SPT — Annual Report 2016

Nov 14, 2016

SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2016 AND 2015

-----------------------------------------------------------------------------------------------------------------------------------For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

SCINOPHARM TAIWAN, LTD.

Declaration of Consolidated Financial Statement of Affiliated Enterprises

For the year ended December 31, 2016, pursuant to “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises,” the entities that are required to be included in the consolidated financial statements of affiliates, are the same as the entities required to be included in the consolidated financial statements under International Financial Reporting Standards 10. In addition, information required to be disclosed in the consolidated financial statements of affiliates is included in the aforementioned consolidated financial statements. Accordingly, it is not required to prepare a separate set of consolidated financial statements of affiliates.

Hereby declare,

SCINOPHARM TAIWAN, LTD. March 28, 2017

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REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Stockholders of ScinoPharm Taiwan, Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of ScinoPharm Taiwan, Ltd. and subsidiaries (the “Group”) as at December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standard, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Group’s consolidated financial statements of 2016. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Cutoff of export revenue

Description

Please refer to Note 4(28) to the consolidated financial statements for accounting policy on revenue recognition.

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The Group’s sales revenue mainly arose from manufacture and sale of generic drugs and primarily are export sales. The Group recognizes export sales revenue based on the terms and conditions of transactions which vary with different customers. For sales transactions in a certain period around balance sheet date, it is essential to ensure whether the significant risks and rewards of ownership have been transferred to the customers. As revenue recognition of export sales is subject to management’s judgement on whether risks and rewards has been properly transferred, and contains the risk of inappropriate recognition timing, we consider the cutoff of export revenue a key audit matter.

How our audit addressed the matter

Our key audit procedures performed in respect of the above key audit matter included the following:

1. We obtained understanding and assessed the effectiveness of internal controls over cutoff of sales revenue, and tested the effectiveness of internal controls on shipment and billing.

2. We checked the completeness and performed cutoff tests on a random basis on the export sales details in a certain period around balance sheet date, which includes checking the terms and conditions of transaction, verifying against supporting documents, and checking whether inventory changes records and sales cost had been recognized in the proper period.

Inventory valuation

Description

Please refer to Note 4(11) for accounting policies on inventory valuation, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on inventory valuation, and Note 6(3) for detailed items of inventories. As of December 31, 2016, the balances of inventory and allowance for inventory valuation losses were $ 2,330,847 thousand and $ 501,137 thousand, respectively.

The Group is primarily engaged in antineoplastic drug and advanced generic drugs. As the manufacturing process is long and complex, causing longer materials lead time, in addition, the waiting period for product registration is long, and customers’ product launch time might be deferred, there is higher risk of incurring loss on inventory valuation. For inventories sold in regular way, the Group measures inventories at the lower of cost and net realisable value. For inventories age over a certain period of time and are individually identified as obsolete inventories, the net realisable value is calculated based on the historical information of inventory turn-over. Since the calculation of net realisable value involves subjective judgement and uncertainty and the ending balance of inventory was material to the financial statements, we consider the valuation of inventory a key audit matter.

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How our audit addressed the matter

Our key audit procedures performed in respect of the above key audit matter included the following:

1. We assessed the reasonableness of provision policies and procedures on allowance for inventory valuation losses, including the historical data of inventory turn-over and judgement of obsolete inventory.

2. We checked the accuracy of inventory aging report, and recalculated the reasonableness of allowance for inventory valuation losses to ensure the report is consistent with the Group’s policies.

3. We selected inventory part numbers on a random basis and verified its net realizable value to evaluate the reasonableness of allowance for inventory valuation losses.

Other matter – Parent company only financial reports

We have audited and expressed an unmodified opinion on the parent company only financial statements of ScinoPharm Taiwan, Ltd. as at and for the years ended December 31, 2016 and 2015.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standard, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance, including audit committee, are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when

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it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

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

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

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

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

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

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

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

Lin, Yung-Chih

Independent Accountants

Lee, Ming-Hsien

PricewaterhouseCoopers, Taiwan

Republic of China March 28, 2017

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The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

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SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of New Taiwan dollars)

Assets	Notes 6(1) 6(2) 5(2) and 6(3) 6(4)(17)(26) 6(5)(7)(26) and 7 5(2) and 6(24) 6(5)(26) 8 6(6)	December 31, 2016 AMOUNT % $ 3,707,151 29 638,405 5 197,897 2 1,829,710 14 212,212 2 - - 6,585,375 52 364,089 3 5,208,898 41 24,078 - 414,414 3 65,466 - 9,739 - 28,831 - 82,110 1 6,197,625 48 $ 12,783,000 100	December 31, 2015	December 31, 2015
		AMOUNT $ 3,707,151 638,405 197,897 1,829,710 212,212 - 6,585,375 364,089 5,208,898 24,078 414,414 65,466 9,739 28,831 82,110 6,197,625 $ 12,783,000	AMOUNT $ 2,335,697 867,231 207,955 2,169,208 168,603 284,216 6,032,910 338,907 5,170,714 22,918 372,644 157,961 10,448 24,734 90,359 6,188,685 $ 12,221,595	%
Current assets 1100 Cash and cash equivalents 1170 Accounts receivable, net 1200 Other receivables 130X Inventory 1410 Prepayments 1476 Other financial assets - current 11XX Total current assets Non-current assets 1543 Financial assets measured at cost- non-current 1600 Property, plant and equipment 1780 Intangible assets 1840 Deferred income tax assets 1915 Prepayments for equipment 1920 Guarantee deposits paid 1980 Other financial assets - non- current 1985 Long-term prepaid rent 15XX Total non-current assets 1XXX Total assets				19 7 2 18 1 2
				49
				3 43 - 3 1 - - 1
				51
				100

(Continued)

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SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December 31, 2016 Notes AMOUNT % 6(8) $ 982,705 8 6(9) 2,822 - 1,001 - 69,730 1 6(10)(26) and 7 430,020 3 6(24) 110,911 1 62,384 - 6(11) and 9 32,120 - 1,691,693 13 6(11) and 9 770,873 6 6(24) 877 - 6(12) 70,053 1 21,711 - 863,514 7 2,555,207 20 6(13)(16) 7,603,262 59 6(14)(15) 1,275,660 10 6(13)(16)(24) 460,196 4 22,829 - 869,300 7 6(17) ( 3,454) - 10,227,793 80 9 $ 12,783,000 100	December 31, 2015	December 31, 2015
		AMOUNT $ 1,702,306 145 995 91,060 336,932 100,009 43,536 - 2,274,983 - 3,368 62,854 23,397 89,619 2,364,602 7,310,829 1,265,544 396,699 22,829 791,997 69,095 9,856,993 $ 12,221,595	%
Current liabilities 2100 Short-term borrowings 2120 Financial liabilities at fair value through profit or loss - current 2150 Notes payable 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2310 Advance receipts 2320 Long-term liabilities, current portion 21XX Total current liabilities Non-current liabilities 2540 Long-term borrowings 2570 Deferred income tax liabilities 2640 Net defined benefit liabilities - non-current 2645 Guarantee deposits received 25XX Total non-current liabilities 2XXX Total liabilities Equity attributable to owners of the parent Share capital 3110 Share capital - common stock 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Undistributed earnings 3400 Other equity interest 3XXX Total equity Significant contingent liabilities and unrecognized contract commitments 3X2X Total liabilities and equity			14 - - - 3 1 - -
			18
			- - 1 -
			1
			19
			60 10 3 - 7 1
			81
			100

The accompanying notes are an integral part of these consolidated financial statements.

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SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)

Items

YearendedDecember31 2016 2015 Notes AMOUNT % AMOUNT % 6(18) $ 4,030,921 100 $ 3,955,207 100 6(3)(12)(22)(23) and 9 ( 2,224,960) ( 55) ( 2,278,553) ( 58) 1,805,961 45 1,676,654 42 6(2)(6)(12)(22)(23), 7 and 9 ( 169,971) ( 4) ( 157,036) ( 4) ( 488,139) ( 12) ( 445,701) ( 11) ( 279,575) ( 7) ( 324,214) ( 8) ( 937,685) ( 23) ( 926,951) ( 23) 868,276 22 749,703 19 6(2)(19) 40,705 1 47,751 1 6(4)(5)(7)(9)(20) and 12 ( 62,265) ( 1) 13,694 - 6(5)(21)(26) ( 36,116) ( 1) ( 9,018) - - - 754 - ( 57,676) ( 1) 53,181 1 810,600 21 802,884 20 6(24) ( 151,907) ( 4) ( 167,919) ( 4) $ 658,693 17 $ 634,965 16 6(12) ($ 7,393) - $ 6,821 - 6(24) 1,258 - ( 1,160) - 6(17) ( 72,549) ( 2) ( 31,579) ( 1) ($ 78,684) ( 2) ($ 25,918) ( 1) $ 580,009 15 $ 609,047 15 $ 658,693 17 $ 634,965 16 $ 580,009 15 $ 609,047 15 6(25) $ 0.87 $ 0.84 6(25) $ 0.86 $ 0.83

4000 Operating revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6000 Total operating expenses 6900 Operating profit Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7060 Share of profit of associates and joint ventures accounted for under equity method 7000 Total non-operating income and expenses 7900 Profit before income tax 7950 Income tax expense 8200 Profit for the year Other comprehensive income (loss) Components of other comprehensive income (loss) that will not be reclassified to profit or loss 8311 Other comprehensive income, before tax, actuarial gains 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8361 Other comprehensive income, before tax, exchange differences on translation 8300 Other comprehensive loss for the year 8500 Total comprehensive income for the year Profit attributable to: 8610 Owners of the parent Comprehensive income attributable to: 8710 Owners of the parent Earnings per share (in dollars) 9750 Basic 9850 Diluted

The accompanying notes are an integral part of these consolidated financial statements.

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SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Expressed in thousands of New Taiwan dollars)

For the year ended December 31, 2015 Balance at January 1, 2015 Distribution of 2014 net income: Legal reserve Cash dividends Stock dividends Employee stock option compensation cost Net income for the year ended December 31, 2015 Other comprehensive loss for the year ended December 31, 2015 Balance at December 31, 2015 For the year ended December 31, 2016 Balance at January 1, 2016 Distribution of 2015 net income: Legal reserve Cash dividends Stock dividends Employee stock option compensation cost Net income for the year ended December 31, 2016 Other comprehensive loss for the year ended December 31, 2016 Balance at December 31, 2016	Notes				Equity attributable to owners ofthe parent	Equity attributable to owners ofthe parent	Equity attributable to owners ofthe parent	Equity attributable to owners ofthe parent	Equity attributable to owners ofthe parent	Equity attributable to owners ofthe parent			Totalequity
			Share capital - commonstock		Capital reserves			RetainedEarnings				Other Equity
							Legal reserve		Special reserve	Undistributed earnings		Financial statements translation differences of foreign operations
	6(16) 6(13)(16) 6(14)(15) 6(16) 6(13)(16) 6(14)(15)		$ 7,029,643 - - 281,186 - - - $ 7,310,829 $ 7,310,829 - - 292,433 - - - $ 7,603,262		$ 1,257,277 - - - 8,267 - - $ 1,265,544 $ 1,265,544 - - - 10,116 - - $ 1,275,660		$ 348,285 48,414 - - - - - $ 396,699 $ 396,699 63,497 - - - - - $ 460,196		$ 22,829 - - - - - - $ 22,829 $ 22,829 - - - - - - $ 22,829	$ 621,563 ( 48,414) ( 140,592) ( 281,186) - 634,965 5,661 $ 791,997 $ 791,997 ( 63,497) ( 219,325) ( 292,433) - 658,693 ( 6,135) $ 869,300	$ 100,674 - - - - - ( 31,579) $ 69,095 $ 69,095 - - - - - ( 72,549) ($ 3,454)		$ 9,380,271 - ( 140,592) - 8,267 634,965 ( 25,918) $ 9,856,993 $ 9,856,993 - ( 219,325) - 10,116 658,693 ( 78,684) $10,227,793

The accompanying notes are an integral part of these consolidated financial statements.

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SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments Adjustments to reconcile profit (loss) Provision/(reversal) for doubtful accounts Loss on inventory market price decline Provision for obsolescence of supplies Share of profit of associates and joint ventures accounted for under the equity method Gain on disposal of investments accounted for under the equity method Depreciation Loss on disposal of property, plant and equipment Impairment loss (gain on reversal) Amortization Amortization of long-term prepaid rent Loss (gain) on valuation of financial liabilities Employee stock option compensation cost Interest income Interest expense Changes in operating assets and liabilities Changes in operating assets Notes receivable Accounts receivable Other receivables Inventories Prepayments Changes in operating liabilities Notes payable Accounts payable Other payables Advance receipts Net defined benefit liabilities - non-current Cash inflow generated from operations Interest received Interest paid Income tax paid Net cash flows from operating activities

Notes Forthe years endedDecember31, 2016 2015 $ 810,600 $ 802,884 6(2) 596 ( 43 ) 6(3) 110,571 68,569 11,167 7,531 - ( 754 ) 6(4)(20) - ( 95,381 ) 6(5)(22) 435,391 471,133 6(20) 626 843 6(5)(7)(20) 889 ( 4,193 ) 6(22) 9,450 11,386 6(6) 1,977 2,051 2,677 ( 3,524 ) 6(14)(15) 10,116 8,267 6(19) ( 27,844 ) ( 30,689 ) 6(21) 36,116 9,018 - 27 228,232 ( 344,198 ) 10,058 ( 8,631 ) 234,501 211,519 ( 54,776 ) ( 26,074 ) 6 ( 158 ) ( 21,330 ) 37,247 34,117 2,750 18,848 5,580 ( 194) 971 1,851,794 1,126,131 27,844 30,539 ( 21,337 ) ( 9,018 ) ( 193,277) ( 103,122) 1,665,024 1,044,530

(Continued)

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SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in other financial assets - current Increase in financial assets measured at cost - non-current Cash paid for acquisition of property, plant and equipment Interest paid for acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Increase in prepayments for equipment Decrease in pledged deposits Increase in other financial assets - non-current Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term borrowings Increase in long-term borrowings (Decrease) increase in guarantee deposits received Payment of cash dividends Net cash flows (used in) from financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Notes Forthe years endedDecember31, 2016 2015 $ 284,216 ($ 284,216 ) ( 25,182 ) - 6(26) ( 395,633 ) ( 631,840 ) 6(5)(21)(26) ( 22,847 ) ( 14,989 ) 555 451 ( 11,416 ) ( 11,020 ) ( 28,623 ) ( 9,729 ) 709 7,171 ( 4,097 ) - ( 202,318 ) ( 944,172 ) ( 719,601 ) 424,830 802,993 - ( 1,686 ) 21,741 6(16) ( 219,325 ) ( 140,592 ) ( 137,619 ) 305,979 46,367 1,757 1,371,454 408,094 6(1) 2,335,697 1,927,603 6(1) $ 3,707,151 $ 2,335,697

The accompanying notes are an integral part of these consolidated financial statements.

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SCINOPHARM TAIWAN, LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

1. HISTORY AND ORGANIZATION

• (1) ScinoPharm Taiwan, Ltd. (the Company) was incorporated as a company limited by shares under the provisions of the Company Act of the Republic of China (R.O.C.) on November 11, 1997. The Company and its subsidiaries (collectively referred herein as the “Group”) are primarily engaged in the manufacture of western medicines and other chemical materials, biological technology services, intellectual property rights, international trade and research, development and manufacture of Active Pharmaceutical Ingredients (“API”), albumin medicines, oligonucleotide medicines, peptide medicines, injections and new small molecule drugs, as well as the provision of related consulting and technical services. The Company’s investment plan for the manufacturing of API was approved by the Industrial Development Bureau of MOEA on May 13, 1998 and complies with the standards of important technical industry application.

• (2) The common shares of the Company have been listed on the Taiwan Stock Exchange since September 2011.

• (3) Uni-President Enterprises Corp., the Company’s ultimate parent company, holds 37.94% equity interest in the Company.

2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on March 28, 2017.

1. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

2. (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRSs”) as endorsed by the Financial Supervisory Commission (“FSC”) None.

3. (2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group

   • (1) New standards, interpretations and amendments as endorsed by the FSC effective from 2017 are as follows:

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New Standards,Interpretations and Amendments

Effective date by International Accounting Standards Board

Recoverable amount disclosures for non-financial assets (amendments to IAS 36) Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) IFRIC 21, ‘Levies’ Defined benefit plans: employee contributions (amendments to IAS 19R) Improvements to IFRSs 2010-2012 Improvements to IFRSs 2011-2013 Investment entities: applying the consolidation exception (amendments to IFRS 10, IFRS 12 and IAS 28) Accounting for acquisition of interests in joint operations (amendments to IFRS 11) IFRS 14, ‘Regulatory deferral accounts’ Disclosure initiative (amendments to IAS 1) Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16 and IAS 38) Agriculture: bearer plants (amendments to IAS 16 and IAS 41) Equity method in separate financial statements (amendments to IAS 27) Improvements to IFRSs 2012-2014

January 1, 2014 January 1, 2014 January 1, 2014 July 1, 2014 July 1, 2014 July 1, 2014 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

A. Amendments to IAS 36, ‘Recoverable amount disclosures for non-financial assets’

The amendments remove the requirement to disclose recoverable amount when a cash generating unit (CGU) contains goodwill or indefinite lived intangible assets but there has been no impairment. When a material impairment loss has been recognised or reversed for an individual asset, including goodwill, or a CGU, it is required to disclose the recoverable amount of the asset or CGU. If the recoverable amount is fair value less costs of disposal, it is required to disclose the level of the fair value hierarchy, the valuation techniques used and key assumptions.

• B. Annual improvements to IFRSs 2010-2012 cycle

IFRS 8, ‘Operating segments’

The standard is amended to require disclosure of judgments made by management in aggregating operating segments. This amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets is required only when segment asset is provided to chief operating decision maker regularly.

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C. Amendments to IAS 1, ‘Disclosure initiative’

This amendment clarifies the presentation of materiality, aggregation and subtotals, the framework of financial report, and the guide for accounting disclosure.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC effective from 2017 are as follows:

endorsed by the FSC effective from 2017 are as follows:
New Standards,Interpretations and Amendments	Effective date by International Accounting Standards Board
Disclosure initiative (amendments to IAS 7) Recognition of deferred tax assets for unrealised losses (amendments to IAS 12) Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 12, ‘Disclosure of interests in other entities’ Classification and measurement of share-based payment transactions (amendments to IFRS 2) Applying IFRS 9, ‘Financial instruments’ with IFRS 4, ‘Insurance contracts’ (amendments to IFRS 4) IFRS 9, ‘Financial instruments’ IFRS 15, ‘Revenue from contracts with customers’ Clarifications to IFRS 15, ‘Revenue from contracts with customers’ Transfers of investment property (amendments to IAS 40) FRIC 22, ‘Foreign currency transactions and advance consideration’ Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS 1, ‘First-time adoption of International Financial Reporting Standards’ Annual improvements to IFRSs 2014-2016 cycle - Amendments to IAS 28, ‘Investments in associates and joint ventures’ IFRS 16, ‘Leases’ Sale or contribution of assets between an investor and its associate or joint venture (amendments to IFRS 10 and IAS 28)	January 1, 2017 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2019 To be determined by International Accounting Standards Board

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. A. Amendments to IAS 7, ‘Disclosure initiative’

This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

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• B. IFRS 9, ‘Financial instruments’

• Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading.

• C IFRS 16, ‘Leases’

• IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

• (1) Compliance statement

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

• (2) Basis of preparation

• A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:

  • (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

  • (b) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligation.

• B. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

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(3) Basis of consolidation

• A. Basis for preparation of consolidated financial statements:

• (a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, 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. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.

• (b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

• (c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the noncontrolling interests having a deficit balance.

• (d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity.

• (e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognized in profit or loss. All amounts previously recognized in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognized in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

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B. Subsidiaries included in the consolidated financial statements:

Name of Investors	Name of Subsidiaries	Business activities Professional investment Professional investment Research, development and manufacture of API and new drug, etc. Research, development and manufacture of API and new drug, sale produced products, etc. Import, export and sales of API and intermediates, etc.	December 31, December 31, 2016 2015 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Percentage owned by the Company	Note
ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. SPT International, Ltd. SPT International, Ltd. SPT International, Ltd.	SPT International, Ltd. ScinoPharm Singapore Pte Ltd. ScinoPharm (Kunshan) Biochemical Technology Co., Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Shanghai) Biochemical Technology, Ltd.			－ － － － －

• C. Subsidiaries not included in the consolidated financial statements: None.

• D. Adjustments for subsidiaries with different balance sheet dates: None.

• E. Significant restrictions: None.

• F. Subsidiaries that have non-controlling interests that are material to the Group: None.

(4) Foreign currency translation

Items included in the financial statements 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 consolidated financial statements are presented in NTD, which is the Company’s functional and the Group’s presentation currency.

• A. Foreign currency transactions and balances

• (a) 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 remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise.

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• (b) Monetary assets and liabilities denominated in foreign currencies at the period end are retranslated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.

• (c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, nonmonetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

• (d) All other foreign exchange gains and losses based on the nature of those transactions are presented in the statement of comprehensive income within “other gains and losses”.

• B. Translation of foreign operations

• (a) The operating results and financial position of all the group entities, associates and joint arrangements that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

  • i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

  • ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and

  • iii. All resulting exchange differences are recognized in other comprehensive income.

• (b) When a foreign operation as an associate or joint arrangement is partially disposed of or sold, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Group retains partial interest in the former foreign associate or joint arrangements after losing significant influence over the former foreign associate, or losing joint control of the former joint arrangements, such transactions should be accounted for as disposal of all interest in these foreign operations.

• (c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, if the Group retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

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(5) Classification of current and non-current items

• A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

• (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;

• (b)Assets held mainly for trading purposes;

• (c) Assets that are expected to be realized within twelve months from the balance sheet date;

• (d)Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

• B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

• (a) Liabilities that are expected to be paid off within the normal operating cycle;

• (b) Liabilities arising mainly from trading activities;

• (c) Liabilities that are to be paid off within twelve months from the balance sheet date;

• (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(6) Cash equivalents

• A. Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value.

• B. Time deposits and bills under repurchase agreements that meet the above criteria and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.

(7) Receivables

Accounts receivable are receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable that bear no interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(8) Available-for-sale financial assets

• A. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

• B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.

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• C. Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are presented in ‘financial assets measured at cost’.

• (9) Impairment of financial assets

• A.The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired 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.

• B.The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:

  • (a) Significant financial difficulty of the issuer or debtor;

  • (b) The disappearance of an active market for that financial asset because of financial difficulties;

  • (c) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

  • (d) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or

  • (e) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

• C.When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

  • (a) Financial assets measured at cost

    • The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial asset, and is recognized in profit or loss. Impairment loss recognized for this category shall not be reversed subsequently. Impairment loss is recognized by adjusting the carrying amount of the asset through the use of an impairment allowance account.

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(b) Financial assets measured at amortized cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognized in profit or loss. 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 loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortized cost that would have been at the date of reversal had the impairment loss not been recognized previously. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(10) Derecognition of financial assets

• The Group derecognises a financial asset when the contractual rights to cash flows from the financial asset expire.

• (11) Inventories

Inventories are stated at the lower of cost and net realizable value. The standard cost method is applied, and cost is determined using the weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct labor, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(12) Investments accounted for under the equity method / associates

• A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost.

• B. The Group’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

• C. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss.

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• D. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associates, are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it retains significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.

• E. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss. If it retains significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss proportionately.

• (13) Property, plant and equipment

• A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.

• B. Subsequent costs are included in the asset’s carrying amount or recognized 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 derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

• C. Except for land, other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. If each component of property, plant and equipment is significant, it is depreciated separately.

• D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

are as follows:
Assets Buildings and structures Machinery and equipment Transportation equipment Office equipment Other equipment	Estimated useful lives
	2 ～ 35 years 2 ～ 12 years 2 ～ 6 years 2 ～ 9 years 2 ～ 19 years

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(14) Intangible assets

Professional skills and computer software, etc. are stated at cost and amortized on a straight-line basis over their estimated useful lives of 3 ~ 5 years.

(15) Leased assets/ lessee

Payments made under an operating lease (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the lease term.

(16) Impairment of non-financial assets

• The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized 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 or value in use. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. The increased carrying amount due to reversal should not be more than what the depreciated or amortized historical cost would have been if the impairment had not been recognized.

(17) Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

(18) Financial liabilities at fair value through profit or loss

• A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or financial liabilities designated as at fair value through profit or loss on initial recognition. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges. Financial liabilities that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:

• (a) Hybrid (combined) contracts; or

• (b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

• (c) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management policy.

• B. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or loss.

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(19) Notes and accounts payable

• Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. However, short-term accounts payable that bear no interest are subsequently measured at initial invoice amount as the effect of discounting is insignificant.

(20) Derecognition of financial liabilities

• Afinancial liability is derecognized when the obligation under the liability specified in the contract is discharged, cancelled or expires.

• (21) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

(22) Employee benefits

• A. Short-term employee benefits

Short - term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expenses in that period when the employees render service.

• B. Pensions

• (a) Defined contribution plans

  • For defined contribution plans, the contributions are recognized as pension expenses when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.

• (b) Defined benefit plans

  • i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest of government bonds (at the balance sheet date) of a currency and term consistent with the currency and term of the employment benefit obligations.

  • ii.Remeasurements arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise, and recorded as retained earnings.

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• C. Employees’ compensation and directors’ remuneration

  • Employees’ compensation and directors’remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employees’ compensation is distributed by shares, the Group calculates the number of shares based on the closing market price at the previous day of the board meeting resolution.

• (23) Employee share based payment

• For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and nonmarket vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest.

• (24) Income tax

• A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.

• B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

• C. Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statements. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or 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 provided on temporary differences arising on investments in subsidiaries except 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

~26~

future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

• D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognized and recognized deferred income tax assets are reassessed.

• E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.

• F. Deferred tax asset shall be recognized for the carry forward of unused tax credits resulting from acquisitions of equipment or technology, research and development expenditures, and equity investments to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilized.

(25) Share capital

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

(26) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are resolved by the Company’s shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance.

(27) Revenue recognition

A. Sales of goods

The Group manufactures and sells Active Pharmaceutical Ingredients (API), intermediates, etc. Revenue is measured at the fair value of the consideration received or receivable taking into account value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities. Revenue arising from the sales of goods is recognized when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods

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based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

• B. Sales of services

The Group provides biochemical technology development consultation and processing services. Revenue from rendering services is recognized under the percentage-of-completion method when the outcome of services provided can be estimated reliably. The stage of completion of a service contract is measured by the percentage of the actual services performed as of the financial reporting date to the total services to be performed by surveys of work performed.

(28) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICALACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgments in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, and the related information is addressed below:

(1) Critical judgments in applying the Group’s accounting policies

• －

• Financial assets impairment of equity investments

• The Group follows the guidance of IAS 39 to determine whether a financial asset-equity investment is impaired. This determination requires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

(2) Critical accounting estimates and assumptions

• A. Evaluation of inventories

• (a) As inventories are stated at the lower of cost and net realizable value, the Group must determine the net realizable value of inventories on balance sheet date using judgements and estimates. Due to the rapid process technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realizable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation.

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• (b) As of December 31, 2016, the carrying amount of inventories was $1,829,710.

• B. Realizability of deferred income tax assets

• (a) Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Assessment of the realisability of deferred income tax assets involves critical accounting judgments and estimates of the management, including the assumptions of expected future sales revenue growth rate and profit rate, tax exempt duration, available tax credits, tax planning, etc. Any variations in global economic environment, industrial environment, and laws and regulations might cause material adjustments to deferred income tax assets.

• (b) As of December 31, 2016, the Group recognized deferred income tax assets amounting to $414,414.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) CASH AND CASH EQUIVALENTS

$414,414. TAILS OF SIGNIFICANT ACCOUNTS CASH AND CASH EQUIVALENTS
Cash: Cash on hand Cash equivalents: Time deposits Checking accounts and demand deposits Bill under repurchase agreements	December31,2016 75 $ 516,801 516,876 2,904,500 285,775 3,190,275 3,707,151 $	December31,2015
		237 $ 471,545 471,782 1,564,003 299,912 1,863,915 2,335,697 $

• A. The Group associates with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

• B. Details of the Group’s time deposits pledged to others as collateral (listed as “Other financial assets-non-current”) as of December 31, 2016 and 2015 are provided in Note 8.

(2) ACCOUNTS RECEIVABLE, NET

ACCOUNTS RECEIVABLE, NET
	December31,2016		December31,2015
Accounts receivable	$	639,052	$	867,284
Less: Allowance for doubtful
accounts	(	647)	(	53)
	$	638,405	$	867,231

• A. As of December 31, 2016 and 2015, the Group had no accounts receivable classified as “past due

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but not impaired”.

• B. Movements on the provision for impairment of accounts receivable are as follows:

For the years ended December 31,

		2016			2015
		Group provision			Group provision
At January 1	$	53		$	96
Provision (reversal) for impairment		596	(		43)
Effect of exchange rate	(	2)			-
At December 31	$	647		$	53

• C. The Group’s accounts receivable that were neither past due nor impaired were fully performing in line with the credit standards prescribed based on the counterparties’ industry characteristics, business scale and profitability.

• D. As of December 31, 2016 and 2015, the Group does not hold any collateral as security.

(3) INVENTORIES

Raw materials Supplies Work in process Finished goods Raw materials Supplies Work in process Finished goods		December31,2016
	Allowance for Cost market price decline 377,494 $ 81,670) ($ 14,946 1,097) ( 896,557 125,933) ( 1,041,850 292,437) ( 2,330,847 $ 501,137) ($ December31,2015		Bookvalue
			295,824 $ 13,849 770,624 749,413
			1,829,710 $
	Allowance for Cost marketprice decline 254,846 $ 64,664) ($ 16,340 836) ( 1,116,241 58,672) ( 1,177,921 271,968) ( 2,565,348 $ 396,140) ($		Bookvalue
			190,182 $ 15,504 1,057,569 905,953
			2,169,208 $

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The Group recognized expense and loss of inventories for the year:

For the years ended December 31,

		2016		2015
Cost of goods sold	$	1,707,118	$	1,897,611
Loss on inventory scrap		53,811		15,956
Loss on physical inventory		8,910		6,724
Under applied manufacturing overhead		311,983		267,013
Provision for inventory market price
decline		110,571		68,569
	$	2,192,393	$	2,255,873
FINANCIALASSETS MEASURED AT COST－NON －CURRENT
	December31,2016		December31,2015
Unlisted stocks
Tanvex Biologics, Inc.	$	167,673	$	167,673
SYNGEN, INC.		4,620		4,620
Foresee Pharmaceuticals, Co., Ltd.		196,416		171,234
		368,709		343,527
Less: Accumulated impairment	(	4,620)	(	4,620)
	$	364,089	$	338,907

－ － (4) FINANCIALASSETS MEASURED AT COST NON CURRENT

• A. Based on the Group’s intention, its investment in Tanvex Biologics, Inc. and SYNGEN, INC. should be classified as available-for-sale financial assets. However, as Tanvex Biologics, Inc. and SYNGEN, INC. are not traded in an active market and no sufficient industry information and financial information of similar companies can be obtained, the fair value of the investments in Tanvex Biologics, Inc. and SYNGEN, INC. cannot be measured reliably. Accordingly, the Group classified those stocks as ‘financial assets measured at cost’.

B. Foreseeacer Pharmaceuticals, Inc. (hereafter, “ Foreseeacer”), an associate of the Group accounted for under the equity method, entered into a share swap transaction with its controlling shareholder, Foresee Pharmaceuticals, Inc. (hereafter, “ Foresee Cayman”) during the fourth quarter of 2014, whereby Foresee Cayman issued new shares to swap and recall the outstanding shares of Foreseeacer. The Group obtained approval of such transaction during the board of directors’ meeting on November 7, 2014, and the related share swap was completed on January 15, 2015. After the swap, the Group obtained 5,400 thousand preferred shares of Foresee Cayman, consisting of 6.12% of its outstanding preferred shares. However, Foresee Cayman announced its second phase of re-organization plan (the Phase II Plan) during February 2015, in which, one of its fully owned subsidiaries, Foresee Pharmaceuticals Co., Ltd. （ hereafter, “ Foresee” ） will issue new shares to swap and recall all outstanding shares of Foresee Cayman. After engaging in the swap, the Company obtained 4,072 thousand common shares, consisting of 6.12% of its outstanding common shares. Based on the guidance and accounting policies of the Group, such

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share swap transaction should be deemed as disposal of associates accounted for under the equity method, and the new investment will be measured at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss. Any amounts previously recognized as capital surplus or as other comprehensive income in relation to the associate are transferred to profit or loss. However, as the Phase II Plan was completed as of June 30, 2015, the uncertainties regarding the fair value of the final share interests received in the swap has been eliminated. The related gain of $95,381 from the share swap transaction has been recognized upon completion of the Phase II Plan. After a comprehensive assessment, the Group does not have the right to exercise significant influence over the investee company, Foresee Cayman, and accordingly, the related share of interest is classified as “available-for-sale financial assets”. In addition, as the shares of Foresee Cayman are not publicly traded in an active market, its fair value cannot be measured reliably. As a result, the Group classified those shares as “financial assets measured at cost”.

• C. As of December 31, 2016 and 2015, no financial assets measured at cost held by the Group were pledged to others.

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(5) PROPERTY, PLANT AND EQUIPMENT

			Machinery and	Machinery and	Transportation	Transportation		Office		Other	Construction	Construction
January 1, 2016		Buildings		equipment		equipment		equipment		equipment		inprogress		Total
Cost	$	2,499,181	$	4,689,690	$	29,690	$	202,695	$	141,302	$	1,803,046	$	9,365,604
Accumulated depreciation	(	723,268)	(	3,226,643)	(	20,677)	(	128,570)	(	81,981)		-	(	4,181,139)
Accumulated impairment		-	(	13,751)		-		-		-		-	(	13,751)
	$	1,775,913	$	1,449,296	$	9,013	$	74,125	$	59,321	$	1,803,046	$	5,170,714
For the year ended December 31, 2016
At January 1	$	1,775,913	$	1,449,296	$	9,013	$	74,125	$	59,321	$	1,803,046	$	5,170,714
Additions		-		-		-		-		-		462,672		462,672
Reclassified from prepayments
for equipment		-		-		-		-		-		121,118		121,118
Reclassified upon completion		485,874		203,159		-		15,558		25,589	(	730,180)		-
Depreciation charge	(	101,112)	(	278,715)	(	3,113)	(	27,896)	(	24,555)		-	(	435,391)
Disposals－Cost		-	(	8,619)	(	405)	(	895)	(	1,233)		-	(	11,152)
' －Accumulated
depreciation		-		7,543		405		847		1,176		-		9,971
Impairment loss		-	(	889)		-		-		-		-	(	889)
Net currency exchange differences	(	32,270)	(	24,507)	(	147)	(	1,071)	(	4,042)	(	46,108)	(	108,145)
At December 31	$	2,128,405	$	1,347,268	$	5,753	$	60,668	$	56,256	$	1,610,548	$	5,208,898
December 31, 2016
Cost	$	2,948,766	$	4,853,501	$	28,601	$	213,075	$	154,986	$	1,610,548	$	9,809,477
Accumulated depreciation	(	820,361)	(	3,491,593)	(	22,848)	(	152,407)	(	98,730)		-	(	4,585,939)
Accumulated impairment		-	(	14,640)		-		-		-		-	(	14,640)
	$	2,128,405	$	1,347,268	$	5,753	$	60,668	$	56,256	$	1,610,548	$	5,208,898

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			Machinery and	Machinery and	Transportation	Transportation		Office		Other	Construction	Construction
January 1, 2015		Buildings		equipment		equipment		equipment		equipment		inprogress			Total
Cost	$	2,230,902	$	4,575,686	$	30,389	$	192,813	$	141,186	$	1,685,329	$		8,856,305
Accumulated depreciation	(	633,158)	(	2,958,764)	(	16,896)	(	102,501)	(	62,017)		-	(		3,773,336)
Accumulated impairment		-	(	17,944)		-		-		-		-	(		17,944)
	$	1,597,744	$	1,598,978	$	13,493	$	90,312	$	79,169	$	1,685,329		$	5,065,025
For the year ended December 31, 2015
At January 1	$	1,597,744	$	1,598,978	$	13,493	$	90,312	$	79,169	$	1,685,329	$		5,065,025
Additions		-		-		-		150		-		464,633			464,783
Reclassified from prepayments
for equipment		-		-		-		-		-		136,935			136,935
Reclassified upon completion		275,351		172,118		-		15,585		5,932	(	468,986)			-
Depreciation charge	(	90,766)	(	320,156)	(	4,309)	(	31,509)	(	24,393)		-	(		471,133)
Disposals－Cost		-	(	52,992)	(	503)	(	4,767)	(	3,531)		-	(		61,793)
' －Accumulated
depreciation		-		51,882		412		4,744		3,161		-			60,199
Reversal of impairment loss		-		4,193		-		-		-		-			4,193
Net currency exchange differences	(	6,416)	(	4,727)	(	80)	(	390)	(	1,317)	(	14,865)	(		27,795)
At December 31	$	1,775,913	$	1,449,296	$	9,013	$	74,125	$	59,021	$	1,803,046		$	5,170,414
December 31, 2015
Cost	$	2,499,181	$	4,689,690	$	29,690	$	202,695	$	141,302	$	1,803,046	$		9,365,604
Accumulated depreciation	(	723,268)	(	3,226,643)	(	20,677)	(	128,570)	(	81,981)		-	(		4,181,139)
Accumulated impairment		-	(	13,751)		-		-		-		-	(		13,751)
	$	1,775,913	$	1,449,296	$	9,013	$	74,125	$	59,321	$	1,803,046		$	5,170,714

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• A. Amount of borrowing costs capitalized as part of property, plant and equipment and the range of the interest rates for such capitalization are as follows:

Amount capitalized Interest rate	For theyears ended December31,	For theyears ended December31,
	2016 22,847 $ 1.72%～4.74%	2015 14,989 $ 1.16%～4.35%

• B. Impairment and reclassification information about the property, plant and equipment is provided in Note 6(7), Impairment of non-financial assets.

• C. As of December 31, 2016 and 2015, the Group has not pledged any property, plant and equipment as collateral.

(6) LONG-TERM PREPAID RENT

Long-term prepaid rent

December31,2016 82,110 $	December31,2015
	90,359 $

In 2008, the Group’s Mainland China subsidiary entered into a land use right contract with the local government relating to the acquisition of the right to use the land located in Changshu, Jiangsu province, with a lease term of 50 years. The subsidiary had prepaid all rental expenses on the contract date, and recognized rental expenses of $1,977 and $2,051 for the years ended December 31, 2016 and 2015, respectively (listed as “General and administrative expenses”).

(7) IMPAIRMENT OF NON-FINANCIALASSETS

• A. For the years ended December 31, 2016 and 2015, the Group recognised impairment loss on idle －

• machineries at $889 and $ , respectively, and ‘reversal of impairment loss recognised in profit －

• or loss’ amounting to $ and $4,193, respectively, as some of the idle machineries were again utilized in production. Please refer to Note 6(5) property, plant and equipment for details of accumulated impairment amount.

• B. The impairment loss (gain on reversal) reported by operating segments is as follows:

For the years ended December 31,

		2016			2015
		Recognized in other			Recognized in other
	Recognized in	comprehensive	Recognized in		comprehensive
Segments	profit or loss	income	profit	or loss	income
ScinoPharm Taiwan	889 $	- $	($	4,193)	- $

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(8) SHORT-TERM BORROWINGS

SHORT-TERM BORROWINGS	SHORT-TERM BORROWINGS	SHORT-TERM BORROWINGS
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Type of borrowings December31,2016 Interest rate range Collateral Bank loans Unsecured loans 982,705 $ 4.35%～4.44% None Type of borrowings December31,2015 Interest rate range Collateral Bank loans Unsecured loans 1,702,306 $ 1.18%～4.35% None Items December31,2016 December31,2015 Current items: Financial liabilities held for trading Non-hedging derivatives 2,822 $ 145 $
Items Current items: Financial liabilities held for trading Non-hedging derivatives	December31,2016 2,822 $
		145 $

(9) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

• A. The Group recognized net gain (loss) of $3,981 and ($14,941) on financial liabilities held for trading (listed as ‘other gains and losses’) for the years ended December 31, 2016 and 2015, respectively.

• B. The non-hedging derivative instruments transaction and contract information are as follows:

(10)

The Group entered into forward foreign contracts to hedge exchange rate risk of operating activities. However, these forward foreign exchange contracts are not accounted for under hedge accounting. OTHER PAYABLES Items ContractAmount ContractPeriod Forward foreign exchange contracts USD 6,940,000 11.2016～2.2017 Items ContractAmount ContractPeriod Forward foreign exchange contracts USD 5,400,000 11.2015～2.2016 December31,2016 December31,2015

OTHER PAYABLES
Accrued salaries and bonuses Payables on equipment Others	December31,2016 151,650 $ 89,009 189,361 430,020 $	December31,2015
		130,958 $ 44,817 161,157 336,932 $

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(11) LONG-TERM BORROWINGS

Type of borrowings	Borrowing period December31,2016 June 14, 2016～ June 14, 2019 802,993 $ 32,120) ( 770,873 $	Interest rate Collateral 4.85% Guaranteed by the Company
Long-term bank loans Secured bank loans Less current portion

As of December 31, 2015, there were no long-term borrowings.

(12) PENSIONS

A. (a)The Company and its domestic subsidiaries has set up a defined benefit pension plan in accordance with the Labor Standards Law, which applies to all regular employees’ service years prior to the enforcement of the Labor Pension Act (the “Act”) on July 1, 2005 and service years thereafter of employees who chose to continue to be covered under the pension scheme of the Labor Standards Law after the enforcement of the Act. In accordance with the Company's retirement plan, an employee may retire when the employee either (i) attains the age of 55 with 15 years of service, (ii) has more than 25 years of service, (iii) has reached the age of 65, or (iv) is incapacitated to work (compulsory retirement). The employees earn two units for each year of service for the first 15 years, and one unit for each additional year thereafter up to a maximum of 45 units. Any fraction of a year equal to or more than nine months shall be counted as one year of service, and any fraction of a year less than nine months shall be counted as half a year. According to the provisions, employees who retired due to their duties shall get additional 20%. Pension payments are based on the number of units earned and the average salary of the last six months prior to retirement. Calculation of average salary is in accordance with the Labor Standards Law of the R.O.C. The Company contributes monthly an amount equal to 2% of the employees' monthly salaries and wages to the retirement fund deposited with Bank of Taiwan under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is not enough to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contribution for the deficit by end of March next year.

(b) The amounts recognized in the balance sheet are as follows:

	December	31,2016	December	31,2015
Present value of defined benefit obligations	$	118,242	$	111,292
Fair value of plan assets	(	48,189)	(	48,438)
Net defined benefit liability	$	70,053	$	62,854

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(c) Movements in net defined benefit liabilities are as follows:

		Present value of	Present value of
			defined benefit		Fair value of		Net defined
Year ended December31,2016			obligations		plan assets		benefit liability
At January 1	$		111,292	($	48,438)		$	62,854
Current service cost			1,926		-			1,926
Interest expense (income)			1,892	(	823)			1,069
			115,110	(	49,261)			65,849
Remeasurements:
Return on plan assets
(excluding amounts
included in interest
income or expense)			-		379			379
Change in financial
assumptions			3,950		-			3,950
Experience adjustments			3,064		-			3,064
			7,014		379			7,393
Pension fund contribution			-	(	3,189)	(		3,189)
Paid pension	(		3,882)		3,882			-
At December 31	$		118,242	($	48,189)		$	70,053

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		Present value of	Present value of
			defined benefit		Fair value of		Net defined
Year ended December31,2015			obligations		plan assets		benefit liability
At January 1	$		113,369	($	44,665)		$	68,704
Current service cost			2,634		-			2,634
Interest expense (income)			2,267	(	893)			1,374
			118,270	(	45,558)			72,712
Remeasurements:
Return on plan assets
(excluding amounts
included in interest
income or expense)			-	(	283)	(		283)
Change in financial
assumptions			3,764		-			3,764
Experience adjustments	(		10,302)		-	(		10,302)
	(		6,538)	(	283)	(		6,821)
Pension fund contribution			-	(	3,037)	(		3,037)
Paid pension	(		440)		440			-
At December 31	$		111,292	($	48,438)		$	62,854

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company and its domestic subsidiaries has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan asset fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2016 and 2015 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

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(e) The principal actuarial assumptions used were as follows:

For the years ended December 31,

Discount rate Future salary increases	2016 1.40% 3.00%	2015
		1.70%
		3.00%

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience according to Taiwan Life Insurance Industry 5th Mortality Table for the years ended December 31, 2016 and 2015.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

Increase 0.25% Decrease 0.25% December 31, 2016 Effect on present value of defined benefit obligation 3,304) ($ 3,438 $ December 31, 2015 Effect on present value of defined benefit obligation 2,970) ($ 3,493 $ Discount rate	Increase 0.25% Decrease 0.25% 3,081 $ 2,982) ($ 3,109 $ 2,719) ($ Future salaryincreases

The sensitivity analysis above was based on one assumption which charged while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous year.

• (f) Expected contributions to the defined benefit pension plan of the Company within 2017 is $3,120.

• (g) As of December 31, 2016, the weighted average duration of that retirement plan is 12 years. The analysis of timing of the future pension payment was as follows:

The analysis of timing of the future pension payment was as follows:
Within 1 year 2~5 years Over 6 years	9,749 $ 17,903 130,480
	158,132 $

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• B. As a result of the enforcement of the Act, the Company set up a defined contribution pension plan which took effect on July 1, 2005. The local employees are eligible for the defined contribution plan. For employees who choose to be covered under the pension scheme of the Act, the Company contributes monthly an amount of not less than 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. Pensions are paid by monthly installments or in lump sum based on the accumulated balances of the employees’ individual pension accounts. The subsidiaries in Mainland China (ScinoPharm (Kunshan) Biochemical Technology Co., Ltd., ScinoPharm (Changshu) Pharmaceuticals, Ltd., and ScinoPharm (Shanghai) Biochemical Technology, Ltd.) are subject to a government sponsored defined contribution plan. In accordance with the related Laws of the People’s Republic of China, the subsidiaries in Mainland China contribute monthly 18% of the employees’ monthly salaries and wages to an independent fund administered by the government. Other than the monthly contributions, these subsidiaries do not have further obligations. The other subsidiaries, SPT International, Ltd. and ScinoPharm Singapore Pte Ltd., had no employees. For the years ended December 31, 2016 and 2015, the pension costs recognized under the aforementioned defined contribution pension plans were $31,464 and $30,453, respectively.

(13) SHARE CAPITAL

• A. Movements in the number of the Company’s ordinary shares outstanding are as follows (in thousands of shares):

thousands of shares):
At January 1 Capitalization of retained earnings At December 31	For theyears ended December31,
	2016 731,083 29,243 760,326	2015
		702,964 28,119
		731,083

• B. On June 23, 2015, the Company’s shareholders adopted a resolution to issue shares of common stock due to capitalization of retained earnings of $281,186 and obtained approval from the SFC. The effective date of capitalization was set on August 14, 2015. After the capitalization mentioned above, the Company’s total authorized capital was $10,000,000 and the paid-in capital was $7,310,829 (731,083 thousand shares) with a par value of $10 (in dollars) per share.

• C. On June 27, 2016, the Company’s shareholders adopted a resolution to issue shares of common stock due to capitalization of retained earnings of $292,433 and obtained approval from the SFC. The effective date of capitalization was set on August 16, 2016. After the capitalization mentioned above, the Company’s total authorized capital was $10,000,000 and the paid-in capital was $7,603,262 (760,326 thousand shares) with a par value of $10 (in dollars) per share.

• D. As of December 31, 2016, the Company’s authorized capital was $10,000,000 and the paid-in capital was $7,603,262 (760,326 thousand shares) with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

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(14) CAPITAL RESERVES

• A. Pursuant to the R.O.C. Company Act, capital reserve arising from paid-in capital in excess of par value on issuance of common stocks and donations shall be exclusively used to cover accumulated deficit or, distribute cash or stocks in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Act requires that the capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital reserve should not be used to cover accumulated deficit unless the legal reserve is insufficient.

• B. Movements on the Company’s capital reserve are as follows:

the legal reserve is insufficient. Movements on the Company’s capital reserve are as follows:	rve are as follows:	rve are as follows:
Share premium Stockoptions At January 1 1,233,286 $ 32,258 $ Employee stock options compensation cost - Company - 10,025 - Subsidiaries - 91 At December 31 1,233,286 $ 42,374 $ For theyear ended December Share premium Stockoptions At January 1 1,233,286 $ 23,991 $ Employee stock options compensation cost - Company - 7,844 - Subsidiaries - 423 At December 31 1,233,286 $ 32,258 $ For theyear ended December	For theyear ended December		31,2016
			Total
			1,265,544 $ 10,025 91
			1,275,660 $
			31,2015
		Stockoptions 23,991 $ 7,844 423 32,258 $	Total
			1,257,277 $ 7,844 423
			1,265,544 $

(15) SHARE-BASED PAYMENT

• A. The Company issued 1 million units, 1.5 million units and 1.5 million units of employee stock options on December 3, 2013, November 6, 2015 and October 14, 2016, respectively (the ‘Grant Date’). The exercise price of the options was set at $91.70 (in dollars), $41.65 (in dollars) and $40.55 (in dollars), respectively, which was based on the closing market price of the Company's common shares on the Grant Dates. Each option was granted the right to purchase one share of the Company's common stocks. The exercise price is subject to further adjustments when there is change in the number of shares of the Company's common stocks after the Grant Date. (As of December 31, 2016, for the issued 1 million units, 1.5 million units and 1.5 million units of employee stock options, the exercise price was adjusted based on the specific formula to $80.20 (in dollars) per share, $40.00 (in dollars) per share and $40.55 (in dollars) per share, respectively.) Contract period of the employee stock option plans is 10 years, and options are exercisable in 2 years after the Grant Date. The Group recognized compensation costs relating to the employee stock options plan of $10,116 and $8,267 for the years ended December 31, 2016 and 2015,

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respectively.

B. Details of the share-based payment arrangements are as follows:

respectively. Details of the share-based payment arrangements are as follows:	ts are as follows:
Number of options (in thousand units) Options outstanding at beginning of the year 2,348 Options granted 1,500 Options forfeited 391) ( Options outstanding at end of the year 3,457 Options exercisable at end of the year 503 For theyear ended Number of options (in thousand units) Options outstanding at beginning of the year 1,000 Options granted 1,500 Options forfeited 152) ( Options outstanding at end of the year 2,348 Options exercisable at end of the year 430 For theyear ended	For theyear ended	December31,2016
		Weighted-average exercise price (in dollars)
		$ 56.92 40.55 62.47 48.03 80.20 December31,2015
		Weighted-average exercise price (in dollars)
		$ 91.70 41.65 80.40 56.92 83.40

• C. The exercise prices of the employee stock options outstanding on the balance sheet date is as follows:

Grant date 12.3.2013 11.6.2015 10.14.2016	Expirydate 12.2.2023 11.5.2025 10.13.2026	No. of stocks Exercise price (unit in thousands) (in dollars) 670 80.20 $ 1,299 40.00 1,488 40.55 December 31, 2016	December 31, 2015
			No. of stocks Exercise price (unit in thousands) (in dollars) 859 83.40 $ 1,489 41.65 - -

• D. The fair value of the Group’s employee stock options on Grant Date was evaluated using the combination of Hull & White and the Ritchken trinomial option valuation model. Related information is as follows:

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Type of arrangement Grant date Employee 12.3.2013 stock options Employee 11.6.2015 stock options Employee 10.14.2016 stock options	Stock Exercise price price (in dollars) (in dollars) 91.70 $ 91.70 $ 41.65 41.65 40.55 40.55	Price volatility	Option life	Expected dividends	Interest rate 1.7145% 1.2936% 0.9223%	Fair value per unit (in dollars)
		28.50% (Note) 37.63% (Note) 37.20% (Note)	10 years 10 years 10 years	1.5% 1.5% 1.5%		26.045 $ 13.799 13.171

• Note: According to daily returns of the Company's stock for the previous year, the annualized volatility is 28.50%, 37.63% and 37.20%, respectively.

(16) RETAINED EARNINGS

• A. Pursuant to the R.O.C. Company Act, the current year's after-tax earnings should be used initially to cover any accumulated deficit; thereafter 10% of the remaining earnings should be set aside as legal reserve until the balance of legal reserve is equal to that of paid-in capital. The legal reserve shall be exclusively used to cover accumulated deficit, to issue new stocks, or to distribute cash to shareholders in proportion to their share ownership. The use of legal reserve for the issuance of stocks or cash dividends to shareholders in proportion to their share ownership is permitted provided that the balance of such reserve exceeds 25% of the Company’s paid-in capital.

• B. Since the Company is in a changeable industry environment and the life cycle of the Company is in a stable growth, the appropriation of earnings should consider fund requirements and capital budget to decide how much earnings will be kept or distributed and how much cash dividends will be distributed. According to the Company’s Articles of Incorporation, 10% of the annual net income, after offsetting any loss of prior years and paying all taxes and dues, shall be set aside as legal reserve. The remaining net income and the unappropriated retained earnings from prior years can be distributed in accordance with a resolution passed during a meeting of the Board of Directors and approved at the stockholders' meeting. Of the amount to be distributed by the Company, stockholders’ dividends shall comprise 50% to 100% of the unappropriated retained earnings, and the percentage of cash dividends shall not be less than 30% of dividends distributed.

• C. In accordance with the regulations, the Company shall set aside special reserve for the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings. The amounts previously set aside by the Company as special reserve on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently.

• D. The Company recognized cash dividends and stock dividends distributed to owners amounting

~44~

to $219,325 ($0.30 (in dollars) per share) and $292,433 ($0.40 (in dollars) per share) for the year ended December 31, 2016, respectively, and $140,592 ($0.20 (in dollars) per share) and $281,186 ($0.40 (in dollars) per share) for year ended December 31, 2015, respectively. On March 28, 2017, the Board of Directors proposed for the distribution of cash dividends of $228,098 ($0.30 (in dollars) per share) and stock dividends of $304,130 ($0.40 (in dollars) per share) for the year 2016.

(17) OTHER EQUITY ITEMS

For the years ended December 31,

		2016			2015
At January 1	$		69,095	$	100,674
Currency translation differences－group	(		72,549)	(	26,755)
Disposal (Note)			-	(	4,824)
At December 31	($		3,454)	$	69,095

Note: The Group lost significant influence in the associate investment after a share swap transaction with the controlling shareholder of the associate. Such share swap transaction was deemed as disposal of associates accounted for under the equity method and amounts previously recognized as other equity items were derecognized accordingly. Please refer to Note 6 (4) for details.

(18) OPERATING REVENUE

For the years ended December 31,

		2016			2015
Sales revenue	$	3,912,641	$		3,871,442
Less: Sales returns	(	64,812)	(		18,348)
Sales discounts	(	6,984)	(		31,549)
Technical service revenue		190,076			133,662
	$	4,030,921		$	3,955,207

(19) OTHER INCOME

OTHER INCOME
Interest income from bank deposits Compensation revenue Others	For theyears ended December,
	2016 27,844 $ 7,404 5,457 40,705 $	2015
		30,689 $ 9,741 7,321
		47,751 $

~45~

(20) OTHER GAINS AND LOSSES

For the years ended December 31,

			2016		2015
Net gain (loss) on financial assets/liabilities
at fair value through profit or loss		$	3,981	($	14,941)
Gain on disposal of investments			-		95,381
Loss on disposal of property, plant, and
equipment	(		626)	(	843)
(Impairment loss) gain on reversal of
impairment loss	(		889)		4,193
Net currency exchange loss	(		42,982)	(	50,793)
Miscellaneous	(		21,749)	(	19,303)
	($		62,265)	$	13,694
FINANCE COSTS
			For theyears ended December31,
			2016		2015
Interest expense:
Bank loans		$	58,963	$	24,007
Less: capitalization of qualifying assets	(		22,847)	(	14,989)
		$	36,116	$	9,018

(21) FINANCE COSTS

(22) EXPENSES BY NATURE

For the year ended December 31, 2016

	For theyear ended December31,2016	For theyear ended December31,2016	1,2016
Employee benefit expenses Depreciation Amortization Employee benefit expenses Depreciation Amortization	Operatingcosts Operatingexpenses Total 448,862 $ 389,091 $ 837,953 $ 328,259 107,132 435,391 3,208 6,242 9,450 780,329 $ 502,465 $ 1,282,794 $ For theyear ended December31,2015		Total
			837,953 $ 435,391 9,450
			1,282,794 $
	Operatingcosts 443,529 $ 365,205 2,571 811,305 $	Operatingexpenses 338,169 $ 105,928 8,815 452,912 $	Total
			781,698 $ 471,133 11,386
			1,264,217 $

~46~

(23) EMPLOYEE BENEFIT EXPENSES

For the year ended December 31, 2016

EMPLOYEE BENEFIT EXPENSES	For theyear ended December31,2016	For theyear ended December31,2016	,2016
Salaries and wages Labor and health insurance expenses Pension costs Other personnel expenses Salaries and wages Labor and health insurance expenses Pension costs Other personnel expenses	Operatingcosts Operatingexpenses Total 380,263 $ 337,437 $ 717,700 $ 32,626 21,065 53,691 21,562 12,897 34,459 14,411 17,692 32,103 448,862 $ 389,091 $ 837,953 $ For theyear ended December31,2015		Total
			717,700 $ 53,691 34,459 32,103
			837,953 $
	Operatingcosts 376,723 $ 32,832 21,273 12,701 443,529 $	Operatingexpenses 288,469 $ 18,572 13,188 17,940 338,169 $	Total
			665,192 $ 51,404 34,461 30,641
			781,698 $

• A. According to the Articles of Incorporation of the Company, a ratio of profit of the current year distributable, after covering accumulated losses, shall be distributed as employees’compensation and directors’ remuneration. The ratio shall not be lower than 2% for employees’ compensation and shall not be higher than 2% for directors’ remuneration.

• B.For the years ended December 31, 2016 and 2015, the employees’ compensation was accrued at $82,181 and $67,511, respectively, while the directors’ remuneration was accrued at $11,734 and $11,429, respectively. The aforementioned amounts were recognized in salary expenses. The aforementioned amounts were recognized in salary expenses. The expenses recognized for each year was accrued based on the earnings of current year and the percentage specified in the Articles of Incorporation of the Company. On March 28, 2017, the Board of Directors resolved the employees’ compensation and directors’ remuneration of $82,181 and $11,734, and the employees’ compensation will be distributed in the form of cash. The actual amount approved at the Board of Directors’ meeting for employees’ compensation and directors’ remuneration for 2015 was $88,554, which was different from the estimated amount of $78,940 recognized in the 2015 financial statements by $9,614. Such difference mainly resulted from estimation, and was recognized in profit or loss for 2016.

Information about the appropriation of employees’ compensation and directors’ remuneration by the Company as resolved by the Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

~47~

(24) INCOME TAX

A. Income tax expense

• (a) Components of income tax expense:

COME TAX Income tax expense (a) Components of income tax expense:
			For theyears ended December				31,
			2016			2015
Current income tax:
Income tax in current year		$	185,902		$	178,599
10% tax on unappropriated retained earnings			6,537				1,214
Under (over) provision of prior year's income
tax			2,471	(			2,683)
Total current tax			194,910			177,130
Deferred income tax:
Origination and reversal of temporary
differences	(		43,003)	(			9,211)
Income tax expense		$	151,907		$	167,919
(b) The income tax relating to components of other comprehensive income					is as follows:
			For theyears ended December				31,
			2016			2015
Remeasurement of defined
benefit obligations	($		1,258)		$		1,160
Reconciliation between income tax expense and accounting profit:
			For theyears ended December31,
			2016			2015
Income tax at statutory tax rate	$		137,802	$		135,598
Effect of items disallowed by tax regulation			7,386				3,116
Effect of net operating loss carryforward	(		2,519)			29,553
Effect of investment tax credits			230				1,121
10% tax on unappropriated retained earnings			6,537				1,214
Under (over) provision of prior year's income tax			2,471	(			2,683)
Income tax expense			151,907			167,919

B. Reconciliation between income tax expense and accounting profit:

~48~

• C. Amounts of deferred tax assets or liabilities as a result of temporary differences, loss carryforward and investment tax credits are as follows:

		For the	For the	year ended	December31,2016	December31,2016	December31,2016
					Recognized
						in other
			Recognized in		comprehensive
		January1	profit or loss			income	December31
Deferred tax assets:
Temporary differences
Investment loss	200,515 $		$	41,900	$	-	$	242,415
Technology know－how		21,570	(	3,698)		-		17,872
Pensions		10,685	(	33)		1,258		11,910
Employee benefits－unused		2,888	(	202)		-		2,686
compensated absences
Impairment of assets		2,337		152		-		2,489
Unrealized loss on
financial liabilities		25		455		-		480
Loss carryforward		126,366		2,519		-		128,885
Investment tax credits		8,258	(	581)		-		7,677
		372,644		40,512		1,258		414,414
Deferred tax liabilities:
Temporary differences
Unrealized gain on
currency exchange	(	3,368)		2,491		-	(	877)
	369,276 $		$	43,003	$	1,258	$	413,537

~49~

For the year ended December 31, 2015

						Recognized	Recognized
							in other
			Recognized in		comprehensive
		January1	profit or loss				income	December31
Deferred tax assets:
Temporary differences
Investment loss	155,012 $		$	45,503	$		-	$	200,515
Technology know－how		25,268	(	3,698)			-		21,570
Pensions		11,680		165	(		1,160)		10,685
Employee benefits－unused
compensated absences		3,085	(	197)			-		2,888
Impairment of assets		3,050	(	713)			-		2,337
Unrealized loss on
financial liabilities		624	(	599)			-		25
Loss carryforward		155,919	(	29,553)			-		126,366
Investment tax credits		9,743	(	1,485)			-		8,258
		364,381		9,423	(		1,160)		372,644
Deferred tax liabilities:
Temporary differences
Unrealized gain on
currency exchange	(	3,156)	(	212)			-	(	3,368)
	361,225 $		$	9,211	($		1,160)	$	369,276

• D. According to “Regulation on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China”, details of investment tax credits and unrecognized deferred tax assets are as follows:

December 31, 2016

December31,2016	December31,2016
Qualifyingitems Unused tax credits Research and development expenditures 7,677 $ December31,2015		Unrecognized deferred tax assets - $	Expiry year 2018
Qualifyingitems Research and development expenditures	Unused tax credits 8,258 $	Unrecognized deferred tax assets - $	Expiry year 2018

• E. Expiration dates of unused operating loss carryforward and amounts of unrecognised deferred tax assets are as follows:

~50~

December 31, 2016

Year incurred 2012～2016	Amount filed /assessed 1,247,509 $	Unused amount 1,247,509 $ December31,2015	Unrecognized deferred tax assets 731,971 $	Expiry year
				2017～2021
Year incurred 2011～2016	Amount filed /assessed 862,662 $	Unused amount 862,662 $	Unrecognized deferred tax assets 358,530 $	Expiry year
				2016～2020

• F. The Group has not recognised taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2016 and 2015, the amounts of temporary differences unrecognised as deferred tax liabilities were $277,644 and $287,871, respectively.

• G. The Company’s income tax returns through 2015 have been assessed and approved by the Tax Authority, and there were no disputes existing between the Company and the Authority as of March 28, 2017.

• H. The Company’s unappropriated retained earnings listed on the balance sheet as of December 31, 2016 and 2015 were all generated after the year 1998.

• I. As of December 31, 2016 and 2015, the balance of the Company’s imputation tax credit account was $240,791 and $180,052, respectively. The earnings distribution for 2015 and 2014 were approved at the stockholders’ meeting on June 27, 2016 and June 23, 2015, respectively, and the date of dividend distribution were set on August 16, 2016 and August 14, 2015, respectively, by the Board of Directors. The creditable tax rate were 23.04% and 23.48%, respectively. The creditable tax rate for 2016 is expected to be 23.81%. The creditable tax rate will be based on the actual imputation tax credit account on the distribution date for the earnings of 2016, thus, the credit account may be subject to appropriate adjustments according to tax regulations.

~51~

(25) EARNINGS PER SHARE (“EPS”)

EARNINGS PER SHARE (“EPS”)	S”)
Weighted average number of shares Amount after tax outstanding (shares in thousands) Basic earnings per share Profit attributable to ordinary stockholders of the parent 658,693 $ 760,326 Diluted earnings per share Profit attributable to ordinary stockholders of the parent 658,693 $ 760,326 Assumed conversion of all dilutive potential ordinary shares Employees' stock option - 253 Employees' compensation - 2,702 Profit attributable to ordinary stockholders of the parent plus assumed conversion of all dilutive potential ordinary shares 658,693 $ 763,281 For theyear ended December31,2016 Weighted average number of shares Amount after tax outstanding (shares in thousands) Basic earnings per share Profit attributable to ordinary stockholders of the parent 634,965 $ 760,326 Diluted earnings per share Profit attributable to ordinary stockholders of the parent 634,965 $ 760,326 Assumed conversion of all dilutive potential ordinary shares Employees' stock option - 1,375 Employees' compensation - 21 Profit attributable to ordinary stockholders of the parent plus assumed conversion of all dilutive potential ordinary shares 634,965 $ 761,722 For theyear ended December31,2015	For theyear ended December31,2016
		EPS (in dollars)
		0.87 $
		0.86 $
		EPS (in dollars)
		0.84 $
		0.83 $

~52~

• A. The abovementioned stock options issued in 2013 are anti-dilutive; therefore were not included in the EPS calculation.

• B. The abovementioned weighted average number of ordinary shares outstanding have been adjusted to unappropriated retained earnings as proportional increase in capital for the year ended December 31, 2015.

(26) Supplemental cash flow information

A. Investing activities with partial cash payments

		For theyears ended	For theyears ended	For theyears ended	December31,
		2016			2015
Purchase of property, plant and	$	462,672	$		464,783
equipment
Add: Beginning balance of payable on
equipment		44,817			226,863
Less: Ending balance of payable on
equipment	(	89,009)	(		44,817)
Capitalization of interest	(	22,847)	(		14,989)
Cash paid for acquisition of property,
plant and equipment	$	395,633		$	631,840
B. Investing activities with no cash flow effects
		For theyears ended			December31,
		2016			2015
a. Investment accounted for under the
equity method reclassified to
financial assets measured at cost	$	-	$		171,234
		Forthe years ended			December31,
		2016			2015
b. Prepayments for equipment
reclassified to property, plant
and equipment	$	121,118	$		136,935

7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party

The ultimate parent and ultimate controlling party of the Company is Uni-President Enterprises Corp. For names and relationship of other related parties with substantive control, please refer to Note 13(2).

~53~

• (2) Significant transactions and balances with related parties

A. Other expenses

			For the	years ended December31,	years ended December31,	years ended December31,	years ended December31,	years ended December31,
			2016					2015
Rent expense:
－An entity controlled by key
management individuals			$	1,583			$		1,663
Repairs and maintenance expense:
－An entity controlled by key
management individuals			$		462		$		3,697
Management consultancy fees:
－Ultimate parent company			$	5,397			$		4,755
－Associate of ultimate parent company				2,186					2,040
			$	7,583			$		6,795
B. Other payables
			December31,	2016			December31,		2015
An entity controlled by key
management individuals			$		110		$		2,231
C. Property transactions
			For the	years ended December31,
			2016					2015
Purchase of propery, plant and equipment:
－An entity controlled by key
management individuals			$		-		$		1,656
(3) Key management compensation
			For theyears ended December31,
			2016					2015
Salaries and other short-term employee
benefits			$	60,906			$	65,227
PLEDGED ASSETS
Details of the Group’s assets pledged as collateral are as follows:
Assets December31,2016		December31,2015					Purpose	of collateral
Time deposits (Note) $	28,831	$	24,734		Customs duty			and performance
						guarantee

8. PLEDGED ASSETS

Note: Listed as “other financial assets-non-current”.

~54~

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS

• －

• (1) As of December 31, 2016 and 2015, the Group’s unused letters of credit amounted to $ and $7,508, respectively.

• (2) As of December 31, 2016, and 2015, the Group’s remaining balance due for construction in progress and prepayments for equipment was $312,008 and $547,190, respectively.

• (3)The Company entered into a non-cancellable operating lease agreement for the period from June 1, 2011 to February 28, 2018 for the land in Tainan Science Park. The lease period of the lease agreement cannot be over 20 years and is renewable at the end of the lease term. The Company pays monthly rent. If the announced land values, state-owned land rent rate, or other factors change, the monthly rent paid by the Company will be adjusted accordingly on the following month. The Company may have to pay additional rent or get a refund on its last rental payment because of such adjustment. The rent expense of $22,276 and $21,291 (listed as “operating costs” and “operating expenses”) was recognized in profit or loss for the years ended December 31, 2016 and 2015, respectively. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

are as follows:
		December 31,2016		December	31,2015
Within one year		$	22,276	$	21,291
Later than one year but
not exceeding five years			3,713		24,840
		$	25,989	$	46,131
The amounts of endorsements and guarantees for		subsidiaries	were as follows:
	Nature	December31,2016		December	31,2015
ScinoPharm (Changshu)	Guarantee for financing
Pharmaceuticals, Ltd.	amount	$	1,625,270	$	-

• (4)The amounts of endorsements and guarantees for subsidiaries were as follows:

As of December 31, 2016 and 2015, the actual amount drawn down for endorsements and guarantees － to subsidiaries was $820,993 and $ , respectively.

10. SIGNIFICANT DISASTER LOSS: None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE: None.

~55~

12. OTHERS

(1) Capital management

• The Group’s objectives on managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, to maintain an optimal capital structure, to reduce the cost of capital and to maintain an adequate capital structure to enable the expansion and enhancement of equipment. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return of capital to shareholders, and issue new shares or sell assets to reduce debts.

(2) Financial instruments

• A. Fair value information of financial instruments

• Except those in the table below, the Group’s financial instruments which are not measured at fair value (including cash and cash equivalents, accounts receivable, other receivables, other financial assets-current, guarantee deposits paid, short-term borrowings, notes payable, accounts payable, other payables, long-term borrowings (including current portion) and guarantee deposits received) is approximate to their fair value. Please refer to Note 12 (3) for details of fair value information of financial instruments measured at fair value.

• B. Financial risk management policies

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

• (b)The Group’s treasury identifies, evaluates and hedges financial risks closely with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

• C. Significant financial risks and degrees of financial risks

• (a) Market risk

  • I. Foreign exchange rate risk

  • (i)The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

~56~

• (ii)To manage their foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, entities in the Group are required to hedge their foreign exchange risk exposure using forward foreign exchange contracts. However, hedge accounting is not applied as transactions did not meet all criteria of hedge accounting. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.

• (iii)The Group’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: NTD; other subsidiaries’ functional currency: CNY). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

fluctuations is as follows:
Foreign currency amount(in thousands) Exchange rate (Foreign currency: functional currency) Financial assets Monetary items USD:NTD 21,996 $ 32.25 EUR:NTD 413 33.90 CNY:NTD 510 4.644 Financial liabilities Monetary items USD:NTD 1,582 32.25 EUR:NTD 49 33.90 CNY:NTD 435 4.644 December31,2016 Foreign currency amount(in thousands) Exchange rate (Foreign currency: functional currency) Financial assets Monetary items USD:NTD 34,821 $ 32.83 EUR:NTD 1,664 35.88 CNY:NTD 2,723 4.995 Financial liabilities Monetary items USD:NTD 644 32.83 EUR:NTD 16 35.88 December31,2015		December31,2016		Book value (NTD)
				709,371 $ 14,001 2,368 51,020 1,661 2,020 Book value (NTD)
			Exchange rate 32.83 35.88 4.995 32.83 35.88
				1,143,173 $ 59,704 13,601 21,143 574

~57~

• (iv)As of December 31, 2016 and 2015, if the NTD:USD exchange rate appreciates/depreciates by 5% with all other factors remaining constant, the Group’s net profit after tax for the years ended December 31, 2016 and 2015 would increase/decrease by $32,918 and $56,101, respectively. If the NTD:EUR exchange rate appreciates/depreciates by 5% with all other factors remaining constant, the Group’s net profit after tax for the years ended December 31, 2016 and 2015 would increase/decrease by $617 and $2,957, respectively. If the NTD:CNY exchange rate appreciates/depreciates by 5% with all other factors remaining constant, the Group’s net profit after tax for the years ended December 31, 2016 and 2015 would increase/decrease by $17 and $680, respectively.

• (v)Total exchange loss including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2016 and 2015 amounted to $42,982 and $50,793, respectively.

• II. Price risk

• The Group has investments classified as financial assets and liabilities at fair value through profit or loss and available-for-sale financial assets (shown in ‘financial assets measured at cost-non-current’). Therefore, the Group is exposed to price risk on equity instruments investments. To manage this risk, the Group has set stop-loss amounts for these instruments. The Group expects no significant market risk.

• III. Interest rate risk

• (i)The Group’s interest rate risk arises from short-term borrowings and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates.

• (ii)At December 31, 2016 and 2015, if interest rates had been 10% higher/lower with all other variables held constant, post-tax profit for the years ended December 31, 2016 and 2015 would have been $1,227 and $792 lower/higher, respectively, mainly as a result of higher/lower interest expense on floating rate borrowings.

• (b) Credit risk

• I. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors with limits set by the board of directors. The utilization of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, and outstanding receivables. The Group also transacts with many different banks and financial institutions to diversify risk.

~58~

• II. No credit limits were exceeded during the years ended December 31, 2016 and 2015.

• III. For more information regarding the Group’s credit ratings on its financial assets, please refer to detailed explanation of financial assets in Note 6.

• (c) Liquidity risk

• I. Cash flow forecasting is performed by the Group’s treasury department which monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities.

• II. The following table comprises the Group’s non-derivative financial liabilities and derivative financial liabilities with gross-amount settlement that are grouped by their maturity. Nonderivative financial liabilities are analyzed from the balance sheet date to the contract maturity date, and derivative financial liabilities are analyzed from the balance sheet date to the expected maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

cash flows.
December31,2016 Short-term borrowings Notes payable Accounts payable Other payables Long-term borrowings Guarantee deposits received Derivative financial liabilities: Forward exchange contracts Non-derivative financial liabilities: December31,2015 Short-term borrowings Notes payable Accounts payable Other payables Guarantee deposits received Derivative financial liabilities: Forward exchange contracts Non-derivative financial liabilities:	Less than 1year 1,001,072 $ 1,001 69,730 430,202 71,096 21,711 2,822 Less than 1year 1,711,850 $ 995 91,060 336,932 23,397 145	Between 1 and 2years - $ - - - 164,866 - - Between 1 and 2years - $ - - - - -	Between 2 and5 years - $ - - - 656,660 - - Between 2 and5 years - $ - - - - -	More than 5 years
				- $ - - - - - - More than 5 years
				- $ - - - - -

~59~

(3) Fair value estimation

• A. Details of the fair value of the Group’s financial assets and liabilities not measured at fair value are provided in Note 12(2) A.

• B. The table below analyses financial instruments measured at fair value, by valuation method. The different levels have been defined as follows:

• Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities. A market is regarded as active if it meets all the following conditions: the items traded in the market are homogeneous; willing buyers and sellers can normally be found at any time; and prices are available to the public.

• Level 2: 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). The fair value of the Group’s investment in foreign exchange contracts is included in Level 2.

• Level 3: Inputs for the asset or liability that are not based on observable market data.

• C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at December 31, 2016 and 2015 is as follows:

2016 and 2015 is as follows:
December31,2016 Liabilities: Financial liabilities at fair value through profit or loss – forward foreign contracts December31,2015 Liabilities: Financial liabilities at fair value through profit or loss – forward foreign contracts	Level 1 - $ Level 1 - $	Level 2 2,822 $ Level 2 145 $	Level3 - $ Level3 - $	Total
				2,822 $
				Total
				145 $

• D. The methods and assumptions the Group used to measure fair value are as follows:

• (a)Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.

~60~

• (b)When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.

• (c)Forward foreign exchange contracts are usually valued based on the current forward exchange rate.

• E. For the years ended December 31, 2016 and 2015, there was no transfer between Level 1 and Level 2.

• F. The Group did not have financial instruments that meet the definition of Level 3 instruments as of December 31, 2016 and 2015.

13. SUPPLEMENTARY DISCLOSURES

According to the policies, only the financial information of the investee for 2016 is supposed to be disclosed based on the financial statements prepared by the same-period auditors. Instead of the adjustments taking into account the consolidation, the financial information is presented in every consolidated entity.

(1) Significant transactions information

• A. Loans to others: Please refer to table 1.

• B. Provision of endorsements and guarantees to others: Please refer to table 2.

• C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.

• D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.

• E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.

• F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.

• G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 4.

• H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: None.

• I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Note 6(9).

• J. Significant inter-company transactions during the reporting periods: Please refer to table 5.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 6.

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(3) Information on investments in Mainland China

• A. Basic information: Please refer to table 7.

• B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to table 8.

14. SEGMENT INFORMATION

(1) General information

The management of the Group has identified the operating segments based on how the Company’s chief operating decision maker regularly reviews information in order to make decisions. The chief operating decision maker manages the Group’s business from geographical and functional perspectives. Geographically, the Group focuses on its sales business in the U.S., Europe and Asia. In addition, the Group categorized its business units into manufacture, sales, research and development and investment management functions, and combines its segments that meet the disclosure threshold as “Others”.

(2) Measurement of segment information

The chief operating decision-maker evaluates the performance of operating segments based on pretax income excluding non-recurring income. For details of operating segments’ accounting policies, please refer to Note 4.

(3) Segment information

The segment information provided to the chief operating decision-maker for the reportable segments is as follows:

For the year ended December 31, 2016

Segment revenue Revenue from internal customers Revenue from external customers Interest income Depreciation and amortization Interest expense Income (loss) from segment before income tax Segment assets Other acquisition of non-current assets Segment liabilities	ScinoPharm Taiwan,Ltd. Others 3,888,611 $ 333,364 $ - 191,054 3,888,611 142,310 13,371 14,473 356,628 88,213 11 36,105 821,806 275,319) ( 10,962,274 2,727,353 365,803 136,908 734,481 1,863,055	Total
		4,221,975 $ 191,054 4,030,921 27,844 444,841 36,116 546,487 13,689,627 502,711 2,597,536

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For the year ended December 31, 2015

Segment revenue Revenue from internal customers Revenue from external customers Interest income Depreciation and amortization Interest expense Income (loss) from segment before income tax Segment assets Other acquisition of non-current assets Segment liabilities	ScinoPharm Taiwan,Ltd. Others 3,897,137 $ 294,942 $ - 236,872 3,897,137 58,070 11,067 19,622 400,485 82,034 28 8,990 770,109 236,751) ( 10,425,631 3,008,492 392,835 92,697 568,638 1,807,622	Total
		4,192,079 $ 236,872 3,955,207 30,689 482,519 9,018 533,358 13,434,123 485,532 2,376,260

(4) Reconciliation for segment

• A. The sales between segments were at arms’ length. The external revenues reported to the chief operating decision maker adopt the same measurement basis for revenues in statement of comprehensive income. The reconciliations of pre-tax income between reportable segments and continuing operations were as follows :

For the years ended December 31,

			2016			2015
Reportable segments profit before
income tax		$	821,806	$		770,109
Other segments loss before income tax	(		275,319)	(		236,751)
Internal segments profit			264,113			269,526
Profit before income tax		$	810,600		$	802,884
The amount of total assets provided to	the	chief	operating decision-maker adopts the sam
measurement for assets in the Group's	financial		statements. A reconciliation of assets o
reportable segments and total assets is as	follows:
		December31,2016				December31,2015
Assets of reportable segments	$		10,962,274		$	10,425,631
Assets of other operating segments			2,727,353			3,008,492
Internal segment transaction elimination	(		906,627)	(		1,212,528)
Total assets	$		12,783,000		$	12,221,595

• B. The amount of total assets provided to the chief operating decision-maker adopts the same measurement for assets in the Group's financial statements. A reconciliation of assets of reportable segments and total assets is as follows:

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• C. The amount of total liabilities provided to the chief operating decision-maker adopts the same measurement for liabilities in the Group's financial statements. A reconciliation of liabilities of reportable segments and total liabilities is as follows:

		December31,2016		December31,2015
Liabilities of reportable segments	$	734,481	$	568,638
Liabilities of other operating segments		1,863,055		1,807,622
Internal segment transaction elimination	(	42,329)	(	11,658)
Total liabilities	$	2,555,207	$	2,364,602

(5) Information on product and service

The Group is engaged in the research and development and manufacture of API, as well as the provision of related consulting and technical services. The reconciliations of total segment and operating revenue were as follows:

operating revenue were as follows:
Revenue from sales of products Revenue from technical services Others	For theyears ended December31,
	2016 3,840,755 $ 190,076 90 4,030,921 $	2015
		3,871,561 $ 82,272 1,374
		3,955,207 $

(6) Geographical information

Geographical information for the years ended December 31, 2016 and 2015 is as follows:

Taiwan USA India Asia Europe Others	Non-current Revenue assets 166,644 $ 3,755,409 $ 1,985,533 - 400,738 - 529,415 1,625,143 839,776 - 108,815 - 4,030,921 $ 5,380,552 $ For theyear ended December31,2016	For theyear ended December31,2015	For theyear ended December31,2015
	Revenue 166,644 $ 1,985,533 400,738 529,415 839,776 108,815 4,030,921 $	Revenue 154,991 $ 1,639,640 700,044 360,155 882,878 217,499 3,955,207 $	Non-current assets
			3,748,351 $ - 1,693,601 - -
			5,441,952 $

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(7) Major customer information

Major customer information of the Group for the years ended December 31, 2016 and 2015 is as follows:

follows:
A B	Revenue Segment 1,716,484 $ The Company 112,777 〞 For theyear ended December31,2016	For theyear ended December31,2015
	Revenue 1,716,484 $ 112,777	Revenue 1,447,914 $ 512,150	Segment
			The Company 〞

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Table 1

Expressed in thousands of NTD

ScinoPharm Taiwan, Ltd. and Subsidiaries

Loans to others

For the year ended December 31, 2016

Number	Name	Name of counterparty	Account	Related parties	Maximum balance	Ending balance	Actual amount drawn down	Interest rate	Nature of financial activity (Note 1)	Total transaction amount	Reason for financing	Allowance for doubtful accounts	Assets pledged	Loan limit per entity	Maximum amount available for loan	Footnote
1	ScinoPharm (Kunshan) Biochemical Technology Co., Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd.	Other receivables	Y	88,236 $	85,907 $	85,907 $	2.00	2	- $	Additional operating capital	- $	－ - $	431,461 $	431,461 $	(Note 2)

Note 1: The code represents the nature of financing activities as follows:

• 1.Trading partner.

2.Short-term financing.

Note 2: (1) For trading partner: the maximum amount for individual trading partner shall not exceed the higher of purchase or sales amount of the most recent year or the current year, the maximum amount for total loan is 20% of its net worth.(2) For short-term financing: the maximum amount for individual is 20% of its net worth, the maximum amount for total loan is 40% of its net worth. If the Company loans to foreign subsidiaries, which the Company holds 100% ownership directly or indirectly, the maximum amount for the subsidiary is 100% of the Company's net worth.

Note 3: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (CNY:NTD 1:4.644).

Table 1, Page 1

ScinoPharm Taiwan, Ltd. and Subsidiaries

Table 2

Expressed in thousands of NTD

Provision of endorsements and guarantees to others

For the year ended December 31, 2016

Number	Endorser/ guarantor	Party being endorsed/guaranteed	Party being endorsed/guaranteed	Limit on endorsements/ guarantees provided for a single party （Note 2）	Maximum outstanding endorsement/ guarantee amount as of December 31, 2016	Outstanding endorsement/ guarantee amount at December 31, 2016	Actual amount drawn down	Amount of endorsements/ guarantees secured with collateral	Ratio of accumulated endorsement/ guarantee amount to net asset value of the endorser/ guarantor company	Ceiling on total amount of endorsements/ guarantees provided （Note 2）	Provision of endorsements/ guarantees by parent company to subsidiary	Provision of endorsements/ guarantees by subsidiary to parent company	Provision of endorsements/ guarantees to the party in Mainland China	Footnote
		Companyname	Relationship with the endorser/ guarantor （Note 1）
0	ScinoPharm Taiwan, Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd.	1	10,227,793 $	1,740,200 $	1,625,270 $	802,993 $	- $	15.89%	10,227,793 $	Y	N	Y	－

Note 1: The following code represents the relationship with the Company:

• 1.The endorsed/ guaranteed parent company and its subsidiaries jointly own more than 50% voting shares of the endorser/ guarantor subsidiary.

• Note 2: 1.The limit of total amount of endorsement is 50% of the Company's net worth, for 100% directly or indirectly owned subsidiaries, the maximum amount is 100% of its net worth.

The limit of total amount of the Group's endorsement and guarantee is 100% of the Group's net worth.

1. For any endorsement or guarantee provided by the Company due to business dealings, the amount of endorsement or guarantees shall be limited to the business dealing amount of the most recent year or the current year. The business dealing amount is product purchase or sale amount between the entities, whichever is higher.

Note 3: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (CNY:NTD 1:4.644).

Table 2, Page 1

ScinoPharm Taiwan, Ltd. and Subsidiaries

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)

December 31, 2016

Table 3

Expressed in thousands of NTD

Securities held by	Marketable securities	Relationship with the securities issuer	General ledger account		As of December31,2016	As of December31,2016		Footnote
				Number of shares	Bookvalue	Ownership (%)	Fairvalue
ScinoPharm Taiwan, Ltd.	Stocks: Tanvex Biologics, Inc. SYNGEN, INC. Foresee Pharmaceuticals Co., Ltd.	The Company is a director of Tanvex Biologics, Inc. － －	Financial assets measured at cost- non-current Financial assets measured at cost- non-current Financial assets measured at cost- non-current	28,800,000 245,000 4,358,226	167,673 $ - 196,416	17.00% 7.40% 6.05%	$ - - -	－ － －

Table 3, Page 1

ScinoPharm Taiwan, Ltd. and Subsidiaries

Expressed in thousands of NTD

- Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid in capital or more For the year ended December 31, 2016

Table 4

Purchaser/seller	Counterparty	Relationship with the counterparty			Transaction		Differences in transaction terms compared to third partytransactions	Differences in transaction terms compared to third partytransactions	Notes/accounts receivable(payable)	Notes/accounts receivable(payable)	Footnote
			Purchases (sales)	Amount	Percentage of total purchases (sales)	Credit term	Unitprice	Credit term	Balance	Percentage of total notes/accounts receivable(payable)
ScinoPharm Taiwan, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm Taiwan, Ltd.	Subsidary (SPT International, Ltd.) The Company	Purchases (Sales)	171,470 $ 171,470) (	19% (55%)	Closes its accounts 90 days from the end of each month after acceptance Closes its accounts 90 days from the end of each month after acceptance	$ - -	－ －	33,100) ($ 33,100	(36%) 39%	－ －

Table 4, Page 1

ScinoPharm Taiwan, Ltd. and Subsidiaries

Table 5

Expressed in thousands of NTD

- Significant inter company transactions during the reporting periods

For the year ended December 31, 2016

Number (Note 1)	Companyname	Counterparty	Relationship (Note 2)		Transaction	Transaction
				General ledger account	Amount	Transaction terms	Percentage of consolidated total operating revenues or total assets(Note3)
0 0 0 0 0 1	ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm (Kunshan) Biochemical Technology Co., Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Shanghai) Biochemical Technology, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd.	1 1 1 1 1 3	Purchases Management service revenue Accounts payable Endorsements and guarantees Management consultancy fees Other receivables	171,470 $ 15,226) ( 33,100) ( 1,625,270 12,398 87,527	Closes its accounts 90 days from the end of each month after acceptance － － － － －	4% － － 13% － 1%

Note 1: Significant inter-company transactions during the reporting periods are not disclosed since these were corresponding transactions. Only transactions over NT$10 million are material.

Note 2: The numbers filled in for the transaction company in respect of inter-company transactions are as follows:

(1) Parent company is ‘0’.

(2) The subsidiaries are numbered in order starting from ‘1’.

• Note 3: Relationship between transaction company and counterparty is classified into the following three categories:

(1) Parent company to subsidiary.

(2) Subsidiary to parent company.

(3) Subsidiary to subsidiary.

Note 4: Regarding percentage of transaction amount to consolidated total operating revenues or total assets, it is computed based on period-end balance of transaction to consolidated total assets for balance sheet accounts and based on accumulated transaction amount for the period to consolidated total operating revenues for income statement accounts.

Note 5: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (CNY:NTD 1:4.644).

Table 5, Page 1

ScinoPharm Taiwan, Ltd. and Subsidiaries

Information on investees

For the year ended December 31, 2016

Table 6

Expressed in thousands of NTD

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held	as at December 31,2016	as at December 31,2016	Net profit (loss) of the investee for the year ended December 31,2016	Investment income (loss) recognized by the Company for the year ended December 31,2016	Footnote
				Balance as at December 31,2016	Balance as at December 31,2015	Number of shares	Ownership (%)	Book value
ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd.	SPT International, Ltd. ScinoPharm Singapore Pte Ltd.	Tortola, British Virgin Islands Singapore	Professional investment Professional investment	1,833,304 $ -	1,833,304 $ -	60,524,644 2	100.00 100.00	816,788 $ 66	264,129) ($ 16	256,720) ($ 16	Subsidary Subsidary

Table 6, Page 1

Information on investments in Mainland China

Expressed in thousands of NTD

ScinoPharm Taiwan, Ltd. and Subsidiaries

For the year ended December 31, 2016

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Table 7
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Investee in Mainland China	Main business activities	Paid-in capital	Investment method	Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2016	Amount remitted from Taiwan to Mainland China/ Amount remitted back to Taiwan for the year ended December 31,2016	Amount remitted from Taiwan to Mainland China/ Amount remitted back to Taiwan for the year ended December 31,2016	Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2016	Net income of investee for the year ended December 31, 2016	Ownership held by the Company (direct or indirect)	Investment income (loss) recognized by the Company for the year ended December 31, 2016 （Note 2）	Book value of investments in Mainland China as of December 31, 2016	Accumulated amount of investment income remitted back to Taiwan as of December 31, 2016	Footnote
					Remitted to Mainland China	Remitted back to Taiwan
ScinoPharm (Kunshan) Biochemical Technology Co., Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Shanghai) Biochemical Technology, Ltd. Companyname	Research, development, and manufacture of API and new drug, etc. Research, development, and manufacture of API and new drug, sale produced products, etc. Import, export and sales of API and intermediates, etc. Accumulated amount of remittance from Taiwan to Mainland China as of December 31,2016	129,000 $ （Note 1） 1,757,625 （Note 1） 38,700 （Note 1） Investment amount approved by the Investment Commission of the Ministry of Economic Affairs(MOEA)		120,113 $ - $ 1,757,625 - 38,700 - Ceiling on investments in Mainland China imposed by the Investment Commission of MOEA (Note 3)		- $ - -	120,113 $ 1,757,625 38,700	10,227) ($ 253,827) ( 84	100 100 100	10,227) ($ 253,827) ( 84	431,461 $ 408,330 20,011	- $ - -	Subsidary Subsidary Subsidary
ScinoPharm Taiwan, Ltd.	$ 1,955,914	1,955,914 $		6,136,676 $

Note 1: Indirect investment in Mainland China through company set up in a third region, SPT International, Ltd.

Note 2: The investment income (loss) recognized by the Company for the year ended December 31, 2016 was based on audited financial statements of investee companies as of and for the year ended December 31, 2016. Note 3: The ceiling amount is 60% of the higher of net worth or consolidated net worth.

Note 4: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (USD:NTD 1:32.25).

Table 7, Page 1

Table 8

Expressed in thousands of NTD

ScinoPharm Taiwan, Ltd. and Subsidiaries

Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in the third areas For the year ended December 31, 2016

Investee in Mainland China	Sale(purchase)	Sale(purchase)	Propertytransaction	Propertytransaction	Accounts receivable (payable)	Accounts receivable (payable)	Provision of endorsements/guarantees or collaterals	Provision of endorsements/guarantees or collaterals		Financing			Others
	Amount	%	Amount	%	Balance at December 31, 2016	%	Balance at December 31, 2016	Purpose	Maximum balance during the year ended December 31,2016	Balance at December 31,2016	Interest rate	Interest during the year ended December 31,2016
ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Shanghai) Biochemical Technology, Ltd. ScinoPharm (Kunshan) Biochemical Technology, Ltd.	171,470) ($ - ( 9,861)	(19%) - (1%)	- - -	- - -	33,100) ($ - -	(37%) - -	1,625,270 $ - -	Secured financing amount - -	- - -	- - -	- - -	- - -	Management service revenue $ 15,226 Research and development of expenses $2,791 Other receivables of $ 6,780 Management consultancy fee $ 12,398 Other payables of $ 2,019 -

Table 8, Page 1