Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. 成都泉源

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

Application Proof of

Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. 成都泉源堂大藥房連鎖股份有限公司 (the “Company”) (A joint stock company incorporated in the People’s Republic of China with limited liability)

WARNING

The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and the Securities and Futures Commission (the “Commission”) solely for the purpose of providing information to the public in Hong Kong.

This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its joint sponsors, advisers or members of the underwriting syndicate that:

(a) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document;

(b) the publication of this document or supplemental, revised or replacement pages on the Stock Exchange’s website does not give rise to any obligation of the Company, its joint sponsors, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering;

(c) the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document;

(d) the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on the Stock Exchange;

(e) this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities;

(f) this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended;

(g) neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;

(h) no application for the securities mentioned in this document should be made by any person nor would such application be accepted;

(i) the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States;

(j) as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and

(k) the application to which this document relates has not been approved for listing and the Stock Exchange and the Commission may accept, return or reject the application for the subject public offering and/or listing.

If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company’s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period. THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. IMPORTANT

IMPORTANT: If you are in any doubt about any of the contents of this document, you should seek independent professional advice.

Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. 成都泉源堂大藥房連鎖股份有限公司 (A joint stock company incorporated in the People’s Republic of China with limited liability)

[REDACTED] Number of [REDACTED] : [REDACTED] H Shares (subject to the under the [REDACTED] [REDACTED]) Number of [REDACTED] : [REDACTED] H Shares (subject to [REDACTED]) Number of [REDACTED] : [REDACTED] H Shares (subject to [REDACTED] and the [REDACTED]) Maximum [REDACTED] : HK$[REDACTED] per H Share, plus brokerage of 1.0%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005% (payable in full on application in Hong Kong Dollars and subject to refund) Nominal Value : RMB1.00 per H Share [REDACTED] : [REDACTED] Joint Sponsors, [REDACTED] and [REDACTED]

(in alphabetical order)

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, make no representation as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. A copy of this document, having attached thereto the documents specified in “Appendix VII—Documents Delivered to the Registrar of Companies and Available for Inspection” to this document, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility for the contents of this document or any other document referred to above. The [REDACTED] is expected to be fixed by agreement between the [REDACTED] (on behalf of the [REDACTED]) and us on the [REDACTED]. The [REDACTED] is expected to be on or around [REDACTED] (Hong Kong time) and, in any event, not later than [REDACTED] (Hong Kong time). The [REDACTED] will be not more than HK$[REDACTED] per [REDACTED] and is currently expected to be not less than HK$[REDACTED] per [REDACTED]. If, for any reason, the [REDACTED] is not agreed by [REDACTED] (Hong Kong time) between the [REDACTED] (on behalf of the [REDACTED]) and us, the [REDACTED] will not proceed and will lapse. Applicants for [REDACTED] are required to pay, on application, the maximum [REDACTED] of HK$[REDACTED] for each [REDACTED] together with brokerage fee of 1.0%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005%, subject to refund if the [REDACTED] as finally determined is less than HK$[REDACTED]. We are incorporated, and a majority part of our businesses are located, in the PRC. Potential [REDACTED] should be aware of the differences in the legal, economic and financial systems between the PRC and Hong Kong and that there are different risk factors relating to [REDACTED] in PRC-incorporated businesses. Potential [REDACTED] should also be aware that the regulatory framework in the PRC is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of the H Shares. Such differences and risk factors are set out in the sections headed “Risk Factors,” “Appendix IV—Summary of Principal Legal and Regulatory Provisions” and “Appendix V—Summary of Articles of Association” to this document. The obligations of the [REDACTED] under the [REDACTED] to [REDACTED] for, and to procure applicants for the [REDACTED] for, the [REDACTED], are subject to termination by the [REDACTED] (on behalf of the [REDACTED ]) if certain grounds arise prior to 8:00 a.m. on the day that [REDACTED] in the H Shares commences on the [REDACTED]. Such grounds are set out in the section headed “[REDACTED]” in this document. The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be [REDACTED], sold, pledged or transferred within the United States or to, or for the account or benefit of U.S. persons, except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The [REDACTED] are being [REDACTED] and sold (1) solely to QIBs as defined in Rule 144A pursuant to an exemption from registration under the U.S. Securities Act and (2) outside the United States in offshore transactions in reliance on Regulation S to [REDACTED].

[REDACTED]

[REDACTED] THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. IMPORTANT

[REDACTED]

–i– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. IMPORTANT

[REDACTED]

–ii– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. EXPECTED TIMETABLE(1)

[REDACTED]

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[REDACTED]

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IMPORTANT NOTICE TO [REDACTED]

This document is issued by us solely in connection with the [REDACTED] and does not constitute an [REDACTED] to sell or a solicitation of an [REDACTED] to buy any security other than the [REDACTED] by this document pursuant to the [REDACTED]. This document may not be used for the purpose of, and does not constitute, an [REDACTED] or a solicitation of an [REDACTED] to subscribe for or buy, any security in any other jurisdiction or in any other circumstances. No action has been taken to permit a [REDACTED] of the [REDACTED] or the distribution of this document in any jurisdiction other than Hong Kong. The distribution of this document and the [REDACTED] and [REDACTED] of the [REDACTED] in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable securities laws of such jurisdictions pursuant to registration with or authorization by the relevant securities regulatory authorities or an exemption therefrom.

You should rely only on the information contained in this document to make your [REDACTED] decision. We have not authorized anyone to provide you with information that is different from what is contained in this document. Any information or representation not made in this document must not be relied on by you as having been authorized by us, the Joint Sponsors, the [REDACTED], the [REDACTED], the [REDACTED], any of the [REDACTED], any of our or their respective directors, officers or representatives, or any other person or party involved in the [REDACTED].

Page

EXPECTED TIMETABLE ...... iii

CONTENTS ...... vi

SUMMARY ...... 1

DEFINITIONS ...... 12

GLOSSARY OF INDUSTRY TERMS ...... 24

FORWARD-LOOKING STATEMENTS ...... 26

RISK FACTORS ...... 28

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES .... 59

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INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] ...... 63

DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE [REDACTED] ...... 69

CORPORATE INFORMATION ...... 75

INDUSTRY OVERVIEW ...... 77

REGULATORY OVERVIEW ...... 88

HISTORY AND CORPORATE STRUCTURE ...... 106

BUSINESS ...... 130

RELATIONSHIP WITH CONTROLLING SHAREHOLDERS ...... 173

CONNECTED TRANSACTIONS ...... 178

DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT ...... 192

SUBSTANTIAL SHAREHOLDERS ...... 213

SHARE CAPITAL ...... 215

FINANCIAL INFORMATION ...... 219

FUTURE PLANS AND USE OF [REDACTED] ...... 268

[REDACTED] ...... 270

STRUCTURE OF THE [REDACTED] ...... 283

HOW TO APPLY FOR [REDACTED] ...... 295

APPENDIX I – ACCOUNTANTS’ REPORT ...... I-1

APPENDIX II – UNAUDITED [REDACTED] FINANCIAL INFORMATION ...... II-1

APPENDIX III – TAXATION AND FOREIGN EXCHANGE ...... III-1

APPENDIX IV – SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS ...... IV-1

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APPENDIX V – SUMMARY OF THE ARTICLES OF ASSOCIATION .... V-1

APPENDIX VI – STATUTORY AND GENERAL INFORMATION...... VI-1

APPENDIX VII – DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION . . . VII-1

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This summary aims to give you an overview of the information contained in this document. As this is a summary, it does not contain all the information that may be important to you. You should read this document in its entirety before you decide to [REDACTED]. We are applying for [REDACTED] on the [REDACTED] under Rule 8.05(3) of the Hong Kong Listing Rules. There are risks associated with any investment. Some of the particular risks in [REDACTED] are set out in “Risk Factors.” You should read that section carefully before you decide to [REDACTED].

OVERVIEW

We are a leading omni-channel smart retail pharmacy in China in terms of 2020 revenue, according to Frost & Sullivan. Our retail pharmacy business is more balanced and well- rounded across different channels compared to competitors, according to Frost & Sullivan, which has enabled us to capture more sales opportunities, broaden and deepen our business presence and realize synergies among channels to propel our growth. We are an innovator in retail pharmacy operations in China, being among the first batch of market participants launching online retail pharmacies, according to Frost & Sullivan. We have pioneered new sales channels, such as operating online pharmacies on e-commerce platforms, integrated online and offline retail pharmacies, and online prescription drug sales. We ranked first among all self-operated online-to-offline (O2O) and offline retail pharmacies in China in terms of average number of orders per store per month in 2020, according to Frost & Sullivan.

We primarily operate an omni-channel retail pharmacy business and provide empowering service to our customers. During the Track Record Period, our omni-channel retail pharmacy business primarily consisted of (i) new retail business, comprising offline retail pharmacies and O2O retail business, under which we sell and deliver pharmaceutical products to consumers that purchase products from our online retail pharmacies on O2O platforms; and (ii) B2C retail business, under which we operate online pharmacies on B2C e-commerce platforms. To a lesser extent, we provide SaaS solutions, or empowering services, to our industry customers, empowering participants in the retail pharmacy industry to realize online operations. Leveraging our exclusive distribution rights for certain products in certain areas with well-known pharmaceutical companies, we also engage in the supply chain business, under which we act as a wholesaler and sell pharmaceutical products to other industry customers.

–1– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY convert online traffic into offline sales, which in turn improve the operation efficiency and operating radius of our offline retail pharmacies, accelerate our inventory turnover and increase our product sales. As of Latest Practicable Date, we operated a total of 38 online stores on leading e-commerce platforms in China.

We have maintained long-term cooperation with leading pharmaceutical manufacturers, providing us with steady resources in pharmaceutical products supply. As of December 31, 2020, we had cooperated with more than 1,000 manufacturers, covering over 50 top 100 pharmaceutical manufacturers in China and 15 top 20 pharmaceutical companies globally, according to Frost & Sullivan. Benefitting from our in-depth cooperation with well-known brands in the industry, including our Shareholder, Sino Biopharm, the largest prescription drug manufacturer and hepatobiliary drug manufacturer in China, we are able to broaden our Direct-To-Patient (DTP) pharmaceutical product resources. Since the commencement of our DTP business in 2020, our revenue from sales of DTP drugs increased rapidly from RMB0.1 million in 2018 to RMB1.3 million in 2019 and further to RMB6.0 million in 2020. Moreover, with diverse prescription drugs and high-quality services, our sales of prescription drugs expanded rapidly and the revenue from which reached RMB476.8 million in 2020, accounting for 47.3% of our total revenue from omni-channel retail pharmacy business in the same period. By offering full-spectrum products covering pharmaceutical drugs and non-drug healthcare products, we are able to provide full-cycle and one-stop healthcare services to satisfy various customer needs. As of the Latest Practicable Date, the number of SKUs in our store reached over 30,000, covering the top 5 best-selling OTC drugs and prescription drugs. Our full-spectrum products enable us to satisfy customer needs related to major chronic diseases such as cardio-cerebrovascular, diabetes, rheumatism and orthopedics, hepatobiliary. We are one of the very few online retail pharmacies in China that established a large-scale pharmacy service team of over 200 professionals, including licensed pharmacists, health consultants and chronic disease specialists, according to Frost & Sullivan.

We are a technology-driven pioneer and leader in the retail pharmacy industry value chain. We focus on developing SaaS solutions for participants in the retail pharmacy industry and promoting the technology upgrade of the industry. According to Frost & Sullivan, we are a leading and fast-growing SaaS solution provider focusing on serving participants of the retail pharmacy industry. Through empowering other retail pharmacy customers, we have established the third largest retail pharmacy network amongst omni-channel retail pharmacies in China in terms of number of cities covered, according to Frost & Sullivan. We are also one of the very few in the retail pharmacy industry that are able to provide SaaS solutions to professional retail pharmacies, according to the same source.

–2– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY experience over the years, successfully integrating application tools and online operation infrastructure into our underlying data analysis system. Oriented by our business strategies to provide effective operation and stable and intelligence support, we apply structured data to support our business development and intelligent business operations.

OUR BUSINESS

The following table sets forth a breakdown of our revenue for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Omni-channel retail pharmacy business New retail business – offline retail pharmacy(1) 48,101 8.3 200,792 23.4 365,166 29.2 – O2O retail business 34,066 5.9 103,326 12.0 221,430 17.7 B2C retail business 379,484 65.9 378,359 44.1 421,523 33.8

Subtotal 461,651 80.1 682,477 79.5 1,008,119 80.7

Supply chain business 114,840 19.9 175,302 20.4 225,685 18.1

Empowering business – SaaS solution service – – 406 0.1 15,438 1.2

Total 576,491 100.0 858,185 100.0 1,249,242 100.0

(1) During the Track Record Period and as of the Latest Practicable Date, we conducted DTP retail pharmacy business through offline retail pharmacies near hospitals in Chengdu, Chongqing, Xi’an, Guangzhou, Yibin, Ya’an, Deyang and Suining. For the year ended December 31, 2018, 2019 and 2020, revenue from sales of DTP drugs amounted to RMB0.1 million, RMB1.3 million and RMB6.0 million, respectively.

Omni-channel Retail Pharmacy Business. We derive revenues under our omni-channel retail pharmacy business from (i) sales of products from new retail business, consisting of offline sales of products through our offline retail pharmacies and online sales of products through O2O platforms, and (ii) sales of products from our online pharmacies on B2C e-commerce platforms.

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Empowering Business. As a technology-enabled omni-channel pharmaceutical retail service provider, we have developed a proprietary SaaS solution to manage our business operation. Realizing the demand for empowering services to align with the online operation trend in the industry, we have been providing our proprietary SaaS solutions to participants in the retail pharmacy industry through our empowering service starting from May 2019.

Supply Chain Business. Benefiting from our omni-channel advantages, we are able to obtain regional agency rights for certain well-known branded pharmaceutical products, and to sell such products to industry customers, in particular our empowering business customers. We act as a wholesaler and sell primarily pharmaceutical products to industry customers.

COMPETITIVE STRENGTHS AND BUSINESS STRATEGIES

We believe that the following are our competitive strengths and investment highlights: (i) a leading and balanced omni-channel smart retail pharmacy in China and pioneer of the omni-channel pharmaceutical retail model; (ii) full-spectrum, one-stop, high-repurchase and premium pharmaceutical retail products and services; (iii) leading and fast-growing SaaS solution provider empowering participants in retail pharmacy industry value chain; (iv) efficient single-store operation model and replicable city business model; (v) strong data analytic capabilities and proprietary intelligence technologies developed by our in-house R&D team with “online + offline” operational expertise; and (vi) visionary and experienced management team and strong support from our shareholders.

We intend to implement the following business strategies: (i) strengthen our leading position in covered cities and expand our presence in selected cities by replicating our city business model; (ii) continue to invest in technology innovation and development, enhance our technology development capabilities and continue to expand our SaaS services; (iii) continue to deepen strategic cooperation and DTP business with upstream suppliers to maximize the mutual benefit; (iv) expand our sales network of prescription drugs and expand our pharmaceutical consultation services; (v) selective strategic cooperation, investment and acquisition; and (vi) enrich and improve our professional talent team.

CUSTOMERS

Our customers primarily consist of (i) individual consumers from omni-channel retail pharmacy business, and (ii) industry customers from our empowering service and supply chain business. As a retail-based omni-channel retail pharmacy, our customer base is highly diversified. For the year ended December 31, 2018, 2019 and 2020, revenues from our five largest customers accounted for 4.6%, 5.8% and 4.8%, respectively. For details, see “Business—Customers.”

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SUPPLIERS

We generally purchase products we offered from pharmaceutical manufacturers and wholesalers. For the years ended December 31, 2018, 2019 and 2020, purchases from our five largest suppliers accounted for 34.3%, 32.1% and 38.1%, respectively, of our total purchases during those periods. Our five largest suppliers are generally pharmacy wholesalers. For details, see “Business—Suppliers and Procurement.”

RISK FACTORS

There are certain risks in our operations and in connection with the [REDACTED], many of which are beyond our control. We believe the most significant risks we face include but are not limited to the following: (i) we incurred operating losses in the past, and may not be able to achieve profitability in the future; (ii) if we are unable to compete effectively in the retail pharmacy industry, our business, financial condition and results of operations may be materially and adversely affected; (iii) we may be unable to timely and effectively adapt and respond to rapidly changing market trends in the retail pharmacy industry; (iv) we are subject to extensive and evolving regulatory requirements, non-compliance with which, or changes in which, may materially and adversely affect our business and prospects; (v) any lack of requisite approvals, licenses or permits applicable to our business, or any non-compliance with relevant laws and regulations, may have a material and adverse effect on our business, financial condition, results of operations and prospects; (vi) we may become subject to product liability claims, which could cause us to incur significant expenses and be liable for significant damages if not covered by insurance; (vii) we have limited control on our suppliers, which may materially and adversely affect our business if our suppliers fail to meet relevant quality requirements or if they fail to continuously operate their business in compliance with relevant laws and regulations; (viii) our past operation and achievements in offline and O2O retail business are highly centralized in a limited number of cities, as a result, if we fail in the competition in these cities, our business, financial condition, results of operations and prospects could be materially and adversely affected; (ix) we may not be able to manage the growth of our business and our expansion plans and operations and we may also fail to implement our business strategies in a timely manner or within our budget, or at all; (x) we recorded net current liabilities and net liabilities as of December 31, 2018 and 2019 and April 30, 2021, there can be no assurance that we will record net current assets in the future in case of results of operation being not optimal or timely equity financing not achieved. See “Risk Factors” of this document for details of our risk factors, which you should read carefully and in full before you decide to [REDACTED].

CONTROLLING SHAREHOLDERS

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Immediately following the completion of the [REDACTED] (assuming that the [REDACTED] is not exercised), the group of Mr. Li, Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei will be entitled to exercise the voting rights attaching to approximately [REDACTED] of the total issued Shares of our Company. Accordingly, Mr. Li, Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei will continue to be the only group of Controlling Shareholders upon the [REDACTED]. See “Relationship with Controlling Shareholders” for further details.

PRE-[REDACTED] INVESTORS

Since our establishment, we have underwent four rounds of Pre-[REDACTED] Investments. For further details of the identity and background of the Pre-[REDACTED] Investors, and the principal terms of the Pre-[REDACTED] Investments, see “History and Corporate Structure—Pre-[REDACTED] Investments.”

SUMMARY OF KEY FINANCIAL INFORMATION

Summary of Consolidated Statements of Profit or Loss and Other Comprehensive Income

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

CONTINUING OPERATIONS Revenue 576,491 100.0 858,185 100.0 1,249,242 100.0 Cost of revenue (499,111) (86.6) (691,754) (80.6) (989,863) (79.2)

Gross profit 77,380 13.4 166,431 19.4 259,379 20.8 Other income 3,798 0.7 11,766 1.4 12,717 1.0 Fulfillment expenses (114,422) (19.9) (228,060) (26.6) (291,708) (23.4) Sale and marketing expenses (26,763) (4.6) (40,977) (4.8) (41,328) (3.3) Research and development expenses (2,073) (0.4) (3,797) (0.4) (7,027) (0.6) Administrative expenses (17,886) (3.1) (38,489) (4.5) (34,855) (2.8) Other expenses (3,471) (0.6) (3,930) (0.5) (3,384) (0.2)

Loss from continuing operations (83,437) (14.5) (137,056) (16.0) (106,206) (8.5)

Finance costs (7,676) (1.3) (26,756) (3.1) (43,217) (3.5) Share of profits/(losses) of associates (209) (0.1) 36 0.0 – –

Loss before taxation (91,322) (15.9) (163,776) (19.1) (149,423) (12.0) Income tax (100) (0.0) (20) (0.0) (4,002) (0.3)

Loss for the year from continuing operations (91,422) (15.9) (163,796) (19.1) (153,425) (12.3)

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For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

DISCONTINUED OPERATION Loss for the year from a discontinued operation, net of tax (2,009) (0.3) (2,293) (0.3) (1,687) (0.1)

Loss for the year (93,431) (16.2) (166,089) (19.4) (155,112) (12.4)

Other comprehensive income for the year (after tax) –– –– ––

Total comprehensive income for the year (93,431) (16.2) (166,089) (19.4) (155,112) (12.4)

Total comprehensive income for the year attributable to: Equity shareholders of the Company (92,027) (16.0) (162,990) (19.0) (152,484) (12.2) Non-controlling interests (1,404) (0.2) (3,099) (0.4) (2,628) (0.2)

We have not been profitable and incurred a net loss in each period comprising the Track Record Period. Our net losses during the Track Record Period were mainly attributable to our continuous expansion of offline retail pharmacy network. There is a time lag between the inauguration and achieving profitability of retail pharmacies. Lease expenses, staff costs and other investment costs of a new retail pharmacy incur before it can generate profit.

Summary of Consolidated Statements of Financial Position

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Total non-current assets 131,917 301,098 370,517 Total current assets 315,324 413,716 723,964 Total current liabilities 432,405 534,593 596,338 Net current (liabilities)/assets (117,081) (120,877) 127,626 Total non-current liabilities 48,441 352,308 451,650 Net (liabilities)/assets (33,605) (172,087) 46,493

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We had net current liabilities as of December 31, 2018 and 2019 mainly because we had limited cash, while we bore bank loans and other borrowings in 2018 and 2019. As we conducted Series C equity financing in 2020, we recorded net current assets of RMB127.6 million as of December 31, 2020. We had net current liabilities of RMB7.7 million as of April 30, 2021, primarily as a result of our continuous opening of new pharmacies in 2021. Notwithstanding the above, our Directors are of the view that we will have available sufficient working capital to meet our present requirements and for at least the next 12 months from the date of this document, taking into account the financial resources available to us including our cash and cash equivalents on hand, the estimated [REDACTED] from the [REDACTED], bank loans and banking facilities.

Summary of Consolidated Statements of Cash Flows

For the years ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net cash generated from/(used in) operating activities 6,467 (81,302) (134,415) Net cash used in investing activities (33,227) (58,908) (94,538) Net cash generated from financing activities 61,301 107,072 321,263

Net increase/(decrease) in cash and cash equivalent 34,541 (33,138) 92,310 Cash and cash equivalent at the beginning of year 7,336 41,877 8,739 Cash and cash equivalents of a disposal group classified as held for sale – – 633

Cash and cash equivalents at the end of year 41,877 8,739 101,049

During the Track Record Period, we had net cash flows used in operating activities primarily attributable to loss before taxation from operations, primarily because we continued to open new retail pharmacies which experience a period of loss before starting to generate profit. Going forward, we believe our liquidity requirements will be satisfied by using funds from a combination of our bank balances and cash, [REDACTED] from the [REDACTED], bank loans and banking facilities.

–8– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY

Key Financial Ratios(1)

As of December 31, 2018 2019 2020

Gross profit margin 13.4 19.4 20.8 Current ratio 0.7 0.8 1.2 Quick ratio 0.5 0.6 0.9

Note:

(1) Please refer to “Financial Information—Key Financial Ratios” for the calculation methods.

[REDACTED] STATISTICS

The statistics in the following table are based on the assumptions that [REDACTED]H Shares will be [REDACTED] pursuant to the [REDACTED], [REDACTED] Shares will be converted into H Shares and the [REDACTED] is not exercised:

Based on an Based on an [REDACTED] of [REDACTED] of HK$[REDACTED] HK$[REDACTED] per Share per Share

[REDACTED] of our Shares(1) HK$[REDACTED] HK$[REDACTED] million million [REDACTED] of our H Shares(2) HK$[REDACTED] HK$[REDACTED] million million Unaudited [REDACTED] adjusted consolidated HK$[REDACTED] HK$[REDACTED] net tangible assets attributable to equity shareholders of the Company per Share(3)

(1) The calculation of [REDACTED] is based on [REDACTED] Shares expected to be in issue immediately upon completion of the [REDACTED].

(2) The calculation of the [REDACTED] of our H Shares is based on the [REDACTED] H Shares, comprising [REDACTED] H Shares to be issued under the [REDACTED] and [REDACTED]H Shares to be converted from [REDACTED] Shares, expected to be in issue immediately upon completion of the [REDACTED].

(3) The unaudited [REDACTED] adjusted consolidated net tangible assets attributable to equity shareholders of the Company per Share is calculated based on [REDACTED] Shares immediately following the completion of the [REDACTED] (excluding 6,485,693 shares held by Employee Shareholding platforms under our Share Incentive Scheme) and does not take into account of any Shares which may be [REDACTED] upon the exercise of the [REDACTED] or pursuant to the Share Incentive Scheme. The unaudited [REDACTED] adjusted consolidated net tangible assets per Share is converted into Hong Kong dollars at an exchange rate of HK$1.00 to RMB0.82043 prevailing on [REDACTED].

–9– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY

DIVIDENDS

No dividend was paid or declared by the Company during the Track Record Period. The determination of whether to pay a dividend and in which amount is based on factors the Board may deem relevant. Any dividend distribution will also be subject to the approval of the Shareholders in the Shareholder’s meeting. Under the PRC law and the Articles of Association, the general reserve requires annual appropriations of 10% of after-tax profits at each year-end until the balance reaches 50% of the relevant PRC entity’s registered capital. In view of our accumulated losses, as advised by our PRC Legal Advisors, according to the relevant PRC laws and regulations and the Articles of Association, we shall not declare or pay dividend until the accumulated losses are covered by our after-tax profits and sufficient statutory common reserve are drawn in accordance with the relevant laws and regulations.

FUTURE PLANS AND USE OF [REDACTED]

We estimate that we will receive net [REDACTED] from the [REDACTED]of approximately HK$[REDACTED] million, after deducting [REDACTED], fees and estimated expenses payable by us in connection with the [REDACTED], and assuming an [REDACTED] of HK$[REDACTED], which is the [REDACTED]ofthe[REDACTED] stated in this document.

We intend to apply these net [REDACTED] for the following purposes, subject to changes in light of our evolving business needs and changing market conditions: (i) approximately [REDACTED]%, or HK$[REDACTED] million, will be allocated to expand our business presence; (ii) approximately [REDACTED]%, or HK$[REDACTED] million, will be allocated to enhance our technology development capabilities; (iii) approximately [REDACTED]%, or HK$[REDACTED] million, will be allocated to potential investment and acquisition opportunities; (iv) approximately [REDACTED]%, or HK$[REDACTED] million, will be used for our working capital and general corporate purposes. See “Future Plans and Use of [REDACTED]” for details.

[REDACTED] EXPENSES

[REDACTED] expenses to be borne by us are estimated to be approximately HK$[REDACTED] million (RMB[REDACTED] million) (including [REDACTED], assuming an [REDACTED] of HK$[REDACTED] per H Share, which is the [REDACTED] of the [REDACTED] range stated in this document and assuming that the [REDACTED]is not exercised), of which approximately HK$[REDACTED] million (RMB[REDACTED] million) is expected to be charged to our consolidated statements of profit or loss and other comprehensive income, and approximately HK$[REDACTED] million (RMB[REDACTED] million) is expected to be accounted for as a deduction from equity upon the [REDACTED]. During the Track Record Period, we did not incur any [REDACTED] expenses. The [REDACTED] expenses above are the latest practicable estimate for reference only, and the actual amount may differ from this estimate. Our [REDACTED] expenses as a percentage of gross [REDACTED]is[REDACTED]%, assuming an [REDACTED] of HK$[REDACTED]

–10– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY per H Share, which is the [REDACTED]ofthe[REDACTED] range stated in this document and assuming that the [REDACTED] is not exercised. Our Directors do not expect such [REDACTED] to have a material adverse impact on our results of operations for the year ended December 31, 2021.

RECENT DEVELOPMENTS

Our business continued to grow since the end of the Track Record Period. We have opened over 110 new retail pharmacies since December 31, 2020 and have extended the market presence of our offline retail pharmacies to 13 cities as of the Latest Practicable Date.

Impact of the COVID-19 Outbreak

Since late 2019 and early 2020, COVID-19 quickly spread globally. The WHO declared the COVID-19 outbreak as a global pandemic on March 11, 2020. Significant rises in COVID-19 cases have been reported since then, causing governments around the world to implement unprecedented measures such as city lockdowns, travel restrictions, quarantines and business shutdowns. As mandated shutdowns and limited operation orders went into effect across China from late January to early April 2020 when the COVID-19 outbreak peaked in China, we experienced short-period small-scale shutdown of offline retail pharmacies. With the quick response of the PRC government to the pandemic, our offline operation returned to normal shortly in the first half of 2020. During the pandemic peak, we did not experience material and adverse interference to our business operation and results of operation, as with the rise of the pandemic and given the nature of our business, our sales of products did not experience impediment. Currently, with the effective pandemic control policies applied by the PRC government, the COVID-19 outbreak has calmed down in mainland China, bringing daily life to its normal. As of the Latest Practicable Date, substantially of cities in mainland China had eased or lifted domestic travel restrictions and resumed normal social activities, business, work and production.

NO MATERIAL ADVERSE CHANGE

Our Directors confirm that, save as disclosed above, as far as they are aware, there had been no material adverse change in our financial, trading position or prospects since December 31, 2020, being the date of our consolidated financial statements as set out in “Appendix I—Accountants’ Report” to this document, up to the Latest Practicable Date.

–11– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

In this document, unless the context otherwise requires, the following terms shall have the meanings set out below. Certain other terms are explained in the section headed “Glossary of Industry Terms” in this document.

“Articles of Association” the articles of association of our Company adopted on April 15, 2021 which shall become effective on the [REDACTED], as amended from time to time, a summary of which is set out in “Appendix V—Summary of the Articles of Association” to this document

“associate(s)” has the meaning ascribed to it under the Listing Rules

“Audit Committee” the audit committee of the Board

“Board” or “Board of Directors” the board of directors of our Company

“Business Day” a day on which banks in Hong Kong are generally open for normal banking business to the public and which is not a Saturday, Sunday or public holiday in Hong Kong

“CCASS” the Central Clearing and Settlement System established and operated by HKSCC

“CCASS Clearing Participant” a person admitted to participate in CCASS as a direct clearing participant or general clearing participant

“CCASS Custodian Participant” a person admitted to participate in CCASS as a custodian participant

“CCASS Investor Participant” a person admitted to participate in CCASS as an investor participant who may be an individual or joint individuals or a corporation

“CCASS Participant” a CCASS Clearing Participant, a CCASS Custodian Participant or a CCASS Investor Participant

“Chengdu Chuangtuo” Chengdu Chuangtuo Business Service Co., Ltd. (成都創拓商務服務有限公司), a company incorporated in the PRC with limited liability on December 23, 2014, a Controlling Shareholder of the Company

“Chengdu Huamaoli” Chengdu Huamaoli Enterprise Management Co., Ltd. (成都華茂力企業管理有限公司), a company incorporated in the PRC with limited liability on January 20, 2015 and a Pre-[REDACTED] Investor

–12– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Chengdu Jingcao” Chengdu Jingcao Chinese Medicine Co., Ltd. (成都勁草中藥飲片有限責任公司) a company incorporated in the PRC with limited liability on September 24, 2013, a connected person of our Company

“Chengdu Mengmao” Chengdu Mengmao Medical Technology Development Co., Ltd. (成都夢茂醫藥技術開發有限公司), a company incorporated in the PRC with limited liability on April 9, 2019, a connected person of our Company

“Chengdu Quanbei” Chengdu Quanbei Commercial Service Partnership (Limited Partnership) (成都泉蓓商務服務合夥企業(有限合夥)), a limited partnership established in the PRC on May 21, 2021, one of the Employee Shareholding Platforms and a Controlling Shareholder of the Company

“Chengdu Quanhong” Chengdu Quanhong Commercial Service Partnership (Limited Partnership) (成都泉鴻商務服務合夥企業(有限合夥)), a limited partnership established in the PRC on May 21, 2021, one of the Employee Shareholding Platforms and a Controlling Shareholder of the Company

“Chengdu Quanxue” Chengdu Quanxue Commercial Service Partnership (Limited Partnership) (成都泉雪商務服務合夥企業(有限合夥)), a limited partnership established in the PRC on May 21, 2021, and one of the Employee Shareholding Platforms

“Chengdu Quanzhao” Chengdu Quanzhao Commercial Service Partnership (Limited Partnership) (成都泉昭商務服務合夥企業(有限合夥)), a limited partnership established in the PRC on May 21, 2021, and one of the Employee Shareholding Platforms

“Chengdu Shenhe” Chengdu Shenhe Pharmacy Co., Ltd. (成都神鶴藥業有限責任公司) a company incorporated in the PRC with limited liability on June 8, 2001, a connected person of our Company

“Chengdu Yuanhuan” Chengdu Yuanhuan Health Technology Co., Ltd. (成都源環健康科技有限公司), a company incorporated in the PRC with limited liability on October 18, 2019, a connected person of our Company

–13– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“China”, “PRC” or “State” People’s Republic of China, but for the purpose of this document and for geographical reference only and except where the context requires otherwise, references in this document to “China” and the “PRC” do not apply to Hong Kong, Macau and Taiwan

“close associate(s)” has the meaning ascribed thereto under the Listing Rules

“Companies (Winding Up and the Companies (Winding Up and Miscellaneous Miscellaneous Provisions) Provisions) Ordinance (Chapter 32 of the Laws of Hong Ordinance” Kong) as amended, supplemented or otherwise modified from time to time

“Companies Ordinance” the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time

“Company” or “our Company” Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. (成都泉源堂大藥房連鎖股份有限公司), a company incorporated in the PRC with limited liability on September 12, 2012 and converted into a joint stock company with limited liability on April 27, 2015

“Company Law” or “PRC the Company Law of the People’s Republic of China (中 Company Law” 華人民共和國公司法), as amended, supplemented or otherwise modified from time to time

“connected person(s)” has the meaning ascribed thereto under the Listing Rules

“connected transaction(s)” has the meaning ascribed thereto under the Listing Rules

“Controlling Shareholder(s)” has the meaning ascribed thereto under the Listing Rules, and unless the context otherwise requires, refers to the group of Mr. Li, Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei, and each of them a “Controlling Shareholder”

“CSRC” China Securities Regulatory Commission (中國證券監督管理委員會)

“Director(s)” or “our Director(s)” the directors of our Company, including all executive, non-executive and independent non-executive directors

–14– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“EIT Law” the PRC Enterprise Income Tax Law (中華人民共和國企業所得稅法), as enacted by the NPC on March 16, 2007 and effective on January 1, 2008, as amended, supplemented or otherwise modified from time to time

“Employee Shareholding Chengdu Quanhong, Chengdu Quanxue, Chengdu Platforms” Quanbei and Chengdu Quanzhao, all of which are limited partnerships established under the PRC laws

“Extreme Condition(s)” extreme condition(s) including but not limited to serious disruption of public transport services, extensive flooding, major landslides and large-scale power outage caused by a super typhoon according to the revised “Code of Practice in Times of Typhoons and Rainstorms” issued by the Labour Department of the government of Hong Kong in June 2019, as announced by the government of Hong Kong

“Frost & Sullivan” Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., a global market research and consulting company, which is an Independent Third Party

“Frost & Sullivan Report” an independent market research report commissioned by us and prepared by Frost & Sullivan for the purpose of this document

“Founder H Fund” Founder H Fund Co., Ltd. (方正和生投資有限責任公司), a company incorporated in the PRC with limited liability on August 5, 2010 and a Pre-[REDACTED] Investor

[REDACTED]

“Greater China” PRC, Hong Kong, Macau and Taiwan

[REDACTED]

“Group” or “our Group”, “we” or our Company and all of our subsidiaries or, where the “us” context so requires, in respect of the period before our Company became the holding company of its present subsidiaries, the businesses operated by such subsidiaries or their predecessors (as the case may be)

–15– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

[REDACTED]

“Heya Investment” Chongqing Heya Huayi Investment Management Co., Ltd. (重慶和亞化醫投資管理有限公司), a company incorporated in the PRC with limited liability on March 10, 2014 and a Pre-[REDACTED] Investor

“HK$” or “Hong Kong dollars” Hong Kong dollars, the lawful currency of Hong Kong

“HKSCC” Hong Kong Securities Clearing Company Limited, a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited

“HKSCC Nominees” HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

[REDACTED]

“Hong Kong Stock Exchange” or The Stock Exchange of Hong Kong Limited, a wholly “Stock Exchange” owned subsidiary of Hong Kong Exchange and Clearing Limited

“Hong Kong Takeovers Code” or the Codes on Takeovers and Mergers and Share “Takeover Code” Buy-backs issued by the SFC, as amended, supplemented or otherwise modified from time to time

–16– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

[REDACTED]

“Independent Third Party(ies)” party or parties that, to the best of our Directors’ knowledge, information and believe, having made all reasonable enquiries, is or are not a connected person or connected persons of the Company within the meaning of the Listing Rules

[REDACTED]

–17– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

[REDACTED]

“Joint Sponsors” Citigroup Global Markets Asia Limited and Haitong International Capital Limited

“KIP” Korea Investment Partners Co., Ltd., a company incorporated in the Republic of Korea with limited liability on November 25, 1986 and a Pre-[REDACTED] Investor

“Latest Practicable Date” May 31, 2021, being the latest practicable date for the purpose of ascertaining certain information contained in this document prior to its publication

[REDACTED]

“Listing Committee” the listing committee of the Stock Exchange

[REDACTED]

“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended or supplemented from time to time

“Main Board” the stock exchange (excluding the option market) operated by the Stock Exchange which is independent from and operated in parallel with GEM of the Stock Exchange. For the avoidance of doubt, the Main Board excludes GEM of the Stock Exchange

–18– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Mandatory Provisions” the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas (到境外上市公司章程必備條款), as promulgated by the State Council Securities Commission and the State Restructuring Commission on August 27, 1994 and became effective on the same date, as the same may be amended and supplemented or otherwise modified from time to time

“MOFCOM” or “Ministry of the Ministry of Commerce of the PRC (中華人民共和國 Commerce” 商務部)

“Mr. Li” Mr. LI Can (李燦), one of our co-founders, chairman of the Board, an executive Director, and a Controlling Shareholder of the Company

“NDRC” the National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會)

“NMPA” National Medical Products Administration (國家藥品監督管理局) and its predecessor, the China Food and Drug Administration (國家食品藥品監督管理總局) from 2013 to 2018 and the State Food and Drug Administration (國家食品藥品監督管理局) from 2003 to 2013

“Non-PRC Resident Enterprise” as defined under the EIT Law, means companies established pursuant to a non-PRC law with their de facto management conducted outside the PRC, but which have established organizations or premises in the PRC, or which have generated income within the PRC without having established organizations or premises in the PRC

“NPC” the National People’s Congress of the PRC (中華人民共和國全國人民代表大會)

[REDACTED]

–19– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

[REDACTED]

“PBOC” the People’s Bank of China (中國人民銀行), the central bank of the PRC

“PRC Legal Advisors” Tian Yuan Law Firm, our legal advisor as to PRC laws

“Pre-[REDACTED] the pre-[REDACTED] investment(s) in our Company, Investment(s)” the details of which are set out in the section headed “History and Corporate Structure—Pre-[REDACTED] Investments”

“Pre-[REDACTED] Investors” the pre-[REDACTED] investors set out in the section headed “History and Corporate Structure—Pre-[REDACTED] Investment” in this document, and each shall refer to as a “Pre-[REDACTED] Investor”

[REDACTED]

“document” this document being issued in connection with the [REDACTED]

“Pujiang Shentong” Pujiang Shentong Logistics Co., Ltd. (蒲江申通快遞有限公司), a company incorporated in the PRC with limited liability on January 6, 2015 and a connected person of our Company

“QIBs” qualified institutional buyers within the meaning of Rule 144A

–20– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Regulation S” Regulation S under the U.S. Securities Act

“Remuneration Committee” the remuneration committee of the Board

“Renminbi” or “RMB” the lawful currency of the PRC

“Rule 144A” Rule 144A under the U.S. Securities Act

“SAFE” the State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局)

“SAMR” the State Administration of Market Regulation of the PRC (中華人民共和國國家市場監督管理總局)

“SAIC” the State Administration of Industry and Commerce of the PRC (中華人民共和國國家工商行政管理總局)

“SFC” the Securities and Futures Commission of Hong Kong

“SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong, as amended, supplemented or otherwise modified from time to time

“Share(s)” ordinary shares in the share capital of our Company of RMB1.00 each

“Shareholder(s)” holder(s) of our Share(s)

“Share Incentive Scheme” the share incentive scheme adopted by our Company on November 3, 2020, the principal terms of which are summarized in “Appendix VI—Statutory and General Information—D. Share Incentive Scheme”

“Sichuan Quanyuantang” Sichuan Quanyuantang Pharmaceutical Co., Ltd. (四川泉源堂藥業有限公司), a company incorporated in the PRC with limited liability on January 18, 2011 and a wholly- owned subsidiary

“SIG” SIG (Shanghai) Equity Investment Fund Partnership (Limited Partnership) (海納華(上海)股權投資基金合夥企業(有限合夥)), a limited partnership incorporated in the PRC on March 2, 2012 and a Pre-[REDACTED] Investor

–21– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Sino Biopharm” Sino Biopharmaceutical Limited, an exempted company incorporated in the Cayman Islands with limited liability on February 2, 2000, the shares of which are listed on the main board of the Hong Kong Stock Exchange (stock code: 1177) and a Pre-[REDACTED] Investor

“Special Regulations” Special Regulations of the State Council on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies (國務院關於股份有限公司境外募集股份及上市的特別規定), promulgated by the State Council on August 4, 1994

“STA” the State Taxation Administration of the PRC (中華人民共和國國家稅務總局)

[REDACTED]

“State Council” the State Council of the PRC (中華人民共和國國務院)

[REDACTED]

“subsidiary(ies)” has the meaning ascribed to it in section 15 of the Companies Ordinance

“Substantial Shareholder(s)” has the meaning ascribed to it under the Listing Rules

“Supervisor(s)” the supervisor(s) of our Company

“Track Record Period” the period comprising the years ended December 31, 2018, 2019 and 2020

[REDACTED]

“U.S.” or “United States” the United States of America, its territories, its possessions and all areas subject to its jurisdiction

“U.S. dollars” or “US$” United States dollars, the lawful currency of the United States

–22– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“U.S. persons” U.S. persons as defined in Regulation S

“U.S. Securities Act” United States Securities Act of 1933, as amended, supplemented or otherwise modified from time to time

“[REDACTED] Share(s)” [REDACTED] ordinary Share(s) issued by the Company, with a nominal value of RMB1.00 each, which are subscribed for in RMB

“VAT” value-added tax; all amounts are exclusive of VAT in this document where indicated otherwise

“we”, “us” or “our” the Company or the Group, as the context requires

[REDACTED]

“Yumeng Tongxing” Chengdu Yumeng Tongxing Co., Ltd. (成都與夢同行科技有限公司) a company incorporated in the PRC with limited liability on September 1, 2014, and a connected person of our Company

Certain amounts and percentage figures included in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.

For ease of reference, the names of the PRC laws and regulations, governmental authorities, institutions, natural persons or other entities (including certain of our subsidiaries) have been included in the document in both the Chinese and English languages and in the event of any inconsistency, the Chinese versions shall prevail. English translations of official Chinese names are for identification purpose only.

–23– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF INDUSTRY TERMS

This glossary contains definitions of certain terms used in this document in connection with our Company and our business. The terms and their meanings may not correspond to standard industry meaning or usage of these terms.

“AI” artificial intelligence

“B2C” business-to-consumer, leading B2C platforms in China include large e-commerce platforms such as Tmall (天猫), JD (京東), Pinduoduo (拼多多) and VIPShop (唯品會), among others

“customer retention rate” percentage of the customers from the previous year who maintain cooperation with us in the present year

“chain pharmacy” pharmacy with more than ten chain stores

“developing pharmacies” pharmacies operated for more than 12 months

“DTP” direct-to-patient

“GFA” gross floor area

“GMP” Good Manufacturing Practice of PRC (《藥品生產質量管理規範》)

“GSP” Good Supply Practice (《藥品經營質量管理規範》)

“net dollar retention rate” our net dollar retention rate is calculated by dividing the total revenue from existing paid customers in a given period by the total revenue from such customer from the same period in the immediately preceding year

“new specialty drug” high-tech new drugs or specialty drugs which are usually expensive, effective and indispensable in the treatment of certain severe diseases, with clear indications and strict clinical treatment norms

“O2O” online to offline, leading O2O platforms in China include large platforms such as Meituan Waimai (美團外賣) and Eleme (餓了麼), among others

–24– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF INDUSTRY TERMS

“online repurchase rate” the percentage of customers who purchase two times or more online within one calendar year

“OTC drugs” over-the-counter medicine

“SaaS” software as a service

“SKU” stock keeping unit

“SPU” standard product unit

–25– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FORWARD-LOOKING STATEMENTS

We have included in this document forward-looking statements. Statements that are not historical facts, including statements about our intentions, beliefs, expectations or predictions for the future, are forward-looking statements.

This document contains certain forward-looking statements and information relating to us and our subsidiaries that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this document, the words “aim”, “anticipate”, “believe”, “could”, “expect”, “going forward”, “intend”, “may”, “might”, “ought to”, “plan”, “potential”, “predict”, “project”, “seek”, “should”, “will”, “would” and the negative of these words and other similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Such statements reflect the current views of our management with respect to future events, operations, liquidity and capital resources, some of which may not materialize or may change. These statements are subject to certain risks, uncertainties and assumptions, including the other risk factors as described in this document. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. The risks and uncertainties facing our company which could affect the accuracy of forward-looking statements include, but are not limited to, the following:

• our operations and business prospects;

• our financial conditions and operating results and performance;

• industry trends and competition;

• our product candidates under development or planning;

• our strategies, plans, objectives and goals and our ability to successfully implement these strategies, plans, objectives and goals;

• our ability to attract customers and build our brand image;

• general political and economic conditions;

• changes to regulatory and operating conditions in the industry and markets in which we operate;

• our dividend policy; and

• the amount and nature of, and potential for, future development of our business.

–26– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FORWARD-LOOKING STATEMENTS

Subject to the requirements of applicable laws, rules and regulations, we do not have any and undertake no obligation to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this document might not occur in the way we expect or at all. Accordingly, you should not place undue reliance on any forward-looking information. Moreover, the inclusion of forward-looking statements should not be regarded as representations by us that our plans and objectives will be achieved or realized. All forward-looking statements in this document are qualified by reference to the cautionary statements in this section.

In this document, statements of or references to our intentions or those of our Directors are made as of the date of this document. Any such information may change in light of future developments.

–27– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

You should carefully consider all of the information in this document, including the risks and uncertainties described below, before making an [REDACTED] in our H Shares. You should pay particular attention to the fact that we are a PRC company, that most of our business is conducted in the PRC and that we are governed by a legal and regulatory environment which in some respects may differ from those in other countries. There are risks associated with [REDACTED] not typical of [REDACTED] in the capital stock of companies incorporated and/or engaging business in Hong Kong or the United States. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks and uncertainties. The [REDACTED] of our Shares could decline due to any of these risks, and you may lose all or part of your [REDACTED]. For more information concerning the PRC and certain related matters discussed below, please see “Regulatory Overview” and “Appendix IV—Summary of Principal Legal and Regulatory Provisions” to this document. Additional risks and uncertainties not presently known to us, or not expressed or implied below, or that we deem immaterial, could also harm our business, financial condition and results of operations.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

We incurred operating losses in the past, and may not be able to achieve profitability in the future.

We incurred operating losses for the years ended December 31, 2018, 2019 and 2020 mainly as we generated large amount of fulfillment expenses, sale and marketing expenses and administrative expenses during the Track Record Period, primarily as a result of our expansion of offline retail pharmacy network. As we expanded our business operation, we had more leases for our retail pharmacies and maintained larger scale of employees, however new retail pharmacies generally experience a period of loss before starting to generate profit. In addition, we will incur share award expenses in relation to the Share Incentive Scheme going forward. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise capital, expand our business or continue our operations. Failure to become and remain profitable may also adversely affect the market price of our H Shares. A decline in the value of our Company could also cause you to lose all or part of your [REDACTED].

If we are unable to compete effectively in the retail pharmacy industry, our business, financial condition and results of operations may be materially and adversely affected.

The PRC retail pharmacy industry is highly competitive. Our competitors may have substantially greater financial, marketing, distribution, retail or other resources than we do. They may also have longer operating histories, larger customer bases or broader and deeper market coverages. Furthermore, when we expand into other cities in China where we currently have no presence, we will face competition from competitors who operate in these cities, while

–28– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS competitors may also enter cities where we currently operate. In addition, any significant increase in competition may have a material adverse effect on our revenue and profitability as well as on our business and prospects. We cannot assure you that we will be able to continuously distinguish our services from our competitors’, or increase or even maintain our existing market share. We may lose market share, and our financial condition and results of operations may deteriorate significantly if we fail to compete effectively.

We may be unable to timely and effectively adapt and respond to rapidly changing market trends in the retail pharmacy industry.

PRC retail pharmacy industry is rapidly evolving. The focus of the PRC retail pharmacy industry in recent years has rapidly expanded from offline retail business to online B2C business, and later to O2O business. It is possible that the industry continues to evolve and develop in such rapid and drastic manner. Historically we have successfully adapted and responded to changing market trends. However, we cannot predict what market trends our industry may face in the future, nor can we assure you we will be able to respond to new market trends timely and effectively. If we fail to closely follow market trends, our business operation, results of operations and business prospects may be materially and adversely affected.

We are subject to extensive and evolving regulatory requirements, non-compliance with which, or changes in which, may materially and adversely affect our business and prospects.

We are primarily subject to legal and regulatory requirements of pharmaceutical circulation industry in the PRC. The pharmaceutical circulation industry in China is subject to extensive government regulation and supervision as well as monitoring by various government authorities. Certain laws, rules and regulations, among others, may affect the pricing, demand and distribution of pharmaceutical products, such as those relating to procurement, prescription and dispensing of drugs by hospitals and other medical institutions, retail pharmacy, government funding for private healthcare and medical services, and the inclusion of products in the drugs catalogs for national basic medical insurance, on-the-job injury insurance and maternity insurance, which could affect our business operation. In addition, the pharmaceutical manufacturing, pharmaceutical distribution, pharmaceutical retail, healthcare services and medical device industries in China are each subject to extensive and changing government regulations and supervision. Any unfavorable regulatory changes in these industries may also directly or indirectly increase our compliance burden and materially and adversely affect our business, profitability and prospects. We may also not be able to respond to evolving laws and regulations and take appropriate action in time to adjust our business model. As a result, we cannot guarantee that we will be able to adapt to new laws and regulations that may come into effect from time to time or that we will not encounter material delays or difficulties in fulfilling the necessary conditions to obtain and/or renew all necessary certificates or permits for our operations in a timely manner, or at all, in the future.

–29– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

Any lack of requisite approvals, licenses or permits applicable to our business, or any non-compliance with relevant laws and regulations, may have a material and adverse effect on our business, financial condition, results of operations and prospects.

Our business is subject to governmental supervision and regulation by various PRC governmental authorities including, but not limited to, the NDRC, the National Health Commission of the PRC (中華人民共和國國家衛生健康委員會), the NMPA, the MOFCOM, the SAMR. Such government authorities promulgate and enforce laws and regulations that cover a variety of business activities that our operations concern. These regulations in general regulate the entry into, the permitted scope of, as well as approvals, licenses and permits for, the relevant business activities. In addition to obtaining necessary approvals, licenses and permits for conducting our business, we are subject to a variety of laws, rules and regulations with respect to various aspects of our operations. We may be subject to fines or penalties if we fail to comply with applicable laws, rules and regulations.

Moreover, our businesses are subject to various and complex laws and regulations, extensive government regulations and supervision. We may not be fully informed of all and new requirements under relevant laws and regulations in a timely manner. Even if we become aware of new laws, regulations, policies or other governmental requirements, due to uncertainties in their interpretations and implementation, it will be difficult for us to determine what actions or omissions would be deemed as violations of applicable laws and regulations. Due to the uncertainties in the regulatory environment of the industries in which we operate, there can be no assurance that we will be able to obtained or timely apply for all the approvals, permits and licenses required for conducting our business and all activities in the PRC, or that we will be able to maintain or timely renew our existing approvals, permits and licenses or obtain any new approvals, permits and licenses if required by any future laws or regulations. If we fail to obtain and maintain approvals, licenses or permits required for our business, or to comply with relevant laws and regulations, we could be subject to liabilities, fines, penalties and operational disruptions, or we could be required to modify our business model, which could materially and adversely affect our business, financial condition and results of operations.

If we are unable to continue to attract and retain customers, or provide satisfactory customer experience, our business may be materially and adversely affected.

Our business is highly dependent on the receptiveness of our customers. The success of our business hinges on our ability to provide satisfactory customer experience, which depends on our ability to continue to maintain the quality of our services and products, including providing timely and reliable delivery, flexible payment options and satisfactory after-sales services. Such ability, in turn, depends on a variety of factors beyond our control. In particular, we rely on a number of third parties, such as O2O platforms, B2C e-commerce platforms and logistics companies, in the provision of our services and products. Their failure to provide a high-quality customer experience to our customers may adversely affect our customers’ receptiveness of, and willingness to utilize our services and products, which may damage our

–30– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS reputation and cause us to lose customers. If we fail to provide satisfactory customer experience to our customers, our business may not develop as expected, or at all, and our business, financial condition or results of operations may be materially and adversely affected.

We may become subject to product liability claims, which could cause us to incur significant expenses and be liable for significant damages if not covered by insurance.

We are exposed to risks involved in the marketing, distribution and sales of pharmaceutical and other health and wellness products in China. Claims, customer complaints or administrative penalties may arise if any of our products are deemed or proven to be unsafe, ineffective or defective, or they are found to contain illicit substances. In addition, in the event that any use or misuse of the products we distribute results in personal injury, suicide or death, product liability claims may be brought against us for damages. If we are unable to defend ourselves against such claims, among other things, we may be subject to civil liabilities for physical injury, death or other losses caused by our products, to criminal liabilities, and to the revocation of our business licenses. In addition, we may be required to suspend sales or cease sales of the relevant products.

Certain pharmaceutical products we offer are subject to and will continue to be subject to price restrictions and price competition in China, which could adversely affect our profitability and results of operations.

Some of our pharmaceutical products were subject to government price controls in the form of fixed retail prices or retail price ceilings and periodic downward adjustments imposed by the NDRC or other PRC government authorities. Pursuant to the Notice Regarding the Opinion on Facilitating the Pharmaceutical Pricing Reform (《關於印發推進藥品價格改革意見的通知》) jointly issued by the NDRC, the National Health and Family Planning Commission of the PRC (“中華人民共和國國家衛生和計劃生育委員會”) (currently known as the National Health Commission of the PRC) and five other PRC government agencies in May 2015, the price ceilings imposed by the PRC government on pharmaceutical products other than narcotic and Class I psychotropic drugs were lifted on June 1, 2015, and these products would be subject to a more market-based pricing system adopted by medical insurance bureaus and relevant authorities. Prior to the lifting of government price controls on pharmaceutical products, the prices of prescription drugs in China had been determined by the centralized tender process and the prices of OTC drugs in China had been determined by arm’s-length, commercial negotiation and market factors such as brand recognition, market competition and consumer demand. There is, however, no assurance that the application of the more market-based pricing system will result in a higher product pricing compared to the government-controlled pricing, as lifting of price controls may not necessarily bring price inflation, and may in turn stimulate market competition. Competition from public hospitals or other retailers and wholesalers, particularly those offering same products but with lower prices, may force us to lower our sales prices to the previous government-controlled price levels. Consequently, our profitability may suffer and our business, financial condition and results of operations may also be materially and adversely affected.

–31– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

If we fail to maintain satisfactory inventory levels and assortment of products, our operating costs may increase, or we may fail to fulfill customer orders, both of which could in turn have a material and adverse effect on our business, financial condition, results of operations and prospects.

We need to maintain satisfactory inventory levels in order to operate our pharmaceutical retail and supply chain businesses successfully and efficiently, meeting the demands of our customers. We are exposed to inventory risk as a result of rapid changes in product life cycles, changing consumer preferences, uncertainty of product developments and launches, manufacturer back orders and other vendor-related problems, as well as the volatile economic environment in China. Although we have a dedicated team to manage our inventory level and assortment of products, we cannot assure you that we will accurately predict these trends and events and avoid over-stocking or under-stocking of products. Furthermore, demand for products could change significantly between the time when the products are ordered and the time when they are ready for delivery. As a result, when we decide to sell a new product, it is particularly difficult to forecast product demand accurately. We carry a wide range of products and maintain significant inventory levels and we may be unable to sell such inventory in sufficient quantities. Inventory levels in excess of customer demand may result in inventory write-downs, expiration of products or an increase in inventory holding costs and a potential negative effect on our liquidity. Conversely, if we underestimate customer demand, or if our suppliers fail to provide products to us in a timely manner, we may experience inventory shortages, which may, in turn, result in unfulfilled customer orders, leading to a negative impact on our customer relationships. We cannot assure you that we will be able to maintain proper inventory levels and assortment of products, and any such failure may have a material and adverse effect on our business, financial condition, results of operations and prospects.

Sale of prescription drugs is subject to stringent scrutiny, which may expose us to risks and challenges.

Under the Administrative Measures for the Supervision and Administration of Circulation of Pharmaceuticals (《藥品流通監督管理辦法》) promulgated by the State Food and Drug Administration (國家食品藥品監督管理局) in 2007, a company shall sell prescription drugs to consumers in the presence of valid prescriptions. A company in violation of such prohibitions will be instructed to rectify, given a disciplinary warning, and/or imposed an administrative penalty of not more than two times the value of the pharmaceuticals sold, but not more than RMB30,000 per violation. The newly revised Drug Administration Law of the People’s Republic of China (《中華人民共和國藥品管理法》), or the Drug Administration Law, abolishes the restriction on online sale of prescription drugs and adopts the principle of keeping online and offline sales consistent. In November 2020, NMPA published the Measures for the Supervision and Administration of Online Pharmaceuticals Sales (Draft for comments) (《藥品網絡銷售監督管理辦法(徵求意見稿)》) (the “Draft Measures”), aiming to enhance the supervision of online pharmaceutical sales and related platform services. The Draft Measures provides specific and explicit rules for the online sales of prescription drugs, which is perceived to be more conducive to online prescription drug sellers including us, but also presents challenges for us to be in compliance. The Draft Measures provides that, among

–32– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS others, online prescription drug sellers shall (i) ensure the accuracy and reliability of the source of e-prescription, (ii) keep records of any e-prescription for at least five years and no less than one year after the expiration date of the prescription drugs, and (iii) disclose safety warnings including “prescription drugs should only be purchased and used with prescriptions and guidance of licensed pharmacists” when displaying information of prescription drugs. However, as of the Latest Practicable Date, the Draft Measures have not been formally adopted and is pending finalization and enactment, and we cannot assure you that there will not be any material changes in the final form of the Draft Measures. See “Regulatory Overview—Regulations Relating to Prescription Drugs Operation.” During the Track Record Period, we received certain administrative penalties in relation to violation of legal requirements over sales of prescription drugs, principally as results of negligence of our staffs, majorly in form of fines, warnings or rectification. As advised by PRC Legal Advisers, these administrative penalties are not material to our business operation. We did not experience difficulties in renewing our relevant licenses and permits consequently. We have strengthened our prescription verification process and have strived to remain our operation in compliance with relevant regulatory requirements, however, it remains uncertain that we will fully comply with relevant laws and regulations, which are evolving and subject to changes. In addition, due to the complexity of human errors, mistakes or misconduct by our offline retail pharmacies, or errors in third-party O2O and B2C platforms, we cannot assure you that we can fully comply with and meet the requirements under all laws and regulations related to the sale of prescription drugs. Any failure to comply with such laws and regulations could materially and adversely affects our business, results of operations, financial condition and prospects.

Any failure or interruption in the delivery of our products may materially and adversely affect our business and reputation.

We generally leverage third-party delivery companies to deliver our products from us to our customers or from our supplier to our warehouses and sales outlets. We rely on our in-house delivery to deliver products from warehouses to pharmacies. Interruptions to or failures in the delivery services could prevent the timely or proper delivery of our products. These interruptions may be due to events that are beyond our control or the control of these delivery companies, such as inclement weather, natural disasters, transportation disruptions or labor unrest. We may not be able to find alternative delivery companies to provide delivery services in a timely and reliable manner, or at all. In addition, our products may not be delivered in proper condition. In such cases, our business and reputation could suffer.

Any failure in our technology systems or technology systems of third party platforms or network interruption may affect our daily operation as our business operation relies heavily on our technology systems.

Our operation largely relies on our technology platforms and third party e-commerce platforms. However, we cannot guarantee that damages or interruptions caused by power outages, computer viruses, hardware and software failures, telecommunication failures, fires, natural disasters, security breaches and other similar occurrences relating to these technology platforms will not occur in the future. If we or any third party fail to detect any system error

–33– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS or malfunction, continue to upgrade the technology systems and network infrastructure, or take other measures to improve the efficiency of our information technology systems, system interruptions or delays could occur. If our or third parties’ technology platforms do not function reliably, our business operation may be materially affected, as our sales, management and operation relies heavily on our technology platforms and third party platforms. Moreover, we leverage our technology platforms to provide empowering services to other pharmacy retailers through offering SaaS solutions to them, which further elevates the importance of our technology platforms’ performances. Defects and errors of our or third parties’ technology platforms, and any failure by us or third parties to identify and address them, could result in loss of revenue or market share, harm to our reputation and increased maintenance costs. Defects or errors may discourage existing or potential customers from purchasing from us or utilizing our SaaS solutions. Correction of defects or errors could be impossible or impracticable. The costs incurred in correcting any defects or errors may be substantial and could have a material adverse effect on our business, financial condition and results of operations.

Any disruption in our relationship with our suppliers may subject us to risks associated with lack of products or higher procurement prices.

Our business is dependent to a large extent upon the stable supply of products from our suppliers. If we fail to maintain stable relationships with our suppliers, we may not be able to secure a stable supply of products, which, in turn, may materially and adversely affect our business, financial condition and results of operations.

In 2018, 2019 and 2020, our purchases from our five largest suppliers accounted for 34.3%, 32.1% and 38.1%, respectively, of our total purchases. In addition, purchases from our single largest supplier accounted for 13.9%, 15.4% and 20.0%, respectively, of our total purchases during the same years. Our largest supplier is a leading pharmaceutical manufacturer and wholesaler in China. Although we believe our reliance on it is relatively limited as there are several other pharmacy wholesalers in China with similar supply ability, in case of any significant delay in delivery, the inability of our key suppliers to meet their quantity and/or quality obligations or the unavailability of alternative suppliers could hinder our business plan, which could, in turn, have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that our suppliers will continue to sell products to us on commercially reasonable terms, or at all. We cannot assure that we will be able to renew our agreement with existing suppliers when such agreement expires, or such key suppliers may decide to directly sell their products themselves.

We have limited control on our suppliers, which may materially and adversely affect our business if our suppliers fail to meet relevant quality requirements or if they fail to continuously operate their business in compliance with relevant laws and regulations.

We source our pharmaceutical products from our suppliers, including manufacturers and wholesalers. Pharmaceutical products are highly regulated both in term of manufacture and distribution in China. Any compromises during the manufacture and distribution of our

–34– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS procured pharmaceutical products, intentionally or unintentionally, by our suppliers or by other third-parties, may lead into defects in their qualities. If we cannot transfer such liabilities to relevant suppliers, we may be subject to product liabilities and suffer from reputation damages. Although our agreements with our suppliers stipulate their responsibilities in assurance of qualities of the products, we have limited control on our suppliers. In case our suppliers offer products that cannot meet relevant quality requirements, or infringe third parties’ intellectual property rights, they may not be able to obtain the requisite certificates, permits and licenses required under the applicable laws to conduct their manufacturing or other business activities, which could affect their supply of products to us. In the event that there is any disruption, termination or material change in the supply of products to us and we are not able to find suitable substitutes on a timely basis, our business, reputation, financial condition and results of operations may be materially and adversely affected. In addition, if any of our suppliers loses its qualification or eligibility because of its failure to comply with regulatory requirements, we may not be able to find alternative suppliers in a timely manner or at all, which may materially and adversely affect our business operation and financial condition.

Any damage or disruption to the operation of the warehousing facilities we use could have a material adverse effect on our business operation, financial condition and results of operations.

As of the Latest Practicable Date, we had three nationwide warehouses. Before delivery of products to our retail pharmacies or directly to our customers, we may store them in our warehouses. We maintain insurance to cover financial losses we may sustain as a result of accidents, including fires, in our warehouses. However, if such accidents, including fires, were to occur, causing damage to the products we sell or our warehouses, our ability to supply products to our retail and wholesale channels on time could be adversely affected, which, in turn, will materially and adversely affect our market reputation, financial condition, results of operations or business. The occurrence of any of these incidents could also require us to make significant unanticipated capital expenditures and delay our delivery of products, which may not be recoverable under our insurance policies. If any one or more of the above risks were to materialize, our financial condition and results of operations may be adversely affected.

We may be unable to effectively manage our retail pharmacies, which may materially and adversely affect our business operation and reputation.

As of the Latest Practicable Date, we had 369 offline retail pharmacies. Our retail pharmacies should be operated in accordance with a series of laws and regulations, in particular, the GSP. The GSP sets forth strict requirements in relation to the supply of pharmaceutical products and penalties over non-compliance of the GSP. Although we offer GSP training to all of our retail sector employees upon their entry and provide regular GSP trainings during their employment, we cannot assure you that our employees will fully comply with GSP requirements or other laws and regulations. In addition, although we have set up internal controls looking over our compliance with relevant GSP requirements. We cannot

–35– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS assure you that we will be able to prevent or timely detect such misconduct. In such case, we may receive fines, warnings, or even lose relevant licenses and permits, as a result, our business operation and reputation may be materially affected.

The wide variety of payment methods that we accept subjects us to third-party payment processing related risks.

We accept payments using a variety of methods, including cash payment, bank transfers, online payments through various third-party online payment platforms such as WeChat Pay (微信支付) and Alipay (支付寶). We may be charged interchange and other fees for certain payment methods, which may increase over time and raise our operating costs and lower our profit margins. We may also be subject to fraud and other illegal activities in connection with the various payment methods we offer. We are also subject to various rules, regulations and requirements governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply with. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our users, process electronic funds transfers or facilitate other types of online payments, and our business, financial condition and results of operations could be materially and adversely affected.

We face competition in attracting and retaining our senior management as well as qualified and skilled employees to support our business.

Our future success depends heavily upon the continued services of our senior management and our key employees in various corporate functions, who have contributed significantly to our current achievements. Competition for these individuals could require us to offer higher compensation and other benefits in order to attract and retain them, which could increase our operating expenses and, in turn, materially and adversely affect our financial condition and results of operations. In addition, we do not maintain key-person insurance for members of our management team. If we lose the services of any senior management, we may not be able to identify suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects and prolong our expansion strategies and plans. Furthermore, if any of our executive officers joins a competitor or forms a competing company, we may lose a significant number of our existing customers and potentially lose our substantial technology development achievements, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who

–36– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training new employees, and the quality of our services and our ability to serve our customers could decline, resulting in a material adverse effect to our business.

We may be subject to allegations, lawsuits and administrative penalties for selling counterfeit or substandard pharmaceutical products, which may damage our reputation and may materially and adversely affect our business operation, financial condition and results of operations.

Certain products distributed or sold in the PRC pharmaceutical retail and wholesale markets may be manufactured without proper licenses or approvals and/or fraudulently mislabeled with respect to their content and/or manufacturer. These products are generally referred to as counterfeit or substandard pharmaceutical products. The current counterfeit and substandard product regulation control and enforcement system in China is not sufficiently mature to completely eliminate the manufacturing and sales of counterfeit pharmaceutical products. Counterfeit or substandard products may or may not have the same composition as the authentic counterparts, which may make them less effective than the authentic ones, entirely ineffective, or more likely to cause severe adverse side effects. We may not be able to identify those counterfeit or substandard products we source from our suppliers. Any unintentional and unknowing sales of counterfeit or substandard products in our pharmaceutical distribution or retail businesses, or sales of counterfeit and substandard products by third parties illegally using our brand names, may subject us to negative publicity, fines and other administrative penalties, or even result in litigation relating to the sale, marketing and advertising of those products.

Moreover, the continuing presence of counterfeit and substandard products may reinforce the negative image of distributors and retail pharmacies among consumers in general, and may severely harm the reputation and brand names of pharmaceutical companies, including ourselves. Similarly, consumers may buy counterfeit and substandard products that are in direct competition with products distributed or sold in our pharmaceutical retail and supply chain businesses, which may materially and adversely affect the sales volumes of the relevant products in our portfolio and further impact our business, financial condition, results of operations and prospects.

If our pharmacist team fails to provide adequate and proper service to consumers, our business, financial condition and results of operations may be materially and adversely affected.

Our pharmacist team, may provide sub-standard services, mishandle sensitive information, or engage in other misconduct, which could subject us to medical liability claims. Our business, financial condition, results of operations and reputation may be materially and adversely affected if any such claims are made against us in connection with these actions that are not fully covered by insurance. See “—We may become subject to product liability claims, which could cause us to incur significant expenses and be liable for significant damages if not covered by insurance.”

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If we fail to comply with anti-corruption laws and regulations, our reputation may be damaged, and our business, financial condition, results of operations and prospects maybe materially and adversely affected.

We are subject to risks in relation to actions taken by us or our employees that constitute violations of the anti-corruption laws and regulations. There have been several instances of corrupt practices in the pharmaceutical industry, including, among other things, receipt of kickbacks, bribes or other illegal gains or benefits by pharmacies, hospitals and medical practitioners from manufacturers, distributors and retail pharmacies in connection with the prescription of pharmaceutical products. While we adopt strict internal procedures and work closely with relevant government agencies to ensure compliance of our business operations with relevant laws and regulations, our efforts may not be sufficient to ensure that we comply with relevant laws and regulations at all times. If we or our employees violate these laws, rules or regulations, we could be subject to fines and/or other penalties. In the case of our retail and supply chain businesses, the products involved may be seized and our operations may be suspended. Actions by PRC regulatory authorities or the courts to provide an interpretation of PRC laws and regulations that differs from our interpretation or to adopt additional anti-bribery or anti-corruption related regulations could also require us to make changes to our operations. Our reputation, corporate image, and business operations may be materially and adversely affected if we fail to comply with these measures or become the target of any negative publicity as a result of actions taken by us or our employees, which may in turn have a material adverse effect on our business, financial condition, results of operations and prospects.

If we fail to maintain a satisfactory product return rate, our business, financial condition and results of operations may be materially and adversely affected.

Although a majority of our products may not be returned or exchanged as required by relevant laws and regulations, except for quality reasons, if our product return rates increase or are higher than expected, our revenues and costs can be negatively impacted. For non-drugs sales under our omni-channel retail pharmacy business, we have established a seven-day no-reason product return policy as long as the products delivered maintain intact. In addition, pursuant to the Law of the PRC on the Protection of the Rights and Interests of Consumers (《中華人民共和國消費者權益保護法》), consumers are generally entitled to return purchased products within seven days upon receipt without giving any reasons when they purchase the products from business operators on the internet.

We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.

We regard our trademarks, software copyrights, domain names, know-how, proprietary technologies, and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality agreements with our employees and third parties, to protect our proprietary rights. Despite these measures, it could be difficult to enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and

–38– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS may not be applied consistently due to the lack of clear guidance on statutory interpretation. Moreover, companies seeking enforcement of intellectual property rights may also face significant procedural barriers and delays. In addition, the available remedies in both court proceeding and through administrative enforcement are often inadequate to address infringement or to provide intellectual property rights holders with full compensation for the losses caused. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce confidentiality undertakings in China. In addition, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. In addition, although we are not aware of any copycat websites or mobile apps that attempt to cause confusion or traffic diversion from us at the moment, we may become an attractive target to such attacks in the future because of our brand recognition. In addition, there can be no assurance that our current registered copyrights and trademarks would adequately protect our intellectual property, or that such copyrights and trademarks would not be challenged by third parties or found by governmental or judicial authorities to be invalid or unenforceable.

We may not be able to conduct our marketing activities effectively, properly, or at reasonable costs, and we are subject to limitations in promoting our services and products.

We invest significant resources in a variety of different marketing and brand promotion efforts designed to enhance our brand recognition and increase sales of our services and products. However, our brand promotion and marketing activities may not be well received and may not result in the levels of sales that we anticipate. Failure to refine our existing marketing approaches or to introduce new marketing approaches in a cost-effective manner could reduce our market share and materially and adversely affect our financial condition, results of operations and profitability. In addition, we are subject to certain limitations in promoting services and products. Under PRC laws and regulations, all advertisements published online containing drug names, applicable symptoms treated by such drugs (major functions) or other drug-related content are subject to examination by relevant government authorities. We are prohibited from publishing advertisements of prescription drugs on our website and must ensure that any advertisement of medical treatment, drugs or medical devices does not include any assertion or guarantee as to the function and safety or any statement of curative rate and effectiveness of such medical treatment, drugs or medical devices. Our marketing head reviews all our proposed marketing activities. However, any violation of advertisement-related laws and regulations may subject us to fine, regulatory penalties or disciplinary actions, or even suspension of our business or revocation of our business license, which may materially and adversely affect our business and reputation.

–39– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

Our business generates and processes a large amount of data, and the improper use, breach or disclosure of such data could damage our reputation and may have a material and adverse effect on our business and prospects.

We generate and process a large amount of personal, transaction, demographic and behavioral data including medical records and other personal information. We face risks inherent in handling large volumes of data and in securing and protecting such data. In particular, we face a number of data-related challenges related to our business operations, including protecting the data in and hosted on our system, addressing concerns related to privacy and sharing, safety, security and other factors, and complying with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal information, including any requests from regulatory and government authorities relating to such data.

Regulatory requirements regarding the protection of such data are constantly evolving in China and can be subject to significant change, making the extent of our responsibility in that regard uncertain. Certain rules and measures are relatively new, there are uncertainties as to the interpretation and application of these laws and regulations, and it is possible that our data protection practices are or will be inconsistent with regulatory requirements. Any violation of the provisions and requirements under other relevant laws and regulations may subject us to proceedings or actions against us by governmental entities or others, which may subject us to significant penalties and negative publicity, require us to change our business model or practices, increase our costs and severely disrupt our business, which may materially and adversely affect our business, financial condition, results of operations and prospects. Conversely, complying with such requirements could cause us to incur substantial expenses or to alter or change our practice in a manner that could harm our business. Any systems failure or security breach or lapse that results in the unauthorized release of our user data could harm our reputation and brand and, consequently, our business, in addition to exposing us to potential legal liability.

Failure of our risk management and internal control system in detecting potential risks in our business as intended, our business, financial condition and results of operations could be materially and adversely affected.

We have established our internal control system that are designed to monitor and control potential risk areas relevant to our business operations. However, due to the inherent limitations in the design and implementation of our internal control system, our internal control system may not be sufficiently effective in identifying, managing and preventing all risks if external circumstances change substantially or extraordinary events take place. If our internal control system fails to detect potential risks in our business as intended or is otherwise exposed to weaknesses and deficiencies, our business, financial condition and results of operations could be materially and adversely affected.

–40– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

Our risk management and internal controls also depend on effective implementation by our employees. There can be no assurance that such implementation by our employees will always function as intended or such implementation will not involve any human errors, mistakes or intentional misconduct. If we fail to implement our policies and procedures in a timely manner, or fail to identify risks that affect our business with sufficient time to plan for contingencies for such events, our business, financial condition and results of operations could be materially and adversely affected, particularly with respect to the maintenance of our relevant approvals and licenses granted by governments.

Our past operation and achievements in offline retail pharmacy and O2O retail business are highly centralized in a limited number of cities, as a result, if we fail in the competition in these cities, our business, financial condition, results of operations and prospects could be materially and adversely affected.

As an industry norm, retail pharmacies usually have area concentration. In line with such norm, as of the Latest Practicable Date, we operate offline retail pharmacies in 13 cities, having concentration in limited areas. We have successfully maintained our market positions in these cities. However, it is possible that our competitors, especially those with significant capital resources, enter into these areas. They may apply various strategies, such as low price strategy, to erode our market shares. Although we have more experiences in these areas compared with them, we may lose our advantages, and as a result, lose part or most of our market shares in these regions. In such case, our business operation, results of operation and business prospects may be adversely affected.

We may not be able to manage the growth of our business and our expansion plans and operations and we may also fail to implement our business strategies in a timely manner or within our budget, or at all.

We aim to maintain and expand our leading advantage in the omni-channel retail pharmacy industry. See “Business—Our Strategies” and “Future Plans and Use of [REDACTED].” Whether our future plans can be implemented successfully may be beyond our control and some future events may affect the smooth running of the expansion plan such as change in costs related to the changes in compliance with the laws, rules and regulations, delays in obtaining the necessary licenses and approvals from the government. There is no assurance that we will be successful in our expansion plans. If we fail to project accurately the time, labor and costs required for implementing our expansion plans, our business and results of operation may be adversely affected.

Our expansion plan may fail due to unfamiliarity and competition of targeted areas.

In the future, we may enter into new regions or markets. We may have limited or no experience operating in new regions or markets that have cultures and customs, legal and regulatory frameworks, competitive landscapes and customer preferences different from our existing markets. We may not be familiar with the local business and regulatory environment of the new markets and as such, we may fail to comply with the new regulatory requirements

–41– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS or attract a sufficient number of customers to achieve profitability. If we fail to comply with the new regulatory requirements of new regions or markets or secure sufficient amount of sales order or at all after the expansion, our business and results of operation may be adversely affected.

We plan to leverage acquisitions in our expansion, as a result, any failure in the acquisitions and the management of acquired teams and stores may lead into disruption or failure of our expansion.

We plan to expand our retail network both by utilizing our own resources and through strategic acquisitions. Any future acquisitions may expose us to operational, regulatory and market risks, as well as risks associated with additional capital requirements. We may not be able to identify suitable acquisition candidates or complete an acquisition on commercially acceptable terms in the future. If we fail to identify appropriate candidates or complete desired acquisitions, we may not be able to implement our growth strategies effectively. In addition, our ability to realize the expected benefits from acquisitions may depend on our ability to retain the employees, efficiently integrate the operations, understand the factors contributing to the success of these retail chains and continue to adapt to local market dynamics. Our ability to successfully integrate the acquired companies and their operations may be adversely affected by a number of factors, including division of management’s attention and difficulties in retaining customers of the acquired companies. Furthermore, the acquired companies might not perform as expected. We may also fail to identify potential issues or risks in our due diligence of the targets or address them properly prior to our acquisitions. If such risks materialize after the acquisitions are completed, we may suffer losses or be subject to liabilities. If we fail to realize the benefits envisioned from such acquisitions, our overall profitability and growth plans may be hindered.

Our business and expansion plans require significant working capital and capital investments, and we may not be able to obtain the necessary capital at acceptable terms, or at all.

Our business and expansion plans require significant working capital and capital investments. However, we cannot guarantee that we will be able to secure sufficient additional funding for planned capital expenditures. In particular, the availability of external funding is subject to various factors, some of which are beyond our control. If we are unable to obtain sufficient funding in a timely manner or on terms that are acceptable to us, our business, financial condition and results of operations may be materially and adversely affected.

Unexpected termination of leases, failure to renew the lease of our existing premises or to renew such leases at acceptable terms could materially and adversely affect our business.

We lease the premises for all of our retail pharmacies. Generally, lessors may not terminate our lease agreements in the absence of our breach of the lease agreements. The PRC government, however, has the statutory power to acquire any land in the PRC. As a result, we may be subject to compulsory acquisition, closure or demolition of any of the properties on

–42– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS which our retail pharmacies are situated. Although we may receive liquidated damages or compensation if our leases are terminated unexpectedly, we may be forced to suspend operations of the relevant retail pharmacy and find a new site and relocate our retail pharmacy, which will divert our management’s attention, incur significant time and costs and negatively affect our business and results of operations.

We generally enter into long-term leases. Our leases generally have a term ranging from 11 months to 11 years. We cannot assure you that we would be able to renew the relevant lease agreements without substantial additional cost or increase in the rental cost payable by us. If a lease agreement is renewed at a rent substantially higher than the current rate, or currently existing favorable terms granted by the lessor are not extended, our business and results of operations may be materially and adversely affected. If we are unable to renew the leases for our retail pharmacies, we will have to close or relocate the retail pharmacies, which could subject us to additional costs including costs associated with leasehold improvements removal and loss of existing customers, and could have a material and adverse effect on our business and results of operations. In addition, the relocated retail pharmacies may not perform as well as the existing retail pharmacies.

Most of the lease agreements of our leased properties have not been registered with the relevant PRC government authorities as required by PRC law, which may expose us to potential fines.

Under PRC law, all lease agreements are required to be registered with the local real estate administration bureau. However, the enforcement of this legal requirement varies depending on the local regulations and practices. Although failure to do so does not in itself invalidate the leases, the lessees may be exposed to potential fines if they fail to rectify such non-compliance within the prescribed time frame after receiving notice from the relevant PRC government authorities. The penalty ranges from RMB1,000 to RMB10,000 for each unregistered lease, at the discretion of the relevant authority. As of the Latest Practicable Date, the lease agreements for 362 of our leased properties in China, including leased properties for our retail pharmacies, have not been registered with the relevant PRC government authorities. In the event that any fine is imposed on us for our failure to register our lease agreements, we may not be able to recover such losses from the lessors. For details, see “Business—Properties—Leased Properties in China—Lease Registration.”

Certain of our leases could be challenged by third parties or government authorities, which may cause interruptions to our business operations.

As of the Latest Practicable Date, the lessors of certain of our leased properties in China failed to provide us with valid property ownership certificates or authorizations from the property owners for the lessors to sublease the properties, or valid title certificates for commercial purpose. We also had certain leased properties located on allocated lands (劃撥地) and collectively-owned Lands (集體土地). There is a risk that such lessors may not have the relevant property ownership certificates or the right to lease or sublease such properties to us, in which case the relevant lease agreements may be deemed invalid and we may be forced to

–43– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS vacate these properties, which could interrupt our business operations and incur relocation costs. Moreover, if there is any challenge brought by third parties on our lease agreements, it could result in diversion of management attention and cause us to incur costs associated with defending such actions, even if such challenges are ultimately determined in our favor. For details, see “Business—Properties—Leased Properties in China—Title Defects” and “Business—Properties—Leased Properties in China—Allocated Lands.”

Any damage to the reputation and recognition of our brand may materially and adversely affect our business operations and prospects.

We depend on our reputation and brand names in many aspects of our business operations. However, we cannot assure you that we will be able to maintain a positive reputation or brand name for all of our products in the future. Our reputation and brand names may be materially and adversely affected by a number of factors, many of which are beyond our control, including adverse associations with the third party-branded products we sell, lawsuits and regulatory investigations against us or otherwise relating to our products or industry, improper or illegal conduct by us or not authorized by us, and adverse publicity associated with us, our products or our industry, whether founded or unfounded. Any damage to our brand names or reputation as a result of these or other factors may cause our products to be perceived unfavorably by consumers, and our business operations and prospects could be materially and adversely affected as a result.

We may not have sufficient insurance to cover our business risks.

We may not be able to acquire any insurance for certain types of risks such as business liability or service disruption insurance for all of our operations in the PRC, and our coverage may not be adequate to compensate for all losses that may occur, particularly with respect to loss of business or operations, although we have contracted with leading insurance companies and providers to obtain insurance coverage for our medicine inventories and employer liabilities. Any business disruption, litigation, regulatory action, outbreak of epidemic disease or natural disaster could also expose us to substantial costs and diversion of resources. There can be no assurance that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policies on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

We may be subject to additional contributions of social insurance and housing provident fund and late payments and fines imposed by relevant governmental authorities.

Under the relevant PRC laws and regulations, we are required to make social insurance fund and housing provident fund contributions for our employees. During the Track Record Period, we did not make in full the social insurance fund and housing provident fund contributions for all of our employees. For the years ended December 31, 2018, 2019 and 2020, we made provisions of RMB1.1 million, RMB6.3 million and RMB4.9 million for social

–44– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS insurance fund and housing provident fund contribution shortfall, respectively. As advised by our PRC Legal Advisers, the relevant PRC authorities may require us to pay the outstanding social insurance contributions within a stipulated deadline and pay an overdue charge equal to 0.05% of the outstanding amount for each day of delay. If we fail to pay the outstanding social insurance contributions within the prescribed period, we may be liable to a fine of one to three times the amount of the overdue payment. As of the Latest Practicable Date, we had not received such requirement from the relevant governmental authority. However, we cannot guarantee that we will not be required to pay any shortfalls or be subject to any penalties or fines by competent authorities.

Our business may be materially and adversely affected by adverse news, scandals or other incidents associated with China’s healthcare industry.

Incidents that reflect doubt as to the quality or safety of pharmaceutical products manufactured, distributed or sold by other participants in the PRC healthcare industry have been, and may continue to be, subject to widespread media attention. Such incidents may damage the reputation of not only the parties involved, but also the general healthcare industry in general, even if such parties or incidents have no relation to us, our management, our employees, our suppliers or our retail pharmacies. Such negative publicity may indirectly and adversely affect our reputation and business operations. In addition, incidents not related to product quality or safety, or other negative publicity or scandals implicating us or our employees, regardless of merit, may also have an adverse impact on us and our reputation and corporate image.

We face risks related to natural disasters, health epidemics, civil and social disruption and other outbreaks, which could significantly disrupt our operations. In particular, the COVID-19 outbreak in China and worldwide has adversely affected, and may continue to adversely affect, our business, results of operations and financial condition.

We are vulnerable to social and natural catastrophic events that are beyond our control, such as natural disasters, health epidemics, and other catastrophes, which may materially and adversely affect our business. In particular, since December 2019, a novel strain of coronavirus or COVID-19, has become widespread in China and around the world. In March 2020, the World Health Organization declared the COVID-19 a pandemic, given its threat beyond a public health emergency of international concern that the organization had declared in January 2020. Since early 2020, China and many other countries have taken various restrictive measures to contain the virus’ spread, such as quarantines, travel restrictions and home office policies.

The downturn brought by and the duration of the COVID-19 outbreak is difficult to assess or predict and the full impact of the virus on our operations will depend on many factors beyond our control. Our business operations could be disrupted if any of our employees is suspected of contracting COVID-19, since our employees could be quarantined and/or our offices be shut down for disinfection. Our business operations may also be adversely affected if our suppliers or other business partners continue to be affected by COVID-19. The extent to

–45– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS which the COVID-19 outbreak impacts our business, results of operations and financial condition remains uncertain, and we are closely monitoring its impact on us. Our business, results of operations, financial condition and prospects could also be materially adversely affected to the extent that COVID-19 harms the Chinese and global economy in general.

We had net operating cash outflows during the Track Record Period.

We had net cash used in operating activities of RMB81.3 million and RMB134.4 million, for the years ended December 31, 2019 and 2020, respectively. We cannot assure you that we will be able to generate cash flows from operating activities in the future. Our liquidity and financial condition may be materially and adversely affected by negative net cash flows. If our existing cash and cash equivalents cannot sufficiently fund our business operation and our expansion plan, we may require further funding through other sources. If we resort to other financing activities to generate additional cash, we will incur financing costs and we cannot guarantee that the financing may be available when we need them, on terms that are favorable to us, or at all. Our business operation may be materially and adversely affected if we cannot obtain adequate funds on a timely manner.

We recorded net current liabilities and net liabilities as of December 31, 2018 and 2019 and April 30, 2021, there can be no assurance that we will record net current assets in the future in case of results of operation being not optimal or timely equity financing not achieved.

We recorded net current liabilities and net liabilities as of December 31, 2018 and 2019 and April 30, 2021, as we invested large capital resources in our operation and expansion. Historically, we largely relied on capital injection from our Shareholders to carry out our operation, rather than surplus from our operation. We are still in the process of expanding our business to more cities. As a result, we may continue to have few or none surplus from our operation and expansion activities and we may still rely on capital investments to us. We cannot assure you we will successfully conduct equity or debt financings after the [REDACTED]. And if we fail to conduct financing when we are short of liquidity, our business operation, financial condition may be materially and adversely affected.

We have large amount of goodwill due to acquisitions, our results of operations may be materially and adversely affected if our goodwill experiences impairment.

We recorded large amount of goodwill as we leverage acquisition in our expansion. For the years ended December 31, 2018, 2019 and 2020, our goodwill amounted to RMB6.3 million, RMB88.6 million and RMB86.0 million. Goodwill is initially measured at cost. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Testing for impairment requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires us to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. There are inherent uncertainties related to

–46– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS these factors and to our judgment in applying these factors to the assessment of goodwill recoverability. We could be required to evaluate the recoverability of goodwill prior to the annual assessment if there are any impairment indicators which could potentially be caused by our failure to successfully integrate the operations of our acquired businesses with other operations. Impairment charges could substantially affect our reported results of operations in the periods of such charges. In addition, impairment charges would negatively impact our financial ratios and could limit our ability to obtain financing in the future.

We may be unable to detect, deter and prevent all instances of fraud or other misconduct committed by our employees, customers or other third parties.

We may be exposed to fraud, bribery or other misconduct committed by our employees, customers, suppliers or any other third parties that could subject us to financial losses and sanctions imposed by governmental authorities, which may adversely affect our reputation. In particular, we receive and handle cash in our daily operations, although at a relatively limited level. We implement internal procedures and policies to monitor our operations and ensure overall compliance, specifically in relation to employee conduct and cash management. See “Business—Settlement and Cash Management” for details. During the Track Record Period and up to the Latest Practicable Date, we were not aware of any instances of fraud, bribery, and other misconduct involving employees, customers, suppliers and other third parties that had any material and adverse impact on our business and results of operations. However, we cannot assure you that there will not be any such instances in future. Although we consider our internal control policies and procedures to be adequate, we may be unable to prevent, detect or deter all such instances of misconduct. Any such misconduct committed against our interests, which may include past acts that have gone undetected or future acts, may have a material and adverse effect on our business and results of operations.

Our gross profit margin may be reduced due to intensive competition, as a result, our financial condition and results of operations may be materially and adversely affected.

The PRC pharmaceutical retail industry is highly competitive. Our competitors may have substantially greater financial, marketing, distribution, retail and other resources than we do. They may also have longer operating histories, a larger customer base or broader and deeper market coverage. Furthermore, when we expand into other markets, we will face competition from new competitors, domestic or foreign, who may also enter markets where we currently operate. In order to maintain our competitiveness, we may have reduce the prices of our products to attract customers. We may even have to lower our prices to a large extent. In such case, our gross profit may reduce. As a result, our financial condition and results of operations may be materially and adversely affected.

–47– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

Increase in staff costs and lease costs may materially and adversely affect our financial condition and results of operations.

As a retailer, our operation requires large number of employees and leased premises. In addition, as we are setting foot in more regions by opening more offline retail pharmacies, we will hire even more employees and lease more premises for our offline retail pharmacies, and as result, burden more relevant costs. As new retail pharmacies generally experience a period of loss before starting to generate profit, our results of operation will be negatively affected by increase in staff costs and lease costs incurred when opening new retail pharmacies. We cannot assure you when our new retail pharmacies will start to generate profit. They may even unable to generate profit. In such case, increase in staff costs and lease costs may materially and adversely affect our financial condition and results of operations.

Our financial position wellness largely depends on our trade receivable collection, if we fail to collect trade and bill receivables in a timely manner, our financial position and business operation may be materially and adversely affected.

We generally allow a credit period of one to three months to our corporate customers, while we generally do not grant credit period to our retail customers. As of December 31, 2018, 2019 and 2020, our trade and bill receivables turnover days were 44.9 days, 34.4 days and 29.1 days, respectively. We may face credit risk in collecting trade and bill receivables due from customers. Our performance, liquidity and profitability would be adversely affected if significant amounts due to us are not settled on time or substantial impairment is incurred. The bankruptcy or deterioration of the credit condition of any of these customers could also materially and adversely affect our business, results of operations and financial condition.

The discontinuation of any of the government grants currently available to us could adversely affect our financial condition, results of operations and prospects.

We currently benefit from certain government grants. We cannot assure you that these financial subsidies will continue to be available to us in the future, as a result of changes in government policy, administrative decisions or otherwise, in which case our financial condition and results of operations may be adversely affected. We recorded government grants of RMB1.1 million, RMB6.9 million and RMB10.2 million for the years ended December 31, 2018, 2019 and 2020, respectively. These government grants were generally in support of our e-commerce business and employment. The incentives are provided to us at the discretion of the relevant local government authorities, which could determine at any time to eliminate or reduce these financial subsidies, generally with prospective effect. The discontinuation of government grants currently available to us could have an adverse effect on our financial condition, results of operations, cash flows and prospects.

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RISKS RELATING TO DOING BUSINESS IN THE PRC

Adverse changes in political, economic and other policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products; and could otherwise materially and adversely affect our business, operations or competitive position.

A substantial amount of our business, assets, operations and revenues are located in or derived from our operations in China and, as a result, our business, financial condition, results of operations and prospects are significantly affected by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including, but not limited to:

• the extent of government involvement;

• the level of development;

• the growth rate;

• the control of foreign exchange;

• the allocation of resources;

• an evolving regulatory system; and

• the level of transparency in the regulatory process.

Although China has experienced rapid economic growth over the past decades, its continued growth has slowed since the second half of 2008. There is no assurance that future growth will be sustained at similar rates or at all. The PRC government implements various measures intended to encourage economic growth and guide the allocation of resources. These measures may include differential policies towards specific groups of retail pharmacies, which may have an adverse effect on us. Our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. Further, any adverse change in the economic conditions or government policies in China could have a material adverse effect on overall economic growth and the level of healthcare investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our business.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented reform measures allowing for an increasingly market-based economy, reduced state ownership of productive assets and established sound corporate governance practices in business enterprises, a substantial portion of the productive assets in China is owned by the PRC government. The

–49– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS continued control of these assets and other aspects of the national economy by the PRC government could materially and adversely affect our business. The PRC government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

Changes and developments in China’s economic, political and social conditions could adversely affect our financial condition and results of operations.

There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.

The majority of our operations are conducted in China, and are governed by PRC laws, rules and regulations. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations are relatively new and often give the relevant regulator significant discretion in how to enforce them, and because of the limited number of published decisions and the non-binding nature of such decisions, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.

We are a joint stock company incorporated under the laws of the PRC with limited liability, and a substantial amount of our assets are located in the PRC. In addition, a majority of our Directors and Supervisors and all of our senior management personnel reside within the PRC, and substantially all their assets are located within the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the PRC upon us or most of our Directors, Supervisors and senior management personnel. Furthermore, the PRC does not have treaties providing for the reciprocal enforcement of judgments of courts with the United States, the United Kingdom, Japan or many other countries. In addition,

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Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States. As a result, recognition and enforcement in the PRC or Hong Kong of judgments of a court obtained in the United States and any of the other jurisdictions mentioned above may be difficult or impossible.

On July 14, 2006, the Supreme People’s Court of the PRC and the government of the Hong Kong Special Administrative Region entered into the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by Courts of the Mainland and the Hong Kong Special Administration Region Pursuant to Choice of Court Agreements between Parties Concerned (《關於內地與香港特別行政區法院相互認可和執行當事人協議管轄的民商事案件判決的安排》) (the “2006 Arrangement”). Under the 2006 Arrangement, where any designated PRC court or any designated Hong Kong court has made an enforceable final judgment requiring payment of money in a civil or commercial case pursuant to a choice of court agreement in writing, any party concerned may apply to the relevant PRC court or Hong Kong court for recognition and enforcement of the judgment. It is not possible to enforce a judgment rendered by a Hong Kong court in the PRC if the parties in dispute have not agreed to enter into a choice of court agreement in writing. In addition, the 2006 Arrangement has expressly provided for “enforceable final judgement,” “specific legal relationship” and “written form.” A final judgement that does not comply with the 2006 Arrangement may not be recognized and enforced in a PRC court.

On January 18, 2019, the Supreme People’s Court of the PRC and the government of the Hong Kong Special Administrative Region entered into the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region (《關於內地與香港特別行政區法院相互認可和執行民商事案件判決的安排》) (the “2019 Arrangement”). When the 2019 Arrangement become effective, it will supersede the 2006 Arrangement and any party concerned may apply to the relevant PRC court or Hong Kong court for recognition and enforcement of the effective judgments in civil and commercial cases under the 2019 Arrangement subject to the conditions set forth in the 2019 Arrangement. Although the 2019 Arrangement has been signed, it remains unclear when it will come into effect and the outcome and effectiveness of any action brought under the 2019 Arrangement may still be uncertain. We cannot assure you that an effective judgment that complies with the 2019 Arrangement can be recognized and enforced in a PRC court.

We are subject to PRC governmental controls on currency conversion, and the fluctuation of the Renminbi exchange rate may materially and adversely affect our business and our ability to pay dividends to holders of H shares.

We expect that a substantial majority of our revenue will be denominated in Renminbi, which is currently not a fully freely convertible currency. A portion of our revenues may be converted into other currencies in order to meet our foreign currency obligations. For example, we need to obtain foreign currency to make payments of declared dividends, if any, on our H Shares.

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Under China’s existing laws and regulations on foreign exchange, following the completion of the [REDACTED], we will be able to make dividend payments in foreign currencies by complying with certain procedural requirements and without prior approval from SAFE. However, in the future, the PRC government may, at its discretion, take measures to restrict access to foreign currencies for capital account and current account transactions under certain circumstances. As a result, we may not be able to pay dividends in foreign currencies to holders of our H Shares.

The value of the Renminbi against the U.S. dollar and other currencies fluctuates from time to time and is affected by a number of factors, such as changes in China’s and international political and economic conditions and the fiscal and foreign exchange policies prescribed by the PRC government. From 1994 until July 2005, the conversion of the Renminbi into foreign currencies in the PRC, including the Hong Kong dollar and U.S. dollar, had been based on fixed rates set by the PBOC. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar where the Renminbi is permitted to fluctuate in a regulated band that is based on reference to a basket of currencies determined by the PBOC. On June 19, 2010, the PBOC announced that it intends to further reform the Renminbi exchange rate regime by enhancing the flexibility of the Renminbi exchange rate. Following this announcement, the Renminbi had appreciated from approximately RMB6.83 per U.S. dollar to RMB6.12 per U.S. dollar as of June 15, 2015. On August 11, 2015, PBOC further enlarged the floating band for trading prices in the interbank spot exchange market of Renminbi against the U.S. dollar to 2.0% around the closing price in the previous trading session, and the Renminbi depreciated against the U.S. dollar by approximately 1.9% as compared to August 10, 2015, and further depreciated nearly 1.6% on the next day. On November 30, 2015, the Executive Board of the International Monetary Fund completed the regular five-year review of the basket of currencies that make up the special drawing rights and decided that with effect from October 1, 2016, the Renminbi is determined to be a freely useable currency and will be included in the special drawing rights basket as a fifth currency. With the development of foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further reforms to the exchange rate system, and the Renminbi could appreciate or depreciate significantly in value against the Hong Kong dollar or the U.S. dollar in the future.

The [REDACTED] from the [REDACTED] will be received in Hong Kong dollars. As a result, any appreciation of the Renminbi against the U.S. dollar, the Hong Kong dollar or any other foreign currencies may result in the decrease in the value of our [REDACTED] from the [REDACTED]. Conversely, any depreciation of the Renminbi may adversely affect the value of, and any dividends payable on, our H Shares in foreign currency. In addition, there are limited instruments available for us to reduce our foreign currency risk exposure at reasonable costs. Any of these factors could materially and adversely affect our business, financial condition, results of operations and prospects, and could reduce the value of, and dividends payable on, our H Shares in foreign currency terms.

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Holders of H Shares may be subject to PRC taxation.

Under applicable PRC tax laws, both the dividends we pay to non-PRC resident individual holders of H shares (“non-resident individual holders”), and gains realised through the sale or transfer by other means of H shares by such shareholders, are subject to PRC individual income tax at a rate of 20%, unless reduced by the applicable tax treaties or arrangements.

Under applicable PRC tax laws, the dividends we pay to, and gains realised through the sale or transfer by other means of H shares by, non-PRC resident enterprise holders of H shares are both subject to PRC enterprise income tax at a rate of 10%, unless reduced by applicable tax treaties or arrangements. Pursuant to the Arrangements between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes (《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排》) dated August 21, 2006, any non-resident enterprise registered in Hong Kong that holds directly at least 25% of the shares of our Company shall pay Enterprise Income Tax for the dividends declared and paid by us at a tax rate of 5%.

For non-resident individual holders, gains realized through the transfer of properties are normally subject to PRC individual income tax at a rate of 20%. However, according to the Circular of the Ministry of Finance and the STA on Issues Concerning Income of Individuals Tax Policies (《財政部、國家稅務總局關於個人所得稅若干政策問題的通知》), income received by individual foreigners from dividends and bonuses of a foreign-invested enterprise are exempt from individual income tax for the time being. According to the Circular Declaring that Individual Income Tax Continues to Be Exempted over Individual Income from Transfer of Shares issued by the STA (《關於個人轉讓股票所得繼續暫免徵收個人所得稅的通知》) effective as of March 30, 1998, income from individuals’ transfer of stocks of listed companies continued to be temporarily exempted from individual income tax. On February 3, 2013, the State Council approved and promulgated the Notice of Suggestions to Deepen the Reform of System of Income Distribution (《國務院轉批發展改革委等部門關於深化收入分配制度改革若干意見的通知》). On February 8, 2013, the General Office of the State Council promulgated the Circular Concerning Allocation of Key Works to Deepen the Reform of System of Income Distribution (《國務院辦公廳關於深化收入分配制度改革重點工作分工的通知》). According to these two documents, the PRC government is planning to cancel foreign individuals’ tax exemption for dividends obtained from foreign-invested enterprises, and the Ministry of Finance and the STA should be responsible for making and implementing details of such plan. However, relevant implementation rules or regulations have not been promulgated by the Ministry of Finance and the STA. On December 31, 2009, the Ministry of Finance, STA and CSRC jointly issued the Circular on Related Issues on Levying Individual Income Tax over the Income Received by Individuals from the Transfer of Listed Shares Subject to Sales Limitation (《關於個人轉讓上市公司限售股所得徵收個人所得稅有關問題的通知》), which came into effect on December 31, 2009, which states that individuals’ income from the transfer of listed shares obtained from the public offering of listed companies and transfer market on the Shanghai Stock Exchange and the Shenzhen Stock Exchange shall continue to be exempted

–53– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS from individual income tax, except for the relevant shares which are subject to sales restriction (as defined in the Supplementary Notice on Issues Concerning the Levy of Individual Income Tax on Individuals’ Income from the Transfer of Restricted Stocks of Listed Companies (《關於個人轉讓上市公司限售股所得徵收個人所得稅有關問題的補充通知》) jointly issued and implemented by such departments on November 10, 2010). As of the Latest Practicable Date, the aforesaid provision has not expressly provided that individual income tax shall be collected from non-PRC resident individuals on the sale of shares of PRC resident enterprises listed on overseas stock exchanges.

Pursuant to the Circular of the STA on Issues Relating to the Withholding and Remitting of Enterprise Income Tax by PRC Resident Enterprises on Dividends Distributed to Overseas Non-Resident Enterprise Shareholders of H Shares (《國家稅務總局關於中國居民企業向境外 H股非居民企業股東派發股息代扣代繳企業所得稅有關問題的通知》) issued by the STA, on November 6, 2008, we intend to withhold tax at 10.0% from dividends payable to non-PRC resident enterprise holders of H shares (including HKSCC Nominees). Such withholding tax can be reduced or waived based on applicable tax treaties or arrangement. There are uncertainties regarding the interpretation and implementation of the EIT Law and its implementing rules by the PRC tax authorities, including whether and how enterprise income tax on gains derived upon sale or other disposition of H shares will be collected from non-PRC resident enterprise holders of H shares. If such tax is collected in the future, the value of such non-PRC resident enterprise holders’ investments in H shares may be materially and adversely affected.

Considering these uncertainties, non-resident holders of our H Shares should be aware that they may be obligated to pay PRC income tax on the dividends and gains realized through sales or transfers of the H Shares. Please refer to “Appendix III—Taxation and Foreign Exchange.”

Any possible conversion of our [REDACTED] Shares into H Shares in the future could increase the supply of our H Shares in the market and negatively impact the [REDACTED] of our H Shares.

Subject to the approval of the State Council securities regulatory authority, certain of our [REDACTED] Shares may be converted into H Shares, and such converted Shares may be [REDACTED]. Any [REDACTED] of the converted Shares on an overseas stock exchange shall also comply with the regulatory procedures, rules and requirements of such stock exchange. No class shareholder voting is required for the listing and trading of the converted Shares on an overseas stock exchange. However, the PRC Company Law provides that in relation to the public offering of a company, the shares of that company which are issued prior to the public offering shall not be transferred within one year from the date of the listing. Therefore, upon obtaining the requisite approval, shares currently held on our [REDACTED] share register may be traded, after the conversion, in the form of H Shares on the Stock Exchange after one year of the [REDACTED], which could further increase the supply of our H Shares in the market and could negatively impact the [REDACTED] of our H Shares.

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RISKS RELATING TO THE [REDACTED]

No public market currently exists for our H Shares, and an active trading market for our H Shares may not develop.

No public market currently exists for our H Shares. The initial [REDACTED] for our H Shares to the public will be the result of negotiations between our Company and the [REDACTED] (on behalf of the [REDACTED]), and the [REDACTED] may differ significantly from the [REDACTED] of the H Shares following the [REDACTED]. We have applied to the Hong Kong Stock Exchange for [REDACTED], however, does not guarantee that an active and liquid trading market for our H Shares will develop, or if it does develop, that it will be sustained following the [REDACTED], or that the [REDACTED]oftheH Shares will rise following the [REDACTED].

The [REDACTED] and [REDACTED] of our H Shares may be volatile, which could result in substantial losses for [REDACTED].

The [REDACTED] and [REDACTED] of our H Shares may be highly volatile. Several factors, some of which are beyond our control, such as variations in our revenue, earnings and cash flow, strategic alliances, the addition or departure of key personnel, litigation, the removal of the restrictions on H share transactions or volatility in [REDACTED] and changes in the demand for our products, could cause large and sudden changes to the [REDACTED] and [REDACTED] at which our H Shares will [REDACTED]. The Stock Exchange and other securities markets have, from time to time, experienced significant price and trading volume volatility that are not related to the operating performance of any particular company. This volatility may also materially and adversely affect the [REDACTED] of our H Shares.

A future significant increase or perceived significant increase in the supply of our H Shares in public markets could cause the [REDACTED] of our H Shares to decrease significantly, and/or dilute shareholdings of holders of H Shares.

The [REDACTED] of our H Shares could decline as a result of future sales of a substantial number of our H Shares or other securities relating to our H Shares in the public market, or the issuance of new shares or other securities, or the perception that such sales or issuances may occur. Future sales, or anticipated sales, of substantial amounts of our securities, including any future [REDACTED], could also materially and adversely affect our ability to raise capital at a specific time and on terms favorable to us. In addition, our Shareholders may experience dilution in their holdings if we [REDACTED] more securities in the future. New shares or shares-linked securities issued by us may also confer rights and privileges that take priority over those conferred by the H Shares. Alternatively, if we meet such funding requirements by way of additional debt financing, we may have restrictions placed on us through such debt financing arrangements which may:

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• limit our ability to pay dividends or require us to seek consent for the payment of dividends;

• increase our vulnerability to general adverse economic and industry conditions;

• require us to dedicate a substantial portion of our cash flows from operations to service our debt, thereby reducing the availability of our cash flow to fund capital expenditure, working capital requirements and other general corporate needs; and/or

• limit our flexibility in planning for, or reacting to, changes in our business and our industry.

Since there will be a gap of several days between pricing and [REDACTED] of our H Shares, holders of our H Shares are subject to the risk that the [REDACTED] of our H Shares could fall during the period before [REDACTED] of our H Shares begins.

The initial [REDACTED] to the public of our H Shares sold in the [REDACTED]is expected to be determined on the [REDACTED]. However, the H Shares will not commence [REDACTED] on the Hong Kong Stock Exchange until they are delivered, which is expected to be several business days after the [REDACTED]. As a result, [REDACTED] may not be able to sell or otherwise [REDACTED] during that period. Accordingly, Shareholders are subject to the risk that the [REDACTED] of the H Shares when [REDACTED] begins could be lower than the [REDACTED] as a result of adverse market conditions or other adverse developments that may occur between the time of sale and the time [REDACTED] begins.

Our Controlling Shareholders have substantial control over the Company and their interests may not be aligned with the interests of the other Shareholders.

Immediately following the completion of the [REDACTED], our Controlling Shareholders will be entitled to exercise voting rights of [REDACTED]% of the total issued share capital of our Company. The interests of our Controlling Shareholders may differ from the interests of our other Shareholders. Our Controlling Shareholders could have significant influence in determining the outcome of any corporate transaction or other matters submitted to our Shareholders for approval. This concentration of ownership, as a result, may discourage, delay or prevent a change in control of our Company, which could deprive our Shareholders of an opportunity to receive a premium for their Shares in a sale of our Company or may reduce the [REDACTED] of our H Shares. In addition, to the extent the interests of our Controlling Shareholders conflict with the interest of our other Shareholders, the interests of our other Shareholders may be disadvantaged or harmed.

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Potential [REDACTED] will experience immediate and substantial dilution as a result of the [REDACTED].

Potential [REDACTED] will pay a price per H Share in the [REDACTED] that substantially exceeds the per H Share value of our tangible assets after subtracting our total liabilities as of December 31, 2020. Therefore, [REDACTED] of our H Shares in the [REDACTED] will experience a substantial immediate dilution in [REDACTED] net tangible assets, and our existing Shareholders will receive an increase in the [REDACTED] adjusted net tangible assets per Share on their Shares. As a result, if we were to distribute our net tangible assets to the Shareholders immediately following the [REDACTED], potential [REDACTED] would receive less than the amount they paid for their H Shares. See “Appendix II—Unaudited [REDACTED] Financial Information.”

We may have discretion as to how we use the net [REDACTED] of the [REDACTED] and you may not necessarily agree with how we use them.

Our management may use the net [REDACTED] from the [REDACTED] in ways that you may not agree with or that do not yield favorable returns for our Shareholders. For details of our intended use of [REDACTED], see “Future Plans and Use of [REDACTED]—Use of [REDACTED].” However, our management will have discretion as to the actual utilization of the net [REDACTED] within the disclosed scope of planned usage. You are entrusting your funds to our management, upon whose judgment you must depend, for the specific uses we will make of the net [REDACTED] from the [REDACTED].

We cannot guarantee the accuracy of facts, forecasts and other statistics obtained from official governmental sources or other sources contained in this document.

Certain facts, statistics and data contained in this document relating to the PRC and the industries in which we operate have been derived from various official government publications, industry associations, independent research institutes and/or other third party reports we generally believe to be reliable. While we have taken reasonable care in the reproduction of the information, it has not been prepared or independently verified by us, the [REDACTED] or any of our or their respective affiliates or advisors, and we cannot guarantee the quality or reliability of such source materials. Therefore, we make no representation as to the accuracy of such statistics, which may not be consistent with other information compiled within or outside the PRC. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice, such statistics in this document may be inaccurate or may not be comparable to statistics produced with respect to other economies. Furthermore, we cannot assure you that they are stated or compiled on the same basis or with the same degree of accuracy as the case may be in other jurisdictions. In addition, estimates and forecasts Frost & Sullivan developed are subject to assumptions set forth in the “Industry Overview.” In all cases, you should give due consideration as to how much weight or importance they should attach to or place on such facts.

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Payment of dividends is subject to restrictions under the PRC law and there is no assurance whether and when we will pay dividends.

No dividend has been paid or declared by the Company during the Track Record Period. Under the applicable PRC laws, the payment of dividends may be subject to certain limitations. The calculation of our profit under applicable accounting standards differs in certain respects from the calculation under HKFRS. As a result, we may not be able to pay a dividend in a given year even if we were profitable as determined under HKFRS. Our Board may declare dividends in the future after taking into account our results of operations, financial condition, cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment as well as the amount of dividends will be subject to our constitutional documents and the PRC laws and regulations and requires approval at our shareholders’ meeting. No dividend shall be declared or payable except out of our profits and reserves lawfully available for distribution.

You should read the entire document carefully, and we strongly caution you not to place any reliance on any information contained in press articles and/or other media regarding us, our business, our network of medical facilities, our industry or the [REDACTED].

There may have been prior to the publication of this document, and there may be subsequent to the date of this document but prior to the completion of the [REDACTED], press and/or media regarding us, our business, our industries and the [REDACTED]. None of us or any other person involved in the [REDACTED] has authorized the disclosure of information about the [REDACTED] in any press or media and none of these parties accepts any responsibility for the accuracy or completeness of any such information or the fairness or appropriateness of any forecast, view or opinion expressed by the press and/or other media regarding our H Shares, the [REDACTED], our business, our industry or us. We make no representation as to the appropriateness, accuracy, completeness or reliability of any such information, forecast, view or opinion expressed in any such publication. To the extent that such statements, forecasts, views or opinions are inconsistent or conflict with the information contained in this document, we disclaim them. Accordingly, you are cautioned to make your [REDACTED] on the basis of the information contained in this document only and should not rely on any other information.

–58– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

In preparation for the [REDACTED], our Company has sought the following waivers from strict compliance with the relevant provisions of the Listing Rules:

MANAGEMENT PRESENCE IN HONG KONG

According to Rules 8.12 and 19A.15 of the Listing Rules, our Company must have sufficient management presence in Hong Kong. This normally means that at least two of our executive Directors must be ordinarily resident in Hong Kong. Since our headquarters and all of our business operations are principally located, managed and conducted in the PRC, our Company does not, and for the foreseeable future, will not, have executive Directors who are ordinarily resident in Hong Kong for the purpose of satisfying the requirements under Rules 8.12 and 19A.15 of the Listing Rules.

Accordingly, our Company has applied to the Stock Exchange for, and the Stock Exchange [has granted] our Company a waiver from strict compliance with Rules 8.12 and 19A.15 of the Listing Rules. Our Company has made the following arrangements to maintain effective communication between the Stock Exchange and us:

(i) both of our Company’s authorized representatives, Mr. Chen Yang, an executive Director of our Company, and Mr. Zhang Mengchi, a joint company secretary of our Company, will act as our Company’s principal channel of communication with the Stock Exchange. Accordingly, the authorized representatives of our Company will be able to meet with the relevant members of the Stock Exchange on reasonable notice and will be readily contactable by telephone, facsimile and email;

(ii) each of the authorized representatives of our Company has means of contacting all Directors (including our independent non-executive Directors) promptly at all times as and when the Stock Exchange proposes to contact a Director with respect to any matter;

(iii) each Director has provided his mobile phone number, office phone number and e-mail address to the authorized representatives of our Company and the Stock Exchange, and in the event that any Director expects to travel or otherwise be out of the office, he will provide the phone number of the place of his accommodation to the authorized representatives;

(iv) each of the Directors of our Company not ordinarily residing in Hong Kong possesses or can apply for valid travel documents to visit Hong Kong and will be able to meet with the relevant members of the Stock Exchange within a reasonable period of time;

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(v) our Company has, in compliance with Rule 3A.19 of the Listing Rules, appointed CMBC International Capital Limited as our compliance advisor (the “Compliance Advisor”), who will also act as an additional channel of communication with the Stock Exchange for the period commencing from the [REDACTED] to the date on which our Company complies with Rule 13.46 of the [REDACTED] in respect of its financial results for the first full financial year commencing after the [REDACTED]. Pursuant to Rule 19A.05(2) of the Listing Rules, we shall ensure that the Compliance Advisor will have access at all times to our authorized representatives, our Directors and other officers. We shall also ensure that such persons will promptly provide such information and assistance as the Compliance Advisor may need or may reasonably request in connection with the performance of the Compliance Advisor’s duties as set forth in Chapter 3A and Rule 19A.06 of the Listing Rules. We shall ensure that there are adequate and efficient means of communication among our Company, our authorized representatives, our Directors, and other officers and the Compliance Advisor, and will keep the Compliance Advisor fully informed of all communications and dealings between us and the Stock Exchange;

(vi) any meeting between the Stock Exchange and the Directors will be arranged through the authorized representatives or the Compliance Advisor or directly with the Directors within a reasonable time frame. We will inform the Stock Exchange promptly in respect of any changes in our authorized representatives and our Compliance Advisor; and

(vii) we will retain legal advisors to advise on on-going compliance requirements as well as other [REDACTED] arising under the Listing Rules and other applicable laws and regulations of Hong Kong after [REDACTED].

JOINT COMPANY SECRETARIES

Pursuant to Rules 3.28 and 8.17 of the Listing Rules, our Company must appoint a company secretary who possesses the necessary academic or professional qualifications or relevant experience is, in the opinion of the Stock Exchange, capable of discharging the functions of the company secretary. Note 1 to Rule 3.28 of the Listing Rules provides that the Stock Exchange considers the following academic or professional qualifications to be acceptable:

(a) a member of The Hong Kong Institute of Chartered Secretaries;

(b) a solicitor or a barrister as defined in the Legal Practitioners Ordinance (Chapter 159 of the Laws of Hong Kong); and

(c) a certified public accountant as defined in the Professional Accountants Ordinance (Chapter 50 of the Laws of Hong Kong).

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Note 2 to Rule 3.28 of the Listing Rules further sets out the factors that the Stock Exchange will consider in assessing an individual’s “relevant experience”:

(a) length of employment with the issuer and other issuers and the roles he/she played;

(b) familiarity with the Listing Rules and other relevant laws and regulations including the SFO, the Companies Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinance and the Takeovers Code;

(c) relevant training taken and/or to be taken in addition to the minimum requirement under Rule 3.29 of the Listing Rules; and

(d) professional qualifications in other jurisdictions.

Our Company considers that while it is important for the company secretary to be familiar with the relevant securities regulation in Hong Kong, he/she also needs to have experience relevant to our Company’s operations, nexus to the Board and close working relationship with the management of our Company in order to perform the function of a company secretary and to take the necessary actions in the most effective and efficient manner. It is for the benefit of our Company to appoint a person who has been a member of the senior management for a period of time and is familiar with our Company’s business and affairs as company secretary.

We have appointed Mr. Chen Yang as one of our joint company secretaries. However, given Mr. Chen does not possess a qualification stipulated in Rule 3.28 of the Listing Rules, he is not able to solely fulfill the requirements as a company secretary of a listed issuer stipulated under Rules 3.28 and 8.17 of the Listing Rules. Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange [has granted], a waiver from strict compliance with the requirements under Rules 3.28 and 8.17 of the Listing Rules in relation to the appointment of Mr. Chen as our joint company secretary. In order to provide support to Mr. Chen, we have appointed Mr. Zhang Mengchi, an associate member of both the Hong Kong Institute of Chartered Secretaries and the Chartered Governance Institute (formerly known as the Institute of Charted Secretaries and Administrators), who meets the requirements under Rules 3.28 and 8.17 of the Listing Rules, as a joint company secretary to provide assistance to Mr. Chen, for a three-year period from the [REDACTED] so as to enable him to acquire the relevant experience (as required under Rule 3.28(2) of the Listing Rules) to duly discharge his duties.

We have therefore applied to the Stock Exchange for, and the Stock Exchange [has granted] us, a waiver from strict compliance with the requirements under Rules 3.28 and 8.17 of the Listing Rules on the conditions that: (i) Mr. Zhang is appointed as a joint company secretary to assist Mr. Chen in discharging his functions as a company secretary and in gaining the relevant experience under Rule 3.28 of the Listing Rules; the waiver will be revoked immediately if Mr. Zhang, during the three-year period, ceases to provide assistance to Mr. Chen as the joint company secretary; and (ii) the waiver can also be revoked if there are material breaches of the Listing Rules by our Company. We expect that Mr. Chen will acquire

–61– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES the qualifications or relevant experience required under Rule 3.28 of the Listing Rules prior to the end of the three-year period after the [REDACTED]. We will liaise with the Stock Exchange before the end of the three-year period to enable it to assess whether Mr. Chen, having had the benefit of Mr. Zhang’s assistance for three years, has acquired relevant experience within the meaning of Rule 3.28 of the Listing Rules so that a further waiver will not be necessary.

See “Directors, Supervisors and Senior Management” of this document for further information regarding the qualifications and experience of Mr. Chen and Mr. Zhang.

CONTINUING CONNECTED TRANSACTION

We have entered into, and are expected to continue to engage in certain transactions which will constitute a non-exempt continuing connected transaction of our Company under the Listing Rules upon the [REDACTED]. Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange [has granted], a waiver in relation to such continuing connected transaction between us and certain connected persons under Chapter 14A of the Listing Rules. See “Connected Transactions” for further details.

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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DIRECTORS

Name Address Nationality

Executive Directors

Mr. LI Can (李燦) No.803, Unit 3, Building 2 Chinese No.39, Shenxianshu South Road Gaoxin District Chengdu Sichuan Province, PRC

Mr. CHEN Zhouhua (陳洲華) Room 2204 Chinese 211 Xingmin Road Tianhe District Guangzhou City Guangdong Province, PRC

Mr. WANG Lei (王磊) 11-17-35, Shihua Community Chinese Xinglongtai District Panjin City Liaoning Province, PRC

Mr. CHEN Yang (陳楊) No. 8, Unit 2, Building 6 Chinese 10 Daxue Road Wuhou District Chengdu Sichuan Province, PRC

Ms. YU Miao (于淼) Room 302 Chinese No. 17, Lane 569 Shangbo Road Pudong New Area Shanghai, PRC

Mr. HUANG Xin (黃鑫) Room 301 Chinese No. 34, Lane 1285 Shangzhong West Road Minhang District Shanghai, PRC

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Name Address Nationality

Non-executive Directors

Mr. HO Kyung Shik (扈景植) 4102 Zhongxin Building South 1468 Nanjing West Road Korean Shanghai, PRC

Mr. TSE Eric S Y (謝承潤) Flat A, 28/F, Tower 1 Chinese Clovelly Court, 12 May Road (Hong Kong) Mid-levels, Hong Kong

Mr.LIHe(李赫) 403, Gate 2 Chinese Building 18, Huishengyuan Chaoyang District Beijing, PRC

Independent non-executive Directors

Mr. CHUNG Chi Kin Kenneth Flat C, 21/F Chinese (鍾子健) Tower 2, Island Harbour view (Hong Kong) No. 11, Hoi Fai Road Kowloon, Hong Kong

Dr. HU Ming (胡明) No. 9, 5/F, Unit 2 Chinese Building 30 12 Daxue Road Wuhou District Chengdu Sichuan Province, PRC

Mr. CAO Qilin (曹麒麟) No. 18, 5/F, Building 2 Chinese Taolin Apartment 29 Wangjiang Road Wuhou District Chengdu, PRC

Mr. ZHU Ning (朱寧) Room 201, No. 7, Lane 950 Chinese Zhongshan South Second Road Xuhui District Shanghai, PRC

Dr. YANG Jijun (楊記軍) No. 136-1 Ningxia street Chinese Qingyang District Chengdu, PRC

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Name Address Nationality

Supervisors

Ms. LI Qian (李倩) No. 1702, Unit 2, Building 5 Chinese 32, Baiziwan Road Chaoyang District Beijing, PRC

Ms. LI Daijun (李代俊) No. 603, Unit 3, Building 2 Chinese No.755, Section 2, Jinhua Road Jinjiang District Chengdu Sichuan Province, PRC

Ms. LIU Jiao (劉嬌) No. 8, Unit 2, Building 12 Chinese Shuangnan Section,Wuhou Avenue Wuhou District Chengdu Sichuan Province, PRC

Mr. DU Tongjie (杜同傑) No. 2402, 24/F, Unit 1, Building 9 Chinese 418 Century City Road Gaoxin District Chengdu Sichuan Province, PRC

Ms. KIM Ji Su (金智秀) Unit 7B, Unit 3, Building 3 South Australia Kangdu Korean No.39 Wangjing North Road Chaoyang District Beijing, PRC

Please see the section headed “Directors, Supervisors and Senior Management” in this document for further details of our Directors and Supervisors.

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PARTIES INVOLVED IN THE [REDACTED]

Joint Sponsors Citigroup Global Markets Asia Limited 50/F, Champion Tower Three Garden Road Central, Hong Kong

Haitong International Capital Limited 8/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong

[REDACTED]

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Legal advisors to our Company As to Hong Kong and United States laws:

Kirkland & Ellis 26/F, Gloucester Tower The Landmark 15 Queen’s Road Central Hong Kong

As to PRC laws:

Tian Yuan Law Firm 10/F, Tower B China Pacific Insurance Plaza 28 Fengsheng Hutong Xicheng District Beijing PRC

Legal advisors to the [REDACTED] As to Hong Kong and United States laws:

Simpson Thacher & Bartlett 35/F, ICBC Tower 3 Garden Road Central, Hong Kong

As to PRC laws:

Commerce & Finance Law Offices 6/F, NCI Tower A12 Jianguomenwai Avenue Chaoyang District Beijing, PRC

Auditor and Reporting Accountants KPMG Certified Public Accountants 8/F, Prince’s Building 10 Chater Road Central Hong Kong

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Industry Consultant Frost & Sullivan (Beijing) Inc. Shanghai Branch Co. 2504 Wheelock Square No. 1717 Nanjing West Road Jing’an District Shanghai, PRC

[REDACTED]

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Head Office, Registered Office and Floor 2, Building 2 Principal Place of Business in the PRC No. 87 Upper Industry Avenue Heshan Village, Pujiang County Chengdu, Sichuan Province, PRC

Principal Place of Business in Hong Kong 40/F, Dah Sing Financial Centre 248 Queen’s Road East Wan Chai Hong Kong

Company’s Website http://www.qyt1902.com

Joint Company Secretaries Mr. CHEN Yang No. 8, Unit 2, Building 6 10 Daxue Road Wuhou District Chengdu Sichuan Province, PRC

Mr. Zhang Mengchi An associate member of The Hong Kong Institute of Chartered Secretaries and The Chartered Governance Institute 40/F, Dah Sing Financial Centre 248 Queen’s Road East Wan Chai Hong Kong

Authorized Representatives Mr. CHEN Yang No. 8, Unit 2, Building 6 10 Daxue Road Wuhou District Chengdu Sichuan Province, PRC

Mr. Zhang Mengchi 40/F, Dah Sing Financial Centre 248 Queen’s Road East Wan Chai Hong Kong

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Audit Committee Mr. CHUNG Chi Kin Kenneth (Chairman) Dr. YANG Jijun Mr.LIHe

Remuneration Committee Mr. ZHU Ning (Chairman) Mr. LI Can Dr. HU Ming Mr.LIHe Mr. CAO Qilin

Nomination Committee Mr. LI Can (Chairman) Dr. YANG Jijun Mr. CAO Qilin

Compliance Advisor CMBC International Capital Limited 45/F, One Exchange Square 8 Connaught Place Central Hong Kong

[REDACTED]

Principal Banks Bank of Shanghai, Chengdu Branch Building 2 Air China Century Center Building No. 1 Hangkong Road, Chengdu Sichuan Province, PRC

Sichuan Tianfu Bank, Chengdu Jinjiang Branch 258 Xiadong street Jinjiang District, Chengdu Sichuan Province, PRC

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The information and statistics set out in this section and other sections of this document were extracted from different official government publications, available sources from public market research and other sources from independent suppliers. In addition, we engaged Frost & Sullivan to prepare the Frost & Sullivan Report(1),an independent market research report, in connection with the [REDACTED]. We believe that the sources of the information in this section and other sections of this document are appropriate sources for such information, and we have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading in any material respect or that any fact has been omitted that would render such information false or misleading in any material respect. The information from official and non-official sources has not been independently verified by us, the Joint Sponsors, [REDACTED], any of their respective directors and advisers, or any other persons or parties involved in the [REDACTED] (except for Frost & Sullivan), and no representation is given as to its accuracy. Accordingly, the information from official and non-official sources contained herein may not be accurate and should not be unduly relied upon. We confirm that, after making reasonable enquiries, there is no adverse change in the market information since the date of the Frost & Sullivan Report that would qualify, contradict or have an impact on the information in this section in any material respect.

CHINA HEALTHCARE INDUSTRY

Healthcare industry is constantly growing in China. The total healthcare expenditure in China has experienced steady growth and is expected to continue such growth in the near future. From 2015 to 2019, the total healthcare expenditure in China has increased from RMB4,097.5 billion to RMB6,519.6 billion, representing a CAGR of 12.3%, and is expected to reach RMB10,620.4 billion and RMB17,615.7 billion by 2024 and 2030, respectively, representing a CAGR of 10.3% from 2019 to 2024 and a CAGR of 8.8% from 2024 to 2030. Meanwhile, healthcare expenditure per capita in China has grown rapidly in recent years. From 2015 to 2019, healthcare expenditure per capita in China has grown from RMB2,981 to RMB4,657, representing a CAGR of 11.8% in this period, and is expected to reach RMB7,471 and RMB12,191 by 2024 and 2030, respectively, representing a CAGR of 9.9% from 2019 to 2024 and a CAGR of 8.5% from 2024 to 2030.

(1) In connection with the [REDACTED], we have commissioned Frost & Sullivan, an Independent Third Party, to conduct a detailed analysis and to prepare an industry report on the omni-channel smart retail pharmacy market. The Frost & Sullivan Report has been prepared by Frost & Sullivan independent from our influence. We have agreed to pay Frost & Sullivan a fee of RMB650,000 for the preparation of the Frost & Sullivan Report which we consider in line with the market rates. Except as otherwise noted, all data and forecasts in this section are derived from the Frost & Sullivan Report. Our Directors confirm that, after taking reasonable care, there is no adverse change in the market information since the date of the Frost & Sullivan Report which may qualify, contradict or have an impact on the information disclosed in this section. Frost & Sullivan conducted both primary and secondary research using a variety of resources. Primary research involved in-depth telephone or face-to-face interviews with industry veterans and so on. Secondary research involved in-house researches of Frost & Sullivan, industry reports, annual reports of listed companies and so on. To prepare the Frost & Sullivan Report, Frost & Sullivan also conducted analysis on projected figures based on historical data, macroeconomic data and specific industry related drivers, and reviewed annual reports of listed companies in the global and PRC retail pharmacy markets. In compiling and preparing the Frost & Sullivan Report, Frost & Sullivan has adopted the following assumptions: (i) the social, economic and political environments of the PRC will remain stable during the forecast period, which will ensure a sustainable and steady development of the PRC healthcare industry; (ii) the PRC healthcare market will grow as expected due to rising healthcare demand and supply; and (iii) the PRC government will continue to support healthcare reform.

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Growth drivers and future trends of China healthcare market mainly include: (i) increasing aging population and chronic patients boosting chronic disease management; (ii) uneven distribution of public medical resources promoting private healthcare market; and (iii) digitalization facilitating hospital-centered healthcare routine to patient-centered healthcare routine. As a result, patient-centered private chronic disease management services will take up a large share of the China healthcare market.

PHARMACEUTICAL CIRCULATION INDUSTRY IN CHINA

In China, pharmaceutical products including drugs and medical equipment are distributed through pharmaceutical circulation enterprises. After manufacturing, pharmaceutical products are distributed to pharmacy wholesalers or retailers, before they reach to consumers or hospitals. Pharmacy wholesalers or retailers constitute pharmaceutical circulation industry, acting as a linkage between upstream manufacturers and downstream consumers. As a result, there are three sales channels in the pharmaceutical circulation market in China, namely wholesales, out-of-hospital retails, and outpatient pharmacies.

Market Size of Pharmaceutical Circulation Market by Channel in China, by Revenue, 2016-2025E

Billion RMB 3,840 CAGR CAGR 3,533 2016-2019 2020E-2025E 3,247 1,003 2,960 Total 8.2% 9.0% 2,710 929 2,498 859 2,330 779 2,169 Wholesale -3.4% 7.4% 1,994 732 1,839 1,389 679 703 1,231 Retail 654 959 1,097 23.8% 14.6% 724 813 (Out-of-hospital) 754 597 703 523 392 Retail 315 1,291 1,372 1,447 (Outpatient 11.0% 5.8% 1,054 1,092 1,165 1,221 770 878 992 Pharmacy)

2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Wholesale Retail (Out-of-hospital) Retail (Outpatient pharmacy)

Source: Frost & Sullivan analysis Growth Drivers Favorable policies and regulations. Abundant favorable policies and regulations have been implemented to promote pharmaceutical circulation market. In particular, Two-Invoices System (兩票制), 4+7 Policy (4+7政策), and Drug Price Difference Removal Policy (藥品零差價政策) have played major roles in tackling overpricing of drugs in China, supporting the growth of pharmaceutical circulation market by enhancing the efficiency of the distribution flow. Advocacy of prescription outflow. As online prescription emerges, prescription has outflowed from hospitals to out-of-hospital retail market, including online B2C or O2O pharmacies, which have attracted large amount of consumers due to the convenience offered to consumers. In particular, the COVID-19 outbreak in 2020 has accelerated the prevalence of online retail pharmacies in China, which has boosted the development of the industry. See “—DTP Pharmacy.” Future Trends of Pharmaceutical Circulation Market Internet + pharmaceutical circulation. The combination of online channel and pharmaceutical circulation has overturned the traditional pharmaceutical circulation pattern. More drug wholesalers and retailers are expanding sales channels to online channel, through internet hospitals, online retail pharmacies and other online platforms.

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Increase of chain pharmacies. The chaining rate of retail pharmacies has increased from 50.4% in 2017 to 52.1% in 2018, and is expected to further increase after the implementation of Two-Invoices System and 4+7 Policy. Chain retail pharmacies will continue to seek scale-up, leaving limited market share for non-chain or small chain retail pharmacies. Development of specialized pharmacies. As a result of the advocacy of prescription outflow, as well as other pharmacy circulation polices such as Separation of Dispensing from Prescription Policy (醫藥分離政策), specialized retail pharmacies are expected to gain more market share. In particular, DTP retail pharmacies, chronic disease pharmacies and “pharmacy + clinics” will continue to develop and expand. DTP Pharmacy Direct-To-Patient (DTP) is a new distribution channel of pharmaceutical products in China. The DTP pharmacy market has increased from RMB10.4 billion in 2016 to RMB15.4 billion in 2019, representing a CAGR of 14.0% and is expected to reach RMB45.2 billion in 2025, representing a CAGR of 18.9%. As pharmacy sales are being separated from hospitals as required by or as results of various PRC governmental policies, including Separation of Dispensing from Prescription Policy and other polices which prohibit hospitals from making profit from sale of pharmacies, drug manufacturers, wholesalers and retailers are developing DTP retail pharmacy channel, among others, replacing the traditional sales channel of “drug manufacturers → drug wholesalers → hospitals → patients”, for specific kinds of drugs including new specialty drugs and other self-financed high-price drugs with high gross margins used for chronic patients, such as anti-oncology drugs, hematological drugs and orphan drugs. DTP retail pharmacies are equipped with licensed pharmacists to provide professional advice and services, constituting a more advanced model than retail pharmacies. Patients purchase prescription drugs after obtaining prescriptions in hospitals, from DTP retail pharmacies, which obtain distribution rights from drug manufacturers, and at the meantime receive professional guidance on drug usages from them. DTP retail pharmacy provides a platform for pharmaceutical companies to promote innovative drugs, build consumer database and undertake medication management for patients. The chart below presents the distribution flow of DTP pharmacy retail channel.

Hospitals Accept prescription from hospital

Pharmaceutical DTP Provide medical service and obtain Companies Pharmacies prescription Provide platform for product promotion and data collection Provide healthcare advice Patients Delivery/pick-up of drug Source: Frost & Sullivan analysis

Relevant polices in China have strongly promoted the development of DTP pharmacy in the recent years. Especially, in May 2021, Guiding Opinions on Establishing and Improving the “Dual-channel” Management Mechanism for Medicines under National Medical Insurance Negotiation (《關於建立完善國家醫保談判藥品“雙通道”管理機制的指導意見》) was issued to promote, among others, the sales of new pharmacies which are reimbursed by public medical insurances but have not entered outpatient hospital pharmacies due to physicians’ unfamiliarity with them led by their relatively shorter history of presence, through out-of-hospital retail pharmacies, to facilitate patients’ purchases. OMNI-CHANNEL RETAIL PHARMACY MARKET IN CHINA Traditionally, offline retail pharmacies constitute retail pharmacy industry in China. Offline retail pharmacy industry is characterized by (i) large numbers of participants and fragmented market share, (ii) high operational expenses, (iii) being at downstream of the pharmacy circulation industry, leading to high procurement cost. As the whole industry progresses, offline retail pharmacy is facing intense competition from online retail pharmacies and e-commerce platforms due to their convenient purchasing process, lower operational expenses and the efficiency to reach target consumer directly. With the advancement in technology and change in consumer behaviors, online retail will become increasingly important. Simultaneously, omni-channel retail pharmacy has emerged in China.

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The concept of new retail is the foundation of omni-channel retail pharmacy. New retail is the latest trend of retail business transforming into an internet-centric ecosystem, utilizing advanced technology such as big data, AI to integrate online services, offline experience of consumers and new logistics model. Retail pharmacy industry has witnessed similar transformation, from which, the omni-channel retail pharmacy which integrates online and offline traffic through offline, B2C and O2O channels, and offers comprehensive product and services to customers, has derived. The omni-channel retail pharmacy has three distribution channels, offline retail sales, O2O retail sales and B2C retail sales. Offline sales are achieved through offline stores, while O2O retail sales are achieved through online orders from customers located around the offline stores. B2C retail sales are carried out by opening online stores on e-commerce platforms and delivering products to customers across the nation by express deliveries. The chart below sets forth the operation flow of omni-channel retail pharmacy.

Channels of Omni-channel Retail Pharmacy

Manufacturing Online channel

B2C platform(1) Product and service

Omni-channel Retail Pharmacy O2O platform(2) Customer / patients

Feedback and data Offline retail pharmacy

Offline channel

Note: (1) Leading B2C platforms in China include large e-commerce platforms such as Tmall (天貓), JD (京東), Pinduoduo (拼多多) and VIPShop (唯品會), among others.

(2) Leading O2O platforms in China include large platforms such as Meituan Waimai (美團外賣) and Eleme (餓了麼), among others.

Source: Frost & Sullivan analysis

As compared with single-channel or multi-channel retail pharmacy, the omni-channel retail pharmacy offers patients and consumers comprehensive access to pharmaceutical products, making both offline and online communication and ordering available to them, fulfilling their distinct needs when purchasing pharmaceutical products. Offline channel provides traditional offline face-to-face communication to patients and consumers. O2O channel makes convenient and private online communication and selection of products possible, and by immediate deliveries generally within one hour, giving patients and consumers great convenience. B2C channel is distinguished by its convenience, wide selection and favorable prices. The omni-channel retail pharmacy has enriched drug purchase channels and optimized purchase experience, enlarging operation radius and fulfilling consumers of different age groups and consuming preferences. With different sales channels in operation, omni-channel retail pharmacies can maintain balanced and resilient growth. In addition, marketing and promotion can be carried out with more efficiency and accuracy. Users may purchase from one brand on different channels depending on their distinct needs, while omni-channel smart retail pharmacy businesses are able to leverage cross-channel data to optimize their business strategies. Moreover, cross- channel operation brings scale effect which reduces procurement costs and optimizes inventory turnovers.

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Omni-channel Smart Retail Pharmacy Model

Omni-channel smart retail pharmacy refers to omni-channel retail pharmacy with (i) profound experience in online operation, (ii) less self-operated retail pharmacies, however strategically distributed, based on professional and comprehensive data analysis, (iii) emphasis on collaboration with other offline retail stores by way of franchise and/or empowerment, and (iv) mainly focus on online channels (i.e. with relatively higher proportion of revenue generated from online channels). In recent years, some established chained pharmacies have also been developing omni-channel retail, however they are not classified as omni-channel smart retail pharmacy as they focus on offline operation, derive significant proportion of their revenue from offline sales, and maintain large number of self-operated offline retail pharmacies, generally over 1,000. Omni-channel smart retail pharmacy model is the latest trend of the omni-channel retail pharmacy market. Compared with other omni-channel retail pharmacies, omni-channel smart retail pharmacies possess established experience in B2C and O2O operations, with high degree of digitalization and strategic location of self-operated retail pharmacies, and thus have higher proportion of revenue from online sales channels. Omni-channel smart retail pharmacies were derived to suit the latest omni sales channel trend, and do not burden offline operation tradition and custom, which make them capable of rapidly adapted to the evolving market. To summarize, omni-channel smart retail pharmacy has the following advantages over other omni-channel retail pharmacy: High degree of digitalization. Digitalization is a key criteria to differentiate smart pharmacy and traditional pharmacy. Omni-channel smart retail pharmacy business model puts high emphasis on the digitalization of retail operation. It also brings customers from its online channels to offline channel, creating synergy between distinct sales channels. Comprehensive brand development and service offerings. Omni-channel smart retail business model takes advantage of reputation accumulated from historical operation in a single channel. By fulfilling different needs of existing customers, customer loyalty can be established and strengthened. Balanced development. An optimum omni-channel smart retail business model puts high emphasis on balanced development to capture demands from channels demand, as well as mitigate the reliance risk on any individual sales channels. Scale effect. With business scale accumulated from operation in different sales channels, as well as from strong technology capabilities, omni-channel smart retail pharmacies can reduce their operation costs as well as effectively address customers’ needs. As the consumer habit changes, it is expected that more consumers will choose omni-channel smart retail pharmacies when purchasing pharmaceutical product, given the convenience of online purchasing channels, as well the comprehensive service offering provided, among others. The following summarizes advantages of omni-channel smart retail pharmacy over single-channel retail pharmacy.

Traditional retail Omni-channel smart retail pharmacy pharmacy B2C retail pharmacy O2O retail pharmacy

Business model Consumer-concentric with high degree of Mainly for sale products, Business activities and Offering both online and digitalization utilizing intelligent platforms, occasionally providing transactions between offline service to providing integrated and flexible drug simple consultation and pharmacy and consumer customer, which purchasing, payment methods, prescription, and disease diagnosis services is taken place on involves online purchase delivery services to consumers in a seamless and assist in guiding the Internet. of drug on platform and and timely manner without the limitation of use of drugs. customer can choose to boundaries amongst different sales channels pick up in store or home and time. delivery.

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Traditional retail Omni-channel smart retail pharmacy pharmacy B2C retail pharmacy O2O retail pharmacy Store location • Establishment of self-operated retail Large number of self- • Online virtual platform • Collaboration with and density pharmacy in strategic locations based on data operated/chained retail different offline retail analysis in different aspects; store with high store • Large-scale warehouse stores as pick-up point density, mainly located for inventory • Target core and/or commercial district with a around hospitals, streets, management of product • Target core and/or large guest flow; business districts, and commercial district communities. with a large guest • Collaboration amongst offline retail stores flow instead of competition. Delivery method Pick up in store and/or home delivery Pick up in store Home delivery Pick up in store and/or home delivery

Stock keeping More than 10,000 Limited and generally More than 10,000 3,000 to 5,000 unit lower than 3,000, subject to size of retail store Source of revenue Both online (B2C and O2O) and offline channels Offline channel only Online channel only Mainly online channel

Scale of High Low High High digitalization

Market Size

The market size of omni-channel retail pharmacy increased from RMB14.9 billion in 2016 to RMB122.2 billion in 2020, representing a CAGR of 69.2%, and is expected to reach RMB466.0 billion in 2025, at a CAGR of 37.9% from 2020 to 2025. Meanwhile, proportion of omni-channel smart retail pharmacy within the omni-channel retail pharmacy market increased from 14.8% in 2016 to 31.8% in 2020, and is expected to reach 75.2% in 2025. Market Size of Omni-channel Retail Pharmacy in China, by Revenue, 2016-2025E

Omni-channel smart Other omni-channel CAGR retail pharmacy retail pharmacy 2016-2020 105.0% 60.1% 2021E-2025E 56.4% 13.3%

Billion RMB

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E Omni-channel smart retail pharmacy 2.2 6.3 13.4 23.0 38.8 77.9 137.9 218.6 325.2 466.0 Other omni-channel retail pharmacy 12.7 25.9 47.9 58.3 83.4 93.4 108.6 127.8 138.6 153.7

Note: the market size includes retail sales value of retail pharmacies with sales in both online and offline channels.

Source: Frost & Sullivan analysis

Entry Barriers

Operational experience. Managing multi-channel operation requires profound experiences and knowledge. In particular, supply, delivery and customer service are challenging for new entrants. Consumer traffic. Rich consumer traffic is the basis of operation and profitability of omni-channel smart retail pharmacies. In addition, the ability to convert consumer traffic between different sales channels is important to omni-channel smart retail pharmacies as well.

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Supply chain competency. Unlike B2C retail pharmacies, omni-channel smart retail pharmacies largely rely on offline pharmacy operation, making supply chain competency, from procurement, inventory management to product delivery, crucial to the success of omni- channel smart retail pharmacies. Digitalization capability. Development from offline retail to omni-channel smart retail requires huge capital investment as participants need to allocate huge resources for technology incorporation and digital transformation. The capital requirement for digitalization is a key entry barrier for new entrants. Growth Drivers

Cross-channel purchasing. Consumers are developing cross-channel pharmaceutical product purchasing behavior, selecting online or offline purchase dependent on different needs. Offline retail pharmacies are eager to extend to online sales channel to maintain profitability. Online sales channel and offline sales channel will eventually merge, while offline retails extend to online sales and online retails extend to offline sales. Favorable policies. Favorable polices have been issued to stimulate online healthcare industry and combination of online and offline pharmacy retails, including Opinions on Promoting the Development of “Internet + Medical Health” (《關於促進“互聯網+醫療健康”發展的意見》), which targets to develop a online healthcare industry which is able to benefit more people in China.

Advancement of technologies. Led by new technologies, new retail pharmacies are actively evolving and optimizing their services. Omni-channel smart retail pharmacies leverage their operation data from both online and offline sales channel to closely follow and study customer preferences and habits at regional level and thus figure out how to improve their services.

Transformation of businesses. Growing demands for retail pharmacies incentivizes retail pharmacies to expand their operation on scale and coverage level so to capture new business opportunities. Retail pharmacies may achieve expansion by their self-operations or leveraging merges or acquisitions.

Future Trends

Consumer-centered. As the industry evolves, retail pharmacies are laying more emphasis on fulfilling consumer preferences and demands. Consumer-centered service routine urges retail pharmacies to optimize their product portfolios and improve consumption experiences, in way of offering diversification and personalization to consumers.

Online + offline. Leveraging advancements of technologies, offline retail stores will serve consumers in an “online + offline” mode, giving better services to consumers, even after they walk out of the offline stores, such as offering online pharmaceutical consultation or chronic disease management services to consumers.

Balanced development. The ability to fulfill different needs of patients is crucial. Retail pharmacies should be able to provide comprehensive services to consumers. As a result, balanced development between distinct sales channels is critical to omni-channel retail pharmacies. In addition, the rapid growth of consumers’ needs over online healthcare services is pushing omni-channel retail pharmacies towards omni-channel smart retail pharmacies.

Big data analysis. Big data analysis will be the key to better services. By continuously accumulating big data, new retail pharmacies will be able to precisely capture consumer needs and preferences.

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Combination of AI and new retail. With the help of AI technologies, omni-channel smart retail pharmacies can achieve higher automation in their operations. Moreover, they can help provide distinguished consumption experiences, such as through unmanned offline stores and smart shelves. More AI solutions will emerge to enhance the business strengths of omni- channel smart retail pharmacies.

RETAIL PHARMACY EMPOWERING SERVICE MARKET IN CHINA

Traditional retail pharmacies face fierce challenges as the industry intensively transforms. Top traditional retail pharmacies are exploring omni-channel operation, while small-to- medium retail pharmacies are struggling in the evolving market. Retail pharmacy empowering service emerged to provide comprehensive solutions to enable traditional small-to-medium offline retail pharmacies to expand online sales channels and elevate operational capabilities. It is also capable of helping large scale and chained retail pharmacies to advantage their businesses by enriching their product portfolio, empowering their technology systems, as well as helping them to better understand consumer behaviors.

Retail pharmacy empowerment service typically involves systematic solutions including SaaS platforms to offline retail pharmacies to address their business needs of expanding online sales channel such as O2O, also boosting their operational efficiency by making measurable indicators available to them through the systems offered. SaaS is a software licensing and delivery model where a software is licensed on a subscription basis, and is hosted centrally on cloud platform, which is usually offered to enterprises as systematic solutions. Small-to- medium retail pharmacies without centralized management systems can purchase SaaS at a cost far less than self-develop. In addition, SaaS can be offered on-demand, tailored to be accustomed to their specific needs. Some empowerment service providers may additionally offer operational guidance leveraging their own omni-channel smart retail pharmacy operation experiences.

In recent years, with the rapid growth of O2O sales channel, key players of online healthcare e-commerce are starting to provide retail pharmacy empowering services to traditional retail pharmacies leveraging their large customer base and logistics capability. However, as a comprehensive empowering service provider, we are capable of delivering comprehensive empowering services not limited to provision SaaS platforms, but in addition, management of customer’s operations, to other retail pharmacies. The market size of retail pharmacy empowering service, comprising revenue generated from provision of empowering software, systems, data analytics and services in respect to logistics, operation and marketing of retail pharmacy, has seen a rapid growth since 2016.

China Retail Pharmacy Empowering Service Market Size, by Revenue, 2016-2025E

Period CAGR 7.2 2016-2020 46.0% 2021E-2025E 38.2% 5.6

4.1 Billion RMB 3.0 2.0 1.4 0.9 0.6 0.3 0.5

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Source: Frost & Sullivan analysis

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Entry Barriers

Technological capability. Transformation of traditional offline retail pharmacies from offline to online is a dilemma for traditional offline retail pharmacies. The digitalization of business operation requires strong support of technologies such as SaaS-based software and other technological infrastructures with advanced intelligent features. Technological capability is crucial to retail pharmacy empowering service providers.

Industry know-how. Apart from technological capability, retail pharmacy know-how is also critical. Retail pharmacy empowering service providers should have deep and thorough understanding of business operation, industry knowledge and profound empowering service experience, or even retail pharmacy operation experience to provide effective services to customers.

Reputation and track record. Experienced and reputable retail pharmacy enterprises are more competitive when providing empowering services as they can share their operation experiences accumulated from their proven track records. Traditional retail pharmacy customers also tend to procure services from such suppliers due to their reputations and experiences.

Growth Drivers

Upgrade of consumption habit. Consumer behavior is rapidly evolving. Online purchase will account for larger proportion of pharmaceutical product consumption. As traditional retail pharmacies generally lack capability of operating online sales channels, empowering service is essential to them if they wish to expand to online sales.

Significant demand from traditional pharmacies. Traditional retail pharmacies with single store constitute over half of retail pharmacies in China. Facing the change of consumer purchase habits, large needs of sales channel expand are seen among these traditional retail pharmacies, leading to significant demands for retail pharmacy empowering services which enable them to embrace online sales channels.

Rise of O2O sales channel. O2O retail pharmacy sales channel is gaining more market share. As O2O platforms aim to provide better customer experiences, they tend to cooperate with more and different retail pharmacies, as competition brings better services. Such development pattern has urged more offline retail pharmacies to operate on O2O platforms, leading to increasing demands for retail pharmacy empowering services.

Future Trends

Advancement of empowering services. Empowering services improves various aspects of retail pharmacy operation, such as centralized management, logistics and intelligent operation including automatic order tracking and management. Going forward, empowering services will cover more aspects of the operation of multi-channel retail pharmacy to fulfill evolving needs of retail pharmacy customers.

Increase of penetration rate. Currently empowering services are mainly offered to small-to-medium retail pharmacies in major cities of China. It is expected that those located in lower-tier cities will increasingly need empowering services. Growing needs will increase the market size of retail pharmacy empowering service.

Integration with new healthcare ecosystem. Taking advantage of the technological and operational help provided by empowering services, traditional retail pharmacies may further develop themselves to distinct participants of new internet healthcare ecosystem, such as internet hospitals, healthcare e-commerce platforms, which in turn will further enhance their needs for empowering services.

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COMPETITIVE LANDSCAPE

The Omni-channel Smart Retail Pharmacy in the PRC

Owing to the highly fragmented nature of retail pharmacy market in the PRC, there were over 550,000 retail pharmacy companies in 2020. Growing trend of chained operation, development of online retail pharmacy and emergence of omni-channel retail pharmacy have been prevailing among the retail pharmacy market in the PRC. In 2020, there were nearly sizeable 50 participants in the omni-channel retail pharmacy market, operating in total nearly 150,000 pharmacies. Among them, less than 20 operated based on the latest omni-channel smart retail pharmacy model, in the same year. In 2020, revenue of the two most leading players accounted for approximately 77.3% of the total market share the omni-channel smart retail pharmacy model has gained. In the same year, we were the fourth largest omni-channel smart retail pharmacy in the PRC in terms of revenue in 2020 with a market share of approximately 2.6%, RMB1,008.1 million.

Ranking and Revenue Distribution between Different Channels of Major Participants in the PRC Omni-channel Smart Retail Pharmacy Market, by Revenue, 2020

Revenue of Market share in Market share retail pharmacy omni-channel in omni-channel operation in retail pharmacy smart retail 2020 market (%) pharmacy market (%)

4% Company A 4% 92% 16,773.5 13.7% 43.2%

Company B 1% 16% 82% 13,216.3 10.8% 34.1%

Company C 8% 62% 30% 1,828.3 1.5% 4.7%

QYT (⋹Ⓚา) 36% 22% 42% 1,008.1 0.8% 2.6%

Company D 7% 18% 75% 983.1 0.8% 2.5%

Offline O2O B2C

Source: Frost & Sullivan analysis

Note: Omni-channel smart retail pharmacies are defined based on following key criteria: (i) engaging in omni-channel retail business, including all channels of retail pharmaceutical sales (i.e. B2C, O2O, pure offline retail pharmacies business), (ii) large scale of digitalization with revenue contribution of more than 50% from B2C and O2O. As a result, the ranking table does not include other omni-channel retail pharmacies, particularly those non-smart retail pharmacy characterised with background of chained offline retail pharmacy, large number (i.e. more than 1,000) of self-operated retail pharmacy, and significant portion (e.g. over 50%) of revenue generated from sales through offline pharmacy; (iii) market share is calculated based on market size of omni-channel retail pharmacy and omni-channel smart retail pharmacy of RMB122.2 billion and RMB38.8 billion, respectively, in 2020, and include only revenue from self-operated retail pharmacies only.

Balanced development between different sales channels is one of the keys to the growth of omni-channel smart retail pharmacies, as each sales channel plays a critical role in the capture of consumer traffic. We ranked first in terms of the balanced development of distinct sales channels in 2020, as we have a most balanced development between different channels.

As omni-channel smart retail pharmacies generally started from online operation, geographical coverage (excluding B2C sales channel, which cannot satisfy consumers’ instant needs) is an disadvantage of them. However, among all omni-channel smart retail pharmacies, our geographical coverage ranked third by number of cities covered in 2020.

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Approximate number of cities covered by leading omni-channel smart retail pharmacies, 2020

Company B >300

Company A >300

QYT (⋹Ⓚา) 248

Company D 17

Company C 11

Note: approximate number of cities only; include the geographic coverage of self-operated, empowered or cooperated physical (O2O and offline) retail pharmacies and is recorded at the end of 2020; number of cities covered by Company B is recorded at the end of March 2021.

Source: Frost & Sullivan analysis

Leveraging our strong data analysis capability and scientific pharmacy operation model, we ranked first in terms of productivity of self-operated O2O and offline pharmacy.

Ranking of O2O and offline pharmacy in China by productivity*, 2020

Our Group 3,833

Company C 2,405

Company E 2,209

Company F 1,805

Note: productivity refers to the average total number of O2O and offline sales orders per self-operated retail pharmacy per month.

IMPACT OF COVID-19

Amid the COVID-19 outbreak, several policies were issued to promote online healthcare market, such as the Guidance on Promotion of “Internet +” Medical Insurance during the epidemic prevention and control of COVID-19 (《關於推進新冠肺炎疫情防控期間開展“互聯網+”醫保服務的指導意見》), which allows eligible online medical service expenses to be reimbursed by public medical insurances and encourages designated medical institutions to provide online drug purchase services. As the COVID-19 outbreak restricted outdoor activities, consumer habit of purchasing online to fulfill daily consumption needs has been further cultivated in 2020. While tradition offline retail purchase may still remain the most preferred purchase method, there is an upsurge of online drug purchase among consumers in China. Omni-channel smart retail pharmacies which cover both online and offline channels give consumers flexibility in healthcare product purchasing. In addition, the pandemic has also increased people’s health awareness, leading to increase in health and wellness product demands. Industry development and favorable polices have motivated consumers to purchase drugs online and driven traditional retail pharmacies to explore different sales channels and business model, such as omni-channel smart retail model. The number of omni-channel smart retail pharmacies is expected to increase with the impact of the COVID-19 outbreak.

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We are subject to a variety of PRC laws, rules and regulations affecting many aspects of our business. This section summarizes the principal PRC laws, rules and regulations that we believe are relevant to our business and operations.

REGULATORY FRAMEWORK

The pharmaceutical retail industry is subject to regulation and oversight by the NMPA and its local counterparts.

Drug Administration of Law of the PRC (《中華人民共和國藥品管理法》) (the “Drug Administration Law”), which was promulgated by the Standing Committee of the National People’s Congress (the “SCNPC”), and came into effect on July 1, 1985, and was recently amended on August 26, 2019 and came into effect on December 1, 2019, provides the legal framework for the administration of the production and sale of pharmaceutical products in the PRC and covers the manufacturing, distributing, registration, packaging, pricing and advertising of pharmaceutical products in China.

Our medical device operation businesses shall abide by the Regulations on the Supervision and Administration of Medical Devices (《醫療器械監督管理條例》) (the “Medical Device Regulations”) which was issued by the State Council in 2000 and recently amended on December 21, 2020 and came into effect on June 1, 2021.

We are also subject to other PRC laws and regulations that regulate the retail of pharmaceutical products, medical devices and food (health food).

REGULATIONS RELATING TO PHARMACEUTICAL RETAIL INDUSTRY

General Regulations Relating to Drugs Operation

In September 1984, the SCNPC promulgated the Drug Administration Law, which was amended in 2001, 2013, 2015 and 2019 respectively to regulate all entities or individuals engaging in research, manufacture, operation, use, supervision and management of drugs within the PRC. According to the Drug Administration Law, no pharmaceutical operation, including pharmaceutical whole sale and pharmaceutical retail business, is permitted without obtaining the Pharmaceutical Operation License. The Implementation Rules for the Drug Administration Law (《藥品管理法實施條例》), was promulgated by the State Council in August 2002 and amended in 2016 and 2019, which emphasized the detailed implementation rules of drugs administration. The NMPA promulgated the Measures for the Administration of Pharmaceutical Operation License (《藥品經營許可證管理辦法》) in February 2004 as amended in 2017, which stipulates the procedures for applying the Pharmaceutical Operation License and the requirements and qualifications for pharmaceutical wholesalers or pharmaceutical retailers with respect to their management system, personnel, facilities and etc. The valid term of the Pharmaceutical Operation License is five years and shall be renewed through application six months prior to its expiration date.

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According to the Administrative Measures for the Supervision and Administration of Circulation of Pharmaceuticals (《藥品流通監督管理辦法》), promulgated by the NMPA in January 2007 and effective in May 2007, pharmaceutical manufacture and operation enterprises and medical institutions shall be responsible for the quality of pharmaceuticals they manufacture, provide or use. The operation of prescription drugs is highly regulated under these rules. Prescription drugs may not be sold by pharmaceutical retail enterprises without valid prescriptions and an enterprise in violation of such restriction will be instructed to rectify any violation, given a disciplinary warning, and/or imposed a fine of no more than RMB1,000. In addition, a pharmaceutical manufacture or operation enterprise shall not sell prescription drugs directly to the public by post or over internet, and the enterprise in violation of such restriction shall be instructed to rectify, given a disciplinary warning, and imposed a fine of not more than two times the value of the pharmaceuticals sold, but not more than RMB30,000.

Furthermore, the GSP, promulgated by the NMPA in April 2000 and amended in 2012, 2015 and 2016 respectively, the pharmaceutical operation enterprises shall take effective quality control measures over the process of procurement, storage, transportation and sale of drugs in order to ensure their quality.

Regulations Relating to Prescription Drugs Operation

According to the Measures on Prescription Drugs and OTC Drugs Classification Management (Trial) (《處方藥與非處方藥分類管理辦法(試行)》) and the Interim Provisions on the Circulation of Prescription and OTC Drugs (《處方藥與非處方藥流通管理暫行規定》), which were both promulgated by the State Drug Administration, which was restructured and integrated into the NMPA, in 1999 and became effective in January 2000, drugs are divided into prescription drugs and OTC drugs. For prescription drugs, the dispensing, purchase and use can only be based on the prescription issued by the certified medical practitioner or certified medical assistant practitioner. In addition, the prescription drugs can only be advertised and promoted in professional medical magazines. OTC drugs, on the other hand, are further divided into Class A and Class B and they both can be purchased and used without a prescription and promoted in public upon approval by the relevant governmental authorities. The pharmaceutical wholesale enterprises distributing prescription drugs and/or OTC drugs, as well as pharmaceutical retail enterprises selling prescription drugs and/or Class A OTC drugs are required to obtain the Pharmaceutical Operation License.

According to Drug Administration Law, enterprises engaging in drug retail shall verify prescriptions, and drugs listed in a prescription shall not be arbitrarily changed or substituted. Where a prescription has incompatibility or excessive dosage, the pharmacist shall refuse to dispense, the prescription may be dispensed only upon correction or resigning by the prescribing physician if necessary.

The newly revised Drug Administration Law in 2019 abolishes the restriction on online sale of prescription drugs and adopts the principle of keeping online and offline sales consistent. In order to strengthen the supervision and management of drug online sales and standardize the behavior of drug online sales, the NMPA published the Measures for the

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Supervision and Administration of Online Pharmaceuticals Sales (Draft for comments) (《藥品網絡銷售監督管理辦法(徵求意見稿)》) (the “Draft Measures”) on November 2020 for public comments. The Draft Measures provides specific and explicit rules for the online sales of prescription drugs, which is perceived to be more conducive to online prescription drug sellers including us, but also presents challenges for us to be in compliance. The Draft Measures provides that, among others, online prescription drug sellers shall (i) ensure the accuracy and reliability of the source of e-prescription, (ii) keep records of any e-prescription for at least five years and no less than one year after the expiration date of the prescription drugs, and (iii) disclose safety warnings including “prescription drugs should only be purchased and used with prescriptions and guidance of licensed pharmacists” when displaying information of prescription drugs.

However, as of the Latest Practicable Date, none of the regulations or implementation rules regulating online drug sales have yet been promulgated and implemented, which may further introduce and impose certain conditions and restrictions to the online sale of drugs.

Regulations relating to Online Drug Information Services

According to the Measures Regarding the Administration of Drug Information Service over the Internet (《互聯網藥品信息服務管理辦法》), promulgated by NMPA on July 8, 2004 and amended on November 17, 2017, the operational Internet drug information service refers to the activities of providing medical information (including medical devices) and other services to Internet users through the Internet, and where any website intends to provide Internet drug information services, it shall file an application with the local provincial counterparts of NMPA, and shall be subject to the examination and approval thereof for obtaining the qualifications for providing Internet drug information services. The validity term for a Qualification Certificate for Internet Drug Information Services is five years and may be renewed at least six months prior to its expiration date upon a re-examination by the relevant authority. Pursuant to the Measures Regarding the Administration of Drug Information Service over the Internet, the Internet drug information services are classified into two categories, namely, profit-making services and non-profit- making services. Profit-making services refers to that of providing Internet users with drug information in return for service fees whilst non-profit-making services refers to that of providing Internet users with drug information which is shared and accessible by the public through the Internet free of charge.

Regulations relating to Classified and Graded Management of Retail Pharmacies

On November 23, 2018, the Ministry of Commerce issued a notice on the public solicitation of opinions on the Guiding Opinions on the Classified and Graded Management of National Retail Pharmacies (Draft for Comments) (《全國零售藥店分類分級管理指導意見(徵求意見稿)》), which intends to further guide and standardize the classified and graded management of retail pharmacies. This draft opinion proposes to divide retail pharmacies into three categories.

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Several provinces have adopted classified and graded management of retail pharmacies. For example, Guangdong Province issued Administrative Measures for Classification of Drug Retail Enterprises (Trial) (《藥品零售企業分級分類的管理辦法(試行)》) on March 12, 2018. The drug retail enterprises are divided into grade A, B, C and D according to the risk level of its business scope from low to high. Provinces including but not limited to Yunnan Province and Shandong Province have also adopted the classification management of drug retail enterprises.

Regulations relating to Medical Devices Operation

Management of Medical Devices Operation

The Medical Device Regulations regulates entities that engage in the research and development, production, operation, use, supervision and administration of medical devices in the PRC.

Medical devices are classified according to their risk levels. Class I medical devices are medical devices with low risks, and the safety and effectiveness of which can be ensured through routine administration. Class II medical devices are medical devices with moderate risks, which are strictly controlled and administered to ensure their safety and effectiveness. Class III medical devices are medical devices with relatively high risks, which are strictly controlled and administered through special measures to ensure their safety and effectiveness. The evaluation of the risk levels of medical devices take into consideration the medical devices’ objectives, structural features, methods of use and other factors. Registration certificates are required for Class II and Class III medical devices. The classification of specific medical devices is stipulated in the Medical Device Classification Catalog (《醫療器械分類目錄》), which was issued by the NMPA on 31 August 2017 and became executive on 1 August 2018.

Pursuant to the Measures for the Supervision and Administration of Medical Devices Operation (《醫療器械經營監督管理辦法》) promulgated by the NMPA on July 30, 2014 and amended on November 17, 2017, licensing or recordation is not required for business activities involving Class I medical devices, while recordation administration shall apply to business activities involving Class II medical devices, and licensing administration shall apply to business activities involving Class III medical devices. An enterprise engaging in the operation of medical devices shall have business premises and storage conditions suitable for the operation scale and scope, and shall have a quality control department or personnel suitable for the medical devices it operates. Also, a quality control system compatible with the medical devices it operates is required, and an enterprise engaging in business activities involving Class III medical devices shall also have a qualified computer information management system.

An enterprise engaged in the operation of Class II medical devices shall file with the municipal level drug supervision and administration department and provide proofing materials for satisfying the relevant conditions of engaging in the operation of medical devices, while an enterprise engaged in the operation of Class III medical devices shall apply for an operation

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Regulations relating to Online Sales of Medical Devices

On December 20, 2017, the NMPA promulgated the Administration and Supervision Measures of Online Sales of Medical Devices (《醫療器械網絡銷售監督管理辦法》) (the “Online Medical Devices Sales Measures”), which became effective on March 1, 2018. According to the Online Medical Devices Sales Measures, enterprises engaged in online sales of medical devices must be medical device manufacture and operation enterprises with medical devices production licenses or operation licenses or being filed for record in accordance with laws and regulations, unless such licenses or record-filing is not required by laws and regulations. Pursuant to the Online Medical Devices Sales Measures, the enterprises engaging in online sales of medical devices through its own website, and the third-party platform for provision of online medical devices transaction services shall obtain an Internet Drug Information Services Qualification License. Either enterprises engaging in online sales of medical devices or enterprises to provide a third-party platform for provision of medical devices online transaction services shall take technical measures to ensure the data and materials of medical devices online sales are authentic, completed and retrospective, for example the records of sale information of medical devices shall be kept for two years after the valid period of the medical devices, and for no less than five years in case of no valid period, or be kept permanently in case of implanted medical devices. For the enterprises engaging in online sales of medical devices, such enterprises shall display its medical device production and operation license or record-filing certificate on visible place of its homepage, and the information of the medical devices published on the website shall be consistent with the related contents registered or filed for record; in addition, the business scope shall not exceed the scope of its production and operation license or the scope filed for record. For the enterprises to provide a third-party platform for provision of medical devices online transaction services, such enterprises shall be filed for record with the local provincial counterparts of NMPA, and shall verify the materials submitted by any enterprise applying for entering the platform.

Regulations relating to Food Operation

In accordance with the Food Safety Law of the PRC (《中華人民共和國食品安全法》), promulgated on February 28, 2009 and latest amended on April 29, 2021, and the Implementation Regulations of the Food Safety Law of the PRC (《中華人民共和國食品安全法實施條例》), or the Implementation Regulations, issued on July 20, 2009 and latest amended on October 11, 2019 and effective on December 1, 2019, with the purpose of guaranteeing food safety and safe guarding the health and life safety of the public, the PRC sets up a system of the supervision, monitoring and appraisal on the food safety risks, compulsory adoption of food safety standards. To engage in food production, sale or catering services, the business

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Administrative Measures for Food Operation Licensing (《食品經營許可管理辦法》) promulgated by the NMPA on August 31, 2015 and amended on November 17, 2017, regulates the food operation licensing activities, strengthens supervision and management of food operation, and ensures food safety. Food operation operators shall obtain the food operation license for each business venue where they engage in food operation activities. The food operation license is valid for five years.

Regulations relating to Advertisement of Pharmaceutical Products

Pursuant to the Advertisement Law of the PRC (《中華人民共和國廣告法》), which was promulgated by the SCNPC on October 27, 1994 and recently amended and took effect on April 29, 2021, any advertisement for medical treatment, pharmaceuticals or medical devices shall not contain the following items: (i) any assertion or guarantee for efficacy and safety; (ii) any statement on cure rate or effective rate; (iii) comparison of the efficacy and safety with other pharmaceuticals or medical devices or with other medical institutions; (iv) endorsements or testimonials; (v) other items as prohibited by laws and administrative regulations.

Pursuant to the Interim Administrative Measures for Censorship of Advertisements for Drugs, Medical Devices, Dietary Supplements and Foods for Special Medical Purpose (《藥品、醫療器械、保健食品、特殊醫學用途配方食品廣告審查管理暫行辦法》), which were promulgated by the SAMR on December 24, 2019, effective on March 1, 2020, an enterprise seeking to advertise its drugs, medical devices, dietary supplement or food for special medical purpose must apply for an advertisement approval number. The validity period of the advertisement approval number concerning a drug, medical device, dietary supplement or food for special medical purpose shall be consistent with that of the registration certificate or record-filing certificate or the production license of the product, whichever is the shortest. Where no validity period is set forth in the registration certificate, record-filing certificate or the production license of the product, the advertisement approval number shall be valid for two years. The content of an approved advertisement may not be altered without prior approval. Where any alteration to the advertisement is needed, a new advertisement approval shall be obtained.

NATIONAL MEDICAL INSURANCE PROGRAM

Pursuant to the Notice of Opinion on the Diagnosis and Treatment Management, Scope and Payment Standards of Medical Service Facilities Covered by the National Urban Employees Basic Medical Insurance Scheme (《關於印發<城鎮職工基本醫療保險診療項目管理、醫療服務設施範圍和支付標準意見>的通知》) promulgated on June 30, 1999, part of the fees of diagnostic and treatment devices and diagnostic tests would be paid through the basic medical insurance scheme. Detailed reimbursement coverage and rate are subject to provincial local policies. Pursuant to the Decision on the Establishment of the Urban Employee Basic

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Medical Insurance Program (《關於建立城鎮職工基本醫療保險制度的決定》) issued by the State Council on 14 December 1998, the Notice of Opinions on the Establishment of the New Rural Cooperative Medical System (《關於建立新型農村合作醫療制度意見的通知》) issued by the General Office of the State Council on January 16, 2003, the Guiding Opinions of the State Council about the Pilot Urban Resident Basic Medical Insurance (《國務院關於開展城鎮居民基本醫療保險試點的指導意見》) issued by the State Council on July 10, 2007, and the Opinions on Integrating the Basic Medical Insurance Systems for Urban and Rural Residents (《國務院關於整合城鄉居民基本醫療保險制度的意見》) promulgated on January 3, 2016, all employees and residents in rural and urban areas would be involved in medical insurance program.

According to Notice on Printing and Distributing the Reform Plan for the Management of High-value Medical Consumables (《國務院辦公廳關於印發治理高值醫用耗材改革方案的通知》), the State plans to establish a basic medical insurance access system for high-value medical consumables and implement catalogue management of high-value medical consumables, and to improve dynamic catalogue adjustment and timely supplement necessary new technological products. Also, the State plans to make policies on payment by medical insurance through, among others, scientifically formulating the standards for payment by medical insurance for high-value medical consumables and establishing a dynamic adjustment mechanism.

REGULATIONS RELATING TO PRODUCT LIABILITY AND CONSUMER PROTECTION

Pursuant to the Product Quality Law (《中華人民共和國產品質量法》) promulgated on February 22, 1993 and latest amended on December 29, 2018 by the SCNPC, the seller shall be responsible for the repair, replacement or return of the product sold if (i) the product sold does not possess the properties for use that it should possess, and no prior and clear indication is given of such a situation; (ii) the product sold does not conform to the applied product standard as carried on the product or its packaging; or (iii) the product sold does not conform to the quality indicated by such means as a product description or physical sample. If a consumer incurs losses as a result of purchased product, the seller shall compensate for such losses.

On May 28, 2020, the Civil Code of the PRC (《中華人民共和國民法典》) was adopted by the NPC, which became effective on January 1, 2021, according to which, a manufacturer or a commercial seller is subject to liability for harm to persons or property caused by the product defects. The injured patient may seek compensation from the manufacturer or the commercial seller. Where the patient seeks compensation from the commercial seller, the commercial seller shall have the right to make a claim against the liable manufacturer after it has made compensation.

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The Law of the PRC on the Protection of the Rights and Interests of Consumers (《中華人民共和國消費者權益保護法》) was promulgated on October 31, 1993 and was amended on August 27, 2009 and October 25, 2013 to protect consumers’ rights when they purchase or use goods and accept services. All business operators must comply with this law when they manufacture or sell goods and/or provide services to customers. Under the amendments made on October 25, 2013, all business operators must pay high attention to protecting customers’ privacy and must strictly keep confidential any consumer information they obtain during their business operations. In addition, in extreme situations, pharmaceutical product manufacturers and operators may be subject to criminal liability if their goods or services lead to the death or injuries of customers or other third parties.

REGULATIONS RELATING TO FOREIGN INVESTMENT

Foreign Investment

Investments in the PRC by foreign investors are regulated by the Catalogue for the Encouragement of Foreign Investment Industries (2020 Edition) (《鼓勵外商投資產業目錄 (2020年版)》) (the “Catalogue”) and the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020 Version) (《外商投資准入特別管理措施(負面清單)(2020年版)》) (the “Negative List (2020)”), which were both promulgated by the MOFCOM and the NDRC and each became effective on January 27, 2021 and July 23, 2020, respectively. The Catalogue and the Negative List (2020) stipulate in detail the areas of entry pertaining to the categories of encouraged foreign investment industries, restricted foreign investment industries and prohibited foreign investment industries. Industries not listed in the Catalogue or the Negative List (2020) are generally deemed as a permitted industry unless specifically restricted by other PRC laws.

Foreign-Invested Enterprises

On December 29, 1993, the SCNPC issued the PRC Company Law, or the Company Law, which was last amended on October 26, 2018. The Company Law regulates the establishment, operation and management of corporate entities in China and classifies companies into limited liability companies and limited companies by shares. The Company Law applies to foreign- invested companies unless relevant laws provide otherwise.

According to the Foreign Investment Law of the PRC (《中華人民共和國外商投資法》) promulgated by the NPC on March 15, 2019 and came into effect as of January 1, 2020, the state shall implement the management systems of pre-establishment national treatment and negative list for foreign investment, and shall give national treatment to foreign investment beyond the negative list. Simultaneously, Sino-foreign Equity Joint Ventures of the PRC (《中華人民共和國中外合資經營企業法》), the Wholly Foreign-owned Enterprises Law of the PRC (《中華人民共和國外資企業法》) and Sino-foreign Cooperative Joint Ventures of the PRC (《中華人民共和國中外合作經營企業法》) have been repealed since January 1, 2020.

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In December 2019, the State Council promulgated the Regulations on Implementing the Foreign Investment Law of the PRC (《中華人民共和國外商投資法實施條例》), which came into effect in January 2020. After the Regulations on Implementing the Foreign Investment Law of the PRC came into effect, the Regulation on Implementing the Sino-Foreign Equity Joint Venture of the PRC (《中華人民共和國中外合資經營企業法實施條例》), Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture (《中外合資經營企業合營期限暫行規定》), the Regulations on Implementing the Wholly Foreign-owned Enterprise Law of the PRC (《中華人民共和國外資企業法實施細則》) and the Regulations on Implementing the Sino-foreign Cooperative Joint Venture of the PRC (《中華人民共和國中外合作經營企業法實施細則》) have been repealed simultaneously.

On December 30, 2019, the MOFCOM and the SAMR issued the Measures for the Reporting of Foreign Investment Information (《外商投資信息報告辦法》), which came into effect on January 1, 2020 and replaced the Interim Measures for the Recordation Administration of the Incorporation and Change of Foreign-Invested Enterprises (《外商投資企業設立及變更備案管理暫行辦法》), for carrying out investment activities directly or indirectly in the PRC, the foreign investors or foreign-invested enterprises shall submit investment information to the commerce authorities pursuant to these measures.

REGULATIONS RELATING TO H SHARE FULL CIRCULATION

“Full circulation” means listing and circulating on the Stock Exchange of the domestic unlisted shares of an H-share listed company, including unlisted domestic shares held by domestic shareholders prior to overseas listing, unlisted domestic shares additionally issued after overseas listing, and unlisted shares held by foreign shareholders. On November 14, 2019, CSRC announced the Guidelines for the “Full Circulation” Program for Domestic Unlisted Shares of H-share Listed Companies (Announcement of the CSRC [2019] No. 22) (《H股公司境內未上市股份申請“全流通”業務指引》(中國證券監督管理委員會公告[2019]22號)) (“Guidelines for the ‘Full Circulation’”).

According to the Guidelines for the “Full Circulation”, shareholders of domestic unlisted shares may determine by themselves through consultation the amount and proportion of shares, for which an application will be filed for circulation, provided that the requirements laid down in the relevant laws and regulations and set out in the policies for state-owned asset administration, foreign investment and industry regulation are met, and the corresponding H-share listed company may be entrusted to file the said application for “full circulation.” To file an application for “full circulation”, an H-share listed company shall file the application with the CSRC according to the administrative licensing procedures necessary for the “examination and approval of public issuance and listing (including additional issuance) of shares overseas by a joint stock company.” After the application for “full circulation” has been approved by the CSRC, an H-share listed company shall submit a report on the relevant situation to the CSRC within 15 days after the registration with the China Securities Depository and Clearing Co., Ltd. (“CSDC”) of the shares related to the application has been completed.

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On December 31, 2019, CSDC and Shenzhen Stock Exchange jointly announced the Measures for Implementation of H-share “Full Circulation” Business 《(H股“全流通”業務實施細則》)(“Measures for Implementation”). The businesses of cross-border transfer registration, maintenance of deposit and holding details, transaction entrustment and instruction transmission, settlement, management of settlement participants, services of nominal holders, etc. in relation to the H-share “full circulation business”, are subject to the Measures for Implementation.

In order to fully promote the reform of H-shares “full circulation” and clarify the business arrangement and procedures for the relevant shares’ registration, custody, settlement and delivery, CSDC has promulgated the Circular on Issuing the Guide to the Program for Full Circulation of H-shares (《關於發佈的通知》) in February 2020, which specified the business preparation, account arrangement, cross-border share transfer registration and overseas centralized custody, etc. In February 2020, CSDC (Hong Kong) also promulgated the Guide to the Program for Full Circulation of H-shares (《中國證券登記結算 (香港)有限公司H股“全流通”業務指南》) to specify the relevant escrow, custody, agent service of CSDC (Hong Kong), arrangement for settlement and delivery and other relevant matters.

REGULATIONS RELATING TO ANTI-UNFAIR COMPETITION

Since early 1990s, the legislative authorities at different levels in China have promulgated certain laws and regulations in respect of commercial bribery. According to the Anti-Unfair Competition Law of the PRC (《中國人民共和國反不正當競爭法》)(“Anti-Unfair Competition Law”), which was passed by the SCNPC on September 2, 1993, became effective as of December 1, 1993 and was most recently amended on April 23, 2019, unfair competition refers to that the operator disrupts the market competition order and damages the legitimate rights and interests of other operators or consumers in violation of the provisions of the Anti-unfair Competition Law in the production and operating activities. Pursuant to the Anti-unfair Competition Law, operators shall abide by the principle of voluntariness, equality, impartiality, integrity, and adhere to laws and business ethics during market transactions. Operators in violation of the Anti-unfair Competition Law shall bear corresponding civil, administrative or criminal liabilities depending on the specific circumstances.

According to the Interim Provisions on the Prohibition of Commercial Bribery (《國家工商行政管理局關於禁止商業賄賂行為的暫行規定》)(“Prohibition Commercial Bribery Provisions”), which was promulgated by SAIC on November 15, 1996, commercial bribery refers to an act of offering money or property or using other means by an operator to the other entity or individual for the purposes of selling or buying goods, among which “other means” refer to the means used to provide any types of benefits other than money or property, such as offering overseas or domestic travel. According to the Anti-Unfair Competition Law and the Prohibition Commercial Bribery Provisions, regulatory authorities may impose fines depending on the seriousness of the cases and if there is any illegal income, such income shall be confiscated.

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REGULATIONS RELATING TO ONLINE RETAIL BUSINESSES

According to the Administrative Measures for Online Trading (《網絡交易管理辦法》) promulgated by the SAIC on January 26, 2014, operators engaging in online commodity trading and related services shall go through industrial and commercial registration in accordance with the law. According to the E-commerce Law of the PRC (《中華人民共和國電子商務法》) passed by the SCNPC on August 31, 2018 and took effect on January 1, 2019, an “e-commerce operator” refers to a natural person, a legal person or an unincorporated association that carries out business activities through information networks such as the Internet to sell commodities or offer services, including operators of e-commerce platforms, business operators on e-commerce platforms, and other e-commerce operators that sell commodities or offer services on the website they develop themselves or through other network services. An e-commerce operator shall deliver commodities or services according to its promises or the ways and time limits as agreed upon with consumers, and bear the risks and responsibilities when commodities are in transit. However, there is an exception where consumers select separate express logistics service providers.

On March 15, 2021, the SAMR issued the Measures for the Supervision and Administration of Online Transactions (《網絡交易監督管理辦法》), which came into effect on May 1, 2021. As the departmental regulations for implementation of the E-commerce Law of the PRC, the Measures for the Supervision and Administration of Online Transactions formulates a series of specific rules to regulate the online transaction behavior, specify the main responsibility of the platform, and protect the rights and interests of consumers, in order to improve the online transaction supervision system.

REGULATIONS RELATING TO INTERNET SECURITY

Internet content in China is also regulated and restricted from a state security point of view. The Decision Regarding the Safeguarding of Internet Security (《關於維護互聯網安全的決定》), enacted by the SCNPC on December 28, 2000 and amended with immediate effect on August 27, 2009, makes it unlawful to, including but not limited to: (i) gain improper entry into a computer information system of national affairs, national defense or cutting-edge science and technology; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Administrative Measures for the Security Protection of International Connections to Computer Information Network (《計算機信息網絡國際聯網安全保護管理辦法》), issued by the Ministry of Public Security on December 16, 1997 and amended on January 8, 2011, prohibits the use of the internet in ways that, among other things, result in a leakage of state secrets or the distribution of socially destabilizing content.

On July 16, 2013, the Ministry of Industry and Information Technology (“MIIT”) issued the Order for the Protection of Telecommunication and Internet User Personal Information (《電信和互聯網用戶個人信息保護規定》). Most requirements under the order that are relevant to internet content provision operators are consistent with pre-existing requirements but the requirements under the order are often more stringent and have a wider scope. If an

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On November 7, 2016, the SCNPC issued the Cyber Security Law (《網絡安全法》), which came into effect on June 1, 2017. The Cyber Security Law provides that network operators must set up internal security management systems that meet the requirements of a classified protection system for cyber security, including appointing dedicated cyber security personnel, taking technical measures to prevent computer viruses, network attacks and intrusions, taking technical measures to monitor and record network operation status and cyber security incidents, and taking data security measures such as data classification, backups and encryption. The Cyber Security Law imposes a relatively vague but broad obligation to provide technical support and assistance to the public and state security authorities in connection with criminal investigations or for reasons of national security. The Cyber Security Law also requires network operators that provide network access or domain name registration services, landline or mobile phone network access, or that provide users with information publication or instant messaging services, to require users to provide a real identity when they sign up.

REGULATIONS RELATING TO EMPLOYMENT AND SOCIAL SECURITIES

Employment

The major PRC laws and regulations that govern employment relationship are the Labor Law of the PRC (《中華人民共和國勞動法》), or the Labor Law (issued by the SCNPC on July 5, 1994, came into effect on January 1, 1995 and revised on August 27, 2009 and December 29, 2018), the Labor Contract Law of the PRC (《中華人民共和國勞動合同法》) or the Labor Contract Law (promulgated by the SCNPC on June 29, 2007 and became effective on January 1, 2008, and then amended on December 28, 2012 and became effective on July 1, 2013) and the Implementation Rules of the Labor Contract Law of the PRC (《中華人民共和國勞動合同法實施條例》), or the Implementation Rules of the Labor Contract Law (issued by the State Council on September 18, 2008 and came into effect on the same day). According to the aforementioned laws and regulations, labor relationships between employers and employees must be executed in written form. The laws and regulations above impose stringent requirements on the employers in relation to entering into fixed-term employment contracts, hiring of temporary employees and dismissal of employees. As prescribed under the laws and regulations, employers shall ensure its employees have the right to rest and the right to receive wages no lower than the local minimum wages. Employers must establish a system for labor safety and sanitation that strictly abide by state standards and provide relevant education to its employees. Violations of the Labor Contract Law and the Labor Law may result in the imposition of fines and other administrative liabilities and/or incur criminal liabilities in the case of serious violations.

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Social Securities

According to the Social Insurance Law of PRC (《中華人民共和國社會保險法》), which issued by the SCNPC on October 28, 2010 and came into effect on July 1, 2011 and was newly revised on December 29, 2018, enterprises and institutions in the PRC shall provide their employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, occupational injury insurance, medical insurance and other welfare plans. Meanwhile, the Interim Regulation on the Collection and Payment of Social Insurance Premiums (《社會保險費徵繳暫行條例》) (issued by the State Council on January 22, 1999 and came into effect on the same day and was recently revised on March 24, 2019) prescribes the details concerning the social securities.

Housing Provident Fund

According to the Regulation Concerning the Administration of Housing Provident Fund (《住房公積金管理條例》), implemented since April 3, 1999 and amended on March 24, 2002 and March 24, 2019, any entity fails to make payment of housing provident fund within the time limit or has shortfall in payment of housing provident fund will be ordered to make the payment or make up the shortfall within the prescribed time limit, otherwise, the housing provident management center is entitled to apply for compulsory enforcement with the People’s Court.

REGULATIONS RELATING TO INTELLECTUAL PROPERTIES

Trademarks

Pursuant to the Trademark Law of the PRC (《中華人民共和國商標法》) which was promulgated on August 23, 1982 and last amended on April 23, 2019 and came into effect on November 1, 2019, the Implementation Regulations of the Trademark Law of PRC (《中華人民共和國商標法實施條例》) which was issued on August 3, 2002 and amended on April 29, 2014, the Trademark Office under the State Administration for Industry and Commerce of the PRC (the “Trademark Office”) shall handle trademark registrations and grant a term of ten years to registered trademarks, which may be renewed for additional ten year period upon request from the trademark owner. The Trademark Law of the PRC has adopted a “first-to-file” principle with respect to trademark registration. Where an application for trademark for which application for registration has been made is identical or similar to another trademark which has already been registered or is under preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right of others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use. A trademark registrant may, by entering into a trademark licensing contract, license another party to use its registered trademark. Where another party

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On September 7, 1990, the SCNPC promulgated the PRC Copyright Law (《中華人民共和國著作權法》) (the “Copyright Law”), which was amended in 2001 and 2010, and was further amended on November 11, 2020 and took effect on June 1, 2021, and its related implementing regulations, promulgated in 2002 and amended in 2011 and 2013, are the principal laws and regulations governing the copyright related matters. The amended Copyright Law covers internet activities, products disseminated over the internet and software products, among the subjects entitled to copyright protections. Registration of copyright is voluntary, and it is administrated by the China Copyright Protection Center. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

The National Copyright Administration promulgated the Computer Software Copyright Registration Measures (the “Software Copyright Measures”) (《計算機軟件著作權登記辦法》) on February 20, 2002, which regulates software copyright registration, software copyright exclusive license contracts, and transfer contracts. The National Copyright Administration of China shall be the competent authority for the nationwide administration of software copyright registration and the Copyright Protection Center of China (the “CPCC”), is designated as the software registration authority. The Computer Software Protection Regulations (2013 Revision) (《計算機軟件保護條例(2013修訂)》) (the “Computer Software Protection Regulations”) issued by the State Council which stipulates that software copyright owners and relevant matters associated with the protection, registration, licensing and transfer of software copyright, and stipulates that software copyright owners may obtain registration from the software registration authority acknowledged by the copyright administrative department under the State Council. The CPCC shall grant registration certificates to the Computer Software Copyrights applicants which comply with the provisions of both the Software Copyright Measures and the Computer Software Protection Regulations.

Domain name

Internet domain name registration and related matters are primarily regulated by the Administrative Measures for the Internet Domain Names of China (《中國互聯網絡域名管理辦法》), issued by the Ministry of Information Industry on November 5, 2004 and effective as of December 20, 2004 which was replaced by the Administrative Measures for Internet Domain Names (《互聯網域名管理辦法》) issued by MIIT on August 24, 2017 and effective as of November 1, 2017, and the Implementation rules for registration of national top-level domain names (《國家頂級域名註冊實施細則》) issued by China Internet Network Information Center on June 18, 2019. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and the applicants become domain name holders upon successful registration.

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REGULATIONS RELATING TO FOREIGN EXCHANGE AND OVERSEAS INVESTMENT

On January 29, 1996, the State Council promulgated the Administrative Regulations on Foreign Exchange of the PRC (《中華人民共和國外匯管理條例》) which became effective on April 1, 1996 and was amended on January 14, 1997 and August 5, 2008. Foreign exchange payments under current account items shall, pursuant to the administrative provisions of the foreign exchange control department of the State Council on payments of foreign currencies and purchase of foreign currencies, be made using self-owned foreign currency or foreign currency purchased from financial institutions engaging in conversion and sale of foreign currencies by presenting the valid document. Domestic entities and domestic individuals making overseas direct investments or engaging in issuance and trading of overseas securities and derivatives shall process registration formalities pursuant to the provisions of the foreign exchange control department of the State Council.

On November 19, 2012, the SAFE issued the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment (《國家外匯管理局關於進一步改進和調整直接投資外匯管理政策的通知》), or the SAFE Circular 59, which came into effect on December 17, 2012 and was revised on May 4, 2015, October 10, 2018 and partially abolished on December 30, 2019. The SAFE Circular 59 aims to simplify the foreign exchange procedure and promote the facilitation of investment and trade. According to the SAFE Circular 59, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, as well multiple capital accounts for the same entity may be opened in different provinces. Later, the SAFE promulgated the Circular on Further Simplifying and Improving Foreign Exchange Administration Policies in Respect of Direct Investment (《關於進一步簡化和改進直接投資外匯管理政策的通知》) in February 2015, which was partially abolished in December 2019 and prescribed that the bank instead of SAFE can directly handle the foreign exchange registration and approval under foreign direct investment while SAFE and its branches indirectly supervise the foreign exchange registration and approval under foreign direct investment through the bank.

On May 11, 2013, the SAFE issued the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign Investors (《外國投資者境內直接投資外匯管理規定》), or the SAFE Circular 21, which became effective on May 13, 2013, amended on October 10, 2018 and partially abolished on December 30, 2019. The SAFE Circular 21 specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

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According to the Notice on Relevant Issue Concerning the Administration of Foreign Exchange for Overseas Listing (《關於境外上市外匯管理有關問題的通知》) issued by the SAFE on December, 26, 2014, the domestic companies shall register the overseas listing with the foreign exchange control bureau located at its registered address in 15 working days after completion of the overseas listing and issuance. The funds raised by the domestic companies through overseas listing may be repatriated to China or deposited overseas, provided that the intended use of the fund shall be consistent with the contents of the document and other public disclosure documents.

According to the Notice of the State Administration of Foreign Exchange on Reforming the Management Mode of Foreign Exchange Capital Settlement of Foreign Investment Enterprises (《國家外匯管理局關於改革外商投資企業外匯資本金結匯管理方式的通知》), or the SAFE Circular 19 promulgated on March 30, 2015, coming effective on June 1, 2015 and partially abolished on December 30, 2019, foreign-invested enterprises could settle their foreign exchange capital on a discretionary basis according to the actual needs of their business operations. Whilst, foreign-invested enterprises are prohibited to use the foreign exchange capital settled in RMB (a) for any expenditures beyond the business scope of the foreign- invested enterprises or forbidden by laws and regulations; (b) for direct or indirect securities investment unless otherwise specified by laws and regulations; (c) to provide entrusted loans (unless permitted in the business scope), repay loans between enterprises (including advances by third parties) or repay RMB bank loans that have been onlent to a third party; and (d) to purchase real estates not for self-use purposes (save for real estate enterprises).

On June 9, 2016, SAFE issued the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account (《國家外匯管理局關於改革和規範資本項目結匯管理政策的通知》), or the SAFE Circular 16, which came into effect on the same day. The SAFE Circular 16 provides that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding RMB capital converted from foreign exchange may be used to extend loans to related parties or repay inter-company loans (including advances by third parties). However, there remain substantial uncertainties with respect to SAFE Circular 16’s interpretation and implementation in practice.

On October 23, 2019, SAFE promulgated the Notice on Further Facilitating Cross-Board Trade and Investment (《國家外匯管理局關於進一步促進跨境貿易投資便利化的通知》), which became effective on the same date (except for Article 8.2, which became effective on January 1, 2020). The notice cancelled restrictions on domestic equity investments made with capital funds by non-investing foreign-funded enterprises. In addition, restrictions on the use of funds for foreign exchange settlement of domestic accounts for the realization of assets have been removed and restrictions on the use and foreign exchange settlement of foreign investors’ security deposits have been relaxed. Eligible enterprises in the pilot area are also allowed to use revenues under capital accounts, such as capital funds, foreign debts and overseas listing

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According to the Circular on Optimizing Administration of Foreign Exchange to Support the Development of Foreign-related Business (《關於優化外匯管理支持涉外業務發展的通知》) issued by the SAFE on April 10, 2020, eligible enterprises are allowed to make domestic payments by using their capital funds, foreign credits and the income under capital accounts of overseas listing, without submitting the evidentiary materials concerning authenticity of such capital for banks in advance, provided that their capital use is authentic and in compliance with administrative regulations on the use of income under capital accounts. The bank in charge shall conduct post spot checking in accordance with the relevant requirements.

REGULATIONS RELATING TO TAXATION

Enterprise Income Tax

The Enterprise Income Tax Law of the PRC (《中華人民共和國企業所得稅法》), or the EIT Law, promulgated by the NPC on March 16, 2007, came into effect on January 1, 2008 and amended on February 24, 2017 and December 29, 2018, as well as the Implementation Rules of the EIT Law (《中華人民共和國企業所得稅法實施條例》), or the Implementation Rules, promulgated by the State Council on December 6, 2007, came into force on January 1, 2008 and amended on April 23, 2019, are the principal law and regulation governing enterprise income tax in the PRC. According to the EIT Law and its Implementation Rules, enterprises are classified into resident enterprises and non-resident enterprises. Resident enterprises refer to enterprises that are legally established in the PRC, or are established under foreign laws but whose actual management bodies are located in the PRC. And non-resident enterprises refer to enterprises that are legally established under foreign laws and have set up institutions or sites in the PRC but with no actual management body in the PRC, or enterprises that have not set up institutions or sites in the PRC but have derived incomes from the PRC. A uniform income tax rate of 25% applies to all resident enterprises and non-resident enterprises that have set up institutions or sites in the PRC to the extent that such incomes are derived from their set-up institutions or sites in the PRC, or such income are obtained outside the PRC but have an actual connection with the set-up institutions or sites. And non-resident enterprises that have not set up institutions or sites in the PRC or have set up institutions or sites but the incomes obtained by the said enterprises have no actual connection with the set-up institutions or sites, shall pay enterprise income tax at the rate of 10% in relation to their income sources from the PRC.

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Value-Added Tax

The major PRC law and regulation governing value-added tax are the Interim Regulations on Value-added Tax of the PRC (《中華人民共和國增值稅暫行條例》) (issued on December 13, 1993 by the State Council, came into effect on January 1, 1994, and revised on November 10, 2008, February 6, 2016 and November 19, 2017), as well as the Implementation Rules for the Interim Regulations on Value-Added Tax of the PRC (《中華人民共和國增值稅暫行條例實施細則》) (issued on December 25, 1993 by the Ministry of Finance, the “MOF”, came into effect on the same day and revised on December 15, 2008 and October 28, 2011), any entities and individuals engaged in the sale of goods, supply of processing, repair and replacement services, and import of goods within the territory of the PRC are taxpayers of VAT and shall pay the VAT in accordance with the law and regulation. The rate of VAT for sale of goods is 17% unless otherwise specified, such as the rate of VAT for sale of transportation is 11%. With the VAT reforms in the PRC, the rate of VAT has been changed several times. The MOF and the STA issued the Notice of on Adjusting VAT Rates (《關於調整增值稅稅率的通知》) on April 4, 2018 to adjust the tax rates of 17% and 11% applicable to any taxpayer’s VAT taxable sale or import of goods to 16% and 10%, respectively, this adjustment became effect on May 1, 2018. Subsequently, the MOF, the STA and the General Administration of Customs jointly issued the Announcement on Relevant Policies for Deepening the VAT Reform (《關於深化增值稅改革有關政策的公告》) on March 20, 2019 to make a further adjustment, which came into effect on April 1, 2019. The tax rate of 16% applicable to the VAT taxable sale or import of goods shall be adjusted to 13%, and the tax rate of 10% applicable thereto shall be adjusted to 9%.

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OVERVIEW

We are a leading omni-channel smart retail pharmacy in China in terms of revenue recorded in 2020, according to Frost & Sullivan. The history of our Group can be traced back to September 12, 2012, when our Company was established in Chengdu as a limited liability company under the laws of the PRC, funded primarily by our co-founder, Mr. Li with his own funds. See “Directors, Supervisors and Senior Management” in this document for the relevant industry experience of Mr. Li.

MILESTONES

The following table summarizes various key milestones in our corporate and business development.

Year Milestone

2012 Our Company was established in Chengdu.

2014 We obtained the Internet Drug Transaction Service Qualification Certificate (Type C) (C類互聯網藥品交易服務資格證書).

We established a flagship store at www.tmall.com.

2015 Our Company was converted into a joint stock company.

We completed our series A financing raising RMB40.2 million.

We established a store at www.JD.com.

We acquired an ERP-specialized company to develop our ERP system and Jiugongge (九宮格) system.

Our Company was awarded the best sales award by Alihealth in its double 11 sales event.

Our store ranked top 10 in Tmall Pharmacy Store (天貓醫藥館)in terms of the sales revenue recorded in the Tmall B2C double 11 sales event.

2016 We are among the top five listed companies in the first half of 2016 in terms of revenue of pharmaceutical e-commerce business, according to a survey on sohu.com.

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Year Milestone

2017 We completed our series A+ financing raising RMB80.2 million.

We launched pilot stores to conduct O2O business in Chengdu. Three offline retail pharmacies in Chengdu opened new retail business through pharmaceutical e-commerce platforms and empowering services, and successively launched stores on several leading O2O e-commerce platforms in China.

2018 Our Company obtained the ability to conduct data integration analysis through acquisition.

We implemented our “online + offline” model and extended to five cities, including Chengdu, Chongqing, Guangzhou, Foshan and Xi’an.

2019 We established our store at www.vip.com.

We completed our series B financing raising RMB103.5 million.

We combined the team of Tarkool (Shanghai) Information Technology Co., Ltd. (德酷(上海)信息技術有限公司) and Yumeng Tongxing to launch empowering business. We also launched the SaaS solutions for empowering business.

We ranked top five in the sales revenue of prescription drugs recorded in the Tmall B2C double 11 sales event.

2020 We completed our series C financing raising RMB300 million.

We expanded to 200 new retail stores and the total revenue of the year exceeded RMB800 million.

Our monthly revenue in relation to the empowering business exceeded RMB10 million in June. On November 16, 2020, the empowering business covered 220 cities and the daily revenue exceeded RMB1 million.

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ESTABLISHMENT AND MAJOR SHAREHOLDING CHANGES OF OUR COMPANY

Our Company was established in Chengdu under the name of Chengdu Quanyuantang Pharmacy Company Limited (成都泉源堂大藥房有限責任公司) as a limited liability company on September 12, 2012 with an initial registered capital of RMB100,000. At the time of the establishment, our Company was owned as to 10% by Mr. Li and 90% by Chengdu Shenhe, which was owned as to 95% by Mr. Li and 5% by Ms. Han Hemin (韓和敏), the mother of Mr. Li, respectively. On October 24, 2013 and April 27, 2015, our Company was renamed as Chengdu Quanyuantang Pharmacy Chain Company Limited (成都泉源堂大藥房連鎖有限責任公司) and Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. (成都泉源堂大藥房連鎖股份有限公司), respectively. Since the establishment, our Company has undertaken a series of capital increases to raise funds for the development of its business and to bring in new shareholders to our Company.

Prior to our quotation on the NEEQ, our Company underwent several rounds of key shareholding changes as follows:

1. On March 24, 2014, each of Chengdu Shenhe and Mr. Li agreed to inject RMB19,000,000 and RMB900,000 to the registered capital of our Company. Upon completion of the capital injection, Chengdu Shenhe and Mr. Li held 95.45% and 4.55% of the equity interests in our Company, respectively and our registered capital was increased to RMB20,000,000 upon completion on March 26, 2014.

2. On September 26, 2014, Chengdu Shenhe and Mr. Li entered into an equity interest transfer agreement, pursuant to which, Mr. Li agreed to transfer 4.55% equity interests in our Company held by him to Chengdu Shenhe at nil consideration and such transfer was completed in September 2014.

3. On December 25, 2014, Chengdu Shenhe entered into a series of equity interest transfer agreement with various investors (including Mr. Li, Chengdu Chuangtuo, Chen Zhouhua, Yu Miao, Tang Yaling (唐雅玲), Chen Yang, Wang Lei (王磊), Zeng Fengyu (曾鳳愉), Tie Weizhang (鐵位章), Yang Zhi (楊智), Li Kaiping (李開屏), Zhao Jun (趙俊), Zhou Nianwen (周年文), Yao Bing (姚冰), collectively, the “Founding Shareholders”), pursuant to which, Chengdu Shenhe agreed to transfer the entire equity interests in our Company held by it to the Founding Shareholders at a total consideration of RMB20 million, which was completed in January 2015.

4. On January 20, 2015, the Founding Shareholders agreed to inject additional RMB3,500,000 to the registered capital of our Company proportionally. Upon completion of the capital injection in January 2015, our registered capital was increased to RMB23,500,000.

5. On March 18, 2015, our Shareholders passed resolutions approving, among other matters, the conversion of our Company from a limited liability company into a joint stock company. Pursuant to the promoters’ agreement dated March 18, 2015 entered

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into by all the then existing Shareholders, all promoters approved the conversion of the net assets value of our Company as of January 31, 2015 into 23,500,000 Shares of our Company at a ratio of 1.009043:1. Upon the completion of the conversion, the registered capital of our Company became RMB23,500,000 divided into 23,500,000 Shares with a nominal value of RMB1.00 each, which were subscribed by all the then existing Shareholders in proportion to their respective equity interests in our Company before the conversion. The conversion was completed on April 27, 2015 when our Company obtained a new business license.

6. In and around June 2015, our Company entered into a series of share subscription agreements with some of the then existing Shareholders (including Yu Miao, Yao Bing, Wang Lei, Chen Zhouhua, Chen Yang) and our investors, pursuant to which each of the investors (including Chengdu Yingchuang Xingke Venture Capital Partnership (Limited Partnership) (成都盈創興科創業投資合夥企業(有限合夥)), Gao Yang (高陽), Gou Linling (苟林靈), Beijing Tianxing Capital Investment Management Co., Ltd. (北京天星資本投資管理股份有限公司), Yang Lixia (楊麗霞)) agreed to invest in our Company by subscription of the increased registered capital of our Company of an aggregate of RMB3,350,000 at a subscription price of RMB3 per Share. Such capital injection was approved by the then existing Shareholders by a resolution on June 2, 2015, and fully settled in June 2015. Upon completion of the capital injection, our registered capital was increased to RMB26,850,000.

After the quotation of our Shares on The National Equities Exchange and Quotations Co., Ltd. (“NEEQ”), our Company underwent the following key shareholding changes:

1. Series A financing in September 2015

In and around September 2015, our Company entered into a series of share subscription agreements with some of the then existing Shareholders and our investors, pursuant to which each of the investors (including Shanghai Zhenjie Yichang Investment Management Partnership (Limited Partnership) (上海臻界翊暢投資管理合夥企業(有限合夥)), Shenzhen Zhaocai New Third Board Equity Investment Partnership (Limited Partnership) (深圳招財新三板股權投資合夥企業(有限合夥)), Central China Securities Co., Ltd. (中原證券股份有限公司), Founder Fubon Hesheng New Third Board Special Asset Management Plan (方正富邦和生新三板專項資產管理計劃), Shenwan Hongyuan Securities Co., Ltd. (申萬宏源證券有限公司), Sealand Securities Co., Ltd. (國海證券股份有限公司), Beijing Tianxing Guangze Investment Center (Limited Partnership) (北京天星廣澤投資中心(有限合伙)), Chengdu Pengjin Zhonghe Enterprise Management Consulting Center (Limited Partnership) (成都朋錦中和企業管理諮詢中心(有限合伙)), Caitong Securities Co., Ltd. (財通證券股份有限公司), Chengdu Yingchuang Xingke Equity Investment Fund Management Co., Ltd. (成都盈創興科股權投資基金管理有限公司) and Shenzhen Jiatong Investment Management Partnership (Limited Partnership) (深圳加同投資管理合夥企業(有限合夥))) agreed to invest in our Company by subscription of the increased registered capital of our Company of an aggregate of RMB6,700,000 at a subscription price of RMB6 per Share. Such capital injection was approved by the then existing Shareholders by a resolution on September 30, 2015. The subscription price was determined

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2. Share capital injection and share allotment in 2016

On May 18, 2016, the share capital of the Company was increased from RMB33,550,000 to RMB67,100,000 proportionately allocated to all the then Shareholders. The subscription price was settled by the premium paid by certain investors after the conversion into joint stock company.

On September 20, 2016, our Shareholders passed resolutions approving (i) the purchase by our Company of the entire interests of Sichuan Quanyuantang Pharmaceutical Co., Ltd. (四川泉源堂藥業有限公司) (formerly known as Sichuan Pujiang Kelun Pharmaceutical Trading Co., Ltd. (四川蒲江科倫醫藥貿易有限公司)) held by Mr. Li at the consideration of RMB120,000,000. The consideration was settled by way of issuing 15,000,000 Shares to Mr. Li; (ii) the purchase by our Company of 35.18% equity interests in Sichuan Zizhuye Health Technology Co., Ltd. (四川紫竹葉健康科技有限公司) held by Chengdu Pengjin Asset Management Co., Ltd. - Pengjin Bohuai Private Equity Investment Fund (成都朋錦資產管理有限公司 - 朋錦博懷私募投資基金)(“Chengdu Pengjin”) at the consideration of RMB14,000,000. Such consideration has been settled by way of issuing 1,750,000 Shares to Chengdu Pengjin. Upon completion of the share allotment on September 23, 2016, our registered capital was increased from RMB67,100,000 to RMB83,850,000.

3. Series A+ financing in May 2017

In and around January 2017, our Company and our investors entered into a series of share subscription agreements, pursuant to which each of the investors (including V Capital Co., Ltd. (一村資本有限公司), Chongqing Heya Chemical & Pharmaceutical Venture Capital Partnership (Limited Partnership) (重慶和亞化醫創業投資合夥企業(有限合夥) and Founder KIP Healthcare Fund (上海方正韓投股權投資合夥企業(有限合夥))) agreed to invest in our Company by subscription of the increased share capital of our Company of an aggregate of RMB17,826,667 at the consideration of RMB80,220,000. Such capital injection was approved by the then existing Shareholders by a resolution on January 3, 2017. The subscription price was determined based on arm’s length negotiation between the parties taking into account various factors such as the synergies, the Company’s strategy and future development, the type of the investors, the quantity and time of the subscription and was fully settled in May 2017. Upon completion of the share capital injection, our registered capital was increased from RMB83,850,000 to RMB101,676,667. For details, see “—Pre-[REDACTED] Investments” below.

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After the voluntary delisting of our Shares from the NEEQ in July 2018, our Company has undergone the following key shareholding changes:

1. Series B financing in March 2019

In and around March 2019, our Company and our investors entered into a series of capital increase agreements/investment agreements, pursuant to which each of the investors (including KIP Re-Up Fund, Jingcheng (Chengdu) Equity Investment Fund Partnership (Limited Partnership) (景誠(成都)股權投資基金合夥企業(有限合夥)), Founder KIP Healthcare Fund, Chengdu Huamaoli) agreed to invest in our Company by subscription of the increased share capital of our Company of an aggregate of RMB17,250,000 at the consideration of RMB103,500,000. Such capital injection was approved by the then existing Shareholders by a resolution on March 5, 2019. The subscription price was determined based on arm’s length negotiation between the parties taking into account the fair value per Share of our Company in the amount of RMB4.5 as assessed by an independent professional valuer and was fully settled in March 2019. Upon completion of the share capital injection, our registered capital was increased from RMB101,676,667 to RMB118,926,667. For details, see “—Pre-[REDACTED] Investments” below.

2. Share capital injection and share transfers in 2019

On April 22, 2019, our Shareholders passed resolutions approving (i) the purchase by Ji’an Jingkai District Fengxiang Legend Trade Consulting Center (Limited Partnership) (吉安市井開區鳳翔傳說貿易諮詢中心(有限合夥)) of 1,000,000 Shares of our Company held by Mr. Li at the consideration of RMB4,500,000; (ii) the purchase by Mr. Chen Zhouhua of 520,000 Shares of our Company held by Chengdu Chuangtuo at the consideration of RMB1,890,000; (iii) the purchase by Sichuan Lianghong Enterprise Management Consulting Co., Ltd. (四川省量弘企業管理諮詢有限責任公司) of 500,000 Shares of our Company held by Chengdu Chuangtuo at the consideration of RMB1,500,000; (iv) the purchase by Itochu Logistics Corp. of 1,189,267 Shares of our Company held by Mr. Li at the consideration of RMB4,162,435; and (v) the purchase by Mr. Chen Zhouhua of 100,000 Share of our Company held by Yao Bing at the consideration of RMB350,000. The above subscription prices were determined based on arm’s length negotiation between the parties taking into account the fair value per Share of our Company in the amount of RMB4.5 as assessed by an independent professional valuer as well as the then financial performance of our Company and the prospect of its future cooperation with the investors. Such transfers were completed on May 20, 2019.

On September 10, 2019, our Shareholders passed resolutions approving (i) the purchase by Chengdu Chuangtuo of 750,000 Shares of our Company held by Chengdu Pengjin Asset Management Co., Ltd. – Pengjin Bohuai Private Equity Investment Fund at the consideration of RMB3,487,500; (ii) the purchase by Chengdu Chuangtuo of 1,000,000 Shares held by Chengdu Pengjin Zhonghe Enterprise Management Consulting Center (Limited Partnership) at the consideration of RMB4,650,000; and (iii) the purchase by Chengdu Chuangtuo of 2,600,000 Shares of our Company held by Shanghai Zhenjie Yichang Investment Management Partnership (Limited Partnership) at the consideration of RMB9,100,000. The above

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On December 11, 2019, our Company and Chengdu Chuangtuo entered into a capital increase agreement, pursuant to which Chengdu Chuangtuo agreed to subscribe 5,683,333 Shares at the consideration of RMB34,100,000. The subscription price was determined based on arm’s length negotiation between the parties taking into account the fair value per Share of our Company in the amount of RMB4.5 as assessed by an independent professional valuer as well as the then financial performance of our Company and the prospect of the business and was fully settled in January, 2019. Upon completion of the share capital injection, our registered capital was increased from RMB118,926,667 to RMB124,610,000.

On October 30, 2019, Chengdu Chuangtuo and Chengdu Huarong Meijia Technology Co., Ltd. (成都華蓉美迦科技有限責任公司)(“Huarong Meijia”) entered into an equity interest transfer agreement, pursuant to which, Chengdu Chuangtuo agreed to transfer 5,083,333 Shares in our Company held by it to Huarong Meijia at the consideration of RMB30,500,000, which was determined after arm’s length negotiation taking into account the fair value per Share of our Company in the amount of RMB4.5 as assessed by an independent professional valuer as well as the then financial performance of our Company and the prospect of its business and was completed in December 2019. Upon completion of the transfer, our Company was held by Huarong Meijia as to approximately 4.08%.

3. Share repurchase, share transfers and series C financing in November 2020 and share transfers in January 2021

On November 3, 2020, the Company convened and held the first extraordinary general meeting in 2020, during which it was approved that the Company to repurchase 6,485,693 Shares from Chengdu Huamaoli as treasury shares for equity incentive scheme. Each of the consideration of the share transfers was determined based on arm’s length negotiation between the parties as well as the prospect of the business. On the same day, the Company also approved the following share transfers to Chengdu Chuangtuo:

Number of shares Purchase Name of Vendor purchased Percentage price Consideration (%) (RMB) (RMB)

V Capital Co., Ltd. 一村資本有限公司 6,700,000.00 5.38 9.00 60,300,000.00 Chengdu Huamaoli Enterprise Management Co., Ltd. 成都華茂力企業管理有限公司 3,264,307.00 2.62 6.00 19,585,842.00

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Number of shares Purchase Name of Vendor purchased Percentage price Consideration (%) (RMB) (RMB)

Chengdu Huamaoli Enterprise Management Co., Ltd. 成都華茂力企業管理有限公司 1,500,000.00 1.20 9.00 13,500,000.00 Chengdu Yingchuang Xingke Venture Capital Partnership (Limited Partnership) 成都盈創興科創業投資合夥企業(有限合夥) 2,000,000.00 1.61 5.00 10,000,000.00 Chengdu Yingchuang Xingke Equity Investment Fund Management Co., Ltd. 成都盈創興科股權投資基金管理有限公司 600,000.00 0.48 5.00 3,000,000.00 Sichuan Lianghong Enterprise Management Consulting Co., Ltd. 四川省量弘企業管理諮詢有限責任公司 500,000.00 0.40 6.64 3,320,000.00 Huarong Meijia 5,083,333.00 4.08 6.00 30,500,000.00 Beijing Founder Fubon Chuangrong Asset Management Co., Ltd. 北京方正富邦創融資產管理有限公司 1,400,000.00 1.12 9.00 12,600,000.00 Ningbo CMB Shouxin Investment Partnership (Limited Partnership) 寧波招銀首信投資合夥企業(有限合夥) 1,300,000.00 1.04 8.00 10,400,000.00 Xiamen Qunce Chuangying Equity Investment Partnership (Limited Partnership) 廈門群策創贏股權投資合夥企業(有限合夥) 1,200,000.00 0.96 8.00 9,600,000.00 Shenzhen Zhaocai New Third Board Equity Investment Partnership (Limited Partnership) 深圳招財新三板股權投資合夥企業(有限合夥) 2,000,000.00 1.61 8.00 16,000,000.00 Chengdu Pengjin Asset Management Co., Ltd.-Pengjin Bohuai Private Equity Investment Fund 成都朋錦資產管理有限公司-朋錦博懷私募投資基金 1,000,000.00 0.80 8.00 8,000,000.00

In addition, the Company also approved certain share transfers made by other shareholders. All the above share transfers were completed in November 2020.

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On November 6, 2020, Chengdu Chuangtuo and QYT Pharmacy Limited (“QYT”) entered into an equity interest transfer agreement, pursuant to which, Chengdu Chuangtuo agreed to transfer 26,047,640 Shares in our Company held by it to QYT at the consideration of RMB215,931,120, which was determined after arm’s-length negotiation taking into account the fair value of our Company in the amount of RMB1,216,000,000 as assessed by an independent professional valuer and was completed in November 2020. Upon completion of the transfer, our Company was held by QYT as to 16.72%. For details, see “—Pre-[REDACTED] Investments” below.

On November 13, 2020, our Company and our investors entered into a share subscription agreement, pursuant to which each of the investors (including Lucky Linkage Holdings Limited and SIG (Shanghai) Equity Investment Fund Partnership (Limited Partnership) (海納華(上海)股權投資基金合夥企業(有限合夥)) agreed to invest in our Company by subscription of the increased share capital of our Company of RMB25,960,417 and RMB5,192,083 at the consideration of RMB250,000,000 and RMB50,000,000. Such capital injection was approved by the then existing Shareholders by a resolution on November 10, 2020. The subscription price was determined based on arm’s length negotiation between the parties taking into account the fair value of our Company in the amount of RMB1,216,000,000 as assessed by an independent professional valuer and was fully settled in November 2020. Upon completion of the share capital injection, our registered capital was increased from RMB124,610,000 to RMB155,762,500. For details, see “—Pre-[REDACTED] Investments” below.

On January 15, 2021, Shanghai Jianxin Data Service Partnership (Limited Partnership) (上海建鑫數據服務合夥企業(有限合夥)) purchased 370,000 Shares of our Company from Yao Bing at the consideration of RMB2.59 million. Mr. Du Tongjie purchased 100,000 Shares of our Company from Ms. Zeng Fengyu at the consideration of RMB0.7 million and purchased 115,000 Shares of our Company from Ms. Yang Lixia at the consideration of RMB0.85 million. The above prices were determined based on arm’s length negotiation between the parties taking into account the fair value of our Company in the amount of RMB1,216,000,000 as assessed by an independent professional valuer. Such transfers were fully settled in January 2021. Upon completion of such transfers, Shanghai Jianxin Data Service Partnership (Limited Partnership) and Mr. Du Tongjie held approximately 0.24% and 0.14% of the equity interests of our Company, respectively.

The shareholding structure of our Company upon completion of the series C financing and the share transfers in 2021 was set forth below:

Ownership Ownership percentage as percentage upon Number of of the date completion of the Name of Shareholder Shares of this document [REDACTED] (%) (%)

Mr.Li(李燦)(1) 37,792,733 24.26 [REDACTED] QYT Pharmacy Limited(1) 26,047,640 16.72 [REDACTED]

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Ownership Ownership percentage as percentage upon Number of of the date completion of the Name of Shareholder Shares of this document [REDACTED] (%) (%)

Lucky Linkage Holdings Limited 25,960,417 16.67 [REDACTED] Founder KIP Healthcare Fund 12,100,000 7.77 [REDACTED] Chengdu Chuangtuo(2) 8,286,000 5.32 [REDACTED] Treasury Shares(3) 6,485,693 4.16 [REDACTED] Chen Zhouhua (陳洲華)(1) 6,200,000 3.98 [REDACTED] SIG (Shanghai) Equity Investment Fund Partnership (Limited Partnership) 5,192,083 3.33 [REDACTED] KIP RE-UP Fund 5,000,000 3.21 [REDACTED] Chongqing Heya Chemical & Pharmaceutical Venture Capital Partnership (Limited Partnership) 4,460,000 2.86 [REDACTED] Yu Miao (于淼)(1) 2,010,000 1.29 [REDACTED] Shanghai Jiante Shengming Technology Co., Ltd. (上海健特生命科技有限公司)(4) 1,986,000 1.28 [REDACTED] Ningbo CMB Shouxin Investment Partnership (Limited Partnership)(5) 1,298,000 0.83 [REDACTED] Chengdu Huamaoli Enterprise Management Co., Ltd. 1,200,000 0.77 [REDACTED] Xiamen Qunce Chuangying Equity Investment Partnership (Limited Partnership)(5) 1,200,000 0.77 [REDACTED] Itochu Logistics Corp.(6) 1,189,267 0.76 [REDACTED] Jingcheng (Chengdu) Equity Investment Fund Partnership (Limited Partnership) 1,166,667 0.75 [REDACTED] Tongxing Tianxia Media Technology (Shenzhen) Co., Ltd. (童行天下傳媒科技(深圳)有限公司)(7) 1,000,000 0.64 [REDACTED] Jiangxi Fengxiang Investment Consultation Co., Ltd. (江西鳳翔投資顧問有限公司)(8) 1,000,000 0.64 [REDACTED] Wang Lei (王磊)(1) 870,000 0.56 [REDACTED] Chen Yang (陳楊)(1) 659,000 0.42 [REDACTED] Shenzhen Qianhai Ruiyang Investment Partnership (Limited Partnership) (深圳前海瑞揚投資合伙企業 (有限合伙))(9) 600,000 0.39 [REDACTED] Yang Lixia (楊麗霞)(1) 580,000 0.37 [REDACTED] Li Kaiping (李開屏)(1) 470,000 0.30 [REDACTED] Yang Zhi (楊智)(1) 470,000 0.30 [REDACTED] Tie Weizhang (鐵位章) 470,000 0.30 [REDACTED] Zhao Jun (趙俊) 470,000 0.30 [REDACTED] Zhou Nianwen (周年文) 414,000 0.27 [REDACTED] Zeng Feng (曾鳳愉)(1) 370,000 0.24 [REDACTED]

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Ownership Ownership percentage as percentage upon Number of of the date completion of the Name of Shareholder Shares of this document [REDACTED] (%) (%)

Shanghai Jianxin Data Service Partnership (Limited Partnership)(1) 370,000 0.24 [REDACTED] Du Tongjie (杜同傑)(1) 215,000 0.14 [REDACTED] Lei Sisi (雷斯斯) 178,000 0.11 [REDACTED] Other minority Shareholders 52,000 0.03 [REDACTED] Other [REDACTED]––[REDACTED]

Total 155,762,500 100.00 [REDACTED]

For further details of our Pre-[REDACTED] Investors, see “—Pre-[REDACTED] Investments” in this section.

Notes:

(1) Chen Zhouhua, Yu Miao, Chen Yang, Wang Lei, Yang Lixia, Li Kaiping, Yang Zhi and Zeng Fengyu, QYT Pharmacy Limited, together with Du Tongjie and Shanghai Jianxin Data Service Partnership (Limited Partnership), executed power of attorney respectively, under which the signing parties unconditionally and irrevocably confer all the voting rights attached to the shares held by the them upon Mr. Li. For further details of the voting arrangement, see “—Concert Party Agreements and Power of Attorney” in this section.

(2) Chengdu Chuangtuo is a limited liability company established under the laws of PRC and controlled by Mr. Li.

(3) The treasury Shares were transferred to the Employee Shareholding Platforms pursuant to the Share Incentive Scheme. Upon the completion of the share transfer, the group of Mr. Li, Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei are Controlling Shareholders of the Company. For further details of the Share Incentive Scheme, see “Appendix VI—Statutory and General Information—D. Share Incentive Scheme.”

(4) Shanghai Jiante Life Technology Co., Ltd. is a limited liability company established under the laws of PRC and controlled by Giant Investment Co., Ltd. (巨人投資有限公司), which is controlled by Shi Yuzhu (史玉柱), an Independent Third Party.

(5) Both Ningbo CMB Shouxin Investment Partnership (Limited Partnership) and Xiamen Qunce Chuangying Equity Investment Partnership (Limited Partnership) are limited partnerships established under the laws of PRC, both of which is controlled by China Merchants Wealth Asset Management Co., Ltd. (招商財富資產管理有限公司), which is ultimately controlled by China Merchants Bank Co., Ltd., a company listed on the main board of The Hong Kong Stock Exchange (stock code: 3968). The general partner of Ningbo CMB Shouxin Investment Partnership (Limited Partnership) is Shanghai CMB Equity Investment Fund Management Co., Ltd. (上海招銀股權投資基金管理有限公司), which is ultimately controlled by China Merchants Bank Co., Ltd. The general partner of Xiamen Qunce Chuangying Equity Investment Partnership (Limited Partnership) is Shenzhen Zhaocai Gongying Equity Investment Fund Management Center (Limited Partnership) (深圳招財共贏股權投資基金管理中心(有限合夥)), which is held as to approximately 33.19% by Zhao Shengzhang (趙生章). The general partner of Shenzhen Zhaocai Gongying Equity Investment Fund Management Center (Limited Partnership) is Shanghai CMB Equity Investment Fund Management Co., Ltd. All of the above are Independent Third Parties.

(6) Itochu Logistics Corp. is a limited liability company established under the laws of Japan and listed on the Tokyo Stock Exchange (stock code: 8001), an Independent Third Party.

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(7) Tongxing Tianxia Media Technology (Shenzhen) Co., Ltd. is a limited liability company established under the laws of PRC and controlled by Tian Jiashen (田甲申), an Independent Third Party.

(8) Jiangxi Fengxiang Investment Consultation Co., Ltd. is a limited liability company established under the laws of PRC and controlled by Zhou Manyi (周滿意), an Independent Third Party.

(9) Shenzhen Qianhai Ruiyang Investment Partnership (Limited Partnership) is a limited partnership established under the laws of PRC and controlled by Zhang Lingyan (張玲燕). The general partner is Xie Liang (謝亮). Both are Independent Third Parties.

CONCERT PARTY AGREEMENTS AND POWER OF ATTORNEY

As of January 1, 2020, Mr. Li was interested in an aggregate of approximately 37.06% equity interest in the Company (out of which approximately 30.33% was directly held and approximately 6.73% was held through Chengdu Chuangtuo).

After the Company’s delisting from the NEEQ in 2018, Mr. Li had been planning to consolidate more control over the Company. In order to strengthen Mr. Li’s voting rights in our Company, Mr. Li entered into an irrevocable concert deed (the “Employee Concert Deed”) with Chen Zhouhua, Yu Miao, Chen Yang, Wang Lei, Yang Lixia, Li Kaiping, Yang Zhi, and Zeng Fengyu (together, the “Signing Employees”) on January 1, 2020. Pursuant to the Employee Concert Deed, the Signing Employees agreed that in the event that there is a disagreement as to the voting to be cast, Signing Employees will vote in accordance with Mr. Li’s final decision provided that such decision will not prejudice the interest of the Company, Shareholders and creditors.

On July 3, 2020, the Company and Sino Biopharm entered into a term sheet, pursuant to which Sino Biopharm agreed to purchase certain existing shares of the Company and subscribe for certain new shares issued by the Company for a total investment amount of RMB500 million. The consideration was arrived at parties’ fair negotiation taking into account the then valuation of the Company of approximately RMB1.2 billion and the future prospects of the Company.

The Company is principally engaged in new retail omni-channel pharmacy chain stores and leading online pharmaceutical platform business, with a focus on leveraging Internet- enabled technologies to improve the sales of pharmaceutical products to consumers. Sino Biopharm is principally engaged in the manufacture, sales and distribution of Chinese medicine products and western medicine products and also research and development activities services to third parties such as healthcare and hospital business. Therefore, Sino Biopharm was seeking to invest in a company which has experience in operating sales of medical products business to customers.

It was the intention of Mr. Li and Sino Biopharm that Mr. Li would maintain his sole controlling shareholder status. As such, it was agreed between the parties that (i) the investment will be held through two entities as detailed below and the voting rights attached to the shares held by QYT will be conferred upon Mr. Li; and (ii) Sino Biopharm initially intended to acquire more than 41% interests in the Company pursuant to the term sheet but eventually only acquired 33.39%.

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On November 6, 2020, QYT Pharmacy Limited (“QYT”), a wholly-owned subsidiary of Sino Biopharm, Chengdu Chuangtuo and others entered into a share purchase agreement, pursuant to which Chengdu Chuangtuo agreed to dispose of and QYT agreed to purchase 26,047,640 Shares of the Company at the consideration of approximately RMB8.29 per share, subject to the terms and conditions contained therein (the “Share Purchase”). As Chengdu Chuangtuo was able to purchase shares from the then existing shareholders at a price lower than RMB9.63, the consideration for the Share Purchase could be slightly lower than the consideration for the Share Subscription below.

On November 13, 2020, Lucky Linkage Holdings Limited (“Lucky Linkage”), being another wholly-owned subsidiary of Sino Biopharm, the Company and others entered into a share subscription agreement, pursuant to which Lucky Linkage agreed to subscribe for 25,960,417 shares (being approximately 16.67% of the total share capital of the Company as at the date of the Share Subscription Agreement) at the consideration of approximately RMB9.63 per share subject to the terms and conditions contained therein (the “Share Subscription”).

In order to further strengthen Mr. Li’s voting rights in our Company, Mr. Li entered into an irrevocable concert deed with QYT on November 13, 2020 (the “QYT Concert Deed”). Pursuant to the QYT Concert Deed, QYT agreed that in the event that there is a disagreement as to the voting to be cast, QYT will vote in accordance with Mr. Li’s final decision provided that such decision will not prejudice the interest of the Company, Shareholders and creditors. Both of the Employee Concert Deed and QYT Concert Deed are de facto proxy arrangement where the Signing Employees and QYT irrevocably conferred all of their voting power upon Mr. Li.

To eliminate the confusion caused by the wordings contained in the Employee Concert Deed and the QYT Concert Deed and to reflect the true intentions of the parties in relation to the de facto proxy arrangement contained in the Employee Concert Deed and the QYT Concert Deed, the Signing Employees, QYT together with two new shareholders, being Du Tongjie and Shanghai Jianxin Data Service Partnership (Limited Partnership), executed an irrevocable and unconditional power of attorney on April 13, 2021 and April 19, 2021, respectively, under which the signing parties unconditionally and irrevocably confer all the voting rights attached to the shares held by the them upon Mr. Li for a term of exceeding 2 years. The power of attorney given by QYT may be terminated (i) bilaterally by the parties in written form; (ii) upon the Company failing to complete a [REDACTED]; (iii) QYT disposing all its Shares; and (iv) QYT and its related parties in aggregate holding fewer Shares than Mr. Li and companies controlled by Mr. Li. Accordingly, the Employee Concert Deed and the QYT Concert Deed have been terminated on the effective date of the power of attorney respectively.

Based on the above and upon the establishment of the Employee Shareholding Platforms, Mr. Li, Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei as a group of Controlling Shareholders were entitled to exercise the voting rights attaching to approximately

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56.25% of the total issued Shares in our Company as of the Latest Practicable Date. For further details of the Employee Shareholding Platforms, please refer to “—Establishment of Employee Shareholding Platforms under the Share Incentive Scheme.”

PRIOR QUOTATION AND LISTING ON THE NEEQ AND THE DELISTING

On August 5, 2015, the Shares of our Company became quoted and listed on the NEEQ under the stock code of 833409.

With a view to achieving our overall strategic objective to develop an international financing platform and maximize our shareholders’ value, we sought to voluntarily delist our Shares from the NEEQ in June 2018. In July 2018, our application for delisting was approved by the NEEQ, and our Shares ceased to be quoted on the NEEQ on July 13, 2018. We subsequently decided to apply for the [REDACTED] of our Shares on the [REDACTED]as we believe the [REDACTED] would enable us to diversify our [REDACTED] with Hong Kong and international investors.

The closing price of the shares of the Company on the NEEQ of the last trading day before delisting, being July 12, 2018 (the “Last Trading Day”), is RMB4.02 and the [REDACTED] is HK$[REDACTED] per H Shares being the [REDACTED]ofthe [REDACTED]. The [REDACTED] is primarily determined by making reference to the current valuation of our peers listed on the Stock Exchange and other overseas stock exchanges, the performance and growth of our Company for the three years ended December 31, 2020 and the business prospect of our Company. Our [REDACTED] increased since the Last Trading Day, primarily because our business has grown rapidly since then. Since the Last Trading Day, we developed from a B2C pharmacy retailer on e-commerce platform to a new retailer in pharmacy business as well as a leading and fast-growing SaaS solution provider focusing on serving participants of the retail pharmacy industry. This change of main business resulted in strong performance and contributed to a substantial portion of our revenue. Our revenue increased from RMB576,491,000 for the year ended December 31, 2018 to RMB1,249,242,000 in the same period of 2020. The offline retain pharmacy and the O2O retail business accounted for approximately 8.3% and 5.9% of our revenue for the year ended December 31, 2018 to 29.2% and 17.7% in the same period of 2020. Furthermore, we believe that the valuation of our Group was not properly reflected on the NEEQ primarily due to lack of liquidity, which was one of the reasons we decided to delist from the NEEQ.

Our Directors confirm that, to the best of their knowledge and in respect of our business:

(a) during the period our Shares were quoted and listed on the NEEQ, our Company:

i. did not have any non-compliance in all material respects under the applicable PRC laws and regulations and the NEEQ rules and regulations;

ii. had not been subject to any material disciplinary action by the relevant regulators in connection with the quotation on the NEEQ, during the period when our Shares were quoted and listed on the NEEQ; and

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(b) there were no other matters in relation to the prior quotation on the NEEQ and the delisting that needs to be brought to the attention of the potential [REDACTED]of our Company.

ESTABLISHMENT OF EMPLOYEE SHAREHOLDING PLATFORMS UNDER THE SHARE INCENTIVE SCHEME

Our Company adopted the Share Incentive Scheme on November 3, 2020 in order to recognize the contribution of our Directors, senior management and employees and to allow them to participate in the growth and profitability of the Group. On March 20, 2021, as approved by the Shareholders’ resolutions, the Company resolved to grant a total of 3,090,317 Shares to certain Directors and employees of our Group (each, a “Grantee”) at the consideration of RMB3 per Share.

On May 21, 2021, in order to simplify the shareholding structure and better manage the Share Incentive Scheme, each of Chengdu Quanhong, Chengdu Quanxue, Chengdu Quanbei and Chengdu Quanzhao was established as a limited liability partnership under the PRC laws to serve as our employee shareholding platforms under the Share Incentive Scheme. Each of the Employee Shareholding Platforms is beneficially owned by their respective Grantees as limited partners. Since the establishment, each of Chengdu Quanhong and Chengdu Quanbei is managed and controlled by Mr. Li as the general partner, who is our Chairman of the Board and executive Director. Each of Chengdu Quanxue and Chengdu Quanzhao is managed and controlled by Mr. Chen Yang as the general partner, who is our executive Director and Board secretary.

As approved by the Shareholders’ resolutions dated May 24, 2021, serving as our Employee Shareholding Platforms, Chengdu Quanhong, Chengdu Quanxue, Chengdu Quanbei and Chengdu Quanzhao shall hold 1,525,847 Shares, 1,564,470 Shares, 1,746,578 Shares and 1,648,798 Shares, respectively, for the purpose of the Share Incentive Scheme. The Company further revised the award method, pursuant to which all Shares to be granted under the Share Incentive Scheme (including 3,090,317 Shares resolved to be granted in March 2021) shall be held directly by the Employee Shareholding Platforms and the Grantees shall instead be granted corresponding partnership interests in the Employee Shareholding Platforms. As such, the Grantees will be indirectly interested in our Company by way of holding the partnership interests in the Employee Shareholding Platforms. On May 24, 2021, the Company entered into a share transfer agreement with each of the Employee Shareholding Platforms, pursuant to which the Company agreed to transfer 1,525,847 and 1,564,470 treasury shares to Chengdu Quanhong and Chengdu Quanxue at RMB3 per Share, respectively, and transfer 1,746,578 and 1,648,798 treasury shares to Chengdu Quanbei and Chengdu Quanzhao at RMB6 per Share, respectively. On the same day, the Company further resolved to grant limited partnership interests representing a total of 3,395,376 Shares to the Grantees at the consideration of RMB6 per Share.

The abovementioned share transfer was completed on May 24, 2021. Upon the completion of the [REDACTED], Chengdu Quanhong, Chengdu Quanxue, Chengdu Quanbei and Chengdu Quanzhao will hold [REDACTED] Shares of the Company, respectively, accounting for [REDACTED] of our total share capital (assuming that the [REDACTED]is

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OUR MAJOR SUBSIDIARY

Apart from our Company, we conduct our business principally through the following subsidiary which made a material contribution to our results of operations during the Track Record Period.

Sichuan Quanyuantang Pharmaceutical Co., Ltd. (四川泉源堂藥業有限公司) (“Sichuan Quanyuantang”)

Sichuan Quanyuantang was established in the PRC on January 18, 2011 with a registered capital of RMB25 million. Sichuan Quanyuantang has been wholly owned by our Company since September 2016. Sichuan Quanyuantang mainly engages in the wholesale of medicine to retail companies.

For details of the list of our subsidiaries, see note 1 to the Accountants’ Report as set out in Appendix I to this document. For share capital changes of our subsidiaries, see the section headed “Statutory and General Information—A. Further Information about Our Group—3. Changes in Share Capital of Our Subsidiaries” in Appendix VI to this document.

ACQUISITIONS, MERGERS AND DISPOSALS

Throughout the Track Record Period and as of the Latest Practicable Date, we did not conduct any major acquisitions, mergers or disposals, and the reason we disposed of some insignificant subsidiaries with ancillary business was to streamline our business structure and realize our future business strategy.

PRE-[REDACTED] INVESTMENTS

Principal Terms of the Pre-[REDACTED] Investments

Series A Series A+ Series B Series C

Date of Investment September 30, 2015 January 3, 2017 March 7, 2019 For Share Purchase November 6, 2020 For Share Subscription November 13, 2020

Date of Settlement December 8, 2015 May 25, 2017 March 21, 2019 For Share Purchase November 6, 2020 For Share Subscription November 13, 2020

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Series A Series A+ Series B Series C Cost per Share RMB6 RMB4.5 RMB6 For Share Purchase RMB8.29 For Share Subscription RMB9.63

Amount of registered RMB6,700,000 RMB17,826,667 RMB17,250,000 For Share Purchase capital purchased RMB26,047,640 and/or subscribed For Share Subscription RMB31,152,500

Total consideration RMB40,200,000 RMB80,220,000 RMB103,500,000 For Share Purchase RMB215,931,120 For Share Subscription RMB300,000,000

Corresponding RMB201,300,00 RMB457,545,000 RMB713,560,002 RMB1.5 billion valuation of our Company

[REDACTED]tothe [REDACTED][REDACTED][REDACTED] For Share Purchase [REDACTED]ofthe [REDACTED] [REDACTED] For Share Subscription [REDACTED]

Use of [REDACTED] We utilized the [REDACTED] to finance our research and development activities and fund our daily operations.

As of the Latest Practicable Date, we had utilized all of the proceeds from the series A, A+ and B financings, and 90% from the series C financing.

The consideration for series C financing Share Purchase was paid to Chengdu Chuangtuo.

[REDACTED] Period Pursuant to the applicable PRC law, within the 12 months following the [REDACTED], all current Shareholders (including the Pre-[REDACTED] Investors) could not dispose of any of the Shares held by them.

Strategic benefits At the time of the Pre-[REDACTED] Investments, our Directors were of the view that (i) our Company would benefit from the additional capital provided by the Pre-[REDACTED] Investors and their knowledge and experience and (ii) the Pre-[REDACTED] Investments demonstrated the Pre-[REDACTED] Investors’ confidence in the operation and development of our Group.

Notes:

(1) As adjusted to reflect subsequent capital injections or share conversions, as applicable.

(2) The [REDACTED]tothe[REDACTED] is calculated based on the assumption that the [REDACTED]is HK$[REDACTED] per H Share (being the [REDACTED]ofthe[REDACTED]).

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Information Relating to Our Pre-[REDACTED] Investors

The background information of our Pre-[REDACTED] Investors is set out below.

Series A+ financing Heya Investment Chongqing Heya Chemical & Pharmaceutical Venture Capital Partnership (Limited Partnership) is a limited partnership established under the laws of PRC and the sole general partner is Heya Investment. As of the Latest Practicable Date, it was held as to 36% by Chongqing Chemical & Pharmaceutical Holding (Group) Company (重慶化醫控股(集團)公司), which was controlled by Chongqing State-owned Assets Supervision and Administration Commission (重慶市國有資產監督管理委員會) (“Chongqing SASAC”). Heya Investment was held as to 35% by Beijing Heda Tongcheng Investment Management Co., Ltd. (北京和達同成投資管理有限公司), which was ultimately controlled by Wang Li (王立), and 34% by Chongqing Medical Health Industry Co., Ltd. (重慶醫藥健康產業有限公司), which was ultimately controlled by Chongqing SASAC. Both Wang Li and Chongqing SASAC are Independent Third Parties of the Company. With the RMB250 million assets under management, Heya Investment mainly invests in the biomedical industry, biomedical engineering, medical equipment and medical device products.

Founder H Fund Founder KIP Healthcare Fund is a limited partnership under the laws of PRC. As of the Latest Practicable Date, Founder KIP Healthcare Fund was held as to approximately 49.44% by Founder H Fund, which was controlled by Founder Securities Co., Ltd., a company listed on the Shanghai Stock Exchange (stock code: 601901), an Independent Third Party of our Company. The general partner of Founder KIP Healthcare Fund was Founder KIP Management Fund (上海方正韓投股權投資管理合夥企業(有限合夥)), the general partner of which is Founder KIP Investment Management Co., Ltd. (上海方正韓投投資管理有限責任公司), which was ultimately controlled by Founder H Fund. Founder KIP Healthcare Fund is the first China- Korea joint venture health industry fund with supporting from profound medical background and focuses on the investment opportunities in healthcare, medical device, healthcare IT and medicine.

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Series B financing KIP Jingcheng (Chengdu) Equity Investment Fund Partnership (Limited Partnership) is a limited partnership established under the laws of PRC. As of the Latest Practicable Date, Jingcheng (Chengdu) Equity Investment Fund Partnership (Limited Partnership) was held as to 50% by Korea Investment & Securities Co., Ltd. The general partner of Jingcheng (Chengdu) Equity Investment Fund Partnership (Limited Partnership) was Zhenyou Chengdu Equity Investment Fund Management Enterprise (Limited Partnership) (真友成都股權投資基金管理企業(有限合夥)), which was ultimately controlled by KIP. KIP Re-Up Fund is a limited partnership established under the laws of Korea. As of the Latest Practicable Date, KIP Re-Up Fund was held as to 28.07% by The National Pension Service of Korea. The general partner of KIP Re-UP Fund was KIP, which was ultimately controlled by Korea Investment Holdings Co. All of the parties above are Independent Third Parties of our Company.

KIP manages over 20 venture and private equity funds with US$1.8 billion total assets under management. Its portfolio includes Kakao (KOSDAQ:035720), YG Entertainment (KOSDAQ:122870), and Didi Chuxing.

Founder H Fund Please refer to the information above.

Chengdu Huamaoli Chengdu Huamaoli is a limited liability company controlled by Tian Ming (田明) Chengdu Huamaoli invested in various healthcare companies. It is also the shareholder of the below subsidiaries of our Company: Shaanxi Quanyuantang Intelligent Pharmacy Co., Ltd. (陝西泉源堂智慧藥房連鎖有限公司), Chengdu Quanzu Business Service Co., Ltd. (成都)泉族商務服務有限公司), and Guangdong Quanyuantang Pharmacy Chain Co., Ltd. (廣東泉源堂大藥房連鎖有限公司).

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Series C financing SIG SIG is a limited partnership established under the laws of PRC and was held as to 99% by SIG Pacific Holdings, LLLP, which was ultimately controlled by Mr. Jeffrey Yass, an Independent Third Party of our Company. The general partner of SIG (Shanghai) Equity Investment Fund Partnership (Limited Partnership) is SIG China Investments GP, LLC, which was ultimately controlled by SIG Pacific Holdings, LLLP. The SIG China team seeks to commit the firm’s capital to venture capital and private equity investments in China.

Sino Biopharm Both QYT and Lucky Linkage are limited liability companies established under the laws of Hong Kong and wholly owned by Sino Biopharm. Sino Biopharm is an investment holding company listed on the main board of the Stock Exchange (stock code: 1177) and is principally engaged in the medicine products business.

Mr. Li entered into a concert party agreement with QYT on November 13, 2020 and power of attorney on April 13, 2021 and April 19, 2021, respectively. For further details of the concert party agreement and power of attorney, see “—Concert Party Agreements and Power of Attorney” in this section.

Special Rights Granted to Our Pre-[REDACTED] Investors

Pursuant to the Shareholders’ agreement entered into on November 13, 2020 (the “Shareholders’ Agreement”), the Pre-[REDACTED] Investors were granted certain special rights, including, amongst others, (i) restrictions on or prior consent for certain corporate actions; (ii) right of first refusal; (iii) revenue guarantee; (iv) anti-dilution rights; (v) repurchase right; (vi) liquidation right; and (vii) information right.

In accordance with the supplemental agreements to the Shareholders’ Agreement entered into among our Company and shareholders including the Pre-[REDACTED] Investors on April 30, 2021, except for the rights that are permissible under GL43-12 such as the tag-along rights granted to certain Pre-[REDACTED] Investors to include their respective shares at the same

– 125 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. HISTORY AND CORPORATE STRUCTURE selling price and terms with the shares of Chengdu Chuangtuo as part of the sale to a third party purchaser, all special rights granted to the Pre-[REDACTED] Investors were terminated in accordance with the requirements contained in GL43-12.

Public Float

As of the Latest Practicable Date, the Shares held by QYT Pharmacy Limited and Lucky Linkage were controlled by Mr. Li and Sino Biopharm, our substantial shareholder, and were therefore core connected persons of our Company. Save as disclosed above in this section, to the best of the Directors’ knowledge, all other Pre-[REDACTED] Investors are not core connected persons of our Company.

Save and except for the Shares controlled by Mr. Li (including the Shares held directly by Mr. Li and Chengdu Chuangtuo, the Shares held by QYT Pharmacy Limited, Chen Zhouhua, Yu Miao, Wang Lei, Yang Lixia, Chen Yang, Li Kaiping, Zeng Fengyu, Yang Zhi, Du Tongjie and Shanghai Jianxin Data Service Partnership (Limited Partnership) and the Shares held by Chengdu Quanbei and Chengdu Quanhong), the Shares controlled by Lucky Linkage, the Shares controlled by Chen Yang through Chengdu Quanxue and Chengdu Quanzhao, the other Shares held by our existing Shareholders will be considered as part of the public float following the completion of the [REDACTED]. Assuming the [REDACTED] are allotted and [REDACTED]tothe[REDACTED], (i) over [REDACTED] of our Company’s total issued Shares will be held by [REDACTED] upon the completion of the [REDACTED]in accordance with 8.08(1)(b) of the Listing Rules; and (ii) the H Shares for which [REDACTED] is sought exceeds [REDACTED] of the total issued share capital of the Company and having [REDACTED] at the time of [REDACTED] of not less than HK$125,000,000.

Compliance with Interim Guidance and Guidance Letters

The Joint Sponsors confirmed that the Pre-[REDACTED] Investments are in compliance with (i) Guidance Letter GL29-12 and (ii) Guidance Letter HKEx-GL43-12, both issued by the Stock Exchange.

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Immediately Prior to the [REDACTED]

Our corporate and shareholding structure immediately prior to the completion of the [REDACTED] is as follows(1) : ITR N OPRT STRUCTURE CORPORATE AND HISTORY

Employee Shareholding Other minority shareholders with no Mr. Li QYT Lucky Linkage Chengdu Chuangtuo Platforms(2) more 10% of shares individually

24.26% 16.72% 16.67% 5.32% 4.16% 32.87%

Our Company

100% 70% 100% 51% 99% 51% 51% 70% 100% 100% 60% 70% 100% 100% 100%

Chengdu Quanze Guangdong 2 – 127 – Sichuan Chengdu Chengdu Shaanxi Equity Quanyuantang Henan Quanyuantang Chengdu Tarkool Deyang Quanyuantang Suining Shanghai Ya’an Yibintang Spring Quanyuantang Investment Pharmacy Quanyuantang Pharmaceutical Yumeng Quanzu (Shanghai) Quanyuantang Hongmen Quanxin Quanyuantang Quanxin Quanxin Vision Intelligent Fund Chain Intelligent (3) Business Information Professional Pharmacy Intelligent Pharmacy Pharmacy Co., Ltd. Tongxing (6) Back Street Pharmacy Trading Pharmacy Management Co., Ltd. Service Technology Pharmacy (9) Pharmacy Pharmacy Co., Ltd. Chain Co., Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd.(4) Center Co., Ltd.(7) Co., Ltd.(8) Co., Ltd. Co., Ltd. Co., Ltd. (10) (Limited Ltd. Partnership)(5)

100% 100% 100% 99% 80%

Guangzhou Changsha Guangdong Shanghai Chongqing Quanjian Quanyuantang Quanyuantang Chongqing Nianyou Quanyuantang 100% Pharmaceutical Intelligent Megakang Quanyuantang Technology Pharmacy Chain Co., Ltd. Pharmacy Pharmaceutical Medicine Co., Ltd. Co., Ltd. Co., Ltd.(11) Co. Ltd. Chain Co., Ltd.

100% 100% 100% 100%

Chongqing Hunan Chongqing Chongqing Quanyuantang Quanyuantang Quanyuantang Quanyuantang Quanshun Pharmacy Quansheng Quanrun Pharmacy Co., Ltd. Pharmacy Co., Ltd. Pharmacy Co., Ltd. Co., Ltd.

100% 100% 100% 100% 100% 100% 100% 100%

Guangzhou Guangzhou Guangzhou Guangzhou Guangzhou Guangzhou Guangzhou Guangzhou Quanyuantang Quanyuantang Quanyuantang Quanyuantang Quanyuantang Quanyuantang Quanyuantang Quanyuantang Tianyun Street Baikangyuan Yuehua Store Taoyuanzhong Lejiadian Dezhengdian Wanguodian Dongxiaonan Pharmacy Pharmacy Pharmacy Pharmacy Pharmacy Pharmacy Pharmacy Pharmacy Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. ERA NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS OF COVER MUST THE INFORMATION ON THE “WARNING” THAT HEADED AND CHANGE SECTION TO THE SUBJECT WITH AND CONJUNCTION INCOMPLETE IN FORM, READ DRAFT BE IN IS DOCUMENT THIS

Notes:

(1) For further details of our Pre-[REDACTED] Investors, see “—Pre-[REDACTED] Investments” in this section.

(2) Include Chengdu Quanhong, Chengdu Quanxue, Chengdu Quanbei and Chengdu Quanzhao. Each of Chengdu Quanhong and Chengdu Quanbei is managed and controlled by Mr. Li as the general partner, who is our Chairman of the Board and executive Director. Each of Chengdu Quanxue and Chengdu Quanzhao is managed and controlled

by Mr. Chen Yang as the general partner, who is our executive Director and Board secretary. For further details of our Employee Shareholding Platforms, please refer STRUCTURE CORPORATE AND HISTORY to “Appendix VI—Statutory and General Information” in this document.

(3) The remaining 30% of the equity interest in Yumeng Tongxing was owned as to 12% by Chengdu Rongchuang Zhongxiang Technology Co., Ltd. (成都榮創眾享科技有限責任公司), which was held 100% by Mr. Li, 9% by Mr. Huang Xin, an executive Director, 5% by Mr. Du Tongjie, a Supervisor, and 4% by Mr. Wen Gui (溫貴), the executive director and chief executive officer of Yumeng Tongxing.

(4) The remaining 49% of the equity interest in Shaanxi Quanyuantang Intelligent Pharmacy Co., Ltd. was owned by Chengdu Huamaoli, a Shareholder of our Company.

(5) The remaining 1% of the equity interest in Chengdu Quanze Equity Investment Fund Management Center (Limited Partnership) was owned by Mr. Chen Yang, an executive Director. 2 – 128 –

(6) The remaining 49% of the equity interest in Guangdong Quanyuantang Pharmacy Chain Co., Ltd. was owned by Chengdu Huamaoli, a Shareholder of our Company.

(7) The remaining 49% of the equity interest in Chengdu Quanzu Business Service Co., Ltd. was owned by Chengdu Huamaoli, a Shareholder of our Company.

(8) The remaining 30% of the equity interest in Tarkool (Shanghai) Information Technology Co., Ltd. was owned by Juzhi Information Technology (Shanghai) Limited Company ((聚知信息技術(上海)有限公司), which was controlled by Mr. Huang Xin, an executive Director.

(9) The remaining 40% of the equity interest in Suining Quanxin Pharmacy Co., Ltd. (遂寧泉新藥房有限公司) was held by Tian Xiaoyan (田小燕), an Independent Third Party.

(10) The remaining 30% of the equity interest in Henan Quanyuantang Intelligent Pharmacy Chain Co., Ltd. (河南泉源堂智慧藥房連鎖有限責任公司) was owned by Qi Yingwu (齊英武), the executive director of Henan Quanyuantang Intelligent Pharmacy Chain Co., Ltd.

(11) The remaining 20% of the equity interest in Chongqing Quanyuantang Pharmacy Chain Co. Ltd. was owned by Liu Yuan, who is an executive director of Chongqing Quanyuantang Quanshun Pharmacy Co., Ltd. Immediately Following the [REDACTED] DOCUMENT. THIS OF COVER MUST THE INFORMATION ON THE “WARNING” THAT HEADED AND CHANGE SECTION TO THE SUBJECT WITH AND CONJUNCTION INCOMPLETE IN FORM, READ DRAFT BE IN IS DOCUMENT THIS

The following chart sets forth our corporate and shareholding structure upon the completion of the [REDACTED], assuming the [REDACTED] is not exercised(1) :

Employee Shareholding Other minority shareholders with no Mr. Li QYT Lucky Linkage Chengdu Chuangtuo Other [REDACTED] Platforms(2) more 10% of shares individually ITR N OPRT STRUCTURE CORPORATE AND HISTORY

[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Our Company

100% 70% 100% 51% 99% 51% 51% 70% 100% 100% 60% 70% 100% 100% 100%

Chengdu Quanze Sichuan Shaanxi Guangdong Chengdu Henan Chengdu Equity Chengdu Tarkool Deyang Shanghai Quanyuantang Quanyuantang Quanyuantang Quanyuantang Suining Quanyuantang Ya’an Yibintang Spring Investment Quanzu (Shanghai) Quanyuantang Quanyuantang Pharmaceutical Yumeng Intelligent Pharmacy Hongmen Quanxin Intelligent Quanxin Quanxin Vision Fund Business Information Professional Intelligent Co., Ltd. Tongxing(3) Pharmacy Chain Back Street Pharmacy Pharmacy Pharmacy Pharmacy Trading Management Service Technology Pharmacy Pharmacy Co., Ltd.(4) Co., Ltd.(6) Pharmacy Co., Ltd.(9) Chain Co., Co., Ltd. Co., Ltd. Center (7) (8) Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. (10) Co., Ltd. 2 – 129 – (Limited Ltd. Partnership)(5)

100% 100% 100% 99% 80%

100% 100% 100% 100%

Chongqing Hunan Chongqing Chongqing Quanyuantang Quanyuantang Quanyuantang Quanyuantang Quanshun Pharmacy Quansheng Quanrun Pharmacy Co., Ltd. Pharmacy Co., Ltd. Pharmacy Co., Ltd. Co., Ltd.

100% 100% 100% 100% 100% 100% 100% 100%

Please refer to the notes in “—Our Shareholding and Corporate Structure—Immediately Prior to the [REDACTED].” THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS

OVERVIEW

As of the Latest Practicable Date, we had 369 offline retail pharmacies across 13 cities in China, including first-tier pharmaceutical consumer markets such as Chengdu, Chongqing, Guangzhou, Shanghai, Shenzhen, Zhengzhou and Xi’an. Through our offline retail pharmacy network, we are able to directly access our end-consumers and provide customized and professional services. We have been deeply engaged in operating online pharmacies on third-party e-commerce platforms and established our presence on mainstream O2O consumer platforms. Through our integrated “online + offline” model, we are able to accurately match online consumer needs with pharmaceutical products we offer in offline retail pharmacies and convert online traffic into offline sales, which in turn improve the operation efficiency and operating radius of our offline retail pharmacies, accelerate our inventory turnover and increase our product sales. As of the Latest Practicable Date, we operated a total of 38 online stores on leading e-commerce platforms in China.

– 130 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS manufacturer and hepatobiliary drug manufacturer in China, we are able to broaden our Direct-To-Patient (DTP) pharmaceutical product resources. Since the commencement of our DTP business in 2020, our revenue from sales of DTP drugs increased rapidly from RMB0.1 million in 2018 to RMB1.3 million in 2019 and further to RMB6.0 million in 2020. Moreover, with diverse prescription drugs and high-quality services, our sales of prescription drugs expanded rapidly and the revenue from which reached RMB476.8 million in 2020, accounting for 47.3% of our total revenue from omni-channel retail pharmacy business in the same period. By offering full-spectrum products covering pharmaceutical drugs and non-drug healthcare products, we are able to provide full-cycle and one-stop healthcare services to satisfy various customer needs. As of the Latest Practicable Date, the number of SKUs in our store reached over 30,000, covering the top 5 best-selling OTC drugs and prescription drugs. Our full-spectrum products enable us to satisfy customer needs related to major chronic diseases such as cardio-cerebrovascular, diabetes, rheumatism and orthopedics, hepatobiliary. We are one of the very few online retail pharmacies in China that established a large-scale pharmacy service team of over 200 professionals, including licensed pharmacists, health consultants and chronic disease specialists, according to Frost & Sullivan.

Leveraging our data analysis capabilities and online operation experience in various cities across the country, we have developed a mature single-store operation model and a city business model, which enables us to quickly enter into new cities and seize market share. Leveraging our accumulated data and extensive experience in expanding our business to new cities, we believe that we are able to leverage the advantages of omni-channel retail pharmacy in the target cities and continuously deepen our presence in online and offline pharmacies. Moreover, we have accumulated strong technology capabilities and substantial operational experience over the years, successfully integrating application tools and online operation infrastructure into our underlying data analysis system. Oriented by our business strategies to provide effective operation and stable and intelligence support, we apply structured data to support our business development and intelligent business operations.

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COMPETITIVE STRENGTHS

A leading and balanced omni-channel smart retail pharmacy in China and pioneer of the omni-channel pharmaceutical retail model

We are a leading omni-channel smart retail pharmacy in China in terms of 2020 revenue, according to Frost & Sullivan. We operate retail pharmacies through a combination of online and offline channels, seamlessly integrating traditional and new retail models. Our retail pharmacy business is more balanced and well-rounded across different channels compared to competitors, according to Frost & Sullivan, which has enabled us to capture more sales opportunities, broaden and deepen our business presence and realize synergies among channels to propel our growth. We are an innovator in retail pharmacy operations in China, being among the first batch of market participants launching online retail pharmacies, according to Frost & Sullivan. We have pioneered the online pharmacy operation on e-commerce platforms, the integrated online and offline retail pharmacy, and the online prescription drug sales. We ranked first among all self-operated O2O and offline retail pharmacies in China in terms of average number of orders per store per month in 2020, according to Frost & Sullivan.

As of the Latest Practicable Date, we had 369 offline retail pharmacies across 13 cities in China, including first-tier pharmaceutical consumer markets such as Chengdu, Chongqing, Guangzhou, Shanghai, Shenzhen, Zhengzhou and Xi’an. Through our offline retail pharmacy network, we are able to directly access our end-consumers and provide customized and professional services. We have been deeply engaged in operating online pharmacies on third-party e-commerce platforms and established our presence on mainstream O2O consumer platforms. Through our integrated “online + offline” model, we are able to accurately match online consumer needs with pharmaceutical products we offer in offline retail pharmacies and convert online traffic into offline sales, which in turn improve the operation efficiency and operating radius of our offline retail pharmacies, accelerate our inventory turnover and increase our product sales. We ranked first among all O2O retail pharmacies in Sichuan-Chongqing area in terms of order quantity in 2020 according to Frost & Sullivan. As of the Latest Practicable Date, we operated a total of 38 online stores on leading e-commerce platforms in China.

Our integrated “online + offline” operation model has addressed the pain points of the traditional B2C model, such as fierce traffic competition, high customer acquisition costs and uncertain profitability. By seizing the opportunities arising from the rapid expansion of China’s retail network, we have successfully innovated omni-channel retail models for pharmaceutical sales to maintain our leading position, and have developed standardized operations with high scalability, setting a significant industry barrier. Our average daily sales per store increased rapidly from RMB4,322 in 2018 to RMB5,139 in 2019, and further to RMB7,863 in 2020.

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Full-spectrum, one-stop, high-repurchase and premium pharmaceutical retail products and services

Benefitting from our in-depth cooperation with well-known brands in the industry, including our Shareholder, Sino Biopharm, the largest prescription drug manufacturer and hepatobiliary drug manufacturer in China, we are able to broaden our DTP pharmaceutical product resources. Since the commencement of our DTP business in 2020, our revenue from sales of DTP drugs increased rapidly from RMB0.1 million in 2018, to RMB1.3 million in 2019 and further to RMB6.0 million in 2020. Moreover, with diverse prescription drugs and high-quality services, our sales of prescription drugs expanded rapidly and our revenue from sales of prescription drugs reached RMB476.8 million in 2020, accounting for 47.3% of our total revenue from omni-channel retail pharmacy business in the same period.

By offering full-spectrum products covering pharmaceutical drugs and non-drug healthcare products, we are able to provide full-cycle and one-stop healthcare services to satisfy various customer needs. As of the Latest Practicable Date, the number of SKUs in our store reached over 30,000, covering the top 5 best-selling OTC drugs and prescription drugs. Our full-spectrum products enable us to satisfy customer needs related to major chronic diseases such as cardio-cerebrovascular, diabetes, rheumatism and orthopedics, hepatobiliary. In addition, utilizing our three-level warehouse system, namely store, regional warehouses and central warehouses, we are able to resolve pain points of many small pharmacies with limited inventory to ensure the availability of multiple categories of drugs across different sales channels. By enabling inventory availability in accordance with the cadence of patients’ inelastic demand for medication, we are capable of increasing the stickiness of customers to our platform. We intend to strategically introduce more prescription drugs for chronic diseases, which enables us to provide prescription drugs in offline and online channels, so as to attract and retain customers with strong loyalty, which in turn, ensures the steady improvement of our business.

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We are one of the very few online retail pharmacies that established a large-scale pharmacy service team of over 200 professionals, including licensed pharmacists, health consultants and chronic disease specialists, according to Frost & Sullivan. Our pharmacy service team provides consumers with professional online pharmaceutical consultation service on a 24-hour basis. In 2020, the average conversion rate of our B2C retail business from online pharmaceutical consultation service, which refers to the number of consumers make purchases after consultation through our online pharmacies on e-commerce platforms divided by the number of consumers consulted online through our online pharmacies, amounted to 46%, compared to an industry average of 39%. In line with changing consumer lifestyle and increasing customer demand for pharmacy services at night, nearly half of our retail pharmacies provide 24-hour delivery service. Our highest average monthly night orders in a year, representing orders from 10 p.m. to 8 a.m., increased from 412 orders per pharmacy in 2018 to 799 orders per pharmacy in 2020. We believe that night orders through O2O is expected to grow in the foreseeable future and our 24-hour business and service will have a broad growth prospect.

We focus on building a supply chain of professional pharmaceutical drugs and non-drug healthcare products. Our online pharmacy offers pick-up at designated store and delivery by designated store for online orders. For offline pharmacy, our employees directly serve consumers face-to-face at store. By offering one-stop and convenient services for consumers and targeting at a broader market featured by younger generation and diversified customer base, we are able to develop business models characterized by high user stickiness and high repurchase rate. Online repurchase rate of our O2O retail business on the largest O2O platform in China in 2020 according to Frost & Sullivan, increased from 34.3% in 2018 to 37.2% in 2019 and further to 55.2% in 2020.

Leading and fast-growing SaaS solution provider empowering participants in retail pharmacy industry value chain

As of the Latest Practicable Date, we provided empowering services to over 18,200 retail pharmacies, including 401 chain pharmacy customers. As of the Latest Practicable Date, our empowering business covered 266 cities in China. Retail pharmacy customers from 33 cities where we do not have self-operated retail pharmacies became the largest O2O retail pharmacies in their respective local markets after engaging us for our empowering services. Through our empowering services and online operations, we operated more than 22,000 online stores and achieved total GMV from online sales from these stores as high as RMB200 million in 2020.

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Through our technology-driven solutions and industry insight accumulated over the years, we are able to conduct accurate analysis of consumer traffic distribution in each city, which assists our industry customers to obtain market insights and better manage supply chain by integrated online and offline operation. Our standardized and professional SaaS solutions enable us to maintain high stickiness and in-depth binding with our existing industry customers while attracting more new industry customers to cooperate with us. Our average customer retention rate of our SaaS business reached over 90% in 2020 and the net dollar retention rate of existing customers of our SaaS business reached 687% in 2020.

Leveraging our first-mover advantages in providing SaaS solution to retail pharmacy customers, we mainly acquired new customers from word-of-mouth recommendation and industry associations or O2O platforms recommendations. For example, we were awarded the most recommended SaaS solution provider by China Medical Pharmaceutical Material Association and were one of the official operation partners of mainstream platforms such as Meituan Waimai and Eleme.

Efficient single-store operation model and replicable city business model

The single-store operation model is our self-developed operation model to increase the daily sales per store and daily-efficiency of a single retail pharmacy. We adhere to our integrated online and offline operation strategy, improve the efficiency and economic returns of our single-store operation model, with the aim to develop ourselves as a retail pharmacy with the largest market share in each city we covered. To align with the demand and trend of the retail pharmacy industry, we have built a mature, standardized and replicable single-store operation model with comprehensive management systems covering procurement, warehousing and logistics, information management and store management.

During the Track Record Period, starting from Chengdu and Chongqing, we expand our presence in national market. As of the Latest Practicable Date, our market presence had extended to 13 cities, including first-tier pharmaceutical consumer markets such as Chengdu, Chongqing, Guangzhou, Shanghai, Shenzhen, Zhengzhou and Xi’an, where we rapidly integrated local teams and implemented our “online + offline” model. For example, we entered into the Chongqing market in November 2018, and swiftly completed integration of local team and implementation of our “online + offline” model within six months. Revenue we generated from new retail business in Chongqing exceeded RMB100.0 million in 2020. In 2020, we ranked first among all online and offline pharmacies with O2O pharmacy business in Chongqing in terms of order quantities, according to Frost & Sullivan. Our average sales per store per month of developing pharmacy reached over RMB260,000 in 2020, compared to an industry average of RMB80,000.

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Strong data analytic capabilities and proprietary intelligence technologies developed by our in-house R&D team with “online + offline” operational expertise

We have accumulated strong technology capabilities and substantial operational experience over the years, successfully integrating application tools and online operation infrastructure into our underlying data analysis system. Oriented by our business strategies to provide effective operation and stable and intelligence support, we apply structured data to support our business development and intelligent business operations.

With our extensive experience in operating online and offline retail pharmacy, we are able to provide integrated and one-stop retail pharmacy operation solutions to our industry customers. Our professional and efficient online operation solution consists of data system, middle-end operation platform and diverse application tools empowered by our proprietary business intelligence technologies, covering functions which can be applied to omni-channel and full-business scenario operation.

We maintain a well-organized technology research and development system and independent development capabilities to develop core technology. As of the Latest Practicable Date, we had 105 research and development personnel and 23 software copyrights in China. Our subsidiary Yumeng Tongxing was recognized as National High-tech Enterprise (國家高新技術企業) by PRC Ministry of Science and Technology (中華人民共和國科學技術部).

Visionary and experienced management team and strong support from our shareholders

Our management team have an in-depth understanding and extensive experience in the retail pharmacy industry. Our co-founder and chairman of the Board, Mr. LI Can, has years of management experience in the pharmacy industry. Mr. CHEN Zhouhua, our co-founder and Chief Executive Officer, has extensive internet operating experience. We believe our experienced management team plays a vital role and will continue to be our valuable assets. Our management team possess the requisite leadership, vision and in-depth industry knowledge to anticipate and seize the latest market opportunities, formulate sound business strategies and facilitate effective implementation.

Sino Biopharm, our Shareholder and strategic partner, has large-scale pharmaceutical product resources, in particular in the hepatobiliary drugs, anti-oncology drugs, hematological drugs and orphan drugs. Sino Biopharm has provided support and resources in our strategic development. Benefitting from the brand of Sino Biopharm, we are also able to gain more trust from customers.

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BUSINESS STRATEGIES

Our goal is to maintain and expand our leading advantage in the omni-channel retail pharmacy industry. Specifically, we plan to pursue the following strategy.

Strengthen our leading position in covered cities and expand our presence in selected cities by replicating our city business model

We will explore opportunities in new accessible markets by replicating our business model and expanding our retail pharmacy network. Leveraging our unique “omni-channel retail pharmacy + empowerment” business strategy, we intend to seek opportunities in selected cities strategically. We plan to enter into first and second-tier cities in China by expanding or developing our omni-channel retail pharmacy business, particularly in top 50 cities with large population. We also plan to establish our market presence in third and fourth-tier cities by providing our empowering services to local pharmacies, in particular, chain pharmacies with established customer base.

We plan to enhance integration of online and offline operations to reach and serve more customers. We intend to improve our penetration rate and market share through our omni-channel business models in selected cities with large population. We also plan to continue to expand our warehousing facilities and improve our logistic efficiency and customer service.

Continue to invest in technology innovation and development, enhance our technology development capabilities and continue to expand our SaaS services

We believe that technology innovation is the key to our future development. We plan to continue to improve our technology-enabled system by further strengthening our operation management, technology development and data analysis capabilities, which will be crucial to our empowering services. We intend to improve our integration management capability and operation efficiency, particularly our system’s capability in managing operation hours, SKU management and pricing. We intend to upgrade the underlying technologies and infrastructure of our system, thereby improving the function and performance of our SaaS product. In addition, to satisfy various needs of different customers, we plan to develop innovative technology-enabled functions to meet a wider range of application scenarios.

In addition, we plan to enhance our technology development and data analysis capabilities, to integrate data from various channels and realize smooth centralized real-time management. We plan to apply AI technologies and big data analysis to our system, in particular in channel management of our retail pharmacy business and customized product recommendation to our customers. We also plan to further invest in developing our proprietary machine learning model to equip our system with intelligent execution and optimization functions. To better support customized SaaS product development, we plan to further upgrade our SaaS products by incorporating more technologies that are able to improve our

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Continue to deepen strategic cooperation and DTP business cooperation with upstream suppliers to maximize the mutual benefit

We will continue to diversify our DTP drug portfolio we offered to meet evolving needs of our consumers through deepening the strategic cooperation with our Shareholder, Sino Biopharm. We also intend to satisfy changing consumer needs arising from various circumstances through our established omni-channel retail pharmacy network. We plan to continue to expand and enhance the in-depth strategic cooperation relationship with other domestic mainstream pharmaceutical suppliers and foreign brand suppliers. We intend to improve our bargaining power to acquire favorable cooperation conditions and better resources. We plan to integrate supply chain resources, including internet medical services, medical content, online healthcare insurance and other resources, so as to acquire multi- dimensional consumer and market information in order to establish a system empowering upstream industrial brands, and provide upstream manufacturers with data insights and online services.

Expand our sales network of prescription drugs and expand our pharmaceutical consultation services

We plan to provide more medical and healthcare service offering, door-to-door delivery services, 24-hour online pharmaceutical consultation services and ongoing prescription drug use consultation service to patients. We will also continue to expand our sales network of prescription drug. Through integrating pharmaceutical consultation services such as chronic disease management services into our retail pharmacy network, we plan to develop a community-based one-stop healthcare management portal to address the unmet demand of patients. For example, we plan to provide education relating to health risks and prescription drug usage guidance to chronic disease patients, therefore to increase their awareness of the importance of treatment compliance and to improve patients’ treatment outcome. To create synergistic effect with our existing businesses, we plan to build a comprehensive medical service platform and provide online pharmaceutical consultation, online diagnosis and follow-up visits services through internet hospital.

Selective strategic cooperation, investment and acquisition

We plan to pursue strategic cooperation opportunities to strengthen our market position and our leadership in technology development enhance our competitiveness as a SaaS solution provider to retail pharmacies. We intend to focus on technology companies with strong research and development capabilities.

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To expand our offline pharmacy coverage, we also plan to explore potential acquisition and investment opportunities, in particular, in existing industry customers to which we have been providing empowering services. We will primarily seeking opportunities from top 50 cities with large population of the first and second-tier cities in China. In selecting acquisition and investment opportunities, we will take into account a number of considerations, including our strategic goals, population of target cities, location of offline pharmacies and target company’s brand awareness and business prospects. As of the Latest Practicable Date, we have not identified any investment or acquisition targets.

Enrich and improve our professional talent team

We plan to attract and retain high-quality professionals in technical and other fields, to strengthen our R&D capability. We intend to attract and retain mid-level and high-level Internet marketing talents to improve our operation efficiency and strengthen our marketing capability, which enables us to explore more cooperation opportunities with well-known online platforms. We will further attract and retain talents in offline operation to lay a solid foundation for future business expansion. We will continue to implement equity incentive plan to establish an attractive remuneration system.

OUR BUSINESS

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The following table sets forth a breakdown of our revenue for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Subtotal 461,651 80.1 682,477 79.5 1,008,119 80.7

Supply chain business 114,840 19.9 175,302 20.4 225,685 18.1

Empowering business – SaaS solution service – – 406 0.1 15,438 1.2

Total 576,491 100.0 858,185 100.0 1,249,242 100.0

We adopt a unique “omni-channel retail pharmacy + empowerment” business strategy when conducting our business. In particular, when conducting our omni-channel retail pharmacy business, we adopt a “4-4-2 Model” as our development strategy.

Our 4-4-2 Model for Omni-Channel Pharmacy Business

Aligning with the growth trend of internal healthcare business and to fulfill various demands of consumers, retail pharmacies have developed and can be categorized into the following by sales channels: (i) offline retail pharmacies; (ii) O2O retail business, under which we sell and deliver pharmaceutical products to consumers that purchase products from our online retail pharmacies on O2O platforms; and (iii) B2C retail business, under which we operate online pharmacies on B2C e-commerce platforms. We believe that, as time goes by, a

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We believe that these three sales channels satisfy different customer needs, therefore a balanced customer-centric omni-channel operation is needed to resolve pain points of each channel. B2C retail business provides a wide range of products that meets various customer needs. Offline retail pharmacy fulfills requirements of offline customers. O2O retail business meets the privacy and emergency needs of customers. The adoption of omni-channel retail model in retail pharmacies enables (i) scalable operation to enhance competitiveness, (ii) balanced development in respect of variation of purchasing pattern and behavior of consumers in different age groups, and (iii) synergy for digitalization and technological advancement amongst traditional retailers.

Compared with traditional retail pharmacy players, our operation model and store- opening strategy have been tailored for our “4-4-2 model” from day one, embracing latest and future trend of pharmacy retail channel distribution in China. We plan our store-opening subtly, to maintain the balance between premise location, pharmacy density and pharmacy space size, in order to maximize sales and profitability of each of our retail pharmacies. As a result, our offline retail pharmacies have maintained an industry-leading operation efficiency. Our average daily-efficiency and daily sales per store were higher than leading PRC traditional offline retail pharmacy players, according to Frost & Sullivan.

Omni-channel Retail Pharmacy Business

We derive revenues under our omni-channel retail pharmacy business from (i) sales of products from new retail business, consisting of offline sales of products through our offline retail pharmacies and online sales of products through O2O platforms, and (ii) sales of products from our online pharmacies on B2C e-commerce platforms.

New Retail Business

Offline retail pharmacy

We have been operating offline chain pharmacies in China since our incorporation. Our offline retail pharmacy business is currently focused on certain cities and we are striving to expand our presence in more areas in China. Starting from Chengdu and Chongqing, as of the Latest Practicable Date, we had extended our presence to 13 cities, including first-tier pharmaceutical consumer markets such as Chengdu, Chongqing, Guangzhou, Shanghai, Shenzhen, Zhengzhou and Xi’an, where we rapidly integrated local teams and successfully implemented our integrated “online + offline” model. As of the Latest practicable Date, we had 369 offline retail pharmacies in China.

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O2O retail business

Starting from 2017, we have been collaborating with major O2O platforms, to sell our products through on-demand delivery platforms to customers located within 3 km from our offline retail pharmacies. Customers near our retail pharmacies can place orders through our retail pharmacies on O2O platforms. After we accept online orders, third-party delivery riders will deliver the products to the customers generally within 30 minutes. As nearly half of our retail pharmacies operate 24/7, customers have real-time and convenient access to our products through O2O platforms. In line with changing consumer lifestyle and increasing customer demand for pharmacy services at night, nearly half of our retail pharmacies provide 24-hour delivery service. Our highest average monthly night orders in a year, representing orders from 10 p.m. to 8 a.m., increased from 412 orders per pharmacy in 2018 to 799 orders per pharmacy in 2020.

We entered into onboarding agreements with major O2O platforms, and purchase their services including technical support, marketing, order taking, delivery and settlement. The initial terms of such agreements were generally one year and may be renewed on an annual basis. No minimum purchase commitment were required under these agreements. We generally paid certain percentage of the value of transactions placed on platforms to O2O platforms as service fee. Such agreement can be terminated upon consent of both parties.

The following table sets forth key operational data of our offline sales generated from offline retail pharmacy and O2O retail business in selected cities for the period and as of the dates indicated.

For the year ended/as of December 31, 2018 2019 2020

Number of retail pharmacies as of the beginning of the year Chengdu 24 59 87 Chongqing – 8 29 Xi’an – 6 5 Others(1) –1248 Total 24 85 169

Number of retail pharmacies as of the year end Chengdu 59 87 139 Chongqing 8 29 53 Xi’an 6 5 12 Others(1) 12 48 49 Total 85 169 253

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For the year ended/as of December 31, 2018 2019 2020

Average daily sales per store(2) (RMB) Chengdu 4,812 5,512 8,403 Chongqing 3,306 4,204 7,445 Xi’an 1,894 4,594 7,600 Others(1) 1,394 5,072 6,936 Total 4,322 5,139 7,863

Average daily sales per store(2) for developing pharmacies(3) (RMB) Chengdu 6,099 6,202 9,351 Chongqing – 4,598 8,498 Xi’an – 4,657 8,252 Others(1) – 2,801 7,085 Total 6,099 5,508 8,575

Average area per pharmacy (square meters) Chengdu 146.8 139.2 131.1 Chongqing 112.3 131.1 128.0 Xi’an 136.1 131.1 129.2 Others(1) 110.5 129.9 128.0 Total 137.6 134.7 129.7

Average daily-efficiency(4) (RMB per square meters) Chengdu 32.8 39.6 64.1 Chongqing 29.4 32.1 58.2 Xi’an 13.9 35.1 58.8 Others(1) 12.6 39.1 54.2 Total 31.4 38.2 60.6

(1) Others include Guangzhou, Foshan, Shenzhen and Changsha.

(2) Calculated by dividing the total store sales (excluding taxes) for the period by the total store operation days for the period.

(3) Developing pharmacies refer to pharmacies operated for more than 12 months in corresponding period, which may vary from year to year.

(4) Calculated by dividing the average daily sales by average area of pharmacies.

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Our daily sales per store for developing pharmacies decreased from RMB6,099 in 2018 to RMB5,508 in 2019, primarily because developing pharmacies in 2018 had a relative longer total operation history compared to developing pharmacies in 2019 as 62 new pharmacies in 2018 became developing pharmacies in 2019 and most of them was opened in the second half of 2018. Our daily sales per store for developing pharmacies increased to RMB8,575 in 2020, because most of the 96 new pharmacies in 2019 was opened in the first half of 2019 and operated full-year in 2020. Our total average daily efficiency increased from RMB31.4 per square meter in 2018 to RMB38.2 per square meter in 2019, and further increased to RMB60.6 per square meter in 2020, as we have been improving our operating efficiency utilizing our self-developed pharmacy operation SaaS solution.

Store-opening strategy

During the Track Record Period, starting from Chengdu and Chongqing, we expand our presence in national market. As of the Latest Practicable Date, market presence of our offline retail pharmacies has extended to 13 cities, including first-tier pharmaceutical consumer markets such as Chengdu, Chongqing, Guangzhou, Shanghai, Shenzhen, Zhengzhou and Xi’an, where we rapidly integrate local teams and implement our “online + offline” model. Leveraging our operation experience and accumulated multi-dimensional market information from government, platforms, manufacturers and retailers, we are able to developed our proprietary decision support system to identify market trends and characteristics of different cities, which enables us to tailor effective and efficient store-opening strategies in cities we plan to commence our business operation. We conduct in-depth and thorough data analysis when deciding our store-opening strategy. Leveraging our data analysis capabilities and online operation experience in various cities across the country, we have developed a mature single-store operation model and a city business model, which enable us to quickly enter into new cities and seize market share. Leveraging our accumulated data and extensive experience in expanding our business into new cities, we believe that we are able to leverage the advantages of omni-channel retail pharmacy in the targeted first and second tier cities and continuously deepen our presence in online and offline pharmacies.

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In 2018, 2019 and 2020, we opened 62, 96 and 95 new retail pharmacies, respectively, which reflects our continuous expansion efforts. We closed 1, 12 and 11 retail pharmacies during the same period, respectively, primarily due to our efforts to improve the layout and performance of retail stores. As of the Latest Practicable Date, we had 369 offline retail pharmacies in China. The following table sets forth the total number of our offline retail pharmacies and their movement during the Track Record Period:

For the year ended December 31, 2018 2019 2020

Number of pharmacies at the beginning of the period 24 85 169 Number of new pharmacies opened during the period(1) 62 96 95 Number of pharmacies closed during the period(2) 11211 Number of pharmacies at the end of the period 85 169 253

(1) For the year ended December 31, 2018 and 2019, 5 and 38 of our newly opened pharmacies were acquired from third-party chain pharmacies.

(2) For the year ended December 31, 2020, two of our closed pharmacies were originally acquired from third-party chain pharmacies.

Operation model of new retail business

The following diagram sets forth the operation flowchart of our new retail business.

Orders

Deliver Manufacturers Sell Procurement Logistics & Retail Customer Department warehousing Pharmacies Wholesalers

Dispatch

We procure products from manufacturers or wholesalers and sell products through offline pharmacies and O2O retail business.

• Store-opening. Our new retail business lays its foundation on allocation of retail pharmacies, making store-opening crucial to our business operation and results of operation. We delicately make store-opening plans to balance penetration and operation efficiency. See “—New Retail Business—Store-opening Strategy.”

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• Procurement. We had established a sophisticated procurement department consists of (i) purchasing selection team, responsible for selection of our product portfolio, and (ii) supply chain management team, responsible for monitoring our sales and inventory level and procurement of products. See “—Suppliers and Procurement.”

• Logistics and warehousing. After procurement, products are transported by reliable third-party logistics companies to our warehouses. Our inventories for new retail business are stored in warehouses of the same cities and are generally transported by our own teams to our retail pharmacies on request. See “—Logistics and Warehousing.”

Online Retail Pharmacy on E-Commerce Platforms (B2C Retail Business)

Overview

Our operation of online retail pharmacies through e-commerce platforms, or our B2C retail business, can be traced back to 2014, when we realized the huge market opportunities brought by the emergence of internet healthcare to traditional retail pharmacy. We opened our first online flagship pharmacy on Tmall in September 2014 and commenced our operation of online retail pharmacies through e-commerce platforms since then. We are an innovator in retail pharmacy operations in China, being among the first batch of market participants launching online retail pharmacies, according to Frost & Sullivan.

We sell pharmaceutical and healthcare products through online pharmacy we operated on third-party e-commerce platforms. As of the Latest Practicable Date, we operated a total of 38 online stores on leading e-commerce platforms. We served 3.7 million consumers and fulfilled 5.4 million orders through our B2C retail business in 2020.

Business Process

Our consumers place purchase order on our online stores after viewing our products. We designed our online store to display comprehensive product information to support our consumer’s decision making. Each product has its own product page. Each product page contains pictures of the product, the price, whether the product is in stock at the consumer’s location, reviews and ratings from previous consumers, the discount from the suggested retail price, estimated delivery fee and a full product information. In the full product information page, all package information, including ingredients, directions and warnings, can be read next to an enlarged photograph of the product. We also display our government approvals for selling such product online.

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The following diagram illustrated the business process of online retail pharmacy through medical e-commerce platforms.

Order placed by B2C store E-commerce Seller platform

Purchase Synchronization Synchronization order of of customer order placed purchase by QYT Procurement order Warehousing and Manufacturer and Third party department distribution center wholesaler logistics of QYT of QYT Entrusted delivery Home delivery

Distribution by business company to designated warehouse of QYT

In addition, we maintained an online pharmaceutical consultation team to provide online customer services and online prescription services to our consumers. For more details, see “—Sales and Marketing—Pharmaceutical Service Center.”

Product Offering

We have maintained long-term cooperation with leading pharmaceutical manufacturers, providing us with steady resources in pharmaceutical products supply. As of December 31, 2020, we had cooperated with more than 1,000 pharmaceutical manufacturers. Benefitting from our close relationship with well-known brands in the industry, including our Shareholder, Sino Biopharm, the largest prescription drug manufacturer and hepatobiliary drug manufacturer in China, we are able to maintain a full-spectrum product offerings covering pharmaceutical drugs and non-drug healthcare products. The following table sets forth a revenue breakdown by product offerings for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Prescription drugs 321,470 69.6 376,301 55.1 476,829 47.3 OTC drugs 61,417 13.3 169,006 24.8 244,164 24.2 Others(1) 78,764 17.1 137,170 20.1 287,126 28.5

Total 461,651 100.0 682,477 100.0 1,008,119 100.0

(1) Others primarily include medical devices and non-drug healthcare and wellness products.

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As of the Latest Practicable Date, the number of our SPU reached 25,000 and the number of our SKU reached over 30,000, of which 14,000 were pharmaceutical products, covering more than 70 product categories with annual sales over RMB100,000. Our full-spectrum products enable us to satisfy customer needs related to major chronic diseases such as cardio-cerebrovascular, diabetes, rheumatism and orthopedics, and hepatobiliary. In addition, utilizing our three-level warehouses, we are able to resolve pain points of many small pharmacies with limited inventory to ensure the availability of multiple categories of drugs across different sales channels. By enabling inventory availability in accordance with the cadence of patients’ inelastic demand for medication, we are capable of increasing the stickiness of customers to our platform.

DTP Pharmacy

Driven by pharmacy circulation polices such as Separation of Dispensing from Prescription Policy (醫藥分離政策) and the Guiding Opinions on Establishing and Improving the “Dual-channel” Management Mechanism for Medicines under National Medical Insurance Negotiation (《關於建立完善國家醫保談判藥品“雙通道”管理機制的指導意見》), we have been developing our Direct to Patient, or DTP pharmacy business since 2020. We purchase DTP drugs from pharmaceutical manufacturers directly and sell drugs to patients according to doctors’ prescriptions in our offline retail pharmacies near hospitals. Our DTP retail pharmacies generally offer new specialty drugs used for chronic patients, such as anti-oncology drugs, hematological drugs and orphan drugs. Benefitting from our close relationship with well-known brands in the pharmaceutical manufacturing industry, including our Shareholder, Sino Biopharm, the largest prescription drug manufacturer and a leading hepatobiliary drug manufacturer in China, we are able to enter into framework procurement agreement with Sino Biopharm and expand our DTP product resources. As of the Latest Practicable Date, we conducted DTP retail pharmacy business through 24 offline retail pharmacies near hospitals in Chengdu, Chongqing, Xi’an, Guangzhou, Yibin, Ya’an, Deyang and Suining. For the year ended December 31, 2018, 2019 and 2020, revenue from sales of DTP drugs amounted to RMB0.1 million, RMB1.3 million and RMB6.0 million, respectively.

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The following flowchart illustrate the operating model of our DTP retail pharmacies.

Patients/Consumers

Medication guide, Distribution Consultation, Health management service Medicine receiving

Prescription information sharing Hospitals/Doctors DTP pharmacies Prescription review, Medication feedback sharing

Procurement, Marketing Drug supply Data sharing Treatment compliance management

Pharmaceutical companies

Compared with traditional distribution model in the pharmaceutical value chain, DTP pharmacies provide a more direct way to connect patients with specialty prescription drugs they need. After obtaining prescriptions from doctors, patients are able to purchase prescription drugs from our DTP retail pharmacies, which possess distribution rights from drug manufacturers. Our professional pharmacists at the meantime provide professional and personalized guidance on drug use to patients. We are equipped with a pharmaceutical service center consisting of a sophisticated customer service team and a licensed pharmacist team, which enables us to provide better patient experience, offer independent consultations and shipment services for patients. See “—Sales and Marketing—Pharmaceutical Service Center.”

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Empowering Business

Overview

As a technology-enabled omni-channel pharmaceutical retail service provider, we have developed a proprietary SaaS solution to manage our business operation. Realizing the demand for empowering services to align with the online operation trend in the industry, we have been providing our proprietary SaaS solutions to participants in the retail pharmacy industry through our empowering service starting from May 2019. As of the Latest Practicable Date, we provided empowering services to over 18,200 retail pharmacies, including 401 chain pharmacy customers across the country. As of the Latest Practicable Date, our empowering business covered 266 cities in China. Through our technology-driven solutions and industry insight accumulated over the years, we are able to conduct accurate analysis of traffic distribution in each city, which assist our industry customers to obtain market insights and better manage supply chain by integrated online and offline operation. Retail pharmacy customers from 33 cities where we do not have self-operated retail pharmacies became the largest O2O retail pharmacies in their respective local markets after engaging us for our empowering services. Through our empowering services and online operations, we operated more than 22,000 online stores and achieved total GMV from online sales of these online stores as high as RMB200 million in 2020.

To a lesser extent, leveraging our experience in operating omni-channel operation, we also provide technology services, such as industry insights and operation analysis based on data analysis results, to our upstream suppliers, which were primarily pharmaceutical manufacturers. We also provide service solution for chronic diseases management based on big data analysis. As of December 31, 2020, we have commenced cooperation with number of well-known pharmaceutical manufacturers such as a UK-based multinational pharmaceutical giant and a Germany-based multinational pharmaceutical giant.

SaaS Solution

Our SaaS solution is an integrated and one-stop retail pharmacy operation solution designed for retail pharmacy business. Our professional and efficient online operation solution consists of data system, middle-end operation platform and diverse application tools empowered by our proprietary business intelligence technologies. Our middle-end operation platform is the key to our SaaS solution, through which we are able to provide standardized operation supporting with professional services and supply chain resources. Our SaaS solution connects various front-end online systems with customers’ individualized back-end operation platforms. Our SaaS solution enables offline chain pharmacies to provide integrated online + offline purchasing experience to its customers.

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O2O order loading

Platform launch, traffic acquisition O2O Supply chain varieties enhancement order Operation with loading - Planning of variety structure by balanced profit product category and customer and competition type Traffic creation - Acquisition of unique and maintenance Middle-end Supply chain manufacturer resources operation varieties - Joint action of store, regional platform enhancement warehouse and central warehouse Middle-end operation platform Professional - Real time performance data service Intellectual site selection, support efficient product selection - Category management, Professional service support scenario-based service - Remote diagnosis and prescription by doctor - Professional medicine consulting services

Our professional and efficient online operation solution covers functions apply to omni-channel operation and full-business scenario operation. The following diagram illustrate the structure of our SaaS solution.

Consumer front-end “Jiugongge” Operation back-end platform middle-end platform platform

Structured data Functional department information tools In-store Merchandise Store management management Orders Operation Member O2O platform management management Consultation Purchase, sales and inventory management Official website and Price official WeChat account Finance Business Inventory intelligence

Human E-commerce platform ...... affairs Process QA

......

Supply Chain Business

Benefiting from our omni-channel advantages, we are able to obtain regional agency rights for certain well-known branded pharmaceutical products, and to sell such products to industry customers, in particular our empowering business customers. We act as a wholesaler and sell primarily pharmaceutical products to industry customers. We have maintained a Pharmaceutical Operation License (藥品經營許可證) to conduct this supply chain business. We plan to improve our collaboration with our empowering customers in the near future. We earn from price difference between our selling prices and the purchase costs. Under our supply chain

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Below is a summary of our standard sales agreement that we enter into with our customers from the supply chain business.

• Term. We generally enter into annual sales agreements with our customers.

• Geographic restrictions. We do not impose geographical restriction or product type restriction on our customers.

• Pricing. We do not set designated mandate selling price for our customers. We sell products to our customers at a price agreed by parties and determine a recommend retail price.

• Delivery. We arrange delivery to the designated places of our customers at our own cost.

• Prepayment and credit term. We generally require our customer to pay prepayments for orders they placed or determine the credit term on a case-by-case basis based on our assessment of customer’s procurement amount, credibility and business scale and grant our customers a short credit term of 30 days to 90 days. We generally do not set annual minimum purchase amounts.

• Product return. We maintain a buyer-seller relationship with our customers, and recognize revenue from sales to our customers when control of goods is transferred to them. We do not accept product return except due to quality reasons.

• Termination. Our customers are entitled to unilaterally terminate the sales agreement when we fail to deliver the products in time. The agreement can be terminated upon agreement of both parties or in the event of force majeure that effects either party’s ability to fulfill its obligations under the agreement.

Other than Chengdu Shenhe, which was one of our supply chain business customers during the Track Record Period, during the Track Record Period and up to the Latest Practicable Date, all of our customers from the supply chain business were Independent Third Parties, and none were controlled by our current or former employees or had received any material advance or financial assistance from us.

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OUR TECHNOLOGY PLATFORMS

Data System

Our data analysis system is able to collect and integrate multi-channel and multi-type data, collect mass historical data and real-time operating data. Our data analysis system can trim and structure mass collected data through various methods, including data extraction, data transformation, data concatenation, data separation and data validation. After data collection, our data analysis system will use its algorithm to analyze sales of our products and covered regions.

Middle-end Operation System

Our middle-end operation system consists of three sub-system, namely customer order and consultation system, data integration system and operation management system. Customer order and consultation system is responsible for receiving and recording orders from different channels. Data integration system is responsible for managing and monitoring our orders, stores, products and inventories. Operation management system is a combination of sales operation and customer relation management system. Connected with back-end systems including enterprise resource planning system, warehousing management system and data system, our middle-end operation system enables us to achieve comprehensive and efficient control over our complicated business operation.

Diverse Application Tools

We have also developed multiple application tools which apply to our data system and middle-end operation system, and serves as demonstration applications to ease our management. For example, our data reporting application provides our management team with real-time first-hand organized comprehensive operation data; our data analyzing application supports first-hand operation data analysis and presents preliminary operation analysis to our management team.

CUSTOMERS

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Pricing

Pricing for our Omni-channel Retail Pharmacy Business

Our supply chain team is responsible for product pricing. We price products through analyzing our sales data as well as market information, taking into consideration various factors including product category, market demand and competition, procurement price, marketing strategy. Product prices are subsequently adjusted as market condition changes. Our intelligence operation system also supports our product pricing. For example, in certain covered areas that we established exclusive 24-hour pharmacies, our system automatically adjusts delivery cost and selling prices of certain product after 10 p.m.

For our O2O retail business and online retail pharmacies on e-commerce platforms, we leverage O2O platforms’ and e-commerce platforms’ online payment services and infrastructure to process payments from our consumers.

Pricing for Empowering Business

We charge our industry customers in three ways for our empowering services:

(i) Sales royalties for online operation. We primarily charge our industry customers certain percentage of GMV of products sold through O2O and B2C retail business as our commission for providing online retail pharmacy operation;

(ii) SaaS solution service fee. We charge industry customers one-off service fee or monthly service fee for our provision of empowering services; and

(iii) Service fee for providing standardized data analysis system and marketing strategy.

SUPPLIERS AND PROCUREMENT

Suppliers

We generally purchase products we offered from pharmaceutical manufacturers and wholesalers. Our suppliers generally grant us credit terms of one to three months. When purchasing a product, we take the following factors into consideration to choose a supplier: (i) brand reputation, as products we offered are generally produced by numbers of different brands, (ii) purchase price, (iii) payment method and (iv) sales restriction stipulated between manufacturers and wholesalers, when deciding whether to purchase directly from manufacturers or wholesalers. For the year ended December 31, 2020, we partnered with over 1,300 reputable manufacturers or wholesalers, among which we had an average of more than four years of collaboration with our major suppliers.

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Before engaging a new supplier, our procurement team pre-screens supplier candidates based on their certificate, qualifications and reputation. Subsequently, our quality control team and legal team review these pre-screening results and conduct background checks. In addition, we conduct on-site inspections to ensure that they and their products comply with legally required quality standards when needed. Our screenings and inspections on suppliers focus on their compliance with the GSP. We only partner with selected suppliers that pass our screenings and inspections. See “—Drug Safety and Quality Control—Quality Control over Supply of Products.”

Key Contractual Terms of Supply Agreements

Set forth below is a summary of standard supply agreement that we enter into with our suppliers.

• Term: Typically one year, during which we can place orders when needed.

• Pricing: A fixed purchase price is stipulated in the agreement.

• Delivery: Our suppliers are required to deliver the products to our designated place pursuant to the supply agreement at their own costs.

• Inspection and Acceptance: Products are subject to our inspection upon arrival and we have rights to refuse any defective products. In case of any quality defects not caused by us, we are entitled to product replacements or refunds pursuant to the supply agreement.

• Credit term: Our suppliers generally grant us credit terms of one to three months.

• Payment: We typically settle payments with our suppliers once a month.

For a limited proportion of our products of which we obtain regional distribution rights, including certain popular OTC drugs or non-pharmaceutical health and wellness products, the purchase price will vary depending on sales volume we achieve. We may receive rebates from these suppliers if we achieve a targeted sales volume.

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Major Suppliers

For the years ended December 31, 2018, 2019 and 2020, purchases from our five largest suppliers accounted for 34.3%, 32.1% and 38.1%, respectively, of our total purchases during corresponding periods. The following table sets forth details of our five largest suppliers for the period indicated:

% of total Length of Purchase purchase in business Credit Supplier Supplier amount same period relationship terms background RMB’000 (Months)

For the year ended December 31, 2020 Supplier A 216,977 20.0% Over 4 years 1-3 Pharmaceutical manufacturer and wholesaler Supplier B 86,900 8.0% Over 4 years 2 Pharmacy wholesaler Supplier C 43,173 4.0% Over 1 year 1 Pharmacy wholesaler Supplier D 39,933 3.7% Over 4 years 2 Pharmacy wholesaler Supplier E 26,572 2.4% Over 4 years 0.5-1 Pharmaceutical manufacturer

Total 413,555 38.1%

For the year ended December 31, 2019 Supplier A 108,025 15.4% Over 4 years 1-3 Pharmaceutical manufacturer and wholesaler Supplier B 41,862 6.0% Over 4 years 1-2 Pharmacy wholesaler Supplier D 30,650 4.4% Over 4 years 1 Pharmacy wholesaler Supplier E 26,142 3.7% Over 4 years 0.5-1 Pharmaceutical manufacturer Supplier F 18,236 2.6% Over 4 years 2 Pharmacy wholesaler

Total 224,915 32.1%

For the year ended December 31, 2018 Supplier A 76,115 13.9% Over 3 years 1-1.7 Pharmaceutical manufacturer and wholesaler Supplier G 37,449 6.9% Over 3 years 2 Pharmacy wholesaler Supplier D 33,524 6.1% Over 3 years 0 Pharmacy wholesaler Supplier H 21,618 4.0% Over 3 years 2 Pharmacy wholesaler Supplier E 18,796 3.4% Over 3 years 0.5-1 Pharmaceutical manufacturer

Total 187,502 34.3%

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During the Track Record Period, Supplier A, B, E, F, G and H also procured pharmaceutical or non-pharmaceutical health and wellness products from us, as we possess regional distribution rights of numbers of popular products. The total amount of sales to these suppliers was approximately RMB1.5 million, RMB10.7 million and RMB12.3 million, accounting for 0.3%, 1.3% and 1.0% of our total revenue for the years ended December 31, 2018, 2019 and 2020, respectively.

As advised by Frost & Sullivan, such supply routine is in line with industry practice, as different pharmacy wholesalers own distribution right of different products. Our Directors confirm that negotiations of the terms of our purchases from and sales to all the above mentioned entities were conducted on individual basis and the terms of transactions with all these entities are similar to those transactions with our other customers or suppliers. To the best knowledge and belief of our Directors, all the above mentioned entities and their ultimate beneficial owners are Independent Third Parties.

As of the Latest Practicable Date, Supplier E (Chengdu Shenhe together with its subsidiaries, including Chengdu Jingcao) was owned as to 95.0% by Mr. Li, one of the Controlling Shareholders and an executive Director of our Company.

Saved as disclosed in this document, as of the Latest Practicable Date, none of our Directors, their associates or any shareholders which, to the knowledge of our Directors, owned more than 5% of the issued share capital of the Company as of the Latest Practicable Date, had any interest in any of our five largest suppliers during the Track Record Period.

Procurement

Overview of Procurement Process

We offer a large product portfolio to our customers. Selection of product portfolio, inventory monitoring and management, procurement cadence and bargaining power are essential to our business performance and results of operation. Our procurement process is as below:

Product category Supplier Framework Order placing selection selection agreement by batches Logistics

We had established a sophisticated procurement team consists of purchasing selection team and supply chain management team.

• Purchasing selection team. Our purchasing selection team is responsible for selection of our product portfolio and is further divided to category analysis group and product analysis group. Our category analysis group covers various major categories including prescription drugs, OTC drugs, Chinese medicines, health and wellness products, personal care products, family health products, contact lenses,

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maternal and infant supplies, and is dedicated to identifying and monitoring popular sub-categories among these major categories in the market through our sales data as well as market information. Our product analysis group then choose specific products and suppliers within the popular categories analyzed by our category analysis group from time to time.

• Supply chain management team. Our supply chain management team is responsible for monitoring our sales and inventory level, procuring products as suggested by our purchasing selection team and taking into account our inventory level when needed, as well selection of and communication with our suppliers.

Procurement Cost Control

We maintain a large product portfolio, as a result, cost control is crucial to our results of operation. Our products generally are not price-fluctuating, unless subject to government price controls or market conditions. We generally procure at fixed and advantaged prices as our procurement is large and sustaining and we pass price variations to consumers if any.

Our supply chain management team is responsible for monitoring our procurement prices and comparing them with market prices. We believe our cost control is efficient compared to most of the industry players. In addition, we generally have no reliance on our suppliers or limited products so to restrain our bargaining power as we offer a large product portfolio of over 30,000 SKUs and procure from over 1,300 suppliers.

LOGISTICS AND WAREHOUSING

Our logistics and warehousing process is as below:

Inventory request Third party delivery Retail Offline and O2O Logistics Warehouses Pharmacies retail customers In-store pick up Self- transportation

Third party transportation B2C retail customers or wholesale customers

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After procurement, products are transported by reliable third-party logistics companies to our warehouses. We have established a three-level warehouses system, namely stores, regional warehouses and nationwide warehouses. We have three nationwide warehouses in Chengdu, Guangzhou and Chongqing. We also establish regional warehouses in other regions with our presence. We operate all our warehouses with our own teams. Chengdu warehouse is our main warehouse and is constructed on our own property. Our other warehouses are leased from third parties.

Our inventories for new retail business are stored in warehouses of the same cities and are generally transported by our own teams to our retail pharmacies on request. Products sold through O2O platforms are delivered by couriers of the O2O platforms or couriers engaged by O2O platforms from our retail pharmacies to our customers. Products sold through B2C platforms or B2B sales channels are delivered from our nationwide warehouses. We closely monitor our inventories with our technology platforms and allocate them between our warehouses as appropriate.

SALES AND MARKETING

Pharmaceutical Service Center

We serve our customers with a professional pharmaceutical service center. We are one of the very few online retail pharmacies in China with a large pharmaceutical service center which is able to cover multiple therapeutic areas. Our pharmaceutical service center consists of a sophisticated customer service team and a licensed pharmacist team with a total of over 200 personnel as of December 31, 2020, 75 of which are PRC licensed pharmacists. Our pharmaceutical service center covers over 20 therapeutic areas. Our customer service team consists of pharmaceutical product pre-sales team, non-pharmaceutical product pre-sales team, pharmaceutical product after-sales team, non-pharmaceutical product after-sales team, refund team and licensed pharmacist team and covers every step of the sales and is able to provide satisfactory and prompt customer services to our customers. Our pharmaceutical service center offers professional consultations to our customers 24-7 online. In particular, our licensed pharmacist team offers patients with education and guidance for use of drugs.

Prescription Drugs Ordering

All of our prescription drugs are sold upon receipt of prescriptions issued by doctors from licensed healthcare providers. We require prescription from customers in our offline stores and if they do not have prescriptions, they may consult doctors from licensed healthcare providers we collaborated with remotely and obtain prescriptions for prescription drugs. Our in-house licensed pharmacists will verify the prescriptions before sales of prescription drugs. Prescription drugs sold through O2O and B2C platforms are prescribed by remote doctors designated by the platforms.

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Coverage of Health Insurance Scheme

During the Track Record Period, customers’ purchases of pharmaceutical and healthcare products from O2O and B2C platforms were generally not covered by PRC health insurance scheme. We believe that over the next few years a clearer pathway for access to the nation’s health insurance system will emerge as the PRC government has been exploring the possibilities of integrating the healthcare system with online healthcare platforms.

Return Policy

We have different return policies for drugs and non-drugs under our omni-channel retail pharmacy business. For drugs, we confirm with our customers the selection of drugs and inform our customers that drugs are not returnable upon delivery, unless with quality or mis-deliver issues. In cases of quality or mis-deliver issues, upon confirmation, we proceed return or exchange for our customers. We do not accept product return due to other reasons. For non-drugs, our customers enjoy a seven-day unconditional return policy, as long as the products delivered maintain intact. In such cases, customers will be responsible for return delivery fee. We did not experience any customer complaints, product returns or product liability claims that materially and adversely affected our business during the Track Record Period and up to the Latest Practicable Date.

Marketing and Promotion

We have a dedicated marketing team which is responsible for formulating and coordinating marketing activities and promotion campaigns based on operation data analysis and technology-driven consumer-centered brand promotion strategy. Through insights into consumer purchase behaviors, such as affiliated product purchase, repeat purchase, seasonal demand, product preference and new market trends, our marketing team is able to promote our brand by pushing most likely interested content to audiences with high purchase potential in a creative way in line with consumer habits. Our marketing team aims to create consumer centered marketing experience to attract new customers, increase customer retention rate and improve our brand awareness. Our marketing team works closely with other teams to execute marketing strategies. We are able to collaborate with various manufacturers and online platforms to conduct abundant joint promotions and marketing activities in offline and online stores and offline and online media.

DRUG SAFETY AND QUALITY CONTROL

We maintain a quality control system in accordance with the GSP. As of the Latest Practicable Date, we established a quality control team with 27 employees, supported by in-store quality control personnels to implement our quality control measures. Our quality control head holds licensed pharmacist qualification and possesses around ten years of experience in quality management of pharmaceutical products. Our quality control team members generally have extensive industry experience in drug safety and quality control, hold degrees in pharmacy, medicine, biology, chemistry or relevant majors and have received over

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20 hours of induction trainings, as well as subsequent GSP trainings on a regular basis. We have established a series of internal quality control measures covering quality control over supply of products, quality control over inventory and storage, as well as quality control over transportation and delivery.

We strongly emphasize quality control, which starts with procurement. In addition to market acceptance and costs, we select products based on GMP and GSP compliance status of their suppliers. We also assess product quality based on the manufacturer’s facilities and capabilities, including technology, packaging and logistics. We conduct random quality inspections of each batch of products we procure, and replace any supplier who fails to pass such inspections.

Quality Control over Supply of Products

Before cooperation with suppliers, our quality control team examines the qualifications of suppliers, suppliers’ sales staff and product varieties and obtains supporting documents to verify their qualifications. Our agreements with suppliers stipulate quality assurance provisions, confirming suppliers’ responsibilities for the qualities of the products. Our agreements with suppliers stipulate that qualities of products provided by our suppliers should comply with all relevant quality standards and requirements and should be packaged in accordance with relevant logistic and warehousing requirements. When making orders to suppliers, we require suppliers to issue invoices strictly consistent with the products procured. We also keep such records internally. Upon arrival of the procured products, our quality control team sampling inspects each batch of the products and rejects unqualified products from entering our warehouses. Our quality control team also verifies the shipping lists (隨貨同行單) which is required by the GSP, setting forth details of the pharmaceutical products including manufacture information and distribution histories, as well as inspection reports. For refrigerated products, our quality control team also verifies whether temperature control has been implemented as needed.

Quality Control over Inventory and Storage

We store our products in accordance with the temperature and humidity requirements as required by the products. We store products with special storage requirements in separate warehouses which meet such requirements. Our warehouses are equipped with automatic temperature and humidity monitoring systems. In case the temperature and humidity of our warehouses violate relevant requirements, we will take measures to ensure product qualities or abandon quality comprised products. We also regularly check the appearance, packing and other quality indicators of our stored products on a regular basis, and will take immediate measures to prevent selling products with doubtful quality.

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Quality Control over Ex-warehouse and Transportation

We examine our ex-warehouse products, including basic information of the products (name, specifications, manufacturers), batch numbers, quality information, to avoid unqualified products out of our warehouses. When we transport our products from our warehouses to our retail pharmacies by our own team, we ensure the transportation condition are in accordance with the storage requirements of the products. For transportation of refrigerated products, we apply real-time monitoring and recording of temperature data during transportation. When we engage third parties to transport our products to our O2O retail business, B2C retail business and supply chain business customers, we screen their certificates and qualifications and stipulate their contractual obligations and liabilities.

Quality Control over Retail Pharmacies

Our retail pharmacies examine each batch of the received products. Our retail pharmacies also display the products in accordance with the GSP requirements. Our after-sales specialists are in charge of after-sale quality complaints and take effective measures to resolve the complaints. In accordance with the GSP requirements, in case of safety problems of the products, we will stop the sales of relevant products and assist the manufacturers to recall the products; in case of material quality deficiencies of sold products, we will immediately inform our customers and recall the defective products, if possible.

RESEARCH AND DEVELOPMENT

We maintain a well-organized technology research and development system and independent development capabilities to develop core technology. As of the Latest Practicable Date, we had an in-house R&D team consisted of 105 personnel. Our R&D team established a comprehensive multi-functional technology development team to cover areas including product, technology and development, testing and monitoring, implementation and operation by attracting and recruiting experienced talents in the industry. Our R&D team also adopted a standardized and effective management system covering various stages including research, design, prototype, development, test and launch. Our subsidiary Yumeng Tongxing was recognized as National High-tech Enterprise (國家高新技術企業) by PRC Ministry of Science and Technology (中華人民共和國科學技術部).

With extensive experience in operating online and offline retail pharmacies, we have developed a comprehensive technology system comprising of data system, middle-end operation system and diverse application tools. See “—Our Technology Platforms.” Oriented by our business strategies to provide effective operation and stable and intelligent support, we apply structured data to support our business development and intelligent business operations.

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We have a new retail business technology supporting team which is dedicated to improvement of our technology management systems, including enterprise resource planning system, warehouse management system, transport monitor system, customer relationship management system, financial system, personnel system, OA system and make upgrade plans for our technology systems.

SETTLEMENT AND CASH MANAGEMENT

As an omni-channel retail pharmacy we accept multiple payment methods including cash payments and non-cash payments from our retail customers. Our offline retail pharmacy managers are responsible for ensuring the safety of cash received and the timely delivery of them to designated banks. Cash received are reconciled on a daily basis and are preserved in safes for subsequent deposition to our designated bank accounts on the next day. Our back-end financial personnel conduct reconciliations among cash deposits as reported by the retail pharmacies, bank statements and in-store sale records, and prepare cash long-and-short daily reports to follow up in case of any discrepancies during the reconciliation. We also require our in-store staff of each shift to reconcile among cash and changes in the cashier machine and in-store sales records with the witness of retail pharmacy managers before handover to the next shift. In addition, we have also installed surveillance cameras in our retail pharmacies to monitor and prevent misconducts. We also accept non-cash payment methods including WeChat Pay (微信支付) Alipay (支付寶), and credit cards. Amounts received through non-cash payment are automatically transferred to our corporate accounts opened at the relevant third-party processing platforms typically within two days.

As non-cash payments are becoming increasingly common, risks related to cash management have been and will continue to be maintained at limited level. During the Track Record Period, cash payment accounted for very limited proportion of our receipt and we did not encounter any incident of cash misappropriation or embezzlement that had a material adverse impact on our business, results of operations or financial condition.

INTELLECTUAL PROPERTY

The Company and Chengdu Shenhe entered into four trademark license agreements, pursuant to which Chengdu Shenhe agreed to grant to our Company right to use certain trademarks in the PRC for nil or at a nominal consideration, each with a term of ten years. As of the Latest Practicable Date, Chengdu Shenhe was controlled by Mr. Li, one of our Controlling Shareholders. See “Connected Transactions—Fully Exempt Continuing Connected Transactions—Trademark License Agreements.”

Save as disclosed above, we have obtained key intellectual property and proprietary rights in connection with the operation of our business. As of the Latest Practicable Date, we had 44 registered trademarks and 23 software copyrights in China; and had applied to register 21 trademarks in China and Hong Kong. We also had 13 registered domain names, including qyt1902.com, in China. As of the Latest Practicable Date, we did not license any of our intellectual property rights to any third parties.

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Our Directors confirm that we were not involved in any material disputes or pending legal proceedings in respect of, and we had not received notice of any claims of infringement of, any intellectual property rights during the Track Record Period and up to the Latest Practicable Date.

For further details of our intellectual property rights, see “Appendix IV—Statutory and General Information—B. Further Information about Our Business—2. Our Intellectual Property Rights.”

EMPLOYEES

As of the Latest Practicable Date, we had a total number of 3,106 employees, among which 895 employees work in our headquarters and regional offices, and the remaining employees are in-store staff. All of our employees are located in China. The following table sets forth the numbers of employees in our headquarters and regional offices categorized by function as of the Latest Practicable Date.

Number of employees % of total

Store staff 1,315 42.3 Pharmacists and customer service 667 21.5 Sales and marketing 232 7.5 Procurement and warehousing 315 10.1 Online operation 275 8.8 General administration 170 5.5 Research and development 105 3.4 Quality control 27 0.9

Total 3,106 100.0%

We recruit our personnel through job fairs, recruiters and recruiting websites. Our success depends on our ability to attract, train, retain qualified personnel, as well as to manage our employees. We believe we offer our employees competitive compensations and we have generally been able to attract and retain qualified personnel and maintain a stable core management team. We have launched an employee retention initiative, under which we incorporate employee retention rate as one of the key criteria that we use to assess the performance of our management team. As a result, we have generally maintained an employee retention rate higher than industry average rate.

We provide trainings to our employees in order to enhance their working skills and standards, healthcare and pharmacy knowledge, and understanding of our industry, by offering different training programs for employees at various positions on a regular basis. For example,

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We enter into standard labor contracts, confidentiality agreements and non-competition agreements with our employees. As required by relevant PRC laws and regulations, we participate in various employee social insurance plans that are organized by municipal and provincial governments, including basic pension, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing provident fund. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Bonuses are generally discretionary and based in part on employee performance and in part on the overall performance of our business. We have also implemented share incentive plan in 2020 to motivate our key employees.

During the Track Record Period and up to the Latest Practicable Date we have not experienced any material labor disputes or strikes that may have a material and adverse effect on our business, financial condition or results of operations. In accordance with applicable PRC regulations, we have made contributions to social insurance funds, including pension plans, medical insurance, work-related injury insurance, unemployment insurance, maternity insurance, and housing provident funds for our employees. During the Track Record Period and up to the Latest Practicable Date, we did not make in full the social insurance fund and housing provident fund contributions for some of our employees because certain of our employees were not willing to bear the costs associated with social insurance and housing provident funds strictly in proportion to their salary. We will endeavor to make contributions to social insurance funds and housing provident funds for our employees in accordance with applicable laws and regulations. See “Risk Factors—Risks Relating to Our Business and Industry—We may be subject to additional social insurance and housing provident fund and late payments and fines imposed by relevant regulatory authorities.”

INSURANCE

We maintain various insurance policies to safeguard against risks and unexpected events. We have contracted with leading insurance companies and providers to obtain insurance coverage for our medicine inventories and employer liabilities. In line with general market practice, we do not maintain any product liability or business interruption insurance, which is not mandatory under the relevant laws of China. See “Risk Factors—Risks Relating to Our Business and Industry—We may not have sufficient insurance to cover our business risks.” Our Directors consider that our existing insurance coverage is sufficient for our present operations and in line with industry practices in China.

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PROPERTIES

We are headquartered in Chengdu. We leased certain properties in China which are mainly premises for our retail pharmacies, warehouses and offices.

As of December 31, 2020, none of our properties has a carrying amount of 15% or more of our consolidated total assets. Therefore, according to section 6(2) of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice, this Document is exempted from compliance with the requirements of section 342(1)(b) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance in relation to paragraph 34(2) of the Third Schedule to the Companies (Winding Up and Miscellaneous Provisions) Ordinance which requires a valuation report with respect to all our Group’s interests in land or buildings.

Owned Properties in China

As of the Latest Practicable Date, we owned land use rights to one parcel of land with an GFA of 13,333.3 square meters and ownership rights of the construction on the land with a total GFA of 9,079.0 square meters in Chengdu, China, both of which were pledged as collateral in favor of Bank of Shanghai, Chengdu Branch for bank loan at a maximum amount of RMB47.2 million with the security term from October 2018 to October 2021. The property, located in Chengdu, is used as our warehouse.

Leased Properties in China

As of the Latest Practicable Date, we leased 420 properties from independent third parties with an aggregate GFA of approximately 59,917.9 square meters for our retail pharmacies, warehouses and offices across China. Among these 420 leased properties, 407 with an aggregate GFA of approximately 45,133.1 square meters were used for our retail pharmacies, whereas the remaining 13 of these properties with an aggregate GFA of approximately 14,784.8 square meters were used for our warehouses and offices in Chongqing, Guangzhou, Chengdu and Xi’an. The relevant lease agreements had lease expiration dates ranging from May 2021(1) to December 2031.

Our leases generally have a term ranging from 11 months to 11 years. Renewal of our leases are subject to negotiations between our lessors and us. We generally start to negotiate renewal of lease within one month of expiration. During the Track Record Period and up to the Latest Practicable Date, we had not experienced any significant difficulty in renewing our leases in a timely manner due to our strong brand reputation. We also believe that there is sufficient supply of properties in China and we do not rely on the existing leases for our business operations.

(1) The lease agreement expired on May 31, 2021 was renewed on June 1, 2021.

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Title Defects

As of the Latest Practicable Date, the lessors of 61 leased properties had not provided us with valid title certificates for appropriate purpose or relevant authorization documents evidencing their rights to lease the properties to us with an aggregate GFA of approximately 7,265.1 square meters, representing approximately 12.13% of the total GFA of our leased properties in China.

As advised by our PRC Legal Advisor, without valid title certificates for commercial purpose or proof of authorizations from the property owners, our use of these defective leased properties may not be valid or may be affected by third parties’ claims or challenges against the lease. In addition, if the lessors do not have the requisite rights to lease these defective leased properties, the relevant lease agreements may be deemed invalid, and as a result we may be required to vacate these defective leased properties and relocate our retail pharmacies. However, in the event that we are unable to continue using these defective leased properties, based on the advice of our PRC Legal Advisor, we, as the tenant, will not need to continue to pay the rents. Additionally, it is the lessors’ responsibility to obtain the title certificates to enter into the leases, and, as a tenant, we will not be subject to any administrative punishment or penalties in this regard. These statutory protections significantly mitigate our risks arising from these defective leased properties due to claims for vacation from the legal owners of the properties. See also “Risk Factors—Risks relating to Our Business and Industry—Certain of our leases could be challenged by third parties or government authorities, which may cause interruptions to our business operations.”

In addition, ownership rights of lessors of 39 of our leased properties with an aggregate GFA of approximately 3,625.9 square meters, representing approximately 6.1% of the total GFA of our leased properties in China, were pledged as collateral before leasing to us, our use of these defective leased properties may be affected by third parties’ claims of such rights.

Having considered the foregoing, our Directors believe that these title defects described above will not, individually or in the aggregate, materially affect our business and results of operation, on the grounds that: (i) during the Track Record Period and up to the Latest Practicable Date, to the best knowledge of our Directors, our leases with respect to these defective leased properties had never been challenged by any third parties, (ii) if we have to terminate the leases or relocate from such leased properties with title defects, we are able to locate qualified alternative premises within a short period of time under comparable terms without incurring substantial additional costs.

Lease Registration

Pursuant to the applicable PRC laws and regulations, property lease contracts must be registered with the local branch of the Ministry of Housing and Urban-Rural Development of the PRC. As of the Latest Practicable Date, all of our 420 leased properties are required by the applicable PRC laws and regulations to be registered and filed with the relevant real estate administration bureaus in the PRC, among which 402 had not been so registered or filed.

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As advised by our PRC Legal Advisor, failure to complete the registration and filing of lease agreements will not affect the validity of the lease agreements or result in us being required to vacate the leased properties. However, we might be ordered to rectify this non-compliance by competent authorities and if we do not rectify within a prescribed period, a fine ranging from RMB1,000 to RMB10,000 for each unregistered lease may be imposed on us. The aggregate amount of maximum fine will be approximately RMB4.0 million, which our Directors believe will not have any material adverse impact on our business operations. See also “Risk Factors—Risks relating to Our Business and Industry—Most of the lease agreements of our leased properties have not been registered with the relevant PRC governmental authorities as required by PRC law, which may expose us to potential fines.” During the Track Record Period and up to the Latest Practicable Date, we had not been ordered by any authorities to register any of these lease agreements.

Having considered the foregoing, our Directors believe that the non-registrations of leases described above will not, individually or in the aggregate, materially affect our business and results of operation, on the grounds that: (i) no penalty had been imposed on us for our failure to register and file the relevant lease agreements during the Track Record Period and up to the Latest Practicable Date, and (ii) we were advised by our PRC legal advisor that, if the lease registration can be completed in accordance with relevant laws and regulations within a reasonable time from the date of application or the prescribed time limit ordered by the competent governmental authorities, the risk of governmental authorities imposing a material penalty on us with respect to these leased properties is remote.

Allocated Lands (劃撥地) and Collectively-owned Lands (集體土地)

As of the Latest Practicable Date, four of our leased properties in China with an aggregate GFA of approximately 562.2 square meters were located on allocated lands or collectively- owned land, which have served as our retail pharmacies.

As advised by our PRC Legal Adviser, the lease of such properties on allocated lands must be approved by and registered with the appropriate land and real estate administration bureau in the PRC and the lease of properties on collectively-owned land shall be approved by the relevant collective economic organization or the village committee. However, as of the Latest Practicable Date, the lessors had not obtained the necessary approval nor completed the registration. As a result, such leases may be deemed invalid and we may be forced to relocate from such properties.

Our Directors confirmed that the failure to obtain the approval and complete the registration will not result in material adverse impact on our business and results of operations, primarily because if we have to relocate from such leased properties, we are able to locate qualified alternative premises within a short period of time under comparable terms without incurring substantial additional costs.

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USER PRIVACY AND DATA SECURITY

We receive personal data during our online retail business operations. Various PRC laws and regulations govern the collection, use, retention, sharing, and security of the personal data we receive from and about our customers. It is also expected that relevant laws and regulations will be stricter in the future. We have accordingly adopted internal policies to comply with these laws and regulations and ensure user privacy and data security. Our technology team is responsible for protection of user privacy and data security. Private data are encrypted in our systems and operations over private data are automatically recorded in system logs. See “Risk Factors—Risks Relating to Our Business and Industry—Our business generates and processes a large amount of data, and the improper use, breach or disclosure of such data could damage our reputation and may have a material and adverse effect on our business and prospects.”

AWARDS AND RECOGNITION

The following table sets out a summary of the major awards and recognition we have received.

Year Award or recognition Issuing authority

2017 2016-2017 Top Ten China China Pharmacy Magazine (中國藥 Pharmacies E-commerce in 店雜誌社) (2016-2017中國藥店價值榜電商十強) 2017 Chengdu Top 100 Service Industry Chengdu Enterprise Federation (成 Enterprises (成都服務業100強企都企業聯合會) 業榜單) 2017 2017-2018 Outstanding E-commerce Ministry of Commerce (中國商務部) Enterprises (2017-2018年度電子商務示範企業名錄) 2018 2018-2019 Top 100 China Chain Southern Institute of Pharmaceutical Pharmacies in terms of Direct economics-21st century Operation Capability (2018-2019 pharmacies report (南方醫藥經濟年度中國連鎖藥店直營力百強企研究所-21世紀藥店報) 業) 2019 2019 Top 100 China Healthcare Vcbeat.top (動脈網) Service Providers (2019年未來醫療100強–中國醫療服務榜) 2019 2019 Chengdu Top E-commerce Chengdu E-commerce Enterprise Enterprise (2019成都電子商務優 Association (成都市電子商務企業勢企業TOP榜年度卓越影響力電商協會) 品牌)

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Year Award or recognition Issuing authority

2019 2019 The Best New Retailing Chinese New Economy Innovative Platform (2019年中國新經濟創新 List Committee* (中國新經濟創勢力榜最佳新零售平台) 新勢力榜評選組委員), iiMedia Research Group (艾媒諮詢集團) 2020 2019-2020 China Competitive Sinohealth (中康資訊) Pharmacy E-commerce Enterprise (2019–2020年度中國藥品零售企業綜合競爭力排行榜––“電商經營”榜單) 2020 2019-2020 Top 100 China Chain Southern Institute of Pharmaceutical Pharmacies in terms of Direct economics-21st century Operation Capability (2019-2020 pharmacies report 年度中國連鎖藥店直營力百強企業)

COMPETITION

The omni-channel retail pharmacy market in China is intensely competitive and rapidly changing. We face potential competition from many difference entities, including other omni-channel retail pharmacies, online pharmacies and large chain pharmacies. We compete primarily based on our omni-channel pharmaceutical retail model, our products and services, our operation model and business model and our “online + offline” operational expertise. See “Industry Overview.”

LICENSES, PERMITS AND APPROVALS

As a PRC-based retailer and wholesaler of pharmaceutical products, medical equipment and nutritional supplements, we’re required to maintain or renew necessary permits, licenses, certifications and filings for our business under relevant PRC laws and regulations. A summary of relevant material license and permit requirements are as below.

• Pharmaceutical Operation License (《藥品經營許可證》). Each of the Company, our subsidiaries and our retail pharmacies, if operates pharmaceutical product retail business, is required to hold Pharmaceutical Operation License for retailers. The Group is required to hold Pharmaceutical Operation License for wholesalers to operate B2B pharmaceutical product wholesale business.

• Medical Devices Operation License (《醫療器械經營許可證》). Each of the Company, our subsidiaries and our retail pharmacies, if distributes Class III medical devices, is required to hold Medical Devices Operation License.

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• Class II Medical Device Operation Filing Certificate (《第二類醫療器械經營備案憑證》). Each of the Company, our subsidiaries and our retail pharmacies, if distributes class II medical devices, is required to hold Class II Medical Device Operation Filing Certificate.

• Food Operation License (《食品經營許可證》). Each of the Company, our subsidiaries and our retail pharmacies, if distributes nutritional supplements, is required to hold Food Operation License.

• Qualification Certificate for Internet Drug Information Services (《互聯網藥品信息服務資格證書》). The Company is required to hold Qualification Certificate for Internet Drug Information Services to provide internet pharmaceutical information.

As of the Latest Practicable Date, as advised by our PRC Legal Advisors, except for several of our retail pharmacies are applying for or renewing relevant certificates, we had obtained all requisite licenses, approvals, permits, registration and filing from the relevant government authorities that are material for our business operations in China taken as a whole and such licenses, approvals, permits, registration and filing had remained in full effect. We renew all such licenses, approvals, permits, registration and filing from time to time to comply with the relevant laws and regulations.

LEGAL PROCEEDING AND COMPLIANCE

As advised by our PRC Legal Advisor, during the Track Record Period and up to the Latest Practicable Date, we had experienced no breaches or violations of applicable PRC laws and regulations that may have a material and adverse impact on our business, financial condition or results of operation.

ENVIRONMENTAL, OCCUPATIONAL HEALTH AND SAFETY MATTERS

Our business does not involve significant occupational, health, work safety and environmental matters, other than being in compliance with applicable PRC laws and regulations. During the Track Record Period and up to the Latest Practicable Date, we did not experience any material occupational, health and safety and environmental incidents or, as advised by our PRC Legal Advisors, receive any material administrative penalties as a result of the violation of laws and regulations relating to occupational, health and safety and environmental issues. We have formulated and implemented various workplace safety policies and procedures to ensure that our employees have a safe working environment. During the Track Record Period and up to the Latest Practicable Date, none of our employees were involved in any major accidents in their workplaces.

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RISK MANAGEMENT AND INTERNAL CONTROL

We are subject to various risks during our operations, see “Risk Factors—Risks Relating to Our Business and Industry.” We have established a consolidated risk management system and relevant policies and procedures which we consider suitable for our business operations. Our policies and procedures are aimed at managing and monitoring our business performance.

To monitor the continuous implementation of risk management policies and corporate governance measures after the [REDACTED], we have adopted or will continue to adopt, among other things, the following risk management measures:

• establish an audit committee to review and supervise our financial reporting process and internal control system. For the qualifications and experiences of these members, see “Directors and Senior Management;”

• adopt various policies to ensure the compliance with the Listing Rules, including but not limited to policies in respect of risk management, connected transactions and information disclosure;

• provide regular anti-corruption and anti-bribery compliance training for senior management and employees in order to enhance their knowledge of and compliance of applicable laws and regulations; and

• arrange our Directors and senior management to attend training seminars on Listing Rules requirements and the responsibilities as directors of a Hong Kong-listed company.

We have appointed an internal control consultant to review the effectiveness of our internal control measures related to our major business processes, to identify the deficiencies for improvement, advise on the rectification measures and review the implementation of such measures. During the review process of our internal control consultant, certain internal control matters were identified, and we have adopted corresponding internal control measures to improve on these matters. We have adopted the recommendations made by the internal control consultant and our internal control consultant has completed the follow-up procedures on our internal control system with regard to those actions taken by us in April 2021 and have not identified any material deficiencies in our internal control system.

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OVERVIEW

As of the Latest Practicable Date, Mr. Li together with Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei, were entitled to exercise the voting rights attaching to approximately 56.25% of the total issued Shares of our Company through his direct equity ownership and a series of proxy agreements as well as his role as the general partner of Chengdu Quanhong and Chengdu Quanbei. For details of these voting arrangements, see “History and Corporate Structure—Concert Party Agreements and Power of Attorney.” Immediately following the completion of the [REDACTED] (assuming that the [REDACTED] is not exercised), the group of Mr. Li, Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei will be entitled to exercise the voting rights attaching to approximately [REDACTED] of the total [REDACTED] Shares of our Company. Accordingly, Mr. Li, Chengdu Chuangtuo, Chengdu Quanhong and Chengdu Quanbei will continue to be the only group of Controlling Shareholders upon the [REDACTED].

As of the Latest Practicable Date, Chengdu Chuangtuo was an investment holding entity. For details on the background and experience of Mr. Li, see “Directors, Supervisors and Senior Management.”

DELINEATION OF BUSINESS

Each of our Controlling Shareholders has confirmed that, as of the Latest Practicable Date, none of them had any interest in any business, other than our business, which compete, or is likely to compete, either directly or indirectly, with our business and would require disclosure under Rule 8.10 of the Listing Rules.

Chengdu Shenhe

Chengdu Shenhe was incorporated on June 8, 2000 in the PRC and is primarily engaged in the production of traditional Chinese medicine, prepared slices of Chinese crude drugs and hygienic disinfection lotion. As of the Latest Practicable Date, Chengdu Shenhe was owned as to 95.0% by Mr. Li.

We are primarily engaged in (i) offline retail pharmacies; (ii) O2O retail business, under which we sell and deliver pharmaceutical products to consumers that purchase products from our online retail pharmacies on O2O platforms; and (iii) B2C retail business, under which we operate online pharmacies on B2C e-commerce platforms. Our Directors are of the view that there is a clear delineation of the businesses of Chengdu Shenhe and our Company and there is no competition between Chengdu Shenhe and us, on the following basis:

a. Customer base. As a manufacturer of traditional Chinese medicine, Chengdu Shenhe mainly sells its products to distributors. In contrast, we are not engaged in the R&D and manufacturing of pharmaceutical products but primarily purchase pharmaceutical products from a range of manufacturers and on-sell to retail or corporate customers.

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b. Different products. Our product offerings cover a wide range of pharmaceutical products. including prescription drugs, OTC drugs, Chinese medicines, health and wellness products, personal care products, family health products, contact lenses, maternal and infant supplies purchased from a range of manufacturers. In contrast, Chengdu Shenhe only manufactures and sells certain traditional Chinese medicine that is manufactured in-house.

Based on the above, our Directors are of the view that there is no material business competition between Chengdu Shenhe and our Group.

INDEPENDENCE FROM CONTROLLING SHAREHOLDERS

Having considered the following factors, our Directors are satisfied that we are capable of carrying out our business independently from our Controlling Shareholders after the [REDACTED].

Management Independence

Save as disclosed below, none of our Directors or members of senior management serves as directors or members of senior management in any of our Controlling Shareholders or their respective close associates:

Positions held in our Controlling Position in Shareholders and their close associates Name our Company Name of entity Position

Mr. Chen Yang Executive Director Chengdu Chuangtuo Executive director and chief executive officer

Our Directors are of the view that our Board and senior management team are able to manage our business independently from the Controlling Shareholders and their respective close associates for the following reasons:

i. Other than Mr. Chen Yang, none of our executive Director nor members of senior management serves as executive director or senior management member in our Controlling Shareholders or any of their respective close associates. In addition, the entity that Mr. Chen serves as executive director and chief executive officer of is an investment vehicle which does not have any on-going business;

ii. According to the Articles of Association, with respect to any matter of conflict or potential conflict of interest which involve a transaction between our Company and another company or entity in which a Director holds office, such Director shall abstain from voting on the resolutions and shall not be counted towards the quorum for the voting;

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iii. We have appointed five independent non-executive Directors to provide a balance of the number of potentially interested and independent Directors with a view to promote the interest of our Company and the Shareholders as a whole. The independent non-executive Directors will give their independent opinions to the Shareholders on the relevant connected transaction(s), if any, pursuant to the Listing Rules. The independent non-executive Directors will be entitled to engage professional advisors at our cost for advice on matters relating to any potential conflict of interest arising out of any transaction to be entered into between our Company and our Controlling Shareholders or their respective close associates;

iv. Each of our Directors is aware of his fiduciary duties and responsibilities under the Listing Rules as a director, which require that he acts in the best interests of our Company and our Shareholders as a whole;

v. Where a Shareholders’ meeting is held to consider a proposed transaction in which the Controlling Shareholders have a material interest, the Controlling Shareholders shall abstain from voting on the resolutions and shall not be counted towards the quorum for the voting; and

vi. Our Company has appointed CMBC International Capital Limited as our compliance advisor, which will provide advice and guidance to our Group in respect of compliance with the applicable laws and Listing Rules including various requirements relating to Directors’ duties and corporate governance.

Financial Independence

Our Group has an independent financial system. We make financial decisions according to our own business needs and neither our Controlling Shareholders nor their close associates intervene with our use of funds. We have opened accounts with banks independently and do not share any bank account with our Controlling Shareholders or their close associates. We have made tax filings and paid tax independently from our Controlling Shareholders and their close associates pursuant to applicable laws and regulations. We have established an independent finance department as well as implemented sound and independent audit, accounting and financial management systems. We have adequate internal resources and credit profile to support our daily operations.

As of December 31, 2020, secured bank loans of RMB317.4 million were secured by certain number of the our Shares held by Mr. Li Can, Ms. Zhao Xiaofang, Mr. Chen Zhouhua, Ms. Yu Miao, Mr. Wang Lei, Mr. Chen Yang and Chengdu Chuangtuo, and guaranteed by Mr. Li Can, Mr. Chen Zhouhua, Mr. Chen Yang, Mr. Wang Lei, Ms. Yu Miao jointly and unutilized bank facilities of RMB4.0 million were secured by our ordinary shares held by Mr. Li Can, Mr. Chen Zhouhua, Ms. Yu Miao, Mr. Wang Lei, Mr. Chen Yang and Chengdu Chuangtuo and guaranteed by Mr. Li Can, Mr. Chen Zhouhua, Mr. Chen Yang, Mr. Wang Lei, Ms. Yu Miao, Ms Zhao Xiaofang and Chengdu Shenhe jointly. In addition, as of the same date, bill payables of RMB198.6 million were guaranteed by Mr. Li Can, Mr. Chen Zhouhua, Mr. Chen Yang, Mr.

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Wang Lei, Ms. Yu Miao, Ms Zhao Xiaofang and Chengdu Shenhe jointly. We have obtained confirmation from the respective banks that such securities and guarantees will be released prior to the Listing Committee’s hearing. As such, as of the [REDACTED], no loans or guarantees provided, or granted to, our Controlling Shareholders or their respective associates will be outstanding.

Based on the above, our Directors are satisfied that we are able maintain financial independence from our Controlling Shareholders and their respective close associates.

Operation Independence

Our Group holds all of the relevant material licenses, qualifications and permits required for conducting our business. We have access to customers and suppliers independent of our Controlling Shareholders. We have our own accounting and financial department, human resources and administration department, internal control department and technology department (including research and development function) which have been in operation and are expected to continue to operate separately and independently from our Controlling Shareholders and their close associates. We have also established a set of internal control procedures and adopted corporate governance practices to facilitate the effective operation of our business.

Based on the above, our Directors are satisfied that we have been operating independently from our Controlling Shareholders and their respective close associates during the Track Record Period and will continue to operate independently and are of the view that they and our senior management are capable of carrying on our business independently of, and do not place undue reliance on our Controlling Shareholders and their close associates after the [REDACTED].

CORPORATE GOVERNANCE MEASURES

We will comply with the provisions of the Corporate Governance Code set forth in Appendix 14 to the Listing Rules, which sets out the principles of good corporate governance. Each of our Controlling Shareholders has confirmed that they fully comprehend each of their obligations to act in the best interests of our Company and our Shareholders as a whole. Our Directors believe that there are adequate corporate governance measures in place to manage existing and potential conflicts of interest. In order to further avoid potential conflicts of interest, we have implemented the following measures:

• where a board meeting or Shareholders’ meeting is to be held for considering proposed transactions in which any of our Directors or Controlling Shareholders or any of their respective close associates has a material interest, the relevant Director or Controlling Shareholder will not vote on the relevant resolutions;

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• we have established internal control mechanisms to identify connected transactions. Upon the [REDACTED], if we enter into connected transactions with any Controlling Shareholder or any of their associates, we will comply with the applicable Listing Rules;

• the independent non-executive Directors will review, on an annual basis, whether there are any conflicts of interests between our Group and any Controlling Shareholder (the “Annual Review”) and provide impartial and professional advice to protect the interests of our minority Shareholders;

• our Controlling Shareholders will undertake to provide all information necessary, including all relevant financial, operational and market information and any other necessary information as required by the independent non-executive Directors for the Annual Review;

• our Company will disclose decisions on matters reviewed by the independent non-executive Directors either in its annual reports or by way of announcements;

• where our Directors reasonably request the advice of independent professionals, such as financial advisors, the appointment of such independent professionals will be made at our Company’s expenses; and

• we have appointed CMBC International Capital Limited as our compliance advisor to provide advice and guidance to us in respect of compliance with the applicable laws and regulations, as well as the Listing Rules, including various requirements relating to corporate governance.

Based on the above, our Directors are satisfied that sufficient corporate governance measures have been put in place to manage conflicts of interest that may arise between our Group and our Controlling Shareholders, and to protect our minority Shareholders’ interests after the [REDACTED].

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OVERVIEW

Upon the [REDACTED], the following transactions between our connected persons and us will constitute continuing connected transactions under Chapter 14A of the Listing Rules. Details of such continuing connected transactions of the Company following the [REDACTED] are set out below.

RELEVANT CONNECTED PERSONS

The following entities with whom we have entered into transactions will be regarded as our connected persons under the Listing Rules:

Connected Person Connected Relationship

Chengdu Shenhe together As of the Latest Practicable Date, Chengdu Shenhe was with its subsidiaries owned as to 95.0% by Mr. Li, one of the Controlling (including Chengdu Shareholders and an executive Director of our Company. Jingcao) Chengdu Shenhe is therefore an associate of Mr. Li and thus a connected person of our Company pursuant to Rule 14A.07(4) of the Listing Rules.

Yumeng Tongxing As of the Latest Practicable Date, Yumeng Tongxing was owned as to 70.0% by our Company, 12.0% by Chengdu Rongchuang Zhongxiang Technology Co., Ltd. (成都榮創眾享科技有限責任公司), which was owned as to 100% by Mr. Li, 9.0% by Mr. Huang Xin, 5.0% by Mr. Du Tongjie and 4.0% by Mr. Wen Gui (溫貴). Each of Mr. Huang Xin and Mr. Li is an executive Director of our Company. Mr. Du Tongjie is a Supervisor of our Company, and Mr. Wen is the chief executive officer and executive director of Yumeng Tongxing. Therefore Yumeng Tongxing is a connected subsidiary pursuant to Rule 14A.16 of the Listing Rules and thus a connected person of our Company pursuant to Rule 14A.07(5) of the Listing Rules.

Mr. Li Mingjing (李明勁) Mr. Li Mingjing is the father of Mr. Li. Pursuant to Rule 14A.12(2)(a) of the Listing Rules, Mr. Li Mingjing is a family member of Mr. Li, and therefore an associate of a connected person. Pursuant to Rule 14A.07(4), he is a connected person of our Company.

Chengdu Mengmao As of the Latest Practicable Date, Chengdu Mengmao was owned as to 99% by Mr. Li Mingjing. Chengdu Mengmao is therefore a connected person of our Company pursuant to Rule 14A.12(2)(b) of the Listing Rules.

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Connected Person Connected Relationship

Sino Biopharm together As of the Latest Practicable Date, Sino Biopharm was a with its subsidiaries substantial shareholder of the Company, and thus a (including Chia Tai connected person of our Company pursuant to Rule Tianqing Pharmaceutical 14A.07(1) of the Listing Rules. Group Co., Ltd. (正大天晴藥業集團股份有限公司), Chia Tai Pharmaceutical (Qingdao) Co., Ltd. (正大製藥(青島)有限公司), Jiangsu Chia Tai Fenghai Pharmaceutical Co., Ltd. (江蘇正大豐海製藥有限公司), Jiangsu Chia Tai Qingjiang Pharmaceutical Co. Ltd. (江蘇正大清江製藥有限公司), Chia Tai Yushanfang Health Technology (Hangzhou) Co., Ltd. (正大玉膳坊健康科技(杭州)有限公司)) (together, the “Sino Biopharm Group”)

Pujiang Shentong As of the Latest Practicable Date, Pujiang Shentong was owned as to 100% by Chengdu Quanshen Logistics Co., Ltd. (成都泉申物流有限公司), a company owned as to 60% by Mr. Chen Yang, an executive Director of our Company. Pujiang Shentong is therefore an associate of Mr. Chen Yang and thus a connected person of our Company pursuant to Rule 14A.07(4) of the Listing Rules.

Chengdu Yuanhuan As of the Latest Practicable Date, Chengdu Yuanhuan was owned as to 40% by Guangzhou Jiuhuan Health Technology Co., Ltd. (廣州玖環健康科技有限公司) and 60% by Chengdu Quanshen Logistics Co., Ltd., a company owned as to 60% by Mr. Chen Yang, an executive Director of our Company. Chengdu Yuanhuan is therefore an associate of Mr. Chen Yang and thus a connected person of our Company pursuant to Rule 14A.07(4) of the Listing Rules.

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CONTINUING CONNECTED TRANSACTIONS

The following table sets forth a summary of our continuing connected transactions:

Proposed annual caps (RMB’000) for Applicable the year ending December 31, Transaction Listing Rules Waiver Sought 2021 2022 2023

Fully exempt continuing connected transactions

Trademark License 14A.76(1)(a) N/A N/A N/A N/A Agreements

Chengdu Shenhe 14A.76(1)(a) N/A N/A N/A N/A Sales Framework Agreement

Chengdu 14A.76(1)(a) N/A N/A N/A N/A Mengmao Procurement Framework Agreement

Non-exempt continuing connected transactions

Chengdu Yuanhuan 14A.34, 14A.35, [Waiver from strict [3,500] [6,500] [11,000] Procurement Framework 14A.49, 14A.51 compliance with Agreement to 14A.59 and announcement 14A.71 requirement]

Yumeng Tongxing 14A.34, 14A.35, [Waiver from strict [6,000] [5,000] [5,000] Information Technology 14A.49, 14A.51 compliance with Service Framework to 14A.59 and announcement Agreement 14A.71 requirement]

Chengdu Shenhe Medicine 14A.34, 14A.35, [Waiver from strict [31,768] [36,590] [40,249] Procurement Framework 14A.49, 14A.51 compliance with Agreement to 14A.59 and announcement 14A.71 requirement]

Pujiang Shentong 14A.34, 14A.35, [Waiver from strict [9,555] [10,459] [11,213] Logistics Service 14A.49, 14A.51 compliance with Framework Agreement to 14A.59 and announcement 14A.71 requirement]

Sino Biopharm Medicine 14A.34 to 14A.36, [Waiver from [250,000] [500,000] [1,000,000] Procurement Framework 14A.49, 14A.51 announcement, Agreement to 14A.59 and circular and 14A.71 independent shareholders’ approval requirements]

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FULLY EXEMPT CONTINUING CONNECTED TRANSACTIONS

We have entered into the following continuing connected transactions which will be exempt from the annual review, reporting, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules:

Trademark License Agreements

Principal terms

The Company and Chengdu Shenhe entered into four trademark license agreements on August 21, 2014, February 1, 2015, August 21, 2016 and May 25, 2020, respectively, pursuant to which Chengdu Shenhe agreed to grant to our Company a right to use certain trademarks in the PRC for nil or at a nominal consideration (each a “Trademark License Agreement” and together the “Trademark License Agreements”). Each of the Trademark License Agreements entered into by the Company has a term of ten years or more, commencing from August 21, 2014 to August 20, 2024, February 1, 2015 to December 31, 2025, August 21, 2016 to August 20, 2026, and February 14, 2019 to February 13, 2029 respectively.

Reasons for and benefits of the transactions

Our Directors are of the view that the entering into the Trademark License Agreements for a period of more than three years promote stability and continuity in operations and are beneficial to our Shareholders as a whole. It is normal business practice for trademark license agreements to be of a similar or longer duration to that of the Trademark License Agreements. Given that the licensing of various trademarks under the Trademark License Agreements is important to our Group’s business operation, it is in our interest for the Trademark License Agreements to be of a duration longer than three years. Considering that a long duration of a trademark license agreement of this nature is (a) within normal business practice for agreements of this type to be of such duration; (b) the strategic importance for our Group to use such trademarks; and (c) such term is sufficiently long to provide better protection to our Group considering the nature of our licensed trademarks, our Directors are of the view that it is normal business practice for the Trademark Licensing Agreements to have such a duration.

Having considered above, the Joint Sponsors are not aware of any matter which indicates that the longer term provided for under the Trademark License Agreements is unreasonable. Based on the information and reasoning above, the Joint Sponsors are of the view that it is the normal business practice for agreements of this type to be of such duration.

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Historical amounts

Pursuant to the Trademark License Agreements, for the three years ended December 31, 2018, 2019 and 2020, the total fees paid by our Group were nil, nil and nil.

Listing Rules implications

As the Trademark License Agreements were all entered into between the Group and the same connected person of our Company in relation to trademarks licensing, the agreements shall be aggregated pursuant to Rule 14A.81 of the Listing Rules. As the highest applicable percentage ratios (other than the profits ratio) for the transactions contemplated under the Trademark License Agreements in aggregate will be less than 0.1%, the transactions will constitute de minimis transactions of our Company under Rule 14A.76(1)(a) of the Listing Rules upon the [REDACTED] and will be fully exempt from the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Chengdu Shenhe Sales Framework Agreement

Principal terms

Our Company, for itself and on behalf of its subsidiaries, entered into the sales agreement with Chengdu Shenhe, for itself and on behalf of its subsidiaries including Chengdu Jingcao, on [●], pursuant to which our Group sells medical products to Chengdu Shenhe and its subsidiaries (the “Chengdu Shenhe Sales Framework Agreement”). The Chengdu Shenhe Sales Framework Agreement is effective for a period of three years from the [REDACTED] and may be renewed conditional upon the fulfilment of the relevant requirements under the relevant laws, regulations and the Listing Rules.

Historical amounts

For the three years ended December 31, 2018, 2019 and 2020, the total amount of revenue contributed to our Group by Chengdu Shenhe and its subsidiaries was approximately RMB40,000, RMB6,000 and RMB0.32 million.

Listing Rules Implications

As the applicable percentage ratios (other than the profits ratio) for the transactions contemplated under the Chengdu Shenhe Sales Framework Agreement will be less than 0.1%, the transactions will constitute de minimis transactions of our Company under Rule 14A.76(1)(a) of the Listing Rules upon the [REDACTED] and will be fully exempt from the annual review, reporting, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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Chengdu Mengmao Procurement Framework Agreement

Principal terms

Our Company, for itself and on behalf of its subsidiaries, entered into the procurement agreement with Chengdu Mengmao, for itself and on behalf of its subsidiaries, on [●], pursuant to which our Group procures daily necessities and medical devices from Chengdu Mengmao and its subsidiaries (the “Chengdu Mengmao Procurement Framework Agreement”). The Chengdu Mengmao Procurement Framework Agreement is effective for a period of three years from the [REDACTED] and may be renewed conditional upon the fulfilment of the relevant requirements under the relevant laws, regulations and the Listing Rules.

Historical amounts

For the three years ended December 31, 2018, 2019 and 2020, the total amount of procurement fees incurred by our Group to Chengdu Mengmao were approximately nil, nil and RMB31,000.

Listing Rules implications

As the applicable percentage ratios (other than the profits ratio) for the transactions contemplated under the Chengdu Mengmao Procurement Framework Agreement will be less than 0.1%, the transactions will constitute de minimis transactions of our Company under Rule 14A.76(1)(a) of the Listing Rules upon the [REDACTED] and will be fully exempt from the annual review, reporting, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Chengdu Yuanhuan Procurement Framework Agreement

Principal terms

Our Company, for itself and on behalf of its subsidiaries, entered into the procurement agreement with Chengdu Yuanhuan, for itself and on behalf of its subsidiaries, on [●], pursuant to which our Group procures dietary supplements, such as vitamin C tablets, from Chengdu Yuanhuan and its subsidiaries (the “Chengdu Yuanhuan Procurement Framework Agreement”). The Chengdu Yuanhuan Procurement Framework Agreement is effective for a period of three years from the [REDACTED] and may be renewed conditional upon the fulfilment of the relevant requirements under the relevant laws, regulations and the Listing Rules.

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Pricing policy

The procurement price is on normal commercial terms as determined based on arm’s length negotiation between the parties with reference to the prevailing market price of similar dietary products supplied by other independent suppliers in the market.

Reasons for and benefits of the transactions

Chengdu Yuanhuan has good reputation in providing various dietary supplements with good quality. Our Group has been selling the dietary supplements provided by Chengdu Yuanhuan given the convenience resulted from the good working relationship between the parties. It is crucial to maintain a stable and quality supply of dietary supplements for our Group’s existing and future operation. Chengdu Yuanhuan is a reliable supplier and can efficiently fulfil our Group’s requirements with stable and quality supply of dietary supplements.

Historical amounts

Chengdu Yuanhuan was owned as to 60% by the Company throughout the Track Record Period and the Company’s interests in Chengdu Yuanhuan were transferred to Chengdu Quanshen Logistics Co., Ltd. on April 1, 2021. Upon such transfer, the transactions became continuing connected transactions. For the three years ended December 31, 2018, 2019 and 2020, the total amount of procurement fees incurred by our Group to Chengdu Yuanhuan were approximately nil, nil and RMB2.0 million.

Annual cap

For the three years ended December 31, 2021, 2022 and 2023, the total amount payable by our Group to Chengdu Yuanhuan under the Chengdu Yuanhuan Procurement Framework Agreement is not expected to exceed RMB[3.5 million], RMB[6.5 million] and RMB[11.0 million] respectively.

Basis of annual cap

The above proposed annual caps are set based on the following factors: (i) the historical transaction amount paid by our Group to Chengdu Yuanhuan during the Track Record Period; (ii) the expected need of our Company for the relevant products; and (iii) the expansion plan of our Group in the future.

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Listing Rules implications

As the applicable percentage ratios (other than the profits ratio) for the transactions contemplated under the Chengdu Yuanhuan Procurement Framework Agreement will not exceed 5% on an annual basis, the transactions shall be exempt from the circular (including independent financial advice) and independent shareholders’ approval requirements but are subject to the relevant annual reporting and announcement requirements under Chapter 14A of the Listing Rules.

Yumeng Tongxing Information Technology Service Framework Agreement

Principal terms

Our Company, for itself and on behalf of its subsidiaries, entered into the information technology service agreement with Yumeng Tongxing, for itself and on behalf of its subsidiaries, on [●], pursuant to which Yumeng Tongxing and its subsidiaries provide information technology service to the Group (the “Yumeng Tongxing Information Technology Service Framework Agreement”). The Yumeng Tongxing Information Technology Service Framework Agreement is effective for a period of three years from the [REDACTED] and may be renewed conditional on the fulfilment of the relevant requirements under the relevant laws, regulations and the Listing Rules.

Pricing policy

The overall service fee is charged for (i) the purchase of software licence; (ii) the software upgrade and maintenance service; and (iii) database development service. For the purchase price of software licence, it is determined based on the prevailing selling price of a particular software licence in the market. For the service fee charged for the software upgrade and maintenance and the database development services, it is determined based on a cost (i.e. salaries as well as other operating costs) plus profit margin basis. The profit margin is in the range of 5% to 10% which is comparable to the profit margin of other listed technology companies offering similar services.

Reasons for and benefits of the transactions

The provision of the information technology services under the Yumeng Tongxing Information Technology Service Framework Agreement reflects the Group’s strategy of utilising a range of technology services and resources to enhance its operating efficiency of the omni-channel smart retail pharmacy business.

Historical amounts

For the three years ended December 31, 2018, 2019 and 2020, the total amount of service fees incurred by our Group to Yumeng Tongxing was approximately nil, RMB6.1 million and RMB7.3 million.

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Annual cap

For the three years ended December 31, 2021, 2022 and 2023, the total amount payable by our Group to Yumeng Tongxing under the Yumeng Tongxing Information Technology Service Framework Agreement is not expected to exceed [RMB6.0 million], [RMB5.0 million], and [RMB5.0 million] respectively.

Basis of annual cap

The above proposed annual caps are set based on the following factors: (i) the historical transaction amount paid by our Group to Yumeng Tongxing during the Track Record Period; (ii) the expected need of our Company for the software upgrade and maintenance and the database development services and the expected enhancement in the operational efficiency of such services rendered by the relevant staff; and (iii) the expected service fee of such information technology service with reference to the prevailing market price.

Listing Rules implications

As the applicable percentage ratios (other than the profits ratio) for the transactions contemplated under Yumeng Tongxing Information Technology Service Framework Agreement will not exceed 5% on an annual basis, the transactions shall be exempt from the circular (including independent financial advice) and independent shareholders’ approval requirements but are subject to the relevant annual reporting and announcement requirements under Chapter 14A of the Listing Rules.

Chengdu Shenhe Medicine Procurement Framework Agreement

Principal terms

Our Company, for itself and on behalf of its subsidiaries, entered into the medicine procurement agreement with Chengdu Shenhe, for itself and on behalf of its subsidiaries including Chengdu Jingcao, on [●], pursuant to which the Group procures medicine from Chengdu Shenhe and its subsidiaries (the “Chengdu Shenhe Medicine Procurement Framework Agreement”). The Chengdu Shenhe Medicine Procurement Framework Agreement is effective for a period of three years from the [REDACTED] and may be renewed conditional on the fulfilment of the relevant requirements under the relevant laws, regulations and the Listing Rules.

Pricing policy

The procurement price is on normal commercial terms as determined based on arm’s length negotiation between the parties with reference to the prevailing market price of similar medical products.

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Reasons for and benefits of the transactions

Chengdu Shenhe and its subsidiaries have good reputation in providing various medicine with good quality. Our Group has been selling the medicine provided by Chengdu Shenhe and its subsidiaries for several years, and Chengdu Shenhe and its subsidiaries have been providing with the Group with a long-term stable supply. It is crucial to maintain a stable and quality supply of medicine for our Group’s existing and future operation. Chengdu Shenhe and its subsidiaries are our long term and reliable suppliers and can efficiently fulfil our Group’s requirements with stable and quality supply of medicine.

Historical amounts

For the three years ended December 31, 2018, 2019 and 2020, the total amount of procurement fees incurred by our Group to Chengdu Shenhe and its subsidiaries was approximately RMB18.8 million, RMB26.1 million and RMB26.6 million.

Annual cap

For the three years ended December 31, 2021, 2022 and 2023, the total estimated amount payable by our Group to Chengdu Shenhe and its subsidiaries under the Chengdu Shenhe Medicine Procurement Framework Agreement is not expected to exceed [RMB31.8 million], [RMB36.6 million] and [RMB40.2 million] respectively.

Basis of annual cap

The above proposed annual caps are set based on the following factors: (i) the historical transaction amount paid by our Group to Chengdu Shenhe and its subsidiaries; (ii) the estimated procurement amount of medicine our Group expects to procure from Chengdu Shenhe and its subsidiaries; and (iii) the current trends of market price of the same, similar or alternative medicine procurement in the PRC.

Listing Rules implications

As the applicable percentage ratios (other than the profits ratio) for the transactions contemplated under the Chengdu Shenhe Medicine Procurement Framework Agreement will not exceed 5% on an annual basis, the transactions shall be exempt from the circular (including independent financial advice) and independent shareholders’ approval requirements but are subject to the relevant annual reporting and announcement requirements under Chapter 14A of the Listing Rules.

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Pujiang Shentong Logistics Service Framework Agreement

Principal terms

Our Company, for itself and on behalf of its subsidiaries, entered into the service agreement with Pujiang Shentong, for itself and on behalf of its subsidiaries, on [●], pursuant to which Pujiang Shentong and its subsidiaries provide logistics service to the Group (the “Pujiang Shentong Logistics Service Framework Agreement”). The Pujiang Shentong Logistics Service Framework Agreement is effective for a period of three years from the [REDACTED] and may be renewed conditional on the fulfilment of the relevant requirements under the relevant laws, regulations and the Listing Rules.

Pricing policy

The service fee to be charged under the Pujiang Shentong Logistics Service Framework Agreement is determined with reference to the service fee chargeable to all customers of Pujiang Shentong based on (i) the type of products; (ii) volume of products; and (iii) the weight of the products to be delivered. To ascertain the service fee of the logistics service provided by Pujiang Shentong is no less favorable to us than those available from independent service providers, we obtained quotations from other service providers annually.

Reasons for and benefits of the transactions

The provision of the logistics service under the Pujiang Shentong Logistics Service Framework Agreement facilitates and supports the Group’s need to quickly transport medicine and commodities among different warehouses to pharmacies so as to improve the user experiences of its customers in different areas.

Historical amounts

Pujiang Shentong was a wholly-owned subsidiary of the Company throughout the Track Record Period and its entire equity interest was transferred to Chengdu Quanshen Logistics Co., Ltd. on April 26, 2021. Upon such transfer, the transactions became continuing connected transactions. For the three years ended December 31, 2018, 2019 and 2020, the total amount of service fees incurred by our Group to Pujiang Shentong was approximately RMB8.2 million, RMB10.0 million and RMB8.1 million.

Annual cap

For the three years ended December 31, 2021, 2022 and 2023, the total amount payable by our Group to Pujiang Shentong under the Pujiang Shentong Logistics Service Framework Agreement is not expected to exceed [RMB9.6 million], [RMB10.5 million] and [RMB11.2 million] respectively.

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Basis of annual cap

The above proposed annual caps are set based on the following factors: (i) the historical transaction amount paid by our Group to Pujiang Shentong during the Track Record Period; (ii) the expected need of our Company for the relevant logistics service; and (iii) the expected service fee of such logistics service with reference to the prevailing market price.

Listing Rules implications

As the applicable percentage ratios (other than the profits ratio) for the transactions contemplated under the Pujiang Shentong Logistics Service Framework Agreement will not exceed 5% on an annual basis, the transactions shall be exempt from the circular (including independent financial advice) and independent shareholders’ approval requirements but are subject to the relevant annual reporting and announcement requirements under Chapter 14A of the Listing Rules.

Sino Biopharm Medicine Procurement Framework Agreement

Principal terms

Our Company, for itself and on behalf of its subsidiaries, entered into the medicine procurement agreement with Sino Biopharm, for itself and on behalf of its subsidiaries, on [●], pursuant to which the Group procures medicine from Sino Biopharm and its subsidiaries (the “Sino Biopharm Medicine Procurement Framework Agreement”). The Sino Biopharm Medicine Procurement Framework Agreement is effective for a period of three years from the [REDACTED] and may be renewed conditional on the fulfilment of the relevant requirements under the relevant laws, regulations and the Listing Rules.

Pricing policy

The procurement price is determined based on the Sino Biopharm Group’s wholesale price applicable to all of the purchasers that is classified in different class in an open and transparent market. Under the pricing system of the Sino Biopharm Group, the procurement price of medical products applicable to all purchasers of the same class shall be the same.

Reasons for and benefits of the transactions

The Sino Biopharm Group is renowned as the leading prescription drug manufacturer and hepatobiliary drug manufacturer in China which enables us to expand our DTP capabilities. It is crucial to develop our DTP business since its commencement in 2020. The Sino Biopharm Group is our strategic and reliable supplier in this regard and can efficiently fulfill our Group’s requirement with stable and quality supply of prescription drugs, particularly DTP drugs.

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Historical amounts

For the three years ended December 31, 2018, 2019 and 2020, the total amount of procurement fees incurred by our Group to the Sino Biopharm Group was approximately nil, nil and RMB8.2 million.

Annual cap

For the three years ended December 31, 2021, 2022 and 2023, the total estimated amount payable by our Group to the Sino Biopharm Group under the Sino Biopharm Medicine Procurement Framework Agreement is not expected to exceed [RMB250.0 million], [RMB500.0 million] and [RMB1.0 billion] respectively. The annual caps for the three years ended December 31, 2021, 2022 and 2023 will be substantially higher than the historical amount incurred in 2020 as (i) the Group only commenced the transactions with the Sino Biopharm Group in December 2020 and the historical amount only reflects the trading amount in the first month; and (ii) the Group is planning to expand the cooperation with the Sino Biopharm Group and it is estimated that the trading volume for each financial year will be on an increasing trend with 100% increment compared to the previous year.

Basis of annual cap

The above proposed annual caps are set based on the following factors: (i) since December 2020, the Sino Biopharm Group has been selling part of its prescription drugs to our Company as distribution channel instead of through its own distribution channels; (ii) the historical sales per store of the Sino Biopharm Group’s products through retail pharmacies; (iii) the expected number of self-owned and empowering retail pharmacies of the Group which will import the products manufactured by the Sino Biopharm Group through the Group; and (iv) the strategic partnership between the Sino Biopharm Group and our Company is expected to deepen and expand in the future.

Listing Rules implications

As the applicable percentage ratios (other than the profits ratio) for the transactions contemplated under the Sino Biopharm Medicine Procurement Framework Agreement will exceed 5% on an annual basis, the transactions shall be subject to annual review, reporting, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

WAIVERS GRANTED BY THE STOCK EXCHANGE

By virtue of Rule 14A.76(2) of the Listing Rules, (i) the transactions under the Chengdu Yuanhuan Procurement Framework Agreement, the Yumeng Tongxing Information Technology Service Framework Agreement, the Chengdu Shenhe Medicine Procurement Framework Agreement, and the Pujiang Shentong Logistics Service Framework Agreement will constitute continuing connected transactions subject to reporting, annual review and announcement under

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Chapter 14A of the Listing Rules; and (ii) the transactions under the Sino Biopharm Medicine Procurement Framework Agreement will constitute continuing connected transactions subject to reporting, annual review, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

As the above non-exempt continuing connected transactions are expected to continue on a recurring and continuing basis, our Directors consider that compliance with the above announcement and/or circular and/or independent shareholders’ approval requirements would be impractical, would add unnecessary administrative costs to us and would be unduly burdensome to us.

Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange [has granted], a waiver to us under Rule 14A.105 of the Listing Rules from compliance with the announcement and/or circular and/or independent shareholders’ approval requirements in respect of the above non-exempt continuing connected transactions. In addition, we confirm that we will comply with the Listing Rules in relation to the non-exempt continuing connected transactions.

In the event of any future amendments to the Listing Rules imposing more stringent requirements than those applicable as of the Latest Practicable Date on the continuing connected transactions referred to in this document, our Company will take immediate steps to ensure compliance with such new requirements within a reasonable time.

CONFIRMATION FROM OUR DIRECTORS

The Directors (including the independent non-executive Directors) are of the view that (i) the non-exempt continuing connected transactions as set out above have been and will be entered into in the ordinary and usual course of business of the Company and on normal commercial terms or better that are fair and reasonable and in the interests of the Shareholders as a whole, and (ii) the proposed annual caps for these transactions are fair and reasonable and in the interest of the Shareholders as a whole.

CONFIRMATION FROM THE JOINT SPONSORS

Based on the data and information provided by the Company and the necessary representations and confirmations from the Company and Directors, having made reasonable inquiries and after due and careful consideration, the Joint Sponsors are of the view that, as of the date of this document, the non-exempt continuing connected transactions described above, and for which waivers have been sought, will be entered into in the ordinary and usual course of business of our Company, on normal commercial terms or better that are fair and reasonable, and in the interests of our Shareholders as a whole, and that the proposed annual caps in respect of such transactions are fair and reasonable and in the interests of our Shareholders as a whole.

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BOARD OF DIRECTORS

Our Board of Directors comprises 14 Directors, including six executive Directors, three non-executive Directors and five independent non-executive Directors. The following table sets out information in respect of the Directors of our Company

Date of Date of joining appointment as Name Age Position our Group a Director Roles and responsibility

Mr. LI Can (李燦) 44 Chairman of the September 12, September 12, Responsible for the overall Board and 2012 2012 management of the business executive Director strategy, corporate development and research and development of our Group

Mr. CHEN Zhouhua 43 Executive Director May 1, 2016 May 1, 2016 Responsible for the day-to- (陳洲華) and chief day management of our executive officer Group

Mr. WANG Lei 37 Executive Director June 1, 2014 April 3, 2015 In charge of our commodity (王磊) and vice general purchasing center, manager marketing center and strategic brand team

Mr. CHEN Yang 44 Executive Director November 4, April 3, 2015 Responsible for providing (陳楊) and Board 2013 assistance to the Board in secretary the overall management of our Group

Ms. YU Miao 43 Executive Director January 12, January 12, Responsible for management (于淼) and head of 2015 2015 of financial reporting and finance department financial matters of our Group

Mr. HUANG Xin 38 Executive Director January 1, 2019 November 3, Responsible for management (黃鑫) and vice president 2020 of the information technology system maintenance and development of the Group

Mr. HO Kyung 47 Non-executive March 5, 2019 March 5, 2019 Responsible for supervising Shik (扈景植) Director and providing independent judgement to our Board

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Date of Date of joining appointment as Name Age Position our Group a Director Roles and responsibility

Mr. TSE Eric S Y 25 Non-executive November 10, November 10, Responsible for supervising (謝承潤) Director 2020 2020 and providing independent judgement to our Board

Mr.LIHe 33 Non-executive March 20, 2021 March 20, 2021 Responsible for supervising (李赫) Director and providing independent judgement to our Board

Mr. CHUNG Chi 40 Independent [●][●] Responsible for addressing Kin Kenneth non-executive conflicts and giving (鍾子健) Director strategic advice and guidance to the business and operations of our Group

Dr. HU Ming 46 Independent [●][●] Responsible for addressing (胡明) non-executive conflicts and giving Director strategic advice and guidance to the business and operations of our Group

Mr. CAO Qilin 47 Independent [●][●] Responsible for addressing (曹麒麟) non-executive conflicts and giving Director strategic advice and guidance to the business and operations of our Group

Mr. ZHU Ning 47 Independent [●][●] Responsible for addressing (朱寧) non-executive conflicts and giving Director strategic advice and guidance to the business and operations of our Group

Dr. YANG Jijun 45 Independent [●][●] Responsible for addressing (楊記軍) non-executive conflicts and giving Director strategic advice and guidance to the business and operations of our Group

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Executive Directors

Mr. LI Can (李燦), aged 44, our co-founder, is the chairman of the Board and an executive Director of our Company. Mr. Li joined our Group on September 12, 2012 as a Director and was later redesignated as the chairman of our Board on April 3, 2015. He is primarily responsible for the overall management of the business strategy, corporate development and research and development of our Group. Mr. Li also serves as the executive director of Sichuan Quanyuantang and the executive director and general manager of Chengdu Quanyuantang Hongmen Back Street Pharmacy Co., Ltd. (成都泉源堂黌門後街大藥房有限公司).

Mr. Li has more than 15 years of sales and management experience in the pharmaceutical industry. From September 2003 to June 2016, Mr. Li served as the director of Chengdu Shenhe. From January 2008 to January 2011, Mr. Li served as the project sales director in China and national sales director of Spain Levantina Multiminerals Co., Ltd (西班牙諾萬天納多種礦物質有限公司).

Mr. Li was awarded as one of the Top 10 Figure of Entrepreneurship and Innovation of 2015 (2015年成都創業創新“十強”人物) by Chengdu Gaotou Winpower Investment Development Co., Ltd. (成都高投盈創動力投資發展有限公司) and West China City Daily (華西都市報) jointly in May 2015. Mr. Li was awarded as one of the Star of Innovation and Entrepreneurship of Chengdu in Sichuan Province (成都市“創新創業雙創之星”) in January 2016.

Mr. Li received his bachelor’s degree in automatic control from Sun Yat-sen University (中山大學) in the PRC in June 2000.

Mr. CHEN Zhouhua (陳洲華), aged 43, our co-founder, is an executive Director and chief executive officer of our Company. Mr. Chen joined our Group on May 1, 2016 and was appointed as a Director on the same day. He has also been serving as our chief executive officer since December 17, 2018. Mr. Chen is primarily responsible for the day-to-day management of our Group. Mr. Chen also serves as the manager of Guangdong Quanyuantang Megakang Pharmaceutical Chain Co., Ltd. (廣東泉源堂美加康藥業連鎖有限公司).

From February 2001 to April 2004, Mr. Chen served as the project manager of technology department of 21cn Corporation Limited (世紀龍信息網絡有限責任公司). Since December 2009, Mr. Chen has been serving as a director of Guangzhou Innshine Network Technology Co., Ltd. (廣州市匯尚網絡科技有限公司), an electronic commerce service provider. Since June 2014, Mr. Chen has been serving as a director of Guangzhou Xintuo Network Technology Co., Ltd. (廣州市欣拓網絡科技有限公司), a wholly-owned subsidiary of Guangzhou Innshine Network Technology Co., Ltd.

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Mr. Chen received his bachelor’s degree in electronics and information system from Sun Yat-sen University (中山大學) in the PRC in June 2000. Mr. Chen obtained his master’s degree of business administration from the international master of business administration program of Lingnan (University) College, Sun Yat-sen University (中山大學嶺南(大學)學院) in the PRC in June 2008.

Mr. WANG Lei (王磊), aged 37, is an executive Director and a vice general manager of our Company. Mr. Wang joined our Group on June 1, 2014 and was appointed as our executive Director and vice general manager on April 3, 2015. He is primarily in charge of our commodity purchasing center, marketing center and strategic brand team. Mr. Wang also serves as the executive director and general manager of Guangzhou Quanjian Pharmaceutical Co., Ltd. (廣州泉健藥業有限公司), Chengdu Yuanhuan Health Technology Co., Ltd. (成都源環健康科技有限公司) and Guangdong Quanyuantang Pharmacy Chain Co., Ltd. (廣東泉源堂大藥房連鎖有限公司), respectively and the executive director of Guangdong Quanyuantang Megakang Pharmaceutical Chain Co., Ltd.

From July 2007 to July 2010, Mr. Wang worked at Cathay Pacific Airways Limited (国泰航空有限公司) with his last position as the marketing and public relations executive officer of the Guangzhou terminal. From August 2010 to March 2014, Mr. Wang served as the director of business operations at Guangzhou Innshine Network Technology Co., Ltd., primarily responsible for business negotiation and communication and planning for the brand network marketing.

Mr. Wang received his bachelor’s degree in pharmaceutical business administration from Shenyang Pharmaceutical University (瀋陽藥科大學) in the PRC in July 2006.

Mr. CHEN Yang (陳楊), aged 44, joined our Group on November 4, 2013 and was appointed as the executive Director and the Board secretary of our Company on April 3, 2015. Mr. Chen was primarily responsible for providing assistance to the Board in the overall management of our Group. Mr. Chen also serves as multiple roles at several subsidiaries of our Company.

From February 2006 to March 2013, Mr. Chen served as a value-added business project manager of Shenzhen Huawei Technical Service Co., Ltd. (深圳市華為技術服務有限公司). Mr. Chen has been serving as a director of Chengdu Chuangtuo since December 2014 and a director of Chengdu Quanshen Logistics Co., Ltd. (成都泉申物流有限公司) since July 2020.

Mr. Chen received his bachelor’s degree in accounting from Xi’an Institute of Statistics (西安統計學院) (currently known as Xi’an University of Finance and Economics (西安財經大學)) in the PRC in July 1999.

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Ms. YU Miao (于淼), aged 43, joined our Group on January 12, 2015 and was appointed as the executive Director on the same day. Ms. Yu was appointed as the head of finance department of our Company on April 3, 2015. She is primarily responsible for management of financial reporting and financial matters of our Group.

From December 2004 to March 2007, Ms. Yu served as the finance manager of the Asia Pacific finance center of Honeywell (China) Co., Ltd. (霍尼韋爾(中國)有限公司), a diversified and high-tech advanced manufacturing enterprise. From April 2007 to November 2010, Ms. Yu served as the finance director of Shanghai Yongguan Commercial Equipment Co., Ltd. (上海永冠商业设备有限公司) (previously known as Shanghai Yongguan Aimeisi Commercial Equipment Co., Ltd. (上海永冠艾美斯商業設備有限公司)). From December 2010 to December 2014, Ms. Yu was a founding partner of Shanghai Yuanshu Financial Consulting Co. Ltd. (上海源數財務諮詢有限公司) (currently known as Haokai (Shanghai) Enterprise Management Consulting Co., Ltd. (浩楷(上海)企業管理諮詢有限公司)).

Ms. Yu received her bachelor’s degree in accounting from Dongbei University of Finance and Economics (東北財經大學) in the PRC in July 2000. Ms. Yu received her master’s degree in accounting from Dongbei University of Finance and Economics in the PRC in April 2003.

Mr. HUANG Xin (黃鑫), aged 38, joined our Group on January 1, 2019 and was later appointed as an executive Director of our Company on November 3, 2020. Mr. Huang was appointed as our vice president on January 1, 2021. He is primarily responsible for management of the information technology system maintenance and development of the Group.

Mr. Huang has extensive experience in providing data management and consulting services. In July 2003, Mr. Huang joined Johnson & Johnson China Ltd. (強生(中國)有限公司) as a management trainee and later served as a deputy manager of category development department until July 2008. From June 2008 to August 2009, Mr. Huang served as a manager of category development department of Abbott Laboratories Trading (Shanghai) Co., Ltd. (雅培貿易(上海)有限公司). From September 2009 to July 2011, Mr. Huang served as a customer director of China Wisdom Dunnhumby (Shanghai) Limited (鄧恩翰比信息技術諮詢(上海)有限公司) a global big data analysis service provider, focusing on empowering retailers and brands with data and science to keep them customer-oriented. From August 2011 to August 2012, Mr. Huang served as a consultant of Acxiom (Shanghai) Co., Ltd. (安客誠信息服務(上海)有限公司), a big data marketing service provider. From November 2013 to September 2015, Mr. Huang served as the general manager of Arkodata Technology (Shanghai) Co., Ltd. (聚知信息技術(上海)有限公司), a company focusing on the collection, analysis, presentation and application of big data on membership behavior. From September 2015 to June 2018, Mr. Huang served as the general manager of Tarkool (Shanghai) Information Technology Co., Ltd. (德酷(上海)信息技術有限公司). Mr. Huang has been serving as a director of Shanghai Nianyou Technology Co., Ltd. since April 2017 (上海年佑科技有限公司), a company focusing on the development of information technology and computer science.

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Mr. Huang received his bachelor’s degree of engineering in measurement and control technology and instrument from Shanghai Jiao Tong University (上海交通大學) in the PRC in July 2003 and his master’s degree in business administration from Shanghai Jiao Tong University in the PRC in March 2014.

Non-executive Directors

Mr. HO Kyung Shik (扈景植), aged 47, was appointed as a non-executive Director of our Company on March 5, 2019. Mr. Ho is primarily responsible for supervising and providing independent advice to our Board.

Mr. Ho has approximately 17 years of experience in venture investment. Mr. Ho has been serving as a managing partner and head of China office of Korea Investment Partners (韓國投資夥伴株式會社) and is responsible for investment, fundraising, and post-investment management in the Greater China region since October 2000.

Mr. Ho has also been holding directorship in the following companies:

Period of Name of company Position service

Zhejiang Ruisite Hotel Management Co., Ltd. (浙江 Director Since March 銳思特酒店管理有限公司) 2008

Korea Investment Partners (Shanghai) Venture Managing Since January Capital Management Co., Ltd. (韓投伙伴(上海)創 partner and 2011 業投資管理有限責任公司) executive director

Founder KIP Investment Management Co., Ltd. (上 Director Since March 海方正韓投投資管理有限責任公司) 2015

KIP West Chengdu Investment Consulting Co., Ltd. Director Since August (韓投西部成都投資諮詢有限公司) 2016

Yibon Hotel Group Co., Ltd. (逸柏酒店集團有限公 Director Since February 司) 2018

Suzhou Ruiming New Drug Development Co., Ltd. Director Since March (蘇州銳明新藥研發) 2018

Chengdu Yisikang Medical Technology Co., Ltd. (成 Director Since August 都依思康醫藥科技有限公司) 2018

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Period of Name of company Position service

Leyuan Internet Technology (Shanghai) Co., Ltd. (樂 Director Since May 2019 淵網絡科技(上海)有限公司)

Guangzhou KIP Kaide Investment Consulting Co., Director and Since June 2019 Ltd. (廣州韓投凱得投資諮詢有限公司) general manager

Shenzhen Mushroom Fortune Technology Co., Ltd. Director Since June 2019 (深圳市蘑菇財富技術有限公司)

Guangzhou AI Simai Biomedical Technology Director Since August Co., Ltd. (廣州愛思邁生物醫藥科技有限公司) 2019

Maxhealth Biotechnology Limited Liability Director Since December Company (成都邁科康生物科技有限公司) 2019

Xuanlin (Shanghai) Information Technology Co., Director Since March Ltd. (軒廩(上海)信息技術有限公司) 2020

Guangzhou Riton Biomaterial Co., Ltd. (廣州瑞通生 Director Since June 2020 物科技有限公司)

Chengdu Huarenkang Biotech Co., Ltd. (成都華任康 Director Since August 生物科技有限公司) 2020

Beijing Jushi Intelligent Technology Co., Ltd. (北京 Director Since 矩視智能科技有限公司) September 2020

Kunming Innogen Pharmaceutical Technology Co., Director Since December Ltd. (昆明銀諾醫藥技術有限公司) 2020

Mr. Ho received his bachelor’s degree in business administration from Seoul National University in South Korea in February 1997.

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Mr. TSE Eric S Y (謝承潤), aged 25, was appointed as a non-executive Director on November 10, 2020. Mr. Xie is primarily responsible for supervising and providing independent advice to our Board.

Mr. Tse has also been holding directorship in the following companies:

Period of Name of company Position service

Jiangsu Chia Tai Health Management Co., Ltd. (江蘇 Director Since 正大健康科技有限公司) August 27, 2014

Chia Tai Culture Development (Xi’an) Co., Ltd (正 Chairman Since August 大文化發展(西安)有限公司) 2018

CHIA TAI PHARMACEUTICAL GROUP LIMITED Executive Since October director 2019

Chia Tai Yushanfang Health Technology (Hangzhou) Executive Since May 24, Co., Ltd. (正大玉膳坊健康科技(蘇州)有限公司) director 2019

Sino Biopharm, the shares of which are listed on the Executive Since October Hong Kong Stock Exchange (stock code: 1177) director 2019

Jiangsu Chia Tai-Tianqing Pharmaceutical Co., Ltd. Director Since January (正大天晴藥業集團股份有限公司) 2020

Chairman of Since July 2020 the board of directors

Hainan Yicheng Technology Co., Ltd. (海南醫承科技 Executive Since July 13, 有限公司) director 2020

Each of Jiangsu Chia Tai Health Management Co., Ltd. (“Jiangsu Chia Tai”), Sino Biopharm and our Company engages in sale of drugs. However, both Jiangsu Chia Tai and Sino Biopharm are mainly engaged in the manufacture and R&D of medicine and sell their products to distributors. In contrast, our Company is not engaged in the R&D and manufacturing of pharmaceutical products but primarily purchase pharmaceutical products from a range of manufacturers and on-sell to retail or corporate customers. As such, the potential competition between Sino Biopharm and us is relatively limited.

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Therefore, the potential competition between our Company, Jiangsu Chia Tai and Sino Biopharm is minimal in terms of the operation and business nature. Mr. Tse is non-executive Director of our Company and does not participate in our daily management. Pursuant to aforementioned factors, our Company and our Directors are of the view that the business operation of our Company will not be affected by the fact that Mr. Tse concurrently serves as non-executive Director of our Company, director of Jiangsu Chia Tai and executive director of Sino Biopharm. In accordance with the Articles of Association, if a Director or any of his/her close associates is materially interested in any matters to be considered at the Board meeting, such Director shall abstain from voting and shall not vote on behalf of other Directors with regard to the relevant resolutions at the Board meeting.

Mr. Tse has been serving as the executive vice president of Jiangsu Overseas Chinese Business Association (江蘇省僑商總會) since November 2019.

Mr. Tse received his bachelor’s degree in economics from the Wharton School of the University of Pennsylvania in the United States in December 2017.

Mr.LIHe(李赫), aged 33, was appointed as a non-executive Director on March 20, 2021, primarily responsible for supervising and providing independent judgement to our Board.

Since June 2015, Mr. Li has been serving as a director of financial investment department of Beijing Tide Pharmaceutical Co., Ltd. (北京泰德製藥股份有限公司), primarily responsible for external investment and business development. Since December 2015, Mr. Li has been serving as a senior director of investment management department of Sino Biopharm, the share of which are listed on the Hong Kong Stock Exchange (stock code: 1177). Since January 2020, Mr. Li has been serving as a member of nomination committee of Sweden Karolinska Development Limited (瑞典卡羅琳斯卡發展有限公司), a Sweden-based investment company, providing capital to biotechnology firms, as well as developing and commercializing biotechnological products.

Mr. Li obtained his bachelor’s degree in pharmacology from King’s College London in the United Kingdom in August 2009. Mr. Li obtained his master’s degree in process business management from University of Warwick in the United Kingdom in November 2010.

Independent non-executive Directors

Mr. CHUNG Chi Kin Kenneth (鍾子健), aged 40, was appointed as our independent non-executive Director on [●], 2021. Mr. Chung is the chairman of the Audit Committee. He is primarily responsible for addressing conflicts and giving strategic advice and guidance to the business and operations of our Group.

Mr. Chung has over 18 years of capital market experiences and possesses extensive knowledge and expertise in investment banking, corporate finance, venture investment, accounting and finance. From September 2002 to January 2008, Mr. Chung worked at the audit

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Mr. Chung was admitted as a member and a fellow of the Association of Chartered Certified Accountants in August 2006 and August 2011, respectively.

Mr. Chung obtained his bachelor’s degree of business administration in accounting and finance from the Hong Kong University of Science and Technology in Hong Kong in November 2002. Mr. Chung obtained his master’s degree of laws in Chinese business law from the Chinese University of Hong Kong in Hong Kong in November 2012.

Dr. HU Ming (胡明), aged 46, was appointed as an independent non-executive Director on [●], 2021. Dr. Hu is primarily responsible for addressing conflicts and giving strategic advice and guidance to the business and operations of our Group.

Dr. Hu has more than 20 years in the pharmacy industry. Since July 1998, Dr. Hu has been serving as multiple roles in West China School of Pharmacy Sichuan University (四川大學華西藥學院), successively including assistant, lecturer, associate professor and professor of pharmacy administration. From January 2002 to June 2007, Dr. Hu was also served as a deputy director of Department of Pharmacy Administration of West China School of Pharmacy Sichuan University (四川大學華西藥學院藥事管理學教研室) (currently known as Department of Clinical Pharmacy and Pharmacy Administration of West China School of Pharmacy Sichuan University (四川大學華西藥學院)). Since July 2008, Dr. Hu has been serving as a postgraduate tutor of pharmacy administration in West China School of Pharmacy Sichuan University. Since January 2015, Dr. Hu has been serving as the director of Pharmaceutical Policy and Pharmacoeconomics Research Center of West China School of Pharmacy Sichuan University (四川大學華西藥學院藥物政策與藥物經濟學研究中心).

Dr. Hu was recognized as Sichuan High level Overseas Talents (四川省海外高層次留学人才) by Department of Human Resources and Social Security of Sichuan Province (四川省人力資源和社會保障廳) in May 2015.

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Dr. Hu is the member of a number of professional associations, including Chinese Pharmaceutical Association Pharmaceutical Economics Professional Committee (中國藥學會藥物經濟學專家委員會), Chinese Pharmaceutical Association Pharmaceutical Administration Professional Committee (中國藥學會藥事管理專家委員會) and Chinese Research Hospital Association Pharmacoeconomics Professional Committee (中國研究型醫院學會藥物經濟學專家委員會), and etc. She has published more than 100 articles and approximately 20 monographs on a variety of topics that range from pharmaceutical policy research to pharmaceutical regulatory science with extensive experience.

Dr. Hu obtained her master’s degree in pharmaceutics from Shenyang Pharmaceutical University in the PRC in July 1998. Dr. Hu obtained her doctor’s degree in pharmacy administration from West China School of Pharmacy Sichuan University in the PRC in December 2014.

Mr. CAO Qilin (曹麒麟), aged 47, was appointed as an independent non-executive Director on [●], 2021. Mr. Cao is primarily responsible for addressing conflicts and giving strategic advice and guidance to the business and operations of our Group.

Since July 1997, Mr. Cao has been engaged in teaching and research in finance management and corporate finance in Sichuan University (四川大學). Mr. Cao has extensive experience in corporate governance. From July 2014 to July 2020, Mr. Cao served as an independent director of D&O Home Collection Co., LTD (帝歐家居股份有限公司), a company listed on the Shenzhen Stock Exchange (stock code: 002798). From March 2015 to March 2021, Mr. Cao served as an independent director of Sichuan Huati Lighting Technology Co., Ltd (四川華體照明科技股份有限公司), a company listed on the Shanghai Stock Exchange (stock code: 603679). From January 2018 to January 2021, Mr. Cao served as an independent director of Sichuan Cangxi Rural Commercial Bank Co., Ltd (四川蒼溪農村商業銀行股份有限公司) (previously known as Cangxi County Rural Credit Cooperatives Union (蒼溪縣農村信用合作聯社)). From June 2018 to June 2021, Mr. Cao served as an independent director of Sichuan Emeishan Rural Commercial Bank Co., Ltd (四川峨眉山農村商業銀行股份有限公司) (previously known as Sichuan Emeishan Rural Credit Cooperative Association (四川峨眉山農村信用合作聯社)). From October 2016 to December 2019, Mr. Cao served as an independent director of Bazhong Yike Carbon Corp., Ltd (巴中意科碳素股份有限公司). Since May 2019, Mr. Cao has been serving as an independent director of Chengdu Hongqi Chain Co., Ltd. (成都紅旗連鎖股份有限公司), a company listed on the Shenzhen Stock Exchange (stock code: 002697). Since May 2020, Mr. Cao has been serving as an independent director of Jixiangju Food Co., Ltd. (吉香居食品股份有限公司) (previously known as Sichuan Province Jixiangju Food Co., Ltd. (四川省吉香居食品有限公司)). Since June 2020, Mr. Cao has been serving as an independent director of Sinocat Environmental Technology Co., Ltd. (中自環保科技股份有限公司). Since January 2021, Mr. Cao has been serving as an independent director of New Hope Service Holdings Limited (新希望服務控股有限公司).

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Mr. Cao obtained his bachelor’s degree in economics, and his master’s degree in management and doctorate degree in management from Sichuan University in the PRC in July 1997, June 2004 and June 2011, respectively. He was awarded the qualification certificate of independent director by the Shanghai Stock Exchange in August 2011.

Mr. ZHU Ning (朱寧), aged 47, was appointed as an independent non-executive Director on [●], 2021. Mr. Zhu is primarily responsible for addressing conflicts and giving strategic advice and guidance to the business and operations of our Group.

Mr. Zhu has extensive professional experience in consulting services. From October 2008 to March 2012, Mr. Zhu served as the public affairs director of Shanghai Paiqian Human Resource Co., Ltd. (上海派遣人才有限公司). Since June 2012, Mr. Zhu has been a partner of Shanghai United Zongheng Management Consulting Co., Ltd. (上海聯合縱橫管理諮詢有限公司).

Mr. Zhu was awarded the qualification certificate of independent director by the Shanghai Stock Exchange in August 2011.

Mr. Zhu obtained his master’s degree in business administration from Antai College of Economics and Management, Shanghai Jiao Tong University (上海交通大學安泰經濟與管理學院) in the PRC in March 2001.

Dr. YANG Jijun (楊記軍), aged 45, was appointed as an independent non-executive Director on [●], 2021. Dr. Yang is primarily responsible for addressing conflicts and giving strategic advice and guidance to the business and operations of our Group.

Dr. Yang was appointed as a full-time professor and a doctoral supervisor by Southwestern University of Finance and Economics (西南財經大學) in December 2010 and December 2011, respectively. Since March 2017, Dr. Yang has been serving as an independent director of Sichuan Dowell Science and Technology Inc. (四川達威科技股份有限公司), a company listed on the Shenzhen Stock Exchange (stock code: 300535). Since March 2017, Dr. Yang has been serving as an independent director of SICHUAN HZ-YEG MEDICAL Co., Ltd (四川合縱藥易購醫藥股份有限公司), a company listed on the Shenzhen Stock Exchange (stock code: 300937). From July 2019 to March 2021, Dr. Yang served as the executive director and general manager of Chengdu Zhiyuandian Technology Co., Ltd. (成都知原點科技有限公司) and that of Chengdu Zhierzhi Technology Co., Ltd. (成都智爾智科技有限公司). Since November 2019, Dr. Yang has been serving as an independent director of Chengdu Brilliant Pharmaceutical Co., Ltd. (成都倍特藥業股份有限公司). Since June 2020, Dr. Yang has been serving as an independent director of Chengdu Sikerui Electronics Co., Ltd. (成都思科瑞微電子股份有限公司).

In January 2009, Dr. Yang was awarded a Second Prize for Progress in Science and Technology (科技進步二等獎) by the Ministry of Education of the People’s Republic of China (中華人民共和國教育部). In 2007, Dr. Yang was awarded a First Prize for Progress in Science and Technology (科技進步一等獎) by the People’s Government of Sichuan Province (四川省

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人民政府). In December 2012, Dr. Yang was awarded as the Second Prize of Outstanding Achievements in the 15th Philosophy and Social Sciences of Sichuan Province (四川省第十五次哲學社會科學優秀成果二等獎) by the People’s Government of Sichuan Province.

Dr. Yang received his bachelor’s degree in management information system from Zhongnan University of Economics (中南財經大學) (currently known as Zhongnan University of Economics and Law (中南財經政法大學)) in the PRC in June 1999. Dr. Yang received his master’s degree in economics and doctorate degree in management from Sichuan University in the PRC in June 2003 and June 2006, respectively.

BOARD OF SUPERVISORS

The Board of Supervisors comprises five members. The following table sets out information in respect of the Supervisors of our Company:

Date of Date of joining appointment as Name Age Position our Group a Supervisor Roles and responsibility

Ms. LI QIAN 41 Supervisor November 10, November 10, Responsible for supervising (李倩) 2020 2020 the compliance of the business operations of our Group

Ms. LI Daijun 43 Supervisor November 1, November 10, Responsible for supervising (李代俊) 2017 2020 the compliance of the business operations of our Group

Ms. LIU Jiao 44 Supervisor November 9, November 10, Responsible for supervising (劉嬌) 2015 2020 the compliance of the business operations of our Group

Mr. DU Tongjie 34 Supervisor January 1, 2016 November 22, Responsible for supervising (杜同傑) 2017 the compliance of the business operations of our Group

Ms. KIM Ji Su 49 Supervisor March 5, 2019 March 5, 2019 Responsible for supervising (金智秀) the compliance of the business operations of our Group

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Ms. LI Qian (李倩), aged 41, joined our Group on November 10, 2020 and was appointed as a Supervisor on the same day. Ms. Li is primarily responsible for supervising the compliance of the business operations of our Group.

From July 2005 to January 2007, Ms. Li served as accountant of audit and assurance division of Deloitte Touche Tohmatsu. From January 2007 to June 2009, Ms. Li served as senior accountant of audit division of Ernst & Young Hua Ming. Since June 2009. Ms. Li has been serving as deputy director of audit division of Chia Tai Pharmaceutical Investment (Beijing) Co., Ltd. (正大製藥投資(北京)有限公司).

Ms. Li was awarded the PRC certificate of certificate public accountant by the Chinese Institute of Certified Public Accountants (中國註冊會計師協會) in November 2007.

Ms. Li obtained her master’s degree in financial management and management accounting from Nankai University in the PRC in June 2005.

Ms. LI Daijun (李代俊), aged 43, joined our Group on November 1, 2017 and was appointed as a Supervisor on November 10, 2020. Ms. Li is primarily responsible for supervising the compliance of the business operations of our Group.

From May 2001 to August 2012, Ms. Li served as multiple roles at Sichuan Nepstar Pharmacies Chain Co., Ltd (四川海王星辰健康藥房連鎖有限公司) with last position as manager of operation department. Ms. Li once served as deputy general manager of Sichuan Qinkang Jianzhijia Pharmaceutical Co., Ltd (四川勤康健之佳醫藥有限責任公司), primarily responsible for chain store operation, marketing, membership customer services, training and standardized management.

In April 2003, Ms. Li was granted the register qualification certificate of licensed pharmacist in traditional Chinese medicine of the PRC from Sichuan Province Personnel Department (四川省人事廳) (currently known as Sichuan Provincial Human Resources and Social Security Department (四川省人力資源和社會保障廳)).

Ms. Li obtained her bachelor’s degree in traditional Chinese medicine pharmacy from Chengdu University of Traditional Chinese Medicine (成都中醫藥大學) in the PRC in July 1999.

Ms. LIU Jiao (劉嬌), aged 44, joined our Group on November 9, 2015 and was appointed as a Supervisor on November 10, 2020. Ms. Liu is primarily responsible for supervising the compliance of the business operations of our Group.

From December 2012 to February 2015, Ms. Liu served as an assistant manager of human resources of Kechuang Holding Group Co., Ltd. (科創控股集團有限公司).

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Ms. Liu received her associate’s degree in tourism management from Southwest China Normal University (西南師範大學, currently known as Southwest University (西南大學)) in the PRC in June 1997.

Mr. DU Tongjie (杜同傑, formerly known as 杜偉), aged 34, joined our Group on January 1, 2016 and was appointed as a Supervisor on November 22, 2017. Mr. Du is primarily responsible for supervising the compliance of the business operations of our Group.

In November 2016, Mr. Du was appointed as the manager of Sichuan Zizhu Health Technology Co., Ltd. (四川紫竹葉健康科技有限公司) and was later appointed as the executive director and general manager of such company in January 2017 since when he has been responsible for the daily operation and management of the third-party business-to-business medical platform.

Mr. Du obtained his graduation certificate of higher education examination for the self-taught issued by Sichuan Higher Education Self-study Examination Committee (四川省高等教育自學考試委員會) and Southwest University of Science and Technology (西南科技大學) jointly in the PRC in December 2008.

Ms. KIM Ji Su (金智秀), aged 49, joined our Group on March 5, 2019 and was appointed as a Supervisor on March 5, 2019. Ms. Kim is primarily responsible for supervising the compliance of the business operations of our Group.

From March 2006 to February 2008, Ms. Kim worked as a professor in biomedicine of Pai Chai University (培材大學) in South Korea. From August 2009 to October 2015, Ms. Kim served as a researcher of Korea Healthcare Development Institute (韓國保健產業振興院). From September 2012 to September 2015, Ms. Kim served as a healthcare officer of the Embassy of the Republic of Korea in the PRC (大韓民國駐中華人民共和國大使館). Ms. Kim has been serving as a director of Korea Investment Partners (Shanghai) Venture Capital Management Co., Ltd. since October 2015.

Since April 2019, Ms. Kim has been serving as a director of Jiangsu Fine Hin Mobile Medical Technology Co., Ltd (江蘇好欣晴移動醫療科技有限公司). Since April 2020, Ms. Kim has been serving as a director of Guangzhou Riton Biomaterial Co., Ltd.. Since September 2020, Ms. Kim has been serving as a director of Shanghai Shawya Biotechnology Corp.,Ltd. (上海蕭雅生物科技股份有限公司), the shares of which were once listed on the NEEQ (stock code: 839735). Since February 2021, Ms. Kim has been serving as a director of Beijing Fine Hin Mobile Medical Technology Co., Ltd. (北京好欣晴移動醫療科技有限公司).

Ms. Kim obtained her bachelor’s degree in Chinese medicine from Beijing University of Chinese Medicine (北京中醫藥大學) in the PRC in July 1999 and her doctoral degree in acupuncture from Beijing University of Chinese Medicine in the PRC in July 2004.

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SENIOR MANAGEMENT

Our senior management is responsible for the day-to-day management of our business. The following table sets out information in respect of the senior management members of our Company:

Date of appointment Date of joining as a senior Name Age Position our Group management Roles and responsibility

Mr. CHEN Zhouhua 43 Executive Director May 1, 2016 December 17, Responsible for the day- (陳洲華) and chief executive 2018 to-day management of our officer Group

Mr. WANG Lei (王 37 Executive Director June 1, 2014 April 3, 2015 In charge of our commodity 磊) and vice general purchasing center, manager marketing center and strategic brand team

Ms. YU Miao (于 43 Executive Director January 12, April 3, 2015 Responsible for management 淼) and head of 2015 of financial reporting and finance department financial matters of our Group

Mr. CHEN Yang 44 Executive Director November 4, April 3, 2015 Responsible for providing (陳楊) and Board 2013 assistance to the Board in secretary the overall management of our Group

Mr. HUANG Xin 38 Executive Director January 1, 2019 January 1, 2021 Responsible for management (黃鑫) and vice president of the information technology system maintenance and development of the Group

Mr. CHEN Zhouhua (陳洲華), aged 43, is an executive Director and chief executive officer of our Company. For details, see “—Board of Directors—Executive Directors—Mr. CHEN Zhouhua.”

Mr. WANG Lei (王磊), aged 37, is an executive Director and vice general manager of our Company. For details, see “—Board of Directors—Executive Directors—Mr. WANG Lei.”

Ms. YU Miao (于淼), aged 43, is an executive Director and head of finance department of our Company. For details, see “—Board of Directors—Executive Directors—Ms. YU Miao.”

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Mr. CHEN Yang (陳楊), aged 44, is an executive Director and the Board secretary of our Company. For details, see “—Board of Directors—Executive Directors—Mr. CHEN Yang.”

Mr. HUANG Xin (黃鑫), aged 38, is an executive director and vice president of our Company. For details, see “—Board of Directors—Executive Directors—Mr. HUANG Xin.”

Save as disclosed above, none of our Directors, Supervisors or senior management members has held any directorship in any public company the securities of which are listed on any securities market in Hong Kong or overseas during the three years preceding the Latest Practicable Date.

Save as disclosed above, each of our Directors confirms that as of the Latest Practicable Date, he/she did not have any interest in a business which competes or is likely to compete, directly or indirectly, with our business and requires disclosure under Rule 8.10 of the Listing Rules.

As of the Latest Practicable Date and save as disclosed above, (i) none of the Directors, Supervisors or members of the senior management of our Company is related to any other Directors, Supervisors and members of the senior management, and (ii) there is no additional matter with respect to the appointment of the Directors or Supervisors that needs to be brought to the attention of the Shareholders, and there is no additional information relating to the Directors or Supervisors that is required to be disclosed pursuant to Rule 13.51(2) of the Listing Rules.

JOINT COMPANY SECRETARIES

Mr. CHEN Yang (陳楊), was appointed as our joint company secretary on April 14, 2021. Please see “—Board of Directors—Executive Directors—Mr. CHEN Yang” for details of his biography.

Mr. Zhang Mengchi (張夢弛), was appointed as our joint company secretary on April 14, 2021. Mr. Zhang is an assistant manager of SWCS Corporate Services Group (Hong Kong) Limited and has over seven years of experience in corporate secretarial work. He obtained his bachelor’s degree of engineering in mechatronic engineering with honors and his master’s degree in professional accounting and corporate governance from the City University of Hong Kong in July 2009 and July 2017, respectively. Mr. Zhang has been an associate member of both the Hong Kong Institute of Chartered Secretaries and the Chartered Governance Institute (formerly known as the Institute of Chartered Secretaries and Administrators) since September, 2020.

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BOARD COMMITTEES

Our Company has established three committees under the Board pursuant to the laws and regulations of the PRC and corporate governance practice requirements under the Listing Rules, including the audit committee, the remuneration committee and the nomination committee.

Audit Committee

We have established an audit committee in compliance with Rule 3.21 of the Listing Rules and the Corporate Governance Code set out in Appendix 14 to the Listing Rules. The primary duties of the audit committee are to review and supervise the financial reporting process and internal controls system of our Group, review and approve connected transactions and to advise the Board. The audit committee comprises two independent non-executive Directors and one non-executive Director, namely Mr. CHUNG Chi Kin Kenneth, Dr. YANG Jijun and Mr. LI He. Mr. Chung, being the chairman of the committee, is appropriately qualified as required under Rules 3.10(2) and 3.21 of the Listing Rules.

Remuneration Committee

We have established a remuneration committee in compliance with Rule 3.25 of the Listing Rules and the Corporate Governance Code set out in Appendix 14 to the Listing Rules. The primary duties of the remuneration committee are to review and make recommendations to the Board regarding the terms of remuneration packages, bonuses and other compensation payable to our Directors and senior management. The remuneration and appraisal committee comprises one executive Director, one non-executive Director and three independent non- executive Directors, namely Mr. LI Can, Mr. LI He, Dr. HU Ming, Mr. CAO Qilin and Mr. ZHU Ning. Mr. Zhu is the chairman of the committee.

Nomination committee

We have established a nomination committee in compliance with the Code on Corporate Governance set out in Appendix 14 to the Listing Rules. The primary duties of the nomination committee are to make recommendations to our Board regarding the appointment of Directors and Board succession. The nomination committee comprises one executive Director and two independent non-executive Directors, namely Mr. LI Can, Dr. YANG Jijun and Mr. CAO Qilin. Mr. Li is the chairman of the committee.

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

Our Directors strive to achieve a high standard of corporate governance (which is of critical importance to our development) to protect the interest of Shareholders. Our Directors consider that upon [REDACTED], we will comply with all applicable code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules.

– 209 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

CORPORATE GOVERNANCE

We have appointed CMBC International Capital Limited as our compliance advisor (the “Compliance Advisor”) pursuant to Rule 3A.19 of the Listing Rules. Our Compliance Advisor will provide us with guidance and advice as to compliance with the Listing Rules and applicable Hong Kong laws. Pursuant to Rule 3A.23 of the Listing Rules, our Compliance Advisor will advise our Company in certain circumstances including:

• before the publication of any regulatory announcement, circular, or financial report;

• where a transaction, which might be a notifiable or connected transaction, is contemplated, including [REDACTED] and share repurchases;

• where we propose to use the [REDACTED]ofthe[REDACTED] in a manner different from that detailed in this document or where the business activities, development or results of our Group deviate from any forecast, estimate or other information in this document; and

• where the Stock Exchange makes an inquiry to our Company regarding unusual movements in the [REDACTED]ofits[REDACTED] or any other matters in accordance with Rule 13.10 of the Listing Rules.

The term of appointment of our Compliance Advisor shall commence on the [REDACTED] and is expected to end on the date on which we comply with Rule 13.46 of the Listing Rules in respect of our financial results for the first full financial year commencing after the [REDACTED].

REMUNERATION OF DIRECTORS, SUPERVISORS AND FIVE HIGHEST PAID INDIVIDUALS

For details on the service agreements signed between our Company and our Directors and Supervisors, please see “Appendix VI—Statutory and General Information—C. Further Information about Our Directors, Supervisors and Substantial Shareholders—1. Directors and Supervisors—(ii) Particulars of service agreements” to this document.

For the three financial years ended December 31, 2018, 2019 and 2020, the total amount paid by us for payments of emoluments, salaries, allowances, discretionary bonus, defined contribution retirement plans and other benefits in kind (if applicable) to our Directors were approximately RMB2.7 million, RMB4.4 million and RMB3.7 million, respectively. For remuneration details of all Directors during the Track Record Period, please refer to Note 8 to the Accountants’ Report as set out in Appendix I to this document.

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According to existing effective arrangements, the total amount of remuneration (excluding any possible payment of discretionary bonus) to be paid by us to our Directors and Supervisors for the financial year ending December 31, 2021 is expected to be approximately RMB6.7 million.

The remuneration of our Directors and Supervisors has been determined with reference to the salaries of comparable companies and their experience, duties and performance.

For the three financial years ended December 31, 2018, 2019 and 2020, the five highest remuneration individuals of our Company included five, five and five Directors, respectively, their remunerations were included in the total amount paid by us for the emoluments, salaries, allowances, discretionary bonus, defined contribution retirement plans and other benefits in kind (if applicable) of the relevant Directors.

For the three financial years ended December 31, 2018, 2019 and 2020, the total amount of remuneration and benefits in kind (if applicable) paid by us to the five highest remuneration individuals were approximately RMB2.7 million, RMB3.9 million and RMB3.2 million, respectively.

During the Track Record Period, no remuneration was paid to the Directors or Supervisors or the five highest paid individuals as an inducement to join or upon joining our Group. No compensation was paid to, or receivable by, the Directors or past directors of our Company, Supervisors or past supervisors or the five highest paid individuals for the loss of office as Director or Supervisor of any member of our Group or of any other office in connection with the management of the affairs of any member of our Group. None of the Directors or Supervisors had waived any remuneration and/or emoluments during the Track Record Period.

Certain of our Directors, Supervisors and employees are granted with Shares under the Share Incentive Scheme. For details of the Shares granted, see the section headed “Appendix VI—Statutory and General Information—D. Share Incentive Scheme” to this document.

Save as disclosed above, no Director or Supervisor is entitled to receive other special benefits from our Company.

–211– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

BOARD DIVERSITY

We have adopted a board diversity policy (the “Board Diversity Policy”) which sets out the objective and approach to achieve and maintain diversity of our Board in order to enhance the effectiveness of our Board. Pursuant to the Board Diversity Policy, we seek to achieve diversity of our Board through the consideration of a number of factors when selecting candidates to our Board, including but not limited to professional experience, skills, knowledge, gender, age, cultural and education background, ethnicity and length of service. Our Company recognizes and embraces the benefits of having a diverse Board and sees increasing diversity at the Board level, including gender diversity, as an essential element in maintaining our Company’s competitive advantage and enhancing its ability to attract, retain and motivate employees from the widest possible pool of available talent.

We have taken, and will continue to take, steps to promote gender diversity at all levels of our Company, including but not limited to our Board and the senior management levels. In particular, Ms. Yu Miao, who is responsible for management of financial reporting and financial matters of our Group, is female and forms part of our Board. Going forward, we will continue to work to enhance gender diversity of our Board. We will also continue to ensure that there is gender diversity when recruiting staff at mid to senior level so that we will have a pipeline of female senior management and potential successors to our Board in due time to ensure gender diversity of our Board. Our Group will continue to emphasize training of female talent and providing long-term development opportunities for our female staff.

Our Directors have a balanced mix of knowledge and skills, including in management, strategic development, business development, pharmacy, investment management, finance and corporate finance. Our Board is responsible for reviewing the diversity of our Board. After the [REDACTED], our Board will monitor the implementation of the Board Diversity Policy and review the Board Diversity Policy from time to time to ensure its continued effectiveness. We will also disclose in our annual corporate governance report a summary of the Board Diversity Policy together with information regarding the implementation of the Board Diversity Policy.

– 212 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUBSTANTIAL SHAREHOLDERS

So far as our Directors are aware, immediately following the completion of the [REDACTED] and assuming that the [REDACTED] is not exercised, the following persons are expected to have an interest and/or short positions in the Shares of our Company which would fall to be disclosed to us pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who are, directly or indirectly interested in 10% or more of the nominal value of any class of our share capital carrying rights to vote in all circumstances at general meetings of our Company:

LONG POSITIONS IN THE SHARES OF OUR COMPANY

Immediately following the completion of the Nature of Shares held as of the [REDACTED] (assuming Name interest Latest Practicable Date [REDACTED] is not exercised) Approximate percentage of Approximate Approximate interest in the Number percentage of Number percentage of relevant class and Class interest in and Class interest in our of Shares of of Shares our Company of Shares Company our Company

H Shares

Mr. Li Can Beneficial 37,792,733 24.26% [REDACTED] [REDACTED][REDACTED] interest Unlisted H Shares Shares

Interest in a 8,286,000 5.32% [REDACTED] [REDACTED][REDACTED] controlled Unlisted H Shares corporation(1) Shares

Interest in 3,272,425 2.10% [REDACTED] [REDACTED][REDACTED] controlled Unlisted H Shares corporations(2) Shares

Interest of a 38,261,640 24.56% [REDACTED] [REDACTED][REDACTED] party to an Unlisted H Shares agreement(3) Shares

Lucky Linkage Beneficial 25,960,417 16.67% [REDACTED] [REDACTED][REDACTED] Holdings interest(4) Unlisted H Shares Limited Shares

Founder KIP Beneficial 12,100,000 7.77% [REDACTED] [REDACTED][REDACTED] Healthcare interest(5) Unlisted H Shares Fund Shares

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Notes:

(1) As of the Latest Practicable Date, Chengdu Chuangtuo was owned as to 99% by Mr. Li Can. As such, Mr. Li is deemed to be interested in which Chengdu Chuangtuo is interested under the SFO.

(2) Include 1,525,847 Shares held by Chengdu Quanhong and 1,746,578 Shares held by Chengdu Quanbei. As of the Latest Practicable Date, each of Chengdu Quanhong and Chengdu Quanbei is managed and controlled by Mr. Li as the general partner, who is our Chairman of the Board and executive Director. As such, Mr. Li is deemed to be interested in which each of Chengdu Quanhong and Chengdu Quanbei is interested under the SFO.

(3) QYT Pharmacy Limited, Chen Zhouhua, Yu Miao, Wang Lei, Yang Lixia, Chen Yang, Li Kaiping, Zeng Fengyu, Yang Zhi, Shanghai Jianxin Data Service Partnership (Limited Partnership) and Du Tongjie executed power of attorney in favor of Mr. Li conferring upon him all the voting rights attached to the shares held by the said shareholders. For further details of the voting arrangement, see “History and Corporate Structure—Concert Party Agreements and Power of Attorney.”

(4) As of the Latest Practicable Date, Lucky Linkage Holdings Limited was wholly owned by Sino Biopharm. As such, Sino Biopharm is deemed to be interested in which Lucky Linkage Holdings Limited is interested in under the SFO.

(5) As of the Latest Practicable Date, Founder KIP Healthcare Fund was held as to approximately 49.44% by Founder H Fund. The general partner of Founder KIP Healthcare Fund was Founder KIP Management Fund (上海方正韓投股權投資管理合夥企業(有限合夥)), the general partner of which is Founder KIP Investment Management Co., Ltd. (上海方正韓投投資管理有限責任公司), which is ultimately controlled by Founder H Fund. Therefore, each of Founder H Fund, Founder KIP Management Fund and Founder KIP Investment Management Co., Ltd. was deemed to be interested in the Shares in which Founder KIP Healthcare Fund was interested under the SFO.

Except as disclosed above, our Directors are not aware of any other person who will, immediately following the completion of the [REDACTED] (assuming the [REDACTED]is not exercised), have any interest and/or short positions in the Shares of our Company which would fall to be disclosed to us pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who are, directly or indirectly, interested in 10% or more of the nominal value of any class of our share capital carrying rights to vote in all circumstances at general meetings of our Company or any other member of our Group.

– 214 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SHARE CAPITAL

As of the Latest Practicable Date, the registered share capital of our Company was RMB155,762,500 divided into 155,762,500 Unlisted Shares with a nominal value of RMB1.00 each.

Immediately following the completion of the [REDACTED] (assuming the [REDACTED] is not exercised), the total issued share capital of our Company will be as follows:

Approximate Number of %ofthe Description of Shares Shares share capital

Unlisted Shares in issue(1) [REDACTED][REDACTED]

H Shares to be converted from Unlisted Shares [REDACTED][REDACTED]

H Shares to be [REDACTED] pursuant to the [REDACTED][REDACTED] [REDACTED]

Total [REDACTED][REDACTED]

Assuming the [REDACTED] is exercised in full, the share capital of our Company upon completion of the [REDACTED] will be as follows:

Approximate Number of %ofthe Description of Shares Shares share capital

Unlisted Shares in issue(1) [REDACTED][REDACTED]

H Shares to be converted from Unlisted Shares [REDACTED][REDACTED]

H Shares to be [REDACTED] pursuant to the [REDACTED][REDACTED] [REDACTED]

Total [REDACTED][REDACTED]

Note: (1) The Unlisted Shares in issue includes [REDACTED] Unlisted Shares in aggregate held by Chang Yadi (暢雅迪), Lu Bing (魯冰), Yu Xianming (虞賢明) and Deng Weijun (鄧衛軍) which will not be converted into H Shares.

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SHARES OF OUR COMPANY

Upon completion of the [REDACTED], our Company will have two classes of Shares, namely Unlisted Shares and H Shares, both of which are ordinary Shares in our share capital. However, the H Shares generally may not be [REDACTED], legal or natural persons of the PRC, other than certain qualified domestic [REDACTED] in the PRC, qualified PRC [REDACTED] under the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, and other persons who are entitled to hold the H Shares pursuant to relevant PRC laws and regulations or upon approval by any competent authorities.

RANKING

Pursuant to the Articles of Association, the Unlisted Shares and H Shares are categorized as different classes of Shares. Their differences and the provisions on class rights, the dispatch of notices and financial reports to Shareholders, dispute resolution, registration of Shares on different registers of members, the method of share transfer and appointment of dividend receiving agents are set forth in “Appendix V—Summary of the Articles of Association” of this document.

Except for the differences above, the Unlisted Shares and the H Shares will rank pari passu with each other in all other respects and, in particular, will rank equally for all dividends or distributions declared, paid or made after the date of this document. All dividends in respect of the H Shares are to be declared in RMB and paid by our Company in Hong Kong dollars.

CONVERSION OF OUR UNLISTED SHARES INTO H SHARES

Upon completion of the [REDACTED], our Company will have two classes of ordinary Shares, namely Unlisted Shares and H Shares.

According to the regulations by the securities regulatory authorities of the State Council and our Articles of Association, the Unlisted Shares may be converted into H Shares, and such converted Shares may [REDACTED] on an overseas stock exchange provided that the conversion, [REDACTED] of such converted Shares have been approved by the securities regulatory authorities of the State Council. Additionally, such conversion, [REDACTED] shall meet any requirement of internal approval process and in all respects comply with the regulations prescribed by the securities regulatory authorities of the State Council and the regulations, requirements and procedures prescribed by the relevant overseas stock exchange.

If any of the Unlisted Shares are to be converted, listed and traded as H Shares on the Stock Exchange, such conversion, the approvals of the relevant PRC regulatory authorities, including CSRC, and the approval of the Stock Exchange are necessary. Based on the procedures for the conversion of Unlisted Shares into H Shares as set forth below, we may apply for the [REDACTED] of all or any portion of the Unlisted Shares on the Stock Exchange as H Shares in advance of any proposed conversion to ensure that the conversion process can be completed promptly upon notice to the Stock Exchange and delivery of Shares for entry on the [REDACTED]. As the [REDACTED] of additional Shares after the [REDACTED]onthe

– 216 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SHARE CAPITAL

Stock Exchange is ordinarily considered by the Stock Exchange to be a purely administrative matter, it does not require such prior application for [REDACTED] at the time of our [REDACTED] in Hong Kong. No Shareholder voting is required for the conversion of such Shares or the [REDACTED] of such converted Shares on an overseas stock exchange. Any application for [REDACTED] of the converted shares on the Stock Exchange after our initial [REDACTED] is subject to prior notification by way of announcement to inform our Shareholders and the public of any proposed conversion.

Registration on our [REDACTED] will be conditional on: (a) our [REDACTED] lodging with the Stock Exchange a letter confirming the proper entry of the relevant H Shares on the [REDACTED] and the due dispatch of H Share certificates, and (b) the admission of the H Shares to [REDACTED] in compliance with the Listing Rules, the General Rules of CCASS and the CCASS Operational Procedures in force from time to time. Until the converted shares are re-registered on [REDACTED], such Shares would not be [REDACTED] as H Shares. The relevant procedural requirements for the conversion of Unlisted Shares into H Shares are as follows:

• The holder of Unlisted Shares shall obtain the requisite approval of the CSRC or the relevant securities regulatory authorities of the State Council for the conversion of all or part of its Unlisted Shares into H Shares.

• The holder of Unlisted Shares shall issue to us a removal request in respect of a specified number of Shares attaching the relevant documents of title.

• Subject to our Company being satisfied with the authenticity of the documents and with the approval of our Board, we would then issue a notice to [REDACTED] with instructions that, with effect from a specified date, [REDACTED] is to issue the relevant holders with H Share certificates for such specified number of Shares.

• The relevant Unlisted Shares will be withdrawn from the Unlisted Shares register and re-registered on our [REDACTED] maintained in Hong Kong on the condition that:

• our [REDACTED] lodges with the Stock Exchange a letter confirming the proper entry of the relevant Shares on the [REDACTED] and the due dispatch of share certificates; and

• the admission of the H Shares (converted from the Unlisted Shares) to [REDACTED] in Hong Kong will comply with the Listing Rules and the general rules of CCASS and CCASS Operational Procedures in force from time to time.

• Upon completion of [REDACTED], the shareholding of the relevant holder of Unlisted Shares on our domestic [REDACTED] will be reduced by such number of Unlisted Shares converted and the number of H Shares in the [REDACTED] will correspondingly increase by the same number of Shares.

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• We will comply with the Listing Rules to inform Shareholders and the public by way of an announcement of such fact not less than three days prior to the proposed effective date.

RESTRICTIONS OF SHARE TRANSFER BY DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Our Directors, Supervisors and senior management shall declare their shareholdings in our Company and any changes thereof. Shares (including those being converted into H Shares) transferred by our Directors, Supervisors and senior management each year during their term of office shall not exceed 25% of their total respective shareholdings in our Company as required by the Companies Law of the PRC. The Shares that the aforesaid persons held in our Company (including the Shares being converted into H Shares) are proscribed from being transferred within one year from the date on which the Shares are [REDACTED], nor within half a year after they leave their positions in our Company. Please refer to the Articles of Association of our Company for other restrictions on the transfer of our Shares held by our Directors, Supervisors and senior management in “Appendix V—Summary of the Articles of Association” of this document.

SHAREHOLDERS’ GENERAL MEETINGS AND CLASS MEETINGS

For details of circumstances under which our general Shareholders’ meeting and classified Shareholders’ meeting are required, please see “Appendix V—Summary of the Articles of Association” and “Appendix IV—Summary of Principal Legal and Regulatory Provisions.”

GENERAL MANDATE TO ISSUE SHARES

Subject to the completion of the [REDACTED], our Board has been granted a general mandate to allot and issue H Shares at any time within a period up to the date of the conclusion of the next annual general meeting of the Shareholders or the date on which our Shareholders pass a special resolution to revoke or change such mandate, whichever is earlier, upon such terms and conditions and for such purposes and to such persons as our Board in their absolute discretion deem fit, and to make necessary amendments to the Articles of Association, provided that, the number of H Shares to be issued shall not exceed 20% of the number of H Shares in issue as at the [REDACTED].

Furthermore, we need to obtain approvals from the CSRC and other relevant PRC authorities for the actual issuance of H Shares.

For further details on this general mandate, please see the section headed “Appendix VI—Statutory and General Information—A. Further Information about our Group—4. Shareholders’ Resolutions” in this document.

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You should read the following discussion and analysis in conjunction with our historical financial information included in “Appendix I—Accountants’ Report” to this document, together with the accompanying notes. Our historical financial information has been prepared in accordance with HKFRS, which may differ in material aspects from generally accepted accounting principles in other jurisdictions. You should read the entire Accountants’ Report and not merely rely on the information contained in this section.

The following discussion and analysis contain forward-looking statements that reflect the current views with respect to future events and financial performance. These statements are based on assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate under the circumstances. However, whether the actual outcome and developments will meet our expectations and predictions depends on a number of risks and uncertainties over which we do not have control. For details, see “Forward-looking Statements” and “Risk Factors.”

For the purpose of this section, unless the context otherwise requires, references to 2018, 2019 and 2020 refer to our financial years ended December 31 of such years. Unless the context otherwise requires, financial information described in this section more is described on a consolidated basis.

OVERVIEW

– 219 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION extent, we provide SaaS solutions, or empowering services, to our industry customers, empowering participants in the retail pharmacy industry to realize online operations. Leveraging our exclusive distribution rights for certain products in certain areas with well-known pharmaceutical companies, we also engage in the supply chain business, under which we act as a wholesaler and sell pharmaceutical products to other industry customers.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

We believe that the most significant factors affecting our results of operations, financial condition and cash flow include the following:

Our Ability to Grow Customer Base

Our revenue growth depends largely on our ability to maintain and grow our customer base. During the Track Record Period, our retail pharmacy operation has been limited to offline operation in limited cities and online B2C sales. Going forward, we plan to expand our offline operation to selected first and second-tier cities in China. The PRC pharmaceutical retail industry is highly competitive. Our competitors may have substantially greater financial, marketing, distribution, retail or other resources than we do. We will face competition from competitors who operate in these cities, while competitors may also enter cities where we currently operate. Our results of operation and financial condition largely depend on our ability to maintain our customer base in our existing operation regions, as well as to grow our customer base in new regions we plan to enter.

Our Ability to Effectively Manage Our Expansion, Control Our Costs and Expenses and Manage Our Liquidity

During the Track Record Period and in the near future, we have relied and will continue to rely on expansion of offline retail pharmacies as our growth routine. As a result, to effectively manage our expansion and control our costs and expenses are critical to the success of our business. Cost of revenue and fulfillment expenses represent a significant majority of our total cost and expenses, which primarily include cost of products, logistics costs, as well as staff costs and rental expenses in relation to our offline pharmacies. During the Track Record Period, our cost of revenue amounted to RMB499.1 million, RMB691.8 million and RMB989.9 million in 2018, 2019 and 2020, representing 86.6%, 80.6% and 79.2% of our revenue in the same periods, respectively. Our fulfillment expenses amounted to RMB114.4 million, RMB228.1 million and RMB291.7 million in 2018, 2019 and 2020, representing 19.9%, 26.6% and 23.4% of our revenue in the same periods, respectively. We expect our costs and expenses to increase in absolute amount as we grow our business, as opening new pharmacies brings additional staff costs and rental expenses and as new pharmacies experience a period of losses before being able to generate profit. Going forward, we will also incur share award expenses in relation to the Share Incentive Scheme. In addition, our ability to manage our expansion, including effectively achieve opening of new retail pharmacies, manage our new retail pharmacies and compete with competitors in regions we open our new retail pharmacies will affect our results of operation and financial condition. We have leveraged and will continue to

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Time Lag between Inauguration and Achieving Profitability of Retail Pharmacies

During the Track Record Period, we have opened large numbers of new retail pharmacies in different cities. New pharmacies experience a period of losses before being able to achieve profitability, as related costs, including rental expenses, staff costs and utilities, start to incur before revenue generated exceed such costs. As a result, we have recorded operating losses in each year of the Track Record Period. Although majority of our new pharmacies start to achieve profitability approximately within 12 months after their inauguration, our fast offline expansion pace may continue to make us record operating losses in the near future.

BASIS OF PREPARATION AND PRESENTATION

Our historical financial information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Further details of the significant accounting policies adopted are set out in note 1 to the Accountants’ report set out in Appendix I to this document.

The HKICPA has issued certain new and revised and amendments to HKFRSs. For the purpose of preparing our historical financial information, we have adopted all applicable new and revised HKFRSs to the Track Record Period, including HKFRS 9, Financial Instruments, HKFRS 15, Revenue from Contracts with Customers and HKFRS 16, Leases, consistently throughout the Track Record Period. Except the early adoption of Amendments to HKFRS 3, Definition of a Business and Amendment to HKFRS 16, COVID-19-Related Rent Concessions, We have not applied any new standards or interpretation that is not yet effective during the Track Record Period. The revised and new accounting standards and interpretation issued but not yet effective for the accounting year beginning January 1, 2020 are set out in note 35 to the Accountants’ Report as set out in Appendix I to this document.

The adoption of HKFRS 9 and HKFRS 15 did not have significant impact on our financial position and performance throughout the Track Record Period when compared to those that would have been presented under HKAS 39, Financial Instruments: Recognition and Measurement, and HKAS 18, Revenue.

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HKFRS 16 is effective for the accounting period beginning on or after January 1, 2019 and earlier application is permitted for entities that adopt HKFRS 15 on or before the date of initial application of HKFRS 16. We have elected to adopt HKFRS 16 consistently throughout the Track Record Period. The adoption of HKFRS 16 primarily affects our accounting as a lessee of leases for properties stores and warehouses which are classified as operating leases under HKAS 17, Leases. Upon the adoption of HKFRS 16, according to the accounting policies described in note 2(i), at the lease commencement date, we as a lessee recognize a right-of-use assets and a lease liabilities for all fixed-rate leases, except for short-term leases with lease term of 12 months or less and lease of low-value assets. We have early adopted the Amendment to HKFRS 16, Leases, Covid-19-Related Rent Concessions, and applies the practical expedient introduced by the Amendment to all eligible rent concessions received by us during the Track Record Period.

Amendments to HKFRS 3, Definition of a Business is effective for the accounting period beginning on or after January 1, 2020 and earlier application is permitted. We have elected to adopt Amendments to HKFRS 3 consistently throughout the Track Record Period. The adoption of Amendments to HKFRS 3 primarily affects our business combinations which provide an optional concentration test to permit a simplified assessment of whether an acquired set of activities and assets may not be a business. If the test is met, the entity can treat the transaction as an asset acquisition rather than a business combination.

Our historical financial information also comply with the applicable disclosure provisions of the Stock Exchange.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL JUDGMENTS AND ESTIMATES

The preparation of financial statements in conformity with HKFRSs requires our management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that we believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

We believe the following accounting policies are most critical to our business operations and to an understanding of our financial condition and results of operations, and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Our most critical accounting policies and estimates are summarized below. See notes 2 and 3 to the Accountants’ Report set out in Appendix I of this document for a detailed description of our significant accounting policies, estimates, assumptions and judgments which are important for understanding our financial condition and results of operations.

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Significant Accounting Policies

Revenue Recognition

Sale of pharmaceutical and healthcare products

We are engaged in the sale of pharmaceutical and healthcare products to individual customers through (i) offline retail pharmacy; (ii) O2O retail business; (iii) B2C retail business and also supply chain business to hospitals and other pharmacy retailers and wholesalers as well as customers from our empowering business. Revenue from sale of pharmaceutical and healthcare products is recorded net of discounts and recognized when the goods are delivered to individual customers, either by third party couriers or at the offline pharmacies, or to merchant customers by third party couriers. For contracts which provide a customer with a right to return the goods within a specified period, the expected value method is used to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which we will be entitled. The requirements in HKFRS 15 on constraining estimates of variable consideration are applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, a refund liability is recognized. A right-of-return asset (and the corresponding adjustment to cost of revenue) is also recognized for the right to recover products from a customer.

Empowering service income

We provide online operation and support service to other chain pharmacies, and earn commissions from other chain pharmacies generally at a rate of the transaction amounts of products being sold to customers online. Revenue of the commissions is recognized at the time when the underlying sale of products by chain pharmacies online is completed.

Discount vouchers and free vouchers

From time to time, we offer our customers discount vouchers and free vouchers. The discount vouchers and free vouchers can be obtained through three channels: (i) from qualified purchases when the customers reach certain amount of spending; (ii) from redemption of membership points accumulated from the membership programs of us; (iii) distributed for free of charge by us through various promotional and advertising activities.

As the discount vouchers and free vouchers obtained through channels (i) and (ii) are issued concurrent with a revenue transaction, we estimate the value of the future redemption obligation based on the estimated value of the products for which the discount vouchers and free vouchers are expected to be redeemed, and recognizes the estimated fair value in the balance sheet as contract liability. Subsequently, contract liability is recognized as revenue at the point in time when the customer redeems the discount vouchers and free vouchers for the products in future purchases, or when we are legally released from our obligation based on the expiration date of the discount vouchers and free vouchers.

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For discount vouchers obtained through channel (iii) for which the granting of such discount vouchers does not occur concurrently with a revenue transaction, the discount vouchers are not accounted for when such vouchers are granted and can only be applied to future purchases of certain specified products of us. We recognize as a reduction in revenue when the customers apply the discount vouchers in future purchases.

Cost of Revenue

Cost of revenue consists primarily of purchase price of products, inbound shipping charges and write-downs of inventories. Shipping charges to receive products from the suppliers are included in inventories, and recognized as cost of revenue upon sale of the products to the customers.

We periodically receive considerations from certain vendors, representing rebates for products sold and subsidies for the sales of the vendors’ products over a period of time. The rebates are not sufficiently separable from our purchase of the vendors’ products and they do not represent a reimbursement of costs incurred by the Group to sell vendors’ products. We account for the rebates received from our vendors as a reduction to the prices we pay for the products purchased and therefore we record such amounts as a reduction of cost of revenue when recognized in the consolidated statements of profit or loss.

Fulfillment Expenses

Fulfillment expenses consist primarily of (i) expenses incurred in our sales and procurement operations, including personnel cost and miscellaneous expenses, (ii) warehousing and logistic services, (iii) payment services and customer services, and (iv) lease expenses of warehouses and pharmacies.

Leased Assets

At inception of a contract, we assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

Where the contract contains lease component(s) and non-lease component(s), we have elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases.

At the lease commencement date, we recognize a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets. When we enter into a lease in respect of a low-value asset, we decide whether to capitalize the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalized are recognized as an expense on a systematic basis over the lease

– 224 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION term. Where the lease is capitalized, the lease liability is initially recognized at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortized cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

The right-of-use asset recognized when a lease is capitalized is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses.

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in our estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether we will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The lease liability is also remeasured when there is a change in the scope of a lease or the consideration for a lease that is not originally provided for in the lease contract (“lease modification”) that is not accounted for as a separate lease. In this case the lease liability is remeasured based on the revised lease payments and lease term using a revised discount rate at the effective date of the modification. The only exceptions are any rent concessions which arose as a direct consequence of the COVID-19 pandemic and which satisfied the conditions set out in paragraph 46B of HKFRS 16 Leases. In such cases, the Group took advantage of the practical expedient set out in paragraph 46A of HKFRS 16 and recognised the change in consideration as if it were not a lease modification.

In the consolidated statement of financial position, the current portion of long-term lease liabilities is determined as the present value of contractual payments that are due to be settled within twelve months after the reporting period.

Critical Estimates and Judgments

Provision for Diminution in Value of Inventories

Our management reviews the ageing and expiry dates of our inventories of at the end of each reporting period, and makes provision on obsolete and slow-moving inventory items identified that are no longer suitable for sale. Our management estimates the net realizable

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Provision for Expected Credit Losses (“ECL”) on Trade Receivables

We use a provision matrix to calculate ECLs for trade receivables. The provision rates are based on aging of trade receivables. The provision matrix is initially based on our historical observed default rates. We will calibrate the matrix to adjust the historical credit loss experience with forward-looking information.

The assessment of the correlation among historical observed default rates and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast economic conditions. Our historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future.

Impairment of Property and Equipment and Right-of-use Assets

Internal and external sources of information are reviewed at the end of each reporting period to assess whether there is any indication that property and equipment or right-of-use assets may be impaired. If any such indication exists, the recoverable amount of the property and equipment and right-of-use assets is estimated. Changes in facts and circumstances may result in revisions to the conclusion of whether an indication of impairment exists and revised estimates of recoverable amounts, which would affect profit or loss in future periods.

Impairment of Goodwill

Recognition of Deferred Tax Assets

Deferred tax assets in respect of tax losses carried forward and deductible temporary differences are recognized and measured based on the expected manner of realization or settlement of the carrying amount of the relevant assets and liabilities, using tax rates enacted or substantively enacted at the end of each reporting date. In determining the carrying amounts of deferred tax assets, expected taxable profits are estimated which involves a number of assumptions relating to the operating environment of us and require a significant level of judgement exercised by the directors. Any change in such assumptions and judgement would affect the carrying amounts of deferred tax assets to be recognized and hence the net profit in future years.

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DESCRIPTION OF CERTAIN CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ITEMS

The following table sets forth a summary of our consolidated statement of profit or loss and other comprehensive income for the periods indicated. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

CONTINUING OPERATIONS Revenue 576,491 100.0 858,185 100.0 1,249,242 100.0 Cost of revenue (499,111) (86.6) (691,754) (80.6) (989,863) (79.2)

Loss from continuing operations (83,437) (14.5) (137,056) (16.0) (106,206) (8.5)

Finance costs (7,676) (1.3) (26,756) (3.1) (43,217) (3.5) Share of profits/(losses) of associates (209) (0.1) 36 0.0 ––

Loss before taxation (91,322) (15.9) (163,776) (19.1) (149,423) (12.0) Income tax (100) (0.0) (20) (0.0) (4,002) (0.3)

Loss for the year from continuing operations (91,422) (15.9) (163,796) (19.1) (153,425) (12.3)

DISCONTINUED OPERATION Loss for the year from a discontinued operation, net of tax (2,009) (0.3) (2,293) (0.3) (1,687) (0.1)

Loss for the year (93,431) (16.2) (166,089) (19.4) (155,112) (12.4)

Other comprehensive income for the year (after tax) –– –– ––

Total comprehensive income for the year (93,431) (16.2) (166,089) (19.4) (155,112) (12.4)

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Revenue

During the Track Record Period, our revenue primarily represented the amount received and receivable from sales of pharmaceutical and other products and the provision of retail pharmacy empowering services to our customers. The following table sets forth a breakdown of our revenue for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Omni-channel retail pharmacy business New retail business – offline retail pharmacy 48,101 8.3 200,792 23.4 365,166 29.2 – O2O retail business 34,066 5.9 103,326 12.0 221,430 17.7 B2C retail business 379,484 65.9 378,359 44.1 421,523 33.8

Subtotal 461,651 80.1 682,477 79.5 1,008,119 80.7

Supply chain business 114,840 19.9 175,302 20.4 225,685 18.1

Empowering business SaaS solution service – – 406 0.1 15,438 1.2

Total 576,491 100.0 858,185 100.0 1,249,242 100.0

Omni-channel retail pharmacy business. We derive revenues under our omni-channel retail pharmacy business from (i) sales of products from new retail business, consisting of offline sales of products through our offline retail pharmacies and online sales of products through O2O platforms, and (ii) sales of products from our online pharmacies on B2C e-commerce platforms.

Supply chain business. We also derive revenues from wholesale of pharmaceutical products to hospitals and other pharmacy retailers and wholesalers as well as customers from our empowering business.

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Empowering business. We derive revenues under our retail pharmacy empowering business generally from providing SaaS solutions to other retail pharmacies leveraging our proprietary SaaS solution. We charge our customers in three ways for our empowering services: (i) a sales royalties of certain percentage of GMV of products sold through O2O and B2C retail business as our commission for providing online retail pharmacy operation, (ii) an one-off or monthly SaaS solution service fee for our provision of empowering services, and (iii) service fee for providing standardizing data analysis service and marketing strategy. See “Business—Customers—Pricing—Pricing for Empowering Business” for details.

Cost of Revenue

Our cost of revenue consists primarily of (i) cost of products, representing procurement costs of products sold, and (ii) staff costs, representing direct labor costs attributable to our empowering business. Our cost of revenue does not include other direct costs related to costs of product sales such as logistics expenses and in-store staff costs. Therefore, our cost of revenue may not be comparable to that of other companies, which include such expenses in their costs of revenue. The following table sets forth a breakdown of our cost of revenue for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Cost of products 499,111 100.0 691,585 99.9 986,976 99.7 Staff costs – – 169 0.1 2,887 0.3

Total 499,111 100.0 691,754 100.0 989,863 100.0

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Gross Profit

For the years ended December 31, 2018, 2019, 2020, our gross profit was RMB77.4 million, RMB166.4 million and RMB259.4 million, respectively. For the same periods, our gross profit margin was 13.4%, 19.4% and 20.8%, respectively. The following table sets forth our gross profit and gross profit margin by product type for the periods indicated.

For the year ended December 31, 2018 2019 2020 Gross Gross Gross Gross Profit Gross Profit Gross Profit Profit Margin Profit Margin Profit Margin RMB’000 % RMB’000 % RMB’000 %

Omni-channel retail pharmacy business New retail business – offline retail pharmacy 14,007 29.1 70,144 34.9 108,386 29.7 – O2O retail business 3,814 11.2 22,735 22.0 55,894 25.2 B2C retail business 27,461 7.2 26,635 7.0 32,072 7.6

Subtotal 45,282 9.8 119,514 17.5 196,352 19.5

Supply chain business 32,098 28.0 46,680 26.6 50,476 22.4

Empowering business SaaS solution service – – 237 58.4 12,551 81.3

Total 77,380 13.4 166,431 19.4 259,379 20.8

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During the Track Record Period, our gross profit margin of omni-channel retail pharmacy business continuously increased as we enlarged our sales through offline and O2O channel, which have higher gross profit margin than sales from B2C channel. Our gross profit margin of offline sales generally remained at stable levels, but was relatively higher in 2019 as more OTC drugs, which has higher gross profit margin, were sold in 2019 through offline sales channel. Gross profit margin of O2O sales increased during the Track Record Period primarily because price competition for O2O pharmacy sales gradually eased during the Track Record Period. Gross profit margin of B2C sales generally remained at stable levels during the Track Record Period. Gross profit margin of supply chain business decreased through the Track Record Period primarily because we had more pharmacy retailer customers, which are more price-sensitive compared with our other supply chain business customers. Our gross profit margin of SaaS solution service stays high as we leverage our own technology system, making our provision of SaaS solution service cost effective. Our overall gross profit margin increased during the Track Record Period primarily due to the increase in proportion of high-gross- profit-margin offline and O2O sales, which is in line with our business strategy, as we constantly put more emphasis on expansion of offline and O2O sales channels.

Other Income

Our other income consist of (i) government grants, which primarily consist of one-off government grants we received from local governments principally in support of our e-commerce business and employment, (ii) long-aged payables written-off, representing payables we write off as relevant suppliers are unreachable for over three years, (iii) interest income from bank deposits, (iv) gains on disposal of associate, representing gains on disposal of Chengdu Xinyishi Technology Co., Ltd. (成都新醫勢科技有限公司)(“Chengdu Xinyishi”), and (v) others. The following table sets forth our other income for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Government grants 1,112 6,913 10,174 Long-aged payables written-off 1,512 2,115 974 Interest income from bank deposits 444 1,129 944 Gain on disposal of an associate – – 173 Others 730 1,609 452

Total 3,798 11,766 12,717

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Fulfillment Expenses

Our fulfillment expenses are expenses incurred in our sales of products, apart from procurement costs of products, consisting of (i) staff costs, primarily representing staff costs of in-store staffs and sales personnel of online sales channels; (ii) depreciation and amortization, primarily in relation to our retail pharmacy leases and in-store equipment, (iii) logistics and packages, including logistics costs in relation to sales through O2O and B2C channels, (iv) O2O and B2C platform commissions, (v) IT costs, (vi) utilities, and (vii) others, including traveling and vehicle expenses. The following table sets forth the breakdown of fulfillment expenses for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Staff costs 43,396 37.9 97,074 42.6 103,751 35.6 Depreciation and amortization 13,367 11.7 52,436 23.0 65,259 22.4 Logistics and packages 25,310 22.1 33,870 14.9 55,062 18.9 O2O and B2C platform commission 19,024 16.6 24,212 10.6 39,989 13.7 IT costs 2,487 2.2 3,501 1.5 8,827 3.0 Utilities 1,923 1.7 9,055 4.0 9,019 3.1 Others 8,915 7.8 7,912 3.4 9,801 3.3

Total 114,422 100.0 228,060 100.0 291,708 100.0

For the years ended December 31, 2018, 2019 and 2020, our fulfillment expenses accounted for 19.9%, 26.6% and 23.4% of our total revenue for the same periods, respectively. Our fulfillment expenses continuously increased during the Track Record Period primarily due to increase of our revenue, as well as expansion of our retail pharmacy network, which led to increase in staff costs and amortization of right-of-use assets.

Our fulfillment expenses as a percentage of revenue increased from 2018 to 2019 primarily due to the extensive number of new retail pharmacies opened or acquired of 62 and 96 in 2018 and 2019, respectively. Majority of our new pharmacies start to generate certain level of stable revenue approximately within 12 months after their inauguration. Our fulfillment expenses as a percentage of revenue decreased from 2019 to 2020 primarily due to the increase in revenue generated by our new retail pharmacies opened during 2018 and 2019, partially offset by the 95 new retail pharmacies we had in 2020.

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Sale and Marketing Expenses

Our sale and marketing expenses consist of (i) staff costs of our sales and marketing personnel, (ii) marketing expenses, in relation to marketing activities, and (iii) others, including traveling expenses. The following table sets forth the breakdown of sale and marketing expenses for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Staff costs 9,805 36.6 16,886 41.2 19,148 46.3 Marketing expenses 15,556 58.1 21,412 52.3 19,812 47.9 Others 1,402 5.3 2,679 6.5 2,368 5.8

Total 26,763 100.0 40,977 100.0 41,328 100.0

For the years ended December 31, 2018, 2019 and 2020, our sale and marketing expenses accounted for 4.6%, 4.8% and 3.3% of our total revenue for the same periods, respectively, generally maintaining at a stable level. The decrease of sale and marketing expenses as a percentage of revenue from 2019 to 2020 was primarily attributable to the economies of scale as a result of the growth of our business. Our marketing expenses decreased slightly from 2019 to 2020 primarily because we spent less on marketing activities for our B2C retail business and supply chain business in 2020 while we strategically emphasized on our offline and O2O sales.

Research and Development Expenses

Our research and development expenses primarily consist of staff costs. We had RMB2.1 million, RMB3.8 million, and RMB7.0 million of research and development expenses in 2018, 2019 and 2020, respectively. The continuous increase of research and development expenses was due to increase in numbers of our R&D staffs.

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Administrative Expenses

Our administrative expenses consist of (i) staff costs of our administrative personnel, (ii) professional service fees, primarily in relation to our business management, (iii) depreciation and amortization, (iv) traveling and vehicle expenses, (v) office expenses, and (vi) others. The following table sets forth the breakdown of our administrative expenses for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Staff costs 8,243 46.1 21,652 56.3 17,465 50.1 Professional service fees 1,379 7.7 4,161 10.8 4,765 13.7 Depreciation and amortization 853 4.8 2,035 5.3 4,023 11.5 Traveling and vehicle expenses 2,326 13.0 4,141 10.8 3,007 8.6 Office expenses 1,531 8.6 1,946 5.1 1,532 4.4 Others 3,554 19.8 4,554 11.7 4,063 11.7

Total 17,886 100.0 38,489 100.0 34,855 100.0

For the years ended December 31, 2018, 2019 and 2020, our administrative expenses accounted for 3.1%, 4.5% and 2.8% of our total revenue for the same periods, respectively. The increase of administrative expenses as a percentage of revenue from 2018 to 2019 was primarily attributable to our business expansion. The decrease of administrative expenses as a percentage of revenue from 2019 to 2020 was primarily attributable to the economies of scale as a result of the growth of our business. Our staff costs decreased from 2019 to 2020 primarily because some of our administrative personnel were transferred to operating departments in 2020.

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Other Expenses

Our other expenses primarily consist of (i) impairment losses on trade and other receivables, representing loss allowance we made based on expected credit losses model, (ii) loss on disposal of property and equipment, (iii) loss on disposal of a subsidiary, in relation to disposal of Guangzhou Quanyuantang Chain Pharmacy Co., Ltd. (廣州泉源堂大藥房連鎖有限責任公司), and (iv) others. The following table sets forth the breakdown of our other expenses for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Impairment losses on trade and other receivables 2,031 1,945 2,653 Loss on disposal of property and equipment – – 119 Loss on disposal of a subsidiary – 939 – Others 1,440 1,046 612

Total 3,471 3,930 3,384

Finance Costs

Our financial costs consist of (i) interest on bank loans and other borrowings, see “—Indebtedness” and “—Related Party Transactions” for details of our bank loans and other borrowings, (ii) interest on lease liabilities, and (iii) interest on other financial liabilities, see “—Description of Certain Consolidated Statement of Financial Position Items—Other Financial Liabilities” for details of our other financial liabilities. The following table sets forth the breakdown of our finance costs for the periods indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Interest on bank loans and other borrowings 5,460 15,050 26,407 Interest on lease liabilities 2,216 8,250 10,937 Interest on other financial liabilities – 3,456 5,873

Total 7,676 26,756 43,217

Our financial costs continuously increased through the Track Record Period in line with our business growth.

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Share of (Losses)/Profits of Associates

Our share of losses or profits of associates in 2018 and 2019 represents our share of net loss or profit relating to our 29.0% equity interest investment in Chengdu Xinyishi. We recorded share of losses of associates of RMB0.2 million in 2018 and recorded share of profits of associates of RMB36,000 in 2019. See “—Description of Certain Consolidated Statement of Financial Position Items—Interest in Associates.”

Taxation

China

Yumeng Tongxing was recognized as National High-tech Enterprise (國家高新技術企業) by relevant government authority in 2020 and is subject to income tax at 15% for a three-year period since January 1, 2020.

Save as disclosed above, our subsidiaries which operate in mainland China are subject to corporate income tax at a rate of 25% on the taxable income in 2018, 2019 and 2020.

Discontinued Operations

In December 2020, we decided to dispose Pujiang Shentong, one of our subsidiaries as we would leverage more third-party delivery services, principally because its business is not in line with our future business focus, as well as because we plan to increasingly procure delivery services from third parties as delivery service prices are declining due to fierce competition among such industry in China.

RESULTS OF OPERATIONS

Year ended December 31, 2020 Compared to Year ended December 31, 2019

Revenue

Our revenue increased by 45.6% from RMB858.2 million for the year ended December 31, 2019 to RMB1,249.2 million for the year ended December 31, 2020. This increase was primarily driven by increase in revenue from our offline sales and O2O sales as we continued to expand our retail pharmacy network in 2020.

Omni-channel Retail Pharmacy Business

Our revenue from omni-channel retail pharmacy business increased by 47.7% from RMB682.5 million for the year ended December 31, 2019 to RMB1,008.1 million for the year ended December 31, 2020. This increase was primarily because (i) we had 95 new retail pharmacies in 2020, majorly in Chengdu and Chongqing, and (ii) revenue generated by our

– 236 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION retail pharmacies opened in 2019 increased, because they operated full-year in 2020, in contrast with in 2019, as well as because majority of our new retail pharmacies should experience approximately within 12 months of operation before generating certain level of stable revenue.

Supply Chain Business

Our revenue from supply chain business increased by 28.7% from RMB175.3 million for the year ended December 31, 2019 to RMB225.7 million for the year ended December 31, 2020, primarily because our customer base enlarged as we had more popular products to offer.

Empowering Business

Our revenue from empowering business increased significantly from RMB0.4 million for the year ended December 31, 2019 to RMB15.4 million for the year ended December 31, 2020. This increase was primarily driven by development of our retail pharmacy empowering services as we started our empowering business in May 2019.

Cost of Revenue

Our cost of revenue increased by 43.1% from RMB691.8 million for the year ended December 31, 2019 to RMB989.9 million for the year ended December 31, 2020, which was generally in line with increase in our revenue in 2020.

Gross Profit

Our gross profit increased by 55.8% from RMB166.4 million for the year ended December 31, 2019 to RMB259.4 million for the year ended December 31, 2020, which was primarily due to increase in our revenue in 2020, as well as larger proportion of offline sales and O2O sales in 2020 than in 2019 which have higher gross profit margins than B2C sales. Accordingly, our overall gross profit margin increased by from 19.4% for the year ended December 31, 2019 to 20.8% for the year ended December 31, 2020.

Our gross profit margin of omni-channel retail pharmacy business increased from 17.5% in 2019 to 19.5% in 2020 primarily due to larger proportion of offline sales and O2O sales in 2020 than in 2019, which have higher gross profit margins than B2C sales, as we continued to develop our offline sales and O2O sales. Our gross profit margin of supply chain business decreased from 26.6% in 2019 to 22.4% in 2020 primarily because we had more pharmacy retailer customers through the Track Record Period, which are more price-sensitive compared with our other supply chain business customers. Our gross profit margin of empowering business increased significantly from 2019 to 2020 primarily because we started our empowering business in May 2019. Consequently although we incurred costs to support our empowering business in both 2019 and 2020, we recognized revenue for the full year in 2020, which resulted in higher gross profit margin.

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Other Income

Our other income increased by 8.1% from RMB11.8 million for the year ended December 31, 2019 to RMB12.7 million for the year ended December 31, 2020, which was primarily due to an increase of RMB3.3 million in government grant as we obtained more subsidies for stabilizing employment in 2020 as we had more employees in 2020.

Fulfillment Expenses

Our fulfillment expenses increased by 27.9% from RMB228.1 million for the year ended December 31, 2019 to RMB291.7 million for the year ended December 31, 2020, which was primarily due to increase in our revenue in 2020 as a result of an increase in our retail pharmacies. Our fulfillment expenses as a percentage of revenue decreased from 2019 to 2020 primarily because in 2019 most of our new offline pharmacies were inaugurated in the first half, while in 2020, the second half, meanwhile offline pharmacies newly opened in 2019 generated more revenue in 2020 compared with in 2019, as well as because revenue generated by our new retail pharmacies opened in 2019 increased in 2020 as majority of our new pharmacies should experience approximately within 12 months of operation before generating certain level of stable revenue.

Sale and Marketing Expenses

Our sale and marketing expenses increased by 0.9% from RMB41.0 million for the year ended December 31, 2019 to RMB41.3 million for the year ended December 31, 2020, which was primarily due to an increase of RMB2.3 million in staff costs as a result of the increase of staff compensation. Our marketing expenses decreased slightly from 2019 to 2020 primarily because we spent less on marketing activities for our B2C retail business and supply chain business in 2020 while we strategically emphasized on our offline and O2O sales. The decrease of sale and marketing expenses as a percentage of revenue from 2019 to 2020 was primarily attributable to the economies of scale as a result of the growth of our business.

Research and Development Expenses

Our research and development expenses increased by 85.1% from RMB3.8 million for the year ended December 31, 2019 to RMB7.0 million for the year ended December 31, 2020, which was primarily due to increase in number of our R&D personnel.

Administrative Expenses

Our administrative expenses decreased slightly from RMB38.5 million for the year ended December 31, 2019 to RMB34.9 million for the year ended December 31, 2020, which was primarily due to a decrease of RMB4.2 million in staff costs, primarily because some of our administrative personnel were transferred to operating departments in 2020. The decrease of administrative expenses as a percentage of revenue from 2019 to 2020 was attributable to the economies of scale as a result of the growth of our business.

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Other Expenses

Our other expenses decreased by 13.9% from RMB3.9 million for the year ended December 31, 2019 to RMB3.4 million for the year ended December 31, 2020, which was primarily because we had loss on disposal of a subsidiary in 2019.

Finance Costs

Our finance costs increased by 61.5% from RMB26.8 million for the year ended December 31, 2019 to RMB43.2 million for the year ended December 31, 2020, which was primarily due to increase in interest on bank loans and other borrowings as we obtained new bank loans and other borrowings in 2020. See “—Indebtedness” and “Related Party Transactions.”

Share of (Losses)/Profits of Associates

We recorded share of profits of Chengdu Xinyishi of RMB36,000 in 2019, while we had no share of profits or losses of associates in 2020, because we disposed Chengdu Xinyishi in 2020 as we believe Chengdu Xiuyishi’s business is not in line with our business strategy.

Loss for the Year from Continuing Operations

As a result of the foregoing, our loss for the period from continuing operations decreased from RMB163.8 million for the year ended December 31, 2019 to RMB153.4 million for the year ended December 31, 2020.

Loss for the Year

As a result of the foregoing, our loss for the period decreased from RMB166.1 million for the year ended December 31, 2019 to RMB155.1 million for the year ended December 31, 2020.

Year ended December 31, 2019 Compared to Year ended December 31, 2018

Revenue

Our revenue increased by 48.9% from RMB576.5 million for the year ended December 31, 2018 to RMB858.2 million for the year ended December 31, 2019. This increase was primarily driven by increase in revenue from our offline sales and O2O sales as we expanded our retail pharmacy network in 2019.

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Omni-channel Retail Pharmacy Business

Our revenue from omni-channel retail pharmacy business increased by 47.8% from RMB461.7 million for the year ended December 31, 2018 to RMB682.5 million for the year ended December 31, 2019. This increase was primarily because (i) we had 96 new retail pharmacies in 2019, majorly in Chengdu, Guangzhou, and Chongqing, and (ii) revenue generated by our retail pharmacies opened in 2018 increased, because they operated full-year in 2019, in contrast with in 2018, as well as because majority of our new retail pharmacies should experience approximately within 12 months before generating certain level of stable revenue.

Supply Chain Business

Our revenue from supply chain business increased by 52.6% from RMB114.8 million for the year ended December 31, 2018 to RMB175.3 million for the year ended December 31, 2019, primarily because our customer base enlarged as we had more popular products to offer.

Empowering Business

Our revenue from empowering business increased from nil for the year ended December 31, 2018 to RMB0.4 million for the year ended December 31, 2019 as we started provision of retail pharmacy empowering services in 2019.

Cost of Revenue

Our cost of revenue increased by 38.6% from RMB499.1 million for the year ended December 31, 2018 to RMB691.8 million for the year ended December 31, 2019, which was primarily due to an increase in our cost of revenue from omni-channel retail pharmacy business, which was in line with the increase in the scale of our business.

Gross Profit

Our gross profit increased by 115.1% from RMB77.4 million for the year ended December 31, 2018 to RMB166.4 million for the year ended December 31, 2019, which was primarily due to increase in our revenue in 2019, as well as larger proportion of offline sales and O2O sales in 2019 than in 2018 which have higher gross profit margins than B2C sales. Accordingly, our overall gross profit margin increased from 13.4% for the year ended December 31, 2018 to 19.4% for the year ended December 31, 2019.

Our gross profit margin of omni-channel retail pharmacy business increased from 9.8% in 2018 to 17.5% in 2019 primarily due to larger proportion of offline sales and O2O sales in 2019 than in 2018, which have higher gross profit margins than B2C sales, as we continued to develop our offline sales and O2O sales. Our gross profit margin of supply chain business decreased from 28.0% in 2018 to 26.6% in 2019 primarily because we had more pharmacy retailer customers through the Track Record Period, which are more price-sensitive compared with our other supply chain business customers.

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Other Income

Our other income increased by 209.8% from RMB3.8 million for the year ended December 31, 2018 to RMB11.8 million for the year ended December 31, 2019, which was primarily due to an increase of RMB5.8 million in government grant as we obtained subsidies for stabilizing employment in 2019.

Fulfillment Expenses

Our fulfillment expenses increased by 99.3% from RMB114.4 million for the year ended December 31, 2018 to RMB228.1 million for the year ended December 31, 2019, which was primarily due to increase in our revenue in 2019, as well as due to our expansion of offline retail pharmacies in 2019 which caused an increase in staff costs of in-store staff.

Sale and Marketing Expenses

Our sale and marketing expenses increased by 53.1% from RMB26.8 million for the year ended December 31, 2018 to RMB41.0 million for the year ended December 31, 2019, which was primarily due to an increase of RMB7.1 million in staff costs as we had more sale and marketing staffs in 2019 as we grew.

Research and Development Expenses

Our research and development expenses increased by 83.2% from RMB2.1 million for the year ended December 31, 2018 to RMB3.8 million for the year ended December 31, 2019, which was primarily due to increase in number of our R&D personnel.

Administrative Expenses

Our administrative expenses increased by 115.2% from RMB17.9 million for the year ended December 31, 2018 to RMB38.5 million for the year ended December 31, 2019, which was primarily due to an increase of RMB13.4 million in staff costs as we had more administrative staffs in 2019 to support our rapid growth of our business scale.

Other Expenses

Our other expenses increased by 13.2% from RMB3.5 million for the year ended December 31, 2018 to RMB3.9 million for the year ended December 31, 2019, which was primarily due to losses on disposal of a subsidiary in 2019.

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Finance Costs

Our finance costs increased by 248.6% from RMB7.7 million for the year ended December 31, 2018 to RMB26.8 million for the year ended December 31, 2019, which was primarily due to increase in interest on bank loans and other borrowings as we obtained new bank loans and other borrowings in 2019. See “—Indebtedness” and “Related Party Transactions.”

Share of (Losses)/Profits of Associates

We recorded share of losses of Chengdu Xinyishi of RMB0.2 million in 2018, while we recorded share of profits of Chengdu Xinyishi of RMB36,000 in 2019.

Loss for the Year from Continuing Operations

As a result of the foregoing, our loss for the period from continuing operations increased from RMB91.4 million for the year ended December 31, 2018 to RMB163.8 million for the year ended December 31, 2019.

Loss for the Year

As a result of the foregoing, our loss for the period increased from RMB93.4 million for the year ended December 31, 2018 to RMB166.1 million for the year ended December 31, 2019.

DESCRIPTION OF CERTAIN CONSOLIDATED STATEMENT OF FINANCIAL POSITION ITEMS

The following table sets forth a summary of our consolidated statement of financial position as of the dates indicated.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Non-current assets Property and equipment 24,320 39,825 41,854 Right-of-use assets 83,676 148,376 220,027 Intangible assets 1,843 10,022 7,904 Goodwill 6,310 88,631 86,038 Interest in associates 791 1,127 800 Other non-current assets 14,977 13,117 13,894

Total non-current assets 131,917 301,098 370,517

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As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current assets Inventories 98,193 110,250 195,565 Trade and other receivables 112,716 213,409 208,293 Other financial assets – – 50,000 Restricted deposits 62,538 81,318 158,557 Cash and cash equivalents 41,877 8,739 100,416 Assets held for sale – – 11,133

Total current assets 315,324 413,716 723,964

Total assets 447,241 714,814 1,094,481

Current liabilities Trade and other payables 250,648 362,123 481,699 Contract liabilities 1,629 4,374 4,717 Bank loans and other borrowings 160,509 126,275 30,318 Lease liabilities 19,601 41,821 56,026 Current taxation 18 – 4,101 Liabilities directly associated with the assets classified as held for sale – – 19,477

Total current liabilities 432,405 534,593 596,338

Net current (liabilities)/assets (117,081) (120,877) 127,626

Total assets less current liabilities 14,836 180,221 498,143

Non-current liabilities Bank loans and other borrowings 1,250 152,400 306,328 Lease liabilities 47,191 92,952 145,322 Other financial liabilities – 106,956 –

Total non-current liabilities 48,441 352,308 451,650

Net (liabilities)/assets (33,605) (172,087) 46,493

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Right-of-use Assets

Our right-of-use assets primarily represent the leases of our offline retail pharmacies, warehouses and offices. Our right-of-use assets increased from RMB83.7 million as of December 31, 2018 to RMB148.4 million as of December 31, 2019, and further increased to RMB220.0 million as of December 31, 2020, primarily due to our expansion of offline retail pharmacy network. In 2018, 2019 and 2020, we opened 62, 96 and 95 new retail pharmacies, respectively.

Goodwill

Our goodwill primarily represent goodwill arisen from acquisition of companies or businesses. Our goodwill increased significantly from RMB6.3 million as of December 31, 2018 to RMB88.6 million as of December 31, 2019, primarily as we acquired certain retail pharmacies in 2019. Our goodwill decreased from RMB88.6 million as of December 31, 2019 to RMB86.0 million as of December 31, 2020 as we disposed of an acquired retail pharmacy in 2020. See note 30 to the Accountants’ Report set out in Appendix I for details of our acquisitions during the Track Record Period.

We determine whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires us to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. See “—Significant accounting policies and Critical Judgments and Estimates—Critical Estimates and Judgments—Impairment of Goodwill” and note 15 to the Accountants’ Report set out in Appendix I for details on impairment test of our goodwill.

Interest in Associates

Our interest in associates as of December 31, 2020 represents our 40.0% equity interest in Chengdu Quanqiang, which we invested to carry out internet hospital service. As our strategy changed, we plan to dispose of it in 2021.

Our interest in associates in as of December 31, 2018 and 2019 represents our 29.0% equity interest in Chengdu Xinyishi, which we invested to carry out healthcare marketing strategy service. As our strategy changed, we disposed of it in 2020.

Our interest in associates increased from RMB0.8 million as of December 31, 2018 to RMB1.1 million as of December 31, 2019 as Chengdu Xinyishi generated losses in 2018 and profit in 2019. Our interest in associates decreased from RMB1.1 million as of December 31, 2019 to RMB0.8 million as of December 31, 2020 as we disposed of Chengdu Xinyishi in 2020 and invested in Chengdu Quanqiang in the same year.

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Other Non-current Assets

Our other non-current assets represent (i) rental deposits, representing deposits in relation to our leases, (ii) prepayments for acquisitions of subsidiaries, primarily in relation to prepayments for acquisitions of Guangdong Meijiakang Chain Pharmacy Co., Ltd. (廣東美加康藥業連鎖股份有限公司), and (iii) prepaid payroll and benefits. The following table sets forth the details of our other non-current assets as of the dates indicated.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Rental deposits 3,561 7,717 10,294 Prepayments for acquisitions of subsidiaries 11,416 – – Prepaid payroll and benefits – 5,400 3,600

Total 14,977 13,117 13,894

Our rental deposits increased from RMB3.6 million as of December 31, 2018 to RMB7.7 million as of December 31, 2019, and further increased to RMB10.3 million as of December 31, 2020, primarily due to increase in our leases as a result of our expansion of offline retail pharmacy network, which was generally in line with our overall business growth.

Inventories

Our inventories as of December 31, 2020 represent (i) our merchandises, and (ii) low-value consumables primarily representing packaging materials.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Merchandises 100,323 110,619 200,668 Low-value consumables 1,069 1,481 658

Subtotal 101,392 112,100 201,326

Less: Write-down of inventories (3,199) (1,850) (5,761)

Total 98,193 110,250 195,565

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Our inventories increased from RMB98.2 million as of December 31, 2018 to RMB110.3 million as of December 31, 2019, and further increased to RMB195.6 million as of December 31, 2020, primarily due to increase in procurement of merchandises as we expanded our business operation, which was generally in line with our overall business growth.

We conduct impairment test for inventories at the end of each reporting period. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

The following table sets forth our inventories turnover days for the periods indicated:

For the Year ended December 31, 2018 2019 2020

Inventories turnover days(1) 58.5 55.0 56.5

Note:

(1) Inventories turnover days are based on the average balance of inventories divided by cost of revenue used for the relevant period and multiplied by the number of days in the relevant period. Average balance is calculated as the average of the beginning balance and ending balance of a given period. The number of days for the years ended December 31 is 365 days.

Our inventories turnover days generally remained at a stable level during the Track Record Period, at 58.5 days, 55.0 days and 56.5 days in 2018, 2019 and 2020 which was generally stable.

As of April 30, 2021, RMB148.5 million, or 75.9% of our inventories outstanding as of December 31, 2020 had been sold or utilized.

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Trade and Other Receivables

Our trade and other receivables and other current assets primarily represent (i) trade and bill receivables, primarily representing receivables in relation to wholesale sales of our products, (ii) prepayments, primarily due from our suppliers, (iii) value added tax recoverable, (iv) loans to related parties, see “—Related Party Transactions” for details, (v) contribution receivables from a shareholder, representing investment receivables, and (vi) others, including petty cash provided to employees and deposits. The following table sets forth the details of our trade and other receivables as of the dates indicated.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade and bill receivables 76,696 89,958 114,285 Less: losses allowance (2,066) (2,654) (2,393)

Subtotal 74,630 87,304 111,892

Other receivables Prepayments 15,075 22,236 34,336 VAT recoverable 12,442 21,272 21,863 Loans to related parties 4,000 9,400 23,080 Contribution receivables from a shareholder – 58,500 – Others 6,569 14,697 17,122

Subtotal 38,086 126,105 96,401

Total 112,716 213,409 208,293

Our trade and bill receivables increased from RMB74.6 million as of December 31, 2018 to RMB87.3 million as of December 31, 2019, and further increased to RMB111.9 million as of December 31, 2020, primarily due to increase in revenue generated from supply chain business as we had more popular products to offer.

Our other receivables increased from RMB38.1 million as of December 31, 2018 to RMB126.1 million as of December 31, 2019 primarily due to contribution receivables from a shareholder of RMB58.5 million in relation to Chengdu Huamaoli’s investment in our Company. Our other receivables decreased from RMB126.1 million as of December 31, 2019 to RMB96.4 million as of December 31, 2020, primarily because we collected the contribution receivables from the shareholder.

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The following table sets forth our trade and bill receivables turnover days for the periods indicated:

For the Year ended December 31, 2018 2019 2020

Trade and bill receivables turnover days(1) 44.9 34.4 29.1

Note:

(1) Trade and bill receivables turnover days are based on the average balance of trade and bill receivables divided by total revenues for the relevant period and multiplied by the number of days in the relevant period. Average balance is calculated as the average of the beginning balance and ending balance of a given period. The number of days for the years ended December 31 is 365 days.

Trade and bill receivables turnover days continuously decreased from 44.9 days in 2018 to 29.1 days in 2020, primarily because our offline sales and O2O sales, receivables of which are quickly collected, accounted for a larger proportion of our revenue through the Track Record Period.

The following table sets forth an aging analysis of our trade and bill receivables presented based on the invoice date and net of loss allowance as of the dates indicated.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 6 months (inclusive) 55,362 70,017 97,588 6 months to 1 year (inclusive) 11,013 8,799 11,492 1 to 2 years (inclusive) 7,177 8,172 1,628 2 to 3 years (inclusive) 898 259 489 Over 3 years 180 57 695

Total 74,630 87,304 111,892

As of April 30, 2021, RMB90.9 million, or 81.3% of our trade and bill receivables as of December 31, 2020 had been subsequently settled.

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Other Financial Assets

We had RMB50.0 million of other financial assets as of December 31, 2020, representing wealth management product and structured fixed deposit we purchased from reputable national commercial banks in the PRC which are all high-credit-quality financial institutions without significant credit risk, although the principals and returns of such investment are not guaranteed. The wealth management product is redeemable within three months. The structured fixed deposit is redeemable within 15 days. We purchased such wealth management products using our free cash. Our investment decisions are made case-by-case and after due and careful consideration of a number of factors, including but not limited to our overall financial condition, market and investment conditions, economic developments, investment cost, duration of investment and the expected returns and potential risks of such investment.

The investments in wealth management products purchased from banks in the PRC were measured at fair value through profit or loss. The fair value of other financial assets is determined using the forecast future cashflow discounted by risk-adjusted discount rate. For details, see note 31 to the Accountants’ Report set out in Appendix I.

Restricted Deposits

Our restricted deposits primarily represent (i) guarantee deposits for bills payable, primarily in relation to trade acceptances, and (ii) restricted cash for bank loans, representing pledge of accounts receivable in relation to certain of our bank loans. The following table sets forth the details of our restricted deposits as of the dates indicated.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Guarantee deposits for bills payable 57,802 81,264 158,557 Restricted cash for bank loans 4,736 24 – Others – 30 –

Total 62,538 81,318 158,557

Our restricted deposits constantly increased during the Track Record Period primarily due to increases in guarantee deposits for bills payable primarily because we increased our procurement as our business grew.

Cash and Cash Equivalents

We had cash and cash equivalents of RMB41.9 million, RMB8.7 million and RMB100.4 million as of December 31, 2018, 2019 and 2020. See “—Liquidity and Capital Resources” for analysis of our cash flow during the Track Record Period.

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Assets Held for Sale

We had RMB11.1 million of assets held for sale as of December 31, 2020, representing assets of Pujiang Shentong.

Liabilities Directly Associated with the Assets Classified as Held for Sale

We had RMB19.5 million of liabilities directly associated with the assets classified as held for sale, representing liabilities of Pujiang Shentong.

Trade and Other Payables

Our trade and other payables primarily represent (i) trade and bill payables, representing payables to our suppliers, (ii) VAT and other tax payables, (iii) receipt on behalf of merchants in empowering business, representing receipt of online sales revenue of our empowering service customers, (iv) accrued payroll and benefits, representing wages and benefits payables due to employees, (iv) payables for acquisition of subsidiaries, (v) interest payables, (vii) provision for return allowance, representing return allowance we estimate at the end of each period pursuant to relevant accounting requirements under HKFRS, and (viii) others. The following table sets forth the details of our trade and other payables as of the date indicated.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade and bill payables 225,523 263,080 380,420

Other payables VAT and other tax payables 6,028 22,180 24,526 Receipt on behalf of merchants in empowering business – 1,580 19,587 Accrued payroll and benefits 10,171 21,395 25,578 Payables for acquisition of subsidiaries 1,204 33,268 18,954 Interest payables – 466 612 Provision for return allowance 1,007 1,512 1,366 Others 6,715 18,642 10,656

Subtotal 25,125 99,043 101,279

Total 250,648 362,123 481,699

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Our trade and bill payables increased from RMB225.5 million as of December 31, 2018 to RMB263.1 million as of December 31, 2019, and further increased to RMB380.4 million as of December 31, 2020, primarily due to increase in our payables to our suppliers, in line with our business growth.

Our other payables increased from RMB25.1 million as of December 31, 2018 to RMB99.0 million as of December 31, 2019 primarily due to an increase of RMB32.1 million in payables for acquisition of subsidiaries, primarily in relation to acquisition of Guangdong Meijiakang Chain Pharmacy Co., Ltd. Our other payables increased from RMB99.0 million as of December 31, 2019 to RMB101.3 million as of December 31, 2020, primarily because of an increase of RMB18.0 million in receipt on behalf of merchants in empowering business as we had more empowering service customers in 2020.

The following table sets forth our trade and bill payables turnover days for the periods indicated:

For the Year ended December 31, 2018 2019 2020

Trade and bill payables turnover days(1) 121.5 128.9 119.0

Note:

(1) Trade and bill payables turnover days are based on the average balance of trade and bill payables divided by cost of revenue for the relevant period and multiplied by the number of days in the relevant period. Average balance is calculated as the average of the beginning balance and ending balance of a given period. The number of days for the years ended December 31 is 365 days.

During the Track Record Period, our trade and bill payables turnover days remained stable at 121.5 days, 128.9 days and 119.0 days in 2018, 2019 and 2020. We leverage trade acceptances to optimize our liquidity.

The following table sets forth an aging analysis of our trade and bill payables presented based on the invoice date and net of loss allowance as of the dates indicated.

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 224,149 258,479 361,268 1 to 2 years 991 3,913 19,152 2 to 3 years 357 679 – More than 3 years 26 9 –

Total 225,523 263,080 380,420

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As of April 30, 2021, RMB312.7 million, or 82.2% of our trade and bill payables as of December 31, 2020 had been subsequently settled.

Contract Liabilities

Contract liabilities represent prepayments we received from supply chain business customers. We recorded contract liabilities of RMB1.6 million, RMB4.4 million and RMB4.7 million as of December 31, 2018, 2019 and 2020, respectively. Such movement reflects the time lag between the receipt of customer prepayments and revenue recognition.

Lease Liabilities

Our lease liabilities represent leases in relation to our offline retail pharmacies, warehouses and offices. Our lease liabilities, including both current portion and non-current portion increased from RMB66.8 million as of December 31, 2018 to RMB134.8 million as of December 31, 2019, and further increased to RMB201.3 million as of December 31, 2020, primarily due to expansion of our offline retail pharmacy network.

Other Financial Liabilities

Our other financial liabilities primarily represent financial instruments we issued to our Series B investors, which grant the Series B investors redemption rights to sell back the underlying Shares to us upon certain conditions and the right to receive an annual rate of return of 10% of the consideration paid by them, among others. As a result, these Shares were recognized as financial liabilities, measured at the transaction price at initial recognition, and subsequently at amortized cost at an effective interest rate of 10%. Finance costs were accordingly recorded during the relevant period. During our Series C investment, the above mentioned special rights of the Series B investors were canceled. Accordingly, the financial liabilities were reclassified to equity. See note 27 of the Accountants’ Report set out in the Appendix I for details.

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LIQUIDITY AND CAPITAL RESOURCES

Net Current Assets

As of As of December 31, April 30, 2018 2019 2020 2021 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Current assets Inventories 98,193 110,250 195,565 248,267 Trade and other receivables 112,716 213,409 208,293 221,637 Other financial assets – – 50,000 20,000 Restricted deposits 62,538 81,318 158,557 88,487 Cash and cash equivalents 41,877 8,739 100,416 33,691 Assets held for sale – – 11,133 –

Total current assets 315,324 413,716 723,964 612,082

Current liabilities Trade and other payables 250,648 362,123 481,699 517,583 Contract liabilities 1,629 4,374 4,717 6,431 Bank loans and other borrowings 160,509 126,275 30,318 25,049 Lease liabilities 19,601 41,821 56,026 66,578 Current taxation 18 – 4,101 4,101 Liabilities directly associated with the assets classified as held for sale – – 19,477 –

Total current liabilities 432,405 534,593 596,338 619,742

Net current (liabilities)/assets (117,081) (120,877) 127,626 (7,660)

We had net current assets of RMB127.6 million as of December 31, 2020. We had net current liabilities of RMB7.7 million as of April 30, 2021, primarily as a result of our continuous opening of new pharmacies in 2021.

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We recorded net current liabilities of RMB120.9 million as of December 31, 2019, while we recorded net current assets of RMB127.6 million as of December 31, 2020, primarily due to increase in our restricted deposits and cash and cash equivalents, as well as decrease in bank loans and other borrowings, as we conducted Series C equity financing in 2020, thus had more cash and repaid certain of our loans and borrowings.

We recorded net current liabilities of RMB117.1 million as of December 31, 2018, and we recorded net current liabilities of RMB120.9 million as of December 31, 2019, primarily because we were short of cash as we were expanding our offline retail pharmacy network and thus obtained certain bank loans and other borrowings.

Cash Flows

The following table sets forth a summary of our consolidated cash flow statements for the periods indicated:

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loss before income tax (93,331) (166,069) (151,110) Adjustments for non-cash items 24,136 84,103 115,149

Operating cash flows before movements in working capital (69,195) (81,966) (35,961) Total movements in working capital 75,764 702 (98,553)

Cash generated from/(used in) operations 6,569 (81,264) (134,514) Income taxes (paid)/received (102) (38) 99

Net (decrease)/increase in cash and cash equivalents 34,541 (33,138) 92,310 Cash and cash equivalents at the beginning of year 7,336 41,877 8,739

Cash and cash equivalents at the end of year 41,877 8,739 101,049

Cash and cash equivalents of a disposal group classified as held for sale – – 633

Cash and cash equivalents as stated in the statement of cash flows 41,877 8,739 101,049

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Operating Activities

In 2020, our net cash used in operating activities was RMB134.5 million, primarily attributable to loss before tax from operations of RMB151.1 million, as adjusted by non-cash items, which primarily include depreciation of right-of-use assets of RMB56.2 million in relation to our leases. The amount was further adjusted by changes in working capital, which primarily include an increase of RMB121.7 million in trade and other payables as we increased our procurement in line with our business growth, partially offset by (i) an increase of RMB85.8 million in inventories as we increased our procurement of products as our business grew, and (ii) an increase of RMB77.3 million in restricted deposits as we had more guarantee deposits for bills payable.

In 2019, our net cash used in operating activities was RMB81.3 million, primarily attributable to loss before tax from operations of RMB166.1 million, as adjusted by non-cash items, which primarily include depreciation of right-of-use assets of RMB45.5 million in relation to our leases. The amount was further adjusted by changes in working capital, which primarily include (i) an increase of RMB70.0 million in trade and other payables as we increased our procurement in line with our business growth, partially offset by (i) an increase of RMB2.5 million in inventories as as we increased our procurement of products as our business grew, and (ii) an increase of RMB46.1 million in trade and other receivables, in line with the increase in our revenue from supply chain business.

In 2018, our net cash generated from operating activities was RMB6.6 million, primarily attributable to loss before tax from operations of RMB93.3 million, as adjusted by non-cash items, which primarily include depreciation of right-of-use assets of RMB10.8 million in relation to our leases. The amount was further adjusted by changes in working capital, which primarily include (i) an increase of RMB121.1 million in trade and other payables as we increased our procurement in line with our business growth, partially offset by (i) an increase of RMB34.6 million in inventories as we increased our procurement of products as our business grew, and (ii) an increase of RMB6.2 million in trade and other receivables, in line with the increase in our revenue from supply chain business.

Investing Activities

In 2020, our net cash used in investing activities was RMB94.5 million, primarily attributable to (i) payment for purchase of other financial assets of RMB310.0 million, representing our purchase of wealth management products (ii) payment for the purchase of property and equipment, intangible assets and other non-current assets of RMB17.1 million, partially offset by cash receipts from redemption of other financial assets of RMB260.0 million, representing redemption of wealth management products we purchased.

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In 2019, our net cash used in investing activities was RMB58.9 million, primarily attributable to (i) net payment for acquisitions of subsidiaries of RMB31.8 million, and (ii) payment for the purchase of property and equipment, intangible assets and other non-current assets of RMB22.1 million.

In 2018, our net cash used in investing activities was RMB33.2 million, primarily attributable to (i) net payment for acquisitions of subsidiaries of RMB16.8 million, and (ii) payment for the purchase of property and equipment, intangible assets and other non-current assets of RMB11.4 million.

Financing Activities

In 2020, our net cash generated from financing activities was RMB321.3 million, primarily attributable to (i) proceeds from issuance of ordinary shares of RMB392.6 million, and (ii) proceeds from new bank loans of RMB181.3 million, partially offset by repayments of bank loans of RMB86.0 million.

In 2019, our net cash generated from financing activities was RMB107.1 million, primarily attributable to (i) proceeds from new bank loans of RMB243.4 million, and (ii) proceeds from borrowings from related parties of RMB99.8 million, partially offset by (i) repayments of bank loans of RMB158.1 million, and (ii) repayments of borrowings from related parties of RMB81.3 million.

In 2018, our net cash generated from financing activities was RMB61.3 million, primarily attributable to (i) proceeds from new bank loans of RMB172.9 million, partially offset by (i) repayments of bank loans of RMB83.3 million.

WORKING CAPITAL SUFFICIENCY CONFIRMATION

Taking into account the financial resources available to us including our cash and cash equivalents on hand, the estimated net [REDACTED] from the [REDACTED], bank loans and banking facilities, our Directors are of the view that we have sufficient working capital to meet our present requirements and for the next 12 months from the date of this document.

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INDEBTEDNESS

The following table sets forth the components of our indebtedness as of the date indicated.

As of As of December 31, April 30, 2018 2019 2020 2021 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Bank loans – Secured 144,930 229,170 320,410 289,090 – Unsecured – 1,000 – –

Loans from related parties 11,446 29,927 3,402 1,530

Other borrowings – Secured borrowing – 4,583 9,387 7,046 – Unsecured borrowings 5,383 13,995 3,447 4,557

Lease liabilities 66,792 134,773 201,348 253,069

Total 228,551 413,448 537,994 555,292

Including: Current 180,110 168,096 86,344 91,627 Non-current 48,441 245,352 451,650 463,665

Secured Bank Loans

As of December 31, 2018, 2019 and 2020, we had secured bank loans of RMB144.9 million, RMB229.2 million and RMB320.4 million, respectively, with interest rate ranging from 5.7%-6.5% per annum, 5.7%-6.5% per annum and 4.6%-6.5%, respectively. These loans were secured by the Company and certain of our Directors’ Shares and Chengdu Chuangtuo’s Shares, 49% shares of three Subsidiaries, certain amounts of our inventories, trade receivables and restricted deposits. They were also guaranteed by certain of our Directors jointly. All pledged shares will be released before [REDACTED].

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Secured Borrowings

As of December 31, 2019 and 2020, we had secured other borrowings of RMB4.6 million, and RMB9.4 million, respectively, representing borrowings from certain third party financial institutions, with interest at 4.5% per annum and 4.3% to 4.5% per annum, respectively, secured by certain amounts of our trade receivables and equipment.

Unsecured Borrowings

As of December 31, 2018, 2019 and 2020, the unsecured borrowings included interest-free borrowings from third party individuals of RMB1.3 million, RMB9.8 million and RMB1.2 million, respectively, as well as borrowings from a third party trust of RMB4.1 million, RMB4.2 million and RMB2.2 million, respectively, with interest rate of ranging from 5.2%-12.1% per annum.

Lease Liabilities

Our total lease liabilities increasingly amounted to RMB66.8 million, RMB134.8 million and RMB201.3 million as of December 31, 2018, 2019, and 2020 as we leased more premised for our offline retail pharmacies.

As of April 30, 2021, being the latest practicable date for determining our indebtedness, we had a new secured bank loan of RMB8.0 million with an interest rate of 3.9% per annum which we obtained in February 2021, and a new secured bank loan of RMB8.0 million with an interest rate of 3.9% per annum which we obtained in April 2021. As of the same date, we had approximately RMB4.0 million unused banking facilities. Save as disclosed in the document, as of the same date, we did not have any other loan capital issued and outstanding or agreed to be issued, bank overdrafts, borrowings and other similar indebtedness, liabilities under acceptance or acceptance credits, debentures, mortgages, charges, hire purchase commitments, guarantees or other material contingent liabilities.

Our Directors confirm that we have not defaulted in the repayment of the bank loans and other borrowings during the Track Record Period. Our Directors have confirmed that, as of the Latest Practicable Date, there was no material covenant on any of our outstanding debt and there was no breach of any covenants during the Track Record Period and up to the Latest Practicable Date.

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CAPITAL EXPENDITURE

Our capital expenditure during the Track Record Period primarily related to buildings, equipment and furniture, vehicles, leasehold improvement, as well as construction in progress. We funded our capital expenditure requirements during the Track Record Period mainly from equity financings, bank loans and other borrowings. The following table sets forth the details of our capital expenditure for the period indicated.

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Building 254 172 – Equipment and furniture 5,221 12,960 8,580 Vehicles 202 284 137 Leasehold improvement 2,303 8,163 7,715 Construction in progress 4,305 398 142

Total 12,285 21,977 16,574

We plan to finance such expenditure primarily with [REDACTED] from our existing cash, net [REDACTED] from the [REDACTED], and bank borrowings if necessary. See the section “Future Plans and Use of [REDACTED]” in this document for more details. We may reallocate the fund to be utilized on capital expenditures based on our ongoing business needs.

CONTRACTUAL COMMITMENTS

Capital Expenditure Commitments

Our contracted capital expenditure as of December 31, 2018, 2019 and 2020 but not yet incurred are as follows:

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Total 4,829 – –

Our contracted capital expenditure as of December 31, 2018 was primarily in relation to our open of new retail pharmacies.

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Other Commitments

Our other commitments as of December 31, 2018, 2019 and 2020 but not yet incurred are as follows:

As of December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Total 55,501 – –

Our other commitments as of December 31, 2018 represented commitment in relation to acquisition of a subsidiary.

CONTINGENT LIABILITIES

As of December 31, 2019 and 2020, we did not have any contingent liabilities. We confirm that there had been no material changes or arrangements to our contingent liabilities as of the Latest Practicable Date.

RELATED PARTY TRANSACTIONS

During the Track Record Period, we entered into the following material related party transactions.

Purchase of Goods

During the Track Record Period, we purchased pharmaceutical products from Chengdu Shenhe, Chengdu Jingcao, Chia Tai Tianqing Pharmaceutical Group Co., Ltd. (正大天晴藥業集團股份有限公司) and Chengdu Mengmao. The transaction amounts incurred during the Track Record Period are as follows:

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Purchases of goods from: Chengdu Shenhe 17,858 24,195 24,388 Chengdu Jingcao 937 1,947 2,183 Chia Tai Tianqing Pharmaceutical Group Co., Ltd. – – 8,202 Chengdu Mengmao – – 31

Total 18,795 26,142 34,804

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The relevant payable amounts as of the end of each period of the Track Record Period are as follows:

As of December 31 2018 2019 2020 RMB’000 RMB’000 RMB’000

Amounts due to Chengdu Shenhe 11 10 11 Chengdu Jingcao 632 659 168 Chia Tai Tianqing Pharmaceutical Group Co., Ltd. – – 7,308

Total 643 669 7,487

Provision of Loans

During the Track Record Period, we provided several loans to Chengdu Shenhe and Chengdu Chuangtuo. The transaction amounts incurred during the Track Record Period are as follows:

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

(Loans to)/repayment of loans from Chengdu Shenhe (4,000) (5,400) 4,000 Chengdu Chuangtuo – – (17,680)

Total (4,000) (5,400) (13,680)

The relevant balance as of the end of each period of the Track Record Period are as follows:

As of December 31 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans to related parties Chengdu Shenhe 4,000 9,400 5,400 Chengdu Chuangtuo – – 17,680

Total 4,000 9,400 23,080

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Receipt of Loans

During the Track Record Period, we received several loans from Chengdu Huamaoli, Chengdu Chuangtuo and our Directors. The transaction amounts incurred during the Track Record Period are as follows:

For the year ended December 31, 2018 2019 2020 RMB’000 RMB’000 RMB’000

Receipt/(repayment) of loans from: Chengdu Huamaoli 490 11,040 (10,000) Chengdu Chuangtuo 3,400 (3,060) (340) Directors 7,556 10,501 (16,185)

Total 11,446 18,481 (26,525)

The relevant balance as of the end of each period of the Track Record Period are as follows:

As of December 31 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans from related parties Chengdu Huamaoli 490 11,530 1,530 Chengdu Chuangtuo 3,400 340 – Directors 7,556 18,057 1,872

Total 11,446 29,927 3,402

It is the view of our Directors that the related party transactions discussed above and set out in note 33 of the Accountants’ Report set out in Appendix I to this document were conducted in the ordinary and usual course of business and on normal commercial terms between the relevant parties.

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KEY FINANCIAL RATIOS

The following table sets forth our key financial ratios as of the dates or for the periods indicated:

As of December 31, 2018 2019 2020

Gross profit margin(1) 13.4 19.4 20.8 Current ratio(2) 0.7 0.8 1.2 Quick ratio(3) 0.5 0.6 0.9

Notes:

(1) Gross profit margin represents gross profit divided by revenue for the same period and multiplied by 100%.

(2) Current ratio represents current assets divided by current liabilities as of the same date.

(3) Quick ratio represents current assets less inventories and divided by current liabilities as of the same date.

Gross Profit Margin

For analysis of our gross profit margin, see “—Results of Operations.”

Current Ratio

Our current ratio increased from 0.7 as of December 31, 2018 to 0.8 as of December 31, 2019, and further to 1.2 as of December 31, 2020, primarily due to increases in cash and cash equivalents and restricted deposits, as well as decreases in the current proportion of bank loans and other borrowings, during the Track Record Period.

Quick Ratio

Our quick ratio increased from 0.5 as of December 31, 2018 to 0.6 as of December 31, 2019, and further to 0.9 as of December 31, 2020. The increases were primarily due to increases in cash and cash equivalents and restricted deposits, as well as decreases in the current proportion of bank loans and other borrowings, during the Track Record Period.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As at the Latest Practicable Date, except as disclosed in this document, we had no material off-balance sheet arrangements.

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MARKET AND OTHER FINANCIAL RISKS

We are exposed to a variety of market risks and other financial risks, including credit risk, liquidity risk and interest rate risk as set out below. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. For further details, including relevant sensitivity analysis, see note 31 in the Accountants’ Report set out in Appendix I of this document.

Credit Risk

Our credit risk is primarily attributable to trade and other receivables. We monitor our exposure to credit risks on an ongoing basis. We conduct credit evaluations of a customer based on its credit history, ability to pay and operating environment. Our trade receivables are generally due within 30 to 180 days from the billing date.

Our cash and cash equivalents and restricted deposit are deposited or traded in high quality third-party institutions without significant credit risk. For further details, see note 31 to the Accountants’ Report set out in Appendix I to this document.

Liquidity Risk

We regularly monitor our liquidity, our expected cash inflows and outflows, and the maturity of our loans and borrowings to ensure that we maintain sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet our short- and long-term liquidity requirements. For further details, see note 31 to the Accountants’ Report set out in Appendix I to this document.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our interest rate risk arises primarily from short-term borrowings. Borrowings issued at variable rates and fixed rates expose us to cash flow interest rate risk and fair value interest rate risk respectively. For further details, see note 31 to the Accountants’ Report set out in Appendix I to this document.

DISTRIBUTABLE RESERVES

As of December 31, 2020, we did not have any reserves available for distribution to our Shareholders.

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DIVIDENDS

[REDACTED] EXPENSES

[REDACTED] expenses to be borne by us are estimated to be approximately HK$[REDACTED] million (RMB[REDACTED] million) (including [REDACTED], assuming an [REDACTED] of HK$[REDACTED] per H Share, which is the [REDACTED] of the [REDACTED] stated in this document and assuming that the [REDACTED]isnot exercised), of which approximately HK$[REDACTED] million (RMB[REDACTED] million) is expected to be charged to our consolidated statements of profit or loss and other comprehensive income, and approximately HK$[REDACTED] million (RMB[REDACTED] million) is expected to be accounted for as a deduction from equity upon the [REDACTED]. During the Track Record Period, we did not incur any [REDACTED] expenses. The [REDACTED] expenses above are the latest practicable estimate for reference only, and the actual amount may differ from this estimate. Our [REDACTED] expenses as a percentage of gross [REDACTED]is[REDACTED], assuming an [REDACTED] of HK$[REDACTED] per H Share, which is the [REDACTED]ofthe[REDACTED] stated in this document and assuming that the [REDACTED] is not exercised. Our Directors do not expect such [REDACTED] expenses to have a material adverse impact on our results of operations for the year ended December 31, 2021.

UNAUDITED [REDACTED] STATEMENT OF ADJUSTED NET TANGIBLE ASSETS

The following statement of unaudited [REDACTED] adjusted net tangible assets of our Group is prepared in accordance with paragraph 4.29 of the Listing Rules and is set out below for the purpose to illustrate the effect of the [REDACTED] on the consolidated net tangible liabilities attributable to equity shareholders of the Company as of December 31, 2020 as if it had taken place on December 31, 2020.

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The statement of unaudited [REDACTED] adjusted net tangible assets has been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group had the [REDACTED] been completed as at December 31, 2020 or at any future date.

[REDACTED]

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NO MATERIAL ADVERSE CHANGE

Our Directors confirm that, save as disclosed above, as far as they are aware, there had been no material adverse change in our financial, trading position or prospects since December 31, 2020, being the end date of our consolidated financial statements as set out in “Appendix I—Accountants’ Report” of this document, up to the Latest Practicable Date.

DISCLOSURE REQUIRED UNDER THE LISTING RULES

Our Directors have confirmed that, as of the Latest Practicable Date, they were not aware of any circumstance that would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

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FUTURE PLANS AND PROSPECTS

See “Business—Business Strategies” for a detailed description of our future plans.

USE OF [REDACTED]

We estimate that we will receive [REDACTED] from the [REDACTED]of approximately HK$[REDACTED] million, after deducting [REDACTED], fees and estimated expenses payable by us in connection with the [REDACTED], and assuming an [REDACTED] of HK$[REDACTED] per Share, which is the [REDACTED]ofthe [REDACTED] stated in this document. If the [REDACTED] is set at HK$[REDACTED], which is the [REDACTED]ofthe[REDACTED], the net [REDACTED] from the [REDACTED] will increase by approximately HK$[REDACTED] million. If the [REDACTED] is set at HK$[REDACTED] per Share, which is the [REDACTED]ofthe [REDACTED] range, the net [REDACTED] from the [REDACTED] will decrease by approximately HK$[REDACTED] million.

Assuming an [REDACTED]atthe[REDACTED]ofthe[REDACTED], we currently intend to apply these net [REDACTED] for the following purposes:

• approximately [REDACTED]%, or HK$[REDACTED] million, will be allocated to expand our business presence, as follows:

➢ to develop our new pharmacy business. We plan to open new retail pharmacies in selected first and second-tier cities in China, particularly in top 50 cities with large population;

➢ to fund our empowering business. We plan to pursue opportunities to establish our market presence in third and fourth-tier cities by providing our empowering services to local pharmacies, in particular, chain pharmacies with established customer base;

• approximately [REDACTED]%, or HK$[REDACTED] million, will be allocated to enhance our technology development capabilities, as follows:

➢ will be used to fund the upgrade of underlying technologies and infrastructure of our system thereby improving the function and performance of our SaaS product. We plan to invest in developing self-service functions of our system, to realize online inventory management, responsive mobile-enabled order execution and remote financial reporting;

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➢ will be used to improve our technology development capabilities, including AI technology application, big data analysis and software. We intend to recruit target technology teams with strong data analysis capabilities, proven track record in developing pharmacy management related software and stable research personnel;

• approximately [REDACTED]%, or HK$[REDACTED] million, will be allocated to potential investment and acquisition opportunities. We plan to explore potential acquisition and investment opportunities, in particular, in existing industry customers to which we have been providing empowering services. In selecting acquisition and investment opportunities, we will take into account a number of considerations, including our strategic goals, population of target cities and location of offline pharmacies. For details, see “Business—Business Strategies—Selective strategic cooperation, investment and acquisition.” We currently do not have any specific targets or targets under negotiation; and

• approximately [REDACTED]%, or HK$[REDACTED] million, will be used for our working capital and general corporate purposes.

The above allocation of the net [REDACTED] from the [REDACTED] will be adjusted on a pro rata basis in the event that the [REDACTED] is fixed at a higher or lower level compared to the [REDACTED]ofthe[REDACTED] stated in this document. If the [REDACTED] is exercised in full, the net [REDACTED] that we will receive will be approximately HK$[REDACTED] million, assuming an [REDACTED]of HK$[REDACTED] per Share (being the [REDACTED]ofthe[REDACTED]). In the event that the [REDACTED] is exercised in full, we intent to apply the additional net [REDACTED] to the above purposes in the proportions stated above.

To the extent that the net [REDACTED] are not immediately applied to the above purposes and to the extent permitted by the relevant law and regulations, so long as it is deemed to be in the best interests of the Company, we may hold such funds in short-term deposits with licensed banks or authorized financial institutions in Hong Kong. We will make an appropriate announcement if there is any change to the above proposed use of [REDACTED].

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[REDACTED]

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The following is the text of a report set out on pages I-1 to I-86, received from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this document.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHENGDU QUANYUANTANG PHARMACY CHAIN JOINT STOCK CO., LTD. AND CITIGROUP GLOBAL MARKETS ASIA LIMITED AND HAITONG INTERNATIONAL CAPITAL LIMITED

Introduction

We report on the historical financial information of Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. (the “Company”) and its subsidiaries (together, the “Group”) set out on pages I-4 to I-86, which comprises the consolidated statements of financial position of the Group and the statements of financial position of the Company as at 31 December 2018, 2019 and 2020 and the consolidated statements of profit or loss, the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity/(deficit) and the consolidated statements of cash flows, for each of the years ended 31 December 2018, 2019 and 2020 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages I-4 to I-86 forms an integral part of this report, which has been prepared for inclusion in the document of the Company dated [●] (the “Document”) in connection with the [REDACTED] of the Company on the Main Board of The Stock Exchange of Hong Kong Limited.

Directors’ responsibility for Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information, and for such internal control as the directors of the Company determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error.

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 “Accountants’ Reports on Historical Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

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Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion, the Historical Financial Information gives, for the purpose of the accountants’ report, a true and fair view of the Company’s and the Group’s financial position as at 31 December 2018, 2019 and 2020 and of the Group’s financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page I-4 have been made.

Dividends

We refer to note 29(e) to the Historical Financial Information which states that no dividends have been paid by the Company in respect of the Relevant Periods.

Certified Public Accountants

8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong [Date]

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HISTORICAL FINANCIAL INFORMATION

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

The consolidated financial statements of the Group for the Relevant Periods, on which the Historical Financial Information is based, were audited by KPMG Huazhen LLP Chengdu Branch in accordance with Hong Kong Standards on Auditing issued by the HKICPA (“Underlying Financial Statements”).

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CONSOLIDATED STATEMENTS OF PROFIT OR LOSS (Expressed in Renminbi (“RMB”))

Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

CONTINUING OPERATIONS Revenue 4 576,491 858,185 1,249,242 Cost of revenue (499,111) (691,754) (989,863)

Gross profit 77,380 166,431 259,379 Other income 5(a) 3,798 11,766 12,717 Fulfillment expenses (114,422) (228,060) (291,708) Sale and marketing expenses (26,763) (40,977) (41,328) Research and development expenses (2,073) (3,797) (7,027) Administrative expenses (17,886) (38,489) (34,855) Other expenses 5(b) (3,471) (3,930) (3,384)

Loss from operations (83,437) (137,056) (106,206) Finance costs 6(a) (7,676) (26,756) (43,217) Share of (losses)/profits of associates (209) 36 –

Loss before taxation 6 (91,322) (163,776) (149,423) Income tax 7(a) (100) (20) (4,002)

Loss for the year from continuing operations (91,422) (163,796) (153,425)

DISCONTINUED OPERATION Loss for the year from a discontinued operation, net of tax 10 (2,009) (2,293) (1,687)

Loss for the year (93,431) (166,089) (155,112)

Attributable to: Equity shareholders of the Company (92,027) (162,990) (152,484) Non-controlling interests (1,404) (3,099) (2,628)

Loss for the year (93,431) (166,089) (155,112)

Loss per share attributable to the shareholders of the Company Basic and diluted (in RMB) 11 (0.92) (1.38) (1.24)

Loss from continuing operations attributable to the shareholders of the Company Basic and diluted (in RMB) 11 (0.90) (1.36) (1.23)

The accompanying notes form part of the Historical Financial Information.

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CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (Expressed in RMB)

2018 2019 2020 RMB’000 RMB’000 RMB’000

Loss for the year (93,431) (166,089) (155,112) Other comprehensive income for the year (after tax) –––

Total comprehensive income for the year (93,431) (166,089) (155,112)

Attributable to: Equity shareholders of the Company (92,027) (162,990) (152,484) Non-controlling interests (1,404) (3,099) (2,628)

Total comprehensive income for the year (93,431) (166,089) (155,112)

The accompanying notes form part of the Historical Financial Information.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Expressed in RMB)

Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Non-current assets Property and equipment 12 24,320 39,825 41,854 Right-of-use assets 13 83,676 148,376 220,027 Intangible assets 14 1,843 10,022 7,904 Goodwill 15 6,310 88,631 86,038 Interest in associates 791 1,127 800 Other non-current assets 17 14,977 13,117 13,894

131,917 301,098 370,517 ------

Current assets Inventories 18 98,193 110,250 195,565 Trade and other receivables 19 112,716 213,409 208,293 Other financial assets 20 – – 50,000 Restricted deposits 21 62,538 81,318 158,557 Cash and cash equivalents 22 41,877 8,739 100,416 Assets held for sale 10 – – 11,133

315,324 413,716 723,964 ------

Current liabilities Trade and other payables 23 250,648 362,123 481,699 Contract liabilities 24 1,629 4,374 4,717 Bank loans and other borrowings 25 160,509 126,275 30,318 Lease liabilities 26 19,601 41,821 56,026 Current taxation 28(a) 18 – 4,101 Liabilities directly associated with the assets classified as held for sale 10 – – 19,477

432,405 534,593 596,338 ------

The accompanying notes form part of the Historical Financial Information.

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Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net current (liabilities)/assets (117,081) (120,877) 127,626

Total assets less current liabilities 14,836 180,221 498,143 ------

Non-current liabilities Bank loans and other borrowings 25 1,250 152,400 306,328 Lease liabilities 26 47,191 92,952 145,322 Other financial liabilities 27 – 106,956 –

48,441 352,308 451,650 ------

NET (LIABILITIES)/ASSETS (33,605) (172,087) 46,493

CAPITAL AND RESERVES Share capital 29(b) 101,677 118,927 155,763 Treasury shares 29(c) – – (38,914) Reserves 29(d) (137,550) (295,502) (71,979)

Total (deficit)/equity attributable to equity shareholders of the Company (35,873) (176,575) 44,870 Non-controlling interests 2,268 4,488 1,623

TOTAL (DEFICIT)/EQUITY (33,605) (172,087) 46,493

The accompanying notes form part of the Historical Financial Information.

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STATEMENTS OF FINANCIAL POSITION (Expressed in RMB)

Note 2018 2019 2020 RMB’000 RMB’000 RMB’000 Non-current assets Property and equipment 12 20,205 24,312 26,218 Right-of-use assets 13 50,627 70,577 117,355 Intangible assets 14 1,199 970 1,126 Investments in subsidiaries 16 63,118 65,939 64,409 Interest in associates 791 1,127 800 Other non-current assets 17 2,220 8,735 8,345

138,160 171,660 218,253

Current assets Inventories 18 61,822 44,753 70,126 Trade and other receivables 19 90,416 355,306 471,240 Other financial assets 20 – – 40,000 Restricted deposits 21 58,172 81,264 158,557 Cash and cash equivalents 22 39,713 2,156 79,074 Assets held for sale 16 – – 960

250,123 483,479 819,957

Current liabilities Trade and other payables 23 180,997 273,800 374,385 Contract liabilities 24 1,400 11,532 4,261 Bank loans and other borrowings 25 147,433 98,203 17,181 Lease liabilities 26 10,160 16,820 28,361

339,990 400,355 424,188

Net current (liabilities)/assets (89,867) 83,124 395,769

Total assets less current liabilities 48,293 254,784 614,022

Non-current liabilities Bank loans and other borrowings 25 1,250 152,400 306,328 Lease liabilities 26 31,042 46,670 78,004 Other financial liabilities 27 – 106,956 –

32,292 306,026 384,332

NET ASSETS/(LIABILITIES) 16,001 (51,242) 229,690

CAPITAL AND RESERVES Share capital 29(b) 101,677 118,927 155,763 Treasury shares 29(c) – – (38,914) Reserves 29(d) (85,676) (170,169) 112,841

TOTAL EQUITY/(DEFICIT) 16,001 (51,242) 229,690

The accompanying notes form part of the Historical Financial Information.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY/(DEFICIT) (Expressed in RMB)

Attributable to equity shareholders of the Company PRC Non- Share Capital statutory Accumulated controlling Total equity/ Note capital reserves reserves losses Total interests (deficit) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2018 101,677 89,349 2,650 (137,522) 56,154 2,132 58,286 Changes in equity for 2018: Loss for the year – – – (92,027) (92,027) (1,404) (93,431) Other comprehensive income –––––––

Total comprehensive income – – – (92,027) (92,027) (1,404) (93,431) ------Capital contribution from non-controlling interests –––––1,187 1,187 Acquisition of subsidiaries 30(b) –––––353353 ------Balance at 31 December 2018 and 1 January 2019 101,677 89,349 2,650 (229,549) (35,873) 2,268 (33,605) Changes in equity for 2019: Loss for the year – – – (162,990) (162,990) (3,099) (166,089) Other comprehensive income –––––––

Total comprehensive income – – – (162,990) (162,990) (3,099) (166,089) ------Issue of ordinary shares 29(b) 17,250 86,250 – – 103,500 – 103,500 Recognition of financial instruments issued to investors as non-current liabilities 27 – (103,500) – – (103,500) – (103,500) Capital contribution from non-controlling interests –––––3,512 3,512 Ordinary shares to be issued as consideration for business combination 30 – 22,377 – – 22,377 – 22,377 Acquisition of non-controlling interests – (89) – – (89) (250) (339) Acquisition of subsidiaries –––––2,057 2,057 ------Balance at 31 December 2019 118,927 94,387 2,650 (392,539) (176,575) 4,488 (172,087)

The accompanying notes form part of the Historical Financial Information.

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Attributable to equity shareholders of the Company PRC Non- Share Capital Treasury statutory Accumulated controlling Total Note capital reserves shares reserves losses Total interests deficit RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2020 118,927 94,387 – 2,650 (392,539) (176,575) 4,488 (172,087)

Changes in equity for 2020: Loss for the year ––––(152,484) (152,484) (2,628) (155,112) Other comprehensive income –––– ––––

Total comprehensive income ––––(152,484) (152,484) (2,628) (155,112) ------Issue of ordinary shares 29(b) 36,836 262,645 – – – 299,481 – 299,481 Reclassification of financial instruments issued to investors as equity 27 – 112,829 – – – 112,829 – 112,829 Purchase of own shares 29(c) – – (38,914) – – (38,914) – (38,914) Acquisition of non-controlling interests – 227 – – – 227 (398) (171) Disposal of subsidiary interest to non-controlling interests without a loss of control – 306 – – – 306 161 467 ------Balance at 31 December 2020 155,763 470,394 (38,914) 2,650 (545,023) 44,870 1,623 46,493

The accompanying notes form part of the Historical Financial Information.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in RMB)

Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Operating activities Cash generated from/(used in) operations 22(b) 6,569 (81,264) (134,514) The PRC Corporate Income Tax (paid)/refund 28(a) (102) (38) 99

Net cash generated from/(used in) operating activities 6,467 (81,302) (134,415)

Investing activities Payment for the purchase of property and equipment, intangible assets and other non-current assets (11,419) (22,094) (17,051) Cash receipts from disposal of property and equipment – – 3 Cash receipts from redemption of other financial assets – – 260,005 Payment for purchase of other financial assets – – (310,001) Loans to related parties 33(c) (4,000) (5,400) (17,680) Repayment of loans to related parties 33(c) – – 4,000 Payment for investment in associates (1,000) (300) (800) Proceeds from disposal of an associate – – 1,300 Net payment for acquisitions of subsidiaries 22(e) (16,808) (31,814) (14,314) Proceeds from disposal of subsidiaries – 700 –

Net cash used in investing activities (33,227) (58,908) (94,538)

The accompanying notes form part of the Historical Financial Information.

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Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Financing activities Proceeds from capital contribution from non-controlling interests 1,187 3,512 – Proceeds from issuance of ordinary shares – 45,000 392,600 Payment for transaction costs in relation to issuance of ordinary shares – – (4,500) Payment for repurchase of own shares – – (38,914) Capital element of lease rentals paid (23,451) (39,867) (62,914) Interest element of lease rentals paid (2,216) (8,250) (10,937) Proceeds from new bank loans 172,905 243,350 181,260 Proceeds from borrowings from related parties 33(c) 11,446 99,750 67,485 Proceeds from borrowings from third parties 18,319 13,612 58,816 Repayments of bank loans (83,259) (158,110) (86,020) Repayments of borrowings from related parties 33(c) – (81,269) (94,010) Repayments of borrowings from third parties (17,070) (417) (55,608) Interest paid (5,487) (14,612) (26,315) Payment for restricted deposits for bank loans (11,073) – – Withdrawal of restricted deposits for bank loans – 4,712 24 Proceeds from partial disposal of interest to non-controlling interests without a loss of control – – 467 Payment for acquisition of non-controlling interests – (339) (171)

Net cash generated from financing activities 61,301 107,072 321,263

Net increase/(decrease) in cash and cash equivalents 34,541 (33,138) 92,310 Cash and cash equivalents at 1 January 7,336 41,877 8,739

Cash and cash equivalents at 31 December 41,877 8,739 101,049 Cash and cash equivalents as stated in the consolidated statement of financial position 41,877 8,739 100,416 Cash and cash equivalents of a disposal group classified as held for sale – – 633

Cash and cash equivalents as stated in the consolidated statement of cash flows 41,877 8,739 101,049

The accompanying notes form part of the Historical Financial Information.

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NOTES TO THE HISTORICAL FINANCIAL INFORMATION (Expressed in RMB, unless otherwise stated)

1 BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION

(a) General information

Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. (成都泉源堂大藥房連鎖股份有限公司) (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 12 September 2012 as a limited liability company under the Companies Law of the PRC. The Company was transferred to a company limited by shares on 3 April 2015.

The Company and its subsidiaries (together as “the Group”) principally conduct new retail pharmacy business through (i) traditional offline retail pharmacy; (ii) online retail pharmacy through O2O platforms, or O2O retail pharmacy; and (iii) online retail pharmacy on e-commerce platforms, or B2C retail pharmacy, wholesale and supply chain business as well as provision of empowering services in the PRC.

(b) Subsidiaries

As at 31 December 2020, the Company has direct or indirect interests in the following subsidiaries, all of which are private companies:

Proportion of ownership interests Date and place of incorporation/ Particulars of establishment and issued and Held by Held by Company Name kind of legal entity paid-up capital the Company a subsidiary Principal activities

Guangzhou Quanjian Pharmaceutical 10 January 2005/ RMB10,000,000/ – 99% Wholesale and supply Co., Ltd. (“Guangzhou Quanjian”) The PRC/ RMB2,000,000 chain (廣州泉健藥業有限公司) Limited company

Sichuan Quanyuantang Pharmaceutical 18 January 2011/ RMB25,000,000 100% – Wholesale and supply Co., Ltd. (“Sichuan Quanyuantang”) The PRC/ chain (四川泉源堂藥業有限公司) Limited company

Guangdong QuanYuantang Megakang 27 April 2015/ RMB10,000,000 1% 99% Retails from pharmacies Pharmaceutical Chain Co., Ltd. The PRC/ (“Guangdong Megakang”) Limited company (廣東泉源堂美加康藥業連鎖有限公司)

Chongqing Quanyuantang 31 December 2015/ RMB22,565,000 – 80% Retails from pharmacies Pharmacy Chain Co., Ltd. The PRC/ (“Chongqing Quanyuantang”) Limited company (重慶泉源堂大藥房連鎖有限責任公司)

Guangdong Quanyuantang Pharmacy 30 August 2016/ RMB1,000,000 51% – Retails from pharmacies Chain Co., Ltd. (“Guangdong The PRC/ Quanyuantang”) Limited company (廣東泉源堂大藥房連鎖有限公司)

Hunan Quanyuantang Pharmacy 30 December 2016/ RMB2,000,000/- – 100% Retails from pharmacies Co., Ltd. (“Hunan Quanyuantang”) The PRC/ (湖南泉源堂大藥房有限責任公司) Limited company

Shaanxi Quanyuantang Pharmacy Co., 10 April 2018/ RMB1,000,000 51% – Retails from pharmacies Ltd. (“Shaanxi Quanyuantang“) The PRC/ (陝西泉源堂藥業有限公司) Limited company

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Guangzhou Quanyuantang 25 March 2019/ RMB30,000/- – 100% Retails from pharmacies Dongxiaonan Pharmacy Co., Ltd. The PRC/ (“Guangzhou Dongxiaonan”) Limited company (廣州泉源堂東曉南大藥房有限公司)

Guangzhou Quanyuantang 27 March 2019/ RMB30,000/- – 100% Retails from pharmacies Wanguodian Pharmacy Co., Ltd. The PRC/ (“Guangzhou Wanguodian”) Limited company (廣州泉源堂萬國店大藥房有限公司)

Guangzhou Quanyuantang 28 March 2019/ RMB30,000/- – 100% Retails from pharmacies Dezhengdian Pharmacy Co., Ltd. The PRC/ (“Guangzhou Dezhengdian”) Limited company (廣州泉源堂德政店大藥房有限公司)

Guangzhou Quanyuantang 3 April 2019/ RMB30,000/- – 100% Retails from pharmacies Lejiadian Pharmacy Co., Ltd. The PRC/ (“Guangzhou Lejiadian”) Limited company (廣州泉源堂樂嘉店大藥房有限公司)

Guangzhou Quanyuantang 8 April 2019/ RMB50,000/- – 100% Retails from pharmacies Taoyuan Pharmacy Co., Ltd. The PRC/ (“Guangzhou Taoyuan”) Limited company (廣州泉源堂桃園中大藥房有限公司)

Guangzhou Quanyuantang 11 April 2019/ RMB30,000/- – 100% Retails from pharmacies Tianyun Street Pharmacy The PRC/ Co., Ltd. (“Tianyun Street”) Limited company (廣州泉源堂天雲街大藥房有限公司)

Guangzhou Quanyuantang 24 April 2019/ RMB30,000/- – 100% Retails from pharmacies Baikangyuan Pharmacy Co., Ltd. The PRC/ (“Guangzhou Baikangyuan”) Limited company ( 廣州泉源堂百康源大藥房有限公司)

Guangzhou Quanyuantang 10 May 2019/ RMB30,000/- – 100% Retails from pharmacies Yuehuadian Pharmacy Co., Ltd. The PRC/ (“Guangzhou Yuehuadian”) Limited company (廣州泉源堂越華店大藥房有限公司)

Chongqing Quanyuantang Quanshun 17 July 2020/ RMB100,000/- – 80% Retails from pharmacies Pharmacy Co., Ltd. (“Quanshun”) The PRC/ (泉源堂泉順大藥房有限責任公司) Limited company

Chengdu Quanyuantang Hongmen Back 15 December 2020/ RMB1,000,000/- 100% – Retails from pharmacies Street Pharmacy Co., Ltd. The PRC/ (“Chengdu Hongmen”) Limited company (成都泉源堂黌門後街大藥房有限公司)

Chengdu Spring Vision Trading Co. Ltd. 24 January 2017/ RMB10,000,000/- 100% – Retails from pharmacies (“Chengdu Spring Vision”) The PRC/ (成都泉視野貿易有限公司) Limited company

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Shanghai Dayou Enterprise 24 September 2009/ RMB800,000 73.57% – Consulting service Management Consulting Co., Ltd. The PRC/ (“Shanghai Dayou”) (iii) Limited company (上海達佑企業管理諮詢有限公司) (iii)

Tarkool (Shanghai) Information 13 May 2014/ RMB 1,000,000 70% – Software and hardware Technology Co., Ltd. The PRC/ development (“Shanghai Tarkool”) Limited company (德酷(上海)資訊技術有限公司)

Chengdu Yumeng Tongxing 1 September 2014/ RMB3,500,000/ 70% – Empowering service Co., Ltd. (“Yumeng Tongxing”) The PRC/ RMB2,400,000 (成都與夢同行科技有限公司) Limited company

Pujiang Shentong Logistics Co., Ltd. 6 January 2015/ RMB1,000,000 100% – Express service (“Pujiang Shentong”) The PRC/ (蒲江申通快遞有限公司) (note 10) Limited company

Sichuan Zizhuye Health Technology 9 January 2015/ RMB20,971,000/ 51% – E-commerce service, Co., Ltd. (“Zizhuye”) (iii) The PRC/ RMB5,971,000 software and hardware (四川紫竹葉健康科技有限公司) Limited company development

Shanghai Quanyi Health Management 3 December 2015/ RMB8,000,000 61.07% 13.67% Health consulting and Co., Ltd. (“Shanghai Quanyi”) (iii) The PRC/ e-commerce service (上海泉依健康管理有限公司) (iii) Limited company

Chengdu Quanze Equity Investment 20 January 2017/ RMB5,000,000/ 99% – Investment management Fund Management Center (Limited The PRC/ RMB970,000 consulting Partnership) (“Chengdu Quanze”) Limited (成都泉澤股權投資基金管理中心(有限 Partnership 合夥))

Chengdu Quanyuantang Clinic 30 September 2019/ RMB500,000/- 100% – Clinic service Co., Ltd. (“Chengdu Clinic”) (iii) The PRC/ (成都泉源堂診所有限公司) Limited company

Chengdu Yuanhuan Health Technology 18 October 2019/ RMB3,000,000/- 60% – Import and wholesale Co., Ltd. (“Chengdu Yuanhuan”) The PRC/ (成都源環健康科技有限公司) (iii) Limited company

Chengdu Puquan Business Consulting 28 May 2020/ RMB58,500,000/- 99% – Consulting service Partnership (limited partnership) The PRC/ (“Chengdu Puquan”) (iii) Limited (成都蒲泉商務諮詢合夥企業 Partnership (有限合夥))

Chengdu Quanzu Business Service Co. 13 April 2018/ RMB1,000,000 51% – Consulting service Ltd. (“Chengdu Quanzu”) The PRC/ (成都泉族商務服務有限公司) Limited company

Shanghai Nianyou Technology Co., Ltd 13 April 2017/ RMB1,000,000/- – 100% Business service (“Shanghai Nianyou”) The PRC/ (上海年佑科技有限公司) Limited company

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Notes:

(i) The English translation of the company names is for reference only. The official names of these companies are in Chinese. These companies were limited liability companies and partnership under the law of the PRC.

(ii) No statutory financial statements have been prepared for these companies as well as the Company for the Relevant Periods.

(iii) The Company disposed all the equity interest in these companies and limited partnership in April 2021. These companies and limited partnership have not commenced any operations since incorporation or they are dormant companies.

All companies comprising the Group have adopted 31 December as their financial year end date.

The Historical Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Further details of the significant accounting policies adopted are set out in note 2.

The HKICPA has issued certain new and revised and amendments to HKFRSs. For the purpose of preparing this Historical Financial Information, the Group has adopted all applicable new and revised HKFRSs to the Relevant Periods, including HKFRS 9, Financial Instruments, HKFRS 15, Revenue from Contracts with Customers and HKFRS 16, Leases, consistently throughout the Relevant Periods. Except the early adoption of Amendments to HKFRS 3, Definition of a Business and Amendment to HKFRS 16, COVID-19 – Related Rent Concessions, the Group has not applied any new standards or interpretation that is not yet effective during the Relevant Periods. The revised and new accounting standards and interpretation issued but not yet effective for the accounting year beginning 1 January 2020 are set out in note 35.

The adoption of HKFRS 9 and HKFRS 15 did not has significant impact on the Group’s financial position and performance throughout the Relevant Periods when compared to those that would have been presented under HKAS 39, Financial Instruments: Recognition and Measurement, and HKAS 18, Revenue.

HKFRS 16 is effective for the accounting period beginning on or after 1 January 2019 and earlier application is permitted for entities that adopt HKFRS 15 on or before the date of initial application of HKFRS 16. The Group has elected to adopt HKFRS 16 consistently throughout the Relevant Periods. The adoption of HKFRS 16 primarily affects the Group’s accounting as a lessee of leases for properties stores and warehouses which are classified as operating leases under HKAS 17, Leases. Upon the adoption of HKFRS 16, according to the accounting policies described in note 2(i), at the lease commencement date, the Group as a lessee recognise a right-of-use assets and a lease liabilities for all fixed-rate leases, except for short-term leases with lease term of 12 months or less and lease of low-value assets. The Group has early adopted the Amendment to HKFRS 16, Leases, Covid-19-Related Rent Concessions, and applies the practical expedient introduced by the Amendment to all eligible rent concessions received by the Group during the Relevant Periods.

Amendments to HKFRS 3, Definition of a Business is effective for the accounting period beginning on or after 1 January 2020 and earlier application is permitted. The Group has elected to adopt Amendments to HKFRS 3 consistently throughout the Relevant Periods. The adoption of Amendments to HKFRS 3 primarily affects the Group’s business combinations which provide an optional concentration test to permit a simplified assessment of whether an acquired set of activities and assets may not be a business. If the test is met, the entity can treat the transaction as an asset acquisition rather than a business combination.

The Historical Financial Information also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The accounting policies set out below have been applied consistently to all periods presented in the Historical Financial Information.

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2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of measurement and functional currency

Item included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the entity (the “Functional Currency”). The Historical Financial Information is presented in Renminbi (“RMB”), rounded to the nearest thousand expect for losses per share information. The measurement basis used in the preparation of the Historical Financial Information is the historical cost basis except that other financial assets and assets held for sale are stated at fair value as explained in note 2(z).

(b) Use of estimates and judgments

The preparation of the financial statements in conformity with HKFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of HKFRSs that have significant effect on the Historical Financial Information and major sources of estimation uncertainty are discussed in note 3.

(i) Business combination involving entities under common control

A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets acquired and liabilities assumed are measured based on their carrying amounts in the consolidated financial statements of the ultimate controlling party at the combination date. The difference between the carrying amounts of the net assets acquired and the consideration paid for the combination is adjusted to equity. Any costs directly attributable to the combination are recognized in profit or loss when incurred. The combination date is the date on which one combining entity obtains control of other combining entities.

(ii) Business combination involving entities not under common control

A business combination involving entities not under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the business combination. Acquisition-related costs are expensed when incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities, if the recognition criteria are met, are recognized by the Group at their acquisition-date fair value. The acquisition date is the date on which the acquirer obtains control of the acquiree.

(iii) Subsidiaries and non-controlling interests

Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.

An investment in a subsidiary is consolidated into the Historical Financial Information from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealized profits arising from intra-group transactions are eliminated in full in preparing the Historical Financial Information. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment.

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Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net identifiable assets.

Non-controlling interests are presented in the consolidated statements of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statements of profit or loss as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statements of financial position in accordance with notes 2(o) or (q) depending on the nature of the liability.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognized.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate (see note 2(d)).

In the Company’s statements of financial position, an investment in a subsidiary is stated at cost less impairment losses (see note 2(j)(ii)), unless the investment is classified as held for sale (or included in a disposal Group that is classified as held for sale) (see note 2(z)).

(d) Associates

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the Historical Financial Information under the equity method, unless it is classified as held for sale (or included in a disposal Group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). The cost of the investment includes purchase price, other costs directly attributable to the acquisition of the investment, and any direct investment into the associate that forms part of the Group’s equity investment. Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see notes 2(d) and 2(j)(ii)). At each reporting date, the Group assesses whether there is any objective evidence that the investment is impaired. Any acquisition-date excess over cost, the Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognized in the consolidated statement of profit or loss, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognized in the consolidated statement of profit or loss.

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amounts of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate (after applying the ECL model to such other long-term interests where applicable (see note 2(j)(i)).

Unrealized profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the investee, except where unrealized losses provide evidence of an impairment of the asset transferred, in which case they are recognized immediately in profit or loss.

If an investment in an associate becomes an investment in a joint venture or vice versa, retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method.

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In all other cases, when the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset.

In the Company’s statement of financial position, investments in associates are stated at cost less impairment losses (see note 2(j)(ii), unless classified as held for sale (or included in a disposal Group that is classified as held for sale) (see note 2(z)).

(e) Goodwill

Goodwill represents the excess of:

(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over

(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognized immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 2(j)(ii)).

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(f) Other investments in debt securities

The Group’s policies for investments in debt securities, other than investments in subsidiaries and associates, are set out below.

Investments in debt and equity securities are recognised/derecognised on the date the Group or the Company commits to purchase/sell the investment. The investments are initially stated at fair value plus directly attributable transaction costs, except for those investments measured at fair value through profit or loss (FVPL) for which transaction costs are recognised directly in profit or loss. For an explanation of how the Group determines fair value of financial instruments, see note 31(d). These investments are subsequently accounted for as follows, depending on their classification.

Investment other than equity investments

Non-equity investments held by the Group are classified into one of the following measurement categories:

– amortised cost, if the investment is held for the collection of contractual cash flows which represent solely payments of principal and interest. Interest income from the investment is calculated using the effective interest method (see note 2(u)(v)).

– fair value through other comprehensive income (FVOCI) – recycling, if the contractual cash flows of the investment comprise solely payments of principal and interest and the investment is held within a business model whose objective is achieved by both the collection of contractual cash flows and sale. Changes in fair value are recognised in other comprehensive income, except for the recognition in profit or loss of expected credit losses, interest income (calculated using the effective interest method) and foreign exchange gains and losses. When the investment is derecognised, the amount accumulated in other comprehensive income is recycled from equity to profit or loss.

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– fair value at profit or loss (FVPL) if the investment does not meet the criteria for being measured at amortised cost or FVOCI (recycling). Changes in the fair value of the investment (including interest) are recognised in profit or loss.

(g) Property and equipment

Property and equipment are stated at cost less accumulated depreciation and impairment losses (see note 2(j)(ii)):

Gains or losses arising from the retirement or disposal of an item of property and equipment are determined as the difference between the net disposal proceeds and the carrying amounts of the item and are recognized in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of items of other property and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:

– Buildings 20 years – Leasehold improvements Over the shorter of the lease terms or the estimated useful life of the assets – Equipment and furniture 3 or 5 years – Vehicles 5 years

Where parts of an item of property and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

(h) Intangible assets (other than goodwill)

Expenditure on research activities is recognized as an expense in the period in which it is incurred. Expenditure on development activities is capitalized if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. The expenditure capitalized includes the costs of materials, direct labor, and an appropriate proportion of overheads and borrowing costs, where applicable. Capitalized development costs are stated at cost less accumulated amortization and impairment losses (see note 2(j)(ii)). Other development expenditure is recognized as an expense in the period in which it is incurred.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortization and impairment losses (see note 2(j)(ii)). Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortization of intangible assets is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortized from the date they are available for use and their estimated useful lives are as follows:

– Licence 3 years – Software 3 ~ 5 years

Both the period and method of amortization are reviewed annually.

(i) Leased assets

At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

Where the contract contains lease component(s) and non-lease component(s), the Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases.

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At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see note 2(j)(ii)).

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

(j) Credit losses and impairment of assets

(i) Credit losses from financial instruments

The Group recognizes a loss allowance for expected credit losses (“ECLs”) on financial assets measured at amortized cost (including cash and cash equivalents, trade and other receivables and restricted deposits).

Other financial assets measured at fair value are not subject to the ECL assessment.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

– fixed-rate financial assets, trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof;

– variable-rate financial assets: current effective interest rate.

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The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

ECLs are measured on either of the following bases:

– 12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and

– lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

Loss allowances for trade and other receivables are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, the Group recognizes a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

Significant increases in credit risk

In assessing whether the credit risk of a financial instruments has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realizing security (if any is held); or (ii) the financial asset is 90 days past due. The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

– failure to make payments of principal or interest on their contractually due dates;

– an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);

– an actual or expected significant deterioration in the operating results of the debtor; and

– existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group.

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are Grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.

ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognized as an impairment gain or loss in profit or loss. The Group recognizes an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amounts through a loss allowance account, except for investments in debt securities that are measured at FVOCI (recycling), for which the loss allowance is recognized in other comprehensive income and accumulated in the fair value reserve (recycling).

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Basis of calculation of interest income

Interest income recognized in accordance with note 2(u)(v) is calculated based on the gross carrying amounts of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortized cost (i.e. the gross carrying amounts less loss allowance) of the financial asset.

At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable events:

– significant financial difficulties of the debtor;

– a breach of contract, such as a default or past due event;

– it becoming probable that the borrower will enter into bankruptcy or other financial reorganization;

– significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or

– the disappearance of an active market for a security because of financial difficulties of the issuer.

Write-off policy

The gross carrying amounts of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Subsequent recoveries of an asset that was previously written off are recognized as a reversal of impairment in profit or loss in the period in which the recovery occurs.

(ii) Impairment of other non-current assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognized no longer exists or may have decreased:

– property and equipment;

– intangible assets;

– right-of-use assets;

– goodwill;

– investments in associates; and

– investments in subsidiaries in the Company’s statement of financial position.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment.

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– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest Group of assets that generates cash inflows independently (i.e. a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognized in profit or loss if the carrying amounts of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amounts of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amounts of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying amounts of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

– Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amounts that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized.

(k) Inventories

Inventories are assets which are held for sale in the ordinary course of business.

Inventories are carried at the lower of cost and net realizable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition.

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

When inventories are sold, the carrying amounts of those inventories is recognized as an expense in the period in which the related revenue is recognized.

The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

(l) Contract liabilities

A contract liability is recognised when the customer pays non-refundable consideration before the Group recognises the related revenue (see note 2(u)). A contract liability would also be recognised if the Group has an unconditional right to receive non-refundable consideration before the Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised (see note 2(m)).

For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.

When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (see note 2(u)(v)).

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(m) Trade and other receivables

A receivable is recognized when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due. If revenue has been recognized before the Group has an unconditional right to receive consideration, the amount is presented as a contract asset.

Receivables are stated at amortized cost using the effective interest method less allowance for credit losses (see note 2(j)(i)).

(n) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Cash and cash equivalents are assessed for expected credit losses (ECL) in accordance with the policy set out in note 2(j)(i).

(o) Trade and other payables

Trade and other payables are initially recognized at fair value. Trade and other payables are subsequently stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(p) Interest-bearing borrowings

Interest-bearing borrowings are recognized initially at fair value less transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost using the effective interest method. Interest expense is recognized in accordance with the Group’s accounting policy for borrowing costs (see note 2(y)).

(q) Financial instruments issued to investors

The Company entered into a series of investment agreements with independent investors.

The Company recognized the financial instruments issued to investors as other non-current financial liabilities, because they are redeemable on a specific date or at the option of the investors (including options that are only exercisable in case of triggering events having occurred). The liability is recognized and measured in accordance with the Group’s policy for interest-bearing borrowings set out in note 2(p) and accordingly dividends thereon are recognized on an accrual basis in profit or loss as part of finance costs.

(r) Employee benefits

(i) Short-term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Termination benefits

Termination benefits are recognized at the earlier of when the Group can no longer withdraw the offer of those benefits and when it recognizes restructuring costs involving the payment of termination benefits.

(s) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or loss except to the extent that they relate to items recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity, respectively.

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Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilized, are recognized. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilized.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

The carrying amounts of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Additional income taxes that arise from the distribution of dividends are recognized when the liability to pay the related dividends is recognized.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

– in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously; or

– in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

– the same taxable entity; or

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

(t) Provisions and contingent liabilities

(i) Provisions and contingent liabilities

Provisions are recognized when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

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Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(ii) Contingent liabilities assumed in business combinations

Contingent liabilities assumed in a business combination which are present obligations at the date of acquisition are initially recognised at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with note 2(t)(i). Contingent liabilities assumed in a business combination that cannot be reliably fair valued or were not present obligations at the date of acquisition are disclosed in accordance with note 2(t)(i).

(u) Revenue and other income

Income is classified by the Group as revenue when it arises from the sale of goods or the provision of services.

Revenue is recognized when control over a product or service is transferred to the customer, at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Where the contract contains a financing component which provides a significant financing benefit to the customer for more than 12 months, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction with the customer, and interest income is accrued separately under the effective interest method. Where the contract contains a financing component which provides a significant financing benefit to the Group, revenue recognised under that contract includes the interest expense accreted on the contract liability under the effective interest method. The Group takes advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component if the period of financing is 12 months or less.

Further details of the Group’s revenue and other income recognition policies are as follows:

(i) Sale of pharmaceutical and healthcare products

The Group is engaged in the sale of pharmaceutical and healthcare products to individual customers through (i) traditional offline retail pharmacy; (ii) O2O retail pharmacy; (iii) B2C retail pharmacy and also wholesale and supply chain business to hospitals and merchant customers. Revenue from sale of pharmaceutical and healthcare products is recorded net of discounts and recognised when the goods are delivered to individual customers, either by third party couriers or at the offline pharmacies, or to merchant customers by third party couriers. For contracts which provide a customer with a right to return the goods within a specified period, the expected value method is used to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Group will be entitled. The requirements in HKFRS 15 on constraining estimates of variable consideration are applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, a refund liability is recognised. A right-of-return asset (and the corresponding adjustment to cost of revenue) is also recognised for the right to recover products from a customer.

(ii) Empowering service income

The Group provides online operation and support service to other chain pharmacies, and earns commissions from other chain pharmacies generally at a rate of the transaction amounts of products being sold to customers online. Revenue of the empowering business is recognised at the time when the underlying sale of products by chain pharmacies online is completed.

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(iii) Discount vouchers and free vouchers

From time to time, the Group offers its customers discount vouchers and free vouchers. The discount vouchers and free vouchers can be obtained through three channels: (i) from qualified purchases when the customers reach certain amount of spending; (ii) from redemption of membership points accumulated from the membership programs of the Group; (iii) distributed for free of charge by the Group through various promotional and advertising activities.

As the discount vouchers and free vouchers obtained through channels (i) and (ii) are issued concurrent with a revenue transaction, the Group estimates the value of the future redemption obligation based on the estimated value of the products for which the discount vouchers and free vouchers are expected to be redeemed, and recognises the estimated fair value in the balance sheet as contract liability. Subsequently, contract liability is recognised as revenue at the point in time when the customer redeems the discount vouchers and free vouchers for the products in future purchases, or when the Group is legally released from its obligation based on the expiration date of the discount vouchers and free vouchers.

For discount vouchers obtained through channel (iii) for which the granting of such discount vouchers do not occur concurrently with a revenue transaction, the discount vouchers are not accounted for when such vouchers are granted and can only be applied to future purchases of certain specified products of the Group. The Group recognises as a reduction in revenue when the customers apply the discount vouchers in future purchases.

(iv) Express service income

Express income is recognised over-time in which the service is provided to the customer according to service completion schedule.

(v) Interest income

Interest income is recognized as it accrues under the effective interest method using the rate that exactly discount estimated future cash receipts through expected life of the financial assets to the gross carrying amount of the financial asset. For financial assets measured at amortized cost are not credit-impaired, the effective interest rate is applied to the gross carrying amounts of the asset. For credit impaired financial assets, the effective interest rate is applied to the amortized cost (i.e. gross carrying amounts net of loss allowance) of the asset (see note 2(j)(i)).

(vi) Government grants

Government grants are recognized in the consolidated statements of financial position initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognized as income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

(v) Cost of revenue

The Group periodically receives considerations from certain vendors, representing rebates for products sold and subsidies for the sales of the vendors’ products over a period of time. The rebates are not sufficiently separable from the Group’s purchase of the vendors’ products and they do not represent a reimbursement of costs incurred by the Group to sell vendors’ products. The Group accounts for the rebates received from its vendors as a reduction to the prices it pays for the products purchased and therefore the Group records such amounts as a reduction of cost of revenue when recognized in the consolidated statements of profit or loss.

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(w) Fulfillment expenses

Fulfillment expenses consist primarily of (i) expenses incurred in the Group’s sales and procurement operations, including personnel cost and miscellaneous expenses, (ii) warehousing and logistic services, (iii) payment services and customer services, and (iv) lease expenses of warehouses and pharmacies.

(x) Research and development expenses

Research and development expenses comprise all expenses that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Research and development expenses are recognised as expenses in the period in which they are incurred.

(y) Borrowing costs

Borrowing costs are expensed in the period in which they are incurred.

(z) Non-current assets held for sale and discontinued operations

(i) Non-current assets held for sale

A non-current asset (or disposal group) is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available for sale in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all the assets and liabilities of that subsidiary are classified as held for sale when the above criteria for classification as held for sale are met, regardless of whether the Group will retain a non-controlling interest in the subsidiary after the sale.

Immediately before classification as held for sale, the measurement of the non-current assets (and all individual assets and liabilities in a disposal group) is brought up-to-date in accordance with the accounting policies before the classification. Then, on initial classification as held for sale and until disposal, the non-current assets (except for certain assets as explained below), or disposal groups, are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the financial statements of the Group and the Company are concerned are deferred tax assets and financial assets (other than investments in subsidiaries and associates). These assets, even if held for sale, would continue to be measured in accordance with the policies set out elsewhere in note 2.

Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised in profit or loss. As long as a non-current asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, the non-current asset is not depreciated or amortised.

(ii) Discontinued operations

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

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale (see (i) above), if earlier. It also occurs if the operation is abandoned.

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Where an operation is classified as discontinued, a single amount is presented on the face of the consolidated statement of profit or loss, which comprises:

– the post-tax profit or loss of the discontinued operation; and

– the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

(aa) Related parties

(a) A person, or a close member of that person’s family, is related to the Group if that person:

(i) has control or joint control over the Group;

(ii) has significant influence over the Group; or

(iii) is a member of the key management personnel of the Group or the Group’s parent.

(b) An entity is related to the Group if any of the following conditions applies:

(i) The entity and the Group are members of the same Group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a Group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

(vi) The entity is controlled or jointly controlled by a person identified in (a).

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

(viii) The entity, or any member of a Group of which it is a part, provides key management personnel services to the Group or to the Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

(bb) Segment reporting

Operating segments, and the amounts of each segment item reported in the Historical Financial Information, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

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3 ACCOUNTING JUDGMENTS AND ESTIMATES

Note 31 contains information about the assumption and their risk factors relating to financial instruments. Other key sources of significant estimation uncertainty are as follows:

(a) Provision for diminution in value of inventories

Management reviews the ageing and expiry dates of inventories of the Group at the end of each reporting period, and makes provision on obsolete and slow-moving inventory items identified that are no longer suitable for sale. Management estimates the net realisable value for such inventories based primarily on the available selling prices, estimated costs to be incurred to completion and disposal and current market conditions. If the market condition was to deteriorate so that the actual provision might be higher than expected, the Group would be required to revise the basis of making the provision and its future results would be affected.

(b) Provision for expected credit losses on trade receivables

The Group uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on aging of trade receivables. The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information.

The assessment of the correlation among historical observed default rates and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future.

(d) Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

(e) Recognition of deferred tax assets

Deferred tax assets in respect of tax losses carried forward and deductible temporary differences are recognised and measured based on the expected manner of realisation or settlement of the carrying amount of the relevant assets and liabilities, using tax rates enacted or substantively enacted at the end of each reporting date. In determining the carrying amounts of deferred tax assets, expected taxable profits are estimated which involves a number of assumptions relating to the operating environment of the Group and require a significant level of judgement exercised by the directors. Any change in such assumptions and judgement would affect the carrying amounts of deferred tax assets to be recognised and hence the net profit in future years.

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4 REVENUE AND SEGMENT REPORTING

(a) Revenue

The principal activities of the Group are sale of pharmaceutical and healthcare products to individual customers through traditional offline retail pharmacy; (ii) O2O retail pharmacy and (iii) B2C retail pharmacy; wholesale and supply chain business as well as provision of empowering services in the PRC.

Disaggregation of revenue

Disaggregation of revenue from contracts with customers by each significant category is as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Revenue from contracts with customers within the scope of HKFRS 15 Traditional offline retail pharmacy 48,101 200,792 365,166 O2O retail business 34,066 103,326 221,430 B2C retail business 379,484 378,359 421,523 Wholesale and supply chain business 114,840 175,302 225,685 Empowering business – 406 15,438

576,491 858,185 1,249,242

All of the Group’s revenues are recognised at a point in time. For each of the year during the Relevant Periods, the Group did not have any customer with which transactions have exceeded 10% of the Group’s total revenue.

The Group applies the practical expedient in paragraph 121 of HKFRS 15 of not disclosing the transaction price allocated to the remaining performance obligation as the original expected duration of all the contracts of the Group are within one year or less.

(b) Segment reporting

The Group manages its businesses as a whole by the most senior executive management for the purposes of resource allocation and performance assessment. The Group’s chief operating decision maker is the chief executive officer of the Group who reviews the Group’s consolidated results of operations in assessing performance of and making decisions about allocations to this segment.

Accordingly, no reportable segment information is presented.

All of the non-current assets of the Group are physically located in the PRC. The geographical location of customers is based on the location at which the services were provided or the goods delivered. The revenue of the Group is almost all derived from operations in the PRC during the Relevant Periods.

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5 OTHER INCOME AND EXPENSES

(a) Other income

2018 2019 2020 RMB’000 RMB’000 RMB’000

Interest income from bank deposits 444 1,129 944 Government grants (i) 1,112 6,913 10,174 Gain on disposal of an associate – – 173 Long-aged payables written-off (ii) 1,512 2,115 974 Others 730 1,609 452

3,798 11,766 12,717

(i) Government grants mainly represented unconditional cash awards by the government authorities in the PRC.

(ii) After assessing the validity of contractual rights and obligation of payables, the Group wrote off these long-aged payables and recorded as other income.

(b) Other expenses

2018 2019 2020 RMB’000 RMB’000 RMB’000

Impairment losses on trade and other receivables 2,031 1,945 2,653 Loss on disposal of property and equipment – – 119 Loss on disposal of a subsidiary – 939 – Others 1,440 1,046 612

3,471 3,930 3,384

6 LOSS BEFORE TAXATION

Loss before taxation is arrived at after charging/(crediting):

(a) Finance costs

2018 2019 2020 RMB’000 RMB’000 RMB’000

Interest on bank loans and other borrowings (note 25) 5,460 15,050 26,407 Interest on lease liabilities (note 26) 2,216 8,250 10,937 Interest on other financial liabilities (note 27) – 3,456 5,873

7,676 26,756 43,217

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(b) Staff costs (including directors’ emoluments)

2018 2019 2020 RMB’000 RMB’000 RMB’000

Salaries, wages, bonuses and other benefits 56,769 125,601 142,766 Contributions to defined contribution retirement plans 6,748 13,977 7,512

63,517 139,578 150,278

(i) Employees of the Group’s PRC subsidiaries are required to participate in a defined contribution retirement scheme administered and operated by the local municipal government. The Group’s PRC subsidiaries contribute funds which are calculated on certain percentages of the average employee salary as agreed by the local municipal government to the scheme to fund the retirement benefits of the employees.

The Group has no other material obligation for payment of other retirement benefits beyond the above contributions.

Due to the impact of COVID-19 in 2020, a number of policies including the relief of social insurance have been promulgated by the government since February 2020 to expedite resumption of economic activities, which resulted in the relief of certain contributions to defined contribution scheme during the year ended 31 December 2020.

2018 2019 2020 RMB’000 RMB’000 RMB’000

Amortisation – intangible assets (note 14) 566 1,044 2,595

Depreciation – property and equipment (note 12) 2,863 7,931 11,207 – right-of-use assets (note 13) 10,791 45,496 55,481

13,654 53,427 66,688

Impairment losses on trade and other receivables 2,031 1,945 2,653 Auditors’ remuneration – non-audit services 500 600 – Research and development expenses* 2,073 3,797 7,027 Cost of inventories (note 18(a)) 498,515 690,744 986,295

* During the years ended 31 December 2018, 2019 and 2020, all research and development expenses are staff costs which amounts are also included in note 6(b).

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7 INCOME TAX IN THE CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

(a) Taxation in the consolidated statement of profit or loss represents:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Current tax – PRC tax 100 20 4,002 Deferred tax – – –

Total 100 20 4,002

(b) Reconciliation between tax expense and accounting loss at applicable tax rates:

Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loss before taxation (91,322) (163,776) (149,423) Notional tax on profit/(loss) before taxation, calculated at the rates applicable to profits/(loss) in the PRC (i) (22,831) (40,944) (37,356) Effect of preferential tax rate (ii) – – 239 Tax effect of non-deductible expenses 6,980 6,526 1,165 Tax effect of utilization of tax losses not recognised in prior years (495) – (715) Tax effect of unused tax losses not recognised 16,397 33,212 37,548 Tax effect of other deductible temporary differences not recognised 49 1,763 4,203 Additional deduction for qualified research and development costs (iii) – (537) (1,082)

Total tax charge for the year from continuing operations 100 20 4,002 Total tax charge for the year from a discontinued operation – – –

(i) The Company and subsidiaries were incorporated in the PRC. Under the relevant PRC corporate income tax law and respective regulations, the Company and subsidiaries within the Group are subject to corporate income tax at the statutory rate of 25% for the Relevant Periods unless otherwise specified below.

(ii) According to the PRC income tax law and its relevant regulations, entities that qualified as high-technology enterprise are entitled to a preferential income tax rate of 15%. Yumeng Tongxing, a subsidiary of the Company, obtained the certificate of high-technology enterprise on 11 September 2020 and is subject to income tax at 15% for a three years period since 1 January 2020.

(iii) An additional 75% of qualified research and development expenses incurred is allowed to be deducted from taxable income under the PRC income tax law and its relevant regulations.

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8 DIRECTORS’ EMOLUMENTS

Directors’ emoluments disclosed pursuant to section 383(1) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows:

Salaries, allowances Retirement and benefits Discretionary scheme 2018 in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000

Executive Directors Mr. Li Can 527 – 16 543 Mr. Chen Zhouhua 523 144 15 682 Mr. Wang Lei 373 96 10 479 Mr. Chen Yang 350 96 10 456 Ms. Yu Miao 460 91 10 561 Mr. Zhao Jianghua –––– Mr. Zhang Jun ––––

Supervisors Mr. Du Tongjie –––– Ms. Li Kaiping 168 46 – 214 Ms. Deng Chunmei 97 31 5 133

2,498 504 66 3,068

Salaries, allowances Retirement and benefits Discretionary scheme 2019 in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000

Executive Directors Mr. Li Can 630 116 32 778 Mr. Chen Zhouhua 626 126 26 778 Mr. Wang Lei 530 84 18 632 Mr. Chen Yang 420 89 21 530 Ms. Yu Miao 424 92 21 537 Mr. Xia Jun (iv) 1,165 – – 1,165 Mr. Zhao Jianghua –––– Mr. Zhang Jun –––– Mr. Xie Zhaolin (i)(iii) –––– Mr. Liu Jie (iv) ––––

Non-executive Directors Mr. HO KYUNG SHIK (i) ––––

Supervisors Ms. Li Kaiping 205 51 – 256 Mr. Du Tongjie 245 140 5 390 Ms. KIM JI SU (i) –––– Ms. Deng Chunmei (ii) 126 29 6 161

4,371 727 129 5,227

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Salaries, allowances Retirement and benefits Discretionary scheme 2020 in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000

Executive Directors Mr. Li Can 648 107 24 779 Mr. Chen Zhouhua 644 91 2 737 Mr. Wang Lei 534 98 1 633 Mr. Chen Yang 432 75 16 523 Ms. Yu Miao 436 71 2 509 Mr. Huang Xin (v) 462 62 – 524 Mr. Xia Jun (vi) –––– Mr. Zhao Jianghua (viii) –––– Mr. Zhang Jun (viii) –––– Mr. Liu Jie (viii) ––––

Non-executive Directors Mr. HO KYUNG SHIK –––– Ms. Xie Qirun (vii) –––– Mr. Tse Eric S Y (vii) ––––

Supervisors Mr. Du Tongjie 265 151 – 416 Ms.KIMJISU –––– Ms. Liu Jiao (vii) 184 43 4 231 Ms. Li Qian (vii) –––– Ms. Li Daijun (vii) 312 186 4 502 Ms. Li Kaiping (viii) 206 55 – 261

4,123 939 53 5,115

(i) These directors were appointed on 20 March 2019.

(ii) Ms. Deng Chunmei was resigned on 5 March 2019.

(iii) Mr. Xie Zhaolin was resigned on 10 December 2019.

(iv) These directors and supervisors were appointed on 10 December 2019.

(v) Mr. Huang Xin was appointed on 3 November 2020.

(vi) Mr. Xia Jun was resigned on 3 November 2020.

(vii) These directors and supervisors were appointed on 10 November 2020.

(viii) These directors and supervisors were resigned on 10 November 2020.

(ix) Mr. Li He was appointed as non-executive director on 20 March 2021.

(x) During the Relevant Periods, no emoluments was paid by the Group to the directors or any of the five highest paid individuals set out in note 9 below as an inducement to join or upon joining the Group or as compensation for loss of office. No director has waived or agreed to waive any emoluments during the Relevant Periods.

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9 INDIVIDUALS WITH HIGHEST EMOLUMENTS

For the years ended 31 December 2018, 2019 and 2020, all top five individuals with the highest emoluments are directors whose emoluments are disclosed in note 8.

10 DISCONTINUED OPERATION AND ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES

On 31 December 2020, the Company signed a share transfer agreement to dispose a subsidiary, Pujiang Shentong which is subsequently approved by directors and shareholders resolution. The disposal of Pujiang Shentong was completed on 26 April 2021. As a result, the business of Pujiang Shentong which comprise of the Group’s separate line of express service has been reclassified as a discontinued operation as a single amount on the face of the consolidated statement of profit or loss for the Relevant Periods and all the related assets and liabilities of Pujiang Shentong have been reclassified to assets held for sale and associated liabilities as at 31 December 2020.

(i) The results of the Pujiang Shentong for the Relevant Periods are presented as below:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Revenue 7,244 68,633 77,482 Cost and expenses (9,253) (70,926) (79,169)

Loss before tax from the discontinued operation (2,009) (2,293) (1,687)

Income tax – – –

Loss from the discontinued operation (2,009) (2,293) (1,687)

Attributable to: Equity shareholders of the Company (2,009) (2,293) (1,687)

(ii) The calculations of basic and diluted loss per share from the discontinued operation are based on:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Loss attributable to equity shareholders of the Company from a discontinued operation (2,009) (2,293) (1,687) Weighted average number of ordinary shares at 31 December (note 11) 101,676,667 106,696,667 109,977,934 Basic and diluted loss per share (in RMB) (0.02) (0.02) (0.02)

(iii) The net cash flows incurred by Pujiang Shentong for the Relevant Periods are as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Operating activities 27 (8,110) (1,084) Investing activities (155) (2,275) (1,792) Financing activities – 10,472 3,396 Net cash (used in)/generated from discontinued operation for the year (128) 87 520

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(iv) Assets held for sale and associated liabilities

2020 RMB’000

Assets held for sale Property and equipment 3,216 Other non-current assets 134 Trade and other receivables 7,120 Restricted deposits 30 Cash and cash equivalents 633

11,133

Liabilities directly associated with the assets classified as held for sale Trade and other payables 5,426 Contract liabilities 99 Bank loans and other borrowings 13,952

19,477

11 LOSS PER SHARE

(a) Basic loss per share

The calculation of basic loss per share is based on the losses attributable to equity shareholders of the Company and the weighted average of ordinary shares for Relevant Periods as follows.

The calculations of basic loss per share are based on:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Loss attributable to equity shareholders of the Company used in the basic loss per share calculation From continuing operations (91,422) (163,796) (153,425) From a discontinued operation (2,009) (2,293) (1,687) Allocation of loss for the year attributable to equity shareholders subject to preferred rights of the Company – 18,360 18,700

(93,431) (147,729) (136,412)

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Number of shares Note 2018 2019 2020

Weighted average number of ordinary shares Issued ordinary shares at 1 January 101,676,667 101,676,667 106,696,667 Effect of issuance of new ordinary shares 29(b) – 13,469,178 6,301,988 Effect of treasury shares held 29(c) – – (3,020,721) Effect of shares issued related to a business combination (i) 30 – 5,020,000 – Effect of other financial liabilities 27 – (13,469,178) –

Weighted average number of ordinary shares at 31 December 101,676,667 106,696,667 109,977,934

(i) The Group completed the acquisition of Guangdong Megakang on 1 January 2019 and agreed to issue 5,020,000 shares of the Company to settle part of the purchase consideration, details of which was disclosed in note 30. These contingently issuable ordinary shares are included in the calculation of the weighted average number of the shares outstanding for the purpose of calculating basic loss per share as the acquisition criteria was met. These consideration shares were subsequently issued on 10 January 2020.

(b) Diluted loss per share

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For the years ended 31 December 2019 and 2020, the Company had the financial instruments with preferred rights which are potential ordinary shares. As the Group incurred losses for the years ended 31 December 2019 and 2020, the potential ordinary shares were not included in the calculation of diluted loss per share as their inclusion would be anti-dilutive.

Accordingly, diluted loss per share for the years ended 31 December 2018, 2019 and 2020 are the same as basic loss per share of the respective years.

12 PROPERTY AND EQUIPMENT

Reconciliation of carrying amount

The Group

Equipment Leasehold Construction Buildings and furniture Vehicles improvements in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost: At 1 January 2018 9,793 7,025 1,291 2,126 419 20,654 Purchases 254 5,221 202 2,303 4,305 12,285 Transfer from construction in progress – – – 419 (419) – Addition through acquisition of subsidiaries (note 30) – 1628– –44

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Equipment Leasehold Construction Buildings and furniture Vehicles improvements in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2018 10,047 12,262 1,521 4,848 4,305 32,983 Purchases 172 12,960 284 8,163 398 21,977 Transfer from construction in progress – – – 4,305 (4,305) – Addition through acquisition of subsidiaries (note 30) – 587 10 862 – 1,459

At 31 December 2019 10,219 25,809 1,815 18,178 398 56,419 Purchases – 8,580 137 7,715 142 16,574 Transfer from construction in progress – – – 398 (398) – Disposals – (139) (6) – – (145) Reclassified to the assets held for sale (note 10) – (3,591) (90) (421) – (4,102)

At 31 December 2020 10,219 30,659 1,856 25,870 142 68,746 ------

Accumulated depreciation At 1 January 2018 (1,003) (2,656) (957) (1,184) – (5,800) Charge for the year (465) (1,400) (162) (836) – (2,863)

At 31 December 2018 (1,468) (4,056) (1,119) (2,020) – (8,663) Charge for the year (501) (3,655) (226) (3,549) – (7,931)

At 31 December 2019 (1,969) (7,711) (1,345) (5,569) – (16,594) Charge for the year (503) (5,213) (165) (5,326) – (11,207) Disposals – 23 – – – 23 Reclassified to the assets held for sale (note 10) – 670 90 126 – 886

At 31 December 2020 (2,472) (12,231) (1,420) (10,769) – (26,892) ------

Net book value: At 31 December 2020 7,747 18,428 436 15,101 142 41,854

At 31 December 2019 8,250 18,098 470 12,609 398 39,825

At 31 December 2018 8,579 8,206 402 2,828 4,305 24,320

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The Company

Equipment Leasehold Construction Buildings and furniture Vehicles improvements in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost: At 1 January 2018 9,793 4,832 555 2,126 419 17,725 Purchases – 3,938 202 1,926 2,945 9,011 Transfer from construction in progress – – – 419 (419) –

At 31 December 2018 9,793 8,770 757 4,471 2,945 26,736 Purchases 113 4,438 131 4,358 – 9,040 Transfer from construction in progress – – – 2,945 (2,945) –

At 31 December 2019 9,906 13,208 888 11,774 – 35,776 Purchases – 3,474 – 4,708 142 8,324

At 31 December 2020 9,906 16,682 888 16,482 142 44,100 ------

Accumulated depreciation At 1 January 2018 (1,003) (1,643) (273) (1,184) – (4,103) Charge for the year (465) (1,023) (148) (792) – (2,428)

At 31 December 2018 (1,468) (2,666) (421) (1,976) – (6,531) Charge for the year (465) (1,869) (191) (2,408) – (4,933)

At 31 December 2019 (1,933) (4,535) (612) (4,384) – (11,464) Charge for the year (465) (2,611) (120) (3,222) – (6,418)

At 31 December 2020 (2,398) (7,146) (732) (7,606) – (17,882) ------

Net book value: At 31 December 2020 7,508 9,536 156 8,876 142 26,218

At 31 December 2019 7,973 8,673 276 7,390 – 24,312

At 31 December 2018 8,325 6,104 336 2,495 2,945 20,205

(i) All of the property and equipment owned by the Group are located in the mainland China. As at 31 December 2018, 2019 and 2020, the Group has obtained all the certificates of the properties.

(ii) As at 31 December 2018, 2019 and 2020, certain of the property and equipment were pledged as collateral for banking facilities (see note 25).

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13 RIGHT-OF-USE ASSETS

(a) The reconciliation of the carrying amounts of right-of-use assets by class of underlying asset is as follows:

The Group

Properties leased for own Land use use carried at rights cost Total RMB’000 RMB’000 RMB’000

Cost: At 1 January 2018 2,400 12,943 15,343 Additions – 73,177 73,177 Addition through acquisition of subsidiaries (note 30) – 6,111 6,111

At 31 December 2018 2,400 92,231 94,631 Additions – 86,419 86,419 Addition through acquisition of subsidiaries (note 30) – 23,777 23,777

At 31 December 2019 2,400 202,427 204,827 Additions – 127,132 127,132

At 31 December 2020 2,400 329,559 331,959 ------

Accumulated depreciation: At 1 January 2018 (164) – (164) Charge for the year (51) (10,740) (10,791)

At 31 December 2018 (215) (10,740) (10,955) Charge for the year (51) (45,445) (45,496)

At 31 December 2019 (266) (56,185) (56,451) Charge for the year (51) (55,430) (55,481)

At 31 December 2020 (317) (111,615) (111,932) ------

Net book value: At 31 December 2020 2,083 217,944 220,027

At 31 December 2019 2,134 146,242 148,376

At 31 December 2018 2,185 81,491 83,676

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The Company

Properties leased for own Land use use carried at rights cost Total RMB’000 RMB’000 RMB’000

Cost: At 1 January 2018 2,400 9,347 11,747 Additions – 46,337 46,337

At 31 December 2018 2,400 55,684 58,084 Additions – 36,416 36,416

At 31 December 2019 2,400 92,100 94,500 Additions – 70,845 70,845

At 31 December 2020 2,400 162,945 165,345 ------

Accumulated depreciation: At 1 January 2018 (164) – (164) Charge for the year (51) (7,242) (7,293)

At 31 December 2018 (215) (7,242) (7,457) Charge for the year (51) (16,415) (16,466)

At 31 December 2019 (266) (23,657) (23,923) Charge for the year (51) (24,016) (24,067)

At 31 December 2020 (317) (47,673) (47,990) ------

Net book value: At 31 December 2020 2,083 115,272 117,355

At 31 December 2019 2,134 68,443 70,577

At 31 December 2018 2,185 48,442 50,627

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(i) Land use rights

Land use rights are located in Sichuan Province, the PRC, and are held on medium-term leases of 47 years from the date of acquisition.

(ii) Properties leased for own use

The Group leases office and pharmacies under leases expiring from 1 to 10 years. Some leases include an option to renew the lease when all terms are renegotiated. None of the leases includes variable lease payments.

(iii) Rental deposits

The refundable rental deposit itself is not part of the lease payments and is in the scope of HKFRS 9. Therefore, the rental deposit should be measured at fair value on initial recognition. The difference between the initial fair value and the nominal value of the deposit is an additional lease payment made by the Group and it is included in the measurement of the right-of-use assets.

(b) The analysis of expense items in relation to leases recognised in profit or loss is as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Depreciation charge of right-of-use assets by class of underlying asset: Properties leased for own use, carried at cost 10,740 45,445 55,430 Land use rights, carried at depreciated cost 51 51 51

10,791 45,496 55,481

Interest on lease liabilities (note 6(a)) 2,216 8,250 10,937

Expense relating to short-term leases 1,215 2,854 1,655 COVID-19 – related rent concessions received – – 743

For the years ended 31 December 2018, 2019 and 2020, additions to right-of-use assets were RMB79,288,000, RMB110,196,000 and RMB127,132,000, respectively. These amounts included the capitalised lease payments payable and initial direct costs in connection with leases under new tenancy agreements.

Details of total cash outflow for leases, the maturity analysis of lease liabilities and the future cash outflows arising from leases that are not yet commenced are set out in notes 26 and 31(b), respectively.

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14 INTANGIBLE ASSETS

The Group

Licence Software Total RMB’000 RMB’000 RMB’000

Cost: At 1 January 2018 – 2,340 2,340 Purchase – 811 811 Addition through acquisition of subsidiaries (note 30) –1616

At 31 December 2018 – 3,167 3,167 Purchase – 117 117 Disposals – (10) (10) Addition through acquisition of subsidiaries (i)(ii) 3,200 5,906 9,106

At 31 December 2019 3,200 9,180 12,380 Purchase – 477 477 Disposals – (416) (416)

At 31 December 2020 3,200 9,241 12,441 ------

Accumulated amortization: At 1 January 2018 – (758) (758) Charge for the year – (566) (566)

At 31 December 2018 – (1,324) (1,324) Charge for the year (533) (511) (1,044) Disposals – 10 10

At 31 December 2019 (533) (1,825) (2,358) Charge for the year (1,067) (1,528) (2,595) Disposals – 416 416

At 31 December 2020 (1,600) (2,937) (4,537) ------

Net book value: At 31 December 2020 1,600 6,304 7,904

At 31 December 2019 2,667 7,355 10,022

At 31 December 2018 – 1,843 1,843

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The Company

Software RMB’000

Cost: At 1 January 2018 888 Purchase 811

At 31 December 2018 1,699 Purchase 117

At 31 December 2019 1,816 Purchase 342 Disposals (400)

At 31 December 2020 1,758 ------

Accumulated amortization: At 1 January 2018 (264) Charge for the year (236)

At 31 December 2018 (500) Charge for the year (346)

At 31 December 2019 (846) Charge for the year (186) Disposals 400

At 31 December 2020 (632) ------

Net book value: At 31 December 2020 1,126

At 31 December 2019 970

At 31 December 2018 1,199

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The amortisation charge for the Relevant Periods is included in below expenses in the consolidated statement of profit or loss.

2018 2019 2020 RMB’000 RMB’000 RMB’000

Fulfillment expense 166 561 2,304 Administrative expense 400 483 291

566 1,044 2,595

(i) In May 2019, the Group acquired 100% equity interest of Guangzhou Quanjian (previously known as “Guangzhou Baimai Pharmaceutical Co., Ltd.” (廣州百脈藥業有限公司)) at cash consideration of RMB3,200,000 pursuant to a share transfer agreement. The principal activity of Guangzhou Quanjian is wholesale pharmaceuticals, and its identifiable asset is mainly a distribution licence. The transaction was recognised as an acquisition of assets, rather than a business combination, given that the fair value of the licence acquired represented substantially the total fair value of the gross assets.

(ii) In December 2019, the Group acquired 70% equity interest in Shanghai Tarkool at a cash consideration of RMB4,800,000 pursuant to a sale and purchase agreement. The principal activity of Shanghai Tarkool is designing and developing software and hardware, and its identifiable assets are mainly software. The transaction was recognised as an acquisition of assets, rather than a business combination, given that the fair value of the software acquired represented substantially the total fair value of the gross assets.

15 GOODWILL

The Group

RMB’000

Cost and carrying amount At 1 January 2018 1,860 Additions (note 30) 4,450

At 31 December 2018 6,310 Additions (note 30) 84,181 Disposals (1,860)

At 31 December 2019 88,631 Disposals (2,593)

At 31 December 2020 86,038

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Impairment tests for cash-generating units containing goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to the provinces of operation as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Chongqing city operation 3,843 13,409 13,409 Guangdong province operation 2,467 75,222 72,629

6,310 88,631 86,038

The recoverable amount of the CGU is determined based on value-in-use (“VIU”) calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period stay the same with fifth year.

The followings are key assumptions that management used in the abovementioned value-in-use calculations of the CGUs for the years ended 31 December 2018, 2019 and 2020. The discount rates used are pre-tax and reflect specific risks relating to the CGUs.

Name of CGU Key assumptions 2018 2019 2020 Range Range Range

Chongqing city – Compound annual growth rate 84% 71% 41% of revenue – Gross margin rate 28%-36% 28%-36% 32%-36% – Pre-tax discount rate 17% 16% 15% Guangdong – Compound annual growth rate 76% 58% 38% province of revenue – Gross margin rate 28%-33% 23%-29% 25%-29% – Pre-tax discount rate 17% 16% 15%

Management has determined the values assigned to each of the above key assumptions as follows:

Assumptions Approach used to determine values

Compound annual growth rate of revenue during Based on past performance and management’s the projection period (%) expectations of market development Gross margin rate (%) Based on past performance and management’s expectations for the future. Pre-tax discount rate (%) Reflect specific risks relating to the relevant cash-generating units

By reference to the recoverable amount assessed by the independent valuer as at December 31, 2018, 2019 and 2020, the directors of the Company determined that no impairment provision on goodwill was required as at December 31, 2018, 2019 and 2020.

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16 INVESTMENTS IN SUBSIDIARIES

The Company

The carrying amounts of investments in subsidiaries of the Company is listed below:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Sichuan Quanyuantang 42,868 42,868 42,868 Shaanxi Quanyuantang 510 510 510 Guangdong Quanyuantang 600 600 600 Chengdu Spring Vision 10,000 10,000 10,000 Shanghai Tarkool – 4,800 4,800 Shanghai Dayou 750 750 588 Chengdu Quanzu 510 510 510 Shanghai Quanyi 5,400 5,400 4,886 Zizhuye 20,298 20,298 20,298 Yumeng Tongxing 2,400 2,400 2,400 Pujiang Shentong (i) 2,500 2,500 – Chengdu Quanze – – 970 Guangzhou Quanyuantang 2,079 – – Guangdong Megakang – 100 100

87,915 90,736 88,530

Less: impairment losses (24,797) (24,797) (24,121)

63,118 65,939 64,409

(i) The Company signed a share transfer agreement to dispose a subsidiary, Pujiang Shentong which is subsequently approved by directors and shareholders resolution. The disposal of Pujiang Shentong was completed on 26 April 2021. As a result, the investment in Pujiang Shentong is reclassified to assets held for sale as at 31 December 2020.

17 OTHER NON-CURRENT ASSETS

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Rental deposits (i) 3,561 7,717 10,294 Prepayments for acquisitions of subsidiaries (ii) 11,416 – – Prepaid payroll and benefits (iii) – 5,400 3,600

14,977 13,117 13,894

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The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Rental deposits (i) 2,220 3,335 4,745 Prepaid payroll and benefits (iii) – 5,400 3,600

2,220 8,735 8,345

(i) The long-term deposits mainly represented the deposits to the pharmacy lessors, which were expected to be recovered or recognized as expense after more than one year.

(ii) The prepayments for acquisitions of subsidiaries at 31 December 2018 included prepayment of RMB11,416,000 to the former shareholders of Guangdong Megakang (note 30).

(iii) The prepaid payroll and benefits represented the prepayment of payroll and benefits to the former owners and also the technical staff of Shanghai Tarkool, who also became the staff of the Group after the acquisition of Shanghai Tarkool.

18 INVENTORIES

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Merchandises 100,323 110,619 200,668 Low-value consumables 1,069 1,481 658

101,392 112,100 201,326

Less: Write-down of inventories (3,199) (1,850) (5,761)

98,193 110,250 195,565

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Merchandises 64,651 45,088 70,438 Low-value consumables 368 200 165

65,019 45,288 70,603

Less: Write-down of inventories (3,197) (535) (477)

61,822 44,753 70,126

As at 31 December 2018, 2019 and 2020, certain amounts of Merchandises of the Group were pledged as collateral for certain bank loans and other borrowings and banking facilities (see note 25).

All of the inventories of the Group are expected to be recovered within one year.

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(a) The analysis of the amount of inventories recognized as an expense and included in profit or loss is as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Carrying amount of inventories sold 495,316 692,093 982,384 Write-down/(reversal of write-down) of inventories 3,199 (1,349) 3,911

498,515 690,744 986,295

19 TRADE AND OTHER RECEIVABLES

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade debtors and bills receivable 76,696 89,958 114,285 Less: losses allowance (note 31(a)) (2,066) (2,654) (2,393)

Trade debtors and bills receivable, net 74,630 87,304 111,892

Loans to related parties (note 33(d)) 4,000 9,400 23,080 Contribution receivables from a shareholder (i) – 58,500 – Other receivables 6,569 14,697 17,122 Prepayments 15,075 22,236 34,336 Value Added Tax (“VAT”) recoverable 12,442 21,272 21,863

112,716 213,409 208,293

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade debtors and bills receivable 18,672 28,915 37,780 Less: losses allowance (note 31(a)) –––

Trade debtors and bills receivable, net 18,672 28,915 37,780

Amounts due from related parties (note 33(d)) 36,669 138,737 178,105 Loans to related parties (note 33(d)) – – 17,680 Contribution receivables from a shareholder (i) – 58,500 –

Other receivables 3,081 5,038 6,014 Prepayments 20,829 108,325 215,985 VAT recoverable 11,165 15,791 15,676

90,416 355,306 471,240

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(i) On 29 November 2018, the Company entered into an investment agreement with Chengdu Huamaoli Trading Co., Ltd. (“Huamaoli”) (成都華茂力商貿有限公司), pursuant to which Huamaoli agreed to invest RMB58,500,000 to subscribe for 9,750,000 newly issued shares of the Company, details of which were disclosed in note 27. These shares were issued as fully paid in March 2019 which the investment consideration was outstanding as at 31 December 2019. The Company received the consideration in full in July 2020.

All of the trade and other receivables are expected to be recovered or recognized as expense within one year.

As at 31 December 2018, 2019 and 2020, certain trade debtors were pledged as collateral for certain bank loans and other borrowings and banking facilities (see note 25).

Ageing analysis

As at the end of reporting period, the ageing analysis of trade debtors and bills receivable (which are included in trade and other receivables), based on the invoice date and net of loss allowance, is as follows:

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

74,630 87,304 111,892

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 6 months (inclusive) 18,672 28,915 37,780

18,672 28,915 37,780

Trade debtors and bills receivable are due within 30 to 180 days from the date of invoice. Further details on the Group’s credit policy and credit risk arising from trade debtors and bills receivable are set out in note 31(a).

20 OTHER FINANCIAL ASSETS

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Wealth management products – – 50,000

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The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Wealth management products – – 40,000

Other financial assets comprised the investments in wealth management products purchased from banks in the PRC which were measured at fair value through profit or loss.

21 RESTRICTED DEPOSITS

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Guarantee deposits for bills payable 57,802 81,264 158,557 Restricted cash for bank loans 4,736 24 – Others – 30 –

62,538 81,318 158,557

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Guarantee deposits for bills payable 57,802 81,264 158,557 Restricted cash for bank loans 370 – –

58,172 81,264 158,557

22 CASH AND CASH EQUIVALENTS AND OTHER CASH FLOW INFORMATION

(a) Cash and cash equivalents comprise:

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Cash at bank and on hand 39,425 6,533 92,681 Cash equivalents placed at payment platform 2,452 2,206 7,735

Cash and cash equivalents in the consolidated statements of financial position and cash flow statements 41,877 8,739 100,416

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The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Cash at bank and on hand 37,870 1,799 77,861 Cash equivalents placed at payment platform 1,843 357 1,213

Cash and cash equivalents in the consolidated statements of financial position and cash flow statements 39,713 2,156 79,074

(b) Reconciliation of loss before taxation to cash used in operations:

Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loss before taxation – from continuing operations (91,322) (163,776) (149,423) – from a discontinued operation (2,009) (2,293) (1,687)

(93,331) (166,069) (151,110)

Adjustments for: Depreciation of property and equipment 6(c) 2,863 7,931 11,207 Amortization of intangible assets 6(c) 566 1,044 2,595 Depreciation of right-of-use assets 6(c) 10,791 45,496 56,224 Impairment losses on trade and other receivables 6(c) 2,031 1,945 2,653 Finance costs 6(a) 7,676 26,784 43,271 Share of losses/(profits) of associates 17 209 (36) – Loss on disposal of property and equipment 5(b) ––119 Loss on disposal of a subsidiary 5(b) – 939 – Gain on disposal of an associate 5(a) – – (173) Fair value changes on other financial assets – – (4) COVID-19-related rent concessions received – – (743)

Changes in working capital: Increase in inventories (34,601) (2,540) (85,830) Increase in trade and other receivables (6,182) (46,060) (57,622) Increase in trade and other payables 121,141 70,049 121,749 (Decrease)/increase in contract liabilities (206) 2,745 442 Changes in restricted deposits (4,388) (23,492) (77,292)

Cash generated from/(used in) operations 6,569 (81,264) (134,514)

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The table below details changes in the Group’s liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the Group’s consolidated cash flow statement as cash flows from financing activities.

Bank loans and other Lease Interest Note borrowings liabilities payables Total RMB’000 RMB’000 RMB’000 RMB’000 (note 25) (note 26) (note 23)

At 1 January 2018 59,418 12,942 27 72,387

Changes from financing cash flows: Proceeds from new bank loans 172,905 – – 172,905 Proceeds from borrowings from related parties 11,446 – – 11,446 Proceeds from borrowings from third parties 18,319 – – 18,319 Repayments of bank loans (83,259) – – (83,259) Repayments of borrowings from third parties (17,070) – – (17,070) Capital element of lease rentals paid – (23,451) – (23,451) Interest element of lease rentals paid – (2,216) – (2,216) Interest paid – – (5,487) (5,487)

Total changes from financing cash flows 102,341 (25,667) (5,487) 71,187 ------

Other changes: Increase in lease liabilities from entering into new leases during the year – 77,301 – 77,301 Financial costs 6(a) – 2,216 5,460 7,676

Total other charges – 79,517 5,460 84,977 ------

At 31 December 2018 161,759 66,792 – 228,551

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Bank loans Other and other Lease Interest financial Note borrowings liabilities payables liabilities Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (note 25) (note 26) (note 23) (note 27)

At 1 January 2019 161,759 66,792 – – 228,551

Changes from financing cash flows: Proceeds from new bank loans 243,350–––243,350 Proceeds from borrowings from related parties 99,750–––99,750 Proceeds from borrowings from third parties 13,612–––13,612 Repayments of bank loans (158,110) – – – (158,110) Repayments of borrowings from related parties (81,269) – – – (81,269) Repayments of borrowings from third parties (417) – – – (417) Capital element of lease rentals paid – (39,867) – – (39,867) Interest element of lease rentals paid – (8,250) – – (8,250) Interest paid – – (14,612) – (14,612)

Total changes from financing cash flows 116,916 (48,117) (14,612) – 54,187 ------

Other changes: Increase in lease liabilities from entering into new leases during the year – 107,848 – – 107,848 Financial costs 6(a) – 8,250 15,078 3,456 26,784 Recognition of financial instruments issued to investors as non-current liabilities – – – 103,500 103,500

Total other charges – 116,098 15,078 106,956 238,132 ------

At 31 December 2019 278,675 134,773 466 106,956 520,870

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Bank loans Other and other Lease Interest financial Note borrowings liabilities payables liabilities Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (note 25) (note 26) (note 23) (note 27)

At 1 January 2020 278,675 134,773 466 106,956 520,870

Changes from financing cash flows: Proceeds from new bank loans 181,260–––181,260 Proceeds from borrowings from related parties 67,485–––67,485 Proceeds from borrowings from third parties 58,816–––58,816 Repayments of bank loans (86,020) – – – (86,020) Repayments of borrowings from related parties (94,010) – – – (94,010) Repayments of borrowings from third parties (55,608) – – – (55,608) Capital element of lease rentals paid – (62,914) – – (62,914) Interest element of lease rentals paid – (10,937) – – (10,937) Interest paid – – (26,315) – (26,315)

Total changes from financing cash flows 71,923 (73,851) (26,315) – (28,243) ------

Other changes: Increase in lease liabilities from entering into new leases during the year – 128,746 – – 128,746 COVID-19-related rent concessions received – 743 – – 743 Reclassification of financial instruments issued to investors as equity – – – (112,829) (112,829) Financial costs 6(a) – 10,937 26,461 5,873 43,271 Reclassified to the liabilities directly associated with the assets classified as held for sale 10 (13,952) – – – (13,952)

Total other charges (13,952) 140,426 26,461 (106,956) 45,979 ------

At 31 December 2020 336,646 201,348 612 – 538,606

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(d) Total cash outflows for leases

Amounts included in the cash flow statement for leases comprise the following:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Within operating cash flows 1,215 2,854 1,655 Within financing cash flows 25,667 48,117 73,851

26,882 50,971 75,506

(e) Net cash outflow arising from the acquisition of subsidiaries

The recognised amounts of assets acquired and liabilities at the date of acquisition of the subsidiaries comprise the following:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Property and equipment 44 1,459 – Right-of-use assets 6,111 23,777 – Intangible assets 16 9,106 – Other non-current assets 477 – – Inventories 1,735 9,513 – Cash and cash equivalents 259 470 – Trade and other receivables 648 2,018 – Trade and other payables (421) (7,180) – Lease liabilities (6,111) (23,777) –

Total consideration payable in cash (i) 6,855 75,763 – Less: cash of subsidiaries acquired (259) (470) – Changes of payables for acquisition of subsidiaries (1,204) (32,063) 14,314 Changes of prepayment for acquisition of subsidiaries 11,416 (11,416) –

16,808 31,814 14,314

(i) The consideration payable in cash included the acquisition of the subsidiaries disclosed in note 14 and note 30.

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23 TRADE AND OTHER PAYABLES

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Bills payable 107,276 127,739 198,551 Trade creditors 118,247 135,341 181,869 Accrued payroll and benefits 10,171 21,395 25,578 VAT and other tax payables 6,028 22,180 24,526 Interest payables – 466 612 Payables for acquisition of subsidiaries 1,204 33,268 18,954 Receipt on behalf of merchants in empowering business – 1,580 19,587 Provision for return allowance 1,007 1,512 1,366 Others 6,715 18,642 10,656

250,648 362,123 481,699

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Bills payable 107,276 127,739 198,551 Trade creditors 44,198 50,042 56,630 Accrued payroll and benefits 4,568 5,392 6,401 Other tax payables 2,385 10,835 10,941 Interest payables – 466 612 Payables for acquisition of a subsidiary – 4,800 4,800 Amounts due to related parties (note 33(d)) 11,844 67,465 87,910 Provision for return allowance 531 989 696 Others 10,195 6,072 7,844

180,997 273,800 374,385

All of the trade and other payables are expected to be settled or recognized as income within one year or are repayable on demand.

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As at the end of the reporting periods, the ageing analysis of trade creditors and bills payable (which are included in trade and other payables), based on the invoice date, is as follows:

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 224,149 258,479 361,268 1 to 2 years 991 3,913 19,152 2 to 3 years 357 679 – More than 3 years 26 9 –

225,523 263,080 380,420

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 150,271 174,293 252,747 1 to 2 years 868 2,872 2,434 2 to 3 years 335 607 – More than 3 years – 9 –

151,474 177,781 255,181

24 CONTRACT LIABILITIES

The contract liabilities represented the sales advance received from customers in connection with B2B business at 31 December 2018, 2019 and 2020.

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25 BANK LOANS AND OTHER BORROWINGS

At the end of reporting period, the bank loans and other borrowings were secured as follows:

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Bank loans – Secured bank loans (i) 144,930 229,170 320,410 – Unsecured bank loans – 1,000 –

Loans from related parties (note 33(d)) 11,446 29,927 3,402

Other borrowings – Secured borrowing (ii) – 4,583 9,387 – Unsecured borrowings (iii) 5,383 13,995 3,447

161,759 278,675 336,646

Including: Current 160,509 126,275 30,318 Non-current 1,250 152,400 306,328

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Bank loans – Secured bank loans (i) 135,060 226,970 307,410

Loans from related parties (note 33(d)) 8,240 13,605 3,265

Other borrowings – Secured borrowing (ii) – 4,583 9,387 – Unsecured borrowings (iii) 5,383 5,445 3,447

148,683 250,603 323,509

Including: Current 147,433 98,203 17,181 Non-current 1,250 152,400 306,328

(i) Secured bank loans

As at 31 December 2018, 2019 and 2020, the secured bank loans with interest at the range of 5.7%-6.5% per annum, 5.7% – 6.5% per annum and 4.6% – 6.5% per annum, respectively. These loans were secured by the Company, certain number of the Company’s shares held by the Company’s directors and investors – Chengdu Chuangtuo Business Service Co., Ltd. (“Chuangtuo”) (成都創拓商務服務有限公司), an entity controlled by Mr. Li Can, 49% shares of three subsidiaries, certain amounts of inventories, trade debtors and restricted deposits and they were also jointly guaranteed by certain directors of the Company.

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(ii) Secured borrowings

As at 31 December 2019 and 2020, secured borrowings carried interest at 4.5% and 4.3-4.5% per annum, respectively, from certain third party financial institutions were secured by certain amounts of the trade debtors and equipment.

(iii) Unsecured borrowings

As at 31 December 2018, 2019 and 2020, the unsecured borrowings included interest-free borrowings from third party individuals of RMB1,250,000, RMB9,800,000 and RMB1,250,000, respectively and from a third-party Trust of RMB4,133,000, RMB4,195,000 and RMB2,197,000 carried interest rate of 5.2%-12.1% per annum, respectively.

(iv) Bank loans and other borrowings at 31 December were repayable as follows:

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Bank loans – Within 1 year or on demand 144,930 79,020 16,758 – After 1 year but within 2 years – 1,200 150,887 – More than 2 years but less than 5 years – 149,950 152,765

Loans from related parties (note 33(d)) – Within 1 year or on demand 11,446 29,927 3,402

Other borrowings – Within 1 year or on demand 4,133 17,328 10,158 – After 1 year but within 2 years – 1,250 2,676 – More than 2 years but less than 5 years 1,250 – –

161,759 278,675 336,646

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Bank loans – Within 1 year or on demand 135,060 75,820 3,758 – After 1 year but within 2 years – 1,200 150,887 – More than 2 years but less than 5 years – 149,950 152,765

Loans from related parties (note 33(d)) – Within 1 year or on demand 8,240 13,605 3,265

Other borrowings – Within 1 year or on demand 4,133 8,778 10,158 – After 1 year but within 2 years – 1,250 2,676 – More than 2 years but less than 5 years 1,250 – –

148,683 250,603 323,509

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(v) Banking facilities

As at 31 December 2018, 2019 and 2020, the unused banking facilities of the Group and the Company amounted to RMB123,240,000, RMB158,250,000, and RMB3,990,000, respectively.

(vi) At the end of reporting period, the bank loans and other borrowings and banking facilities were secured by the Group’s and the Company’s assets as follows:

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Property and equipment (note 12) 8,325 7,973 7,508 Right-of-use assets (note 13) 3,099 4,719 14,610 Inventories (note 18) 100,000 100,000 70,000 Trade debtors (note 19) 9,870 4,583 7,231 Restricted deposits (note 21) 4,736 24 –

126,030 117,299 99,349

The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Property and equipment (note 12) 8,325 7,973 7,508 Right-of-use assets (note 13) 3,099 4,719 14,610 Inventories (note 18) 100,000 100,000 70,000 Trade debtors (note 19) – 4,583 7,231 Restricted deposits (note 21) 370––

111,794 117,275 99,349

As at 31 December 2018, 2019 and 2020, 45,080,000 ordinary shares, 54,830,000 ordinary shares, and 41,400,000 ordinary shares of the Company and 49% shareholding of three of the Company’s subsidiaries were pledged for bank loans.

[The above share and subsidiaries’ equity interest pledges have been released as of the date of this report.]

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26 LEASE LIABILITIES

The following table shows the remaining contractual maturities of the Group’s lease liabilities at the end of each reporting period:

The Group

2018 2019 2020 Present Total Present Total Present Total value of the minimum value of the minimum value of the minimum minimum lease lease minimum lease lease minimum lease lease payments payments payments payments payments payments RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year 19,601 23,097 41,821 49,279 56,026 68,170 After 1 year but within 2 years 16,931 19,231 34,188 39,126 52,181 60,457 After 2 years but within 5 years 29,704 31,803 54,729 59,295 89,405 97,412 After 5 years 556 558 4,035 4,595 3,736 4,115

66,792 74,689 134,773 152,295 201,348 230,154

Less: total future interest expenses (7,897) (17,522) (28,806)

Present value of lease liabilities 66,792 134,773 201,348

The Company

Within 1 year 10,160 12,378 16,820 20,500 28,361 34,844 After 1 year but within 2 years 10,270 11,844 16,077 18,624 28,398 32,833 After 2 years but within 5 years 20,406 21,850 27,466 29,924 45,930 50,537 After 5 years 366 367 3,127 3,662 3,676 4,058

41,202 46,439 63,490 72,710 106,365 122,272

Less: total future interest expenses (5,237) (9,220) (15,907)

Present value of lease liabilities 41,202 63,490 106,365

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27 OTHER FINANCIAL LIABILITIES

The Group and the Company

Series B Investments

On 29 November 2018, the Company entered into an investment agreement with an independent investor, pursuant to which the investor agreed to invest RMB58,500,000 to subscribe for 9,750,000 newly issued shares of the Company (“Series B-1 Investments”).

On 7 March 2019, the Company entered into a share subscription agreement with several independent investors, pursuant to which these investors agreed to invest an aggregated RMB60,000,000 to subscribe for 10,000,000 newly issued shares of the Company (“Series B-2 Investments”).

The key terms of the Series B Investment are summarised as follows:

Redemption rights:

The Company shall buy back all, or portion of the Series B investments held by the holders upon certain events.

The redemption price of the Series B investments shall be higher of (1) and (2):

(1) The aggregate of:

(a) the total actual consideration paid by the investors;

(b) an annual rate of return of 10% beginning from the date of actual payments of the consideration from the investors to the redemption date, excluding any actual paid dividends during the equity holding period.

(2) the net assets of the Company at the date of the redemption.

Liquidation preferences attributable to the Series B investments:

Certain Series B investments holders shall be paid first out of legally available funds available for distribution and in preference to any distribution of any of the assets or funds of the Company an amount equal to the higher amount of (i) Series B investments original purchase price plus a simple interest at the rate of ten percent per annum plus deduct any paid dividends; and (ii) pro rata distribution of the assets and funds of the Company legally available for distribution to all the members based on the number of ordinary shares held by each member.

Anti-dilution right

If the Company increases its paid-in capital at a price lower than the price paid by the investors on a per paid-in capital basis or the issuance price of new shares is lower than RMB6 per share, the investors have a right to require the Company to issue new paid-in capital for nominal consideration to the investors or to require the controlling shareholders to transfer certain shares to the investors, so that the total amount paid by the investors divided by the total amount of paid-in capital obtained is equal to the price per paid-in capital in the new issuance.

Series C investments:

In November 2020, the Company completed a series C financing, pursuant to which, (i) Chuangtuo sold 26,047,640 shares of the Company to an independent investor at a cash consideration of RMB215,931,000. Among the 26,047,640 shares, 9,750,000 shares were bought back from the series B-1 Investments. These 26,047,640 ordinary shares previously held by Chuangtuo were converted to Company’s series C-1 investments upon the completion of the series C financing. (ii) the Company further entered into a capital contribution agreement with several independent investors, pursuant to which these investors agreed to invest aggregated RMB300,000,000 to acquire 31,152,500 newly issued shares of the Company (“Series C-2 Investments”).

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All the special rights of series B investments were terminated and new special rights were granted to Series B-2 and Series C) investors when the new shareholders’ agreement are effective in November 2020.

The key terms of the Series C Investment are summarised as follows:

Performance Targets

If the Company fails to meet certain performance targets, Series C-2 investors have a right to require the Company to issue additional ordinary shares at nil consideration by transferring its capital reserve.

Anti-dilution right

If the Company issues new ordinary shares (or issues any securities that can be converted into ordinary shares) at a price lower than the subscription price to Series C-2 investors, the investors have a right to require the Company to issue additional ordinary shares at nil consideration by transferring its capital reserve at nil consideration or to require the controlling shareholder to transfer certain shares to the investors for the shortfall for free, so that the total amount paid by the investors divided by the total amount of paid-in capital obtained is equal to the price per paid-in capital in the new issuance.

Series C Adjustment

Pursuant to the shareholders’ agreement in relation to the Series C financing, under certain conditions related to the “Performance Targets” and “Anti-dilution right”, the Company shall issue additional shares to the Investors (the “Series C Adjustment”). This is a separate component from the ordinary shares.

Presentation and classification

The redemption obligations of Series B Investments give rise to financial liabilities, which are measured at the highest of those amounts that could be payable, and on a present value basis. The financial liabilities arising from series B investments are measured at the transaction price at initial recognition and subsequently at amortized cost at an effective interest rate of 10%. The series B investments were reclassified to equity upon the repurchases by the Company in July 2020 as disclosed in note 29(c) and transferred to Chuangtuo in November 2020 as disclosed above for the purpose of re-sale to Series C investor when all the special rights of series B investments were terminated.

The Series C Adjustment is recognized as a derivative financial liability and is measured at fair value through profit or loss. The fair value of the Series C Adjustment is assessed by the independent valuer as at December 31, 2020, which amount is immaterial.

The movements of the other financial liabilities during the Relevant Periods are set out in note 22(b).

28 INCOME TAX IN THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(a) Current taxation in the consolidated statements of financial position represents:

2018 2019 2020 RMB’000 RMB’000 RMB’000

PRC Corporate Income Tax At the beginning of the year 20 18 – Provision for income tax for the year 100 20 4,002 Income tax (paid)/refund (102) (38) 99

At the end of the year 18 – 4,101

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(b) Deferred tax assets not recognized

In according with accounting policy set out in note 2(s), as at 31 December 2018, 2019 and 2020, the Group has not recognized deferred tax assets in respect of cumulative tax losses of RMB145,344,633, RMB274,313,363 and RMB419,149,363, respectively, and temporary differences of RMB194,664, RMB7,246,731 and RMB24,057,902, as it is not probable that future taxable profits against which the losses can be utilized before expiries.

29 CAPITAL AND RESERVES

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Group’s consolidated (deficit)/equity is set out in the consolidated statements of changes in (deficit)/equity. Details of the changes in the Company’s individual components of equity between the beginning and the end of the year are set out below.

PRC Share Capital Treasury statutory Accumulated Note capital reserves shares reserves losses Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2018 101,677 107,217 – – (121,465) 87,429

Changes in equity for 2018: Total comprehensive income for the year ––––(71,428) (71,428)

At 31 December 2018 and 1 January 2019 101,677 107,217 – – (192,893) 16,001

Changes in equity for 2019: Total comprehensive income for the year ––––(89,620) (89,620) Issue of ordinary shares 17,250 86,250 – – – 103,500 Recognition of financial instruments issued to investors as non-current liabilities 27 – (103,500) – – – (103,500) Ordinary shares to be issued as consideration for business combination 30 – 22,377 – – – 22,377

At 31 December 2019 and 1 January 2020 118,927 112,344 – – (282,513) (51,242)

Changes in equity for 2020: Total comprehensive income for the year ––––(92,464) (92,464) Issue of ordinary shares 29(b) 36,836 262,645 – – – 299,481 Reclassification of financial instruments issued to investors as equity 27 – 112,829 – – – 112,829 Purchase of own shares 29(c) – – (38,914) – – (38,914)

At 31 December 2020 155,763 487,818 (38,914) – (374,977) 229,690

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(b) Share capital

As at 31 December 2018, 2019 and 2020, the Company has 101,676,667, 118,926,667 and 155,762,500 ordinary shares issued with par value of RMB1 for each share, respectively. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

2018 2019 2020 No. of shares RMB’000 No. of shares RMB’000 No. of shares RMB’000

Ordinary shares, issued and outstanding: At 1 January 101,676,667 101,677 101,676,667 101,677 118,926,667 118,927 Issue of ordinary shares – – 17,250,000 17,250 36,835,833 36,836

At 31 December 101,676,667 101,677 118,926,667 118,927 155,762,500 155,763

On 14 July 2020, the Company repurchased 6,485,693 shares from a shareholder at a total consideration of RMB38,914,000 and then held by the Company as treasury shares.

(d) Nature and purpose of reserves

(i) Capital reserves

The capital reserves comprise the following:

– the amount represents the difference between the consideration and the par value of the issued shares of the Company;

– the amount related to merger reserves resulted from business combination in 2016 involving entities under common control;

– the amount arises from the purchasing or disposing the interests of subsidiaries from non- controlling shareholders while retain the control.

(ii) PRC statutory reserves

According to the PRC Company Law, the PRC subsidiaries of the Group are required to transfer 10% of their profit after taxation (after offsetting the losses in the previous years), as determined under the PRC Accounting Regulations, to the statutory reserves until the reserve balance reaches 50% of their registered capital.

The transfer to this reserve must be made before distribution of a dividend to shareholders.

Statutory reserves fund can be used to cover previous years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

(e) Dividends

The directors of the Company did not propose the payment of any dividend during the Relevant Periods.

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(f) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and service commensurately with the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholders returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position and makes adjustments to the capital structure in light of changes in economic conditions.

The Group monitors its capital structure on the basis of an adjusted net debt-to-capital ratio. For this purpose, adjusted net debt is defined as total debt (which includes loans and other borrowings and lease liabilities but exclude other financial liabilities), less cash and cash equivalents. Adjusted capital comprises all components of equity and other financial liabilities.

The Company and its subsidiaries are not subject to externally imposed capital requirements.

30 ACQUISITION OF SUBSIDIARIES

The Group carried out below acquisitions during the Relevant Periods:

(i) On 5 July 2018, the Group acquired 100% equity interest of Guangdong Quanyuantang (previously known as “Guangdong Haoyaoshi Pharmacy Co., Ltd.” (廣東好藥師大藥房有限公司)) from a third party for a cash consideration of RMB1,600,000.

(ii) On 26 October 2018, the Group acquired 80% equity interest of Chongqing Quanyuantang (previously known as “Chongqing Jianshun Pharmacy chain Co., Ltd.” (重慶健順大藥房連鎖有限責任公司)) from a third party individual for a cash consideration of RMB5,255,000.

(iii) On 1 January 2019, the Group acquired 100% equity interest of Guangdong Megakang and other nine pharmacies which were directly held by the same selling shareholders for an aggregated consideration of RMB66,917,000 pursuant to series of agreements signed among sellers and purchaser. The total purchase consideration comprised of 5,020,000 ordinary shares of the Company and RMB44,540,000 contingent consideration payable subject to fulfillment of Guangdong Megakang’s 2019 revenue target. The Group recorded RMB66,917,000 as contingent consideration, which represented the fair value of the shares to be issued and contingent consideration at the date of acquisition.

(iv) On 13 November 2019, the Group acquired a group of seven pharmacies which located in Shenzhen city from Shenzhen Huameijia Pharmaceutical Co., Ltd. (“Huameijia”) (深圳華美佳醫藥有限公司) for a cash consideration of RMB12,989,000.

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(v) On 22 March 2019, the Group acquired a group of five pharmacies which located in Chongqing city from third party individuals for a cash consideration of RMB10,555,000.

Guangdong Seven Five Megakang pharmacies pharmacies in Guangdong Chongqing and nine in Shenzhen Chongqing Note Quanyuantang Quanyuantang pharmacies city city RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (i) (ii) (iii) (iv) (v)

Year of the acquisition 2018 2018 2019 2019 2019 Total consideration (a) 1,600 5,255 66,917 12,989 10,555 Less: share of fair value of identifiable net assets (b) (993) (1,412) (3,847) (1,444) (989)

Goodwill 607 3,843 63,070 11,545 9,566

Goodwill arisen from to above acquisitions constituted of the acquired experienced employee workforce and the expected synergies. None of the goodwill recognized above is expected to be deductible for tax purposes.

(a) Consideration transferred

The following table summarises the acquisition date fair value of each major class of consideration transferred for each of the acquisitions above:

Guangdong Megakang Seven Five Guangdong Chongqing and nine pharmacies in pharmacies in Note Quanyuantang Quanyuantang pharmacies Shenzhen city Chongqing city RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cash 1,600 5,255 – 12,989 10,555 Share consideration (i) – – 22,377 – – Contingent consideration (ii) – – 44,540 – –

Total consideration transferred 1,600 5,255 66,917 12,989 10,555

(i) The fair value of the ordinary shares to be issued in connection with acquisition of Guangdong Megakang was valued by the directors of the Company with reference to valuation reports carried out by an independent qualified professional valuer. The Company used discounted cashflow method to determine the total share value of the Company. The shares were subsequently issued on 10 January 2020.

(ii) The contingent consideration is payable subject to meeting a revenue target of 2019. The contingent consideration was initially recognised as fair value at the acquisition date with subsequent change of RMB321,000 which was not measurement period adjustments recognised in other income in 2019.

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(b) Identifiable assets acquired and liabilities assumed at the acquisition date

Non-current asset Property and equipment 12 – 44 1,459 – – Right-of-use assets 13 3,722 2,389 10,731 7,316 5,730 Intangible assets 14 –16––– Other non-current assets – 477 – – –

------3,722 ------2,926------12,190------7,316 ------5,730

Current assets Inventories (i) 647 1,088 7,080 1,444 989 Trade and other receivables 207 441 2,018 – – Cash 22(e) 151 108 470 – –

------1,005 ------1,637------9,568------1,444 ------989

Current liabilities Trade and other payables 12 409 7,180 – – Lease liabilities 1,354 738 2,864 1,754 1,748

------1,366------1,147------10,044------1,754------1,748

Net current (liabilities)/assets (361) 490 (476) (310) (759)

Total assets less current liabilities ------3,361 ------3,416------11,714------7,006 ------4,971

Non-current liability Lease liabilities------2,368------1,651------7,867------5,562------3,982

Net identifiable assets 993 1,765 3,847 1,444 989

Less: Non-controlling interests – (353) – – –

Share of fair value of identifiable net assets 993 1,412 3,847 1,444 989

(i) Market comparison technique is used to measure the fair value of inventories. The fair value is determined based on the estimated selling price in the ordinary course of business and a reasonable profit margin based on the effort required to sell the inventories.

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No acquisition-related cost was incurred for the years ended 31 December 2018 and 2019, respectively.

(d) Revenue and profit or loss of the acquiree since the acquisition date included in the consolidated statement of profit or loss and other comprehensive income for the year acquired

Guangdong Seven Megakang pharmacies Five pharmacies Guangdong Chongqing and nine in Shenzhen in Chongqing Quanyuantang Quanyuantang pharmacies city city RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year of the acquisition 2018 2018 2019 2019 2019

Revenue 2,385 1,327 53,107 3,899 12,093 Net (loss)/profit (6,679) (464) (7,999) (1,356) 34

31 FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Exposure to credit, liquidity and interest rate risks arises in the normal course of the Group’s business.

The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group’s credit risk is primarily attributable to trade debtors. The Group’s exposure to credit risk arising from cash and cash equivalents and restricted deposits is limited because the counterparties are banks, Alipay and Wechat Pay for which the Group considers to have low credit risk.

The Group does not provide any other guarantees which would expose the Group to credit risk.

Trade debtors and bills receivable

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which the customers operate and therefore significant concentrations of credit risk primarily arise when the Group has significant exposure to individual customers. As at 31 December 2018, 2019 and 2020, 15% and 39%, 10% and 31%, 8% and 22% of the total trade debtors was due from the Group’s largest customer and the five largest customers.

Individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade debtors are due within 30 to 180 days from the date of billing. Normally, the Group does not obtain collateral from customers.

The Group measures loss allowances for trade debtors at an amount equal to lifetime ECLs, which is calculated using a provision matrix and based on past due status.

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The following table provides information about the Group’s exposure to credit risk and ECLs for trade debtors and bills receivable as at 31 December 2018, 2019 and 2020:

The Group

2018 Gross carrying Expected loss amount of rate trade debtors Loss allowance % RMB’000 RMB’000

Not past due and not impaired 0.00% 16,759 – Current (not past due) 0.47% 38,463 (183) Within 6 months past due 1.28% 14,438 (185) 6-12 months past due 4.82% 3,256 (157) 1-2 years past due 9.02% 1,386 (125) 2-3 years past due 20.81% 1,235 (257) More than 3 years past due 100.00% 1,159 (1,159)

76,696 (2,066)

2019 Gross carrying Expected loss amount of rate trade debtors Loss allowance % RMB’000 RMB’000

Not past due and not impaired 0.00% 25,992 – Current (not past due) 0.68% 48,421 (329) Within 6 months past due 2.43% 7,825 (190) 6-12 months past due 1.88% 4,842 (91) 1-2 years past due 19.25% 826 (159) 2-3 years past due 48.77% 326 (159) More than 3 years past due 100.00% 1,726 (1,726)

89,958 (2,654)

2020 Gross carrying Expected loss amount of rate trade debtors Loss allowance % RMB’000 RMB’000

Not past due and not impaired 0.00% 38,245 – Current (not past due) 0.73% 50,312 (371) Within 6 months past due 1.63% 18,818 (307) 6-12 months past due 1.71% 4,029 (69) 1-2 years past due 21.83% 1,008 (220) 2-3 years past due 45.22% 816 (369) More than 3 years past due 100.00% 1,057 (1,057)

114,285 (2,393)

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The Company

2018 Gross carrying Expected loss amount of rate trade debtors Loss allowance % RMB’000 RMB’000

Not past due and not impaired – 19,137 –

19,137 –

2019 Gross carrying Expected loss amount of rate trade debtors Loss allowance % RMB’000 RMB’000

Not past due and not impaired – 29,057 –

29,057 –

2020 Gross carrying Expected loss amount of rate trade debtors Loss allowance % RMB’000 RMB’000

Not past due and not impaired – 38,668 –

38,668 –

Expected loss rates are based on actual loss experience over the past 3 years. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the trade debtors. The Group has not provided any impairment loss on these not past due debtors as the Group is satisfied with the credit quality of these customers and credit risk of these trade debtors is remote.

Movement in the loss allowance account in respect of trade debtors and bills receivable during the Relevant Periods is as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

At 1 January 1,452 2,066 2,654 Impairment loss recognised during the year 746 1,429 889 Amounts written-off during the year (132) (841) (1,150)

At 31 December 2,066 2,654 2,393

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(b) Liquidity risk

The following tables show the remaining contractual maturities at the end of the reporting period of the Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay:

The Group

2018 Contractual undiscounted cash outflow More than More than Within 1 year but 2 years but Carrying 1 year or less than less than More than amounts at on demand 2 years 5 years 5 years Total December 31 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Bank loans and other borrowings (note 25) 168,474 – 1,250 – 169,724 161,759 Trade and other payables (note 23) 250,648 – – – 250,648 250,648 Lease liabilities (note 26) 23,097 19,231 31,803 558 74,689 66,792

442,219 19,231 33,053 558 495,061 479,199

2019 Contractual undiscounted cash outflow More than More than Within 1 year but 2 years but Carrying 1 year or less than less than More than amounts at on demand 2 years 5 years 5 years Total December 31 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Bank loans and other borrowings (note 25) 140,769 12,313 159,155 – 312,237 278,675 Trade and other payables (note 23) 362,123 – – – 362,123 362,123 Lease liabilities (note 26) 49,279 39,126 59,295 4,595 152,295 134,773

552,171 51,439 218,450 4,595 826,655 775,571

2020 Contractual undiscounted cash outflow More than More than Within 1 year but 2 years but Carrying 1 year or less than less than More than amounts at on demand 2 years 5 years 5 years Total December 31 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Bank loans and other borrowings (note 25) 51,137 172,802 155,951 – 379,890 336,646 Trade and other payables (note 23) 481,699 – – – 481,699 481,699 Lease liabilities (note 26) 68,170 60,457 97,412 4,115 230,154 201,348

601,006 233,259 253,363 4,115 1,091,743 1,019,693

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The Company

Bank loans and other borrowings (note 25) 155,328 – 1,250 – 156,578 148,683 Trade and other payables (note 23) 180,997 – – – 180,997 180,997 Lease liabilities (note 26) 12,378 11,844 21,850 367 46,439 41,202

348,703 11,844 23,100 367 384,014 370,882

Bank loans and other borrowings (note 25) 112,675 12,313 159,155 – 284,143 250,603 Trade and other payables (note 23) 273,800 – – – 273,800 273,800 Lease liabilities (note 26) 20,500 18,624 29,924 3,662 72,710 63,490

406,975 30,937 189,079 3,662 630,653 587,893

Bank loans and other borrowings (note 25) 36,728 172,802 155,951 – 365,481 323,509 Trade and other payables (note 23) 374,385 – – – 374,385 374,385 Lease liabilities (note 26) 34,844 32,833 50,537 4,058 122,272 106,365

445,957 205,635 206,488 4,058 862,138 804,259

In addition to the above, the Group was also exposed to liquidity risk arising from the other financial liabilities at 31 December 2019, which are further disclosed in note 27.

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Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s interest rate risk arises primarily from short-term borrowings. Borrowings issued at variable rates and fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The Group’s interest rate profile as monitored by management is set out in (i) below.

(i) Interest rate profile

The following table details the interest rate profile of the Group’s borrowings at the end of the reporting period.

The Group

2018 2019 2020 Effective Effective Effective Interest rate Interest rate Interest rate % RMB’000 % RMB’000 % RMB,000

Fixed rate instruments: Bank loans and other borrowings 5.2%~12.1% (143,589) 4.5%~12.1% (278,675) 4.3%~12.1% (326,646) Lease liabilities 6.4%~6.7% (66,792) 4.6%~7.5% (134,773) 4.5%~7.8% (201,348)

Variable rate instruments: Cash at banks 0.4% 39,389 0.4% 6,349 0.4% 92,671 Restricted deposits 1.4%–1.7% 62,538 0.5% 81,318 0.3%–1.7% 158,557 Other financial assets – – 1.2%~4.2% 50,000 Bank loans and other borrowings 5.7%~6.1% (18,170) – 4.6%~4.8% (10,000)

(126,624) (325,781) (236,766)

The Company

2018 2019 2020 Effective Effective Effective Interest rate Interest rate Interest rate % RMB’000 % RMB’000 % RMB’000

Fixed rate instruments: Bank loans and other borrowings 5.2%~12.1% (140,383) 4.5%~12.1% (250,603) 4.3%~12.1% (323,509) Lease liabilities 6.5%~6.7% (41,202) 7.4%~7.5% (63,490) 7.6%~7.8% (106,365)

Variable rate instruments: Cash at banks 0.4% 37,742 0.4% 1,770 0.4% 77,859 Restricted deposits 1.4%–1.7% 58,172 0.5% 81,264 0.3%–1.7% 158,557 Other financial assets – – 3.7%~4.2% 40,000 Bank loans and other borrowings 5.7% (8,300) – –

(93,971) (231,059) (153,458)

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(ii) Sensitivity analysis

At 31 December 2018, 2019 and 2020, it is estimated that an increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have decrease/increase the Group’s loss after tax and accumulated losses by approximately RMB837,000, RMB877,000 and RMB2,912,000, respectively and would have decreased/increased the Company’s loss after tax and accumulated losses by approximately RMB876,000, RMB830,000 and RMB2,764,000.

The sensitivity analysis above indicates the instantaneous change in the Group’s loss after tax and accumulated losses that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the end of the reporting period, the impact on the Group’s loss after tax and accumulated losses is estimated as an annualized impact on interest expense or income of such a change in interest rates.

(d) Fair value measurement

(i) Financial assets and liabilities measured at fair value

Fair value hierarchy

The following table presents the fair value of the Group’s financial instruments measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

• Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available.

• Level 3 valuations: Fair value measured using significant unobservable inputs.

The following table presents the Group’s financial assets and financial liabilities that are measured at fair value at the end of each reporting periods:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Level 3 Other financial assets – – 50,000

Information about Level 3 fair value measurements

Significant Valuation techniques unobservable inputs Range

Other financial assets Discount cash flow – Interest return rate 1.2%-4.2% method

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The fair value of other financial assets is determined using the forecast future cashflow discounted by risk-adjusted discount rate. The fair value measurement is positively correlated to interest return rate and negatively correlated to the discount rate. As at 31 December 2020, it is estimated that with all other variables held constant, an increase in interest return rate by 1% would have increased the Group’s profit by RMB14,000, and an increase in discount rate by 1% would have decreased the Group’s profit by RMB16,000.

The movements during the Relevant Periods in the balance of these Level 3 financial assets at fair value through profit or loss are as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Other financial assets: At 1 January – – – Payment for purchases – – 310,001 Changes in fair value recognised in profit or loss during the year – – 4 Redemption – – (260,005)

At 31 December – – 50,000

(ii) Fair value of financial assets and liabilities carried at other than fair value

The carrying amounts of the Group’s financial instruments carried at cost or amortised cost were not materially different from their fair values as at 31 December 2018, 2019 and 2020.

32 COMMITMENTS

(a) Capital commitments outstanding as at 31 December 2018, 2019 and 2020 not provided for in the Historical Financial Information were as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Capital commitments 4,829 – –

(b) Other commitment relating to acquisition of subsidiaries as at 31 December 2018, 2019 and 2020 not provided for in the Historical Financial Information were as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Other commitments 55,501 – –

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33 MATERIAL RELATED PARTY TRANSACTIONS

(a) Key management personnel emoluments

Emoluments for key management personnel of the Group, including amounts paid to the Company’s directors as disclosed in note 8 and certain of the highest paid employees as disclosed in note 9, is as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Short-term employee benefits 3,002 5,098 5,062 Post-employment benefits 66 129 53

3,068 5,227 5,115

Total emoluments are included in “staff costs” (see note 6(b)).

(b) Identify of related parties

Name of party Relationship with the Group

Mr. Li Can 李燦 Chairman and controlling shareholder Ms. Zhao Xiaofang 趙小芳 A close family member of Mr. Li Can Mr. Li Mingjing 李明勁 A close family member of Mr. Li Can Ms. Han Hemin 韓和敏 A close family member of Mr. Li Can Mr. Chen Zhouhua 陳洲華 Director Ms. Yu Miao 于淼 Director Mr. Wang Lei 王磊 Director Mr. Chen Yang 陳楊 Director Mr. Xia Jun 夏軍 Director (resigned on 3 November 2020) Mr. Huang Xin 黃鑫 Director (appointed on 3 November 2020) Huamaoli Shareholder which has a significant influence Chuangtuo Fellow subsidiary Chengdu Shenhe Pharmaceutical Co., Ltd. Fellow subsidiary (“Shenhe”) 成都神鶴藥業有限責任公司 Chengdu Jingcao Chinese Medicine Co., Ltd. Fellow subsidiary (“Jingcao”) 成都勁草中藥飲片有限責任公司 Chia Tai Tianqing Pharmaceutical Group Co., Ltd. Subsidiary controlled by the shareholder which has (“Chia Tai Tianqing”) 正大天晴藥業集團股份有限 a significant influence 公司 Chengdu Xiqibaguai Technology Co., Ltd Subsidiary controlled by director (“Xiqibaguai”) 成都稀奇八怪科技有限公司 Chengdu Rongchuangzhongxiang Technology Co., Subsidiary controlled by director Ltd (“Rongchuangzhongxiang”) 成都榮創眾享科技有限責任公司 Chengdu Mengmao Pharmaceutical Technology Subsidiary controlled by the close family member Development Co., Ltd. (“Mengmao”) 成都夢茂醫 of the controlling shareholder 藥技術開發有限責任公司 Chengdu Xinyishi Co., Ltd. (“Xinyishi”) 成都新醫 Associate 勢科技有限公司 Chengdu Quanqiang Technology Co., Ltd Associate (“Quanqiang”) 成都泉強科技有限公司

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The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Sales of goods to: Shenhe 40 6 318

Purchases of goods from: Shenhe 17,858 24,195 24,388 Jingcao 937 1,947 2,183 Chia Tai Tianqing – – 8,202 Mengmao – – 31

18,795 26,142 34,804

(Loans to)/repayment of loans from: Shenhe (4,000) (5,400) 4,000 Chuangtuo – – (17,680)

(4,000) (5,400) (13,680)

Receipt/(repayment) of loans from: Huamaoli 490 11,040 (10,000) Chuangtuo 3,400 (3,060) (340) Directors 7,556 10,501 (16,185)

11,446 18,481 (26,525)

(d) Balance with related parties

The Group

2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade related Amounts due from: Shenhe 35 30 56 Chuangtuo – – 1,805

35 30 1,861

Prepayment to: Shenhe 4,773 16,501 25,668

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2018 2019 2020 RMB’000 RMB’000 RMB’000

Amounts due to: Shenhe 11 10 11 Jingcao 632 659 168 Chia Tai Tianqing – – 7,308

643 669 7,487

Non-trade related Loans to related parties (i): Shenhe 4,000 9,400 5,400 Chuangtuo – – 17,680

4,000 9,400 23,080

Other receivables: Huamaoli – 58,500 – Shenhe 309 5 3 Rongchuangzhongxiang – – 216 Xinyishi 58 64 1 Xiqibaguai – – 153 Directors 422 76 516

789 58,645 889

Other payables: Quanqiang – – 792 Rongchuangzhongxiang – – 216 Shenhe 19 18 – Directors 381 1,009 731

400 1,027 1,739

Loans from related parties (ii): Huamaoli 490 11,530 1,530 Chuangtuo 3,400 340 – Directors 7,556 18,057 1,872

11,446 29,927 3,402

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The Company

2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade related Amounts due from: Subsidiaries 2,567 8,240 10,311 Shenhe 7 29 55

2,574 8,269 10,366

Prepayment to: Subsidiaries 18,324 107,628 214,980

Amounts due to: Subsidiaries 1,670 16,143 10,925 Shenhe 11 10 11

1,681 16,153 10,936

Non-trade related Loans to related parties (i) Chuangtuo – – 17,680

Other receivables: Huamaoli – 58,500 – Shenhe – 3 3 Xinyishi 58 63 – Xiqibaguai – – 153 Rongchuangzhongxiang – – 216 Directors 407 76 516 Subsidiaries 36,204 138,595 177,217

36,669 197,237 178,105

Other payables: Shenhe 19 18 – Quanqiang – – 792 Rongchuangzhongxiang – – 216 Directors 80 489 707 Subsidiaries 11,745 66,958 86,195

11,844 67,465 87,910

Loans from related parties (ii) Huamaoli – 10,000 – Chuangtuo 3,400 340 – Directors 4,840 3,265 3,265

8,240 13,605 3,265

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(i) Loans to related parties

Loans to entities connected with directors of the Company disclosed pursuant to section 383(1)(d) of the Hong Kong Companies Ordinance and Part 3 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows:

Name of borrower Shenhe Chuangtuo

Relationship with the company Controlled by Mr. Li Can Controlled by Mr. Li Can

Terms of the loan – duration and repayment terms Repayable on demand Repayable on demand – loan amount 9,400 17,680 – interest rate Interest-free Interest-free – security None None

Balance of the loan – at 31 December 2018 4,000 – – at 31 December 2019 9,400 – – at 31 December 2020 5,400 17,680

Maximum balance outstanding – during 2018 4,000 – – during 2019 9,400 – – during 2020 9,400 17,680

There was no amount due but unpaid, nor any loss allowance made against the principal amount of or interest on these loans at 31 December 2018, 2019 and 2020.

(ii) Loans from related parties

Loans from related parties represented loans from Huamaoli carried at an interest rate of 6.5% per annum, and loans from other related parties were interest-free.

(e) Guarantee provided by and to related parties

As disclosed in note 25, the secured bank loans of RMB144,930,000, RMB229,170,000 and RMB317,410,000 as at 31 December 2018, 2019 and 2020, respectively, were secured by certain number of the Company’s shares held by Mr. Li Can, Ms. Zhao Xiaofang, Mr. Chen Zhouhua, Ms. Yu Miao, Mr. Wang Lei, Mr. Chen Yang and Chuangtuo and guaranteed by Mr. Li Can, Mr. Chen Zhouhua, Mr. Chen Yang, Mr. Wang Lei, Ms. Yu Miao jointly.

As at 31 December 2018, 2019 and 2020, the Group’s unutilised bank facilities of aggregated amounts of RMB123,240,000, RMB158,250,000 and RMB3,990,000 were secured by the Company’s ordinary shares held by Mr. Li Can, Mr. Chen Zhouhua, Ms. Yu Miao, Mr. Wang Lei, Mr. Chen Yang and Chuangtuo and guaranteed by Mr. Li Can, Mr. Chen Zhouhua, Mr. Chen Yang, Mr. Wang Lei, Ms. Yu Miao, Ms Zhao Xiaofang and Shenhe jointly.

As at 31 December 2018, 2019 and 2020, the Group’s bill payables of aggregated amounts of RMB107,276,000, RMB127,739,000 and RMB198,551,000 were guaranteed by Mr. Li Can, Mr. Chen Zhouhua, Mr. Chen Yang, Mr. Wang Lei, Ms. Yu Miao, Ms Zhao Xiaofang and Shenhe jointly.

[The share pledges have been released as of the date of this report.]

As at 31 December 2020, the secured bank loan of RMB3,000,000 of a subsidiary of the Company was secured by the Company.

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34 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

As at 31 December 2020, the directors consider the immediate and ultimate holding controlling party to be Mr. Li Can.

35 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS

Up to the date of issue of this report, the HKICPA has issued a number of amendments, and a new standards and interpretations which are effective for the year beginning 1 January 2021 and which have not been adopted in the Historical Financial Information as follows:

Effective for accounting periods beginning on or after

Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16, 1 January 2021 Interest Rate Benchmark Reform – Phase 2 Amendments to HKFRS 3, Reference to the Conceptual Framework 1 January 2022 Amendments to HKAS 16, Property, Plant and Equipment: Proceeds before 1 January 2022 Intended Use Amendments to HKAS 37, Onerous Contracts – Cost of Fulfilling a Contract 1 January 2022 Annual Improvements to HKFRSs 2018-2020 Cycle 1 January 2022 IFRS 17, Insurance contracts and related Amendments 1 January 2023 Amendments to IAS 1, Classification of Liabilities as Current or Non-current 1 January 2023 Amendments to IFRS 4, Extension of the temporary exemption from applying 1 January 2023 IFRS 9 Amendments to IFRS 10 and IAS 28, Sale or contribution of assets between To be determined an investor and its associate or joint venture

The Group is in the process of making an assessment of what the impact of these amendments, new standards and interpretations is expected to be in the period of initial application. So far, the Group has concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.

36 SUBSEQUENT EVENT

The Company has granted 6,485,693 shares of the Company through four employee shareholding platforms to certain directors and employees of our Group in May 2021. None of these award shares was vested as of the date of this report.

Subsequent Financial Statements

No audited financial statements have been prepared by the Company or any of its subsidiaries comprising the Group in respect of any period subsequent to 31 December 2020.

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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1. TAXATION OF SECURITY HOLDERS

The taxation of income and capital gains of holders of H Shares is subject to the laws and practices of the PRC and of jurisdictions in which holders of H Shares are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions is based on current laws and practices, is subject to change and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in the H Shares, nor does it take into account the specific circumstances of any particular investor, some of which may be subject to special regulation. Accordingly, you should consult your own tax adviser regarding the tax consequences of an investment in the H Shares. The discussion is based upon laws and relevant interpretations in effect as of the Latest Practicable Date, all of which are subject to change and may have retrospective effect.

This discussion does not address any aspects of PRC or Hong Kong taxation other than income tax, capital tax, stamp duty and estate duty. Prospective investors are urged to consult their financial advisers regarding the PRC, Hong Kong and other tax consequences of owning and disposing of H Shares.

A. The PRC Taxation

Taxation on Dividends

Individual Investor

Pursuant to the Individual Income Tax Law of the PRC (《中華人民共和國個人所得稅法》), which was most recently amended on August 31, 2018 and the Implementation Provisions of the Individual Income Tax Law of the PRC (《中華人民共和國個人所得稅法實施條例》), which was most recently amended on December 18, 2018 (hereinafter collectively referred to as the “IIT Law”), dividends distributed by PRC enterprises are subject to individual income tax levied at a flat rate of 20%. For a foreign individual who is not a resident of the PRC, the receipt of dividends from an enterprise in the PRC is normally subject to individual income tax of 20% unless specifically exempted by the tax authority of the State Council or reduced by relevant tax treaty.

Pursuant to the Notice of the STA on Issues Concerning Taxation and Administration of Individual Income Tax After the Repeal of the Document Guo Shui Fa [1993] No. 45) (《國家稅務總局關於國稅發[1993]045號文件廢止後有關個人所得稅徵管問題的通知》) issued by the STA on June 28, 2011, domestic non-foreign-invested enterprises issuing shares in Hong Kong may, when distributing dividends to overseas resident individuals in the jurisdiction of the tax treaty, normally withhold individual income tax at the rate of 10%. For the individual holders of H Shares receiving dividends who are citizens of countries that have entered into a tax treaty with the PRC with tax rates lower than 10%, the non-foreign-invested enterprise whose shares are listed in Hong Kong may apply on behalf of such holders for enjoying the lower preferential tax treatments, and, upon approval by the tax authorities, the excessive withholding amount will be refunded. For

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the individual holders of H Shares receiving dividends who are citizens of countries that have entered into a tax treaty with the PRC with tax rates higher than 10% but lower than 20%, the non-foreign-invested enterprise is required to withhold the tax at the agreed rate under the treaties, and no application procedures will be necessary. For the individual holders of H Shares receiving dividends who are citizens of countries without taxation treaties with the PRC or are under other situations, the non-foreign-invested enterprise is required to withhold the tax at a rate of 20%.

Enterprise Investors

In accordance with the Corporate Income Tax Law of the PRC (《中華人民共和國企業所得稅法》) issued by NPC on March 16, 2007 and latest amended on December 29, 2018 and the Implementation Provisions of the Corporate Income Tax Law of the PRC (《中華人民共和國企業所得稅法實施條例》) issued by the State Council on December 6, 2007, came into effect on January 1, 2008 and amended on April 23, 2019 (hereinafter collectively referred to as the “EIT Law”), the rate of enterprise income tax shall be 25%. A non-resident enterprise is generally subject to a 10% corporate income tax on PRC-sourced income (including dividends received from a PRC resident enterprise), if it does not have an establishment or premise in the PRC or has an establishment or premise in the PRC but its PRC-sourced income has no real connection with such establishment or premise. The aforesaid income tax payable for non-resident enterprises are deducted at source, where the payer of the income is required to withhold the income tax from the amount to be paid to the non-resident enterprise.

The Circular of the STA on Issues Relating to the Withholding and Remitting of Corporate Income Tax by PRC Resident Enterprises on Dividends Distributed to Overseas Non-Resident Enterprise Shareholders of H Shares (《國家稅務總局關於中國居民企業向境外H股非居民企業股東派發股息代扣代繳企業所得稅有關問題的通知》), which was issued and implemented by the STA on November 6, 2008, further clarified that a PRC-resident enterprise must withhold corporate income tax at a rate of 10% on the dividends of 2008 and onwards that it distributes to overseas non-resident enterprise shareholders of H Shares.

Pursuant to the Arrangement between the Mainland and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排》) (hereinafter referred to as the “the Arrangement”), which was signed on August 21, 2006, the Chinese Government may levy taxes on the dividends paid by a Chinese company to Hong Kong residents (including natural persons and legal entities) in an amount not exceeding 10% of the total dividends payable by the Chinese company unless a Hong Kong resident directly holds 25% or more of the equity interest in a Chinese company, then such tax shall not exceed 5% of the total dividends payable by the Chinese company. The Fifth Protocol of the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (《<內地和香港特別行政區關於對所得避免雙重徵稅和防

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止偷漏稅的安排>第五議定書》), which came into effect on December 6, 2019, adds a criteria for the qualification of entitlement to enjoy treaty benefits. Although there may be other provisions under the Arrangement, the treaty benefits under the criteria shall not be granted in the circumstance where relevant gains, after taking into account all relevant facts and conditions, are reasonably deemed to be one of the main purposes for the arrangement or transactions which will bring any direct or indirect benefits under this Arrangement, except when the grant of benefits under such circumstance is consistent with relevant objective and goal under the Arrangement. The application of the dividend clause of tax agreements is subject to the requirements of PRC tax law and regulation, such as the Notice of the STA on the Issues Concerning the Application of the Dividend Clauses of Tax Agreements (《國家稅務總局關於執行稅收協定股息條款有關問題的通知》).

Tax Treaties

Non-resident investors residing in jurisdictions which have entered into treaties or adjustments for the avoidance of double taxation with the PRC might be entitled to a reduction of the Chinese corporate income tax imposed on the dividends received from PRC companies. The PRC currently has entered into Avoidance of Double Taxation Treaties or Arrangements with a number of countries and regions including Hong Kong Special Administrative Region, Macau Special Administrative Region, Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States. Non-PRC resident enterprises entitled to preferential tax rates in accordance with the relevant taxation treaties or arrangements are required to apply to the Chinese tax authorities for a refund of the corporate income tax in excess of the agreed tax rate, and the refund application is subject to approval by the Chinese tax authorities.

Taxation on Share Transfer

VAT and Local Additional Tax

Pursuant to the Notice on Fully Implementing the Pilot Reform for the Transition from Business Tax to Value-added Tax (《關於全面推開營業稅改徵增值稅試點的通知》) (hereinafter referred to as “Circular 36”), which was implemented on May 1, 2016, entities and individuals engaged in the services sale in the PRC are subject to VAT and “engaged in the services sale in the PRC” means that the seller or buyer of the taxable services is located in the PRC. Circular 36 also provides that transfer of financial products, including transfer of the ownership of marketable securities, shall be subject to VAT at 6% on the taxable revenue (which is the balance of sales price upon deduction of purchase price), for a general or a foreign VAT taxpayer. However, individuals who transfer financial products are exempt from VAT, which is also provided in the Notice of Ministry of Finance and STA on Several Tax Exemption Policies for Business Tax on Sale and Purchase of Financial Commodities by Individuals (《財政部、國家稅務總局關於個

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人金融商品買賣等營業稅若幹免稅政策的通知》) effective on January 1, 2009. According to these regulations, if the holder is a non-resident individual, the PRC VAT is exempted from the sale or disposal of H shares.

At the same time, VAT payers are also required to pay urban maintenance and construction tax, education surtax and local education surcharge (hereinafter collectively referred to as “Local Additional Tax”), which shall be usually subject to 12% of the value-added tax, business tax and consumption tax actually paid (if any).

Income tax

Individual Investors

According to the IIT Law, gains on the transfer of equity interests in the PRC resident enterprises are subject to individual income tax at a rate of 20%. Pursuant to the Circular on Declaring that Individual Income Tax Continues to be Exempted over Income of Individuals from the Transfer of Shares (《關於個人轉讓股票所得繼續暫免徵收個人所得稅的通知》) issued by the STA on March 20, 1998, from January 1, 1997, income of individuals from transfer of the shares of listed enterprises continues to be exempted from individual income tax. The STA has not expressly stated whether it will continue to exempt tax on income of individuals from transfer of the shares of listed enterprises in the latest amended Individual Income Tax Law.

However, on December 31, 2009, the Ministry of Finance, STA and CSRC jointly issued the Circular on Related Issues on Levying Individual Income Tax over the Income Received by Individuals from the Transfer of Listed Shares Subject to Sales Limitation (《關於個人轉讓上市公司限售股所得徵收個人所得稅有關問題的通知》), which came into effect on December 31, 2009, which states that individuals’ income from the transfer of listed shares obtained from the public offering of listed companies and transfer market on the Shanghai Stock Exchange and the Shenzhen Stock Exchange shall continue to be exempted from individual income tax, except for the relevant shares which are subject to sales restriction (as defined in the Supplementary Notice on Issues Concerning the Levy of Individual Income Tax on Individuals’ Income from the Transfer of Restricted Stocks of Listed Companies (《關於個人轉讓上市公司限售股所得徵收個人所得稅有關問題的補充通知》) jointly issued and implemented by such departments on November 10, 2010). As of the [Latest Practicable Date], no aforesaid provisions have expressly provided that individual income tax shall be levied from non-Chinese resident individuals on the transfer of shares in the PRC resident enterprises listed on overseas stock exchanges.

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Enterprise Investors

In accordance with the EIT Law, a non-resident enterprise is generally subject to corporate income tax at the rate of a 10% on PRC-sourced income, including gains derived from the disposal of equity interests in a PRC resident enterprise, if it does not have an establishment or premise in the PRC or has an establishment or premise in the PRC but its PRC-sourced income has no real connection with such establishment or premise. Such income tax payable for non-resident enterprises are deducted at source, where the payer of the income is required to withhold the income tax from the amount to be paid to the non-resident enterprise. Such tax may be reduced or exempted pursuant to relevant tax treaties or agreements on avoidance of double taxation.

Stamp Duty

Pursuant to the Provisional Regulations of the PRC on Stamp Duty (《中華人民共和國印花稅暫行條例》), which was issued on August 6, 1988 and latest amended on January 8, 2011, and the Implementation Provisions of Provisional Regulations of the PRC on Stamp Duty (《中華人民共和國印花稅暫行條例施行細則》), which came into effect on September 29, 1988, PRC stamp duty only applies to specific taxable document executed or received within the PRC, having legally binding force in the PRC and protected under the PRC laws, thus the requirements of the stamp duty imposed on the transfer of shares of PRC listed companies shall not apply to the acquisition and disposal of H Shares by non-PRC investors outside of the PRC.

Estate Duty

As of the date of this document, no estate duty has been levied in the PRC under the PRC laws.

B. Hong Kong Taxation

Taxation on Dividends

No tax is payable in Hong Kong in respect of dividends paid by our Company.

Profits Tax

Hong Kong profits tax will not be payable by any Shareholders (other than Shareholders carrying on a trade, profession or business in Hong Kong and holding the Shares for trading purposes) on any capital gains made on the sale or other disposal of the Shares. Shareholders should take advice from their own professional advisers as to their particular tax position.

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Stamp Duty

Hong Kong stamp duty will be charged on the sale and purchase of Shares at the current rate of 0.2% of the consideration for, or (if greater) the value of, the Shares being sold or purchased, whether or not the sale or purchase is on or off the Stock Exchange. The Shareholder selling the Shares and the purchaser will each be liable for one-half of the amount of Hong Kong stamp duty payable upon such transfer. In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of Shares.

Estate Duty

Hong Kong estate duty was abolished effective from February 11, 2006. No Hong Kong estate duty is payable by Shareholders in relation to the Shares owned by them upon death.

2. PRINCIPAL TAXATION OF OUR COMPANY IN THE PRC

Please refer to “Regulatory Overview” of this document.

3. TAXATION OF OUR COMPANY IN HONG KONG

Profits Tax

Our Company will be subject to Hong Kong profits tax in respect of profits arising in or derived from Hong Kong at the current rate of 16.5%. Dividend income derived by our Company from its subsidiaries will be excluded from Hong Kong profits tax.

4. FOREIGN EXCHANGE

The lawful currency of the PRC is Renminbi, which is currently subject to foreign exchange control and cannot be freely converted into foreign currency. The SAFE, with the authorization of PBOC, is empowered with the functions of administering all matters relating to foreign exchange, including the enforcement of foreign exchange control regulations.

The Regulations on Foreign Exchange Control of the PRC (《中華人民共和國外匯管理條例》) (the “Foreign Exchange Control Regulations”), which was issued by the State Council on January 29, 1996, implemented on April 1, 1996 and latest amended on 5 August, 2008, classifies all international payments and transfers into current items and capital items. Current items are subject to the reasonable examination of the veracity of transaction documents and the consistency of the transaction documents and the foreign exchange receipts and payments by financial institutions engaging in conversion and sale of foreign currencies and supervision and inspection by the foreign exchange control authorities. For capital items, overseas organizations and overseas individuals making direct investments in China shall, upon approval by the relevant authorities in charge, process registration formalities with the foreign exchange control authorities. Foreign exchange income received overseas can be repatriated or

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The Regulations for the Administration of Settlement, Sale and Payment of Foreign Exchange (《結匯、售匯及付匯管理規定》), which was promulgated by the PBOC on June 20, 1996 and implemented on July 1, 1996, removes other restrictions on convertibility of foreign exchange under current items, while imposing existing restrictions on foreign exchange transactions under capital account items.

According to the Announcement on Improving the Reform of the Renminbi Exchange Rate Formation Mechanism (《關於完善人民幣匯率形成機制改革的公告》), which was issued by the PBOC and implemented on July 21, 2005, the PRC has started to implement a managed floating exchange rate system in which the exchange rate would be determined based on market supply and demand and adjusted with reference to a basket of currencies since July 21, 2005. Therefore, the Renminbi exchange rate was no longer pegged to the U.S. dollar. PBOC would publish the closing price of the exchange rate of the Renminbi against trading currencies such as the U.S. dollar in the interbank foreign exchange market after the closing of the market on each working day, as the central parity of the currency against Renminbi transactions on the following working day.

According to the relevant laws and regulations in the PRC, PRC enterprises (including foreign investment enterprises) which need foreign exchange for current item transactions may, without the approval of the foreign exchange administrative authorities, effect payment through foreign exchange accounts opened at the designated foreign exchange bank, on the strength of valid transaction receipts and proof. Foreign investment enterprises which need foreign exchange for the distribution of profits to their shareholders and PRC enterprises which, in accordance with regulations, are required to pay dividends to their shareholders in foreign exchange (such as our Company) may, on the strength of resolutions of the board of directors or the shareholders’ meeting on the distribution of profits, effect payment from foreign exchange accounts at the designated foreign exchange bank, or effect exchange and payment at the designated foreign exchange bank.

According to the Decisions on Matters including Canceling and Adjusting a Batch of Administrative Approval Items (《國務院關於取消和調整一批行政審批項目等事項的決定》) which was promulgated by the State Council on October 23, 2014, it decided to cancel the approval requirement of the SAFE and its branches for the remittance and settlement of the proceeds raised from the overseas listing of the foreign shares into RMB domestic accounts.

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According to the Notice of the SAFE on Issues Concerning the Foreign Exchange Administration of Overseas Listing (《國家外匯管理局關於境外上市外匯管理有關問題的通知》) issued by the SAFE and implemented on December 26, 2014, a domestic company shall, within 15 business days from the date of the end of its overseas listing issuance, register the overseas listing with the local branch office of state administration of foreign exchange at the place of its establishment; the proceeds from an overseas listing of a domestic company may be remitted to the domestic account or deposited in an overseas account, but the use of the proceeds shall be consistent with the content of the prospectus and other disclosure documents.

According to the Notice of the SAFE on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment (《國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知》), which was issued by the SAFE on February 13, 2015, came into effect on June 1, 2015 and partially repealed on 30 December, 2019, the confirmation of foreign exchange registration under domestic direct investment and the confirmation of foreign exchange registration under overseas direct investment shall be directly examined and handled by banks. SAFE and its branch offices shall indirectly regulate the foreign exchange registration of direct investment through banks.

According to the Notice of the SAFE of the PRC on Revolutionizing and Regulating Capital Account Settlement Management Policies (國家外匯管理局關於改革和規範資本項目結匯管理政策的通知) which was promulgated by the SAFE and implemented on June 9, 2016, foreign currency earnings in capital account that relevant policies of willingness exchange settlement have been clearly implemented on (including the recalling of raised capital by overseas listing) may undertake foreign exchange settlement in the banks according to actual business needs of the domestic institutions. The tentative percentage of foreign exchange settlement for foreign currency earnings in capital account of domestic institutions is 100%, subject to adjust of the SAFE in due time in accordance with international revenue and expenditure situations.

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This appendix sets forth summaries of certain aspects of PRC laws and regulations which are relevant to the operations and business of the Company. Laws and regulations relating to taxation in the PRC are discussed separately in “Appendix III—Taxation and Foreign Exchange” to this document. This appendix also contains a summary of certain Hong Kong legal and regulatory provisions, including summaries of certain material differences between the PRC and Hong Kong company laws, certain requirements of the Hong Kong Listing Rules and additional provisions required by the Hong Kong Stock Exchange for inclusion in the articles of association of the PRC issuers. The principal objective of this summary is to provide potential [REDACTED] with an overview of the principal laws and regulatory provisions applicable to the Company. This summary is not intended to include all the data which may be important to the potential [REDACTED]. For discussion of the laws and regulations which are specifically relevant to our business, please see the section headed “Regulatory Overview” in this document.

PRC LEGAL SYSTEM

The PRC legal system is based on the Constitution of the PRC (《中華人民共和國憲法》) (the “Constitution”) and is made up of written laws, administrative regulations, local regulations, separate regulations, autonomous regulations, rules and regulations of departments, rules and regulations of local governments, international treaties of which the PRC government is a signatory, and other regulatory documents. Court verdicts do not constitute binding precedents. However, they may be used as judicial reference and guidance.

According to the Constitution and the Legislation Law of the PRC (2015 revision) (《中華人民共和國立法法(2015年修訂)》) (the “Legislation Law”), the NPC and the Standing Committee of the NPC are empowered to exercise the legislative power of the State. The NPC has the power to formulate and amend basic laws governing civil and criminal matters, state organs and other matters. The Standing Committee of the NPC is empowered to formulate and amend laws other than those required to be enacted by the NPC and to supplement and amend any parts of laws enacted by the NPC during the adjournment of the NPC, provided that such supplements and amendments are not in conflict with the basic principles of such laws.

The State Council is the highest organ of the PRC administration and has the power to formulate administrative regulations based on the Constitution and laws.

The people’s congresses of provinces, autonomous regions and municipalities and their respective standing committees may formulate local regulations based on the specific circumstances and actual requirements of their own respective administrative areas, provided that such local regulations do not contravene any provision of the Constitution, laws or administrative regulations.

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The ministries and commissions of the State Council, PBOC, the State Audit Administration as well as the other organs endowed with administrative functions directly under the State Council may, in accordance with the laws as well as the administrative regulations, decisions and orders of the State Council and within the limits of their power, formulate rules.

The people’s congresses of cities divided into districts and their respective standing committees may formulate local regulations in terms of urban and rural development and management, environmental protection, and historical and cultural protection based on the specific circumstances and actual requirements of such cities, which will become enforceable after being reported to and approved by the standing committees of the people’s congresses of the relevant provinces or autonomous regions but such local regulations shall conform with the Constitution, laws, administrative regulations, and the relevant local regulations of the relevant provinces or autonomous regions. People’s congresses of national autonomous areas have the power to enact autonomous regulations and separate regulations in light of the political, economic and cultural characteristics of the nationality (nationalities) in the areas concerned.

The people’s governments of the provinces, autonomous regions, and municipalities directly under the central government and the cities divided into districts or autonomous prefectures may enact rules, in accordance with laws, administrative regulations and the local regulations of their respective provinces, autonomous regions or municipalities.

The Constitution has supreme legal authority and no laws, administrative regulations, local regulations, autonomous regulations or separate regulations may contravene the Constitution. The authority of laws is greater than that of administrative regulations, local regulations and rules. The authority of administrative regulations is greater than that of local regulations and rules. The authority of local regulations is greater than that of the rules of the local governments at or below the corresponding level. The authority of the rules enacted by the people’s governments of the provinces or autonomous regions is greater than that of the rules enacted by the people’s governments of the city divided into districts or autonomous prefecture within the administrative areas of the provinces and the autonomous regions.

The NPC has the power to alter or annul any inappropriate laws enacted by its Standing Committee, and to annul any autonomous regulations or separate regulations which have been approved by its Standing Committee but which contravene the Constitution or the Legislation Law. The Standing Committee of the NPC has the power to annul any administrative regulations that contravene the Constitution and laws, to annul any local regulations that contravene the Constitution, laws or administrative regulations, and to annul any autonomous regulations or local regulations which have been approved by the standing committees of the people’s congresses of the relevant provinces, autonomous regions or municipalities directly under the central government, but which contravene the Constitution and the Legislation Law. The State Council has the power to alter or annul any inappropriate ministerial rules and rules of local governments. The people’s congresses of provinces, autonomous regions or municipalities directly under the central government have the power to alter or annul any

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According to the Constitution and the Legislation Law, the power to interpret laws is vested in the Standing Committee of the NPC. According to the Decision of the Standing Committee of the NPC Regarding the Strengthening of Interpretation of Laws (《全國人民代表大會常務委員會關於加強法律解釋工作的決議》) passed on June 10, 1981, the Supreme People’s Court of the PRC (the “Supreme People’s Court”) has the power to give general interpretation on questions involving the specific application of laws and decrees in court trials. The State Council and its ministries and commissions are also vested with the power to give interpretation of the administrative regulations and department rules which they have promulgated. At the regional level, the power to give interpretations of the local laws and regulations as well as administrative rules is vested in the regional legislative and administrative organs which promulgate such laws, regulations and rules.

PRC JUDICIAL SYSTEM

Under the Constitution and the PRC Law on the Organization of the People’s Courts (2018 revision) (《中華人民共和國人民法院組織法(2018年修訂)》), the PRC judicial system is made up of the Supreme People’s Court, the local people’s courts and special people’s courts.

The local people’s courts are comprised of the primary people’s courts, the intermediate people’s courts and the higher people’s courts. The higher level people’s courts supervise the primary and intermediate people’s courts. The people’s procuratorates also have the right to exercise legal supervision over the civil proceedings of people’s courts of the same level and lower levels. The Supreme People’s Court is the highest judicial body in the PRC. It supervises the judicial administration of the people’s courts at all levels.

The PRC Civil Procedure Law (2017revision) (《中華人民共和國民事訴訟法(2017年修訂)》) (the “Civil Procedure Law”), which was adopted in 1991 and amended in 2007, 2012 and 2017, sets forth the criteria for instituting a civil action, the jurisdiction of the people’s courts, the procedures to be followed for conducting a civil action and the procedures for enforcement of a civil judgment or order. All parties to a civil action conducted within the PRC must comply with the Civil Procedure Law. Generally, a civil case is initially heard by a local court of the municipality or province in which the defendant resides. The parties to a contract may, by express agreement, select a judicial court where civil actions may be brought, provided that the judicial court is either the plaintiff’s or the defendant’s domicile, the place of execution or implementation of the contract or the place of the object of the action, provided that the provisions of this law regarding the level of jurisdiction and exclusive jurisdiction shall not be violated.

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A foreign national or enterprise generally has the same litigation rights and obligations as a citizen or legal person of the PRC. If a foreign country’s judicial system limits the litigation rights of PRC citizens and enterprises, the PRC courts may apply the same limitations to the citizens and enterprises of that foreign country within the PRC.

If any party to a civil action refuses to comply with a judgment or ruling made by a people’s court or an award made by an arbitration panel in the PRC, the other party may apply to the people’s court for the enforcement of the same. There are time limits of two years imposed on the right to apply for such enforcement. If a person fails to satisfy a judgment made by the court within the stipulated time, the court will, upon application by either party, enforce the judgment in accordance with the law.

A party seeking to enforce a judgment or ruling of a people’s court against a party who is not personally or whose property is not within the PRC may apply to a foreign court with jurisdiction over the case for recognition and enforcement of the judgment or ruling. A foreign judgment or ruling may also be recognized and enforced by the people’s court according to PRC enforcement procedures if the PRC has entered into or acceded to an international treaty with the relevant foreign country, which provides for such recognition and enforcement, or if the judgment or ruling satisfies the court’s examination according to the principle of reciprocity, unless the people’s court finds that the recognition or enforcement of such judgment or ruling will result in a violation of the basic legal principles of the PRC, its sovereignty or security or against social and public interest.

THE COMPANY LAW, SPECIAL REGULATIONS AND MANDATORY PROVISIONS

A joint stock limited company which was incorporated in the PRC and seeking a listing on the Hong Kong Stock Exchange is mainly subject to the following three laws and regulations in the PRC:

• The Company Law (《公司法》) which was promulgated by the Standing Committee of the NPC on December 29, 1993, came into effect on July 1, 1994, revised on December 25,1999, August 28, 2004, October 27, 2005 and December 28, 2013 respectively and the latest revision of which was implemented on October 26, 2018;

• The Special Regulations of the State Council on Share Offering and Listing Overseas by Joint-Stock Limited Liability Companies (《國務院關於股份有限公司境外募集股份及上市的特別規定》) (the “Special Regulations”) which were promulgated by the State Council on August 4, 1994 pursuant to Articles 85 and 155 of the Company Law in force at that time, and were applicable, to the overseas share subscription and listing of joint stock limited companies.

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On October 17, 2019, the State Council issued a circular in connection with the adjustments in regulations concerning companies registered in China and listed abroad (《國務院關於調整適用在境外上市公司召開股東大會通知期限等事項規定的批覆》(國函[2019]97號)) (Circular No. 97 of the State Council, effective October 17, 2019), pursuant to which it agreed that companies registered in China and listed abroad shall comply with the Company Law with respect to the notice period, shareholders right to formulate proposals and the procedures for convening a general meeting, and that relevant procedures set forth in Article 20 to Article 22 of the Special Regulations shall no longer apply; and

• The Mandatory Provisions of Articles of Association of Companies Listing Overseas (《到境外上市公司章程必備條款》) (the “Mandatory Provisions”) which were issued jointly by the former Securities Commission of the State Council and the former State Economic Restructuring Commission on August 27, 1994, stating the mandatory provisions which must be incorporated into the articles of association of a joint stock limited company seeking an overseas listing. As such, the Mandatory Provisions are set out in the Articles of Association of the Company, the summary of which is set out in the section entitled “Appendix V–Summary of the Articles of Association” in this document.

Set out below is a summary of the major provisions of the Company Law, the Special Regulations and the Mandatory Provisions applicable to the Company.

General

A joint stock limited company refers to an enterprise legal person incorporated under the Company Law with its registered capital divided into shares of equal par value. The liability of its shareholders is limited to the amount of shares held by them and the company is liable to its creditors for an amount equal to the total value of its assets.

A joint stock limited company shall conduct its business in accordance with laws and administrative regulations. It may invest in other limited liability companies and joint stock limited companies and its liabilities with respect to such invested companies are limited to the amount invested. Unless otherwise provided by law, the joint stock limited company may not be a contributor that undertakes joint and several liabilities for the debts of the invested companies.

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Incorporation

A joint stock limited company may be incorporated by promotion or public subscription.

A joint stock limited company may be incorporated by a minimum of two but not more than 200 promoters, and at least half of the promoters must have residence within the PRC. According to the Special Regulations, SOEs or enterprises with the majority of their assets owned by the PRC government may be restructured into joint stock limited companies which may issue shares to overseas investors in accordance with the relevant regulations. These companies, if incorporated by promotion, may have less than five promoters and may issue new shares once incorporated.

The promoters must convene an inaugural meeting within 30 days after the issued shares have been fully paid up, and must give notice to all subscribers or make an announcement of the date of the inaugural meeting 15 days before the meeting. The inaugural meeting may be convened only with the presence of promoters or subscribers representing at least half of the shares in the company. At the inaugural meeting, matters including the adoption of articles of association and the election of members of the board of directors and members of the board of supervisors of the company will be dealt with. All resolutions of the meeting require the approval of subscribers with more than half of the voting rights present at the meeting.

Within 30 days after the conclusion of the inaugural meeting, the board of directors must apply to the registration authority for registration of the establishment of the joint stock limited company. A company is formally established, and has the status of a legal person, after the business license has been issued by the relevant registration authority. Joint stock limited companies established by the subscription method shall file the approval on the offering of shares issued by the securities administration department of the State Council with the company registration authority for record.

A joint stock limited company’s promoters shall be liable for: (i) the payment of all expenses and debts incurred in the incorporation process jointly and severally if the company cannot be incorporated; (ii) the refund of subscription monies to the subscribers, together with interest, at bank rates for a deposit of the same term jointly and severally if the company cannot be incorporated; and (iii) damages suffered by the company as a result of the default of the promoters in the course of incorporation of the company.

Share Capital

The promoters of a company can make capital contributions in cash or in kind, which can be valued in currency and transferable according to law such as intellectual property rights or land use rights based on their appraised value.

If capital contribution is made other than in cash, valuation and verification of the property contributed must be carried out and converted into shares.

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A company may issue registered or bearer share. However, shares issued to promoter(s) or legal person(s) shall be in the form of registered share and shall be registered under the name(s) of such promoter(s) or legal person(s) and shall not be registered under a different name or the name of a representative.

The Special Regulations and the Mandatory Provisions provide that shares issued to foreign investors and listed overseas shall be issued in registered form and shall be denominated in Renminbi and subscribed for in foreign currency.

Under the Special Regulations and the Mandatory Provisions, shares issued to foreign investors and investors from the territories of Hong Kong, the Macau and Taiwan and listed overseas are known as overseas listed foreign invested shares, and those shares issued to investors within the PRC other than the territories specified above are known as domestic shares.

A company may offer its shares to the public overseas with approval by the securities administration department of the State Council. Specific provisions shall be specifically formulated by the CSRC. Under the Special Regulations, upon approval of the CSRC, a company may agree, in the underwriting agreement in respect of an issue of overseas listed foreign invested shares, to retain not more than 15% of the aggregate number of overseas listed foreign invested shares proposed to be issued after accounting for the number of underwritten shares.

The share offering price may be equal to or greater than nominal value, but shall not be less than nominal value.

The transfer of shares by shareholders should be conducted via the legally established stock exchange or in accordance with other methods as stipulated by the State Council. Transfer of registered shares by a shareholder must be made by means of an endorsement or by other means stipulated by laws or administrative regulations. Bearer shares are transferred by delivery of the share certificates to the transferee.

Shares held by a promoter of a company shall not be transferred within one year after the date of the company’s incorporation. Shares issued by a company prior to the public offer of its shares shall not be transferred within one year from the date of listing of the shares of the company on a stock exchange. Directors, supervisors and senior management of a company shall not transfer over 25% of the shares held by each of them in the company each year during their term of office and shall not transfer any share of the company held by each of them within one year after the listing date. There is no restriction under the Company Law as to the percentage of shareholding a single shareholder may hold in a company.

Transfers of shares may not be entered in the register of shareholders within 20 days before the date of a shareholders’ meeting or within 5 days before the record date set for the purpose of distribution of dividends.

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Allotment and Issue of Shares

All issue of shares of a joint stock limited company shall be based on the principles of equality and fairness. The same class of shares must carry equal rights. Shares issued at the same time and within the same class must be issued on the same conditions and at the same price. It may issue shares at par value or at a premium, but it may not issue shares below the par value.

A company shall obtain the approval of the CSRC to offer its shares to the overseas public. Under the Special Regulations, shares issued to foreign investors by joint stock limited companies and listed overseas are known as “overseas listed and foreign invested shares.” Shares issued to investors within the PRC by joint stock limited companies are known as “domestic shares.” Upon approval of the securities regulatory authority of the State Council, a company issuing overseas listed and foreign invested shares in total shares determined by the issuance program may agree with underwriters in the underwriting agreement to retain not more than 15% of the aggregate number of overseas listed and foreign invested shares outside the underwritten amount. The issuance of the retained shares is deemed to be a part of this issuance.

Registered Shares

Under the Company Law, the shareholders may make capital contributions in cash, or alternatively may make capital contributions with such valuated non-monetary property as physical items, intellectual property rights, and land-use rights that may be valued in monetary term and may be transferred in accordance with the law. Pursuant to the Special Regulations, overseas listed and foreign invested shares issued shall be in registered form, denominated in Renminbi and subscribed for in a foreign currency. Domestic shares issued shall also be in registered form.

Under the Company Law, when the company issues shares in registered form, it shall maintain a register of shareholders, stating the following matters:

• the name and domicile of each shareholder;

• the number of shares held by each shareholder;

• the serial numbers of shares held by each shareholder; and

• the date on which each shareholder acquired the shares.

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Increase of Share Capital

According to the Company Law, when the joint stock limited company issues new shares, resolutions shall be passed by a shareholders’ general meeting, approving the class and number of the new shares, the issue price of the new shares, the commencement and end of the new share issuance and the class and amount of new shares to be issued to existing shareholders. When the company launches a public issuance of new shares with the approval of the securities regulatory authorities of the State Council, it shall publish a document and financial and accounting reports, and prepare the share subscription form. After the new share issuance has been paid up, the change shall be registered with the company registration authorities and an announcement shall be made.

Reduction of Share Capital

A company may reduce its registered capital in accordance with the following procedures prescribed by the Company Law:

• it shall prepare a balance sheet and a property list;

• the reduction of registered capital shall be approved by a shareholders’ general meeting;

• it shall inform its creditors of the reduction in capital within 10 days and publish an announcement of the reduction in the newspaper within 30 days after the resolution approving the reduction has been passed;

• creditors may within 30 days after receiving the notice, or within 45 days of the public announcement if no notice has been received, require the company to pay its debts or provide guarantees covering the debts;

• it shall apply to the relevant administration of registration for the registration of the reduction in registered capital.

Repurchase of Shares

According to the Company Law, a joint stock limited company may not purchase its shares other than for one of the following purposes: (i) to reduce its registered capital; (ii) to merge with another company that holds its shares; (iii) to grant its shares for carrying out an employee stock ownership plan or equity incentive plan; (iv) to purchase its shares from shareholders who are against the resolution regarding the merger or division with other companies at a shareholders’ general meeting; (v) use of shares for conversion of convertible corporate bonds issued by a listed company; and (vi) the share buyback is necessary for a listed company to maintain its company value and protect its shareholders’ equity.

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The purchase of shares on the grounds set out in (i) and (ii) above shall require approval by way of a resolution passed by the shareholders’ general meeting. For a company’s share buyback under any of the circumstances stipulated in (iii), (v) or (vi) above, a resolution of the company’s board of directors shall be made by a two-third majority of directors attending the meeting according to the provisions of the company’s articles of association or as authorized by the shareholders’ meeting.

Following the purchase of shares in accordance with (i), such shares shall be canceled within 10 days from the date of purchase. The shares shall be assigned or deregistered within six months if the share buyback is made under the circumstances stipulated in either (ii) or (iv). The shares held in total by a company after a share buyback under any of the circumstances stipulated in (iii), (v) or (vi) shall not exceed 10% of the company’s total outstanding shares, and shall be assigned or deregistered within three years.

Listed companies making a share buyback shall perform their obligation of information disclosure according to the provisions of the Securities Law. If the share buyback is made under any of the circumstances stipulated in (iii), (v) or (vi) hereof, centralized trading shall be adopted publicly.

Transfer of Shares

Shares held by shareholders may be transferred in accordance with the relevant laws and regulations. Pursuant to the Company Law, transfer of shares by shareholders shall be carried out at a legally established securities exchange or in other ways stipulated by the State Council. No modifications of registration in the share register caused by transfer of registered shares shall be carried out within 20 days prior to the convening of shareholder’s general meeting or five days prior to the base date for determination of dividend distributions. However, where there are separate provisions by law on alternation of registration in the share register of listed companies, those provisions shall prevail. Pursuant to the Mandatory Provisions, no modifications of registration in the share register caused by transfer of shares shall be carried out within 30 days prior to convening of shareholder’s general meeting or five days prior to any base date for determination of dividend distributions.

Under the Company law, shares issued prior to the public issuance of shares shall not be transferred within one year from the date of the joint stock limited company’s listing on a stock exchange. Directors, supervisors and the senior management shall declare to the company their shareholdings in the company and any changes of such shareholdings. They shall not transfer more than 25% of all the shares they hold in the company annually during their tenure. They shall not transfer the shares they hold within one year from the date on which the company’s shares are listed and commenced trading on a stock exchange, nor within six months after their resignation from their positions with the company.

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Shareholders

Under the Company Law and the Mandatory Provisions, the rights of holders of ordinary shares of a joint stock limited company include:

• the right to attend or appoint a proxy to attend shareholders’ general meetings and to vote thereat;

• the right to transfer shares in accordance with laws, administrative regulations and provisions of the articles of association;

• the right to inspect the company’s articles of association, share register, counterfoil of company debentures, minutes of shareholder’s general meetings, resolutions of meetings of the board of directors, resolutions of meetings of the board of supervisors and financial and accounting reports and to make proposals or enquires on the company’s operations;

• the right to bring an action in the people’s court to rescind resolutions passed by shareholder’s general meetings and board of directors where the articles of association is violated by the above resolutions;

• the right to receive dividends and other types of interest distributed in proportion to the number of shares held;

• in the event of the termination or liquidation of the company, the right to participate in the distribution of residual properties of the company in proportion to the number of shares held; and

• other rights granted by laws, administrative regulations, other regulatory documents and the company’s articles of association.

The obligations of a shareholder include the obligation to abide by the Company’s articles of association, to pay the subscription moneys in respect of the shares subscribed for and in accordance with the form of making capital contributions, to be liable for the company’s debts and liabilities to the extent of the amount of his or her subscribed shares and any other shareholders’ obligation specified in the company’s articles of association.

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Shareholders’ General Meetings

The shareholders’ general meeting is the organ of authority of the company, which exercises its powers in accordance with the Company Law.

Under the Company Law, the shareholders’ general meeting exercises the following principal powers:

• to decide on the company’s operational policies and investment plans;

• to elect or remove the directors and supervisors (other than the representative of the employees of the company) and to decide on matters relating to the remuneration of directors and supervisors;

• to examine and approve reports of the board of directors;

• to examine and approve reports of the board of supervisors;

• to examine and approve the company’s proposed annual financial budget and final accounts;

• to examine and approve the company’s proposals for profit distribution plans and loss recovery plans;

• to decide on any increase or reduction of the company’s registered capital;

• to decide on the issue of bonds by the company;

• to decide on issues such as merger, division, dissolution and liquidation of the company and other matters;

• to amend the company’s articles of association; and

• other powers as provided for in the articles of association.

Shareholders’ annual general meetings are required to be held once every year. Under the Company Law, an extraordinary shareholders’ general meeting is required to be held within two months after the occurrence of any of the following:

• the number of directors is less than the number stipulated by the law or less than two thirds of the number specified in the articles of association;

• the aggregate losses of the company which are not recovered reach one-third of the company’s total paid-in share capital;

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• when shareholders alone or in aggregate holding 10% or more of the company’s shares request the convening of an extraordinary general meeting;

• whenever the board of directors deems necessary;

• when the board of supervisors so requests; or

• other circumstances as provided for in the articles of associations.

Under the Company Law, shareholders’ general meetings shall be convened by the board of directors, and presided over by the chairman of the board of directors. In the event that the chairman is incapable of performing or does not perform his duties, the meeting shall be presided over by the vice chairman. In the event that the vice chairman is incapable of performing or not performing his duties, a director nominated by more than half of directors shall preside over the meeting.

Where the board of directors is incapable of performing or not performing its duties of convening the shareholders’ general meeting, the board of supervisors shall convene and preside over such meeting in a timely manner. In case the board of supervisors fails to convene and preside over such meeting, shareholders alone or in aggregate holding more than 10% of the company’s shares for 90 days consecutively may unilaterally convene and preside over such meeting.

Under the Company Law, notice of shareholders’ general meeting shall state the time and venue of and matters to be considered at the meeting and shall be given to all shareholders 20 days before the meeting. Notice of extraordinary shareholder’s general meetings shall be given to all shareholders 15 days prior to the meeting. For the issuance of bearer share certificates, the time and venue of and matters to be considered at the meeting shall be announced 30 days before the meeting.

There is no specific provision in the Company Law regarding the number of shareholders constituting a quorum in a shareholders’ meeting. A single shareholder who holds, or several shareholders who jointly hold, 3% or more of the shares of the company may submit an interim proposal in writing to the board of directors 10 days before the general meeting is held. The board of directors shall notify other shareholders within 2 days upon receipt of the proposal, and submit the said interim proposal to the general meeting for deliberation. The contents of the interim proposal shall fall within the scope of powers of the general meeting, and the proposal shall have a clear agenda and specific matters on which resolutions are to be made. The general meeting shall not make any resolution in respect of any matter not set out in the above-mentioned two types of notices. Holders of bearer share certificates who wish to attend a general meeting shall deposit their share certificates with the company 5 days before the meeting and till the conclusion of the meeting.

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Under the Company Law, shareholders present at shareholders’ general meeting have one vote for each share they hold, save that shares held by the company are not entitled to any voting rights.

Pursuant to the provisions of the articles of association or a resolution of the shareholders’ general meeting, the accumulative voting system may be adopted for the election of directors and supervisors at the shareholders’ general meeting. Under the accumulative voting system, each share shall be entitled to vote equivalent to the number of directors or supervisors to be elected at the shareholders’ general meeting and shareholders may consolidate their voting rights when casting a vote.

Pursuant to the Company Law and the Mandatory Provisions, resolutions of the shareholders’ general meeting shall be adopted by more than half of the voting rights held by the shareholders present at the meeting. However, resolutions of the shareholders’ general meeting regarding the following matters shall be adopted by more than two-thirds of the voting rights held by the shareholders present at the meeting: (i) amendments to the articles of association; (ii) the increase or decrease of registered capital; (iii) the issue of any types of shares, warrants or other similar securities; (iv) the issue of debentures; (v) the merger, division, dissolution, liquidation or change in the form of the company; (vi) other matters considered by the shareholders’ general meeting, by way of an ordinary resolution, to be of a nature which may have a material impact on the company and should be adopted by a special resolution.

Under the Company Law, meeting minutes shall be prepared in respect of decisions on matters discussed at the shareholders’ general meeting. The chairman of the meeting and directors attending the meeting shall sign to endorse such minutes. The minutes shall be kept together with the shareholders’ attendance register and the proxy forms.

Board

Under the Company Law, a joint stock limited company shall have a board of directors, which shall consist of 5 to 19 members. Members of the board of directors may include representatives of the employees of the company, who shall be democratically elected by the company’s staff at the staff representative assembly, general staff meeting or otherwise. The term of a director shall be stipulated in the articles of association, but no term of office shall last for more than 3 years. Directors may serve consecutive terms if re-elected. A director shall continue to perform his duties in accordance with the laws, administrative regulations and articles of association until a duly re-elected director takes office, if re-election is not conducted in a timely manner upon the expiry of his term of office, or if the resignation of directors results in the number of directors being less than the quorum.

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Under the Company Law, the board of directors mainly exercises the following powers:

• to convene the shareholders’ general meetings and report on its work to the shareholders’ general meetings;

• to implement the resolutions passed in shareholders’ general meetings;

• to decide on the company’s business plans and investment proposals;

• to formulate the company’s proposed annual financial budget and final accounts;

• to formulate the company’s profit distribution proposals and loss recovery proposals;

• to formulate proposals for the increase or reduction of the company’s registered capital and the issuance of corporate bonds;

• to prepare plans for the merger, division, dissolution and change in the form of the company;

• to formulate the company’s basic management system; and

• to exercise any other power under the articles of association.

Board Meetings

Under the Company Law, meetings of the board of directors of a joint stock limited company shall be convened at least twice a year. Notice of meeting shall be given to all directors and supervisors 10 days before the meeting. Interim board meetings may be proposed to be convened by shareholders representing more than 10% of voting rights, more than one-third of the directors or the board of supervisors. The chairman shall convene and preside over such meeting within 10 days after receiving such proposal. Meetings of the board of directors shall be held only if half or more of the directors are present. Resolutions of the board of directors shall be passed by more than half of all directors. Each director shall have one vote for resolutions to be approved by the board of directors. Directors shall attend board meetings in person. If a director is unable to attend a board meeting, he may appoint another director by a written power of attorney specifying the scope of the authorization to attend the meeting on his behalf.

If a resolution of the board of directors violates the laws, administrative regulations or the articles of association, and as a result of which the company sustains serious losses, the directors participating in the resolution are liable to compensate the company. However, if it can be proved that a director expressly objected to the resolution when the resolution was voted on, and that such objection was recorded in the minutes of the meeting, such director may be released from that liability.

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Chairman of the Board

Under the Company Law, the board of directors shall appoint a chairman and may appoint a vice chairman. The chairman and the vice chairman are elected with approval of more than half of all the directors. The chairman shall convene and preside over board meetings and examine the implementation of board resolutions. The vice chairman shall assist the work of the chairman. In the event that the chairman is incapable of performing or not performing his duties, the duties shall be performed by the vice chairman. In the event that the vice chairman is incapable of performing or not performing his duties, a director nominated by more than half of the directors shall perform his duties.

Qualification of Directors

The Company Law provides that the following persons may not serve as a director:

• a person who is unable or has limited ability to undertake any civil liabilities;

• a person who has been convicted of an offense of bribery, corruption, embezzlement or misappropriation of property, or the destruction of socialist market economy order; or who has been deprived of his political rights due to his crimes, in each case where less than five years have elapsed since the date of completion of the sentence;

• a person who has been a former director, factory manager or manager of a company or an enterprise that has entered into insolvent liquidation and who was personally liable for the insolvency of such company or enterprise, where less than three years have elapsed since the date of the completion of the bankruptcy and liquidation of the company or enterprise;

• a person who has been a legal representative of a company or an enterprise that has had its business license revoked due to violations of the law and has been ordered to close down by law and the person was personally responsible, where less than three years have elapsed since the date of such revocation; or

• a person who is liable for a relatively large amount of debts that are overdue.

Other circumstances under which a person is disqualified from acting as a director are set out in the Mandatory Provisions.

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Board of Supervisors

A joint stock limited company shall have a board of supervisors composed of not less than three members. The board of supervisors is made up of representatives of the shareholders and an appropriate proportion of representatives of the employees of the company. The actual proportion shall be stipulated in the articles of association, provided that the proportion of representatives of the employees shall not be less than one third of the supervisors. Representatives of the employees of the company in the board of supervisors shall be democratically elected by the employees at the employees’ representative assembly, employees’ general meeting or otherwise.

The directors and senior management may not act concurrently as supervisors.

The board of supervisors shall appoint a chairman and may appoint a vice chairman. The chairman and the vice chairman of the board of supervisors are elected with approval of more than half of all the supervisors. The chairman of the board of supervisors shall convene and preside over the meetings of the board of supervisors. In the event that the chairman of the board of supervisors is incapable of performing or not performing his duties, the vice chairman of the board of supervisors shall convene and preside over the meetings of the board of supervisors. In the event that the vice chairman of the board of supervisors is incapable of performing or not performing his duties, a supervisor nominated by more than half of the supervisors shall convene and preside over the meetings of the board of supervisors.

Each term of office of a supervisor is three years and he or she may serve consecutive terms if re-elected. A supervisor shall continue to perform his duties in accordance with the laws, administrative regulations and articles of association until a duly re-elected supervisor takes office, if re-election is not conducted in a timely manner upon the expiry of his term of office, or if the resignation of supervisors results in the number of supervisors being less than the quorum.

The board of supervisors of a company shall hold at least one meeting every six months. According to the Company Law, a resolution of the board of supervisors shall be passed by more than half of all the supervisors, while according to the Opinions on Supplementary Amendment to Articles of Associations by Companies to be listed in Hong Kong (《關於到香港上市公司對公司章程作補充修改的意見的函》), a resolution of the board of supervisors shall be passed by more than two-thirds of all the supervisors.

The board of supervisors exercises the following powers:

• to review the company’s financial position;

• to supervise the directors and senior management in their performance of their duties and to propose the removal of directors and senior management who have violated laws, regulations, the articles of association or the resolutions of shareholders’ meeting;

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• when the acts of directors and senior management are harmful to the company’s interests, to require correction of those acts;

• to propose the convening of extraordinary shareholders’ general meetings and to convene and preside over shareholders’ general meetings when the board of directors fails to perform the duty of convening and presiding over shareholders’ general meeting under this law;

• to initiate proposals for resolutions to shareholders’ general meeting;

• to initiate proceedings against directors and senior management; and

• other powers specified in the articles of association.

Supervisors may attend board meetings and make enquiries or proposals in respect of board resolutions. The board of supervisors may initiate investigations into any irregularities identified in the operation of the company and, where necessary, may engage an accounting firm to assist their work at the company’s expense.

Manager and Senior Management

Under the Company Law, a company shall have a manager who shall be appointed or removed by the board of directors. The manager shall report to the board of directors and may exercise the following powers:

• to supervise the business and administration of the company and arrange for the implementation of resolutions of the board of directors;

• to arrange for the implementation of the company’s annual business plans and investment proposals;

• to formulate the general administration system of the company;

• to formulate the company’s detailed rules;

• to recommend the appointment and dismissal of deputy managers and person in charge of finance;

• to appoint or dismiss other administration officers (other than those required to be appointed or dismissed by the board of directors); and

• to other powers conferred by the board of directors or the articles of association.

The manager shall comply with other provisions of the articles of association concerning his/her powers. The manager shall attend board meetings.

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According to the Company Law, senior management shall mean the manager, deputy manager(s), person-in-charge of finance, board secretary (in case of a listed company) of a company and other personnel as stipulated in the articles of association.

Duties of Directors, Supervisors and Senior Management

Directors, supervisors and senior management of the company are required under the Company Law to comply with the relevant laws, regulations and the articles of association, and have fiduciary and diligent duties to the company. Directors, supervisors and senior management are prohibited from abusing their powers to accept bribes or other unlawful income and from misappropriating of the company’s properties. Directors and senior management are prohibited from:

• misappropriation of the company’s capital;

• depositing the company’s capital into accounts under his own name or the name of other individuals;

• loaning company funds to others or providing guarantees in favor of others supported by the company’s assets in violation of the articles of association or without prior approval of the shareholders’ general meeting or board of directors;

• entering into contracts or deals with the company in violation of the articles of association or without prior approval of the shareholders’ general meeting;

• using their position and powers to procure business opportunities for themselves or others that should have otherwise been available to the company or operating for their own benefits or managing on behalf of others businesses similar to that of the company without prior approval of the shareholders’ general meeting;

• accept and possess commissions paid by a third party for transactions conducted with the company;

• unauthorized divulgence of confidential business information of the company; or

• other acts in violation of their duty of loyalty to the company.

A director, supervisor or senior management who contravenes any law, regulation or the company’s articles of association in the performance of his duties resulting in any loss to the company shall be personally liable to the company.

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Finance and Accounting

Under the Company Law, a company shall establish financial and accounting systems according to laws, administrative regulations and the regulations of the financial department of the State Council and shall at the end of each financial year prepare a financial and accounting report which shall be audited by an accounting firm as required by law. The company’s financial and accounting report shall be prepared in accordance with provisions of the laws, administrative regulations and the regulations of the financial department of the State Council.

Pursuant to the Company Law, a joint stock limited company shall make its financial and accounting reports available at the company for inspection by the shareholders at least 20 days before the convening of an annual general meeting of shareholders. A publicly listed company must also publish its financial and accounting reports.

When distributing each year’s after-tax profits, it shall set aside 10% of its after-tax profits into a statutory common reserve fund (except where the fund has reached 50% of its registered capital).

If its statutory common reserve fund is not sufficient to make up losses of the previous year, profits of the current year shall be applied to make up losses before allocation is made to the statutory common reserve fund pursuant to the above provisions.

After allocation of the statutory common reserve fund from after-tax profits, it may, upon a resolution passed at the shareholders’ general meeting, allocate discretionary common reserve fund from after-tax profits.

For a joint stock limited company, the remaining after-tax profits after making up losses and allocation of common reserve fund shall be distributed in proportion to the number of shares held by the shareholders, unless otherwise stipulated in the articles of association.

Shares held by the Company shall not be entitled to any distribution of profit.

The premium received by a joint stock limited company through issuance of shares at prices above par value and other incomes required by the financial department of the State Council to be allocated to the capital reserve fund shall be allocated to the company’s capital reserve fund.

The Company’s reserve fund shall be applied to make up losses of the company, expand its business operations or be converted to increase the registered capital of the company. However, the capital reserve fund may not be applied to make up the company’s losses. Upon the conversion of statutory common reserve fund into capital, the balance of the statutory common reserve fund shall not be less than 25% of the registered capital of the company before such conversion.

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The Company shall have no other accounting books except the statutory accounting books. Its assets shall not be deposited in any accounts opened in the name of any individual.

Appointment and Retirement of Accounting Firms

Pursuant to the Company Law, the appointment or dismissal of accounting firms responsible for the auditing of the company shall be determined by shareholders’ general meeting or board of directors in accordance with provisions of articles of association. The accounting firm should be allowed to make representations when the shareholders’ general meeting or board of directors conducts a vote on the dismissal of the accounting firm. The company should provide true and complete accounting evidences, books, financial and accounting reports and other accounting data to the accounting firm it employs without any refusal, withholding and misrepresentation.

The Special Regulations provide that a company shall employ an independent accounting firm complying with the relevant regulations of the State to audit its annual report and review and check other financial reports of the company. The accounting firm’s term of office shall commence from their appointment at a shareholders’ annual general meeting to the end of the next shareholders’ annual general meeting.

Distribution of Profits

According to the Company Law, a company shall not distribute profits before losses are covered and the statutory common reserve is drawn. The Special Regulations require that any dividend and other distribution to shareholders of overseas-listed foreign shares shall be declared and calculated in Renminbi and paid in foreign currency. Under the Mandatory Provisions, a company shall appoint receiving agents on behalf of holders of the overseas listed and foreign invested shares to receive on behalf of such shareholders dividends and other distributions payable in respect of their overseas listed and foreign invested shares.

Amendments to Articles of Association

Any amendments to the company’s articles of association must be made in accordance with the procedures set out in the company’s articles of association. Any amendment of provisions incorporated in the articles of association in connection with the Mandatory Provisions will only be effective after approval by the company’s approval department authorized by the State Council and the CSRC. In relation to matters involving the company’s registration, its registration with the authority must also be changed.

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Dissolution and Liquidation

According to the Company Law, a company shall be dissolved by reason of the following: (i) the term of its operations set down in the articles of association has expired or other events of dissolution specified in the articles of association have occurred; (ii) the shareholders’ general meeting have resolved to dissolve the company; (iii) the company is dissolved by reason of merger or division; (iv) the business license is revoked; the company is ordered to close down or be dissolved; or (v) the company is dissolved by the people’s court in response to the request of shareholders holding shares that represent more than 10% of the voting rights of all its shareholders, on the grounds that the company suffers significant hardship in its operation and management that cannot be resolved through other means, and the ongoing existence of the company would bring significant losses for shareholders.

In the event of (i) above, it may carry on its existence by amending its articles of association. The amendment of the articles of association in accordance with provisions set out above shall require approval of more than two thirds of voting rights of shareholders attending a shareholders’ general meeting.

Where the company is dissolved in the circumstances described in subparagraphs (i), (ii), (iv), or (v) above, a liquidation group shall be established and the liquidation process shall commence within 15 days after the occurrence of an event of dissolution.

The members of a joint stock limited company’s liquidation group shall be composed of its directors or the personnel appointed by the shareholders’ general meeting. If a liquidation group is not established within the stipulated period, creditors may apply to the people’s court and request the court to appoint relevant personnel to form the liquidation group. The people’s court should accept such application and form a liquidation group to conduct liquidation in a timely manner.

The liquidation group shall exercise the following powers during the liquidation period:

• to handle the company’s assets and to prepare a balance sheet and an inventory of the assets;

• to notify creditors through notice or public announcement;

• to deal with the company’s outstanding businesses related to liquidation;

• to pay any tax overdue as well as tax amounts arising from the process of liquidation;

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• to claim credits and pay off debts;

• to handle the company’s remaining assets after its debts have been paid off; and

• to represent the company in civil lawsuits.

The liquidation group shall notify the company’s creditors within 10 days after its establishment and issue public notices in newspapers within 60 days. A creditor shall lodge his claim with the liquidation group within 30 days after receiving notification, or within 45 days of the public notice if he did not receive any notification. A creditor shall state all matters relevant to his creditor rights in making his claim and furnish evidence. The liquidation group shall register such creditor rights. The liquidation group shall not make any debt settlement to creditors during the period of claim.

Upon liquidation of properties and the preparation of the balance sheet and inventory of assets, the liquidation group shall draw up a liquidation plan to be submitted to the shareholders’ general meeting or people’s court for confirmation.

The company’s remaining assets after payment of liquidation expenses, wages, social insurance expenses and statutory compensation, outstanding taxes and debts shall be distributed to shareholders according to their shareholding proportion. It shall continue to exist during the liquidation period, although it can only engage in any operating activities that are related to the liquidation. The company’s properties shall not be distributed to the shareholders before repayments are made in accordance to the foregoing provisions.

Upon liquidation of the company’s properties and the preparation of the balance sheet and inventory of assets, if the liquidation group becomes aware that the company does not have sufficient assets to meet its liabilities, it must apply to the people’s court for a declaration for bankruptcy.

Following such declaration, the liquidation group shall hand over all matters relating to the liquidation to the people’s court.

Upon completion of the liquidation, the liquidation group shall submit a liquidation report to the shareholders’ general meeting or the people’s court for verification. Thereafter, the report shall be submitted to the registration authority of the company in order to cancel the company’s registration, and a public notice of its termination shall be issued. Members of the liquidation group are required to discharge their duties honestly and in compliance with the relevant laws. Members of the liquidation group shall be prohibited from abusing their powers to accept bribes or other unlawful income and from misappropriating the company’s properties.

A member of the liquidation group is liable to indemnify the company and its creditors in respect of any loss arising from his intentional or gross negligence.

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Overseas Listing

According to the Special Regulations, a company shall obtain the approval of the CSRC to list its shares overseas. According to Rule 2(6) of the Regulatory Guidelines for the Application Documents and Examination Procedures for the Overseas Share Issuance and Listing by Joint Stock Companies (《關於股份有限公司境外發行股票和上市申報文件及審核程序的監管指引》) promulgated by CSRC (effective from January 1, 2013), the approval documents for overseas stock issuance and listing by the company granted by CSRC shall be valid for a period of 12 months.

Loss of Share Certificates

If a registered share certificate is lost, stolen or destroyed, the relevant shareholder may apply, in accordance with the relevant provisions set out in the Civil Procedure Law, to a people’s court to declare such certificate invalid. After the people’s court declares the invalidity of such certificate, the shareholder may apply to the company for a replacement share certificate. A separate procedure regarding the loss of overseas listed and foreign invested share certificates is provided for in the Mandatory Provisions.

Merger and Demerger

Companies may merge through merger by absorption or through the establishment of a newly merged entity. If it merges by absorption, the company which is absorbed shall be dissolved. If it merges by forming a new corporation, both companies will be dissolved.

“Full Circulation” of H Shares

Shareholders of domestic unlisted shares may determine by themselves through consultation the amount and proportion of shares, for which an application will be filed for circulation, provided that the requirements laid down in the relevant laws and regulations and set out in the policies for state-owned asset administration, foreign investment and industry regulation are met, and the corresponding H-share listed company may be entrusted to file the said application for “full circulation.” To file an application for “Full Circulation”, an H-share listed company shall file the application with the CSRC according to the administrative licensing procedures necessary for the “examination and approval of public issuance and listing (including additional issuance) of shares overseas by a joint stock company.”

An H-share listed company may apply for “Full Circulation” separately or when applying for refinancing abroad. An unlisted domestic joint stock company may apply for “full circulation” when applying for an overseas initial public offering.

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SECURITIES LAW AND REGULATIONS

The PRC has promulgated a number of regulations that relate to the issue and trading of shares and disclosure of information. In October 1992, the State Council established the Securities Committee and the CSRC. The Securities Committee is responsible for coordinating the drafting of securities regulations, formulating securities-related policies, planning the development of securities markets, directing, coordinating and supervising all securities- related institutions in the PRC and administering the CSRC. The CSRC is the regulatory arm of the Securities Committee and is responsible for the drafting of regulatory provisions of securities markets, supervising securities companies, regulating public offers of securities by PRC companies in the PRC or overseas, regulating the trading of securities, compiling securities related statistics and undertaking relevant research and analysis. In April 1998, the State Council consolidated the two departments and reformed the CSRC.

The Interim Provisional Regulations on the Administration of Share Issuance and Trading (《股票發行與交易管理暫行條例》) deals with the application and approval procedures for public offerings of equity securities, trading in equity securities, the acquisition of listed companies, deposit, clearing and transfer of listed equity securities, the disclosure of information with respect to a listed company, investigation, penalties and dispute settlement.

On December 25, 1995, the State Council promulgated and implemented the Regulations of the State Council Concerning Domestic Listed Foreign Shares of Joint Stock Limited Companies (《國務院關於股份有限公司境內上市外資股的規定》). These regulations deal mainly with the issue, subscription, trading and declaration of dividends and other distributions of domestic listed and foreign invested shares and disclosure of information of joint stock limited companies having domestic listed and foreign invested shares.

The PRC Securities Law took effect on July 1, 1999 and was revised on August 28, 2004, October 27, 2005, June 29, 2013, August 31, 2014 and December 28, 2019, respectively. This is the first national securities law in the PRC, which is divided into 14 chapters and 226 articles regulating, among other things, the issue and trading of securities, takeovers by listed companies, securities exchanges, securities companies and the duties and responsibilities of the State Council’s securities regulatory authorities. The PRC Securities Law comprehensively regulates activities in the PRC securities market. Article 224 of the PRC Securities Law provides that domestic enterprises shall comply with the relevant provisions of the State Council. to list its shares outside the PRC. Currently, the issue and trading of foreign issued shares (including H shares) are mainly governed by the rules and regulations promulgated by the State Council and the CSRC.

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ARBITRATION AND ENFORCEMENT OF ARBITRAL AWARDS

The Arbitration Law of the PRC (《中華人民共和國仲裁法》) (the “Arbitration Law”) was passed by the Standing Committee of the NPC on August 31, 1994, became effective on September 1, 1995 and was amended on August 27, 2009 and September 1, 2017. Under the Arbitration Law, an arbitration committee may, before the promulgation by the PRC Arbitration Association of arbitration regulations, formulate interim arbitration rules in accordance with the Arbitration Law and the Civil Procedure Law. Where the parties have by agreement provided arbitration as the method for dispute resolution, the people’s court will refuse to handle the case except when the arbitration agreement is declared invalid.

The Mandatory Provisions require an arbitration clause to be included in the articles of association of an issuer. Matters in arbitration include any disputes or claims in relation to the issuer’s affairs or as a result of any rights or obligations arising under its articles of association, the Company Law or other relevant laws and administrative regulations.

Where a dispute or claim of rights referred to in the preceding paragraph is referred to arbitration, the entire claim or dispute must be referred to arbitration, and all persons who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim, and if such persons are the issuer or the shareholders, directors, supervisors, managers or other senior management of the issuer, they shall comply with the arbitration. Disputes in respect of the definition of shareholder and disputes in relation to the issuer’s register of shareholders need not be resolved by arbitration.

A claimant may elect for arbitration to be carried out at either the China International Economic and Trade Arbitration Commission (中國國際經濟貿易仲裁委員會)(“CIETAC”) in accordance with its rules or the Hong Kong International Arbitration center (“HKIAC”) in accordance with its Securities Arbitration Rules (the “Securities Arbitration Rules”). Once a claimant refers a dispute or claim to arbitration, the other party shall submit to the arbitral body elected by the claimant. If the claimant elects for arbitration to be carried out at the HKIAC, any party to the dispute or claim may apply for a hearing to take place in Shenzhen in accordance with the Securities Arbitration Rules. In accordance with the Arbitration Regulations of CIETAC (《中國國際經濟貿易仲裁委員會仲裁規則》) which was amended on November 4, 2014 and implemented on January 1, 2015, CIETAC shall deal with economic and trading disputes over contractual or non-contractual transactions, based on an agreement of the parties, including disputes involving Hong Kong based on the agreement of the parties. The arbitration commission is established in Beijing and its branches and centers have been set up in Shenzhen, Shanghai, Tianjin, Chongqing, Zhejiang, Hubei, Fujian, Shanxi, Jiangsu, Sichuan, Shandong and Hainan.

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Under the Arbitration Law and the Civil Procedure Law, an arbitral award is final and binding on the parties. If a party fails to comply with an award, the other party to the award may apply to the people’s court for enforcement. A people’s court may refuse to enforce an arbitral award made by an arbitration commission if there is any irregularity on the procedures or composition of arbitrators specified by law or the award exceeds the scope of the arbitration agreement or is outside the jurisdiction of the arbitration commission.

A party seeking to enforce an arbitral award of PRC arbitration panel against a party who, or whose property, is not within the PRC, may apply to a foreign court with jurisdiction over the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body may be recognized and enforced by the PRC courts in accordance with the principles of reciprocity or any international treaty concluded or acceded to by the PRC. The PRC acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) adopted on June 10, 1958 pursuant to a resolution of the Standing Committee of the NPC passed on December 2, 1986. The New York Convention provides that all arbitral awards made in a state which is a party to the New York Convention shall be recognized and enforced by all other parties to the New York Convention, subject to their right to refuse enforcement under certain circumstances, including where the enforcement of the arbitral award is against the public policy of the state to which the application for enforcement is made. It was declared by the Standing Committee of the NPC simultaneously with the accession of the PRC that (i) the PRC will only recognize and enforce foreign arbitral awards on the principle of reciprocity and (ii) the PRC will only apply the New York Convention in disputes considered under PRC laws to arise from contractual and non-contractual mercantile legal relations.

An arrangement was reached between Hong Kong and the Supreme People’s Court for the mutual enforcement of arbitral awards. On June 18, 1999, the Supreme People’s Court adopted the Arrangement on Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong (《關於內地與香港特別行政區相互執行仲裁裁決的安排》), which became effective on February 1, 2000 and was further supplemented on November 26, 2020. In accordance with this arrangement, awards made by PRC arbitral authorities under the Arbitration Law can be enforced in Hong Kong, and Hong Kong arbitration awards are also enforceable in the PRC.

Judicial judgment and its enforcement

According to the Arrangement on Mutual Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland China and of the Hong Kong Special Administrative Region Pursuant to Agreed Jurisdiction by Parties Concerned (《最高人民法院關於內地與香港特別行政區法院相互認可和執行當事人協議管轄的民商事案件判決的安排》) promulgated by the Supreme People’s Court on July 3, 2008 and implemented on August 1, 2008, in the case of final judgment, defined with payment amount and enforcement power, made between the court of China and the court of the Hong Kong Special Administrative Region in a civil and commercial case with written jurisdiction agreement, any party concerned may apply to the People’s Court of China or the court of the Hong Kong

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Special Administrative Region for recognition and enforcement based on this arrangement. “Choice of court agreement in written” refers to a written agreement defining the exclusive jurisdiction of either the People’s Court of China or the court of the Hong Kong Special Administrative Region in order to resolve dispute with particular legal relation occurred or likely to occur by the party concerned. Therefore, the party concerned may apply to the Court of China or the court of the Hong Kong Special Administrative Region to recognize and enforce the final judgment made in China or Hong Kong that meet certain conditions of the aforementioned regulations.

SUMMARY OF MATERIAL DIFFERENCES BETWEEN HONG KONG AND COMPANY LAW

The Hong Kong law applicable to a company incorporated in Hong Kong is based on the Companies (Winding Up and Miscellaneous Provisions) Ordinance and the Companies Ordinance and is supplemented by common law and the rules of equity that are applicable to Hong Kong. As a joint stock limited company established in the PRC that is seeking a listing of shares on the Hong Kong Stock Exchange, we are governed by the Company Law and all other rules and regulations promulgated pursuant to the Company Law.

Set out below is a summary of certain material differences between Hong Kong company law applicable to a company incorporated in Hong Kong and the Company Law applicable to a joint stock limited company incorporated and existing under the Company Law. This summary is, however, not intended to be an exhaustive comparison.

Corporate Existence

Under Hong Kong company law, a company with share capital, is incorporated by the Registrar of Companies in Hong Kong which issues a certificate of incorporation to the Company upon its incorporation and the company will acquire an independent corporate existence. A company may be incorporated as a public company or a private company. Pursuant to the Companies Ordinance, the articles of association of a private company incorporated in Hong Kong shall contain certain preemptive provisions. A public company’s articles of association do not contain such pre-emptive provisions.

Under the Company Law, a joint stock limited company may be incorporated by promotion or public subscription.

Hong Kong law does not prescribe any minimum capital requirement for a Hong Kong company.

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Share Capital

The Hong Kong company law does not provide for authorized share capital. The share capital of a Hong Kong company would be its issued share capital. The full proceeds of a share issue will be credited to share capital and becomes a company’s share capital. The directors of a Hong Kong company may, with the prior approval of the shareholders if required, issue new shares of the company. The Company Law does not provide for authorized share capital, either. Our registered capital is the amount of our issued share capital. Any increase in our registered capital must be approved by our shareholders’ general meeting and file with the relevant PRC governmental and regulatory authorities.

Under the Company Law, the shares may be subscribed for in the form of money or non-monetary assets (other than assets not entitled to be used as capital contributions under relevant laws and administrative regulations). For non-monetary assets to be used as capital contributions, appraisals and verification must be carried out to ensure no overvaluation or undervaluation of the assets. There is no such restriction on a Hong Kong company under Hong Kong Law.

Restrictions on Shareholding and Transfer of Shares

Generally, overseas listed shares, which are denominated in Renminbi and subscribed for in a currency other than Renminbi, may only be subscribed for, and traded by, investors from Hong Kong, Macau and Taiwan or any country and territory outside the PRC, or qualified domestic institutional investors as allowed under Tentative Regulatory Measures for Qualified Domestic Institutional Investors Investing in Overseas Securities (《合格境內機構投資者境外證券投資管理試行辦法》). If the H shares are eligible securities under the Southbound Trading Link, they are also subscribed for and traded by PRC investors in accordance with the rules and limits of Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect. When the application for “full circulation” has been approved by the CSRC, the domestic unlisted shares of the H-share listed company might be listed and circulated on the Hong Kong Stock Exchange.

Under the Company Law, a promoter of a joint stock limited company is not allowed to transfer the shares it holds for a period of one year after the date of establishment of the company. Shares in issue prior to our public offering cannot be transferred within one year from the listing date of the shares on a stock exchange. Shares in a joint stock limited liability company held by its directors, supervisors and managers and transferred each year during their term of office shall not exceed 25% of the total shares they held in the company, and the shares they held in the company cannot be transferred within one year from the listing date of the shares, and also cannot be transferred within half a year after the said personnel has left office. The articles of association may set other restrictive requirements on the transfer of the company’s shares held by its directors, supervisors and officers. There are no such restrictions on shareholdings and transfers of shares under Hong Kong law apart from the six-month lockup

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Financial Assistance for Acquisition of Shares

The Company Law does not prohibit or restrict a joint stock limited company or its subsidiaries from providing financial assistance for the purpose of an acquisition of its own or its holding company’s shares. However, the Mandatory Provisions contain certain restrictions on a company and its subsidiaries on providing such financial assistance similar to those under the Hong Kong company law.

Variation of Class Rights

The Company Law has no special provision relating to variation of class rights. However, the Company Law states that the State Council can promulgate regulations relating to other kinds of shares. The Mandatory Provisions contain elaborate provisions relating to the circumstances which are deemed to be variations of class rights and the approval procedures required to be followed in respect thereof. These provisions have been incorporated in the Articles of Association, which are summarized in “Appendix V—Summary of the Articles of Association.”

Under the Companies Ordinance, no rights attached to any class of shares can be varied except:

(i) If there are provisions in the articles of association relating to the variation of those rights, then in accordance with those provisions;

(ii) If there are not relevant provisions in the articles of associations, then (1) with the consent in writing of at least three fourths of the total voting rights of holders of the shares in the class in question, or (2) with the approval of a special resolution of the holders of the relevant class at a separate meeting.

Directors

The Company Law, unlike Hong Kong company law, does not contain any requirements relating to the declaration of directors’ interests in material contracts, restrictions on directors’ authority in making major dispositions, restrictions on companies providing certain benefits to directors and guarantees in respects of directors’ liability and prohibitions against compensation for loss of office without shareholders’ approval. The Mandatory Provisions, however, contain certain restrictions on major disposals and specify the circumstances under which a director may receive compensation for loss of office.

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Board of Supervisors

Under the Company Law, a joint stock limited company’s directors and managers are subject to the supervision of a supervisors committee. There is no mandatory requirement for the establishment of a board of supervisors for a company incorporated in Hong Kong. The Mandatory Provisions provide that each supervisor owes a duty, in the exercise of his powers, to act in good faith and honestly in what he considers to be in the best interests of the Company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Derivative Action by Minority Shareholders

Hong Kong law permits minority shareholders to initiate a derivative action on behalf of all shareholders against directors who have committed a breach of their fiduciary duties to the company if the directors control a majority of votes at a general meeting, thereby effectively preventing a company from suing the directors in breach of their duties in its own name. The Company Law provides shareholders of a joint stock limited company with the right so that in the event where the directors and senior management violate their fiduciary obligations to a company, the shareholders individually or jointly holding over 1% of the shares in the company for more than 180 consecutive days may request in writing the board of supervisors to initiate proceedings in the people’s court. In the event that the board of supervisors violates their fiduciary obligations to a company, the above said shareholders may send written request to the board of directors to initiate proceedings in the people’s court. Upon receipt of such written request from the shareholders, if the board of supervisors or the board of directors refuses to initiate such proceedings, or has not initiated proceedings within 30 days upon receipt of the request, or if under urgent situations, failure of initiating immediate proceeding may cause irremediable damages to the company, the above said shareholders shall, for the benefit of the company’s interests, have the right to initiate proceedings directly to the court in their own name.

The Mandatory Provisions provide further remedies against the directors, supervisors and senior management who breach their duties to the company. In addition, as a condition to the listing of shares on the Hong Kong Stock Exchange, each director and supervisor of a joint stock limited company is required to give an undertaking in favor of the company acting as agent for the shareholders. This allows minority shareholders to take action against directors and supervisors in default.

Protection of Minorities

Under Hong Kong law, the company may be wound up by the court if the court considers that it is just and equitable to do so, in addition, a shareholder who complains that the affairs of a company incorporated in Hong Kong are conducted in a manner unfairly prejudicial to his interests may petition to the court to make an appropriate order regulating the affairs of the

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The Company Law provides that any shareholders holding 10% or above of voting rights of all issued shares of company may request a People’s Court to dissolve the company to the extent that the operation or management of the company experiences any serious difficulties and its continuous existence would cause serious losses to them, and no other alternatives can resolve such difficulties.

The Mandatory Provisions, however, contain provisions that a controlling shareholder may not exercise its voting rights in a manner prejudicial to the interests of the shareholders generally or of a proportion of the shareholders of a company to relieve a director or supervisor of his duty to act honestly in the best interests of the company or to approve the expropriation by a director or supervisor of the company’s assets or the individual rights of other shareholders.

Notice of Shareholders’ Meetings

Under the Company Law, notice of a shareholder’s annual general meeting must be given not less than 20 days before the meeting. Whereas notice of an extraordinary general meeting must be given not less than 15 days before the meeting. If a company issues bearer shares, notice of a shareholder’s general meeting must be given at least 30 days prior to the meeting.

For a company incorporated in Hong Kong, the notice period for an annual general meeting is at least 21 days and in any other case, at least 14 days for a limited company and at least 7 days for an unlimited company.

Quorum for Shareholders’ Meetings

Under Hong Kong law, the quorum for a general meeting must be at least two members unless the articles of association of the company otherwise provide. For companies with only one member, the quorum must be one member.

The Company Law does not specify any quorum requirement for a shareholders’ general meeting.

Voting

Under Hong Kong law, an ordinary resolution is passed by a simple majority of votes cast by members present in person or by proxy at a general meeting and a special resolution is passed by a majority of not less than three-fourths of votes cast by members present in person or by proxy at a general meeting.

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Under the Company Law, the passing of any resolution requires affirmative votes of shareholders representing more than half of the voting rights represented by the shareholders who attend the general meeting except in cases of proposed amendments to a company’s articles of association, increase or decrease of registered capital, merger, division or dissolution, or change of corporation form, which require affirmative votes of shareholders representing more than two-thirds of the voting rights represented by the shareholders who attend the general meeting.

Financial Disclosure

Under the Company Law, a joint stock limited company is required to make available at the company for inspection by shareholders its financial report 20 days before its shareholders’ annual general meeting. In addition, a joint stock limited company of which the shares are publicly offered must publish its financial report.

The Companies Ordinance requires a company incorporated in Hong Kong to send to every shareholder a copy of its balance sheet, auditors’ report and directors’ report, which are to be presented before the company in its annual general meeting, not less than 21 days before such meeting. A joint stock limited liability company is required under the PRC law to prepare its financial statements in accordance with the PRC GAAP. The Mandatory Provisions require that a company must, in addition to preparing financial statements according to the PRC GAAP, have its financial statements prepared and audited in accordance with international or Hong Kong accounting standards and its financial statements must also contain a statement of the financial effect of the material differences (if any) from the financial statements prepared in accordance with the PRC GAAP.

The Special Regulations require that there should not be any inconsistency between the information disclosed within and outside the PRC and that, to the extent that there are differences in the information disclosed in accordance with the relevant PRC and overseas laws, regulations and requirements of the relevant stock exchanges, such differences should also be disclosed simultaneously.

Information on Directors and Shareholders

The Company Law gives shareholders the right to inspect the company’s articles of association, minutes of the shareholders’ general meetings and financial and accounting reports. Under the Articles of Association, shareholders have the right to inspect and copy (at reasonable charges) certain information on shareholders and on directors which is similar to the shareholders’ rights of Hong Kong companies under Hong Kong law.

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Receiving Agent

Under the Company Law and Hong Kong law, dividends once declared are debts payable to shareholders. The limitation period for debt recovery action under Hong Kong law is six years, while under the PRC law this limitation period is three years. The Mandatory Provisions require the relevant company to appoint a trust company registered under the Hong Kong Trustee Ordinance (Chapter 29 of the Laws of Hong Kong) as a receiving agent to receive on behalf of holders of shares dividends declared and all other monies owed by the company in respect of its shares.

Corporate Reorganization

Corporate reorganization involving a company incorporated in Hong Kong may be effected in a number of ways, such as a transfer of the whole or part of the business or property of the company in the course of voluntary winding up to another company pursuant to Section 237 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance or a compromise or arrangement between the company and its creditors or between the company and its members pursuant to Section 673 and Section 674 of the Companies Ordinance, which requires the sanction of the court.

Under PRC law, merger, division, dissolution or change to the status of a joint stock limited liability company has to be approved by two-thirds or more of voting rights held by shareholders present at the general meeting.

Dispute Arbitration

In Hong Kong, disputes between shareholders on the one hand, and a company incorporated in Hong Kong or its directors on the other, may be resolved through legal proceedings in the courts. The Mandatory Provisions provide that such disputes should be submitted to arbitration at either the HKIAC or the CIETAC, at the claimant’s choice.

Mandatory Deductions

Under the Company Law, a joint stock limited liability company is required to make transfers equivalent to certain prescribed percentages of its after tax profit to the statutory common reserve fund. There are no corresponding provisions under Hong Kong law.

Remedies of the Company

Under the Company Law, if a director, supervisor or manager in carrying out his duties infringes any law, administrative regulation or the articles of association of a company, which results in damage to the company, that director, supervisor or manager should be responsible to the company for such damages. In addition, the Listing Rules require listed companies’

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Dividends

The company has the power in certain circumstances to withhold, and pay to the relevant tax authorities, any tax payable under PRC law on any dividends or other distributions payable to a shareholder. Under Hong Kong law, the limitation period for an action to recover a debt (including the recovery of dividends) is six years, whereas under PRC laws, the relevant limitation period is 3 years. The company must not exercise its powers to forfeit any unclaimed dividend in respect of shares until after the expiry of the applicable limitation period.

Fiduciary Duties

In Hong Kong, there is the common law concept of the fiduciary duty of directors. Under the Special Regulations, directors, supervisors and senior management shall honestly and diligently perform their duties for the company.

Closure of Register of Shareholders

The Companies Ordinance requires that the register of shareholders of a company must not generally be closed for the registration of transfers of shares for more than 30 days (extendable to 60 days in certain circumstances) in a year, whereas, as required by the Company Law and the Mandatory Provisions, share transfers shall not be registered within 30 days before the date of a shareholders’ meeting or within five days before the base date set for the purpose of distribution of dividends.

Any person wishing to have detailed advice on PRC laws or the laws of any jurisdiction is recommended to seek independent legal advice.

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This Appendix sets out summaries of the main clauses of our Articles of Association adopted on April 15, 2021, which shall become effective as at the date on which [REDACTED]. As the main purpose of this Appendix is to provide potential [REDACTED] with an overview of the Articles of Association, it may not necessarily contain all information that is important for prospective [REDACTED]. As discussed in the appendix headed “Appendix VII—Documents Delivered to the Registrar of Companies and Available for Inspection” to this document, the full document of the Articles of Association in Chinese is available for examination.

1 DIRECTORS AND BOARD OF DIRECTORS

(1) Power to allocate and issue shares

The Articles of Association does not contain clauses that authorize the Board of Directors to allocate or issue shares. The Board of Directors shall prepare suggestions for share allotment or issue, which are subject to approval by the Shareholders at the general Shareholders’ meeting in the form of a special resolution. Any such allotment or issue shall be in accordance with the procedures stipulated in appropriate laws, administrative regulations and supervision rules of shares listed region.

(2) Power to dispose assets of our Company or any subsidiary

In any case that the Board of Directors intends to dispose assets, if the sum of the expected value of the fixed assets to be disposed of, and the amount or value of the value received from the fixed assets of our Company disposed of within the four months immediately preceding this suggestion for disposal exceeds 33% of the value of fixed assets of our Company indicated on the latest audited balance sheet submitted at the Shareholders’ meeting, the Board of Directors shall not dispose of or agree to dispose of the fixed assets without the approval of the Shareholders’ meeting.

For the purposes of the Articles of Association, a disposition of fixed assets includes certain acts of transfer of interests in assets but does not include the provision of fixed assets as security.

The validity of the transactions with respect to the disposal of fixed assets of our Company shall not be affected by the violation of the above restrictions contained in the Articles of Association.

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(3) Emoluments or compensation for Directors and Supervisor

Written contract shall be entered between our Company and the Directors or Supervisors in connection with their emoluments, the emoluments include:

i. Emoluments in respect of his service as a Director, Supervisor or senior management of our Company;

ii. Emoluments in respect of his service as a Director, Supervisor or senior management of any subsidiary of our Company;

iii. Emoluments in respect of other service in relation to the management of our Company and any subsidiary of our Company; and

iv. Payment by way of compensation for loss of office or retirement from office of a Director or Supervisors.

It should be concluded in the emolument contract that where our Company is to be acquired, the Directors and Supervisors should be entitled to compensation or other payments for loss of office or retirement from office subject to the approval of the Shareholders at the Shareholders’ meeting in advance.

Acquisition of our Company refers to any of the following circumstances:

i. An offer made by any person made to all Shareholders; or

ii. An offer is made by any person with a view to the offeror becoming the controlling shareholder of our Company. The definition of controlling shareholder is the same as defined in the Articles of Association.

If the relevant Director or Supervisor fails to comply with the above requirements, any payment received shall belong to the person who sells the shares for accepting the aforesaid offer. The Director or Supervisor shall bear all expenses arising from the distribution of such payments to the person in a proportional manner and all related expenses shall not be deducted from these payments distributed.

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(4) Loans or Guarantees of Loans to Directors, Supervisors or other management personnel

Our Company shall neither provide the Directors, Supervisors or senior management of our Company or our parent company with loans or loan guarantees either directly or indirectly nor provide persons related to the above personnel with loans or loan guarantees. In the event that our Company provides loans in violation of this restriction, the person who receives the loan(s) must pay off the loan(s) immediately, regardless of the conditions of loans. Any loan guarantee provided by our Company in violation of the above requirements shall not be mandatorily enforced against us, unless under the following circumstances:

i. The loan provider unknowingly provides loans to personnel related to the Directors, Supervisors or senior management of our Company or its parent company; or

ii. The collateral provided by our Company is sold lawfully by the lender to the buyer in good faith.

The following circumstances are exempted from the above clauses:

(i) Our Company provides our subsidiaries with loans or loan guarantees;

(ii) Our Company provides any of the Directors, Supervisors or senior management with loans, loan guarantees or any other fund pursuant to the employment contracts approved at the Shareholders’ meeting to pay all expenses incurred for the purpose of our Company or performing his duties owed to our Company; and

(iii) In case that the normal scope of business of our Company covers the provision of loans or loan guarantees, our Company may provide any of the Directors, Supervisors or senior management and other related personnel with loans or loan guarantees, provided that the conditions governing the above loans or loan guarantees shall be normal commercial conditions.

(5) Provide financial assistance for acquiring the shares of the Company or shares of any subsidiary

Subject to the Articles of Association, our Company or our subsidiaries (including our affiliated enterprises) shall not provide any financial assistance at any time or in any kind to personnel that acquires or plans to acquire our shares. Such personnel include any who undertake obligations, directly or indirectly, from acquiring the shares; and our Company or any of our subsidiaries (including our affiliated enterprises) shall not provide personnel mentioned in the preceding paragraph with financial assistance at any time or in any manner, to mitigate or exempt the obligations of the above personnel.

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For the purpose of the above provisions, “Financial assistance” includes, but is not limited to:

i. Gifts;

ii. Guarantees (including acts of the guarantor assuming liabilities or providing properties to ensure that the obligor performs the obligations), compensation (excluding compensation arising from mistakes of our Company), release or waiver of rights;

iii. Provision of loans or signing of contracts whereby our Company performs some obligations before others, change of the parties to the loans/contracts as well as the assignment of the rights in the loans/contracts; and

iv. Financial assistance provided by our Company in any other manner when it is insolvent, has no net assets, or will suffer significant decreases in net assets.

“Assuming obligations” includes obligator undertaking obligations by way of contract or the making of an arrangement (whether enforceable or not, and whether made on its own account or with any other persons), or changing its financial status in any other manner.

The following transactions are not deemed to be prohibited, unless prohibited by relevant laws, administrative regulations, regulations of the authorities and regulatory documents:

i. Related financial assistance provided by our Company which is in good faith in our interest and the main purpose of the financial assistance is not to acquire our shares or is an incidental part of a master plan of our Company;

ii. The lawful distribution of our properties by way of dividend;

iii. The allotment of bonus shares as shares;

iv. Reducing the registered capital, redeeming the shares or adjusting the equity structure pursuant to the Articles of Association;

v. Our Company granting loans within our scope of business and in the ordinary course of our business, provided that such loans shall not result in reduction in the net assets of our Company or even if the net assets are reduced, such financial assistance is paid from the profit available for distribution; and

vi. Our Company providing the employee stock ownership plan with fund, provided that such financial assistance shall not result in reduction in the net assets of our Company or, even if the net assets are reduced, such financial assistance is paid from the profit available for distribution.

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(6) Disclosure of interests in contracts, transactions or arrangements with the Company

Where a Directors, Supervisors and senior management has material interests in the contracts, transactions or arrangements that our Company has entered into or plans to enter into directly or indirectly (except for employment contracts that our Company has entered into with the Directors, Supervisors and senior management), the above personnel shall disclose the nature and degree of their interests to the Board of Directors as soon as possible no matter whether the above contracts, transactions or arrangements are subject to the approval of the Board of Directors in normal circumstances.

With respect to any contract, transaction or arrangement in which a Director or his Associates (defined in Hong Kong Listing Rules) have a material interest, the Director shall not vote and shall not be included in the quorum, except for the exceptions provided in Note1 Appendix 3 in Hong Kong Listing Rules.

Unless the Directors, Supervisors and senior management who have interests have made disclosure to the Board of Directors in accordance with the above requirements and the Board of Directors approves the matters at the meeting in which they are not included in the quorum nor participate in voting, our Company shall have the right to cancel the contracts, transactions or arrangements, except where the opposite party is a party in good faith without knowledge of the acts of related Directors, Supervisors and senior management violating their obligations.

Where related personnel of the Directors, Supervisors and senior management have interests in certain contracts, transactions and arrangements, the relevant Directors, Supervisors and senior management shall be deemed to have interests.

Prior to our Company’s first considering the relevant contracts, transactions or arrangements, if the Directors, Supervisors and senior management have notified the Board of Directors in writing and stated that with regard to the content of such notice, they have interest in certain contracts, transactions and arrangements thereafter. And within the scope specified by such notice, the relevant Directors, Supervisors and senior management should be considered having made disclosures which are in accordance with this Article of Association.

(7) Remuneration

Our Company shall sign written agreements with the Directors and Supervisors regarding remuneration, which shall be subject to prior approval of the general Shareholders’ meeting.

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(8) Appointment, Resignation and Dismissal

The Board of Directors consists of fourteen Directors, at least three of whom are independent non-executive Directors. The Board of Directors has one chairman. Directors are elected at the general Shareholders’ meeting. The Directors need not hold any of our shares.

The chairman of the Board shall be elected and dismissed by a vote of more than one half of the Directors. Provided that it is in compliance with relevant laws, regulations and rules as well as the regulatory rules of which the Company’s shares are listed, the general Shareholders’ meeting may remove any Director whose term has not expired by an ordinary resolution without affecting any claim for damages that may be made pursuant to any contract.

The chairman of the Board serves 3-year terms and other Directors serve 3-year terms. Upon expiration of the term, the Director may be re-elected. Director can be the general manager or other senior management personnel at the same time. However, the number of the Directors who are also general manager or other senior management personnel shall not be more than half of the total number of Directors. There is no provision in the Articles of Association that imposes any age limit for Directors beyond which retirement of a Director is mandatory.

None of the following persons shall serve as our Director, Supervisor or senior management:

i. A person who has no civil capacity or has limited civil capacity;

ii. A person who has been imposed penalty for the offense of corruption, bribery, embezzlement, larceny, or disrupting the social economic order and is within five years of the expiry date of punishment or has been deprived of political rights because of this conviction and is within five years of the expiry date of the sentence;

iii. A person who is a former director, factory manager or general manager of a company or enterprise that is bankrupt and liquidated because of poor operation, was personally liable for the bankruptcy of such company or enterprise, and is within three years of the date of completion of bankruptcy and liquidation of such company or enterprise;

iv. A person who has served as the legal representative of a company or enterprise whose business license was revoked or was ordered to close due to violation of laws, was personally liable, and is within three years of the date on which the business license of such company or enterprise was revoked;

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v. A person who has a relatively large sum of debt, which was not paid at maturity;

vi. A person who is investigated by the judicial agencies for violation of criminal law and whose case is pending;

vii. A person who is prohibited to serve leadership in a company pursuant to laws and administrative regulations;

viii. A person who is subject to China Securities Regulation Commission’s punishment which prohibited them from entering into the securities market for a period which has not yet expired;

ix. A person judged by the competent agencies to have violated the provisions of relevant securities laws, being involved in deceptive or dishonest acts and is within five years of the date on which the judgment was made;

x. A person who is not a natural person; or

xi. Any other person who is otherwise not eligible under laws, administrative regulations, regulations of the authorities, regulatory documents and other conditions set out by the relevant regulatory bodies.

The election, appointment or employment of the Directors, Supervisors or other senior management shall be invalid if such election, appointment or employment is against the Articles of Association. If the Directors, Supervisors or senior management falls into the situations provided in the above-mentioned situations during their term of office, they would be dismissed by our Company.

The validity of an act of the Directors or senior management on behalf of our Company to bona fide third parties shall not be affected by any irregularities in their appointment, election or qualifications.

(9) Borrowing powers

The Board of Directors shall be entitled to decide to borrow money within the scope of authorization by the general Shareholder’s meeting or it is required according to the listing rules of the stock exchange where our Company is listed.

The Board of Directors shall be entitled to develop proposals for our Company to issue bonds and to list its Shares, and that such bond issues must be approved by the Shareholders by a special resolution at the general Shareholders’ meeting.

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(10) Duties

The Directors, Supervisors and senior management shall bear the obligations of good faith and diligence towards our Company. In the event of violation of obligations owed to our Company by the Directors, Supervisors and senior management, we shall have the right to take the following measures in addition to various rights and remedial measures stipulated in laws and administrative regulations:

i. Require related Directors, Supervisors or senior management to compensate our Company for losses sustained as a result of their neglect of duty;

ii. Cancel any contract or transaction entered into between our Company and related Directors, Supervisors or senior management as well as any contract or transaction entered into between our Company and third person when the third person knew or should have known that the Directors, Supervisors or senior management acting on behalf of our Company violated their obligations owed to our Company;

iii. Require the relevant Directors, Supervisors or senior management to turn over the proceeds obtained from the violation of their obligations;

iv. Recover funds collected by the relevant Directors, Supervisors or senior management that should have been collected for our Company, including but not limited to commissions;

v. Require the relevant Directors, Supervisors or senior management to return the interest earned or that may be earned from funds that should have been paid to our Company;

When performing their duties, the Directors, Supervisors and senior management of the Company must comply with the principle of integrity and shall not put themselves in situations where their own interests may conflict with the obligations they have undertaken. This principle includes, without limitation, performing the following obligations:

i. Acting honestly in the best interests of our Company as the starting point of any action;

ii. Exercising powers within and not exceeding the scope of authority;

iii. Exercising conferred discretionary powers personally without being manipulated by others; not transferring discretionary powers to other persons unless permitted by laws, administrative regulations or with the informed consent given in a general Shareholders’ meeting;

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iv. Treating Shareholders of the same class equally and Shareholders of different classes fairly;

v. Entering into contract, transaction or arrangement with our Company is not allowed, unless in line with the Articles of Association or otherwise by the approval of the general Shareholders’ meeting with its full knowledge;

vi. Seeking private gain using the properties of our Company in any manner is not allowed, unless agreed by the general Shareholders’ meeting with its full knowledge;

vii. Using one’s position to take bribes or other illegal income is not allowed, nor is any form of embezzlement of our property, including, but not limited to, opportunities beneficial to our Company;

viii. Accepting commissions associated with transactions of our Company is not allowed unless agreed by the general Shareholders’ meeting with its full knowledge;

ix. Compliance with the Articles of Association, faithfully execute one’s duties and protect the Company’s interests, and not to exploit one’s position and power in the Company to advance one’s own private interests;

x. Not to compete with our Company in any kind unless agreed by the general Shareholders’ meeting with its full knowledge;

xi. Not to lend our Company’s funds to any other person, misappropriate our funds or deposit the assets or funds of our Company in an account opened in one’s own name or other names, and not to provide securities for the debt of our shareholder or any other people using our Company’s assets, unless otherwise provided by the laws, regulations or the Articles of Association;

xii. Disclosure of confidential information relating to our Company obtained during employment without the consent of the general Shareholders’ meeting with its full knowledge; unless in the interest of our Company, using such information is also not allowed; however, under the following circumstances the information may be disclosed to a court or other competent government agencies as required by:

(i) The provisions of the law;

(ii) For the public interests;

(iii) The interests of the Directors, Supervisors or senior management.

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The relevant personnel shall return the income obtained from violation of the above provisions to our Company and shall bear the liability of compensation if our Company suffers damage.

The Directors, Supervisors and senior management may not direct the following personnel or institutions (“related personnel”) to do what they are prohibited from doing:

i. Spouses or minor children of the Directors, Supervisors and senior management;

ii. Trustors of the Directors, Supervisors and senior management or the persons mentioned in the preceding paragraph;

iii. Partners of the Directors, Supervisors and senior management or persons mentioned in i and ii above;

iv. Any company under de facto control by the Directors, Supervisors and senior management individually or jointly with the persons or other directors, supervisors and senior management of companies mentioned in i, ii and iii above; and

v. Directors, Supervisors or senior management of the controlled companies mentioned in the preceding paragraph.

The good faith obligation of the Directors, Supervisors and senior management may not necessarily cease with the termination of their terms; their obligation to keep the trade secrets of our Company in confidence shall survive the termination of their terms. Other duties may continue for such period as fairness may require depending on the time lapse between the termination and the act concerned and any circumstance and condition under which the relationships between them and the Company are terminated.

Unless otherwise provided in the Articles of Association, liabilities of Directors, Supervisors and senior management arising from the violation of specific duties may be dissolved by informed general Shareholders’ meeting.

Apart from the obligations set forth in related laws, administrative regulations or the listing rules of the stock exchange where the shares of the Company are listed, the Directors, Supervisors or senior management shall assume the following obligations for each of the Shareholders when exercising their rights and performing their responsibilities:

i. They shall not cause our Company to operate beyond the scope of business indicated on our business license;

ii. They shall sincerely take the best interests of our Company as the starting point of any action;

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iii. They may not deprive our Company of our assets in any manner, including, but not limited to, opportunities beneficial to our Company; and

iv. They shall not deprive the Shareholders of personal rights and interests, including, but not limited to, the right to receive dividends and to vote, except for restructuring of our Company approved at the Shareholders’ meeting pursuant to the provisions of the Articles of Association.

The Directors, Supervisors and senior management of the Company have the responsibility when exercising their rights or carrying out their obligations to act with the care, diligence and skill due from a reasonably prudent person under similar circumstances.

In the event of any loss caused to our Company as a result of violation of any laws, administrative regulations or Articles of Association by the Directors or senior management when performing their duties in our Company, the Shareholders holding 1% or more shares separately or jointly for over 180 consecutive days may submit a written request to the Board of Supervisors to file an action with the people’s court. Where supervisors violate laws, administrative regulations or the Articles of Association in their duty performance and cause loss to our Company, the Shareholders may submit a written request to the Board of Directors to file an action with the people’s court.

In the event that the Board of Supervisors or the Board of Directors refuse to file an action upon receipt of the Shareholders’ written request specified in the preceding paragraph, or fail to file an action within 30 days upon receipt thereof, or in the event that the failure to immediately file an action in an emergency case will cause irreparable damage to the interests of our Company, the Shareholder(s) specified in the preceding paragraph may, in their own name, directly file an action to the court for the interest of our Company.

In the event of any other person infringes upon the legitimate rights and interests of our Company and causes losses thereto, the shareholder(s) specified in this Articles of Association may file an action with the competent court pursuant to the provisions of the preceding two paragraphs.

In the event of a Director or senior management person violates laws, administrative regulations or our Company’s Articles of Association, thereby damaging the interests of the Shareholder(s), the Shareholder(s) may file an action with the competent court.

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2 MODIFICATION OF THE ARTICLES OF ASSOCIATION

Our Company may amend the Articles of Association based on the provisions of the laws, administrative regulations and Articles of Association.

Where the amendments to the Articles of Association passed by the general Shareholders’ meetings need the examination and approval of the competent authorities, these amendments shall be submitted hereto for approval. Where the amendment of the Articles of Association involves registration, it shall be necessary to carry out the lawfully prescribed procedures for registration change.

3 VARIATION OF RIGHTS OF EXISTING SHARES OR CLASSIFIED SHARES

Any plan of our Company of changing or abolishing the rights of a classified Shareholder is subject to the approval of the general Shareholders’ meeting in the form of a special resolution and the approval of the affected classified Shareholders at a separately convened the Shareholders’ meeting before it can be implemented.

The rights of a classified Shareholder shall be deemed as changed or abolished under the following circumstances:

i. Increase or decrease the number of the classified shares, or increase or decrease the number of classified shares with equal or more voting rights, distribution rights, other privileges than this type of classified shares;

ii. Convert all or part of the classified shares into other classes or convert another class of shares, partly or wholly, into the shares of such class;

iii. Remove or reduce the right of the classified shares to accrued dividends generated or rights to cumulative dividends;

iv. Reduce or remove a dividend preference or a liquidation preference attached to shares of such class;

v. Add, remove or reduce the right of the classified shares to convert share rights, options rights, voting rights, transfer rights, and pre-emptive rights, or the right to obtain the securities of our Company;

vi. Remove or reduce the right of the classified shares to receive funds payable of our Company in specified currencies;

vii. Create new classified shares entitled to equal or more voting rights, distribution rights, or other privileges than the classified shares;

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viii. Restrict the transfer or ownership of the classified shares or increase such restrictions;

ix. Issue subscription or conversion rights for this or other classified shares;

x. Increase the rights and privileges of other classes of shares;

xi. The restructuring plan of our Company may constitute different classes of Shareholders to assume responsibilities disproportionately in restructuring; and

xii. Amend or abolish clauses stipulated in our Articles of Association.

Whether or not the affected classified Shareholders have voting rights at the Shareholders’ meeting, in the event of matters described above from ii through viii, xi to xii, they have voting rights at the classified Shareholders’ meeting, but the Shareholders that have interests at stake shall have no voting rights at the classified Shareholders’ meeting.

Shareholders that have interests at stake include:

i. Where the Company makes an offer to all the Shareholders at the same ratio according to this Articles of Association or purchase their own shares through public transaction in the Stock Exchange, Shareholders that have interests at stake refer to controlling shareholders as defined in this Articles of Association;

ii. Where our Company purchase its own shares through reaching an agreement outside the Stock Exchange and in accordance with the Articles of Association, Shareholders that have interests at stake shall mean the Shareholders who are relevant to such agreement;

iii. In our Company’s re-organization plan, Shareholders that have interests at stake shall mean Shareholder who bear liability at a rate that is lower than other Shareholders in the same class or who hold different interests with other Shareholders in the same class.

The resolution of the classified Shareholders’ meeting shall be passed by votes representing more than two thirds of shareholding with voting rights attending the classified Shareholders’ meeting.

At least 20 business days before convening an annual classified Shareholders’ meeting, or 15 days or 10 business days (the longer one would prevail, excluding the day sending the notice and the day convening the meeting) before convening an extraordinary classified Shareholders’ meeting, our Company shall send a written notice to inform all registered holders of the classified shares on matters to be deliberated at the meeting, as well as the date and venue of the meeting.

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For shareholders holding domestic shares, the notice of Shareholder’s meeting could be in the form of announcement, which should be published on one or more newspapers designated by the security regulatory authority of the State Council, 20 days before convening an annual Shareholders’ meeting, or 15 days or 10 business days (the longer one would prevail, excluding the day sending the notice and the day convening the meeting) before convening an extraordinary Shareholders’ meeting. All the shareholders holding domestic shares would be considered having received the notice regarding Shareholder’s meeting once the announcement is published. For H share shareholders, the announcement could also be published on the website designated by Hong Kong Exchange Stock or the website of our Company. All the H share shareholders would be considered having received the notice regarding Shareholder’s meeting once the announcement is published.

Where there are special rules in the listing rules of the stock exchange where the shares are listed, the special rules prevail.

Insofar as possible, any classified Shareholders’ meeting shall be held in accordance with the same procedures as those of the Shareholders’ meeting, and unless otherwise provided in the Articles of Association, any clause that relates to the procedures for convening the Shareholders’ meeting in the Articles of Association shall apply to classified Shareholders’ meeting.

Apart from the holders of other classified shares, the holders of domestic shares and the holders of overseas listed foreign shares are deemed as different classified Shareholders.

The special procedures for voting by the classified Shareholders shall not apply under the following circumstances:

i. Upon the approval by a special resolution at the general Shareholders’ meeting, our Company either separately or concurrently issues domestic shares and overseas listed foreign shares once every 12 months, and the number of those domestic shares and overseas listed foreign shares to be issued shall not account for more than 20% of each of its outstanding shares;

ii. The plan to issue domestic shares and overseas listed foreign shares upon the establishment of our Company is completed within 15 months of the date of approval by the securities regulatory authorities of the State Council; and

iii. transfer of shares held by holders of domestic unlisted shares to overseas investors or domestic unlisted shares to be converted into foreign shares listed overseas under the approval by the securities regulatory authority of the State Council and Hong Kong Stock Exchange, and are dealt with on overseas stock exchanges.

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4 SPECIAL RESOLUTIONS NEEDED TO BE ADOPTED BY ABSOLUTE MAJORITY VOTE

The resolutions of the Shareholders’ meeting shall be divided into ordinary resolutions and special resolutions.

An ordinary resolution may be adopted by a simple majority of the votes held by the Shareholders (including proxies of Shareholders) attending the general Shareholders’ meeting.

A special resolution can be adopted by a two-thirds majority of the votes held by the Shareholders (including proxies of Shareholders) attending the general Shareholders’ meeting.

5 VOTING RIGHTS

The ordinary Shareholders have the right to attend or appoint a proxy to attend and vote at the general Shareholders’ meeting. When voting at the general Shareholders’ meeting, the Shareholder (including proxy) may exercise his or her voting rights in accordance with the number of shares with voting power held with each share representing one vote.

General Shareholders’ meeting adopt vote by hands or open ballot. When voting at a general Shareholders’ meeting, Shareholders (including their proxies) who are entitled to two or more votes are not required to vote against or in favour with their total number of votes.

When the number of dissenting votes equals the number of supporting votes, regardless of voting by ballot or show of hands, the chairman of the Board of Directors is entitled to one additional vote.

6 RULES ON GENERAL SHAREHOLDERS’ MEETINGS

The general Shareholders’ meetings are divided into annual general Shareholders’ meetings and extraordinary general Shareholders’ meetings. The annual general shareholders’ meeting shall be convened once a year and be held within six months of the end of the previous fiscal year.

7 ACCOUNTING AND AUDITS

(1) Financial and accounting policies

Our Company shall develop its financial accounting policies pursuant to laws, administrative regulations and rules developed by the competent department. Where there are special rules in the listing rules of the stock exchange where the shares are listed, the special rules would prevail.

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The Board of Directors shall submit the financial reports to Shareholders, as required by the laws, rules and regulations or regulatory documents to be prepared by our Company, at every annual general Shareholders’ meetings.

Apart from the PRC accounting standards and regulations, the financial statements of our Company shall also conform to international accounting standards or the accounting standards of overseas areas where the shares are listed. In the event of any major discrepancy between the financial statements prepared in accordance with the two types of accounting standards, such difference must be provided in the notes to the financial statements. As to the distribution of after-tax profits of our Company in a fiscal year, the after-tax profits indicated on the two financial reports, whichever is lower shall prevail.

Our Company shall make its financial reports available at the Company for inspection by the Shareholders 20 days before the annual general Shareholders’ meeting is convened. Each Shareholder is entitled to obtain one copy of the financial report.

Our Company shall send the financial reports, together with the balance sheet and income statement or income and expenditure statement to each of the holders of overseas listed foreign shares by postage-paid mail or by the manner, including publication on the Company’s website or website of the Hong Kong Stock Exchange and other websites provided by Hong Kong Listing Rules revised from time to time, as allowed in laws and regulation of the region where our Company’s shares are listed and the listing rules of the stock exchange where our Company’s shares are listed at least 21 days before the annual general Shareholders’ meeting is convened and the recipient’s address shall be the address as registered in the register of Shareholders.

The interim results or financial information published or disclosed by our Company shall at the same time be prepared in accordance with the PRC accounting standards, rules and regulations as well as international accounting standards or the accounting standards of the overseas area in which the shares are listed.

Our Company shall publish the financial reports twice in each accounting year. Interim financial reports shall be published within 60 days of the end of the first six months of a fiscal year, while the annual financial report shall be published within 120 days of the end of each accounting year.

(2) Appointment and Dismissal of Accountants

Our Company shall appoint an independent accounting firm that meets appropriate requirements of the relevant regulations of the PRC to be responsible for auditing its annual financial report and reviewing its other financial reports.

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The first accounting firm of our Company can be appointed by the founding meeting before the first annual general Shareholders’ meeting and the term of the appointment will expire at the close of the first annual general Shareholders’ meeting. In event that the founding meeting does not exercise such power, the Board of Directors shall take it.

The term of the accounting firm appointed by our Company shall start at the close of such annual general Shareholders’ meeting of the Company and continue until the close of the next annual general Shareholders’ meeting.

If the position of an appointed accounting firm is vacant, the Board of Directors may appoint an accounting firm before the start of general Shareholders’ meeting. However, if during the vacant period, our Company has other incumbent accounting firm, such accounting firm may take the vacant.

Except the circumstances as above said, our Company shall appoint an accounting firm by the decision of the Shareholders’ meeting. The Board of Directors shall not appoint accounting firm before decisions made at Shareholders’ meeting. The Shareholders may replace the accounting firm through an ordinary resolution at the general Shareholders’ meeting prior to the expiration of the term of any accounting firm notwithstanding the terms and conditions of the contract howsoever entered into between our Company and the accounting firm. With respect to the compensation rights against the Company by the relevant accounting firm due to dismissal shall not be affected thereof.

8 NOTICE AND AGENDA OF GENERAL SHAREHOLDERS’ MEETINGS

The general Shareholders’ meeting is the authorized organ of our Company that performs duties and exercises powers in accordance with the law.

Under any of the following circumstances, the Board of Directors shall convene an extraordinary general Shareholders’ meeting within two months:

i. The number of Directors is less than the number specified in the PRC Company Law or less than two thirds of the number required in the Articles of Association;

ii. The uncovered losses of our Company reach one-third of its total paid-in share capital;

iii. The Shareholders with 10% or more shares of the Company separately or jointly request to convene an extraordinary general Shareholders’ meeting in writing (the number of shares shall be calculated by the day of the request);

iv. The Board of Directors considers it necessary;

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v. The Board of Supervisors considers it necessary;

vi. Any other circumstances stipulated in laws, administrative regulations, regulations of the authorities, the Articles of Association and the listing rules of stock exchange of the place in which our Company’s shares are listed.

In the event that the Board of Director agree to convene an extraordinary general Shareholders’ meeting, the notice of convening extraordinary general Shareholders’ meeting shall be issued within 5 days after the Board of Directors made a resolution. With regard to the proposal of convening an extraordinary general Shareholders’ meeting made by the Board of Supervisors, if the Board of Directors made a rejection or does not respond within 10 days after it receiving the proposal, it shall be viewed as the Board of Directors is unable to or fails to perform its meeting duty of convening the general Shareholders’ meeting and the Board of Supervisors may convene and preside over the meeting by its own.

Shareholders who separately or jointly hold 10% or more of the shares may request in writing to convene an extraordinary Shareholders’ meeting. If the Board of Directors does not issue a notice of convening the meeting within 10 days after receiving the above written requirement, or refused to convene, the shareholders who make the request may request the Board of Supervisors in writing to convene the meeting. If the Board of Supervisors does not issue the notice about convening the meeting within 5 days after receiving the above written requirement, the shareholders holding 10% or more shares separately or jointly for over 90 consecutive days could convene and preside the meeting by themselves.

In the event that the general shareholders’ meeting is convened, the Board of Directors, the Board of Supervisors and shareholders who separately or jointly hold more than 3% of the shares of our Company may submit a proposal 10 days before the meeting.

When convening a general shareholders’ meeting, our Company shall send a written notice 20 business days before it is convened. When convening an extraordinary shareholders’ meeting, our Company shall send a written notice 15 days or 10 business days (the longer would prevail, excluding the day sending the notice and the day convening the meeting) before it is convened. Where there are special rules in the laws, rules and the stock exchange.

The notice of the general shareholders’ meeting shall be made in writing, including the following contents:

i. the place, the date and the hour of the meeting;

ii. the matters to be discussed at the meeting;

iii. conspicuous statement that all shareholders are entitled to attend the meeting and appoint proxy to attend and vote and that proxy need not be a shareholder;

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iv. name and phone number of the standing contact person for affairs;

v. information and explanations necessary for the shareholders to exercise an informed judgment on the proposals before them. It principally includes (but is not limited to), where a proposal is made to amalgamate the Company, to repurchase shares, to reorganize the share capital or to restructure our Company in any other way, the conditions of the proposed transaction must be provided in detail together with the proposed contract (if any), and the cause and consequence of such proposal must be properly explained;

vi. disclosure of the nature and extent, if any, of the material interests of any Director, Supervisor, senior management in the matter to be discussed and the effect of the proposed matter on such Director, Supervisor, or senior management in their capacity as shareholders in so far as it is different from the effect on the interests of the shareholders of the same class;

vii. the full text of any special resolution proposed to be voted at the meeting;

viii. the delivery date and place lodging proxy forms;

ix. the registration date of the share of the holder entitled to attend;

x. other requirements specified in the laws, administrative regulations, regulations of the authorities, regulatory rules where the shares are listed and the Articles of Association, etc.

Unless otherwise provided by laws, rules, Hong Kong Listing Rules, and the Articles of Association, the notice of the general shareholders’ meeting shall be sent in person or by postage-paid mail to the shareholders (regardless of whether such shareholders have the right to vote at the shareholders’ meeting), whereas recipient’s address shall be according to the address registered with the register of shareholders. For domestic shareholders, the notice of our shareholders’ meeting may be given in the form of an announcement.

Abovementioned announcement shall be published in one or more newspapers designated by the securities governing authority of the State Council. Once the announcement is made, all domestic shareholders shall be deemed to have received the notice of the general shareholders’ meeting.

Where in accordance with the requirements of laws, administrative regulations, regulations of the authorities and regulatory rules where the shares are listed and performing relevant procedures, notice sent to H share shareholders could be published on the websites designated by Hong Kong Stock Exchange and the website of our Company, as alternative to in person or by postage-paid mail. Once the announcement is published, all shareholders holding overseas listed foreign shares shall be deemed to have received the notice of the general shareholders’ meeting.

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The resolution of the general shareholders’ meeting includes ordinary resolution and special resolution. The following matters shall be approved by the general shareholders’ meeting through ordinary resolutions:

i. Work report of the Board of Directors and the Board of Supervisors;

ii. Plans of earnings distribution and loss make-up schemes drafted by the Board of Directors;

iii. Appointment or dismissal of the members of the Board of Directors and the Board of Supervisors, and their payment and payment methods;

iv. annual budgets plan, final accounts plan, balance sheet, profit statement and other financial statements of the Company;

v. Annual report of the Company;

vi. Other matters other than those approved by special resolution stipulated in the laws, administrative regulations, listing rules of the stock exchange where the shares are listed or the Articles of Association.

The following matters shall be approved by special resolution at the general shareholders’ meeting:

i. the increase or decrease of the registered capital, or the issuance of shares, warrants or other quasi-securities;

ii. issuance of company bond;

iii. Division, merger, dissolution and liquidation of our Company and the change of form of our Company;

iv. Amendment of the Articles of Association;

v. Substantial assets acquired or disposed of or security provided for an amount exceeding 30% of the latest audited total assets of our Company within one year;

vi. the formulation, amendment and performance of share equity incentive plan; and

vii. Other matters as required by the laws, administrative regulations, listing rules of the stock exchange where the shares are listed and the Articles of Association, and as approved by ordinary resolution of the general shareholders’ meeting which are believed could materially affect our Company and need to be approved by special resolution.

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In the event that any resolution of the general Shareholders’ meeting or resolution of the Board of Directors violates laws or administrative regulations, any shareholder is entitled to request the court to deem it as invalid.

In the event that the convening procedure or voting formula of the shareholders meeting or meeting of the Board of Directors violates any of laws, administrative regulations or the Articles of Association, or resolution of which violates the Articles of Association, any shareholder is entitled to ask the court to overturn within 60 days after the resolution was adopted.

9 SHARE TRANSFERS

The shares of our Company holding by the funders thereof shall not be transferred within one year of the date of establishment of our Company. The shares issued before the public issuance of shares by our Company shall not be transferred within one year of the date on which the stocks of our Company are listed and traded on a securities exchange.

The Directors, Supervisors, and senior management of our Company shall declare, to our Company, information on their holdings of the shares of our Company and the changes thereto. The shares transferrable by them during each year of their term of office shall not exceed 25 percent of their total holdings of the shares of our Company. The shares that they held in our Company shall not be transferred within one year of the date on which the stocks of our Company are listed and traded. The aforesaid persons shall not transfer their shares of our Company within six months from the date of their resignation.

With regard to the H Shares that capital of which has been full-paid could be transferred without limitation in accordance with the Articles of Association. However, unless meeting the following conditions, the Board of Directors may refuse to recognise any transfer document without giving any reason:

i. Document that related to any share ownership or transfer documents that may affect the ownership of the shares shall be registered and such payment shall not exceed the maximum fee provided by the Stock Exchange of Hong Kong in its Listing Rules from time to time;

ii. The transfer documents only involve H Shares listed in Hong Kong;

iii. The stamp duty chargeable on the transfer documents has been paid;

iv. The relevant share certificate, and upon the reasonable request of the Board of Directors, any evidence in relation to the right of the transferor to transfer the shares has been submitted;

v. If the shares are to be transferred to joint holders, the number of the joint holders shall not exceed four;

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vi. Our Company does not have any lien on the relevant shares; and

vii. The shares shall not be transferred to minors or the person who is insane or is found to be of unsound mind.

Respective parts of shareholder register’s revision or rectification shall be subject to the laws of region where respective parts the revised or rectified shareholder register is stored. No change may be made to the information in the register of shareholders as a result of the share transfer within 30 days before the general shareholders’ meeting is convened or within five days prior to the benchmark date on which our Company has decided to distribute dividends.

10 RIGHTS OF OUR COMPANY TO PURCHASE OUR OUTSTANDING ISSUED SHARES

Under any of the following circumstances, our Company may submit to relevant competent authorities for approval to buy back our outstanding issued shares according to legal procedures with the approval of procedures stipulated in the Articles of Association:

i. Reduce our Company’s registered capital;

ii. Merger with other companies which hold our shares;

iii. Granting shares to the staff of our Company as incentives;

iv. Requesting the Company to buy back its shares from shareholders who vote against any resolutions adopted at the general shareholders’ meeting concerning the merger and division of the Company;

v. To convert shares into bond issued by our Company which is convertible to stock of our Company;

vi. Necessary for our Company to maintain our Company’s value and Shareholders’ equity; or

vii. Other circumstances as permitted by the laws, administrative regulations, regulations of the authorities and listing rules of which the shares of the Company are listed.

Our Company may buy back shares in any of the following ways:

i. Making a comprehensive buyback offer in the same proportion to all shareholders;

ii. Buying back shares through public trading on the securities exchange;

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iii. Buying back shares by an agreement outside a stock exchange;

iv. In other ways approved by the laws, administrative regulations and other measures permitted by relevant regulatory authorities.

Where our Company buys back the shares by an agreement outside a stock exchange, it shall obtain prior approval at the general shareholders’ meeting pursuant to the Articles of Association. Likewise, subject to the prior approval of the general shareholders’ meeting, our Company may cancel or amend the contract signed in the aforesaid manner or waive any of its rights in the contract.

The contract that buys back the shares includes (but is not limited to) an agreement that consents to undertake the obligation to buy back the shares and obtain the rights to buy them back.

Our Company shall not transfer any contract that buys back the shares or any rights conferred under the contract.

Unless our Company has entered into the liquidation process, we must observe the following provisions for the buyback of issued shares:

i. Where our Company buys back shares at book value, the funds shall be deducted from the book balance of our distributable earnings and the proceeds obtained from the issue of new shares to buy back the old shares;

ii. Where our Company buys back the shares at a premium to the book value, the portion equivalent to book value shall be deducted from the book balance of our distributable earnings and the proceeds obtained from the issue of new shares made for the purpose of buying back of old shares, while the portion higher than book value shall be dealt with in the following manner:

(i) Where the shares bought back were issued at book value, the funds shall be deducted from the book balance of our distributable revenue;

(ii) Where the shares bought back were issued at a premium to the book value, the funds shall be deducted from the book balance of our distributable revenue and the proceeds obtained from the issue of new shares made for the purpose of buying back of old shares. However, the amount deducted from the proceeds obtained from the issue of new shares shall not exceed the total premium amount obtained when the shares bought back were issued or the amount in our premium account (or capital reserve account) when the old shares are bought back (including the premium amount of the issue of new shares).

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iii. The funds paid by our Company for the following purposes shall be expensed from our distributable earnings:

(i) To obtain the right to buy back the shares;

(ii) To modify contract to buy back the shares;

(iii) To release obligation of our Company under the share buyback contract.

iv. After the total book value of the cancelled shares is deducted from our registered capital pursuant to the relevant provisions, the amount deducted from the distributable earnings for paying up the book value portion of the shares bought back shall be credited to our premium account (or capital reserve account).

11 POWER FOR ANY SUBSIDIARY OF OUR COMPANY TO OWN SHARES IN ITS PARENT

There are no provisions in the Articles of Association relating to ownership by subsidiary of our Company of shares in its parent.

12 DIVIDEND AND OTHER DISTRIBUTION METHODS

The Company may distribute dividends in the following manner of cash or stock.

A shareholder is entitled to receive interest with regard to payment of the shares which was paid before reminder notice. However, advance payment of the shares is not subject to any further dividend thereof.

Our Company shall appoint receiving agents on behalf of shareholders holding overseas listed foreign shares.

Receiving agents shall receive dividends and other payable funds that are distributed with respect to our overseas listed foreign shares for relevant shareholders. Receiving agents appointed by our Company shall on behalf of shareholders of shares listed in Stock Exchange shall be a trust company registered under the Trustee Ordinance of Hong Kong.

After the shareholders’ meeting of our Company make a resolution on dividends distribution plan, the Board of Directors shall complete the distribution within 2 months after the convening of the shareholders’ meeting.

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13 SHAREHOLDER PROXIES

Any shareholder who is entitled to attend and vote at general shareholders’ meeting has the right to appoint one or more persons (who may not necessarily be shareholders) as his or her shareholder proxy to attend and vote at the meeting in his or her place. Pursuant to the authorisation of the shareholder, the proxy may exercise the following rights:

i. Speak for the shareholder at the general shareholders’ meeting;

ii. Demand a poll individually or with others;

iii. exercise the right to vote by a show of hands or a poll, but the shareholder proxy may only exercise the right to vote by a poll when more than one proxy is appointed.

The proxy appointment shall be in writing and shall be signed by the appointor or a person duly authorised in writing. Where the appointor is a legal person, the stamp of the legal person shall be affixed, or signed by its Director or a duly authorised agent.

The power of attorney must be kept at the residential address or other location designated in the notice convening the meeting no later than 24 hours before the meeting at which the power of attorney is put to vote is convened or 24 hours before the designated time. If the power of attorney is signed by another person authorised by the appointor by means of power of attorney or other instrument of authorisation, the power of attorney or other instrument must be verified by a notary. The power of attorney or other instrument verified by the notary must be kept together with the power of attorney at our residential address or other location designated at the notice convening the meeting.

A legal person shareholder should attend the meeting by its legal representatives or persons authorised by its Board of Directors or other decision-making authorities.

Any blank power of attorney form sent by the Directors to the shareholder for appointing a shareholder proxy shall allow the shareholder, according to his or her free will, to instruct the proxy to vote and provide instructions separately for matters to be put to vote on each item on the meeting agenda. The power of attorney shall specify whether the shareholder proxy could vote at his or her own discretion if the shareholder does not provide specific instructions.

The votes of the shareholder proxy given pursuant to the terms of the power of attorney shall remain valid notwithstanding the death, loss of capacity of the appointor or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the shares in respect of which the proxy is given, provided that our Company does not receive written notice concerning such matters before the related meeting is convened.

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14 REVIEW THE REGISTER OF SHAREHOLDERS AND OTHER RIGHTS OF SHAREHOLDERS

Our Company shall make a register of shareholders in accordance with evidentiary documents provided by the securities registration authorities.

Pursuant to the understanding reached and agreement entered into between the competent agency in charge of securities of the PRC and the overseas securities regulatory authorities, our Company may keep the original register of the shareholders of the overseas listed foreign shares overseas and entrust an overseas entity to manage it. The original register of the shareholders of the overseas listed foreign shares listed in Hong Kong shall be kept in Hong Kong.

Our Company shall keep a copy of the register of the holders of the overseas listed foreign shares at our residential address. The overseas entrusted agency shall at all times maintain consistency between the original and copy of the register of the holders of the overseas listed foreign shares.

In case of inconsistency between the original and copy of the register of the holders of the overseas listed foreign shares, the original shall prevail.

Our Company must keep a complete register of shareholders. The register of Shareholders shall include the following:

i. Register of shareholders kept at our residential address other than those specified in ii and iii below;

ii. Register of the holders of our overseas listed foreign shares kept at the location of the stock exchange where such shares are listed; and

iii. Register of shareholders kept in other locations according to the decision of the Board of Directors as required for the listing of the shares.

Different parts of the shareholders’ register shall not overlap. The transfer of shares registered in a certain part of the register of shareholders shall not be registered elsewhere in the register of shareholders as long as the shares remain registered.

Any alteration or rectification to any part of the register of shareholders shall be made in accordance with the laws in the place where such part of the register of shareholders is maintained.

No change of the register of shareholders as a result of share transfer shall be made within 30 days before the general shareholders’ meeting is convened or within five days prior to the record date on which our Company decides to pay dividends.

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When our Company convenes the general shareholders’ meeting, pays dividends, goes into liquidation or is involved in other actions that require the confirmation of identities, the Board of Directors shall fix a date as the equity registration date, upon expiration of which the shareholders whose names registered on the register of shareholders shall be the shareholders entitled to relevant equity.

Any person who objects to the register of shareholders and requests to register his or her name (title) in the register of shareholders or to remove his or her name (title) from the register of shareholders may apply to the court with jurisdiction to amend the register of shareholders.

15 RESTRICTIONS ON RIGHTS OF CONTROLLING SHAREHOLDERS

Apart from the obligations required in laws, administrative regulations, or the listing rules of the stock exchange on which our shares are listed, our Controlling Shareholders shall not make any decision that is detrimental to the interest of all or part of the shareholders on the following issues by exercising his or her shareholder voting rights:

i. Releasing the Directors and Supervisors from the responsibility of acting honestly in the best interest of our Company;

ii. Permitting the Directors and Supervisors (for their own or others’ interests) to deprive our Company of assets in any form, including, but not limited to, any opportunity that is beneficial to our Company; and

iii. Permitting the Directors and Supervisors (for their own or others’ interests) to deprive other shareholders of their personal rights and interests, including, but not limited to, any distribution or voting right, but excluding the restructuring of the Company approved at the general shareholders’ meeting pursuant to the Articles of Association.

16 PROCEDURES FOR LIQUIDATION

Under any of the following circumstances, our Company shall be lawfully dissolved and liquidated:

i. The term of business of our Company has expired;

ii. The general shareholders’ meeting adopts a resolution to dissolve our Company;

iii. Our Company needs to be dissolved for the purpose of merger or division;

iv. Our Company is declared legally bankrupt as a result of failure to pay debts as they fall due;

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v. The business license is revoked, or our Company is ordered to close or be eliminated according to applicable law; or

vi. Where our Company encounters significant difficulties in business and management, continuous survival may be significantly detrimental to the interests of the shareholders, and the difficulties may not be overcome through other means, shareholders who hold more than 10% of all voting rights of the Company’s shareholders may request the People’s Court to dissolve the Company.

vii. Other circumstances that may lead to the liquidation of our Company as stipulated in the Articles of Association.

Where our Company is dissolved due to the provisions set forth in i, ii, v, vi and vii above, the liquidation team shall be established within 15 days from the date of the event leading to liquidation to commence dissolution and the personnel of the liquidation team shall consist of the persons determined by the Directors or the general shareholders’ meeting. In the event the liquidation team is not established to conduct liquidation during such period, the creditors can request the people’s court to appoint relevant personnel to establish the liquidation team for liquidation. In the event that our Company is dissolved in accordance with the provisions set forth in iv above, the people’s court shall organise the shareholders, related agencies and professionals to form the liquidation team pursuant to relevant provisions of the law.

If the Board of Directors decides to liquidate our Company (except where our Company is liquidated after declaring bankruptcy), the Board of Directors shall state in the notice of the general shareholders’ meeting convened for this purpose that the Board of Directors has performed a comprehensive investigation of the status of our Company and believes that our Company is able to pay off all of our debts within 12 months of the commencement of the liquidation.

After the resolution to liquidate our Company is adopted by the general shareholders’ meeting, the powers of the Board of Directors shall terminate immediately.

In accordance with the instructions of the general shareholders’ meeting, the liquidation team shall at least once a year report at the general shareholders’ meeting on the income and expenditure of the liquidation team, progress of the business and liquidation of our Company, and submit a final report at the general shareholders’ meeting upon completion of liquidation.

Within 10 days of the establishment of the liquidation team, the creditors shall be notified and an announcement shall be published in the newspaper within 60 days. The creditors shall declare their claims to the liquidation team within 30 days of the date on which the notice is received or 45 days of the date of announcement if the notice is not received.

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Creditors who declare claims shall state relevant issues related to the claims and provide proofs. The liquidation team shall carry out registration of the claims. During the period for declaration of claims, the liquidation group shall not make any repayment to the creditors.

During the liquidation, our Company shall continue to exist, but shall not carry out business activities irrelevant to the liquidation. The property of our Company shall not be distributed to any shareholder before full payments have been made out of the property according to the aforesaid provision.

Upon liquidation for the purpose of company dissolution, in the event the liquidation team finds that, after taking stock of our Company’s property and preparing the balance sheet and list of property, that the assets are insufficient to pay the debts, it shall immediately apply to the people’s court to declare bankruptcy.

After our Company is declared bankrupt by ruling of the people’s court, the liquidation team shall turn over matters regarding the liquidation to the people’s court.

Upon closure of liquidation of our Company, the liquidation team shall prepare a liquidation report, income and expenditure statement and financial record during the liquidation period, which, after being verified by a China-registered accountant, shall be submitted to our general shareholders’ meeting or the people’s court for recognition. Within 30 days of the date of confirmation by the shareholders’ meeting or people’s court, the liquidation team shall submit the above-mentioned documents to our Company registration authority and apply for cancellation of our registration and publish an announcement on our termination.

17 OTHER IMPORTANT PROVISIONS FOR OUR COMPANY OR THE SHAREHOLDERS

(1) General Provisions

Our Company is a permanently existing joint stock limited company.

Our Company may invest in other limited liability companies or joint stock limited company, provided that except as otherwise provided by law, the liabilities of our Company to be invested in are limited to the amount of its capital contribution and our Company could not assume joint and several liability to the invested company.

The Articles of Association regulate our Company’s organisation and conduct guidance and is binding on our Company, the shareholders, Directors, Supervisors and senior management. Subject to no violation of the relevant provisions of the Articles of Association, shareholders may sue shareholders; shareholders may sue the Directors, Supervisors and senior management; shareholders may sue our Company, and our Company may sue shareholders, Directors, Supervisors, general manager or other senior management.

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The above said suing includes filing an action and applying for an arbitration with an arbitral institution.

(2) Share and Transfer

Our Company may increase stock capital by the following means:

i. Issuing new shares to unspecified investors;

ii. Placing new shares to specified investors;

iii. Allocating or giving new shares to existing shareholders;

iv. Converting the reserve funds into share capital;

v. Other means approved by the laws, administrative regulations and relevant regulatory authorities.

Upon approval to increase our Company’s capital via an issue of new shares according to the provisions of the Articles of Association, the matter shall be dealt with in accordance with the procedures of related laws, administrative regulations of the PRC and of Hong Kong Listing Rules. etc.

Our Company may decrease our registered share capital and shall comply with the procedures stipulated in Company Law of the PRC, other related regulations and the Articles of Association.

If our Company decreases our registered capital, we shall prepare a balance sheet and a list of properties.

Upon approval by the competent securities department of the State Council, our Company may issue shares to domestic and overseas investors.

For the purpose of the preceding paragraph, overseas investors shall refer to investors from foreign countries and Hong Kong, Macao or Taiwan region who subscribe for shares issued by our Company; domestic investors shall refer to investors within the territory of the PRC apart from above-mentioned region who subscribe for shares issued by our Company.

Where permitted by the laws, administrative regulations and regulations of authorities, upon approval by the competent securities department of the State Council, the not listed shares of the Company can be listed and traded on an overseas stock exchange. Such domestic shares shall be in compliance with the regulatory procedures, provisions and requirements of overseas securities market after being listed and traded on an overseas stock exchange.

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(3) Shareholders

The shareholders of our Company are persons lawfully holding the Company’s shares and whose names (titles) are already listed in the register of shareholders. Shareholder is entitled to rights and assumes obligations pursuant to the classification and ratio of his or her shares. Shareholder holding the same classified share has the same rights and assumes the same obligations.

The rights of our ordinary shareholders are as follows:

i. To receive distribution of dividends and other forms of benefits according to the number of shares held;

ii. To legally require, convene, preside over, participate in or appoint a shareholder proxy to participate in and exercise corresponding voting rights at the Shareholders’ meeting;

iii. To supervise and manage business and operational activities of our Company, provide suggestions or submit queries;

iv. To transfer, grant and pledge the Company’s shares held according to the provisions of the laws, administrative regulations and the Articles of Association;

v. To obtain relevant information according to the provisions of the Articles of Association;

vi. To participate in the distribution of the remaining assets of our Company according to the proportion of shares held upon our termination or liquidation;

vii. To require our Company to acquire the shares from Shareholders voting against any resolutions adopted at the general Shareholders’ meeting concerning the merger and division of the Company;

viii. To submit a written extraordinary proposal 10 days before the meeting for shareholder(s) who separately or jointly hold(s) more than 3% of the shares of our Company; and

ix. Other rights conferred by laws, administrative regulations, regulations of the authorities, regulatory rules where our Company’s shares are listed, or the Articles of Association.

When any person is interested directly or indirectly in the shares of our Company, our Company shall not freeze or otherwise impair any of the rights attaching to any share by reason only that the person has not disclosed his interests to our Company.

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The share certificates are signed by the chairman of the Board of Directors. Where the stock exchange on which our Company’s shares are listed requires our general manager or other senior management to sign the share certificates, they shall also be signed by other such personnel. The share certificates shall become effective after being affixed with the stamp of our Company or print-stamped. Affixing our Company stamp to the share certificates is subject to the authorisation of the Board of Directors. The signature of the chairman of the Board of Director, general manager or other senior management may also be printed. Under conditions of paperless issuance and trading, the provisions of securities administrative authorities of the region where the Company’s shares listed shall apply.

If any person whose name appears in the register of shareholders or requests to register his or her name (title) in the register of shareholders loses his or her share certificates (that is, “original share certificates”), he or she may apply to our Company to reissue new share certificates for those shares.

In the event holder of Domestic shares applies to our Company for a reissue after losing the share certificates, the matter shall be dealt with pursuant to related provisions of the Company Law.

In the event a holder of overseas listed foreign shares applies to our Company for a reissue after losing the share certificates, the matter may be dealt with pursuant to the laws, rules of the stock exchange where the original register of holders of the overseas listed foreign shares is kept, or other related provisions.

If a H shareholder loses share certificates and applies to the Company for a replacement issue, the share certificates shall be issued in compliance with the following requirements:

i. The applicant shall submit the application in the standard format designated by our Company and attach a notary certificate or legal declaration. The contents of the notary certificate or legal declaration shall include the reason for the applicant’s request, circumstances and evidence of loss of share certificates, as well as a statement that nobody else may request to be registered as a shareholder with respect to the pertinent shares;

ii. Before deciding to issue new share certificates, our Company does not receive any statement in which any person other than the applicant requests to be registered as the shareholder with respect to the shares;

iii. If our Company decides to issue new share certificates to the applicant, we shall publish an announcement in an eligible newspaper designated by the Board of Directors indicating that we plan to reissue new share certificates. The announcement period shall be 90 days and the announcement shall be published at least once every 30 days;

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iv. Before publishing the announcement indicating that we plan to re-issue new share certificates, our Company shall submit a copy of the announcement to be published to the stock exchange on which the shares are listed and may publish the announcement after receiving a reply from the stock exchange confirming that the announcement has been displayed at the stock exchange. The period of displaying the announcement at the stock exchange is 90 days. If the registered shareholders of the related shares do not approve the application for reissue of new share certificates, our Company shall mail the copy of the announcement to be repeatedly published to the Shareholders;

v. In the event that nobody raises any objection to the reissue of new share certificates to our Company, upon expiration of the 90-day display period of the announcement specified in iii and iv above, the new share certificates may be reissued according to the application made by the applicant;

vi. When re-issuing new share certificates according to the Articles of Association, our Company shall immediately cancel the original share certificates and register the cancellation and replacement issue on the register of shareholders;

vii. All expenses incurred by our Company from the cancellation of the original share certificates and replacement issue of the new share certificates shall be borne by the applicant. Before the applicant has provided reasonable security, our Company shall have the right to refuse to take any action.

(4) Shareholders Failing to be Contacted

In compliance with the provisions of related laws and regulations of the PRC, our Company may exercise expropriate right to unclaimed dividend. However, our Company can only exercise such right after the expiration of the applicable corresponding valid period which started after the distribution of dividend was declared.

Our Company may terminate sending dividend coupons by mail to any holder of the overseas listed foreign shares. However, the said termination can only be made after the holder fails to withdraw from the dividend coupons for consecutive two times or the dividend coupons cannot be delivered to the receiver and returned thereof.

In compliance with the conditions indicated below, Our Company is entitled to dispose the stock held by overseas listed foreign shareholders whom we fail to contact at first time in accordance with appropriate manner as considered by the Board of Directors:

i. Our Company has paid dividends at least three times on these Shares within twelve years, but no one has claimed the dividends during that period;

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ii. Upon expiration of the 12-year period, our Company publishes an announcement in one or more newspaper of the Company’s listing place, indicating our intention to sell the Shares and notifies the stock exchange where such Shares are listed of such intention.

(5) The Board of Directors

The Board of Directors is responsible to the general Shareholders’ meeting and exercises the following powers:

i. To convene the general Shareholders’ meeting and report on work to the general Shareholders’ meeting;

ii. Implement the resolutions of the general Shareholders’ meeting;

iii. Determine the business and investment plans of our Company;

iv. Devise the annual financial budget and closing account plans of our Company;

v. Devise the earnings distribution and loss offset plans of our Company;

vi. Formulate the plans for increasing or decreasing our Company’s registered capital, the issuance of corporate bonds or other securities, as well as the listing of the stock of our Company;

vii. Formulate plans for major acquisitions of the Company, the buy-back of shares of our Company, corporate merger, separation of our Company, changing the form and dissolution of our Company;

viii. Determine guarantee matters which fail to meet the approval criteria of the general shareholders’ meeting;

ix. Determine such matters as the Company’s external investment, purchase or sale of assets, asset pledge, external guarantee, entrusting wealth management and connected transaction within the scope authorised by the general Shareholders’ meeting;

x. Determine such matters as investment, purchase or sale of assets, financing and connected transaction as decided by the Board of Directors pursuant to the listing rules where our Company’s shares are listed;

xi. Decide on the setup of our Company’s internal management organisation;

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xii. Appoint or dismiss the general manager of our Company; based on the nomination of the general manager, appoint or dismiss senior management of our Company such as vice manager, the chief financial officer, and determine their remuneration;

xiii. Set the basic management systems of our Company;

xiv. Make the modification plan to the Articles of Association;

xv. Propose the appointment or replacement of the accounting firm that performs audits for our Company at the general Shareholders’ meeting;

xvi. Attend to the work report of our Company’s general manager and review the work of the general manager;

xvii. Manage the disclosure of company information;

xviii. Other powers and duties authorised by the laws, administrative regulations, regulations of the authorities, listing rules of the place where the shares of our Company are listed and the Articles of Association.

The above resolutions adopted by the Board of Directors, except those in vi, vii and xiv must be approved by more than a two-thirds vote of the Directors, may be approved by more than half of the votes by the Directors.

Meetings of the Board of Directors shall be attended by more than one-half of the Directors (including proxies) before the Board of Directors meeting can be convened.

(6) Independent Non-executive Director

At least one-third of member of the Board of Directors of the Company shall be the independent non-executive Directors and the amount shall not be less than three. At least one independent non-executive Director shall have applicable professional qualification or are equipped with applicable accounting or relevant financial management expertise.

(7) Secretary of the Board of Directors

Our Company shall have one secretary of the Board of Directors. The secretary of the Board of Directors must be a natural person with the requisite expertise and experience and be appointed by the Board of Directors.

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(8) Board of Supervisors

Our Company shall set up a Board of Supervisors.

The Board of Supervisors consists of five Supervisors and includes one chairman. The chairman of the Board of Supervisors shall be elected and dismissed by more than a two-thirds vote of the members of the Board of Supervisors.

The Board of Supervisors shall consist of Shareholder’s representatives and employee’s representatives. The Supervisors assumed by the employee representatives shall be elected and dismissed democratically by the employees and shall account for no less than one-third of the Board of Supervisors of our Company.

Meetings of the Board of Supervisors shall be attended by more than half of the Supervisors before it may be convened. Resolutions of the Board of Supervisors shall require approval from two-third of all the Supervisors. The Supervisors serve three-year terms.

The Supervisors may, after the expiration of the term of office, be re-elected and re-appointed.

The Directors and senior management shall not also serve as Supervisors.

The Board of Supervisors is responsible to the general Shareholders’ meeting and lawfully exercises the following powers:

i. Examine the financial standing of our Company;

ii. Supervise the Company’s duties performing of Directors and senior management, and put forward suggestions for dismissing any Directors or senior management who are in breach of the laws, administrative regulations, the Articles of Association or resolutions of the general Shareholders’ meetings;

iii. Require the Directors and senior management to take corrective measures when their actions are detrimental to the Company’s interests;

iv. Propose to convene an extraordinary general Shareholders’ meeting, and where the Board of Directors fails to perform the duties in relation, to convene or preside over the general Shareholders’ meeting, to convene and preside over the general Shareholders’ meeting;

v. Submit proposals at the general Shareholders’ meetings;

vi. Bring actions against the Directors and senior management in accordance with the laws;

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vii. Investigate into any abnormalities in operation of our Company; if necessary, to engage accounting firms, law firms and other professional institutions to assist its work, and the expenses shall be borne by our Company;

viii. Verify the financial information such as the financial reports, business reports and profit distribution plans to be submitted by the Board to the general Shareholders’ meetings and, should any queries arise, to authorize, in the name of our Company, a re-examination by the certified public accountants and practicing auditors;

ix. Other powers and duties stipulated in the Articles of Association.

The Supervisors may attend the meetings of the Board of Directors, query or provide suggestions on the resolution matters of the Board meeting.

(9) General manager

Our Company has one general manager, appointed or dismissed by the Board of Directors. The general manager of our Company is responsible to the Board of Directors and exercises the following powers:

i. Be in charge of the producing and operational management of our Company, organise the enforcement of resolutions of the Board of Directors and report to the Board of Directors on work;

ii. Organise the implementation of the annual operation plans and investment schemes decided by the Board of Directors;

iii. Formulate the structure scheme of the internal department of our Company;

iv. Formulate the fundamental management policies of our Company;

v. Formulate the specific management rules of our Company;

vi. Propose the appointment or dismissal of the Company’s vice general manager, financial officer to the Board of Directors;

vii. Appoint or dismiss other management personnel except those who shall be appointed or dismissed by the Board of Directors;

viii. Other responsibilities authorised by the Articles of Association and the Board of Directors.

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(10) Reserves

When the annual after-tax earnings of our Company are distributed, our Company must allocate 10% of the earnings to the statutory reserve of the Company.

When the total amount of the statutory reserve exceeds 50% of our Company’s registered capital, no more allocations need to be drawn.

If the Company’s statutory reserve is insufficient to offset our losses during the previous year, the earnings generated during the current year must be used to make up the losses before allocating the statutory reserve in accordance with the requirements set forth above.

After allocation to the statutory reserve from the after-tax earnings of our Company, we may also allocate to the reserves at will from after-tax earnings in line with the resolution(s) adopted at the general Shareholders’ meeting.

After our Company has made up for its losses and made allocations to its statutory reserve fund, the remaining profits are distributed in proportion to the number of shares held by the Shareholders, unless otherwise specified by the Articles of Association.

If the general Shareholders’ meeting or Directors violates the above provisions and profits are distributed to the Shareholders before the Company makes up for losses or makes allocations to the statutory reserve fund, the profits distributed in violation of the provisions must be returned by such Shareholders to the Company.

The shares held by our Company itself shall not be subject to profit distribution.

The Company’s reserves must be used only for offsetting losses of the Company, expanding the scale of business and operations or for conversion into capital to increase our capital, but the capital reserve shall not be used to offset losses of the Company.

Where the statutory reserve converses into capital, the remaining statutory reserve shall not be less than 25% of the registered capital of our Company before such conversion.

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(11) Settlement of Disputes

Our Company shall comply with the following rules governing the settlement of disputes:

i. Whenever there occur any dispute or claim between shareholders of the overseas listed foreign Shares and our Company, shareholders of foreign Shares (including shareholders of overseas listed or non-listed foreign Shares) and our Company’s Directors, Supervisors, general manager or other senior management, or shareholders of the overseas listed foreign Shares and shareholders of overseas non-listed foreign shares or shareholders of domestic Shares regarding the rights or obligations relating to the affairs of our Company conferred or imposed by the Articles of Association, the Company Law or any other relevant laws and administrative regulations, such disputes or claims shall be referred by the relevant parties to arbitration.

Where the aforesaid dispute or claim of rights is referred to arbitration, the entire claim or the dispute as a whole must be referred to arbitration, and any parties who have a cause of action based on the same facts giving rise to the dispute or the claim or whose participation is necessary for the settlement of such dispute or claim, are bound by the award of the arbitration provided that such person is our Company or a shareholder of our Company, a Director, a Supervisor, general manager or other senior management.

Disputes in relation to the definition of shareholders and disputes in relation to the shareholders’ register need not be resolved by arbitration;

ii. A claimant may elect for arbitration at either the China International Economic and Trade Arbitration Commission in accordance with its rules or the Hong Kong International Arbitration Centre in accordance with its arbitration rules. Once a claimant refers a dispute or claim to arbitration, the other party must submit to the arbitral body so elected by the applicants.

If a claimant elects for arbitration at HKIAC, any party to the dispute or claim may request the arbitration to be conducted in Shenzhen in accordance with the Securities Arbitration Rules of the HKIAC;

iii. The laws of the PRC are applicable to the arbitration for the disputes or claims of rights referred to in paragraph (i) above, unless otherwise provided in the laws and administrative regulations;

iv. The award of an arbitration body shall be final and binding on all parties.

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A. FURTHER INFORMATION ABOUT OUR GROUP

1. Incorporation of Our Company

Our Company was established as a limited liability company in the PRC on September 12, 2012 and was converted into a joint stock company with limited liability on April 27, 2015.

As of the date of this document, our Company’s head office is located at Floor 2, Building 2, No. 87, Upper Industry Avenue, Heshan Village, Pujiang County, Chengdu, Sichuan Province, the PRC. Our Company has established a principal place of business in Hong Kong at 40/F, Dah Sing Financial Centre, 248 Queen’s Road East, Wan Chai, Hong Kong and has been registered as a non-Hong Kong company under Part 16 of the Companies Ordinance on May 7, 2021 with the Registrar of Companies in Hong Kong. The address for service of process is 40/F, Dah Sing Financial Centre, 248 Queen’s Road East, Wan Chai, Hong Kong.

As our Company was established in the PRC, our corporate structure and Articles of Association are subject to the relevant laws and regulations of the PRC. A summary of the relevant provisions of our Articles of Association is set out in “Appendix V—Summary of the Articles of Association.” A summary of certain relevant aspects of the laws and regulations of the PRC is set out in “Appendix IV—Summary of Principal Legal and Regulatory Provisions.”

2. Changes in Share Capital of Our Company

On January 10, 2020, as approved by the general meeting of our Company, the registered share capital of our Company was increased from RMB118,926,667 to RMB124,610,000.

On November 18, 2020, as approved by the general meeting of our Company, the registered share capital of our Company was increased from RMB124,610,000 to RMB155,762,500.

For details, see “History and Corporate Structure—Establishment and Major Shareholding Changes of our Company.” Save as disclosed above, there has been no alteration in our registered share capital within two years immediately preceding the date of this document.

3. Changes in Share Capital of Our Subsidiaries

The following sets out the alterations in the registered share capital of our subsidiaries within two years immediately preceding the date of this document. For details of the list of our subsidiaries, see note 1 to the Accountants’ Report as set out in Appendix I to this document.

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On February 4, 2020, the registered share capital of Yumeng Tongxing was increased from RMB2.4 million to RMB3.5 million.

On July 17, 2020, Chongqing Quanyuantang Quanshun Pharmacy Co, Ltd. (重慶泉源堂泉順大藥房有限責任公司) was established with a registered share capital of RMB100,000.

On December 15, 2020, Chengdu Quanyuantang Hongmen Back Street Pharmacy Co., Ltd. (成都泉源堂黌門後街大藥房有限公司) was established with a registered share capital of RMB1 million.

On March 15, 2021, Chongqing Quanyuantang Medicine Co., Ltd. (重慶泉源堂藥品有限公司) was established with a registered share capital of RMB2 million.

On March 18, 2021, Henan Quanyuantang Intelligent Pharmacy Chain Co., Ltd. (河南泉源堂智慧藥房連鎖有限責任公司) was established with a registered share capital of RMB10 million.

On April 13, 2021, Shanghai Quanyuantang Intelligent Pharmacy Co., Ltd. (上海泉源堂智慧藥房有限公司) was established with a registered share capital of RMB10 million.

On April 15, 2021, Changsha Quanyuantang Intelligent Pharmacy Co., Ltd. (長沙市泉源堂智慧大藥房有限公司) was established with a registered share capital of RMB500 thousand.

On April 22, 2021, Ya’an Quanxin Pharmacy Co., Ltd. (雅安泉新藥房有限公司) was established with a registered capital of RMB1 million.

On April 22, 2021, Suining Quanxin Pharmacy Co., Ltd. (遂寧泉新藥房有限公司) was established with a registered capital of RMB0.6 million.

On April 30, 2021, Yibintang Quanxin Pharmacy Co., Ltd. (宜賓堂泉新藥房有限公司) was established with a registered capital of RMB0.5 million.

On May 6, 2021, Chongqing Quanyuantang Quansheng Pharmacy Co., Ltd. (重慶泉源堂泉盛大藥房有限公司) was established with a registered capital of RMB0.1 million.

On May 14, 2021, Chongqing Quanyuantang Quanrun Pharmacy Co., Ltd. (重慶泉源堂泉潤大藥房有限公司) was established with a registered capital of RMB0.1 million.

On May 20, 2021, Deyang Quanyuantang Professional Pharmacy Co., Ltd. (德陽泉源堂專業藥房有限公司) was established with a registered capital of RMB0.5 million.

Save as disclosed above and in the section headed “History and Corporate Structure”, there has been no alteration in the share capital of the subsidiaries of our Company within two years immediately preceding the date of this document.

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4. Shareholders’ Resolutions

At the extraordinary general meeting of our Company held on April 15, 2021, among other things, the following resolutions were passed by the Shareholders:

(a) the [REDACTED] by our Company of H Shares of nominal value of RMB1.00 each and such H Shares be [REDACTED] on the Stock Exchange;

(b) the number of H Shares to be [REDACTED] before the exercise of the [REDACTED] shall not exceed [REDACTED] H Shares, representing approximately [REDACTED]% of the enlarged share capital of our Company upon completion of the [REDACTED], and granting the [REDACTED] the [REDACTED] of no more than [REDACTED]% of the above number of H Shares to be [REDACTED] pursuant to this resolution;

(c) subject to the [REDACTED], upon completion of the [REDACTED], [REDACTED] Unlisted Shares in aggregate held by 38 Shareholders will be converted into H Shares on a one-for-one basis;

(d) subject to the completion of the [REDACTED], the conditional adoption of the Articles of Association, which shall become effective on [REDACTED]; and

(e) authorization of the Board and its authorized persons to handle all matters relating to, among other things, the [REDACTED], the [REDACTED] and [REDACTED] of the H Shares.

B. FURTHER INFORMATION ABOUT OUR BUSINESS

1. Summary of Material Contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by us or any of our subsidiaries within the two years preceding the date of this document that are or may be material:

(1) the equity transfer agreement (股份轉讓協議) dated October 30, 2019 entered into by and among Chengdu Chuangtuo, Chengdu Huarong Meijia Technology Co., Ltd. (成都華蓉美迦科技有限責任公司) and our Company, pursuant to which Chengdu Huarong Meijia Technology Co., Ltd. agreed to acquire 5,083,333 Shares of our Company from Chengdu Chuangtuo at the consideration of RMB30,500,000;

(2) the capital increase agreement (成都泉源堂大藥房連鎖股份有限公司之增資擴股協議) dated December 11, 2019 entered into between Chengdu Chuangtuo and our Company, pursuant to which Chengdu Chuangtuo agreed to subscribe for, and the Company agreed to issue 5,683,333 Shares at the consideration of RMB34,100,000;

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(3) the equity transfer agreement (股份轉讓協議) dated July 3, 2020 entered into between Chengdu Huamaoli Enterprise Management Co., Ltd. (成都華茂力企業管理有限公司) and our Company, pursuant to which our Company agreed to acquire 6,485,693 Shares of our Company from Chengdu Huamaoli Enterprise Management Co., Ltd. at the consideration of RMB38,914,158;

(4) the equity transfer agreement (股份轉讓協議) dated July 24, 2020 entered into by and among V Capital Co., Ltd. (一村資本有限公司), Chengdu Chuangtuo and our Company, pursuant to which Chengdu Chuangtuo agreed to acquire 6,700,000 Shares of our Company from V Capital Co., Ltd. at the consideration of RMB60,300,000;

(5) the equity subscription agreement (股份認購協議) dated November 13, 2020 entered into by and among Lucky Linkage Holdings Limited, SIG (Shanghai) Equity Investment Fund Partnership (Limited Partnership) (海納華(上海)股權投資基金合夥企業(有限合夥)), Mr. Li, Chengdu Chuangtuo and our Company, pursuant to which SIG (Shanghai) Equity Investment Fund Partnership (Limited Partnership) agreed to subscribe for, and the Company agreed to issue 5,192,083 Shares of our Company at the consideration of RMB50 million, and Lucky Linkage Holdings Limited agreed to subscribe for, and the Company agreed to issue 25,960,417 Shares in our Company at the consideration of RMB250 million; and

(6) [REDACTED]

2. Our Intellectual Property Rights

(i) Trademarks

As of the Latest Practicable Date, our Group had registered the following trademarks which we considered to be or may be material to our business:

Registered Place of Registration No. Trademark Class Owner Registration Number Expiration Date

1. 9 Yumeng PRC 42216680 July 13, 2030 Tongxing 2. 42 Yumeng PRC 42202875 July 13, 2030 Tongxing 3. 35 Yumeng PRC 42202858 July 13, 2030 Tongxing 4. 38 Yumeng PRC 42200474 July 13, 2030 Tongxing

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(ii) Software Copyright

As of the Latest Practicable Date, we had registered the following software copyrights which we consider to be material to our business:

1. Jiugongge Order Intermediate Desk Yumeng 2019SR0870996 June 10, 2019 System V1.0 玖宮格訂單中台系統V1.0 Tongxing 2. Jiugongge Retail Store PDA Operation Yumeng 2019SR0870813 December 10, System V1.0 玖宮格門店PDA作業系統 Tongxing 2018 V1.0 3. Jiugongge Product Intermediate Desk Yumeng 2019SR0870819 June 20, 2019 System V1.0 玖宮格商品中台系統V1.0 Tongxing 4. Jiugongge WeChat Store System V1.0 玖 Yumeng 2019SR0885299 July 3, 2019 宮格微信商城系統V1.0 Tongxing 5. Jiugongge Cloud POS Management Yumeng 2019SR0877070 July 2, 2019 System V1.0 玖宮格雲POS管理系統 Tongxing V1.0 6. Jiugongge Operation Management Yumeng 2019SR0876629 March 26, 2019 System V1.0 玖宮格運維平台系統V1.0 Tongxing 7. Jiugongge Pharmacy Locating Big Yumeng 2019SR0876985 July 3, 2019 Screen System V1.0 玖宮格找藥大屏 Tongxing 系統V1.0 8. Jiugongge Resource Intermediate Desk Yumeng 2019SR0876966 May 16, 2019 System V1.0 玖宮格資源中台系統V1.0 Tongxing 9. Free Order Storage PDA Operation Yumeng 2019SR0885084 March 28, 2018 System V1.0 隨意點倉儲PDA作業系統 Tongxing V1.0 10. Free Order Retail Store Management Yumeng 2019SR0881120 April 6, 2018 System V1.0 隨意點門店管理系統V1.0 Tongxing 11. Free Order Representative APP Assistant Yumeng 2019SR0886759 May 6, 2018 Software V1.0 隨意點業務員APP助手 Tongxing 軟件V1.0 12. Free Order Head Office Management Yumeng 2019SR0885304 June 8, 2018 System V1.0 隨意點總部管理系統V1.0 Tongxing 13. Free Order WMS Management System隨 Yumeng 2019SR0876962 February 20, 2019 意點WMS管理系統V1.0 Tongxing 14. JS Order Management System V1.0 JS訂 Yumeng 2019SR0870769 January 15, 2018 單管理系統V1.0 Tongxing 15. JS Membership Management System Yumeng 2019SR0875009 February 20, 2019 V1.0 JS會員管理系統V1.0 Tongxing

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16. JS Merchandise Management System Yumeng 2019SR0871261 January 18, 2019 V1.0 JS商品管理系統V1.0 Tongxing 17 Yumeng Tongxing Medicine Free Order Yumeng 2015SR224995 August 1, 2015 B2C E-commerce Website Software Tongxing V2 與夢同行醫藥隨意點B2C電商網站軟件V2 18 Yumeng Tongxing Medicine Free Order Yumeng 2015SR224450 August 1, 2015 B2B E-commerce Website Software Tongxing V2 與夢同行醫藥隨意點B2B電商網站軟件V2 19 Yumeng Tongxing Pharmacy Free Order Yumeng 2015SR222370 August 1, 2015 APP Application Software V2 與夢同 Tongxing 行藥店隨意點APP應用軟件V2 20 Yumeng Tongxing Health Free Order Yumeng 2015SR222369 August 1, 2015 APP Application Software V2 與夢同 Tongxing 行健康隨意點APP應用軟件V2 21 Medicine Free Order Management Yumeng 2015SR053286 December 1, 2014 System V2 醫藥隨意點管理系統V2 Tongxing 22 Pharmacy Free Order Software Platform Yumeng 2015SR028423 December 1, 2014 V1.0 藥店隨意點軟件平台V1.0 Tongxing

(iii) Domain Names

As of the Latest Practicable Date, we had registered the following domain names which we consider to be material to our business:

Registration Expiration No. Domain Name Owner Date Date

1. qyt1902.com The Company December 26, December 26, 2012 2025

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C. FURTHER INFORMATION ABOUT OUR DIRECTORS, SUPERVISORS AND SUBSTANTIAL SHAREHOLDERS

1. Directors and Supervisors

(i) Disclosure of Interests – Interests and short positions of the Directors and the chief executive in the Shares, underlying Shares or debentures of our Company and our associated corporations

Immediately following completion of the [REDACTED] (assuming the [REDACTED] is not exercised), the interests or short positions of our Directors and chief executives in the Shares, underlying Shares and debentures of our Company and its associated corporations, within the meaning of Part XV of the SFO, which will have to be notified to our Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she is taken or deemed to have under such provisions of the SFO), or which will be required, pursuant to section 352 of the SFO, to be recorded in the register referred to therein, or which will be required to be notified to our Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, will be as follows:

Approximate percentage of Appropriate interest in the Number percentage of relevant class and class interest in of Shares of Name Position Nature of interest of Shares our Company our Company

Li Can Executive Director Beneficial interest 37,792,733 [REDACTED][REDACTED] and chairman of H Shares Board Interest in a 8,286,000 H Shares [REDACTED][REDACTED] controlled corporation(1) Interest in 3,272,425 H Shares [REDACTED][REDACTED] controlled corporations(2) Interest of a party 38,261,640 H [REDACTED][REDACTED] to an Shares agreement(3) Chen Zhouhua Executive Director Beneficial interest 6,200,000 H Shares [REDACTED][REDACTED] Yu Miao Executive Director Beneficial interest 2,010,000 H Shares [REDACTED][REDACTED] Wang Lei Executive Director Beneficial interest 870,000 H Shares [REDACTED][REDACTED] Chen Yang Executive Director Beneficial interest 659,000 H Shares [REDACTED][REDACTED] Interest in 3,213,268 H Shares [REDACTED][REDACTED] controlled corporations(4)

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Notes:

(1) As of the Latest Practicable Date, Chengdu Chuangtuo was owned as to 99% by Mr. Li Can. As such, Li Can is deemed to be interested in which Chengdu Chuangtuo is interested under the SFO.

(4) Include 1,564,470 Shares held by Chengdu Quanxue and 1,648,798 Shares held by Chengdu Quanzhao. As of the Latest Practicable Date, each of Chengdu Quanxue and Chengdu Quanzhao is managed and controlled by Mr. Chen Yang as the general partner, who is our executive Director and Board secretary. As such, Mr. Chen is deemed to be interested in which each of Chengdu Quanxue and Chengdu Quanzhao is interested under the SFO.

(ii) Particulars of service agreements

Pursuant to Rules 19A.54 and 19A.55 of the Listing Rules, our Company has entered into a service agreement with each of the Directors and Supervisors which contains provisions in relation to, among other things, compliance of relevant laws and regulations, observation of the Articles of Association and provisions on arbitration.

Each of the Directors and Supervisors has entered into a service agreement with our Company. The principal particulars of these service agreements are: (a) each of the agreements is for a term of three years following his/her respective appointment date; and (b) each of the agreements is subject to termination in accordance with their respective terms. The service agreements may be renewed in accordance with our Articles of Association and the applicable rules.

Save as disclosed above, our Company has not entered, and do not propose to enter, into any service contracts with any of the Directors or Supervisors in their respective capacities as Directors/Supervisors (other than contracts expiring or determinable by the employer within one year without the payment of compensation (other than statutory compensation)).

(iii) Directors’ and Supervisors’ remuneration

For details of the Directors’ and Supervisors’ remuneration, see “Directors, Supervisors and Senior Management—Remuneration of Directors, Supervisors and Five Highest Paid Individuals” of this document and Note 9 to the Accountants’ Report as set out in Appendix I to this document.

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2. Substantial Shareholders

For information on the persons who will, immediately following the completion of the [REDACTED] (assuming the [REDACTED] is not exercised), having or be deemed or taken to have beneficial interests or short position in our Shares or underlying Shares which would fall to be disclosed to our Company under the provisions of 2 and 3 of Part XV of the SFO, or directly or indirectly be interested in 10% or more of the [REDACTED] voting shares of any other member of our Company, see “Substantial Shareholders” of this document.

Save as disclosed in the section headed “Substantial Shareholders” in this document, as of the Latest Practicable Date, our Directors were not aware of any persons who would, immediately following the completion of the [REDACTED] (assuming the [REDACTED]is not exercised), having or be deemed or taken to the beneficial interests or short position in our Shares or underlying Shares which would fall to be disclosed to our Company under the provisions of 2 and 3 of Part XV of the SFO, or directly or indirectly be interested in 10% or more of the [REDACTED] voting shares of any member of our Group or had option in respect of such capital.

3. Disclaimers

Save as disclosed in this document:

(i) none of our Directors, Supervisors or any of the parties listed in “—7. Qualification of Experts” of this Appendix is:

(a) interested in our promotion, or in any assets which, within the two years immediately preceding the date of this document, have been acquired or disposed of by or leased to us, or are proposed to be acquired or disposed of by or leased to our Company; or

(b) materially interested in any contract or arrangement subsisting at the date of this document which is significant in relation to our business;

(ii) save in connection with the [REDACTED] and the [REDACTED], none of the parties listed in “—7. Qualification of Experts” of this Appendix:

(a) is interested legally or beneficially in any shares in any member of our Group; or

(b) has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of our Group;

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(iii) none of our Directors or Supervisors or their close associates or any shareholders of our Company who to the knowledge of our Directors owns more than 5% of our issued share capital has any interest in our top five customers or suppliers; and

(iv) none of our Directors or Supervisors is a director or employee of a company that has an interest in the share capital of our Company which, [REDACTED], would have to be disclosed pursuant to Divisions 2 and 3 of Part XV of the SFO.

D. SHARE INCENTIVE SCHEME

The Board adopted the Share Incentive Scheme on November 3, 2020 (the “Adoption Date”). Under the Share Incentive Scheme, a total of 6,485,693 Shares were repurchased by the Company as treasury shares reserved for employee incentive purpose. As approved by the general meeting of the Company, the Board is authorized to select grantees and revise the conditions during the term of the Share Incentive Scheme.

On May 21, 2021, in order to simplify the shareholding structure and better manage the Share Incentive Scheme, Chengdu Quanhong, Chengdu Quanxue, Chengdu Quanbei and Chengdu Quanzhao were established as limited partnerships under the PRC laws to serve as our employee shareholding platforms under the Share Incentive Scheme. On May 24, 2021, our Shareholders approved the revision of the Share Incentive Scheme, pursuant to which the Company transferred all of its then treasury shares to the Employee Shareholding Platforms and the grantees under the Share Incentive Scheme would be granted partnership interest in the Employee Shareholding Platforms, thereby becoming interested in the Company indirectly. For further details, please refer to “History and Corporate Structure—Establishment of Employee Shareholding Platforms under the Share Incentive Scheme” in this document.

The Share Incentive Scheme is not subject to the provisions of Chapter 17 of the Listing Rules as the Share Incentive Scheme does not involve the grant of options by our Company to [REDACTED] for new Shares. The principal terms of the Share Incentive Scheme are summarized as follows:

1. Purpose

In order to further improve the corporate governance structure and the incentive mechanism of our Company as well as to enhance the management team’s responsibility for the sustainable and healthy development of our Company, the Company provides a means of compensating the senior management and core employees, including executive Directors of our Company, through the grant of Shares for their contribution to the growth and profits of the Group, and to allow such persons to participate in the growth and profitability of the Group.

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2. Grant of Shares

On March 20, 2021, as approved by the Shareholders’ meeting, the Company resolved to grant a total of 3,090,317 Shares to certain Directors and employees of our Group (each, a “Grantee”) at the consideration of RMB3 per Share. On May 24, 2021, as approved by the Shareholders’ meeting, the Company revised the award method, pursuant to which all Shares to be granted under the Share Incentive Scheme (including 3,090,317 Shares resolved to be granted in March 2021) would be held by the Employee Shareholding Platforms and the Grantees would be granted corresponding partnership interests in the Employee Shareholding Platforms. The Company further resolved to grant equity interests of the Company representing a total of 3,395,376 Shares to the Grantees at the consideration of RMB6 per Share.

As of the Latest Practicable Date, we granted equity interests of the Employee Shareholding Platforms representing a total of 6,485,693 Shares to a total of 97 Grantees, details of which are set out below:

Corresponding indirect equity interest in the Company immediately upon the completion of Number of the Shares that the [REDACTED], equity interests Consideration assuming the granted per Share [REDACTED] is Residential address of the Name of the Grantee represent (“Grant Price”) not exercised Grantee (RMB)

Directors Li Can (李燦) 394,000 3 [REDACTED] No. 803, Unit 3, Building 2 711,978 6 [REDACTED] No. 39, Shenxianshu South Road Gaoxin District Chengdu Sichuan Province, PRC Chen Zhouhua 232,400 3 [REDACTED] Room 2204, 211 Xingmin (陳洲華) Road 300,000 6 [REDACTED] Tianhe District Guangzhou City Guangdong Province, PRC Wang Lei (王磊) 232,400 3 [REDACTED] 11-17-35, Shihua Community 300,000 6 [REDACTED] Xinglongtai District Panjin City Liaoning Province, PRC Yu Miao (于淼) 194,000 3 [REDACTED] Room 302 No. 17, Lane 569

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300,000 6 [REDACTED] Shangbo Road Pudong New Area Shanghai, PRC Chen Yang (陳楊) 174,800 3 [REDACTED] No. 8, Unit 2, Building 6 10 Daxue Road 300,000 6 [REDACTED] Wuhou District Chengdu Sichuan Province, PRC Huang Xin (黃鑫) 136,400 3 [REDACTED] Room 301 No. 34, Lane 1285 300,000 6 [REDACTED] Shangzhong West Road Minhang District Shanghai, PRC Supervisor Du Tongjie 122,800 3 [REDACTED] No. 2402, 24/F, Unit 1 (杜同傑) Building 9 300,000 6 [REDACTED] 418 Century City Road Gaoxin District Chengdu Sichuan Province, PRC 91,200 3 [REDACTED] No. 603, Unit 3, Building 2 Li Daijun (李代俊) 45,000 6 [REDACTED] No. 755, Section 2, Jinhua Road Jinjiang District Chengdu Sichuan Province, PRC Liu Jiao (劉嬌) 30,000 3 [REDACTED] No. 8, Unit 2, Building 12 Shuangnan Section, Wuhou Avenue 23,400 6 [REDACTED] Wuhou District Chengdu Sichuan Province, PRC Other Employees 88 individuals 2,297,315 [REDACTED]– Total 6,485,693 [REDACTED]–

As of the Latest Practicable Date, no awards have been vested under the Share Incentive Scheme.

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3. Arrangement in relation to the Restrictions on the Transfer of the Shares and Conditions for Releasing Such Restrictions

The lock-up period under the Share Incentive Scheme will commence on the [REDACTED], subject to the following expiry schedule: (i) 20% of total partnership interests subscribed by the individual Grantee will no longer be subject to the lock-up period after the first year since the [REDACTED]; (ii) 40% of total partnership interests subscribed by the individual Grantee will no longer be subject to the lock-up period after the second year since the [REDACTED]; and (iii) 100% of total partnership interests subscribed by the individual Grantee will no longer be subject to the lock-up period after the third year since the [REDACTED]. The partnership interests held by the Grantees under the Share Incentive Scheme shall not be transferred, used as collateral or debt repayment prior to the expiry of the abovementioned lock-up period.

During the lockup period, the cash dividends of the Shares granted to the Employee Shareholding Platforms shall be held in escrow by the Employee Shareholding Platforms.

Any additional Shares acquired as a result of (i) capital reserve converted into share capital; (ii) share bonus; (iii) share split, shall be locked up at the same time and shall not be sold or transferred by other means. The lock-up period of such Shares is the same as that under the Share Incentive Scheme.

After the lock-up period expires, the partnership interests under the Share Incentive Scheme will no longer be subject to restrictions when all the following conditions are met:

(i) None of the following circumstances occurs to the Company:

(a) a certified public accountant issues an audit report regarding the financial reporting of the latest financial year with negative opinion or containing disclaimer opinion;

(b) a certified public accountant issues an audit report regarding the internal control over financial reporting of the latest financial year with negative opinion or containing disclaimer opinion; and

(ii) None of the following circumstances occurs to the Grantee:

(a) any stock exchange identifies the Grantee as an inappropriate candidate within the last 12 months;

(b) the CSRC or its dispatched agencies identifies the Grantee as an inappropriate candidate within the last 12 months;

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(c) the CSRC or its dispatched agencies imposes administrative punishment due to the Grantee’s major violations of laws and regulations within the last 12 months or takes measures to prohibit the Grantee’s entry into the stock market;

(d) the Companies Law prohibits the Grantee from serving as senior management of a company;

(e) the Grantee is prohibited by laws and regulations to participate in equity incentive of a listed company; and

(f) other serious violations of the Company’s policy as determined by the Board.

4. Termination and Amendment of the Share Incentive Scheme

(i) The Share Incentive Scheme will be terminated if any of the below circumstances occurs to the Company:

(a) a certified public accountant issues an audit report regarding the financial reporting of the latest financial year with negative opinion or containing disclaimer opinion;

(b) a certified public accountant issues an audit report regarding the internal control over financial reporting of the latest financial year with negative opinion or containing disclaimer opinion;

(c) the Company applies for listing during the term of the Share Incentive Scheme, and if the Share Incentive Scheme produces material obstacles to the application of listing, the Board has the right to terminate the Share Incentive Scheme and reformulates a new Share Incentive Scheme that meets the requirements of listing norms;

(d) any law or regulation stipulates that the Share Incentive Scheme shall not be implemented;

(e) other circumstances as determined by the CSRC.

When the Company terminates the Share Incentive Scheme due to any of the above circumstances, the partnership interests that are held by the Grantee but still subject to the lock-up period shall be repurchased and cancelled by the Employee Shareholding Platform, and the relevant Shares that are held by the Employee Shareholding Platform shall be repurchased and cancelled by the Company.

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(ii) Under any of the following circumstances, the Shareholders shall authorize the Board to determine to continue, revise, suspend or terminate the Share Incentive Scheme to the extent of the relevant conditions, except for the rights to be exercised by the Shareholders as clearly stipulated in the relevant documents:

(a) the change of control of the Company;

(b) the merger or division of the Company;

(iii) If the Grantee resigns or dies before the expiration of the Share Incentive Scheme, the Shares shall be subject to the below conditions:

(a) when the Grantee loses civil capacity due to work, the Shares granted under the Share Incentive Scheme can be exercised by the guardian on one’s behalf;

(b) when the Grantee dies due to work, the Shares granted under the Share Incentive Scheme will be inherited by the property heir or legal heir designated by the Grantee.

(iv) In any of the following circumstances, the Company shall repurchase the Shares that represents for partnership interests held by the Grantee but subject to the lock-up period (the “Restricted Shares”) at the Grant Price:

(a) the Grantee terminates the labor contract with the Company for reasons other than those mentioned in (iii)(a) or (b) above;

(b) the Grantee becomes unqualified for the position or fails the job assessment;

(d) the control of the subsidiary in which the Grantee is employed changes and the Grantee retains in the subsidiary;

(e) the Grantee retires according to the relevant policies and approved by the Company, and does not invest or hold a position in any competing business of the Company during the term of the Share Incentive Scheme.

(v) If the Grantee resigns after the lock-up period, the Company has the right to repurchase at the price of the latest round of financing upon the resignation. If the Company fails to initiate a repurchase within 60 working days after the resignation, the Company shall be deemed to have waived the right to repurchase.

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(vi) If the Grantee violates any law or regulation during the employment, or cause serious damage to the Company and the Company terminates the labor contract as a result, the Restricted Shares shall be repurchased by the Company at the Grant Price.

(vii) If the Grantee causes serious losses to the Company due to his/her violation of non-competition restrictions or major work problems identified after leaving office, the Company shall have the right to require the Grantee to return all the earnings obtained under the Share Incentive Scheme.

(viii) For circumstances other than the above circumstances, the Board shall have the right to, by taking into consideration of the individual case, deal with the Restricted Shares.

E. OTHER INFORMATION

1. Estate Duty

Our Directors have been advised that no material liability for estate duty is likely to fall on our Company or any of our subsidiaries.

2. Litigation

During the Track Record Period and as of the Latest Practicable Date, we were not engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to our Directors to be pending or threatened by or against us, that would have a material adverse effect on our results of operations or financial conditions.

3. Joint Sponsors

The Joint Sponsors have made an [REDACTED] on behalf of our Company to the Listing Committee of the Stock Exchange for the [REDACTED] of, and permission to [REDACTED], the H Shares to be converted from Unlisted Shares and the H Shares to be [REDACTED] pursuant to the [REDACTED] (including the additional H Shares which may be [REDACTED] pursuant to the exercise of the [REDACTED]). All necessary arrangements have been made to enable our H Shares to be admitted into CCASS. Each of the Joint Sponsors satisfies the independence criteria applicable to sponsors set out in Rule 3A.07 of the Listing Rules.

Each of the Joint Sponsors will be paid by our Company a fee of US$[REDACTED]to act as a sponsor to our Company in connection with the [REDACTED].

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4. Compliance Advisor

Our Company have appointed CMBC International Capital Limited as our Compliance Advisor in compliance with Rule 3A.19 of the Listing Rules.

5. Preliminary Expenses

We have not incurred any material preliminary expenses in relation to the incorporation of our Company.

6. Taxation of holder of H Shares

The sale, purchase and transfer of H Shares are subject to Hong Kong stamp duty if such sale, purchase and transfer are effected on the [REDACTED] of members of our Company, including in circumstances where such transaction is effected on the Stock Exchange. The current rate of Hong Kong stamp duty for such sale, purchase and transfer is a total of HK$2.00 for every HK$1,000 (or part thereof) of the consideration or, if higher, the fair value of the H Shares being sold or transferred. For further information in relation to taxation, see “Appendix III—Taxation and Foreign Exchange” to this document.

7. Qualification of Experts

The following are the qualifications of the experts (as defined under the Listing Rules and the Companies (Winding Up and Miscellaneous Provisions) Ordinance) who have given opinions or advice which are contained in this document:

Name Qualification

Citigroup Global Markets Asia Limited A licensed corporation to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 7 (providing automated trading services) of the regulated activities under the SFO

Haitong International Capital Limited A licensed corporation to conduct Type 6 (advising on corporate finance) of the regulated activities under the SFO

Tian Yuan Law Firm Legal advisers as to PRC law

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Name Qualification

KPMG Certified Public Accountants and Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance

Frost & Sullivan (Beijing) Inc., Independent industry consultant Shanghai Branch Co.

8. Consent of Experts

Each of the experts whose names are set out in paragraph 7 above has given and has not withdrawn its consent to the issue of this document with the inclusion of its report and/or letter and/or legal opinion (as the case may be) and references to its name included herein in the form and context in which it respectively appears.

9. Promoters

The promoters of our Company are all of the 14 then shareholders of our Company as of April 27, 2015 before our conversion into a joint stock limited liability company.

No. Name

1Mr.Li 2 Chengdu Chuangtuo 3 Chen Zhouhua (陳洲華) 4 Yu Miao (于淼) 5 Tang Yaling (唐雅玲) 6 Chen Yang (陳楊) 7 Wang Lei (王磊) 8 Zeng Fengyu (曾鳳愉) 9 Tie Weizhang (鐵位章) 10 Yang Zhi (楊智) 11 Li Kaiping (李開屏) 12 Zhao Jun (趙俊) 13 Zhao Nianwen (周年文) 14 Yao Bing (姚冰)

Save as disclosed in the section headed “History and Corporate Structure”, within the two years immediately preceding the date of this document, no cash, securities or other benefit has been paid, allotted or given nor are any proposed to be paid, allotted or given to the promoters named above in connection with the [REDACTED] and the related transactions described in this document.

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10. Restrictions on Share Repurchases

For details, see “Appendix IV—Summary of Principal Legal and Regulatory Provisions.”

11. Bilingual Document

The English language and Chinese language versions of this document are being published separately in reliance on the exemption provided in Section 4 of the Companies Ordinance (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong).

12. Binding Effect

This document shall have the effect, if an [REDACTED] is made in pursuance of this document, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of Sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance in so far as applicable.

13. No Material Adverse Change

Our Directors confirm that there has been no material adverse change in the financial or trading position or prospects of our Group since December 31, 2020 (being the date to which the latest audited consolidated financial statements of our Group were prepared).

14. Miscellaneous

Save as disclosed in this document:

(a) within the three years immediately preceding the date of this document:

(i) no share or loan capital of our Company or any of our subsidiaries has been issued or agreed to be issued or is proposed to be fully or partly paid either for cash or a consideration other than cash;

(ii) no commissions, discounts, brokerages or other special terms have been granted or agreed to be granted in connection with the issue or sale of any share or loan capital of our Company or any of our subsidiaries; and

(iii) no commission has been paid or payable (except commission to sub-underwriters) to any persons for subscription, agreeing to subscribe, procuring subscription or agreeing to procure subscription of any shares of our Company or any of our subsidiaries;

– VI-19 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX VI STATUTORY AND GENERAL INFORMATION

(b) no share or loan capital of our Company or any of our subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;

(c) no founder, management or deferred shares of our Company or any of our subsidiaries have been issued or agreed to be issued;

(d) there is no arrangement under which future dividends are waived or agreed to be waived;

(e) there has not been any interruption in the business of our Company which may have or have had a material adverse effect on the financial position of our Company in the 12 months immediately preceding the date of this document;

(f) our Company has no outstanding convertible debt securities or debentures; and

(g) none of our equity and debt securities is presently listed on any stock exchange or traded on any trading system and no such listing or permission to list is being or is proposed to be sought.

– VI-20 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX VII DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION

DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES IN HONG KONG

The documents attached to the copy of this document and delivered to the Registrar of Companies in Hong Kong for registration were:

(a) a copy of [REDACTED];

(b) the written consents referred to in the section headed “Statutory and General Information—E. Other Information—8. Consent of Experts” in Appendix VI to this document; and

(c) a copy of each of the material contracts referred to in the section headed “Statutory and General Information—B. Further Information about Our Business—1. Summary of Material Contracts” in Appendix VI to this document.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at our Company’s principal place of business in Hong Kong at 40/F, Dah Sing Financial Centre, 248 Queen’s Road East, Wan Chai, Hong Kong during normal business hours up to and including the date which is 14 days from the date of this document:

(a) the Articles of Association of our Company;

(b) the Accountants’ Report from KPMG, the text of which is set out in Appendix I to this document;

(c) the audited consolidated financial statements of the companies comprising our Group for the three years ended December 31, 2018, 2019 and 2020;

(d) the report in relation to unaudited [REDACTED] financial information of our Group from KPMG, the text of which is set out in Appendix II to this document;

(e) the legal opinion issued by Tian Yuan Law Firm, our PRC Legal Advisors, in respect of certain aspects of our Company;

(f) the industry report prepared by Frost & Sullivan;

(g) the PRC Company Law, the PRC Securities Law, the Mandatory Provisions and the Special Regulations together with their unofficial English translations;

(h) the material contracts referred to in the section entitled “Statutory and General Information—B. Further Information about Our Business—1. Summary of Material Contracts” in Appendix VI to this document;

– VII-1 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX VII DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION

(i) the Share Incentive Scheme referred to in the section entitled “Statutory and General Information—D. Share Incentive Scheme” in Appendix VI to this document;

(j) the written consents referred to in the section entitled “Statutory and General Information—E. Other Information—8. Consent of Experts” in Appendix VI to this document; and

(k) the service contracts or letters of appointment referred to in the section headed “Statutory and General Information—C. Further Information about Our Directors, Supervisors and Substantial Shareholders—1. Directors and Supervisors—(ii) Particulars of service agreements” in Appendix VI to this document.

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