TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES ...TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES...

TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2015 AND 2016

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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.

TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

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December 31, 2015 December 31, 2016 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 2,625,612 37 $ 2,445,038 35

1150 Notes receivable, net 161 - 521 -

1170 Accounts receivable, net 6(2) 102,104 1 114,170 2

1180 Accounts receivable - related

parties, net

7

- - 1 -

1200 Other receivables 43,698 1 16,145 -

1220 Current income tax assets - - 85 -

130X Inventories 6(3) 112,557 2 91,813 1

1410 Prepayments 61,440 1 74,222 1

1460 Non-current assets held for sale

- net

6(4)

- - 901,960 13

1476 Other current financial assets 6(5) 1,886,738 26 2,195,560 31

11XX Total current assets 4,832,310 68 5,839,515 83

Non-current assets

1600 Property, plant and equipment 6(6), 7 and 8 1,265,921 18 925,154 13

1780 Intangible assets 6(7) 830,955 11 136,612 2

1900 Other non-current assets 6(8) 204,562 3 113,246 2

15XX Total non-current assets 2,301,438 32 1,175,012 17

1XXX Total assets $ 7,133,748 100 $ 7,014,527 100

(Continued)

TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

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

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December 31, 2015 December 31, 2016 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities

2100 Short-term borrowings 6(9) $ 16,415 - $ - - 2170 Accounts payable 35,482 1 55,176 1

2200 Other payables 6(10) 228,772 3 139,531 2 2220 Other payables - related parties 7 1,143 - - -

2230 Current income tax liabilities - - 9,827 - 2260 Liabilities directly related to

non-current assets held for sale

6(4)

- - 178,346 3 2300 Other current liabilities 6(13) 31,530 - 5,665 -

21XX Total current liabilities 313,342 4 388,545 6

Non-current liabilities

2570 Deferred income tax liabilities 6(23) 152,892 2 4,933 - 2600 Other non-current liabilities 6(11)(13) 37,600 1 11,219 -

25XX Total non-current liabilities 190,492 3 16,152 -

2XXX Total liabilities 503,834 7 404,697 6

Equity attributable to owners of

the parent

Share capital

3110 Common stock 6(14) 1,274,091 18 1,273,274 18 3140 Advance receipts for share capital 6(12) 981 - 2,038 -

Capital surplus 6(12)(15)(26) 3200 Capital surplus 7,790,456 109 8,280,915 118

Retained earnings (accumulated

deficit)

6(16)(23)

3310 Legal reserve 1,199 - 1,199 - 3350 Accumulated deficit ( 2,711,177 ) ( 38 ) ( 2,931,067 ) ( 42 )

Other equity interest 3400 Other equity interest ( 53,256 ) ( 1 ) ( 89,913 ) ( 1 )

3500 Treasury shares 6(14) - - ( 212,112 ) ( 3 )

31XX Total equity attributable to

owners of the parent

6,302,294 88 6,324,334 90 36XX Non-controlling interest 327,620 5 285,496 4

3XXX Total equity 6,629,914 93 6,609,830 94

Commitments and contingent

liabilities

9

Significant events after the

reporting period

11

3X2X Total liabilities and equity $ 7,133,748 100 $ 7,014,527 100

TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2015 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT LOSS PER SHARE DATA)


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2015 2016 Items Notes AMOUNT % AMOUNT %

4000 Operating revenues 6(17) and 7 $ 437,368 100 $ 743,778 100 5000 Operating costs 6(3)(11)(12)(21)

(22) ( 338,240 ) ( 77 ) ( 485,438 ) ( 65 ) 5900 Gross Profit 99,128 23 258,340 35 5920 Realized gain from sales 29,898 7 - - 5950 Gross profit, net 129,026 30 258,340 35 Operating expenses 6(11)(12)(21)(22)

and 7 6100 Selling and marketing ( 60,755 ) ( 14 ) ( 59,105 ) ( 8 ) 6200 General and administrative ( 161,405 ) ( 37 ) ( 164,251 ) ( 22 ) 6300 Research and development ( 794,739 ) ( 182 ) ( 720,568 ) ( 97 ) 6000 Total operating expenses ( 1,016,899 ) ( 233 ) ( 943,924 ) ( 127 ) 6900 Operating loss ( 887,873 ) ( 203 ) ( 685,584 ) ( 92 ) Non-operating income and

expenses

7010 Other income 6(18)(24) and 7 320,462 73 462,317 62 7020 Other gains and losses 6(19) and 7 178,257 41 ( 75,104 ) ( 10 ) 7050 Finance costs 6(20) ( 307 ) - ( 91 ) - 7060 Share of loss of associates and

joint ventures accounted for under equity method

( 53,737 ) ( 13 ) - - 7000 Total non-operating income

and expenses

444,675 101 387,122 52 7900 Loss before income tax ( 443,198 ) ( 102 ) ( 298,462 ) ( 40 ) 7950 Income tax benefit 6(23) 8,304 2 6,569 1 8200 Loss for the year ( $ 434,894 ) ( 100 ) ( $ 291,893 ) ( 39 )

Other comprehensive income (loss)

Other comprehensive income (loss) that will not be reclassified to profit or loss

8311 Other comprehensive income,

before tax, actuarial gains (losses) on defined benefit plans

6(11)

$ 705 - $ 2,023 - Items that may be reclassified

subsequently to profit or loss

8361 Exchange differences on

translation of foreign financial statements

( 23,905 ) ( 5 ) ( 65,754 ) ( 9 ) 8300 Other comprehensive loss, net ( $ 23,200 ) ( 5 ) ( $ 63,731 ) ( 9 )

8500 Total comprehensive loss for the year

( $ 458,094 ) ( 105 ) ( $ 355,624 ) ( 48 )

Loss attributable to: 8610 Owners of the parent ( $ 347,739 ) ( 80 ) ( $ 221,682 ) ( 30 ) 8620 Non-controlling interest ( 87,155 ) ( 20 ) ( 70,211 ) ( 9 ) ( $ 434,894 ) ( 100 ) ( $ 291,893 ) ( 39 ) Comprehensive loss attributable

to:

8710 Owners of the parent ( $ 370,939 ) ( 85 ) ( $ 266,336 ) ( 36 ) 8720 Non-controlling interest ( 87,155 ) ( 20 ) ( 89,288 ) ( 12 ) ( $ 458,094 ) ( 105 ) ( $ 355,624 ) ( 48 )

Loss Per Share (in dollars) 6(25) 9750 Basic Loss Per Share ( $ 2.99 ) ( $ 1.76 )

9850 Diluted Loss Per Share ( $ 2.99 ) ( $ 1.76 )


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED DECEMBER 31, 2015 AND 2016

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Equity attributable to owners of the parent

Capital Retained Earnings Other Equity Interest

Notes

Common

stock

Advance

receipts

for share

capital

Capital

reserves

Legal

reserve

Accumulated

deficit

Exchange

differences on

translation of

foreign

financial

statements

Other

equity -

others

Treasury shares

Total

Non-

controlling

interest

Total equity


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2015 Balance at January 1, 2015 $ 1,131,057 $ 39 $ 4,732,341 $1,199 ( $ 2,364,143 ) $ 37,439 ( $ 46,769 ) $ - $ 3,491,163 $ 343,249 $ 3,834,412 Compensation costs of employee stock options 6(12)(15) - - 28,098 - - - - - 28,098 - 28,098 Compensation costs of employee stock options from subsidiaries 6(12)(15) - - 6,478 - - - - - 6,478 - 6,478 Employee stock options exercised 6(12)(15) - 6,023 - - - - - - 6,023 - 6,023 Issuance of restricted stocks 6(12)(15) 635 - 10,379 - - - ( 10,379 ) - 635 - 635 Advance receipts for share capital transferred 6(12)(15) 1,059 ( 5,081 ) 4,022 - - - - - - - - Reversal of compensation costs of restricted stocks - - - - - - ( 22,170 ) - ( 22,170 ) - ( 22,170 ) Retirement of restricted stocks 6(14)(15) ( 2,660 ) - ( 12,528 ) - - - 12,528 - ( 2,660 ) - ( 2,660 ) Issuance of shares 6(14)(15) 144,000 - 2,660,966 - - - - - 2,804,966 - 2,804,966 Transactions with non-controlling interests 6(15)(26) - - 360,700 - - - - - 360,700 - 360,700 Loss for the year - - - - ( 347,739 ) - - - ( 347,739 ) ( 87,155 ) ( 434,894 ) Other comprehensive loss for the year 6(11) - - - - 705 ( 23,905 ) - - ( 23,200 ) - ( 23,200 ) Changes in non-controlling interests - - - - - - - - - 71,526 71,526 Balance at December 31, 2015 $ 1,274,091 $ 981 $ 7,790,456 $1,199 ( $ 2,711,177 ) $ 13,534 ( $ 66,790 ) $ - $ 6,302,294 $ 327,620 $ 6,629,914

2016 Balance at January 1, 2016 $ 1,274,091 $ 981 $ 7,790,456 $1,199 ( $ 2,711,177 ) $ 13,534 ( $ 66,790 ) $ - $ 6,302,294 $ 327,620 $ 6,629,914 Compensation costs of employee stock options 6(12)(15) - - 23,705 - - - - - 23,705 - 23,705 Compensation costs of employee stock options from subsidiaries 6(12)(15) - - 6,836 - - - - - 6,836 2,007 8,843 Compensation costs of restricted stocks 6(12) - - - - - - 2,769 - 2,769 - 2,769 Employee stock options exercised 6(12)(15) - 3,998 - - - - - - 3,998 - 3,998 Issuance of restricted stocks 6(12)(15) 500 - 5,544 - - - ( 5,544 ) - 500 - 500 Advance receipts for share capital transferred 6(12)(15) 613 ( 2,941 ) 2,328 - - - - - - - - Retirement of restricted stocks 6(14)(15) ( 1,930 ) - ( 12,795 ) - - - 12,795 - ( 1,930 ) - ( 1,930 ) Reacquisition of treasury shares 6(14) - - - - - - - ( 212,112 ) ( 212,112 ) - ( 212,112 ) Transactions with non-controlling interests 6(15)(26) - - 464,841 - ( 231 ) - - - 464,610 45,157 509,767 Loss for the year - - - - ( 221,682 ) - - - ( 221,682 ) ( 70,211 ) ( 291,893 ) Other comprehensive income (loss) for the year 6(11) - - - - 2,023 ( 46,677 ) - - ( 44,654 ) ( 19,077 ) ( 63,731 ) Balance at December 31, 2016 $ 1,273,274 $ 2,038 $ 8,280,915 $1,199 ( $ 2,931,067 ) ( $ 33,143 ) ( $ 56,770 ) ( $ 212,112 ) $ 6,324,334 $ 285,496 $ 6,609,830

TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2015 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Notes 2015 2016

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CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax ( $ 443,198 ) ( $ 298,462 ) Adjustments to reconcile consolidated loss before income

tax to net cash used in operating activities

Non-cash flows from income and expenses Compensation costs of employee stock options and

restricted stocks 6(12)

12,406 35,317 Long-term deferred revenue (including current portion)

transferred to revenue

( 4,225 ) ( 9,033 ) Reversal of employee benefit of associate corporations 6(21) ( 42,749 ) - Provision for (gain from reversal of) bad debts 6(2) - 208 Depreciation 6(6)(21) 109,948 124,412 Amortisation 6(7)(21) 108,917 87,923 Interest income 6(18) ( 11,139 ) ( 41,361 ) Interest expense 6(20) 307 91 Gain on disposal of investments 6(19) ( 155,165 ) - Loss (gain) on disposal of property, plant and

equipment 6(19)

131 ( 316 ) Property, plant and equipment transferred to expenses 6(6) 138 935 Impairment loss 6(19) ( 11,785 ) - Share of loss of associates and joint ventures accounted

for under the equity method 6(19)

53,737 - Realised gain from sales ( 29,898 ) - Changes in assets and liabilities relating to operating

activities

Changes in assets relating to operating activities Notes receivable, net 1,078 ( 360 ) Accounts receivable, net ( 38,479 ) ( 12,274 ) Accounts receivable - related parties, net 101,455 ( 1 ) Other receivables 2,411 39,708 Other receivables - related parties 4,835 - Inventories ( 20,862 ) 16,985 Prepayments 6,014 ( 24,439 ) Changes in liabilities relating to operating activities Accounts payable ( 2,553 ) 19,694 Other payables ( 115,183 ) ( 1,911 ) Other payables - related parties ( 3,797 ) ( 1,143 ) Other current liabilities ( 5,447 ) ( 7,821 ) Accrued pension liabilities ( 380 ) ( 354 ) Other non-current liabilities - 986

Cash outflow used in operations ( 483,483 ) ( 71,216 ) Interest received 11,139 29,206 Interest paid ( 307 ) ( 91 ) Income tax paid ( 7,961 ) ( 87 )

Net cash used in operating activities ( 480,612 ) ( 42,188 )

(Continued)

TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2015 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Notes 2015 2016


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CASH FLOWS FROM INVESTING ACTIVITIES

Increase in other current financial assets ( $ 1,864,338 ) ( $ 308,822 )

Acquisition of property, plant and equipment 6(27) ( 158,816 ) ( 85,432 )

Proceeds from disposal of property, plant and equipment 678 19,560

Increase in intangible assets 6(7) ( 2,460 ) ( 11,702 )

Changes in cash and cash equivalents reclassified to non-

current assets held for sale

6(4)

- ( 11,458 )

Return of stock subscription from capital reduction of

investment accounted for under the equity method

323,805 -

Proceeds from disposal of investment accounted for under

the equity method

163,650 -

Increase in other non-current assets ( 112,481 ) ( 19,437 )

Net cash used in investing activities ( 1,649,962 ) ( 417,291 )

CASH FLOWS FROM FINANCING ACTIVITIES

Decrease in other payables - related parties ( 66,009 ) -

Proceeds from short-term borrowings 16,415 -

Repayment of short-term borrowings - ( 16,415 )

Repayment of long-term borrowings (including current

portion)

( 2,546 ) -

Employee stock options exercised 6(12) 6,023 3,998

Issuance of restricted stocks 6(12) 635 500

Retirement of restricted stocks 6(14) ( 2,660 ) ( 1,930 )

Issuance of shares 6(14) 2,804,965 -

Increase in non-controlling interests - proceeds from

issuing shares

438,085 -

Reacquisition of treasury shares 6(14) - ( 212,112 )

Decrease in subsidiaries interests 6(26) - 509,767

Net cash flows provided by financing activities 3,194,908 283,808

Effect of exchange rate changes on cash and cash equivalents 8,405 ( 4,903 )

Net increase (decrease) in cash and cash equivalents 1,072,739 ( 180,574 )

Cash and cash equivalents at beginning of year 1,552,873 2,625,612

Cash and cash equivalents at end of year $ 2,625,612 $ 2,445,038

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2016

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANIZATION

(1) TWi Pharmaceuticals Inc. (the Company), formerly Empax Pharma, Inc., was incorporated as a

company limited by shares on Decemeber 1, 1997 with the approval of the Ministry of Economic

Affairs, R.O.C. and began operations on the same day. The Company and its subsidiaries (collectively

referred herein as the “Group”) are mainly engaged in the research and development, contract

manufacturing, and contract research of generic drugs.

(2) The Company, with September 1, 2006 as the acquisition date, absorbed Anchen International

Pharmaceuticals Co., Ltd. and changed its name to Anchen Pharmaceuticals (Taiwan), Inc. after the

merger. During April 2010, due to the Group’s organizational restructuring, the Company’s parent

company was changed from Anchen Incorporated to TWi Pharmaceuticals Holding Inc. and the

Company changed its name to TWi Pharmaceuticals, Inc. Because of the Group’s decision to use the

Company as the main entity for public exchange listing, TWi Pharmaceuticals Holding Inc. gradually

transferred its shares of the Company to its stockholders during July and August 2012. After the

transfer, the Company no longer has an ultimate parent company. Also, during February and March

2013, the Company gradually acquired 100% ownership of U-Liang Co., Ltd., with March 28, 2013

as the acquisition date.

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

STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were reported to the Board of Directors on March 23, 2017.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

None.

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

the Group

New standards, interpretations and amendments as endorsed by the FSC effective from 2017:

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Based on the Group’s assessment, the above standards and interpretations have no significant impact

to the Group’s financial condition and operating results.

(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

endorsed by the FSC effective from 2017:

New Standards, Interpretations and Amendments

Effective date by

International Accounting

Standards Board

Investment entities: applying the consolidation exception

(amendments to IFRS 10, IFRS 12 and IAS 28)

January 1, 2016

Accounting for acquisition of interests in joint operations

(amendments to IFRS 11)

January 1, 2016

IFRS 14, ‘Regulatory deferral accounts’ January 1, 2016

Disclosure initiative (amendments to IAS 1) January 1, 2016

Clarification of acceptable methods of depreciation and amortisation

(amendments to IAS 16 and IAS 38)

January 1, 2016

Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016

Defined benefit plans: employee contributions

(amendments to IAS 19R)

July 1, 2014

Equity method in separate financial statements (amendments to IAS 27) January 1, 2016

Recoverable amount disclosures for non-financial assets

(amendments to IAS 36)

January 1, 2014

Novation of derivatives and continuation of hedge accounting

(amendments to IAS 39)

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014

Improvements to IFRSs 2010-2012 July 1, 2014

Improvements to IFRSs 2011-2013 July 1, 2014

Improvements to IFRSs 2012-2014 January 1, 2016


Effective date by


Standards Board

Classification and measurement of share-based payment transactions


January 1, 2018

Applying IFRS 9, ‘Financial instruments’ with IFRS 4, ‘Insurance

contracts’ (amendments to IFRS 4)

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018

Sale or contribution of assets between an investor and its associate or

joint venture (amendments to IFRS 10 and IAS 28)

To be determined by


Standards Board

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Except for the following, the above standards and interpretations have no significant impact to the

Group’s financial condition and operating results based on the Group’s assessment. The quantitative

impact will be disclosed when the assessment is complete.

A. IFRS 9, ‘Financial instruments’

(a) 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.

(b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’

approach. An entity assesses at each balance sheet date whether there has been a significant

increase in credit risk on that instrument since initial recognition to recognise 12-month

expected credit losses or lifetime expected credit losses (interest revenue would be calculated

on the gross carrying amount of the asset before impairment losses occurred); or if the

instrument that has objective evidence of impairment, interest revenue after the impairment

would be calculated on the book value of net carrying amount (i.e. net of credit allowance).

The Company shall always measure the loss allowance at an amount equal to lifetime expected

credit losses for trade receivables that do not contain a significant financing component.

B. IFRS 15, ‘Revenue from contracts with customers’

IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction Contracts’, IAS


Effective date by


Standards Board

IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018

Clarifications to IFRS 15, ‘Revenue from contracts with customers’


January 1, 2018

IFRS 16, ‘Leases’ January 1, 2019

Disclosure initiative (amendments to IAS 7) January 1, 2017

Recognition of deferred tax assets for unrealised losses (amendments to

IAS 12)

January 1, 2017

Transfers of investment property (amendments to IAS 40) January 1, 2018

IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS

1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS

12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IAS

28, ‘Investments in associates and joint ventures’

January 1, 2018

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18, ‘Revenue’ and relevant interpretations. According to IFRS 15, revenue is recognised when a

customer obtains control of promised goods or services. A customer obtains control of goods or

services when a customer has the ability to direct the use of, and obtain substantially all of the

remaining benefits from, the asset.

The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the entity

expects to be entitled in exchange for those goods or services. An entity recognises revenue in

accordance with that core principle by applying the following steps:

Step 1: Identify contracts with customer

Step 2: Identify separate performance obligations in the contract(s)

Step 3: Determine the transaction price

Step 4: Allocate the transaction price

Step 5: Recognise revenue when the performance obligation is satisfied

Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity

to disclose sufficient information to enable users of financial statements to understand the nature,

amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

IFRS 15 requires that, when products are sold with a right of return, the entity will recognise

revenue in the amount of consideration to which the entity expects to be entitled. Revenue would

not be recognised for products that the entity expects to be returned. The entity raises a refund

liability and an asset representing its right to recover the products from the customer. The asset is

presented separately from the refund liability.

IFRS 15 requires that an entity capitalises the incremental costs of obtaining a contract with a

customer if it expects to recover those costs. Contract cost assets are amortised on a systematic

basis consistent with the expected pattern of transfer of the related goods or services under the

contract.

Under IFRS 15, depending on the nature of licences, they are either (1) a promise to provide a

right to access to an entity’s intellectual property as it exists throughout the licence period, or (2)

a promise to provide a right to use an entity’s intellectual property as it exists at the point in time

when the licence is granted.

Licences that meet all of the following criteria provide access to an entity’s intellectual property,

and revenue is recognised based on the performance obligation's progress towards completion:

1. The contract requires, or the customer reasonably expects, that the entity will undertake

activities that significantly affect the intellectual property to which the customer has rights;

2. The rights granted by the licence directly expose the customer to any positive or negative effects

of the entity’s activities identified above; and

3. Those activities do not result in the transfer of a good or service to the customer as those

activities occur.

If licences cannot meet all criteria listed above, the entity provides a right to use the entity's

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intellectual property. Revenue shall be recognised at the point in time at which the licence is

granted to the customer.

A contract modification could change the scope of the contract, the price of the contract, or both.

IFRS 15 states that an entity accounts for a contract modification as a separate contract if the scope

of the contract increases because of the addition of distinct goods or services, and the price of the

contract increases by an amount of consideration that reflects the entity’s standalone selling prices

of the additional promised goods or services and any appropriate adjustments to that price to reflect

the circumstances of the particular contract.

If a modification does not meet the above criteria, an entity should determine whether the

remaining goods or services (including the increase of scope from the contract modification) are

distinct from the goods or services transferred before the modification. If they are distinct, an

entity shall account for the modification prospectively. If the remaining goods or services in the

modification are not distinct, an entity accounts for a modification through a cumulative catch-up

adjustment. The effect that the modification has on the transaction price, and the measure of

progress towards complete satisfaction of the performance obligation, is recognised as an

adjustment to revenue at the date of modification.

C. Amendments to IFRS 15, ‘Clarifications to IFRS 15 - Revenue from Contracts with Customers’

The amendments clarify how to identify a performance obligation (the promise to transfer a good

or a service to a customer) in a contract; determine whether a company is a principal (the provider

of a good or service) or an agent (responsible for arranging for the good or service to be provided);

and determine whether the revenue from granting a licence should be recognised at a point in time

or over time. In addition to the clarifications, the amendments include two additional reliefs to

reduce cost and complexity for a company when it first applies the new Standard.

D. 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.

E. 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.

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

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otherwise stated.

(1) Compliance statement

A. 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 “Taiwan-IFRSs”).

(2) Basis of preparation

A. Except for the following item, the consolidated financial statements have been prepared under the

historical cost convention:

Defined benefit liabilities recognised 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 Taiwan-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.

(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 unrealised gains or losses on transactions between

companies within the Group are eliminated.

(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 non-

controlling 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 recognised directly in equity.

~19~

B. Subsidiaries included in the consolidated financial statements:

Note 1: As TWi Biotechnology, Inc. plans to apply for securities listing, in order to comply with

TWSE and TPEx Securities Listing Rules on equity distribution and to comply with TPEx

Rules Governing the Review of Emerging Stocks for Trading, the Company continually

sold equity interests to non-related parties during the year 2016.

Note 2: During the November 2016 meeting, the Board of Directors resolved to sell all of equity

interest in Visum Pharmaceutical Co., Ltd. As of the reporting date, the transaction has

not yet been completed.

Note 3: Certain consolidated subsidiaries included in the consolidated financial statements were

audited by auditors hired by the subsidiary. As of December 31, 2016, their financial

statements reflect total assets of $901,960 and total operating revenue of $753.

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:

As of December 31, 2015 and 2016, non-controlling interest amounted to $327,620, and $285,496,

respectively. The information on non-controlling interest and respective subsidiaries is as follows:

Name of investor Name of subsidiary Main business activities

December

31, 2015

December

31, 2016 Note

TWi Pharmaceuticals,

Inc.

TWi Biotechnology,

Inc.

New drug R&D 85.59 73.07 (1)


Inc.

TWi Pharmaceuticals

USA Inc.

Consulting services and

generic drug sales

100 100


Inc.

TWi Pharmaceuticals

Europe Limited

Consulting services

and generic drug sales

100 100


Inc.

TWi Pharmaceutical

Ltd.

Investment 100 100

TWi Pharmaceutical,

Ltd.

TWi Pharmaceutical

Cayman Ltd.

Investment 99.92 99.88

TWi Pharmaceutical

Cayman Ltd.

Visum Pharmaceutical

Co., Ltd.

Formulation and

development of

oral solid dosage forms

65.58 65.58 (2)(3)

Visum Pharmaceutical

Co., Ltd.

eGen Pharmaceutical

Co., Ltd.

Formulation and

development of

oral solid dosage forms

100 100 (3)

Ownership (%)

~20~

Summarised financial information of the subsidiaries:

Balance sheets

Statements of comprehensive income

Name of Principal place

subsidiary of business Amount Ownership (%) Amount Ownership (%) Description

Visum

Pharmaceutical

Co., Ltd.

China $ 262,978 34.42% $ 199,142 34.42%

Non-controlling interest

December 31, 2015 December 31, 2016


Current assets 152,220$ 26,874$

Non-current assets 1,031,600 875,086

Current liabilities 132,750)( 41,398)(

Deferred tax liabilities 147,935)( 120,990)(

Non-current liabilities 20,075)( 15,958)(

Total net assets 883,060$ 723,614$

Visum Pharmaceutical Co., Ltd.

2015 2016

Revenue -$ 753$

Loss before income tax 232,924)( 149,879)(

Income tax benefit 21,260 16,372

Loss for the year 211,664)( 133,507)(

Other comprehensive income, net of tax - -

Total comprehensive loss for the year 211,664)($ 133,507)($

Comprehensive income attributable to

non-controlling interest 75,205)($ 45,953)($

Dividends paid to non-contronlling interest -$ -$


Years ended December 31,

~21~

Statements of cash flows

(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 New Taiwan Dollars, 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

recognised in profit or loss in the period in which they arise.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-

translated at the exchange rates prevailing at the balance sheet date. Exchange differences

arising upon re-translation at the balance sheet date are recognised in profit or loss.

(c) All foreign exchange gains and losses are presented in the statement of comprehensive income

within other gains or losses.

B. Translation of foreign operations

The operating results and financial position of the foreign subsidiaries that have a functional

currency different from the presentation currency are translated into the presentation currency as

follows:

(a) Assets and liabilities for each balance sheet presented are translated at the closing exchange

rate at the date of that balance sheet;

(b) Income and expenses for each statement of comprehensive income are translated at average

exchange rates of that period.

(c) All resulting exchange differences are recognised in other comprehensive income.

(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:

2015 2016

Net cash used in operating activities 185,521)($ 77,052)($

Net cash used in investing activities 44,873)( 67,926)(

Net cash provided by financing activities 299,285 35,186

Effect of exchange rates on cash and cash

equivalents 1,552)( 8,169)(

Increase (decrease) in cash and cash equivalents 67,339 117,961)(

Cash and cash equivalents, beginning of year 63,241 130,580

Cash and cash equivalents, end of year 130,580$ 12,619$


Years ended December 31,

~22~

(a) Assets arising from operating activities that are expected to be realised, 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 realised 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. Time deposits that meet

the definition above and are held for the purpose of meeting short-term cash commitment in

operations are classified as cash equivalents.

B. Time deposits that do not meet the definition of cash equivalents (listed under “Other current

financial assets”) are measured at the initial investment value, as they are held for a short period

of time and the effect of discounting is insignificant.

(7) Loans and receivables

Accounts receivable are loans and 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 recognised at fair value and subsequently measured at amortised cost using

the effective interest method, less provision for impairment. However, short-term accounts receivable

without bearing interest are subsequently measured at initial invoice amount as the effect of

discounting is immaterial.

(8) 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

~23~

loss is as follows:

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

(b) A breach of contract, such as a default or delinquency in interest or principal payments;

(c) The Company, for economic or legal reasons relating to the borrower’s financial difficulty,

granted the borrower a concession that a lender would not otherwise consider;

(d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

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

(f) 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;

(g) 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;

(h) 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. For the financial assets measured at amortised 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 recognised 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 recognised, the previously recognised impairment loss is reversed through

profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost

that would have been at the date of reversal had the impairment loss not been recognised

previously. Impairment loss is recognised and reversed by adjusting the carrying amount of the

asset through the use of an impairment allowance account.

(9) Derecognition of financial assets

The Group derecognises a financial asset when one of the following conditions is met:

A. The contractual rights to receive cash flows from the financial asset expire.

B. The contractual rights to receive cash flows from the financial asset have been transferred and the

Group has transferred substantially all risks and rewards of ownership of the financial asset.

C. The contractual rights to receive cash flows from the financial asset have been transferred and the

Group has not retained control of the financial asset.

(10) Operating leases (lessor)

Lease income from an operating lease (net of any incentives given to the lessee) is recognised in

profit or loss on a straight-line basis over the lease term.

~24~

(11) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the

weighted-average 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 realisable value. Net realisable value is the estimated selling price in the

ordinary course of business, less the estimated cost of completion and applicable variable selling

expenses.

(12) Non-current assets held for sale

Non-current assets are classified as assets held for sale when their carrying amount is to be recovered

principally through a sale transaction rather than through continuing use, and a sale is considered

highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.

(13) 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 per cent or more of the voting power of the investee. Investments in associates are

accounted for under the equity method and are initially recognised at cost.

B. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or

loss, and its share of post-acquisition movements in other comprehensive income is recognised

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 recognise further losses, unless it has incurred legal or constructive obligations or made

payments on behalf of the associate.

C. When changes in an associate’s equity are not recognised in profit or loss or other comprehensive

income of the associate and such changes do not affect the Group’s ownership percentage of the

associate, the Group recognises the Group’s share of change in equity of the associate in ‘Capital

reserve’ in proportion to its ownership.

D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent

of the Group’s interest in the associates. Unrealised losses are also eliminated unless the

transaction provides evidence of an impairment of the asset transferred. Accounting policies of

associates have been adjusted where necessary to ensure consistency with the policies adopted

by the Group.

E. When the Group disposes its investment in an associate and loses significant influence over this

associate, the amounts previously recognised in other comprehensive income in relation to the

associate, 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 recognised in other comprehensive income in relation to the associate are

reclassified to profit or loss proportionately in accordance with the aforementioned approach.

~25~

(14) Property, plant and equipment

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

construction period are capitalised.

B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,

as appropriate, only when it is probable that future economic benefits associated with the item

will flow to the Group and the cost of the item can be measured reliably. The carrying amount of

the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss

during the financial period in which they are incurred.

C. Land is not depreciated. 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.

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:

Buildings 3~50 years

Machinery and equipment 3~15 years

Transportation equipment 5~8 years

Office equipment 5~10 years

Leasehold improvements 2.5~5 years

(15) Operating leases (lessee)

Payments made under an operating lease (net of any incentives received from the lessor) are

recognised in profit or loss on a straight-line basis over the lease term.

(16) Intangible assets

A. Use right

Intangible assets pertaining to the right of use are stated at cost and amortised on a straight-line

basis over its estimated useful life of 6 to 10 years.

B. Patent

Acquired patents are stated at cost and amortised on a straight-line basis over its estimated useful

life of 10 years.

C. Computer software

Computer software is stated at cost and amortised on a straight-line basis over its estimated useful

life of 3 to 6 years.

D. Goodwill

Goodwill arises in a business combination accounted for by applying the acquisition method.

~26~

(17) 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 recognised for the amount by which

the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher

of an asset’s fair value less costs to sell 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 is reversed. The increased carrying amount due to reversal should not be more than what the

depreciated or amortised historical cost would have been if the impairment had not been recognised.

(18) 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 recognised initially at fair value and

subsequently measured at amortised cost using the effective interest method. However, short-term

accounts payable which are non-interest bearing are subsequently measured at initial invoice amount

as the effect of discounting is immaterial.

(19) Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability specified in the contract

is discharged or cancelled or expires.

(20) 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 recognised amounts and there is an intention to settle

on a net basis or realise the asset and settle the liability simultaneously.

(21) 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 recognised as

expenses in that period when the employees render service.

B. Pensions

(a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expenses when

they are due on an accrual basis. Prepaid contributions are recognised 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

~27~

rate used to discount is determined by using interest rates of high-quality corporate bonds

that are denominated in the currency in which the benefits will be paid, and that have terms

to maturity approximating to the terms of the related pension liability; when there is no

deep market in high-quality corporate bonds, the Group uses interest rates of government

bonds (at the balance sheet date) instead.

ii. Remeasurements arising on defined benefit plans are recognised in other comprehensive

income in the period in which they arise and are recorded as retained earnings.

C. Employees’ bonus and directors’ and supervisors’ remuneration

Employees’ bonus and directors’ and supervisors’ 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. However, if the accrued amounts for employees’ bonus

and directors’ and supervisors’ remuneration are different from the actual distributed amounts as

resolved by the stockholders at their stockholders’ meeting subsequently, the differences should

be recognised based on the accounting for changes in estimates.

(22) Employee share-based payment

A. 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 recognised

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 non-market 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 recognised is based on the number of

equity instruments that eventually vest.

B. For the cash-settled share-based payment arrangements, the employee services received and the

liability incurred are measured at the fair value of the liability to pay for those services, and are

recognised as compensation cost and liability over the vesting period. The fair value of the

liability shall be remeasured at each balance sheet date until settled at the settlement date, with

any changes in fair value recognised in profit or loss.

C. Restricted stocks issued by the Group to employees:

(a) Restricted stocks issued to employees are measured at the fair value of the equity instruments

granted at the grant date, and are recognised as compensation cost over the vesting period.

The Group sets the grant date as the same day the employee restricted stocks agreement is

signed.

(b) For restricted stocks where those stocks do not restrict distribution of dividends to employees

and employees are not required to return the dividends received if they resign during the

vesting period, the Group recognises the fair value of the dividends received by the

employees who are expected to resign during the vesting period as compensation cost at the

~28~

date of dividend declaration.

(c) For restricted stocks where employees have to pay to acquire those stocks, if employees resign

during the vesting period, they must return the stocks to the Group and the Group must refund

their payments on the stocks, the Group recognises the payments from the employees who

are expected to resign during the vesting period as liabilities at the grant date, and recognises

the payments from the employees who are expected to be eventually vested with the stocks

in ‘Capital reserve – restricted stocks’.

(23) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or

loss, except to the extent that it relates to items recognised in other comprehensive income or

items recognised directly in equity, in which cases the tax is recognised in other comprehensive

income or equity.

B. 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 recognised, 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 balance sheet. 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 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 realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable

profit will be available against which the temporary differences can be utilised. At each balance

sheet date, unrecognised and recognised 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 recognised amounts and there is an

intention to settle on a net basis or realise the asset and settle the liability simultaneously.

Deferred income 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 realise the asset and settle the liability simultaneously.

F. The Group only recognizes unused loss carryforward and tax credits (including those arising

from equity investment) as deferred tax assets if there is significant probability of taxable income

in a later period for the unused loss carryforward and investment tax credits to be used against.

(24) Share capital

A. 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.

~29~

B. Where the Company repurchases the Company’s equity share capital that has been issued, the

consideration paid, including any directly attributable incremental costs (net of income taxes) is

deducted from equity attributable to the Company’s equity holders. Where such shares are

subsequently reissued, the difference between their book value and any consideration received,

net of any directly attributable incremental transaction costs and the related income tax effects,

is included in equity attributable to the Company’s equity holders.

(25) Revenue recognition

A. Sales of goods

The Group manufactures and sells generic drug products. 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 recognised 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 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 pharmaceutical research and development services. Revenue from

delivering services is recognised 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. If the outcome of a service contract cannot be estimated

reliably, contract revenue should be recognised only to the extent that contract costs incurred are

likely to be recoverable.

C. License revenue

If the licensing contract does not simultaneously fulfill the following criteria, royalty revenue

will be recognised based on a reasonable and systematic method over the licensing period:

(a) The amount of licensing fee is fixed or non-refundable.

(b) The contract is irrevocable.

(c) Relevant rights may be at the licensee’s disposition.

(d) The licensor has no further obligations after passing on the rights to the authorized party.

(26) Government grants

Government grants are recognised at their fair value only when there is reasonable assurance that

the Group will comply with any conditions attached to the grants and the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which

~30~

the Group recognises expenses for the related costs for which the grants are intended to compensate.

Government grants related to equipment are recognised as non-current liabilities and are amortised

to profit or loss over the estimated useful lives of the related assets using the straight-line method.

(27) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the

chief operating decision-maker, who is responsible for allocating resources and assessing

performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical

judgements 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:

Critical accounting estimates and assumptions

A. Revenue recognition

The Group estimates sales discounts and returns based on historical results and other known factors.

Provisions for such liabilities are recorded as a deduction item to sales revenues when the sales are

recognised. The Group reassesses the reasonableness of estimates of discounts and returns

periodically.

B. Impairment assessment of intangible assets (excluding goodwill)

The Group assesses impairment based on its subjective judgement and determines the separate cash

flows of a specific group of assets, useful lives of assets and the future possible income and expenses

arising from the assets depending on how assets are utilised and industrial characteristics. Any

changes of economic circumstances or estimates due to the change of Group strategy might cause

material impairment on assets in the future.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

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.


Cash on hand and petty cash 243$ 247$

Checking accounts 62,568 32,009

Demand deposits 788,609 558,015

Time deposits 1,774,192 1,866,225

Less: Listed under "Non-current assets held for sale - net" - 11,458)(

2,625,612$ 2,445,038$

~31~

B. The Group has no cash and cash equivalents pledged to others.

(2) Accounts receivable - net

A. The credit quality of accounts receivable that were not past due was in the following categories

based on the Group’s Credit Quality Control Policy (Note):

Note:

Group A: Rating of customer’s credit limit is above 90 points.

Group B: Rating of customer’s credit limit stands between 70~89 points.

Group C: Rating of customer’s credit limit is below 69 points.

Group D: The customer has been dissolved, has incurred bad debt before or no more transactions

________have occurred.

B. The ageing analysis of accounts receivable that were past due but not impaired is as follows:

The above ageing analysis was based on past due date.

C. Movement analysis of financial assets that were impaired is as follows:


Accounts receivable 102,106$ 114,380$

Less: Allowance for bad debts 2)( 210)(

102,104$ 114,170$


Group A -$ -$

Group B 101,781 112,836

Group C 323 520

102,104$ 113,356$


Up to 30 days -$ -$

31 to 90 days - -

61 to 90 days - -

91 to 120 days - -

Over 120 days - 814

-$ 814$

Individual provision Group provision Total

At January 1 -$ 2$ 2$

Provision for impairment - - -

At December 31 -$ 2$ 2$

2015

~32~

D. The Group does not hold any collateral as security for accounts receivable.

(3) Inventories

The cost of inventories recognised as expense for the year:

Individual provision Group provision Total

At January 1 -$ 2$ 2$

Provision for impairment - 208 208

At December 31 -$ 210$ 210$

2016

Cost

Allowance for

valuation loss and

loss on obsolescence Book value

Raw materials 26,029$ 4,872)($ 21,157$

Supplies 22,411 1,869)( 20,542

Work in process 14,599 11,955)( 2,644

Finished goods 103,714 35,996)( 67,718

Inventory in transit 496 - 496

167,249$ 54,692)($ 112,557$

December 31, 2015

Cost

Allowance for

valuation loss and

loss on obsolescence Book value

Raw materials 22,911$ 1,922)($ 20,989$

Supplies 20,854 1,172)( 19,682

Work in process 1,135 15)( 1,120

Finished goods 54,807 4,785)( 50,022

99,707$ 7,894)($ 91,813$

December 31, 2016

2015 2016

Cost of goods sold and service costs 322,435$ 476,145$

Loss on obsolescence and market value decline (Note) 15,854 9,291

(Gain) loss on physical inventory 49)( 2

Operating costs 338,240$ 485,438$

Year ended December 31,

~33~

(4) Non-current assets held for sale

The Group readjusted its strategy in the China investment business and on November 30, 2016, the

Board of Directors resolved to sell all of equity interest in Visum Pharmaceutical Co., Ltd. to Tianjin

Taike Investment Partnership (Limited Partnership) and Hainan Haixinkang Pharmaceutical

Technology Development Partnership (Limited Partnership). The total proceeds is RMB 197 million,

and is expected to be executed within 12 months. As of December 31, 2016, the transaction has not

yet been completed and therefore the Group reclassified the related assets and liabilities, amounting

to $901,960 and $178,346, respectively, to disposal group held for sale.

A. Assets of disposal group held for sale:

B. Liabilities directly relating to non-current assets held for sale:

(5) Other current financial assets

The Group has no other current financial assets pledged to others.

December 31, 2016

Cash and cash equivalents 11,458$

Current assets 15,416

Property, plant and equipment 292,729

Intangible assets 568,216

Other non-current assets 14,141

901,960$

December 31, 2016

Payable on equipment 12,984$

Other payables 10,370

Advance receipts 5,849

Other current liabilities 12,195

Deferred tax liabilities 120,990

Other non-current liabilities 15,958

178,346$

Items December 31, 2015 December 31, 2016

Current items:

Other current financial assets-

time deposits 1,886,738$ 2,195,560$

~34~

(6) Property, plant and equipment

Land Buildings Machinery Leased asset

Transportation

equipment

Office

equipment

Leasehold

improvements

Equipment to

be inspected Total

At January 1, 2015

Cost 386,542$ 460,245$ 510,757$ -$ 6,752$ 19,408$ 14,712$ 27,291$ 1,425,707$

Accumulated depreciation - 110,354)( 190,349)( - 1,745)( 5,380)( 6,423)( - 314,251)(

386,542$ 349,891$ 320,408$ -$ 5,007$ 14,028$ 8,289$ 27,291$ 1,111,456$

2015

Opening net book

amount as at January 1 386,542$ 349,891$ 320,408$ -$ 5,007$ 14,028$ 8,289$ 27,291$ 1,111,456$

Additions - 11,613 140,145 20,202 - 14,133 4,647 22,023 212,763

Disposals - - 604)( - - 205)( - - 809)(

Reclassifications - - 710)( - 1,454)( 705 - - 1,459)(

Transfers - - 72,729 - - - 14,767)( 57,962

Depreciation charge - 33,813)( 68,472)( 631)( 718)( 3,737)( 2,577)( - 109,948)(

Transferred to

operating expenses - - 50)( - - 88)( - - 138)(

Net exchange differences - 2,593)( 1,134)( - 51)( 54)( - 74)( 3,906)(

Closing net book

amount as at December 31 386,542$ 325,098$ 462,312$ 19,571$ 2,784$ 24,782$ 10,359$ 34,473$ 1,265,921$

At December 31, 2015

Cost 386,542$ 469,265$ 721,133$ 20,202$ 5,247$ 33,899$ 19,359$ 34,473$ 1,690,120$

Accumulated depreciation - 144,167)( 258,821)( 631)( 2,463)( 9,117)( 9,000)( - 424,199)(

386,542$ 325,098$ 462,312$ 19,571$ 2,784$ 24,782$ 10,359$ 34,473$ 1,265,921$

~35~

Information about the property, plant and equipment pledged to others as collaterial is provided in Note 8.

Land Buildings Machinery Leased asset

Transporation

equipment

Office

equipment

Leasehold

improvements

Equipment to

be inspected Total

At January 1, 2016

Cost 386,542$ 469,265$ 721,133$ 20,202$ 5,247$ 33,899$ 19,359$ 34,473$ 1,690,120$

Accumulated depreciation - 144,167)( 258,821)( 631)( 2,463)( 9,117)( 9,000)( - 424,199)(

386,542$ 325,098$ 462,312$ 19,571$ 2,784$ 24,782$ 10,359$ 34,473$ 1,265,921$

2016

Opening net book

amount as at January 1 386,542$ 325,098$ 462,312$ 19,571$ 2,784$ 24,782$ 10,359$ 34,473$ 1,265,921$

Additions - 3,448 12,878 - 979 1,514 295 2,342 21,456

Disposals - - 8)( 18,720)( 497)( 19)( - - 19,244)(

Reclassifications - 222)( 1,072)( - - 1,886 284)( - 308

Transfers - 21,151 3,905 - - - - 71,557 96,613

Depreciation charge - 32,629)( 82,287)( 851)( 656)( 5,224)( 2,765)( - 124,412)(

Transferred to

operating expenses - 78)( - - - - - 857)( 935)(

Net exchange differences - 9,990)( 5,908)( - 116)( 468)( - 5,342)( 21,824)(

Less: Listed under "Non-

current assets held

for sale - net" - 116,323)( 68,123)( - 1,374)( 4,736)( - 102,173)( 292,729)(

Closing net book

amount as at December 31 386,542$ 190,455$ 321,697$ -$ 1,120$ 17,735$ 7,605$ -$ 925,154$

At December 31, 2016

Cost 386,542$ 307,522$ 505,746$ -$ 1,815$ 25,494$ 16,739$ -$ 1,243,858$

Accumulated depreciation - 117,067)( 184,049)( - 695)( 7,759)( 9,134)( - 318,704)(

386,542$ 190,455$ 321,697$ -$ 1,120$ 17,735$ 7,605$ -$ 925,154$

~36~

(7) Intangible assets

Cost

Accumulated

amortisation Total

Patent-

__Ocular disease new drug (Note 1 ) 21,427$ 9,285)($ 12,142$

__Diabetic new drug (Note 1 ) 51,578 22,350)( 29,228

Software cost 6,367 3,496)( 2,871

Other intangible assets – use right

__New drug A technology and right

(Note 2 ) 7,121 1,602)( 5,519

__Generic A technology and right

(Note 3 ) 18,292 9,654)( 8,638

__Generic B technology and right

(Note 4 ) 160,425 65,740)( 94,685

__Generic C technology and right

(Note 5 ) 29,964 15,771)( 14,193

__Generic D technology and right

(Note 6 ) 15,145 366)( 14,779

__Drug application approvals

(Note 7 ) 688,713 - 688,713

__Goodwill 84,452 - 84,452

1,083,484$ 128,264)($ 955,220$

January 1, 2015

Other intangible

Patent Software cost assets Goodwill Total

2015

At January 1 41,370$ 2,871$ 826,527$ 84,452$ 955,220$

Additions-

acquired

separately - 2,460 - - 2,460

Impairment loss

(Note 1) 11,785)( - - - 11,785)(

Amortisation

charge 5,515)( 1,479)( 101,633)( - 108,627)(

Net exchange

differences - 9)( 36,861)( 30,557 6,313)(

At December 31 24,070$ 3,843$ 688,033$ 115,009$ 830,955$

~37~

Cost

Accumulated

amortisation Total

Patent-

__Diabetic new drug (Note 1 ) 51,578$ 27,508)($ 24,070$

Software cost 6,829 2,986)( 3,843



(Note 2 ) 7,121 2,314)( 4,807


(Note 3 ) 18,292 11,814)( 6,478


(Note 4 ) 160,425 76,260)( 84,165


(Note 5 ) 29,964 17,348)( 12,616


(Note 6 ) 15,145 1,989)( 13,156


(Note 7 ) 651,345 84,534)( 566,811

__Goodwill 115,009 - 115,009

1,055,708$ 224,753)($ 830,955$

December 31, 2015

Cost

Accumulated

amortisation Total

Patent-


Software cost 6,829 2,986)( 3,843



(Note 2 ) 7,121 2,314)( 4,807


(Note 3 ) 18,292 11,814)( 6,478


(Note 4 ) 160,425 76,260)( 84,165


(Note 5 ) 29,964 17,348)( 12,616


(Note 6 ) 15,145 1,989)( 13,156


(Note 7 ) 651,345 84,534)( 566,811

__Goodwill 115,009 - 115,009

1,055,708$ 224,753)($ 830,955$

January 1, 2016

~38~

A. Details of amortisation on intangible assets are as follows:

Other intangible

Patent Software cost assets Goodwill Total

2016

At January 1 24,070$ 3,843$ 688,033$ 115,009$ 830,955$

Additions -

acquired

separately - 11,702 - - 11,702

Amortisation

charge 5,158)( 1,992)( 80,773)( - 87,923)(

Reclassifications - 1,028)( - - 1,028)(

Net exchange

differences - 305 40,374)( 8,809)( 48,878)(

Less: Listed under

"Non-current

assets held

for sale - net" - 1,069)( 460,947)( 106,200)( 568,216)(

At December 31 18,912$ 11,761$ 105,939$ -$ 136,612$

Cost

Accumulated

amortisation Total

Patent-


Software cost 14,323 2,562)( 11,761



(Note 2 ) 7,121 3,027)( 4,094


(Note 3 ) 18,292 12,739)( 5,553


(Note 4 ) 160,425 86,780)( 73,645


(Note 5 ) 29,964 18,925)( 11,039


(Note 6 ) 15,145 3,537)( 11,608

296,848$ 160,236)($ 136,612$

December 31, 2016

2015 2016

Operating costs -$ 382$

Administrative expenses 796 1,493

Research and development expenses 107,831 86,048

108,627$ 87,923$


~39~

B. Goodwill is allocated as follows to the Group’s cash-generating units identified according to

operating segment:

C. Goodwill is allocated to the Group’s cash-generating units identified according to operating

segment. The recoverable amount of all cash-generating units has been determined based on

value-in-use calculations. These calculations use pre-tax cash flow projections based on financial

budgets approved by the management covering a five-year period.

The recoverable amount of all cash-generating units calculated using the value-in-use exceeded

their carrying amount, so goodwill was not impaired. The key assumptions used for value-in-use

calculations are gross margin rate, growth rate and discount rate. Management determined

budgeted gross margin rate and growth rate based on past performance and its expectations of

market development. The discount rates used are pre-tax and reflect specific risks relating to the

relevant operating segments.

Note 1: In August 2010, TWi Biotechnology, Inc., a subsidiary, paid $21,427 and $51,578 to

purchase the patent rights of ocular disease new drug and diabetic new drug from Anchen

Laboratories Inc. as well as the rights to the contract Anchen Laboratories Inc. signed with

Universities B and C regarding ocular disease new drug. These payments have been

executed. However, TWi Biotechnology, Inc. has terminated the agreement with the two

universities for ocular disease new drug in February 2015 and recognized an impairment

loss of $11,785 (listed under “Other gains and losses”).

Note 2: TWi Biotechnology, Inc., a subsidiary, signed a Skin Disease New Drug Technology

License Agreement with Company V in July 2012. TWi Biotechnology, Inc. is the only

global licensee for this new drug, and TWi Biotechnology, Inc. is responsible for the

development, clinical trial and the US FDA registration of this new drug. TWi

Biotechnology, Inc. will pay milestone payment to Company V up to US$11,600 thousand

on the occurrence of agreed R&D achievements and product approval of the new drug.

TWi Biotechnology, Inc. will also pay a certain percentage of sales as royalty to Company

V after the drug is launched. As of December 31, 2015 and 2016, TWi Biotechnology, Inc.

has paid license fee of $7,121 to Company V (listed under “Other intangible assets - use

right”).

Note 3: The Company purchased a psychology drug-related asset from Anchen Incorporated in

October 2011 for a purchase price of $18,292. The asset includes drug-related research

and development technology and rights of production and distribution. The full amount

had been paid.

Note 4: (1) The Company has entered into a collaboration and development agreement with


Generic Drug Department $ 115,009 $ -

New Drug Department - -

115,009$ -$

~40~

Company Z for an undisclosed generic drug. Company Z is responsible for product

development and technology transfer. The Company is responsible for submitting an

ANDA to the US FDA. Company Z grants the Company an exclusive license to use,

manufacture and distribute the generic product in the United States. The Company

should pay Company Z milestone fees on the occurrence of agreed R&D

achievements and product approval. The Company will also share a certain

percentage of profit to Company Z after the product is launched.

(2) In March 2012, the Company, Company Z and Company A signed a tripartite

agreement for the above generic drug. The Company grants the rights received from

Company Z to Company A. Company A will be responsible for submitting an ANDA

for the generic product to the US FDA. According to the agreement, Company A will

pay the Company and Company Z milestone fees based on completion of

development work and technology transfer. The Company will also pay Company Z

additional milestone fees. Company A will share a certain percentage of profit to the

Company and Company Z after the product is launched. The Company and Company

Z may also receive an additional bonus if the product sales reach a certain level.

(3) The Company received a termination notice from Company A for the tripartite

agreement in the third quarter of 2013. On November 11, 2013, the Company and

Company Z signed a new collaboration and development agreement for the generic

drug and has received an upfront payment of US$824 thousand. The Company grants

rights of manufacturing and distribution in the United States to Company Z. The

Company will receive milestone fees from Company Z on occurrence of certain

R&D achievements and drug license approval. Company Z will also share a certain

percentage of profit to the Company until the aggregate amount reaches US$6,500

thousand.

(4) The Company has paid royalty fees (shown as “Other intangible asset-use right”) to

Company Z in the amount of $160,425 as of December 31, 2015 and 2016.

Note 5: The Company and Anchen Incorporated signed a transfer agreement for the generic

product’s technology and related rights in November 2011. Anchen Incorporated grants

the Company exclusive right and license to register, manufacture and distribute the

product in the United States. The Company has paid a total purchase price of $29,964.

Note 6: The Company entered into a Generic Technology and Rights Licensing Agreement with

Company U in June 2014, under which Company U will be responsible for the research

and development, testing, and documentation preparation of the generic drug while the

Company seeks approval for the new drug application from the US regulatory body.

Under the terms of the agreement, the Company has the exclusive right in the US for the

development, production and sale of the generic drug intended for sale in the US market.

Pursuant to the agreement, Company U is eligible to receive, based on agreed upon

~41~

milestones in the application process, license fees to be paid in installments. When the

product is commercialised, the Company will also pay Company U royalties based on a

fixed percentage of net sales. As of December 31, 2015 and 2016, license fees paid by the

Company to Company U were $15,145.

Note 7: The Group acquired Visum Pharmaceuitcal Co. Ltd. on October 1, 2014; the fair value of

its various regulatory body approved drug applications at acquisition date is

RMB$135,254 thousand. On November 30, 2016, the Board of Directors resolved to sell

all of equity interest in the abovementioned subsidiary, and reclassified the related assets

to “Non-current assets held for sale - net”.

(8) Other non-current assets

(9) Short-term borrowings

The Group has no short-term borrowings as at December 31, 2016.

(10) Other payables

(11) Pensions

A. (a) The Company has a defined benefit pension plan in accordance with the Labor Standards Act

(the “Act”), covering all regular employees’ service years prior to the enforcement of the

Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to

continue to be subject to the pension mechanism under the Act. Under the defined benefit

pension plan, two units are accrued for each year of service for the first 15 years and one unit

for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are


Prepayment for equipment 122,468$ 42,506$

Prepayment for inventory 78,413 78,413

Others 3,681 6,468

Less: Listed under "Non-current assets held for sale - net" - 14,141)(

204,562$ 113,246$

Type of borrowings December 31, 2015 Interest rate Collateral

Short-term secured borrowings 16,415$ 2.32% Please refer to Note 8


Salary payable and annual bonus 59,369$ 31,924$

Service expenses 11,497 16,064

Payable for CRO expenses 31,749 20,080

Payable on equipment 83,068 19,092

Others 43,089 75,725

Less: Listed under "Liabilities directly relating to

non-current assets held for sale" - 23,354)(

228,772$ 139,531$

~42~

based on the number of units accrued and the average monthly salaries and wages of the last

6 months prior to retirement. 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, the trustee, 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 next March.

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

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


Present value of defined benefit obligations 8,075$ 6,147$

Fair value of plan assets 5,289)( 5,738)(

Net defined benefit liability 2,786$ 409$

Present value of

defined benefit

obligations

Fair value of

plan assets

Net defined

benefit liability

Year ended December 31, 2015

Balance at January 1 8,583$ 4,712)($ 3,871$

Interest expense (income) 171 94)( 77

8,754 4,806)( 3,948

Remeasurements:

Return on plan assets (excluding

amounts included in interest

income or expense) - 27)( 27)(

Change in financial assumptions 399 - 399

Experience adjustments 1,078)( - 1,078)(

679)( 27)( 706)(

Pension fund contribution - 456)( 456)(

Balance at December 31 8,075$ 5,289)($ 2,786$

~43~

(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 has no right to participate

in managing and operating that fund and hence the Company is unable to disclose the

classification of plan assets fair value in accordance with IAS 19 paragraph 142. The

composition of fair value of plan assets as of December 31, 2015 and 2016 is given in the

Annual Labor Retirement Fund Utilisation Report announced by the government.

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

Assumptions regarding future mortality experience are set based on actuarial valuation in

accordance with published statistics and experience in the 5th version of Taiwan Standard

Ordinary Experience Mortality Tables.

Present value of

defined benefit

obligations

Fair value of

plan assets

Net defined

benefit liability


Balance at January 1 8,075$ 5,289)($ 2,786$

Interest expense (income) 137 90)( 47

8,212 5,379)( 2,833

Remeasurements:

Return on plan assets (excluding

amounts included in interest

income or expense) - 42 42

Change in financial assumptions - - -

Experience adjustments 2,065)( - 2,065)(

2,065)( 42 2,023)(

Pension fund contribution - 401)( 401)(

Balance at December 31 6,147$ 5,738)($ 409$

Year ended

December 31, 2015

Year ended

December 31, 2016

Discount rate 1.70% 1.70%

Future salary increases 4.00% 4.00%

~44~

Because the main actuarial assumption changed, the present value of defined benefit

obligation is affected. The analysis was as follows:

The sensitivity analysis above was based on one assumption which changed while 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 period.

(f) Expected contributions to the defined benefit pension plans of the Group for the year ending

December 31, 2017 are $392.

B. (a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined

contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering

all regular employees with the R.O.C. nationality. Under the New Plan, the Company and its

domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly

salaries and wages to the employees’ individual pension accounts at the Bureau of Labor

Insurance. The benefits accrued are paid monthly or in lump sum upon termination of

employment.

(b) For overseas subsidiaries, except for a periodic contribution based on a certain percentage of

the employees’ monthly salaries and wages in accordance with the local pension regulations,

there is no further pension obligation.

(c) The pension costs under the defined contribution pension plans of the Group for the years

ended December 31, 2015 and 2016 were $17,092 and $11,936, respectively.

Increase 0.25% Decrease 0.25% Increase 0.25% Decrease 0.25%

December 31, 2015

Effect on present

value of defined

benefit obligation 310)($ 381$ 345$ 290)($

December 31, 2016

Effect on present

value of defined

benefit obligation 260)($ 273$ 251$ 240)($

Discount rate Future salary increases

~45~

(12) Share-based payment

A. As of December 31, 2016, the Group’s share-based payment arrangements were as follows:

Type of

arrangement Description Grant date

Before

conversion

After

conversion

Contract

period

Vesting

conditions

The company:

Employee stock

options-A

Note 1 2011.4.1 2,410,000 1,507,613 10 years 1~5 years'

service

Employee stock

options-B

" 2011.4.1 152,000 95,085 10 years 4 years' service

Employee stock

options-C

" 2012.4.1 3,527,200 2,206,495 10 years 1~5 years'

service

Employee stock

options-D

" 2012.4.1 8,800 5,505 10 years 1~5 years'

service

Employee stock

options-E

" 2012.4.1 13,200 8,257 10 years 1~5 years'

service

Employee stock

options-F

2013.5.1 187,231 8.75 years 2~3.75 years'

service

Employee stock

options-G

2013.5.1 1,693,800 10 years 2~3 years'

service

Employee stock

options-H

2014.4.1 962,500 10 years 2~3 years'

service

Employee stock

options-I

2014.8.1 122,200 10 years 2~3 years'

service

Employee stock

options-J

2014.9.1 3,800 10 years 2~3 years'

service Employee stock

options-K

2014.12.1 13,500 10 years 2~3 years'

service

Employee stock

options-L

2015.6.1 1,402,600 10 years 2~5 years'

service

Employee stock

options-O

2015.9.1 140,000 10 years 2~5 years'

service

Employee stock

options-P

2015.11.17 205,000 10 years 2~5 years'

service

Employee stock

options-Q

2016.4.26 5,000 10 years 2~5 years'

service

Restricted stocks to

employees -A

Note 2 2013.4.25 and

2013.4.26

600,000 3 years Achievement of

performance

condition


employees -B

" 2013.12.4,

2013.12.5

and 2013.12.6

600,000 2 years 10 days' to 2

years' service


employees -C

" 2014.8.1 12,000 1 year 1 year's service


employees -D



employees -E


Quantity granted

(number of shares)

~46~

Note 1: The Company’s former ultimate company, TWi Pharmaceuticals Holding, Inc., has

granted employee stock options to employees of the Company during April 2011 and

April 2012. Each unit of options may acquire l share of TWi Pharmaceuticals Holding,

Inc. In 2012, because the Group decided to use the Company as the main entity for

public exchange listing, through a Board of Directors’ resolution on July l, 2012, TWi

Pharmaceuticals Holding, Inc. converted the target of the abovementioned employee

stock option into the Company’s stock using a ratio of 1:0.6255655.

Note 2: The restricted stocks issued by the Company cannot be transferred during the vesting

period, but voting right and dividend right are not restricted on these stocks. Employees

are required to return the stocks but not required to return the dividends received if they

resign during the vesting period.

Type of

arrangement Description Grant date

Before

conversion

After

conversion

Contract

period

Vesting

conditions

The company:


employees -F

Note 2 2015.3.9 3,500 1 year 1 year's service


employees -G

" 2015.9.1 50,000 5 years 1~5 years'

service


employees-H

" 2016.3.22 50,000 5 years 1~5 years'

service

Subsidiary:

Employee stock

options-M

2014.10.1 97,000 3.5 years 0.25~3.5 years'

service

Employee stock

options-N

2015.2.5 1,534,400 10 years 1~5 years'

service

Employee stock

options-R

2016.6.1 500,000 10 years 1~2 years'

service

Quantity granted

(number of shares)

~47~

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

The Company:

(a) Employee stock options- A~E

Note: The 40 and 30 thousand shares of employee stock options exercised in 2015 and 2016,

respectively, had been converted to common stocks. However, as of December 31,

2015 and 2016, the amendment of paid-in capital registration for 2 and 6 thousand

shares amounting to $74 and $291, respectively, is still in progress, and is part of

“Advance receipt for share capital”.

(b) Employee stock options- F~L & O~P

Note: The 86 and 53 thousand shares of employee stock options exercised in 2015 and 2016,

respectively, had been completed. However, as of December 31, 2015 and 2016, the

amendment of paid-in capital registration for 19 and 36 thousand shares amounting to

$907 and $1,747, respectively, is still in progress, and is part of “Advance receipt for

No. of options

Weighted-average

exercise price

(in dollars) No. of options

Weighted-average

exercise price

(in dollars)

Options outstanding

at beginning

of the year 252,288 48$ 188,441 48$

Options exercised

(Note) 39,744)( 48 30,443)( 48

Options forfeited 24,103)( 48 500)( 48

Options outstanding

at end of the year 188,441 48 157,498 48

Options exercisable

at end of the year 114,507 48 121,859 48

Year ended December 31, 2015 Year ended December 31, 2016

No. of shares

Weighted-average

exercise price

(in dollars) No. of shares

Weighted-average

exercise price

(in dollars)

Options outstanding

at beginning

of the year 2,712,650 220$ 3,358,030 202$

Options granted 1,747,600 197 5,000 108

Options adjusted

due to issuance

of shares 33,502 231 - -

Options exercised

(Note) 85,750)( 48 52,850)( 48

Options forfeited 1,049,972)( 207 436,171)( 214

Options outstanding

at end of the year 3,358,030 202 2,874,009 212

Options exercisable

at end of the year 704,656 209 1,428,827 221

Year ended December 31, 2015 Year ended December 31, 2016

~48~

share capital”.

(c) Restricted stocks-A~H

Subsidiary:

Employee stock options-M~N

Employee stock options-R

C. The weighted-average stock price of stock options at exercise dates for the years ended December

31 , 2015 and 2016 was $206.21 (in dollars) and $120.77 (in dollars), respectively.

2015 2016

Quantity Quantity

(number of shares) (number of shares)

At January 1 645,000 172,500

Issued for the year 63,500 50,000

Retired for the year 342,000)( 102,000)(

Restrictions removed for the year 194,000)( 30,500)(

At December 31 172,500 90,000


Weighted-average Weighted-average

exercise price exercise price

(in dollars) (in dollars)

Options outstanding at

beginning of the year

Options exercised 38,800)( 0.01US$ 19,400)( 0.01US$

Options granted 1,534,000 0.50US$ - -US$

Options recalled - -US$ 1,290,920)( 0.50US$


end of the year 1,592,200 0.48US$ 281,880 0.43US$

Year ended Year ended

No. of shares No. of shares

97,000 0.01US$ 1,592,200 0.48US$


Weighted-average Weighted-average

exercise price exercise price

(in dollars) (in dollars)


beginning of the year

Options granted - - 500,000 35


end of the year - - 500,000 35

- -$ - -$

Year ended Year ended


No. of shares No. of shares

~49~

D. The expiry date and exercise price of stock options outstanding at balance sheet date are as

follows:

E. The fair value of stock options is measured using the Black-Scholes option-pricing model.

Relevant information is as follows:

(a) Employee stock options A~E

Before conversion:

No. of shares Exercise price No. of shares Exercise priceExpiry date (in thousands) (in dollars) (in thousands) (in dollars)

The Company:

_2012.4.1 2022.3.31 188 48$ 157 48$

_2013.5.1 2022.1.31 82 48 30 48

_2013.5.1 2023.4.30 1,292 219 1,113 219

_2014.4.1 2024.3.31 675 240 613 240

_2014.12.1 2024.11.30 2 262 - -

_2015.6.1 2025.5.31 1,038 201 872 201

_2015.9.1 2020.8.31 64 203 36 203

_2015.11.17 2025.11.16 205 165 205 165

_2016.4.26 2026.4.25 - - 5 108

Subsidiary:

_2014.10.1 2018.3.31 58 0.01US$ 39 0.01US$

_2015.2.5 2025.2.4 1,534 0.5US$ 243 0.5US$

_2016.6.1 2026.5.31 - -$ 500 35$


Issue date

Type of

arrangement

Grant

date

Stock price

(in dollars)

Exercise

price

(in dollars)

Expected

price

volatility

Expected

option life

Expected

dividends

yield rate

Risk-free

interest

rate

Fair value

per unit

(in dollars)

The company:

Employee stock

options-A

2011.4.1 Note 10$ 26.67% 6.35 years 0% 1.17% $1.16~

1.53

Employee stock

options-B

2011.4.1 " " 26.67% 7 years " 1.21% 1.44

Employee stock

options-C

2012.4.1 " 30 30.11% 2.70 years " 0.92% 10.53~

11.56

Employee stock

options-D

2012.4.1 " " 30.11% 2.70 years " 0.92% 10.53~

11.56

Employee stock

options-E

2012.4.1 " " 30.11% 2.70 years " 0.92% 10.53~

11.56

~50~

After conversion:

Note: Both the Company’s former parent company’s and the Company’s shares were not

publicly traded when granting employee stock options, therefore the weighted-average

price of $7.3~36.91 (in dollars) was estimated using industry stock price and

capitalized cash flow method taking into account liquidity discount.

(b) Employee stock options F to Q and restricted stocks:

Type of

arrangement

Grant

date

Stock price

(in dollars)

Exercise

price

(in dollars)

Expected

price

volatility

Expected

option life

Expected

dividends

yield rate

Risk-free

interest

rate

Fair value

per unit

(in dollars)

The company:

Employee stock

options-A

2011.4.1 Note 16$ 26.67% 6.35 years 0% 1.17% $1.85~

2.45

Employee stock

options-B

2011.4.1 " " 26.67% 7 years " 1.21% 2.30

Employee stock

options-C

2012.4.1 " 48 30.11% 2.70 years " 0.92% 16.83~

18.48

Employee stock

options-D

2012.4.1 " " 30.11% 2.70 years " 0.92% 16.83~

18.48

Employee stock

options-E

2012.4.1 " " 30.11% 2.70 years " 0.92% 16.83~

18.48

Grant

date

Stock

price

(in dollars)

Exercise

price

(in dollars)

Expected

price

volatility

Expected

option

life

Expected

dividends

yield rate

Risk-free

interest rate

Fair value

per unit

(in dollars)

The company:

Employee stock

options-F

2013.5.1 153.74$ 48$ 52.66% 2.5~4.25

years

2.9% 0.80%~

0.89%

$96.20~

98.62

Employee stock 2013.5.1 153.74 218.5 " 2.5~3.5 " 0.80%~ 27.60~

options-G (Note) years 0.85% 34.41

Employee stock 2014.4.1 245.5 240 30.22%~ 2.5~3.5 0% 0.73%~ 51.27~

options-H (Note) 32.29% years 0.93% 57.79

Employee stock 2014.8.1 242 237 30.45%~ 2.5~3.5 " 0.81%~ 49.77~

options-I (Note) 31.63% years 0.99% 57.56

Employee stock 2014.9.1 247 241.5 30.94%~ 2.5~3.5 " 0.83%~ 50.47~

options-J (Note) 31.38% years 1.01% 59.66

Employee stock 2014.12.1 270 261.5 30.82%~ 2.5~3.5 " 0.79%~ 54.15~

options-K (Note) 31.54% years 0.95% 66.13

Employee stock 2015.6.1 201.5 210 30.08%~ 2.5~5.5 " 0.74%~ 39.40~

options-L (Note) 35.57% years 1.15% 69.51

Employee stock 2015.9.1 204 203 30.94%~ 2.5~5.5 " 0.61%~ 40.68~

options-O (Note) 35.68% years 0.95% 69.79

Employee stock

options-P

2015.11.17 165 165 31.51%~

35.60%

2.5~5.5

years"

0.52%~

0.91%

33.33~

56.21

Employee stock

options-Q

2016.4.26 108 108 31.98%~

36.40%

2.5~5.5

years"

0.45%~

0.67%

22.05~

37.03

Type of

arrangement

~51~

Note: As resolved by the Board of Directors, the exercise prices of employee stock options were

adjusted due to issuance of global depository receipts.

F. Expenses incurred on share-based payment transactions are shown below:

Grant

date

Stock

price

(in dollars)

Exercise

price

(in dollars)

Expected

price

volatility

Expected

option

life

Expected

dividends

yield rate

Risk-free

interest rate

Fair value

per unit

(in dollars)

The company:

Restricted stocks

-A

2013.4.25

and

2013.4.26

153.74$ 10$ 50.75%~

54.87%

0.5~2.2

years

" 0.74%~

0.84%

102.7~

124.62

Restricted stocks

-B

2013.12.4,

2013.12.5

and

2013.12.6

324 10 47.35%~

51.23%

0.03~2

years

" 0.48%~

0.67%

235.5~

307.2

Restricted stocks

-C

2014.8.1 242 10 31.27% 1 year " 0.59% 206.96

Restricted stocks

-D

2014.9.1 247 10 31.66% 1 year " 0.56% 210.93

Restricted stocks

-E

2015.2.3 233.5 10 32.00% 1 year " 0.66% 198.9

Restricted stocks

-F

2015.3.9 228 10 45.54% 1 year " 0.61% 181.75

Restricted stocks

-G

2015.9.1 204 10 30.34%~

41.39%

1~5 years " 0.50%~

0.88%

140.89~

165.17 Restricted stocks

-H

2016.3.22 144.5 10 31.08%~

35.70%

1~5 years " 0.39%~

0.57%

95.92~

120.88Subsidiary:

Employee stock

options-M

2014.10.1 0.011US$ 0.01US$ 25.08%~

28.51%

0.25~3.5

years

0% 0.50%~

1.12%

US$0.001~

US$0.003

Employee stock

options-N

2015.2.5 0.2US$ 0.5US$ 28.22%~

34.77%

5.5~7.5

years

" 1.17%~

1.41%

US$0.009~

US$0.029

Employee stock

options-R

2016.6.1 26.56$ 35$ 49.60% 5.5~6

years

" 0.67%~

0.71%

$9.90~

10.45

Type of

arrangement

2015 2016

Equity-settled 12,406$ 35,317$


~52~

(13) Other non-current liabilities

Note 1: As described in the generic drug development contract signed with Company A and

Company Z as mentioned in Note 4 of Note 6 (7), the Company has received royalty of

US$2 million in the second half of 2012 and has deferred recognition of the revenue over

the development period. For the years ended December 31, 2015 and 2016, the Company

has recognised $4,912 (shown as “Operating revenues”).

Note 2: Between 2012 and 2013, the subsidiary, Visum Pharmaceutical Co., Ltd., entered into

R&D related grant programs with the Hainan Province government. As of December 31,

2015 and 2016, government grants amounting to $20,078 and $15,957 were deferred,

respectively. For the years ended December 31, 2015 and 2016, $2,584 and $7,273 was

recognised (shown as “Other income”), respectively.

(14) Common stock

A. As of December 31, 2016, the Company’s authorised capital was $2,000,000, consisting of 200

million shares of common stock, and the paid-in capital was $1,273,274 with a par value of $10

(in dollars) per share. All proceeds from shares issued have been collected.

B. Movements in the number of the Company’s common stock outstanding are as follows (in

thousands of shares):


Long-term deferred revenue

(Note 1~ 2) 39,726$ 30,693$

Less : current portion of

long-term deferred

revenue (shown as

“Other current liabilities”) 4,912)( 4,912)(

34,814 25,781

Accrued pension liabilities 2,786 409

Others - 986

Less: Listed under "Liabilities directly

relating to non-current assets

held for sale" - 15,957-

37,600$ 11,219$

2015 2016

At January 1 113,106 127,409

Employee stock options exercised 106 61

Issuance of restricted stocks 63 50

Issuance of shares-global depository receipts 14,400 -

Retirement of restricted stocks 266)( 193)(

At December 31 127,409 127,327


~53~

C. On June 29, 2015, the Board of Directors of the Company adopted a resolution to issue 14.4

million units of global depository receipts (GDRs), represented by 14.4 million new shares of

common stock (deposited shares), with one unit of GDR representing 1 share of outstanding

common stock. After obtaining approval from the Securities and Futures Bureau of the Financial

Supervisory Commision, these GDRs were listed on the Securities Exchange of Luxembourg on

September 22, 2015, with total proceeds of US$87,088 thousand. The main terms and conditions

of the GDRs are as follows:

(a) Voting rights

Except as required by law, GDR holders may, pursuant to the depositary agreement and the

relevant laws and regulations of the R.O.C., exercise the voting rights pertaining to the

underlying common shares represented by the GDRs.

(b) Redemption of GDRs

For sales and redemption of the underlying common shares represented by the GDRs when

the holders of the GDRs request the depositary to redeem the GDRs in accordance with the

relevant R.O.C. regulations and the provisions in the depositary agreement, the depositary

may deliver the underlying common shares represented by the GDRs to the GDR holders, or

sell the underlying common shares represented by the GDRs in the R.O.C. stock market on

behalf of the GDR holder. The payment of proceeds from such sale shall be made subject to

the relevant R.O.C. laws and regulations and the provisions in the depositary agreement.

(c) Distribution of dividends, preemptive rights and other rights

Except as otherwise stated in the depositary agreement, distribution of dividends, preemptive

rights and other rights and interests of GDR units bear the same rights as common shares.

(d) After considering cash capital increases, as of December 31, 2016, there were 167 thousand

units outstanding, representing 167 thousand common shares of the Company’s common

stock.

D. During its meetings on June 12, 2014 and June 2, 2015, the stockholders adopted a resolution to

issue restricted stocks (please refer to Note 6 (12)) with the effective date set on February 3, 2015,

March 9, 2015, September 1, 2015 and March 22, 2016. The subscription price is $10 (in dollars)

per share. Restricted stocks issued are subject to certain transfer restrictions before their vesting

conditions are met. Other than these restrictions, the rights and obligations of these stocks issued

are the same as other issued common stocks.

E. In 2015, restricted stocks totaling 342 thousand shares transferred to some of the Company’s

employees did not meet the vesting conditions set forth in the rules of issuance. The Board of

Directors during its meeting on June 15, 2015 and March 21, 2016 adopted a resolution for the

shares to be repurchased and retired. The registration procedures were completed on October 7,

2015 and May 6, 2016, respectively. In addition, in 2016, employee restricted stocks of 102

thousand shares distributed to certain employees did not meet the vesting conditions in

accordance with the terms of restricted shares, however, the Board of Directors has resolved to

~54~

buy back the restricted shares as of August 12, 2016, thus those restricted shares are considered

as shares yet to be retired.

F. Treasury shares

(a) Reason for share reacquisition and movements in the number of the Company’s treasury

shares are as follows:

As of December 31, 2015: None.

(b) Pursuant to the R.O.C. Securities and Exchange Law, the number of shares bought back as

treasury share should not exceed 10% of the number of the Company’s issued and outstanding

shares and the amount bought back should not exceed the sum of retained earnings, paid-in

capital in excess of par value and realised capital surplus.

(c) Pursuant to the R.O.C. Securities and Exchange Law, treasury shares should not be pledged

as collateral and is not entitled to dividends before it is reissued.

(d) Pursuant to the R.O.C. Securities and Exchange Law, treasury shares to enhance the

Company’s credit rating and the stockholders’ equity should be retired within six months of

acquisition.

(15) Capital reserve

A. Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of

par value on issuance of common stocks and donations can be used to cover accumulated

deficit or to issue new stocks or cash to shareholders in proportion to their share ownership,

provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and

Exchange Law requires that the amount of capital surplus to be capitalised mentioned above

should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to

cover accumulated deficit unless the legal reserve is insufficient.

B. Regarding Capital reserve - Employee stock option, Capital reserve - Restricted stock to

employees, and Transactions with non-controlling interests, please refer to Notes 6(12) and

6(26).

Name of company

holding the shares Reason for reacquisition

Number of

shares

Carrying

amount

The Company To enhance the Company's credit rating

and the stockholders' equity

2,007,000 $212,112

December 31, 2016

~55~

Difference

between

consideration

and carrying

amount Changes in

Additional

paid-in

capital

Employee

stock

options

Restricted

stock to

employees

of subsidiaries

acquired or

disposed

ownership

interests in

subsidiaries

Premium

from

merger Total

At January 1 4,572,340$ 47,415$ 106,063$ -$ -$ 6,523$ 4,732,341$ Compensation

costs of

employee

stock options - 28,098 - - - - 28,098 Compensation

costs of

employee

stock options

from

subsidiaries - 6,478 - - - - 6,478

Employee

stock options

exercised 9,680 9,680)( - - - - - Issuance of

restricted

stocks - - 10,379 - - - 10,379

Advance

receipts for

share capital

transferred 4,022 - - - - - 4,022

Retirement of

restricted

stocks - - 12,528)( - - - 12,528)(

Issuance of

shares 2,660,966 - - - - - 2,660,966 Transactions with

non-controlling

interests - 1,070)( - - 361,770 - 360,700

At December 31 7,247,008$ 71,241$ 103,914$ -$ 361,770$ 6,523$ 7,790,456$

2015

~56~

(16) Retained earnings (accumulated deficit)

A. According to the amended Articles of Incorporation of the Company, when there is any profit for

distribution for each financial year, the Company shall first pay all applicable taxes and offset

losses from previous years, and then set aside no less than ten percent (10%) of the remaining

profits of the Company for the relevant financial year as a legal reserve(s). Special reserve shall

be set aside or reversed in accordance with related regulations or Competent Authority. The

remaining amount, if any, along with the accumulated unappropriated earnings from prior years

is accumulated distributable earnings. The appropriation of the accumulated distributable

Difference

between

consideration

and carrying

amount Changes in

Additional

paid-in

capital

Employee

stock

options

Restricted

stock to

employees

of subsidiaries

acquired or

disposed

ownership

interests in

subsidiaries

Premium

from

merger Total

At January 1 7,247,008$ 71,241$ 103,914$ -$ 361,770$ 6,523$ 7,790,456$ Compensation

costs of

employee

stock options - 23,705 - - - - 23,705

Compensation

costs of

employee

stock options

from

subsidiaries - 6,836 - - - - 6,836

Employee

stock options

exercised 3,218 3,218)( - - - - -

Issuance of

restricted

stocks - - 5,544 - - - 5,544 Advance

receipts for

share capital

transferred 2,328 - - - - - 2,328

Restricted stock

vested 43,310 - 43,310)( - - - -

Retirement of

restricted

stocks - - 12,795)( - - - 12,795)(

Transactions with

non-controlling

interests - - - 464,841 - - 464,841

At December 31 7,295,864$ 98,564$ 53,353$ 464,841$ 361,770$ 6,523$ 8,280,915$

2016

~57~

earnings, less an appropriate portion for the operational needs, shall be proposed by the Board of

Directors and resolved by the shareholders as bonus to shareholders.

B. The dividends to stockholders shall be no less than ten percent (10%) of the net profit after tax

of the relevant financial year. The cash dividends shall comprise no less than ten percent (10%)

of the aggregate of the cash and stock dividends declared in such year; provided that if the cash

dividend per share is less than NT$0.1, the dividends shall be issued in the form of stock

dividends in lieu of the cash dividend. The ratio of distribution may be adjusted by taking into

consideration the Company's future revenues and cash flow. If there is any significant capital

expenditure and R&D plan in the future, subject to the approval of the stockholders at the

stockholders’ meeting, the dividends may only be distributed in the form of stock dividends. The

Company shall not pay any dividends or bonuses if it does not have earnings.

C. Under the R.O.C. Company Act, when the accumulated deficit exceeds 50% of the paid-in capital,

the Board of Directors should convene a stockholders’ meeting and report the situation.

D. Except for covering accumulated deficit or issuing new stocks or cash to stockholders in

proportion to their stock ownership, the legal reserve shall not be used for any other purpose.

The use of legal reserve for the issuance of stocks or cash to stockholders in proportion to their

stock ownership is permitted, provided that the distribution of the reserve is limited to the portion

in excess of 25% of the Company’s paid-in capital.

E. In accordance with the regulations, the Company shall set aside special reserve from 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.

F. For information on employees’ compensation (bonus) and directors’ and supervisors’

remuneration, please see Note 6(22).

(17) Operating revenue

2015 2016

Sales revenue 414,818$ 728,597$

Service revenue 376 2,558

License revenue 22,174 12,623

437,368$ 743,778$


~58~

(18) Other income

Note 1: On April 27, 2015, the Company and Takeda Pharmaceutical Company Limited, and its

American subsidiaries (individually and collectively, “Takeda”) entered into a settlement

agreement pertaining to pending patent litigations. In accordance with the terms of the

agreement, Takeda has paid the Company US$9,500 thousand.

Note 2: On November 11, 2016, the Group and Par Pharmaceuticals, Inc. (Par) reached an agreement

to drop the generic drug patent lawsuit. Par paid US$12,840 thousand in full for damages

plus interest to the Company.

(19) Other gains and losses

Note 1: This represents a gain on disposal of associate company’s shares. In December 2015, the

Company disposed all its shares in the associate to another related party for $163,650

resulting in a gain on disposal of $155,165 (listed under “Other gains and losses”). For 2015,

the Group recognized share of loss of associates and joint ventures accounted for under the

equity method of $53,737 based on financial statements audited by other auditors.

Note 2: This represents impairment loss on intangible asset. Details of the impairment are described

in Note 6 (7) Note 1.

(20) Finance costs

2015 2016

Settlement income (Notes 1 and 2) 295,628$ 410,172$

Interest income 11,139 41,361

Government grants revenue 4,058 7,273

Other income 9,637 3,511

320,462$ 462,317$


2015 2016

Gain on disposal of investment (Note 1) 155,165$ -$

Net currency exchange gain (loss) 35,211 73,748)(

Impairment loss (Note 2) 11,785)( -

(Loss) gain on disposal of property, plant

and equipment 131)( 316

Miscellaneous expenses 203)( 1,672)(

178,257$ 75,104)($


2015 2016

Interest expense - Bank borrowings 307$ 91$


~59~

(21) Expenses by nature

Note: The Group wishes to offer substantial assistance to people who cannot afford their medical

expenses. Thus, the Group donated pharmaceutical products to medical institutions in the

United States in the first quarter of 2015 amounting to $16,004.

(22) Employee benefit expense

A. According to the amended Articles of Incorporation of the Company, a ratio of the pre-tax

income before distribution of employees’ compensation and directors’ and supervisors’

remuneration, after covering accumulated losses, shall be distributed as employees’

compensation and directors’ and supervisors’ remuneration. The ratio shall be 1%~10% for

employees’ compensation and shall not be higher than 5% for directors’ and supervisors’

remuneration.

B. The Company had an accumulated deficit as of December 31, 2014 and 2015, thus, the Company

did not distribute employees’ bonus and directors’ and supervisors’ remuneration.

C. The Company had an accumulated deficit as of December 31, 2015 and 2016, thus, the Company

did not accrue employees’ compensation (bonus) and directors’ and supervisors’ remuneration.

D. Information about employees’ compensation (bonus) and directors’ and supervisors’

remuneration of the Company as resolved by the Board of Directors during its meeting will be

posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

2015 2016

Employee benefit expense 366,325$ 327,281$

Depreciation on property, plant and equipment 109,948$ 124,412$

Amortization expense 108,917$ 87,923$

Donation (Note) 16,004$ 1,280$

Reversal of employee benefits of associate

corporations 42,749)($ -$


2015 2016

Wages and salaries 320,125$ 293,133$

Labour and health insurance fees 20,089 16,671

Pension costs 17,169 11,983

Other personnel expenses 8,942 5,494

366,325$ 327,281$


~60~

(23) Income tax

A. Components of income tax benefit:

B. Reconciliation between income tax expense and accounting profit

2015 2016

Current tax:

Current tax on profits for the year 5,203$ 12,154$

Foreign tax credit 4,918 22

Adjustments in respect of prior years 2,835 2,347)(

Total current tax 12,956 9,829

Deferred tax:

Effect of deferred income tax liabilities

arising from business combination 21,260)( 16,372)(

Origination and reversal of

temporary differences - 26)(

Total deferred tax 21,260)( 16,398)(

Income tax benefit 8,304)($ 6,569)($


Year ended

December 31, 2015

Year ended

December 31, 2016

Tax calculated based on profit before

tax and statutory tax rate 75,624)($ 48,438)($

Foreign tax credit not apllied 4,918 22

Temporary difference not recognised

as deferred tax assets - 4,981

Taxable loss not recognised as

deferred tax assets 46,260 28,001

Effect of expenses disallowed by

tax regulation 34,567 27,610

Prior year income tax

(over) underestimate 2,835 2,347)(

Effect of deferred income tax liabilities

arising from business combination 21,260)( 16,372)(

Change in assessment of realisation of

deferred tax assets - 26)(

Tax expenses 8,304)($ 6,569)($

~61~

C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

D. Details of the investment tax credits and unrecognised deferred tax assets are as follows:

Note: In accordance with the Ministry of Economic Affairs (MOEA) Jing-Shou-Gong-Zi Letter

No. 10020425350 dated December 16, 2011, the subsidiary - TWi Biotechnology, Inc. (TWi

Biotech) was approved as a biotech pharmaceuticals company. The Company made an

January 1

Recognised in

profit or loss

Translation

differences December 31

Deferred tax liabilities:

Deferred income tax

liabilities arising from

business combination 172,179)($ 21,260$ 2,986$ 147,933)($

Unrealised exchange gain 26)( - - 26)(

Land revaluation increment 4,933)( - - 4,933)(

177,138)($ 21,260$ 2,986$ 152,892)($

2015

January 1

Recognised

in profit or

loss

Translation

differences

Listed under

"Liabilities

directly relating

to non-current

assets held for

sale" December 31

Deferred tax liabilities:

Deferred income tax

liabilities arising

from business

combination 147,933)($ 16,372$ 10,571$ 120,990$ -$

Unrealised exchange

gain 26)( 26 - - -

Land revaluation

increment 4,933)( - - - 4,933)(

Total 152,892)($ 16,398$ 10,571$ 120,990$ 4,933)($

2016

Qualifying items

Unused tax

credits

Unrecognised

deferred tax

assets Expiry year

Biotech and New Pharmaceuticals

investment- stockholder

investment tax credit 32,000$ 32,000$

Note

December 31, 2016

~62~

additional investment in TWi Biotech on April 25, 2012 and continually held the shares for

more than three years and was approved by the Ministry of Finance that the above listed

investment tax credit can be used to offset against the Company’s income tax within five

years from the year in which the Company starts to have income tax payable.

E. In accordance with the Ministry of Economic Affairs (MOEA) Jing-Shou-Gong-Zi Letter No.

10020425350 dated December 16, 2011, the subsidiary - TWi Biotechnology, Inc. was approved

as a biotech pharmaceuticals company for the next five years, and the subsidiary has reapplied

in the year 2016. Accordingly, TWi Biotechnology, Inc. is eligible for investment tax credits

under the Statute for Development of Biotech New Pharmaceuticals Industry. Relevant

investment tax credits can be used to offset against the subsidiary’s income tax within five years

from the year in which the subsidiary starts to have income tax payable. As of December 31,

2015 and 2016, investment tax credits of the subsidiary, TWi Biotechnology, Inc., which was

not recognised as deferred tax assets are $58,749 and $70,485, respectively.

F. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets are as

follows:

Year incurred

Amount filed/

assessed Unused amount

Unrecognised

deferred tax

assets Expiry year

2006 6,720$ 6,720$ 6,720$ 2016

2010 191,311 191,311 191,311 2020

2011 353,940 353,940 353,940 2021

2012 548,835 548,835 548,835 2022

2013 498,412 498,412 498,412 2023

2014 724,765 724,765 724,765 2024

2015 272,014 272,014 272,014 2025

2,595,997$ 2,595,997$ 2,595,997$

December 31, 2015

Year incurred

Amount filed/

assessed Unused amount

Unrecognised

deferred tax

assets Expiry year

2010 191,311$ 191,311$ 191,311$ 2020

2011 353,940 353,940 353,940 2021

2012 548,835 548,835 548,835 2022

2013 498,412 498,412 498,412 2023

2014 724,765 724,765 724,765 2024

2015 327,260 327,260 327,260 2025

2016 164,714 164,714 164,714 2026

2,809,237$ 2,809,237$ 2,809,237$

December 31, 2016

~63~

G. The Company’s income tax returns through 2014 have been assessed and approved by the Tax

Authority. The subsidiary-TWi Biotechnology, Inc.’s income tax returns through 2014 have been

assessed and approved by the Tax Authority.

H. Accumulated deficit

I. As of December 31, 2015 and 2016, the balance of the imputation tax credit account was $8,545.

As the Company had an accumulated deficit in 2015 and 2016, there was no estimated or actual

creditable ratio of appropriated retained earnings.

(24) Government grants

A. The Company participated in the Industrial Technology Development Program (ITDP) of the

Ministry of Economic Affairs (MOEA) in 2011 and received Program Grants of $41,080 and

$29,100 for two projects “Development of Generic Products with High Technical Barriers and

International Competitiveness” and “Development of High-Tech Controlled-Release Dosage

Form”, respectively. The Company recognised income from government grant of $737 and $0

(shown as “Other income”) in 2015 and 2016, respectively.

B. The subsidiary, Visum Pharmaceutical Co., Ltd., entered into R&D-related grant programs with

the Hainan Province government. Please refer to Note 2 of Note 6 (13) for details.

C. The Company and its subsidiary recognised income from government grant of $3,321 and $7,273

(shown as “Other income”) in 2015 and 2016, respectively.

(25) Loss per share

Note: Options and restricted stocks issued to employees do not have dilutive effect.


Generated in and after 1998 2,711,177)($ 2,931,067)($

Amount

after tax

Weighted average

number of common stock

outstanding

(shares in thousands)

Earnings per

share

(in dollars)

Basic loss per share (Note)

Profit attributable to the parent 347,739)($ 116,452 2.99)($


Amount

after tax

Weighted average

number of common stock

outstanding

(shares in thousands)

Loss per

share

(in dollars)

Basic loss per share (Note)

Loss attributable to the parent 221,682)($ 126,220 1.76)($


~64~

(26) Transactions with non-controlling interests

A. The Group did not participate proportionately to its ownership percentage in the subsidiary’s

cash capital increase:

(a) On February 4, 2015, the Group acquired additional 11.92% equity interest in the capital

increase of its subsidiary - Visum Pharmaceutical Co., Ltd. (Visum). As the acquisition was

not proportionate to the Group’s ownership percentage, the transaction resulted in an increase

in the non-controlling interests by $76,914 and a decrease in the equity attributable to owners

of the parent by $76,914.

(b) On March 9, 2015 and May 29, 2015, the Group subscribed to the capital increase of its

subsidiary - TWi Biotechnology, Inc. As the acquisition was not proportionate to the Group’s

ownership percentage, the Group’s equity interest in TWi Biotechnology, Inc. decreased by

14.41%. The transaction resulted in an increase in non-controlling interests by $182,011 and

an increase in the equity attributable to owners of the parent by $356,075. The effect of

changes in ownership interests in TWi Biotechnology, Inc. on the equity attributable to

owners of the parent in 2015 is shown below:

B. Disposal of equity interest in a subsidiary (that did not result in a loss of control)

On May 20, 2016, May 30, 2016, May 31, 2016, September 12, 2016 and December 20, 2016,

the Group disposed 12.52% shares of its subsidiary-TWi Biotechnology, Inc. for a total cash

consideration of $509,767. This transaction resulted in an increase in the non-controlling interest

by $44,926 and an increase in the equity attributable to owners of the parent by $464,841. The

effect of changes in interests in TWi Biotechnology, Inc. on the equity attributable to owners of

the parent for the year ended December 31, 2016 is shown below:

Year ended

December 31, 2015

Cash 438,085$

Increase in non-controlling interests 76,006)(

Recognised changes in owner’s equity in subsidiary

(shown as “Capital reserve”) 362,079$

Year ended

December 31, 2016

Increase in the carrying amount of non-controlling interest 509,767$

Less: carrying amount of non-controlling interest disposed 44,926)(

Capital reserve - recognition of changes in ownership interest in

subsidiaries 464,841$

~65~

(27) Supplemental cash flow information

Investing activities with partial cash payments:

7. RELATED PARTY TRANSACTIONS

(1) Significant related party transactions

A. Operating revenue:

Service revenue arises from providing related parties with contract research and administration

and management services. For the transaction price and payment terms, there are no other

comparable transactions to be compared with, thus are executed at the terms that both parties

agreed upon.

B. Rent revenue (shown as “Other income”)

The above pertains to rent of machinery and laboratory to other related party. The leasing period

is from August 1, 2015 to December 31, 2016. The contract price was negotiated by both parties

and is paid monthly.

C. Receivables from related parties

The receivables from associate and other related party arise mainly from providing services and

2015 2016

Acquisition of property, plant and equipment 212,763$ 21,456$

Add: Opening balance of payable on equipment 29,121 83,068

Less: Ending balance of payable on equipment 83,068)( 19,092)(

Ending balance of payable on equipment

(Listed under "Non-current assets held for

sale - net") - 12,984)(

Cash paid during the year 158,816$ 72,448$


2015 2016

Service revenue:

Associate 376$ -$

Other related party - 670

376$ 670$


2015 2016

Other related party 1,371$ 829$



Accounts receivable:

Other related party -$ 1$

~66~

sale of research consumables.

D. Payables to related parties

(a) The payables to related parties arise mainly from collections and payments made on behalf of

others.

(b) The maximum outstanding balance of loans from other related parties in 2015 and 2016 was

$66,009 and $0, respectively.

E. Property transactions

(a) Acquisition of property, plant and equipment:

(b) Disposal of machinery:

i. During 2015, the Company rented out machinery to other related party. As of December 31,

2015, the aforementioned asset amounted to $19,571 (listed under Property, Plant and

Equipment as “Leased equipment”). The Company terminated the rent agreement in March

2016 and sold the machinery to said other related party.

ii. In 2015, the Group did not dispose any machinery and equipment.

(c) The Company acquired 33.61% equity interest in the associate–Genovi Pharmaceuticals

Limited at a cost of $463,980 during August, 2014. However, during October 2015, the

associate reduced capital and returned $323,805 of subscription back to the Company. In

December 2015, the Company disposed all its shares in the associate to another related party

for $163,650 resulting to a gain on disposal of $155,165 (listed under “Other gains and losses”).

As of Decemeber 31, 2015, the Company has fully received the proceeds from the disposal.

F. The subsidiary, TWi Biotechnology, Inc., entered into a cooperative development agreement with

other related party in 2016. Other related party will assist the Group in developing and researching

pro-drugs, however the Group does not need to pay any consideration in exchange for the research

and development. If pro-drugs are successfully developed, the Group will grant exclusive license

to other related party for further use in development of the research results and related rights of

the pro-drugs in Mainland China (including Hong Kong and Macao). If other related party sold

any oral products which are made from the pro-drugs in China, they shall pay royalties at a certain


Other payables - others

Other related parties 1,143$ -$

2015 2016

Associate 66,444$ -$


Disposal proceeds Gain (loss) on disposal

Other related party 19,150$ 430$


~67~

percentage of net profit from sales of the oral products to the Group. However, if other related

party fails to meet the requirements within a certain period as stated in the agreement, the

obligation to grant the license would be automatically terminated.

(2) Key management compensation

8. PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS

In addition to the contingent license fees as explained in Note 6 (7), the Group’s other significant

contingent liabilities and unrecognized contract commitments are as follows:

(1) Contingencies

When the Company submits ANDAs to the US FDA with Paragraph IV certifications claiming that

the Company’s generic products do not infringe the listed Orange Book patents or such patents are

not valid, NDA holders and patent owners may sue the Company, requesting an order enjoining the

Company from commercial sale of the generic products before the expiration date of the Orange Book

patents. This type of patent litigation is common practice in the pharmaceutical industry. Before

launching generic products, there would be no concern about compensation for damages. The

Company’s lawsuits associated with Paragraph IV certifications are as follows:

A. Supernus Pharmaceuticals, Inc.: The Company submitted its ANDA for a generic version of

Oxtellar XR to the US FDA with Paragraph IV certifications, the NDA and patent holder

(Supernus Pharmaceuticals, Inc.) sued the Company for alleged patent infringement in January

2015. As of March 23, 2017, this lawsuit is still pending with the US Court and the outcome is not

predictable. The Company has not yet launched this generic product, therefore there is no concern

about compensation for damages at this stage.

B. Allergan, Inc.: The Company submitted its ANDA for a generic version of Restasis to the US FDA

2015 2016

Salaries and other short-term employee benefits 83,815$ 75,568$

Post-employment benefits 873 940

Termination benefits 2,116 924

Share-based payments 19,500)( 7,633

67,304$ 85,065$


Pledged asset December 31, 2015 December 31, 2016 Purpose

Land (including revaluation increment) 386,542$ 386,542$ Credit limit

Buildings 188,349 190,454 ″

574,891$ 576,996$

Book value

~68~

with Paragraph IV certifications, the NDA holder (Allergan, Inc.) sued the Company for alleged

patent infringement in July 2016. The parties settled the lawsuit on January 12, 2017, and all

litigation related to the Company’s generic version of Restasis were dismissed.

C. Eli Lilly: The Company submitted its ANDA for a generic version of AXIRON to the US FDA

with Paragraph IV certifications, the NDA holder (Eli Lilly) and patent holder Acrux DDS PTY

LTD. sued the Company for alleged patent infringement in February 2017. This is a common and

typical Paragraph IV patent infringement litigation. As the Company has not yet launched this

product, there is no concern about compensation for damages at this stage.

(2) Commitments

A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

B. Operating lease arrangements

The Group leases offices and cars with lease terms of less than 5 years, and the majority of lease

agreements are renewable at the end of the lease period at market rate.

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

follows:

C. The Company and Company Y entered into a contract research agreement in 2010. Company Y is

responsible for drug development and manufacturing. Depending on completion stages of drug

license application and approval, the Company will pay up to $2,400 as milestone fees to

Company Y. The Company will share profit with Company Y after the product is launched.

D. The Company and Company C entered into an agreement in July 2014. Under the agreement, the

Company terminated Company C’s distribution right for a certain drug, and in exchange, the

Company needs to pay Company C a certain percentage of net profit from sales of the drug once

it begins to commercially distribute the drug.

E. During 2015 and 2016, the Company entered into various contract research agreements. In

accordance with the payment schedules in the agreements, depending on the progress of the

clinical studies, the maximum amount that the Group will have to pay is $16,297.

F. In May 2015, the Company’s subsidiary, TWi Biotechnology, Inc., and Company O entered into

several contract research agreements. Company O is responsible for clinical trials and license

application services. In accordance with the payment schedules in the agreement, depending on

the progress of the clinical trials and license application, the maximum amount that TWi

Biotechnology, Inc. is obligated to pay is $10,385.


Property, plant and equipment 135,715$ 44,534$


Up to 12 months 16,942$ 19,240$

Later than one year but

not later than five years 16,862 10,918

33,804$ 30,158$

~69~

G. In May 2016, the Company’s subsidiary, TWi Biotechnology, Inc., and Company D entered into

a Master Contract agreement and signed specific work orders based on the subsidiary’s needs. In

accordance with the payment schedules in the work orders, depending on the progress of the

clinical trials, the maximum amount that the Company is obligated to pay is $2,995.

10. SIGNIFICANT DISASTER LOSS

None

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

Please refer to Note 9(1)B. and C. for details.

12. OTHERS

(1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue

as a going concern in order to provide returns for stockholders and to maintain an optimal capital

structure to reduce the cost of capital, and in the future, when the Company's operations have

generated a profit, to provide steady returns for stockholders. In order to achieve the above goals,

the Group will maintain or adjust the capital structure using the following methods, including but

not limited to: raising additional capital, borrowing from the bank, issuing company debt,

disposing assets in order to repay debt or replenish operational capital, issuing dividends, and

reducing capital, etc. The Group uses the gearing ratio to monitor and manage capital, the ratio is

calculated by dividing "net liabilities" by "total equity". "Net liabilities" is calculated by "total

liabilities" subtracted by cash and cash equivalents. "Total equity" is the amount listed in the

consolidated balance sheets as "total equity".

During 2016, the Group’s strategy, which was unchanged from 2015, was to maintain the gearing

ratio under 50%. As of December 31, 2016 and 2015, the Group’s total liabilities were lower than

its cash and cash equivalents, thus the gearing ratio was 0%.

(2) Financial instruments

A. Fair value information of financial instruments

The carrying amounts of the Group’s financial instruments not measured at fair value (including

cash and cash equivalents, notes receivable, accounts receivable (including related parties), other

receivables, short-term loans, accounts payable and other payables (including related parties))

are approximate to their fair values.

B. Financial risk management policies

The Group’s activities expose it to a variety of financial risks: market risk (including foreign

exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall

risk management programme focuses on the unpredictability of financial markets and seeks to

minimise potential adverse effects on the Group’s financial position and financial performance.

~70~

C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk

i. The Company operates internationally and is exposed to foreign exchange risk arising from

various currency exposures, primarily with respect to the USD. Foreign exchange risk

arises from future commercial transactions, as well as recognised assets and liabilities.

ii. The Group’s businesses involve some non-functional currency operations (the Company’s

and certain subsidiaries’ functional currency: NTD; overseas subsidiaries’ functional

currencies: USD and RMB). The information on assets and liabilities denominated in

foreign currencies whose values would be materially affected by the exchange rate

fluctuations is as follows:

Foreign currency

amount Book value

(In thousands) Exchange rate (NTD)

(Foreign currency: functional currency)

Financial assets

Monetary items

USD:NTD 118,513$ 32.87 3,895,522$

Non-monetary items

USD:NTD 1,359)( 32.87 44,667)(

RMB:NTD 125,396 4.98 624,470

Financial liabilities

Monetary items

USD:NTD 1,698)($ 32.87 55,821)($

EUR:NTD 1,032)( 35.92 37,074)(

December 31, 2015

Foreign currency

amount Book value

(In thousands) Exchange rate (NTD)


Financial assets

Monetary items

USD:NTD 132,268$ 32.250 4,265,638$

RMB:NTD 7,116 4.617 32,853

Non-monetary items

USD:NTD 1,239)( 32.250 39,943)(

RMB:NTD 107,016 4.617 494,094


Monetary items

USD:NTD 4,005$ 32.250 129,147$

RMB:NTD 509 4.617 2,349

December 31, 2016

~71~

iii. The realized and unrealized exchange gain (loss) arising from significant foreign

exchange variation on the monetary items held by the Group amounted to $35,211 and

($73,748) in 2015 and 2016, respectively.

iv. Analysis of foreign currency market risk arising from significant foreign exchange

variation:

Price risk

The Group is exposed to equity securities price risk because of investments held by the Group

and classified on the consolidated balance sheet as financial assets at fair value through profit

or loss. To manage the price risk of investing in financial instruments, the Group monitors

the price changes at all times, and also sets stop-loss at the proper time.

Interest rate risk

The Group’s interest rate risk arises from short-term and long-term borrowings. Borrowings

issued at floating rates expose the Group to cash flow interest rate risk which is partially

offset by cash and cash equivalents held at floating rates. Borrowings issued at fixed rates

Degree of

variation

Effect on

profit or loss

Effect on other

comprehensive

income


Financial assets

Monetary items

USD:NTD 1% 38,955$ -$


Monetary items

USD:NTD 1% 558)($ -$

EUR:NTD 1% 371)( -


Sensitivity analysis

Degree of

variation

Effect on

profit or loss

Effect on other

comprehensive

income


Financial assets

Monetary items

USD:NTD 1% 42,656$ -$

RMB:NTD 1% 329 -


Monetary items

USD:NTD 1% 1,291$ -$


Sensitivity analysis

~72~

expose the Group to fair value interest rate risk.

(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

analysing 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, of the customer with same scale past

experience and other factors. Individual risk limits are set based on internal or external

ratings in accordance with limits set by the Board of Directors. The utilisation of credit

limits is regularly monitored. Credit risk arises from cash and cash equivalents and deposits

with banks and financial institutions, as well as credit exposures to clients, including

outstanding receivables and committed transactions. For banks and financial institutions,

only independently rated parties with high grading are accepted.

ii. No credit limits were exceeded in 2015 and 2016, and management does not expect any

significant losses from non-performance by these counterparties.

iii. For the Group’s credit quality information of financial assets that are neither past due nor

impaired, past due but not impaired and those that had been impaired, please refer to Note

6 (2).

(c) Liquidity risk

i. Cash flow forecasting is performed in the operating entities of the Group and aggregated

by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity

requirements to ensure it has sufficient cash to meet operational needs.

ii. The table below analyses the Group’s non-derivative financial liabilities into relevant

maturity groupings based on the remaining period at the balance sheet date to the

contractual maturity date for non-derivative financial liabilities and to the expected

maturity date for derivative financial liabilities. The amounts disclosed in the table are the

contractual undiscounted cash flows.

~73~

iii. The Group does not expect the timing of occurrence of the cash flows estimated through

the maturity date analysis will be significantly earlier, nor expect the actual cash flow

amount will be significantly different.

13. SUPPLEMENTARY DISCLOSURES

(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): None.

D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or

20% of the Company’s paid-in capital: Please refer to table 3.

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: Please

refer to table 5.

I. Trading in derivative instruments undertaken during the reporting periods: None.

J. Significant inter-company transactions during the reporting periods: Please refer to table 6.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in

Mainland China): Please refer to table 7.

December 31, 2015

Less than 1 year

Between 1

and 2 years Over 2 years

Short-term borrowings 16,415$ -$ -$

Accounts payable 35,482 - - Other payables

(including related parties) 229,915 - -

281,812$ -$ -$

December 31, 2016

Less than 1 year

Between 1 and

2 years Over 2 years

Accounts payable 55,176$ -$ -$ Other payables 139,531 - -

Liabilities directly relating

to non-current assets held

for sale 23,354 - -

218,061$ -$ -$

~74~

(3) Information on investments in Mainland China

A. Basic information: Please refer to table 8.

B. Significant transactions conducted with investees in Mainland China directly or indirectly

through other companies in the third areas: No material transactions.

14. SEGMENT INFORMATION

(1) General information

The Group’s main areas of business are generic drug and new drug research and development,

transferring, and providing drug regulatory approval and marketing information consultation

services. Therefore, the Group’s chief operating decision-makers evaluate performance and allocate

resources by viewing generic drug and new drug as two separate operating segments.

(2) Measurement of segment information

The Group’s accounting policies for the operating segments are the same as those listed in Note 4.

The Group’s chief operating decision-maker uses the after-tax net income (loss) as the basis for

assessing the performance of the Group’s operating segments.

(3) Information about segment profit or loss, assets and liabilities

The segment information provided to the chief operating decision-maker for the reportable segments

is as follows:


Generic Drug

Department

New Drug

Department

Eliminated

transactions during

the consolidation Total

Revenue from external

customers 420,973$ 16,395$ -$ 437,368$

Inter-segment revenue - - - -

Total segment revenue 420,973$ 16,395$ -$ 437,368$

Segment loss 323,143)($ 111,751)($ -$ 434,894)($

Segment loss includes :

Depreciation and

amortisation 212,338$ 6,527$ -$ 218,865$

Income tax expense

(benefit) 13,222)($ 4,918$ -$ 8,304)($

Segment assets 6,666,666$ 469,316$ 2,234)($ 7,133,748$

Segment liabilities 485,775$ 20,293$ 2,234)($ 503,834$

~75~


(4) Reconciliation for segment income (loss)

The operating segments’ assets, liabilities, after-tax net loss reported to the chief operating decision-

makers are measured in a manner consistent with the balance sheet and the statement of

comprehensive income. As a result, reconciliation is not needed.

(5) Information on product and service

The Company’s main sources of revenue are sales of pharmaceutical products, providing technical

services and license revenue. Revenues consist of the following:

(6) Geographical information

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

Generic Drug

Department

New Drug

Department

Eliminated

transactions during

the consolidation Total

Revenue from external

customers 743,778$ -$ -$ 743,778$

Inter-segment revenue - - - -

Total segment revenue 743,778$ -$ -$ 743,778$

Segment loss 173,816)($ 118,077)($ -$ 291,893)($

Segment loss includes :

Depreciation and

amortisation 205,415$ 6,920$ -$ 212,335$

Income tax benefit 6,543)($ 26)($ -$ 6,569)($

Segment assets 6,662,346$ 354,336$ 2,155)($ 7,014,527$

Segment liabilities 389,251$ 17,601$ 2,155)($ 404,697$

Year ended

December 31, 2015

Year ended

December 31, 2016

Generic drug sales revenue 414,818$ 728,597$

Service revenue 376 2,558

License revenue 22,174 12,623

437,368$ 743,778$

Revenue

Non-current

assets Revenue

Non-current

assets

Taiwan 12,455$ 1,260,909$ 16,446$ 1,160,987$

America 424,913 1,447$ 717,734$ 7,714$

China - 1,035,734 9,598 -

437,368$ 2,298,090$ 743,778$ 1,168,701$

Year ended December 31, 2016Year ended December 31, 2015

~76~

(7) Major customer information

Details of sales to individual customers reaching 10% of the Group’s revenue for the years ended

December 31, 2015 and 2016 are as follows:

Note: Revenue from Customer C did not exceed 10% of the Group’s revenue in 2015.

Revenue Segment Revenue Segment

Customer A 201,701$

Generic Drug

Department 303,654$

Generic Drug

Department

Customer C (Note) 45,898 " 98,695 "

247,599$ 402,349$

Year ended December 31, 2016Year ended December 31, 2015

Table 1

Item Value

0 TWi Pharmaceuticals, Inc.Visum Pharmaceutical

Co., Ltd.

Other receivables-

related partiesYes $ 23,085 $ - $ - -

Short-term

financing - Working Capital - - - $ 1,264,867 $ 2,529,734 Note e

0 TWi Pharmaceuticals, Inc.TWi Pharmaceuticals

USA, Inc.

Other receivables-

related partiesYes 161,250 161,250 48,375 2.39%

Short-term

financing - Working Capital - - - 1,264,867 2,529,734


USA, Inc.

Other receivables-

related partiesYes 16,125 - - -

Short-term

financing - Working Capital - - - 1,264,867 2,529,734 Note d


Europe Limited

Other receivables-

related partiesYes 16,125 - - -

Short-term

financing - Working Capital - - - 1,264,867 2,529,734 Note d

0 TWi Pharmaceuticals, Inc.Visum Pharmaceutical

Co., Ltd.

Other receivables-

related partiesYes 69,255 69,255 32,319 5.00%

Short-term

financing - Working Capital - - - 1,264,867 2,529,734

Note a: The numbers filled in for the loans provided by the Company or subsidiaries are as follows:

(1). Number 0 represents the Company.

(2). The investee companies are in order from number 1.

Note b: Accumulated financing activities to any company or person should not be in excess of 40% of net assets on December 31, 2016; and the individual limit to any company or person should not be in excess of 20% of net assets on December 31, 2016.

Note c: For the amounts denominated in foreign currencies, profit and loss amounts were translated into New Taiwan Dollars at the average exchange rate of the year 2016: 1:32.251 (USD:NTD) and 1:4.842 (RMB:NTD), while others were translated into New Taiwan Dollars

at the spot exchange rates at the balance sheet date: 1:32.250 (USD:NTD) and 1:4.617 (RMB:NTD).

Note d: The short-term financing credit for working capital was eliminated during the Board of Directors’ meeting held on May 13, 2016.

Note e: The short-term financing credit for working capital was eliminated during the Board of Directors’ meeting held on October 17, 2016.

General ledger account

Is a

related

party

TWi Pharmaceuticals, Inc. and Subsidiaries

Loans to others


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

Collateral

Limit on

loans granted

to a single

party

(Note b)

Ceiling on total

loans granted

(Note b)

Note Interest rate

Nature of

loan

Amount of

transactions

with the

borrower

Reason for short-

term financing

Allowance

for

doubtful

accounts

Maximum

outstanding

balance

during the

year ended

December 31,

2016 (Note c)

Balance at

December 31,

2016

(Note c)

Actual

amount

drawn down

No.

（Note a）Creditor Borrower

Table 1-1

Company name

Relationship

with the

endorser /

guarantor

0 TWi Pharmaceuticals, Inc. TWi Pharmaceuticals

USA, Inc.

Note b 6,324,334$ 161,250$ 161,250$ 161,250$ -$ 2.55% 6,324,334$ Y N N Notes c

and d


USA, Inc.

Note b 6,324,334 96,750 96,750 - - 1.53% 6,324,334 Y N N Notes c,

d and e


USA, Inc.

Note b 6,324,334 123,000 123,000 - - 1.94% 6,324,334 Y N N Notes c,

d and e

0 TWi Pharmaceuticals, Inc. Visum Pharmaceutical

Co., Ltd.

Note b 1,264,867 69,255 - - - 1.10% 3,162,167 Y N Y Notes c,

d and f

Note a: The numbers filled in for the endorsements/guarantees provided by the Company or subsidiaries are as follows:

(1). The Company is ‘0’

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

Note c: The guarantee amount should not exceed 50% of the company’s net assets; the limit to a single company should not exceed 20% of the Company’s net assets. The guarantee amount to a subsidiary which is 100% directly or indirectly held by the Company should not

exceed 100% of the Company's net assets.

Note d: The limit amount of guarantee from the Company and subsidiaries as a whole to companies not included in the Group should not be exceed 50% of the Company's net assets; the limit to a single company not included in the Group should not exceed 20% of the

Company's net assets; the guarantee amount to a company which 100% directly or indirectly hold the Company should not exceed 100% of the Company's net assets.

the Board of Directors’ Meeting held on November 11, 2016.

Note g: For the amounts denominated in foreign currencies, profit and loss amounts were translated into New Taiwan Dollars at the average exchange rate of the year 2016: 1:32.251 (USD:NTD) and 1:4.842 (RMB:NTD), while others were translated into New Taiwan Dollars


Ceiling on total

amount of

endorsements /

guarantees

provided


Provision of endorsements and guarantees to others

Table 2 Expressed in thousands of New Taiwan dollars, except as otherwise indicated


Note e: Originally, the endorsements and guarantees amount is shared between TWi Pharmaceuticals USA, Inc. and TWi Pharmaceuticals Europe Limited, but the endorsement and guarantee to TWi Pharmaceuticals Europe Limited was rescinded during

Note f: The endorsement and guarantee was rescinded during the Board of Directors’ Meeting held on October 17, 2016.

Provision of

endorsements /

guarantees by

parent company

to subsidiary

Provision of

endorsements /

guarantees by

subsidiary to

parent company

Outstanding

endorsement /

guarantee amount

at December 31,

2016

(Note g)

Note b: The endorser/guarantor parent company owns directly more than 50% voting shares of the endorsed/guaranteed subsidiary.

Provision of

endorsements /

guarantees to the

party in Mainland

China

Note

Amount of

endorsements

/ guarantees

secured with

collateral

Ratio of

accumulated

endorsement /

guarantee amount to

net asset value of

the endorser /

guarantor company

Actual

amount drawn

down

(Note g)

Number

(Note a)Endorser / guarantor

Party being endorsed/guaranteedLimit on

endorsements /

guarantees provided

for a single party

Maximum

outstanding

endorsement /

guarantee amount

as of December

31, 2016

(Note g)

Table 2-1

Number of

sharesAmount Number of shares Amount

Number of

sharesSelling price Book value

Gain (loss)

on disposal

Number of

sharesAmount

Note a: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities.

Note b: Fill in the columns the counterparty and relationship if securities are accounted for under the equity method; otherwise leave the columns blank.

Note c: Aggregate purchases and sales amounts should be calculated at their market values to verify whether they individually reach NT$300 million or 20% of paid-in capital or more.

Note d: As TWi Biotechnology, Inc. plans to apply for securities listing, in order to comply with TWSE and TPEx Securities Listing Rules on equity distribution and to comply with TPEx Rules Governing the Review of Emerging Stocks for Trading,

the Company repeatedly sold equity interests to non-related parties during the year 2016.

Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital

Table 3




Addition (Note c) Disposal (Note c) Balance as at December 31, 2016

InvestorMarketable security

(Note a)

General ledger

account

Counterparty

(Note b)

Relationship

with the

investor

(Note b)

Balance as at January 1,

2016

(Not Applicable)

TWi Pharmaceuticals, Inc. TWi Biotechnology, Inc. Investments

accounted

for under the equity

method

Note d Non-related

parties

Table 3-1

Table 4

Purchases

(sales)Amount

Percentage of

total purchases

(sales)

Credit terms Unit price Credit terms Balance

Percentage of

total

notes/accounts

receivable

(payable)

TWi Pharmaceuticals Inc. TWi Pharmaceuticals USA, Inc. Subsidiary Sales 352,038)($ (50.52%) Note Note Note 217,648$ 84.93%

Note : Based on negotiation between both parties.


NotePurchaser/seller Counterparty

Relationship

with the

counterparty

Transaction

Differences in transaction

term compared to third

party transactions

Notes / accounts receivable

(payable)


Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more


Table 4-1

Table 5

Amount Action taken

TWi Pharmaceuticals Inc. TWi Pharmaceuticals USA, Inc. Subsidiary 217,648$ 287.23% 102,679$ Continually paying 6,010$ $ -

TWi Pharmaceuticals Inc. TWi Pharmaceuticals USA, Inc. Subsidiary 48,468 Not Applicable - 32,343 -

Note a: Please fill in by receivable nature, for example account receivable-related parties, note receivables and other receivables, etc.

Note b: Paid-in capital means the parent company’s paid-in capital. For share that has no par value or par value is not $10 (in dollars) per share, the amount regarding 20% of paid-in capital is calculated by 10% of total equity attributable to owners of the parent as shown on the balance sheet.



Amount collected

subsequent to the balance

date

Allowance for

doubtful accountsCreditor Counterparty

Relationship with the

counterpartyBalance as at December 31, 2016

(Note a)

Turnover rateOverdue receivables


Receivables from related parties reaching $100 million or 20% of paid-in capital or more



Table 5-1

General ledger accountAmount

Transaction

terms

Percentage of consolidated total

operating revenue or total assets

(Note c)

0 TWi Pharmaceuticals Inc. TWi Pharmaceuticals USA, Inc. 1 Sales 352,038$ Note d 47.33%

0 TWi Pharmaceuticals Inc. TWi Pharmaceuticals USA, Inc. 1 Receivables 217,648 Note d 3.10%

Note a: 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 b: 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 c: 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 d: Based on negotiation between both parties.

Number

(Note a)Company name Counterparty

Relationship

(Note b)


Transaction


Significant inter-company transactions during the reporting period


Table 6

Table 6-1

Balance as at

December 31, 2016

Balance as at

December 31,

2015

Number of sharesOwnership

(%)

Book value

(Note c)

TWi Pharmaceuticals Inc. TWi Biotechnology, Inc. Taiwan New drug R&D 438,905$ 514,108$ 41,239,000 73.07 250,380$ 118,077)($ 93,864)($ Subsidiary

TWi Pharmaceuticals Inc. TWi Pharmaceuticals USA, Inc. United States

of America


generic drug sales

5,986 5,986 100 100.00 53,636)( 23,270 23,270 Subsidiary

TWi Pharmaceuticals Inc. TWi Pharmaceuticals Europe Limited United

Kingdom


generic drug sales

16,431 16,431 500,000 100.00 13,693 5,434)( 3,130 Subsidiary

TWi Pharmaceuticals Inc. TWi Pharmaceutical Ltd. British Virgin

Islands

Investment 757,598 756,491 24,766 100.00 494,094 87,509)( 87,509)( Subsidiary

TWi Pharmaceutical Ltd. TWi Pharmaceuticals Cayman Ltd. Cayman Islands Investment 757,278 756,171 49,511,778 99.88 493,968 87,527)( 87,422)( Note a

Note a: An indirect subsidiary.

Note b: For mandatory disclosure of information about the above investee companies that are required to be disclosed, please see Table 1 to 6.



Names, locations and other information of investee companies (not including investees in Mainland China)


Table 7



Net profit (loss)

of the investee for

the year ended

December 31,

2016

(Note c)

Investment

income (loss)

recognized by

the Company for

the year ended

December 31,

2016

(Note c)

NoteInvestorInvestee

(Note b)Location Main business activities

Initial investment amount Shares held as at December 31, 2016

Table 7-1

Remitted to

Mainland China

Remitted back

to Taiwan

Visum Pharmaceutical Co., Ltd. Formulation and development of oral solid

dosage forms

179,830$ Note a 755,553$ -$ -$ 755,553$ 91,511)($ 65.58% 87,458)($ 493,528$ -$

Company name

Accumulated amount remitted from

Taiwan to Mainland China as of

December 31, 2016

Investment amount

approved by the

Investment Commission

of Ministry of Economic

Affairs (MOEA)

(Note c)

Ceiling of investments in

Mainland China imposed

by the Investment

Commission of MOEA

(Note d)

TWi Pharmaceuticals Inc. $ 755,553 $ 1,406,250 $ 3,794,600

Note a: The Mainland China investee is invested indirectly through third area company in the Cayman Islands which in turn is invested indirectly through third area company in the British Virgin Islands.

Note b: The Company recognized investment income / loss based on financial statements which were reviewed by the Company's independent auditors.

Note c: The amount evaluated and recognized is based on the investee’s financial report, audited by other independent auditor.

Note d: The amount was calculated based on 60% of the equity attributable to owners of the parent as stipulated in Investment Commission, MOEA Regulation No. 09704604680 which was announced on August 29, 2008.

Note e: For the amounts denominated in foreign currencies, profit and loss amounts were translated into New Taiwan Dollars at the average exchange rate of the year 2016: 1:32.251 (USD:NTD) and 1:4.842 (RMB:NTD), while others were translated into New Taiwan Dollars


Note

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 Company

(direct or

indirect)

Investment income

(loss) recognised

by the Company

for the year ended

December 31,

2016 (Note b)

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


Information on investments in Mainland China－Basic information


Table 8 Expressed in thousands of New Taiwan dollars, except as otherwise indicated

Amount remitted from Taiwan to

Mainland China/Amount remitted

back to Taiwan for the year ended

December 31, 2016Investee 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

Table 8-1

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