persons on the one hand, and CBPO on the other hand; and (ii) other than Mr. Marc Chan’s shareholding interests in the Company, there is no relationship (including business relationship) between Mr. Marc Chan and the Company (including its connected persons). CBPO and the Subscription were introduced to the Company by a director of CBPO, who is, to the best knowledge and belief of the Company after having made all reasonable enquiries, independent of Mr. Marc Chan.

As confirmed by CBPO, there is no relationship (including business relationship) between Mr. Marc Chan and CBPO, other than his shareholding interests in CBPO.

Subject Matter

The Company agreed to subscribe for the CBPO Shares at the subscription price of US$93.0 (equivalent to approximately RMB611.9) per CBPO Share in consideration of the entire issued share capital of Health Forward, at a total value of approximately US$513.45 million (equivalent to approximately RMB3.38 billion).

Health Forward owns 80% equity interest of Tianxinfu, which is an indirect subsidiary of the Company and primarily engaged in the manufacturing and sale of regenerative medical biomaterial products. Further information on Tianxinfu is set out in the section headed ‘‘Information on the Parties and Tianxinfu’’.

CBPO is primarily engaged in the research, development, manufacturing and sales of plasma-based pharmaceutical products. Further information on CBPO is set out in the section headed ‘‘Information on the Parties and Tianxinfu’’.

Consideration

The Subscription is in consideration of the Disposal Business, at a total value of approximately US$513.45 million (equivalent to approximately RMB3.38 billion), which was determined after arm’s length negotiations between the Company and CBPO with reference to (i) the historical financial position and business performance of Tianxinfu, including without limitation to, the historical revenue and profit of Tianxinfu; (ii) the historical financial position and business performance of CBPO, including without limitation to, the historical revenue and

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LETTER FROM THE BOARD

profit of CBPO; (iii) the prevailing market prices of the ordinary shares of CBPO; (iv) the benefits to the Company and CBPO after the Closing as elaborated below; and (v) the recent market conditions.

The CBPO Shares represent:

. approximately 20.00% of CBPO’s issued share capital as at the date of the Announcement; and
. approximately 16.66% of CBPO’s issued share capital as enlarged by the allotment and issue of the CBPO Shares, assuming that there is no other change in the issued share capital of CBPO before the Closing.

The subscription price of US$93.0 (equivalent to approximately RMB611.9) per CBPO Share under the Share Exchange Agreement represents:

. a discount of 1.20% of the average closing price per share of CBPO on the NASDAQ for 30 trading days immediately preceding the date of the Announcement;
. a discount of 0.83% of the average closing price per share of CBPO on the NASDAQ for 20 trading days immediately preceding the date of the Announcement;
. a discount of 4.47% of the average closing price per share of CBPO on the NASDAQ for five trading days immediately preceding the date of the Announcement; and
. a discount of 4.27% of the closing price per share of CBPO on the NASDAQ for the trading day immediately preceding the date of the Announcement.

The subscription price of the CBPO Shares was determined after arm’s length negotiations between the Company and CBPO with reference to the prevailing market prices of the ordinary shares of CBPO, the recent market conditions and the historical financial position and business performance of CBPO.

The CBPO Shares to be issued by CBPO to the Company will be proportionally adjusted upon occurrence of any subdivision, combination or share or extraordinary dividend of or on CBPO’s ordinary shares with an effective or record date during the period from the date of the Share Exchange Agreement until the Closing.

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LETTER FROM THE BOARD

Conditions Precedent

The Closing is conditional upon the satisfaction or waiver (where permissible) of the following conditions precedent, among others:

(i) no governmental authority shall have enacted, issued, promulgated, enforced or entered any law which is then in effect (whether temporary, preliminary or permanent) and has the effect of enjoining, restraining, prohibiting or otherwise making the consummation of the transactions under the Share Exchange Agreement illegal;
(ii) the approval of the Shareholders at the EGM to the Share Exchange Agreement, the Investor Rights Agreement and the transactions contemplated thereunder shall have been obtained;
(iii) no material adverse effect shall have occurred to the business, assets, financial condition or results of operations of the CBPO Group following the date of the Share Exchange Agreement;
(iv) the representations and warranties of CBPO shall be true and correct in all material respects as of the date of the Share Exchange Agreement and the Closing, respectively;
(v) CBPO shall have performed and complied in all material respects with all agreements, covenants and conditions contained in the Share Exchange Agreement that are required to be performed or complied with by it at or prior to the Closing;
(vi) no material adverse effect shall have occurred to the business, assets, financial condition or results of operations of the Disposal Group following the date of the Share Exchange Agreement;
(vii) the representations and warranties of the Company shall be true and correct in all material respects as of the date of the Share Exchange Agreement and the Closing, respectively;
(viii) the Company shall have performed and complied in all material respects with all agreements, covenants and conditions contained in the Share Exchange Agreement that are required to be performed or complied with by it at or prior to the Closing; and
(ix) the Company shall have delivered supporting documents reasonably acceptable to CBPO to show that the available cash of the Disposal Group on a consolidated basis available immediately prior to the Closing is no less than (a) RMB570 million, if the Closing occurs prior to or on November 30, 2017; or (b) RMB580 million, if the Closing occurs on a date between December 1, 2017 (inclusive) and December 31, 2017 (inclusive).

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LETTER FROM THE BOARD

The conditions precedent (iii), (iv) and (v) may be waived by the Company and the conditions precedent (vi), (vii), (viii) and (ix) may be waived by CBPO.

Closing

Closing is scheduled to take place within five business days after the last condition precedent having been satisfied or waived, or a later date as may be agreed by the parties in writing.

Indemnification

Following the Closing, CBPO shall indemnify and defend the Company and its representatives against, and shall hold each of them harmless from and against any and all losses actually suffered or incurred by, or imposed upon, the Company and its representatives arising out of or resulting from:

(i) any inaccuracy or breach of any representation or warranty made by CBPO under the Share Exchange Agreement, which losses (other than those relating to certain fundamental representations or warranties) shall be indemnifiable if exceeding RMB1 million but the indemnified amount shall not exceed RMB1 billion; or
(ii) any violation or non-performance of any covenant or agreement of CBPO under the Share Exchange Agreement.

Following the Closing, the Company shall indemnify and defend CBPO and its representatives against, and shall hold each of them harmless from and against any and all losses actually suffered or incurred by, or imposed upon, CBPO and its representatives arising out of or resulting from:

(i) any inaccuracy or breach of any representation or warranty made by the Company under the Share Exchange Agreement, which losses (other than those relating to certain fundamental representations or warranties) shall be indemnifiable if exceeding RMB1 million but the indemnified amount shall not exceed RMB1 billion;
(ii) any violation or non-performance of any covenant or agreement of the Company under the Share Exchange Agreement;
(iii) the Company’s failure to timely pay any taxes imposed on the Company in connection with the transactions as contemplated under the Share Exchange Agreement and any corporate restructuring of the Disposal Group conducted in furtherance of such transactions under any applicable laws or any failure of any other person to withhold or to assist in withholding from payments to the Company pursuant to the Share Exchange Agreement under any applicable laws; or
(iv) other indemnity items as specified in the Share Exchange Agreement.

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LETTER FROM THE BOARD

Termination

The Share Exchange Agreement may be terminated at any time prior to the Closing:

(i) by the mutual consent of CBPO and the Company;
(ii) by either CBPO by written notice to the Company or by the Company by written notice to CBPO, in the event that any governmental authority having competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any injunction which shall have become final and non-appealable;
(iii) by either CBPO by written notice to the Company or by the Company by written notice to CBPO, in the event that the Shareholders’ approval shall not have been obtained at the EGM or any adjournment or postponement thereof at which the Share Exchange Agreement has been voted upon;
(iv) by either CBPO by written notice to the Company or by the Company by written notice to CBPO, in the event that the Closing shall not have occurred on or before December 31, 2017;
(v) by CBPO by written notice to the Company, if (a) the Company shall have breached any representation, warranty, covenant or agreement set forth in the Share Exchange Agreement, (b) such breach or misrepresentation is not cured within twenty (20) days after the Company receives written notice thereof from CBPO (or such shorter period between the date of such notice and December 31, 2017), and (c) such breach or misrepresentation would cause any of the conditions to obligations of CBPO not to be satisfied; or
(vi) by the Company by written notice to CBPO, if (a) CBPO shall have breached any representation, warranty, covenant or agreement set forth in the Share Exchange Agreement, (b) such breach or misrepresentation is not cured within twenty (20) days after CBPO receives written notice thereof from the Company (or such shorter period between the date of such notice and December 31, 2017), and (c) such breach or misrepresentation would cause any of the conditions to obligations of the Company not to be satisfied.

CBPO is liable for a termination fee of RMB20 million in immediately available funds if the Share Exchange Agreement is terminated by the Company pursuant to (vi) above. Such payment shall be made as promptly as possible (but in any event no later than five (5) business days) after the date of such termination. Such termination fee shall be the sole and exclusive remedy of the Company for any loss or damage suffered as a result of any breach of any representation, warranty, covenant or agreement under the Share Exchange Agreement, any failure to perform under the Share Exchange Agreement or other failure of the transactions under the Share Exchange Agreement to be consummated.

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LETTER FROM THE BOARD

The Investor Rights Agreement

The Company and CBPO intend to enter into the Investor Rights Agreement at the Closing, which is in agreed form as an exhibit of the Share Exchange Agreement. A summary of the principal terms of the Investor Rights Agreement is set out below:

Parties

(1) The Company; and
(2) CBPO.

Registration Rights

The Company is entitled to customary registration rights under the laws and regulations of the U.S. for purpose of the subsequent offer and sale of the CBPO Shares to the public.

Board Representation

For as long as the shares of CBPO beneficially owned by the Company represent at least 10% of the issued and outstanding share capital of CBPO immediately after the Closing (after taking into account of any subdivision, combination, consolidation, reverse share split or reclassification of ordinary shares of CBPO or any dividend or distribution in ordinary shares of CBPO occurred after the Closing), the Company shall be entitled to designate one director to the board of directors of CBPO.

Transfer Restrictions

The Company shall not, and shall cause its affiliates not to, directly or indirectly, transfer, sell, hedge, assign, gift, pledge, encumber, hypothecate, mortgage, exchange or otherwise dispose of any securities of CBPO (any such occurrence, a ‘‘Transfer’’) prior to the date that is three years following the Closing (such date, the ‘‘Lock-up Date’’), without the prior written consent of CBPO.

After the Lock-up Date, unless otherwise agreed by CBPO in writing, the Company shall not, and shall cause its affiliates not to, Transfer any securities of CBPO to any competitors of CBPO (‘‘CBPO Competitor(s)’’) listed in the Investor Rights Agreement.

Investment Restrictions

For so long as the Company has the right to designate any director to the board of directors of CBPO, unless otherwise agreed by CBPO in writing, the Company shall not, and shall cause its affiliates not to (i) effect or participate in, including without limitation: (a) any acquisition of any securities or material assets of any CBPO Competitor; (b) any tender or exchange offer, merger, consolidation, amalgamation, scheme of arrangement, or other business combination with any CBPO Competitor; or (c) any recapitalization, restructuring,

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LETTER FROM THE BOARD

liquidation, dissolution or other extraordinary transaction with any CBPO Competitor; (ii) form any partnership, joint venture or other business entities with any CBPO Competitor; or (iii) take any action that would have the effect of any of the transactions described in (i) or (ii).

Voting Agreement

Until the Lock-up Date, the Company shall vote all shares of CBPO beneficially owned by it in the manner recommended by the board of directors of CBPO, provided that the Company is not required to take any actions that would (i) be inconsistent with the fiduciary duties of the Directors under applicable laws; or (ii) violate any applicable securities laws or stock exchange rules.

3. CORPORATE STRUCTURE OF THE GROUP

The simplified corporate structure of the Group before and after the Closing is illustrated as below:

Simplified corporate structure of the Group as at the Latest Practicable Date

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LETTER FROM THE BOARD

Simplified corporate structure of the Group immediately after the Closing

==> picture [146 x 214] intentionally omitted <==

4. INFORMATION ON THE PARTIES AND TIANXINFU

The Company

The Company was incorporated in the Cayman Islands on May 13, 2011 as an exempted company with limited liability under the laws of the Cayman Islands. The principal business activity of the Company is investment holding. The Group is principally engaged in the development, manufacturing and sale of regenerative medical biomaterial products and advanced infusion set products and other businesses including beauty products and orthopedic products.

Health Forward

Health Forward is a company incorporated under the laws of Hong Kong on January 21, 2010 and directly wholly owned by the Company. The principal business activity of Health Forward is investment holding. As at the Latest Practicable Date, Health Forward holds 80% equity interests of Tianxinfu after a series of intra-group reorganization and does not have any other business operation.

Tianxinfu

Tianxinfu is an indirect subsidiary of the Company as at the Latest Practicable Date. It was established on January 18, 2002 in the PRC with limited liability and was acquired by the Group on August 5, 2014 from an independent third party. Tianxinfu carries out the Disposal Business and is primarily engaged in the manufacturing and sale of regenerative medical

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LETTER FROM THE BOARD

biomaterial products. As at the Latest Practicable Date, Tianxinfu is owned as to 80% by Health Forward and 20% by Xinyu Yongshuo Management and Consulting LLP (新餘永碩管理諮詢合夥企業(有限合夥)), an independent third party except for its interest in Tianxinfu.

CBPO

CBPO is a biopharmaceutical company principally engaged in the research, development, manufacturing and sales of human plasma-based biopharmaceutical products, or plasma products, in China. CBPO is among the top three producers of plasma products in China in terms of 2016 sales, according to CBPO’s 2016 annual report. CBPO has been listed on the NASDAQ since 2009 and it changed its domicile from Delaware to Cayman Islands on July 21, 2017. As at the Latest Practicable Date, CBPO has a total issued and outstanding share capital of 27,609,341 ordinary shares and has no other class of shares issued and outstanding.

Financial Information on Tianxinfu and CBPO

(1) Tianxinfu

The following table sets forth the financial information attributable to Tianxinfu and its subsidiaries for the two years ended December 31, 2015 and 2016 based on the unaudited financial statements prepared under HKFRS.

	For the years ended	For the years ended
	December 31,
	2015	2016
	(RMB’000)	(RMB’000)
Net profits before taxation	131,440	155,384
Net profits after taxation	112,819	132,528
	As of December 31,
	2015	2016
	(RMB’000)	(RMB’000)
Total assets	821,199	810,259
Net assets	685,325	694,853

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LETTER FROM THE BOARD

(2) CBPO

The following table sets forth the consolidated financial information of CBPO and its subsidiaries for the two years ended December 31, 2015 and 2016 as extracted from the audited financial statements as contained in the published annual reports of CBPO prepared under U.S. GAAP.

	For	the years ended	December	31,
		2015		2016
		Approximate		Approximate
	(US$’000)	(RMB’000)	(US$’000)	(RMB’000)
Net profits before taxation	135,098	888,945	153,919	1,012,787
Net profits after taxation	114,106	750,817	128,793	847,458
		As of December 31,
		2015		2016
		Approximate		Approximate
	(US$’000)	(RMB’000)	(US$’000)	(RMB’000)
Total assets	551,466	3,628,646	604,958	3,980,624
Net assets	466,962	3,072,610	521,137	3,429,081

Please refer to Appendices I–IV for more details of the financial information of the Group, Tianxinfu and CBPO.

The Company expects to recognise a collective profit of approximately RMB2.0 billion arising from the Disposal, which represents the difference between the consideration of the Disposal and the carrying amount of net asset value of the Disposal Group as at the date of the Closing, which is estimated by making reference to the unaudited aggregate net assets of the Disposal Group under HKFRS as at June 30, 2017, including the Group’s goodwill attributable to the regenerative medical biomaterial products business which amounted to approximately RMB373 million, after taking into account estimated relevant tax expenses of the Disposal while may subject to changes caused by the activities and performance results of the Disposal Group subsequent to June 30, 2017. Please refer to Appendix V to this circular for more information about the financial effects of the Subscription and Disposal on the assets and liabilities of the Group.

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LETTER FROM THE BOARD

5. REASONS FOR AND BENEFITS OF THE TRANSACTION

The Company considered the acquisition of the CBPO Shares is beneficial to the Company’s business development for the following reasons:

. Expansion into the plasma industry in the PRC. By the acquisition of the CBPO Shares, the Company expands into a new area in medical industry in the PRC with fastgrowing, high-margin and high-potential opportunities, which is in line with the Company’s long-term strategies.

China is the second largest plasma products market in the world, after the U.S.. According to The Marketing Research Bureau, Inc., or MRB, an independent research firm focused on blood and plasma industry data on a global level, China’s plasma products market (excluding recombinant products) grew from US$0.80 billion (equivalent to approximately RMB5.26 billion) in 2009 to US$2.47 billion (equivalent to approximately RMB16.25 billion) in 2015 in terms of sales revenue, representing a compound annual growth rate of 20.7%. MRB expects that by 2018, China’s plasmaderived products market will reach over US$3.3 billion (equivalent to approximately RMB21.71 billion), representing about a 35% increase from 2015, assuming domestic plasma supply continues to grow at least 8% annually.

There is also a high industry entry barrier for China’s plasma industry. The PRC State Council has ceased issuing new plasma fractionation licenses since 2001, and there are approximately 30 licensed producers of plasma products in China, of which only approximately 28 are currently in operation. As a result, the existing China-based producers with large production capacities, like CBPO, face relatively limited competition and are well positioned to gain more market share during the industry consolidation phase.

. Leading market position of CBPO in the PRC. CBPO has an established plasma business with good track record. It is a leading producer of plasma products in the PRC with strong growth potential. It is among the top three producers of plasma products in the PRC in terms of 2016 sales, according to CBPO’s 2016 annual report. Please refer to the section headed ‘‘Information on the Parties and Tianxinfu’’ above for more information about CBPO.
. Potential synergy between the businesses of Tianxinfu and CBPO. Tianxinfu is the largest manufacturer of artificial dura mater in the PRC. As both Tianxinfu and CBPO are industry leaders in the biomaterial industry in the PRC with state of art technology and know-how, the Company believes that a smooth business combination could create a sharing platform for both Tianxinfu and CBPO to consolidate their leading market positions and realize rapid growth. In particular, Tianxinfu would be able to strengthen its core business by leveraging CBPO’s existing market presence to cross-sell and offer bundle pricing opportunities, and expand its customer bases by growing into CBPO’s

– 17 –

LETTER FROM THE BOARD

sales channels, hospitals and departments. At the same time, the combined scale of Tianxinfu and CBPO could also reduce costs, optimize spending, broaden market exposure and improve bargaining power with distributors, customers and suppliers.

. Effective way to optimize shareholder value. The transactions under the Share Exchange Agreement are valued at a total amount of approximately US$513.45 million (equivalent to approximately RMB3.38 billion), which provides the Shareholders with an attractive valuation of the Disposal Group and, compared with the proposed A share listing of Tianxinfu, is expected to be consummated with more certainty and expedited timetable. The Company believes that the combination of Tianxinfu with CBPO would enhance the Company’s overall valuation and create values for the Company and its shareholders.
. Access to U.S. capital market. Upon the Closing, the Company is expected to become the single largest shareholder of CBPO with CBPO board-approved exemption from triggering the Poison Pill Plan for any future increase of shareholding in CBPO prior to the Lock-up Date, which offers the Company an access to the U.S. capital market. Although the Company currently does not have any intention to further increase its shareholding in CBPO after Closing, it does not exclude the possibility of increasing its shareholding in CBPO in the future after reviewing its investment in CBPO from time to time based on market conditions and the Company’s financial resources.

The Company is making a long-term strategic investment in CBPO, which also lays the foundation for future business partnership between the Company and CBPO. The investment restrictions and voting agreement under the Investor Rights Agreement are not uncommon in the strategic investment/partnership situations. Therefore, the Company does not consider such arrangements as significant restrictions on its rights as a shareholder of CBPO and believe they are acceptable in light of the overall commercial considerations for this strategic investment, which the Board believes is in the interests of the Company and its Shareholders. Moreover, the Company negotiated a fiduciary duty carve-out regarding the voting agreement to ensure appropriate discharge of the Board’s fiduciary duties.

Accordingly, notwithstanding that the CBPO Shares held by the Company would only be treated as an investment in an associate of the Company at the outset, as a long-term strategic partner of CBPO and with the listing status on the Stock Exchange also with access to the U.S. capital market, the Company is expected to be exposed to diversified coverage and enhance its corporate image in two international financial centers, which could create more potentials and possibilities for the Company’s future development.

Based on the above, the Directors believe that the terms of the Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 18 –

LETTER FROM THE BOARD

6. PROPOSED A SHARE LISTING OF TIANXINFU

Reference is made to the announcement of the Company dated July 24, 2017 in relation to the proposed spin-off and A share listing of Tianxinfu (the ‘‘Tianxinfu A Share Listing’’). Under the Share Exchange Agreement, the Company shall cease to take any step toward the Tianxifu A Share Listing until the Closing, and CBPO undertakes that, if an initial public offering of the securities of a member of the Disposal Group is in the best interests of CBPO, it will use commercially reasonable efforts to effect such initial public offering on an internationally recognized stock exchange as and when such securities become eligible for listing on such stock exchange.

If the Share Exchange Agreement is terminated for any reason, the Company intends to implement the Tianxinfu A Share Listing in accordance with the proposals as set out in the circular of the Company dated August 8, 2017. If Tianxinfu (or other member of the Disposal Group) applies for a separate listing, the Company will comply with Practice Note 15 and other rules of the Listing Rules, to the extent applicable.

7. LISTING RULES IMPLICATIONS

8. WAIVER FROM STRICT COMPLIANCE WITH RULE 14.69(4)(A)(I) OF THE LISTING RULES AND CHAPTER 4 OF THE LISTING RULES

Pursuant to Rule 14.69(4)(a)(i) of the Listing Rules, the Company is required to include in this circular an accountant’s report on CBPO prepared in accordance with the accounting policies used by the Company in the preparation of its own financial statements. The Company has considered that:

(i) upon the Closing, CBPO will not become a subsidiary of the Company and its results will not be consolidated in the financial statements of the Company. The Company’s minority interest in CBPO would be treated as an investment in an associate and accounted for using the equity method of accounting;
(ii) CBPO is required to file its financial information with the U.S. Securities Exchange Commission (the ‘‘SEC’’) periodically within prescribed deadlines. CBPO published its audited financial statements on a yearly basis and its unaudited financial statements on a quarterly basis on SEC website. These financial disclosures published by CBPO were subject to regulation by NASDAQ and the SEC;

– 19 –

LETTER FROM THE BOARD

(iii) the financial statements of CBPO as of December 31, 2014, 2015, and 2016 and for the years then ended, which were prepared under U.S. GAAP, were audited by KPMG Huazhen LLP (the ‘‘KPMG Huazhen’’) in accordance with the standards of Public Company Accounting Oversight Board (United States) and published on the SEC website;
(iv) the financial statements of CBPO for the six months ended June 30, 2016 and 2017 were reviewed by KPMG Huazhen in accordance with the standards of the Public Company Accounting Oversight Board (United States) and published on the SEC website;
(v) KPMG Huazhen is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. KPMG Huazhen is also registered with a recognized body of accountants, namely the Beijing Institute of Certified Public Accountants;
(vi) as advised by CBPO, it is not able to give access to its accounting records and provide explanation in relation to the same for the Company’s auditor to audit its accounts prepared under HKFRS given (a) CBPO is bound by the relevant securities regulations of the U.S. which require all publicly traded companies to disclose material information to all investors at the same time, as a result CBPO cannot disclose any non-public financial information to the Company; (b) it is not the prevailing market practice in the U.S. for an investor making a private minority investment in a public company to be granted access to non-public financial information; and (c) considerable amount of additional work will be required to convert CBPO’s financial information for each of the three financial years ended December 31, 2016 and the six months ended June 30, 2016 and 2017 from U.S. GAAP to HKFRS, which is not commensurate with a transaction of the same nature. Accordingly, it would be unduly burdensome and impractical for the Company to produce an accountants’ report on CBPO in the circular for the following reasons:
(a) the Company does not have access to non-public financial information of CBPO, as a result it would be impractical for the Company to prepare an accountants’ report on CBPO due to the lack of access to CBPO’s accounting records; and
(b) the Company would incur significant costs and expenses to conduct an audit or review of CBPO’s accounts prepared in accordance with HKFRS and significantly delay completion of the Subscription, which may not be in the best interest of the Shareholders. The Company estimates that additional three to four months and approximately RMB13 million to RMB15 million audit fees could be incurred to audit or review the financial information of CBPO.

– 20 –

LETTER FROM THE BOARD

As an alternative to disclosure in compliance with Rule 14.69(4)(a)(i) of the Listing Rules, the following have been included in this circular:

(i) the audited financial information on CBPO for the three financial years ended December 31, 2016 and the unaudited financial information for the six months ended June 30, 2016 and 2017 prepared under U.S. GAAP;
(ii) a line-by-line reconciliation of CBPO’s financial information for the differences between CBPO’s accounting policies under U.S. GAAP and the Company’s accounting policies under HKFRS; and
(iii) additional information which is required for an accountants’ report under Chapter 4 of the Listing Rules but not disclosed in the published financial statements of CBPO.

Accordingly, the Company considers that the alternative disclosure would provide sufficient information to the Shareholders to make a properly informed assessment on the performance and financial information of CBPO and the Disposal Group to vote for or against the Subscription and Disposal at the EGM, and that the relaxation with the requirements under Rule 14.69(4)(a)(i) of the Listing Rules would be unlikely to result in undue risks to the Shareholders.

The Company has applied for, and has been granted, a waiver from strict compliance with the requirements under Rule 14.69(4)(a)(i) of the Listing Rules.

9. EGM AND PROXY ARRANGEMENT

The EGM will be held at 10:00 a.m. on December 1, 2017 (Friday), at 1002–1003, Block C, Focus Square, No. 6 Futong East Avenue, Wangjing, Chaoyang District, Beijing, PRC, at which an ordinary resolution will be proposed to consider and, if thought fit, approve the transactions as contemplated under the Agreements. Notice convening the EGM is set out on pages EGM-1 to EGM-2 of this circular.

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, no Shareholder is required to abstain from voting at the EGM.

A form of proxy for use at the EGM is enclosed with this circular and such form of proxy is also published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.pwmedtech.com). Whether or not you are able to attend the EGM, please complete and sign the form of proxy in accordance with the instructions printed thereon and return it, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power of attorney or authority, to the branch share registrar of the Company in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible but in any event not less than 48 hours before the time scheduled for holding the EGM (i.e. not later than 10:00 a.m. (Hong Kong time) on Wednesday, November

– 21 –

LETTER FROM THE BOARD

29, 2017) or any adjournment thereof (as the case may be). Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM if you so wish and in such event, your proxy form shall be deemed to be revoked.

10. CLOSURE OF REGISTER OF MEMBERS

In order to determine the entitlement of Shareholders to attend and vote at the EGM, the register of members of the Company will be closed from November 28, 2017 to December 1, 2017, both days inclusive, during which period no transfer of shares will be registered. In order to be eligible to attend and vote at the EGM, unregistered holders of Shares should ensure that all share transfer documents accompanied by the relevant share certificates are lodged for registration with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not later than 4:30 p.m. (Hong Kong time) on November 27, 2017. Shareholders whose names are recorded in the register of members of the Company on December 1, 2017 are entitled to attend and vote at the EGM.

11. RECOMMENDATION

The Directors, including the independent non-executive Directors, consider that the terms of the Share Exchange Agreement and the Investor Rights Agreement, and the transactions contemplated therein are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors, including the independent non-executive Directors, recommend the Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the terms of the Share Exchange Agreement and the Investor Rights Agreement, and the transactions contemplated therein.

12. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular.

By Order of the Board PW Medtech Group Limited 普华和順集团公司 Yue’e Zhang Chairman

– 22 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

The following is the text of a report set out on pages I-1 to I-2, received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [78 x 57] intentionally omitted <==

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF PW MEDTECH GROUP LIMITED

Introduction

We report on the historical financial information of PW Medtech Group Limited (the ‘‘Company’’) and its subsidiaries (together, the ‘‘Group’’) set out on pages I-3 to I-80, which comprises the consolidated and company balance sheets as at 31 December 2014, 2015 and 2016 and the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for each of the years then ended (the ‘‘Track Record Period’’) and a summary of significant accounting policies and other explanatory information (together, the ‘‘Historical Financial Information’’). The Historical Financial Information set out on pages I-3 to I-80 forms an integral part of this report, which has been prepared for inclusion in the circular of the Company dated 14 November 2017 (the ‘‘Circular’’) in connection with the proposed subscription for shares of China Biologic Products Holdings, Inc., in consideration of the regenerative medical biomaterial business through the disposal of equity interests in Health Forward Holdings Limited by the Company.

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Notes 2.1 to the Historical Financial Information, and for such internal control as the directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200, Accountants’ Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public

– I-1 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Accountants (‘‘HKICPA’’). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountant’s judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountant considers internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 2.1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountant’s report, a true and fair view of the financial position of the Company as at 31 December 2014, 2015 and 2016 and the consolidated financial position of the Group as at 31 December 2014, 2015 and 2016 and of its consolidated financial performance and its consolidated cash flows for the Track Record Period in accordance with the basis of preparation set out in Note 2.1 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE OF HONG KONG LIMITED

Adjustments

The Historical Financial Information is stated after making such adjustments to the Historical Financial Statements as defined on page I-3 as were considered necessary.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong

14 November 2017

– I-2 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

I. HISTORICAL FINANCIAL INFORMATION OF THE GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountant’s report.

The Historical Financial Information in this report was prepared by the directors of the Company based on the previously issued consolidated financial statements of the Group for the each of the years ended 31 December 2014, 2015 and 2016 respectively (‘‘Historical Financial Statements’’). During the year ended 31 December 2016, the business of development, manufacturing and sale of orthopedic implants products (the ‘‘Orthopedic Implant Business’’) was disposed of and presented as discontinued operations, accordingly the financial information for the year ended 31 December 2014 has been restated for inclusion in this accountant’s report. The previously issued financial statements were audited by PricewaterhouseCoopers in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Historical Financial Information is presented in Renminbi (‘‘RMB’’) and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

– I-3 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Consolidated Balance Sheets

Notes Assets Non-current assets Land use rights 6 Property, plant and equipment 7 Intangible assets 8 Deferred income tax assets 25 Long-term prepayments 13 Trade receivables 15 Current assets Inventories 14 Trade and other receivables 15 Restricted cash 16 Term deposits 17 Cash and cash equivalents 18 Total assets	As 2014 RMB’000 64,662 389,580 994,894 14,777 32,536 — 1,496,449 101,121 371,151 260,000 — 153,816 886,088 2,382,537	at 31 December 2015 2016 RMB’000 RMB’000 64,110 60,937 659,328 687,236 967,798 841,381 10,179 4,357 3,980 3,455 24,071 — 1,729,466 1,597,366 123,983 53,745 357,603 686,437 — — 40,000 — 288,224 149,563 809,810 889,745 2,539,276 2,487,111	at 31 December 2015 2016 RMB’000 RMB’000 64,110 60,937 659,328 687,236 967,798 841,381 10,179 4,357 3,980 3,455 24,071 — 1,729,466 1,597,366 123,983 53,745 357,603 686,437 — — 40,000 — 288,224 149,563 809,810 889,745 2,539,276 2,487,111
			1,597,366
			53,745 686,437 — — 149,563
			889,745
			2,487,111

– I-4 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Notes Equity attributable to owners of the Company Share capital 19 Share premium 19 Treasury shares 19 Other reserves 20 Retained earnings 21 Non-controlling interests Total equity Liabilities Non-current liabilities Deferred income tax liabilities 25 Deferred income 26 Current liabilities Trade and other payables 23 Current income tax liabilities Borrowings 24 Total liabilities Total equity and liabilities	As 2014 RMB’000 1,036 1,674,404 — 95,666 339,053 2,110,159 1,167 2,111,326 65,316 7,282 72,598 114,318 9,295 75,000 198,613 271,211 2,382,537	at 31 December 2015 2016 RMB’000 RMB’000 1,034 979 1,666,821 1,528,311 — (8,890) 82,008 71,354 547,635 742,584 2,297,498 2,334,338 1,167 (336) 2,298,665 2,334,002 60,855 53,438 6,169 1,283 67,024 54,721 170,266 94,763 3,321 3,625 — — 173,587 98,388 240,611 153,109 2,539,276 2,487,111

– I-5 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Balance sheets of the Company

Notes Assets Non-current assets Investments in and loans to subsidiaries Current assets Amounts due from subsidiaries Trade and other receivables Cash and cash equivalents Total assets Equity and liabilities Equity attributable to owners of the Company Share capital Share premium Treasury shares Other reserves 20(b) Accumulated losses 20(b) Total equity Liabilities Current liabilities Amounts due to subsidiaries Trade and other payables Total liabilities Total equity and liabilities	As 2014 RMB’000 572,394 1,071,634 48 24,179 1,095,861 1,668,255 1,036 1,674,404 — 28,012 (44,739) 1,658,713 8,713 829 9,542 9,542 1,668,255	at 31 December 2015 2016 RMB’000 RMB’000 571,633 565,616 1,060,497 920,293 244 520 20,244 12,285 1,080,985 933,098 1,652,618 1,498,714 1,034 979 1,666,821 1,528,311 — (8,890) 22,463 13,724 (48,971) (48,596) 1,641,347 1,485,528 10,316 11,963 955 1,223 11,271 13,186 11,271 13,186 1,652,618 1,498,714

– I-6 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Consolidated Income Statements

Notes
Continuing operations
Revenue
5
Cost of sales
28
Gross profit
Selling expenses
28
Administrative expenses
28
Research and development expenses
28
Other gains — net
27
Operating profit
Finance income
30
Finance costs
30
Finance (costs)/income — net
30
Profit before income tax
Income tax expenses
31
Profit for the year from
continuing operations
Discontinued operations
Profit/(loss) for the year from
discontinued operations
33
Profit for the year

Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
(Restated)
445,451
515,587
566,822
(127,527)
(129,170)
(148,629)
317,924
386,417
418,193
(58,546)
(68,563)
(77,276)
(77,987)
(61,526)
(56,652)
(19,079)
(23,898)
(19,664)
7,631
7,683
14,139
169,943
240,113
278,740
22,197
6,518
4,485
(23,553)
(1,254)
—
(1,356)
5,264
4,485
168,587
245,377
283,225
(26,202)
(41,150)
(43,068)
142,385
204,227
240,157
34,245
4,355
(46,711)
176,630
208,582
193,446

– I-7 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Notes
Profit/(loss) attributable to:
Owners of the Company
Non-controlling interests
Profit/(loss) attributable to owners
of the Company arises from:
Continuing operations
Discontinued operations
Earnings per share from
continuing and discontinued
operations attributable to
owners of the Company
for the year (expressed in
RMB cents per share)
Basic earnings per share
38
From continuing operations
From discontinued operations
From profit for the year
Diluted earnings per share
38
From continuing operations
From discontinued operations
From profit for the year

Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
(Restated)
176,630
208,582
194,949
—
—
(1,503)
176,630
208,582
193,446
142,385
204,227
241,660
34,245
4,355
(46,711)
176,630
208,582
194,949
Year ended 31 December
2014
2015
2016
(Restated)
8.52
12.19
14.87
2.05
0.26
(2.87)
10.57
12.45
12.00
8.30
12.05
14.85
2.00
0.26
(2.87)
10.30
12.31
11.98

– I-8 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Consolidated Statements of Comprehensive Income

Notes
Profit for the year
Other comprehensive income:
Items that may be reclassified to
profit or loss
Currency translation differences
20
Other comprehensive income for
the year, net of tax
Total comprehensive income for
the year
Attributable to:
— Owners of the Company
— Non-controlling interests
Total comprehensive income for
the year
Total comprehensive income
attributable to owners of
the Company arises from:
Continuing operations
Discontinued operations

Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
(Restated)
176,630
208,582
193,446
103
1,232
105
103
1,232
105
176,733
209,814
193,551
176,733
209,814
195,054
—
—
(1,503)
176,733
209,814
193,551
142,488
205,459
241,765
34,245
4,355
(46,711)
176,733
209,814
195,054

– I-9 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Consolidated Statements of Changes in Equity

	Attributable	to owners of the Company	to owners of the Company		Non- controlling interests RMB’000 —	Total equity RMB’000 1,898,696
Share capital RMB’000 1,026	Share premium RMB’000 1,647,840	Other reserves RMB’000 87,407	Retained earnings RMB’000 162,423	Total RMB’000 1,898,696
— —	— —	— 103	176,630 —	176,630 103	— —	176,630 103
—	—	103	176,630	176,733	—	176,733
10 — —	10,582 15,982 —			10,592 — 24,138	— — —	10,592 — 24,138
—	—	—	—	—	1,167	1,167
10	26,564	8,156	—	34,730	1,167	35,897
1,036	1,674,404	95,666	339,053	2,110,159	1,167	2,111,326

– I-10 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

	Attributable	to owners of the Company	to owners of the Company		Non- controlling interests RMB’000 1,167	Total equity RMB’000 2,111,326
Share capital RMB’000 1,036	Share premium RMB’000 1,674,404	Other reserves RMB’000 95,666	Retained earnings RMB’000 339,053	Total RMB’000 2,110,159
— —	— —	— 1,232	208,582 —	208,582 1,232	— —	208,582 1,232
—	—	1,232	208,582	209,814	—	209,814
						8,664 (29,681) — (1,458)
(2)	(7,583)	(14,890)	—	(22,475)	—	(22,475)
1,034	1,666,821	82,008	547,635	2,297,498	1,167	2,298,665

– I-11 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

	Attributable to own	Attributable to own	ers of the Company	ers of the Company		Non- controlling interests RMB’000 1,167	Total equity RMB’000 2,298,665
Share capital RMB’000 1,034	Share premium RMB’000 1,666,821	Treasury shares RMB’000 —	Other reserves RMB’000 82,008	Retained earnings RMB’000 547,635	Total RMB’000 2,297,498
— —	— —	— —	— 105	194,949 —	194,949 105
—	—	—	105	194,949	195,054	(1,503)	193,551
							102 (147,721) — (10,595)
(55)	(138,510)	(8,890)	(10,759)	—	(158,214)	—	(158,214)
979	1,528,311	(8,890)	71,354	742,584	2,334,338	(336)	2,334,002

– I-12 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Consolidated Statements of Cash Flows

Notes
Cash flows from operating
activities
Cash generated from operations
34(a)
Interest paid
Income tax paid
Net cash generated from operating
activities
Cash flows from investing
activities
Acquisition of subsidiaries-net of
cash acquired
34(d)
Disposals of subsidiaries
34(e)
Payments for property, plant and
equipment
Payments for construction in
progress
Purchases of land use rights
6
Purchases of intangible assets
8
Purchases of available-for-sale
financial assets
10
Net (increase)/decrease in restricted
cash
Proceeds from disposals of
available-for-sale financial assets
Proceeds from disposals of property,
plant and equipment
34(c)
Interest received
Net (increase)/decrease in term
deposits
Government grants relating to assets
received
Net cash used in investing
activities

Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
138,084
311,777
324,380
(15,744)
(1,254)
—
(36,240)
(50,548)
(57,617)
86,100
259,975
266,763
(798,599)
—
—
3,000
1,000
(29,908)
(37,209)
(22,671)
(4,366)
(142,109)
(243,183)
(270,562)
(4,568)
(804)
(630)
(1,161)
(90)
(1,218)
—
(280,000)
(309,700)
(223,000)
260,000
—
127,311
280,422
310,859
827
6,404
589
—
6,281
3,979
—
(40,000)
40,000
5,400
—
—
(1,070,108)
(32,641)
(260,957)

– I-13 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Notes
Cash flows from financing
activities
Buy-back of shares
19
Proceeds from employee share
option exercised
19
Proceeds from borrowings
Repayment of borrowings
Net cash used in financing
activities
Net (decrease)/increase in cash
and cash equivalents
Cash and cash equivalents at
beginning of the year
18
Exchange (losses)/gains on cash and
cash equivalents
Cash and cash equivalents at
end of the year

Year ended 31 December
2014
2015
2016
RMB’000
RMB’000
RMB’000
—
(29,681)
(147,721)
10,592
8,664
102
240,000
190,000
—
(258,000)
(265,000)
—
(7,408)
(96,017)
(147,619)
(991,416)
131,317
(141,813)
1,145,641
153,816
288,224
(409)
3,091
3,152
153,816
288,224
149,563

– I-14 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION OF THE GROUP

1 GENERAL INFORMATION

PW Medtech Group Limited (the ‘‘Company’’, previously known as ‘‘Pyholding Limited’’) was incorporated in the Cayman Islands on 13 May 2011 as an exempted company with limited liability under the Companies Law (2010 Revision) of the Cayman Islands. The address of the Company’s registered office is the Grand Pavilion Commercial Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Islands. The Company’s shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) since 8 November 2013.

The Company is an investment holding company. The Company and its subsidiaries (together, the ‘‘Group’’) are principally engaged in the development, manufacturing and sale of (i) regenerative medical biomaterial products (the ‘‘Regenerative Medical Biomaterial Business’’); (ii) advanced infusion set products (the ‘‘Infusion Set Business’’); and (iii) orthopedic implants products in the People’s Republic of China (the ‘‘PRC’’). In 2016, the Orthopedic Implant Business was disposed of and presented as a discontinued operations during the Track Record Period (Note 33).

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the historical financial information of the Group are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The Historical Financial Information of the Group have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (‘‘HKFRS’’). The Historical Financial Information of the Group have been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss and available-for-sale financial assets, which are carried at fair value.

The preparation of the Historical Financial Information of the Group in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information of the Group are disclosed in Note 4.

– I-15 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

2.1.1 Changes in accounting policy and disclosures

New standards and interpretations not yet adopted

The following new standards, amendments and interpretations have been issued but are not effective for the financial year beginning 1 January 2017, and have not been early adopted by the Group.

		Effective for
		annual periods
		beginning on or
		after
HKFRS 9	Financial Instruments	1 January 2018
HKFRS 15	Revenue from contracts with customers	1 January 2018
HKFRS 2 (Amendment)	Classification and measurement of share-based payment	1 January 2018
	transactions
HKFRS 4 (Amendment)	Amendments regarding implementation of HKFRS 9	1 January 2018
HKFRS 15 (Amendment)	Revenue from contracts with customers — Clarifications	1 January 2018
Annual improvement	Amendments to other HKFRSs	1 January 2018
2014–2016
HK(IFRIC) 22	Foreign currency transactions and advance consideration	1 January 2018
HKFRS 16	Leases	1 January 2019
HK(IFRIC) 23	Uncertainty over Income Tax Treatments	1 January 2019
HKFRS 10 and HKAS 28	Sale or contribution of assets between an investor and its	1 January 2019
(Amendment)	associate or joint venture

The Group has already commenced an assessment of the impact of these new or revised standards which are relevant to the Group’s operation. According to the preliminary assessment made by the directors of the Company, no significant impact on the financial performance and positions of the Group is expected when adopting HKFRS 9 and HKFRS 15. The directors also do not expect the adoption of HKFRS 16 would result in significant impact on the Group’s financial performance and positions except for the recognition of the right-of use assets and corresponding lease liabilities arising from accounting for operating leases by the Group as a lessee.

HKFRS 9, ‘Financial instruments’

The new standard addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

HKFRS 9 must be applied for financial years commencing on or after 1 January 2018. The Group does not intend to adopt HKFRS 9 before its mandatory date.

HKFRS 15, ‘Revenue from contracts with customers’

The HKICPA has issued a new standard for the recognition of revenue. This will replace HKAS 18 which covers contracts for goods and services and HKAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption.

Management is currently assessing the effects of applying the new standard on the Group’s financial statements.

– I-16 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

At this stage, the Group is reviewing the contracts and will make more detailed assessments of the impact over the twelve months.

HKFRS 15 is mandatory for financial years commencing on or after 1 January 2018. At this stage, the Group does not intend to adopt the standard before its effective date.

HKFRS 16, ‘Leases’

HKFRS 16 will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

The accounting for lessors will not significantly change.

The standard will affect primarily the accounting for Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of RMB2,765,000, see Note 36. However, the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit and classification of cash flows.

Some of the commitments may be covered by the exception for short-term and low value leases and some commitments may relate to arrangements that will not qualify as leases under HKFRS 16.

The new standard is mandatory for financial years commencing on or after 1 January 2019. At this stage, the Group does not intend to adopt the standard before its effective date.

There are no other HKFRSs or HK (IFRIC) interpretations that are not yet effective that would be expected to have a material impact on the Group.

2.2 Subsidiaries

2.2.1 Consolidation

A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

(a) Business combination

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group recognises any non-controlling interest in the acquiree on an acquisition-byacquisition basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are

– I-17 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

measured at either fair value or the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by HKFRS.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with HKAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

Intra-Group transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions — that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to noncontrolling interests are also recorded in equity.

(c) Disposals of subsidiaries

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. It means the amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable HKFRSs.

– I-18 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

2.2.2 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the historical financial information of the Group of the investee’s net assets including goodwill.

2.3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions.

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the historical financial information of the Group of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘‘functional currency’’). The historical financial information of the Group are presented in RMB, which is the Company’s functional currency and the Group’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘‘finance income or costs’’. All other foreign exchange gains and losses are presented in the income statement within ‘‘Finance (costs)/income — net’’.

Changes in the fair value of debt securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.

– I-19 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(1) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(2) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(3) all resulting exchange differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are recognised in other comprehensive income.

2.5 Land use rights

Land use rights are up-front payments to acquire long-term interests in the usage of land. It is stated at cost and charged to the consolidated income statement over the remaining period of the lease on a straight-line basis, net of any impairment losses.

2.6 Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at historical cost less depreciation and provision for impairment loss, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated income statement during the year in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

—	Buildings and facilities	10–48 years
—	Leasehold improvements	Shorter of remaining lease term or useful lives
—	Furniture, fittings and equipment	3–10 years
—	Machinery and equipment	5–10 years
—	Motor vehicles	5 years

Construction in progress represents buildings, plant and machinery under construction or pending installation and is stated at cost less provision for impairment loss, if any. Cost includes the costs of construction and acquisition. When the assets concerned are available for use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

– I-20 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘‘other gains — net’’ in the consolidated income statement.

2.7 Intangible assets

(a) Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units (‘‘CGUs’’), or Groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or Group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposals. Any impairment is recognised immediately as an expense and is not subsequently reversed.

(b) Customer relationship

Customer relationship acquired in a business combination is recognised at fair value at the acquisition date and are amortised using the straight-line method over their estimated useful lives of 6 years.

(c) Trademarks and technology know-how

Separately acquired trademarks and technology know-how at historical cost. Trademarks and technology know-how acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and technology know-how have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and technology know-how over their estimated useful lives of 15 years.

(d) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of 5 years.

2.8 Impairment of non-financial assets

Intangible assets that have an indefinite useful life or intangible assets not ready to use — are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

– I-21 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

2.9 Non-current assets (or disposals groups) held-for-sale and discontinued operations

Non-current assets (or disposals groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. The non-current assets (except for certain assets as explained below), (or disposals groups), are stated at the lower of carrying amount and fair value less costs to sell. Deferred tax assets, assets arising from employee benefits, financial assets (other than investments in subsidiaries and associates) and investment properties, which are classified as held for sale, would continue to be measured in accordance with the policies set out elsewhere in Note 2.

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographic area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.

When an operation is classified as discontinued, a single amount is presented in the statement of profit or loss, which comprises the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposals, of the assets or disposals groups constituting the discontinued operation.

2.10 Financial assets

2.10.1 Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for the amounts that are settled or expected to be settled more than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise ‘‘trade and other receivables’’, ‘‘restricted cash’’, ‘‘term deposits’’ and ‘‘cash and cash equivalents’’ in the consolidated balance sheet (Note 15, 16, 17 and 18).

(c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

– I-22 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

2.10.2 Recognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade-date — the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘‘Other gains — net’’ in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group’s right to receive payments is established.

Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income.

When securities classified as available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the consolidated statement of comprehensive income as ‘‘other gains — net’’.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group’s right to receive payments is established.

2.11 Impairment of financial assets

(a) Asset carried at amortised cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

– I-23 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

(b) Asset classified as available for sale

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired.

For debt securities, if any such evidence exists the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss — is removed from equity and recognised in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the consolidated income statement.

For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss — is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through the consolidated income statement.

2.12 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). The cost excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

2.13 Trade and other receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

2.14 Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, and short-term highly liquid investments with original maturity of three months or less.

2.15 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

– I-24 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

2.16 Trade and other payables

Trade and othesr payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as noncurrent liabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.17 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

Inside basis differences

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the historical financial information of the Group. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Outside basis differences

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognised.

– I-25 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

(c) Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income tax levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.18 Employee benefits

(a) Pension obligations

The full-time employees of the Group in the PRC are covered by various government-sponsored defined contribution pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. The Group contributes on a monthly basis to these pension plans. Under these plans, the Group has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expenses as incurred and contributions paid to the defined-contribution pension plans for a staff are not available to reduce the Group’s future obligations to such defined-contribution pension plans even if the staff leaves the Group.

(b) Housing benefits

The Group contributes to the state-prescribed housing fund. Such costs are charged to the consolidated income statement as incurred. Apart from those described above, the Group does not have other legal or constructive obligations over such benefits.

(c) Bonus entitlements

The expected cost of bonus payments is recognised as a liability when the Group has a present contractual or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made.

2.19 Share based payments

(a) Equity-settled share-based payment transactions

The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

. including any market performance conditions (for example, an entity’s share price);
. excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and
. including the impact of any non-vesting conditions (for example, the requirement for employees to save or holding shares for a specified period of time).

– I-26 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

(b) Share-based payment transactions among Group entities

The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts.

2.20 Provisions and contingent liabilities

Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the Group’s consolidated financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

2.21 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after elimination of sales made within the Group.

– I-27 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(a) Sales of medical devices and related products

Sales of medical devices and related products are recognised when the risk and reward of the goods has been transferred to the customer, which is usually at the date when a Group entity has delivered products to the customer, the customer has accepted the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products.

(b) Interest income

Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognised using the original effective interest rate.

(c) Dividend income

Dividend income is recognised when the right to receive payment is established.

2.22 Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all the attached conditions.

Government grants relating to costs are deferred and recognised in the consolidated income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to assets are included in non-current liabilities as deferred income and are credited to the consolidated income statement on a straight-line basis over the expected useful lives of the related assets.

2.23 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.

2.24 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group and the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders or directors, where appropriate.

2.25 Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects relating to design and testing of new or improved products are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

– I-28 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk, and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Risk management is carried out by finance department and Chief Financial Officer under policies approved by the board of directors of the Company (the ‘‘Board’’). Group treasury department identifies and evaluates in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, liquidity risk, and non-derivative financial instruments, and investment of excess liquidity.

(a) Market risk

(i) Foreign exchange risk

The Group mainly operates in the PRC and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States dollar (‘‘USD’’). Foreign exchange risk arises from foreign currencies held in certain overseas subsidiaries. The Group does not hedge against any fluctuation in foreign currency during the years. Management may consider entering into currency hedging transactions to manage the Group’s exposure towards fluctuations in exchange rates in the future.

As at 31 December 2014, 2015 and 2016, the foreign exchange risk is immaterial to the Group.

(ii) Cash flow and fair value interest rate risk

Other than bank balances with variable interest rates, the Group has no other significant interestbearing assets. Management does not anticipate any significant impact to interest-bearing assets resulted from the changes in interest rates, because the interest rates of bank balances are not expected to change significantly.

The Group’s interest rate risk arises from borrowings including interest-free loan received from a related party. Borrowings issued at variable rates expose the Group to cash flow interest rate risk, which is partially offset by cash, held at variable rates. Borrowings obtained at fixed rates expose the Group to fair value interest-rate risk. The Group has not hedged its cash flow and fair value interest rate risks.

The Group adjusts the proportion of fixed interest rate debts and variable interest rate debts when the market environment change. As at 31 December 2014, 2015 and 2016, the Group’s interest-bearing debt are as follows:

— Debt at floating rate	As at 31 December 2014 2015 RMB’000 RMB’000 75,000 —	2016 RMB’000 —

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(iii) Price risk

The Group exposes to commodity price risk, mainly due to the fluctuations in prices of plastic, which are the key raw materials to the Group’s products of its Infusion Set Business. During the period, the management considers the price risk exposure is not material, and the Group has the flexibility to pass the increases in raw material costs to the Group’s customers.

(b) Credit risk

The carrying amounts of cash and cash equivalents, restricted cash, trade and other receivables and available-for-sale financial assets represent the Group’s maximum exposure to credit risk in relation to its financial assets. The objective of the Group’s measures to manage credit risk is to control potential exposure to recoverability problem.

The credit risk of bank balances is limited because the counterparties are banks with good reputation and most of them are the four largest state-owned commercial banks in the PRC, or public listed companies. Most of the bank deposits of the Group are placed with financial commercial banks with a BBB+ or above Standard and Poor credit rating.

In respect of trade and other receivables, individual credit evaluations are performed on all customers and counterparties. These evaluations focus on the counterparty’s financial position, past history of making payments and take into account information specific to the counterparty as well as pertaining to the economic environment in which the counterparty operates. Monitoring procedures have been implemented to ensure the follow-up action is taken to recover overdue debts. We grant credit limits to certain customers in consideration of their payment history and business performance. Prepayment is usually required for orders placed over credit limits. In addition, the Group reviews the recoverable amount of each individual trade and other receivable balance at the end of the year to ensure adequate impairment losses are made for irrecoverable amounts.

Available-for-sale financial assets are short-term investments placed with state-owned financial institution in the PRC. There was no recent history of default and the executive directors of the Group are of the opinion that the credit risk related to the investment is low.

(c) Liquidity risk

The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with debt covenants, and to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from banks and other financial institutions to meet their liquidity requirements in the short and longer term. Management believes there is no significant liquidity risk as the Group has sufficient committed facilities to fund their operations.

– I-30 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

The following table details the remaining contractual maturities at the year end of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the year end) and the earliest date the Group may be required to pay.

At 31 December 2014 Financial liabilities as included in trade and other payables (Note 9) Borrowings, including interests At 31 December 2015 Financial liabilities as included in trade and other payables (Note 9) At 31 December 2016 Financial liabilities as included in trade and other payables (Note 9)	Within 1 year RMB’000 60,882 76,650 137,532 112,123 112,123 51,930 51,930	Between 1 and 2 years RMB’000 — — — — — — —	Total RMB’000 60,882 76,650
			137,532
			112,123
			112,123
			51,930
			51,930

3.2 Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by total capital. Total borrowings are current borrowings as shown in the consolidated balance sheet plus amounts due to related parties of non — trading nature. Total capital is calculated as ‘‘total equity’’ as shown in the consolidated balance sheet plus total borrowings.

Total borrowings (RMB’000) Total equity (RMB’000) Total capital (RMB’000) Gearing ratio	As at 31 December 2014 2015 RMB’000 RMB’000 75,000 — 2,111,326 2,298,665 2,186,326 2,298,665 3.43% —	2016 RMB’000 — 2,334,002
		2,334,002
		—

– I-31 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

3.3 Fair value estimation
(a) The Group adopts the amendment to HKFRS 9 for financial instruments that are measured in the consolidated balance sheets at fair value, which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
- . Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
- . Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
- . Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
(b) Financial instruments in level 3

The following table presents the changes in level 3 instruments for the year ended 31 December 2014.

At beginning of the year Additions Change in value of available-for-sale financial assets Disposals At end of the year	Available-for-sale financial assets RMB’000 — 126,537 774 (127,311) —

The following table presents the changes in level 3 instruments for the year ended 31 December 2015.

At beginning of the year Additions Change in value of available-for-sale financial assets Disposals At end of the year	Available-for-sale financial assets RMB’000 — 280,000 422 (280,422) —

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

The following table presents the changes in level 3 instruments for the year ended 31 December 2016.

At beginning of the year Additions Change in value of available-for-sale financial assets Disposals At end of the year	Available-for-sale financial assets RMB’000 — 309,700 1,159 (310,859) —

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

4.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Income taxes

Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

According to the applicable PRC tax regulations, dividends distributed by a company established in the PRC to a foreign investor with respect to profits derived after 1 January 2008 are generally subject to a 10% PRC withholding tax (‘‘WHT’’). If a foreign investor incorporated in Hong Kong meets the conditions and requirements under the double taxation treaty arrangement entered into between the PRC and Hong Kong, the relevant withholding tax rate will be reduced from 10% to 5%.

During the Track Record Period, the Group does not have any plan to require its PRC subsidiaries to distribute their retained earnings and intends to retain them to operate and expand the Group’s business in the PRC. Accordingly, no deferred income tax liability on WHT was accrued as of 31 December 2014, 2015 and 2016.

(b) Impairment of trade and other receivables

Management reviews its trade and other receivables for objective evidence of impairment. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered as objective evidence that a receivable is impaired. In determining this, management makes judgments as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant

– I-33 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

changes with adverse effect on the market and economic environment in which the debtor operates in. Where there is objective evidence of impairment, management makes judgments as to whether an impairment loss should be recorded as an expense.

(c) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in Note 2.7(a). The recoverable amounts of CGUs have been determined based on value-in-use calculations. These calculations require the use of estimates.

According to the valuations results produced by the management of the Company based on the assumptions as disclosed in Note 8, management considered that no impairment charge was required against goodwill arising from acquisitions during the Track Record Period.

In the opinion of the Company’s directors, regarding Infusion Set Business, Orthopedic Implant Business or Regenerative Medical Biomaterial Business respectively, had the gross margin been 2% lower with other assumptions held constant, or had the terminal growth rate been 2% lower with other assumptions held constant, or had the discount rate been 1% higher with other assumptions held constant, there would be no impairment charge needed to be made against goodwill of the Group for the Track Record Period.

(d) Useful lives of property, plant and equipment

The Group determines the estimated useful lives for its property, plant and equipment based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. The Group will revise the depreciation charges where useful lives are different from previously estimated, or it will write off or write down technically obsolete or non-strategic assets that have been abandoned or sold.

5 SEGMENT INFORMATION

The chief operating decision-makers have been identified as the executive directors of the Company. The executive directors review the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The executive directors consider the business from a product perspective, and determine that the Group has the following operating segments:

Continuing operations:

Regenerative Medical Biomaterial Business — manufacturing and sale of regenerative medical biomaterial products;
Infusion Set Business — manufacturing and sale of high-end infusion sets; and
Others — operations of other businesses.

Discontinued operations:

Orthopedic Implant Business — During 2016, Orthopedic Implant Business was disposed of and presented as discontinued operations and comparatives for the years ended 31 December 2014 and 2015 has been restated accordingly (Note 33).

The chief operating decision-makers assess the performance of the operating segments based on the operating profit of each segment. Substantially all of the businesses of the Group are carried out in the PRC.

– I-34 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

	Continuing	operations		Discontinued operations	Total RMB’000 608,059 (165,170)
Regenerative Medical Biomaterial Business RMB’000 79,511 (11,826)	Infusion Set Business RMB’000 362,788 (113,342)	Others RMB’000 3,152 (2,359)	Sub-total RMB’000 445,451 (127,527)	Orthopedic Implant Business RMB’000 162,608 (37,643)
67,685	249,446	793	317,924	124,965	442,889
48,435	127,282	(5,774)	169,943	43,814	213,757
735,349	1,111,484	125,066	1,971,899	395,861	22,228 (24,663)
					(2,435)
					211,322
					2,367,760
32,024	146,396	1,533	179,953	25,942	14,777
					2,382,537
					205,895
136 1,199 9,150	951 12,176 4,084	5 48 —	1,092 13,423 13,234	60 10,620 958	65,316
					271,211
					1,152 24,043 14,192

– I-35 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

	Continuing	operations		Discontinued operations	Total RMB’000 633,874 (157,889)
Regenerative Medical Biomaterial Business RMB’000 210,088 (29,740)	Infusion Set Business RMB’000 300,793 (95,590)	Others RMB’000 4,706 (3,840)	Sub-total RMB’000 515,587 (129,170)	Orthopedic Implant Business RMB’000 118,287 (28,719)
180,348	205,203	866	386,417	89,568	475,985
125,389	119,309	(4,585)	240,113	7,838	247,951
803,056	1,168,863	18,585	1,990,504	538,593	6,596 (1,254)
					5,342
					253,293
					2,529,097
31,113	110,012	2,101	143,226	36,530	10,179
					2,539,276
					179,756
333 3,337 21,963	956 14,105 4,220	7 75 —	1,296 17,517 26,183	60 14,277 1,003	60,855
					240,611
					1,356 31,794 27,186

– I-36 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

	Continuing	operations		Discontinued operations	Total RMB’000 687,930 (177,306)
Regenerative Medical Biomaterial Business RMB’000 241,745 (35,096)	Infusion Set Business RMB’000 319,583 (109,277)	Others RMB’000 5,494 (4,256)	Sub-total RMB’000 566,822 (148,629)	Orthopedic Implant Business RMB’000 121,108 (28,677)
206,649	210,306	1,238	418,193	92,431	510,624
152,129	132,404	(5,793)	278,740	(38,505)	240,235
768,574	1,248,301	465,879	2,482,754	—	4,511 (24)
					4,487
					244,722
					2,482,754
33,439	63,870	2,362	99,671	—	4,357
					2,487,111
					99,671
332 3,252 21,970	1,032 15,357 4,270	8 74 —	1,372 18,683 26,240	60 16,047 1,003	53,438
					153,109
					1,432 34,730 27,243

– I-37 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(a) Concentration of customers

During the Track Record Period, revenue derived from sales made to one individual external customer amounted to 10% or more of the Group’s total revenue. These revenues were in the Infusion Set Business segment. The revenue attributed from the customer is as follows:

Infusion Set Business customer Company A Company B	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 54,723 — — — 35,826 35,333

(b) Geographical segment information

The Group’s operations, assets and most of the customers are located in the PRC. Accordingly, no geographical analysis of revenue, non-current assets and customers is presented.

6 LAND USE RIGHTS

The Group’s interests in land use rights represent prepayments for operating lease of land located in the PRC, the net book values of which are analysed as follows:

Opening net book amount Additions Acquisition of subsidiaries Amortisation charge Disposals of subsidiaries Closing net book amount Cost Accumulated amortisation	2014 RMB’000 51,759 469 13,586 (1,152) — 64,662 67,749 (3,087) 64,662	2015 RMB’000 64,662 804 — (1,356) — 64,110 68,553 (4,443) 64,110	2016 RMB’000 64,110 630 — (1,432) (2,371)
			60,937
			66,181 (5,244)
			60,937

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Amortisation of land use rights has been charged to the consolidated income statement as follows:

Cost of sales Administrative expenses Profit or loss of continuing operations (Note 28) Profit or loss of discontinued operations	2014 RMB’000 353 799 1,152 2014 RMB’000 1,092 60 1,152	2015 RMB’000 444 912 1,356 2015 RMB’000 1,296 60 1,356	2016 RMB’000 419 1,013
			1,432
			2016 RMB’000 1,372 60
			1,432

– I-39 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

7 PROPERTY, PLANT AND EQUIPMENT

Buildings and facilities RMB’000 79,367 (9,997)	Leasehold improvements RMB’000 14,050 (2,303)	Furniture, fittings and office equipment RMB’000 8,304 (2,710)	Machinery and equipment RMB’000 81,113 (14,807)	Motor vehicles RMB’000 7,161 (2,743)	Construction in progress RMB’000 43,686 —	Total RMB’000 233,681 (32,560)
69,370	11,747	5,594	66,306	4,418	43,686	201,121
69,370 16,125 16,214 24,186 — (5,801)	11,747 3,006 — 1,105 — (2,202)
120,094	13,656	6,103	110,725	5,211	133,791	389,580
						467,827 (78,247)
120,094	13,656	6,103	110,725	5,211	133,791	389,580
129,002	11,817	5,182	118,787	5,098	389,442	659,328
157,793 (28,791)	18,920 (7,103)	18,092 (12,910)	171,606 (52,819)	10,601 (5,503)	389,442 —	766,454 (107,126)
129,002	11,817	5,182	118,787	5,098	389,442	659,328

– I-40 –

APPENDIX I

ACCOUNTANT’S REPORT OF THE GROUP

Buildings and facilities Leasehold improvements Furniture, fittings and office equipment Machinery and equipment Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 129,002 11,817 5,182 118,787 5,098 389,442 659,328 251 — 2,861 1,027 227 229,965 234,331 42,650 — 536 6,817 — (50,003) — — — (288) (332) (10) — (630) (8,610) (4,035) (2,292) (18,152) (1,641) — (34,730) (105,960) (3,008) (1,759) (59,548) (788) — (171,063) 57,333 4,774 4,240 48,599 2,886 569,404 687,236 83,972 6,831 14,583 86,778 6,939 569,404 768,507 (26,639) (2,057) (10,343) (38,179) (4,053) — (81,271) 57,333 4,774 4,240 48,599 2,886 569,404 687,236	Buildings and facilities Leasehold improvements Furniture, fittings and office equipment Machinery and equipment Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 129,002 11,817 5,182 118,787 5,098 389,442 659,328 251 — 2,861 1,027 227 229,965 234,331 42,650 — 536 6,817 — (50,003) — — — (288) (332) (10) — (630) (8,610) (4,035) (2,292) (18,152) (1,641) — (34,730) (105,960) (3,008) (1,759) (59,548) (788) — (171,063) 57,333 4,774 4,240 48,599 2,886 569,404 687,236 83,972 6,831 14,583 86,778 6,939 569,404 768,507 (26,639) (2,057) (10,343) (38,179) (4,053) — (81,271) 57,333 4,774 4,240 48,599 2,886 569,404 687,236	Buildings and facilities Leasehold improvements Furniture, fittings and office equipment Machinery and equipment Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 129,002 11,817 5,182 118,787 5,098 389,442 659,328 251 — 2,861 1,027 227 229,965 234,331 42,650 — 536 6,817 — (50,003) — — — (288) (332) (10) — (630) (8,610) (4,035) (2,292) (18,152) (1,641) — (34,730) (105,960) (3,008) (1,759) (59,548) (788) — (171,063) 57,333 4,774 4,240 48,599 2,886 569,404 687,236 83,972 6,831 14,583 86,778 6,939 569,404 768,507 (26,639) (2,057) (10,343) (38,179) (4,053) — (81,271) 57,333 4,774 4,240 48,599 2,886 569,404 687,236	Buildings and facilities Leasehold improvements Furniture, fittings and office equipment Machinery and equipment Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 129,002 11,817 5,182 118,787 5,098 389,442 659,328 251 — 2,861 1,027 227 229,965 234,331 42,650 — 536 6,817 — (50,003) — — — (288) (332) (10) — (630) (8,610) (4,035) (2,292) (18,152) (1,641) — (34,730) (105,960) (3,008) (1,759) (59,548) (788) — (171,063) 57,333 4,774 4,240 48,599 2,886 569,404 687,236 83,972 6,831 14,583 86,778 6,939 569,404 768,507 (26,639) (2,057) (10,343) (38,179) (4,053) — (81,271) 57,333 4,774 4,240 48,599 2,886 569,404 687,236	Buildings and facilities Leasehold improvements Furniture, fittings and office equipment Machinery and equipment Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 129,002 11,817 5,182 118,787 5,098 389,442 659,328 251 — 2,861 1,027 227 229,965 234,331 42,650 — 536 6,817 — (50,003) — — — (288) (332) (10) — (630) (8,610) (4,035) (2,292) (18,152) (1,641) — (34,730) (105,960) (3,008) (1,759) (59,548) (788) — (171,063) 57,333 4,774 4,240 48,599 2,886 569,404 687,236 83,972 6,831 14,583 86,778 6,939 569,404 768,507 (26,639) (2,057) (10,343) (38,179) (4,053) — (81,271) 57,333 4,774 4,240 48,599 2,886 569,404 687,236	Buildings and facilities Leasehold improvements Furniture, fittings and office equipment Machinery and equipment Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 129,002 11,817 5,182 118,787 5,098 389,442 659,328 251 — 2,861 1,027 227 229,965 234,331 42,650 — 536 6,817 — (50,003) — — — (288) (332) (10) — (630) (8,610) (4,035) (2,292) (18,152) (1,641) — (34,730) (105,960) (3,008) (1,759) (59,548) (788) — (171,063) 57,333 4,774 4,240 48,599 2,886 569,404 687,236 83,972 6,831 14,583 86,778 6,939 569,404 768,507 (26,639) (2,057) (10,343) (38,179) (4,053) — (81,271) 57,333 4,774 4,240 48,599 2,886 569,404 687,236	Buildings and facilities Leasehold improvements Furniture, fittings and office equipment Machinery and equipment Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 129,002 11,817 5,182 118,787 5,098 389,442 659,328 251 — 2,861 1,027 227 229,965 234,331 42,650 — 536 6,817 — (50,003) — — — (288) (332) (10) — (630) (8,610) (4,035) (2,292) (18,152) (1,641) — (34,730) (105,960) (3,008) (1,759) (59,548) (788) — (171,063) 57,333 4,774 4,240 48,599 2,886 569,404 687,236 83,972 6,831 14,583 86,778 6,939 569,404 768,507 (26,639) (2,057) (10,343) (38,179) (4,053) — (81,271) 57,333 4,774 4,240 48,599 2,886 569,404 687,236
57,333	4,774	4,240	48,599	2,886	569,404	687,236
						768,507 (81,271)
57,333	4,774	4,240	48,599	2,886	569,404	687,236

As at 31 December 2014, 2015 and 2016, the Group is still in the process of applying the ownership certificates of certain buildings with the aggregated carrying amounts of RMB14,927,000, RMB8,579,000 and RMB8,102,000, respectively.

Depreciation of property, plant and equipment has been charged to the consolidated income statement as follows:

Cost of sales Administrative expenses Selling and marketing expenses Research and development expenses Profit or loss of continuing operations (Note 28) Profit or loss of discontinued operations	2014 RMB’000 15,033 7,074 791 1,145 24,043 2014 RMB’000 13,423 10,620 24,043	2015 RMB’000 21,147 7,889 850 1,908 31,794 2015 RMB’000 17,517 14,277 31,794	2016 RMB’000 21,997 9,930 1,180 1,623
			34,730
			2016 RMB’000 18,683 16,047
			34,730

Construction work in progress as at 31 December 2014, 2015 and 2016 mainly comprises new manufacturing factory under construction.

– I-41 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

In 2015, the Group has capitalised borrowing costs amounting to RMB944,000 on qualifying assets. Borrowing costs were capitalised at the weighted average rate of its general borrowings of 5.25%. There was no capitalised borrowing cost for the years ended 31 December 2014 and 2016.

8 INTANGIBLE ASSETS

Goodwill RMB’000 249,727 —	Computer software RMB’000 198 (125)	Trademarks RMB’000 11,755 (2,090)	Technology know-how RMB’000 50,343 (7,329)	Customer relationship RMB’000 5,012 (2,228)
249,727	73	9,665	43,014	2,784
249,727 373,229 — —	73 — 1,161 (66)	9,665 22,956 — (1,422)	43,014 306,477 — (11,869)	2,784 — — (835)
622,956	1,168	31,199	337,622	1,949
622,956 —
622,956	1,168	31,199	337,622	1,949
622,956 — —	1,168 90 (248)	31,199 — (2,314)	337,622 — (23,789)	1,949 — (835)
622,956	1,010	28,885	313,833	1,114
622,956 —	1,449 (439)	34,711 (5,826)	356,820 (42,987)	5,012 (3,898)
622,956	1,010	28,885	313,833	1,114

– I-42 –

APPENDIX I

ACCOUNTANT’S REPORT OF THE GROUP

Goodwill Computer software Trademarks Technology know-how Customer relationship Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 622,956 1,010 28,885 313,833 1,114 967,798 — 898 — 320 — 1,218 — (298) (2,314) (23,796) (835) (27,243) (79,397) — — — — (79,397) (9,576) (1,147) — (10,272) — (20,995) 533,983 463 26,571 280,085 279 841,381 533,983 858 34,711 343,237 5,012 917,801 — (395) (8,140) (63,152) (4,733) (76,420) 533,983 463 26,571 280,085 279 841,381	Goodwill Computer software Trademarks Technology know-how Customer relationship Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 622,956 1,010 28,885 313,833 1,114 967,798 — 898 — 320 — 1,218 — (298) (2,314) (23,796) (835) (27,243) (79,397) — — — — (79,397) (9,576) (1,147) — (10,272) — (20,995) 533,983 463 26,571 280,085 279 841,381 533,983 858 34,711 343,237 5,012 917,801 — (395) (8,140) (63,152) (4,733) (76,420) 533,983 463 26,571 280,085 279 841,381	Goodwill Computer software Trademarks Technology know-how Customer relationship Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 622,956 1,010 28,885 313,833 1,114 967,798 — 898 — 320 — 1,218 — (298) (2,314) (23,796) (835) (27,243) (79,397) — — — — (79,397) (9,576) (1,147) — (10,272) — (20,995) 533,983 463 26,571 280,085 279 841,381 533,983 858 34,711 343,237 5,012 917,801 — (395) (8,140) (63,152) (4,733) (76,420) 533,983 463 26,571 280,085 279 841,381	Goodwill Computer software Trademarks Technology know-how Customer relationship Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 622,956 1,010 28,885 313,833 1,114 967,798 — 898 — 320 — 1,218 — (298) (2,314) (23,796) (835) (27,243) (79,397) — — — — (79,397) (9,576) (1,147) — (10,272) — (20,995) 533,983 463 26,571 280,085 279 841,381 533,983 858 34,711 343,237 5,012 917,801 — (395) (8,140) (63,152) (4,733) (76,420) 533,983 463 26,571 280,085 279 841,381	Goodwill Computer software Trademarks Technology know-how Customer relationship Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 622,956 1,010 28,885 313,833 1,114 967,798 — 898 — 320 — 1,218 — (298) (2,314) (23,796) (835) (27,243) (79,397) — — — — (79,397) (9,576) (1,147) — (10,272) — (20,995) 533,983 463 26,571 280,085 279 841,381 533,983 858 34,711 343,237 5,012 917,801 — (395) (8,140) (63,152) (4,733) (76,420) 533,983 463 26,571 280,085 279 841,381	Goodwill Computer software Trademarks Technology know-how Customer relationship Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 622,956 1,010 28,885 313,833 1,114 967,798 — 898 — 320 — 1,218 — (298) (2,314) (23,796) (835) (27,243) (79,397) — — — — (79,397) (9,576) (1,147) — (10,272) — (20,995) 533,983 463 26,571 280,085 279 841,381 533,983 858 34,711 343,237 5,012 917,801 — (395) (8,140) (63,152) (4,733) (76,420) 533,983 463 26,571 280,085 279 841,381
533,983	463	26,571	280,085	279	841,381
533,983 —	858 (395)	34,711 (8,140)	343,237 (63,152)	5,012 (4,733)	917,801 (76,420)
533,983	463	26,571	280,085	279	841,381

Amortisation of intangible assets has been charged to the consolidated income statement as follows:

Cost of sales Administrative expenses Selling expenses Profit or loss of continuing operations (Note 28) Profit or loss of discontinued operations	2014 RMB’000 10,944 991 2,257 14,192 2014 RMB’000 13,234 958 14,192	2015 RMB’000 22,862 1,175 3,149 27,186 2015 RMB’000 26,183 1,003 27,186	2016 RMB’000 22,869 1,225 3,149
			27,243
			2016 RMB’000 26,240 1,003
			27,243

– I-43 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Impairment tests for goodwill

Goodwill acquired through business combinations has been primarily allocated to the Infusion Set Business, Orthopedic Implant Business and Regenerative Medical Biomaterial Business as below:

As at 31 December 2014 As at 31 December 2015 As at 31 December 2016	Infusion Set Business RMB’000 160,754 160,754 160,754	Orthopedic Implant Business (*) RMB’000 88,973 88,973 —	Regenerative Medical Biomaterial Business RMB’000 373,229 373,229 373,229	Total RMB’000 622,956 622,956 533,983

Goodwill is monitored by the management at the operating segment level.

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the businesses in which the CGU operates.

Orthopedic Implant Business was disposed in 2016. (Note 33).

The key assumptions used for value-in-use calculations in 2014, 2015 and 2016 are as follows:

Gross margin Growth rate Discount rate	Infusion Set Business	Orthopedic Implant Business	Regenerative Medical Biomaterial Business
	2014 2015 2016 64.0% 65.0% 65.0% 2.5% 2.5% 2.5% 17.6% 17.6% 17.6%	2014 2015 2016 75.0% 75.0% — 2.5% 2.5% — 17.6% 17.6% —	2014 2015 2016 90.0% 84.0% 86.0% 4.0% 4.0% 4.0% 16.0% 16.0% 16.0%

These assumptions have been used for the analysis of the CGU within the operating segment.

Management determined budgeted gross margin based on past performance and its expectations of market development. The discount rates used are pre-tax and reflect specific risks relating to the operating segment.

Management does not foresee any significant change in the key assumptions used in the value-in-use calculation that will cause the recoverable amount of goodwill to be less than its carrying amount.

– I-44 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

9 FINANCIAL INSTRUMENTS BY CATEGORY

Assets as per balance sheet At 31 December 2014 Trade and other receivables (excluding prepayments) Term deposits Cash and cash equivalents Total At 31 December 2015 Trade and other receivables (excluding prepayments) Term deposits Cash and cash equivalents Total At 31 December 2016 Trade and other receivables (excluding prepayments) Cash and cash equivalents Total Liabilities as per balance sheet At 31 December 2014 Trade and other payables (excluding advance from customers, salary and staff welfare payables and value added tax and other taxes) Borrowings Total At 31 December 2015 Trade and other payables (excluding advance from customers, salary and staff welfare payables and value added tax and other taxes) Total At 31 December 2016 Trade and other payables (excluding advance from customers, salary and staff welfare payables and value added tax and other taxes) Total	Loans and receivables RMB’000 362,865 260,000 153,816
	776,681
	347,469 40,000 288,224
	675,693
	679,312 149,563
	828,875
	Liabilities at amortised cost RMB’000 60,882 75,000
	135,882
	112,123
	112,123
	51,930
	51,930

– I-45 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

10 AVAILABLE-FOR-SALE FINANCIAL ASSETS

At beginning of the year Additions Acquisition of a subsidiary (Note 32(a)) Change in value of available-for-sale financial assets Disposals At end of the year	2014 RMB’000 — — 126,537 774 (127,311) —	2015 RMB’000 — 280,000 — 422 (280,422) —	2016 RMB’000 — 309,700 — 1,159 (310,859) —

The investments represent short-term investments placed in certain PRC state-owned banking institution with maturity within 1 year and non-determinable return rate. These investments are all denominated in RMB.

11 SUBSIDIARIES

The Company has direct or indirect interests in the following subsidiaries:

	Place of			Effective equity	Effective equity
	incorporation and	Date of		interests held
	operation/kind	incorporation/	Registered/Issued	31	December
Company name	of legal entity	establishment	and paid-up capital	2016	2015	2014	Principal activities
Directly owned:
PWM Investment Holdings	Hong Kong/Limited	30 October 2009	211,447,750 ordinary shares	100%	100%	100%	Investment holding
Company Limited	liability company		of Hong Kong dollar
			(‘‘HKD’’) 1 each
Health Access Limited	Hong Kong/Limited	29 June 2011	480,026,001 ordinary shares	100%	100%	100%	Investment holding
(‘‘Health Access’’)	liability company		of HKD1 each
Indirectly owned:
Health Forward Holdings	Hong Kong/Limited	21 January 2010	10,000 ordinary shares of	100%	100%	100%	Investment holding
Limited (‘‘Health Forward’’)	liability company		HKD1 each
PW Medtech (Beijing) Limited	PRC/Limited liability	10 August 2000	RMB154,300,000	100%	100%	100%	Investment holding
(普華和順(北京)醫療科技有	company
限公司‘‘PW Medtech
(Beijing)’’)
Jiangsu PW Medtech Medical	PRC/Limited liability	10 April 2014	RMB10,000,000	100%	100%	100%	Infusion Set Business
Device Co., Ltd. (江蘇普華	company
和順醫療器械有限公司)
Beijing Fert Technology Co.,	PRC/Limited liability	23 September 1997	RMB126,000,000	100%	100%	100%	Infusion Set Business
Ltd. (北京伏爾特技術有限	company
公司‘‘Fert Technology’’)
Xuzhou Yijia Medical Device	PRC/Limited liability	30 June 2003	RMB7,000,000	100%	100%	100%	Infusion Set Business
Co.,Ltd. (徐州一佳醫療器械	company
有限公司‘‘Xuzhou Yijia’’)
Beijing Zhong Jie Tian Gong	PRC/Limited liability	22 September 2011	RMB10,000,000	100%	100%	100%	Infusion Set Business
Medtech Co., Ltd. (北京中杰	company
天工醫療科技有限公司)

– I-46 –

APPENDIX I

ACCOUNTANT’S REPORT OF THE GROUP

Place of Effective equity incorporation and Date of interests held operation/kind incorporation/ Registered/Issued 31 December Company name of legal entity establishment and paid-up capital 2016 2015 2014 Principal activities Shandong Fert Technology PRC/Limited liability 8 January 2013 RMB10,000,000 100% 100% 100% Infusion Set Business Co., Ltd. (山東伏爾特技術有 company 限公司) Shandong Fert Medical Device PRC/Limited liability 28 July 2015 RMB20,000,000 70% 70% — Infusion Set Business Co., Ltd. (山東伏爾特醫療器 company 械有限公司) Beijing Fert Medtech Co., Ltd. PRC/Limited liability 18 October 2016 RMB 30,000,000 100% — — Infusion Set Business (北京伏爾特醫療科技有限 company 公司) Tianxinfu (Beijing) Medical PRC/Limited liability 18 January 2002 RMB45,000,000 100% 100% 100% Regenerative Medical Appliance Co., Ltd. company Biomaterial (天新福(北京)醫療器材股份 Business 有限公司 ‘‘Tianxinfu’’) Beijing Lima-TXF Medical PRC/Limited liability 10 November 2005 EURO3,200,000/ 75% 75% 75%* Regenerative Medical Equipment Co., Ltd. (北京麗 company EURO1,518,500 Biomaterial 瑪天新福醫療器械有限責任 Business 公司) Disposals of subsidiaries (i): Lhasa Tianqiong Investment PRC/Limited liability 30 January 2013 RMB7,000,000 — 100% 100% Investment holding Management Co., Ltd. (拉薩 company 天穹投資管理有限公司) Tianjin Yingshang Technological PRC/Limited liability 16 October 2009 RMB6,000,000 — 100% 100% Investment holding Development Co., Ltd. (天津 company 市英尚科技發展有限公司) Tianjin Walkman Biomaterial PRC/Limited liability 8 November 2001 RMB100,000,000 — 100% 100% Orthopedic Implant Co., Ltd. (天津市威曼生物材 company Business 料有限公司) Tianjin Shengge Biology PRC/Limited liability 21 March 2006 RMB10,000,000 — 100% 100% Orthopedic Implant Engineering Co., Ltd. (天津 company Business 市聖格生物工程有限公司) Anyang Weili Metal Technology PRC/Limited liability 12 August 1996 RMB3,000,000 — 100% 100% Orthopedic Implant Co., Ltd. (安陽市偉力金屬科 company Business 技有限責任公司) Shenzhen Bone Medical Device PRC/Limited liability 12 November 2002 RMB45,000,000 — 100% 100% Orthopedic Implant Co., Ltd. (深圳市博恩醫療器 company Business 材有限公司) Disposals of a subsidiary (ii): Beijing Weikangtongda Medical PRC/Limited liability 31 July 2014 RMB50,000,000 — 100% 100% Infusion Set Business Device Co., Ltd. (北京維康 company 通達醫療器械技術有限公司 ‘‘Weikangtongda’’)

The directors of the Company consider that the non-controlling interests of the subsidiary were insignificant to the Group and thus the individual financial information of the subsidiary is not disclosed.

– I-47 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

The English names of certain subsidiaries referred to above represented the best efforts by management of the Company in translating the subsidiaries’ Chinese names, as they do not have official English names.

(i) On 24 December 2016, the Group entered into an agreement to dispose of the subsidiaries, which engaged in the Orthopedic implant Business, to an independent third party at a consideration of RMB450,000,000. The transaction has been completed before 31 December 2016 and the results of the Orthopedic implant Business have been presented as discontinued operations during the Track Record Period (Note 33).
(ii) On 8 December 2016, Fert Technology entered into an agreement to dispose of one of its subsidiaries, namely Weikangtongda, to an independent third party at a consideration of RMB15,000,000. The gain on disposal was approximately RMB6,099,000 (Note 27).

12 INVESTMENT IN AN ASSOCIATE

Investment in an associate (i) Impairment provision (ii)	2014 RMB’000 4,366 (4,366) —	2015 RMB’000 4,366 (4,366) —	2016 RMB’000 4,366 (4,366)
			—

(i) Beijing XinFu Mindacam Intelligent Engineering Co., Ltd. (‘‘Xinfu Mindacam’’) was incorporated in the PRC on 23 May 2007 with limited liability under the Company Law of the PRC. The registered capital of the associate was USD1,500,000, out of which 40% equity interests was contributed by Tianxinfu, at a consideration of USD600,000 (equivalent to approximately RMB4,366,000).
(ii) Xinfu Mindacam was inactive during the years ended 31 December 2014, 2015 and 2016. The Board considered that the carrying amount of the investment was not recoverable and full impairment was made against the investment.

The Board considered that there was no material associate which warrants disclosure of separate financial information.

13 LONG-TERM PREPAYMENTS

Prepayments for property, plant and equipment Others	2014 RMB’000 32,315 221 32,536	2015 RMB’000 3,774 206 3,980	2016 RMB’000 3,264 191
			3,455

– I-48 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

14 INVENTORIES

Raw materials Work in progress Finished goods	2014 RMB’000 33,886 19,805 47,430 101,121	2015 RMB’000 35,061 18,598 70,324 123,983	2016 RMB’000 20,556 9,224 23,965
			53,745

The cost of inventories recognised as expense and included in ‘‘cost of sales’’ of continuing operations amounted to RMB142,614,000, RMB138,987,000 and RMB118,910,000 for the years ended 31 December 2014, 2015 and 2016 respectively, which included inventory write-down of RMB546,000, RMB456,000 and RMB39,000.

As at 31 December 2014, 2015 and 2016, the ageing analysis of the inventories are as follows:

Within 12 months 1 year to 2 years Over 2 years	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 76,211 89,593 50,058 19,780 20,844 2,561 5,130 13,546 1,126 101,121 123,983 53,745	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 76,211 89,593 50,058 19,780 20,844 2,561 5,130 13,546 1,126 101,121 123,983 53,745
		53,745

Movements on the Group’s provision for impairment of inventories are as follows:

As at January 1 Provision for impairment of inventories Disposal of subsidiaries As at December 31	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 7,570 8,116 9,972 546 1,856 39 — — (9,442) 8,116 9,972 569	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 7,570 8,116 9,972 546 1,856 39 — — (9,442) 8,116 9,972 569
		569

– I-49 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

15 TRADE AND OTHER RECEIVABLES

Trade receivables Less: provision for impairment (a), (c) Less: non-current portion (b) Trade receivables — net (c) Bills receivable (d) Prepayments Receivables from disposals of Orthopedic Implant Business (Note 34(e)) Receivables from disposal of a subsidiary Other receivables (e)	2014 RMB’000 339,498 (6,871) — 332,627 992 8,286 — 12,520 16,726 371,151	2015 RMB’000 365,643 (8,076) (24,071) 333,496 2,898 10,134 — — 11,075 357,603	2016 RMB’000 214,125 (866) —
			213,259 689 7,125 443,833 15,000 6,531
			686,437

As at 31 December 2014, 2015 and 2016, except for the prepayments which are not financial assets, the fair value of the trade and other receivables approximated its carrying amounts. As at 31 December 2014, 2015 and 2016, the carrying amounts of the trade and other receivables are denominated in RMB.

(a) As of 31 December 2014, 2015 and 2016, trade receivables of RMB6,914,000, RMB8,084,000 and RMB4,615,000 were impaired, provision of RMB6,871,000, RMB8,076,000 and RMB866,000 have been made against these impaired trade receivables respectively. The ageing of these receivables is as follows:

Up to 3 months 3 months to 6 months 6 months to 12 months 1 year to 2 years 2 years to 3 years Over 3 years	2014 RMB’000 — — — 114 745 6,055 6,914	2015 RMB’000 87 26 864 356 316 6,435 8,084	2016 RMB’000 — — 1,151 3,464 — —
			4,615

The individually impaired receivables mainly relate to certain customers, which are in unexpected difficult economic situations.

(b) Non-current portion of the trade receivables

As of July 2015, Fert Technology entered into an agreement (the ‘‘Agreement’’) with a major customer who owed an amount of approximately RMB59,227,000 to Fert Technology. Pursuant to the Agreement, the customer should settle the amount in cash by monthly instalment of RMB2 million from August 2015 till the outstanding balance is fully settled, thus the carrying amount of the receivables has been adjusted down to current value of estimated future cash flow discounted by effective interest rate of 4.75%. As at 31 December 2016, the discounted carrying amount is RMB21,471,000 which will be due in 2017.

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(c) As at 31 December 2014, 2015 snd 2016, the ageing analysis of the trade receivables based on invoice date is as follows:

Up to 3 months 3 months to 6 months 6 months to 12 months 1 year to 2 years 2 years to 3 years	2014 RMB’000 144,552 80,059 89,230 16,761 2,025 332,627	2015 RMB’000 109,088 54,014 86,863 98,756 8,846 357,567	2016 RMB’000 83,950 28,062 48,744 36,194 16,309
			213,259

Trade receivables arose mainly from Infusion Set Business and Orthopedic Implant Business, as sales from Regenerative Medical Biomaterial Business were normally settled by advance payments from customers. The Group agreed with the customers of Infusion Set Business and Orthopedic Implant Business in settling trade receivables with reference to credit periods within 180 days to 365 days or outstanding balances within certain limits. No interests are charged on the trade receivables. Provision for impairment of trade receivables has been made for estimated irrecoverable amounts from the sales of the goods. This provision has been determined by reference to past collection experience.

Movements on the Group’s provision for impairment of trade receivables are as follows:

At 1 January (Reversal)/provision for impairment of receivables Disposals of subsidiaries At 31 December	2014 RMB’000 7,849 (978) — 6,871	2015 RMB’000 6,871 1,205 — 8,076	2016 RMB’000 8,076 866 (8,076)
			866

(d) The ageing of bills receivable is within 180 days, which is within the credit term.
(e) The breakdown of other receivables is as follows:

Interest receivable Advances to employees Deposits Others	2014 RMB’000 6,198 2,890 1,936 5,702 16,726	2015 RMB’000 1,517 2,112 1,397 6,049 11,075	2016 RMB’000 — 2,308 1,265 2,958
			6,531

The other classes within trade and other receivables do not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

16 RESTRICTED CASH

Restricted term deposits 17 TERM DEPOSITS Term deposits 18 CASH AND CASH EQUIVALENTS Cash on hand Cash at banks Short-term bank deposits	2014 RMB’000 260,000 2014 RMB’000 — 2014 RMB’000 955 144,361 8,500 153,816	2015 RMB’000 — 2015 RMB’000 40,000 2015 RMB’000 705 207,385 80,134 288,224	2016 RMB’000 —
			2016 RMB’000 —
			2016 RMB’000 118 149,445 —
			149,563

The carrying amount of the cash and cash equivalents are denominated in the following currencies:

RMB HKD USD EUR	2014 RMB’000 127,767 16,388 9,557 104 153,816	2015 RMB’000 203,814 15,878 68,428 104 288,224	2016 RMB’000 134,988 12,544 1,927 104
			149,563

– I-52 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

19 SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES

Balance at 1 January 2014 Proceeds from employee share option exercised (a) Transfer from other reserves upon exercise of share option Balance at 31 December 2014 Balance at 1 January 2015 Proceeds from employee share option exercised (a) Buy-back of shares (b) Transfer from other reserves upon exercise of share option Balance at 31 December 2015 Balance at 1 January 2016 Proceeds from employee share option exercised (a) Buy-back of shares (b) Transfer from other reserves upon exercise of share option Balance at 31 December 2016	Number of ordinary shares 1,660,000,000 16,926,761 — 1,676,926,761 1,676,926,761 13,407,407 (17,312,000) — 1,673,022,168 1,673,022,168 159,236 (82,864,000) — 1,590,317,404	Share capital RMB’000 1,026 10 — 1,036 1,036 8 (10) — 1,034 1,034 — (55) — 979	Share premium RMB’000 1,647,840 10,582 15,982 1,674,404 1,674,404 8,656 (29,671) 13,432 1,666,821 1,666,821 102 (138,776) 164 1,528,311	Treasury shares RMB’000 — — — — — — — — — — — (8,890) — (8,890)	Total RMB’000 1,648,866 10,592 15,982
					1,675,440
					1,675,440 8,664 (29,681) 13,432
					1,667,855
					1,667,855 102 (147,721) 164
					1,520,400

(a) Options exercised during the year ended 31 December 2014, 2015 and 2016 resulted in 16,926,761 share, 13,407,407 shares and 159,236 shares were issued by the Company, respectively, with the cash proceeds of HKD13,335,000, HKD10,614,000 and HKD118,000 (equivalent to RMB10,592,000, RMB8,664,000 and RMB102,000) were received, respectively.

(b) During the year ended 31 December 2015, the Company acquired and cancelled 17,312,000 of its own shares through purchases on the Stock Exchange. During the year ended 31 December 2016, the Company acquired 87,743,000 of its own shares through purchases on the Stock Exchange, of which 82,864,000 shares and 4,879,000 shares have been cancelled in 2016 and 2017, respectively.

– I-53 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

20 OTHER RESERVES

(a) Reserve movement of the Group

Balance at 1 January 2014 Currency translation differences Transfer to share premium upon exercise of share options (Note 19) Share option granted (Note 22) Balance at 31 December 2014 Balance at 1 January 2015 Currency translation differences Transfer to share premium upon exercise of share options (Note19) Share option forfeited (Note 22) Balance at 31 December 2015 Balance at 1 January 2016 Currency translation differences Transfer to share premium upon exercise of share options (Note19) Share option forfeited (Note 22) Balance at 31 December 2016	Merger Reserve (i) RMB’000 63,964 — — — 63,964 63,964 — — — 63,964 63,964 — — — 63,964	Translation Reserve RMB’000 5,290 103 — — 5,393 5,393 1,232 — — 6,625 6,625 105 — — 6,730	Capital reserve RMB’000 (1,703) — — — (1,703) (1,703) — — — (1,703) (1,703) — — — (1,703)	Share option reserve RMB’000 19,856 — (15,982) 24,138 28,012 28,012 — (13,432) (1,458) 13,122 13,122 — (164) (10,595) 2,363	Total RMB’000 87,407 103 (15,982) 24,138 95,666 95,666 1,232 (13,432) (1,458) 82,008 82,008 105 (164) (10,595) 71,354

(i) The merger reserve represents: (a) the total consideration paid for the acquisition of subsidiaries under common control upon the Reorganisation; and (b) the cash contribution to the Group by the then equity owners.

– I-54 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(b) Reserve movement of the Company

At 1 January 2014 Loss for the year Transfer to share premium upon exercise of share options (Note 19) Share option reserve At 31 December 2014 At 1 January 2015 Loss for the year Currency translation differences Transfer to share premium upon exercise of share options (Note 19) Share option reserve At 31 December 2015 At 1 January 2016 Profit for the year Currency translation differences Transfer to share premium upon exercise of share options (Note 19) Share option reserve At 31 December 2016 21 RETAINED EARNINGS	Accumulated losses RMB’000 (27,997) (16,742) — — (44,739) (44,739) (4,232) — — — (48,971) (48,971) 375 — — — (48,596)	Other reserves RMB’000 19,856 — (15,982) 24,138
		28,012
		28,012 — 9,341 (13,432) (1,458)
		22,463
		22,463 — 2,020 (164) (10,595)
		13,724

At 1 January 2014 Profit for the year At 31 December 2014 At 1 January 2015 Profit for the year At 31 December 2015 At 1 January 2016 Profit for the year At 31 December 2016	Group RMB’000 162,423 176,630
	339,053
	339,053 208,582
	547,635
	547,635 194,949
	742,584

– I-55 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

For the years ended 31 December 2014, 2015 and 2016, statutory reserves made by the PRC subsidiaries of the Company amounting to RMB12,545,000, RMB12,545,000 and RMB15,162,000 were included in retained earnings.

22 SHARE BASED PAYMENTS

(i) Share options

On 6 July 2013, the Board approved a share option scheme (the ‘‘Scheme’’) for the issuance of aggregate of shares in issue on the listing date of the Company, representing 70,891,722 shares.

The purpose of the Scheme is to attract, retain and motivate employees and directors, and to provide a means of compensating them through the grant of options for their contribution to the growth and profits of the Group, and to allow such employees and directors to participate in the growth and profitability of the Group.

The principal terms of the Scheme, approved and by resolution of our shareholders passed on 3 July 2013 and amended by resolution of our shareholders on 14 October 2013. The options under the Scheme shall vest in 4 equal tranches (being 25% of each option granted, and each tranche is hereinafter referred to as a ‘‘Tranche’’) on the four dates (day immediately following the expiry of 6 months after the 8 November 2013 (the ‘‘First Vesting Date’’); first anniversary of the First Vesting Date; second anniversary of the First Vesting Date and third anniversary of the First Vesting Date), respectively with performance conditions. Details of the Scheme was disclosed in the Company’s prospectus dated 28 October 2013.

(ii) Outstanding share options

Movements in the number of share options outstanding:

At 1 January Exercised Forfeited At 31 December	Number of share options 2014 2015 2016 70,891,722 49,347,126 35,621,248 (16,926,761) (13,407,407) (159,236) (4,617,835) (318,471) (17,245,226) 49,347,126 35,621,248 18,216,786	Number of share options 2014 2015 2016 70,891,722 49,347,126 35,621,248 (16,926,761) (13,407,407) (159,236) (4,617,835) (318,471) (17,245,226) 49,347,126 35,621,248 18,216,786
		18,216,786

Details of the exercise prices and the respective numbers of share options which remained outstanding as at 31 December 2014, 2015 and 2016 are as follows:

Vesting date Exercise price 7 May 2015 RMB0.63 7 May 2016 RMB0.63 7 May 2017 RMB0.63	Number of share options 2014 2015 2016 16,449,044 3,041,637 2,882,401 16,449,049 16,289,813 — 16,449,033 16,289,798 15,334,385 49,347,126 35,621,248 18,216,786	Number of share options 2014 2015 2016 16,449,044 3,041,637 2,882,401 16,449,049 16,289,813 — 16,449,033 16,289,798 15,334,385 49,347,126 35,621,248 18,216,786
		18,216,786

Pursuant to the principal terms of the Scheme, certain performance conditions in respective fiscal years should be met before exercise of share options. Share-based compensation expenses recognised in prior years in relation to the third and fourth Tranche (4 tranches in total) was reversed given certain performance conditions in relation to 2015 and 2016 were not met.

The exercisable period is 10 years from the grant date of the share options.

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(iii) Fair value of share options

The directors of the Company have used the Binomial Model to determine the fair value of the options granted, which is to be expensed over the vesting period. Significant judgement on parameters, such as risk free rate, dividend yield and expected volatility, was agreed by the management of the Group in applying the Binomial Model, which are summarised below.

Risk free rate	3.59%
Dividend yield	1.00%
Expected volatility	38.00%

The weighted average fair value of options granted was RMB0.94, RMB0.97, RMB0.99 and RMB1.00 respectively for each Tranche.

23 TRADE AND OTHER PAYABLES

Trade payables Salary and staff welfare payables Advances from customers Payables for construction in progress Provisions for sales rebate Deposits Payables for purchase of land use rights Value added tax and other taxes Auditors’ remuneration Research and development expenses payables Other payables	2014 RMB’000 29,126 34,350 17,249 — 9,049 5,296 3,901 1,837 1,067 — 12,443 114,318	2015 RMB’000 39,132 29,831 20,733 40,597 7,254 5,487 3,901 7,579 6,109 1,007 8,636 170,266	2016 RMB’000 26,679 32,096 4,258 — 8,309 5,658 4,277 6,479 2,295 — 4,712
			94,763

As at 31 December 2014, 2015 and 2016, except for the salary and staff welfare payables, advances from customers and value added tax and other taxes which are not financial liabilities, all trade and other payables of the Group were noninterest bearing, and their fair value approximated their carrying amounts due to their short maturities.

As at 31 December 2014, 2015 and 2016, the ageing analysis of the trade payables based on invoice date are as follows:

Up to 3 months 3 months to 6 months 6 months to 12 months 1 year to 2 years 2 years to 3 years Over 3 years	2014 RMB’000 25,941 538 1,777 721 12 137 29,126	2015 RMB’000 25,697 10,754 1,590 344 714 33 39,132	2016 RMB’000 21,197 420 3,811 431 100 720
			26,679

All of the carrying amounts of the Group’s trade payables are denominated in RMB.

– I-57 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

24 BORROWINGS

Current bank borrowings — secured/guaranteed	2014 RMB’000 75,000	2015 RMB’000 —	2016 RMB’000 —

25 DEFERRED INCOME TAX

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset and when the deferred income taxes related to the same tax authority. The net deferred income tax balance after offsetting is as follows:

Deferred tax assets: —to be recovered within 12 months Deferred tax liabilities: — to be recovered after more than 12 months — to be recovered within 12 months Deferred tax liabilities — net	2014 RMB’000 14,777 14,777 (60,788) (4,528) (65,316) (50,539)	2015 RMB’000 10,179 10,179 (56,370) (4,485) (60,855) (50,676)	2016 RMB’000 4,357
			4,357
			(49,072) (4,366)
			(53,438)
			(49,081)

– I-58 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balance within the same tax jurisdiction, is as follows:

Deferred tax assets:

Provision for impairment of receivables Write-down of inventories to the realisable value Salary and staff welfare payable Provision for sales rebate RMB’000 RMB’000 RMB’000 RMB’000 1,176 2,417 2,543 — (145) 58 504 278 33 193 939 1,079 1,064 2,668 3,986 1,357 1,064 2,668 3,986 1,357 2,259 71 (4,032) (269) 3,323 2,739 (46) 1,088 3,323 2,739 (46) 1,088 130 (122) 46 158 (3,290) (1,208) — — 163 1,409 — 1,246	Provision for impairment of receivables Write-down of inventories to the realisable value Salary and staff welfare payable Provision for sales rebate RMB’000 RMB’000 RMB’000 RMB’000 1,176 2,417 2,543 — (145) 58 504 278 33 193 939 1,079 1,064 2,668 3,986 1,357 1,064 2,668 3,986 1,357 2,259 71 (4,032) (269) 3,323 2,739 (46) 1,088 3,323 2,739 (46) 1,088 130 (122) 46 158 (3,290) (1,208) — — 163 1,409 — 1,246	Salary and staff welfare payable RMB’000 2,543 504 939	Provision for sales rebate RMB’000 — 278 1,079	Others RMB’000 2,249 3,046 407	Total RMB’000 8,385 3,741 2,651
1,064	2,668	3,986	1,357	5,702	14,777
1,064 2,259	2,668 71	3,986 (4,032)	1,357 (269)	5,702 (2,627)	14,777 (4,598)
3,323	2,739	(46)	1,088	3,075	10,179
163	1,409	—	1,246	1,539	4,357

Deferred tax assets are recognised for tax losses carried forward to the extent that realisation of related tax benefits through future taxable profits is probable. As at 31 December 2014, 2015 and 2016, the Group did not recognise deferred income tax assets for tax losses carried forward with the amount of RMB42,852,000, RMB41,498,000 and RMB9,571,000. These tax losses will expire in 2017 to 2021.

– I-59 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Deferred tax liabilities:

At 1 January 2014 Acquisition of subsidiaries Recognised in consolidated income statement At 31 December 2014 At 1 January 2015 Recognised in consolidated income statement At 31 December 2015 At 1 January 2016 Recognised in consolidated income statement Disposals of subsidiaries At 31 December 2016 26 DEFERRED INCOME	Fair value surplus arising from acquisition of subsidiaries RMB’000 (16,079) (51,773) 2,536 (65,316) (65,316) 4,485 (60,831) (60,831) 4,506 2,952 (53,373)	Others RMB’000 — — — — — (24) (24) (24) (41) — (65)	Total RMB’000 (16,079) (51,773) 2,536 (65,316) (65,316) 4,461 (60,855) (60,855) 4,465 2,952 (53,438)

Deferred income represents government grants relating to acquisition of property, plant and equipment. These government grants are deferred and recognised in the consolidated income statement over the period necessary to match them with the costs that they are intended to compensate. The movement of deferred income during the year are as follows:

At beginning of year Additions Credited to consolidated income statement Disposals of subsidiaries At end of year	2014 RMB’000 2,241 5,400 (359) — 7,282	2015 RMB’000 7,282 — (1,113) — 6,169	2016 RMB’000 6,169 600 (714) (4,772) 1,283

– I-60 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

27 OTHER GAINS — NET

Government grants — relating to costs — relating to assets Gain on disposals of a subsidiary (Note 11(ii)) Realised gain on available-for-sale financial assets Sales of scraps Loss on disposals of property, plant and equipment Others 28 EXPENSES BY NATURE Raw materials and consumable used Changes in inventories of finished goods and work in progress Employee benefits expenses (Note 29) Depreciation of property, plant and equipment (Note 7) Advertising, promotions and business development costs Office and communication expenses Direct research costs Travelling and entertainment expenses Taxes and levies Provision for impairment of receivables Write-down of inventories Low-value consumables Operating lease payments Transportation costs Amortisation of land use rights (Note 6) Amortisation of intangible assets (Note 8) Professional fee Auditor’s remuneration — Audit services — Non-audit services Utilities Others Total cost of sales, selling expenses, administrative expenses and research and development expenses	2014 RMB’000 (Restated) 5,016 200 — 2,311 580 (312) (164) 7,631 2014 RMB’000 (Restated) 44,631 17,907 88,042 13,423 34,855 5,542 17,477 5,834 7,403 — 74 4,712 4,443 4,454 1,092 13,234 8,198 1,720 — 6,418 3,680 283,139	2015 RMB’000 6,845 — — 422 1 (1) 416 7,683 2015 RMB’000 47,242 (1,767) 91,893 17,517 27,940 6,269 10,851 8,120 8,302 — 456 1,511 3,055 7,455 1,296 26,183 12,094 3,200 70 8,514 2,956 283,157	2016 RMB’000 6,372 200 6,099 1,159 — (57) 366 14,139 2016 RMB’000 61,870 (12,327) 108,728 18,683 26,282 7,601 9,678 12,292 8,285 866 39 2,090 3,459 8,701 1,372 26,240 5,262 2,700 — 8,974 1,426 302,221

– I-61 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

29 EMPLOYEE BENEFITS EXPENSES

Wages, salaries and bonuses Staff welfare Social security costs Housing fund Recognition/(reversal) of share-based compensation expenses Total employee benefits expenses	2014 RMB’000 (Restated) 60,819 2,760 4,698 2,171 17,594 88,042	2015 RMB’000 78,414 4,581 7,719 2,270 (1,091) 91,893	2016 RMB’000 95,490 6,062 10,944 3,928 (7,696)
			108,728

(a) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for 2016 include two (2015: one; 2014: two) directors whose emoluments are reflected in the analysis shown in Note 41. The emoluments payable to the remaining three (2015: four; 2014: three) individuals during the year are as follows:

Share-based compensation Wages, salaries and bonuses Social security costs Housing fund	2014 RMB’000 5,105 1,560 147 55 6,867	2015 RMB’000 1,640 2,008 77 101 3,826	2016 RMB’000 — 2,322 64 86
			2,472

The emoluments of these individuals fell within the following bands:

Emolument bands Nil to HKD 1,000,000 HKD 1,000,001–HKD1,500,000 HKD 1,500,001–HKD2,000,000 HKD 2,500,001–HKD3,000,000 HKD 3,500,001–HKD4,000,000	Number of individuals Year ended 31 December 2014 2015 2016 — 2 2 — 1 1 1 1 — 1 — — 1 — — 3 4 3	Number of individuals Year ended 31 December 2014 2015 2016 — 2 2 — 1 1 1 1 — 1 — — 1 — — 3 4 3
		3

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

30 FINANCE INCOME — NET

Finance income: — Net foreign exchange gain — Interest income on short-term bank deposits Total finance income Finance costs: — Interest expense on bank borrowings — Net foreign exchange loss Total finance cost Finance income — net	2014 RMB’000 (Restated) — (22,197) (22,197) 14,689 8,864 23,553 1,356	2015 RMB’000 (269) (6,249) (6,518) 1,254 — 1,254 (5,264)	2016 RMB’000 (2,023) (2,462) (4,485) — — — (4,485)

31 INCOME TAX EXPENSES

Current income tax Deferred income tax Income tax expenses	2014 RMB’000 (Restated) 31,668 (5,466) 26,202	2015 RMB’000 40,094 1,056 41,150	2016 RMB’000 48,401 (5,333) 43,068

Below are the major tax jurisdictions that the Group operates during the Track Record Period.

(a) Cayman Islands profits tax

The Company has not been subject to any taxation in the Cayman Islands.

(b) Hong Kong profits tax

Companies incorporated in Hong Kong are subject to the Hong Kong profits tax at a rate of 16.5% during the Track Record Period.

(c) The PRC Corporate Income Tax (the ‘‘CIT’’)

Except for Tianxinfu and Fert Technology, the CIT of the Group in respect of its operations in mainland China is calculated at the tax rate of 25% on the estimated assessable profits for each of the year, based on the existing legislation interpretation and practices in respect thereof.

Tianxinfu and Fert Technology were qualified as ‘‘High and New Technology Enterprises’’ under the CIT Law. Therefore, they were entitled to a preferential income tax rate of 15% on their estimated assessable profits during the years. They will continue to enjoy the preferential tax rate in the subsequent periods, provided that they continue to be qualified as ‘‘High and New Technology Enterprises’’ during such periods.

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(d) WHT

According to the applicable PRC tax regulations, dividends distributed by a company established in the PRC to a foreign investor with respect to profits derived after 1 January 2008 are generally subject to WHT. If a foreign investor incorporated in Hong Kong meets the conditions and requirements under the double taxation treaty arrangement entered into between the PRC and Hong Kong, the relevant withholding tax rate will be reduced from 10% to 5%.

The Group does not have any plan to require its PRC subsidiaries to distribute their retained earnings and intends to retain them to operate and expand the Group’s business in the PRC. Accordingly, no deferred income tax liability on WHT was accrued as of the end of 2014, 2015 and 2016.

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

Profit before income tax Tax calculated at statutory tax rates applicable to profits in the respective countries Tax effects of: Preferential income tax rates applicable to subsidiaries Tax losses for which no deferred income tax asset was recognised Additional deductible allowance for research and development expenses (i) Deemed income for tax purpose Expenses not deductible for tax purpose Adjustment in respect of prior years Tax charge	2014 RMB’000 (Restated) 168,587 42,147 (17,629) 2,214 (1,507) 383 594 — 26,202	2015 RMB’000 245,377 61,344 (21,297) 3,201 (1,516) 106 788 (1,476) 41,150	2016 RMB’000 283,225 70,806 (28,283) 810 (1,341) 114 986 (24) 43,068

(i) Pursuant to the CIT Law, an additional tax deduction is allowed based on the actual research and development expense charged to the consolidated income statement calculated at 50% of such expenses incurred if approved by tax authorities.

– I-64 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

32 BUSINESS COMBINATION

(a) Acquisition of Tianxinfu

On 1 August 2014, the Group acquired 100% equity interest in Tianxinfu at a cash consideration of RMB802,632,000. The goodwill of RMB373,229,000 arising from the acquisition is attributable to the synergy between Tianxinfu and the Group from consolidating the production and operation of the existing land use right, building and production line. None of the goodwill recognised is expected to be deductible for income tax purposes.

The following table summarises the consideration paid for Tianxinfu, the fair value of assets acquired, liabilities assumed and the non-controlling interests at the acquisition date.

Consideration paid:

At 1 August 2014
Cash consideration
Recognised amounts of identifiable assets acquired
and liabilities assumed
Property, plant and equipment
Land use right
Intangible assets — technology know-how
Intangible assets — trademark
Deferred income tax assets
Inventories
Trade and other receivables
Available-for-sale financial assets
Cash and cash equivalents
Trade and other payables
Deferred income tax liabilities
Total identifiable net assets
Non-controlling interest
Goodwill
Total

RMB’000
802,632
24,681
13,586
306,477
22,956
2,651
9,602
1520
126,537
4,033
(29,700)
(51,773)
430,570
(1,167)
373,229
802,632

Acquisition-related costs of RMB3,910,000 have been charged to administrative expenses in the consolidated statement of comprehensive income for the year ended 31 December 2014.

Tianxinfu contributed revenue of RMB82,663,000 and net profit of RMB42,755,000 for the period from the date of it was acquired by the Group to 31 December 2014 (Note 42).

– I-65 –

ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

33 DISCONTINUED OPERATIONS

During the year ended 31 December 2016, the Orthopedic Implant Business was disposed of and presented as discontinued operations, the financial information for the year ended 31 December 2014 and 2015 has been restated accordingly. Below shows the the financial impact of the disposal of Orthopedic Implant Business:

Consideration Less: net asset of Orthopedic Implant Business at date of disposal (a) Impairment loss resulting from disposal (*)	2016 RMB’000 450,000 (529,397) (79,397)

The impairment loss reduced the carrying amount of goodwill of the Orthopedic Implant Business before the disposal (Note 8), which was recorded in ‘‘administrative expenses’’ in result of the discontinued operations.

The movement of goodwill is as follows:

Goodwill before impairment
Impairment
Goodwill after impairment at date of disposal
(a)
Net assets disposed of (before impairment of goodwill):
Land use rights
Property, plant and equipment
Intangible assets
Goodwill
Deferred income tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Deferred income tax liabilities
Deferred income
Trade and other payables
Prepaid income tax

2016
RMB’000
88,973
(79,397)
9,576
2016
RMB’000
2,371
171,016
10,935
88,973
5,837
79,895
203,280
27,964
(2,952)
(4,772)
(55,314)
2,164
529,397

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(b) Analysis of the result of the discontinued operations is as follows:

2014 RMB’000 Revenue 162,608 Cost of sales (37,643) Gross profit 124,965 Selling expenses (35,678) Administrative expenses (30,050) Research and development expenses (16,102) Other gains, net 679 Operating profit/(loss) 43,814 Finance income 31 Finance costs (1,110) Finance (costs)/income — net (1,079) Profit/(loss) before income tax 42,735 Income tax expenses (8,490) Profit/(loss) for the year from discontinued operations 34,245 Profit/(loss) for the year from discontinued operations attributable to: Owners of the Company 34,245 Non-controlling interests — Profit/(loss) for the year from discontinued operations 34,245 (c) Analysis of cash flow of the discontinued operations is as follows: 2014 RMB’000 Operating cash flows (18,632) Investing cash flows (52,233) Financing cash flows 27,731 Total cash flows (43,134)	2015 RMB’000 118,287 (28,719) 89,568 (31,937) (39,809) (12,070) 2,086 7,838 78 — 78 7,916 (3,561) 4,355 4,355 — 4,355 2015 RMB’000 55,740 (46,513) — 9,227	2016 RMB’000 121,108 (28,677) 92,431 (21,095) (99,821) (10,833) 813 (38,505) 26 (24) 2 (38,503) (8,208) (46,711) (46,711) — (46,711) 2016 RMB’000 42,964 (41,939) — 1,025

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

34 CASH GENERATED FROM OPERATIONS

(a) Reconciliation of profit before income tax to net cash generated from operations:

Profit before income tax including discontinued operations Adjustments for: Depreciation of property, plant and equipment (Note 7) Amortisation of intangible assets (Note 8) Amortisation of land use rights (Note 6) Impairment loss of goodwill resulting from disposals of Orthopedic Implant Business (Note 8) Gain on disposal of a subsidiary (Note 11(ii)) Share-based compensation expenses (Note 29) — Continuing operations — Discontinued operations (Gain)/loss on disposals of property, plant and equipment — Continuing operations — Discontinued operations Realised gain on available-for-sale financial assets Interest income Unrealised exchange gain Finance costs (Reversal)/provision for impairment of receivables Change in working capital Inventories Trade and other receivables Deferred income Trade and other payables Cash generated from operating activities	2014 RMB’000 211,322 24,043 14,192 1,152 — — 17,594 6,544 (1,898) 2,201 (2,311) (22,228) — 15,744 (978) 265,377 3,533 (128,905) (359) (1,562) 138,084	2015 RMB’000 253,293 31,794 27,186 1,356 — — (1,091) (367) 1 (16) (422) (6,281) (3,091) 1,254 12,725 316,341 (22,862) (25,728) (1,113) 45,139 311,777	2016 RMB’000 244,722 34,730 27,243 1,432 79,397 (6,099) (7,696) (2,899) 57 (16) (1,159) (2,462) (2,737) — 866 365,379 (9,657) (52,185) (114) 20,957 324,380

(b) Non-cash transactions

The principal non-cash transaction is the disposal of subsidiaries discussed in Note 34(e).

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Net book amount (Note 7) (Receivables)/receipt from disposal of property, plant and equipment (Loss)/gain on disposals of property, plant and equipment Proceeds from disposals of property, plant and equipment	2014 RMB’000 2,610 (1,480) (303) 827	2015 RMB’000 4,909 1,480 15 6,404	2016 RMB’000 630 — (41)
			589

(d) In the consolidated cash flow statement, acquisition of subsidiaries — net of cash acquired comprise:

Cash consideration paid Cash and cash equivalents in the subsidiaries acquired	2014 RMB’000 (802,632) 4,033 (798,599)	2015 RMB’000 — — —	2016 RMB’000 — —
			—

(e) In the consolidated cash flow statement, disposals of subsidiaries comprise:

Cash considerations of disposal of subsidiaries Cash and cash equivalents held by the subsidiaries disposed Consideration of disposal of subsidiaries to be received (*) Cash receipt from disposals of subsidiaries	2014 RMB’000 — — — 3,000 3,000	2015 RMB’000 — — — 1,000 1,000	2016 RMB’000 465,000 (36,075) (458,833) —
			(29,908)

Amounts mainly comprise the consideration of disposal of Orthopedic Implant Business of approximately RMB443,833,000.

35 CONTINGENCIES

(a) During the year ended 31 December 2015, one of the Group’s subsidiaries (the ‘‘Subsidiary’’) received a Demand for Response Notice (應訴通知書) and corresponding litigation materials from a court in Beijing, the PRC, in which the plaintiff filed a civil action against the Subsidiary and its former shareholders before it was being acquired by the Group (collectively, the ‘‘Defendants’’) due to a dispute arising from the Technology Development Agreement (技術開發合同). The plaintiff required the Defendants to be liable for the profit dividend and interest of RMB10 million and the litigation costs of the case of RMB81,800. According to a written civil ruling issued by the court in charge of the case, the plaintiff’s claim was previously rejected by the court. However, upon the plaintiff has appealed to the court of intellectual property, as of 7 June 2017 the litigation completed civil second instance and a retrial is required for the court in charge of the case. Despite

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

such retrial, the directors of the Company and the Group’s attorney agent still considered that since the Subsidiary is not a principal party of the said Technology Development Agreement, it is expected that it is unlikely for the Subsidiary to undertake legal liability for the litigation. Therefore, the directors estimate that the case will not make any substantial impact to the Group, nor will result in any material loss.

(b) During the year ended 31 December 2016, a PRC intermediate people’s court issued a civil judgement (‘‘First Instance Judgement’’), pursuant to which one of the Group’s subsidiary (the ‘‘Subsidiary’’) shall undertake joint guarantee liability with another independent guarantor for a loan granted by a bank (the ‘‘Borrowing Bank’’ or the ‘‘Plaintiff’’) to the original independent borrower (the ‘‘Borrower’’) with principal and interest thereon totalling approximately RMB15 million, as the loan has been default in repayment. The directors of the Company and its appointed attorney agent analysed the case and considered that the Borrower is suspected of loan fraud and the Borrowing Bank may have grave fault in granting the loan to the Borrower. Accordingly, in August 2016, the Subsidiary instituted an appeal to a PRC superior people’s court on rejecting the First Instance Judgement.

On 10 July 2017, the litigation of second instance commenced and the Plaintiff submitted new evidence to support its ground to grant loan to the Borrower. Up to date of this interim condensed consolidated financial information, the second instance judgement is yet to finalise, the estimated joint guarantee liability including the original loan principal and accrued interest thereon amounted to approximately RMB20 million. The directors of the Company considered that the result of second instance judgement is uncertain and the Joint Guarantor is also obligated to the joint guarantee liability. Moreover, as the Group acquired the Subsidiary subsequent to its provision of the joint guarantee, the Group is entitled to make claims against the former shareholders of the Subsidiary if the joint guarantee obligation causes any losses to the Group. Therefore, despite any unfavourable judgement, the directors of the Company are of the view that the case will not make any substantial impact to the Group, nor will result in any material loss.

36 COMMITMENTS

(a) Capital commitments

Capital expenditure contracted for at the end of the year but not yet incurred is as follows:

Property, plant and equipment	2014 RMB’000 24,482	2015 RMB’000 175,503	2016 RMB’000 17,123

(b) Operating lease commitments

The Group leases various offices and warehouses under non-cancellable operating lease agreements. The noncancellable lease terms are between 1 and 5 years, and the majority of lease agreements are renewable at the end of the lease period at the market rate. The Group is required to give at least a one-month notice for the termination of these agreements. The lease expenditure and related management fee, water and electricity (if necessary) charged to the consolidated income statement during the Track Record Period are disclosed in Note 28.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

No later than 1 year Later than 1 year and no later than 5 years	2014 RMB’000 3,387 9,283 12,670	2015 RMB’000 4,338 6,808 11,146	2016 RMB’000 1,933 832
			2,765

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

37 RELATED PARTY TRANSACTIONS

Related parties are those parties that have the ability to control, jointly control or exert significant influence over the other party in making financial or operational decisions. Parties are also considered to be related if they are subject to common control or joint control. Related parties may be individuals or other entities.

Saved as disclosed elsewhere in this report, the following transactions were carried out between the Group and related parties. In the opinion of the directors of the Company, the related party transactions were carried out in the normal course of business and at terms negotiated between the Group and the respective related parties.

(a) Key management compensation

Salaries and other allowances Share-based compensation	2014 RMB’000 2,349 8,265 10,614	2015 RMB’000 3,185 2,374 5,559	2016 RMB’000 3,472 —
			3,472

38 EARNINGS PER SHARE

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year (Note 18).

Profit attributable to owners of the Company: — Continuing operations (RMB’000) — Discontinued operations (RMB’000) Weighted average number of ordinary shares in issue (thousands) Basic earnings/(losses) per share: — Continuing operations (RMB cents per share) — Discontinued operations (RMB cents per share)	2014 (Restated) 142,385 34,245 176,630 1,670,397 8.52 2.05 10.57	2015 204,227 4,355 208,582 1,674,883 12.19 0.26 12.45	2016 241,660 (46,711)
			194,949
			1,624,838 14.87 (2.87)
			12.00

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary share: share options. The share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

Profit attributable to owners of the Company: — Continuing operations (RMB’000) — Discontinued operations (RMB’000) Weighted average number of ordinary shares in issue (thousands) Adjustments for: — Share options (thousands) Weighted average number of ordinary shares for diluted earnings per share (thousands) Diluted earnings/(losses) per share: — Continuing operations (RMB cents per share) — Discontinued operations (RMB cents per share)	2014 RMB’000 (Restated) 142,385 34,245 176,630 1,670,397 44,868 1,715,265 8.30 2.00 10.30	2015 RMB’000 204,227 4,355 208,582 1,674,883 19,574 1,694,457 12.05 0.26 12.31	2016 RMB’000 241,660 (46,711) 194,949 1,624,838 2,011 1,626,849 14.85 (2.87) 11.98

39 DIVIDENDS

There was no dividend declared by the Company for the three years ended 31 December 2014, 2015 and 2016.

40 EVENTS AFTER THE BALANCE SHEET DATE

(a) The Company repurchased 18,956,000 shares at a total consideration of HKD34,860,000 after 31 December 2016. The shares have subsequently been cancelled before the date of this report.
(b) On 27 February 2017, Xinyu Yongshuo Management and Consulting LLP (the ‘‘Subscriber’’), an independent third party, entered into a capital increase agreement with certain subsidiaries of the Group, namely Tianxinfu and Health Access and PW Medtech (Beijing), pursuant to which the Subscriber subscribed the 11,250,000 new shares of Tianxinfu at a consideration of RMB500 million.

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

41 BENEFITS AND INTERESTS OF DIRECTORS

(a) Directors’ and chief executive’s emoluments

The emoluments of each director and the chief executive during the year are set out below:

For the year ended 31 December 2014

		Wages,		Social
	Share-based	salaries and		security and
Name of directors	compensation	bonuses	Fees	housing fund	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Chief executive officer and
executive director
— Mr. Jiang Liwei	2,431	1,500	—	75	4,006
Non-executive directors
— Mr. Lin Junshan	4,862	300	—	—	5,162
— Ms. Yue’e Zhang (i)	—	—	—	—	—
— Mr. Feng Dai	—	—	—	—	—
Independent non-executive
directors
— Mr. Chen Geng	486	—	158	—	644
— Mr. Wang Xiaogang	486	—	158	—	644
— Mr. Zhang Xingdong	—	—	158	—	158

(i) Ms. Yue’e Zhang was elected as the chairman of the Board and was re-designated from a non-executive director to an executive director on 3 February 2015.

For the year ended 31 December 2015

		Wages,		Social
	Share-based	salaries and		security and
Name of directors	compensation	bonuses	Fees	housing fund	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Chief executive officer and
executive director
— Ms. Yue’e Zhang	—	862	—	—	862
— Mr. Jiang Liwei	698	1,504	—	33	2,235
Non-executive directors
— Mr. Lin Junshan	1,396	300	—	—	1,696
— Mr. Fang Min (i)	—	—	—	—	—
— Mr. Feng Dai (ii)	—	—	—	—	—
Independent non-executive
directors
— Mr. Chen Geng	140	—	162	—	302
— Mr. Wang Xiaogang	140	—	162	—	302
— Mr. Zhang Xingdong	—	—	162	—	162

(i) Mr. Fang Min was appointed on 20 March 2015 and resigned on 25 August 2015.
(ii) Mr. Feng Dai was resigned on 20 March 2015.

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

For the year ended 31 December 2016

		Wages,		Social
	Share-based	salaries and		security and
Name of directors	compensation	bonuses	Fees	housing fund	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Chief executive officer and
executive director
— Ms. Yue’e Zhang	—	1,007	—	—	1,007
— Mr. Jiang Liwei	—	1,500	—	146	1,646
Non-executive directors
— Mr. Lin Junshan	—	300	—	—	300
Independent non-executive
directors
— Mr. Chen Geng	—	—	173	—	173
— Mr. Wang Xiaogang	—	—	173	—	173
— Mr. Zhang Xingdong	—	—	173	—	173

42 SUBSEQUENT DISPOSAL OF BUSINESS

(a) On 12 October 2017, the Company and China Biologic Products Holdings (‘‘CBPO’’) entered into a share exchange agreement, pursuant to which the Company agreed to subscribe for the CBPO Shares in consideration of Regenerative Medical Biomaterial Business (the ‘‘Disposal Business’’) in the form of the entire issued share capital of Health Forward, which in turn owns 80% equity interest in Tianxinfu, at a total value of approximately US$513.45 million (equivalent to approximately RMB3.38 billion) with a subscription price of US$93.0 (equivalent to approximately RMB611.9) per CBPO Share (the ‘‘Disposal’’). During the years ended 31 December 2014, 2015 and 2016, the Disposal Business has been operated and owned by Tianxinfu and its subsidiaries. Health Forward, an investment holding and indirectly wholly-owned subsidiary of the Company, and a number of the Company’s wholly owned subsidiaries (the ‘‘Group Vendor Companies’’) entered into a series of assets purchase agreements, pursuant to which the Group Vendor Companies would transfer their entire aggregate 80% interests in Tianxinfu to Health Forward (the ‘‘Reorganisation’’). The Reorganisation had been completed on 19 September 2017.

The assets and liabilities related to the Disposal comprised the following:

(1) Assets and liabilities relating to the Disposal Business, which was carried out by Tianxinfu and its subsidiaries, indirectly owned by the Company as of 80% as of the date of this report; and
(2) Assets and liabilities of Health Forward. Health Forward is an investment holding company and owned 80% equity interest in Tianxinfu. As at 31 December 2016, assets and liabilities of Health Forward primarily consisted of amounts due from/to related parties, with net carrying amount of approximately RMB22.9 million. During the year ended 31 December 2016, net loss attributable to owners of Health Forward was approximately RMB45,696, resulting from the operating expenses, and led to net cash outflows in operating activities of approximately RMB184,768.

After the disposal of the Disposal Business, the Group retains mainly Infusion Set Business (the ‘‘Remaining Group’’).

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(b) Financial Information of Tianxinfu

(i) Basis of preparation

As disclosed in the Note 32, on 1 August 2014, the Group acquired 100% equity interests of Disposal Business from a third party. The Group consolidated the Disposal Business since the date of the acquisition.

The unaudited financial information of the Disposal Business for the period from 1 January 2014 to 31 July 2014 has been prepared under the historical cost convention; for the period from 1 August 2014 to 31 December 2016, the unaudited financial information of the Disposal Business has been prepared as modified by the re-measurement of its identifiable assets and liabilities to fair value at the acquisition date.

(ii) Consolidated Balance Sheets of Tianxinfu as at 31 July 2014, 31 December 2014, 2015 and 2016

Assets Non-current assets Land use rights Property, plant and equipment Intangible assets Deferred income tax assets Current assets Inventories Amount due from related parties Available-for-sale financial assets Trade and other receivables Cash and cash equivalents Total assets Equity Equity attributable to owners of the Company Paid-in/share capital Capital/share premium Other reserves Retained earnings/(accumulated losses) Non-controlling interests Total equity	As at 31 July 2014 RMB’000 1,157 21,393 — 2,651 25,201 9,602 — 126,357 1,520 4,033 141,692 166,893 25,000 137 14,037 96,852 136,026 1,167 137,193	As at 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 13,445 13,105 12,765 23,894 21,575 20,839 693,511 671,549 649,899 3,513 1,730 1,685 734,363 707,959 685,188 10,062 13,199 15,028 175,000 — 20,321 — — — 1,115 1,610 5,596 8,333 98,431 84,126 194,510 113,240 125,071 928,873 821,199 810,259 25,000 25,000 45,000 137 137 638 679,106 679,128 681,769 139,607 (20,107) (33,721) 843,850 684,158 693,686 1,167 1,167 1,167 845,017 685,325 694,853

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Liabilities Non-current liabilities Deferred income tax liabilities Current liabilities Amount due to related parties Trade and other payables Current income tax liabilities Total liabilities Total equity and liabilities	As at 31 July 2014 RMB’000 — — — 29,700 — 29,700 29,700 166,893	As at 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 50,349 46,958 43,583 50,349 46,958 43,583 — 56,025 36,295 28,759 27,981 33,494 4,748 4,910 2,034 33,507 88,916 71,823 83,856 135,874 115,406 928,873 821,199 810,259	As at 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 50,349 46,958 43,583 50,349 46,958 43,583 — 56,025 36,295 28,759 27,981 33,494 4,748 4,910 2,034 33,507 88,916 71,823 83,856 135,874 115,406 928,873 821,199 810,259
			43,583
			36,295 33,494 2,034
			71,823
			115,406
			810,259

(iii) Consolidated Income Statements of the Tianxinfu for the seven months ended 31 July 2014, five months ended 31 December 2014 and years ended 31 December 2015 and 2016

Revenue Cost of sales Gross profit Selling expenses Administrative expenses Research and development expenses Other gains — net Operating profit Finance income Profit before income tax Income tax expenses Profit for the period/year Profit attributable to: Owners of the Company Non-controlling interests	Seven months ended 31 July 2014 RMB’000 99,627 (9,032) 90,595 (11,587) (15,108) (3,757) 631 60,774 30 60,804 (9,181) 51,623 51,623 — 51,623	Five months ended 31 December 2014 RMB’000 82,663 (14,186) 68,477 (14,414) (2,545) (4,176) 2,563 49,905 42 49,947 (7,192) 42,755 42,755 — 42,755	Year ended 31 December 2015 2016 RMB’000 RMB’000 214,794 247,239 (33,580) (39,353) 181,214 207,886 (30,573) (35,580) (9,381) (11,331) (10,402) (7,952) 468 2,151 131,326 155,174 114 210 131,440 155,384 (18,621) (22,856) 112,819 132,528 112,819 132,528 — — 112,819 132,528	Year ended 31 December 2015 2016 RMB’000 RMB’000 214,794 247,239 (33,580) (39,353) 181,214 207,886 (30,573) (35,580) (9,381) (11,331) (10,402) (7,952) 468 2,151 131,326 155,174 114 210 131,440 155,384 (18,621) (22,856) 112,819 132,528 112,819 132,528 — — 112,819 132,528
				207,886 (35,580) (11,331) (7,952) 2,151
				155,174 210
				155,384 (22,856)
				132,528
				132,528 —
				132,528

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(iv) Consolidated Statements Comprehensive Income of Tianxinfu for the seven months ended 31 July 2014, five months ended 31 December 2014 and years ended 31 December 2015 and 2016

Profit for the period/year Other comprehensive income: Items that may be reclassified to profit or loss Change in value of available-for-sale financial assets Other comprehensive income for the period/year, net of tax Total comprehensive income for the period/year Attributable to: — Owners of the Company — Non-controlling interests Total comprehensive income for the period/year	Seven months ended 31 July 2014 RMB’000 51,623 1,537 1,537 53,160 53,160 — 53,160	Five months ended 31 December 2014 RMB’000 42,755 1,537 (1,537) 41,218 41,218 — 41,218	Year ended 31 December 2015 2016 RMB’000 RMB’000 112,819 132,528 — — — — 112,819 132,528 112,819 132,528 — — 112,819 132,528	Year ended 31 December 2015 2016 RMB’000 RMB’000 112,819 132,528 — — — — 112,819 132,528 112,819 132,528 — — 112,819 132,528
				—
				—
				132,528
				132,528 —
				132,528

(v) Consolidated Statements of Changes in Equity of Tianxinfu for the seven months ended 31 July 2014, five months ended 31 December 2014 and years ended 31 December 2015 and 2016

	Attributable	Attributable	to owners of the Company	to owners of the Company	to owners of the Company
Paid-in capital RMB’000 25,000	Capital premium RMB’000 137	Othe reserve RMB’00 12,67	r s Retained earnings 0 RMB’000 4 45,229 51,623 7 — 4) — 3 51,623 7 96,852	Total RMB’000 83,040	Non- controlling interests RMB’000 1,167	Total equity RMB’000 84,207
— — —	— — —	— 1,53 (17		51,623 1,537 (174	— — ) —	51,623 1,537 (174)
—	—	1,36		52,986	—	52,986
25,000	137	14,03		136,026	1,167	137,193

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Attributable	Attributable	to owners of the Company	to owners of the Company	to owners of the Company	Non- controlling interests RMB’000 1,167	Total equity RMB’000 137,193
Paid-in capital RMB’000 25,000	Capital premium RMB’000 137	Other reserves RMB’000 14,037	Retained earnings/ (accumulated losses) RMB’000 96,852	Total RMB’000 136,026
—	—	666,606	—	666,606	—	666,606
— —	— —					42,755 (1,537)
—	—			41,218	—	41,218
25,000	137	679,106	139,607	843,850	1,167	845,017
25,000	137	679,106	139,607	843,850	1,167	845,017
—	—	—	112,819	112,819	—	112,819
—	—	—	112,819	112,819	—	112,819
— —	— —	22 —				— (272,511)
—	—	22				(272,511)
25,000	137	679,128			1,167	685,325

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

Attributable	Attributable	to owners of the Company	to owners of the Company	to owners of the Company	Non- controlling interests RMB’000 1,167	Total equity RMB’000 685,325
Paid-in capital RMB’000 25,000	Capital premium RMB’000 137	Other reserves RMB’000 679,128
—	—	—	132,528	132,528	—	132,528
—	—	—	132,528	132,528	—	132,528
— — 20,000	— — 501					— (123,000) —
20,000	501	2,641				(123,000)
45,000	638	681,769			1,167	694,853

Profit for 2015 and 2016 included an amortisation of intangible assets, which recognised by the Company upon acquisition of Tianxinfu in 2014, of RMB18,668,000 and RMB18,668,000, respectively.

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ACCOUNTANT’S REPORT OF THE GROUP

APPENDIX I

(vi) Consolidated Statements of Cash Flows of Tianxinfu for the seven months ended 31 July 2014, five months ended 31 December 2014 and years ended 31 December 2015 and 2016

Cash flows from operating activities Cash generated from operations Income tax paid Net cash generated from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for construction in progress Purchases of available-for-sale financial assets Proceeds from disposals of available-for-sale financial assets Loans provided to related parties Loan repayments received from related parties Proceeds from disposals of property, plant and equipment Interest received Realised gain on available-for-sale financial assets Net cash used in investing activities Cash flows from financing activities Dividends paid to the Company’s shareholders Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the period/ year Exchange (losses)/gains on cash and cash equivalents Cash and cash equivalents at end of the period/ year	Seven months ended 31 July 2014 RMB’000 72,695 (14,227) 58,468 (249) — (62,000) 2,674 — — — 30 — (59,545) — — (1,077) 5,110 — 4,033	Five months ended 31 December 2014 RMB’000 57,167 (4,730) 52,437 (552) — — 125,000 (175,000) — 73 42 2,311 (48,126) — — 4,311 4,033 (11) 8,333	Year ended 31 December 2015 2016 RMB’000 RMB’000 149,478 176,861 (20,067) (29,062) 129,411 147,799 (1,519) (1,516) — (762) (280,000) (309,700) 280,422 310,859 (55,500) (130,000) 16,750 — 425 187 114 325 — — (39,308) (130,607) — (31,500) — (31,500) 90,103 (14,308) 8,333 98,431 (5) 3 98,431 84,126	Year ended 31 December 2015 2016 RMB’000 RMB’000 149,478 176,861 (20,067) (29,062) 129,411 147,799 (1,519) (1,516) — (762) (280,000) (309,700) 280,422 310,859 (55,500) (130,000) 16,750 — 425 187 114 325 — — (39,308) (130,607) — (31,500) — (31,500) 90,103 (14,308) 8,333 98,431 (5) 3 98,431 84,126
				147,799
				(1,516) (762) (309,700) 310,859 (130,000) — 187 325 —
				(130,607)
				(31,500)
				(31,500)
				(14,308) 98,431 3
				84,126

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of its subsidiaries in respect of any period subsequent to 31 December 2016 and up to the date of this report. No dividend or distribution has been declared or made by the Company in respect of any period subsequent to 31 December 2016. In August 2017, Tianxinfu reached a dividends distribution resolution according to the attributable net profits, which amounted to RMB96.50 million. According to the resolution, RMB12.66 million was paid to Xinyuyongshuo, its minority shareholder.

– I-80 –

REVIEW REPORT OF THE GROUP

APPENDIX II

==> picture [78 x 57] intentionally omitted <==

REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION OF PW MEDTECH GROUP LIMITED

(incorporated in Cayman Islands with limited liability)

To the Board of Directors of PW Medtech Group Limited

Introduction

We have reviewed the historical financial information set out on pages II-3 to II-37 which comprise the consolidated balance sheets of PW Medtech Group Limited (the ‘‘Company’’) and its subsidiaries (together, the ‘‘Group’’) as of 30 June 2017, and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the six months ended 30 June 2016 and 30 June 2017 (the ‘‘Relevant Periods’’) and explanatory notes (the ‘‘interim financial information’’). The interim financial information has been prepared solely for the purpose of inclusion in the circular to be issued by the Company in connection with the proposed subscription for shares of China Biologic Products Holdings, Inc., in consideration of the regenerative medical biomaterial business through the disposal of equity interests in Health Forward Holdings Limited in accordance with paragraph 14.68(2)(a)(i)(A) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’).

The directors of the Company are responsible for the presentation and preparation of the interim financial information of the Group in accordance with the basis of preparation set out in note 2 to the interim financial information and paragraph 14.68(2)(a)(i) of the Listing Rules. The directors are also responsible for such internal control as management determines is necessary to enable the preparation of interim financial information that is free from material misstatement, whether due to fraud or error. The interim financial information does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard 1 ‘‘Presentation of Financial Statements’’ or an interim financial report as defined in Hong Kong Accounting Standard 34 ‘‘Interim Financial Reporting’’ issued by Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

– II-1 –

REVIEW REPORT OF THE GROUP

APPENDIX II

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by HKICPA and with reference to Practice Note 750 ‘‘Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal’’ issued by HKICPA. A review of the interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information of the Group for the relevant periods is not prepared, in all material respects, in accordance with the basis of preparation set out in note 2 to the interim financial information.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 14 November 2017

– II-2 –

REVIEW REPORT OF THE GROUP

APPENDIX II

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Note Assets Non-current assets Land use rights 7 Property, plant and equipment 8 Intangible assets 9 Deferred income tax assets 19 Long-term prepayments 11 Current assets Inventories 12 Trade and other receivables 13 Available-for-sale financial assets 10 Cash and cash equivalents 14 Total assets Equity Equity attributable to owners of the Company Share capital 15 Share premium 15 Treasury shares 15 Other reserves 16 Retained earnings Non-controlling interests Total equity	30 June 2017 RMB’000 (Unaudited) 60,237 830,440 828,270 3,874 4,923 1,727,744 64,048 269,141 600,373 415,739 1,349,301 3,077,045 973 1,511,415 — 406,514 824,301 2,743,203 177,643 2,920,846	31 December 2016 RMB’000 (Audited) 60,937 687,236 841,381 4,357 3,455 1,597,366 53,745 686,437 — 149,563 889,745 2,487,111 979 1,528,311 (8,890) 71,354 742,584 2,334,338 (336) 2,334,002

– II-3 –

REVIEW REPORT OF THE GROUP

APPENDIX II

Note Liabilities Non-current liabilities Deferred income tax liabilities 19 Deferred income 20 Current liabilities Trade and other payables 18 Current income tax liabilities Total liabilities Total equity and liabilities	30 June 2017 RMB’000 (Unaudited) 51,941 1,183 53,124 101,418 1,657 103,075 156,199 3,077,045	31 December 2016 RMB’000 (Audited) 53,438 1,283
		54,721
		94,763 3,625
		98,388
		153,109
		2,487,111

The notes on page II-11 to II-37 form an integral part of this interim condensed consolidated financial information.

– II-4 –

REVIEW REPORT OF THE GROUP

APPENDIX II

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENTS

Note
Continuing operations
Revenue
6
Cost of sales
6
Gross profit
Selling expenses
Administrative expenses
Research and development expenses
Other gains — net
21
Operating profit
Finance income — net
Profit before income tax
Income tax expenses
22
Profit for the period from continuing
operations
Discontinued operations
Profit for the period from discontinued operations
23
Profit for the period
Profit attributable to:
Owners of the Company
Non-controlling interests
Profit attributable to owners of the Company
arises from:
Continuing operations
Discontinued operations

Unaudited
Six months ended 30 June
2017
2016
RMB’000
RMB’000
258,314
264,531
(70,479)
(68,439)
187,835
196,092
(43,306)
(33,586)
(32,329)
(32,640)
(11,079)
(9,493)
7,222
4,890
108,343
125,263
1,476
1,775
109,819
127,038
(18,306)
(19,985)
91,513
107,053
—
10,837
91,513
117,890
81,717
118,835
9,796
(945)
91,513
117,890
81,717
107,998
—
10,837
81,717
118,835

– II-5 –

REVIEW REPORT OF THE GROUP

APPENDIX II

		Unaudited
	Six	months ended 30 June
Note		2017	2016

Earnings per share from continuing and discontinued operations attributable to owners of the Company for the period (expressed in RMB cents per share)

Basic earnings per share 27 From continuing operations From discontinued operations From profit for the period Diluted earnings per share 27 From continuing operations From discontinued operations From profit for the period	5.17 — 5.17 5.16 — 5.16	6.57 0.66
		7.23
		6.52 0.65
		7.17

The notes on page II-11 to II-37 form an integral part of this interim condensed consolidated financial information.

– II-6 –

REVIEW REPORT OF THE GROUP

APPENDIX II

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Profit for the period
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Change in value of available-for-sale financial assets
Currency translation differences
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
Total comprehensive income for the period attributable to:
— Owners of the Company
— Non-controlling interests
Total comprehensive income for the period
Total comprehensive income attributable to owners
of the Company arises from:
Continuing operations
Discontinued operations

Unaudited
Six months ended 30 June
2017
2016
RMB’000
RMB’000
91,513
117,890
3,930
95
(56)
934
3,874
1,029
95,387
118,919
84,805
119,864
10,582
(945)
95,387
118,919
84,805
109,027
—
10,837
84,805
119,864

The notes on page II-11 to II-37 form an integral part of this interim condensed consolidated financial information.

– II-7 –

REVIEW REPORT OF THE GROUP

APPENDIX II

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

			Unaudited	Unaudited
	Attributable to own		ers of the Company			Non- controlling interests RMB’000 (336)	Total equity RMB’000 2,334,002
Share capital RMB’000 979	Share premium RMB’000 1,528,311	Treasury shares RMB’000 (8,890)	Other reserves RMB’000 71,354	Retained earnings RMB’000 742,584	Total RMB’000 2,334,338
— — —	— — —	— — —	— 81,717 (56) — 3,144 —				91,513 (56) 3,930
—	—	—	3,088	81,717	84,805	10,582	95,387
			(531) — — — 332,603 —		390 (8,933) 332,603	— — 167,397	390 (8,933) 500,000
(6)	(16,896)	8,890	332,072	—	324,060	167,397	491,457
973	1,511,415	—	406,514	824,301	2,743,203	177,643	2,920,846

– II-8 –

REVIEW REPORT OF THE GROUP

APPENDIX II

			Unaudited	Unaudited
	Attributable to own		ers of the Company			Non- controlling interests RMB’000 1,167	Total equity RMB’000 2,298,665
Share capital RMB’000 1,034	Share premium RMB’000 1,666,821	Treasury shares RMB’000 —	Other reserves RMB’000 82,008	Retained earnings RMB’000 547,635	Total RMB’000 2,297,498
— — —	— — —	— — —	— 934 95	118,835 — —	118,835 934 95	(945) 117,890 — 934 — 95
—	—	—	1,029	118,835	119,864	(945)	118,919
							100 (76,775) — 1,615
				—			(75,060)
1,006	1,605,232	(14,901)	84,495	666,470	2,342,302	222	2,342,524

The notes on page II-11 to II-37 form an integral part of this interim condensed consolidated financial information.

– II-9 –

REVIEW REPORT OF THE GROUP

APPENDIX II

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Note
Cash flows from operating activities
Cash generated from operations
Income tax paid
Cash flows from operating activities — net
Cash flows from investing activities
Purchases of property, plant and equipment
Payments for development costs of construction in
progress
Purchases of land use rights
Purchases of available-for-sale financial assets
10
Proceeds from disposal of available-for-sale financial
assets
10
Proceeds from disposal of subsidiaries
13(c), (d)
Net decrease in term deposits
Proceeds from disposal of property, plant and
equipment
Interest received
Cash flows from investing activities — net
Cash flows from financing activities
Buy-back of shares
15
Proceeds from capital injection by
non-controlling interests
16
Proceeds from exercise of employee share options
Cash flows from financing activities — net
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Exchange (losses)/gains
Cash and cash equivalents at end of the period
14

Six months ended 30 June
2017
2016
RMB’000
RMB’000
(Unaudited)
(Unaudited)
83,952
146,138
(21,981)
(26,841)
61,971
119,297
(6,663)
(630)
(140,730)
(151,706)
—
(115)
(730,750)
(175,000)
135,831
155,720
453,833
—
—
40,000
—
707
1,476
3,301
(287,003)
(127,723)
(8,933)
(76,775)
500,000
—
390
100
491,457
(76,675)
266,425
(85,101)
149,563
288,224
(249)
1,535
415,739
204,658

The notes on page II-11 to II-37 form an integral part of this interim condensed consolidated financial information.

– II-10 –

REVIEW REPORT OF THE GROUP

APPENDIX II

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

1 GENERAL INFORMATION OF THE GROUP

PW Medtech Group Limited (the ‘‘Company’’) was incorporated in the Cayman Islands on 13 May 2011 as an exempted company with limited liability under the Companies Law (2010 Revision) of the Cayman Islands. The address of the Company’s registered office is the Grand Pavilion Commercial Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Islands. The Company’s shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited since 8 November 2013.

The Company is an investment holding company. The Company and its subsidiaries (together, the ‘‘Group’’) are principally engaged in the development, manufacturing and sale of (i) regenerative medical biomaterial products (the ‘‘Regenerative Medical Biomaterial Business’’); (ii) advanced infusion set products (the ‘‘Infusion Set Business’’) in the People’s Republic of China (the ‘‘PRC’’) during the period. Previously, the Group was also engaged in the development, manufacturing and sale of orthopedic implants products (the ‘‘Orthopedic Implant Business’’) which has been substantially disposed in December 2016 (Note 23).

This condensed consolidated interim financial information is presented in Renminbi (‘‘RMB’’), unless otherwise

stated.

This condensed consolidated interim financial information has not been audited.

2 BASIS OF PREPARATION

This condensed consolidated interim financial information for the six months ended 30 June 2017 has been prepared in accordance with Hong Kong Accounting Standard 34, ‘‘Interim financial reporting’’. This condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRS’’).

3 ACCOUNTING POLICIES

Except as described below, the accounting policies applied are consistent with those of preparation of the Group’s annual financial statements for the year ended 31 December 2016, as described in therein.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The following amendments to standards have been adopted by the Group for the financial year beginning on or after 1 January 2017:

HKAS 12 (Amendment) Income taxes HKAS 7 (Amendment) Statement of cash flows HKFRS 12 (Amendment) Disclosure of interest in other entities

The adoption of these amendments did not have any significant impact on the Group.

– II-11 –

REVIEW REPORT OF THE GROUP

APPENDIX II

The following new standards and amendments to standards have been issued and are relevant to the Group, but are not effective for the financial year beginning on 1 January 2017 and have not been early adopted:

		Effective for
		annual periods
		beginning
		on or after
HKFRS 9	Financial Instruments	1 January 2018
HKFRS 15	Revenue from Contracts with Customers	1 January 2018
HKFRS 2 (Amendment)	Classification and measurement of share-based	1 January 2018
	payment transactions
HKFRS 4 (Amendment)	Amendments regarding implementation of HKFRS 9	1 January 2018
HKFRS 15 (Amendment)	Revenue from contracts with customers —	1 January 2018
	Clarifications
Annual improvement	Amendments to other HKFRSs	1 January 2018
2014–2016
HK(IFRIC) 22	Foreign currency transactions and advance	1 January 2018
	consideration
HKFRS 16	Leases	1 January 2019
HK(IFRIC) 23	Uncertainty over Income Tax Treatments	1 January 2019
HKFRS 10 and HKAS 28	Sale or contribution of assets between an investor and	1 January 2019
(Amendment)	its associate or joint venture

The Group has already commenced an assessment of the impact of these new or revised standards which are relevant to the Group’s operation. According to the preliminary assessment made by the directors of the Company, no significant impact on the financial performance and positions of the Group is expected when adopting HKFRS 9 and HKFRS 15. The directors also do not expect the adoption of HKFRS 16 would result in significant impact on the Group’s financial performance and positions except for the recognition of the right of use assets and corresponding lease liabilities arising from accounting for operating leases by the Group as a lessee.

4 ESTIMATES

The preparation of the condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial information, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Group’s annual financial statements for the year ended 31 December 2016.

5 FINANCIAL RISK MANAGEMENT

5.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The condensed consolidated interim financial information do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at 31 December 2016.

There have been no changes in the risk management policies since the year end.

– II-12 –

REVIEW REPORT OF THE GROUP

APPENDIX II

5.2 Liquidity risk

Compared to year end, there was no material change in the contractual undiscounted cash outflows for financial liabilities.

5.3 Fair value estimation

(a) The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
. Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
. Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
. Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
(b) Financial instruments in level 3

The following table presents the changes in level 3 instruments for the six months ended 30 June 2017.

At beginning of the period Additions Change in value of available-for-sale financial assets Disposals At end of the period	Available-for-sale financial assets RMB’000 — 730,750 5,454 (135,831) 600,373

6 SEGMENT INFORMATION

The chief operating decision-maker has been identified as the executive directors of the Company. The executive directors review the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

Continuing operations:

Regenerative Medical Biomaterial Business — manufacturing and sale of regenerative medical biomaterial products;
Infusion Set Business — manufacturing and sale of high-end infusion sets; and
Others — operations of other businesses.

– II-13 –

REVIEW REPORT OF THE GROUP

APPENDIX II

Discontinued operations:

Orthopedic Implant Business — In December 2016, the Group has substantially disposed of its Orthopedic Implant Business which constitutes discontinued operations to the Group and accordingly the segment information for the six months ended 30 June 2016 has been restated.

The chief operating decision-makers assess the performance of the operating segments based on the operating profit of each segment. All of the businesses of the Group are carried out in the PRC.

	Continuing	operations	Total RMB’000 258,314 (70,479)
Regenerative Medical Biomaterial Business RMB’000 125,440 (19,064) 106,376 (16,108) (11,315) (4,620) 1,487 75,820	Infusion Set Business RMB’000 130,276 (49,392) 80,884 (24,732) (20,864) (5,188) 5,735 35,835	Others RMB’000 2,598 (2,023) 575 (2,466) (150) (1,271) — (3,312)
			187,835
			(43,306) (32,329) (11,079) 7,222
			108,343
			1,476
			109,819

– II-14 –

REVIEW REPORT OF THE GROUP

APPENDIX II

	Continuing	operations	Total RMB’000 319,823 (82,020)
Regenerative Medical Biomaterial Business RMB’000 110,643 (16,852) 93,791 (12,592) (10,393) (3,862) 769 67,713	Infusion Set Business RMB’000 151,919 (49,953) 101,966 (19,309) (22,143) (4,576) 4,145 60,083	Others RMB’000 1,969 (1,634) 335 (1,685) (104) (1,055) (24) (2,533)
			237,803
			(44,046) (45,104) (13,944) 5,316
			140,025
			1,784
			141,809

– II-15 –

REVIEW REPORT OF THE GROUP

APPENDIX II

Reportable segments’ assets are reconciled to total assets as follows:

	Continuing	operations	Total RMB’000 3,073,171
Regenerative Medical Biomaterial Business RMB’000 1,345,932 44,565 768,574 33,439	Infusion Set Business RMB’000 1,690,626 54,257 1,248,301 63,870	Others RMB’000 36,613 5,436 465,879 2,362
			3,874
			3,077,045
			104,258
			51,941
			156,199
			2,482,754
			4,357
			2,487,111
			99,671
			53,438
			153,109

– II-16 –

REVIEW REPORT OF THE GROUP

APPENDIX II

7 LAND USE RIGHTS

The Group’s interests in land use rights represent prepaid operating lease payments for land located in the PRC, the net book values of which are analysed as follows:

In the PRC, held on: Leases of between 47 to 50 years At beginning of the period Additions Amortisation charge At end of the period	30 June 31 December 2017 2016 RMB’000 RMB’000 (Unaudited) (Audited) 60,237 60,937 Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 60,937 64,110 — 491 (700) (713) 60,237 63,888	31 December 2016 RMB’000 (Audited) 60,937
		63,888

Amortisation of land use rights has been charged to the consolidated income statement as follows:

Profit or loss of continuing operations Profit or loss of discontinued operations	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 700 683 — 30 700 713	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 700 683 — 30 700 713
		713

8 PROPERTY, PLANT AND EQUIPMENT

At beginning of the period Additions Disposals Depreciation At end of the period	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 687,236 659,328 152,156 121,725 (3) (992) (8,949) (18,015) 830,440 762,046	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 687,236 659,328 152,156 121,725 (3) (992) (8,949) (18,015) 830,440 762,046
		762,046

– II-17 –

REVIEW REPORT OF THE GROUP

APPENDIX II

Depreciation of property, plant and equipment has been charged to the consolidated income statement as follows:

Profit or loss of continuing operations Profit or loss of discontinued operations	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 8,949 8,768 — 9,247 8,949 18,015	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 8,949 8,768 — 9,247 8,949 18,015
		18,015

9 INTANGIBLE ASSETS

At beginning of the period Amortisation charge At end of the period	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 841,381 967,798 (13,111) (13,615) 828,270 954,183	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 841,381 967,798 (13,111) (13,615) 828,270 954,183
		954,183

Amortisation of intangible assets has been charged to the interim condensed consolidated income statement as follows:

Profit or loss of continuing operations Profit or loss of discontinued operations	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 13,111 13,113 — 502 13,111 13,615	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 13,111 13,113 — 502 13,111 13,615
		13,615

– II-18 –

REVIEW REPORT OF THE GROUP

APPENDIX II

10 AVAILABLE-FOR-SALE FINANCIAL ASSETS

At beginning of the period Additions Change in value of available-for-sale financial assets Disposals At end of the period	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) — — 730,750 175,000 5,454 815 (135,831) (155,720) 600,373 20,095	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) — — 730,750 175,000 5,454 815 (135,831) (155,720) 600,373 20,095
		20,095

The investments represent short-term investments placed in certain PRC state-owned banking institutions with maturity within 1 year and without fixed return. These investments are denominated in RMB.

11 LONG-TERM PREPAYMENTS

Prepayments for property, plant and equipment Others INVENTORIES Raw materials Work in progress Finished goods	30 June 2017 RMB’000 (Unaudited) 4,923 — 4,923 30 June 2017 RMB’000 (Unaudited) 19,880 13,685 30,483 64,048	31 December 2016 RMB’000 (Audited) 3,264 191
		3,455
		31 December 2016 RMB’000 (Audited) 20,556 9,224 23,965
		53,745

12 INVENTORIES

– II-19 –

REVIEW REPORT OF THE GROUP

APPENDIX II

13 TRADE AND OTHER RECEIVABLES

Trade receivables Less: provision for impairment Trade receivables — net (Note (a)) Bills receivable (Note (b)) Prepayments Receivables from disposals of Orthopedic Implant Business (Note (c)) Receivables from disposal of a subsidiary (Note (d)) Value added tax recoverable Other receivables	30 June 2017 RMB’000 (Unaudited) 210,954 (866) 210,088 1,535 39,696 5,000 — 4,878 7,944 269,141	31 December 2016 RMB’000 (Audited) 214,125 (866)
		213,259 689 7,125 443,833 15,000 — 6,531
		686,437

As at 30 June 2017 and 31 December 2016, except for the prepayments which are not financial assets, the fair value of the trade and other receivables approximated its carrying amounts. As at 30 June 2017 and 31 December 2016, the carrying amount of the trade and other receivables is denominated in RMB.

(a) As at 30 June 2017 and 31 December 2016, the ageing analysis of the trade receivables based on invoice date is as follows:

Up to 3 months 3 months to 6 months 6 months to 12 months 1 year to 2 years 2 years to 3 years	30 June 2017 RMB’000 (Unaudited) 52,074 37,362 60,180 50,964 9,508 210,088	31 December 2016 RMB’000 (Audited) 83,950 28,062 48,744 36,194 16,309
		213,259

Trade receivables arose mainly from Infusion Set Business. Advanced payments were normally required for sales in Regenerative Medical Biomaterial Business. For the major customers of Infusion Set Business, the Group normally granted credit periods in a range from 180 days to 365 days or set certain limits. No interests are charged on the trade receivables. Provision for impairment of trade receivables has been made for estimated irrecoverable amounts from the sales of the goods. This provision has been determined by reference to past collection experience.

As at 30 June 2017, trade receivables of RMB4,615,000 (31 December 2016: RMB4,615,000) were impaired and provision of RMB866,000 (31 December 2016: RMB866,000) has been made. The individually impaired receivables mainly relate to certain customers, which are in unexpected difficult economic situations.

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REVIEW REPORT OF THE GROUP

APPENDIX II

Movements on the Group’s provision for impairment of trade receivables are as follows:

At beginning of the period Reversal of impairment of receivables At end of the period	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 866 8,076 — (683) 866 7,393	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 866 8,076 — (683) 866 7,393
		7,393

(b) The ageing of bills receivable is within 180 days, which is within the credit term.
(c) On 24 December 2016, the Group entered into an agreement to dispose of the subsidiaries in Orthopedic Implant Business to an independent third party at a consideration of RMB450,000,000. The transaction has been completed by 31 December 2016. During the period, part of the consideration of RMB438,833,000 has been received.
(d) On 8 December 2016, Beijing Fert Technology Co., Ltd. (‘‘Fert Technology’’) entered into an agreement to dispose of one of its subsidiaries, namely Weikangtongda, to an independent third party at a consideration of RMB15,000,000. The gain on disposal was approximately RMB6,099,000. The consideration of RMB15,000,000 has been received during the six months ended 30 June 2017.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

14 CASH AND CASH EQUIVALENTS

Cash on hand Cash at banks	30 June 2017 RMB’000 (Unaudited) 146 415,593 415,739	31 December 2016 RMB’000 (Audited) 118 149,445
		149,563

The carrying amounts of the cash and cash equivalents are denominated in the following currencies:

RMB HKD USD EUR	30 June 2017 RMB’000 (Unaudited) 412,902 2,053 680 104 415,739	31 December 2016 RMB’000 (Audited) 134,988 12,544 1,927 104
		149,563

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REVIEW REPORT OF THE GROUP

APPENDIX II

15 SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES

Unaudited Balance at 1 January 2017 Proceeds from employee share options exercised (a) Buy-back and cancellation of shares (b) Transfer from other reserves upon exercise of share options Balance at 30 June 2017 Unaudited Balance at 1 January 2016 Proceeds from employee share options exercised Buy-back of shares Transfer from other reserves upon exercise of share options Balance at 30 June 2016	Number of ordinary shares 1,590,317,404 557,325 (10,027,000) — 1,580,847,729 1,673,022,168 159,236 (42,422,000) — 1,630,759,404	Share capital RMB’000 979 — (6) — 973 1,034 — (28) — 1,006	Share premium RMB’000 1,528,311 390 (17,817) 531 1,511,415 1,666,821 100 (61,846) 157 1,605,232	Treasury shares RMB’000 (8,890) — 8,890 — — — — (14,901) — (14,901)	Total RMB’000 1,520,400 390 (8,933) 531 1,512,388 1,667,855 100 (76,775) 157 1,591,337

(a) Options exercised during the six months ended 30 June 2017 resulted in 557,325 shares being issued with cash proceeds of HKD442,000 (equivalent to RMB390,000).

(b) During the period, the Company acquired 5,148,000 of its own shares through purchases on The Stock Exchange of Hong Kong Limited and cancelled all the treasury shares.

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REVIEW REPORT OF THE GROUP

APPENDIX II

16 OTHER RESERVES

Unaudited Balance at 1 January 2017 Currency translation differences Change in value of available-for-sale financial assets Transfer to share premium upon exercise of share options (Note 15) Changes in ownership interest in subsidiaries without change of control (a) Balance at 30 June 2017 Unaudited Balance at 1 January 2016 Currency translation differences Change in value of available-for-sale financial assets Transfer to share premium upon exercise of share options (Note 15) Share option reserve Balance at 30 June 2016	Merger reserve RMB’000 63,964 — — — — 63,964 63,964 — — — — 63,964	Translation reserve RMB’000 6,730 (56) — — — 6,674 6,625 934 — — — 7,559	Capital reserve RMB’000 (1,703) — — — 332,603 330,900 (1,703) — — — — (1,703)	Share option reserve RMB’000 2,363 — — (531) — 1,832 13,122 — — (157) 1,615 14,580	Available-for- sale financial assets RMB’000 — — 3,144 — — 3,144 — — 95 — — 95	Total RMB’000 71,354 (56) 3,144 (531) 332,603
						406,514
						82,008 934 95 (157) 1,615
						84,495

(a) On 27 February 2017, Xinyu Yongshuo Management and Consulting LLP, an independent third party, subscribed 11,250,000 new shares issued by Tianxinfu (Beijing) Medical Appliance Co., Ltd. (‘‘Tianxinfu’’, an indirectly wholly-owned subsidiary of the Company) at a cash consideration of RMB500 million which accounts for 20% equity interest of Tianxinfu.

17 SHARE BASED PAYMENTS

(i) Share options

On 6 July 2013, the Board approved a share option scheme (the ‘‘Scheme’’) for the issuance of aggregate of shares in issue on the listing date of the Company, representing 70,891,722 shares.

The principal terms of the Scheme were approved by resolution of the shareholders of the Company on 3 July 2013 and amended by resolution of the shareholders of the Company on 14 October 2013. The options under the Scheme shall vest in 4 equal tranches (being 25% of each option granted, and each tranche is hereinafter referred to as a ‘‘Tranche’’) on the four dates (day immediately following the expiry of six months after the listing date, 8 November 2013 (the ‘‘First Vesting Date’’); first anniversary of the First Vesting Date; second anniversary of the First Vesting Date and third anniversary of the First Vesting Date), respectively, with performance conditions. Details of the Scheme are disclosed in the Company’s prospectus dated 28 October 2013.

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REVIEW REPORT OF THE GROUP

APPENDIX II

(ii) Outstanding share options

Movements in the number of share options outstanding:

At 1 January Exercised Forfeited At 30 June	Number of share options 2017 2016 18,216,786 35,621,248 (557,325) (159,236) (15,334,385) (16,926,755) 2,325,076 18,535,257	Number of share options 2017 2016 18,216,786 35,621,248 (557,325) (159,236) (15,334,385) (16,926,755) 2,325,076 18,535,257
		18,535,257

Details of the exercise prices and the respective numbers of share options which remained outstanding as at 30 June 2017 and 31 December 2016 are as follows:

Vesting date Exercise price 7 May 2015 RMB0.63 7 May 2017 RMB0.63	Number of share options outstanding 30 June 31 December 2017 2016 2,325,076 2,882,401 — 15,334,385 2,325,076 18,216,786	Number of share options outstanding 30 June 31 December 2017 2016 2,325,076 2,882,401 — 15,334,385 2,325,076 18,216,786
		18,216,786

The exercisable period is 10 years from the grant date of the share options

(iii) Fair value of share options

The directors of the Company have used the Binomial Model to determine the fair value of the options granted. Significant judgement on parameters, such as risk free rate, dividend yield and expected volatility, made by the management in applying the Binomial Model, are summarised below.

Risk free rate	3.59%
Dividend yield	1%
Expected volatility	38%

The weighted average fair value of each Tranche of options is RMB0.94, RMB0.97, RMB0.99 and RMB1.00 respectively.

– II-24 –

REVIEW REPORT OF THE GROUP

APPENDIX II

18 TRADE AND OTHER PAYABLES

Trade payables Salary and staff welfare payables Advances from customers Payables for construction in progress Provisions for sales rebate Deposits from distributors Payables for purchase of land use rights Value added tax and other taxes Professional fee Other payables	30 June 2017 RMB’000 (Unaudited) 19,676 28,046 17,583 6,422 6,769 5,685 4,277 4,604 2,836 5,520 101,418	31 December 2016 RMB’000 (Audited) 26,679 32,096 4,258 — 8,309 5,658 4,277 6,479 2,295 4,712
		94,763

As at 30 June 2017 and 31 December 2016, except for the salary and staff welfare payables, advances from customers and value added tax and other taxes which are not financial liabilities, all trade and other payables of the Group were non-interest bearing, and their fair value approximated their carrying amounts due to their short maturities.

At 30 June 2017 and 31 December 2016, the ageing analysis of the trade payables based on invoice date are as follows:

Up to 3 months 3 months to 6 months 6 months to 12 months 1 year to 2 years 2 years to 3 years Over 3 years	30 June 2017 RMB’000 (Unaudited) 13,313 919 689 3,686 264 805 19,676	31 December 2016 RMB’000 (Audited) 21,197 420 3,811 431 100 720
		26,679

All of the carrying amounts of the Group’s trade payables are denominated in RMB.

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REVIEW REPORT OF THE GROUP

APPENDIX II

19 DEFERRED INCOME TAX

Deferred income tax assets

At beginning of the period Charged to profit or loss At end of the period	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 4,357 10,179 (483) (213) 3,874 9,966

Deferred income tax liabilities

At beginning of the period Credited to profit or loss Charged to other comprehensive income At end of the period	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (53,438) (60,855) 2,190 2,202 (693) — (51,941) (58,653)

20 DEFERRED INCOME

Deferred income represents government grants relating to acquisition of property, plant and equipment. These government grants are deferred and recognised in the interim condensed consolidated income statement over the period necessary to match them with the costs that they are intended to compensate. The movements of deferred income are as follows:

At beginning of the period Credited to profit or loss At end of the period	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 1,283 6,169 (100) (357) 1,183 5,812

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REVIEW REPORT OF THE GROUP

APPENDIX II

21 OTHER GAINS — NET

Government grants — relating to costs — relating to assets Realised gain on available-for-sale financial assets Loss on disposal of property, plant and equipment Others	Unaudited Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Restated) 6,252 4,012	Unaudited Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Restated) 6,252 4,012
	6,152 100	3,912 100
	831 — 139 7,222	720 (24) 182 4,890

22 INCOME TAX EXPENSES

Current income tax Deferred income tax Income tax expenses	Unaudited Six months ended 30 June 2017 2016 RMB’000 RMB’000 20,013 22,739 (1,707) (2,754) 18,306 19,985

Below are the major tax jurisdictions that the Group operates during the period.

(a) Cayman Islands profits tax

The Company has not been subject to any taxation in the Cayman Islands.

(b) Hong Kong profits tax

Companies incorporated in Hong Kong are subject to the Hong Kong profits tax at a rate of 16.5%.

(c) The PRC Corporate Income Tax (the ‘‘CIT’’)

Except for Tianxinfu, Fert Technology and Xuzhou Yijia Medical Device Co.,Ltd. (‘‘Xuzhou Yijia’’), the CIT of the Group in respect of its operations in mainland China is calculated at the tax rate of 25% on the estimated assessable profits for each of the year, based on the existing legislation interpretation and practices in respect thereof.

Tianxinfu, Fert Technology and Xuzhou Yijia were qualified as ‘‘High and New Technology Enterprises’’ under the CIT Law. Therefore, they were entitled to a preferential income tax rate of 15% on their estimated assessable profits during the year. They will continue to enjoy the preferential tax rate in the subsequent periods, provided that they continue to be qualified as ‘‘High and New Technology Enterprises’’ during such periods.

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REVIEW REPORT OF THE GROUP

APPENDIX II

(d) Withholding tax (‘‘WHT’’)

According to the applicable PRC tax regulations, dividends distributed by a company established in the PRC to a foreign investor with respect to profits derived after 1 January 2008 are generally subject to WHT. If a foreign investor incorporated in Hong Kong meets the conditions and requirements under the double taxation treaty arrangement entered into between the PRC and Hong Kong, the relevant WHT rate will be reduced from 10% to 5%.

23 DISCONTINUED OPERATIONS

In December 2016, the Group has substantially disposed of its Orthopedic Implant Business which constitutes discontinued operations.

(a) Analysis of the result of the discontinued operations for the six months ended 30 June 2016 is as follows:

Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Research and development expenses
Other gains — net
Operating profit
Finance income — net
Profit before income tax
Income tax expenses
Profit for the period from discontinued operations
Profit for the period from discontinued operations attributable to:
Owners of the Company
Non-controlling interests
Profit for the period from discontinued operations

Six months ended
30 June
2016
RMB’000
55,292
(13,581)
41,711
(10,460)
(12,464)
(4,451)
426
14,762
9
14,771
(3,934)
10,837
10,837
—
10,837

– II-28 –

APPENDIX II

REVIEW REPORT OF THE GROUP

(b) Analysis of cash flow of the discontinued operations for the six months ended 30 June 2016 is as follows:

Operating cash flows Investing cash flows Financing cash flows Total cash flows	Six months ended 30 June 2016 RMB’000 8,443 (8,543) — (100)

24 CONTINGENCIES

(a) During the year ended 31 December 2015, one of the Group’s subsidiaries (the ‘‘Subsidiary’’) received a Demand for Response Notice (應訴通知書) and corresponding litigation materials from a court in Beijing, the PRC, in which the plaintiff filed a civil action against the Subsidiary and its former shareholders before it was being acquired by the Group (collectively, the ‘‘Defendants’’) due to a dispute arising from the Technology Development Agreement (技術開發合同). The plaintiff required the Defendants to be liable for the profit dividend and interest of RMB10 million and the litigation costs of the case of RMB81,800. According to a written civil ruling issued by the court in charge of the case, the plaintiff’s claim was previously rejected by the court. However, upon the plaintiff has appealed to the court of intellectual property, as of 7 June 2017 the litigation completed civil second instance and a retrial is required for the court in charge of the case. Despite such retrial, the directors of the Company and the Group’s attorney agent still considered that since the Subsidiary is not a principal party of the said Technology Development Agreement, it is expected that it is unlikely for the Subsidiary to undertake legal liability for the litigation. Therefore, the directors estimate that the case will not make any substantial impact to the Group, nor will result in any material loss.
(b) During the year ended 31 December 2016, a PRC intermediate people’s court issued a civil judgement (‘‘First Instance Judgement’’), pursuant to which one of the Subsidiary shall undertake joint guarantee liability with another independent guarantor for a loan granted by a bank (the ‘‘Borrowing Bank’’ or the ‘‘Plaintiff’’) to the original independent borrower (the ‘‘Borrower’’) with principal and interest thereon totalling approximately RMB15 million, as the loan has been default in repayment. The directors of the Company and its appointed attorney agent analysed the case and considered that the Borrower is suspected of loan fraud and the Borrowing Bank may have grave fault in granting the loan to the Borrower. Accordingly, in August 2016, the Subsidiary instituted an appeal to a PRC superior people’s court on rejecting the First Instance Judgement.

On 10 July 2017, the litigation of second instance commenced and the Plaintiff submitted new evidence to support its ground to grant loan to the Borrower. Up to date of this interim condensed consolidated financial information, the second instance judgement is yet to finalise, the estimated joint guarantee liability including the original loan principal and accrued interest thereon amounted to approximately RMB20 million. The directors of the Company considered that the result of second instance judgement is uncertain and the Joint Guarantor is also obligated to the joint guarantee liability. Furthermore, as the Group acquired the Subsidiary subsequent to its provision of the joint guarantee, the Group is entitled to make claims against the former shareholders of the Subsidiary if the joint guarantee obligation causes any losses to the Group. Therefore, despite any unfavourable judgement, the directors of the Company are of the view that the case will not make any substantial impact to the Group, nor will result in any material loss.

– II-29 –

REVIEW REPORT OF THE GROUP

APPENDIX II

25 COMMITMENTS

(a) Capital commitments

Capital expenditure contracted for at the end of the period but not yet incurred is as follows:

Property, plant and equipment	30 June 2017 RMB’000 (Unaudited) 117,723	31 December 2016 RMB’000 (Audited) 17,123

(b) Operating lease commitments

The Group leases various offices and warehouses under non-cancellable operating lease agreements. The majority of these non-cancellable leases are renewable at the end of the lease period at the market rate. The Group is required to give at least one-month notice for termination of these agreements. The lease expenditure and related management fee, water and electricity expenses (if necessary) were charged to the interim condensed consolidated income statements.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

No later than 1 year Later than 1 year and no later than 5 years	30 June 2017 RMB’000 (Unaudited) 441 683 1,124	31 December 2016 RMB’000 (Audited) 1,933 832
		2,765

26 RELATED PARTY TRANSACTIONS

The following transactions were carried out between the Group and related parties. In the opinion of the directors of the Company, the related party transactions were carried out in the normal course of business and in accordance with the terms negotiated between the Group and the respective related parties.

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REVIEW REPORT OF THE GROUP

APPENDIX II

(a) Key management compensation

Salaries and other allowances Share-based compensation	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 1,425 1,575 — 702 1,425 2,277	Six months ended 30 June 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) 1,425 1,575 — 702 1,425 2,277
		2,277

27 EARNINGS PER SHARE

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares in issue during the six months ended 30 June 2017.

Profit attributable to owners of the Company: — Continuing operations (RMB’000) — Discontinued operations (RMB’000) Weighted average number of ordinary shares in issue (thousands) Basic earnings per share: — Continuing operations (RMB cents per share) — Discontinued operations (RMB cents per share)	Unaudited Six months ended 30 June 2017 2016 81,717 107,998 — 10,837 81,717 118,835 1,582,004 1,644,310 5.17 6.57 — 0.66 5.17 7.23	Unaudited Six months ended 30 June 2017 2016 81,717 107,998 — 10,837 81,717 118,835 1,582,004 1,644,310 5.17 6.57 — 0.66 5.17 7.23
		118,835 1,644,310
		6.57 0.66
		7.23

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REVIEW REPORT OF THE GROUP

APPENDIX II

(b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares: share options. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption of the conversion of all dilutive potential ordinary shares arising from share options granted by the Company (collectively forming the denominator for computing the diluted earnings per share). No adjustment is made to earnings (numerator).

Profit attributable to owners of the Company: — Continuing operations (RMB’000) — Discontinued operations (RMB’000) Weighted average number of ordinary shares in issue (thousands) Adjustments for: — Share options (thousands) Weighted average number of ordinary shares for diluted earnings per share (thousands) Diluted earnings per share: — Continuing operations (RMB cents per share) — Discontinued operations (RMB cents per share)	Unaudited Six months ended 30 June 2017 2016 81,717 107,998 — 10,837 81,717 118,835 1,582,004 1,644,310 1,537 12,281 1,583,541 1,656,591 5.16 6.52 — 0.65 5.16 7.17	Unaudited Six months ended 30 June 2017 2016 81,717 107,998 — 10,837 81,717 118,835 1,582,004 1,644,310 1,537 12,281 1,583,541 1,656,591 5.16 6.52 — 0.65 5.16 7.17
		118,835
		1,644,310 12,281
		1,656,591
		6.52 0.65
		7.17

28 DIVIDENDS

The Board does not propose an interim dividend for the six months ended 30 June 2017 (for the six months ended 30 June 2016: nil).

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REVIEW REPORT OF THE GROUP

APPENDIX II

29 SUBSEQUENT DISPOSAL OF BUSINESS

(a) On 12 October 2017, the Company and China Biologic Products Holdings (the ‘‘CBPO’’) entered into a share exchange agreement, pursuant to which the Company agreed to subscribe for the CBPO Shares in consideration of the Disposal Business in the form of the entire issued share capital of Health Forward, which in turn owns 80% equity interest in Tianxinfu, at a total value of approximately US$513.45 million (equivalent to approximately RMB3.38 billion) with a subscription price of US$93.0 (equivalent to approximately RMB611.9) per CBPO. During the years ended 31 December 2014, 2015 and 2016 and six months ended 30 June 2017, the Disposal Business has been operated and owned by Tianxinfu (Beijing) Medical Appliance Co., Ltd (‘‘Tianxinfu’’) and its subsidiaries. Subsequent to 30 June 2017, Health Forward, an investment holding and indirectly wholly-owned subsidiary of the Company, and a number of the Company’s wholly owned subsidiaries (the ‘‘Group Vendor Companies’’) entered into a series of assets purchase agreements, pursuant to which the Group Vendor Companies would transfer their entire aggregate 80% interests in Tianxinfu to Health Forward (the ‘‘Reorganisation’’). The Reorganisation had been completed on 19 September 2017.

The assets and liabilities related to the Disposal comprised the following:

(1) Assets and liabilities relating to the Disposal Business, which was carried out by Tianxinfu and its subsidiaries, indirectly owned by the Company as of 80% as of the date of this report; and
(2) Assets and liabilities of Health Forward. Health Forward is an investment holding company and owned 80% equity interest in Tianxinfu. As at 30 June 2017, assets and liabilities of Health Forward primarily consisted of amounts due from/to related parties, with net carrying amount approximately RMB23.1 million. During the six months ended 30 June 2017, net loss attributable to owners of Health Forward was approximately RMB46,912, resulting from the operating expenses, and led to net cash outflows in operating activities of approximately RMB40,862.

After the disposal of the Disposal Business, the Group retains mainly Infusion Set Business (the ‘‘Remaining Group’’).

(b) Financial Information of Tianxinfu
(i) Basis of preparation

On 1 August 2014, the Group acquired 100% equity interests of Disposal Business from a third party.

For the Relevant Periods, the unaudited financial information of the Disposal Business has been prepared as modified by the re-measurement of its identifiable assets and liabilities to fair value at the acquisition date.

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REVIEW REPORT OF THE GROUP

APPENDIX II

(ii) Interim Condensed Consolidated Balance Sheet of Tianxinfu.

Assets Non-current assets Land use rights Property, plant and equipment Intangible assets Deferred income tax assets Current assets Inventories Amount due from related parties Trade and other receivables Available-for-sale financial assets Cash and cash equivalents Total assets Equity Equity attributable to owners of the Company Share capital Share premium Other reserves Retained earnings/(accumulated losses) Non-controlling interests Total equity Liabilities Non-current liabilities Deferred income tax liabilities Current liabilities Amount due to related parties Trade and other payables Current income tax liabilities Total liabilities Total equity and liabilities	30 June 2017 RMB’000 12,595 28,201 638,902 1,481 681,179 18,557 20,632 4,473 600,373 67,983 712,018 1,393,197 360,000 185,638 693,253 24,589 1,263,480 1,167 1,264,647 42,576 42,576 36,295 48,785 894 85,974 128,550 1,393,197	31 December 2016 RMB’000 12,765 20,839 649,899 1,685 685,188 15,028 20,321 5,596 — 84,126 125,071 810,259 45,000 638 681,769 (33,721) 693,686 1,167 694,853 43,583 43,583 36,295 33,494 2,034 71,823 115,406 810,259

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REVIEW REPORT OF THE GROUP

APPENDIX II

(iii) Interim Condensed Consolidated Income Statement of Tianxinfu.

	Six months ended 30 June	Six months ended 30 June
	2017	2016
	RMB’000	RMB’000
Revenue	128,245	112,612
Cost of sales	(21,485)	(18,487)
Gross profit	106,760	94,125
Selling expenses	(18,432)	(14,277)
Administrative expenses	(6,683)	(6,045)
Research and development expenses	(5,891)	(4,917)
Other gains — net	1,487	746
Operating profit	77,241	69,632
Finance income — net	354	59
Profit before income tax	77,595	69,691
Income tax expenses	(11,731)	(10,179)
Profit for the period	65,864	59,512
Profit attributable to:
Owners of the Company	65,864	59,512
Non-controlling interests	—	—
	65,864	59,512
Interim Condensed Consolidated Statement of Comprehensive Income of Tianxinfu.
	Six months ended 30 June
	2017	2016
	RMB’000	RMB’000
Profit for the period	65,864	59,512
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Change in value of available-for-sale financial assets	3,930	95
Other comprehensive income for the period, net of tax	3,930	95
Total comprehensive income for the period	69,794	59,607
Total comprehensive income for the period attributable to:
— Owners of the Company	69,794	59,607
— Non-controlling interests	—	—
Total comprehensive income for the period	69,794	59,607

(iv) Interim Condensed Consolidated Statement of Comprehensive Income of Tianxinfu.

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REVIEW REPORT OF THE GROUP

APPENDIX II

(v) Interim Condensed Consolidated Statements of Changes in Equity of Tianxinfu.

Attributable to owners of the Company

Share capital RMB’000 45,000	Share premium RMB’000 638	Other reserves RMB’000 681,769	Retained earnings/ accumulated losses) Total RMB’000 RMB’000 (33,721) 693,686 65,864 65,864 — 3,930 65,864 69,794 (7,554) — — 500,000 (7,554) 500,000 24,589 1,263,480 of the Company	Retained earnings/ accumulated losses) Total RMB’000 RMB’000 (33,721) 693,686 65,864 65,864 — 3,930 65,864 69,794 (7,554) — — 500,000 (7,554) 500,000 24,589 1,263,480 of the Company	Non- controlling interests RMB’000 1,167	Total equity RMB’000 694,853
— —	— —	— 3,930	65,864 —	65,864 3,930	— —	65,864 3,930
—	—	3,930	65,864	69,794	—	69,794
— 315,000	— 185,000	7,554 —			— —	— 500,000
315,000	185,000	7,554	(7,554	) 500,000	—	500,000
360,000	185,638	693,253	24,589	1,263,480	1,167	1,264,647
		to owners			Non- controlling interests RMB’000 1,167	Total equity RMB’000 685,325
Share capital RMB’000 25,000	Share premium RMB’000 137	Other reserves RMB’000 679,128	Retained earnings/ accumulated losses) RMB’000 (20,107	Total RMB’000 ) 684,158
— —	— —	— 95	59,512 —	59,512 95	— —	59,512 95
—	—	95	59,512	59,607	—	59,607
20,000	501				—	—
20,000	501	(12,522	) (7,979	) —	—	—
45,000	638	666,701	31,426	743,765	1,167	744,932

– II-36 –

REVIEW REPORT OF THE GROUP

APPENDIX II

(vi) Interim Condensed Consolidated Statements of Cash Flow of Tianxinfu.

Cash flows from operating activities
Cash generated from operations
Income tax paid
Cash flows from operating activities — net
Cash flows from investing activities
Purchases of property, plant and equipment
Payments for development costs of construction in progress
Purchases of available-for-sale financial assets
Proceeds from disposal of available-for-sale financial assets
Loans provided to related parties
Interest received
Cash flows from investing activities — net
Cash flows from financing activities
Proceeds from capital injection by owner
Dividends
Cash flows from financing activities — net
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Exchange gains
Cash and cash equivalents at end of the period

Six months ended 30 June
2017
2016
RMB’000
RMB’000
94,983
86,349
(14,367)
(15,837)
80,616
70,512
(552)
(240)
(1,648)
(147)
(730,750)
(175,000)
135,831
155,720
—
(60,000)
354
59
(596,765)
(79,608)
500,000
—
—
(31,500)
500,000
(31,500)
(16,149)
(40,596)
84,126
98,431
6
4
67,983
57,839

30 EVENT OCCURRING AFTER THE BALANCE SHEET DATE

(a) The Company repurchased 13,808,000 shares at a total consideration of HKD24,851,000 after 30 June 2017. The shares have subsequently been cancelled before the date of this report.
(b) In August 2017, Tianxinfu reached a dividends distribution resolution according to the attributable net profits, which amounted to RMB96.50 million. According to the resolution, RMB12.66 million was paid to Xinyuyongshuo, its minority shareholder.

– II-37 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

1. INDEBTEDNESS STATEMENT

As at the close of business on September 30, 2017, being the latest practicable date for the purpose of this indebtedness statement, the Group did not have any debt securities issued and outstanding or agreed to be issued, bank overdrafts, liabilities under acceptance (other than normal trade bills), acceptance credits, hire purchase commitments, mortgages, charges, guarantees of other material contingent liabilities.

2. STATEMENT OF SUFFICIENCY OF WORKING CAPITAL

Taking into account the expected financial resources available to the Group including the internally generated funds, the Directors are of the opinion that, following the completion of the Disposal and the Subscription, the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

3. FINANCIAL EFFECTS OF THE TRANSACTION ON THE GROUP

Immediately following the Closing, the Company is expected to become the single largest shareholder of CBPO, with the CBPO Shares representing approximately 16.66% of the enlarged issued share capital of CBPO; Health Forward and Tianxinfu will cease to be subsidiaries of the Company. Therefore, the results, assets and liabilities of the Disposal Group will no longer be consolidated into the financial statements of the Company. Instead, the results, assets and liabilities of the Disposal Group will be consolidated into the financial statements of CBPO.

Immediately following the Closing, CBPO will not become a subsidiary of the Company and its results will not be consolidated in the financial statements of the Company. The CBPO Shares held by the Company would be treated as an investment in an associate and accounted for using the equity method of accounting. Under the equity method of accounting, the Company’s share of the CBPO’s results of operations would be included in the Company’s consolidated income statement. Under the equity method of accounting, the Company’s share of the CBPO’s financial position, together with any intangible assets and goodwill identified in the purchasing accounting at acquisition date, subject to amortisation if applicable, would be included in the Company’s consolidated balance sheets.

After completion of the Subscription, the Company is expected to rely on (i) its inspection rights under the company laws of the Cayman Islands where CBPO was incorporated and its information rights in accordance with CBPO’s articles of association and relevant U.S. securities laws and regulations; and (ii) the Company’s right under the Investor Rights Agreement to request CBPO to furnish or make available its books and records to comply with applicable securities laws and stock exchange rules for the preparation of the Group’s consolidated financial results for so long as the investment by the Company in CBPO is treated as an investment in associate and accounted for using the equity method of accounting. Accordingly, the Company expects that it would be able to prepare its consolidated financial results with the investment by the Company in CBPO treated as an investment in associate and accounted for using the equity method of accounting upon completion of the Subscription.

– III-1 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

Appendix V to this circular sets out certain unaudited pro forma financial information of the New Group, which illustrates the financial effects of the Subscription and Disposal on the assets and liabilities of the Group assuming Closing had taken place on June 30, 2017, and the financial effects of the Subscription and Disposal on the performance results of the Group for the year ended December 31, 2016 assuming Closing had taken place on 1 January 2016.

As set out in Appendix V to this circular, as a result of the Subscription and Disposal:

(i) the total assets of the Group would increase from approximately RMB3,077.05 million to approximately RMB4,817.61 million for the New Group;
(ii) the total liabilities of the Group would decrease from approximately RMB156.20 million to approximately RMB70.70 million for the New Group;
(iii) the revenue of the Group would decrease from approximately RMB566.82 million to approximately RMB319.58 million for the New Group; and
(iv) the profit before income tax would increase from approximately RMB283.23 million to approximately RMB2,875.18 million, including the other gains amounted approximately RMB2,675.80 million arising from the Subscription and Disposal, which represents the difference between the consideration and the carrying amount of net asset value of the Disposal Group assuming the Closing had taken place on January 1, 2016. The profit for the year of the Group would increase from approximately RMB193.45 million to approximately RMB2,543.30 million for the New Group.

The Directors are of the view that the Subscription and Disposal is not expected to have any material adverse impact on the financial position of the Group. As set out in ‘‘Working Capital’’ in Appendix III to this circular, the Directors are of the opinion that the New Group will have sufficient working capital for its present requirements for at least the next 12 months from the date of this circular.

Shareholders should note that the earnings contribution from CBPO after Closing will depend on the future performance of CBPO, and the actual effect of the Transaction on the assets and liabilities of the Group will depend on the financial position of CBPO as of the date of Closing, which cannot be quantified as of the Latest Practicable Date. The unaudited proforma financial information of the New Group set out in Appendix V to this circular has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group and the New Group at any future date.

– III-2 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

4. FINANCIAL AND TRADING PROSPECTS OF THE NEW GROUP

(a) Investment in CBPO

By the acquisition of the CBPO Shares, the Company expands into a new niche market in medical industry in the PRC with fast-growing, high-margin and high-potential opportunities, which is in line with the Company’s long-term strategies. CBPO has an established business with good track record in developing its plasma business. It is a leading producer of plasma products in the PRC with strong growth potential. It is among the top three producers of plasma products in the PRC in terms of 2016 sales, according to CBPO’s 2016 annual report.

Tianxinfu is the largest manufacturer of artificial dura mater in the PRC. As both Tianxinfu and CBPO are industry leaders in the biomaterial industry in the PRC with state of art technology and know-how, the Company believes that a smooth business combination could create a sharing platform for both Tianxinfu and CBPO to consolidate their leading market positions and realize rapid growth. In particular, Tianxinfu would be able to strengthen its core business by leveraging CBPO’s existing market presence to cross-sell and offer bundle pricing opportunities, and expand its customer bases by growing into CBPO’s sales channels, hospitals and departments. At the same time, the combined scale of Tianxinfu and CBPO could also reduce costs, optimize spending, broaden market exposure and improve bargaining power with distributors, customers and suppliers.

The transactions under the Share Exchange Agreement are valued at a total amount of approximately US$513.45 million (equivalent to approximately RMB3.38 billion), which provides the Shareholders with an attractive valuation of the Disposal Group and, compared with the proposed A share listing of Tianxinfu, is expected to be consummated with more certainty and expedited timetable. The Company believes that the combination of Tianxinfu with CBPO would enhance the Company’s overall valuation and create values for the Company and its shareholders. Accordingly, notwithstanding that the CBPO Shares held by the Company would only be treated as an investment in an associate of the Company at the outset, as a long-term strategic partner of CBPO and with the listing status on the Stock Exchange also with access to the U.S. capital market, the Company is expected to be exposed to diversified coverage and enhance its corporate image in two international financial centers, which could create more potentials and possibilities for the Company’s future development.

(b) Infusion Set Business

The infusion set business includes producing precision filter infusion sets and nonpolyvinyl-chloride-based infusion sets. Throughout the years, the ‘‘Fert (伏爾特)’’ brand under the Group has been focusing on providing a safer and more efficient solution for infusion therapy, and has been maintaining the second largest market share in the domestic advanced infusion sets market and ranking number one in Beijing market for years.

– III-3 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

In July 2016, the Group has obtained the product registration certificate for disposable intravenous cannula (留置針). In the future, the Group will keep focusing on infusion therapy and provide a more comprehensive product portfolio for infusion therapy, thus to make contributions to the safety and efficiency of China’s medical care. Furthermore, as a leader in the infusion set business of China, with the benefits driven by the favorable government policy and market potential, the Group will take advantage of the great favorable economic and industrial environments to introduce and nurture high-quality talents and improve production technologies, with a view to maintaining the competitive edges of its infusion sets products in the market.

(c) Other Businesses

The other businesses of the Group comprised the Group’s other operations not classified as the regenerative medical biomaterial business or the infusion set business, mainly including the Group’s beauty products in the brand name of ‘‘LE SEUL (諾頌)’’ newly launched in 2016.

In 2017, the Group further promoted its medical beauty mask brand ‘‘LE SEUL’’ and in a short term, achieved a milestone success. In the first half of 2017, the number of the varieties of our mask products increased to eight, covering the field of basic skincare needs and medium to high-end skincare needs. The Group will continue to uphold the rigorous attitude to create medical cosmetic skincare products trusted by consumers, and the quality of such mask products is superior to that of similar products available in the domestic market.

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

The management discussion and analysis of the Group for (i) the period ended June 30, 2017 is disclosed in the interim report of the Company; and (ii) the three years ended December 31, 2014, 2015 and 2016 is disclosed in the annual reports of the Company, all of which have been published on the website of the Stock Exchange (www. hkexnews.hk) and the Company (www.pwmedtech.com).

– III-4 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

1. PUBLISHED FINANCIAL INFORMATION OF THE CBPO GROUP OF EACH OF THE THREE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016 AND THE SIX MONTHS ENDED JUNE 30, 2017

(1) The following is an extract of the audited financial statements of the CBPO Group for the year ended December 31, 2014, which were prepared in accordance with U.S. GAAP, from the 2014 annual report of CBPO.

CONSOLIDATED BALANCE SHEETS

Note ASSETS Current Assets Cash and cash equivalents Time deposit Restricted cash deposits 9 Accounts receivable, net of allowance for doubtful accounts 3 Inventories 5 Prepayments and other current assets, net of allowance for doubtful accounts 4 Total Current Assets Property, plant and equipment, net 7 Land use rights, net Deposits related to land use rights 8 Restricted cash and cash deposits, excluding current portion 9 Equity method investment 10 Other non-current assets Total Assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Short-term bank loans, including current portion of long-term bank loans 11 Accounts payable Due to related parties 20 Other payables and accrued expenses 12 Income tax payable Total Current Liabilities Long-term bank loans, excluding current portion 11 Deferred income Other liabilities Total Liabilities	December 31, 2014 USD 80,820,224 — 63,677,610 19,402,820 101,304,932 14,781,658 279,987,244 80,230,888 11,909,136 12,792,355 40,230,250 18,221,777 3,475,442 446,847,092 57,902,600 4,829,350 — 49,692,757 8,257,133 120,681,840 40,000,000 2,765,024 8,138,498 171,585,362	December 31, 2013 USD 144,138,487 6,608,612 — 17,270,132 88,634,855 7,641,061
		264,293,147 73,149,072 8,213,145 13,667,130 30,523,674 11,349,807 2,585,232
		403,781,207
		9,822,000 4,445,732 7,206,970 37,761,593 4,202,405
		63,438,700 30,000,000 3,003,895 3,369,003
		99,811,598

– IV-1 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Note Stockholders’ Equity Common stock: par value $0.0001; 100,000,000 shares authorized; 27,865,871 and 27,341,744 shares issued at December 31, 2014 and 2013, respectively; 24,806,167 and 25,862,040 shares outstanding at December 31, 2014 and 2013, respectively Additional paid-in capital Treasury stock: 3,059,704 and 1,479,704 shares at December 31, 2014 and 2013, respectively, at cost 16, 23 Retained earnings Accumulated other comprehensive income Total equity attributable to China Biologic Products, Inc. Noncontrolling interest Total Stockholders’ Equity Commitments and contingencies 19 Total Liabilities and Stockholders’ Equity	December 31, 2014 USD 2,787 24,008,281 (76,570,621) 244,661,391 19,985,189 212,087,027 63,174,703 275,261,730 — 446,847,092	December 31, 2013 USD 2,734 72,031,864 (29,594,080) 173,744,551 21,506,494 237,691,563 66,278,046 303,969,609 — 403,781,207

See accompanying notes to Consolidated Financial Statements.

– IV-2 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Note
Sales
18
Cost of sales
Gross profit
Operating expenses
Selling expenses
General and administrative
expenses
Research and development
expenses
Provision for other receivables in
respect of an employee housing
development project
6
Income from operations
Other income (expenses)
Equity in income of an equity
method investee
10
Change in fair value of derivative
liabilities
Interest income
Interest expense
Other income (expense), net
Total other income, net
Earnings before income tax expense
Income tax expense
13
Net income
Less: Net income attributable to
noncontrolling interest
Net income attributable to China
Biologic Products, Inc.

For the Years Ended
December 31,
2014
December 31,
2013
December 31,
2012
USD
USD
USD
243,251,658
203,356,856
184,813,495
80,025,375
65,484,153
58,835,998
163,226,283
137,872,703
125,977,497
10,707,409
10,643,149
14,421,258
32,129,985
36,073,871
34,034,360
4,161,901
4,223,165
3,032,719
5,068,075
—
—
111,158,913
86,932,518
74,489,160
8,646,181
2,170,473
2,665,881
—
—
1,769,140
6,644,886
4,433,326
2,910,297
(3,697,819)
(1,134,952)
(1,269,850)
—
—
570,511
11,593,248
5,468,847
6,645,979
122,752,161
92,401,365
81,135,139
26,639,527
15,540,301
15,163,147
96,112,634
76,861,064
65,971,992
25,195,794
22,259,513
20,749,803
70,916,840
54,601,551
45,222,189

– IV-3 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Note Net income per share of common stock: 21 Basic Diluted Weighted average shares used in computation: 21 Basic Diluted Net income Other comprehensive income: Foreign currency translation adjustment, net of nil income taxes Comprehensive income Less: Comprehensive income attributable to noncontrolling interest Comprehensive income attributable to China Biologic Products, Inc.	For the Years Ended December 31, 2014 December 31, 2013 December 31, 2012 USD USD USD 2.85 2.05 1.73 2.71 1.96 1.62 24,427,196 26,410,819 26,153,540 25,685,064 27,572,111 26,839,723 96,112,634 76,861,064 65,971,992 (1,918,715) 9,126,218 1,735,492 94,193,919 85,987,282 67,707,484 24,798,384 23,951,559 21,163,655 69,395,535 62,035,723 46,543,829	For the Years Ended December 31, 2014 December 31, 2013 December 31, 2012 USD USD USD 2.85 2.05 1.73 2.71 1.96 1.62 24,427,196 26,410,819 26,153,540 25,685,064 27,572,111 26,839,723 96,112,634 76,861,064 65,971,992 (1,918,715) 9,126,218 1,735,492 94,193,919 85,987,282 67,707,484 24,798,384 23,951,559 21,163,655 69,395,535 62,035,723 46,543,829
		1.62
		26,153,540
		26,839,723
		65,971,992 1,735,492
		67,707,484 21,163,655
		46,543,829

See accompanying notes to Consolidated Financial Statements.

– IV-4 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Commo	n stock	Additional paid-in capital USD 48,838,311 — — — 4,544,927 727,308 8,141,185	Retained earnings USD 73,920,811 45,222,189 — — — — —	Treasury Stock USD — — — — — — —	Accumulated cother comprehensive income USD 12,750,682 — 1,321,640 — — — —	Equity attributable to China Biologic Products, Inc. USD 135,512,364 45,222,189 1,321,640 — 4,544,927 727,317 8,141,279	Noncontrolling interest Total equity USD USD 43,528,677 179,041,041 20,749,803 65,971,992 413,852 1,735,492 (2,742,884) (2,742,884) — 4,544,927 — 727,317 — 8,141,279	Noncontrolling interest Total equity USD USD 43,528,677 179,041,041 20,749,803 65,971,992 413,852 1,735,492 (2,742,884) (2,742,884) — 4,544,927 — 727,317 — 8,141,279
Number of Shares 25,601,125 — — — — 90,990 937,500	Par value USD 2,560 — — — — 9 94
26,629,615	2,663	62,251,731	119,143,000	—	14,072,322	195,469,716	61,949,448	257,419,164
— — — — — — 648,379 63,750	— — — — — — 65 6
27,341,744	2,734	72,031,864	173,744,551
— — — — — — — — 417,002 107,125	— — — — — — — — 42 11
27,865,871	2,787	24,008,281	244,661,391

See accompanying notes to Consolidated Financial Statements.

– IV-5 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation
Amortization
Loss (gain) on sale of property,
plant and equipment
(Reversal of) provision for allowance
for doubtful accounts, net
— accounts receivable
Allowance for doubtful accounts
— other receivables and prepayments
Write-down of obsolete inventories
Deferred tax expense
Share-based compensation
Change in fair value of derivative liabilities
Equity in income of an equity method
investee
Excess tax benefits from share-based
compensation arrangements
Change in operating assets and liabilities:
Accounts receivable
Prepayment and other current assets
Inventories
Accounts payable
Other payables and accrued expenses
Due to related parties
Income tax payable
Net cash provided by operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for property, plant and equipment
Payment for intangible assets and land use
rights
Refund of deposits related to land use right
Dividends received
Purchase of time deposit
Proceeds upon maturity of time deposit
Proceeds from sale of property, plant and
equipment
Net cash used in investing activities

For the Years Ended
December 31,
2014
December 31,
2013
December 31,
2012
USD
USD
USD
96,112,634
76,861,064
65,971,992
6,989,222
6,096,650
5,792,418
758,232
1,365,734
3,088,320
172,032
(123,777)
828,296
(24,462)
31,567
(1,904)
5,068,075
65,094
110,123
324,584
—
—
3,483,890
112,632
1,127,433
5,396,271
5,050,796
4,544,927
—
—
(1,769,140)
(8,646,181)
(2,170,473)
(2,665,881)
(1,611,399)
—
—
(2,191,118)
(5,667,386)
5,689,638
(9,236,125)
(624,159)
(268,498)
(13,418,971)
(10,432,492)
(3,750,200)
405,071
1,621,917
(2,184,674)
4,525,635
2,496,390
(5,244,915)
(276,984)
66,349
734,037
5,683,912
(446,911)
(904,655)
93,514,318
74,302,995
71,097,317
(17,194,201)
(20,492,159)
(13,886,045)
(4,677,358)
(1,327,148)
(14,059,397)
1,635,200
2,100,150
—
—
565,425
1,109,115
—
(6,608,612)
—
6,608,612
—
—
220,135
194,749
83,134
(13,407,612)
(25,567,595)
(26,753,193)

– IV-6 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from stock option exercised
Proceeds from warrants exercised
Payment for share repurchase
Proceeds from short-term bank loans
Repayment of short-term bank loans
Proceeds from long-term bank loans
Repayment of long-term bank loans
Payment for cash deposit as security
for long-term bank loans
Payment for cash deposit as security
for short-term bank loan
Proceeds from maturity of cash deposit as
security
for long-term bank loan
Net proceeds from reissuance of treasury stock
Acquisition of noncontrolling interest
Excess tax benefits from share-based
compensation arrangements
Dividend paid by subsidiaries to
noncontrolling interest shareholders
Contribution from noncontrolling interest
shareholders
Net cash used in financing activities
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information
Cash paid for income taxes
Cash paid for interest expense
Noncash investing and financing activities:
Transfer from prepayments and deposits to
property, plant and equipment
Land use right acquired with prepayments
made in prior periods
Acquisition of property, plant and equipment
included in payables
Exercise of warrants that were liability
classified
Restricted cash spent for property, plant and
equipment

For the Years Ended
December 31,
2014
December 31,
2013
December 31,
2012
USD
USD
USD
3,860,401
5,394,070
727,317
—
—
4,500,000
(70,000,000)
(29,594,080)
—
44,500,340
9,693,000
11,076,100
(22,833,400)
(8,014,000)
(14,286,800)
70,000,000
30,000,000
—
(33,700,000)
—
—
(72,290,922)
(30,000,000)
—
(31,881,083)
—
—
30,370,670
—
—
33,212,518
—
—
(86,830,499)
(1,963,913)
—
1,611,399
—
—
(8,846,984)
(16,931,149)
(7,120,693)
—
2,891,422
—
(142,827,560)
(38,524,650)
(5,104,076)
(597,409)
4,318,420
957,434
(63,318,263)
14,529,170
40,197,482
144,138,487
129,609,317
89,411,835
80,820,224
144,138,487
129,609,317
17,652,514
15,947,939
14,940,369
3,150,381
347,602
446,381
1,433,376
7,728,824
38,452
—
1,147,561
—
3,300,284
4,252,428
104,300
—
—
3,641,279
—
2,928,421
—

See accompanying notes to Consolidated Financial Statements.

– IV-7 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014, 2013 and 2012

NOTE 1 — DESCRIPTION OF BUSINESS AND SIGNIFICANT CONCENTRATIONS AND RISKS

China Biologic Products, Inc. (‘‘CBP’’) and its subsidiaries (collectively, the ‘‘Company’’), through its subsidiaries in the People’s Republic of China (the ‘‘PRC’’), is a biopharmaceutical company that is principally engaged in the research, development, manufacturing and sales of plasma-based pharmaceutical products in the PRC. The PRC subsidiaries own and operate plasma stations that purchase and collect plasma from individual donors. The plasma is processed into finished goods after passing through a series of fractionating processes. All of the Company’s plasma products are prescription medicines that require government approval before the products are sold to customers. The Company primarily sells its products to hospitals and inoculation centers directly or through distributors in the PRC.

Cash Concentration

The Company maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for its bank accounts located in the United States. Cash balances maintained at financial institutions or state-owned banks in the PRC are not covered by insurance. Total cash and cash equivalents at banks and restricted cash and cash deposits as of December 31, 2014 and December 31, 2013 amounted to $184,186,306 and $180,858,848, respectively, of which $86,744 and $679,022 are insured, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts.

Sales Concentration

The Company’s two major products are human albumin and human immunoglobulin for intravenous injection (‘‘IVIG’’). Human albumin accounted for 39.3%, 44.1% and 44.6% of the total sales for the years ended December 31, 2014, 2013 and 2012, respectively. IVIG accounted for 40.4%, 38.0% and 39.0% of the total sales for the years ended December 31, 2014, 2013 and 2012, respectively. If the market demands for human albumin and IVIG cannot be sustained in the future or the price of human albumin and IVIG decreases, the Company’s operating results could be adversely affected.

Substantially all of the Company’s customers are located in the PRC. There were no customers that individually comprised 10% or more of sales during the years ended December 31, 2014, 2013 and 2012. No individual customer represented 10% or more of trade receivables as at December 31, 2014 and 2013. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.

Purchase Concentration

There were no suppliers that comprised 10% or more of the total purchases during the years ended December 31, 2014, 2013 and 2012, respectively. There was one vendor that represented more than 10% of accounts payables as at December 31, 2014. There were no vendors that represented more than 10% of accounts payables as at December 31, 2013.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (‘‘GAAP’’), and include the financial statements of the Company and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation. The Company has no involvement with variable interest entities. The Company accounts for investments over which it has significant influence but not a controlling financial interest using the equity method of accounting.

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the allowance for doubtful accounts; the fair value determinations of financial and equity instruments and the valuation of share-based compensation, assets acquired and liabilities assumed in a business combination, deferred tax assets and inventories; the recoverability of land use right and property, plant and equipment; and reserves for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Foreign Currency Translation

The accompanying consolidated financial statements of the Company are reported in US dollar. The financial position and results of operations of the Company’s subsidiaries in the PRC are measured using the Renminbi, which is the local and functional currency of these entities. Assets and liabilities of the subsidiaries are translated at the prevailing exchange rate in effect at each period end. Revenues and expenses are translated at the average rate of exchange during the period. Translation adjustments are included in other comprehensive income.

Revenue Recognition

Revenue represents the invoiced value of products sold, net of value added taxes (VAT).

Revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred and the customer takes ownership and assumes risk of loss, the sales price is fixed or determinable and collection of the relevant receivable is probable. The Company mainly sells human albumin and human immunoglobulin to hospitals, inoculation centers and pharmaceutical distributors. For all sales, the Company requires a signed contract or purchase order, which specify pricing, quantity and product specifications. Delivery of the product occurs when the customer receives the product, which is when the risks and rewards of ownership have been transferred. Delivery is evidenced by signed customer acknowledgement. The Company’s sales agreements do not provide the customer the right of return, unless the product is defective in which case the Company allows for an exchange of product or return. For the periods presented, defective product returns were inconsequential.

Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

. Level 1 Inputs: Unadjusted quoted prices for identical assets or liabilities in active markets accessible to the entity at the measurement date.
. Level 2 Inputs: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

. Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

See Note 17 to the Consolidated Financial Statements.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits. The Company considers all highly liquid investments with original maturities of three-month or less at the time of purchase to be cash equivalents. Cash and cash equivalents at December 31, 2014 and 2013 include $38,489,045 and $74,352,540 of certificates of deposit with an initial term of three months or less.

As of December 31, 2014 and 2013, the Company maintained cash and cash equivalents at banks in the following locations:

PRC, excluding Hong Kong U.S. Total	December 31, 2014 USD 77,627,358 2,651,088 80,278,446	December 31, 2013 USD 143,047,540 679,022
		143,726,562

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, the customers’ financial condition, the amount of accounts receivables in dispute, the accounts receivables aging and the customers’ payment patterns. The Company reviews its allowance for doubtful accounts monthly. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the weighted average method. Cost of work in progress and finished goods comprise direct materials, direct production costs and an allocation of production overheads based on normal operating capacity. Adjustments are recorded to write down the carrying amount of any obsolete and excess inventory to its estimated net realizable value based on historical and forecasted demand.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Repair and maintenance costs are expensed as incurred.

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of the assets are as follows:

Buildings		30 years
Machinery	and equipment	10 years
Furniture,	fixtures, office equipment and vehicles	5–10 years

Equity Method Investment

Investment in an investee in which the Company has the ability to exercise significant influence, but does not have a controlling interest is accounted for using the equity method. Significant influence is generally presumed to exist when the Company has an ownership interest in the voting stock between 20% and 50%, and other factors, such as representation on the board of directors and participation in policy-making processes, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the Company’s share of the investee’s results of operations is included in other income (expenses) in the Company’s consolidated statements of comprehensive income. Deferred taxes are provided for the difference between the book and tax basis of the investment. The Company recognizes a loss if it is determined that other than temporary decline in the value of the investment exists. The process of assessing and determining whether an impairment on a particular equity investment is other than temporary requires a significant amount of judgment. To determine whether an impairment is other-than-temporary, management considers whether the Company has the ability and intent to hold the investment until recovery and whether evidence indicating the carrying value of the investment is recoverable outweighs evidence to the contrary. No impairment loss was recognized by the Company for the years ended December 31, 2014, 2013 and 2012.

Government Grants

Government grants are recognized when there is reasonable assurance that the Company will comply with the conditions attaching to them and the grants will be received. Grants that compensate research and development expenses are recognized as a reduction to the related research and development expenses. Grants that compensate the Company for the cost of property, plant and equipment and land use rights are recognized as deferred income and are recognized over the useful life of the asset by way of other income.

For the year ended December 31, 2014, government grants of RMB12,963,600 (approximately $2,111,770), have been recognized as a reduction of research and development expenses.

For the year ended December 31, 2013, the Company received government grants of RMB18,350,000 (approximately $2,989,215) related to the technical upgrade of the manufacturing facilities in Guizhou Taibang, which was recorded as deferred income. These grants are amortized as the related assets are depreciated. The grants amortized amounted to $224,191 and nil for the years ended December 31, 2014 and 2013, respectively.

Land Use Rights

Land use rights represent the exclusive right to occupy and use a piece of land in the PRC for a specified contractual term. Land use rights are carried at cost, less accumulated amortization. Amortization is calculated using the straight-line method over the contractual period of the rights ranging from 40 to 50 years.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses for the years ended December 31, 2014, 2013 and 2012 were $4,161,901, $4,223,165 and $3,032,719, respectively. These expenses include the costs of the Company’s internal research and development activities.

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Product Liability

The Company’s products are covered by two separate product liability insurances each with coverages of approximately $3,258,000 (or RMB20,000,000) for the products sold by Shandong Taibang Biological Products Co., Ltd. (‘‘Shandong Taibang’’) and Guizhou Taibang Biological Products Co., Ltd. (‘‘Guizhou Taibang’’), respectively. There were no product liability claims as of December 31, 2014.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of comprehensive income in the period that includes the enactment date. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.

Share-based Payment

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

Long-lived Assets

Long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Net Income per Share

Basic net income per share of common stock is computed by dividing net income attributable to common stockholders by the weighted average number of common stock outstanding during the year using the two-class method. Under the two-class method, net income is allocated between common stock and other participating securities based on their participating rights in undistributed earnings. The Company’s nonvested shares were considered participating securities since the holders of these securities participate in dividends on the same basis as common stockholders. Diluted net income per share is calculated by dividing net income attributable to common stockholders as adjusted for the effect of dilutive common stock equivalent, if any, by the weighted average number of common stock and dilutive common stock equivalent outstanding during the year. Potential dilutive securities are not included in the calculation of diluted earnings per share if the impact is anti-dilutive.

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Segment Reporting

The Company has one operating segment, which is the manufacture and sales of human plasma products. Substantially all of the Company’s operations and customers are located in the PRC, and therefore, no geographic information is presented.

Contingencies

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable at December 31, 2014 and 2013 consisted of the following:

Accounts receivable Less: Allowance for doubtful accounts Total	December 31, 2014 USD 19,836,768 (433,948) 19,402,820	December 31, 2013 USD 17,730,821 (460,689) 17,270,132

The activity in the allowance for doubtful accounts — accounts receivable for the years ended December 31, 2014, 2013 and 2012 are as follows:

Beginning balance Provisions Recoveries Write-offs Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2014 December 31, 2013 USD USD 460,689 415,607 6,211 31,567 (30,673) — — — (2,279) 13,515 433,948 460,689	December 31, 2012 USD 414,092 — (1,904) — 3,419 415,607

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 4 — PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets as of December 31, 2014 mainly represented other receivables of $7,197,778 and prepayments of $3,158,311. Prepayments and other current assets as of December 31, 2013 mainly represented other receivables of $3,236,990 and prepayments of $1,435,617.

The activity in the allowance for doubtful accounts — other receivables and prepayments for the years ended December 31, 2014, 2013 and 2012 are as follows:

Beginning balance Provisions Recoveries Write-offs Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2014 December 31, 2013 USD USD 142,951 75,704 5,068,075 65,094 — — — — (3,186) 2,153 5,207,840 142,951	December 31, 2012 USD 27,325 110,123 — (65,710) 3,966
		75,704

NOTE 5 — INVENTORIES

Inventories at December 31, 2014 and 2013 consisted of the following:

Raw materials Work-in-process Finished goods Total	December 31, 2014 USD 52,010,104 22,128,405 27,166,423 101,304,932	December 31, 2013 USD 47,400,578 20,720,666 20,513,611
		88,634,855

Raw materials mainly comprised of the human blood plasma collected from the Company’s plasma stations. Workin-process represented the intermediate products in the process of production. Finished goods mainly comprised human albumin and immunoglobulin products. Provisions to write-down the carrying amount of obsolete inventory to its estimated net realizable value amounted to $324,584, nil and nil for the years ended December 31, 2014, 2013 and 2012, respectively, and were recorded as cost of sales in the consolidated statements of comprehensive income.

NOTE 6 — OTHER RECEIVABLES IN RESPECT OF AN EMPLOYEE HOUSING DEVELOPMENT PROJECT

– IV-14 –

APPENDIX IV

FINANCIAL INFORMATION OF THE CBPO GROUP

agreements, or the Advance Payment Agreements, with the Employee-participants, pursuant to which the Company made advance payments to the Employee-participants equal to the deposits that the Employee-participants had paid the developer pursuant to the Housing Project Agreements and refunded them the deductions previously made from their salaries pursuant to the Financial Assistance Agreements together with accrued interest totaling RMB27,071,684 (approximately $4,409,977). In November 2014, Shandong Taibang entered into supplemental agreements to the Advance Payment Agreements, or the Supplemental Agreements, with the Employee-participants, pursuant to which the Employeeparticipants transferred and assigned to Shandong Taibang their rights under the Housing Project Agreements, including their rights to pursue legal actions against and recover damages from the developer, and in return, Shandong Taibang waived its right to claim the advance payments and the refunds of the deductions under the Advance Payment Agreements. As of December 31, 2014, the Company made a full provision of $5,068,075 in the consolidated financial statements for all the receivables in respect of this employee housing development project, including the deposits paid to the developer, the total advance payments and refunds made under this employee housing development project, as well as the related fees and expenses, because it became probable that these receivables may not be recoverable after all legal means of collection were exhausted.

NOTE 7 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2014 and 2013 consisted of the following:

Buildings Machinery and equipment Furniture, fixtures, office equipment and vehicles Total property, plant and equipment, gross Accumulated depreciation Total property, plant and equipment, net Construction in progress Prepayment for property, plant and equipment Property, plant and equipment, net	December 31, 2014 USD 32,375,433 58,946,498 8,230,842 99,552,773 (30,779,714) 68,773,059 10,237,610 1,220,219 80,230,888	December 31, 2013 USD 31,714,173 36,919,094 8,141,993 76,775,260 (25,658,760) 51,116,500 19,050,642 2,981,930 73,149,072

Depreciation expense for the years ended December 31, 2014, 2013 and 2012 was $6,989,222, $6,096,650 and $5,792,418, respectively. No interest expenses were capitalized into construction in progress for the years ended December 31, 2014, 2013 and 2012.

NOTE 8 — DEPOSITS RELATED TO LAND USE RIGHTS

In 2012, Guizhou Taibang made a refundable payment of RMB83,400,000 (approximately $13,585,860) to the local government in connection with the public bidding for a land use right in Guizhou Province. Given the decrease of the land area to be provided by the local government, RMB23,000,000 (approximately $3,746,700) was refunded by the local government. The remaining deposits will be refunded within one year following the completion of the bidding process.

NOTE 9 — RESTRICTED CASH AND CASH DEPOSITS

In August, 2013, the Company made a time deposit of RMB186,000,000 (approximately $30,299,400) with China Merchants Bank Beijing Branch (‘‘CMB BJ Branch’’) as a security for an 18-month US$30,000,000 loan lent by China Merchants Bank Co., Ltd., New York Branch (‘‘CMB NY Branch’’). In April 2014, due to the depreciation of RMB against USD, additional deposit of RMB1,000,000 (approximately $162,900) was made as security for this loan. In July 2014, the Company repaid the loan. The time deposit matured in August 2014 accordingly.

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

In February 2014, the Company made time deposits of RMB246,500,000 (approximately $40,154,850) and RMB194,600,000 (approximately $31,700,340) with CMB BJ Branch as a security for a 24-month $40,000,000 loan and an 18-month $30,000,000 loan respectively lent by CMB NY Branch (see Note 11).

In August 2014, the Company made a time deposit of RMB196,300,000 (approximately $31,977,270) with CMB BJ Branch as a security for a 6-month RMB194,000,000 (approximately $31,602,600) loan lent by CMB BJ Branch (see Note 11).

NOTE 10 — EQUITY METHOD INVESTMENT

The Company’s equity method investment as of December 31, 2014 and 2013 represented 35% equity interest investment in Xi’an Huitian Blood Products Co., Ltd. (‘‘Huitian’’).

In October 2008, Shandong Taibang entered into an equity purchase agreement with one of the equity owners of Huitian (‘‘Seller’’) to acquire 35% equity interest in Huitian. In connection with this transaction, in October 2008, Taibang Biological Limited (‘‘Taibang Biological’’) entered into an entrust agreement (the ‘‘Entrust Agreement’’) with Shandong Taibang and the noncontrolling interest holder of Shandong Taibang, pursuant to which, Taibang Biological would pay the cash consideration, including interest, of $6,502,901 (or RMB44,327,887) to the Seller, and would bear the risks and benefits as a 35% equity owner in Huitian. In addition, Taibang Biological would pay Shandong Taibang RMB120,000 (approximately $19,548) per year as compensation for the administrative costs of Shandong Taibang’s holding of the 35% equity interest in Huitian on behalf of Taibang Biological. Such amount paid and received is eliminated upon consolidation. Taibang Biological agreed to indemnify the noncontrolling interest holder of Shandong Taibang for any loss arising from the Entrust Agreement and has pledged the Company’s equity interest in Shandong Taibang as collateral against such loss.

The excess of carrying amount over the Company’s share of net assets of equity method investees is $1,333,075 and $2,076,329 at December 31, 2014 and 2013, respectively, which comprises fair value adjustments for property, plant and equipment and land use right of nil and $736,707 at December 31, 2014 and 2013, respectively, and goodwill of $1,333,075 and $1,339,622 at December 31, 2014 and 2013, respectively. The fair value adjustments are amortized over the remaining useful lives of related assets. The equity method goodwill is not amortized; however, the investment is reviewed for impairment. Huitian contributed its land use right to its subsidiary as capital in 2013 and disposed the subsidiary in 2014, recognizing a gain of RMB116.7 million (approximately $19.0 million) for the year ended December 31, 2014, which caused the Company’s equity income in Huitian increased by $6.7 million accordingly.

NOTE 11 — BANK LOANS

(a) Current

The Company’s bank loans at December 31, 2014 and 2013 consisted of the following:

Loans Maturity date Annual interest rate Short-term bank loan, unsecured May 12, 2014 6.00% Short-term bank loan, unsecured December 22, 2014 6.00% Short-term bank loan, secured February 12, 2015 5.04% Current portion of long-term bank loans August 11, 2015 See note (b) Total	December 31, 2014 USD — — 31,602,600 26,300,000 57,902,600	December 31, 2013 USD 4,911,000 4,911,000 — —
		9,822,000

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

In August 2014, the Company entered into a credit facility agreement with CMB BJ Branch to finance the acquisition of additional equity interest in Guizhou Taibang (see Note 24). Pursuant to the facility agreement, the Company obtained a 6-month RMB194,000,000 (approximately $31,602,600) loan from CMB BJ Branch secured by a time deposit of RMB196,300,000 (approximately $31,977,270).

Interest expense amounted to $1,178,626, $347,602 and $446,381 for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company did not have any revolving line of credit as of December 31, 2014 and 2013.

(b) Non-current

Long-term bank loans Less: current portion of long-term bank loans Total non-current bank loans	December 31, 2014 USD 66,300,000 26,300,000 40,000,000	December 31, 2013 USD 30,000,000 —
		30,000,000

In August, 2013, the Company entered into a credit facility agreement with CMB NY Branch to finance the share repurchase (see Note 16). Pursuant to the facility agreement, CMB NY Branch lends to the Company an 18-month $30,000,000 loan bearing an interest rate of 3-month LIBOR plus 1.6% per annum and a facility fee of 0.7% per annum. The loan is secured by a time deposit of RMB187,000,000 (approximately $30,462,300) held at CMB BJ Branch. The Company repaid the loan in July 2014.

The Company entered into a credit facility agreement with CMB NY Branch in February, 2014 to finance the share repurchase (see Note 16). Pursuant to the facility agreement, CMB NY Branch lent to the Company a 24-month $40,000,000 loan and an 18-month $30,000,000 loan, secured by time deposits of RMB246,500,000 (approximately $40,154,850) and RMB194,600,000 (approximately $31,700,340), respectively, held at CMB BJ Branch. Both loans bear an interest rate of 3-month LIBOR plus 1.3% per annum and a facility fee of 1.2% per annum. In July 2014, the Company repaid $3,700,000 out of the 18-month $30,000,000 loan.

NOTE 12 — OTHER PAYABLES AND ACCRUED EXPENSES

Other payables and accrued expenses at December 31, 2014 and 2013 consisted of the following:

Payables to potential investors(1) Payable to Guizhou Eakan Investing Corp.(2) Payable to Guizhou Jie’an Company(2) Salaries and bonuses payable Accruals for selling commission and promotion fee Dividends payable to noncontrolling interest Payables for construction work Other tax payables Advance from customers Others Total	December 31, 2014 USD 9,756,023 2,371,824 1,599,025 10,591,524 4,288,089 5,616,792 3,595,093 3,878,983 945,678 7,049,726 49,692,757	December 31, 2013 USD 9,403,649 — — 8,217,129 3,566,693 1,411,094 4,427,423 2,119,024 2,908,853 5,707,728
		37,761,593

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FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(1) The payables to potential investors comprise deposits received from potential investors of $6,476,904 and $6,508,712 as of December 31, 2014 and 2013, respectively, and related interest plus penalty on these deposits totaling $3,279,119 and $2,894,937 as of December 31, 2014 and 2013, respectively.

In 2007, Guizhou Taibang received an aggregate amount of RMB50,960,000 (approximately $8,301,384) from certain potential investors in connection with their subscription to purchase shares in Guizhou Taibang. In 2010, the Company refunded RMB11,200,000 (approximately $1,824,480) to one of the potential investors. According to the final judgment of the PRC Supreme Court, both the rights of these potential investors as shareholders of Guizhou Taibang and their claims for the related dividend distribution have been denied in 2013. (See Note 19)

(2) These balances were recorded as ‘‘Due to related parties’’ at December 31, 2013. (See Note 20)

NOTE 13 — INCOME TAX

The Company and each of its subsidiaries file separate income tax returns.

The United States of America

The Company is incorporated in the State of Delaware in the U.S., and is subject to U.S. federal corporate income tax at gradual rates of up to 35%.

British Virgin Islands

Taibang Biological is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands (BVI), Taibang Biological is not subject to tax on income or capital gains. In addition, upon payments of dividends by Taibang Biological, no British Virgin Islands withholding tax is imposed.

Hong Kong

Taibang Holdings (Hong Kong) Limited (‘‘Taibang Holdings’’, formerly known as ‘‘Logic Holdings (Hong Kong) Limited’’) is incorporated in Hong Kong and is subject to Hong Kong’s profits tax rate of 16.5% for the years ended December 31, 2014, 2013 and 2012. Taibang Holdings did not earn any income that was derived in Hong Kong for the years ended December 31, 2014, 2013 and 2012. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

PRC

The PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax at 25% unless otherwise specified.

On February 12, 2009, Shandong Taibang received the High and New Technology Enterprise certificate from the Shandong provincial government. This certificate entitled Shandong Taibang to pay income taxes at a 15% preferential income tax rate for a period of three years from 2008 to 2010. On October 31, 2011, Shandong Taibang obtained a notice from the Shandong provincial government that the High and New Technology Enterprise qualification has been renewed for an additional three years from 2011 to 2013. In October 2014, Shandong Taibang obtained a notice from the Shandong provincial government that granted it the High and New Technology Enterprise certificate. This certificate entitled Shandong Taibang to enjoy a preferential income tax rate of 15% for a period of three years from 2014 to 2016.

Guizhou Taibang was entitled to the preferential income tax rate of 15% under the 10-year Western Development Tax Concession, which ended in 2010. According to CaiShui [2011] No. 58 dated July 27, 2011, Guizhou Taibang, being a qualified enterprise located in the western region of the PRC, enjoys a preferential income tax rate of 15% effective retroactively from January 1, 2011 to December 31, 2020.

– IV-18 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The components of earnings (losses) before income tax expense by jurisdictions are as follows:

PRC, excluding Hong Kong U.S. BVI Hong Kong Total	For the Years Ended December 31, 2014 December 31, 2013 USD USD 122,116,071 98,401,673 (8,032,150) (7,855,555) 8,625,859 2,116,243 42,381 (260,996) 122,752,161 92,401,365	December 31, 2012 USD 84,980,477 (6,314,398) 2,538,030 (68,970)
		81,135,139

Income tax expense for the years ended December 31, 2014, 2013 and 2012 represents current income tax expense and deferred tax expense:

Current income tax expense Deferred tax expense	For the Years Ended December 31, 2014 December 31, 2013 USD USD 23,155,637 15,427,669 3,483,890 112,632 26,639,527 15,540,301	December 31, 2012 USD 14,035,714 1,127,433
		15,163,147

The effective income tax rate based on income tax expense and earnings before income taxes reported in the consolidated statements of comprehensive income differs from the PRC statutory income tax rate of 25% due to the following:

PRC statutory income tax rate Non-taxable income Non-deductible expenses: Share-based compensation Others Tax rate differential Effect of PRC preferential tax rate Bonus deduction on research and development expenses Change in valuation allowance PRC dividend withholding tax Tax effect of equity method investment Effective income tax rate	For the Years Ended December 31, 2014 December 31, 2013 December 31, 2012 (in percentage to earnings before income tax expense) 25.0% 25.0% 25.0% — — (0.7)% 0.5% 0.9% 1.9% 0.5% 0.7% 0.4% (2.2)% (1.0)% (1.2)% (9.7)% (12.7)% (11.0)% (1.4)% (1.4)% (1.3)% (0.7)% 1.7% 0.7% 7.3% 2.8% 4.0% 2.4% 0.8% 0.9% 21.7% 16.8% 18.7%	For the Years Ended December 31, 2014 December 31, 2013 December 31, 2012 (in percentage to earnings before income tax expense) 25.0% 25.0% 25.0% — — (0.7)% 0.5% 0.9% 1.9% 0.5% 0.7% 0.4% (2.2)% (1.0)% (1.2)% (9.7)% (12.7)% (11.0)% (1.4)% (1.4)% (1.3)% (0.7)% 1.7% 0.7% 7.3% 2.8% 4.0% 2.4% 0.8% 0.9% 21.7% 16.8% 18.7%
		18.7%

The PRC tax rate has been used because the majority of the Company’s consolidated pre-tax earnings arise in the PRC.

– IV-19 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

As of December 31, 2014 and 2013, significant temporary differences between the tax basis and financial statement basis of assets and liabilities that gave rise to deferred taxes were principally related to the following:

Deferred tax assets arising from: — Accrued expenses — Tax loss carryforwards Gross deferred tax assets Less: valuation allowance Net deferred tax assets Deferred tax liabilities arising from: — Intangible assets — Equity method investment — Dividend withholding tax Deferred tax liabilities Classification on consolidated balance sheets: Deferred tax assets — current, net (included in prepayments and other current assets) Deferred tax liabilities — non-current, net (included in other liabilities)	December 31, 2014 USD 3,345,926 10,401,398 13,747,324 (6,661,139) 7,086,185 (439,116) (3,740,259) (7,351,023) (11,530,398) 3,345,926 (7,790,139)	December 31, 2013 USD 2,065,310 8,950,323 11,015,633 (7,558,590) 3,457,043 (548,651) (1,391,733) (2,467,760) (4,408,144) 2,065,310 (3,016,411)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax loss carryforwards are utilized. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryforwards periods), projected future taxable income, and tax planning strategies in making this assessment.

The deferred tax assets of $10,401,398 for tax loss carry forwards as of December 31, 2014, of which $6,051,100 and $4,350,298 relate to tax loss carryforwards of certain PRC subsidiaries and CBP, respectively. For PRC income tax purposes, certain of the Company’s PRC subsidiaries had tax loss carryforwards of $24,204,400, of which $1,147,907, $5,195,417, $7,144,957, $5,342,603 and $5,373,516 would expire by 2015, 2016, 2017, 2018 and 2019, respectively, if unused. For United States federal income tax purposes, CBP had tax loss carryforwards of approximately $12,794,994, of which $1,268,307, $614,982, $1,113,597, $1,405,718, $2,350,326, $3,382,154, $978,837, $1,296,319 and $384,754 would expire by 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033 and 2034, respectively, if unused. In view of their cumulative losses positions, management determined it is more likely than not that deferred tax assets of these PRC subsidiaries will not be realized, and therefore full valuation allowances of $6,051,100 and $4,730,841 were provided as of December 31, 2014 and 2013, respectively. For deferred tax assets of CBP, management determined it is more likely than not that some portion of the deferred tax assets of CBP will not be realized, and therefore valuation allowances of $610,039 and $2,827,749 were provided as of December 31, 2014 and 2013, respectively. Management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of the valuation allowances, as of December 31, 2014 and December 31, 2013.

– IV-20 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The following table presents the movement of the valuation allowance for deferred tax assets for the years ended December 31, 2014, 2013 and 2012:

Beginning balance Addition (deduction) during the year Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2014 December 31, 2013 USD USD 7,558,590 5,887,981 (885,253) 1,588,875 (12,198) 81,734 6,661,139 7,558,590	December 31, 2012 USD 7,167,986 (1,276,205) (3,800) 5,887,981

According to the prevailing PRC income tax law and relevant regulations, dividends relating to earnings accumulated beginning on January 1, 2008 that are received by non-PRC-resident enterprises from PRC-resident enterprises are subject to withholding tax at 10%, unless reduced by tax treaties or similar arrangement. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. Further, dividends received by the Company from its overseas subsidiaries are subject to the U.S. federal income tax at 34%, less any qualified foreign tax credits. Based on the dividend policy the Company has provided the deferred tax liabilities of $7,351,023 on undistributed earnings of $74 million, approximately 50% of Shandong Taibang’s total undistributed earnings at December 31, 2014. Due to the Company’s plan and intention of reinvesting its earnings in its PRC business, the Company has not provided for the related deferred tax liabilities on the remaining undistributed earnings of the PRC subsidiaries totaling $161 million as of December 31, 2014.

As of January 1, 2012 and for each of the years ended December 31, 2012, 2013 and 2014, the Company and its subsidiaries did not have any unrecognized tax benefits, and therefore no interest or penalties related to unrecognized tax benefits were accrued. The Company does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months.

The Company and each of its PRC subsidiaries file income tax returns in the United States and the PRC, respectively. The Company is subject to U.S. federal income tax examination by tax authorities for tax years beginning in 2007. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances where the underpayment of taxes is more than RMB100,000 (approximately $16,290). In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. The PRC tax returns for the Company’s PRC subsidiaries are open to examination by the PRC tax authorities for the tax years beginning in 2009.

NOTE 14 — OPTIONS AND NONVESTED SHARES

Options

Effective May 9, 2008, the Board of Directors adopted the China Biologic Products, Inc. 2008 Equity Incentive Plan, (‘‘the 2008 Plan’’). The 2008 Plan provides for grants of stock options, stock appreciation rights, performance units, restricted stock, restricted stock units and performance shares. A total of five million shares of the Company’s common stock may be issued pursuant to the 2008 Plan. The exercise price per share for the shares to be issued pursuant to an exercise of a stock option will be no less than the fair market value per share on the grant date, except that, in the case of an incentive stock option granted to a person who holds more than 10% of the total combined voting power of all classes of the Company’s stock or any of its subsidiaries, the exercise price will be no less than 110% of the fair market value per share on the grant date. No awards may be granted under the 2008 Plan after May 9, 2018, except that any award granted before then may extend beyond that date. All the options to be granted will have 10-year terms.

– IV-21 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

For the year ended December 31, 2012, stock options to purchase an aggregate of 900,000 common stock were granted to directors and employees at exercise prices ranging from $9.16 to $9.85 per share with vesting periods ranging from 1 year to 4 years.

For the year ended December 31, 2013, stock options to purchase an aggregate of 33,000 common stock were granted to directors and employees at exercise prices ranging from $4.00 to $12.26 which vested immediately.

For the year ended December 31, 2014, no stock options to purchase common stock were granted to any directors or employees.

A summary of stock options activity for the years ended December 31, 2012, 2013 and 2014 is as follows:

Outstanding as of January 1, 2012
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2012
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2013
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2014
Vested and expected to vest as of
December 31, 2014
Exercisable as of December 31, 2014

Number of
Options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term in years
Aggregate
Intrinsic Value
USD
USD
1,994,600
9.24
7.71
5,197,076
900,000
9.61
(90,990)
7.99
(468,322)
(155,001)
9.69
2,648,609
9.39
7.65
18,374,422
33,000
10.48
(648,379)
8.32
(10,923,644)
(150,854)
6.78
1,882,376
9.98
7.20
35,518,897
—
—
(417,002)
9.26
(17,529,500)
(32,920)
11.44
1,432,454
10.16
6.53
81,753,119
1,432,454
10.16
6.53
81,753,119
1,139,954
10.26
6.30
64,938,469

– IV-22 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The weighted average option fair value of $8.37 per share or an aggregate of $276,250 on the date of grant during the year ended December 31, 2013, and the weighted average option fair value of $7.58 per share or an aggregate of $6,817,649 on the date of grant during the year ended December 31, 2012, were determined based on the Black-Scholes option pricing model using the following weighted average assumptions:

	For the Years	Ended
	December 31,	December 31,
	2013	2012
Expected volatility	104.00%	104.00%
Expected dividends yield	0%	0%
Expected term (in years)	5.38	6.01
Risk-free interest rate	0.72%	0.82%
Fair value of underlying common stock (per share)	$10.48	$9.61

The volatility of the Company’s common stock was estimated by management based on the historical volatility of the Company’s common stock. The risk free interest rate was based on Treasury Constant Maturity Rates published by the U.S. Federal Reserve for periods applicable to the estimated term of the options. The expected dividend yield was based on the Company’s current and expected dividend policy.

For the years ended December 31, 2014, 2013 and 2012, the Company recorded stock compensation expense of $1,669,573, $3,773,073 and $4,335,595, respectively, in general and administrative expenses.

As of December 31, 2014, approximately $1,894,057 of stock compensation expense with respect to stock options is to be recognized over weighted average period of approximately 1.39 years.

Nonvested shares

For the years ended December 31, 2012, 2013 and 2014, nonvested shares were granted to certain directors and employees (collectively, the ‘‘Participant’’). Pursuant to the nonvested share grant agreements between the Company and the Participant, the Participant will have all the rights of a stockholder with respect to the nonvested shares. The nonvested shares granted to directors generally vest in one or two years. The nonvested shares granted to employees generally vest in four years.

A summary of nonvested shares activity for the year ended December 31, 2012, 2013 and 2014 is as follow:

Outstanding as of January 1, 2012 Granted Vested Forfeited Outstanding as of December 31, 2012 Granted Vested Forfeited Outstanding as of December 31, 2013 Granted Vested Forfeited Outstanding as of December 31, 2014	Number of nonvested shares — 120,000 — — 120,000 306,500 (63,750) — 362,750 299,000 (107,125) (2,500) 552,125	Grant date weighted average fair value USD — 9.85 — —
		9.85 22.94 9.85 —
		20.91 51.88 20.66 9.85
		37.78

– IV-23 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

For the years ended December 31, 2014, 2013 and 2012, the Company recorded stock compensation expense of $3,726,698, $1,277,723 and $209,332 in general and administrative expenses, respectively.

As of December 31, 2014, approximately $18,486,402 of stock compensation expense with respect to nonvested shares is to be recognized over weighted average period of approximately 2.85 years.

NOTE 15 — STATUTORY RESERVES

The Company’s PRC subsidiaries are required to allocate at least 10% of its after tax profits as determined under generally accepted accounting principal in the PRC to its statutory surplus reserve until the reserve balance reaches 50% of respective registered capital. The accumulated balance of the statutory reserve as of December 31, 2014 and 2013 was $32,137,551 and $30,796,531, respectively.

NOTE 16 — SHARE REPURCHASE

On January 27, 2014, the Company entered into a repurchase agreement with an individual shareholder, pursuant to which the Company repurchased 2,500,000 shares of common stock for a consideration of $70,000,000. The transaction was completed on February 28, 2014.

On August 2, 2013, the Company entered into a repurchase agreement with an individual shareholder, pursuant to which the Company repurchased 1,479,704 shares of common stock for a consideration of $29,594,080. The transaction was completed on August 8, 2013.

NOTE 17 — FAIR VALUE MEASUREMENTS

Management used the following methods and assumptions to estimate the fair value of financial instruments at the relevant balance sheet dates:

. Short-term financial instruments (including cash and cash equivalents, time deposit, restricted cash deposits, accounts receivable, other receivables, short-term bank loans including current portion of long-term bank loans, accounts payable, other payables and accrued expenses, and amount due to related parties) — The carrying amounts of the short-term financial instruments approximate their fair values because of the short maturity of these instruments.
. Restricted cash and cash deposits, excluding current portion — The carrying amounts of the restricted cash and cash deposit approximate their fair value. The fair value is estimated using discounted cash flow analysis based on the Company’s incremental borrowing rates for similar borrowing.
. Long-term bank loan excluding current portion- fair value is based on the amount of future cash flows associated with the long-term bank loan discounted at the Company’s current borrowing rate for similar debt instruments of comparable terms. The carrying value of the long-term bank loan approximate its fair value as the long-term bank loan carry variable interest rate which approximate rate currently offered by the Company’s bankers for similar debt instruments of comparable maturities.

– IV-24 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 18 — SALES

The Company’s sales are primarily derived from the manufacture and sale of Human Albumin and Immunoglobulin products. The Company’s sales by significant types of product for the years ended December 31, 2014, 2013 and 2012 are as follows:

Human Albumin Immunoglobulin products: Human Immunoglobulin for Intravenous Injection Other Immunoglobulin products Placenta Polypeptide Others Total	For the Years Ended December 31, 2014 December 31, 2013 USD USD 95,547,952 89,671,619 98,389,729 77,341,616 19,736,027 19,682,927 24,029,706 12,150,539 5,548,244 4,510,155 243,251,658 203,356,856	December 31, 2012 USD 82,450,825 72,005,196 19,377,603 10,088,754 891,117
		184,813,495

NOTE 19 — COMMITMENTS AND CONTINGENCIES

Capital commitments

As of December 31, 2014, commitments outstanding for the purchase of property, plant and equipment approximated $6,355,000.

Legal proceedings

Dispute with Jie’an over Raising Additional Capital in Guizhou Taibang

In May 2007, a 91% majority of Guizhou Taibang’s shareholders approved a plan to raise additional capital from qualified strategic investors through the issuance of an additional 20,000,000 shares of Guizhou Taibang. The plan required all existing Guizhou Taibang shareholders to waive their rights of first refusal to subscribe for the additional shares. The remaining 9% minority shareholder of Guizhou Taibang’s shares, Guizhou Jie’an Company, or Jie’an, did not support the plan and did not waive its right of first refusal. In May 2007, Guizhou Taibang signed an Equity Purchase Agreement with certain alleged strategic investors (who concealed their background), pursuant to which such investors agreed to invest an aggregate of RMB50,960,000 (approximately $8,301,384) in exchange for 21.4% of Guizhou Taibang’s equity interests. Such Equity Purchase Agreement was not approved or ratified by over two-thirds supermajority of Guizhou Taibang’s shareholders, which approval or ratification is required under the PRC Company Law. At the same time, as an existing shareholder, Jie’an also subscribed for 1,800,000 shares, representing its pro rata share of the 20,000,000 shares being offered. In total, Guizhou Taibang received RMB50,960,000 (approximately $8,301,384) from the investors and RMB6,480,000 (approximately $1,055,592) from Jie’an.

In June 2007, Jie’an brought a lawsuit against Guizhou Taibang, alleging that it had a right to acquire the 18,200,000 shares offered to the investors under the Equity Purchase Agreement. The trial court denied Jie’an’s request, and the PRC Supreme Court ultimately sustained the original ruling in May 2009 and denied the rights of first refusal of Jie’an over the 18,200,000 shares.

– IV-25 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

During the second quarter of 2010, Jie’an requested that Guizhou Taibang register its 1.8 million shares of additional capital injection with the local AIC. Guizhou Taibang’s board of directors withheld its required ratification of Jie’an’s request, pending the outcome of the ongoing litigation. In March 2012, Jie’an brought another lawsuit against Guizhou Taibang for refusing to register the shares. In July 2013, the trial court dismissed the lawsuit for lack of jurisdiction. Jie’an did not appeal the dismissal.

In December 2013, Jie’an brought a third lawsuit against Guizhou Taibang, requesting Guizhou Taibang to register 1.8 million shares under its name with the local AIC. In July 2014, the trial court denied Jie’an’s request to register such shares. Despite the denial of Jie’an’s share registration request, the trial court, however, in its ruling, ordered Guizhou Taibang to pay accumulated dividends of RMB13,809,197 (approximately $2,249,518) associated with these shares and the related interest expenses to Jie’an. Guizhou Taibang and Jie’an subsequently filed a cross-appeal. In December 2014, the appellate court ruled in favor of Jie’an supporting its request to register 1.8 million shares and ordered Guizhou Taibang to pay Jie’an its share of accumulated dividends of RMB18,339,227 (approximately $2,987,460) associated with these shares plus the related interest expenses to Jie’an. In February 2015, Guizhou Taibang paid RMB18,000,000 (approximately $2,932,200) to the trial court to be held in escrow pending further appeal of this case. Guizhou Taibang was in the process of preparing its appeal as of the date of this report.

In November 2013, Guizhou Taibang held a shareholders meeting and the shareholders passed resolutions, or the November 2013 Resolutions, that, inter alia, (i) determined that it was no longer necessary for Guizhou Taibang to obtain additional capital from investors; (ii) rejected Jie’an’s request that Jie’an subscribe for additional shares of Guizhou Taibang alone and one or more other shareholders reduce their shareholding in Guizhou Taibang; and (iii) approved the issuance of a total of 20,000,000 new shares to all existing shareholders on a pro rata basis. Jie’an subsequently filed a fourth lawsuit against Guizhou Taibang in December 2013, requesting that the court declare the November 2013 Resolutions void. Both the trial court and the appellate court denied Jie’an’s request.

If the pending cases with Jie’an are ultimately ruled in Jie’an’s favor, the ownership interest in Guizhou Taibang may be diluted to 71% and Jie’an may be entitled to receive accumulated dividends of RMB18,339,227 (approximately $2,987,460) and the related interest expenses (being its claimed share of Guizhou Taibang’s accumulated dividend distributions associated with the 1.8 million shares and the accrued interest from the date when Jie’an’s capital contribution was deemed effective till December 31, 2014) from Guizhou Taibang. As of December 31, 2014, the Company had maintained, on its balance sheet, payables to Jie’an in the amounts of RMB5,040,000 (approximately $821,016) as received funds in respect of the 1.8 million shares in dispute, RMB1,440,000 (approximately $234,576) for the over-paid subscription price paid by Jie’an and RMB3,335,993 (approximately $543,433) for the accrued interest. As these cases are closely interlinked to the outcome of the disputes with certain individual investor described below, based on its PRC litigation counsel’s assessment, the Company does not expect Jie’an to prevail.

Dispute with Certain Investors over Raising Additional Capital in Guizhou Taibang

In part due to the invalidity of the Equity Purchase Agreement with certain alleged strategic investors in May 2007, which was never approved or ratified by Guizhou Taibang’s shareholders, such investors’ equity ownership in Guizhou Taibang and the related increase in registered capital of Guizhou Taibang have never been registered with the local AIC. In January 2010, one individual among such investors brought a lawsuit against Guizhou Taibang requesting to register his 14.35% ownership interest in Guizhou Taibang with the local AIC and seeking the distribution of his share of Guizhou Taibang’s dividends declared since 2007.

– IV-26 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

In October 2010, the trial court denied such individual investor’s right as shareholders of Guizhou Taibang and his entitlement to share the dividends, which ruling was reaffirmed after a re-trial by the same trial court in December 2012. After such ruling, Guizhou Taibang attempted to return the originally received fund of RMB34,160,000 to such investor by wiring the fund back to his bank account but was unable to do so due to the closure of his bank account. Another investor, however, accepted the returned fund of RMB11,200,000 (approximately $1,824,480) from Guizhou Taibang in November 2010. In 2013, the same individual investor appealed the case to the PRC Supreme Court, which also denied his claims for shareholder status in Guizhou Taibang and the related dividend distribution and accrued interest in September 2013. Such investor subsequently attempted to seek for a re-trial by the PRC Supreme Court, which request was denied by the PRC Supreme Court in January 2014. He then applied to the PRC Supreme Procuratorate to request for a review of the PRC Supreme Court’s decision and seek an appeal by the PRC Supreme Procuratorate to the PRC Supreme Court for an ultimate re-trial on his behalf. The PRC Supreme Procuratorate accepted his application in December 2014 and, with the assistance of its PRC litigation counsel, the Company is in the process of preparing its response to such application. The PRC Supreme Procuratorate will consider the Company’s response in deciding whether to appeal to the PRC Supreme Court on behalf of such investor, which decision process may take several months. The PRC Supreme Procuratorate had not scheduled a hearing as of the date of this report.

Based on its PRC litigation counsel’s assessment, the Company does not expect such individual investor to prevail in this pending re-trial application process, but the Company cannot assure that the PRC Supreme Procuratorate will decide not to appeal for re-trial or the final outcome of such ultimate re-trial by the PRC Supreme Court (if the PRC Supreme Procuratorate decides to appeal for re-trial) will be in favor of the Company. In case the PRC Supreme Procuratorate decides to appeal for re-trial on behalf of such investor and such ultimate re-trial by the PRC Supreme Court is ruled in such investor’s favor, the ownership interest in Guizhou Taibang may be diluted to 66.29% and such investor may be entitled to receive his claimed share of accumulated dividends and the accrued interests from Guizhou Taibang although he has not specified the amount of the claimed damages in his appeal to the PRC Supreme Court or the re-trial application to the PRC Supreme Procuratorate. As of December 31, 2014, Guizhou Taibang had maintained, on its balance sheet, payables to the investors of RMB34,160,000 (approximately $5,564,664) as originally received funds from such individual investor in respect of the shares in dispute, RMB15,850,231 (approximately $2,582,003) for the interest expenses, and RMB341,600 (approximately $55,647) for the 1% penalty imposed by the Equity Purchase Agreement for any breach in the event that Guizhou Taibang is required to return the original investment amount to such investor.

NOTE 20 — RELATED PARTY TRANSACTIONS

The material related party transactions undertaken by the Company with related parties for the years ended December 31, 2014, 2013 and 2012 are presented as follows:

						For the Years Ended
					December 31,	December 31,	December 31,
					2014	2013	2012
					USD	USD	USD
Commission	expenses	with	related	parties(1)	2,249,716	3,620,335	3,591,836

The material related party balances at December 31, 2014 and 2013 are presented as follows:

Liabilities Purpose Other payable — a related party(1) Commission Other payable — a related party(2) Loan Other payable — a related party(3) Contribution Other payable — related parties(4) Contribution Total other payable — related parties	December 31, 2014 USD — — — — —	December 31, 2013 USD 351,955 2,383,472 2,929,903 1,541,640
		7,206,970

– IV-27 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(1) During the year ended December 31, 2011, Guizhou Taibang signed an agency contract with Guizhou Eakan Pharmaceutical Co., Ltd. (‘‘Guizhou Eakan’’), one of the former Guizhou Taibang’s noncontrolling interest shareholders (see note 24), pursuant to which Guizhou Taibang would pay commission to Guizhou Eakan for the promotion of the product of Placenta Polypeptide. The agency contract expired on May 31, 2014 and Guizhou Eakan no longer provided the promotion services thereafter. As of December 31, 2014 and 2013, Guizhou Taibang accrued commission payable of $8,145 and $351,955 for service rendered by Guizhou Eakan. The commission expense for service rendered by Guizhou Eakan amounted to $2,249,716, $3,620,335, and $3,591,836 for the years ended December 31, 2014, 2013 and 2012, respectively. In August 2014, the Company acquired the equity interest owned by Guizhou Eakan in Guizhou Taibang and Guizhou Eakan was no longer a related party of the Company at December 31, 2014.
(2) Guizhou Taibang has payables to Guizhou Eakan Investing Corp., amounting to approximately $2,371,824 and $2,383,472 as of December 31, 2014 and 2013, respectively. Guizhou Eakan Investing Corp. is an affiliate of Guizhou Eakan. The Company borrowed this interest free advance for working capital purpose for Guizhou Taibang. The balance is due on demand. In August 2014, the Company acquired the equity interest owned by Guizhou Eakan in Guizhou Taibang and Guizhou Eakan Investing Corp. was no longer a related party of the Company at December 31, 2014.
(3) In December 2013, Guizhou Taibang received a contribution of RMB17,898,000 (approximately $2,929,903) from Guizhou Eakan, pending for the registration with the local AIC. In August 2014, the Company acquired the equity interest owned by Guizhou Eakan in Guizhou Taibang and made the registration accordingly.
(4) Guizhou Taibang has payables to Jie’an, a noncontrolling interest shareholder of Guizhou Taibang, amounting to approximately $1,599,025 and $1,541,640 as of December 31, 2014 and 2013, respectively. In 2007, Guizhou Taibang received additional contributions from Jie’an of RMB6,480,000 (approximately $1,055,592) to subscribe for 1,800,000 shares in Guizhou Taibang. However, due to a legal dispute among shareholders over raising additional capital as discussed in the legal proceeding section (see Note 19), the contribution is subject to be returned to Jie’an. Following the Company’s acquisition of the equity interest owned by Guizhou Eakan in Guizhou Taibang, Jie’an was not able to influence significantly the operation of Guizhou Taibang. As a result, Jie’an was no longer regarded as a related party at December 31, 2014.

– IV-28 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 21 — NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share of common stock for the periods indicated:

Net income attributable to China Biologic Products, Inc.
Earnings allocated to participating nonvested shares
Net income allocated to common stockholders used in
computing basic net income per common stock
Change in fair value of warrants issued to investors and
placement agent
Net income allocated to common stockholders used in
diluted net income per common stock
Weighted average shares used in computing basic
net income per common stock
Diluted effect of warrants issued to investors
Diluted effect of stock option
Weighted average shares used in computing diluted
net income per common stock
Net income per common stock — basic
Net income per common stock — diluted

For the Years Ended
December 31,
2014
December 31,
2013
December 31,
2012
USD
USD
USD
70,916,840
54,601,551
45,222,189
(1,210,895)
(456,261)
(69,624)
69,705,945
54,145,290
45,152,565
—
—
(1,769,140)
69,705,945
54,145,290
43,383,425
24,427,196
26,410,819
26,153,540
—
—
212,792
1,257,868
1,161,292
473,391
25,685,064
27,572,111
26,839,723
2.85
2.05
1.73
2.71
1.96
1.62

During the year ended December 31, 2014 and 2013, no option was antidilutive and excluded from the calculation of diluted net income per common stock. Further, rights issued pursuant to the stockholder rights plan (see Note 25) were excluded from the calculation of diluted net income per common stock since they were antidilutive.

During the year ended December 31, 2012, 1,938,009 options with an average exercise price of $11.34, and rights issued pursuant to the stockholder rights plan, were excluded from the calculation of diluted net income per common stock since they were antidilutive.

– IV-29 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 22 — CHINA BIOLOGIC PRODUCTS, INC. (PARENT COMPANY)

The following represents condensed unconsolidated financial information of the Parent Company only:

Condensed Balance Sheets:

Cash
Prepayments and prepaid expenses
Property, plant and equipment, net
Investment in and amounts due from subsidiaries
Total Assets
Other payables and accrued expenses
Long-term loan, including current portion
Total Liabilities
Total Equity
Total Liabilities and Equity
Condensed Statements of Comprehensive Income:
Equity in income of subsidiaries
General and administrative expenses
Other expenses, net
Change in fair value of derivative liabilities
Earnings before income tax expense
Income tax benefit
Net Income

December 31,
2014
December 31,
2013
USD
USD
2,651,088
679,022
89,580
87,548
368
544
279,497,751
270,595,266
282,238,787
271,362,380
3,851,760
3,670,817
66,300,000
30,000,000
70,151,760
33,670,817
212,087,027
237,691,563
282,238,787
271,362,380
For the Years Ended
December 31,
2014
December 31,
2013
December 31,
2012
USD
USD
USD
78,948,990
62,457,106
51,063,576
(6,008,852)
(7,460,763)
(8,048,993)
(2,023,298)
(394,792)
(34,543)
—
—
1,769,140
70,916,840
54,601,551
44,749,180
—
—
473,009
70,916,840
54,601,551
45,222,189

– IV-30 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Condensed Statements of Cash Flows:

Net cash (used in) provided by operating activities Net cash used in investing activities Net cash provided by financing activities Net increase (decrease) in cash Cash at beginning of year Cash at end of year	For the Years Ended December 31, 2014 December 31, 2013 December 31, 2012 USD USD USD (444,755) 197,001 (160,272) — — — 2,416,821 405,920 — 1,972,066 602,921 (160,272) 679,022 76,101 236,373 2,651,088 679,022 76,101

NOTE 23 — FOLLOW-ON OFFERING OF COMMON STOCK

On July 2, 2014, the Company completed a follow-on offering of 1,782,500 shares of common stock at a price of $38.00 per share, less the underwriting discounts and commissions and offering expenses. In this July 2014 follow-on offering, the Company sold 920,000 shares (including 120,000 shares sold pursuant to the exercise by the underwriters of their option to purchase additional shares from the Company) and a selling stockholder sold 862,500 shares (including 112,500 shares sold pursuant to the exercise by the underwriters of their option to purchase additional shares from such selling stockholder). The Company raised net proceeds of approximately $33.2 million from this offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company. The Company did not receive any proceeds from the sale of the shares by the selling stockholder.

NOTE 24 — ACQUISITION OF ADDITIONAL EQUITY INTEREST IN GUIZHOU TAIBANG

On August 25, 2014, Guiyang Dalin Biotechnology (‘‘Guiyang Dalin’’), a wholly-owned subsidiary of the Company, entered into an agreement to acquire an additional 19.84% equity interest in Guizhou Taibang from Guizhou Eakan, a noncontrolling interest shareholder of Guizhou Taibang. The total consideration of the transaction was RMB535 million (approximately $86.8 million). The Company completed the acquisition on September 4, 2014 and increased its equity interest in Guizhou Taibang to 76.23%.

NOTE 25 — SUBSEQUENT EVENT

Stockholder Rights Plan

On January 8, 2015, the Board of Directors (the ‘‘Board’’) adopted a stockholder rights plan (the ‘‘Rights Agreement’’). Pursuant to the Rights Agreement, the Board of Directors authorized and declared a dividend distribution of one right (a ‘‘Right’’) for each outstanding share of the common stock, par value $0.0001 per share (the ‘‘Common Shares’’), of the Company to stockholders of record at the close of business on January 20, 2015 (the ‘‘Record Date’’). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Series A Participating Preferred Stock, par value $0.0001 per share (the ‘‘Preferred Shares’’), of the Company at an exercise price of $325.00 per one one-thousandth of a Preferred Share, subject to adjustment (the ‘‘Exercise Price’’). However, the Rights are not immediately exercisable and will become exercisable only upon the occurrence of certain events. In particular, after January 8, 2015:

. if a person or group acquires 15% or more of the Company’s Common Shares (including through derivatives), then the Rights will become exercisable and each Right will entitle its holder (except the acquiring person or group) to purchase, at the Exercise Price, a number of the Company’s Common Shares having a then-current market value of twice the Exercise Price;

– IV-31 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

. if after a person or group acquires 15% or more of the Company’s Common Shares, the Company merges into another company, an acquiring entity merges into the Company or the Company sells or transfers more than 50% of its assets, cash flow or earning power, then each Right will entitle its holder (except the acquiring person or group) to purchase, for the Exercise Price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the Exercise Price; or
. after a person or group acquires 15% or more of the Company’s Common Shares, the Board may, at its option, exchange the Rights (except for Rights held by the acquiring person or group), in whole or in part, for Common Shares at an exchange ratio of one Common Share per Right (subject to adjustment).

The Board adopted the Rights Agreement to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group that acquires 15% or more of the Common Shares without the approval of the Board after January 8, 2015. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. However, neither the Rights Agreement nor the Rights should interfere with any merger, tender or exchange offer or other business combination approved by the Board. The Board of Directors may redeem the rights for $0.001 per right at any time before an event that causes the rights to become exercisable. If not redeemed, the right will expire on January 8, 2017. The Board had previously adopted a similar preferred shares rights agreement on November 19, 2012, which expired on November 20, 2014.

Repayment of Bank Loan

In February 2015, the Company repaid the 6-month RMB194,000,000 (approximately $31,602,600) loan with CMB BJ Branch. In the meanwhile, the time deposit of RMB196,300,000 (approximately $31,977,270) as a security for the loan matured accordingly.

– IV-32 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(2) The following is an extract of the audited financial statements of the CBPO Group for the year ended December 31, 2015, which were prepared in accordance with U.S. GAAP, from the 2015 annual report of CBPO.

CONSOLIDATED BALANCE SHEETS

Note ASSETS Current Assets Cash and cash equivalents Restricted cash deposits 9 Time deposits Accounts receivable, net of allowance for doubtful accounts 3 Inventories 5 Prepayments and other current assets, net of allowance for doubtful accounts 4 Deposits related to land use rights, current portion 8 Total Current Assets Property, plant and equipment, net 7 Land use rights, net Deposits related to land use rights 8 Restricted cash and cash deposits, excluding current portion 9 Equity method investment 10 Loan receivable 11 Other non-current assets Total Assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Short-term bank loans, including current portion of long-term bank loans 12 Accounts payable Other payables and accrued expenses 13 Income tax payable Total Current Liabilities Long-term bank loans, excluding current portion 12 Deferred income Other liabilities Total Liabilities	December 31, 2015 USD 144,937,893 — 38,032,593 25,144,969 126,395,312 24,545,597 10,056,200 369,112,564 105,364,251 23,576,300 — — 8,718,133 39,834,173 4,861,075 551,466,496 — 9,681,835 57,462,563 4,510,986 71,655,384 — 4,525,867 8,323,446 84,504,697	December 31, 2014 USD 80,820,224 63,677,610 — 19,402,820 101,304,932 14,781,658 —
		279,987,244 80,230,888 11,909,136 12,792,355 40,230,250 18,221,777 — 3,475,442
		446,847,092
		57,902,600 4,829,350 49,692,757 8,257,133
		120,681,840
		40,000,000 2,765,024 8,138,498
		171,585,362

– IV-33 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

December 31, December 31, 2015 2014 Note USD USD

Stockholders’ Equity Common stock: par value $0.0001; 100,000,000 shares authorized; 28,835,053 and 27,865,871 shares issued at December 31, 2015 and 2014, respectively; 26,580,349 and 24,806,167 shares outstanding at December 31, 2015 and 2014, respectively Additional paid-in capital Treasury stock: 2,254,704 and 3,059,704 shares at December 31, 2015 and 2014, respectively, at cost 16, 23 Retained earnings Accumulated other comprehensive income Total equity attributable to China Biologic Products, Inc. Noncontrolling interest Total Stockholders’ Equity Commitments and contingencies 11, 20 Total Liabilities and Stockholders’ Equity	2,884 105,079,845 (56,425,094) 333,704,094 (18,605) 382,343,124 84,618,675 466,961,799 — 551,466,496	2,787 24,008,281 (76,570,621) 244,661,391 19,985,189 212,087,027 63,174,703 275,261,730 — 446,847,092

See accompanying notes to Consolidated Financial Statements.

– IV-34 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Note
Sales
19
Cost of sales
Gross profit
Operating expenses
Selling expenses
General and administrative
expenses
Research and development
expenses
Provision for other receivables in
respect of an employee housing
development project
6
Income from operations
Other income (expenses)
Equity in (loss) income of
an equity method investee
10
Interest income
Interest expense
Total other income, net
Earnings before income tax expense
Income tax expense
14
Net income
Less: Net income attributable to
noncontrolling interest
Net income attributable to China
Biologic Products, Inc.

For the Years Ended
December 31,
December 31,
December 31,
2015
2014
2013
USD
USD
USD
296,457,902
243,251,658
203,356,856
106,482,626
80,025,375
65,484,153
189,975,276
163,226,283
137,872,703
9,973,449
10,707,409
10,643,149
41,391,520
32,129,985
36,073,871
6,024,368
4,161,901
4,223,165
—
5,068,075
—
132,585,939
111,158,913
86,932,518
(1,311,278)
8,646,181
2,170,473
5,551,105
6,644,886
4,433,326
(1,727,335)
(3,697,819)
(1,134,952)
2,512,492
11,593,248
5,468,847
135,098,431
122,752,161
92,401,365
20,992,913
26,639,527
15,540,301
114,105,518
96,112,634
76,861,064
25,062,815
25,195,794
22,259,513
89,042,703
70,916,840
54,601,551

– IV-35 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Note Net income per share of common stock: 21 Basic Diluted Weighted average shares used in computation: 21 Basic Diluted Net income Other comprehensive income: Foreign currency translation adjustment, net of nil income taxes Comprehensive income Less: Comprehensive income attributable to noncontrolling interest Comprehensive income attributable to China Biologic Products, Inc.	For the Years Ended December 31, December 31, December 31, 2015 2014 2013 USD USD USD 3.40 2.85 2.05 3.27 2.71 1.96 25,599,153 24,427,196 26,410,819 26,567,366 25,685,064 27,572,111 114,105,518 96,112,634 76,861,064 (24,368,360) (1,918,715) 9,126,218 89,737,158 94,193,919 85,987,282 20,698,249 24,798,384 23,951,559 69,038,909 69,395,535 62,035,723	For the Years Ended December 31, December 31, December 31, 2015 2014 2013 USD USD USD 3.40 2.85 2.05 3.27 2.71 1.96 25,599,153 24,427,196 26,410,819 26,567,366 25,685,064 27,572,111 114,105,518 96,112,634 76,861,064 (24,368,360) (1,918,715) 9,126,218 89,737,158 94,193,919 85,987,282 20,698,249 24,798,384 23,951,559 69,038,909 69,395,535 62,035,723
		1.96
		26,410,819
		27,572,111
		76,861,064 9,126,218
		85,987,282 23,951,559
		62,035,723

See accompanying notes to Consolidated Financial Statements.

– IV-36 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Commo	n stock	Additional paid-in capital Treasury Stock Retained earnings USD USD USD 62,251,731 — 119,143,000 — — 54,601,551 — — — — — — (664,662) — — — (29,594,080) — 5,050,796 — — 5,394,005 — — (6) — — 72,031,864 (29,594,080) 173,744,551 — — 70,916,840 — — — — — — (68,802,855) — — — (70,000,000) — 5,396,271 — — 1,333,594 — — 10,189,059 23,023,459 — 3,860,359 — — (11) — — 24,008,281 (76,570,621) 244,661,391 — — 89,042,703 — — — 12,114,272 — — 1,225,941 — — 60,438,432 20,145,527 — (452,962) — — 7,745,900 — — (19) — — 105,079,845 (56,425,094) 333,704,094	Additional paid-in capital Treasury Stock Retained earnings USD USD USD 62,251,731 — 119,143,000 — — 54,601,551 — — — — — — (664,662) — — — (29,594,080) — 5,050,796 — — 5,394,005 — — (6) — — 72,031,864 (29,594,080) 173,744,551 — — 70,916,840 — — — — — — (68,802,855) — — — (70,000,000) — 5,396,271 — — 1,333,594 — — 10,189,059 23,023,459 — 3,860,359 — — (11) — — 24,008,281 (76,570,621) 244,661,391 — — 89,042,703 — — — 12,114,272 — — 1,225,941 — — 60,438,432 20,145,527 — (452,962) — — 7,745,900 — — (19) — — 105,079,845 (56,425,094) 333,704,094	Additional paid-in capital Treasury Stock Retained earnings USD USD USD 62,251,731 — 119,143,000 — — 54,601,551 — — — — — — (664,662) — — — (29,594,080) — 5,050,796 — — 5,394,005 — — (6) — — 72,031,864 (29,594,080) 173,744,551 — — 70,916,840 — — — — — — (68,802,855) — — — (70,000,000) — 5,396,271 — — 1,333,594 — — 10,189,059 23,023,459 — 3,860,359 — — (11) — — 24,008,281 (76,570,621) 244,661,391 — — 89,042,703 — — — 12,114,272 — — 1,225,941 — — 60,438,432 20,145,527 — (452,962) — — 7,745,900 — — (19) — — 105,079,845 (56,425,094) 333,704,094	Accumulated other comprehensive income USD 14,072,322 — 7,434,172 — — — — — —	Accumulated other comprehensive income USD 14,072,322 — 7,434,172 — — — — — —	Accumulated other comprehensive income USD 14,072,322 — 7,434,172 — — — — — —	Accumulated other comprehensive income USD 14,072,322 — 7,434,172 — — — — — —
Number of Shares 26,629,615 — — — — — — 648,379 63,750	Par value USD 2,663 — — — — — — 65 6
27,341,744	2,734	72,031,864	(29,594,080) 173,744,551		21,506,494	237,691,563	66,278,046	303,969,609
— — — — — — — — 417,002 107,125	— — — — — — — — 42 11
27,865,871	2,787	24,008,281	(76,570,621) 244,661,391		19,985,189	212,087,027	63,174,703	275,261,730
— — — — — — 780,557 188,625	— — — — — — 78 19			89,042,703 — — — — — — —
28,835,053	2,884	105,079,845	(56,425,094) 333,704,094

See accompanying notes to Consolidated Financial Statements.

– IV-37 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation
Amortization
Loss (gain) on sale of property, plant
and equipment
Allowance (reversal) for doubtful
accounts — accounts receivable, net
Allowance for doubtful accounts —
other receivables and prepayments
Write-down of obsolete inventories
Deferred tax (benefit) expense
Share-based compensation
Equity in loss (income) of an equity
method investee
Excess tax benefits from share-based
compensation arrangements
Change in operating assets and liabilities:
Accounts receivable
Prepayment and other current assets
Inventories
Accounts payable
Other payables and accrued expenses
Deferred income
Income tax payable
Net cash provided by operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for property, plant and
equipment
Payment for intangible assets and land use
rights
Refund of deposits related to land use
right
Dividends received
Purchase of time deposit
Proceeds upon maturity of time deposit
Proceeds from sale of property, plant and
equipment and land use rights
Long-term loan lent to a third party
Receipt of government grants related to
property and equipment
Net cash used in investing activities

For the Years Ended
December 31,
December 31,
December 31,
2015
2014
2013
USD
USD
USD
114,105,518
96,112,634
76,861,064
8,179,376
6,989,222
6,096,650
854,364
758,232
1,365,734
3,024,830
172,032
(123,777)
34,902
(24,462)
31,567
788
5,068,075
65,094
76,587
324,584
—
(170,345)
3,483,890
112,632
12,114,272
5,396,271
5,050,796
1,311,278
(8,646,181)
(2,170,473)
(1,518,702)
(1,611,399)
—
(7,146,311)
(2,191,118)
(5,667,386)
879,165
(9,236,125)
(624,159)
(32,095,328)
(13,418,971)
(10,432,492)
5,348,896
405,071
1,621,917
6,734,988
4,472,691
2,562,739
(416,185)
(224,040)
—
(1,926,093)
5,683,912
(446,911)
109,392,000
93,514,318
74,302,995
(38,790,998)
(17,194,201)
(20,492,159)
(13,500,526)
(4,677,358)
(1,327,148)
—
1,635,200
2,100,150
—
—
565,425
—
—
(6,608,612)
—
6,608,612
—
827,020
220,135
194,749
(40,744,167)
—
—
2,452,864
—
—
(89,755,807)
(13,407,612)
(25,567,595)

– IV-38 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from stock option exercised
Payment for share repurchase
Proceeds from short-term bank loans
Repayment of short-term bank loans
Proceeds from long-term bank loans
Repayment of long-term bank loans
Payment for cash deposit as security for
bank loans
Maturity of deposit as security for bank
loans
Net proceeds from reissuance of treasury
stock
Acquisition of noncontrolling interest
Excess tax benefits from share-based
compensation arrangements
Dividend paid by subsidiaries to
noncontrolling interest shareholders
Contribution from noncontrolling interest
shareholders
Dividend to the trial court to be held in
escrow as to dispute with Jie’an
Net cash provided by (used in) financing
activities
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year
Supplemental cash flow information
Cash paid for income taxes
Cash paid for interest expense
Noncash investing and financing
activities:
Acquisition of property, plant and
equipment included in payables
Restricted cash spent for property, plant
and equipment

For the Years Ended
December 31,
December 31,
December 31,
2015
2014
2013
USD
USD
USD
7,745,978
3,860,401
5,394,070
—
(70,000,000)
(29,594,080)
15,770,881
44,500,340
9,693,000
(47,201,255)
(22,833,400)
(8,014,000)
—
70,000,000
30,000,000
(66,300,000)
(33,700,000)
—
—
(104,172,005)
(30,000,000)
63,152,258
30,370,670
—
80,583,959
33,212,518
—
—
(86,830,499)
(1,963,913)
1,518,702
1,611,399
—
—
(8,846,984)
(16,931,149)
—
—
2,891,422
(3,690,814)
—
—
51,579,709
(142,827,560)
(38,524,650)
(7,098,233)
(597,409)
4,318,420
64,117,669
(63,318,263)
14,529,170
80,820,224
144,138,487
129,609,317
144,937,893
80,820,224
144,138,487
23,348,371
17,652,514
15,947,939
1,526,807
3,150,381
347,602
6,363,392
3,300,284
4,252,428
—
—
2,928,421

See accompanying notes to Consolidated Financial Statements.

– IV-39 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015, 2014 and 2013

NOTE 1 — DESCRIPTION OF BUSINESS AND SIGNIFICANT CONCENTRATIONS AND RISKS

Cash Concentration

The Company maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for its bank accounts located in the United States or may exceed Hong Kong Deposit Protection Board insured limits for its bank accounts located in Hong Kong or may exceed the insured limits for its bank accounts in China established by China Deposit Insurance Fund Management Institution. Total cash at banks and deposits as of December 31, 2015 and December 31, 2014 amounted to $182,291,723 and $184,186,306, respectively, of which $3,020,569 and $86,744 are insured, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts.

Sales Concentration

The Company’s two major products are human albumin and human immunoglobulin for intravenous injection (‘‘IVIG’’). Human albumin accounted for 37.6%, 39.3% and 44.1% of the total sales for the years ended December 31, 2015, 2014 and 2013, respectively. IVIG accounted for 42.2%, 40.4% and 38.0% of the total sales for the years ended December 31, 2015, 2014 and 2013, respectively. If the market demands for human albumin and IVIG cannot be sustained in the future or the price of human albumin and IVIG decreases, the Company’s operating results could be adversely affected.

Substantially all of the Company’s customers are located in the PRC. There were no customers that individually comprised 10% or more of sales during the years ended December 31, 2015, 2014 and 2013. No individual customer represented 10% or more of accounts receivables as at December 31, 2015 and 2014. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.

Purchase Concentration

There was one supplier, namely, Xinjiang Deyuan Bioengineering Co., Ltd. (‘‘Xinjiang Deyuan’’), that comprised 10% or more of the total purchases during the year ended December 31, 2015. No supplier that comprised 10% or more of the total purchases during the years ended December 31, 2014 and 2013, respectively. There was one supplier that represented more than 10% of accounts payables as at December 31, 2015 and December 31, 2014, respectively.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

– IV-40 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment and intangibles with definite lives, the allowances for doubtful accounts, the fair value determinations of stock compensation awards, the realizability of deferred tax assets and inventories, the recoverability of intangible assets, land use rights, property, plant and equipment, equity method investment and loan receivable, and accruals for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Foreign Currency Translation

Revenue Recognition

Revenue represents the invoiced value of products sold, net of value added taxes (VAT).

Fair Value Measurements

. Level 1 Inputs: Unadjusted quoted prices for identical assets or liabilities in active markets accessible to the entity at the measurement date.
. Level 2 Inputs: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
. Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

– IV-41 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

See Note 18 to the Consolidated Financial Statements.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits. The Company considers all highly liquid investments with original maturities of three-month or less at the time of purchase to be cash equivalents. Cash and cash equivalents at December 31, 2015 and 2014 include $85,422,000 and $38,489,045 of certificates of deposit with an initial term of three months or less.

As of December 31, 2015 and 2014, the Company maintained cash and cash equivalents at banks in the following locations:

PRC, excluding Hong Kong U.S. Total	December 31, 2015 USD 130,319,811 13,939,319 144,259,130	December 31, 2014 USD 77,627,358 2,651,088
		80,278,446

Accounts Receivable and Allowance for Doubtful Accounts

Inventories

Property, Plant and Equipment

Property, plant and equipment are stated at cost.

Depreciation and amortization of property, plant and equipment attributable to manufacturing activities is capitalized as part of inventories, and recognized as cost of revenues when the inventory is sold. Cost incurred in the construction of property, plant and equipment, including process payments and deposits, are initially capitalized as construction-inprogress and transferred into their respective asset categories when the assets are ready for their intended use, at which time depreciation commences.

– IV-42 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of the assets are as follows:

Buildings		30 years
Machinery	and equipment	10 years
Furniture,	fixtures, office equipment and vehicles	5–10 years

When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and the proceeds received thereon. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized and amortized over the remaining useful life.

Equity Method Investment

Government Grants

For the year ended December 31, 2015, the Company received government grants of RMB15,000,000 (approximately $2,452,864) related to the new manufacturing facilities for factor products in Shandong Taibang, which was recorded as deferred income. These grants are amortized as the related assets are depreciated. The grants amortized amounted to $118,751 for the year ended December 31, 2015. For the year ended December 31, 2015, government grants of RMB7,280,600 (approximately $1,188,907), have been recognized as a reduction of research and development expenses.

For the year ended December 31, 2014, government grants of RMB12,963,600 (approximately $2,111,770), have been recognized as a reduction of research and development expenses.

For the year ended December 31, 2012, the Company received government grants of RMB18,350,000 (approximately $2,989,215) related to the technical upgrade of the manufacturing facilities in Guizhou Taibang. The grants amortized amounted to $297,434, $224,191 and nil for the years ended December 31, 2015, 2014 and 2013, respectively.

Land Use Rights

– IV-43 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses for the years ended December 31, 2015, 2014 and 2013 were $6,024,368, $4,161,901 and $4,223,165, respectively. These expenses include the costs of the Company’s internal research and development activities.

Product Liability

The Company’s products are covered by two separate product liability insurances each with coverages of approximately $3,220,000 (or RMB20,000,000) for the products sold by Shandong Taibang Biological Products Co., Ltd. (‘‘Shandong Taibang’’) and Guizhou Taibang Biological Products Co., Ltd. (‘‘Guizhou Taibang’’), respectively. There were no product liability claims as of December 31, 2015.

Income Taxes

Share-based Payment

Long-lived Assets

Net Income per Share

– IV-44 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

dilutive common stock equivalent, if any, by the weighted average number of common stock and dilutive common stock equivalent outstanding during the year. Potential dilutive securities are not included in the calculation of diluted earnings per share if the impact is anti-dilutive.

Segment Reporting

Contingencies

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (‘‘ASU 2014-09’’), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter of 2017. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) — Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the Company may adopt the standard in either its first quarter of 2017 or 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenue standard on its consolidated financial statements.

In July, 2015, the FASB issued ASU No. 2015-11 (‘‘ASU 2015-11’’), Simplifying the Measurement of Inventory, which required that inventory be measured at the lower of cost and net realizable value. For public business entities, ASU 2015-11 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of beginning of an interim or annual reporting period. The Company expects that the adoption of ASU 2015-11 will not have a material impact on its consolidated financial statements or related disclosures.

In November, 2015, the FASB issued ASU No. 2015-17 (‘‘ASU 2015-17’’), Balance Sheet Classification of Deferred Taxes, which required that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of beginning of an interim or annual reporting period. The Company expects that the adoption of ASU 2015-17 will not have a material impact on its consolidated financial statements or related disclosures.

– IV-45 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable at December 31, 2015 and 2014 consisted of the following:

Accounts receivable Less: Allowance for doubtful accounts Total	December 31, 2015 USD 25,588,593 (443,624) 25,144,969	December 31, 2014 USD 19,836,768 (433,948)
		19,402,820

The activity in the allowance for doubtful accounts — accounts receivable for the years ended December 31, 2015, 2014 and 2013 are as follows:

Beginning balance Provisions Recoveries Write-offs Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2015 December 31, 2014 USD USD 433,948 460,689 34,902 6,211 — (30,673) — — (25,226) (2,279) 443,624 433,948	December 31, 2013 USD 415,607 31,567 — — 13,515
		460,689

NOTE 4 — PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets as of December 31, 2015 mainly represented other receivables of $17,846,006 and prepayments of $2,206,131. Prepayments and other current assets as of December 31, 2014 mainly represented other receivables of $7,197,778 and prepayments of $3,158,311.

The activity in the allowance for doubtful accounts — other receivables and prepayments for the years ended December 31, 2015, 2014 and 2013 are as follows:

Beginning balance Provisions Recoveries Write-offs Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2015 December 31, 2014 USD USD 5,207,840 142,951 788 5,068,075 — — — — (284,565) (3,186) 4,924,063 5,207,840	December 31, 2013 USD 75,704 65,094 — — 2,153
		142,951

– IV-46 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 5 — INVENTORIES

Inventories at December 31, 2015 and 2014 consisted of the following:

Raw materials Work-in-process Finished goods Total	December 31, 2015 USD 57,418,230 27,401,062 41,576,020 126,395,312	December 31, 2014 USD 52,010,104 22,128,405 27,166,423
		101,304,932

Raw materials mainly comprised of the human blood plasma collected from the Company’s plasma stations. Workin-process represented the intermediate products in the process of production. Finished goods mainly comprised plasma products. Provisions to write-down the carrying amount of obsolete inventory to its estimated net realizable value amounted to $76,587, $324,584 and nil for the years ended December 31, 2015, 2014 and 2013, respectively, and were recorded as cost of sales in the consolidated statements of comprehensive income.

NOTE 6 — OTHER RECEIVABLES IN RESPECT OF AN EMPLOYEE HOUSING DEVELOPMENT PROJECT

In 2009, 107 employees, or the Employee-participants, of Shandong Taibang entered into agreements, or the Housing Project Agreements, with a real estate developer regarding a housing development project, pursuant to which the developer agreed to develop and deliver residential units to the Employee-participants by the end of 2011 and the Employee-participants paid the developer deposits equal to 80% of the purchase prices of the residential units. To assist with their deposit payment, Shandong Taibang entered into separate agreements, or the Financial Assistance Agreements, with the Employee-participants and provided them with advances of up to 50% of the purchase prices of the residential units. These advances were to be repaid by deductions from the Employee-participants’ salaries. In addition, Shandong Taibang also entered into a purchase agreement with the developer to purchase additional units in the development project and made a deposit of RMB3,823,200 (approximately $622,799). However, the developer failed to deliver the residential units and is unlikely to be able to perform the Housing Project Agreements. In August 2014, the Company entered into agreements, or the Advance Payment Agreements, with the Employee-participants, pursuant to which the Company made advance payments to the Employee-participants equal to the deposits that the Employee-participants had paid the developer pursuant to the Housing Project Agreements and refunded them the deductions previously made from their salaries pursuant to the Financial Assistance Agreements together with accrued interest totaling RMB27,071,684 (approximately $4,409,977). In November 2014, Shandong Taibang entered into supplemental agreements to the Advance Payment Agreements, or the Supplemental Agreements, with the Employee-participants, pursuant to which the Employeeparticipants transferred and assigned to Shandong Taibang their rights under the Housing Project Agreements, including their rights to pursue legal actions against and recover damages from the developer, and in return, Shandong Taibang waived its right to claim the advance payments and the refunds of the deductions under the Advance Payment Agreements. During the year ended December 31, 2014, the Company made a full provision of $5,068,075 in the consolidated financial statements for all the receivables in respect of this employee housing development project (see Note 4), including the deposits paid to the developer, the total advance payments and refunds made under this employee housing development project, as well as the related fees and expenses, because it became probable that these receivables may not be recoverable after all legal means of collection were exhausted.

– IV-47 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 7 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2015 and 2014 consisted of the following:

Buildings Machinery and equipment Furniture, fixtures, office equipment and vehicles Total property, plant and equipment, gross Accumulated depreciation Total property, plant and equipment, net Construction in progress Prepayment for property, plant and equipment Property, plant and equipment, net	December 31, 2015 USD 31,505,133 54,640,502 7,859,951 94,005,586 (31,521,859) 62,483,727 26,115,927 16,764,597 105,364,251	December 31, 2014 USD 32,375,433 58,946,498 8,230,842 99,552,773 (30,779,714) 68,773,059 10,237,610 1,220,219 80,230,888

Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $8,179,376, $6,989,222 and $6,096,650, respectively. No interest expenses were capitalized into construction in progress for the years ended December 31, 2015, 2014 and 2013.

NOTE 8 — DEPOSITS RELATED TO LAND USE RIGHTS

In 2012, Guizhou Taibang made a refundable payment of RMB83,400,000 (approximately $12,843,600) to the local government in connection with the public bidding for a land use right in Guizhou Province. Given the decrease of the land area to be provided by the local government, RMB13,000,000 (approximately $2,002,000) and RMB10,000,000 (approximately $1,540,000) was refunded by the local government in December 2013 and January 2014, respectively. Guizhou Taibang completed the bidding and purchased the land use right in December 2015. The remaining deposit is expected to be refunded by the end of 2016.

NOTE 9 — RESTRICTED CASH DEPOSITS

In February 2014, the Company made time deposits of RMB246,500,000 (approximately $37,961,000) and RMB194,600,000 (approximately $29,968,400) with CMB BJ Branch as a security for a 24-month $40,000,000 loan and an 18-month $30,000,000 loan respectively lent by CMB NY Branch (see Note 12). The two bank loans were repaid in June 2015 and time deposit of RMB194,600,000 (approximately $29,968,400) matured in August 2015.

In August 2014, the Company made a time deposit of RMB196,300,000 (approximately $30,230,200) with CMB BJ Branch as a security for a 6-month RMB194,000,000 (approximately $29,876,000) loan lent by CMB BJ Branch (see Note 12). In February 2015, the Company repaid the loan and the time deposit matured accordingly.

NOTE 10 — EQUITY METHOD INVESTMENT

The Company’s equity method investment as of December 31, 2015 and 2014 represented 35% equity interest investment in Xi’an Huitian Blood Products Co., Ltd. (‘‘Huitian’’).

– IV-48 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

cash consideration, including interest, of $6,502,901 (or RMB44,327,887) to the Seller, and would bear the risks and benefits as a 35% equity owner in Huitian. In addition, Taibang Biological would pay Shandong Taibang RMB120,000 (approximately $19,548) per year as compensation for the administrative costs of Shandong Taibang’s holding of the 35% equity interest in Huitian on behalf of Taibang Biological. Such amount paid and received is eliminated upon consolidation. Taibang Biological agreed to indemnify the noncontrolling interest holder of Shandong Taibang for any loss arising from the Entrust Agreement and has pledged the Company’s equity interest in Shandong Taibang as collateral against such loss.

The excess of carrying amount over the Company’s share of net assets of equity method investees, which represented goodwill, is $1,260,243 and $1,333,075 at December 31, 2015 and 2014, respectively. The equity method goodwill is not amortized; however, the investment is reviewed for impairment. Huitian contributed its land use right to its subsidiary as capital in 2013 and disposed the subsidiary in 2014, recognizing a gain of RMB116.7 million (approximately $19.0 million) for the year ended December 31, 2014, which caused the Company’s equity income in Huitian increased by $6.7 million accordingly.

NOTE 11 — LOAN RECEIVABLE

In August 2015, the Company entered into a cooperation agreement with Xinjiang Deyuan and the controlling shareholder of Xinjiang Deyuan. Pursuant to the agreement, Guizhou Taibang agreed to provide Xinjiang Deyuan with interest-bearing loans at an interest rate of 6% per annum with an aggregate principal amount of RMB300,000,000 (approximately $46,200,000). The loans are due July 31, 2018 and secured by a pledge of Deyuan Shareholder’s 58.02% equity interest in Xinjiang Deyuan. Interest will be paid on the 20th day of the last month of each quarter. For the year ended December 31, 2015, RMB258,663,461 (approximately $39,834,173) was lent to Xinjiang Deyuan and the remaining RMB41,336,539 (approximately $6,365,827) will be lent upon Xinjiang Deyuan’s request.

Interest income of $496,170 was accrued by Guizhou Taibang for the year ended December 31, 2015.

NOTE 12 — BANK LOANS

(a) Current

The Company’s bank loans at December 31, 2015 and 2014 consisted of the following:

Loans Maturity date Annual interest rate Short-term bank loan, secured February 12, 2015 5.04% Current portion of long-term bank loans August 11, 2015 See note (b) Total	December 31, 2015 USD — — —	December 31, 2014 USD 31,602,600 26,300,000
		57,902,600

In August 2014, the Company entered into a credit facility agreement with CMB BJ Branch to finance the acquisition of additional equity interest in Guizhou Taibang (see Note 24). Pursuant to the facility agreement, the Company obtained a 6-month RMB194,000,000 (approximately $29,876,000) loan from CMB BJ Branch secured by a time deposit of RMB196,300,000 (approximately $30,230,200). The Company repaid the loan in February 2015.

Interest expense amounted to $1,727,335, $1,178,626 and $347,602 for the years ended December 31, 2015, 2014 and 2013, respectively.

The Company did not have any revolving line of credit as of December 31, 2015 and 2014.

– IV-49 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(b) Non-current

Long-term bank loans Less: current portion of long-term bank loans Total non-current bank loans	December 31, 2015 USD — — —	December 31, 2014 USD 66,300,000 26,300,000
		40,000,000

The Company entered into a credit facility agreement with CMB NY Branch in February, 2014 to finance the share repurchase (see Note 17). Pursuant to the facility agreement, CMB NY Branch lent to the Company a 24-month $40,000,000 loan and an 18-month $30,000,000 loan, secured by time deposits of RMB246,500,000 (approximately $37,961,000) and RMB194,600,000 (approximately $29,968,400), respectively, held at CMB BJ Branch. Both loans bear an interest rate of 3-month LIBOR plus 1.3% per annum and a facility fee of 1.2% per annum. In July 2014, the Company repaid $3,700,000 out of the 18-month $30,000,000 loan. In June 2015, the Company fully repaid these two bank loans.

NOTE 13 — OTHER PAYABLES AND ACCRUED EXPENSES

Other payables and accrued expenses at December 31, 2015 and 2014 consisted of the following:

Payables to potential investors(1) Payable to Guizhou Eakan Investing Corp.(2) Payable to Guizhou Jie’an Company(3) Salaries and bonuses payable Accruals for selling commission and promotion fee Dividends payable to noncontrolling interest Payables for construction work Other tax payables Advance from customers Deposits received Others Total	December 31, 2015 USD 9,550,588 2,242,240 1,565,052 13,520,721 2,360,933 5,309,920 7,257,489 3,855,405 1,934,321 3,615,143 6,250,751 57,462,563	December 31, 2014 USD 9,756,023 2,371,824 1,599,025 10,591,524 4,288,089 5,616,792 3,595,093 3,878,983 945,678 1,019,172 6,030,554
		49,692,757

(1) The payables to potential investors comprise deposits received from potential investors of $6,123,040 and $6,476,904 as of December 31, 2015 and 2014, respectively, and related interest plus penalty on these deposits totaling $3,427,548 and $3,279,119 as of December 31, 2015 and 2014, respectively.

In 2007, Guizhou Taibang received an aggregate amount of RMB50,960,000 (approximately $7,847,840) from certain potential investors in connection with their subscription to purchase shares in Guizhou Taibang. In 2010, the Company refunded RMB11,200,000 (approximately $1,724,800) to one of the potential investors. According to the final judgment of the PRC Supreme Court, both the rights of these potential investors as shareholders of Guizhou Taibang and their claims for the related dividend distribution have been denied in 2013. (See Note 20)

(2) Guizhou Taibang has payables to Guizhou Eakan Investing Corp., amounting to approximately $2,242,240 and $2,371,824 as of December 31, 2015 and 2014, respectively. The Company borrowed this interest free advance for working capital purpose for Guizhou Taibang. The balance is due on demand.

– IV-50 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(3) Guizhou Taibang has payables to Jie’an, a noncontrolling interest shareholder of Guizhou Taibang, amounting to approximately $1,565,052 and $1,599,025 as of December 31, 2015 and 2014, respectively. In 2007, Guizhou Taibang received additional contributions from Jie’an of RMB6,480,000 (approximately $997,920) to subscribe for 1,800,000 shares in Guizhou Taibang. However, due to a legal dispute among shareholders over raising additional capital as discussed in the legal proceeding section (see Note 20), the contribution is subject to be returned to Jie’an.

NOTE 14 — INCOME TAX

The Company and each of its subsidiaries file separate income tax returns.

The United States of America

The Company is incorporated in the State of Delaware in the U.S., and is subject to U.S. federal corporate income tax at gradual rates of up to 35%.

British Virgin Islands

Hong Kong

Taibang Holdings (Hong Kong) Limited (‘‘Taibang Holdings’’, formerly known as ‘‘Logic Holdings (Hong Kong) Limited’’) is incorporated in Hong Kong and is subject to Hong Kong’s profits tax rate of 16.5% for the years ended December 31, 2015, 2014 and 2013. Taibang Holdings did not earn any income that was derived in Hong Kong for the years ended December 31, 2015, 2014 and 2013. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

PRC

The PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax at 25% unless otherwise specified.

According to CaiShui [2011] No. 58 dated July 27, 2011, Guizhou Taibang, being a qualified enterprise located in the western region of the PRC, enjoys a preferential income tax rate of 15% effective retroactively from January 1, 2011 to December 31, 2020.

– IV-51 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The components of earnings (losses) before income tax expense by jurisdictions are as follows:

PRC, excluding Hong Kong U.S. BVI Hong Kong Total	For the Years Ended December 31, December 31, 2015 2014 USD USD 147,580,488 122,116,071 (11,711,102) (8,032,150) (1,336,183) 8,625,859 565,228 42,381 135,098,431 122,752,161	December 31, 2013 USD 98,401,673 (7,855,555) 2,116,243 (260,996)
		92,401,365

Income tax expense for the years ended December 31, 2015, 2014 and 2013 represents current income tax expense and deferred tax (benefit) expense:

Current income tax expense Deferred tax (benefit) expense	For the Years Ended December 31, December 31, 2015 2014 USD USD 21,163,258 23,155,637 (170,345) 3,483,890 20,992,913 26,639,527	December 31, 2013 USD 15,427,669 112,632
		15,540,301

PRC statutory income tax rate Non-deductible expenses: Share-based compensation Others Tax rate differential Effect of PRC preferential tax rate Bonus deduction on research and development expenses Change in valuation allowance PRC dividend withholding tax Tax effect of equity method investment Effective income tax rate	For the Years Ended December 31, December 31, December 31, 2015 2014 2013 (in percentage to earnings before income tax expense) 25.0% 25.0% 25.0% 1.3% 0.5% 0.9% 0.1% 0.5% 0.7% — (2.2)% (1.0)% (10.5)% (9.7)% (12.7)% (1.5)% (1.4)% (1.4)% 1.3% (0.7)% 1.7% — 7.3% 2.8% (0.2)% 2.4% 0.8% 15.5% 21.7% 16.8%	For the Years Ended December 31, December 31, December 31, 2015 2014 2013 (in percentage to earnings before income tax expense) 25.0% 25.0% 25.0% 1.3% 0.5% 0.9% 0.1% 0.5% 0.7% — (2.2)% (1.0)% (10.5)% (9.7)% (12.7)% (1.5)% (1.4)% (1.4)% 1.3% (0.7)% 1.7% — 7.3% 2.8% (0.2)% 2.4% 0.8% 15.5% 21.7% 16.8%
		16.8%

The PRC tax rate has been used because the majority of the Company’s consolidated pre-tax earnings arise in the PRC.

– IV-52 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

As of December 31, 2015 and 2014, significant temporary differences between the tax basis and financial statement basis of assets and liabilities that gave rise to deferred taxes were principally related to the following:

Deferred tax assets arising from: — Accrued expenses — Tax loss carryforwards Gross deferred tax assets Less: valuation allowance Net deferred tax assets Deferred tax liabilities arising from: — Intangible assets — Equity method investment — Dividend withholding tax Deferred tax liabilities Classification on consolidated balance sheets: Deferred tax assets — current, net (included in prepayments and other current assets) Deferred tax liabilities — non-current, net (included in other liabilities)	December 31, 2015 USD 3,225,045 8,669,632 11,894,677 (8,160,611) 3,734,066 (314,109) (509,021) (7,351,023) (8,174,153) 3,225,045 (7,665,132)	December 31, 2014 USD 3,345,926 10,401,398 13,747,324 (6,661,139) 7,086,185 (439,116) (3,740,259) (7,351,023) (11,530,398) 3,345,926 (7,790,139)

The deferred tax assets of $8,669,632 for tax loss carry forwards as of December 31, 2015, of which $6,560,170 and $2,109,462 relate to tax loss carryforwards of certain PRC subsidiaries and CBP, respectively. For PRC income tax purposes, certain of the Company’s PRC subsidiaries had tax loss carryforwards of $26,240,681, of which $4,911,567, $6,754,594, $5,050,711, $5,079,935 and $4,443,874 would expire by 2016, 2017, 2018, 2019 and 2020, respectively, if unused. For United States federal income tax purposes, CBP had tax loss carryforwards of approximately $6,204,299, of which $162,235, $3,382,154, $978,837, $1,296,319 and $384,754 would expire by 2030, 2031, 2032, 2033 and 2034, respectively, if unused. In view of their cumulative losses positions, management determined it is more likely than not that deferred tax assets of these PRC subsidiaries will not be realized, and therefore full valuation allowances of $6,560,170 and $6,051,100 were provided as of December 31, 2015 and 2014, respectively. For deferred tax assets of CBP, management determined it is more likely than not that some portion of the deferred tax assets of CBP will not be realized, and therefore valuation allowances of $1,600,441 and $610,039 were provided as of December 31, 2015 and 2014, respectively. Management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of the valuation allowances, as of December 31, 2015 and December 31, 2014.

– IV-53 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The following table presents the movement of the valuation allowance for deferred tax assets for the years ended December 31, 2015, 2014 and 2013:

Beginning balance Addition (deduction) during the year Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2015 December 31, 2014 USD USD 6,661,139 7,558,590 1,703,771 (885,253) (204,299) (12,198) 8,160,611 6,661,139	December 31, 2013 USD 5,887,981 1,588,875 81,734
		7,558,590

As of January 1, 2013 and for each of the years ended December 31, 2013, 2014 and 2015, the Company and its subsidiaries did not have any unrecognized tax benefits, and therefore no interest or penalties related to unrecognized tax benefits were accrued. The Company does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months.

The Company and each of its PRC subsidiaries file income tax returns in the United States and the PRC, respectively. The Company is subject to U.S. federal income tax examination by tax authorities for tax years beginning in 2007. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances where the underpayment of taxes is more than RMB100,000 (approximately $15,400). In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. The PRC tax returns for the Company’s PRC subsidiaries are open to examination by the PRC tax authorities for the tax years beginning in 2010.

NOTE 15 — OPTIONS AND NONVESTED SHARES

Options

– IV-54 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

For the year ended December 31, 2015 and 2014, no stock options to purchase common stock were granted to any directors or employees.

For the year ended December 31, 2013, stock options to purchase an aggregate of 33,000 common stocks were granted to directors and employees at exercise prices ranging from $4.00 to $12.26 which vested immediately.

A summary of stock options activity for the years ended December 31, 2015, 2014 and 2013 is as follows:

Outstanding as of January1, 2013
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2013
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2014
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2015
Vested and expected to vest as of
December 31, 2015
Exercisable as of December 31, 2015

Number of
Options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term in years
Aggregate
Intrinsic Value
USD
USD
2,648,609
9.39
7.65
18,374,422
33,000
10.48
(648,379)
8.32
(10,923,644)
(150,854)
6.78
1,882,376
9.98
7.20
35,518,897
—
—
(417,002)
9.26
(17,529,500)
(32,920)
11.44
1,432,454
10.16
6.53
81,753,119
—
—
(780,557)
9.92
(68,089,712)
—
—
651,897
10.44
5.24
86,064,461
651,897
10.44
5.24
86,064,461
530,647
10.57
4.92
69,985,499

The weighted average option fair value of $8.37 per share or an aggregate of $276,250 on the date of grant during the year ended December 31, 2013, was determined based on the Black-Scholes option pricing model using the following weighted average assumptions:

	For the Years
	Ended
	December 31,
	2013
Expected volatility	104.00%
Expected dividends yield	0%
Expected term (in years)	5.38
Risk-free interest rate	0.72%
Fair value of underlying common stock (per share)	$10.48

– IV-55 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

For the years ended December 31, 2015, 2014 and 2013, the Company recorded stock compensation expense of $1,117,994, $1,669,573 and $3,773,073, respectively, in general and administrative expenses.

As of December 31, 2015, approximately $649,203 of stock compensation expense with respect to stock options is to be recognized over weighted average period of approximately 0.67 years.

Nonvested shares

For the years ended December 31, 2015, 2014 and 2013, nonvested shares were granted to certain directors and employees (collectively, the ‘‘Participant’’). Pursuant to the nonvested share grant agreements between the Company and the Participant, the Participant will have all the rights of a stockholder with respect to the nonvested shares. The nonvested shares granted to directors generally vest in one or two years. The nonvested shares granted to employees generally vest in four years.

A summary of nonvested shares activity for the year ended December 31, 2015, 2014 and 2013 is as follow:

Outstanding as of January 1, 2013 Granted Vested Forfeited Outstanding as of December 31, 2013 Granted Vested Forfeited Outstanding as of December 31, 2014 Granted Vested Forfeited Outstanding as of December 31, 2015	Number of nonvested shares 120,000 306,500 (63,750) — 362,750 299,000 (107,125) (2,500) 552,125 313,100 (188,625) (7,500) 669,100	Grant date weighted average fair value USD 9.85 22.94 9.85 —
		20.91 51.88 20.66 9.85
		37.78 120.62 34.78 28.8
		77.49

For the years ended December 31, 2015, 2014 and 2013, the Company recorded stock compensation expense of $10,996,278, $3,726,698 and $1,277,723 in general and administrative expenses, respectively.

As of December 31, 2015, approximately $45,040,836 of stock compensation expense with respect to nonvested shares is to be recognized over weighted average period of approximately 2.64 years.

– IV-56 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 16 — STATUTORY RESERVES

The Company’s PRC subsidiaries are required to allocate at least 10% of its after tax profits as determined under generally accepted accounting principal in the PRC to its statutory surplus reserve until the reserve balance reaches 50% of respective registered capital. The accumulated balance of the statutory reserve as of December 31, 2015 and 2014 was $34,160,154 and $32,137,551, respectively.

NOTE 17 — SHARE REPURCHASE

NOTE 18 — FAIR VALUE MEASUREMENTS

Management used the following methods and assumptions to estimate the fair value of financial instruments at the relevant balance sheet dates:

. Short-term financial instruments (including cash and cash equivalents, time deposit, restricted cash deposits, accounts receivable, other receivables, short-term bank loans including current portion of long-term bank loans, accounts payable, other payables and accrued expenses) — The carrying amounts of the short-term financial instruments approximate their fair values because of the short maturity of these instruments.
. Loan receivable, restricted cash and cash deposits, excluding current portion — The carrying amounts of loan receivable, restricted cash and cash deposit approximate their fair value. The fair value is estimated using discounted cash flow analysis based on the Company’s incremental borrowing rates for similar borrowing.
. Long-term bank loan excluding current portion- fair value is based on the amount of future cash flows associated with the long-term bank loan discounted at the Company’s current borrowing rate for similar debt instruments of comparable terms. The carrying value of the long-term bank loan approximate its fair value as the long-term bank loan carry variable interest rate which approximate rate currently offered by the Company’s bankers for similar debt instruments of comparable maturities.

– IV-57 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 19 — SALES

Human Albumin Immunoglobulin products: Human Immunoglobulin for Intravenous Injection Other Immunoglobulin products Placenta Polypeptide Others Total	For the Years Ended December 31, 2015 December 31, 2014 USD USD 111,422,258 95,547,952 125,136,104 98,389,729 22,518,554 19,736,027 27,194,800 24,029,706 10,186,186 5,548,244 296,457,902 243,251,658	December 31, 2013 USD 89,671,619 77,341,616 19,682,927 12,150,539 4,510,155
		203,356,856

NOTE 20 — COMMITMENTS AND CONTINGENCIES

Commitments

As of December 31, 2015, commitments outstanding for the purchase of property, plant and equipment approximated $30.3 million.

As of December 31, 2015, commitments outstanding for the purchase of plasma from 2016 to 2018 approximated $85.2 million.

Legal proceedings

Dispute with Jie’an over Certain Capital Injection into Guizhou Taibang

In May 2007, a 91% majority of Guizhou Taibang’s shareholders approved a plan to raise additional capital from qualified strategic investors through the issuance of an additional 20,000,000 shares of Guizhou Taibang. The plan required all existing Guizhou Taibang shareholders to waive their rights of first refusal to subscribe for the additional shares. The remaining 9% minority shareholder of Guizhou Taibang’s shares, Guizhou Jie’an Company, or Jie’an, did not support the plan and did not waive its right of first refusal. In May 2007, Guizhou Taibang signed an Equity Purchase Agreement with certain alleged strategic investors (who concealed their background), pursuant to which such investors agreed to invest an aggregate of RMB50,960,000 (approximately $7,847,840) in exchange for 21.4% of Guizhou Taibang’s equity interests. Such Equity Purchase Agreement was not approved or ratified by over two-thirds supermajority of Guizhou Taibang’s shareholders, which approval or ratification is required under the PRC Company Law. At the same time, as an existing shareholder, Jie’an also subscribed for 1,800,000 shares, representing its pro rata share of the 20,000,000 shares being offered. In total, Guizhou Taibang received RMB50,960,000 (approximately $7,847,840) from the investors and RMB6,480,000 (approximately $997,920) from Jie’an.

– IV-58 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

During the second quarter of 2010, Jie’an requested that Guizhou Taibang register its 1.8 million shares of additional capital injection with the local administration of industry and commerce, or AIC. Guizhou Taibang’s board of directors withheld its required ratification of Jie’an’s request, pending the outcome of the ongoing litigation. In March 2012, Jie’an brought another lawsuit against Guizhou Taibang for refusing to register the shares. In July 2013, the trial court dismissed the lawsuit for lack of jurisdiction. Jie’an did not appeal the dismissal.

In December 2013, Jie’an brought a third lawsuit against Guizhou Taibang, requesting Guizhou Taibang to register 1.8 million shares under its name with the local AIC. In July 2014, the trial court denied Jie’an’s request to register such shares. Despite the denial of Jie’an’s share registration request, the trial court, however, in its ruling, ordered Guizhou Taibang to pay accumulated dividends of RMB13,809,197 (approximately $2,126,616) associated with these shares and the related interest expenses to Jie’an. Guizhou Taibang and Jie’an subsequently filed a cross-appeal. In December 2014, the appellate court ruled in favor of Jie’an supporting its request to register 1.8 million shares and ordered Guizhou Taibang to pay Jie’an its share of accumulated dividends of RMB18,339,227 (approximately $2,824,241) associated with these shares plus the related interest expenses to Jie’an. In the first half of 2015, Guizhou Taibang paid an aggregate of RMB22,639,227 (approximately $3,486,441) to the trial court held in escrow pending further appeal of this case. Guizhou Taibang appealed to the High Court of Guizhou in June 2015 which overruled the decision of the appellate court and remanded the case to the trial court for retrial in September 2015.

If the pending cases with Jie’an are ultimately ruled in Jie’an’s favor, the ownership interest in Guizhou Taibang may be diluted to 80% and Jie’an may be entitled to receive accumulated dividends of RMB18,339,227 (approximately $2,824,241), being its claimed share of Guizhou Taibang’s accumulated dividend distributions associated with the 1.8 million shares, and the related interest expenses from Guizhou Taibang. As of December 31, 2015, Guizhou Taibang had maintained, on its balance sheet, payables to Jie’an in the amounts of RMB5,040,000 (approximately $776,160) as received funds in respect of the 1.8 million shares in dispute, RMB1,440,000 (approximately $221,760) for the over-paid subscription price paid by Jie’an and RMB3,682,673 (approximately $567,132) for the accrued interest. As these cases are closely interlinked to the outcome of the disputes with certain individual investor described below, based on its PRC litigation counsel’s assessment, the Company does not expect Jie’an to prevail.

Dispute with Certain Individual Investors over Certain Capital Injection into Guizhou Taibang

– IV-59 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

In October 2010, the trial court denied such individual investor’s right as shareholders of Guizhou Taibang and his entitlement to share the dividends, which ruling was reaffirmed after a re-trial by the same trial court in December 2012. After such ruling, Guizhou Taibang attempted to return the originally received fund of RMB34,160,000 (approximately $5,260,640) to such investor by wiring the fund back to his bank account but was unable to do so due to the closure of his bank account. Another investor, however, accepted the returned fund of RMB11,200,000 (approximately $1,724,800) from Guizhou Taibang in November 2010. In 2013, the same individual investor appealed the case to the PRC Supreme Court, which also denied his claims for shareholder status in Guizhou Taibang and the related dividend distribution and accrued interest in September 2013. Such investor subsequently attempted to seek a re-trial by the PRC Supreme Court, which request was denied by the PRC Supreme Court in January 2014. He then applied to the PRC Supreme Procuratorate to request for a review of the PRC Supreme Court’s decision and seek an appeal by the PRC Supreme Procuratorate to the PRC Supreme Court for an ultimate re-trial on his behalf. In July 2015, the PRC Supreme Procuratorate rejected his request for review.

As of December 31, 2015, Guizhou Taibang had maintained, on its balance sheet, payables to the investors of RMB34,160,000 (approximately $5,260,640) as originally received funds from such individual investor in respect of the shares in dispute, RMB17,677,791 (approximately $2,722,380) for the interest expenses, and RMB341,600 (approximately $52,606) for the 1% penalty imposed by the Equity Purchase Agreement for any breach in the event that Guizhou Taibang is required to return the original investment amount to such investor.

NOTE 21 — NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share of common stock for the periods indicated:

Net income attributable to China Biologic Products, Inc. Earnings allocated to participating nonvested shares Net income allocated to common stockholders used in computing basic and diluted net income per common stock Weighted average shares used in computing basic net income per common stock Diluted effect of stock option Weighted average shares used in computing diluted net income per common stock Net income per common stock — basic Net income per common stock — diluted	For the Years Ended December 31, December 31, 2015 2014 USD USD 89,042,703 70,916,840 (2,070,762) (1,210,895) 86,971,941 69,705,945 25,599,153 24,427,196 968,213 1,257,868 26,567,366 25,685,064 3.40 2.85 3.27 2.71	December 31, 2013 USD 54,601,551 (456,261) 54,145,290 26,410,819 1,161,292 27,572,111 2.05 1.96

During the year ended December 31, 2015, 2014 and 2013, no option was antidilutive or excluded from the calculation of diluted net income per common stock. Further, rights issued pursuant to the stockholder rights plan (see Note 25) were excluded from the calculation of diluted net income per common stock since they were antidilutive.

– IV-60 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 22 — CHINA BIOLOGIC PRODUCTS, INC. (PARENT COMPANY)

The following represents condensed unconsolidated financial information of the Parent Company only:

Condensed Balance Sheets:

December 31,
2015
USD
Cash
13,939,319
Prepayments and prepaid expenses
86,404
Property, plant and equipment, net
211
Investment in and amounts due from subsidiaries
372,035,937
Total Assets
386,061,871
Other payables and accrued expenses
3,718,747
Long-term loan, including current portion
—
Total Liabilities
3,718,747
Total Equity
382,343,124
Total Liabilities and Equity
386,061,871
Condensed Statements of Comprehensive Income:
For the Years Ended
December 31,
2015
December 31,
2014
USD
USD
Equity in income of subsidiaries
100,753,805
78,948,990
General and administrative expenses
(10,693,991)
(6,008,852)
Other expenses, net
(1,017,111)
(2,023,298)
Earnings before income tax expense
89,042,703
70,916,840
Income tax expense
—
—
Net Income
89,042,703
70,916,840

December 31,
2014
USD
2,651,088
89,580
368
279,497,751
282,238,787
3,851,760
66,300,000
70,151,760
212,087,027
282,238,787
December 31,
2013
USD
62,457,106
(7,460,763)
(394,792)
54,601,551
—
54,601,551

– IV-61 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Condensed Statements of Cash Flows:

Net cash (used in) provided by operating activities Net cash used in investing activities Net cash provided by financing activities Net increase in cash Cash at beginning of year Cash at end of year	For the Years Ended December 31, 2015 December 31, 2014 USD USD (3,904,038) (444,755) — — 15,192,269 2,416,821 11,288,231 1,972,066 2,651,088 679,022 13,939,319 2,651,088	December 31, 2013 USD 197,001 — 405,920
		602,921 76,101
		679,022

NOTE 23 — FOLLOW-ON OFFERING OF COMMON STOCK

On June 15, 2015, the Company completed a follow-on offering of 3,450,000 shares of common stock at a price of $105.00 per share, less the underwriting discounts and commissions and offering expenses. In this June 2015 follow-on offering, the Company sold 805,000 shares (including 105,000 shares sold pursuant to the exercise by the underwriters of their option to purchase additional shares from the Company) and certain selling stockholders sold 2,645,000 shares (including 345,000 shares sold pursuant to the exercise by the underwriters of their option to purchase additional shares from such selling stockholders). The Company raised net proceeds of approximately $80.6 million from this offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company. The Company did not receive any proceeds from the sale of the shares by the selling stockholders.

NOTE 24 — ACQUISITION OF ADDITIONAL EQUITY INTEREST IN GUIZHOU TAIBANG

On August 25, 2014, Guiyang Dalin Biotechnology (‘‘Guiyang Dalin’’), a wholly-owned subsidiary of the Company, entered into an agreement to acquire an additional 19.84% equity interest in Guizhou Taibang from Guizhou Eakan, a noncontrolling interest shareholder of Guizhou Taibang. The total consideration of the transaction was RMB535 million (approximately $82.4 million). The Company completed the acquisition on September 4, 2014 and increased its equity interest in Guizhou Taibang to 76.23%.

NOTE 25 — STOCKHOLDER RIGHTS PLAN

– IV-62 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

$325.00 per one one-thousandth of a Preferred Share, subject to adjustment (the ‘‘Exercise Price’’). However, the Rights are not immediately exercisable and will become exercisable only upon the occurrence of certain events. In particular, after January 8, 2015:

. if a person or group acquires 15% or more of the Company’s Common Shares (including through derivatives), then the Rights will become exercisable and each Right will entitle its holder (except the acquiring person or group) to purchase, at the Exercise Price, a number of the Company’s Common Shares having a then-current market value of twice the Exercise Price;
. if after a person or group acquires 15% or more of the Company’s Common Shares, the Company merges into another company, an acquiring entity merges into the Company or the Company sells or transfers more than 50% of its assets, cash flow or earning power, then each Right will entitle its holder (except the acquiring person or group) to purchase, for the Exercise Price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the Exercise Price; or
. after a person or group acquires 15% or more of the Company’s Common Shares, the Board may, at its option, exchange the Rights (except for Rights held by the acquiring person or group), in whole or in part, for Common Shares at an exchange ratio of one Common Share per Right (subject to adjustment).

– IV-63 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(3) The following is an extract of the audited financial statements of the CBPO Group for the year ended December 31, 2016, which were prepared in accordance with U.S. GAAP, from the 2016 annual report of CBPO.

CONSOLIDATED BALANCE SHEETS

Note ASSETS Current Assets Cash and cash equivalents Time deposits Accounts receivable, net of allowance for doubtful accounts 3 Inventories 5 Prepayments and other current assets, net of allowance for doubtful accounts 4, 12 Deposits related to land use rights, current portion 8 Total Current Assets Property, plant and equipment, net 7 Land use rights, net Equity method investment 9 Loan receivable 10 Other non-current assets 12 Total Assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable Other payables and accrued expenses 11 Income tax payable Total Current Liabilities Deferred income Other liabilities 12 Total Liabilities	December 31, 2016 USD 183,765,533 — 33,918,796 156,412,674 18,275,717 999,571 393,372,291 132,091,923 23,389,384 10,614,755 43,245,000 2,244,156 604,957,509 6,158,601 59,798,145 7,484,366 73,441,112 3,755,648 6,623,926 83,820,686	December 31, 2015 USD 144,937,893 38,032,593 25,144,969 126,395,312 24,545,597 10,056,200
		369,112,564 105,364,251 23,576,300 8,718,133 39,834,173 4,861,075
		551,466,496
		9,681,835 57,462,563 4,510,986
		71,655,384 4,525,867 8,323,446
		84,504,697

– IV-64 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Note Stockholders’ Equity Common stock: par value $0.0001; 100,000,000 shares authorized; 29,427,609 and 28,835,053 shares issued at December 31, 2016 and 2015, respectively; 27,172,905 and 26,580,349 shares outstanding at December 31, 2016 and 2015, respectively Additional paid-in capital 22 Treasury stock: 2,254,704 shares at December 31, 2016 and 2015, respectively, at cost 15, 21 Retained earnings Accumulated other comprehensive loss Total equity attributable to China Biologic Products, Inc. Noncontrolling interest 22 Total Stockholders’ Equity Commitments and contingencies 10, 18 Total Liabilities and Stockholders’ Equity	December 31, 2016 USD 2,943 105,459,610 (56,425,094) 438,483,401 (25,320,271) 462,200,589 58,936,234 521,136,823 — 604,957,509	December 31, 2015 USD 2,884 105,079,845 (56,425,094) 333,704,094 (18,605) 382,343,124 84,618,675 466,961,799 — 551,466,496

See accompanying notes to Consolidated Financial Statements.

– IV-65 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Note
Sales
17
Cost of sales
Gross profit
Operating expenses
Selling expenses
General and administrative expenses
Research and development expenses
Provision for other receivables in
respect of an employee housing
development project
6
Income from operations
Other income (expenses)
Equity in income (loss) of an equity
method investee
9
Interest income
Interest expense
Loss from disposal of a subsidiary
Total other income, net
Earnings before income tax expense
Income tax expense
12
Net income
Less: Net income attributable to
noncontrolling interest
Net income attributable to China
Biologic Products, Inc.

For the Years Ended
December 31,
2016
December 31,
2015
December 31,
2014
USD
USD
USD
341,169,426
296,457,902
243,251,658
124,034,448
106,482,626
80,025,375
217,134,978
189,975,276
163,226,283
11,679,242
9,973,449
10,707,409
54,519,122
41,391,520
32,129,985
7,021,992
6,024,368
4,161,901
—
—
5,068,075
143,914,622
132,585,939
111,158,913
2,519,201
(1,311,278)
8,646,181
7,815,780
5,551,105
6,644,886
(254,471)
(1,727,335)
(3,697,819)
(75,891)
—
—
10,004,619
2,512,492
11,593,248
153,919,241
135,098,431
122,752,161
25,125,820
20,992,913
26,639,527
128,793,421
114,105,518
96,112,634
24,014,114
25,062,815
25,195,794
104,779,307
89,042,703
70,916,840

– IV-66 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Note Net income per share of common stock: 19 Basic Diluted Weighted average shares used in computation: 19 Basic Diluted Net income Other comprehensive loss: Foreign currency translation adjustment, net of nil income taxes Comprehensive income Less: Comprehensive income attributable to noncontrolling interest Comprehensive income attributable to China Biologic Products, Inc.	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 3.79 3.40 2.85 3.74 3.27 2.71 26,848,445 25,599,153 24,427,196 27,249,144 26,567,366 25,685,064 128,793,421 114,105,518 96,112,634 (31,303,262) (24,368,360) (1,918,715) 97,490,159 89,737,158 94,193,919 19,026,592 20,698,249 24,798,384 78,463,567 69,038,909 69,395,535

See accompanying notes to Consolidated Financial Statements.

– IV-67 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Common stock	Additional paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Equity attributable to China Biologic Products, Inc. Noncontrolling interest Total equity USD USD USD USD USD USD USD 72,031,864 (29,594,080) 173,744,551 21,506,494 237,691,563 66,278,046 303,969,609 — — 70,916,840 — 70,916,840 25,195,794 96,112,634 — — — (1,521,305) (1,521,305) (397,410) (1,918,715) — — — — — (13,056,733) (13,056,733) (68,802,855) — — — (68,802,855) (15,122,799) (83,925,654) — (70,000,000) — — (70,000,000) — (70,000,000) 5,396,271 — — — 5,396,271 — 5,396,271 1,333,594 — — — 1,333,594 277,805 1,611,399 10,189,059 23,023,459 — — 33,212,518 — 33,212,518 3,860,359 — — — 3,860,401 — 3,860,401 (11) — — — — — —	Additional paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Equity attributable to China Biologic Products, Inc. Noncontrolling interest Total equity USD USD USD USD USD USD USD 72,031,864 (29,594,080) 173,744,551 21,506,494 237,691,563 66,278,046 303,969,609 — — 70,916,840 — 70,916,840 25,195,794 96,112,634 — — — (1,521,305) (1,521,305) (397,410) (1,918,715) — — — — — (13,056,733) (13,056,733) (68,802,855) — — — (68,802,855) (15,122,799) (83,925,654) — (70,000,000) — — (70,000,000) — (70,000,000) 5,396,271 — — — 5,396,271 — 5,396,271 1,333,594 — — — 1,333,594 277,805 1,611,399 10,189,059 23,023,459 — — 33,212,518 — 33,212,518 3,860,359 — — — 3,860,401 — 3,860,401 (11) — — — — — —	Additional paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Equity attributable to China Biologic Products, Inc. Noncontrolling interest Total equity USD USD USD USD USD USD USD 72,031,864 (29,594,080) 173,744,551 21,506,494 237,691,563 66,278,046 303,969,609 — — 70,916,840 — 70,916,840 25,195,794 96,112,634 — — — (1,521,305) (1,521,305) (397,410) (1,918,715) — — — — — (13,056,733) (13,056,733) (68,802,855) — — — (68,802,855) (15,122,799) (83,925,654) — (70,000,000) — — (70,000,000) — (70,000,000) 5,396,271 — — — 5,396,271 — 5,396,271 1,333,594 — — — 1,333,594 277,805 1,611,399 10,189,059 23,023,459 — — 33,212,518 — 33,212,518 3,860,359 — — — 3,860,401 — 3,860,401 (11) — — — — — —	Additional paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Equity attributable to China Biologic Products, Inc. Noncontrolling interest Total equity USD USD USD USD USD USD USD 72,031,864 (29,594,080) 173,744,551 21,506,494 237,691,563 66,278,046 303,969,609 — — 70,916,840 — 70,916,840 25,195,794 96,112,634 — — — (1,521,305) (1,521,305) (397,410) (1,918,715) — — — — — (13,056,733) (13,056,733) (68,802,855) — — — (68,802,855) (15,122,799) (83,925,654) — (70,000,000) — — (70,000,000) — (70,000,000) 5,396,271 — — — 5,396,271 — 5,396,271 1,333,594 — — — 1,333,594 277,805 1,611,399 10,189,059 23,023,459 — — 33,212,518 — 33,212,518 3,860,359 — — — 3,860,401 — 3,860,401 (11) — — — — — —
Number of Shares Par value USD 27,341,744 2,734 — — — — — — — — — — — — — — — — 417,002 42 107,125 11
27,865,871 2,787	24,008,281 (76,570,621) 244,661,391 19,985,189		212,087,027 63,174,703	275,261,730
— — — — — — — — — — — — 780,557 78 188,625 19	— — — — 12,114,272 — 1,225,941 — 60,438,432 20,145,527 (452,962) — 7,745,900 — (19) —	89,042,703 — 89,042,703 25,062,815 114,105,518 — (20,003,794) (20,003,794) (4,364,566) (24,368,360) — — 12,114,272 — 12,114,272 — — 1,225,941 292,761 1,518,702 — — 80,583,959 — 80,583,959 — — (452,962) 452,962 — — — 7,745,978 — 7,745,978 — — — — —
28,835,053 2,884	105,079,845 (56,425,094) 333,704,094 (18,605) 382,343,124 84,618,675			466,961,799
— — — — — — — — — — — — — — 337,406 34 255,150 25	— — — — — — 24,405,511 — 2,299,316 — 513,397 — (30,397,196) — 3,558,762 — (25) —	104,779,307 — 104,779,307 24,014,114 128,793,421 — (26,315,740) (26,315,740) (4,987,522) (31,303,262) — — — (10,901,312) (10,901,312) — — 24,405,511 — 24,405,511 — — 2,299,316 314,515 2,613,831 — — 513,397 (513,397) — — 1,014,074 (29,383,122) (33,608,839) (62,991,961) — — 3,558,796 — 3,558,796 — — — — —
29,427,609 2,943	105,459,610 (56,425,094) 438,483,401 (25,320,271) 462,200,589 58,936,234			521,136,823

See accompanying notes to Consolidated Financial Statements.

– IV-68 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
Amortization
Loss on sale of property, plant and
equipment
Allowance (reversal) for doubtful accounts
— accounts receivable, net
Allowance for doubtful accounts — other
receivables and prepayments
Impairment for other non-current assets
Write-down of obsolete inventories
Deferred tax (benefit) expense
Share-based compensation
Equity in (income) loss of an equity method
investee
Loss from disposal of a subsidiary
Excess tax benefits from share-based
compensation arrangements
Change in operating assets and liabilities:
Accounts receivable
Prepayment and other current assets
Inventories
Accounts payable
Other payables and accrued expenses
Deferred income
Income tax payable
Net cash provided by operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for property, plant and equipment
Payment for intangible assets and land use
rights
Refund of payments and deposits related to
land use right
Proceeds upon maturity of time deposit
Proceeds from sale of property, plant and
equipment and land use rights
Loans lent to a third party
Proceeds from disposal of a subsidiary
Receipt of government grants related to
property and equipment
Net cash used in investing activities

For the Years Ended
December 31,
2016
December 31,
2015
December 31,
2014
USD
USD
USD
128,793,421
114,105,518
96,112,634
11,962,983
8,179,376
6,989,222
775,053
854,364
758,232
293,098
3,024,830
172,032
123,239
34,902
(24,462)
65,341
788
5,068,075
1,225,200
—
—
256,862
76,587
324,584
(3,006,541)
(170,345)
3,483,890
24,405,511
12,114,272
5,396,271
(2,519,201)
1,311,278
(8,646,181)
75,891
—
—
(2,613,831)
(1,518,702)
(1,611,399)
(10,971,773)
(7,146,311)
(2,191,118)
1,946,800
879,165
(9,236,125)
(40,077,384)
(32,095,328)
(13,418,971)
2,966,885
5,348,896
405,071
4,221,669
6,734,988
4,472,691
(686,757)
(416,185)
(224,040)
6,022,145
(1,926,093)
5,683,912
123,258,611
109,392,000
93,514,318
(49,371,318)
(38,790,998)
(17,194,201)
(1,635,891)
(13,500,526)
(4,677,358)
10,297,893
—
1,635,200
—
—
6,608,612
393,019
827,020
220,135
(12,332,718)
(40,744,167)
—
128,654
—
—
—
2,452,864
—
(52,520,361)
(89,755,807)
(13,407,612)

– IV-69 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from stock option exercised
Payment for share repurchase
Proceeds from short-term bank loans
Repayment of short-term bank loans
Proceeds from long-term bank loans
Repayment of long-term bank loans
Payment for cash deposit as security for bank
loans
Maturity of deposit as security for bank loans
Net proceeds from reissuance of treasury
stock
Acquisition of noncontrolling interest
Excess tax benefits from share-based
compensation arrangements
Dividend paid by subsidiaries to
noncontrolling interest shareholders
Dividend to the trial court to be held in
escrow as to dispute with Jie’an
Payment to noncontrolling interest
shareholders in connection with their capital
withdrawal
Net cash (used in) provided by financing
activities
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information
Cash paid for income taxes
Cash paid for interest expense
Noncash investing and financing activities:
Acquisition of property, plant and
equipment included in payables
Loan receivable offset by accounts payable

For the Years Ended
December 31,
2016
December 31,
2015
December 31,
2014
USD
USD
USD
3,558,796
7,745,978
3,860,401
—
—
(70,000,000)
—
15,770,881
44,500,340
—
(47,201,255)
(22,833,400)
—
—
70,000,000
—
(66,300,000)
(33,700,000)
—
—
(104,172,005)
37,756,405
63,152,258
30,370,670
—
80,583,959
33,212,518
—
—
(86,830,499)
2,613,831
1,518,702
1,611,399
(7,921,952)
—
(8,846,984)
—
(3,690,814)
—
(58,091,018)
—
—
(22,083,938)
51,579,709
(142,827,560)
(9,826,672)
(7,098,233)
(597,409)
38,827,640
64,117,669
(63,318,263)
144,937,893
80,820,224
144,138,487
183,765,533
144,937,893
80,820,224
22,210,476
23,348,371
17,652,514
84,664
1,526,807
3,150,381
4,912,937
6,363,392
3,300,284
5,848,400
—
—

See accompanying notes to Consolidated Financial Statements.

– IV-70 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2016, 2015 and 2014

NOTE 1 — DESCRIPTION OF BUSINESS AND SIGNIFICANT CONCENTRATIONS AND RISKS

China Biologic Products, Inc. (‘‘CBP’’) and its subsidiaries (collectively, the ‘‘Company’’), through its subsidiaries in the People’s Republic of China (the ‘‘PRC’’), is a biopharmaceutical company that is principally engaged in the research, development, manufacturing and sales of plasma-based pharmaceutical products in the PRC. The PRC subsidiaries own and operate plasma collection stations that purchase and collect plasma from individual donors. The plasma is processed into finished goods after passing through a series of fractionating processes. All of the Company’s plasma products are prescription medicines that require government approval before the products are sold to customers. The Company primarily sells its products to hospitals and inoculation centers directly or through distributors in the PRC.

Cash Concentration

The Company maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for its bank accounts located in the United States or may exceed Hong Kong Deposit Protection Board insured limits for its bank accounts located in Hong Kong or may exceed the insured limits for its bank accounts in China established by China Deposit Insurance Fund Management Institution. Total cash at banks and deposits as of December 31, 2016 and December 31, 2015 amounted to $183,078,440 and $182,291,723, respectively, of which $2,744,704 and $3,020,569 are insured, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts.

Sales Concentration

The Company’s two major products are human albumin and human immunoglobulin for intravenous injection (‘‘IVIG’’). Human albumin accounted for 39.2%, 37.6% and 39.3% of the total sales for the years ended December 31, 2016, 2015 and 2014, respectively. IVIG accounted for 34.6%, 42.2% and 40.4% of the total sales for the years ended December 31, 2016, 2015 and 2014, respectively. If the market demands for human albumin and IVIG cannot be sustained in the future or the price of human albumin and IVIG decreases, the Company’s operating results could be adversely affected.

Substantially all of the Company’s customers are located in the PRC. There were no customers that individually comprised 10% or more of sales during the years ended December 31, 2016, 2015 and 2014. No individual customer represented 10% or more of accounts receivables as at December 31, 2016 and 2015. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.

Purchase Concentration

There was one supplier, namely, Xinjiang Deyuan Bioengineering Co., Ltd. (‘‘Xinjiang Deyuan’’) (see Note 10), that comprised 10% or more of the total purchases during the year ended December 31, 2016 and 2015. No supplier that comprised 10% or more of the total purchases during the year ended December 31, 2014. Chongqing Sanda Great Exploit Pharmaceutical Co, Ltd. and Xinjiang Deyuan represented more than 10% of accounts payables as at December 31, 2016 and December 31, 2015, respectively.

– IV-71 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment and intangibles with definite lives, the allowances for doubtful accounts, the fair value determinations of stock compensation awards, the realizability of deferred tax assets and inventories, the recoverability of intangible assets, land use rights, property, plant and equipment, equity method investment and loan receivable, and accruals for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Foreign Currency Translation

Revenue Recognition

Revenue represents the invoiced value of products sold, net of value added taxes (VAT).

– IV-72 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Fair Value Measurements

. Level 1 Inputs: Unadjusted quoted prices for identical assets or liabilities in active markets accessible to the entity at the measurement date.
. Level 2 Inputs: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
. Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

See Note 16 to the Consolidated Financial Statements.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits. The Company considers all highly liquid investments with original maturities of three-month or less at the time of purchase to be cash equivalents. Cash and cash equivalents at December 31, 2016 and 2015 include $98,022,000 and $85,422,000 of certificates of deposit with an initial term of three months or less.

As of December 31, 2016 and 2015, the Company maintained cash and cash equivalents at banks in the following locations:

PRC, excluding Hong Kong U.S. Total	December 31, 2016 USD 171,539,309 11,539,131 183,078,440	December 31, 2015 USD 130,319,811 13,939,319
		144,259,130

– IV-73 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Accounts Receivable and Allowance for Doubtful Accounts

Inventories

Property, Plant and Equipment

Property, plant and equipment are stated at cost.

Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of the assets are as follows:

Buildings		30 years
Machinery	and equipment	10 years
Furniture,	fixtures, office equipment and vehicles	5–10 years

– IV-74 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Equity Method Investment

Government Grants

For the year ended December 31, 2016, the Company received government grants of RMB5,056,361 (approximately $728,874), which have been recognized as a reduction of research and development expenses.

For the year ended December 31, 2015, the Company received government grants of RMB15,000,000 (approximately $2,452,864) related to the new manufacturing facilities for factor products in Shandong Taibang, which was recorded as deferred income. These grants are amortized as the related assets are depreciated. The grants amortized amounted to $410,369 and $118,751 for the year ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2015, government grants of RMB7,280,600 (approximately $1,188,907), have been recognized as a reduction of research and development expenses.

For the year ended December 31, 2014, government grants of RMB12,963,600 (approximately $2,111,770), have been recognized as a reduction of research and development expenses.

For the year ended December 31, 2012, the Company received government grants of RMB18,350,000 (approximately $2,989,215) related to the technical upgrade of the manufacturing facilities in Guizhou Taibang. The grants amortized amounted to $276,388, $297,434 and $224,191 for the years ended December 31, 2016, 2015 and 2014, respectively.

Land Use Rights

– IV-75 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses for the years ended December 31, 2016, 2015 and 2014 were $7,021,992, $6,024,368 and $4,161,901, respectively. These expenses include the costs of the Company’s internal research and development activities.

Product Liability

The Company’s products are covered by two separate product liability insurances each with coverages of approximately $2,883,000 (or RMB20,000,000) for the products sold by Shandong Taibang Biological Products Co., Ltd. (‘‘Shandong Taibang’’) and Guizhou Taibang Biological Products Co., Ltd. (‘‘Guizhou Taibang’’), respectively. There were no product liability claims as of December 31, 2016.

Income Taxes

Share-based Payment

Long-lived Assets

– IV-76 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Net Income per Share

Segment Reporting

Contingencies

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (‘‘ASU 2014-09’’), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter of 2017. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) — Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the Company may adopt the standard in either its first quarter of 2017 or 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company plans to complete its evaluation by the third quarter of 2017, including an assessment of the new expanded disclosure requirements and a final determination of the transition method we will use to adopt the new standard.

In February 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

– IV-77 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (‘‘ASU 2016-09’’), which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. This standard will be effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-09 on its consolidated financial statements. Adoption of this new standard is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addressed and provided guidance for each of eight specific cash flow issues with the objective of reducing the existing diversity in practice. This standard will be effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-15 on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard required that companies recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. Current guidance prohibits companies from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard will be effective for public companies for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable at December 31, 2016 and 2015 consisted of the following:

Accounts receivable Less: Allowance for doubtful accounts Total	December 31, 2016 USD 34,452,392 (533,596) 33,918,796	December 31, 2015 USD 25,588,593 (443,624) 25,144,969

The activity in the allowance for doubtful accounts — accounts receivable for the years ended December 31, 2016, 2015 and 2014 are as follows:

Beginning balance Provisions Recoveries Write-offs Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 443,624 433,948 460,689 123,239 34,902 6,211 — — (30,673) — — — (33,267) (25,226) (2,279) 533,596 443,624 433,948

– IV-78 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 4 — PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets as of December 31, 2016 mainly represented other receivables of $10,117,032 and prepayments of $2,921,069. Prepayments and other current assets as of December 31, 2015 mainly represented other receivables of $17,846,006 and prepayments of $2,206,131.

The activity in the allowance for doubtful accounts — other receivables and prepayments for the years ended December 31, 2016, 2015 and 2014 are as follows:

Beginning balance Provisions Recoveries Write-offs Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 4,924,063 5,207,840 142,951 65,341 788 5,068,075 — — — — — — (317,508) (284,565) (3,186) 4,671,896 4,924,063 5,207,840	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 4,924,063 5,207,840 142,951 65,341 788 5,068,075 — — — — — — (317,508) (284,565) (3,186) 4,671,896 4,924,063 5,207,840
		5,207,840

NOTE 5 — INVENTORIES

Inventories at December 31, 2016 and 2015 consisted of the following:

Raw materials Work-in-process Finished goods Total	December 31, 2016 USD 80,781,903 24,994,839 50,635,932 156,412,674	December 31, 2015 USD 57,418,230 27,401,062 41,576,020
		126,395,312

Raw materials mainly comprised of the human plasma collected from the Company’s plasma collection stations. Work-in-process represented the intermediate products in the process of production. Finished goods mainly comprised plasma products. Provisions to write-down the carrying amount of obsolete inventory to its estimated net realizable value amounted to $256,862, $76,587 and $324,584 for the years ended December 31, 2016, 2015 and 2014, respectively, and were recorded as cost of sales in the consolidated statements of comprehensive income.

– IV-79 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 6 — OTHER RECEIVABLES IN RESPECT OF AN EMPLOYEE HOUSING DEVELOPMENT PROJECT

NOTE 7 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2016 and 2015 consisted of the following:

Buildings Machinery and equipment Furniture, fixtures, office equipment and vehicles Total property, plant and equipment, gross Accumulated depreciation Total property, plant and equipment, net Construction in progress Prepayment for property, plant and equipment Property, plant and equipment, net	December 31, 2016 USD 34,131,032 52,467,764 7,843,567 94,442,363 (39,315,011) 55,127,352 61,825,470 15,139,101 132,091,923	December 31, 2015 USD 31,505,133 54,640,502 7,859,951 94,005,586 (31,521,859) 62,483,727 26,115,927 16,764,597 105,364,251

Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $11,962,983, $8,179,376 and $6,989,222, respectively. No interest expenses were capitalized into construction in progress for the years ended December 31, 2016, 2015 and 2014.

NOTE 8 — DEPOSITS RELATED TO LAND USE RIGHTS

In 2012, Guizhou Taibang made a refundable payment of RMB83,400,000 (approximately $12,022,110) to the local government in connection with the public bidding for a land use right in Guizhou Province. Given the decrease of the land area to be provided by the local government, RMB13,000,000 (approximately $1,873,950) and RMB10,000,000 (approximately $1,441,500) was refunded by the local government in December 2013 and January 2014, respectively. Guizhou Taibang completed the bidding and purchased the land use right in December 2015. For the year ended December 31, 2016, RMB59,665,759 (approximately $8,600,819) was refunded by the local government. The remaining deposit is expected to be refunded in 2017.

– IV-80 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 9 — EQUITY METHOD INVESTMENT

The Company’s equity method investment as of December 31, 2016 and 2015 represented 35% equity interest investment in Xi’an Huitian Blood Products Co., Ltd. (‘‘Huitian’’).

The excess of carrying amount over the Company’s share of net assets of equity method investees, which represented goodwill, is $1,179,637 and $1,260,243 at December 31, 2016 and 2015, respectively. The equity method goodwill is not amortized; however, the investment is reviewed for impairment.

NOTE 10 — LOAN RECEIVABLE

(a) Current

In June 2016, the Company entered into a RMB40,000,000 (approximately $5,766,000) loan agreement with Xinjiang Deyuan. Pursuant to the agreement, Guizhou Taibang agreed to provide Xinjiang Deyuan with interestbearing loans at an interest rate of 6% per annum. The loan is unsecured and due on the earlier of 1) within five days after Xinjiang Deyuan obtaining other loans from financial institutions, or 2) September 20, 2016. Interest will be paid on the last day of each month. On July 1, 2016, RMB40,000,000 (approximately $5,766,000) was lent to Xinjiang Deyuan.

On October 18, 2016, the Company entered into a supplemental agreement to the loan agreement with Xinjiang Deyuan, pursuant to which the principal of the loan was agreed to offset accounts payable for the purchase of plasma from Xinjiang Deyuan in two installments, with the remaining principal of the loan, if any, being repaid by Xinjiang Deyuan no later than December 20, 2016. The Company has the right to charge an interest rate of 9% per annum for any overdue loan since September 21, 2016 according to loan agreement.

In the fourth quarter of 2016, the principal of the loan was completely offset by accounts payable for the purchase of plasma from Xinjiang Deyuan. Furthermore, as agreed between the Company and Xinjiang Deyuan, interest receivable amounting to $35,723 and $675,933 for the foregoing loan and the loans as described in Note 10(b), respectively, was also offset by accounts payable for the purchase of plasma from Xinjiang Deyuan.

– IV-81 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Interest income of $160,878 was recognized by Guizhou Taibang for the year ended December 31, 2016. $125,155 was received by Guizhou Taibang and $35,723 was offset as discussed above for the year ended December 31, 2016.

(b) Non-current

In August 2015, the Company entered into a cooperation agreement with Xinjiang Deyuan and the controlling shareholder of Xinjiang Deyuan. Pursuant to the agreement, Guizhou Taibang agreed to provide Xinjiang Deyuan with interest-bearing loans at an interest rate of 6% per annum with an aggregate principal amount of RMB300,000,000 (approximately $43,245,000). The loans are due July 31, 2018 and secured by a pledge of Deyuan Shareholder’s 58.02% equity interest in Xinjiang Deyuan. Interest will be paid on the 20th day of the last month of each quarter. For the year ended December 31, 2015, RMB258,663,461 (approximately $37,286,338) was lent to Xinjiang Deyuan. The remaining RMB41,336,539 (approximately $5,958,662) was lent during the three months period ended March 31, 2016.

Interest income of $2,661,700 was recognized by Guizhou Taibang for the year ended December 31, 2016. $1,985,767 was received by Guizhou Taibang and $675,933 was offset as described in Note 10(a) for the year ended December 31, 2016.

Interest income of $496,170 was recognized by Guizhou Taibang for the year ended December 31, 2015 and received by Guizhou Taibang for the year ended December 31, 2016.

NOTE 11 — OTHER PAYABLES AND ACCRUED EXPENSES

Other payables and accrued expenses at December 31, 2016 and 2015 consisted of the following:

Payables to potential investors(1) Payable to Guizhou Eakan Investing Corp.(2) Payable to Guizhou Jie’an Company(3) Salaries and bonuses payable Accruals for selling commission and promotion fee Dividends payable to noncontrolling interest Payables for construction work Other tax payables Advance from customers Deposits received Others Total	December 31, 2016 USD 7,941,013 2,098,824 — 16,740,846 4,391,160 7,952,467 5,364,441 1,918,248 3,976,832 2,541,420 6,872,894 59,798,145	December 31, 2015 USD 9,550,588 2,242,240 1,565,052 13,520,721 2,360,933 5,309,920 7,257,489 3,855,405 1,934,321 3,615,143 6,250,751
		57,462,563

(1) The payables to potential investors comprise deposits received from potential investors of $4,924,164 and $6,123,040 as of December 31, 2016 and 2015, respectively, and related interest plus penalty on these deposits totaling $3,016,849 and $3,427,548 as of December 31, 2016 and 2015, respectively.

In 2007, Guizhou Taibang received an aggregate amount of RMB50,960,000 (approximately $7,345,884) from certain potential investors in connection with their subscription to purchase shares in Guizhou Taibang. In 2010, the Company refunded RMB11,200,000 (approximately $1,614,480) to one of the potential investors. In 2016, the Company refunded RMB5,600,000 (approximately $807,240) to another potential investor pursuant to a settlement agreement entered into by Guizhou Taibang and this potential investor in August 2016.

– IV-82 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(2) Guizhou Taibang has payables to Guizhou Eakan Investing Corp., amounting to approximately $2,098,824 and $2,242,240 as of December 31, 2016 and 2015, respectively. The Company borrowed this interest free advance for working capital purpose for Guizhou Taibang. The balance is due on demand.
(3) Guizhou Taibang has payables to Jie’an, a former noncontrolling interest shareholder of Guizhou Taibang, amounting to nil and $1,565,052 as of December 31, 2016 and 2015, respectively. In 2007, Guizhou Taibang received additional contributions from Jie’an of RMB6,480,000 (approximately $997,920) to subscribe for 1,800,000 shares in Guizhou Taibang. As a result of the capital withdrawal by Jie’an, these additional contributions were refunded to Jie’an by Guizhou Taibang in 2016. (see Note 18)

NOTE 12 — INCOME TAX

The Company and each of its subsidiaries file separate income tax returns.

The United States of America

The Company is incorporated in the State of Delaware in the U.S., and is subject to U.S. federal corporate income tax at gradual rates of up to 35%.

British Virgin Islands

Hong Kong

Taibang Holdings (Hong Kong) Limited (‘‘Taibang Holdings’’, formerly known as ‘‘Logic Holdings (Hong Kong) Limited’’) is incorporated in Hong Kong and is subject to Hong Kong’s profits tax rate of 16.5% for the years ended December 31, 2016, 2015 and 2014. Taibang Holdings did not earn any income that was derived in Hong Kong for the years ended December 31, 2016, 2015 and 2014. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

PRC

The PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax at 25% unless otherwise specified.

– IV-83 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The components of earnings (losses) before income tax expense by jurisdictions are as follows:

PRC, excluding Hong Kong U.S. BVI Hong Kong Total	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 170,830,607 147,580,488 122,116,071 (19,408,283) (11,711,102) (8,032,150) 2,498,629 (1,336,183) 8,625,859 (1,712) 565,228 42,381 153,919,241 135,098,431 122,752,161	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 170,830,607 147,580,488 122,116,071 (19,408,283) (11,711,102) (8,032,150) 2,498,629 (1,336,183) 8,625,859 (1,712) 565,228 42,381 153,919,241 135,098,431 122,752,161
		122,752,161

Income tax expense for the years ended December 31, 2016, 2015 and 2014 represents current income tax expense and deferred tax (benefit) expense:

Current income tax expense Deferred tax (benefit) expense Total income tax expense	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 28,132,361 21,163,258 23,155,637 (3,006,541) (170,345) 3,483,890 25,125,820 20,992,913 26,639,527	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 28,132,361 21,163,258 23,155,637 (3,006,541) (170,345) 3,483,890 25,125,820 20,992,913 26,639,527
		26,639,527

PRC statutory income tax rate Non-deductible expenses: Share-based compensation Others Tax rate differential Effect of PRC preferential tax rate Bonus deduction on research and development expenses Change in valuation allowance PRC dividend withholding tax Tax effect of equity method investment Effective income tax rate	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 (in percentage to earnings before income tax expense) 25.0% 25.0% 25.0% — 1.3% 0.5% 1.6% 0.1% 0.5% (3.6)% — (2.2)% (10.9)% (10.5)% (9.7)% (1.5)% (1.5)% (1.4)% 5.3% 1.3% (0.7)% — — 7.3% 0.4% (0.2)% 2.4% 16.3% 15.5% 21.7%	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 (in percentage to earnings before income tax expense) 25.0% 25.0% 25.0% — 1.3% 0.5% 1.6% 0.1% 0.5% (3.6)% — (2.2)% (10.9)% (10.5)% (9.7)% (1.5)% (1.5)% (1.4)% 5.3% 1.3% (0.7)% — — 7.3% 0.4% (0.2)% 2.4% 16.3% 15.5% 21.7%
		21.7%

– IV-84 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The PRC tax rate has been used because the majority of the Company’s consolidated pre-tax earnings arise in the

PRC.

As of December 31, 2016 and 2015, significant temporary differences between the tax basis and financial statement basis of assets and liabilities that gave rise to deferred taxes were principally related to the following:

Deferred tax assets arising from: — Accrued expenses — Deferred income — Property, Plant and Equipment — Other non-current assets — Tax loss carryforwards Gross deferred tax assets Less: valuation allowance Net deferred tax assets Deferred tax liabilities arising from: — Intangible assets — Equity method investment — Dividend withholding tax Deferred tax liabilities Classification on consolidated balance sheets: Deferred tax assets — current, net (included in prepayments and other current assets) Deferred tax assets — non-current, net (included in other non-current assets) Deferred tax liabilities — non-current, net (included in other liabilities)	December 31, 2016 USD 3,954,375 275,687 257,550 138,384 27,783,051 32,409,047 (26,629,179) 5,779,868 (235,217) (1,153,872) (6,085,290) (7,474,379) 3,954,375 671,621 (6,320,507)	December 31, 2015 USD 3,225,045 — — — 8,669,632 11,894,677 (8,160,611) 3,734,066 (314,109) (509,021) (7,351,023) (8,174,153) 3,225,045 — (7,665,132)

The deferred tax assets of $27,783,051 for tax loss carry forwards as of December 31, 2016, of which $6,139,906 and $21,643,145 relate to tax loss carryforwards of certain PRC subsidiaries and CBP, respectively. For PRC income tax purposes, certain of the Company’s PRC subsidiaries had tax loss carryforwards of $24,559,624, of which $6,322,563, $4,727,663, $4,755,017, $4,159,639 and $4,594,742 would expire by 2017, 2018, 2019, 2020 and 2021, respectively, if unused. For United States federal income tax purposes, CBP had tax loss carryforwards of approximately $63,656,308, of which $162,235, $3,382,154, $978,837, $1,296,319, $384,754, nil and $57,452,009 would expire by 2030, 2031, 2032, 2033, 2034 and 2035, 2036, respectively, if unused. In view of their cumulative losses positions, management determined it is more likely than not that deferred tax assets of these PRC subsidiaries will not be realized, and therefore full valuation allowances of $6,139,906 and $6,560,170 were provided as of December 31, 2016 and 2015, respectively. For deferred tax assets of CBP, management determined it is more likely than not that some portion of the deferred tax assets of CBP will not be realized, and therefore valuation allowances of $20,489,273 and $1,600,441 were provided as of December 31, 2016 and 2015, respectively.

– IV-85 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of the valuation allowances, as of December 31, 2016 and December 31, 2015.

The following table presents the movement of the valuation allowance for deferred tax assets for the years ended December 31, 2016, 2015 and 2014:

Beginning balance Addition (deduction) during the year Foreign currency translation adjustment Ending balance	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 8,160,611 6,661,139 7,558,590 18,676,456 1,703,771 (885,253) (207,888) (204,299) (12,198) 26,629,179 8,160,611 6,661,139

According to the prevailing PRC income tax law and relevant regulations, dividends relating to earnings accumulated beginning on January 1, 2008 that are received by non-PRC-resident enterprises from PRC-resident enterprises are subject to withholding tax at 10%, unless reduced by tax treaties or similar arrangement. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. Further, dividends received by the Company from its overseas subsidiaries are subject to the U.S. federal income tax at 34%, less any qualified foreign tax credits. Based on the dividend policy the Company has provided the deferred tax liabilities of $7,351,023 on undistributed earnings of $74 million, approximately 50% of Shandong Taibang’s total undistributed earnings at December 31, 2014. During the year ended December 31, 2016, the deferred tax liabilities of $1,265,733 was reversed following a sum of RMB82,760,000 (approximately $11,929,854) dividend distribution to Taibang Holdings (Hong Kong) Limited by Taibang Biotech (Shandong) Co., Ltd. in 2016, which was generated from distributed earnings of Shandong Taibang. Due to the Company’s plan and intention of reinvesting its earnings in its PRC business, the Company has not provided for the related deferred tax liabilities on the remaining undistributed earnings of the PRC subsidiaries totaling $388 million as of December 31, 2016.

As of January 1, 2014 and for each of the years ended December 31, 2014, 2015 and 2016, the Company and its subsidiaries did not have any unrecognized tax benefits, and therefore no interest or penalties related to unrecognized tax benefits were accrued. The Company does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months.

The Company and each of its PRC subsidiaries file income tax returns in the United States and the PRC, respectively. The Company is subject to U.S. federal income tax examination by tax authorities for tax years beginning in 2007. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances where the underpayment of taxes is more than RMB100,000 (approximately $14,415). In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. The PRC tax returns for the Company’s PRC subsidiaries are open to examination by the PRC tax authorities for the tax years beginning in 2010.

– IV-86 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 13 — OPTIONS AND NONVESTED SHARES

Options

For the year ended December 31, 2016, 2015 and 2014, no stock options to purchase common stock were granted to any directors or employees.

A summary of stock options activity for the years ended December 31, 2016, 2015 and 2014 is as follows:

Outstanding as of January 1, 2014
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2014
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2015
Granted
Exercised
Forfeited and expired
Outstanding as of December 31, 2016
Vested as of December 31, 2016
Exercisable as of December 31, 2016

Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term in
years
Aggregate
Intrinsic
Value
USD
USD
1,882,376
9.98
7.20
35,518,897
—
—
(417,002)
9.26
(17,529,500)
(32,920)
11.44
1,432,454
10.16
6.53
81,753,119
—
—
(780,557)
9.92
(68,089,712)
—
—
651,897
10.44
5.24
86,064,461
—
(337,406)
10.55
(35,180,367)
—
—
314,491
10.32
3.84
30,568,083
314,491
10.32
3.84
30,568,083
314,491
10.32
3.84
30,568,083

For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock compensation expense of $649,203, $1,117,994 and $1,669,573, respectively, in general and administrative expenses.

Nonvested shares

For the years ended December 31, 2016, 2015 and 2014, nonvested shares were granted to certain directors and employees (collectively, the ‘‘Participant’’). Pursuant to the nonvested share grant agreements between the Company and the Participant, the Participant will have all the rights of a stockholder with respect to the nonvested shares. The nonvested shares granted to directors generally vest in one or two years. The nonvested shares granted to employees generally vest in four years.

– IV-87 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

A summary of nonvested shares activity for the year ended December 31, 2016, 2015 and 2014 is as follow:

Outstanding as of January 1, 2014 Granted Vested Forfeited Outstanding as of December 31, 2014 Granted Vested Forfeited Outstanding as of December 31, 2015 Granted Vested Forfeited Outstanding as of December 31, 2016	Number of nonvested shares 362,750 299,000 (107,125) (2,500) 552,125 313,100 (188,625) (7,500) 669,100 511,200 (255,150) (12,500) 912,650	Grant date weighted average fair value USD 20.91 51.88 20.66 9.85
		37.78 120.62 34.78 28.80
		77.49 119.75 66.04 66.74
		104.51

For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock compensation expense of $23,756,308, $10,996,278 and $3,726,698 in general and administrative expenses, respectively.

As of December 31, 2016, approximately $81,666,998 of stock compensation expense with respect to nonvested shares is to be recognized over weighted average period of approximately 2.79 years.

NOTE 14 — STATUTORY RESERVES

The Company’s PRC subsidiaries are required to allocate at least 10% of its after tax profits as determined under generally accepted accounting principal in the PRC to its statutory surplus reserve until the reserve balance reaches 50% of respective registered capital. The accumulated balance of the statutory reserve as of December 31, 2016 and 2015 was $34,508,737 and $34,160,154, respectively.

NOTE 15 — SHARE REPURCHASE

NOTE 16 — FAIR VALUE MEASUREMENTS

Management used the following methods and assumptions to estimate the fair value of financial instruments at the relevant balance sheet dates:

. Short-term financial instruments (including cash and cash equivalents, time deposits, accounts receivable, other receivables, accounts payable, and other payables and accrued expenses) — The carrying amounts of the short-term financial instruments approximate their fair values because of the short maturity of these instruments.
. Loan receivable — The carrying amounts of loan receivable approximate their fair value. The fair value is estimated using discounted cash flow analysis based on the Company’s incremental borrowing rates for similar borrowing.

– IV-88 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 17 — SALES

Human Albumin Immunoglobulin products: Human Immunoglobulin for Intravenous Injection Other Immunoglobulin products Placenta Polypeptide Others Total	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 133,712,663 111,422,258 95,547,952 117,891,410 125,136,104 98,389,729 40,105,561 22,518,554 19,736,027 32,178,681 27,194,800 24,029,706 17,281,111 10,186,186 5,548,244 341,169,426 296,457,902 243,251,658	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 133,712,663 111,422,258 95,547,952 117,891,410 125,136,104 98,389,729 40,105,561 22,518,554 19,736,027 32,178,681 27,194,800 24,029,706 17,281,111 10,186,186 5,548,244 341,169,426 296,457,902 243,251,658
		243,251,658

NOTE 18 — COMMITMENTS AND CONTINGENCIES

Commitments

As of December 31, 2016, commitments outstanding for the purchase of property, plant and equipment approximated $27.3 million.

As of December 31, 2016, commitments outstanding for the purchase of plasma from 2017 to 2018 approximated $44.7 million.

Legal proceedings

Dispute with Jie’an over Certain Capital Injection into Guizhou Taibang

In May 2007, a 91% majority of Guizhou Taibang’s shareholders approved a plan to raise additional capital from qualified strategic investors through the issuance of an additional 20,000,000 shares of Guizhou Taibang. The plan required all existing Guizhou Taibang shareholders to waive their rights of first refusal to subscribe for the additional shares. The remaining 9% minority shareholder of Guizhou Taibang’s shares, Guizhou Jie’an Company, or Jie’an, did not support the plan and did not waive its right of first refusal. In May 2007, Guizhou Taibang signed an Equity Purchase Agreement with certain alleged strategic investors (who concealed their background), pursuant to which such investors agreed to invest an aggregate of RMB50,960,000 (approximately $7,345,884) in exchange for 21.4% of Guizhou Taibang’s equity interests. Such Equity Purchase Agreement was not approved or ratified by over two-thirds supermajority of Guizhou Taibang’s shareholders, which approval or ratification is required under the PRC Company Law. At the same time, as an existing shareholder, Jie’an also subscribed for 1,800,000 shares, representing its pro rata share of the 20,000,000 shares being offered. In total, Guizhou Taibang received RMB50,960,000 (approximately $7,345,884) from the investors and RMB6,480,000 (approximately $934,092) from Jie’an.

– IV-89 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

In December 2013, Jie’an brought a third lawsuit against Guizhou Taibang, requesting Guizhou Taibang to register 1.8 million shares under its name with the local AIC. In July 2014, the trial court denied Jie’an’s request to register such shares. Despite the denial of Jie’an’s share registration request, the trial court, however, in its ruling, ordered Guizhou Taibang to pay accumulated dividends of RMB13,809,197 (approximately $1,990,595) associated with these shares and the related interest expenses to Jie’an. Guizhou Taibang and Jie’an subsequently filed a cross-appeal. In December 2014, the appellate court ruled in favor of Jie’an supporting its request to register 1.8 million shares and ordered Guizhou Taibang to pay Jie’an its share of accumulated dividends of RMB18,339,227 (approximately $2,643,600) associated with these shares plus the related interest expenses to Jie’an. In the first half of 2015, Guizhou Taibang paid an aggregate of RMB22,639,227 (approximately $3,263,445) to the trial court held in escrow pending further appeal of this case. Guizhou Taibang appealed to the High Court of Guizhou in June 2015 which overruled the decision of the appellate court and remanded the case to the trial court for retrial in September 2015. In August 2016, the trial court granted Jie’an’s petition to withdraw the lawsuit as Jie’an sought to withdraw its capital contribution in Guizhou Taibang pursuant to an agreement dated July 31, 2016. The funds held in escrow were credited to the consideration payable to Jie’an for the capital withdrawal as described below.

In March 2014, Guizhou Taibang held another shareholders meeting and the shareholders passed resolutions, or the March 2014 Resolutions, that, inter alia, re-calculated the ownership percentage in Guizhou Taibang based on the November 2013 Resolutions and the additional capital injections from existing shareholders. Guizhou Taibang subsequently updated the registration with the local AIC regarding the additional capital injections in August 2014. In September 2014, Jie’an and Shenzhen Yigong Shengda Technology Co., Ltd., or Yigong Shengda, another minority shareholder of Guizhou Taibang filed a lawsuit against Guizhou Taibang, requesting that the court declare both the November 2013 Resolutions and the March 2014 Resolutions void and instruct Guizhou Taibang to withdraw the AIC registration. In November 2014, the trial court suspended this case pending the final outcome of the third lawsuit filed by Jie’an. In October 2015, the trial court denied their request. In May 2016, the appellate court vacated the trial court’s decision to uphold Guizhou Taibang’s shareholders resolution, and remanded the case for retrial. In August 2016, the trial court granted the petitions by Jie’an and Yigong Shengda to withdraw the lawsuit as Jie’an and Yigong Shengda sought to withdraw their respective capital contributions in Guizhou Taibang pursuant to an agreement dated July 31, 2016.

– IV-90 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

On July 31, 2016, Guiyang Dalin Biologic Technologies Co., Ltd., or Guiyang Dalin, Guizhou Taibang, Jie’an and Yigong Shengda entered into an agreement, pursuant to which Jie’an and Yigong Shengda agreed to withdraw their respective capital contributions in Guizhou Taibang for an aggregate consideration of RMB415,000,000 (approximately $59,822,250). In August 2016, Guizhou Taibang paid the first installment of RMB90,000,000 (approximately $12,973,500) of the consideration to Jie’an and Yigong Shengda. Guizhou Taibang completed the AIC registration for the foregoing capital withdrawal in October 2016 and paid the balance of the consideration to Jie’an and Yigong Shengda in November 2016. As a result of the capital withdrawal, Guiyang Dalin has become the sole shareholder of Guizhou Taibang.

Dispute with Certain Individual Investors over Certain Capital Injection into Guizhou Taibang

In October 2010, the trial court denied such individual investor’s right as shareholders of Guizhou Taibang and his entitlement to share the dividends, which ruling was reaffirmed after a re-trial by the same trial court in December 2012. After such ruling, Guizhou Taibang attempted to return the originally received fund of RMB34,160,000 (approximately $4,924,164) to such investor by wiring the fund back to his bank account but was unable to do so due to the closure of his bank account. Another investor, however, accepted the returned fund of RMB11,200,000 (approximately $1,614,480) from Guizhou Taibang in November 2010. In 2013, the same individual investor appealed the case to the PRC Supreme Court, which also denied his claims for shareholder status in Guizhou Taibang and the related dividend distribution and accrued interest in September 2013. Such investor subsequently attempted to seek a re-trial by the PRC Supreme Court, which request was denied by the PRC Supreme Court in January 2014. He then applied to the PRC Supreme Procuratorate to request for a review of the PRC Supreme Court’s decision and seek an appeal by the PRC Supreme Procuratorate to the PRC Supreme Court for an ultimate re-trial on his behalf. In July 2015, the PRC Supreme Procuratorate rejected his request for review.

As of December 31, 2016, Guizhou Taibang had maintained, on its balance sheet, payables to the investors of RMB34,160,000 (approximately $4,924,164) as originally received funds from such individual investor in respect of the shares in dispute, RMB20,586,941 (approximately $2,967,608) for the interest expenses, and RMB341,600 (approximately $49,241) for the 1% penalty imposed by the Equity Purchase Agreement for any breach in the event that Guizhou Taibang is required to return the original investment amount to such investor.

– IV-91 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 19 — NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share of common stock for the periods indicated:

Net income attributable to China Biologic Products, Inc. Earnings allocated to participating nonvested shares Net income allocated to common stockholders used in computing basic and diluted net income per common stock Weighted average shares used in computing basic net income per common stock Diluted effect of stock option Weighted average shares used in computing diluted net income per common stock Net income per common stock — basic Net income per common stock — diluted	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 104,779,307 89,042,703 70,916,840 (2,987,429) (2,070,762) (1,210,895) 101,791,878 86,971,941 69,705,945 26,848,445 25,599,153 24,427,196 400,699 968,213 1,257,868 27,249,144 26,567,366 25,685,064 3.79 3.40 2.85 3.74 3.27 2.71	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 104,779,307 89,042,703 70,916,840 (2,987,429) (2,070,762) (1,210,895) 101,791,878 86,971,941 69,705,945 26,848,445 25,599,153 24,427,196 400,699 968,213 1,257,868 27,249,144 26,567,366 25,685,064 3.79 3.40 2.85 3.74 3.27 2.71
		69,705,945
		24,427,196 1,257,868
		25,685,064
		2.85 2.71

During the year ended December 31, 2016, 2015 and 2014, no option was antidilutive or excluded from the calculation of diluted net income per common stock. Further, rights issued pursuant to the stockholder rights plan (see Note 23) were excluded from the calculation of diluted net income per common stock since they were antidilutive.

NOTE 20 — CHINA BIOLOGIC PRODUCTS, INC. (PARENT COMPANY)

The following represents condensed unconsolidated financial information of the Parent Company only:

Condensed Balance Sheets:

Cash Prepayments and prepaid expenses Property, plant and equipment, net Investment in and amounts due from subsidiaries Total Assets Other payables and accrued expenses Total Liabilities Total Equity Total Liabilities and Equity	December 31, 2016 USD 11,539,131 85,879 211 454,309,702 465,934,923 3,734,334 3,734,334 462,200,589 465,934,923	December 31, 2015 USD 13,939,319 86,404 211 372,035,937
		386,061,871
		3,718,747
		3,718,747 382,343,124
		386,061,871

Condensed Statements of Comprehensive Income:

Equity in income of subsidiaries General and administrative expenses Other expenses, net Earnings before income tax expense Income tax expense Net Income	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 124,187,590 100,753,805 78,948,990 (19,408,283) (10,693,991) (6,008,852) — (1,017,111) (2,023,298) 104,779,307 89,042,703 70,916,840 — — — 104,779,307 89,042,703 70,916,840	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD 124,187,590 100,753,805 78,948,990 (19,408,283) (10,693,991) (6,008,852) — (1,017,111) (2,023,298) 104,779,307 89,042,703 70,916,840 — — — 104,779,307 89,042,703 70,916,840
		70,916,840 —
		70,916,840

– IV-92 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Condensed Statements of Cash Flows:

Net cash used in operating activities Net cash used in investing activities Net cash provided by financing activities Net (decrease) increase in cash Cash at beginning of year Cash at end of year	For the Years Ended December 31, 2016 December 31, 2015 December 31, 2014 USD USD USD (2,400,188) (3,904,038) (444,755) — — — — 15,192,269 2,416,821 (2,400,188) 11,288,231 1,972,066 13,939,319 2,651,088 679,022 11,539,131 13,939,319 2,651,088

NOTE 21 — FOLLOW-ON OFFERING OF COMMON STOCK

NOTE 22 — CAPITAL WITHDRAWAL BY TWO FORMER NONCONTROLLING INTEREST SHAREHOLDERS OF GUIZHOU TAIBANG

On October 26, 2016, Guizhou Taibang completed the requisite legal and administrative procedures, through which two former minority shareholders, holding a combined 15.3% equity interest in Guizhou Taibang, withdrew their respective capital contributions in Guizhou Taibang for an aggregate consideration of RMB415,000,000 (approximately $59,822,250) pursuant to an agreement dated July 31, 2016. (see Note 18)

NOTE 23 — STOCKHOLDER RIGHTS PLAN

On February 22, 2017, the Board of Directors (the ‘‘Board’’) adopted a stockholder rights plan (the ‘‘Rights Agreement’’). Pursuant to the Rights Agreement, the Board of Directors authorized and declared a dividend distribution of one right (a ‘‘Right’’) for each outstanding share of the common stock, par value $0.0001 per share (the ‘‘Common Shares’’), of the Company to stockholders of record at the close of business on March 6, 2017 (the ‘‘Record Date’’). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Series A

– IV-93 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Participating Preferred Stock, par value $0.0001 per share (the ‘‘Preferred Shares’’), of the Company at an exercise price of $550.00 per one one-thousandth of a Preferred Share, subject to adjustment (the ‘‘Exercise Price’’). However, the Rights are not immediately exercisable and will become exercisable only upon the occurrence of certain events. In particular, after February 22, 2017:

. if a person or group acquires 15% or more of the Company’s Common Shares (including through derivatives), then the Rights will become exercisable and each Right will entitle its holder (except the acquiring person or group) to purchase, at the Exercise Price, a number of the Company’s Common Shares having a then-current market value of twice the Exercise Price;
. if after a person or group acquires 15% or more of the Company’s Common Shares, the Company merges into another company, an acquiring entity merges into the Company or the Company sells or transfers more than 50% of its assets, cash flow or earning power, then each Right will entitle its holder (except the acquiring person or group) to purchase, for the Exercise Price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the Exercise Price; or
. after a person or group acquires 15% or more of the Company’s Common Shares, the Board may, at its option, exchange the Rights (except for Rights held by the acquiring person or group), in whole or in part, for Common Shares at an exchange ratio of one Common Share per Right (subject to adjustment).

The Board adopted the Rights Agreement to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group that acquires 15% or more of the Common Shares without the approval of the Board after February 22, 2017. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. However, neither the Rights Agreement nor the Rights should interfere with any merger, tender or exchange offer or other business combination approved by the Board. The Board of Directors may redeem the rights for $0.001 per right at any time before an event that causes the rights to become exercisable. If not redeemed, the right will expire on February 22, 2019. The Board had previously adopted similar preferred shares rights agreements on November 19, 2012, which expired on November 20, 2014, and on January 8, 2015, which expired on January 8, 2017.

– IV-94 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(4) The following is an extract of the unaudited financial statements of the CBPO Group for the three and six months ended June 30, 2017, which were prepared in accordance with U.S. GAAP, from the quarterly report of CBPO for its fiscal quarter ended June 30, 2017.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

Note ASSETS Current Assets Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts 2 Inventories 3 Prepayments and other current assets, net of allowance for doubtful accounts Total Current Assets Property, plant and equipment, net 4 Land use rights, net Equity method investment Loan receivable 5 Other non-current assets Total Assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Short-term bank loans 6 Accounts payable Income tax payable Other payables and accrued expenses 7 Total Current Liabilities Deferred income Other liabilities Total Liabilities	June 30, 2017 USD 223,243,489 61,146,341 183,258,799 17,644,030 485,292,659 145,410,658 24,180,767 12,780,120 44,283,000 6,256,555 718,203,759 14,465,780 6,340,255 8,191,264 64,096,628 93,093,927 3,599,654 6,586,692 103,280,273	December 31, 2016 USD 183,765,533 33,918,796 156,412,674 15,320,913
		389,417,916 132,091,923 23,389,384 10,614,755 43,245,000 6,198,531
		604,957,509
		— 6,158,601 7,484,366 59,798,145
		73,441,112 3,755,648 6,623,926
		83,820,686

– IV-95 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Note Stockholders’ Equity Common stock: par value $0.0001; 100,000,000 shares authorized; 29,493,061 and 29,427,609 shares issued at June 30, 2017 and December 31, 2016, respectively; 27,238,357 and 27,172,905 shares outstanding at June 30, 2017 and December 31, 2016, respectively Additional paid-in capital Treasury stock: 2,254,704 shares at June 30, 2017 and December 31, 2016, at cost Retained earnings Accumulated other comprehensive loss Total equity attributable to China Biologic Products, Inc. Noncontrolling interest Total Stockholders’ Equity Commitments and contingencies 12 Total Liabilities and Stockholders’ Equity	June 30, 2017 USD 2,949 122,167,032 (56,425,094) 499,505,734 (13,264,788) 551,985,833 62,937,653 614,923,486 — 718,203,759	December 31, 2016 USD 2,943 105,459,610 (56,425,094) 438,483,401 (25,320,271) 462,200,589 58,936,234 521,136,823 — 604,957,509

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

– IV-96 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Note Sales 11 Cost of sales Gross profit Operating expenses Selling expenses General and administrative expenses Research and development expenses Income from operations Other income (expenses) Equity in income of an equity method investee Interest expense Interest income Total other income, net Income before income tax expense Income tax expense 8 Net income Less: Net income attributable to noncontrolling interest Net income attributable to China Biologic Products, Inc. Earnings per share of common stock: 13 Basic Diluted Weighted average shares used in computation: 13 Basic Diluted Net income Other comprehensive income: Foreign currency translation adjustment, net of nil income taxes Comprehensive income Less: Comprehensive income attributable to noncontrolling interest Comprehensive income attributable to China Biologic Products, Inc.	For the Three Months Ended June 30, 2017 June 30, 2016 USD USD 89,277,897 91,421,155 30,110,272 31,482,146 59,167,625 59,939,009 3,577,599 3,026,457 14,264,476 12,573,683 1,924,671 1,303,815 39,400,879 43,035,054 972,359 259,850 (286,358) (88,528) 1,617,054 1,292,069 2,303,055 1,463,391 41,703,934 44,498,445 6,867,434 7,006,764 34,836,500 37,491,681 3,806,016 6,738,646 31,030,484 30,753,035 1.10 1.12 1.09 1.10 27,213,984 26,698,996 27,478,935 27,152,560 34,836,500 37,491,681 10,692,318 (13,267,360) 45,528,818 24,224,321 4,859,899 4,468,767 40,668,919 19,755,554	For the Six Months Ended June 30, 2017 June 30, 2016 USD USD 180,731,009 177,008,866 62,325,745 65,525,581 118,405,264 111,483,285 7,385,151 4,254,127 29,521,242 23,901,696 3,282,034 2,398,538 78,216,837 80,928,924 1,884,102 43,535 (348,868) (177,078) 3,240,893 3,043,209 4,776,127 2,909,666 82,992,964 83,838,590 13,817,973 13,613,867 69,174,991 70,224,723 8,152,658 13,274,433 61,022,333 56,950,290 2.17 2.08 2.15 2.05 27,199,011 26,642,461 27,472,301 27,145,470 69,174,991 70,224,723 13,413,286 (10,697,608) 82,588,277 59,527,115 9,510,461 11,447,450 73,077,816 48,079,665

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

– IV-97 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
Amortization
Loss on sale of property, plant and equipment
Allowance for doubtful accounts — accounts receivable, net
Allowance for doubtful accounts — other non-current assets
Write-down of obsolete inventories
Deferred tax benefit
Share-based compensation
Equity in income of an equity method investee
Change in operating assets and liabilities:
Accounts receivable
Inventories
Prepayments and other current assets
Accounts payable
Income tax payable
Other payables and accrued expenses
Deferred income
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for property, plant and equipment
Payment for intangible assets and land use rights
Refund of deposits related to land use right
Proceeds from sale of property, plant and equipment
Long-term loan lent to a third party
Net cash used in investing activities

For the Six Months Ended
June 30,
2017
June 30,
2016
USD
USD
69,174,991
70,224,723
6,043,854
4,590,028
683,276
438,916
119,557
115,075
23,783
6,604
—
1,225,200
—
61,497
(166,369)
(1,584,958)
16,201,189
9,307,099
(1,884,102)
(43,535)
(26,068,071)
(13,856,209)
(22,769,252)
(12,522,807)
(1,862,700)
2,433,998
33,359
(3,001,361)
519,895
4,339,536
(2,910,237)
(4,465,594)
(242,713)
(255,394)
36,896,460
57,012,818
(15,975,643)
(25,222,545)
(667,068)
(1,351,789)
—
6,461,924
24,674
100,424
—
(6,331,518)
(16,618,037)
(26,343,504)

– IV-98 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercised
Proceeds from short-term bank loans
Repayment of short-term bank loan
Maturity of deposit as security for bank loans
Dividend paid by subsidiaries to noncontrolling interest
shareholders
Net cash provided by financing activities
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON
CASH
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information
Cash paid for income taxes
Noncash investing and financing activities:
Acquisition of property, plant and equipment included in
payables

For the Six Months Ended
June 30,
2017
June 30,
2016
USD
USD
506,239
2,364,952
23,009,280
—
(8,715,000)
—
—
37,756,405
—
(7,921,952)
14,800,519
32,199,405
4,399,014
(3,772,623)
39,477,956
59,096,096
183,765,533
144,937,893
223,243,489
204,033,989
13,621,188
10,841,209
4,202,934
9,312,476

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

– IV-99 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and 2016

NOTE 1 — BASIS OF PRESENTATION, SIGNIFICANT CONCENTRATION AND RISKS

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (‘‘U.S. GAAP’’). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the U.S. Securities and Exchange Commission (‘‘SEC’’). The December 31, 2016 consolidated balance sheet was derived from the audited consolidated financial statements of China Biologic Products, Inc. (the ‘‘Company’’). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2016 audited consolidated financial statements of the Company included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of June 30, 2017, the results of operations for the three and six months ended June 30, 2017 and 2016 and cash flows for the six months ended June 30, 2017 and 2016, have been made.

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, the allowances for doubtful accounts, the fair value determinations of stock compensation awards, the realizability of deferred tax assets and inventories, the recoverability of intangible assets, land use rights, property, plant and equipment, equity method investment and loan receivable, and accruals for income tax uncertainties and other contingencies.

Recently Adopted Accounting Pronouncements

Effective January 1, 2017, on a retrospective basis, the Company adopted the Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Update (‘‘ASU’’) 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). This update required that deferred tax assets and liabilities be classified as noncurrent. As a result of adoption of this guidance, the Company reclassified current deferred income tax assets in the amount of $4,625,996, which had been included in prepayments and other current assets, to other noncurrent assets as of December 31, 2016. There was no impact on results of operations or cash flows as a result of the adoption of this guidance.

Effective January 1, 2017, the Company adopted the FASB ASU 2016-09, Improvements to Employee ShareBased Payment Accounting. The standard simplified certain aspects of the accounting for share-based payment transactions, including recognition of excess tax benefits and deficiencies, classification of awards and classification in the statement of cash flows. As a result of adoption, the Company elected to adopt the change regarding income taxes on a prospective basis to recognize excess tax benefits and deficiencies from stock-based compensation as a discrete item in income tax expense, which were historically recorded as additional paid-in-capital. In addition, the Company elected to apply the change regarding classification in the statement of cash flows prospectively to record excess tax benefits from stock-based compensation from cash flows from financing activities to cash flows from operating activities. The adoption of this standard in the first quarter of this year had no material impact on the Company’s financial statements.

– IV-100 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

(b) Significant Concentration and Risks

The Company maintains cash and deposit balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for its bank accounts located in the United States or may exceed Hong Kong Deposit Protection Board insured limits for its bank accounts located in Hong Kong or may exceed the insured limits for its bank accounts in China established by China Deposit Insurance Fund Management Institution.

Total cash at banks and deposits as of June 30, 2017 and December 31, 2016 amounted to $222,475,614 and $183,078,440, respectively, of which $2,434,242 and $2,744,704 are insured, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts.

As of June 30, 2017 and December 31, 2016, the Company maintained cash and cash equivalents at banks in the following locations:

PRC, excluding Hong Kong U.S. Total	June 30, 2017 USD 212,009,195 10,466,419 222,475,614	December 31, 2016 USD 171,539,309 11,539,131
		183,078,440

The Company’s two major products are human albumin and human immunoglobulin for intravenous injection (‘‘IVIG’’). Human albumin accounted for 36.3% and 41.2% of the total sales for the three months ended June 30, 2017 and 2016, respectively, and 38.3% and 39.7% of the total sales for the six months ended June 30, 2017 and 2016, respectively. IVIG accounted for 33.3% and 33.6% of the total sales for the three months ended June 30, 2017 and 2016, respectively, and 34.0% and 36.6% of the total sales for the six months ended June 30, 2017 and 2016, respectively. If the market demands for human albumin and IVIG cannot be sustained in the future or the price of human albumin and IVIG decreases, the Company’s operating results could be adversely affected.

Substantially all of the Company’s customers are located in the PRC. There were no customers that individually comprised 10% or more of the total sales during the three and six months ended June 30, 2017 and 2016. No individual customer represented 10% or more of accounts receivables as at June 30, 2017 and December 31, 2016, respectively. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.

There was one supplier, namely, Xinjiang Deyuan Bioengineering Co., Ltd. (‘‘Xinjiang Deyuan’’), that comprised 10% or more of the total purchases for the three and six months ended June 30, 2017 and 2016. Chongqing Sanda Great Exploit Pharmaceutical Co, Ltd. represented more than 10% of accounts payables as at June 30, 2017 and December 31, 2016.

NOTE 2 — ACCOUNTS RECEIVABLE

Accounts receivable at June 30, 2017 and December 31, 2016 consisted of the following:

Accounts receivable Less: Allowance for doubtful accounts Total	June 30, 2017 USD 61,716,363 (570,022) 61,146,341	December 31, 2016 USD 34,452,392 (533,596)
		33,918,796

– IV-101 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

The activity in the allowance for doubtful accounts-accounts receivable for the six months ended June 30, 2017 and 2016 are as follows:

Beginning balance Provisions Foreign currency translation adjustment Ending balance	For the Six Months Ended June 30, 2017 June 30, 2016 USD USD 533,596 443,624 23,783 6,604 12,643 (9,320) 570,022 440,908	For the Six Months Ended June 30, 2017 June 30, 2016 USD USD 533,596 443,624 23,783 6,604 12,643 (9,320) 570,022 440,908
		440,908

NOTE 3 — INVENTORIES

Inventories at June 30, 2017 and December 31, 2016 consisted of the following:

Raw materials Work-in-process Finished goods Total	June 30, 2017 USD 97,602,529 33,790,504 51,865,766 183,258,799	December 31, 2016 USD 80,781,903 24,994,839 50,635,932
		156,412,674

Provisions to write-down the carrying amount of obsolete inventory to its estimated net realizable value amounted to nil and $1,937 during the three months ended June 30, 2017 and 2016, respectively, and provisions of nil and $61,497 was recorded during the six months ended June 30, 2017 and 2016, respectively, which were recorded as cost of sales in the unaudited condensed consolidated statements of comprehensive income.

NOTE 4 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at June 30, 2017 and December 31, 2016 consisted of the following:

Buildings Machinery and equipment Furniture, fixtures, office equipment and vehicles Total property, plant and equipment, gross Accumulated depreciation Total property, plant and equipment, net Construction in progress Prepayment for property, plant and equipment Property, plant and equipment, net	June 30, 2017 USD 36,815,470 56,603,923 8,400,694 101,820,087 (46,159,164) 55,660,923 80,953,387 8,796,348 145,410,658	December 31, 2016 USD 34,131,032 52,467,764 7,843,567
		94,442,363 (39,315,011)
		55,127,352 61,825,470 15,139,101
		132,091,923

Depreciation expense for the three months ended June 30, 2017 and 2016 was $2,991,721 and $2,322,405, respectively. Depreciation expense for the six months ended June 30, 2017 and 2016 was $6,043,854 and $4,590,028, respectively. No interest expenses were capitalized into construction in progress for the three and six months ended June 30, 2017 and 2016.

– IV-102 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 5 — LOAN RECEIVABLE

In August 2015, the Company entered into a cooperation agreement with Xinjiang Deyuan and the controlling shareholder of Xinjiang Deyuan. Pursuant to the agreement, Guizhou Taibang agreed to provide Xinjiang Deyuan with an interest-bearing loan at an interest rate of 6% per annum with an aggregate principal amount of RMB300,000,000 (approximately $47,160,000). The loan is due July 31, 2018 and secured by a pledge of Deyuan Shareholder’s 58.02% equity interest in Xinjiang Deyuan. Interest will be paid on the 20th day of the last month of each quarter.

Interest income of $624,306 and $694,839 was recognized and received by Guizhou Taibang for the three months ended June 30, 2017 and 2016, respectively, and interest income of $1,232,486 and $1,347,145 was recognized and received by Guizhou Taibang for the six months ended June 30, 2017 and 2016, respectively.

NOTE 6 — SHORT-TERM BANK LOANS

In March 2017, the Company obtained a one-year unsecured loan of RMB60,000,000 (approximately $8,715,000) from Bank of China (Taishan Branch) at an interest rate of 4.5675% per annum. The loan is due on March 21, 2018 and interest will be paid on the 21th day of each month. In May 2017, the Company repaid the loan before maturity date.

In April 2017, the Company obtained a one-year unsecured loan of RMB98,000,000 (approximately $14,465,780) from China Everbright Bank at an interest rate of 4.35% per annum. The loan is due on March 31, 2018 and interest will be paid on the 20th day of each month.

NOTE 7 — OTHER PAYABLES AND ACCRUED EXPENSES

Other payables and accrued expenses at June 30, 2017 and December 31, 2016 consisted of the following:

Payables to a potential investor(1) Salaries and bonuses payable Accruals for sales commission and promotion fee Dividends payable to noncontrolling interest(2) Payables for construction in progress Other tax payables Advance from customers Deposits received Others Total	June 30, 2017 USD 8,250,391 14,261,633 7,089,649 13,741,901 5,771,753 3,081,560 1,675,967 5,149,605 5,074,169 64,096,628	December 31, 2016 USD 7,941,013 16,740,846 4,391,160 7,952,467 5,364,441 1,918,248 3,976,832 4,640,244 6,872,894
		59,798,145

(1) The payables to a potential investor comprises deposits received from a potential investor of $5,042,358 and $4,924,164 as of June 30, 2017 and December 31, 2016, respectively, and related interest plus penalty on these deposits totaling $3,208,033 and $3,016,849 as of June 30, 2017 and December 31, 2016, respectively.
(2) On March 2, 2017, Shandong Taibang declared a cash dividend distribution amounting RMB220,000,000 (approximately $31,955,000), of which RMB37,928,000 (approximately $5,509,042) represented the dividends payable to a noncontrolling interest shareholder.

NOTE 8 — INCOME TAX

The Company’s effective income tax rates were 17% and 16% for the three months ended June 30, 2017 and 2016, respectively. The Company’s effective income tax rates were 17% and 16% for the six months ended June 30, 2017 and 2016, respectively.

The difference between the effective income tax rates and statutory income tax rate of 25% for the three and six months ended June 30, 2017 and 2016 was primarily due to preferential tax rate of 15% applicable to both Guizhou Taibang and Shandong Taibang in 2017 and 2016, which was partially offset by valuation allowances against the deferred tax assets of China Biologic in the U.S. relating to operating losses.

– IV-103 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

As of and for the three and six months ended June 30, 2017, the Company did not have any unrecognized tax benefits and thus no interest and penalties related to unrecognized tax benefits were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefits to change significantly within the next 12 months.

NOTE 9 — OPTIONS AND NONVESTED SHARES

Options

A summary of stock options activity for the six months ended June 30, 2017 is as follow:

Outstanding as of December 31, 2016 Granted Exercised Forfeited and expired Outstanding as of June 30, 2017 Vested as of June 30, 2017 Exercisable as of June 30, 2017	Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Aggregate Intrinsic Value USD USD 314,491 10.32 3.84 30,568,083 — (46,880) 10.80 (4,672,851) — 267,611 10.24 3.21 27,527,053 267,611 10.24 3.21 27,527,053 267,611 10.24 3.21 27,527,053

For the three months ended June 30, 2017 and 2016, the Company recorded stock compensation expense with respect to stock options of nil and $243,578, respectively, in general and administrative expenses. For the six months ended June 30, 2017 and 2016, the Company recorded stock compensation expense with respect to stock options of nil and $487,156, respectively, in general and administrative expenses.

Nonvested shares

A summary of nonvested shares activity for the six months ended June 30, 2017 is as follows:

Outstanding at December 31, 2016 Granted Vested Forfeited Outstanding at June 30, 2017	Number of nonvested shares 912,650 25,800 (18,572) — 919,878	Grant date weighted average fair value USD 104.51 98.20 79.48 —
		104.84

For the three months ended June 30, 2017 and 2016, the Company recorded stock compensation expense with respect to nonvested shares of $8,129,124 and $4,494,126, respectively, in general and administrative expenses. For the six months ended June 30, 2017 and 2016, the Company recorded stock compensation expense with respect to nonvested shares of $16,201,189 and $8,819,943, respectively, in general and administrative expenses.

At June 30, 2017, approximately $67,999,368 of stock compensation expense with respect to nonvested shares is expected to be recognized over weighted average period of approximately 2.52 years.

– IV-104 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 10 — FAIR VALUE MEASUREMENTS

Management used the following methods and assumptions to estimate the fair value of financial instruments at the relevant balance sheet dates:

. Short-term financial instruments (including cash and cash equivalents, accounts receivable, other receivables, accounts payable, short-term bank loans and other payables and accrued expenses) — The carrying amounts of the short-term financial instruments approximate their fair values because of the short maturity of these instruments.
. Loan receivable — The carrying amounts of loan receivable approximate their fair value. The fair value is estimated using discounted cash flow analysis based on the borrowing rates for similar borrowing.

NOTE 11 — SALES

The Company’s sales by products for the three months ended June 30, 2017 and 2016 are as follows:

Human Albumin Immunoglobulin products: Human Immunoglobulin for Intravenous Injection Other Immunoglobulin products Placenta Polypeptide Others Total	For the Three Months Ended June 30, 2017 June 30, 2016 USD USD 32,375,022 37,707,805 29,663,496 30,673,660 12,709,939 8,205,752 9,225,786 10,890,493 5,303,654 3,943,445 89,277,897 91,421,155	For the Three Months Ended June 30, 2017 June 30, 2016 USD USD 32,375,022 37,707,805 29,663,496 30,673,660 12,709,939 8,205,752 9,225,786 10,890,493 5,303,654 3,943,445 89,277,897 91,421,155
		91,421,155

The Company’s sales by products for the six months ended June 30, 2017 and 2016 are as follows:

Human Albumin Immunoglobulin products: Human Immunoglobulin for Intravenous Injection Other Immunoglobulin products Placenta Polypeptide Others Total	For the Six Months Ended June 30, 2017 June 30, 2016 USD USD 69,233,313 70,336,659 61,416,482 64,831,422 21,003,606 17,106,067 19,472,755 16,598,897 9,604,853 8,135,821 180,731,009 177,008,866	For the Six Months Ended June 30, 2017 June 30, 2016 USD USD 69,233,313 70,336,659 61,416,482 64,831,422 21,003,606 17,106,067 19,472,755 16,598,897 9,604,853 8,135,821 180,731,009 177,008,866
		177,008,866

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Commitments

As of June 30, 2017, commitments outstanding for operating lease approximated $0.8 million.

As of June 30, 2017, commitments outstanding for the purchase of property, plant and equipment approximated $23.0 million.

As of June 30, 2017, commitments outstanding for the purchase of plasma from July 1, 2017 to 2018 approximated $25.1 million.

– IV-105 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

NOTE 13 — EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:

Net income attributable to China Biologic Products, Inc.
Earnings allocated to participating nonvested shares
Net income used in basic/diluted earnings per common stock
Weighted average shares used in computing basic earnings per common stock
Dilutive effect of outstanding stock options
Weighted average shares used in computing diluted earnings per common stock
Basic earnings per common stock
Diluted earnings per common stock

For the Three Months Ended
June 30,
2017
June 30,
2016
USD
USD
31,030,484
30,753,035
(1,026,685)
(775,050)
30,003,799
29,977,985
27,213,984
26,698,996
264,951
453,564
27,478,935
27,152,560
1.10
1.12
1.09
1.10

During the three months ended June 30, 2017 and 2016, no potential ordinary shares outstanding were excluded from the calculation of diluted earnings per common stock.

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:

For the Six Months Ended
June 30, 2017
June 30, 2016
USD
USD
61,022,333
56,950,290
(2,009,186)
(1,422,528)
59,013,147
55,527,762
27,199,011
26,642,461
273,290
503,009
27,472,301
27,145,470
2.17
2.08
2.15
2.05

During the six months ended June 30, 2017 and 2016, no potential ordinary shares outstanding were excluded from the calculation of diluted earnings per common stock.

NOTE 14 — SUBSEQUENT EVENT

On July 21, 2017, China Biologic Products Holdings, Inc. (the ‘‘Successor’’) succeeded to the interests of China Biologic Products, Inc. (the ‘‘Predecessor’’) following a redomicile merger pursuant to an agreement and plan of merger dated as of April 28, 2017 (the ‘‘Merger Agreement’’) between the Successor and the Predecessor. Pursuant to the Merger Agreement, the Predecessor merged with and into the Successor, with the Successor surviving the merger and each issued and outstanding shares of Predecessor’s common stock being converted into the right to receive one ordinary share of the Successor.

– IV-106 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

DIFFERENCES BETWEEN THE ACCOUNTING POLICIES ADOPTED BY THE COMPANY (HKFRS) AND CBPO (U.S. GAAP)

As described in ‘‘Letter from the Board — Waiver from Strict Compliance with the Listing Rules’’, the Company has applied to the Stock Exchange for, and been granted, a waiver from the requirement to produce an accountants’ report on CBPO in accordance with Rule 14.69 (4) (a) (i) of the Listing Rules.

Instead, this circular contains a copy of:

(a) the audited consolidated financial statements of CBPO for the financial years ended December 31, 2014, 2015 and 2016 prepared in accordance with U.S. GAAP, including the management discussion and analysis, extracted from the annual reports of CBPO for each of those years (together the ‘‘CBPO Historical 3 Years’ Accounts’’); and
(b) the unaudited condensed consolidated financial statements of CBPO for the six months ended June 30, 2017 prepared in accordance with U.S. GAAP, including the management discussion and analysis, extracted from the quarterly report of CBPO for the aforementioned period (the ‘‘CBPO Q2 2017 Accounts’’).

The CBPO Historical 3 years’ Accounts and CBPO Q2 2017 Accounts cover the balance sheets of CBPO as of December 31, 2014, 2015, 2016 and June 30, 2017 and the results of CBPO for each of the three years ended December 31, 2014, 2015 and 2016 and six months ended June 30, 2016 and 2017 (the ‘‘Relevant Periods’’).

The accounting policies adopted in the preparation of the CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts differ in certain material respects from the accounting policies presently adopted by the Company which comply with HKFRS (the ‘‘Company’s Policies’’). Differences which would have a significant effect on the CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts, had they been prepared in accordance with the accounting policies presently adopted by the Company rather than in accordance with U.S. GAAP, are set out below in ‘‘CBPO’s Unaudited Adjusted Financial Information under the Company’s Policies’’, with the following disclosures:

(a) a comparison between CBPO’s consolidated statements of operations and consolidated statements of comprehensive income as extracted from the CBPO Historical 3 years’ Accounts and CBPO Q2 2017 Accounts, respectively, prepared in accordance with U.S. GAAP, and adjusted consolidated income statement and consolidated statement of comprehensive income had they instead been prepared in accordance with the accounting policies adopted by the Company which are in compliance with HKFRS. The process applied in the preparation of such a comparison is set out in the ‘‘Basis of Preparation’’ and ‘‘Reconciliation Process’’ sections below;

– IV-107 –

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APPENDIX IV

(b) a comparison between CBPO’s consolidated balance sheets as extracted from the CBPO Historical 3 years’ Accounts and CBPO Q2 2017 Accounts, prepared in accordance with U.S. GAAP, and adjusted consolidated balance sheet had they instead been prepared in accordance with the accounting policies adopted by the Company which are in compliance with HKFRS. The process applied in the preparation of such a comparison is also set out in the ‘‘Basis of Preparation’’ and ‘‘Reconciliation Process’’ sections below; and
(c) a discussion of the material financial statement line item differences arising out of the exercise outlined in (a) and (b) above.

The above referenced items are collectively referred to as the ‘‘Reconciliation Information’’.

Basis of Preparation

The Reconciliation Information for the Relevant Periods, which presents the ‘‘Unadjusted Financial Information under U.S. GAAP’’ of CBPO as if it had been prepared in accordance with the accounting policies presently adopted by the Company which are in compliance with HKFRS, has been prepared on the assumption that the transition provisions of HKFRS 1, First-time Adoption of Hong Kong Financial Reporting Standards (‘‘HKFRS 1’’) are applicable to CBPO. CBPO’s HKFRS transition date is deemed to be January 1, 2014 and as such, CBPO has applied the mandatory exceptions and certain optional exemptions afforded by HKFRS 1 for the preparation of the Reconciliation Information for the Relevant Periods.

Reconciliation Process

The Reconciliation Information has been prepared by comparing and analyzing the differences between the accounting policies adopted by CBPO for the preparation of the CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts in accordance with U.S. GAAP and the accounting policies adopted by the Company which are in compliance with HKFRS, and quantifying the relevant material financial effects of such differences.

PricewaterhouseCoopers Hong Kong (‘‘PwC Hong Kong’’) was engaged by the Company to conduct work in accordance with the Hong Kong Standard on Assurance Engagements 3000 ‘‘Assurance Engagements Other Than Audits or Reviews of Historical Financial Information’’ (‘‘HKSAE 3000’’) issued by the HKICPA on the Reconciliation Information. The work consisted primarily of:

(i) comparing the Unadjusted Financial Information under U.S. GAAP with the audited or reviewed financial statements of the CBPO Group as set out in Appendix IV of the Circular;
(ii) comparing the accounting policies of the CBPO Group as set out in Appendix IV of the Circular with the accounting policies of the Group as set out in the published audited consolidated financial statements of the Company for the year ended

– IV-108 –

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APPENDIX IV

December 31, 2014, 2015 and 2016 and the published unaudited consolidated interim financial information of the Company for the six months ended June 30 2017;

(iii) reviewing the adjustments, if any, made by the Directors of the Company in arriving at the CBPO’s Unaudited Adjusted Financial Information under the Company’s Policies and evidence supporting the adjustments; and
(iv) checking the arithmetic accuracy of the computation of the CBPO’s Unaudited Adjusted Financial Information under the Company’s Policies.

PwC Hong Kong’s engagement did not involve independent examination of any of the underlying financial information. The work carried out in accordance with HKSAE 3000 is different in scope from an audit or a review conducted in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA and consequently, PwC Hong Kong did not express an audit opinion nor a review conclusion on the Reconciliation Information. PwC Hong Kong’s engagement was intended solely for the use of the Directors in connection with this circular and may not be suitable for another purpose. Based on the work performed, PwC Hong Kong has concluded that:

(i) the Unadjusted Financial Information under U.S. GAAP has been properly extracted from the CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts;
(ii) in all material respects there were no differences between the accounting policies of the CBPO as set out in CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts and the accounting policies of the Group as set out in the published audited consolidated financial statements of the Company for the year ended December 31, 2014, 2015 and 2016 and the published unaudited consolidated interim financial information of the Companyfor the six months ended June 30, 2017 requiring adjustments to the Unadjusted Financial Information under U.S. GAAP to arrive at the CBPO’s Unaudited Adjusted Financial Information under the Company’s Policies; and
(iii) the computation of the Adjusted Financial Information under the Company’s Policies is arithmetically accurate.

– IV-109 –

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APPENDIX IV

CBPO’s Unaudited Adjusted Financial Information under the Company’s Policies

The CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts for the Relevant Periods have been prepared and presented in accordance with U.S. GAAP. There are no material measurement differences between the CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts, as prepared in accordance with U.S. GAAP, compared to that applying the accounting policies presently adopted by the Company which are in compliance with HKFRS, other than as set out below:

1 — Share-based Payments (note i)
2 — Income Taxes (note k)

The Reconciliation Information also includes reclassification adjustments to align the presentation of the CBPO Historical 3 Years’ Accounts and CBPO Q2 2017 Accounts with the Company’s presentation.

– IV-110 –

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APPENDIX IV

Unaudited Adjusted Consolidated Income Statement under the Company’s Policies for the year ended December 31, 2014

Notes Revenue Cost of sales Gross profit Selling expenses Administrative expenses a, c, i Research and development expenses a Other gains — net a Operating profit Finance income Finance costs c Finance income — net Earning from associate investment Profit before income tax Income tax expenses j, k Profit for the year Profit/(loss) attributable to: Owners of the Company i, j Non-controlling interests i, j	Unadjusted Financial Information under U.S. GAAP US$’000 243,252 (80,025) 163,227 (10,707) (37,198) (4,162) — 111,160 6,645 (3,698) 2,947 8,646 122,753 (26,640) 96,113 70,917 25,196 96,113	Measurement Adjustments US$’000 — — — — (1,978) — — (1,978) — — — — (1,978) 85 (1,893) (1,398) (495) (1,893)	Classification Adjustments US$’000 — — — — (682) (2,110) 2,701 (91) — 91 91 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 243,252 (80,025) 163,227 (10,707) (39,858) (6,272) 2,701 109,091 6,645 (3,607) 3,038 8,646 120,775 (26,555) 94,220 69,519 24,701 94,220

– IV-111 –

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APPENDIX IV

Unaudited Adjusted Consolidated Statement of Comprehensive Income under the Company’s Policies for the year ended December 31, 2014

Notes Profit for the year Other comprehensive income: Items that may be reclassified to profit or loss Currency translation differences Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: — Owners of the Company i, j — Non-controlling interests i, j Total comprehensive income for the year	Unadjusted Financial Information under U.S. GAAP US$’000 96,113 (1,919) (1,919) 94,194 69,396 24,798 94,194	Measurement Adjustments US$’000 (1,893) — — (1,893) (1,398) (495) (1,893)	Classification Adjustments US$’000 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 94,220 (1,919) (1,919) 92,301 67,998 24,303 92,301

– IV-112 –

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APPENDIX IV

Unaudited Adjusted Consolidated Balance sheet under the Company’s Policies as of December 31, 2014

Notes Assets Non-current assets Land use rights Property, plant and equipment e Intangible assets f Deferred income tax assets j, g Long-term prepayments e Other non-current assets e, f, g Deposits related to land use rights Restricted cash and deposit, excluding current-portion Interest in an associate Current assets Inventories Trade and other receivables d Cash and cash equivalents Prepayments and other current assets d, g, j Restricted deposit Total assets Equity Equity attributable to owners of the Company Share capital Share premium i Treasury shares Other reserves Retained earnings i, j Non-controlling interests i, j Total equity	Unadjusted Financial Information under U.S. GAAP US$’000 11,909 80,231 — — — 3,475 12,792 40,230 18,222 166,859 101,305 19,403 80,820 14,782 63,678 279,988 446,847 3 24,008 (76,571) 19,985 244,661 212,086 63,175 275,261	Measurement Adjustments US$’000 — — — 648 — — — — — 648 — — — (1,080) — (1,080) (432) — 4,506 — — (3,640) 866 (1,298) (432)	Classification Adjustments US$’000 — (1,220) 2,137 3,346 2,558 (3,475) — — — 3,346 — 10,356 — (13,702) — (3,346) — — — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 11,909 79,011 2,137 3,994 2,558 — 12,792 40,230 18,222 170,853 101,305 29,759 80,820 — 63,678 275,562 446,415 3 28,514 (76,571) 19,985 241,021 212,952 61,877 274,829

– IV-113 –

APPENDIX IV

FINANCIAL INFORMATION OF THE CBPO GROUP

Notes Liabilities Non-current liabilities Deferred income tax liabilities g Deferred income Long-term bank loans, excluding current portion Long-term other liabilities g Current liabilities Trade and other payables h Other payables and accrued expenses h Current income tax liabilities Short-term bank loans, including current portion of long-term bank loans Total liabilities Total equity and liabilities	Unadjusted Financial Information under U.S. GAAP US$’000 — 2,765 40,000 8,139 50,904 4,829 49,693 8,257 57,903 120,682 171,586 446,847	Measurement Adjustments US$’000 — — — — — — — — — — — (432)	Classification Adjustments US$’000 7,790 — — (7,790) — 49,693 (49,693) — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 7,790 2,765 40,000 349
				50,904
				54,522 — 8,257 57,903
				120,682
				171,586
				446,415

– IV-114 –

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APPENDIX IV

Unaudited Adjusted Consolidated Income Statement under the Company’s Policies for the year ended December 31, 2015

Notes Revenue Cost of sales Gross profit Selling expenses Administrative expenses a, c, i Research and development expenses a Other gains — net a Operating profit Finance income Finance costs c Finance income — net Earning from associate investment Profit before income tax Income tax expenses j, k Profit for the year Profit/(loss) attributable to: Owners of the Company i, j Non-controlling interests i, j	Unadjusted Financial Information under U.S. GAAP US$’000 296,458 (106,483) 189,975 (9,973) (41,392) (6,024) — 132,586 5,551 (1,727) 3,824 (1,311) 135,099 (20,993) 114,106 89,043 25,063 114,106	Measurement Adjustments US$’000 — — — — (6,123) — — (6,123) — — — — (6,123) 390 (5,733) (4,476) (1,257) (5,733)	Classification Adjustments US$’000 — — — — 2,390 (1,172) (1,269) (51) — 51 51 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 296,458 (106,483) 189,975 (9,973) (45,125) (7,196) (1,269) 126,412 5,551 (1,676) 3,875 (1,311) 128,976 (20,603) 108,373 84,567 23,806 108,373

– IV-115 –

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APPENDIX IV

Unaudited Adjusted Consolidated Statement of Comprehensive Income under the Company’s Policies for the year ended December 31, 2015

Notes Profit for the year Other comprehensive income: Items that may be reclassified to profit or loss Currency translation differences Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: — Owners of the Company i,j — Non-controlling interests i, j Total comprehensive income for the year	Unadjusted Financial Information under U.S. GAAP US$’000 114,106 (24,369) (24,369) 89,737 69,039 20,698 89,737	Measurement Adjustments US$’000 (5,733) — — (5,733) (4,476) (1,257) (5,733)	Classification Adjustments US$’000 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 108,373 (24,369) (24,369) 84,004 64,563 19,441 84,004

– IV-116 –

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APPENDIX IV

Unaudited Adjusted Consolidated Balance sheet under the Company’s Policies as of December 31, 2015

Notes Assets Non-current assets Land use rights Property, plant and equipment e Intangible assets f Deferred income tax assets j, g Long-term prepayments e Other non-current assets e, f, g Interest in an associate Loan receivable Current assets Inventories Trade and other receivables d Deposits related to land use rights-current portion Cash and cash equivalents Prepayments and other current assets d, g, j Total assets Equity Equity attributable to owners of the Company Share capital Share premium i Treasury shares Other reserves Retained earnings i, j Non-controlling interests i, j Total equity	Unadjusted Financial Information under U.S. GAAP US$’000 23,576 105,364 — — — 4,861 8,718 39,834 182,353 126,397 25,145 10,056 182,970 24,546 369,114 551,467 3 105,080 (56,425) (19) 333,704 382,343 84,619 466,962	Measurement Adjustments US$’000 — — — 761 — — — — 761 — — — — (1,269) (1,269) (508) — 10,163 — — (8,116) 2,047 (2,555) (508)	Classification Adjustments US$’000 — (16,765) 1,564 3,225 20,062 (4,861) — — 3,225 — 20,052 — — (23,277) (3,225) — — — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 23,576 88,599 1,564 3,986 20,062 — 8,718 39,834 186,339 126,397 45,197 10,056 182,970 — 364,620 550,959 3 115,243 (56,425) (19) 325,588 384,390 82,064 466,454

– IV-117 –

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APPENDIX IV

Notes Liabilities Non-current liabilities Deferred income tax liabilities g Deferred income Long-term other liabilities g Current liabilities Trade and other payables h Other payables and accrued expenses h Current income tax liabilities Total liabilities Total equity and liabilities	Unadjusted Financial Information under U.S. GAAP US$’000 — 4,526 8,323 12,849 9,682 57,463 4,511 71,656 84,505 551,467	Measurement Adjustments US$’000 — — — — — — — — — (508)	Classification Adjustments US$’000 7,665 — (7,665) — 57,463 (57,463) — — — —	Adjusted Financial Information under the Company’s Policies US$’000 7,665 4,526 658
				12,849
				67,145 — 4,511
				71,656
				84,505
				550,959

– IV-118 –

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APPENDIX IV

Unaudited Adjusted Consolidated Income Statement under the Company’s Policies for the year ended December 31, 2016

Notes Revenue Cost of sales Gross profit Selling expenses Administrative expenses a, c, i Research and development expenses a Other gains — net a, b Operating profit Finance income Finance costs c Finance income — net Earning from associate investment Loss from disposal of a subsidiary b Profit before income tax Income tax expenses j Profit for the year Profit/(loss) attributable to: Owners of the Company i, j Non-controlling interests i, j	Unadjusted Financial Information under U.S. GAAP US$’000 341,169 (124,034) 217,135 (11,679) (54,519) (7,022) — 143,915 7,816 (254) 7,562 2,519 (76) 153,920 (25,126) 128,794 104,779 24,015 128,794	Measurement Adjustments US$’000 — — — — (10,904) — — (10,904) — — — — — (10,904) 753 (10,151) (8,258) (1,893) (10,151)	Classification Adjustments US$’000 — — — — (349) (762) 1,014 (97) — 21 21 — 76 — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 341,169 (124,034) 217,135 (11,679) (65,772) (7,784) 1,014 132,914 7,816 (233) 7,583 2,519 — 143,016 (24,373) 118,643 96,521 22,122 118,643

– IV-119 –

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APPENDIX IV

Unaudited Adjusted Consolidated Statement of Comprehensive Income under the Company’s Policies for the year ended December 31, 2016

Notes Profit for the year Other comprehensive income: Items that may be reclassified to profit or loss Currency translation differences Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: — Owners of the Company i, j — Non-controlling interests i, j Total comprehensive income for the year	Unadjusted Financial Information under U.S. GAAP US$’000 128,794 (31,303) (31,303) 97,491 78,464 19,027 97,491	Measurement Adjustments US$’000 (10,151) — — (10,151) (8,258) (1,893) (10,151)	Classification Adjustments US$’000 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 118,643 (31,303) (31,303) 87,340 70,206 17,134 87,340

– IV-120 –

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APPENDIX IV

Unaudited Adjusted Consolidated Balance sheet under the Company’s Policies as of December 31, 2016

Notes Assets Non-current assets Land use rights Property, plant and equipment e Intangible assets f Deferred income tax assets j, g Long-term prepayments e Other non-current assets e, f, g Interest in an associate Loan receivable Current assets Inventories Trade and other receivables d Deposits related to land use rights-current portion Cash and cash equivalents Prepayments and other current assets d, g, j Total assets Equity Equity attributable to owners of the Company Share capital Share premium i Treasury shares Other reserves Retained earnings i, j Non-controlling interests i, j Total equity	Unadjusted Financial Information under U.S. GAAP US$’000 23,389 132,092 — — — 2,244 10,615 43,245 211,585 156,413 33,919 999 183,766 18,276 393,373 604,958 3 105,460 (56,425) (25,320) 438,483 462,201 58,936 521,137	Measurement Adjustments US$’000 — — — 770 — — — — 770 — — — — (1,284) (1,284) (514) — 20,308 — — (16,374) 3,934 (4,448) (514)	Classification Adjustments US$’000 — (15,139) 939 4,626 15,773 (2,244) — — 3,955 — 13,037 — — (16,992) (3,955) — — — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 23,389 116,953 939 5,396 15,773 — 10,615 43,245 216,310 156,413 46,956 999 183,766 — 388,134 604,444 3 125,768 (56,425) (25,320) 422,109 466,135 54,488 520,623

– IV-121 –

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APPENDIX IV

Notes Liabilities Non-current liabilities Deferred income tax liabilities g Deferred income Long-term other liabilities g Current liabilities Trade and other payables h Other payables and accrued expenses h Current income tax liabilities Total liabilities Total equity and liabilities	Unadjusted Financial Information under U.S. GAAP US$’000 — 3,756 6,624 10,380 6,159 59,798 7,484 73,441 83,821 604,958	Measurement Adjustments US$’000 — — — — — — — — — (514)	Classification Adjustments US$’000 6,321 — (6,321) — 59,798 (59,798) — — — —	Adjusted Financial Information under the Company’s Policies US$’000 6,321 3,756 303
				10,380
				65,957 — 7,484
				73,441
				83,821
				604,444

– IV-122 –

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APPENDIX IV

Unaudited Adjusted Consolidated Income Statement under the Company’s Policies for the six months ended June 30, 2017

Notes Revenue Cost of sales Gross profit Selling expenses Administrative expenses a, i Research and development expenses Other gains — net a Operating profit Finance income Finance costs Finance income — net Earning from associate investment Profit before income tax Income tax expenses j Profit for the period Profit/(loss) attributable to: Owners of the Company i, j Non-controlling interests i, j	Unadjusted Financial Information under U.S. GAAP US$’000 180,731 (62,326) 118,405 (7,385) (29,521) (3,282) — 78,217 3,241 (349) 2,892 1,884 82,993 (13,818) 69,175 61,022 8,153 69,175	Measurement Adjustments US$’000 — — — — (6,621) — — (6,621) — — — — (6,621) 339 (6,282) (5,585) (697) (6,282)	Classification Adjustments US$’000 — — — — (69) — 69 — — — — — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 180,731 (62,326) 118,405 (7,385) (36,211) (3,282) 69 71,596 3,241 (349) 2,892 1,884 76,372 (13,479) 62,893 55,437 7,456 62,893

– IV-123 –

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APPENDIX IV

Unaudited Adjusted Consolidated Statement of Comprehensive Income under the Company’s Policies for the six months ended June 30, 2017

Notes Profit for the period Other comprehensive income: Items that may be reclassified to profit or loss Currency translation differences Other comprehensive income for the period, net of tax Total comprehensive income for the period Attributable to: — Owners of the Company i, j — Non-controlling interests i, j Total comprehensive income for the period	Unadjusted Financial Information under U.S. GAAP US$’000 69,175 13,413 13,413 82,588 73,078 9,510 82,588	Measurement Adjustments US$’000 (6,282) — — (6,282) (5,585) (697) (6,282)	Classification Adjustments US$’000 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 62,893 13,413
				13,413
				76,306
				67,493 8,813
				76,306

– IV-124 –

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APPENDIX IV

Unaudited Adjusted Consolidated Income Statement under the Company’s Policies for the six months ended June 30, 2016

Notes Revenue Cost of sales Gross profit Selling expenses Administrative expenses a, c, i Research and development expenses a Other gains — net a Operating profit Finance income Finance costs c Finance income — net Earning from associate investment Profit before income tax Income tax expenses j Profit for the period Profit/(loss) attributable to: Owners of the Company i, j Non-controlling interests i, j	Unadjusted Financial Information under U.S. GAAP US$’000 177,009 (65,526) 111,483 (4,254) (23,902) (2,398) — 80,929 3,043 (177) 2,866 44 83,839 (13,614) 70,225 56,950 13,275 70,225	Measurement Adjustments US$’000 — — — — (4,656) — — (4,656) — — — — (4,656) 312 (4,344) (3,534) (810) (4,344)	Classification Adjustments US$’000 — — — — (285) (898) 1,162 (21) — 21 21 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 177,009 (65,526) 111,483 (4,254) (28,843) (3,296) 1,162 76,252 3,043 (156) 2,887 44 79,183 (13,302) 65,881 53,416 12,465 65,881

– IV-125 –

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APPENDIX IV

Unaudited Adjusted Consolidated Statement of Comprehensive Income under the Company’s Policies for the six months ended June 30, 2016

Notes Profit for the period Other comprehensive income: Items that may be reclassified to profit or loss Currency translation differences Other comprehensive income for the period, net of tax Total comprehensive income for the period Attributable to: — Owners of the Company i, j — Non-controlling interests i, j Total comprehensive income for the period	Unadjusted Financial Information under U.S. GAAP US$’000 70,225 (10,698) (10,698) 59,527 48,080 11,447 59,527	Measurement Adjustments US$’000 (4,344) — — (4,344) (3,534) (810) (4,344)	Classification Adjustments US$’000 — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 65,881 (10,698) (10,698) 55,183 44,546 10,637 55,183

– IV-126 –

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APPENDIX IV

Unaudited Adjusted Consolidated Balance sheet under the Company’s Policies as of June 30, 2017

Notes Assets Non-current assets Land use rights Property, plant and equipment e Intangible assets f Deferred income tax assets j, g Long-term prepayments e Other non-current assets e, f, g Interest in an associate Loan receivable Current assets Inventories Trade and other receivables d Cash and cash equivalents Prepayments and other current assets d, j Total assets Equity Equity attributable to owners of the Company Share capital Share premium i Treasury shares Other reserves Retained earnings i, j Non-controlling interests i, j Total equity	Unadjusted Financial Information under U.S. GAAP US$’000 24,181 145,411 — — — 6,257 12,780 44,283 232,912 183,259 61,146 223,243 17,643 485,291 718,203 3 122,167 (56,425) (13,265) 499,505 551,985 62,938 614,923	Measurement Adjustments US$’000 — — — 884 — — — — 884 — — — (1,473) (1,473) (589) — 26,515 — — (21,959) 4,556 (5,145) (589)	Classification Adjustments US$’000 — (8,796) 714 4,857 9,482 (6,257) — — — — 16,170 — (16,170) — — — — — — — — — —	Adjusted Financial Information under the Company’s Policies US$’000 24,181 136,615 714 5,741 9,482 — 12,780 44,283 233,796 183,259 77,316 223,243 — 483,818 717,614 3 148,682 (56,425) (13,265) 477,546 556,541 57,793 614,334

– IV-127 –

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APPENDIX IV

Notes Liabilities Non-current liabilities Deferred income tax liabilities g Deferred income Long-term other liabilities g Current liabilities Short-term bank loans Trade and other payables h Other payables and accrued expenses h Current income tax liabilities Total liabilities Total equity and liabilities	Unadjusted Financial Information under U.S. GAAP US$’000 — 3,600 6,586 10,186 14,466 6,340 64,097 8,191 93,094 103,280 718,203	Measurement Adjustments US$’000 — — — — — — — — — — (589)	Classification Adjustments US$’000 6,277 — (6,277) — — 64,097 (64,097) — — — —	Adjusted Financial Information under the Company’s Policies US$’000 6,277 3,600 309
				10,186
				14,466 70,437 — 8,191
				93,094
				103,280
				717,614

– IV-128 –

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APPENDIX IV

Reclassifications-Alignment of CBPO’s Presentation to the Company’s Presentation

a. Other gains(losses) — net

CBPO classified non-operating income (expenses) and gain (loss) on disposal of property, plant and equipment as ‘‘General and administrative expenses’’. The Company presents all such expenses as ‘‘Other gains (losses) — net’’.

In addition, CBPO net off government grant for reimbursing expenses incurred for specific research and development programs against R&D expense directly. The Company presents such government grant as ‘‘Other gains’’.

Therefore, such expenses and government grant received have been reclassified to ‘‘Other gains (losses) — net’’.

b. Gain or Loss from Disposal of a Subsidiary

CBPO presents ‘‘Loss from disposal of a subsidiary’’ as a separate line as a nonoperating component of its consolidated statements of operations for the fiscal years ended December 31, 2016. The Company presents gain or loss from disposal of a subsidiary as a component of ‘‘Other gains (losses) — net’’ as a component of ‘‘Operating profit’’. As such, gain or loss from disposal of a subsidiary has been reclassified to ‘‘Other gains (losses) — net’’.

c. Foreign Exchange Gains or Losses

CBPO presents foreign exchange gains or losses as a component of ‘‘General and administrative expenses’’. The Company presents all foreign exchange gains or losses within ‘‘Finance costs’’. Therefore, foreign exchange gains and losses have been reclassified to ‘‘Finance costs’’.

d. Prepayment and Other Receivables

CBPO presents prepayment and other receivables as a separate line item on its consolidated balance sheets. The Company presents prepayment and other receivables as a component of ‘‘Trade and other receivables’’. Accordingly, prepayment and other receivables have been reclassified to ‘‘Trade and other receivables’’.

e. Long-term prepayment

CBPO presents prepayment for property, plant and equipment as a component of ‘‘property, plant and equipment’’. In addition, CBPO presents prepayment for investment and other long-term prepayment as ‘‘Other non-current assets’’. The Company presents these prepayment as ‘‘Long-term prepayment’’. Hence, prepayment with long-term nature have been reclassified to ‘‘Long-term prepayment’’.

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f. Intangible assets

CBPO presents intangible assets as a component of ‘‘Non-current assets’’. The Company presents intangible assets separately on its consolidated balance sheets. As such, intangible assets have been reclassified from ‘‘Non-current assets’’ to ‘‘Intangible assets.’’

g. Deferred Income Taxes

CBPO presents deferred income tax assets as ‘‘prepayment and other current assets’’ or ‘‘other non-current assets’’ and presents deferred income tax liabilities as ‘‘other liabilities’’ as of December 31, 2013, 2014 and 2015 and classified all deferred income taxes as non-current assets or liabilities as of December 31, 2016 and June 30, 2017, respectively. The Company presents deferred income taxes separately on its consolidated balance sheets and classifies all deferred income taxes balances as non-current assets or liabilities regardless of the period in which the underlying timing differences are expected to reverse. Therefore, deferred income taxes balances as of December 31, 2014, 2015, 2016 and June 30, 2017 were reclassified accordingly.

h. Other payable and accrued expenses

CBPO record other payable and accrued expenses as a separate line on its consolidated balance sheet, while the Company presents all payables as ‘‘Trade and other payables.’’ As such, other payable and accrued expenses have been reclassified to ‘‘Trade and other payables.’’

Measurement Adjustments

i. Share-based Payments

Share-based payment expenses arising in connection with CBPO’s equity classified sharebased payment arrangements (i.e. its stock options and time-based Restricted Stock Units (‘‘RSUs’’)) are recognized on a straight-line basis over the vesting period. The Company accounts for each award separately and accordingly, recognizes expenses over the period that the employees unconditionally become entitled to the awards. The difference between expense attribution under CBPO’s policy versus the Company’s policy resulted in additional pre-tax share-based payment expense of US$2.0 million, US$6.1 million and US$10.9 million for the years ended December 31, 2014, 2015 and 2016, respectively, and US$4.7 million and US$6.6 million for the six months period ended June 30, 2016 and 2017, respectively.

j. Unrealized gain on intra-group sales

Income taxes paid by the seller on intra-group profits related to inventory that remain within the consolidated group, including the tax effect of any reversing temporary differences in the seller’s tax jurisdiction, are deferred. CBPO recognizes the amount of tax effect in prepayment and other current assets in the statement of balance sheet until such time as the asset leaves the consolidated group, at which point the amount is reclassified to income tax

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FINANCIAL INFORMATION OF THE CBPO GROUP

expense. The Company accounts for the related deferred tax effect based on the tax rate of the purchaser, recognizes the amount in deferred tax assets. The current tax effects for the seller are recognized in the current tax position. The difference between expense attribution under CBPO’s policy versus the Company’s policy resulted in income tax expense of US$70,599, US$75,509 and US$5,930 for the years ended December 31, 2014, 2015 and 2016, respectively, and US$17,663 and US$75,904 for the six months ended June 30, 2016 and 2017, respectively.

k. Income Taxes

Income tax adjustments reflect the tax effect of the measurement adjustments noted in i above.

3. SUPPLEMENTAL FINANCIAL INFORMATION OF THE CBPO GROUP

The Company sets out the following supplemental financial information of the CBPO, which was not included in CBPO’s audited consolidated financial statements showing the financial information for the three financial years ended December 31, 2014, 2015 and 2016 and unaudited condensed consolidated financial statements for the six months ended June 30, 2017.

(1) Aging Analysis of Accounts Receivable

Accounts receivable are presented net of related allowance for doubtful accounts of US$0.4 million, US$0.4 million, US$0.5 million, US$0.6 million as of December 31, 2014, 2015 and 2016, and June 30, 2017, respectively, with the following aging analysis by due date of the respective invoice:

Current Past due Total accounts receivable	June 30, 2017 US$ 57,695,743 3,450,598 61,146,341	December 31, 2016 US$ 30,428,568 3,490,228 33,918,796	December 31, 2015 US$ 21,318,505 3,826,464 25,144,969	December 31, 2014 US$ 18,050,177 1,352,643
				19,402,820

Credit terms are granted based on the credit worthiness of individual customers. As of December 31, 2014, 2015 and 2016 and June 30, 2017, accounts receivable are on average due within 180 days from the invoice date.

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(2) Aging Analysis of Accounts Payable

Accounts payable are presented with the following aging analysis by due date of the respective invoice:

Current Past due Total accounts payable	June 30, 2017 US$ 5,354,914 985,341 6,340,255	December 31, 2016 US$ 5,361,249 797,352 6,158,601	December 31, 2015 US$ 9,145,986 535,849 9,681,835	December 31, 2014 US$ 4,281,072 548,278
				4,829,350

Accounts payable as of June 30, 2017, December 31, 2016, 2015 and 2014 are on average due within 30–60 days from the invoice date.

(3) Gearing Ratio

The following table sets forth the CBPO’s loans and borrowings, total equity and gearing ratio:

		As of
	June 30,	December 31,	December 31,	December 31,
	2017	2016	2015	2014
	US$	US$	US$	US$
Loans and
borrowings	14,465,780	—	—	97,902,600
Total Equity	614,923,486	521,136,823	466,961,799	275,261,730
Gearing Ratio1	2.4%	0.0%	0.0%	35.6%

1Note: calculated as total loans and borrowings divided by total equity.

(4) Employees and Remuneration

As of December 31, 2016, CBPO employed 1,799 full-time employees, of which 48 were seconded to CBPO by Shandong Institute of Biological Products.

The key elements of CBPO’s remuneration policies are competitive base salaries, annual incentive opportunities and equity participation. More specifically, compensation is composed of a base salary, performance-based discretionary cash bonus and equity awards, and in certain cases, severance and change of control benefits. Base salaries are a fixed component of

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compensation and their determination involves an evaluation of the competitive market-based data derived from comparable companies. Base salaries are generally reviewed annually and adjustments are considered based on the individual performance, level of experience or tenure, and the current market salary. Performance-based discretionary bonuses are based upon achievement of corporate objectives and individual performance, ultimately subject to the discretion of the board of directors and/or the compensation committee of CBPO, as applicable. Equity awards are designed to provide long-term compensation based on CBPO’s performance, as reflected in the value of the shares of the CBPO’s common stock underlying the equity compensation compared to the purchase price of those shares, if any.

(5) Others

As confirmed by CBPO, CBPO did not have any contingent liability or charge on asset or carry out any hedging activity for the three years ended 31 December 2016 and the six months ended 30 June 2017.

4. MANAGEMENT DISCUSSION AND ANALYSIS OF THE CBPO GROUP

For the purpose of this section only, unless the context requires otherwise, references to the ‘‘Company’’, ‘‘we’’, ‘‘us’’ and ‘‘our’’ refer to CBPO and references to ‘‘$’’ refer to US$.

(1) The following is an extract from the management discussion and analysis of the results of the CBPO Group for the year ended December 31, 2015 from the 2015 annual report of CBPO.

Comparison of years ended December 31, 2015 and 2014

Sales

Our total sales increased by 21.9%, or $53.2 million, to $296.5 million for 2015, compared to $243.3 million for 2014, primarily due to increases in the sales volumes of human albumin and human immunoglobulin for intravenous injection (the ‘‘IVIG’’). Excluding the foreign exchange impact resulting from the depreciation of the RMB against the U.S. dollar, our sales would have increased by 23.4% for 2015 as compared to 2014. Such increase of sales was mainly due to the increase in sales volume in major plasma products.

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The following table summarizes the breakdown of sales by major types of products:

Human albumin Immunoglobulin products: IVIG Other immunoglobulin products Placenta polypeptide Others Totals	For the Year Ended December 31, Change 2015 2014 $ % $ % Amount % (U.S. dollars in millions, except percentage) 111.4 37.6 95.6 39.3 15.8 16.5 125.1 42.2 98.4 40.4 26.7 27.1 22.5 7.6 19.7 8.1 2.8 14.2 27.2 9.2 24.0 9.9 3.2 13.3 10.3 3.4 5.6 2.3 4.7 83.9 296.5 100.0 243.3 100.0 53.2 21.9	For the Year Ended December 31, Change 2015 2014 $ % $ % Amount % (U.S. dollars in millions, except percentage) 111.4 37.6 95.6 39.3 15.8 16.5 125.1 42.2 98.4 40.4 26.7 27.1 22.5 7.6 19.7 8.1 2.8 14.2 27.2 9.2 24.0 9.9 3.2 13.3 10.3 3.4 5.6 2.3 4.7 83.9 296.5 100.0 243.3 100.0 53.2 21.9
		21.9

For 2015 as compared to 2014:

. the average price for our approved human albumin products, which represented 37.6% of our total sales, remained stable and, excluding the foreign exchange effect, their average price in RMB increased by approximately 1.3%; and
. the average price for our approved IVIG products, which represented 42.2% of our total sales, remained stable, and excluding the foreign exchange effect, their average price in RMB increased by approximately 1.2%.

The average sales price of our human albumin and IVIG products increased in RMB term for 2015 as compared to 2014, as a result of the combined effects of the reduced value added tax, or VAT, rate, strong market demand and our sales effort to increase market shares in tier-one cities and new markets. The VAT rate on sales of plasma products was reduced from 6.0% to 3.0%, effective on July 1, 2014. The reduction in the VAT rate had a positive impact on our sales prices as our sales are recognized as the invoiced price of the products sold minus VAT. All other factors being equal, the reduction in the VAT rate had the effect of increasing our sales price of plasma products by 2.9%. Excluding this impact, the average sales price of our human albumin and IVIG products in RMB term would have remained stable in 2015 as compared to 2014. The average sales price of our human albumin and IVIG products increased slightly in RMB term in response to the strong market demand following the removal of the retail price ceilings for drug products, effective on June 1, 2015. This increase is partially offset by our effort to increase the market share of our human albumin products and IVIG products in tier-one cities and new markets in 2015, whereby we increased sales to distributors with lower invoiced prices compared to direct sales to hospitals and inoculation centers.

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The sales volume of our products depends on market demand and our production volume. The production volume of our human albumin products and IVIG products depends primarily on the general plasma supply. The production volume of our hyper-immune products, which include human rabies immunoglobulin, human hepatitis B immunoglobulin and human tetanus immunoglobulin products, is subject to the availability of specific vaccinated plasma and our production capacity. The supply of specific vaccinated plasma requires several months of lead time. Our production facility currently can only accommodate the production of one type of hyperimmune products at any given time and we rotate the production of different types of hyperimmune products from time to time in response to market demand. As such, the sales volume of any given type of hyper-immune products may vary significantly from period to period.

The sales volume of our human albumin products increased by 16.6% for 2015 as compared to 2014, as a result of the increased production volume at Shandong Taibang and Guizhou Taibang. The sales volume of our IVIG products increased by 27.0% for 2015 as compared to 2014, mainly due to the increased sales through distributors in tier-one cities and new markets supported by the increased output following the production resumption at Guizhou Taibang in March 2014. Further, in anticipation of a favorable market environment and our increased sales capabilities this year, we reserved a large volume of IVIG pastes from previous years to be processed and sold in early 2015, which also contributed to our increased sales volume in 2015.

The sales increase of other immunoglobulin products for 2015 as compared to 2014 was mainly attributable to the increase in average sales price of human tetanus immunoglobulin products. The increase in average sales price of human tetanus immunoglobulin products was primarily due to the strong market demand coupled by the removal of the retail price ceiling for drug products effective on June 1, 2015.

The sales increase of placenta polypeptide products was generally in line with the volume increase for 2015 as compared to 2014. The sales volume of placenta polypeptide products increased by 12.8% for 2015 as compared to 2014, primarily due to the ramp-up of the production capacities for placenta polypeptide at Guizhou Taibang after receiving the GMP certification for the upgraded production facilities in January 2014.

The sales increase of other products for 2015 as compared to 2014 was mainly due to the increase in sales volume of both factor VIII and PCC.

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Cost of sales & gross profit

	For the Year Ended
	December 31,	Change
	2015 2014	Amount	%
	(U.S. dollars in millions,	except percentage)
Cost of sales	$106.5 $80.0	$26.5	33.1
as a percentage of total sales	35.9% 32.9%		3.0
Gross Profit	$190.0 $163.2	$26.8	16.4
Gross Margin	64.1% 67.1%		(3.0)

Our cost of sales was $106.5 million, or 35.9% of our sales, for 2015, as compared to $80.0 million, or 32.9% of our sales for 2014. Our gross profit was $190.0 million and $163.2 million for 2015 and 2014, respectively, representing gross margins of 64.1% and 67.1%, respectively. Excluding the sales of the products derived from raw plasma outsourced from Xinjiang Deyuan, whose cost is moderately higher than plasma from our own collection stations, our gross margin would have been 65.4% for 2015. Our cost of sales and gross margin are affected by the volume and pricing of our finished products, raw material costs, production mix and yields, inventory impairments, production cycles and routine maintenance costs.

The increase in cost of sales for 2015 as compared to 2014 was generally in line with the increases in sales volume and cost of plasma. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to donors consistent with the industry practice. We expect the nutrition fees to be paid to donors continue to increase as a result of improving living standards in China. Consequently, future improvements on margins will need to be derived from increases in product pricing, product mix, yields and manufacturing efficiency. The increase in cost of sales as a percentage of sales for 2015 as compared to 2014 was mainly due to the increase in cost of plasma partially offset by the increase in the average sales price of major plasma products.

Operating expenses

	For the Year Ended
	December 31,	Change
	2015 2014	Amount	%
	(U.S. dollars in millions,	except percentage)
Operating expenses	$57.4 $52.1	$5.3	10.2
as a percentage of total sales	19.4% 21.4%		(2.0)

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Our total operating expenses increased by $5.3 million, or 10.2%, to $57.4 million for 2015 from $52.1 million for 2014. As a percentage of total sales, total expenses decreased by 2.0% to 19.4% for 2015 from 21.4% for 2014. The operating expenses for 2014 included a provision of $5.1 million for all the receivables in respect of an employee housing development project at Shandong Taibang as discussed below. Excluding the effect of this provision, our operating expenses increased by $10.4 million, or 22.1%, for 2015 as compared to 2014, primarily due to the combined effect of the increase of the general and administrative expenses and research and development expenses and the decrease of selling expenses as discussed below.

Selling expenses

	For the Year Ended	For the Year Ended
	December 31,		Change
	2015	2014	Amount	%
	(U.S. dollars in millions,		except percentage)
Selling expenses	$10.0	$10.7	$(0.7)	(6.5)
as a percentage of total sales	3.4%	4.4%		(1.0)

For 2015, our selling expenses decreased by $0.7 million, or 6.5%, to $10.0 million from $10.7 million for 2014. As a percentage of total sales, our selling expenses for 2015 decreased by 1.0% to 3.4% from 4.4% for 2014. The decrease was mainly due to the decreased selling expense of placenta polypeptide for 2015 as compared to 2014. We began to utilize internal resources instead of third-party service providers to promote sales of placenta polypeptide products, and did not renew a third-party engagement upon its expiration in May 2014.

General and administrative expenses

	For the Year Ended
	December 31,	Change
	2015 2014	Amount	%
	(U.S. dollars in millions,	except percentage)
General and administrative expenses	$41.4 $32.1	$9.3	29.0
as a percentage of total sales	14.0% 13.2%		0.8

For 2015, our general and administrative expenses increased by $9.3 million, or 29.0%, to $41.4 million from $32.1 million for 2014. As a percentage of total sales, general and administrative expenses increased by 0.8% to 14.0% for 2015 from 13.2% for 2014. The increase in general and administrative expenses was mainly due to the increase of share-based compensation expenses totaling $6.7 million. In addition, the disposal losses on assets increased by $2.7 million for 2015 as compared to 2014.

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Research and development expenses

	For the Year	Ended	Ended
	December	31,		Change
	2015	2014		Amount	%
	(U.S. dollars in		millions,	except percentage)
Research and development expenses	$6.0		$4.2	$1.8		42.9
as a percentage of total sales	2.0%		1.7%			0.3

For 2015, our research and development expenses increased by $1.8, or 42.9%, to $6.0 million from $4.2 million for 2014. In 2015 and 2014, we received government grants totaling $1.2 million and $2.1 million respectively and recognized them as a reduction of research and development expenses. Excluding this impact, our research and development expenses increased by $0.9 million for 2015 from 2014. As a percentage of total sales, our research and development expenses, excluding the impact of the government grants, decreased by 0.2% to 2.4% for 2015 from 2.6% for 2014. The increase of our research and development expenses was mainly due to the expenditures paid for certain clinical trial programs in 2015.

Provision for other receivables in respect of an employee housing development project

In 2014, we made a full provision of $5.1 million for all the receivables in respect of an employee housing development project at Shandong Taibang because it became probable that these receivables may not be recoverable after all legal means of collection were exhausted.

Equity in (loss) income of equity method investee

Our equity method investment represented our 35.0% equity interest in Huitian, our equity method investee. For 2015, our equity in (loss) income of equity method investee decreased by $9.9 million to a loss of $1.3 million from income of $8.6 million for 2014. Huitian suspended its production and began to construct a new production facility to meet the new GMP standard in late 2013. Huitian incurred operation losses during the suspension period in 2015 as it did not commence production at its new facility until February 2016. In 2014, Huitian disposed a subsidiary, recognizing a gain of RMB116.7 million (approximately $19.0 million).

Income tax expense

	For the Year Ended
	December 31,	Change
	2015 2014	Amount	%
	(U.S. dollars in millions,	except percentage)
Income tax expense	$21.0 $26.6	$(5.6)	(21.1)
Effective income tax rate	15.5% 21.7%		(6.2)

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APPENDIX IV

Our provision for income taxes decreased by $5.6 million, or 21.1%, to $21.0 million for 2015 from $26.6 million for 2014. For 2014, we incurred the dividend withholding income tax of $8.9 million in respect of the dividends declared or to be declared by Shandong Taibang. With our plan to reinvest Shandong Taibang’s earnings in its business operations, we no longer incurred dividend withholding income tax in respect of Shandong Taibang since 2015 following an internal corporate restructuring.

Excluding the impact of dividend withholding income tax, our effective income tax rates were 15.5% and 14.4% for 2015 and 2014, respectively. The statutory tax rate applicable to our major operating subsidiaries in the PRC for 2015 and 2014 was 15.0%.

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash flows from operations, augmented by bank borrowings and equity contributions by our stockholders. As of December 31, 2015, we had $144.9 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits, and $38.0 million in time deposits.

The following table sets forth a summary of our cash flows for the periods indicated:

Cash Flow

Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Effects of exchange rate change in cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year	For the Year Ended December 31, 2015 2014 2013 (U.S. dollars in millions) $109.4 $93.5 $74.3 (89.8) (13.4) (25.6) 51.6 (142.8) (38.5) (7.1) (0.6) 4.3 64.1 (63.3) 14.5 80.8 144.1 129.6 $144.9 $80.8 $144.1

Operating activities

Cash inflows from operating activities totaled $109.4 million in 2015, $93.5 million in 2014, and $74.3 million in 2013. Cash inflows increased by $15.9 million in 2015 as compared to 2014 and increased by $19.2 million in 2014 as compared to 2013. Such increases in cash inflows from

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operations were mainly in line with the improvements in our results of operations in 2015 and 2014, partially offset by an increase in accounts receivable and inventories during the relevant years.

Accounts receivable

Our average collection speed of accounts receivable slowed down slightly in 2015 as compared to 2014. The accounts receivable turnover days for plasma products were 34 days, 31 days, and 30 days for 2015, 2014, and 2013, respectively. The increase in turnover days for 2015 was primarily due to the extended credit terms granted to certain distributors for human rabies immunoglobulin products. In 2015, we adjusted our sales strategy by granting extended credit terms to certain qualified distributors of human rabies immunoglobulin products to assist in their bidding efforts with provincial centers for disease control and prevention. In prior years, these distributors were required to make the payments in advance of our product deliveries. Excluding this impact, the turnover days would have been 32 days for both 2015 and 2014.

Inventories

Cash outflows for inventories increased in both 2015 and 2014. The increases in inventory for 2015, 2014 and 2013 were $32.1, $13.4 million and $10.4 million, respectively. As compared to 2014, the increase of inventories in 2015 was mainly attributable to the source plasma and plasma pastes purchased from Xinjiang Deyuan. As compared to 2013, the increase of inventories in 2014 was mainly attributable to an increase in work-in-process and finished goods at Guizhou Taibang following its resumption of production in March 2014 and, to a lesser extent, an increase in raw materials consistent with our expanded plasma collection volume.

Investing activities

Cash outflows from investing activities for 2015 was $89.8 million, as compared to $13.4 million and $25.6 million for 2014 and 2013, respectively. In 2015, we paid $52.3 million for the acquisition of property, plant and equipment, intangible assets and land use rights and provided a long-term loan of $40.7 million to Xinjiang Deyuan, partially offset by government grants of $2.5 million in connection with our purchase of property, plant and equipment.

In 2014, we paid $21.9 million for the acquisition of property, plant and equipment, intangible assets and land use rights, partially offset by a $1.6 million refund of deposits from the local government due to a decrease in the size of a land parcel purchased by Guizhou Taibang and proceeds of $6.6 million from the maturity of a time deposit made in 2013.

In 2013, we paid $21.8 million for the acquisition of property, plant and equipment, intangible assets and land use right, partially offset by a $2.1 million refund of deposits from the local government due to a decrease in the size of a land parcel purchased by Guizhou Taibang.

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Financing activities

Cash inflows from financing activities for 2015 totaled $51.6 million, as compared to cash outflows from financing activities totaled $142.8 million and $38.5 million for 2014 and 2013, respectively. Cash inflows from financing activities in 2015 mainly consisted of net proceeds of $80.6 million from a follow-on offering of our company’s common stock in June 2015, proceeds of $63.2 million from the maturity of deposits used as security for bank loans, proceeds of $15.8 million from a short-term bank loan and proceeds of $7.7 million from stock options exercised, partially offset by repayments of bank loans totaling $113.5 million and a dividend of $3.7 million held in escrow by a trial court in connection with disputes with a minority shareholder of Guizhou Taibang.

Cash outflows from financing activities in 2014 mainly consisted of a payment of $86.8 million for acquisition of noncontrolling interest in Guizhou Taibang, a dividend payment of $8.8 million by our subsidiaries to noncontrolling interest shareholders and a payment of $70.0 million for repurchase of shares from an individual stockholder, partially offset by proceeds of $33.2 million from a follow-on offering of our company’s common stock.

Cash outflows from financing activities in 2013 mainly consisted of a payment of $29.6 million for share repurchase and a dividend payment of $16.9 million by our subsidiaries to the noncontrolling interest shareholders.

Management believes that our company has sufficient cash on hand and will continue to have positive cash inflow for its operations from the sale of its products in the PRC market.

Obligations under Material Contracts

The following table sets forth our material contractual obligations as of December 31, 2015:

Contractual Obligations Operating lease commitment Purchase commitment Capital commitment Total	Total 0.3 85.2 30.3 115.8	Payments due by period Less than one year One to three years Three to five years (U.S. dollars in millions) 0.1 — — 31.2 54.0 — 27.3 3.0 — 58.6 57.0 —	More than five years 0.2 — —
			0.2

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APPENDIX IV

Seasonality of our Sales

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Inflation

Inflation does not materially affect our business or the results of our operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

Critical Accounting Policies

The preparation of financial statements in conformity with United States generally accepted accounting principles, or U.S. GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment and intangibles with definite lives, the allowances for doubtful accounts, the fair value determinations of equity instruments and stock compensation awards, the realizability of deferred tax assets and inventories, the recoverability of intangible assets, land use rights, property, plant and equipment, equity method investment and loan receivable, and accruals for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Allowance for doubtful accounts

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APPENDIX IV

receivable aging and customers’ payment patterns. We review our allowance for doubtful accounts monthly. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers.

We generally ask our distributors to pay in advance before we deliver products, with few exceptions for a credit period of no longer than 60 days. For hospitals and clinics, depending on the relationship and the creditability, we generally grant a credit period of no longer than 90 days with exceptions to customers, which we believe are credit worthy, of up to six months. We have provided a bad debt allowance of $34,902, $6,211 and $31,567 respectively for 2015, 2014 and 2013. Due to recovery of bad debt that we previously provided an allowance, the recoveries of bad debt provision was nil, $30,673 and nil for 2015, 2014 and 2013, respectively.

Inventories

Inventories are stated at the lower of cost or market. Adjustments are recorded to write down the carrying amount of any obsolete and excess inventory to its estimated net realizable value based on historical and forecasted demand.

We review the inventory periodically for possible obsolete goods and cost in excess of net realizable value to determine if any reserves are necessary. Provisions to write-down the carrying amount of obsolete inventory to its estimated net realizable value amounted to $76,587, $324,584 and nil for 2015, 2014 and 2013, respectively, and were recorded as cost of sales in the consolidated statements of comprehensive income.

Long-lived assets

Long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

(2) The following is an extract from the management discussion and analysis of the results of the CBPO Group for the year ended December 31, 2016 from the 2016 annual report of CBPO.

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APPENDIX IV

Comparison of years ended December 31, 2016 and 2015

Sales

Our total sales increased by 15.1%, or $44.7 million, to $341.2 million for 2016, compared to $296.5 million for 2015. In RMB terms, which is a non-GAAP measure, our total sales increased by 22.8% for 2016 as compared to 2015. The increase in sales for 2016 was primarily attributable to the increase in the sales price of human tetanus immunoglobulin products and the increase in the sales volume of human albumin products, placenta polypeptide and human tetanus immunoglobulin products, partially offset by the decrease in the sales volume of IVIG products.

The following table summarizes the breakdown of sales by major types of products:

Human albumin Immunoglobulin products: IVIG Other immunoglobulin products Placenta polypeptide Others Totals	For the Year Ended December 31, Change 2016 2015 $ % $ % Amount % (U.S. dollars in millions, except percentage) 133.7 39.2 111.4 37.6 22.3 20.0 117.9 34.6 125.1 42.2 (7.2) (5.8) 40.1 11.8 22.5 7.6 17.6 78.2 32.2 9.4 27.2 9.2 5.0 18.4 17.3 5.0 10.3 3.4 7.0 68.0 341.2 100.0 296.5 100.0 44.7 15.1

For 2016 as compared to 2015:

. the average price for our approved human albumin products, which represented 39.2% of our total sales for 2016, increased by 1.5% in RMB terms (which is a non-GAAP measure) and decreased by 4.9% in USD terms; and
. the average price for our approved IVIG products, which represented 34.6% of our total sales for 2016, increased by 4.2% in RMB terms (which is a non-GAAP measure) and decreased by 2.3% in USD terms.

The average sales price of our human albumin and IVIG products increased in RMB term for 2016 as compared to 2015, following the removal of the retail price ceiling for drug products effective on June 1, 2015, owing to the increased market demand for human albumin and IVIG products.

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APPENDIX IV

The sales volume of our human albumin products increased by 26.2% for 2016 as compared to 2015, which was primarily attributable to the increased production volume at Shandong Taibang and Guizhou Taibang as a result of increased plasma supply volume. The sales volume of our IVIG products decreased by 3.6% for 2016 as compared to 2015, primarily due to the depletion of IVIG pastes we reserved from prior years that were processed and sold in 2015 and the allocation of more production facilities to human tetanus immunoglobulin products with higher margin in 2016.

The sales increase of other immunoglobulin products for 2016 as compared to 2015 was mainly attributable to the increase in both average sales price and sales volume of human tetanus immunoglobulin products. The sales volume of our human tetanus immunoglobulin increased by 41.9% for 2016 as compared to 2015. The average sales price of human tetanus immunoglobulin products increased significantly for 2016 as compared to 2015 due to the significant market supply shortage following the removal of the retail price ceiling for drug products effective on June 1, 2015.

The sales increase of placenta polypeptide products was generally in line with the sales volume increase for 2016 as compared to 2015. The sales volume of placenta polypeptide products increased by 22.6% for 2016 as compared to 2015, primarily because we increased our market penetration into more hospitals through our improved sales capabilities.

The sales increase of other products for 2016 as compared to 2015 was mainly due to the increase in sales volume of both factor VIII and PCC, sales of which we ramped up in 2016.

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APPENDIX IV

Cost of sales & gross profit

	For the Year Ended
	December 31,	Change
	2016 2015	Amount	%
	(U.S. dollars in millions,	except percentage)
Cost of sales	$124.0 $106.5	$17.5	16.4
as a percentage of total sales	36.4% 35.9%		0.5
Gross Profit	$217.2 $190.0	$27.2	14.3
Gross Margin	63.6% 64.1%		(0.5)

Our cost of sales was $124.0 million, or 36.4% of our sales, for 2016, as compared to $106.5 million, or 35.9% of our sales for 2015. Our gross profit was $217.1 million and $190.0 million for 2016 and 2015, respectively, representing gross margins of 63.6% and 64.1%, respectively.

Our cost of sales and gross margin are affected by the product pricing, raw material costs, product mix, yields and manufactory efficiency. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to donors consistent with the industry practice. We expect the nutrition fees to be paid to donors will continue to increase as a result of improving living standards in China. Consequently, future improvements on margins will need to be derived from increases in product pricing, yields and manufacturing efficiency, as well as from optimizing the product mix.

The increase of cost of sales was mainly due to the increases in the sales volume of human albumin products, placenta polypeptide products and human tetanus immunoglobulin products, which was partially offset by the decrease in the sales volume of IVIG products. The increase in cost of sales as a percentage of sales for 2016 as compared to 2015 was mainly due to the higher cost of plasma purchased from Xinjiang Deyuan, which was partially offset by the increase in the average sales price of certain plasma products and a more profitable product mix.

Operating expenses

	For the Year Ended
	December 31,	Change
	2016 2015	Amount	%
	(U.S. dollars in millions,	except percentage)
Operating expenses	$73.2 $57.4	$15.8	27.5
as a percentage of total sales	21.5% 19.4%		2.1

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FINANCIAL INFORMATION OF THE CBPO GROUP

Our total operating expenses increased by $15.8 million, or 27.5%, to $73.2 million for 2016 from $57.4 million for 2015. As a percentage of total sales, total expenses increased by 2.1% to 21.5% for 2016 from 19.4% for 2015. The increase of the total operating expenses was primarily due to the combined effect of the increase of general and administrative expenses and selling expenses as discussed below.

Selling expenses

	For the Year Ended	For the Year Ended
	December 31,		Change
	2016	2015	Amount	%
	(U.S. dollars in millions,		except percentage)
Selling expenses	$11.7	$10.0	$1.7	17.0
as a percentage of total sales	3.4%	3.4%		—

For 2016, our selling expenses increased by $1.7 million, or 17.0%, to $11.7 million from $10.0 million for 2015. As a percentage of total sales, our selling expenses for 2016 remained stable as compared to 2015. The increase of the selling expenses was in line with the sales growth in 2016 as compared to 2015.

General and administrative expenses

	For the Year Ended
	December 31,	Change
	2016 2015	Amount	%
	(U.S. dollars in millions,	except percentage)
General and administrative expenses	$54.5 $41.4	$13.1	31.6%
as a percentage of total sales	16.0% 14.0%		2.0

For 2016, our general and administrative expenses increased by $13.1 million, or 31.6%, to $54.5 million from $41.4 million for 2015. As a percentage of total sales, general and administrative expenses increased by 2.0% to 16.0% for 2016 from 14.0% for 2015. The increase in general and administrative expenses was mainly due to the increase of share-based compensation expenses of $12.3 million.

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APPENDIX IV

Research and development expenses

For the Year Ended

	December 31,		Change
	2016	2015	Amount	%
	(U.S. dollars in	millions,	except percentage)
Research and development expenses	$7.0	$6.0	$1.0	16.7%
as a percentage of total sales	2.1%	2.0%		0.1

For 2016, our research and development expenses increased by $1.0 million, or 16.7%, to $7.0 million from $6.0 million for 2015. In 2016 and 2015, we received government grants totaling $0.8 million and $1.2 million, respectively, and recognized them as a reduction of research and development expenses. Excluding this impact, our non-GAAP research and development expenses increased by $0.6 million for 2016 from 2015. As a percentage of total sales, our non-GAAP research and development expenses, excluding the impact of these recognized government grants, decreased by 0.1% to 2.3% for 2016 from 2.4% for 2015.

Equity in (loss) income of equity method investee

Our equity method investment represented our 35.0% equity interest in Huitian, our equity method investee. For 2016, our equity in income (loss) of equity method investee increased by $3.8 million to a gain of $2.5 million from a loss of $1.3 million for 2015. Huitian suspended its production and began to construct a new production facility to meet the new GMP standard in late 2013. Huitian incurred operation losses during the suspension period in 2015 as it did not commence production at its new facility until February 2016.

Income tax expense

	For the Year Ended
	December 31,	Change
	2016 2015	Amount	%
	(U.S. dollars in millions,	except percentage)
Income tax expense	$25.1 $21.0	$4.1	19.5
Effective income tax rate	16.3% 15.5%		0.8

Our provision for income taxes increased by $4.1 million, or 19.5%, to $25.1 million for 2016 from $21.0 million for 2015. Our effective income tax rates were 16.3% and 15.5% for 2016 and 2015, respectively. The increase of effective income tax rate was mainly due to that on a percentage basis, greater losses were generated by China Biologic in U.S. for 2016 as compared to 2015, most of which were provided valuation allowance.

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APPENDIX IV

Foreign Currency Exchange Impact

All of our consolidated revenues and consolidated costs of sales and majority of expenses, as well as all of our assets (except for certain cash balances) are denominated in RMB, whereas our reporting currency is U.S. dollars. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. dollars and RMB. For details, see ‘‘Item 7A. Quantitative and Qualitative Disclosures about Market Risk — Foreign Exchange Risk.’’

Given that our operations are primarily in China, we evaluate certain key items of our financial results on a local currency basis (i.e., in RMB) in addition to the reporting currency (i.e., in USD). The local currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing local currency information on such key items enhances the understanding of our financial results and evaluation of performance in comparison to prior periods. We calculate changes in local currency percentages by comparing financial results denominated in RMB from period to period.

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash flows from operations, augmented by bank borrowings and equity contributions by our stockholders. As of December 31, 2016, we had $183.8 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits.

The following table sets forth a summary of our cash flows for the periods indicated:

Cash Flow

Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities Effects of exchange rate change in cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year	For the Year Ended December 31, 2016 2015 2014 (U.S. dollars in millions) $123.3 $109.4 $93.5 (52.5) (89.8) (13.4) (22.1) 51.6 (142.8) (9.8) (7.1) (0.6) 38.9 64.1 (63.3) 144.9 80.8 144.1 $183.8 $144.9 $80.8

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APPENDIX IV

Operating activities

Cash inflows from operating activities totaled $123.3 million in 2016, $109.4 million in 2015, and $93.5 million in 2014. Cash inflows increased by $13.9 million in 2016 as compared to 2015 and increased by $15.9 million in 2015 as compared to 2014. Such increases in cash inflows from operations were mainly in line with the improvements in our results of operations in 2016 and 2015, partially offset by an increase in accounts receivable and inventories during the relevant years.

Accounts receivable

Our average collection speed of accounts receivable slowed down slightly in 2016 as compared to 2015. The accounts receivable turnover days for plasma products were 41 days, 34 days, and 31 days for 2016, 2015, and 2014, respectively. The increase in turnover days for 2016 was primarily due to the extended credit terms granted to certain qualified hospitals in 2016 for enhancing our business relationship with certain key customers. In 2015, we adjusted our sales strategy by granting extended credit terms to certain qualified distributors of human rabies immunoglobulin products to assist in their bidding efforts with provincial centers for disease control and prevention. In prior years, these distributors were required to make the payments in advance of our product deliveries.

Inventories

Cash outflows for inventories increased in both 2016 and 2015. The increases in inventory for 2016, 2015 and 2014 were $40.1, $32.1 million and $13.4 million, respectively. The increase of inventories in 2016 as compared to 2015 was mainly attributable to the increase in source plasma purchased from Xinjiang Deyuan as well as the increase of finished goods in preparation for Shandong Taibang’s facility transition. The increase of inventories in 2015 as compared to 2014 was mainly attributable to the source plasma and plasma pastes purchased from Xinjiang Deyuan.

Investing activities

Cash outflows from investing activities for 2016 was $52.5 million, as compared to $89.8 million and $13.4 million for 2015 and 2014, respectively. In 2016, we paid $51.0 million for the acquisition of property, plant and equipment, intangible assets and land use rights and provided loans of $12.3 million to Xinjiang Deyuan, which was partially offset by a $10.3 million refund of deposits on land use rights from the local government.

In 2015, we paid $52.3 million for the acquisition of property, plant and equipment, intangible assets and land use rights and provided a long-term loan of $40.7 million to Xinjiang Deyuan, which was partially offset by government grants of $2.5 million in connection with our purchase of property, plant and equipment.

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APPENDIX IV

In 2014, we paid $21.9 million for the acquisition of property, plant and equipment, intangible assets and land use rights, which was partially offset by a $1.6 million refund of deposits from the local government due to a decrease in the size of a land parcel purchased by Guizhou Taibang and proceeds of $6.6 million from the maturity of a time deposit made in 2013.

Financing activities

Cash outflows from financing activities for 2016 totaled $22.1 million, as compared to cash inflows from financing activities totaled $51.6 million and cash outflows from financing activities totaled $142.8 million for 2015 and 2014, respectively.

Cash outflows from financing activities in 2016 mainly consisted of payment of $58.1 million to the former minority shareholders of Guizhou Taibang in connection with their capital withdrawal from Guizhou Taibang (See Item 3 ‘‘Legal Proceedings’’) and a dividend payment of $7.9 million by our subsidiary to noncontrolling interest shareholder, partially offset by the maturity of a $37.8 million time deposit as a security for a bank loan that was fully repaid in June 2015 and proceeds of $3.6 million from stock option exercised.

Cash inflows from financing activities in 2015 mainly consisted of net proceeds of $80.6 million from a follow-on offering of our company’s common stock in June 2015, proceeds of $63.2 million from the maturity of deposits used as security for bank loans, proceeds of $15.8 million from a short-term bank loan and proceeds of $7.7 million from stock options exercised, partially offset by repayments of bank loans totaling $113.5 million and a dividend of $3.7 million held in escrow by a trial court in connection with disputes with a minority shareholder of Guizhou Taibang.

Management believes that our company has sufficient cash on hand and will continue to have positive cash inflow for its operations from the sale of its products in the PRC market.

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APPENDIX IV

Obligations under Material Contracts

The following table sets forth our material contractual obligations as of December 31, 2016:

		Payments due by	Payments due by	period
		Less than	One to	Three	to	More than
Contractual Obligations	Total	one year	three years	five years		five years
		(U.S.	dollars in millions)
Operating lease commitment	1.1	0.4	0.6		—	0.1
Purchase commitment	44.7	25.4	19.3		—	—
Capital commitment	27.4	24.6	2.8		—	—
Total	73.2	50.4	22.7		—	0.1

Seasonality of our Sales

Inflation

Inflation does not materially affect our business or the results of our operations.

Off-Balance Sheet Arrangements

Critical Accounting Policies

Use of estimates

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APPENDIX IV

results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment and intangibles with definite lives, the allowances for doubtful accounts, the fair value determinations of equity instruments and stock compensation awards, the realizability of deferred tax assets and inventories, the recoverability of intangible assets, land use rights, property, plant and equipment, equity method investment and loan receivable, and accruals for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, the customers’ financial condition, the amount of accounts receivable in dispute, the accounts receivable aging and customers’ payment patterns. We review our allowance for doubtful accounts monthly. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers.

We generally ask our distributors to pay in advance before we deliver products, with few exceptions for a credit period of no longer than 60 days. For hospitals and clinics, depending on the relationship and the creditability, we generally grant a credit period of no longer than 90 days with exceptions to customers, which we believe are credit worthy, of up to six months. We have provided a bad debt allowance of $123,239, $34,902 and $6,211 respectively for 2016, 2015 and 2014. Due to recovery of bad debt that we previously provided an allowance, the recoveries of bad debt provision was nil, nil and $30,673 for 2016, 2015 and 2014, respectively.

Inventories

We review the inventory periodically for possible obsolete goods and cost in excess of net realizable value to determine if any reserves are necessary. Provisions to write-down the carrying amount of obsolete inventory to its estimated net realizable value amounted to $256,862, $76,587 and $324,584 for 2016, 2015 and 2014, respectively, and were recorded as cost of sales in the consolidated statements of comprehensive income.

Long-lived assets

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FINANCIAL INFORMATION OF THE CBPO GROUP

long-lived asset or asset group be tested for possible impairment, we first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

(3) The following is an extract from the management discussion and analysis of the results of the CBPO Group for the six months ended June 30, 2017 from the quarterly report of CBPO for the fiscal quarter ended June 30, 2017.

Comparison of Six Months Ended June 30, 2017 and June 30, 2016

Sales

Our sales increased by $3.7 million, or 2.1%, to $180.7 million for the six months ended June 30, 2017, compared to $177.0 million for the same period in 2016. In RMB terms, our total sales increased by 7.4% for the six months ended June 30, 2017 as compared to the same period in 2016. The increase in sales in RMB terms for the six months ended June 30, 2017 was primarily attributable to the sales increase in placenta polypeptide products, certain hyper-immune products and human albumin.

The following table summarizes the breakdown of sales by major types of product:

Human albumin Immunoglobulin products: IVIG Other immunoglobulin products Placenta polypeptide Others Totals	For the Six Months Ended June 30, Change 2017 2016 Amount % Amount % Amount % (U.S. dollars in millions, except percentage) 69.2 38.3 70.3 39.7 (1.1) (1.6) 61.4 34.0 64.8 36.6 (3.4) (5.2) 21.0 11.6 17.1 9.7 3.9 22.8 19.5 10.8 16.6 9.4 2.9 17.5 9.6 5.3 8.2 4.6 1.4 17.1 180.7 100.0 177.0 100.0 3.7 2.1

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APPENDIX IV

During the six months ended June 30, 2017 as compared to the six months ended June 30, 2016:

. the average price for our approved human albumin products, which accounted for 38.3% of our total sales for the six months ended June 30, 2017, decreased by 1.9% and 6.8% in RMB term and in USD term, respectively, mainly due to the combined effect of both a decrease in price we charged certain distributors reflective of intensified market competition and a lower sales proportion from the higher-unit-price dosages; and
. the average price for our approved IVIG products, which accounted for 34.0% of our total sales for the six months ended June 30, 2017, increased by 2.3% in RMB term and decreased by 2.8% in USD term mainly due to an increase in price we charged the company’s major distributors.

The sales volume of human albumin products increased by 5.6% for the six months ended June 30, 2017 as compared to the same period in 2016, primarily due to enhanced production and sales volume at Guizhou Taibang as a result of increased plasma supply volume. The sales volume of IVIG products decreased by 2.5% for the six months ended June 30, 2017 as compared to the same period in 2016, primarily due to a high comparison base in the six months period ended June 30, 2016 when we sold the IVIG products processed from the approximately 143 tonnes of source plasma and plasma pastes outsourced from Xinjiang Deyuan in 2015.

Revenue from hyper-immune products, which were included in other immunoglobulin products, increased by 26.1% in USD term for the six months ended June 30, 2017 as compared to the same period in 2016, mainly attributable to an increase in sales of human rabies immunoglobulin, reflecting our enhanced production volume in response to a strong market demand.

Revenue from placenta polypeptide products increased by 23.5% and 17.5% in RMB term and USD term, respectively, reaching 10.8% of total sales, for the six months ended June 30, 2017 as compared to the same period in 2016, attributable to higher-than-normal product sales volume in the first quarter of 2017 possibly in anticipation of the nationwide implementation of a two-invoice policy system which will potentially result in a higher billing price for distributors in the future.

Revenue from human coagulation factor VIII and human prothrombin complex concentrate, which are included in other plasma products, increased by 29.3% and 22.9% in RMB term and USD term, respectively, for the six months ended June 30, 2017 as compared to the same period in 2016, reflecting our continued medical marketing activities, representing at 5.3% of total sales for the six months period ended June 30, 2017.

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APPENDIX IV

Cost of sales and gross profit

For the Six Months Ended

	June 30,		Change
	2017	2016	Amount	%
	(U.S. dollars	in millions,	except percentage)
Cost of sales	62.3	65.5	(3.2)	(4.9)
as a percentage of total sales	34.5%	37.0%	(2.5)
Gross Profit	118.4	111.5	6.9	6.2
Gross Margin	65.5%	63.0%		2.5

Our cost of sales was $62.3 million, or 34.5% of our sales for the six months ended June 30, 2017, as compared to $65.5 million, or 37.0% of our sales for the same period in 2016. Our gross profit was $118.4 million and $111.5 million for the six months ended June 30, 2017 and 2016, respectively, representing gross margins of 65.5% and 63.0%, respectively.

The decrease in cost of sales as a percentage of sales for the six months ended June 30, 2017 as compared to the same period in 2016 was mainly due to greater sales proportion of highermargin hyper-immune products and placenta polypeptide products, as well as lower sales proportion of the high-cost outsourced raw plasma.

Operating expenses

For the Six Months Ended

	June 30,		Change
	2017	2016	Amount	%
	(U.S. dollars	in millions,	except percentage)
Operating expenses	40.2	30.6	9.6	31.4
as a percentage of total sales	22.2%	17.3%		4.9

Our total operating expenses increased by $9.6 million, or 31.4%, to $40.2 million for the six months ended June 30, 2017, from $30.6 million for the same period in 2016. As a percentage of sales, total operating expenses increased by 4.9% to 22.2% for the six months ended June 30, 2017, from 17.3% for the same period in 2016. The increase in the total operating expenses was mainly due to the increase in the selling expenses and general and administrative expenses as discussed below.

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APPENDIX IV

Selling expenses

	For the Six Months Ended	For the Six Months Ended
	June 30,		Change
	2017	2016	Amount	%
	(U.S. dollars in millions,		except percentage)
Selling expenses	7.4	4.3	3.1	72.1
as a percentage of total sales	4.1%	2.4%		1.7

Our selling expenses increased by $3.1 million, or 72.1%, to $7.4 million for the six months ended June 30, 2017, from $4.3 million for the same period in 2016. As a percentage of sales, our selling expenses increased by 1.7% to 4.1% for the six months ended June 30, 2017, from 2.4% for the same period in 2016, primarily due to higher marketing and promotion costs related to placenta polypeptide products, coagulation factor products and certain hyper-immune products.

General and administrative expenses

For the Six Months Ended

	June 30,		Change
	2017	2016	Amount	%
	(U.S. dollars	in millions,	except percentage)
General and administrative
expenses	29.5	23.9	5.6	23.4
as a percentage of total sales	16.3%	13.5%		2.8

Our general and administrative expenses increased by $5.6 million, or 23.4%, to $29.5 million for the six months ended June 30, 2017, from $23.9 million for the same period in 2016. General and administrative expenses as a percentage of sales increased by 2.8% to 16.3% for the six months ended June 30, 2017, from 13.5% for the same period in 2016. The increase in general and administrative expenses was mainly due to the increase in share-based compensation expenses totaling $6.9 million, as well as a prepayment provision of $1.2 million incurred in the second quarter of 2016.

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APPENDIX IV

Research and development expenses

	For the Six Months Ended	For the Six Months Ended
	June 30,		Change
	2017	2016	Amount	%
	(U.S. dollars in millions,		except percentage)
Research and development
expenses	3.3	2.4	0.9	37.5
as a percentage of total sales	1.8%	1.4%		0.4

Our research and development expenses increased by $0.9 million, or 37.5%, to $3.3 million for the six months ended June 30, 2017, from $2.4 million for the same period in 2016, mainly due to the expenditure incurred for certain clinical trial programs for the six months period ended June 30, 2017.

Income tax

For the Six Months Ended

	June 30,		Change
	2017	2016	Amount	%
	(U.S. dollars in millions,		except percentage)
Income tax	13.8	13.6	0.2	1.5
as a percentage of total sales	7.6%	7.7%		(0.1)

Our provision for income taxes increased by $0.2 million, or 1.5%, to $13.8 million for the six months ended June 30, 2017, from $13.6 million for the same period in 2016. Our effective income tax rate was 16.6% and 16.2% for the six months ended June 30, 2017 and 2016, respectively. The difference between the effective income tax rates and statutory income tax rate of 25% for the six months ended June 30, 2017 and 2016 was primarily due to the application of a preferential tax rate of 15% to both Guizhou Taibang and Shandong Taibang in 2017 and 2016, which was partially offset by valuation allowances against the deferred tax assets of China Biologic in the U.S. relating to operating losses.

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash flows from operations, supplemented by bank borrowings and equity contributions by our shareholders. As of June 30, 2017, we had $223.2 million in cash and cash equivalents, primarily consisting of demand deposits.

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APPENDIX IV

The following table provides the summary of our cash flows for the periods indicated:

	For the Six Months Ended	For the Six Months Ended
	June 30,
	2017	2016
	(U.S. dollars in millions)
Net cash provided by operating activities	36.9	57.0
Net cash used in investing activities	(16.6)	(26.3)
Net cash provided by financing activities	14.8	32.2
Effects of exchange rate change on cash	4.3	(3.8)
Net increase in cash and cash equivalents	39.4	59.1
Cash and cash equivalents at beginning of the period	183.8	144.9
Cash and cash equivalents at end of the period	223.2	204.0

Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2017 was $36.9 million, as compared to $57.0 million for the same period in 2016. The decrease in net cash provided by operating activities was primarily due to the increases in accounts receivable and inventories.

Accounts receivable

Accounts receivable increased by $26.1 million during the six months ended June 30, 2017, as compared to $13.9 million in the same period of 2016. The accounts receivable turnover days for plasma products increased to 51 days during the first half year of 2017 from 35 days in the first half year of 2016. The increased turnover days are combined results of a higher percentage of direct sales and a higher concentration on large hospital customers and distributor customers that typically request longer credit terms.

Inventories

Inventories increased by $22.8 million in the six months period ended June 30, 2017, mainly comprising of outsourced and our self-collected raw material plasma increase. This increase was higher than the inventory increase of $12.5 million in the same quarter of 2016, mainly because we had to stockpile sufficient inventories in preparation for the planned temporary production suspension at our Shandong facility.

Investing Activities

Our use of cash for investing activities was primarily for the acquisition of property, plant and equipment and a long-term loan to a third party.

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APPENDIX IV

FINANCIAL INFORMATION OF THE CBPO GROUP

Net cash used in investing activities for the six months ended June 30, 2017 was $16.6 million, as compared to $26.3 million for the same period in 2016. During the six months ended June 30, 2017 and 2016, we paid $16.6 million and $26.6 million, respectively, for the acquisition of property, plant and equipment, land use rights and intangible assets for Shandong Taibang and Guizhou Taibang. In addition, during the six months ended June 30, 2016, we granted a loan of $6.3 million to Xinjiang Deyuan pursuant to a cooperation agreement we entered into with Xinjiang Deyuan in August 2015.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2017 was $14.8 million, as compared to net cash provided by financing activities of $32.2 million for the same period in 2016. The net cash provided by financing activities in the six months period ended June 30, 2017 mainly consisted of $14.3 million short-term loan net proceeds. The net cash provided by financing activities for the six months ended June 30, 2016 mainly consisted of $2.4 million proceeds from the exercise of stock options and the maturity of a $37.8 million time deposit as a security collateral for a 24-month loan which was fully repaid in June 2015, partially offset by a dividend of $7.9 million paid to the noncontrolling shareholder by Shandong Taibang.

Management believes that our company has sufficient cash on hand and will continue to have positive cash inflow for its operations from the sale of its products in the PRC market.

Obligations under Material Contracts

The following table sets forth our material contractual obligations as of June 30, 2017:

Contractual Obligations Operating lease commitment Purchase commitment Capital commitment Total	Total 0.8 25.1 23.0 48.9	Payments Due by Period Less than one year One to three years Three to five years (U.S. dollars in millions) 0.4 0.3 — 22.3 2.8 — 20.7 2.3 — 43.4 5.4 —	More than five years 0.1 — —
			0.1

Seasonality of Our Sales

– IV-160 –

FINANCIAL INFORMATION OF THE CBPO GROUP

APPENDIX IV

Inflation

Inflation does not materially affect our business or the results of our operations.

Off-Balance Sheet Arrangements

Critical Accounting Policies

Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or different assumptions being used. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

– IV-161 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

I. UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is an illustrative unaudited pro forma consolidated balance sheet, an illustrative unaudited pro forma consolidated income statement, an illustrative unaudited pro forma consolidated statement of comprehensive income and an illustrative unaudited pro forma consolidated statement of cash flows of the Group (the ‘‘Unaudited Pro Forma Financial Information’’) which have been prepared by the Directors to illustrate the effect of the subscription of approximately 16.66% of the enlarged issued share capital of CBPO in consideration of the entire issued share capital of Health Forward (the ‘‘Transactions’’) as if it had taken place on 30 June 2017 for the unaudited pro forma consolidated balance sheet and on 1 January 2016 for the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows.

The Unaudited Pro Forma Financial Information has been prepared by the Directors for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position, results of operations and cash flows of the Group had the Transactions been completed on 1 January 2016 or 30 June 2017 where applicable, or at any future dates.

– V-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

Unaudited Pro Forma Consolidated Balance Sheet

Assets Non-current assets Land use rights Property, plant and equipment Intangible assets Investment in associates Deferred income tax assets Long-term prepayments Current assets Inventories Amount due from related parties Trade and other receivables Available-for-sale financial assets Cash and cash equivalents Total assets Equity Equity attributable to owners of the Company Share capital Share premium Other reserves Retained earnings Non-controlling interests Total equity	Unaudited consolidated balance sheet of the Group as at 30 June 2017 RMB’000 Note 1 60,237 830,440 828,270 — 3,874 4,923 1,727,744 64,048 — 269,141 600,373 415,739 1,349,301 3,077,045 973 1,511,415 406,514 824,301 2,743,203 177,643 2,920,846	Pro forma adjustments RMB’000 RMB’000 RMB’000 RMB’000 Note 2(a)(i) Note 2(a)(ii) Note 2(b) Note 2(c) (12,595) (28,201) (638,902) 3,380,000 (1,481) (18,557) (20,632) (515,023) 535,655 (4,473) (600,373) (67,983) (642) (266,229) (6,658) 2,012,179 (2) (179,451)	Unaudited pro forma consolidated balance sheet of the Group as at 30 June 2017 RMB’000 47,642 802,239 189,368 3,380,000 2,393 4,923 4,426,565 45,491 — 264,668 — 80,885 391,044 4,817,609 973 1,511,415 399,856 2,836,478 4,748,722 (1,808) 4,746,914

– V-2 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

Liabilities Non-current liabilities Deferred income tax liabilities Deferred income Current liabilities Amount due to related parties Trade and other payables Current income tax liabilities Total liabilities Total equity and liabilities	Unaudited consolidated balance sheet of the Group as at 30 June 2017 RMB’000 Note 1 51,941 1,183 53,124 — 101,418 1,657 103,075 156,199 3,077,045	Pro forma adjustments RMB’000 RMB’000 RMB’000 RMB’000 Note 2(a)(i) Note 2(a)(ii) Note 2(b) Note 2(c) (42,576) (36,295) (492,607) 528,902 (48,785) 6,755 (894) (4)	Unaudited pro forma consolidated balance sheet of the Group as at 30 June 2017 RMB’000 9,365 1,183
			10,548
			— 59,388 759
			60,147
			70,695
			4,817,609

– V-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

Unaudited Pro Forma Consolidated Income Statement

Continuing operations Revenue Cost of sales Gross profit Selling expenses Administrative expenses Research and development expenses Other gains — net Operating profit Finance income — net Share of post-tax profit of associates Profit before income tax Income tax expenses Profit for the year from continuing operations Discontinued operations Loss for the year from discontinued operations Profit for the year Profit/(loss) attributable to: Owners of the Company Non-controlling interests Profit/(loss) attributable to owners of the Company arises from: Continuing operations Discontinued operations	Audited consolidated income statement of the Group for the year ended 31 December 2016 RMB’000 Note 1 566,822 (148,629) 418,193 (77,276) (56,652) (19,664) 14,139 278,740 4,485 — 283,225 (43,068) 240,157 (46,711) 193,446 194,949 (1,503) 193,446 241,660 (46,711) 194,949	Pro forma adjustments RMB’000 RMB’000 RMB’000 RMB’000 Note 3(a)(i) Note 3(a)(ii) Note 3(b) Note 3(c) (247,239) 39,353 35,580 11,331 61 (1,240) 7,952 (2,151) (56) 2,675,797 (210) (56) 72,829 22,856 5 (264,956) (132,528) (46) 2,409,601 72,829 (132,528) (46) 2,409,601 72,829	Unaudited pro forma consolidated income statement of the Group for the year ended 31 December 2016 RMB’000 319,583 (109,276) 210,307 (41,696) (46,500) (11,712) 2,687,729 2,798,128 4,219 72,829 2,875,176 (285,163) 2,590,013 (46,711) 2,543,302 2,544,805 (1,503) 2,543,302 2,591,516 (46,711) 2,544,805

– V-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

Unaudited Pro Forma Consolidated Statement of Comprehensive Income

Profit for the year Other comprehensive income: Items that may be reclassified to profit or loss Currency translation differences Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: — Owners of the Company — Non-controlling interests Total comprehensive income for the year Total comprehensive income attributable to owners of the Company arises from: Continuing operations Discontinued operations	Audited consolidated statement of comprehensive income of the Group for the year ended 31 December 2016 RMB’000 Note 1 193,446 105 105 193,551 195,054 (1,503) 193,551 241,765 (46,711) 195,054	Pro forma adjustments RMB’000 RMB’000 RMB’000 RMB’000 Note 3(a)(i) Note 3(a)(ii) Note 3(b) Note 3(c) (132,528) (46) 2,409,601 72,829 (29,441) (132,528) (46) 2,409,601 43,388 (132,528) (46) 2,409,601 43,388	Unaudited pro forma consolidated statement of comprehensive income of the Group for the year ended 31 December 2016 RMB’000 2,543,302 (29,336) (29,336) 2,513,966 2,515,469 (1,503) 2,513,966 2,562,180 (46,711) 2,515,469

– V-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

Unaudited Pro Forma Consolidated Statement of Cash Flows

Audited consolidated statement of cash flows of the Group for the year ended 31 December 2016 RMB’000 Note 1 324,380 (57,617)	Pro forma adjustments	Unaudited pro forma consolidated statement of cash flows of the Group for the year ended 31 December 2016 RMB’000 146,464 (45,849)
	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 4(a)(i) Note 4(a)(ii) Note 3(b) Note 4(b) Note 4(c) (176,861) 185 (1,240) 29,062 (17,294) 1,516 762 309,700 (247,662) 130,000 (130,000) (310,859) (187) (325) 31,500 130,000 31,500 (31,500) (98,431) (2,058) (3) (9)
266,763		100,615
(29,908) (4,366) (270,562) (630) (1,218) (309,700) — — 310,859 589 3,979 40,000 —		(29,908) (2,850) (269,800) (630) (1,218) — (247,662) — — 402 3,654 40,000 31,500
(260,957)		(476,512)
(147,721) 102 — —		(147,721) 102 130,000 —
(147,619)		(17,619)
(141,813) 288,224 3,152		(393,516) 187,735 3,140
149,563		(202,641)

– V-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

II. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The amounts are extracted from the unaudited consolidated balance sheet of the Group as at 30 June 2017 as set out in the Appendix II of this circular; the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 31 December 2016 as set out in the Appendix I to this Circular.
The following pro forma adjustments have been made to the unaudited pro forma consolidated balance sheet assuming the Transactions had taken place on 30 June 2017:
(a) (i) The adjustment represents the exclusion of assets and liabilities of Tianxinfu. The amounts have been extracted from the interim consolidated balance sheet of Tianxinfu as at 30 June 2017 as set out in note 29 of Appendix II to this Circular.
- (ii) The adjustment represents the exclusion of assets and liabilities of Health Forward. The amounts have been extracted from the assets and liabilities of Health Forward as at 30 June 2017 as set out in note 29 of Appendix II to this Circular.
(b) The adjustment represents the estimated consideration for the Transactions of approximately RMB3,380 million and the related income tax, withholding and other tax expenses relating to the intra-group reorganisation and disposal of Health Forward.

The estimated gain on disposal of Health Forward assuming the Transactions had taken place on 30 June 2017 is calculated as follows:

Total consideration
Less: Carrying amount of net assets of Tianxinfu and Health Forward
as at 30 June 2017
Add: Release of foreign exchange reserves attributable to Health Forward
Release of reserves of change in value of available-for-sale
financial assets attributable to Tianxinfu
Add: Non-controlling interest of Tianxinfu
Estimated gain before withholding tax
Less: withholding tax
Estimated gain after withholding tax
Less: Income tax expenses of intra-group reorganisation
Stamp tax expenses of intra-group reorganisation
Estimated net gain

RMB’000
3,380,000
(1,287,701)
3,514
3,144
179,451
2,278,408
(247,695)
2,030,713
(17,294)
(1,240)
2,012,179

The following pro forma adjustments have been made to the unaudited pro forma consolidated income statement and unaudited pro forma consolidated statement of comprehensive income assuming the Transactions had taken place on 1 January 2016:
(a) (i) The adjustment represents the exclusion of operating results of Tianxinfu. The amounts have been extracted from the financial information of Tianxinfu for the year ended 31 December 2016 as set out in note 42 of Appendix I to this Circular.

– V-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

(ii) The adjustment represents the exclusion of operating results of Health Forward. The amounts have been extracted from the unaudited financial information of Health Forward for the year ended 31 December 2016 as set out in note 42 of Appendix I to this Circular.
(b) The adjustment represents the estimated net gain on disposal of Health Forward assuming the Transactions had taken place on 1 January 2016.

Total consideration
Less: Carrying amount of net assets of Tianxinfu and
Health Forward as at 1 January 2016
Add: Release of foreign exchange reserves attributable to Health Forward
Add: Non-controlling interest of Tianxinfu
Estimated gain before withholding tax
Less: withholding tax
Estimated gain after withholding tax
Less: Income tax expenses of intra-group reorganisation
Other tax expenses of intra-group reorganisation
Estimated net gain

RMB’000
3,380,000
(708,705)
3,335
1,167
2,675,797
(247,662)
2,428,135
(17,294)
(1,240)
2,409,601

(c) The adjustment represents share of profit of investment in the CBPO. After completion of the Transaction, the Group will account for the result of CBPO using equity method. This adjustment has taken into account of depreciations or amortisations arising from the uplift of fair values of the net identifiable assets/liabilities of the CBPO Group.

Profit attributable to owners of CBPO (note (i)) Add: profit attributable to owners of Tianxinfu profit attributable to owners of Health Forward Less: depreciations or amortisations arising from the uplift of fair values of the net identifiable assets/liabilities of the CBPO Group after deferred tax (note (ii)) Total 16.66% Share of profit of investment in CBPO Group	For year ended 31 December 2016 RMB’000 648,169 132,528 46 (343,593) 437,150 72,829

Note (i) Profit attributable to owners of CBPO was arrived at using the adjusted profit attributable to owners of CBPO for the year ended 31 December 2016 of approximately US$96,521,000, as set out in page IV-119 of Appendix IV, after converting into RMB using the average exchange rate for the year ended 31 December 2016.

– V-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

  - Note (ii) Depreciations or amortisations were estimated on the uplift of the fair values of the net identifiable assets/liabilities of approximately RMB4,092 million arose from Technology, Trademark, Land used rights and Property, plant and equipment, excluding goodwill, using the straight-line method over their respective useful lives ranging from 8 to 45 years. The fair values remeasurement of the net identifiable assets/liabilities have been assessed by the Directors of the Company using the valuation results made by an independent valuer as at 30 June 2017.

The following pro forma adjustments are made to the unaudited pro forma consolidated statement of cash flows assuming the Transactions had taken place on 1 January 2016:
(a) (i) The adjustment represents the exclusion of cash flows of Tianxinfu. The amounts have been extracted from the financial information of Tianxinfu for the year ended 31 December 2016 as set out in note 42 of Appendix I to this Circular.
- (ii) The adjustment represents the exclusion of cash flows of Health Forward. The amounts have been extracted from the financial information of Health Forward for the year ended 31 December 2016 as set out in note 42 of Appendix I to this Circular.
(b) The adjustment represents the dividend paid by Tianxinfu to the Group during the year ended 31 December 2016.
(c) The adjustment represents the intra-group loan granted by Tianxinfu to the Group during the year ended 31 December 2016.
Apart from above, no adjustments have been made to the unaudited pro forma consolidated balance sheet and the unaudited pro form consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows to reflect any trading results or other transactions of the Group entered into subsequent to 30 June 2017 or 31 December 2016, respectively.

– V-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

III. REPORT FROM THE REPORTING ACCOUNTANT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [78 x 57] intentionally omitted <==

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

To the Directors of PW Medtech Group Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of PW Medtech Group Limited (the ‘‘Company’’) and its subsidiaries (collectively the ‘‘Group’’), which has been prepared by the directors to illustrate the effect of the subscription of approximately 16.66% of the enlarged issued share capital of China Biologic Products Holdings, Inc., (the ‘‘CBPO’’) in consideration of the entire issued share capital of Health Forward Holdings Limited (the ‘‘Transaction’’). The unaudited pro forma financial information consists of an illustrative unaudited pro forma consolidated balance sheet as at 30 June 2017, an illustrative unaudited pro forma consolidated income statement, an illustrative unaudited pro forma consolidated statement of comprehensive income and an illustrative pro forma consolidated statement of cash flow for the year ended 31 December 2016, and related notes (the ‘‘Unaudited Pro Forma Financial Information’’) as set out on pages V-1 to V-9 of the Company’s circular dated 14 November 2017 (the ‘‘Circular’’), in connection with the Transaction by the Company. The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described on pages V-1 to V-9.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact of the Transaction on the Group’s financial position as at 30 June 2017 and the Group’s financial performance and cash flows for the year ended 31 December 2016 as if the Transaction had taken place at 30 June 2017 and 1 January 2016 respectively. As part of this process, the Unaudited Pro Forma Financial Information is prepared based on (i) the Group’s financial position, financial performance and cash flows has been extracted by the directors from the Group’s financial statements for the period ended 30 June 2017 and for the year ended 31

– V-10 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX V

December 2016, as set out in appendix II and I to the Circular, respectively; (ii) CBPO’s unaudited adjusted financial information under the Company’s policies as at 30 June 2017 or for the year ended 31 December 2016 and as set out in appendix IV to the Circular.

DIRECTORS’ RESPONSIBILITY FOR THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars (‘‘AG 7’’) issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’).

OUR INDEPENDENCE AND QUALITY CONTROL

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

REPORTING ACCOUNTANT’S RESPONSIBILITIES

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus, issued by the HKICPA. This standard requires that the reporting accountant plans and performs procedures to obtain reasonable assurance about whether the directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

– V-11 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transaction at 30 June 2017 or 31 December 2016 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

. The related pro forma adjustments give appropriate effect to those criteria; and
. The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the company, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

OPINION

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 14 November 2017

– V-12 –

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

Interests of Directors in Securities

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was taken or deemed to have under such provisions of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register referred to therein; or (c) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) set out in Appendix 10 to the Listing Rules, were as follows:

(A) Long position in the Shares

			Approximate
			percentage+ of
		Number of	the Company’s
		Shares	issued share
Name of Director	Capacity	interested	capital
Ms. Yue’e ZHANG	Beneficial owner	50,000	0.003%
Mr. JIANG Liwei	Beneficial owner	2,638,714	0.17%
Mr. LIN Junshan	Beneficial owner	1,673,427	0.11%
Mr. CHEN Geng	Beneficial owner	318,472	0.02%

– VI-1 –

GENERAL INFORMATION

APPENDIX VI

(B) Long position in underlying Shares — physically settled unlisted equity derivatives

			Approximate
		Number of	percentage+ of
		underlying	underlying
		Shares in	Shares over the
		respect of the	Company’s
		share options	issued share
Name of Director	Capacity	granted	capital
Mr. CHEN Geng	Beneficial owner	318,471*	0.02%
Mr. WANG Xiaogang	Beneficial owner	318,471*	0.02%

The exercise price per Share of the share options granted is RMB0.626 and the exercise period of the share options is from May 8, 2014 to July 5, 2023.
- The percentage represents the number of Shares/underlying Shares interested divided by the number of issued Shares as at the Latest Practicable Date.

Save as disclosed above, none of the Directors or the chief executive of the Company has any interests and/or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

Interests of Directors in the Group’s Assets or Contracts or Arrangements Significant to the Group

As at the Latest Practicable Date, none of the Directors had any interest in any asset which have been, since December 31, 2016 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the businesses of the Group.

3. SERVICE CONTRACTS

As at the Latest Practicable Date, there was no existing or proposed service contract, excluding contract expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation) between any of the Directors of the Company and any member of the Group.

– VI-2 –

GENERAL INFORMATION

APPENDIX VI

4. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or, so far as is known to them, any of their respective associates was interested in any business (apart from the Group’s businesses) which competes or is likely to compete, either directly, or indirectly with the Group’s businesses (as would be required to be disclosed under Rule 8.10 of the Listing Rules as if each of them were a controlling shareholder).

5. MATERIAL ADVERSE CHANGES

The Directors confirm that there was no material adverse changes in the financial or trading position of the Group since December 31, 2016 (being the date to which the latest published audited accounts of the Company were made up).

6. LITIGATION

As of the Latest Practicable Date, none of the members of the Group were engaged in any litigation or arbitration or claim of material importance affecting its business operation, and the Directors were not aware of any litigation or arbitration or claim of material importance affecting its business operation which was pending or threatened by or against any member of the Group.

7. MATERIAL CONTRACTS

Except for the Share Exchange Agreement and the Investor Rights Agreement (the details of which are disclosed in this circular), the following contracts have been entered into by the Group (not being contracts entered into in the ordinary course of business) within the two years preceding the date of this circular:

(i) the agreement dated February 27, 2017, and entered into among:
(a) Xinyu Yongshuo Management and Consulting LLP (新餘永碩管理諮詢合夥企業(有限合夥));
(b) Tianxinfu;
(c) PW Medtech (Beijing) Limited (普華和順(北京)醫療科技有限公司); and
(d) Health Access Limited;

in relation to the increase in the registered capital of Tianxinfu from RMB45 million to RMB56.25 million by issuing an aggregate of 11,250,000 new shares of Tianxinfu to Xinyu Yongshuo Management and Consulting LLP at a total consideration of RMB500 million;

– VI-3 –

GENERAL INFORMATION

APPENDIX VI

(ii) the equity transfer agreement dated December 24, 2016, and entered into among:
(a) PWM Investment Holdings Company Limited;
(b) Health Forward;
(c) Tianjin Yingshang Technological Development Co., Ltd. (天津英尚科技發展有限公司);
(d) Tianjin Walkman Biomaterial Co., Ltd. (天津市威曼生物材料有限公司); and
(e) Zhangjiakou Guorong Enterprise Management LLP (張家口國榮企業管理中心(有限合夥));

in relation to the transfer of all equity interests of Tianjin Walkman Biomaterial Co., Ltd. held by PWM Investment Holdings Company Limited and Health Forward, namely 79.02% equity interests of Tianjin Walkman Biomaterial Co., Ltd. in aggregate;

(iii) the equity transfer agreement dated December 24, 2016, and entered into among:
(a) PWM Investment Holdings Company Limited;
(b) Tianjin Walkman Biomaterial Co., Ltd.;
(c) Shenzhen Bone Medical Device Co., Ltd. (深圳市博恩醫療器材有限公司); and
(d) Zhangjiakou Guorong Enterprise Management LLP;

in relation to the transfer of all equity interests of Shenzhen Bone Medical Device Co., Ltd. held by PWM Investment Holdings Company Limited, namely 88.57% equity interests in Shenzhen Bone Medical Device Co., Ltd.; and

(iv) the agreement dated December 24, 2016, and entered into among:
(a) PWM Investment Holdings Company Limited;
(b) Lhasa Tianqiong Investment Management Co., Ltd. (拉薩天穹投資管理有限公司); and
(c) Zhangjiakou Guorong Enterprise Management LLP;

in relation to the transfer of all equity interests of Lhasa Tianqiong Investment Management Co., Ltd., held by PWM Investment Holdings Company Limited, namely 100% equity interests in Lhasa Tianqiong Investment Management Co., Ltd.

The total consideration for (ii), (iii) and (iv) above was RMB450 million.

– VI-4 –

GENERAL INFORMATION

APPENDIX VI

EXPERT
(a) The following are the qualifications of the expert who has given opinion or advice contained in this circular:

Name

Qualification

PricewaterhouseCoopers Certified Public Accountants

(b) PricewaterhouseCoopers has given and has not withdrawn its written consent to the issue of this circular, with inclusion of its report and/or letter dated November 14, 2017 and references to its name in the form and context in which it appears.
(c) As at the Latest Practicable Date, PricewaterhouseCoopers did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(d) As at the Latest Practicable Date, PricewaterhouseCoopers had no interest in any asset which have been since December 31, 2016 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to, any member of the Group.

MISCELLANEOUS

(a) Ms. SO Yee Kwan (ACS, ACIS) is the company secretary of the Company.
(b) The registered office of the Company is situated at The Grand Pavilion Commercial Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Islands.
(c) The principal place of business in Hong Kong of the Company is situated at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(d) The Hong Kong branch share registrar and transfer office of the Company is Tricor Investor Services Limited which is situated at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

Save as otherwise stipulated in this circular, in the event of any inconsistency between the English version and the Chinese version, the English version shall prevail.

– VI-5 –

GENERAL INFORMATION

APPENDIX VI

DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s principal place of business in Hong Kong at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong from the date of this circular up to 14 days thereafter:

(i) the Articles of Association;
(ii) the Share Exchange Agreement;
(iii) the Investor Rights Agreement;
(iv) the letter from the Board, the text of which is set out in this circular;
(v) the accountant’s report on the Group for the three financial years ended December 31, 2016 and the unaudited financial information for the six months ended June 30, 2017 of the Group, including the relevant financial information of the Disposal Business, as set forth in Appendix I and Appendix II to this circular;
(vi) the audited financial information of the CBPO Group for each of the financial years ended December 31, 2014, 2015 and 2016 and the unaudited financial information of the CBPO Group for the three and six months ended June 30, 2017 prepared under U.S. GAAP as set out in Appendix IV to this circular;
(vii) a line-by-line reconciliation of CBPO’s financial information for the differences between CBPO’s accounting policies under U.S. GAAP and the Company’s accounting policies under HKFRS as set out in Appendix IV to this circular;
(viii) the report on the unaudited pro forma financial information of the New Group from PricewaterhouseCoopers, the text of which is set out in Appendix V to this circular;
(ix) a written statement signed by PricewaterhouseCoopers setting out the adjustments made by them in arriving at the figures shown in their reports set out in the Appendix I and Appendix II to this circular and giving the reasons therefor;
(x) the written consent of the expert referred to in the paragraph headed ‘‘Expert’’ in this appendix;
(xi) the material contracts referred to in the paragraph headed ‘‘Material Contracts’’ in this appendix; and
(xii) this circular.

– VI-6 –

NOTICE OF EGM

PW MEDTECH GROUP LIMITED 普華和順集團公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1358)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the ‘‘Meeting’’) of PW Medtech Group Limited (the ‘‘Company’’) will be held at 10:00 a.m. on Friday, December 1, 2017 at 1002–1003, Block C, Focus Square, No. 6 Futong East Avenue, Wangjing, Chaoyang District, Beijing, The People’s Republic of China for the purposes of considering and, if thought fit, passing the following resolution:

ORDINARY RESOLUTION

‘‘THAT

(a) the share exchange agreement dated October 12, 2017 (the ‘‘Share Exchange Agreement’’) entered into between the Company and China Biologic Products Holdings, Inc. (‘‘CBPO’’), and the transactions contemplated thereunder, be and are hereby confirmed, approved and ratified;
(b) the investor rights agreement (the ‘‘Investor Rights Agreement’’) to be entered into between the Company and CBPO at the closing of the Share Exchange Agreement, and the transactions contemplated thereunder, be and are hereby approved and any one director of the Company be authorized to sign the same on behalf of the Company; and
(c) any one director of the Company be and is hereby authorized on behalf of the Company to do all such acts and sign, execute, seal (where required) and deliver the Investor Rights Agreement and all such other documents and to take all such steps as the directors of the Company in their discretion may consider necessary, appropriate, desirable or expedient for the purposes of giving effect to or in connection with the Share Exchange Agreement and the Investor Rights Agreement and the transactions contemplated thereunder.’’

By order of the Board

PW Medtech Group Limited 普华和順集团公司 Yue’e Zhang Chairman

Hong Kong, November 14, 2017

– EGM-1 –

NOTICE OF EGM

Notes:

Any member of the Company entitled to attend and vote at the Meeting (or any adjournment thereof) is entitled to appoint a proxy to attend and vote instead of him/her/it. A proxy need not be a member of the Company. A member who is the holder of two or more shares of the Company may appoint more than one proxy to represent him/her/it to attend and vote on his/her/its behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
In order to be valid, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, must be deposited at the Company’s branch share registrar in Hong Kong (i.e. Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong) as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the Meeting (i.e. not later than 10:00 a.m. (Hong Kong time) on Wednesday, November 29, 2017) or any adjournment thereof (as the case may be). Delivery of the form of proxy shall not preclude a member of the Company from attending and voting in person at the Meeting and, in such event, the form of proxy shall be deemed to be revoked.
To ascertain shareholders’ eligibility to attend and vote at the Meeting, the register of members of the Company will be closed from Tuesday, November 28, 2017 to Friday, December 1, 2017 (both days inclusive), during which period no share transfer will be effected. In order to qualify for attending and voting at the Meeting, unregistered holders of shares of the Company should ensure that all completed transfer forms accompanied by the relevant share certificates are lodged with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited (at its address shown in Note 2 above) for registration no later than 4:30 p.m. (Hong Kong time), on Monday, November 27, 2017.

– EGM-2 –

AI assistant

PW Medtech Group Limited — Proxy Solicitation & Information Statement 2017

49875_rns_2017-11-13_ff696062-30d1-4f22-b4f4-b1fd64bea05a.pdf

PW MEDTECH GROUP LIMITED 普 華 和 順 集 團 公 司

VERY SUBSTANTIAL ACQUISITION AND VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE PROPOSED SUBSCRIPTION FOR CBPO SHARES IN CONSIDERATION OF THE DISPOSAL BUSINESS AND

NOTICE OF EGM

‘‘EGM’’

PW MEDTECH GROUP LIMITED 普 華 和 順 集 團 公 司

VERY SUBSTANTIAL ACQUISITION AND VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE PROPOSED SUBSCRIPTION FOR CBPO SHARES IN CONSIDERATION OF THE DISPOSAL BUSINESS AND

NOTICE OF EGM

1. INTRODUCTION

2. THE AGREEMENTS

Date

Parties

Subject Matter

Consideration

Conditions Precedent

Closing

Indemnification

Termination

The Investor Rights Agreement

Parties

Registration Rights

Board Representation

Transfer Restrictions

Investment Restrictions

Voting Agreement

3. CORPORATE STRUCTURE OF THE GROUP

Simplified corporate structure of the Group as at the Latest Practicable Date

Simplified corporate structure of the Group immediately after the Closing

4. INFORMATION ON THE PARTIES AND TIANXINFU

The Company

Health Forward

Tianxinfu

CBPO

Financial Information on Tianxinfu and CBPO

(1) Tianxinfu

(2) CBPO

5. REASONS FOR AND BENEFITS OF THE TRANSACTION

6. PROPOSED A SHARE LISTING OF TIANXINFU

7. LISTING RULES IMPLICATIONS

8. WAIVER FROM STRICT COMPLIANCE WITH RULE 14.69(4)(A)(I) OF THE LISTING RULES AND CHAPTER 4 OF THE LISTING RULES

9. EGM AND PROXY ARRANGEMENT

10. CLOSURE OF REGISTER OF MEMBERS

11. RECOMMENDATION

12. ADDITIONAL INFORMATION

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF PW MEDTECH GROUP LIMITED

Introduction

Directors’ responsibility for the Historical Financial Information

Reporting accountant’s responsibility

Opinion

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE OF HONG KONG LIMITED

Adjustments

PricewaterhouseCoopers

Certified Public Accountants

I. HISTORICAL FINANCIAL INFORMATION OF THE GROUP

Preparation of Historical Financial Information

Consolidated Balance Sheets

Balance sheets of the Company

Consolidated Income Statements

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION OF THE GROUP

1 GENERAL INFORMATION

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation

2.1.1 Changes in accounting policy and disclosures

HKFRS 9, ‘Financial instruments’

2.2 Subsidiaries

2.2.1 Consolidation

(b) Changes in ownership interests in subsidiaries without change of control

(c) Disposals of subsidiaries

2.2.2 Separate financial statements

2.3 Segment reporting

2.4 Foreign currency translation

(a) Functional and presentation currency

(b) Transactions and balances

2.5 Land use rights

2.6 Property, plant and equipment

PW Medtech Group Limited Proxy Solicitation & Information Statement 2017

PW MEDTECH GROUP LIMITED 普華和順集團公司

PW MEDTECH GROUP LIMITED 普華和順集團公司