Casino Guichard-Perrachon
Annual Report 2013

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F ¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 ORxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2013. OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ OR¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report: Commission file number 001-34541 China Cord Blood Corporation(Exact name of the Registrant as specified in its charter) Cayman Islands(Jurisdiction of incorporation or organization) 48th Floor, Bank of China Tower1 Garden RoadCentral, Hong Kong S.A.R.(Address of principal executive offices) Albert Chen+852 3605 8180albert.chen@chinacordbloodcorp.com48th Floor, Bank of China Tower1 Garden RoadCentral, Hong Kong S.A.R.(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registeredOrdinary Shares, $0.0001 par value New York Stock Exchange Securities registered or to be registered pursuant to Section 12(g) of the Act: None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. On March 31, 2013, the issuer had 73,003,248 shares outstanding. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. ¨ Large Accelerated filerx Accelerated filer¨ Non-accelerated filer Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: x US GAAP ¨ International Financial Reporting Standards as issued by theInternational Accounting Standards Board ¨ Other If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. ¨ Item 17 ¨ Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No x  TABLE OF CONTENTS PART I 4 ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS4 ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE4 ITEM 3.KEY INFORMATION4 A.Selected financial data4 B.Capitalization and Indebtedness6 C.Reasons for the Offer and Use of Proceeds7 D.Risk factors7 ITEM 4.INFORMATION ON THE COMPANY36 A.History and Development of the Company36 B.Business Overview41 C.Organizational Structure65 D.Property, Plant and Equipment68 ITEM 4A.UNRESOLVED STAFF COMMENTS68 ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS68 ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES94 A.Directors and Senior Management94 B.Compensation96 C.Board Practices99 D.Employees100 E.Share Ownership101 ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS101 A.Major Shareholders101 B.Related Party Transactions103 C.Interests of Experts and Counsel103 ITEM 8.FINANCIAL INFORMATION104 A.Consolidated Statements and Other Financial Information104 B.Significant Changes104 ITEM 9.THE OFFER AND LISTING104 A.Offer and Listing Details104 B.Plan of Distribution105 C.Markets105 D.Selling Shareholders105 E.Dilution105 F.Expenses of the Issue105 ITEM 10.ADDITIONAL INFORMATION105 A.Share Capital105 B.Memorandum and Articles of Association106 C.Material Contracts110 D.Exchange Controls110  E.Taxation110 F.Dividends and Paying Agents117 G.Statement by Experts117 H.Documents on Display117 I.Subsidiary Information117 ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK117 ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES119 PART II 119 ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES119 ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS119 E.Use of Proceeds119 ITEM 15.CONTROLS AND PROCEDURES120 ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT122 ITEM 16B.CODE OF ETHICS122 ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES122 ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES122 ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS122 ITEM 16F.CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT123 ITEM 16G.CORPORATE GOVERNANCE123 ITEM 16H.MINE SAFETY DISCLOSURE124 PART III 124 ITEM 17.FINANCIAL STATEMENTS124 ITEM 18.FINANCIAL STATEMENTS124 ITEM 19.EXHIBITS124 ii CERTAIN INFORMATION Except where the context requires otherwise and for purposes of this report only: ·“CCBC”, “we”, “us”, the “Company”, “our company”, or “our”, refers to China Cord Blood Corporation, a company with limited liability registeredby way of continuation in the Cayman Islands; ·“CCBS” refers to China Cord Blood Services Corporation, a company with limited liability incorporated in the Cayman Islands, and a wholly ownedsubsidiary of CCBC; ·“China” and “PRC” refer to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau solely for the purpose of this report; ·“Cordlife” refers to Cordlife Limited before its restructuring on June 30, 2011. Cordlife was a company with limited liability listed on the AustralianSecurities Exchange. It was principally engaged in cord blood banking services in Singapore, Hong Kong, Indonesia, India and the Philippines; ·“CBB” refers to Cordlife Limited after the restructuring of Cordlife Limited on June 30, 2011. CBB is a company with limited liability listed on theAustralian Securities Exchange. It is principally engaged in cord blood banking services in developing markets including Indonesia, India and thePhilippines; ·“Cordlife Services” refers to Cordlife Services (S) Pte. Ltd., a company with limited liability incorporated in Singapore, and a wholly owned subsidiaryof CBB; ·“Cordlife Singapore” refers to Cordlife Group Limited (formerly named as Cordlife Pte Ltd) after the restructuring of Cordlife Limited on June 30, 2011.Cordlife Singapore is a company with limited liability listed on the Singapore Exchange on March 29, 2012. It is principally engaged in cord bloodbanking services in mature markets including Singapore and Hong Kong; ·“Cordlife HK” refers to Cordlife (Hong Kong) Limited, a private company and a subsidiary of Cordlife Singapore. It is principally engaged in cord bloodbanking services in Hong Kong; ·“CSC East” refers to China Stem Cells (East) Company Limited, a company with limited liability incorporated in the British Virgin Islands; ·“CSC Holdings” refers to China Stem Cells Holdings Limited, a company with limited liability incorporated in the Cayman Islands; ·“CSC South” refers to China Stem Cells (South) Company Limited, a company with limited liability incorporated in the British Virgin Islands; ·“Favorable Fort” refers to Favorable Fort Limited, a company with limited liability incorporated in Hong Kong; ·“GM Stem Cells” refers to Golden Meditech Stem Cells (BVI) Company Limited, a company with limited liability incorporated in the British VirginIslands; ·“Golden Meditech” refers to Golden Meditech Holdings Limited, a company with limited liability incorporated in the Cayman Islands and listed on theMain Board of the Hong Kong Stock Exchange; ·“Group” refers to China Cord Blood Corporation and its subsidiaries; ·“Hong Kong” refers to the Hong Kong Special Administrative Region of China; ·“Jiachenhong” refers to Beijing Jiachenhong Biological Technologies Co., Ltd., our subsidiary incorporated in the PRC with limited liability; ·“KKRCHL” refers to KKR China Healthcare Investment Limited, an exempted company with limited liability incorporated in the Cayman Islandsaffiliated with KKR China Growth Fund L.P., a China-focused fund managed by Kohlberg Kravis Roberts & Co. L.P., a global investment firmpublicly traded on the New York Stock Exchange;  ·“Nuoya” refers to Guangzhou Municipality Tianhe Nuoya Bio-engineering Co., Ltd., our subsidiary incorporated in the PRC with limited liability; ·“Qilu” refers to Shandong Province Qilu Stem Cells Engineering Co., Ltd., a company incorporated in the PRC with limited liability; ·“Lukou” refers to Zhejiang Lukou Biotechnology Co., Ltd., our subsidiary incorporated in the PRC with limited liability; ·“provinces” of China refers to the twenty-two provinces, the four municipalities directly administered by the central government (Beijing, Shanghai,Tianjin and Chongqing) and the five autonomous regions (Xinjiang, Tibet, Inner Mongolia, Ningxia and Guangxi); ·“shares” or “ordinary shares” refers to our ordinary shares, par value $0.0001 per share; and ·all discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding. In May 2010, we completed an investment in approximately 19.9% of the equity interest in Qilu, the exclusive cord blood banking operator in theShandong province. We further increased our equity interest in Qilu to 24.0% in February 2013. We do not have any representation in the Board of Directors ofQilu and do not have control or significant influence over the management of Qilu both before and after February 2013. Therefore, our investment in Qilu isstated at cost less impairment losses. Unless otherwise indicated, we have not consolidated the financial information and operational results of Qilu in ourfinancial information and operational results. In August 2012, we entered into a share purchase agreement with Cordlife Singapore in which we agreed to sell to Cordlife Singapore, and CordlifeSingapore agreed to purchase, 7,314,015 of our ordinary shares for a total purchase price of approximately $20.8 million. Contemporaneously, CSC Southentered into a shares repurchase agreement with Cordlife HK to repurchase the 10% of its shares held by Cordlife HK for approximately $16.8 million. Uponcompletion of the transactions on November 12, 2012, Nuoya became our indirect wholly owned subsidiary and Cordlife Singapore acquired 7,314,015 ofour ordinary shares, representing approximately 10% of our issued ordinary shares as of the closing date. In September 2010, we entered into a framework agreement to form an indirect non-wholly owned subsidiary with the Zhejiang Provincial BloodCenter. This entity will enable us to operate exclusively in the Zhejiang province, a new and previously unserved geographic area in China. According to theframework agreement, we then established a non-wholly owned subsidiary, Lukou, and acquired the right to operate the cord blood bank in the Zhejiangprovince during the year ended March 31, 2011. Lukou is 90% owned by Jiachenhong, our wholly owned PRC subsidiary, and is the exclusive cord bloodbanking operator in the Zhejiang province to provide cord blood stem cell storage services for expectant parents as well as preserving cord blood units donatedby the public. Unless otherwise indicated, all references to “our business” and “our operations” refer collectively to our Beijing operation, Guangdongoperation and Zhejiang operation. Unless otherwise indicated, our financial information presented in this report has been prepared in accordance with United States Generally AcceptedAccounting Principles, or U.S. GAAP. All references to “Renminbi”, “RMB” or “yuan” are to the legal currency of China and all references to “U.S. dollars”,“dollars”, “US$” or “$” are to the legal currency of the United States. This report contains translations of Renminbi amounts into U.S. dollars at specifiedrates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in theCity of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the noonbuying rate, as of March 29, 2013. We make no representation that the Renminbi or U.S. dollar amounts referred to in this report could have been or could beconverted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On March 29, 2013, the noon buying rate was RMB6.2108 to$1.00. This report contains statistical data relating to the healthcare industry in China that we obtained from various institutions’ publicly availablepublications. These publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee theaccuracy and completeness of their information. Although we believe that these publications are reliable, we have not independently verified their statisticaldata. These statistical data may not be comparable to similar statistics collected for the industry in the United States and other countries. 2 FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and ourindustry. All statements other than statements of historical fact in this report are forward-looking statements. These forward-looking statements can beidentified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plan”, “believe”, “is/are likely to” or other similar expressions. Theforward-looking statements included in this report relate to, among others: ·our goals and strategies; ·our future business development, financial condition and results of operations; ·the expected market growth for cord blood banking services in China; ·our ability to grow our business; ·market acceptance of cord blood banking in general and our services in particular; ·our ability to expand our operations; ·our ability to stay abreast of market trends and technological changes; ·changes in PRC governmental policies and regulations relating to industry; and ·fluctuations in general economic and business conditions in China. These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Our actual results could be materially different fromour expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in thesections entitled “Key Information — Risk Factors”, “Operating and Financial Review and Prospects — Our Financial Condition and Results of Operations”and “Information on the Company” sections and elsewhere in this report. This report also contains data related to the cord blood banking industry. These market data include projections that are based on a number ofassumptions. The cord blood banking market may not grow at the rate projected by market data, or at all. The failure of this market to grow at the projectedrate may have a material adverse effect on our business and the market price of our ordinary shares. Furthermore, if any one or more of the assumptionsunderlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place unduereliance on these forward-looking statements. The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report.We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or toreflect the occurrence of unanticipated events. 3 PART I ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not required. ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE Not required. ITEM 3.KEY INFORMATION A.Selected financial data The following selected consolidated financial data, other than selected operating data, have been derived from (i) our audited consolidated financialstatements as of March 31, 2012 and 2013 and for the years ended March 31, 2011, 2012 and 2013, which are included elsewhere in this report; (ii) ouraudited consolidated financial statements as of March 31, 2010 and 2011 and for the year ended March 31, 2010 which are not included in this report; and(iii) the audited consolidated financial statements of CCBS as of March 31, 2009 and for the year ended March 31, 2009 which are not included in thisreport. The consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our results of operations in any period may notnecessarily be indicative of the results that may be expected for any future period. See “Key Information — Risk Factors” included elsewhere in this report.The selected consolidated financial data as of March 31, 2012 and 2013 and for the years ended March 31, 2011, 2012 and 2013 should be read inconjunction with those consolidated financial statements and the accompanying notes and “Operating and Financial Review and Prospects — Our FinancialCondition and Results of Operations” included elsewhere in this report. For the year ended March 31, 2013 2013 2012 2011 2010 2009 $ RMB RMB RMB RMB RMB (in thousands except per share and operating data) Selected statements of income data: Revenues 84,711 526,123 380,490 339,532 261,536 194,537 Gross profit 67,544 419,502 293,832 262,156 195,806 145,366 Operating income 33,702 209,314 134,843 123,819 97,193 85,197 Net income attributable to the Company (1)(2) 18,106 112,447 131,980 91,703 49,177 20,695 Net income/(loss) per ordinary share, basic 0.24 1.49 1.79 1.31 0.82 (0.07)Net income/(loss) per ordinary share, diluted 0.24 1.49 1.79 1.31 0.78 (0.07)Net income per redeemable ordinary share, basic N/A N/A N/A N/A 0.22 1.63 Net income per redeemable ordinary share, diluted N/A N/A N/A N/A 0.22 1.63 Selected operating data: New subscriber sign-ups (3) 72,228 72,228 53,924 56,518 45,252 34,678 New donations accepted (3) 5,400 5,400 4,506 3,001 3,390 698 Total units stored (end of period) (3)(4) 338,507 338,507 260,879 202,449 142,930 94,288 Units deposited by subscribers (end of period) (3)(4) 311,982 311,982 239,754 185,830 129,312 84,060 Units contributed by donors (end of period) (3) 26,525 26,525 21,125 16,619 13,618 10,228 (1)Includes: For the year ended March 31, 2013 2013 2012 2011 2010 2009 $ RMB RMB RMB RMB RMB (in thousands) Write-off of deferred reverse recapitalization costs — — — — 21,566 — Impairment loss on available-for-sale equity securities — — — — — 37,426 Write-off of deferred offering costs — — — — — 9,473 4 (2)Includes: For the year ended March 31, 2013 2013 2012 2011 2010 2009 $ RMB RMB RMB RMB RMB (in thousands) Income tax expense (a)(b) 6,206 38,543 9,634 33,929 24,770 17,854 (a) Jiachenhong was certified as a High and New Technology Enterprise (“HNTE”) in February 2012. Jiachenhong’s HNTE certificate was datedOctober 28, 2011 and was approved by the relevant PRC tax authority on February 15, 2012. Such status is valid retroactively as of January 1,2011 and will expire on December 31, 2013. As a result, Jiachenhong is subject to a reduced tax rate of 15% during such period. A one-time taxbenefit of RMB1.7 million was recorded in the consolidated statements of comprehensive income for the fiscal year ended March 31, 2012 in relationto the change in tax rate due to Jiachenhong’s renewed HNTE status. (b) Nuoya was certified as an HNTE in June 2011. Nuoya’s HNTE certificate was dated December 28, 2010 with validity of 3 years, and wasapproved by the relevant PRC tax authority on June 2, 2011. Such status was valid retroactively as of January 1, 2010 and expired on December 31,2012. As a result, Nuoya was subject to a reduced tax rate of 15% during such period. A one-time tax benefit of RMB13.0 million was recorded inthe consolidated statements of comprehensive income for the fiscal year ended March 31, 2012 in relation to the change in tax rate due to Nuoya’sHNTE status. As of the date of this report, Nuoya is still in the application process for renewal of the HNTE certificate. We believe that Nuoya meetsall the criteria for the renewal of HNTE status and accordingly, applied 15% tax rate to measure taxable temporary differences that are expected toreverse by the calendar year ending December 31, 2015. Jiachenhong was exempt from PRC income tax for the years ended December 31, 2004 and 2005 and was entitled to 50% reduction of PRC incometax for the years ended December 31, 2006, 2007 and 2008. Such income tax benefits increased net income and net income per share as follows: For the year ended March 31, 2013 2013 2012 2011 2010 2009 $ RMB RMB RMB RMB RMB (in thousands) Increase in net income — — — — — 3,444 Increase in basic net income per ordinary share — — — — — 0.06 Increase in diluted net income per ordinary share — — — — — 0.06 Increase in basic net income per redeemable ordinary share — — — — — 0.06 Increase in diluted net income per redeemable ordinary share — — — — — 0.06 (3)“Total units stored”, “Units deposited by subscribers” and “Units contributed by donors” as of period end and “New subscriber sign-ups” and“New donations accepted” during each period take into account the withdrawal of units used. Please refer to “Information on the Company —Business Overview — Our Cord Blood Banking Services”. (4)Includes subscribers who are delinquent on payments and for whom we have ceased to recognize revenue generated from storage fees. Please refer to“Information on the Company — Business Overview — Our Cord Blood Banking Services”. 5 For the year ended March 31, 2013 2013 2012 2011 2010 2009 $ RMB RMB RMB RMB RMB (in thousands) Selected statements of cash flows data: Net cash provided by operating activities 93,166 578,632 353,858 176,585 36,365 4,051 Net cash used in investing activities (79,494) (493,717) (122,945) (33,914) (158,849) (34,444)Net cash provided by/(used in) financing activities 99,620 618,718 (44,664) 193,141 242,393 (35,276) As of March 31, 2013 2013 2012 2011 2010 2009 $ RMB RMB RMB RMB RMB (in thousands) Selected balance sheets data: Cash and cash equivalents 240,565 1,494,099 794,311 611,387 280,835 161,406 Working capital (i) 203,793 1,265,726 700,065 460,261 247,800 180,425 Total assets 480,821 2,986,276 1,824,150 1,563,598 1,047,034 696,391 Deferred revenue 113,124 702,586 412,644 244,987 129,229 92,582 Share capital 8 50 50 52 46 34 Retained earnings 68,175 423,420 310,973 178,993 87,290 44,082 Total shareholders’ equity 199,191 1,237,132 1,202,734 1,070,781 808,886 165,542 (i)Working capital is calculated as total current assets minus total current liabilities. The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. On March 29,2013 the noon buying rate announced by Federal Reserve Statistical Release was RMB6.2108 to $1.00 and on June 28, 2013 the noon buying rate wasRMB6.1374 to $1.00. Renminbi per U.S. Dollar – Noon Buying Rate PeriodEnded Average(1) Low High 2013 June 6.1374 6.1342 6.1248 6.1488 May 6.1340 6.1416 6.1213 6.1665 April 6.1647 6,1861 6,1647 6,2078 March 6.2108 6.2154 6.2105 6.2246 February 6.2213 6.2323 6.2213 6.2438 January 6.2186 6.2215 6.2134 6.2303 Year ended March 31, 2013 6.2108 6.2783 6.2105 6.5477 Year ended March 31, 2012 6.2975 6.3790 6.2935 6.5477 Year ended March 31, 2011 6.5483 6.7069 6.5483 6.8323 Year ended March 31, 2010 6.8258 6.8286 6.8176 6.8371 Year ended March 31, 2009 6.8260 6.8295 6.8176 6.8470 Source: Federal Reserve Bank (1)Annual averages are calculated from month-end rates. Monthly and interim period averages are calculated using the average of the daily rates duringthe relevant period. B.Capitalization and Indebtedness Not required. 6 C.Reasons for the Offer and Use of Proceeds Not required. D.Risk factors You should carefully consider all of the information in this report, including various changing regulatory, competitive, economic, political and socialrisks and conditions described below, before making an investment in our ordinary shares. One or more of a combination of these risks could materiallyimpact our business, results of operations and financial condition. In any such case, the market price of our ordinary shares could decline, and you may loseall or part of your investments. Risks Relating to Our Business Our business and financial results may be materially adversely affected as a result of regulatory changes in the cord blood banking industry inChina. We generate substantially all of our revenues by providing our subscribers processing services, which consist of the testing and processing of cordblood units, and storage services, which consist of the storage of cord blood units in our facilities. We sometimes refer the processing services and storageservices collectively as “subscription services” in this report. In addition, we are also required by the PRC government to store cord blood units donated by thepublic and offer matching units to patients in need of transplants, which we sometimes refer to as the “matching services” in this report. All of these revenuesfor the years ended March 31, 2011, 2012 and 2013 were derived in China. Due to the lack of a clear, consistent and well-developed regulatory framework,operation in the cord blood banking industry in China involves significant ambiguities, uncertainties and risks. We cannot assure you that we can continue tooperate our business in the same manner for the following reasons: ·The PRC Ministry of Health, or “MOH”, has been following a “one license per region” policy in its regulation of cord blood banks, which precludesmore than one cord blood banking licensee from operating in the same region. This policy may be changed at any time. If new licenses are issued inBeijing, Guangdong, Zhejiang or any region where we are operating the licensed cord blood banks, or the local departments of health, or “DOH”,actually permit or acquiesce in operation of subscription service by other type of institutions, our market position as the sole cord blood bankingoperator in the relevant region may be undermined. Further, we may be required to record impairment charges in respect of some or all of the carryingvalues of the rights to operate our cord blood banks in Guangdong and Zhejiang, or our investment in Shandong if additional licenses are issued inthose regions or if the MOH or the relevant DOH, takes the position that the provision of fee-based commercial cord blood banking services is notlimited to operators of licensed cord blood banks. Any impairment charge that we may be required to record due to changes in regulatory policieswould materially adversely affect our assets and net income. ·Our business may be exposed to increasingly stringent anti-monopolistic measures from the PRC government. Under the PRC Antitrust Law, themonopolistic activities are classified into (i) monopoly agreements, including both agreements entered into between business operators and suppliersand agreements between the operators; (ii) abuse of dominant market position by business operators; and (iii) concentration of business operators thatmay have the effect of precluding or impeding competition. As of the date of this report, only seven cord blood banking licenses have been granted inChina, three of which to the Beijing Cord Blood Bank, Guangdong Cord Blood Bank and Zhejiang Cord Blood Bank (all of which are operated byus) and a fourth to Qilu, the sole operator of the Shandong Cord Blood Bank, in which we indirectly own a 24.0% effective interest. Therefore, wecannot assure you that we will not be identified as a business operator having dominant market position. In the event of such circumstances, there isa possibility that the antitrust authorities would impose more stringent supervision over our operations in China, in particular as to our abilities inchanging or modifying any parts of our operations. There is even a risk that subscription prices would become subject to compulsory or directoryguidance or other restrictions imposed by PRC government. Further, we plan to expand our business through further strategic acquisitions. If thecontemplated business concentration has the effect of precluding or impeding competition, the antitrust authorities may prohibit consummation of thecontemplated business concentration or impose conditions that would lessen the impact of the concentration poses on competition, and we maytherefore be unable to expand our business through acquisition. In addition, our subsidiaries in Beijing, Guangdong and Zhejiang adopt similarcommercial policies and share lots of material procurement channels in China. In the event there is any agreement or a series of agreements entered intoby us that are identified as monopoly agreements, the profits generated from such agreements could be confiscated and we may be subject toadministrative penalties. 7 ·There is a possibility that the MOH or the relevant DOH will take the position that the provision of fee-based commercial cord blood banking servicesis not limited to operators of licensed cord blood banks. In the event that the MOH or the DOH publicly announces such a position, or clarifies suchposition in an implicit or explicit manner, other companies in healthcare or other related industries may begin to provide such services, in which casewe will face direct competition from these companies. ·In response to the development of medical reform of China, the PRC government may further promulgate certain guidance or compulsory regulationsor clarify its policies or regulatory positions in other manners, which could undermine cord blood bank profitability by restricting or even prohibitinglicensed cord blood banks or their operators from conducting fee-based commercial cord blood banking services. The PRC government may guide orforce licensed cord blood bank to focus on its business of providing matching services or at least take matching services as its major business byimposing certain restrictive conditions on subscription services. If any of such circumstances occur, our business and financial conditions may beadversely affected. ·The MOH or the relevant DOH may be inclined to restrict or prohibit the operators of licensed cord blood bank from conducting fee-basedcommercial cord blood banking services directly. In such event, we may have to change our business model or even terminate our business, and ourresults of operations, financial condition and liquidity may be materially adversely affected. ·The MOH or the relevant DOH may take the position that the subscription services and the matching services cannot be operated by the sameoperator. In such circumstances, we may be required to obtain a separate or a special license, permit, or authorization for our subscription services,or may be subject to some restrictive conditions, in which case our operations would be materially adversely affected. ·The PRC government may adopt additional requirements for the licensing, permitting or registration of cord blood banking services. As a result of theongoing healthcare reforms in China, and in view of the policies promulgated and published by the PRC government regarding the aforementionedhealthcare reform, including but not limited to the Notice on Strengthening the Management and Control of Cord Blood Stem Cells published by theMOH on October 24, 2011, cord blood banks services may be subjected to the pricing standards established by the relevant commodity pricedepartments of PRC. Moreover, on October 8, 2012, the State Council published the Notice on the “Twelfth Five-Year Plan” of Health CareDevelopment which suggests strengthening the safety and security of the blood stations, and improving the standards of the blood stationlaboratories, and on December 3, 2012, MOH published three industrial standards including “Requirements for Blood Storage” which may related toour cord blood banking service management. Notwithstanding, there is lacking of a clear and explicit price level or price guidance in relation to thecord blood banking services which we provide. We cannot rule out the possibility that PRC government may establish price guidance or introduceother specific price control standards for the cord blood banking services in the future. Additionally, we cannot guarantee that our subscriptionservices will not be included in the scope of the price control or that governmental prices will be higher than our current rates or the costs of ouroperation. If this happens, our subscription services may become subject to compulsory or directory guidance or other restrictions imposed by thePRC government. In particular, if subscription services become subject to price control in China, we would be required to abide by such control andpolicies and we may not be able to charge our subscribers at current rates. If the government controlled pricing or price guidance set by relevantdepartment of PRC government is lower than our current pricing or the cost of our operation, our business operation or financial condition will bematerially adversely affected. If we lose our position as the sole provider of cord blood banking services in our existing markets, our business and prospects may be materiallyadversely affected. 8 Our business and financial results may be materially adversely affected by a relaxation or an abolishment of the one-child policy in China. The one-child policy has been established for over 30 years in China, and has successfully controlled population growth rates in the past years. Withonly one child in each family, it is difficult to obtain matching stem cells if such child needs a transplant. In families with more than one child, the possibilityof acquiring matching stem cells from a sibling is increased, and such families may decide not to choose our subscription services. The one-child policy hasalso created social problems including ageing and imbalanced population. If the one-child policy in China is relaxed or abolished, we cannot assure thedemand for our subscription services will maintain at current levels and thus, our business and financial results may be materially adversely affected. If all or part of the demand for stem cells is met by matching cord blood units donated by the public to patients in need of transplants, expectantparents may choose not to pay for our subscription services, and our business and financial results may be materially adversely affected. There is no assurance that demand for our subscription services will remain at current levels for the following reasons: ·Cord blood banking licensees in China are required to accept all cord blood donations except for a valid medical reason and to provide matchingservices to patients in need of transplants. As the number of cord blood units donated by the public grow in size and increase in diversity, theprobability of finding matching units for a patient among the units donated by the public may increase, which may result in a decrease in marketdemand for our subscription services. ·The value of our subscription services is related to the higher success rate of autologous cord blood transplants over unrelated ones. If medicalresearch discovers new and more effective medical procedures that make allogeneic cord blood transplants safer and more effective, the clinicaladvantage of storing a child’s umbilical cord blood for his or her own future therapeutic use may significantly decline. ·The PRC government is in the process of making reforms to the healthcare industry in China. We cannot assure you that the PRC government willnot adopt policies to encourage non-profit healthcare measures, such as matching services, while restricting or prohibiting profit-making healthcaremeasures, such as our subscription services. Any decrease in the demand for our subscription services could have a material adverse effect on our business and financial results. We currently operate our business only in Beijing, Guangdong and Zhejiang. As a result of this geographic concentration, a downturn in thelocal economy or birthrate level of these regions could impair our growth and adversely affect our financial results. Our operations are largely concentrated in Beijing, Guangdong and Zhejiang. Due to the lack of geographical diversity of our operations, we may beunable to mitigate the effects of any adverse trends in economic development, disposable income or birthrate level in these regions. In particular: ·The successful operation and growth of our business are primarily dependent on general economic conditions in Beijing, Guangdong and Zhejiang,which in turn are affected by many factors, including demographic trends, the strength of the manufacturing and services industries, and foreigntrade. A deterioration of current economic conditions or an economic downturn in China as a whole, or Beijing, Guangdong or Zhejiang in particular,could result in declines in new subscriber sign-ups and impair our growth. ·Because cord blood banking is a precautionary healthcare measure, our ability to sign up new subscribers generally depends on the disposableincome of expectant parents. There are many factors that are likely to cause such discretionary spending to fall, such as increases in interest rates,inflation, economic recession, declines in consumer credit availability, increases in consumer debt levels, increases in tax rates, increases inunemployment, and other matters that influence consumer confidence and spending. 9 ·As currently our market is primarily targeted at expectant parents and newborns, the growth of our business will be subject to the birthrate level aswell as population base in our operating regions. In the event the birthrate level or the population base in our operating regions significantly declines,the results of our operations, revenues and liquidity may be substantially undermined. A major growth strategy of ours is to focus on penetrating our existing markets. Such strategy could be risky, because adverse economic orregulatory developments in one or multiple markets may have a material adverse effect on our business, financial condition and results of operations. Wecannot assure you that we can maintain or enhance our success rates in attracting new subscribers in the future. Our investment in Qilu may be materially adversely affected due to a downturn in the local economy or birthrate level in the Shandong province.Such deterioration may materially adversely affect or result in an impairment of our investment. We invested in Qilu, the exclusive cord blood banking operator in the Shandong province, with an equity interest of 24.0%. Qilu’s operation islargely concentrated in the Shandong province. Due to the lack of geographical diversity, Qilu may be unable to mitigate the effects of any adverse trends inlocal economic development, disposable income or birthrate level. Any slowdown in Shandong province’s economic development, unfavorable demographictrend, decline in disposable income of expectant parents or adverse change in consumer behavior will adversely affect Qilu’s capability to penetrate its localmarket. As such, our investment in Qilu may be materially adversely affected or severely impaired. If we fail to expand through strategic acquisitions of cord blood banks in other regions, we may not be able to expand our scope of operations orincrease our revenues. According to the Notice on Extension of Time Limit on Planning and Establishment of the Cord Blood Bank published by the MOH in February2011, MOH will not issue more than three additional licenses by 2015. The MOH has not made any public announcement regarding the regions in whichlicenses will be granted. In several regions where we believe cord blood banking licenses may be issued in the near future, however, other cord blood banks arealready in the preliminary stages of their applications, and we believe that the relevant DOHs would not be receptive to an expression of interest from anotherentity, such as ourselves. Therefore, we believe we would have to rely on strategic acquisitions to expand our operations into these regions. Expansion throughstrategic acquisitions is subject to a number of risks: ·We may fail to locate suitable acquisition candidates with business operations that are consistent with our growth strategy and at prices and on termsthat are satisfactory. Alternatively, we may have to compete with other Chinese cord blood banking operators in bidding to acquire cord blood banksin regions where we expect licenses to be granted. Some of these competitors may have greater capital resources than us. ·To finance part or all of our acquisition costs, we may need to issue ordinary shares, incur debt and assume contingent liabilities. Such acquisitionsmay also create additional expenses related to amortizing intangible assets. Any of these factors might harm our financial results and lead to volatilityin the price of our shares. Further, any financing we might need for future acquisitions may be available only on terms that restrict our business orimpose costs that decrease our profits. ·Even if we make a successful bid, we may be unable to obtain government approvals necessary to consummate any given proposed acquisition.Among others, if the contemplated business concentration has the effect of precluding or impeding competition, the antitrust authorities may prohibitconsummation of the contemplated business concentration or impose conditions that would lessen the impact the concentration poses on competition.Further, we may encounter protective measures in local markets that may preclude or impede our ability to expand into such regions through strategicacquisitions. ·Any integration of new businesses may produce unforeseen operating difficulties and expenditures and may absorb significant management attentionthat would otherwise be available for the ongoing development of our business. Among others, we may be unable to discover during due diligence allcontingent liabilities and adverse issues, giving rise to unexpected delays or difficulties during integration. 10 ·While all cord blood banks must meet the relevant standards set by MOH, some cord blood banks, due to their limited operating history, maypossess different technological standards and operational models than ours. We may need to devote significant time and resources upon completion ofthe acquisition to amend and transform the acquired target. We may, prior to the implementation of an acquisition, fail to predict the appropriateamount of time and resources required to complete such transformation. It is even possible that we may not be able to rectify the situation at all. Dueto the foregoing uncertainties, we may be subject to substantial costs and unexpected delays arising out of an acquisition. Our future success depends on our ability to increase our target subscription base by expanding our geographical coverage to other regions. If we areunable to grow our operations through strategic acquisitions, our business, results of operations and financial condition could be materially and adverselyaffected. We may incur significant initial investments to apply for cord blood banking licenses in other regions, and if we are unsuccessful, our operatingresults could be materially adversely affected. If the MOH decides to grant new cord blood banking licenses in the future in other regions, we may attempt to apply for licenses in such regions.Applying for licenses involves a variety of risks: ·Based on the time needed for the granting of the seven existing cord blood licenses, we believe that the application process for a cord blood bankinglicense in China generally takes several years. We may incur substantial costs during the application process in the construction of cord blood bankswith no certainty of success. ·At any time during the application process, the MOH may decide not to grant a cord blood banking license in the region. Further, our likelihood ofsuccess may not be assessed easily, for neither the MOH nor the DOH currently announces the number of prospective applicants. ·The potential award of new licenses may attract new entrants to the industry. Some of these entrants may consist of internationally based specialistswith more extensive technical capabilities and stronger brand recognition and China-based healthcare conglomerates with a large sales and distributionnetwork. We compete with other market players for substantially the same licenses. Increased competition may result in an increase in the average cost perlicense. There is no assurance that we will be able to obtain new licenses through the application process. If we are unable to successfully obtain the newlicenses to be awarded, we may not be able to maintain our market position in the cord blood banking industry. Currently, we have neither identified anyspecific locations nor expressed any written interest in constructing a cord blood bank. We may face unfair competition from competitors with or without licenses in our target markets. China is having its laws and regulations changed, supplemented and amended from time to time to establish a well-developed legal system, while atthe same time, China is in an environment in which market conditions change rapidly. Therefore, certain laws and regulations fail to be updated in time toadapt to the new business environment, and some of the laws and regulations published only give a regulatory framework or fundamental principles, whosespecific operational procedures and clear explanations in relation to certain details (for example, the standard, the scope, the procedures and so on) may beabsent. Laws and regulations may not be enforced in a timely manner by competent administrative or judicial institutions, and provincial-level DOHs mayhave different positions and therefore have different supervision methods as they interpret the laws and regulations in relation to administration of cord bloodbanks. Although a decision (No. 2004 HuErZhongXingZhong256) made on December 6, 2004 by Shanghai No. 2 Intermediate People’s Court, which can beaccessed on the official website of Shanghai No. 2 Intermediate People’s Court (http://www.hshfy.sh.cn:8081/flws/text.jsp?pa=ad3N4aD0xNzE0MDUmdGFoPaOoMjAwNKOpu6a2/tbQ0NDW1dfWtdoyNTa6xSZ3ej0Pdcssz), held that operators that conduct cord blood collectionand supply activities without licenses will be ordered to shut down by the authorities, we cannot assure you that there will not be competitors without licensesoperating in our target markets. These competitors may include medical institutions having a hematology specialty, general blood stations, institutions whichpreserve biological tissues (i.e. sperm bank), hospital blood clinic division, research institutions, and commercial institutions or organizations. Alternatively,there can be no assurance that operators of the licensed cord blood banks in other regions (outside Beijing, Guangdong and Zhejiang) will not compete with usin our target markets, or otherwise pose competition against us with other unfair methods. If the above circumstances do occur, we may not be able to obtaintimely and effective protection from the government and have to deal with such unfair competition from such operators, which may result in the loss of theopportunity to explore the potential market, or even a decrease or loss of our existing market demand. In any such case, our operations and financial conditionwould be adversely affected. 11 We may not be able to manage our expected growth and enlarged business. Our operations continue to grow. We anticipate that further expansion will be required in order for us to capitalize on the opportunities available in thecord blood banking industry. Our growth strategy may not be successful for the following reasons: ·Our ability to obtain additional capital for growth is subject to a variety of uncertainties, including our operating results, our financial condition,capital market perception, general market conditions for capital raising activities by healthcare companies, and economic conditions in China. ·Our profitability will be adversely affected by the additional costs and expenses associated with the operation of new facilities, increased marketingand sales support activities, technological improvement projects, the recruitment of new employees, the upgrading of our management, operationaland financial systems, procedures and controls, and the training and management of our growing employee base. ·The increased scale of operation will present our management with challenges associated with operating an enlarged business, including dedication ofsubstantially more time and resources in operating and managing cord blood banks located in more than one geographic location in China, inensuring regulatory compliance and in continuing to manage and grow the business. We do not know whether our revenues will grow at all or grow rapidly enough to absorb the capital and expenses necessary for its growth. It isdifficult to assess the extent of capital and expenses necessary for our growth and their impact on our operating results. Failure to manage our growth andenlarged business effectively could have a material adverse effect on our business, financial condition and results of operations. Our prospects may be adversely affected if there are no new developments in medical science to overcome some of the current technical andtherapeutic limitations on the use of cord blood in medical treatment. Cord blood therapy is still at an early stage of development, with the first successful cord blood transplant occurring only in 1988. Cord bloodtherapy needs to overcome various technical obstacles before it can become an established medical practice. Cord blood therapy currently has the followinglimitations: ·Cord blood transplants may be riskier than other available treatments. Stem cells in cord blood are more primitive than those in bone marrow orperipheral blood. For this reason, the engraftment process takes longer with cord blood, leaving the patient vulnerable to a fatal infection for a longerperiod of time. Further, a patient’s own stem cells either “often may” or “usually would” not be the safest or most effective source of stem cells formedical treatment, especially in cases of childhood cancers or genetic disorders, potentially making it preferable to use the cord blood units donatedby healthy individuals instead of the cord blood units collected upon the patient’s birth. ·Due to the fact that cord blood therapy is a fairly new medical procedure with limited empirical data regarding its application, the long-term viabilityof cryogenically frozen cord blood has yet to be firmly established and the effectiveness of cord blood therapy remains to be proved. Therefore,medical practitioners may have reservations regarding the usefulness of cord blood therapy. ·A typical cord blood harvest only contains enough stem cells to treat a large child or small adult (weighing approximately 100 pounds). Althoughlarge-sized adults have had successful cord blood transplants in clinical trials, either by growing the cells in a laboratory prior to transplant or bytransplanting more than one cord blood unit at a time, such technology has not yet matured to be applied in general medical practice for commercialuse. 12 Cord blood therapy may never become an established medical practice. If the perceived utility of cord blood therapy declines, our prospects will bematerially adversely affected. The profitability of our business is subject to market acceptance of cord blood banking in China. Growing market acceptance of cord blood banking services is critical to our future success. It is, however, difficult to predict whether we will besuccessful in generating additional consumer interest and confidence in the value of our services. Cord blood banking is a relatively new precautionaryhealthcare concept among the Chinese population. To many of our target subscribers, our services are novel and represent a departure from conventionalhealthcare spending. Cord blood banking may be unattractive to some from a costs-and-benefits perspective. We have made substantial capital investments inBeijing, Guangdong and Zhejiang, and expect to incur substantial capital investments in our potential markets in the future. If we are unable to penetrate ourexisting and future markets by attracting new subscribers due to lack of market acceptance of cord blood banking in China, we would not be able to generateprofits from our business. Changes in the cord blood banking industry dynamics and technologies could render our services uncompetitive or obsolete, which could causeour revenues to decline. The cord blood banking industry is evolving and may become increasingly competitive. We believe that a variety of cryopreservation technologies areunder development by other companies. Our facilities may be rendered obsolete by the technological advances of others. Other cord blood banks may havebetter technologies than ours for preserving the cord blood units collected upon childbirth to facilitate future harvest of stem cells contained in the cord blood.To effectively compete in the future, we may need to invest significant financial resources to keep pace with technological advances in the cord blood bankingindustry. Any significant capital outlay, however, may adversely affect our profitability because we may not be able to pass the costs onto our existingsubscribers. To remain competitive, we must continue to enhance our infrastructure to keep up with technological developments in the healthcare industry. Failureto respond rapidly to changing technologies could have a material and adverse impact on our financial and operational performance. Suppliers of equipment and consumables necessary for the examination, processing, collection and preservation of cord blood stem cells maybecome limited, which could adversely affect our operations. We keep a minimal but adequate level of equipment and consumables in our laboratories for the examination, processing, collection and preservationof cord blood stem cells for us to handle new subscribers within a certain period of time. We also maintain, whenever available, multiple suppliers for eachequipment and consumables. However, the number of equipment and consumables suppliers within the cord blood banking industry may become limited,while some of them may decide to exit the industry, leaving us with even more limited suppliers to choose from. Without adequate or sufficient equipment andconsumables, we may not be able to handle all potential subscribers and our operations and financial performance will be adversely affected. If we fail to maintain and strengthen our service platform, our new subscriber sign-ups may decline and our growth may be impaired. Sales and marketing activities are conducted by our own direct sales force with the support of our collaborating hospitals. As of March 31, 2013, wehave collaborative relationships with 290 major hospitals in Beijing, Guangdong and Zhejiang. We conduct a significant portion of our sales and marketingactivities through these hospitals and rely on them for cord blood collection. Our ability to maintain and strengthen our relationships with these hospitals iscritical to our success and will be affected by the following: ·For the year ended March 31, 2013, the top ten of these hospitals handled the collection procedures for approximately 18.6% of our new subscribers,and the top hospital accounting for 3.3% of our new subscribers. We expect that a substantial portion of our collection procedures will continue to begenerated by a relatively small group of collaborating hospitals that may change from year to year. There is no assurance that the hospitals willcontinue to collaborate with us at the same levels as in prior years or that such relationships will continue. 13 ·As part of our growth plan, we expect to increase the number of collaborating hospitals in Guangdong and Zhejiang and further strengthen ourrelationships with the collaborating hospitals in our existing platform. We have limited experience in managing a large service platform in Guangdongand Zhejiang. We cannot assure you that we will be able to maintain or develop our relationships with various hospitals. The expansion of our service platform is also likely to require a significant investment of financial resources and management efforts, and thebenefits, if any, that we gain from such an expansion may not be sufficient to generate an adequate return on our investment. If we fail to do so, our salescould fail to grow or could even decline, and our ability to grow our business could be adversely affected. Our financial condition and results of operations may be materially adversely affected if a significant number of our subscribers terminate theircontracts with us prior to the end of a typical contract period of 18 years. The contracts we entered into with our subscribers are typically for a period of 18 years. The contract period may be shorter than 18 years if the cordblood unit stored with us is needed for transplants by the child or a family member. The contract period may also be shorter than 18 years if our subscribersterminate their contracts with us prior to the end of 18 years for any reason. No penalties will be imposed for early termination. This effectively results in anannual election by our subscribers to renew their subscription contracts for storage services, which may result in more of our subscribers terminating thecontract prior to the end of 18 years. In the event of termination by our subscribers prior to the end of 18 years, we are unable to continue to collect storage fees on an annual basis.Although we have not experienced early termination by a significant number of our subscribers in the past, there is no guarantee that all of our subscribers willfulfill their contract obligations by continuing to pay storage fees on an annual basis for a period of 18 years. If we experience early termination by asignificant number of our subscribers prior to the end of a typical contract period of 18 years, we will lose revenues from storage fees payable by thesesubscribers for the remaining contract period. If this occurs, our revenues will decrease and our financial condition and results of operations will be materiallyadversely affected. Our limited operating history may not serve as an adequate basis to predict our future prospects and results of operations. We have a limited operating history. Although Nuoya obtained the license for its cord blood bank in June 2006, Nuoya was acquired by us in May2007. Furthermore, we established the 90% owned subsidiary Lukou and acquired the right to operate the cord blood bank in the Zhejiang province during theyear ended March 31, 2011. As such, we have a limited operating history upon which the viability and sustainability of our business may be evaluated. Forexample, due to the uncertainties associated with government policies in relation to granting cord blood banking licenses in China, we abandoned constructionof the two cord blood banks and incurred an impairment loss of RMB13.5 million in the year ended March 31, 2006. We cannot assure you that we will notincur losses in the foreseeable future. Our future prospects should be considered in light of the risks and uncertainties we may face in managing a relativelynew healthcare service in China. Some of these risks and uncertainties relate to our ability to: ·ensure that there will only be one license in each of Beijing, Guangdong, Zhejiang and Shandong; ·maintain relationships with an extensive network of collaborating hospitals; ·reduce our dependence on a small geographical area and diversify our market and subscriber base; ·respond to changes in our regulatory environment; ·maintain effective control of our costs and expenses; ·attract, retain and motivate qualified personnel; ·secure necessary financing to support our business activities; and ·respond to rapid technological advances inherent in the cord blood banking industry. 14 If we are unsuccessful in addressing any of these risks and uncertainties, our business, financial condition and results of operations would suffer.In particular, as most of our expenses are fixed in the near future or incurred in advance of anticipated revenues, we may not be able to modify our businessplan in time to address any shortfall in revenues and profits. We are exposed to the risk of a deterioration or sudden dramatic decline in our reputation among our target subscribers due to failure in theperformance of our cord blood banks. Our reputation among clients and the medical community is extremely important to our success. Our future success depends on acknowledging andactively monitoring the concerns of our target subscribers, regulatory agencies, civil society groups and non-government organizations. Failure to takeappropriate consideration of legitimate corporate responsibility issues in our day-to-day operations could have a material adverse impact on our reputation andbusiness prospects. In particular: ·To retain adequate sterility and stem cell viability, cord blood deposits in our cord blood banks are stored at minus 196 degrees Celsius continuouslyin liquid nitrogen tanks. To the extent the storage environment of our cord blood deposits is disrupted or impaired due to any software, hardware orequipment failure, our target subscribers may lose confidence in our services. ·Our subscribers and donors provide us with extensive personal data, which are stored in our database. Any leakage of such information could have amaterial adverse effect on our reputation and our ability to attract new subscribers and donors. Any problems with our services, if publicized in the media or otherwise, could negatively impact our reputation and the cord blood banking industryin China. Similarly, inappropriate or inadequate communication following a major crisis, such as a major operational incident, breach of law or ethics or leakof market-sensitive confidential information, could quickly and seriously impair our reputation. Depending on the nature of such a major crisis, effectivecommunication may not mitigate serious damage to our reputation and may render us subject to criminal and civil prosecution or class action suits byshareholders and other interested parties. Any of these risks could have a material adverse impact on our business. Our subscriber database is stored on our computer system. We maintain database security to protect such database and information stored fromleakage or any unauthorized or unintended activities; however, our database may be hacked and our reputation would be adversely affected. We store subscribers’ information on our computer system and maintain database security to protect the database and prevent leakage ofsubscribers’ personal data. The security system is regularly updated and tested to cope with fast-changing technologies; however, if unauthorized personssuccessfully hacked into our database and steal subscribers’ information for illegal or improper purposes, our reputation and our ability to attract newsubscriber sign-ups may be materially adversely affected and we will be subject to litigation and potential damages liable to subscribers. We treat cord blood units abandoned by our former subscribers as donated property and release such units to our cord blood inventory availablefor patients in need of transplants. This practice may subject us to criticism that could damage our reputation. In addition to subscription services, we accept and preserve cord blood units donated by the general public and deliver matched cord blood units fora fee to patients in need of transplants. For subscribers who cease subscription for our services at the end of 18 years or who fail to pay subscription fees, wehave the right under the subscription contracts to treat the cord blood units stored as donated property and release such units to our cord blood inventory forpatients in need of transplants. Although we have the right to do so, there are so far no cord blood units of our subscribers being released to our cord bloodinventory. We require our employees to fully inform all prospective subscribers of this policy, and our subscribers are required to give their consent to thispolicy when subscribing for our services. 15 In the opinion of our PRC counsel, JunZeJun Law Offices, consent of this nature is enforceable under PRC law. In the event of a dispute relating tothe ownership of the cord blood units abandoned by our former subscribers, it is possible that a court may rule in favor of our former subscribers based onconsiderations of fairness and equity regardless of the fact that we have contractual rights under the subscription contracts to treat cord blood units abandonedby our former subscribers as donated properties and release such units to our cord blood inventory available for patients in need of transplants. If this occurs,we may be forced to return the cord blood units or continue to store the cord blood units for the benefit of subscribers who do not fulfill their paymentobligations. If the cord blood units are donated to patients in need of transplants and are no longer available to the newborns or their family members who arein need of transplants, we may be required to pay them substantial monetary damages. Based on information available to us, treating cord blood units abandoned by former subscribers and releasing such units as inventory available topatients in need of transplants is a common practice followed by cord blood banking operators in China. Nonetheless, we cannot assure you that we will notbecome the subject of negative publicity resulting from this business practice, whether due to failure by our employees to duly notify our potential subscribersof this contract provision, ethical issues underlying this business practice or other reasons. If this business practice receives negative media attention, ourreputation and our ability to attract new subscriber sign-ups may be materially adversely affected. Our insurance coverage may not be sufficient to cover the risks related to our business, and our insurance costs may increase significantly. Our cord blood banks and other infrastructure in our facilities are vulnerable to damages or interruption from fire, flood, equipment failure, break-ins, typhoons and similar events. We do not have back-up facilities or a formal disaster recovery plan. Consequently, we could suffer a loss of some or all ofthe stored cord blood units. Currently, we maintain insurance coverage of RMB50.0 million ($8.1 million) to cover our liabilities arising from collection, testing and processingof cord blood units and an additional RMB141.4 million ($22.8 million) in aggregate to cover liabilities arising from storage of donated cord blood units inBeijing, Guangdong and Zhejiang. We also maintain property insurance policies for machinery and office equipment for our Beijing and Guangdongoperations to cover damages from accidents. However, we do not maintain any property insurance policies covering our facilities and vehicles for losses due tofire, earthquake, flood and other disasters, nor do we maintain business interruption insurance. While we believe that we maintain adequate insurance, ourbusiness and prospects could nonetheless be adversely affected in the event of problems in our operations, for the following reasons: ·Cord blood banking is an emerging business in China. We could have underestimated our insurance needs and may not have sufficient insurance tocover losses above and beyond the limits on our policies. In particular, our subscription contract limits our liability to an amount equal to twice thefees paid by the subscriber, and our insurance policies are procured with reference to this liquidated damages clause. If the enforceability of thisclause is successfully challenged by a subscriber, any judgment against us may exceed the policy limit of our liability insurance. ·Depending on the severity of the incident, any damage or destruction of the cord blood units in our custody could potentially expose us to significantliability from our subscribers, and could affect our ability to continue to provide cord blood banking services. A substantial portion of our losses insuch a case will not be covered by our insurance. ·Under the PRC Tort Liability Law, the loss or damage to the cord blood units would be identified as an infringement to personal rights and interestsfor which the subscribers may claim for the compensation for mental damage. In addition, because the loss or damage to the cord blood units wouldbe a potentially unique and perhaps irreplaceable potential therapeutic loss for which money damages would be difficult to quantify, the liability capstipulated in our subscription contracts may not be supported by PRC courts and the subscribers may be compensated in accordance with the actualloss or the damage they suffered. We therefore cannot be sure to what extent we could be found liable, in any given scenario, for damages suffered bya subscriber as a result of harm or loss of a cord blood unit. If the amount of compensation for the said mental damage or the actual loss or damage isfound to be huge, our financial conditions may be materially adversely affected. 16 Further, we cannot assure you that we will be able to continue to maintain insurance with adequate coverage for liability or risks arising from any ofour services on acceptable terms. Even if the insurance is adequate, insurance premiums could increase significantly which could result in higher costs to us.Depending on the development of the industry, certain potential liability may be excluded from coverage under the terms of our insurance policy in the future. If PRC regulators order operators of the licensed cord blood banks in China to cease their fee-based commercial cord blood banking operations,results of operations and liquidity would be materially adversely affected. Under the Measures for Administration of Blood Stations issued by the MOH, or “the Measures”, which became effective on March 1, 2006: ·for-profit cord blood banks and other for-profit special purpose blood stations are not approved, ·neither collection nor supply of cord blood from donors may be conducted for the purpose of making a profit, ·the purchase and sale of cord blood donated by the public is prohibited, and ·cord blood banks are prohibited from collecting or providing cord blood without a duly obtained Blood Station Operation License issued by theprovincial-level DOH. Beijing, Guangdong and Zhejiang licenses were either renewed or issued by the relevant provincial-level DOHs after the Measures became effective onMarch 1, 2006. The cord blood bank operated by Jiachenhong, our operating subsidiary in Beijing, obtained its first cord blood banking license from the MOH inSeptember 2002. In June 2007, June 2010 and April 2013, the DOH in Beijing renewed the license for the cord blood banks operated by us for an additionalthree years. The cord blood bank operated by Nuoya, our operating subsidiary in Guangdong, obtained its first cord blood banking license from the MOH inJune 2006. In both May 2009 and May 2012, the DOH in Guangdong renewed the license for the cord blood banks operated by us for an additional threeyears. The cord blood bank operated by Lukou, our operating subsidiary in Zhejiang, obtained its first cord blood banking license from the MOH inSeptember 2010. All the operators of the licensed cord blood banks in China have been providing fee-based commercial cord blood banking services to fee-payingsubscribers in conjunction with cord blood banking services provided to the public. We believe that the MOH and the DOHs in Beijing, Guangdong andZhejiang are aware of fee-based commercial cord blood banking services in these regions, as they have inspected cord blood bank facilities from time to time.In addition, our license application materials submitted to the DOH in Beijing contained information about our subscription services to subscribers. Although the above facts indicate that the MOH and the relevant DOHs have been continuously supervising Beijing, Guangdong and Zhejiang cordblood banks, which collect cord blood units donated by the public and provide fee-based commercial cord blood banking services, there is a lack of a clear,consistent and well-developed regulatory framework for the cord blood banking industry in China as well as a lack of formal clarifications of policies orpositions by the MOH and provincial-level DOHs on how they interpret, administer and enforce the regulations in light of the ambiguities under the currentregulatory environment. We cannot assure you that the PRC government and the competent health authorities will continue their current regulatory practice andnot prohibit provision of for-profit subscription services. In the event that the PRC government and the competent health authorities were to change theirregulatory position and prohibit companies or any other entities in China, including us, from operating for-profit subscription businesses or acting asoperators of cord blood banks, we may have to terminate our business or change our business model. Further, if we were required to apply for a special or aseparate permit, license or authorization for the provision of such services, we may have to suspend our business to apply for the special or a separate permit,license or authorization. We may be subject to administrative penalties and/or claims for operation without a license. There is no assurance that we will be ableto obtain the license. We may be forced to shut down our business if we are unable to obtain the license. Also, there is no assurance that we will be able toapply for and obtain a new approval or license to expand our business. If any the above circumstances occur, our business and financial condition would bematerially adversely affected. Similarly, if the MOH or relevant DOH order Shandong Cord Blood Bank to cease fee-based commercial cord blood bankingoperations, Qilu’s operations will be severely affected, which in turn may materially adversely affect our investment. 17 Our business may be materially adversely affected if we are to be prohibited from providing collection, testing, storage and matching services inconnection with cord blood under the Industrial Catalogue Guiding Foreign Investment, or the “Catalogue”. Prior to December 1, 2007, foreign investment in China was subject to regulation by the Catalogue promulgated in November 2004 by the NationalDevelopment and Reform Commission, or “NDRC”, and the Ministry of Commerce, or the “MOC”. On October 31, 2007, the NDRC and the MOC revisedthe Catalogue, which became effective on December 1, 2007. The Catalogue was last amended on December 24, 2011, which then became effective onJanuary 30, 2012. Under the Catalogue promulgated in 2004, there were no prohibitions against investment by foreign enterprises in the cord blood bankingindustry in China. Under the Catalogue revised in 2007 and 2011, however, foreign enterprises are prohibited from engaging in stem cell and gene diagnosisand treatment technology development and application. Since the latest revised Catalogue still does not clearly define the scope of such prohibited business, itis uncertain whether it prohibits diagnosis and treatment technology development and application of stem cells only or it prohibits all stem-cell-relatedtechnology development and application. Therefore, it is unclear whether our cord blood banking services will be construed as a prohibited business under theCatalogue revised in 2011. We have consulted with our PRC counsel and found no evidence which leads to the conclusion that the subscription services provided by our cordblood banks violate the Catalogue revised in 2011. We have also communicated and consulted with the MOH and DOH regarding the legality of cord bloodbanking services provided by our cord blood banks subsequent to the effectiveness of the Catalogue revised in 2011. So far, neither the Company nor ourcord blood banks has received any negative comment, query, notice of prohibition, notice of termination of the service, administration sanction or penalty dueto the cord blood banking service deemed as noncompliance with the relevant PRC laws and regulations or violation of the terms set forth in the blood stationlicenses. Moreover, all the annual inspections, payments of the paid-in capital and change of the legal representative of the our PRC subsidiaries, after theCatalogue revised in 2011 became effective, have been legally approved, registered and filed with authorized Industry and Commerce Administration Bureau.Also, our Beijing Cord Blood Bank and Guangdong Cord Blood Bank renewed their cord blood banking licenses in May 2013 and May 2012, respectively,from the relevant authorities after the Catalogue revised in 2011 was already effective. None of Jiachenhong, Beijing Cord Blood Bank or Nuoya, GuangdongCord Blood Bank encountered any major obstacle, hurdle or query during the renewal process of the cord blood banking license or business license. Although the Catalogue revised in 2011 has no retroactive force and foreign enterprises approved to operate in China before their business becomesprohibited under the Catalogue revised in 2011 should be able to continue with their business in accordance with the approval they previously obtained, thereis no assurance that such enterprises will continue to be able to renew their licenses in the future if the government authorities consider that renewal of theirlicenses would contravene the Catalogue revised in 2011. Moreover, we may not be able to obtain necessary approvals for our business expansion oracquisitions from the government authorities under the Catalogue revised in 2011. We also may not be able to extend the operating periods of our existing PRCsubsidiaries, including Jiachenhong, Nuoya and Lukou. Jiachenhong has an operating period of twenty years and the cord blood banking license is subject torenewal in May 2016. Nuoya has an operating period of thirty years and the cord blood banking license is subject to renewal in May 2015. Lukou has anoperating period of twenty years and the cord blood banking license is subject to renewal in September 2013. The contracts Jiachenhong, Nuoya and Lukoucurrently enter into with their subscribers are typically for a period of 18 years. If Jiachenhong, Nuoya and Lukou are not able to extend their respectiveoperating periods, these respective operating period will not cover the period of the contracts entered into after September 2005 and the relevant entity may haveto be transferred to domestic companies or go into liquidation upon the expiration of its respective operating period. In addition, after the Catalogue revised in2011 has been issued, we may not be able to obtain approval from relevant approval authorities for increasing the registered capital of Jiachenhong, Nuoyaand Lukou, subscribing to the increased registered capital of Jiachenhong, Nuoya and Lukou, or making contributions for such capital with foreign currencysourced from overseas. If any of the above occurs, we may be required to change our business model or otherwise cease our business operations. 18 Our business activities are subject to regulations that may impose significant costs and restrictions. As the healthcare industry in China is monitored closely by regulatory authorities, our operations are constrained in many aspects. In particular: ·The regulatory framework on the cord blood banking industry may not be sufficiently comprehensive to address all ranges of issues in connectionwith operation in the cord blood banking industry and to respond to the changes and developments in the industry. Before the existing laws andregulations are amended, PRC government authorities sometimes may establish internal policy guidance and follow this guidance in practice, and thispolicy guidance could vary among different DOHs and be inconsistent with written regulations. ·Stringent regulations and standards apply to various other aspects of our operations, including workers’ safety, the maintenance of premises, and thehandling and disposal of waste materials and hazardous substances. Failure to maintain the required standards can result in fines, an order tosuspend the operations of our facilities until corrective measures are implemented or the revocation of our operating permits for such facilities or thedenial of permission for their renewal. We comply with these regulations. A failure in complying with these regulations may have a material adverseeffect on our operations. ·All collection devices and reagents used in our handling of cord blood units are regulated by the State Food and Drug Administration, or “SFDA”,and we require our suppliers to comply with all applicable regulations. The SFDA could at any time require our suppliers to obtain prior approval oradditional clearance with regard to the materials, reagents, appliances, consumables, devices or containers which we are currently using or prepare touse. Such requirements may affect the shipment timing of our suppliers which in turn materially adversely affecting our operations. ·We are required by PRC law to hire professional medical waste disposal firms to collect and dispose of medical waste produced in the process ofcollection, transportation, testing, processing and cryopreservation of cord blood. Such compliance costs may put extra strain on our financialresources. ·The government may change our licensing policy to require separate licenses be obtained for each type of cord blood banking services provided. If weare unable to obtain such approvals, licenses or permits for any reason, we may be required to terminate the provision of the service requiring license,in which case our business may be materially adversely affected. Regulations of cord blood banking services in China are still evolving and there are uncertainties in relation to the application and interpretation ofrelevant regulations. We may be required to devote significant time and attention to maintaining our compliance with the applicable requirements, and ourcompliance costs may increase in future periods. The terms of our convertible debts financing with a private equity investor and Golden Meditech include provisions that may limit our flexibility orrequire us to repay or refinance such debt, which may not be practicable depending upon the circumstances On April 27, 2012 we completed the sale of $65 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share, to KKRCHL. The notes are senior unsecured obligations, mature on April 27, 2017and are not redeemable prior to maturity at our option. Events of default under the notes include the suspension from trading or failure of our ordinary sharesto be listed on the New York Stock Exchange or another eligible market for a period of ten consecutive trading days or for more than an aggregate of thirtytrading days in any 365-day period, except where such suspension or failure of the ordinary shares to be listed is due to a technological problem and theoccurrence of an event or series of events that has or reasonably could be expected to have, a material adverse effect if such consequences have not been curedwithin thirty days. Should any such event occur, the occurrence of which is likely to be outside of our control, the holders of the notes may be entitled torepayment in full of such indebtedness, which we may be unable to repay and would need to seek a waiver from such holders, which they may be unwillingto provide. Similarly, so long as the investment value maintained by KKRCHL exceeds $20 million (calculated with reference to the notes and any ordinaryshares issued upon conversion thereof), KKRCHL will be entitled to designate one of the members of our board of directors, have access to certain of ourconfidential information and be entitled to a right of first refusal regarding future financings by us. In addition, so long as such investment value ismaintained by KKRCHL, we will not, without the affirmative consent of KKRCHL: 19 ·change the scope of the principal business of the Company; approve the development of any new line of business; or enter into any business otherthan such principal business; ·except for any amendment required by law, amend, modify or waive any provisions of its charter documents which may reasonably be deemed toaffect the notes or the rights of the holders under the notes; ·acquire or dispose of assets other than in the ordinary course of business; ·enter into any joint venture or partnership with, or otherwise acquire any interest in the equity securities of, any person other than a wholly-ownedsubsidiary; ·change the size or composition of our Board of Directors or the board of directors of any subsidiary or any committee thereof; ·approve any budget or business plan of the Company or any material subsidiary or any modification thereto; ·approve the employment or termination of, or compensation agreements for any senior officer, or determine the compensation (including withoutlimitation cash and stock option compensation) of any director or director of a subsidiary or any member of a committee of our Board of Directors orthe board of directors of any subsidiary; ·incur any indebtedness (other than amounts payable under the notes) such that the outstanding indebtedness is in excess of $22 million (or itsequivalent in other currencies) in the aggregate for the Company on a consolidated basis; ·change our auditors to a firm not considered one of the “Big Four” accounting firms as of the date hereof, or any successor thereto; or ·redeem or repurchase of any equity securities of the Company or any subsidiary except pursuant to our existing repurchase program. On October 3, 2012 we completed the sale of $50 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share, to Golden Meditech. The notes are senior unsecured obligations, mature on October3, 2017 and are not redeemable prior to maturity at our option. Events of default under the notes include the suspension from trading or failure of our ordinaryshares to be listed on the New York Stock Exchange or another eligible market for a period of ten consecutive trading days or for more than an aggregate ofthirty trading days in any 365-day period, except where such suspension or failure of the ordinary shares to be listed is due to a technological problem and theoccurrence of an event or series of events that has or reasonably could be expected to have, a material adverse effect if such consequences have not been curedwithin thirty days. Should any such event occur, the occurrence of which is likely to be outside of our control, the holders of the notes may be entitled torepayment in full of such indebtedness, which we may be unable to repay and would need to seek a waiver from such holders, which they may be unwillingto provide. Similarly, so long as the investment value maintained by Golden Meditech exceeds $20 million (calculated with reference to the notes and anyordinary shares issued upon conversion thereof), Golden Meditech will be entitled to designate one of the members of our board of directors, have access tocertain of our confidential information and be entitled to other rights. In addition, so long as such investment value is maintained by Golden Meditech, we willnot, without the affirmative consent of Golden Meditech: ·change the scope of the principal business of the Company; approve the development of any new line of business; or enter into any business otherthan such principal business; ·except for any amendment required by law, amend, modify or waive any provisions of its charter documents which may reasonably be deemed toaffect the notes or the rights of the holders under the notes; 20 ·acquire or dispose of assets other than in the ordinary course of business; ·enter into any joint venture or partnership with, or otherwise acquire any interest in the equity securities of, any person other than a wholly-ownedsubsidiary; ·change the size or composition of our Board of Directors or the board of directors of any subsidiary or any committee thereof; ·approve any budget or business plan of the Company or any material subsidiary or any modification thereto; ·approve the employment or termination of, or compensation agreements for any senior officer, or determine the compensation (including withoutlimitation cash and stock option compensation) of any director or director of a subsidiary or any member of a committee of our Board of Directors orthe board of directors of any subsidiary; ·incur any indebtedness (other than amounts payable under the notes) such that the outstanding indebtedness is in excess of $87 million (or itsequivalent in other currencies) in the aggregate for the Company on a consolidated basis; ·change our auditors to a firm not considered one of the “Big Four” accounting firms as of the date hereof, or any successor thereto; or ·redeem or repurchase of any equity securities of the Company or any subsidiary except pursuant to our existing repurchase program. Compliance with these provisions may limit our flexibility in running our business as in previous years and could result in the loss of opportunitiesfor future growth. Unauthorized use of our brand name by third parties may adversely affect our business. We consider our brand name critical to our success. Due to the nature of our business, we do not have any patents, administrative protection or tradesecrets covering our use of cord blood collection, processing, storage or retrieval technologies. Our continued ability to differentiate ourselves from the othercord blood banking operators and other potential new entrants would depend substantially on our ability to preserve the value of our brand name. We rely on trademark law, company brand name protection policies, and agreements with our employees, subscribers and business partners toprotect the value of our brand name. In particular, we have completed the trademark registration process and have been licensed by the Trademark Office ofthe State Administration for Industry and Commerce of the People’s Republic of China to use our two trademarks, of which the registration numbers are4666178 and 4666582. However, there can be no assurance that the measures we take in this regard are adequate to prevent or deter infringement or othermisappropriation of our brand name. Among others, we may not be able to detect unauthorized use of our brand name or copycat in a timely manner becauseour ability to determine whether other parties have infringed our brand name is generally limited to information from publicly available sources. In order to preserve the value of our brand name, we may need to take legal actions against third parties. Nonetheless, because the validity,enforceability and scope of trademark protection in the PRC are uncertain and still evolving, we may not be successful in litigation. Further, future litigationcould also result in substantial costs and diversion of our resources and could disrupt our business. Our strategic partnership with CBB and Cordlife Singapore may not be successful. Cordlife was a provider of cord blood banking services with operations in Singapore, Hong Kong, India, Indonesia and the Philippines. Before thecompletion of the restructuring of Cordlife, we paid an aggregate of AUD12.4 million in exchange for a total of 24,366,666 shares in Cordlife. On June 16,2011, shareholders of Cordlife approved a capital reduction scheme by way of distribution in specie. The scheme involved a spin off of Cordlife’s moremature cord blood banking businesses in Singapore and Hong Kong. The restructuring and distribution in specie were subsequently completed and effectiveon June 30, 2011. 21 After the restructuring of Cordlife as of June 30, 2011, we owned a total 24,366,666 shares in both CBB and Cordlife Singapore. We did not makeany payment to further acquire CBB’s and Cordlife Singapore’s shares during the year ended March 31, 2013. Before the restructuring, operations of the whole group were conducted under Cordlife. After the restructuring, developing cord blood bankingbusinesses in Indonesia, India and the Philippines are operated under CBB, which is listed on the Australian Securities Exchange; while the more mature cordblood banking businesses in Singapore and Hong Kong are operated under Cordlife Singapore, which was listed on the Singapore Exchange on March 29,2012. As of March 31, 2013, we owned a 14.1% equity interest in CBB and a 10.5% equity interest in Cordlife Singapore. There are significant risksassociated with CBB expansion into developing countries, because it may not have the necessary experience to develop localized versions of its business modeland in marketing its services to target subscribers with different demographic characteristics. We may thus be unable to realize satisfactory return on ourinvestment in CBB. Furthermore, on May 18, 2011, we entered into a marketing collaboration agreement with Cordlife HK, a subsidiary of Cordlife Singapore. Underthe agreement, we will help to promote and provide referral services to potential clients who have interest in delivering babies in Hong Kong where Cordlife HKoperates, in return for a fee. The marketing collaboration arrangement may not be successful, and Cordlife Singapore’s operations may be affected by changesin local policies as well as the immigration policy in Hong Kong. As a result, we may not be able to generate satisfactory returns on the arrangement. Our strategic holdings in CBB and Cordlife Singapore may adversely affect our financial performance. We continuously review and monitor our strategic investment in Cordlife (CBB and Cordlife Singapore after the restructuring). The market value ofour investment in Cordlife declined during the nine months ended December 31, 2008. Having considered the significance of the accumulated decline in thefair market value of the ordinary shares of Cordlife, the period of time during which market value of the shares had been below cost, and the market conditionat that time, the management determined that the impairment loss on the investment up to December 31, 2008 was no longer not other-than-temporary. As aresult, accumulated impairment loss amounting to RMB37.4 million was recognized in earnings during the year ended March 31, 2009 and the market valueas of December 31, 2008 formed a new cost basis of our investment in Cordlife. Pursuant to the restructuring of Cordlife Singapore from Cordlife on June 30, 2011, and the subsequent listing of Cordlife Singapore on March 29,2012, as of March 31, 2013, we owned a 14.1% equity interest in CBB and a 10.5% equity interest in Cordlife Singapore. Due to an increase in the marketvalue of the ordinary shares of Cordlife Singapore, the total unrealized holding gain recognized in accumulated other comprehensive income as of March 31,2013 amounted to RMB59.8 million ($9.6 million). Should the value of shares in CBB or Cordlife Singapore experience a significant decline and wedetermine that the impairment is other-than-temporary, a further write-down of investment will have to be recognized in our consolidated statements ofcomprehensive income and this will adversely affect our financial performance. If demand for our matching services is significantly different from our management’s expectations, the valuation of donated cord blood unitscould be materially impacted, which could affect our financial performance. A significant portion of our inventories, which consist of cord blood units donated by the public, consists of the handling costs attributable to thetesting, processing and preservation of donated cord blood units. The handling costs include direct material costs and direct labor costs incurred in handlingof donated cord blood units. We do not capitalize the related overheads of our facilities used to store these units. Donated cord blood units are valued at thelower of cost or market using the weighted average cost method. Since we do not expect to recognize revenue from such inventories within 12 months from thebalance sheet date, we classify donated cord blood units as non-current assets on our consolidated balance sheets. The carrying value of our donated cordblood units was RMB39.7 million ($6.4 million) as of March 31, 2013. Our management periodically reviews quantities of donated cord blood stored in ourbanks to determine if a write-down on inventories is necessary based on estimated demand for our matching services and other industry knowledge. We didnot record any write-downs on our inventories for the years ended March 31, 2011, 2012 and 2013. If demand for our matching services is significantlydifferent from our management’s expectations, the valuation of donated cord blood units could be materially impacted. 22 We may have anti-takeover provisions in our organizational documents that discourage a change of control. Certain provisions of our amended and restated memorandum and articles of association may have an anti-takeover effect and may delay, defer orprevent a tender offer or takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over themarket price for the shares held by shareholders. Certain of these provisions include: ·having a classified board of directors with staggered three-year terms; ·requiring a special resolution, namely the affirmative vote of not less than two-thirds (66 and 2/3%) of the votes cast by the shareholders, generally toremove a director; ·providing for filling vacancies on the board only by the vote of the remaining directors or by a special resolution, namely the affirmative vote of notless than two-thirds (66 and 2/3%) of the votes cast by the shareholders in the meeting convened to approve such appointment; and ·establishing the requirements and procedures for calling special meetings of shareholders, including a provision that provides that a special meetingof shareholders may only be called by a majority of directors, our chairman, or members together holding not less than seventy-five percent (75%) ofthe issued shares. In addition, we have entered into service contracts with senior executive officers on June 30, 2009, namely, Ms. Ting Zheng, Mr. Albert Chen, Ms.Yue Deng, Ms. Rui Arashiyama and Ms. Xin Xu. Each contract is automatically renewed every three years until the death or incapacitation of the seniorexecutive officer unless terminated by either party with notice. If a service contract is terminated by the relevant executive within 30 days following a change ofcontrol of our company, the executive will be entitled to (i) all the salary and guaranteed bonuses actually accrued and payable to him/her; (ii) immediatevesting of all of his/her unvested options; and (iii) a severance payment in the amount of $5 million. The aggregate cost of the severance payments that wouldbecome payable at the option of the senior executive officers upon a change of control could discourage acquisition bids for CCBC. These anti-takeoverprovisions could make it more difficult for a third party to acquire CCBC, even if the third party’s offer may be considered beneficial by many shareholders.As a result, shareholders may be limited in their ability to obtain a premium for their shares. As of March 31, 2013, Golden Meditech owned 42.0% of CCBC’s outstanding shares, excluding shares owned by us. CCBC’s board of directors isdivided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. At each of ourannual meetings, as a consequence of CCBC’s “staggered” board of directors, only a minority of the board of directors will be considered for election andGolden Meditech, because of its ownership position, has considerable influence regarding the outcome. As our success depends on several key management personnel, our business may be adversely affected if we fail to retain them. Our success is highly dependent on the retention of the principal members of our management, scientific and sales personnel. In particular, Mr. YuenKam, our Chairman and Ms. Ting Zheng, our Chief Executive Officer and the rest of our senior management team, are critical to our ability to execute ouroverall business strategy. In addition, several other employees with scientific or other skills are important to the successful development of our business. If anyof our key employees joins a competitor or forms a competing company, we may lose some competitive advantages, and our operating results may beadversely affected. As qualified personnel are difficult to attract and retain, we have entered into service contracts with key senior executive officers. Eachcontract will be automatically renewed every three years until the death or incapacitation of the senior executive officer unless terminated by either party withnotice. Although these contracts contain non-competition clauses, the restrictions imposed by the clauses may not be adequate to prohibit these keymanagement personnel from competing against us after their departure. 23 If there are any adverse public health developments in China, our business and operations may be severely disrupted. Any prolonged occurrence of avian flu, severe acute respiratory syndrome, or “SARS”, or other adverse public health developments in China orother regions where we have an operation or presence may have a material adverse effect on our business operations. These could include the ability of ourpersonnel to travel or to promote our services within China or at other regions where we have an operation or presence, lost of marketing channels as hospitalsprohibit our sales and marketing personnel from entering and approaching expectant parents within hospital premises, as well as temporary closure of ourfacilities. In particular, there have been reports of occurrences of avian flu in various parts of China in recent years, including confirmed human cases. Inresponse, the PRC government has authorized local governments to impose quarantine and other restrictions on movements of people and goods in the event ofan epidemic. Any closures or travel or other operational restrictions would severely disrupt our business operations and adversely affect our results ofoperations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of avian flu, SARS or any otherepidemic. A severe or prolonged downturn in the global economy could materially and adversely affect our business and results of operations. The global market and economic conditions during the years 2008 through 2010 were unprecedented and challenging, with recessions occurring inmost major economies. Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, andthe availability and cost of credit have contributed to increased market volatility and diminished expectations for economic growth around the world. Thedifficult economic outlook has negatively affected businesses and consumer confidence and contributed to volatility of unprecedented levels. Government responses to these events have included partial nationalization of certain industries and enterprises, “bail-out” packages intended toprovide liquidity to market participants and several high profile acquisitions and bankruptcies. While global economies initially showed signs of stabilizing,recent developments in Cyprus, Italy, other Euro-zones, Japan, China and other countries of Asia cast doubt on the pace of economic recovery, which couldhave lasting effects on our business, our expansion plans and our ability to raise capital required to implement our expansion plans, the extent of which isdifficult to predict. The PRC economy also faces challenges. The PRC government has implemented various measures recently to curb inflation and local economic andfinancial challenges. If economic growth slows down or an economic downturn occurs, our business and results of operations may be materially andadversely affected. There is a risk that CCBC will be classified as a passive foreign investment company, or “PFIC”, which could result in adverse consequences toinvestors. In general, CCBC will be treated as a PFIC for any taxable year of CCBC in which either (1) at least 75% of its gross income (including its pro ratashare of the gross income of certain 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of its assets(including its pro rata share of the assets of certain 25% or more owned corporate subsidiaries) produce, or are held for the production of, passive income.Passive income generally includes, without limitation, dividends, interest, rents, royalties, and gains from the disposition of passive assets. If CCBC isdetermined to be a PFIC for any taxable year (or portion thereof) of CCBC that is included in the holding period of a U.S. Holder (as defined in the section ofthis report captioned “Additional Information — Taxation — United States Federal Income Taxation — General”) of CCBC’s ordinary shares, the U.S.Holder may be subject to increased U.S. federal income tax liability upon a sale or other disposition of CCBC’s ordinary shares or the receipt of certain excessdistributions from CCBC and may be subject to additional reporting requirements. Based on the composition (and estimated values) of the assets and thenature of the income of CCBC and its subsidiaries during CCBC’s taxable year ended March 31, 2013, we do not believe that we will be treated as a PFIC forsuch year. However, because we have not performed a definitive analysis as to our PFIC status for such taxable year, there can be no assurance with respect toour PFIC status for such taxable year. There also can be no assurance with respect to the status of CCBC as a PFIC for its current taxable year or any futuretaxable year. U.S. Holders of CCBC’s ordinary shares are urged to consult their own tax advisors regarding the possible application of the PFIC rules. See thediscussion in the section entitled “Additional Information — Taxation — United States Federal Income Taxation — U.S. Holders — Passive ForeignInvestment Company Rules”. In addition, CCBC may need to accommodate the loss to KKRCHL if CCBC is determined to be a PFIC, hence, we may beadversely affected. 24 Our independent registered public accounting firm’s audit documentation related to their audit reports included in this annual report may belocated in the Peoples’ Republic of China. The Public Company Accounting Oversight Board currently cannot inspect audit documentationlocated in China and, as such, you may be deprived of the benefits of such inspection. Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities andExchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company AccountingOversight Board (United States) (“the “PCAOB”), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess itscompliance with the applicable laws of the United States and professional standards. Our operations are principally conducted in the Peoples’ Republic ofChina, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities. Accordingly, any auditdocumentation located in China related to our independent registered public accounting firm’s reports included in our filings with the U.S. Securities andExchange Commission is not currently inspected by the PCAOB. Inspections conducted by the PCAOB outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures,which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOBfrom regularly evaluating audit documentation located in China and its related quality control procedures. On May 24, 2013, the PCAOB announced that ithad entered into a Memorandum of Understanding (the “MOU”) on Enforcement Cooperation with the China Securities Regulatory Commission (“CSRC”)and the Ministry of Finance (“MOF”). While the MOU does not cover the conduct of regular inspections by the PCAOB to assess compliance with theapplicable laws of the United States and professional standards, the PCAOB has been engaged in continuing discussions with the CSRC and MOF to permitjoint inspections in China of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges. Until such a processhas been established, investors in our securities may be deprived of the benefits of PCAOB inspections. Risks Relating to Operations in China Changes in political, economic and legal developments in China may adversely affect our business. As we derive substantially all of our revenues in China and substantially all of our assets and operations are in China, our continued growth woulddepend heavily on China’s general economic condition. The Chinese economy has grown significantly in recent years, especially after China’s accession to theWorld Trade Organization, or “WTO”, in 2001. We, however, cannot assure you that the Chinese economy will continue to grow, or that such growth will besteady or in geographic regions or economic sectors to our benefit. A downturn in China’s economic growth or a decline in economic condition may havematerial adverse effects on our results of operations. Further, we will continue to be affected by the political, social and legal developments of China. Since the late 1970s, the PRC government hasintroduced a series of economic and political reforms, including measures designed to effectuate the country’s transitioning from a planned economy to a moremarket-oriented economy. During such economic and political reforms, a comprehensive system of laws were promulgated, including many new laws andregulations seeking to provide general guidance on economic and business practices in China and to regulate foreign investment. 25 In the past twenty years, the growth of the Chinese economy has been uneven across different geographic regions and different economic sectors. Inorder to stabilize national economic growth, the PRC government adopted a series of macroeconomic policies. These policies include measures that restrictedexcessive growth and investment in specific sectors of the economy. Also, the PRC government has implemented stimulus responses to the global financialcrisis. We cannot predict the future direction of economic reforms or the effects that any such measures may have on our business, financial condition orresults of operations. Most of our revenues are denominated in Renminbi, which is not freely convertible for capital account transactions and may be subject toexchange rate volatility. We are exposed to the risks associated with foreign exchange controls and restrictions in China, as our revenues are primarily denominated inRenminbi, which is currently not freely exchangeable. The PRC government imposes control over the convertibility between Renminbi and foreign currencies.Under the PRC foreign exchange regulations, payments for “current account” transactions, including remittance of foreign currencies for payment ofdividends, profit distributions, interest and operation-related expenditures, may be made without prior approval but are subject to procedural requirements.Strict foreign exchange control continues to apply to “capital account” transactions, such as direct foreign investment and foreign currency loans. Thesecapital account transactions must be approved by or registered with the PRC State Administration of Foreign Exchange, or “SAFE” or its authorized localbranches. Further, any capital contribution by an offshore shareholder to its PRC subsidiaries should be approved by the Ministry of Commerce in China orits local counterparts. We cannot assure you that we are able to meet all of our foreign currency obligations to remit profits out of China or to fund operations inChina. On August 29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues concerning the Improvement of the Administration ofPayment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or “Circular 142”, to regulate the conversion by foreign investedenterprises, or FIEs, of foreign currency into Renminbi by restricting how the converted Renminbi may be used. Circular 142 requires that Renminbiconverted from the foreign currency-dominated capital of a FIE may only be used for purposes within the business scope approved by the applicablegovernment authority and may not be used for equity investments within the PRC unless specifically provided for otherwise. In addition, SAFE strengthenedits oversight over the flow and use of Renminbi funds converted from the foreign currency-dominated capital of a FIE. The use of such Renminbi may not bechanged without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used. In the future, wemay grow our business in part by acquiring additional cord blood banks in China. Compliance with Circular 142 may delay or inhibit our ability to completesuch transactions, which could affect our ability to expand business. Fluctuation in the value of the Renminbi and of the U.S. dollar may have a material adverse effect on investments in our ordinary shares. Any significant revaluation of the Renminbi may have a material adverse effect on the U.S. dollar equivalent amount of our revenues and financialcondition as well as on the value of, and any dividends payable on, our ordinary shares in foreign currency terms. For instance, a decrease in the value ofRenminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our ordinary sharesand the dividends we may pay in the future, if any, all of which may have a material adverse effect on the prices of our common shares. Any furtherappreciation of the Renminbi against the U.S. dollar may result in significant exchange losses as we convert U.S. dollars into Renminbi. As of March 31,2013, we had cash denominated in U.S. dollars of approximately $1.5 million. Prior to 1994, Renminbi experienced a significant net devaluation against most major currencies, and there was significant volatility in the exchangerate during certain periods. Upon the execution of the unitary managed floating rate system in 1994, the Renminbi was devalued by 50% against the U.S.dollar. Since 1994, the Renminbi to U.S. dollar exchange rate has largely stabilized. On July 21, 2005, the People’s Bank of China announced that theexchange rate of U.S. dollar to Renminbi would be adjusted from $1 to RMB8.27 to $1 to RMB8.11, and it ceased to peg the Renminbi to the U.S. dollar.Instead, the Renminbi would be pegged to a basket of currencies, whose components would be adjusted based on changes in market supply and demandunder a set of systematic principles. On September 23, 2005, the PRC government widened the daily trading band for Renminbi against non-U.S. dollarcurrencies from 1.5% to 3.0% to improve the flexibility of the new foreign exchange system. On June 19, 2010, the People’s Bank of China released astatement indicating that they would “proceed further with reform of RMB exchange rate regime and increase the RMB exchange rate flexibility”. Since theadoption of these measures, the value of Renminbi against the U.S. dollar has fluctuated on a daily basis within narrow ranges, but overall has furtherstrengthened against the U.S. dollar. There remains significant international pressure on the PRC government to further liberalize its currency policy, whichcould result in a further and more significant appreciation or depreciation in the value of the Renminbi against the U.S. dollar. The Renminbi may be revaluedfurther against the U.S. dollar or other currencies, or may be permitted to enter into a full or limited free float, which may result in an appreciation ordepreciation in the value of the Renminbi against the U.S. dollar or other currencies. 26 China’s legal system is different from those in some other countries. China is a civil law jurisdiction. Under the civil law system, prior court decisions may be cited as persuasive authority but do not have bindingprecedential effect. Although progress has been made in the promulgation of laws and regulations dealing with economic matters, such as corporateorganization and governance, foreign investment, commerce, taxation and trade, China’s legal system remains less developed than the legal systems in manyother developed countries. Furthermore, because many laws, regulations and legal requirements have been recently adopted, their interpretation andenforcement by the courts and administrative agencies may involve uncertainties. Sometimes, different government departments may have differentinterpretations. Licenses and permits issued or granted by one government authority may be revoked by a higher government authority at a later time.Government authorities may decline to take action against operators of the unlicensed cord blood banks which may work to the disadvantage of operators ofthe licensed cord blood banks, including us. The PRC legal system is based in part on government policies and internal rules (some of which may not bepublished on a timely manner or at all) that may have a retroactive effect. We may even not be aware of our violation of these policies and rules until the timeafter the violation. Changes in China’s legal and regulatory framework, the promulgation of new laws and possible conflicts between national and provincialregulations may adversely affect our financial condition and results of operations. In addition, any litigation in China may result in substantial costs anddiversion of resources and management attention. PRC regulations relating to the establishment of offshore companies by PRC residents may subject our PRC resident shareholders to personalliability and limit our ability to inject capital into the PRC subsidiaries, limiting our subsidiaries’ ability to distribute profits to us or otherwiseadversely affect us. SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of DomesticResidents Conducted via Offshore Special Purpose Companies, or “Notice 75”, on October 21, 2005, which became effective as of November 1, 2005 andthe operating procedures in May 2007, collectively the SAFE Rules. According to the SAFE Rules, prior registration with the local SAFE branch is requiredfor PRC residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in anonshore enterprise located in the PRC. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for theinjection of equity interests or assets of an onshore enterprise in the offshore company or overseas funds raised by such offshore company, or any othermaterial change involving a change in the capital of the offshore company. Moreover, the SAFE Rules have retroactive effect. As a result, PRC residents whohad established or acquired control of offshore companies that had made onshore investments in the PRC before promulgation of the SAFE Rules wererequired to complete the relevant registration procedures with the local SAFE branch by March 31, 2006. The SAFE rules define “PRC residents” to includeboth legal persons and natural persons who either hold legal PRC identification documents, or who habitually reside in China due to economic interests orneeds. If any PRC resident fails to file its SAFE registration for an existing offshore enterprise, any dividends remitted by the onshore enterprise to its overseasparent after October 21, 2005 will be considered to be an evasion of foreign exchange purchase rules, and the payment of the dividend will be illegal. As aresult, both the onshore enterprise and its actual controlling persons can be fined. In addition, failure to comply with the registration procedures may result inrestrictions on the relevant onshore enterprise, including prohibitions on the payment of dividends and other distributions to its offshore parent or affiliate andcapital inflow from the offshore enterprise. The PRC resident shareholders of the offshore enterprise may also be subject to penalties under Chinese foreignexchange administration regulations. 27 On May 20, 2011, the SAFE issued the Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore SpecialPurpose Companies Operating Instruction, or “the Operating Instruction”, which provides explicit rules and simplifies procedures under Notice 75. TheOperating Instruction concentrates on filing materials and procedures of foreign exchange registration, alteration registration, supplementary registration andcancellation registration of offshore special purpose vehicles, or “SPVs”, owned or controlled by domestic residents. According to the Operating Instruction,domestic resident individuals shall register with the local SAFE branch where the assets or equities of their domestic enterprises are located. Domestic residentindividuals may establish SPVs overseas prior to the registration, however, such SPVs are not allowed to raise funds outbound, change equity interests orinvest in reverse or make other substantial changes in capital or equity interests prior to the completion of the registration. When assets or equity interests ofdomestic enterprises are located in different areas, such domestic residents shall select a SAFE branch office in the area where one of the primary domesticenterprise is located, to comprehensively register with. Whenever SPVs change in financing matters, an alteration registration shall be made within 30 workingdays upon the receipt of the first batch of raised funds. The raised funds without alteration registration shall not be called back and utilized in the form ofinvestment or foreign loan. To date, we have not received any communications from, or had contact with, the PRC government with respect to SAFE Rules. Neither do we haveinformation regarding whether our shareholders who may be subject to SAFE Rules have made necessary applications, filings and amendments as requiredunder SAFE Rules. However, we have requested our shareholders and beneficial owners who may be subject to SAFE Rules to make the necessaryapplications, filings and amendments as required under SAFE Rules. We have advised these shareholders and beneficial owners to comply with the relevantrequirements. However, we cannot provide any assurance that all of our shareholders and beneficial owners who may be PRC residents will comply with ourrequest to make or obtain any applicable registrations or comply with other requirements required by SAFE Rules. The failure or inability of our PRC residentshareholders or beneficial owners to make any required registrations or comply with other requirements may subject such shareholders or beneficial owners tofines and legal sanctions and may also limit our ability to contribute additional capital into or provide loans, including cash of CCBC, to our PRCsubsidiaries, limit the ability of our PRC subsidiaries to pay dividends or otherwise distribute profits to us, or otherwise adversely affect us. In January 2007, SAFE promulgated the Detailed Rules for the Implementation of the Measures for the Administration of Individual ForeignExchange, and the Operating Rules on the Foreign Exchange Administration of the Evolvement of Domestic Individuals in the Employee Stock OwnershipPlans and Share Option Schemes of Overseas Listed Companies, or “Circular 78”. Circular 78 has then been superseded by the Circular of the StateAdministration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used for Domestic Individuals’ Participation in EquityIncentive Plans of Overseas Listed Companies, or “Circular 7”, which became effective from February 15, 2012. Under Circular 7, domestic individualswho participate in equity incentive plans of an overseas listed company shall, through the domestic company to which the said company is affiliated,collectively entrust a domestic agency to handle regarding issues and entrust an overseas institution to process the exercise of options, purchase and sale ofcorresponding stocks or equity, and transfer of proceeds. The domestic agency shall go through the foreign exchange registration procedures with the localoffice of the SAFE at the place where it is located for all individuals participating in the equity incentive plans and shall submit certain forms to the local officeof the SAFE periodically to report and declare such plans. Moreover, any substantial or material change and termination, expiration or cancellation of theequity incentive plans shall be reported to the local office of the SAFE by the domestic agency within time limitation. In respect of all the proceeds obtained bysuch employees from the overseas listed company through the equity incentive plans, the domestic agency may convert such proceeds into RMB for all theindividuals with the bank and then transfer the proceeds obtained from such conversion to the respective domestic RMB accounts of the domestic individuals.On February 18, 2011, at our annual general meeting, our shareholders approved a restricted share unit scheme (or the “Incentive Plan”) which has a mandatelimit of granting rights to receive ordinary shares not exceeding 10.0% of our issued and outstanding share capital, to directors, officers, employees and or/orconsultants of CCBC and our subsidiaries. As of March 31, 2013, no shares on restricted share units scheme have been granted and are outstanding underthe Incentive Plan. All the options for the shares of CCBC or restricted share units to be granted to and all the stock ownership plans to be made for our PRCemployees in the future, including exercise of the option rights and performance of such plans, would be subject to Circular 7 since CCBC is an overseaslisted company. If we or our PRC employees fail to comply with the provisions of Circular 7, we and/or our PRC employees may be subject to fines and legalsanctions imposed by the SAFE or other PRC government authorities. If our PRC employees fail to make relevant registrations with SAFE or its local offices,it will prevent us from conducting the share option schemes, Incentive Plan or the stock ownership plans for our PRC employees. In addition, it may imposecost on us for obtaining the approval from SAFE or its local offices in connection with the foreign exchange registration. 28 In addition, the PRC employees involved in the Incentive Plan must make the registrations with the competent foreign exchange administrationauthorities as required under Circular 7 through the domestic agency. We cannot assure you that the administration authorities would permit such PRCemployees to go through the registration procedures. If this occurs, the management, operations and financial conditions of the listed company may beadversely affected. The discontinuation of any preferential tax treatment currently available to us and the increase in the enterprise income tax in the PRC could ineach case result in a decrease in our profits and materially and adversely affect our results of operations. Prior to January 1, 2008, the basic enterprise income tax rate for foreign invested enterprises in the PRC was 33.0%, while the PRC governmentprovided various incentives, including reduced tax rates, to foreign-invested enterprises and domestic companies operating in a national level economic andtechnological development zone. Jiachenhong is registered and operating in a national level economic and technological development zone, and was entitled to apreferential enterprise income tax rate of 15.0%. In addition, Jiachenhong qualifies for a tax holiday during which it was entitled to an exemption fromenterprise income tax for two years commencing from its first profit-making year of operation and a 50% reduction of enterprise income tax for the followingthree years. In connection therewith, Jiachenhong was fully exempt from income tax in each of the years ended December 31, 2004 and 2005 and had beensubject to enterprise income tax at a reduced rate of 7.5% since the year ended December 31, 2006. The tax holiday expired on December 31, 2008. On March 16, 2007, the National People’s Congress approved and promulgated a new tax law, the PRC Enterprise Income Tax Law, or “EIT Law”,which took effect on January 1, 2008. Under the new tax law, foreign-invested enterprises and domestic companies are subject to a uniform tax rate of 25%.On December 26, 2007, the State Council issued the Notice of the State Council Concerning Implementation of Transitional Rules for Enterprise Income TaxIncentives, or “Circular 39”. Based on Circular 39, enterprises that enjoyed a preferential tax rate of 15% in accordance with previous laws, regulations andrelevant regulatory documents are eligible for a graduated rate increase to 25% over a five-year transition period beginning January 1, 2008. For thoseenterprises which currently enjoy tax holidays, such tax holidays will continue until their expiration in accordance with previous tax laws, regulations andrelevant regulatory documents. While the new tax law equalizes the tax rates for foreign-invested enterprises and domestic companies, preferential tax treatmentwould continue to be given to companies in certain encouraged sectors and to those classified as High and New Technology Enterprise (“HNTE”) enjoyingspecial support from the government. Additionally, a company which may be concurrently eligible for both preferential treatment to be granted during thetransition period and the tax incentives as provided in EIT Law and its implementing rules shall elect the most preferential but only one tax treatment whichshall not be changed since making the election. Following the effectiveness of the new tax law, the effective tax rate of Jiachenhong had increased but subject tothe eligibility for preferential treatment. On August 31, 2007, the Ministry of Finance and the State Administration of Taxation promulgated the Notice Regarding the Issue on Application ofTax Laws by Enterprises, which was then abolished on February 21, 2011. In accordance with such notice, starting from January 1, 2008, enterprisesestablished and registered during the period from March 17, 2007 to December 31, 2007 are required to pay enterprise income taxes at a rate of 25%. SinceNuoya was restructured as a foreign invested enterprise on August 17, 2007, a date that falls within the period from March 17, 2007 to December 31, 2007,Nuoya is deemed as established during that period and is required to pay enterprise income tax at a rate of 25% starting from January 1, 2008. Prior toJanuary 1, 2008, Nuoya was subject to enterprise income tax at the standard rate of 33%. 29 On April 14, 2008, the Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation jointly promulgated theAdministrative Measures for Determination of High-tech Enterprises, or the “Measures for Determination”, and the annex thereto (i.e. the High and NewTechnology Fields under the Key Support from the State). Under the Measures for Determination, the “high-tech enterprises” as mentioned in such Measuresrefer to the resident enterprises in sectors as listed in the High and New Technology Fields under the Key Support from the State, which have been registeredfor one year or longer within China (excluding Hong Kong, Macao and Taiwan regions), have incessantly devoted to the research and development as well astransformation of technological achievements, have formed their own independent core intellectual property rights and are carrying out business activities onsuch basis. On July 8, 2008, the Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation further issued the Notice ofPromulgation of the Guidelines for Determination and Administration of High-tech Enterprises (the “Guidelines”). Based on such Notice, the qualification forthe enterprises which were registered both within and outside national high and new technology industries development zone (including Beijing new technologyindustries development experimental zone) and were classified as high-tech enterprises prior to the end of 2007 in accordance with previous laws shall remainvalid if the validity period of their qualification has not expired, but such enterprises could not continue to enjoy the corresponding preferential tax treatmentunless they could be redetermined as high-tech enterprises. Additionally, for high-tech enterprises which were granted tax exemption and reduction treatment fora certain period under previous laws and whose tax holiday has not expired, the abovementioned stipulations of Circular 39 shall continue to apply. Jiachenhong was granted the HNTE certificate on December 24, 2008 and such status was valid retroactively as of January 1, 2008 and expired onDecember 31, 2010. Jiachenhong’s renewed HNTE certificate was dated October 28, 2011, and was approved by the relevant PRC tax authority on February15, 2012. Such status is valid retroactively as of January 1, 2011 and will expire on December 31, 2013. As a result, Jiachenhong is subject to a reduced taxrate of 15% during such period. Nuoya’s HNTE certificate was dated December 28, 2010 with validity of 3 years, and was approved by the relevant PRC taxauthority on June 2, 2011. Such status was valid retroactively as of January 1, 2010 and expired on December 31, 2012. As a result, Nuoya was subject to areduced tax rate of 15% during such period. As of the date of this report, Nuoya is still in the application process for renewal of the HNTE certificate. Webelieve that Nuoya meets all the criteria for the renewal of HNTE status and accordingly, applied 15% tax rate to measure taxable temporary differences thatare expected to reverse by the calendar year ending December 31, 2015. Lukou has not yet applied as an HNTE. We cannot assure you that Jiachenhong andNuoya will be redetermined as an HNTE and thus continue to enjoy preferential tax treatment upon expiration, or if Lukou applies for an HNTE certificatethat it will be granted. Furthermore, because the PRC government may adjust from time to time the encouraged sectors and the specific conditions fordetermination of high-tech enterprises in response to the development of national economics and technology, we cannot assure you that Jiachenhong and Nuoyawill have their business operations continuously conform to the applicable conditions for determination of high-tech enterprises published by the government atany time. Once the business we are operating is considered by competent authorities to have substantive differences from the conditions for high-tech enterprisepublished by the government at that time, our certificates of high-tech enterprise may be revoked, and our position as a high-tech enterprise enjoying certain taxpreferential treatment may be lost. Any further legislative changes to the tax regime could further increase the enterprise income tax rate applicable to, or providefor other adverse tax treatments for, our principal subsidiaries in the PRC, the result of which would have a material adverse effect on our results of operationsand financial condition. We cannot assure you that Jiachenhong and Nuoya will be able to continue to enjoy our current preferential tax treatments and wecannot assure you that Lukou will be granted with preferential tax treatment. Under the PRC EIT Law, we and/or our non-PRC subsidiaries may be classified as a “resident enterprise” of the PRC. Such classification couldresult in PRC tax consequences to us, our non-PRC resident enterprise investors and/or our non-PRC subsidiaries. Under the EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. An enterprise established outside of the PRC with“de facto management bodies” within the PRC is considered a “resident enterprise”, meaning that it can be treated in a manner similar to a PRC enterprise forenterprise income tax purposes. The implementing rules of the EIT Law define “de facto management bodies” as the managing bodies that in practice exercise“substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise; however, itremains unclear whether the PRC tax authorities would deem our managing body or the managing body of any of our non-PRC subsidiaries as being locatedwithin the PRC. Due to the short history of the EIT Law and lack of applicable legal precedents, the PRC tax authorities determine the PRC tax residenttreatment of a non-PRC company on a case-by-case basis. If the PRC tax authorities determine that we are, or any of our non-PRC subsidiaries is, a “resident enterprise” for PRC enterprise income taxpurposes, a number of PRC tax consequences could follow. First, we and/or such subsidiary may be subject to the enterprise income tax at a rate of 25% onour and/or such subsidiary’s worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, under the EIT Law and itsimplementing rules, dividends paid between “qualified resident enterprises” are exempt from enterprise income tax. As a result, if we and each of our non-PRCsubsidiaries are treated as “qualified resident enterprises”, all dividends from our PRC subsidiaries to us (through our non-PRC subsidiaries) should beexempt from PRC tax. 30 If we or any of our non-PRC subsidiaries is determined to be a PRC “non-resident enterprise” and receives dividends from a subsidiary that isdetermined to be a PRC “resident enterprise” (assuming such dividends were considered sourced within the PRC), such dividends may be subject to a 10%PRC withholding tax. Any such tax on dividends could materially reduce the amount of dividends, if any, we could pay to our investors. If we are determined to be a “resident enterprise” under the EIT Law, this could result in a situation in which a 10% PRC tax is imposed on dividendswe pay to our enterprise (but not individual) investors that are not tax residents of the PRC (“non-resident investors”) and gains derived by them fromtransferring our ordinary shares, if such income is considered PRC-sourced income by the relevant PRC tax authorities. In such event, we may be required towithhold a 10% PRC tax on any dividends paid to our non-resident investors. Our non-resident investors also may be responsible for paying PRC tax at a rateof 10% on any gain realized from the sale or transfer of our ordinary shares in certain circumstances. We would not, however, have an obligation to withholdPRC tax with respect to such gain under the PRC tax laws. Moreover, the State Administration of Taxation (“SAT”) released Circular Guoshuihan No. 698 (“Circular 698”) on December 10, 2009 thatreinforces the taxation of certain equity transfers by non-resident investors through overseas holding vehicles. Circular 698 addresses indirect equity transfersas well as other issues. Circular 698 is retroactively effective from January 1, 2008. According to Circular 698, where a non-resident investor that indirectlyholds an equity interest in a PRC resident enterprise through a non-PRC offshore holding company indirectly transfers an equity interest in the PRC residententerprise by selling an equity interest in the offshore holding company, and the latter is located in a country or jurisdiction where the actual tax burden is lessthan 12.5% or where the offshore income of its residents is not taxable, the non-resident investor is required to provide the PRC tax authority in charge of thatPRC resident enterprise with certain relevant information within 30 days of the execution of the equity transfer agreement. The tax authorities in charge willevaluate the offshore transaction for tax purposes. In the event that the tax authorities determine that such transfer is abusing forms of business organizationand a reasonable commercial purpose for the offshore holding company other than the avoidance of PRC income tax liability is lacking, the PRC taxauthorities will have the power to re-assess the nature of the equity transfer under the doctrine of substance over form. If the SAT’s challenge of a transfer issuccessful, it may deny the existence of the offshore holding company that is used for tax planning purposes and subject the non-resident investor to PRC taxon the capital gain from such transfer. Since Circular 698 has a short history, there is uncertainty as to its application. We (or a non-resident investor) maybecome at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we (orsuch non-resident investor) should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results ofoperations (or such non-resident investor’s investment in us). If any PRC tax applies to a non-resident investor, the non-resident investor may be entitled to a reduced rate of PRC tax under an applicable incometax treaty and/or a deduction for such PRC tax against such investor’s domestic taxable income or a foreign tax credit in respect of such PRC tax against suchinvestor’s domestic income tax liability (subject to applicable conditions and limitations). Investors should consult their own tax advisors regarding theapplicability of any such taxes, the effects of any applicable income tax treaties, and any available deductions or foreign tax credits. Changes in PRC government policy on foreign investment in China may adversely affect our business and results of operations. Our subsidiaries in Beijing and Guangdong are foreign investment enterprises. As we conduct a significant portion of our businesses through foreigninvestment enterprises in the PRC, we are subject to restrictions on foreign investment policies imposed by the PRC law from time to time. Generally, foreigninvested enterprises enjoy more favorable tax treatment in the form of tax incentives and other preferential policies but are subject to more stringent restrictionsin their business operations. If we cannot obtain approval from relevant approval authorities to engage in businesses that become restricted or prohibited forforeign investors, we may be forced to sell or restructure the businesses that have become restricted or prohibited for foreign investment. If we are forced toadjust our business portfolio as a result of changes in government policy on foreign investment, our business, financial condition and results of operationswould likely be materially adversely affected. Our subsidiary, Lukou, of which 90% equity interest is held by our subsidiary, Jiachenhong, is not a foreigninvested enterprise under PRC Law. 31 Changes in PRC laws and regulations on labor and employee benefits may adversely affect our business and results of operations. As we conduct a significant portion of our business through our subsidiaries in China, we are subject to PRC laws and regulations on labor andemployee benefits. In recent years, the PRC government has implemented policies to strengthen the protection of employees and obligate employers to providemore benefits to their employees. In addition, an employment contract law came into effect in China on January 1, 2008. The PRC employment contract lawand related legislations require more benefits to be provided to employees, such as an increase in pay or compensation for termination of employment contracts.As a result, we expect to incur higher labor costs, which would have an adverse impact on our business and results of operations. Our management capability is confronted with challenges due to requirements by PRC government in relation to protection of personalinformation. In February 2009, the Chinese National People’s Congress promulgated the Criminal Law Amendment (7), which, among other things, provides thatany government, financial institutions, telecommunications organizations, or transportation, education, health care institutions or similar institutions or theiremployees who illegally sell or provide personal information which is obtained in the process of performing their duties would constitute a crime. In theordinary operations of our company, we have the opportunity to contact, obtain or be exposed to personal information of our subscribers and their closerelatives. If we or some of our employees are found to violate the criminal law by illegally providing or selling our subscribers’ private information, we will beconfronted with lawsuit and our reputation will be ruined. Therefore, we may have to devote more costs and management efforts to reinforce our internalcontrol system to ensure that our subscriber’s individual information will not be illegally disclosed. In spite of this, our subscribers’ information may also beunexpectedly disclosed, and in some cases, we may, based on due reasons and through lawful channels, provide our subscribers’ information to a thirdperson. There is no assurance that such third person would not violate the Criminal Law Amendment (7) and use the information it receives from us in theagreed manners. The law does not provide clearly whether we will be prosecuted or will be required to bear other legal responsibilities in the event the personwho receives personal information from us abuses such information. There is a possibility that we will be claimed by our subscribers for our failure inprotecting their private information and such claim may be supported by the court. We may also be subject to investigation from criminal judiciary or evencriminal penalties. Risks to our Shareholders The market price for our ordinary shares may be volatile. The market price for our ordinary shares is likely to be highly volatile and subject to wide fluctuations in response to factors including the following: ·actual or anticipated fluctuations in our quarterly operating results and changes or revisions of our expected results; ·changes in financial estimates by securities research analysts; ·restatements conforming to the applicable accounting standards; ·conditions in the markets for cord blood banking service; ·changes in the economic performance or market valuations of companies specializing in cord blood banking services; ·announcements by us and our affiliates or our competitors of new products, acquisitions, strategic relationships, joint ventures or capitalcommitments; ·addition or departure of our senior management and key research and development personnel; 32 ·fluctuations of exchange rates between the Renminbi and the U.S. dollar; ·litigation related to our intellectual property; ·changes in market or investors perception toward U.S. listed Chinese companies; ·unfounded accusations by investors or non-investors about us or other U.S. listed Chinese companies; ·release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares; and ·sales or perceived potential sales of our ordinary shares or instruments convertible into ordinary shares. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operatingperformance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ordinary shares. Future conversions of our outstanding debts obligations would result in dilution to our public shareholders. On April 27, 2012, we issued $65 million in aggregate principal amount of convertible notes to KKRCHL with a conversion price of $2.838 pershare. KKRCHL has the right to convert the convertible notes into our ordinary shares at any time within five years subsequent to the issuance date. In theevent the holders of such convertible notes fully convert their notes into our ordinary shares, the shares thus converted would represent approximately 23.9%of our enlarged outstanding share capital. On October 3, 2012, we issued $50 million in aggregate principal amount of convertible notes to Golden Meditech with a conversion price of $2.838per share. Golden Meditech has the right to convert the convertible notes into our ordinary shares at any time within five years subsequent to the issuance date.In the event the holders of such convertible notes fully convert their notes into our ordinary shares, the shares thus converted would represent approximately19.4% of our enlarged outstanding share capital. Cayman Islands law may be less protective of shareholder rights than the laws of the U.S. or other jurisdictions. We are registered by way of continuation under the laws of the Cayman Islands. Our corporate affairs are governed by our amended and restatedmemorandum and articles of association, the Companies Law (2012 Revision, as amended and revised), of the Cayman Islands and the common law of theCayman Islands. The rights of shareholders to take action against our directors and us, the rights of minority shareholders to institute actions, and thefiduciary responsibilities of our directors to us are to a large extent governed by the common law of the Cayman Islands. The common law of the CaymanIslands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the latter of which haspersuasive, but not binding, authority on a court in the Cayman Islands. Any shareholder of a company may petition the Court which may make a windingup order if the Court is of the opinion that it is just and equitable that the company should be wound up or, as an alternative to a winding up order, (a) anorder regulating the conduct of the company’s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complainedof by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorizing civil proceedingsto be brought in the name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for thepurchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the companyitself, a reduction of the company’s capital accordingly. The rights of our shareholders and the fiduciary responsibilities of our directors under CaymanIslands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, theCayman Islands has a less developed body of securities laws than the United States. As a result of all of the above, our shareholders may have more difficulty in protecting their interests in the face of actions taken by management, ourdirectors or principal shareholders than they would as a shareholder of a U.S. company. 33 Your ability to bring an action against us or against our directors and executive officers, or to enforce a judgment against us or them, will belimited. We are not incorporated in the United States. We conduct our business outside the United States, and substantially all of our assets are locatedoutside the United States. Most of our directors and executive officers are non-U.S. citizens and reside, and substantially all of the assets of those persons arelocated, outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the UnitedStates in the event that you believe that your rights have been infringed under U.S. securities laws or otherwise. Even if you are successful in bringing anaction of this kind, the laws of the Cayman Islands or the PRC may render you unable to enforce a judgment against our assets or the assets of our directorsand executive officers. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would (i) recognize or enforce judgments ofU.S. courts against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in theUnited States; or (ii) entertain original actions brought in the Cayman Islands or the PRC against us or our directors or officers predicated upon the securitieslaws of the United States or any state in the United States. If we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, andinvestor confidence and the market price of our ordinary shares may be adversely affected. Our reporting obligations as a public company place a significant strain on our management, operational and financial resources and systems. Weare a relatively young company with limited accounting personnel and other resources with which to address our internal controls and procedures. In thisregard, we must maintain financial and disclosure control procedures and corporate governance practices that enable us to comply, on a standalone basis, withthe Sarbanes-Oxley Act of 2002 and related Securities and Exchange Commission, or the SEC, rules. Failure to maintain the necessary controls andprocedures would make it difficult to comply with SEC rules and regulations with respect to internal control and financial reporting. We intend to continue totake further actions to continue to improve our internal controls. If we are unable to implement solutions to any weaknesses in our existing internal controls andprocedures, or if we fail to maintain an effective system of internal controls in the future, we may be unable to accurately report our financial results or preventfraud and investor confidence and the market price of our ordinary shares may be adversely impacted. We have instituted changes to our internal controls and management systems to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of2002. We have and may continue to engage external Sarbanes-Oxley consultants to advise us on Sarbanes-Oxley compliance issues. Section 404 requires us toperform an evaluation of our internal controls over financial reporting and file annual management assessments of their effectiveness with the SEC. Themanagement assessment to be filed is required to include a certification of our internal controls by our chief executive officer and chief financial officer. Inaddition to satisfying requirements of Section 404, we may also make improvements to our management information system to computerize certain manualcontrols, establish a comprehensive procedures manual for U.S. GAAP financial reporting, and increase the headcount in the accounting and internal auditfunctions with professional qualifications and experience in accounting, financial reporting and auditing under U.S. GAAP. Our auditors are required to attest to our evaluation of internal controls over financial reporting. Unless we maintain the adequacy of these controls assuch standards are modified or amended from time to time, we may not be able to comply with Section 404 of the Sarbanes-Oxley Act of 2002. As a result, ourauditors may be unable to attest to the effectiveness of our internal controls over financial reporting. This could subject us to regulatory scrutiny and result in aloss of public confidence in our management, which could, among other things, adversely affect the price of our ordinary shares and our ability to raiseadditional capital. We may not be able to pay any dividends on our ordinary shares. Under Cayman Islands law, we may only pay dividends out of our profits or our share premium account subject to our ability to service our debtsas they become due in the ordinary course of business. Our ability to pay dividends will therefore depend on our ability to generate sufficient profits. Wecannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. We have not paid any dividends in the past. Futuredividends, if any, will be at the discretion of our board of directors, subject to the approval of our shareholders, and will depend upon our results ofoperations, our cash flows, our financial condition, the payment of cash dividends from our subsidiaries to us, our capital needs, future prospects and otherfactors that our directors may deem appropriate. You should refer to “Information on the Company — Business Overview — Regulation — DividendDistributions” in this report for additional information regarding our current dividend policy for additional legal restrictions on the ability of our PRCsubsidiaries to pay dividends to us. 34 In addition, due to the failure of the Measures to define or interpret the terms “non-profit”, “for-profit” or “for the purpose of making a profit” as theyrelate to our business, we cannot assure you that the PRC government authorities will not request our subsidiaries to use their after-tax profits for their owndevelopment and restrict our subsidiaries’ ability to distribute their after-tax profits to us as dividends. We incurred additional costs as a result of being a public company in the United States, which affected our profits. We are subject to the reporting obligations of the SEC, which many consider to be more stringent, rigorous and expensive than operating a privatelyheld company. In particular: ·We incur costs in order to comply with U.S. corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 andthe Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as new rules implemented by the SEC and the Financial IndustryRegulatory Authority, or FINRA. ·We incur costs in implementing and verifying internal control procedures as required by section 404 of the Sarbanes-Oxley Act of 2002 and the rulesand regulations thereunder. ·We are required under U.S. rules and regulations to attract and retain additional independent directors to serve on our board of directors. We mayencounter difficulty in attracting and retaining qualified independent directors to serve on our board of directors and our audit committee. If we fail to attract and retain independent directors, we may be subject to SEC enforcement proceedings and delisting by the exchange on which weare listed at the time. The costs incurred to comply with various listing requirements, including but not limited to, U.S. corporate governance compliancerelated expenses, internal control expense, and directors and officers insurance related expenses may continue to increase in the future, and, in turn, willincrease our operating expenses and reduce our profit. The sale or availability for sale of substantial amounts of our ordinary shares could adversely affect their market price. Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales could occur, could adversely affect themarket price of our ordinary shares and could materially impair our future ability to raise capital through offerings of our ordinary shares. Volatility in the price of our ordinary shares may result in shareholder litigation that could in turn result in substantial costs and a diversion ofour management’s attention and resources. The financial markets in the United States and other countries have experienced significant price and volume fluctuations, and market prices ofhealthcare companies have been and continue to be extremely volatile. Volatility in the price of our ordinary shares may be caused by factors outside our controland may be unrelated or disproportionate to our results of operations. In the past, following periods of volatility in the market price of a public company’ssecurities, shareholders have frequently instituted securities class action litigation against that company. Litigation of this kind could result in substantialcosts and a diversion of our management’s attention and resources. 35 If we become directly subject to the scrutiny involving U.S.-listed Chinese companies, we may have to expend significant resources to investigateand/or defend the matter, which could harm our business operations, stock price and reputation. U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny by investors, financialcommentators and regulatory agencies. Much of the scrutiny has centered around financial and accounting irregularities and mistakes, a lack of effectiveinternal controls over financial reporting and, in many cases, allegations of fraud. As a result of the scrutiny, the publicly traded stock of many U.S. listedChina-based companies that have been the subject of such scrutiny has sharply decreased in value. Many of these companies are now subject to shareholderlawsuits and/or SEC enforcement actions that are conducting internal and/or external investigations into the allegations. If we become the subject of any suchscrutiny, whether any allegations are true or not, we may have to expend significant resources to investigate such allegations and/or defend our company. Suchinvestigations or allegations will be costly and time-consuming and distract our management from our business plan and could result in our reputation beingharmed and our stock price could decline as a result of such allegations, regardless of the truthfulness of the allegations. ITEM 4.INFORMATION ON THE COMPANY A.History and Development of the Company We are a Cayman Islands company registered by way of continuation in the Cayman Islands. CCBC was formed through a business combination (the “Business Combination”), which involved the merger of Pantheon China Acquisition Corp.(“Pantheon”) with and into Pantheon Arizona Corp. (“Pantheon Arizona”), then a wholly owned subsidiary of Pantheon formed for the purpose of effecting amerger, with Pantheon Arizona surviving the merger (the “Merger”) and the conversion and continuation of Pantheon Arizona’s corporate existence fromArizona to the Cayman Islands (the “Redomestication”). Immediately following the Redomestication, the participating shareholders of approximately 93.94%of the issued and outstanding shares of CCBS completed a share exchange with Pantheon Arizona, and Pantheon Arizona changed its name to CCBC,resulting in CCBS becoming a subsidiary of CCBC and the participating shareholders becoming holders of CCBC’s ordinary shares (the “Share Exchange”).Subsequent to the Share Exchange, CCBC entered into agreements to exchange 3,506,136 newly issued CCBC shares for the remaining 6.06% of the issuedand outstanding shares of CCBS on terms substantially similar to those of the Business Combination, resulting in CCBS becoming our wholly ownedsubsidiary. In connection with the Business Combination, we agreed to issue up to 9,000,000 ordinary share purchase warrants to our management pursuantto a warrant incentive scheme, subject to our achieving certain performance thresholds. Notwithstanding achievement of these thresholds, no warrants wereever issued, and on July 14, 2010 the scheme was cancelled. CCBS was incorporated on January 17, 2008 under the Companies Law (2012 Revision) of the Cayman Islands to become the direct holdingcompany of CSC Holdings. CCBS has three operating subsidiaries in China: Jiachenhong, Nuoya and Lukou. CCBS holds an indirect 100.0% interest ineach of Jiachenhong and Nuoya and an indirect 90.0% interest in Lukou. In addition, CCBS held an indirect 14.1% interest in CBB, a provider of cord bloodbanking services with operations in India, Indonesia and the Philippines; and an indirect 10.5% interest in Cordlife Singapore, a provider of cord bloodbanking services with operations in Singapore and Hong Kong. Cordlife Singapore was listed on the Singapore Exchange on March 29, 2012. Immediately following the Business Combination and the share exchange with CCBS’ remaining shareholders, Golden Meditech owned 46.3% ofCCBC’s issued shares through its wholly-owned subsidiary, GM Stem Cells. Golden Meditech is a publicly traded company on the Hong Kong StockExchange and is a China-based healthcare company with investment in the cord blood banking business via equity interests in CCBC. Golden Meditech isnot engaged in any activities or businesses that compete or are likely to compete with CCBC’s business. The participating shareholders of CCBS (excludingGolden Meditech) owned 45.8% of CCBC’s issued shares, the public shareholders owned approximately 0.2% of CCBC’s issued shares, the managementteam of Pantheon prior to the Business Combination owned 2.0% of CCBC’s issued shares and the shareholders who exercised the CSC options for shares ofCCBC owned 5.7% of CCBC’s issued shares. 36 The Business Combination was accounted for in accordance with U.S. GAAP as a capital transaction in substance. Pantheon was treated as the“acquired” company for financial reporting purposes. This determination was primarily based on CCBS comprising the ongoing operations of the combinedentity, the senior management of CCBS continued as the senior management of the combined company and CCBS shareholders retaining the majority ofvoting interests in the combined company. For accounting purposes, the Business Combination was treated as the equivalent of CCBS issuing stock andwarrants for the net assets of Pantheon, accompanied by a recapitalization. Operations of the combined entity prior to the Business Combination are those ofCCBS. The remaining 6.06% issued and outstanding shares of CCBS not exchanged in the Business Combination were recorded as redeemable non-controlling interest. Upon the completion of the share exchange with the remaining 6.06% CCBS shares in August 2009, the carrying amount of such non-controlling interest was adjusted to reflect the change in CCBC’s ownership interest in CCBS. Any difference between the fair value of the CCBC sharesissued and the amount by which the non-controlling interest is adjusted, together with any transaction costs incurred, was recognized in equity attributable toCCBC. On November 24, 2009, CCBC completed a public offering of 3,305,786 ordinary shares at a public offering price of $6.05 per share. An over-allotment issuance of 495,867 ordinary shares was completed in January 5, 2010. Total gross proceed raised (including the over-allotment issuance)amounted to $23 million. The proceeds were intended to be used for the expansion into new geographical markets, including applications for new licenses andacquisitions and investments, and for the construction and upgrading of facilities in existing geographical markets. On November 19, 2009, CCBC waslisted on the New York Stock Exchange (“NYSE”) with a ticker symbol “CO”. In May 2010, we invested in a 19.9% equity interest in Qilu, the exclusive cord blood banking operator in the Shandong province. In June 2010, we entered into an agreement to underwrite the Cordlife’s rights issue which amounted to AUD11.6 million. On July 4, 2010, weterminated the underwriting agreement and were released from such obligation but continued to participate in the rights issue and took up our share entitlementson a pro-rata basis. The rights issue was completed on July 26, 2010 and we subscribed for 6,841,666 shares of Cordlife at a total cost of approximatelyAUD2.0 million. Prior to the restructuring of Cordlife, we paid an aggregate of AUD12.4 million as consideration to acquire for a total of 24,366,666 sharesin Cordlife. After the restructuring of Cordlife, we hold 24,366,666 shares in CBB which represented 14.1% equity interest as of March 31, 2012; CordlifeSingapore was listed on the Singapore Exchange subsequently on March 29, 2012, and we hold 24,366,666 shares in Cordlife Singapore which represented10.5% equity interest as of March 31, 2012 and we neither purchase or dispose our shares in CBB or Cordlife Singapore during year ended March 31, 2013. On September 15, 2010, we announced the execution of a framework agreement to form a non-wholly owned subsidiary, Lukou, with the ZhejiangProvincial Blood Center. The new entity which completed business registration and regulatory approval procedures in February 2011, is 90% owned andcontrolled by us. On November 5, 2010, we completed a follow-on public offering of 7,000,000 shares at $4.50 per share. Total gross proceeds of $31.5 millionraised are being used in building out our Zhejiang operation and for general working capital purposes. On December 10, 2010, we completed a warrant exchange offer to simplify our capital structure, which allowed warrant holders to receive oneordinary share for every eight warrants outstanding. We issued an aggregate of 1,627,518 ordinary shares upon closing of the exchange offer, equal toapproximately 2.2% of shares outstanding as of December 10, 2010, in exchange for 13,020,236 warrants. Any remaining warrants outstanding that were notexercised expired on December 13, 2010. On April 27, 2012 we completed the sale of $65 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share to KKRCHL. The notes are senior unsecured obligations, mature on April 27, 2017and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any time or times on or after the issuance date, inwhole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significant corporate events. Interest accrues onunconverted portion of the notes at the rate of 7% per annum. On the maturity date, we are obligated to pay a redemption amount calculated to provide a 12%internal rate of return (inclusive of interest) on the unconverted portion of the notes. From and after the thirtieth day following the occurrence, and during thecontinuance, of an event of default under the notes, the interest rate will be increased to twenty-two and one-half percent (22.5%) per annum. 37 Events of default under the notes include: ·the suspension from trading or failure of our ordinary shares to be listed on the New York Stock Exchange or another eligible market for a period often consecutive trading days or for more than an aggregate of thirty trading days in any 365-day period, except where such suspension or failure ofthe ordinary shares to be listed is due to a technological problem; ·failure to deliver ordinary shares upon conversion within five trading days or notice of its intention not to comply with a request for conversion; ·failure to pay to the holder any amount of principal or interest when and as due for a period of at least fifteen days; ·continuance of any default which has not been cured or waived for a period of thirty days under, or acceleration following default prior to maturityof, any indebtedness in excess of $7,000,000 of us or any subsidiary (other than with respect to the notes); ·certain events of bankruptcy involving us or any subsidiary; ·breaches of any covenant or other term or condition of the note in any material respect, for thirty days following us having become aware of itsoccurrence; ·an event or series of events that has or reasonably could be expected to have, a material adverse effect if such consequences have not been curedwithin thirty days; or ·a final judgment or judgments for the payment of money aggregating in excess of $10,000,000 are rendered against us or any subsidiary and whichjudgments are not, within thirty days after the entry thereof, vacated, bonded, discharged or stayed pending appeal, or are not discharged withinthirty days after the expiration of any stay. Additional payments on the notes will be made in the event we pay any cash dividends in excess of the interest payable on the notes on an asconverted basis for any financial year. Any notes held by KKRCHL are also entitled to a special redemption payment in the event we breach certain covenantsor Golden Meditech or certain members of our senior management violate the terms of certain lock-up agreements they have entered into in favor of KKRCHL. The notes contain customary ongoing covenants, including negative covenants, and any amendment or waiver thereof requires the affirmativeconsent of a majority in interest of the holders of all outstanding notes, provided that no such amendment or waiver may affect the principal or interest payableunder the notes or change the maturity thereof or any conversion or redemption rights to which the notes are entitled without the affirmative vote or writtenconsent of each holder of the notes affected thereby. So long as the investment value maintained by KKRCHL exceeds $20 million (calculated with reference tothe notes and any ordinary shares issued upon conversion thereof), KKRCHL will be entitled to designate one of the members of CCBC’s board of directors,have access to certain confidential information of the company and be entitled to a right of first refusal regarding future financings by CCBC. In addition, solong as such investment value is maintained by KKRCHL, CCBC will not, without the affirmative consent of KKRCHL: ·change the scope of the principal business of CCBC; approve the development of any new line of business; or enter into any business other thansuch principal business; ·except for any amendment required by law, amend, modify or waive any provisions of its charter documents which may reasonably be deemed toaffect the notes or the rights of the holders under the notes; ·acquire or dispose of assets other than in the ordinary course of business; 38 ·enter into any joint venture or partnership with, or otherwise acquire any interest in the equity securities of, any person other than a wholly-ownedsubsidiary; ·change the size or composition of our Board of Directors or the board of directors of any subsidiary or any committee thereof; ·approve any budget or business plan of CCBC or any material subsidiary or any modification thereto; ·approve the employment or termination of, or compensation agreements for any senior officer, or determine the compensation (including withoutlimitation cash and stock option compensation) of any director or director of a subsidiary or any member of a committee of our Board of Directors orthe board of directors of any subsidiary; ·incur any indebtedness (other than amounts payable under the notes) such that the outstanding indebtedness is in excess of $22 million (or itsequivalent in other currencies) in the aggregate for the company on a consolidated basis; ·change CCBC’s auditors to a firm not considered one of the “Big Four” accounting firms as of the date of the issuance of the notes, or any successorthereto; or ·redeem or repurchase of any equity securities of CCBC or any subsidiary except pursuant to CCBC’s existing repurchase program. In August 2012, we entered into a share purchase agreement with Cordlife Singapore in which we agreed to sell to Cordlife Singapore, and CordlifeSingapore agreed to purchase, 7,314,015 of our ordinary shares for a total purchase price of approximately $20.8 million. Contemporaneously, CSC Southentered into a shares repurchase agreement with Cordlife HK to repurchase the 10% of its shares held by Cordlife HK for approximately $16.8 million. Uponcompletion of the transactions on November 12, 2012, Nuoya became our indirect wholly owned subsidiary and Cordlife Singapore acquired 7,314,015 ofour ordinary shares, representing approximately 10% of our issued ordinary shares as of the closing date. In September 2012, we entered into a convertible note purchase agreement regarding the proposed issuance and sale of $50 million in aggregateprincipal amount of 7% senior unsecured convertible notes, which notes shall be convertible into ordinary shares at a conversion price of $2.838 per share toGolden Meditech. The transactions were completed on October 3, 2012 and the notes are senior unsecured obligations, mature on October 3, 2017 and are notredeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any time or times on or after the issuance date, in whole orpart, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significant corporate events. Interest accrues onunconverted portion of the notes at the rate of 7% per annum. On the maturity date, we are obligated to pay a redemption amount calculated to provide a 12%internal rate of return (inclusive of interest) on the unconverted portion of the notes. From and after the thirtieth day following the occurrence, and during thecontinuance, of an event of default under the notes, the interest rate will be increased to twenty-two and one-half percent (22.5%) per annum. Events of default under the notes include: ·the suspension from trading or failure of our ordinary shares to be listed on the New York Stock Exchange or another eligible market for a period often consecutive trading days or for more than an aggregate of thirty trading days in any 365-day period, except where such suspension or failure ofthe ordinary shares to be listed is due to a technological problem; ·failure to deliver ordinary shares upon conversion within five trading days or notice of its intention not to comply with a request for conversion; ·failure to pay to the holder any amount of principal or interest when and as due for a period of at least fifteen days; ·continuance of any default which has not been cured or waived for a period of thirty days under, or acceleration following default prior to maturityof, any indebtedness in excess of $7,000,000 of us or any subsidiary (other than with respect to the notes); 39 ·certain events of bankruptcy involving us or any subsidiary; ·breaches of any covenant or other term or condition of the note in any material respect, for thirty days following us having become aware of itsoccurrence; ·an event or series of events that has or reasonably could be expected to have, a material adverse effect if such consequences have not been curedwithin thirty days; or ·a final judgment or judgments for the payment of money aggregating in excess of $10,000,000 are rendered against us or any subsidiary and whichjudgments are not, within thirty days after the entry thereof, vacated, bonded, discharged or stayed pending appeal, or are not discharged withinthirty days after the expiration of any stay. Additional payments on the notes will be made in the event we pay any cash dividends in excess of the interest payable on the notes on an asconverted basis for any financial year. The notes contain customary ongoing covenants, including negative covenants, and any amendment or waiver thereof requires the affirmativeconsent of a majority in interest of the holders of all outstanding notes, provided that no such amendment or waiver may affect the principal or interest payableunder the notes or change the maturity thereof or any conversion or redemption rights to which the notes are entitled without the affirmative vote or writtenconsent of each holder of the notes affected thereby. So long as the investment value maintained by Golden Meditech exceeds $20 million (calculated withreference to the notes and any ordinary shares issued upon conversion thereof), Golden Meditech will be entitled to designate one of the members of CCBC’sboard of directors, have access to certain confidential information of the company and be entitled to other rights. In addition, so long as such investment valueis maintained by Golden Meditech, CCBC will not, without the affirmative consent of Golden Meditech: ·change the scope of the principal business of CCBC; approve the development of any new line of business; or enter into any business other thansuch principal business; ·except for any amendment required by law, amend, modify or waive any provisions of its charter documents which may reasonably be deemed toaffect the notes or the rights of the holders under the notes; ·acquire or dispose of assets other than in the ordinary course of business; ·enter into any joint venture or partnership with, or otherwise acquire any interest in the equity securities of, any person other than a wholly-ownedsubsidiary; ·change the size or composition of our Board of Directors or the board of directors of any subsidiary or any committee thereof; ·approve any budget or business plan of CCBC or any material subsidiary or any modification thereto; ·approve the employment or termination of, or compensation agreements for any senior officer, or determine the compensation (including withoutlimitation cash and stock option compensation) of any director or director of a subsidiary or any member of a committee of our Board of Directors orthe board of directors of any subsidiary; ·incur any indebtedness (other than amounts payable under the notes) such that the outstanding indebtedness is in excess of $87 million (or itsequivalent in other currencies) in the aggregate for the company on a consolidated basis; ·change CCBC’s auditors to a firm not considered one of the “Big Four” accounting firms as of the date of the issuance of the notes, or any successorthereto; or ·redeem or repurchase of any equity securities of CCBC or any subsidiary except pursuant to CCBC’s existing repurchase program. In December 2012, Favorable Fort entered into a shares purchase agreement with Cordlife Services, pursuant to which Favorable Fort agreed torepurchase the 17% of its outstanding ordinary shares not indirectly owned by CCBC from Cordlife Services for a total purchase price of approximately $8.7million. Upon completion of the transaction in February 7, 2013, Favorable Fort became an indirect wholly owned subsidiary of CCBC and CCBC’seffective equity interest in Qilu increased from 19.9% to 24.0%. 40 B.Business Overview Overview We are the leading provider of cord blood banking services in China. We provide cord blood processing and storage services for expectant parentsinterested in capturing the opportunities made available by evolving medical treatments and technologies such as cord blood transplants. We also preserve cordblood units donated by the public, provide matching services on such donated units and deliver matching units to patients in need of transplants. Our Beijing-based subsidiary, Jiachenhong, was the operator of the first licensed cord blood bank in China. The PRC government only grants one cord blood bankinglicense per province or municipality. According to the Notice on Extension of Time Limit on Planning and Establishment of the Cord Blood Bank publishedby the MOH in February 2011, the PRC government intends to authorize up to ten cord blood banks. To date, it has authorized seven such licenses. Ouroperations currently benefit from multiple exclusive cord blood banking licenses issued in China, including our licenses for Beijing, Guangdong andZhejiang. We also have a 24.0% equity interest in Qilu, the operator of the exclusive licensed cord blood bank in the Shandong province. Our cord blood banking network is the largest in China. The aggregate number of births in our operating regions including Beijing, Guangdongand Zhejiang was estimated to be approximately 1.8 million in 2011, accounting for approximately 45% of the total newborn population in the seven provincesand municipalities that have been authorized or issued cord blood banking licenses to date, according to the National Bureau of Statistics of China. We believeour leading market position and track record of growing our subscriber base positions us well to continue to expand our presence in China. According to theNational Bureau of Statistics of China, the nation has a newborn population of approximately 16.1 million in 2011; and according to the CIA WorldFactbook, China had the second largest newborn population in the world. Cord blood banking as a precautionary healthcare measure is still a relatively newconcept in China, with penetration rates that we estimate to be less than 1% of China’s overall newborn population. The estimated penetration rate in ouroperating regions is approximately 3% in both 2011 and 2010 (based on the number of new subscriber sign-ups for the fiscal year ended March 31 divided bythe estimated number of newborns of the corresponding calendar year according to the China Statistical Yearbook). We expect the demand for cord bloodbanking services will continue to grow due to factors such as rapidly rising disposable income in the PRC, China’s one-child policy, and increasing publicawareness of the benefits of cord blood and hematopoietic stem cell related therapies. Furthermore, we are a significant shareholder with 14.1% (as of March 31, 2013) equity interest in CBB, which is listed on the Australian SecuritiesExchange and operates in developing markets such as Indonesia, India and the Philippines and we are also a significant shareholder with 10.5% (as ofMarch 31, 2013) equity interest in Cordlife Singapore, which operates in mature markets such as Singapore and Hong Kong and is listed on the SingaporeExchange. Such strategic positioning provides us the strategic exposure in attractive markets such as India and Indonesia and strategic presence in maturemarkets such as Singapore and Hong Kong respectively. We have developed a highly effective sales and marketing platform that has enabled us to consistently grow our cord blood subscriber base in themarkets we serve. Our 525-person sales team has direct access to expectant parents through exclusive collaboration with 290 hospitals in Beijing, Guangdongand Zhejiang. We also cooperate with local government family planning agencies and utilize a variety of marketing programs, including media advertising,seminars and pre-natal classes, to further educate expectant parents on the benefits of cord blood banking. Our accumulated samples deposited by subscribershave grown from 23,322 in March 2007 to 311,982 in March 2013. We generate substantially all of our revenues from subscription fees. The standard payment arrangement for our services consists of processing feespayable at the time of subscription and storage fees payable by our subscribers on an annual basis for as long as the contracts remain effective, whichtypically have a contract period of 18 years. The contracts can be terminated early by the parents at each anniversary of the contract or further extended, at theoption of the children, after reaching adulthood. This payment structure provides us with a steady stream of recurring revenue and cash flow. For the yearended March 31, 2013, storage revenue represented 24.6% of our total revenues. 41 We recorded revenues and net income of RMB526.1 million ($84.7 million) and RMB119.6 million ($19.3 million), respectively, during our fiscalyear ended March 31, 2013. Our Strengths We are the leading provider of cord blood banking services in China. We believe the following strengths differentiate us from our competitors andenable us to maintain our leadership position: Leading Market Presence. We are the first and largest cord blood banking operator in China with an exclusive presence in Beijing, Guangdong andZhejiang, and an investment in Shandong. As of the date of this report, only seven licenses have been authorized in China, and we are the only market playerwith multiple licensed cord blood banks and the only China operator with a pan-Asian platform. Amongst cord blood banking operators in China, we havethe longest history of delivering cord blood banking services and have established strong brand recognition, which has allowed us to grow our subscriber basefrom 23,322 in March 2007 to 311,982 in March 2013. We believe that our leadership and track record of accumulated subscriber growth makes us anattractive strategic partner for license holders and applicants and positions us well to continue to grow our leading position. Extensive Hospital Network. We provide our services through collaboration with 290 hospitals in Beijing, Guangdong and Zhejiang. Our extensivehospital network provides us with a platform for performing cord blood collection services and allows our 525-person sales force to have direct access toexpectant parents. We expect the number of our collaborating hospitals to continue to grow, which will help us further penetrate the markets we currently serve.Our collaborating hospitals and dedicated sales team have enabled us to establish ourselves as a quality cord blood banking service provider in thecommunities we operate. Well-Developed and Effective Marketing Program. We have developed a comprehensive marketing program that aims to increase cord bloodbanking penetration in the markets we operate by educating expectant parents on the benefits of cord blood, including the following: ·Joint marketing efforts with our collaborating hospitals such as educational sessions at pre-natal classes and one-on-one discussions with our salesforce, ·Cooperative relationships with several government agencies, including the family planning commission, and ·An extensive portfolio of promotional materials, including billboards and newsletters that offer detailed information on the importance of cord bloodand hematopoietic stem cell therapy. Advanced Infrastructure in Place to Meet Market Demand. We maintain an advanced infrastructure for the transportation, testing, processingand storage of cord blood. Our facilities in Beijing and Guangdong are equipped with state-of-the-art laboratories, storage cylinders, automated monitoringsystems and advanced equipment to handle the testing, processing and storage of cord blood. With our existing and planned state-of-the-art equipment andadvanced infrastructure in Beijing and Guangdong, we believe we have the ability to meet increasing market demand. In addition, the cord blood bankoperated by our Beijing subsidiary has been granted the AABB Accreditation with regard to cord blood processing and storage services. Experienced Management Team. Our core management team consists of experienced managers and preeminent medical experts, all of whom havein-depth knowledge and significant experience in one or more emerging healthcare sectors in China. Ms. Ting Zheng, our Chief Executive Officer, has over tenyears of experience in the field of corporate strategy in China’s healthcare industry. Mr. Albert Chen, our Chief Financial Officer, is a CFA charterholder andhas over ten years of experience in the pharmaceutical and healthcare industries. Ms. Yue Deng, our Chief Executive Officer in the Beijing division, and Ms.Rui Arashiyama, our Chief Executive Officer in the Guangdong and Zhejiang divisions, each has over ten years of sales and marketing experiences in Chinaand in-depth knowledge about China’s consumer market and regulatory environment. Ms. Xin Xu, our Chief Technology Officer, has over twenty years ofexperience in Cryobiology research and lectured Cryobiology at Beijing Medical University. We believe our management’s complementary backgrounds,extensive experience and in-depth knowledge of China’s healthcare sector provide a strong foundation for our future growth. 42 Our Strategies The cord blood banking industry in China is at an early stage of development with significant growth opportunities, due to China’s large population,one-child policy and rapid economic growth. Our goal is to significantly grow our business and build a reputable, committed, caring and socially responsiblehealthcare company through the following strategies: Further Penetrate Existing Markets. We plan to further increase cord blood banking penetration in our existing markets by expanding ourhospital network, broadening our sales and marketing team, and further promoting public understanding of the benefits of cord blood. Over the years, wehave successfully expanded our network of collaboration with hospitals and aggregate subscriber base to 290 hospitals and 311,982 subscribers as ofMarch 31, 2013. Our operational track record and in depth understanding of our markets allows us to further increase penetration and grow our existingmarkets. Acquire the Right to Operate Additional Cord Blood Banks and Invest in Other Cord Blood Banks in China. We intend to acquire the rightto operate additional cord blood banks and invest in other cord blood banks in China through investments or acquisitions of existing operators of licensedcord blood banks and license applicants. We successfully completed the acquisition of a 90% ownership stake in Nuoya, which operates the GuangdongCord Blood Bank, in May 2007 and we further acquired the remaining 10% ownership stake in Nuoya in November 2012. In May 2010, we acquired a19.9% investment in Qilu, which operates the Shandong Cord Blood Bank, and we further increased our equity interest in Qilu to 24.0% in February 2013.In February 2011, we established a 90% owned subsidiary, Lukou, which exclusively operates the licensed cord blood bank in the Zhejiang province. Webelieve that our experience in license acquisition and our track record of growing our subscriber base and hospital network positions us to be the preferredstrategic partner for license holders and applicants. Expand Overseas Presence. We believe there are significant opportunities to expand our cord blood banking services into other attractive marketswithin Asia. We are a significant shareholder with a 14.1% equity interest in CBB (as of March 31, 2013) and a 10.5% equity interest in Cordlife Singapore(as of March 31, 2013). Cordlife Singapore is listed on the Singapore Exchange while CBB is listed on the Australian Securities Exchange. CBB and CordlifeSingapore are the leading cord blood banking operators in Asia, with operations in Singapore, Hong Kong, India, Indonesia and the Philippines, countrieswith significant populations and annual births of approximately 43,000, 54,000, 24.7 million, 4.4 million and 2.6 million, respectively, according to the CIAWorld Factbook. We plan to leverage on and further enhance our collaboration with CBB and Cordlife Singapore to gradually expand our presenceinternationally. We believe our extensive expertise and track record will allow us to successfully become a leading pan-Asian cord blood banking platform. Our Revenue Model The payment for our services consists of processing fees payable at the time of subscription or in certain circumstances by installments over atypical contract period of 18 years, depending on the payment option elected by subscribers, and 18 years of storage fees payable by our subscribers by alump sum payment at the time of subscription or on an annual basis for as long as the contracts remain effective. For further information of our variouspayment options, please refer to “Operating and Financial Review and Prospects — Factors Affecting Our Financial Condition and Results of Operations —Payment Methods for Subscribers”. Our payment structure enables us to enjoy a steady stream of long-term cash inflow. We expect such long-term cash flowto continue to increase as our subscriber base continues to grow. In addition, we generate a portion of revenue from the fees we charge in providing matchingunits we collect from public donors to patients in need of transplants. Our direct costs consist of fixed costs and variable costs. Fixed costs primarily relate to depreciation of our storage facilities and rental expenses.Variable costs primarily relate to labor and raw material consumption. For the years ended March 31, 2011, 2012 and 2013, depreciation expenses, our mostsignificant fixed cost, accounted for 15.2%, 15.6% and 16.3%, respectively, of our direct costs (cost of revenue), and rental expenses accounted for 3.2%,2.8% and 1.1%, respectively, of our direct costs. 43 Our Competitive Strengths Early Entrant Advantage with Multiple Cord Blood Banking Licenses in China. We are the first operator with licensed cord blood bank inChina. We operate licensed cord blood banks in Beijing, Guangdong and Zhejiang. To date, the PRC government authorities has issued seven cord bloodbanking licenses in China. As the cord blood banking industry in China is at an early stage of development, we enjoy certain competitive advantages as anearly entrant, including the following: ·Our Beijing-based subsidiary, Jiachenhong, was the first operator of the licensed cord blood bank in China. Since we have the longest operatinghistory among a limited number of operators in China, we assist PRC governmental authorities whenever possible by providing our inputs andopinions in hopes of heightening industry standards and improving the regulatory framework for the cord blood banking industry in China. ·We have developed a reputable brand in delivering quality cord blood banking services. We believe that we have achieved consistently good results interms of preserving our subscribers’ cord blood deposits. We have provided more than 800 matching units of cord blood to patients in need oftransplants and for supplementary medical treatment since commencement of operations. ·We operate the licensed cord blood banks to provide cord blood banking in regions such as Beijing, Guangdong and Zhejiang, three out of the sevenlicensed regions in which the operation of cord blood banks is permitted in China. The PRC government plans to issue cord blood banking licensesin up to three additional regions by 2015. As the licensing process requires applicants to demonstrate their ability to preserve cord blood for use instem cell transplants, we believe our familiarity with the regulatory framework, combined with our established track record and reputable brand,gives us a competitive advantage in obtaining additional licenses in the future. Extensive Hospital Networks in Our Existing Markets. We provide our services through collaboration with selected hospitals in our operatingregions. Our hospital networks offer us the platform for performing cord blood collection services and undertaking a significant portion of our sales andmarketing activities. Our focus on building an extensive hospital network by collaborating with hospitals has contributed to our successful growth. We haveestablished collaborative relationships with 290 hospitals in Beijing, Guangdong and Zhejiang as of March 31, 2013. We expect the number of ourcollaborating hospitals to continue to grow, which will help us further penetrate our target markets. Well-Developed and Effective Marketing Program. Cord blood banking as a precautionary healthcare measure is a relatively new concept inChina. To increase penetration in our existing markets, we have developed a comprehensive marketing program targeting expectant parents, the general public,government agencies and non-profit organizations, including the following: ·We undertake various marketing efforts, including educational sessions for expectant parents at pre-natal classes, one-on-one discussions withexpectant parents, and the assignment of designated staff members to answer questions from expectant parents. To ensure quality services we requirethese staff members to complete a training program before approaching prospective subscribers. ·We educate the public on the benefits of cord blood banking through an extensive portfolio of promotional materials, billboards and newsletters thatdiscuss in detail the importance of cord blood and hematopoietic stem cell therapy in the treatment of blood-related health conditions. ·We maintain cooperative relationships with several government agencies, such as Beijing Population and Family Planning Commission, to educatenewly-weds about the benefits of cord blood banking services. Advanced Infrastructure in Place to Meet Market Demand. We maintain an advanced infrastructure for the transportation, testing, processingand storage of cord blood and have devoted considerable management and financial resources in upgrading and improving our facilities and supportinginfrastructure. Our facilities in Beijing and Guangdong are equipped with state-of-the-art laboratories, storage cylinders, automated monitoring systems andadvanced equipment to handle the testing, processing and storage of cord blood. In addition, the cord blood bank operates by our Beijing subsidiary has beengranted the AABB Accreditation with regard to cord blood processing and storage services. The total number of units stored at our cord blood banks amountedto 202,449, 260,879 and 338,507 as of March 31, 2011, 2012 and 2013, respectively. 44 Capable and Experienced Management Team. Our core management team consists of experienced managers and preeminent medical experts, allof whom have in-depth knowledge and solid experience in one or more emerging healthcare sectors in China. Golden Meditech is a publicly traded company onthe Hong Kong Stock Exchange Main Board with a track record of operating in several emerging healthcare sectors in China. Due to its long operating historyin the healthcare industry, Golden Meditech has established relationships with a large number of hospitals, distributors and regulatory agencies, whichprovide us valuable resources to develop our hospital network. As a distinct entity, we operate all aspects of our business without undue reliance on GoldenMeditech and have independent access to suppliers and distribution channels. Our Cord Blood Banking Services Our cord blood banking operations primarily consist of our subscription services, which involve the preservation of cord blood for expectant parentsas a precautionary healthcare measure for the benefit of their children and other family members. Our subscription services accounted for 99.4%, 99.5% and99.6% of our revenues for the years ended March 31, 2011, 2012 and 2013, respectively. We have developed hospital networks by entering into collaborative agreements with hospitals located in Beijing, Guangdong and Zhejiang, where weoperate licensed cord blood banks. Our collaborating hospitals collect the cord blood of the newborns of our subscribers and we pay them handling fees for thecollection services provided. Our subscribers are required to enter into a subscription contract with us prior to the birth of their children. The contract provides for the collectionof cord blood from their newborns at one of our collaborating hospitals and preservation of the cord blood for an initial storage period up to 18 years. On the18th anniversary, the child, who will have reached adulthood, will have the exclusive right to decide whether to extend the subscription for our services or torelinquish ownership of his or her cord blood for donation to our banks. Prior to January 1, 2008, we offered our subscribers three payment options: (1) payment of a one-time processing fee of RMB5,000 and a storage feeof approximately RMB500 payable each year for a period up to 18 years; (2) payment of a one-time processing fee of RMB5,000 and an annual storage fee ofapproximately RMB500 in one lump sum with a discount at 20% on the total storage fees payable over the contract period; and (3) payment of a processing feeat an installment of RMB1,100 at the time of subscription and an annual installment of RMB300 payable each year at each anniversary of the subscription, inwhich case our subscribers pay an additional amount of RMB1,200 compared to payment options (1) and (2), as well as payment of the storage fee ofapproximately RMB500 payable each year for a period up to 18 years. Between January 1, 2008 and January 31, 2009, we suspended payment option (2) toour subscribers while we continued to offer payment options (1) and (3) to our subscribers. Starting from February 1, 2009, subscribers can choose to makean upfront payment for 18 years of storage fees but without any discount, together with the one-time processing fee of RMB5,000. On April 1, 2011, weincreased such processing fee to RMB5,800. Effective from April 1, 2011, subscribers in Beijing who choose payment option (2) will pay a one-time processing fee of RMB5,800 and an upfrontpayment for 18 years of storage fees (approximately RMB500 x 18) with no discount. Effective from April 1, 2011, subscribers in Guangdong who choosepayment option (2) will pay an upfront payment for 18 years of storage fees (approximately RMB500 x 18) and a one-time processing fee of RMB4,640,representing a 20% discount of the one-time processing fee. Also, effective from April 1, 2011, subscribers in Beijing who choose payment option (3) will pay an initial payment of RMB1,250 at the signing ofthe contract and an annual payment of RMB350 each year starting from the second year until the end of the eighteenth year, resulting in a surcharge ofRMB1,400 to the amount of processing fees payable under the contract. Subscribers in Guangdong who choose payment option (3) between April 1, 2011 andJune 30, 2011, will pay the processing fee by four annual installments. The first, second, third and fourth installment payments are RMB1,800, RMB1,700,RMB1,600 and RMB1,200 respectively. This resulted in a surcharge of RMB500 to the amount of processing fees payable under the contract. From July 1,2011 onward, subscribers in Guangdong who choose to pay processing fee by installments (payment option (3)) will make an initial payment RMB1,460,follow by four annual payments of RMB1,210 each, representing a surcharge of RMB500 to the amount of processing fees payable under the contract.Subscribers in Beijing and Guangdong choosing this option will also need to pay the storage fee which is approximately RMB500 per annum for a period of18 years. 45 Effective from April 1, 2013 in Guangdong and Zhejiang, and from May 1, 2013 in Beijing, the one-time processing fee and annual storage fee areincreased to RMB6,800 and approximately RMB860 respectively. Subscribers who choose payment option (2) will pay a one-time processing fee ofRMB6,800 and an upfront payment for 18 years of storage fees (approximately RMB602 x 18), representing a discount of RMB4,640 of the total storage feespayable over the contract period. Effective from May 1, 2013, subscribers in Beijing who choose payment option (3) will pay a one-time processing fee of RMB6,800 in two equalinstallments, with one payment at the time of subscription and the other at the second anniversary of the subscription. The storage fee will be paidcommencing on the third anniversary of subscription in subsequent four yearly installments of RMB3,380 each year, representing a discount of RMB1,960of the total storage fees payable over the contract period. Payment option (3) is not offered to subscribers in Guangdong and Zhejiang. In addition, we offer medical practitioners, including doctors, nurses or other medical professionals, our services at a discount of 30% from time totime. See “Operating and Financial Review and Prospects — Factors Affecting Our Financial Condition and Results of Operations — Average Revenue perSubscriber”. We offer one-stop-shop services for our subscribers. Following the signing of the subscription contract, we notify the collaborating hospitalchosen by our subscriber so that the hospital can arrange for one of its certified medical practitioners to collect the cord blood of the newborns of oursubscribers. The cord blood collected is then transported to our facilities for testing, processing and storage. We act as the custodian of the cord blood stored atour facilities during the term of the subscription contract. Our remaining revenues are derived from matching services we provide and the matching cord blood unit we deliver to patients in need oftransplants. These services accounted for 0.6%, 0.5% and 0.4% of our revenues for the years ended March 31, 2011, 2012 and 2013, respectively. We accept and preserve cord blood units donated by the general public and have created a database containing information of the human leukocyteantigen profiles and characteristics of the donors on an anonymous basis. We require our donors to deliver their newborns at one of our collaborating hospitals.Another source of donations in the future may be the cord blood of the newborns of our former subscribers who cease subscription for our services at the endof 18 years and the cord blood units stored by our subscribers who fail to pay. We require our employees to fully inform all prospective subscribers of ourpolicy of releasing cord blood units to our cord blood inventory in such circumstances, and our subscribers are required to give their consent to this policywhen subscribing for our storage services. In the opinion of our PRC counsel, JunZeJun Law Offices, a consent of this nature is enforceable under PRC law.Based on information available to us, treating cord blood units abandoned by former subscribers and releasing such units to cord blood bank inventoryavailable to patients in need of transplants is a common practice followed by cord blood banking operators in China. We search, upon request, for possible matches among the donated cord blood units stored in our cord blood banks and provide one or morematching units to the patient in need of transplant. Further, Jiachenhong is affiliated with AsiaCORD, an international organization for cord blood bankingoperators in Asia. We are permitted to charge a fee that reflects the costs of our matching services provided and the matching units delivered. We generally charge a feeof RMB15,000 for providing one matching unit in a cord blood transplant. For the years ended March 31, 2011, 2012 and 2013 the number of successfulmatches found for cord blood transplants among the cord blood units donated by the public and stored at our facilities were 60, 88 and 93, respectively. Inaddition, during the years ended March 31, 2011, 2012 and 2013, there were 86, 72 and 75 donated units, respectively, used in supplementary therapies. 46 The following tables set forth, for the dates and periods indicated, certain information relating to our cord blood banking services in Beijing,Guangdong and Zhejiang: For the year ended March 31, 2013 2012 2011 New subscriber sign-ups 72,240 53,932 56,523 Subscriber units used in medical treatments 12 8 5 New subscriber sign-ups (net) 72,228 53,924 56,518 New donations accepted 5,568 4,666 3,147 Donated units used in matching services 168 160 146 New donations accepted (net) 5,400 4,506 3,001 Total 77,628 58,430 59,519 As of March 31, 2013 2012 2011 Units deposited by subscribers (2) 311,982 239,754 185,830 Units contributed by donors (1) 26,525 21,125 16,619 Total (2) 338,507 260,879 202,449 (1)Excludes the matching units used during the relevant periods. (2)As of March 31, 2011, includes 3,604 subscribers who had been delinquent for over 18 months in paying their storage fees and we have ceased torecognize storage revenue from these delinquent subscribers. As of March 31, 2012 and 2013, includes 9,752 and 9,397 subscribers respectively,who had been delinquent for over 24 months in paying their storage fees and we have ceased to recognize storage revenue from such delinquentsubscribers. The tables below indicate the number of donated units matched during each of the last three fiscal years and the accumulated number of matchesusing donated units as of the end of each such fiscal year. UnitsDonated units used during 12 months ended March 31, 2011 146Donated units used during 12 months ended March 31, 2012 160Donated units used during 12 months ended March 31, 2013 168 UnitsAccumulated number of matches as of March 31, 2011 487Accumulated number of matches as of March 31, 2012 647Accumulated number of matches as of March 31, 2013 815 Preservation of Cord Blood Preservation of cord blood consists of the following major steps: ·Collection. Our subscribers and donors must give birth to their newborns at one of our collaborating hospitals in order to use our services. Wecommunicate with the hospital to arrange for a certified medical practitioner to work on the case. When our subscribers or donors gives birth to thenewborn, the practitioner clamps the newborn’s umbilical cord at birth and drains the blood from the cord into specialized container. Although we arenot responsible for the collection, we provide a kit that contains the medical devices necessary for the collection procedure. 47 ·Transportation. After collection, the cord blood is transferred to our cord blood bank within 24 hours in specialized containers where temperaturechanges can be controlled and monitored. If necessary, the cord blood retrieved is stored in a designated refrigeration unit at the maternity ward in thehospital prior to our arrival. We have a team of transportation specialists responsible for the delivery of cord blood units from our collaboratinghospitals to our facilities in specially designed containers to ensure the viability of the hematopoietic stem cells during transit. Each cord blood unit isassigned a barcode so that it can be tracked easily throughout processing, storage and restoration. ·Testing. We conduct several tests on the unit to retrieve information that will be essential to its future use in a transplant. Such information includesvolume of cord blood collected, number and viability of nucleated cells, sterility, blood type and density of hematopoietic stem cells, commonlyknown as cell count. We also test the maternal blood sample for infectious diseases, viruses and bacteria. ·Processing. Cord blood undergoes processing and separation procedures which ultimately extract the hematopoietic stem cells for subsequent storage. ·Storage. After testing and processing, we freeze the cord blood unit in a controlled manner and store the unit using liquid nitrogen. The liquid-nitrogen storage freezer in which the hematopoietic stem cells are stored after their initial processing is equipped with a thermostatic control to ensurestorage at minus 196 degrees Celsius. The entire processing and storage of hematopoietic stem cells at our cord blood bank is documented andclosely monitored to ensure the integrity of all cord blood units and the veracity of all data. Sales and Marketing As of March 31, 2013, our total sales force (including after sales support) consists of 525 employees. Their compensation consists of base salaryand performance-based bonus assessed on a quarterly basis. Newly hired sales staffs are required to successfully complete an intensive orientation traininglasting for more than two months before approaching target subscribers. They are required to attend continuous on-the-job training and pass periodicperformance evaluation. Our hospital networks offer us the platforms where a significant portion of our sales and marketing activities are undertaken. We have establishedcollaborative relationships with 290 hospitals in Beijing, Guangdong and Zhejiang as of March 31, 2013. A significant portion of our sales and marketing initiatives are targeted at educating expectant parents on the benefits of cord blood banking services.Our sales and marketing force gives thought to the input and comments they receive from prospective subscribers in promoting our services. Our sales andmarketing activities consist primarily of the following: ·Activities targeting prospective parents. We maintain our hospital networks with 290 hospitals in Beijing, Guangdong and Zhejiang. We assignconsultants to each hospital with which we collaborate, and the consultant oversees our sales initiatives and directly interacts with the prospectivesubscribers in that hospital. The arrangement enables us to interact directly with expectant parents, distribute promotional leaflets and marketingmaterials to expectant parents and their family members, and set up information booths at designated areas where members of our sales team can interactwith potential subscribers and answer questions. We also work with various institutional or hospitals to organize pre-natal classes and other events forexpectant parents. ·Education of the medical community. To increase public awareness of the benefits associated with cord blood banking services, we educateobstetricians, childbirth educators, and hospitals on the benefits of cord blood preservation and offer educational seminars at our premises. ·Advertising efforts. Cord blood banking as a precautionary healthcare measure is a relatively new concept in China. Most people are not aware of themedical benefits that hematopoietic stem cells offer for the child as well as the family. We attempt to inform and educate our potential subscribers aboutthese benefits. We have successfully lobbied for references to our cord blood banking services in booklets and various public information materialsprepared by the Beijing Population and Family Planning Commission for distribution to all expectant parents in the region. To broaden the reach of ourservices to our target population, we advertise on billboards at hospitals and community centers, publish articles in newspapers and publications, andsponsor government campaigns concerning personal healthcare awareness, such as conferences on the medical use and application of cord bloodtechnology. 48 Raw Material Supplies We require collection kits, liquid nitrogen and test reagents for our operations. Materials and supplies used in our cord blood banking business aresourced within China. We periodically evaluate our terms with our existing raw material suppliers to determine whether we should seek potential suppliers withmore favorable commercial terms. But certain materials or supplies may only be sourced from few suppliers within China. To date, we have not encounteredany material shortage or significant price fluctuation that had a material adverse effect on our business. It is our policy to maintain more than one vendor for major raw material supplies in order to diversify the sources of our raw material supplies. Asignificant portion of our raw materials, however, have been sourced from a few major suppliers. The following are purchases from suppliers thatindividually comprise 10% or more of our gross purchases for the periods indicated: For the year ended March 31, 2013 2012 2011 $ RMB % RMB % RMB % (in thousands except for percentages) Shanghai Qiangzhi Biological Technology Co., Ltd. 1,796 11,152 22 3,619 11 - - Hangzhou Baitong Biological Technology Co., Ltd. 1,253 7,783 15 5,490 16 6,224 18 Beijing Zhu You Ying Kang Technology Development Co.,Ltd. - - - 8,340 25 7,562 22 Beijing Probe Biological Technology Co., Ltd. - - - 3,389 10 3,463 10 Fenwal Dahua Pharmaceutical Technology (Shanghai)Co., Ltd. - - - - - 5,617 16 Total 3,049 18,935 37 20,838 62 22,866 66 Cord blood collection services are performed in the same hospitals where our new subscribers give birth. Historically, most of our cord bloodcollection services have been performed through a limited number of hospitals but we are increasing the number of hospitals as our operation expands tomultiple regions in China. For the year ended March 31, 2013, one hospital in Beijing accounted for approximately 3% of the total number of cord bloodcollection procedures performed for our subscribers. Facilities As of March 31, 2013, we maintain facilities in Beijing, Guangdong and Zhejiang. The following table sets forth certain information relating to thepremises we occupy: Premises Nature of use Terms of use Area occupied (in square meters) Beijing Laboratories, storage facilities for cord bloodunits and office space Acquired in November 2006 for a consideration ofRMB28.6 million for a term of 40 years. 9,600 Leased at a monthly rent of RMB120,000. The lease willexpire in December 2014. 1,920 Subtotal 11,520 Guangdong Laboratories, storage facilities for cord bloodunits and office space Acquired in June 2012 for a consideration of RMB100.0million ($16.1 million) for a term of 44 years. 14,608 Zhejiang Laboratories, storage facilities for cord bloodunits and office space Entered into agreement in January 2013 to acquire aproperty for a consideration of RMB87.3 million ($14.1million). The Company is in the process of obtaining theownership certificate. 5,562 Total 31,690 49 Our facilities in Beijing and Guangdong are equipped with a customer relationship management system. The system has been customized to monitorour sales performance, monitor testing processes and results on a case-by-case basis, keep real-time record of storage movement in cord blood banks, handlebilling matters, and track customer hotline interactions. Quality Assurance Our cord blood banking operations in Beijing has been accredited with GB/T19001-2000 (which is equivalent to ISO-9001), which are the nationalstandards for quality control in China. Our Beijing Cord Blood Bank also received the AABB Accreditation with regard to cord blood processing and storageservices. Our laboratories in Beijing and Guangdong comply with the Good Laboratory Practice, or “GLP”, standards. The operating procedures and standards at our facilities comply with relevant regulations and industry standards promulgated by the MOH for theoperation of cord blood banks, including the Standards on Administration of Quality of Blood Bank Laboratory promulgated in May 2006, and the StandardTechnique Operation Procedures of Blood Bank promulgated in November 2011. We have adopted quality assurance measures to ensure the quality of cordblood units transported, processed and stored by us. In particular, we maintain GLP-certified clean rooms where hematopoietic stem cells are processed priorto storage and later restored for therapeutic use. The storage of hematopoietic stem cells at our cord blood bank is computerized to ensure the integrity of allcord blood units and the veracity of all related data. We maintain a comprehensive quality assurance program to ensure that we are in compliance with applicable quality standards. To illustrate, ourcollaborating hospitals collect the cord blood from the newborns of our subscribers with a collection kit containing the necessary tools and instruments that weprepare and provide to the hospitals in advance. We also take charge of the transportation of the cord blood from the hospitals to our facilities to ensure thequality of the cord blood. When the cord blood arrives at our facilities, we begin testing and processing, including physical examination, whole blood cell andflow-cytometry counting, cultivation tests and microbe tests such as HIV, bacterial and virus tests. The testing results are verified by our officer in charge.Qualified cord blood units will then undergo a computer-controlled preparatory freezing process through which the cord blood units will be lowered to -90°Cprior to cryopreservation. Throughout the process, our staff will monitor and verify that all information in relation to every cord blood unit is properly andaccurately documented. For the cord blood units in storage, we conduct random examinations on a routine basis to ensure the stored units are suitable for transplants ifneeded. In addition, we also conduct routine examinations, including checking the dust level in all GLP certified clean rooms, examining the accuracy of allmeasuring and testing equipment and testing the ultraviolet light output in each clean room and bacteria and mycosis cultivation in the air. We continuouslymonitor the temperature level, the humidity level, the air pressure difference among various clean rooms, and the layout of our equipment and apparatuses. We are responsible for quality assurance in connection with our cord blood banking services. In the event that the cord blood stored at our banks arefound to be unfit for use in a transplant due to our mishandling or other fault or errors attributable to us, we have agreed under our subscription contract tocompensate the subscriber in an amount equal to twice the fees paid by the subscriber. We have procured insurance to cover this liability. See “ — Insurance”. Competition To date only seven cord blood banking licenses have been issued by PRC government authorities. We are the operator of the sole licensed cord bloodbank in Beijing, Guangdong and Zhejiang. We also have an investment of 24.0% equity interest in Qilu, the exclusive cord blood banking operator in theShandong province. The operators of the other three licensed cord blood banks are Eastern Union Stem Cell & Gene Engineering Co., Ltd. in Tianjin,Shanghai Stem Cells Technology Co., Ltd. in Shanghai and Sichuan Stem Cells Co., Ltd. in Sichuan. The MOH has been following a “one license perregion” policy, which precludes more than one cord blood banking licensee from operating in the same region. 50 According to the Notice on Extension of Time Limit on Planning and Establishment of the Cord Blood Bank published by the MOH in February2011, cord blood banking licenses will be issued in up to three additional regions by 2015. We will seek to expand our geographical coverage by acquiring orcollaborating with one or more successful applicants for licenses in the other regions. Hence, we may need to compete with existing cord blood bankingoperators as well as other new market entrants for such licenses or acquisitions. These companies may have greater financial resources, stronger marketingcapabilities and higher level of technological expertise and quality control standards than us. In addition, we may face competition from foreign-invested cordblood banking service providers in China with longer operating history, greater capital resources, more efficient management and higher level of technologicalexpertise than us. In addition, our ability to compete depends on the efficacy and safety of cord blood transplants compared to other medical treatment and remedies aswell as the efficacy and safety of cord blood transplants using the patients’ own cord blood or the cord blood from related family members compared to cordblood from an unrelated public donor. Finally, we may diversify our revenue sources by offering ancillary services, such as offering selected healthcare services for infants or offering thedatabase we compiled from the genetic profiles and characteristics we gathered from donors for our banks to pharmaceutical companies for their clinical trials.If materialize, we may face competition from companies that offer similar services such as hospitals, clinics, medical institutions and other research institutesin the medical industry. Employees As of March 31, 2011, 2012 and 2013, we had 610, 795 and 890 full-time employees, respectively. The following table sets forth the number ofemployees based in Beijing, Guangdong and Zhejiang respectively and categorized by function as of March 31, 2013: Beijing Guangdong Zhejiang Sales and marketing and after-sales support and services 196 278 51 Laboratory function 69 99 14 Management and administration 85 69 29 Total 350 446 94 As a committed and socially responsible healthcare company, we believe that people are the most important asset of our business. As a result, we aimto remunerate our employees based on their experience, job requirements and performance. Our compensation package typically consists of the basic salary,discretionary bonuses, share options or restricted share units. Our employees are not represented by any collective bargaining agreement, and we have neverexperienced a strike. We believe we have been successful in maintaining a harmonious relationship with our employees. Insurance Currently, we maintain insurance coverage of RMB50.0 million ($8.1 million) to cover our liabilities arising from collection, testing and processingof cord blood units and an additional RMB141.4 million ($22.8 million) in aggregate to cover liabilities arising from storage of donated cord blood units.Under our insurance policies, we will be entitled to insurance payments equal to losses arising from the destruction or loss of cord blood units stored bysubscribers in the event that we are required to provide such units according to our contract obligations to our subscribers who needed such units fortransplants; provided, however, the payments to which we are entitled in each incident are capped at RMB200,000 per person and RMB4.0 million in theaggregate. We have not received any material claims, nor are we aware of any material claims pending or threatened, from our subscribers. Under oursubscription contract, the subscriber has agreed to liquidated damages in an amount equal to twice the fees paid by him or her in the event that the cord bloodstored at our banks are found to be unfit for use in a transplant due to our mishandling or other fault or errors attributable to us. However, we cannot assureyou that a subscriber in such circumstances will not challenge the enforceability of the liquidated damages clause. Some PRC courts and arbitration tribunalsin unrelated civil suits have awarded claimants damages in excess of the amount of liquidated damages previously agreed by them in contracts. 51 We do not maintain any property insurance policies covering our facilities and vehicles for losses due to fire, earthquake, flood and other disasters,nor do we maintain business interruption insurance due to the limited coverage of such insurance in China. We believe our insurance coverage is consistent with typical industry practices. However, our business and prospects could nonetheless be adverselyaffected in the event our insurance coverage is insufficient to cover our losses. See “Key Information — Risk Factors — Risks Relating to Our Business —Our insurance coverage may not be sufficient to cover the risks related to our business, and our insurance costs may increase significantly”. Intellectual Property We consider our trademark critical to the success of our business. In this regard, we have completed the trademark registration process and havebeen licensed by the Trademark Office of the State Administration for Industry and Commerce of the People’s Republic of China to use our two trademarks,of which the registration numbers are 4666178 and 4666582. We also recognize the need to protect our trademark and will continue to take commerciallyviable steps to enforce our trademark rights against potential infringers. We acquired certain patented research and development in progress relating to the use of cord blood stem cells in medical treatments. We do not haveregistered patents for the technologies we use for cord blood collection, testing, processing or storage. These technologies are not trade secrets and are not subjectto regulation by administrative laws in China. We are not involved in or threatened with any material claim for infringement of any intellectual property right,either as a claimant or a respondent. Information Technology Our information technology system was developed by an independent third party and tailored to our unique business and operational needs. Toensure our information technology system is capable of handling our constantly evolving business environment and our expanding subscriber base, we retainsoftware developers to maintain and upgrade our system. We maintain close contact with our system developers to ensure our system is capable of handling the increasing amount of data as our subscriberbase continues to grow. Our system currently operates on a Microsoft SQL Server 2000 platform and we have built upon the Microsoft platform in order todevelop a larger and more comprehensive database and management system nationwide. Research and Development We conducted research and development activities internally. For the year ended March 31, 2013, we incurred approximately RMB8.5 million ($1.4million) research and development expense, derived from internal research and development effort. Cooperation with Peking University People’s Hospital In June 2006, Jiachenhong entered into a cooperation agreement on an exclusive basis with Peking University People’s Hospital (“PEKU”) for a termof 20 years. PEKU would assist Jiachenhong to promote the subscription of cord blood banking services to expectant parents at the hospital, provideassistance in examining hereditary diseases, monitor the quality control of the cord blood units collected and provide technical and consulting services toJiachenhong. In return, PEKU is entitled to an aggregate amount of RMB2.0 million annual advisory fee for providing technical consultancy services. 52 Cooperation with Guangdong Women and Children’s Hospital and Health Institute In November 2009, Nuoya entered into a cooperation agreement on an exclusive basis with Guangdong Women and Children’s Hospital and HealthInstitute (“GWCH”) for a term of 20 years pursuant to which GWCH would assist Nuoya to establish distribution networks at the hospital to promote thesubscription of cord blood banking services to expectant parents, provide assistance in examining hereditary diseases, monitor the quality control of the cordblood units collected, provide technical and consulting services to Nuoya. In return, GWCH is entitled to an aggregate amount of RMB2.0 million annualadvisory fee for providing technical consultancy services. Cooperation with Zhejiang Provincial Blood Center In December 2010, Lukou entered into a cooperation agreement with Zhejiang Provincial Blood Center, for a term of 3 years, pursuant to whichZhejiang Provincial Blood Center would provide assistance in examining hereditary diseases, monitor the quality control of the cord blood units collected,technical and consulting services, and laboratories and storage facilities for cord blood units to Lukou to support Lukou’s cord blood banking business in theZhejiang province. In return, Zhejiang Provincial Blood Center is entitled to an aggregate amount of RMB2.0 million annual advisory fee for providingtechnical consultancy services and assistances. Investment in Cordlife (CBB and Cordlife Singapore after the restructuring on June 30, 2011) Cordlife was a publicly traded company on the Australian Securities Exchange, with cord blood banking services as its main business line. Weacquired 11,730,000 shares of Cordlife for a cash consideration of AUD8.0 million in July 2007 and an additional 5,795,000 shares for a cash considerationof AUD2.4 million for the year ended March 31, 2009. In June 2010, we entered into an agreement to underwrite Cordlife’s rights issue for a total capital raiseof AUD11.6 million. On July 4, 2010, we terminated the underwriting agreement and were released from such obligation but continued to participate in therights issue and took up our share entitlements on a pro-rata basis. The rights issue was completed on July 26, 2010 and we subscribed for 6,841,666shares of Cordlife at a total cost of AUD2.0 million, satisfied in cash. As of March 31, 2011, we paid an aggregate of AUD12.4 million in exchange for24,366,666 shares of Cordlife. On June 16, 2011, shareholders of Cordlife approved a capital reduction scheme by way of distribution in specie. Thescheme involves a spin off of Cordlife’s more mature cord blood banking business. The restructuring and distribution in specie were subsequently completedand effective on June 30, 2011. Cordlife Singapore was subsequently listed on the Singapore Exchange on March 29, 2012. As of March 31, 2013, we hold14.1% equity interest in CBB and 10.5% equity interest in Cordlife Singapore. Our investments in CBB and Cordlife Singapore are classified as available-for-sale securities and are stated at fair value in our consolidated balance sheets as of March 31, 2013 and we did not consolidate or account for under theequity method our share of CBB’s or Cordlife Singapore’s operating results and net assets during such period. Currently, CBB is a provider of cord bloodbanking services in India, Indonesia and the Philippines and Cordlife Singapore is a provider of cord blood banking services in Singapore and Hong Kong. Investment in Qilu We have invested in a 19.9% equity interest in Qilu, the exclusive cord blood banking operator in the Shandong province for a cash consideration ofapproximately $20.5 million in May 2010. In December 2012, Favorable Fort entered into a shares purchase agreement with Cordlife Services, pursuant towhich Favorable Fort agreed to repurchase the 17% of its outstanding ordinary shares not indirectly owned by CCBC from Cordlife Services for a totalpurchase price of approximately $8.7 million. Upon completion of the transaction in February 2013, Favorable Fort became an indirect wholly ownedsubsidiary of CCBC and CCBC’s effective equity interest in Qilu increased from 19.9% to 24.0%. Pursuant to the memorandum of Qilu, existingshareholders are entitled to the right of first refusal on future transfers of Qilu equity interest. We do not have any representation on the Board of Directors ofQilu and do not have control or significant influence in Qilu both before and after February 2013. Therefore, we do not consolidate or account for under theequity method our share of Qilu’s operating results and net assets, but recognize the investment at cost less impairment losses (if any). Qilu operates in theShandong province. Based on China Statistical Yearbook 2012, over 1.1 million babies were born within the Shandong province during 2011. We believeShandong represents a very sizable market opportunity. 53 Investment in Lukou In September 2010, we entered into a framework agreement to form an indirect non-wholly owned subsidiary with the Zhejiang Provincial BloodCenter. Pursuant to the framework agreement, we then established a non-wholly owned subsidiary, Lukou, and acquired the right to operate the cord bloodbank in the Zhejiang province for a cash consideration of $12.5 million all during the year ended March 31, 2011. Lukou is 90% owned by us and is theexclusive cord blood banking operator in the Zhejiang province to provide cord blood stem cells collection and storage services for expectant parents as well aspreserving cord blood units donated by the public. Legal Proceedings We are not currently a party to any material legal proceedings. From time to time, we may be subject to various claims and legal actions arising in theordinary course of business. Our Industry Overview The cord blood banking industry preserves cord blood from childbirth to capture the opportunities made available by evolving medical treatmentsand technologies such as stem cell transplants. Cord blood is blood contained within the umbilical cord and the placenta which may be collected immediatelyupon childbirth for the purpose of harvesting stem cells. Stem cells may potentially develop into other cell types in the human body, a unique property knownas plasticity. In other words, stem cells have the ability to go through numerous cycles of cell division and differentiate into cells with a defined or specializedfunction. As stem cells grow and proliferate, the differentiated cells that they generate can replace lost or damaged cells, thereby contributing to the ability topotentially renew and repair lost or damaged tissues in the human body. Due to the ability to develop into different cell types in the human body, stem cells can potentially be used to treat a wide range of diseases. Comparedwith approximately 210 major types of differentiated cells, there are only three major types of stem cells in the human body: ·Hematopoietic stem cells. Hematopoietic stem cells are found in the bone marrow of adults, human blood from an infant’s placenta and umbilicalcord, and mobilized peripheral blood. They are the early precursor cells capable of differentiating into blood cells and immune system cells in the body.They also have been shown to have the capability of differentiating into specialized cells of other systems, including neural, endocrine, skeletal,respiratory and cardiac systems, under specific conditions. ·Mesenchymal stem cells. Mesenchymal stem cells are found in the bone marrow of adults and are capable of differentiating into musculoskeletaltissues. ·Neural stem cells. Neural stem cells are found in the brain tissues of adults and are capable of differentiating into neural tissues. Cord blood is rich in hematopoietic stem cells. It can be collected by obstetricians or dedicated collection staff after the umbilical cord has beendetached from the newborn. The blood sample then undergoes further processing to remove red blood cells and plasma before it can be cryopreserved andstored in refrigerated containers at extremely low temperature. All cellular activities would cease until it is thawed for use in medical treatments. Compared with other medical treatments, transplants using cord blood have a number of distinct benefits. First, while the collection of embryonicstem cells with current technology results in the destruction of the embryo, and the collection of bone marrow stem cells involves a painful medical procedurefor the donor, the collection of cord blood stem cells occurs after the umbilical cord is detached from the newborn during the normal course of delivery andcauses no discomfort or harm to the baby. Second, cord blood of newborns contains relatively higher concentration of hematopoietic stem cells with superiorproliferative capacity compared with hematopoietic stem cells extracted from bone marrow and peripheral blood in adults. Third, due to the relative prematuredevelopment of the immune system in cord blood samples, hematopoietic stem cells extracted from cord blood allow for transplants with lower immunologicbarriers that would otherwise be prohibitive. Fourth, cord blood transplants result in lower incidence of graft-versus-host disease, a situation whereby thedonor’s T-cell attacks the recipient tissues after the transplant. Fifth, hematopoietic stem cells have a higher chance of matching family members. 54 Depending on the source of stem cells, cell transplants consist of three types: (i) autologous transplant using the patient’s own stem cells; (ii)allogeneic transplant using stem cells of third parties, such as a family member or an unrelated donor; and (iii) syngeneic transplant using stem cells of anidentical twin. Matching of human leukocyte antigen, or “HLA”, a marker used by the immune system to recognize whether particular cells belong to or areforeign to the body, is critical for the success of allogeneic stem cell transplants. HLA tissue types are hereditary. Therefore, the chance of finding a match ishigher from a sibling or other family members. Nonetheless, approximately 70% of patients are unable to find a matching unit in the family. Global Cord Blood Banking Industry Cord blood banking industry typically provides two types of services. The first type of services, also known as private cord blood bankingservices, generally involve collection, testing, processing and storage of cord blood for expectant parents who choose to subscribe for such services for thebenefit of their children and other family members. The cord blood unit deposited is available only to the child or a family member when stem cells are neededfor a transplant to treat the medical condition of the child or a family member. The second type of services, also known as public cord blood bankingservices, generally involve collection of cord blood from the parents who intend to donate the cord blood of their newborns. The donated cord blood issubsequently made available for anyone if it is a match for patients in need of stem cell transplants or for medical research. Some cord blood banks onlyprovide private cord blood banking services, others only provide public cord blood banking services and still others provide both. Cord blood banks thatonly provide public cord blood banking services are typically non-profit organizations. Therefore, revenues generated by cord blood banks that provideprivate cord blood banking services are the key drivers of the cord blood banking industry. Global Demand for Cord Blood Banking Services The demand for the global cord blood banking industry is driven by an increasing awareness of the wide range of diseases that stem cell can be usedto treat. Improved healthcare has resulted in increased life expectancy with a larger aging population. An aging population has led to a higher rate of diseaseincidence and increased demand for medical care, including stem cell therapies. Cord blood stem cells can be used to treat over 80 types of diseases. Asmedical science continues to discover new application of cord blood stem cell therapies, many other diseases could potentially be treated. The expandedapplication of stem cell transplants is likely to further stimulate the demand for and the growth of cord blood bank facilities worldwide. The demand for cord blood banking services can be measured in terms of penetration rates, which are affected not only by the number of newbornsbut also by the degree of awareness among expectant parents of the benefits of cord blood stem cell therapy, the value that the parents place on those benefitsand the cost of those benefits relative to the parents’ ability to pay. Economic growth generally favors expenditures on precautionary healthcare measures. Salesand marketing activities launched by cord blood banking service providers also stimulate demand by educating expectant parents regarding the availability ofthese services and the potential benefits to subscribers in terms of keeping their options open for treating future health problems through stem cell therapies. According to the U.S. Census Bureau, the population of the world has reached approximately 7.1 billion in June 2013 and the number of newbornseach year is currently between 130 and 135 million worldwide. The U.S. Census Bureau projects that the population and number of newborns worldwide willcontinue to grow. Global Supply of Cord Blood Banking Services The success of stem cell transplants depends on the availability of stem cell supplies. In response to the increasing utilization of stem cells in medicaltreatments, cord blood banks have increased in number significantly worldwide to provide the cord blood units necessary for medical treatments. In addition,there are a number of international public cord blood banks such as World Marrow Donor Association, National Marrow Donor Program and the InternationalNetCord Foundation that provide matching units donated by the public to patients in need of transplants worldwide. Certain cord blood banks in the world areaffiliated with these cord blood banks. The advantage of affiliation with such international public cord blood banks is the ability to share the database ofgenetic profiles of the cord blood units stored at the cord blood banks registered with such international public cord blood banks. The sizeable databasecontaining increased number of genetic profiles increases the possibility to find a matching unit for patients in need of transplants. 55 Cord Blood Banking Industry in China Based on historical evidence, we believe that revenue from storing cord blood units in consideration for subscription fees is expected to be theprimary driver for the cord blood banking industry in China in the future. Current Market Conditions According to the Notice on Extension of Time Limit on Planning and Establishment of the Cord Blood Bank published by the MOH in February2011, cord blood banking licenses will be issued in up to three additional regions by 2015. According to the same notice, only one license will be granted to acord blood bank in a designated provincial level region. Under this policy, a cord blood bank licensed to operate in a particular region has the advantage ofbecoming the sole operator of the licensed cord blood bank in that region. In addition to the seven licensed cord blood banks in China, there are a number of cord blood banks operating in China and they are in the processof meeting the applicable regulatory requirements before they can formally obtain a cord blood banking license in the relevant regions. Under current PRCgovernment policy, cord blood banks are only permitted to operate in the regions in which they are licensed to operate. Moreover, the application process for acord blood banking license in China is time-consuming during which time the applicant usually incurs significant initial investments, including costs toapply for a license and construct the facility. For example, in respect of the seven cord blood banking licenses issued by the PRC government authorities todate, it took each applicant several years to obtain a cord blood banking license. This may deter potential cord blood banking operators with fewer financialresources from entering into the cord blood banking industry. Drivers for Future Growth Future demand for the cord blood banking industry in China is expected to be driven mainly by the following factors: ·Large number of newborns. According to the National Bureau of Statistics of China, China had a population of 1.3 billion persons and 16.1million newborns as of and for the year ended December 31, 2011. The large number of newborns in China provides substantial potential for cordblood banking operators in China to grow their subscriber base. Even a single region in China can have a very significant population. Guangdong,with a population of over 105 million people in 2011, has a larger population than many countries in the world, and there are two other regions inChina of similar size and even Beijing has a sizable population of almost 20 million in 2011. ·Growth in GDP and urban disposable income and increasing focus on healthcare. According to the National Bureau of Statistics of China,GDP per capita in China grew by 8.0%, 17.1% and 17.2% in 2009, 2010 and 2011, respectively. As average disposable income rises, families arelikely to spend an increased proportion of their disposable income on healthcare, including subscriptions for cord blood banking services. Accordingto the MOH, China’s healthcare expenditures grew from RMB458.7 billion in 2000 to RMB1,998.0 billion in 2010, representing a compound annualgrowth rate of approximately 15.9%. ·One-child policy in China. China has adopted a “one-child” policy, which has curtailed, subject to limited exceptions, families from having morethan one child. This gives Chinese parents the incentive to store cord blood stem cells from their only child as it is difficult to obtain matching stemcells if that only-child needs a transplant. As the public awareness of benefits associated with cord blood banking increases, an increasingly largenumber of Chinese parents are expected to subscribe for cord blood banking services in order to enhance the survival chances of their children in theevent of a critical illness, such as leukemia. Further, the “one-child” policy may increase the usage of cord blood banking services because there areno bone marrow cord blood units available from siblings which may potentially match the patient in need of transplants. 56 ·Increasing public awareness of the benefits associated with cord blood banking services. Operators of cord blood banks in China focus theirsales and marketing efforts in hospitals, pre-natal clinics and wedding registries to increase the public awareness of the benefits associated with cordblood banking by providing potential customers education on cord blood banking procedure and potential benefits. Continuous customer educationand expanded sales and marketing networks enable the operators to tap into a potential sizeable market with increased penetration rates and enlargedsubscriber base. ·Additional diseases that stem cells can be used to treat. Based on publicly available information, cord blood stem cells can be used totreat approximately 80 types of diseases. As stem cell therapy continues to develop in China and elsewhere in the world, medical practitioners arelikely to continue to discover diseases that can be treated by stem cell therapies. Regulation We operate our business in China under a legal regime consisting of the State Council, which is the highest authority of the executive branch of thePRC central government, and several ministries and agencies under its authority including: ·the MOH; ·the State Food and Drug Administration; ·the State Administration of Foreign Exchange; ·the Ministry of Commerce; and ·the National Development and Reform Commission. The State Council and these ministries and agencies have issued a series of rules that regulate a number of different substantive areas of ourbusiness, which are discussed below. PRC Regulation on the Cord Blood Banking Industry The MOH is responsible for the regulation and supervision of cord blood banks in China, including promulgation of rules and regulations inresponse to the developments in the cord blood banking industry. Cord blood banking is an emerging industry in China. Therefore, the regulatory frameworkof the cord blood banking industry in China is under development and may not be as fully developed as that in other countries. China adopted the Blood Donation Law in 1997 to prohibit the buying and selling of blood and to establish principles and regulations for the safehandling of blood supplies. In 1999, China adopted the Trial Measures for the Administration of Cord Blood Bank to regulate the establishment andoperation of the cord blood banks. In 2001, China adopted the Trial Cord Blood Bank Establishment Guidelines to implement Trial Measures for theAdministration of Cord Blood Bank. In 2002, China adopted the Provisional Cord Blood Bank Technical Guidelines, which regulate the way and activitiesthat we handle the cord blood which we process and store. In 2005, the MOH further adopted the Measures for Administration of Blood Stations, or theMeasures, to regulate the operation of blood stations in general. In addition, the DOHs of Guangdong, Zhejiang and Shandong have promulgated relevant rulesto regulate the operation of blood stations at the province-level. The Measures specify that cord blood banks are special blood stations that are subject toregulation under the Measures. Since the cord blood banking business is relatively new in China and the regulation of this industry is a new subject for the MOH, current PRClaws and regulations on this subject, including the Measures, principally regulate donation of cord blood units by the public and the collection and supply ofsuch units. Current PRC laws and regulations fail to provide a clear, consistent and well-developed regulatory framework for the provision of fee-basedcommercial cord blood banking services. This presents uncertainties and risks regarding fee-based commercial cord blood banking services in China,including our business, as described in the following five paragraphs. 57 The Measures define a blood station as a non-profit public-welfare health institution that collects and supplies blood for clinical use. Neithercollection nor supply of cord blood from donors may be conducted for the purpose of making a profit. The purchase and sale of donors’ cord blood is alsoprohibited. The Measures prohibit anyone from collecting or providing cord blood without a valid blood station license. The Measures also state that thegovernment shall not approve a for-profit blood bank. The Measures do not define or interpret the terms “non-profit”, “for-profit” or “for the purpose ofmaking a profit”. Since the effectiveness of the Measures, all of our cord blood banks have obtained blood station licenses from their local DOHs. TheGuangdong Cord Blood Bank operated by our subsidiary Nuoya obtained its blood station license from the Guangdong DOH in June 2006. The license toZhejiang Cord Blood Bank was endorsed by Zhejiang DOH in September 2010. The Beijing Cord Blood Bank operated by our subsidiary Jiachenhong,which first obtained a cord blood banking license under the Provisional Cord Blood Bank Establishment and Operation Guidelines in 2002 and then extendedthat license several times during the course of 2005 and 2006, obtained its blood station license from the Beijing DOH in June 2007. All of our cord bloodbanks clearly stated to the competent health authorities as part of their license applications that their businesses combined subscription services with matchingservices. Furthermore, during the application process and after the applications were approved, the competent health authorities have been inspecting andregulating the entire businesses of our cord blood banks, including both for-profit and non-profit services. All the evidence indicates that the MOH and itsregional DOHs are aware of the current business practices in the cord blood banking industry in China, which include the fact that the cord blood banks andtheir operators are providing subscription services for a fee in China and that such operators are companies incorporated in China. Currently, there is noevidence that the competent health authorities have any intention of prohibiting the provision of for-profit subscription services by these cord blood bankingoperators, or any intention of revoking their licenses, ordering them to terminate their business or cancelling their qualifications based on the fact that theyprovide for-profit services. Shandong Cord Blood Bank operated by Qilu first obtained the permission from Shandong DOH to commence operation inFebruary 2008. According to answers by the spokesman of the MOH to questions from reporters on February 18, 2008, it appears that the MOH is of the positionthat operators of licensed cord blood banks are permitted to provide cord blood banking services for a fee. However, to date, neither the MOH nor any DOHhas made any formal clarification on how they interpret, administer or enforce current laws and regulations applicable to the cord blood banking industry inChina. All of the above present certain risks and uncertainties to our business. In particular, see “Key Information — Risk Factors — Risks Relating to OurBusiness — If PRC regulators order operators of the licensed cord blood banks in China to cease their fee-based commercial cord blood banking operations,results of operations and liquidity would be materially adversely affected” and “Key Information — Risk Factors — Risks Relating to Our Business — Ourbusiness and financial results may be materially adversely affected as a result of regulatory changes in the cord blood banking industry in China”. In 2004, the year before the Measures were adopted in final form but after the Measures were already in effect in provisional form, the Shanghai DOHshut down a cord blood banking operator that had been operating in Shanghai on the grounds that it was operating cord blood collection services without alicense. The operator of that cord blood bank sued in court to overturn the administrative decision of the Shanghai DOH, arguing, among other things, thattheir business was not subject to the provisional Measures. The court ruled to uphold the administrative decision. While court rulings in the Chinese legalsystem have no precedential authority, we believe that we must maintain and periodically renew our blood station licenses in order to continue operating ourcord blood banking business, and that we must continue providing our matching services in order to maintain and periodically renew our blood stationlicenses. The Measures emphasize the regulation of cord blood bank’s non-profit activities of collecting and storing cord blood from donors as well assupplying cord blood for clinical use, but they fail to provide clear stipulations regarding certain other activities that are frequently carried out in connectionwith cord blood banking, including cord blood banks’ offering fee-based commercial services of storing cord blood entrusted to them by subscribers for thebenefit of those subscribers and not of the general public. As far as we know, all the operations of fee-based commercial services of storing cord blood inChina, including without limitation, the operations of Jiachenhong, Nuoya, Lukou and Qilu all have the same business model and structure. 58 Our PRC legal counsel, JunZeJun Law Offices, is of the opinion that, save for the uncertainty regarding fee-based commercial cord blood bankingservices in China, including our business, as described in the preceding five paragraphs and this paragraph (i) our cord blood banking business currentlycomplies with current PRC laws and regulations, including without limitation the Measures, applicable to us; and (ii) our business operations do not violatethe terms set forth in the blood station licenses of the three cord blood banks operated by us, the Beijing Cord Blood Bank operated by our subsidiaryJiachenhong, the Guangdong Cord Blood Bank operated by our subsidiary Nuoya and the Zhejiang Cord Blood Bank operated by our subsidiary Lukou. Toour understanding, Shandong Cord Blood Bank operated by Qilu, also possesses similar business operations, however, we cannot assure you that the PRCgovernment and the competent health authorities will continue their current regulatory practice and not prohibit provision of for-profit subscription services.Among others, due to the failure of the Measures to define or interpret the terms “non-profit”, “for-profit” or “for the purpose of making a profit”, we cannotassure you that the PRC government authorities will not request our subsidiaries or other cord blood banking operators to use their after-tax profits for theirown development and restrict our subsidiaries’ ability to distribute their after-tax profits to us as dividends. Further, the PRC government and the competenthealth authorities may change their regulatory position and prohibit for-profit subscription services, or require that a special or a separate permit, license orauthorization be obtained for the provision of such services. In such event, we may have to shut down or suspend our business to apply for the special or aseparate permit, license or authorization. We may be subject to administrative penalties and/or claims for operation without a license. There is no assurancethat we will be able to obtain the license. We may be forced to shut down our business if the cord blood banks we are operating are unable to obtain the license.Also, there is no assurance that we will be able to operate new licensed cord blood bank to expand our business. If any of the above circumstances occurs, ourbusiness, our investment and financial condition would be materially adversely affected. According to a circular issued by the MOH on December 16, 2005, and also an extension notice published in February 2011, additional cord bloodbanking licenses will be granted in up to three other regions by 2015. Only one license shall be issued in any given region, and the licensed cord blood bank isnot permitted to set up branches or blood stations outside the designated region in which it is licensed. The application process for a blood station licensecommences with the applicant’s submission to the DOH of a written notice concerning its intention to construct and operate a cord blood bank. Uponsatisfaction of a series of complex and stringent requirements, the applicant may submit its formal application for a license. The facilities of the applicant willbe inspected by the DOH. As provision of cord blood banking services concerns public health, the DOH scrutinizes the application and exercises its discretionby taking into account relevant laws and regulations and other considerations such as public health to ensure that the potential licensee is committed to theindustry and is capable of providing high-quality services before granting a license. Due to the stringent application requirements, the application process canbe quite time-consuming. For example, the Beijing Cord Blood Bank operated by Jiachenhong received its cord blood banking license in September 2002 aftera six-year application process, and the Guangdong Cord Blood Bank operated by Nuoya received its blood station license in June 2006 after a seven-yearapplication process. The license is valid for a term of three years which may be renewed three months prior to expiration with the relevant DOH. The licenses held by cordblood banks in Beijing, Guangdong and Zhejiang operated by us are currently valid and effective, which expire on May 1, 2016, May 8, 2015 andSeptember 21, 2013 respectively. Except as disclosed above, we do not believe it will be difficult for us to continue to renew either license in the future andthere is currently no fee payable to have such licenses renewed. Licensees are subject to periodic and random inspections by the DOH, including inspectionson the conditions of laboratories, storage facilities, equipment and raw material supplies and the qualification, training and competency of the technicians aswell as the conduct of their business operations. Cord blood banks are required to obtain consents from the donors when they collect and accept cord bloodunits from the public. On October 24, 2011, the MOH published the Notice on Strengthening the Management and Control of Cord Blood Stem Cells (the “Notice”). TheNotice suggests that, in principle, cord blood banks should follow the pricing standards established by the relevant commodity price departments of PRC.However, currently, there is still lacking of a clear and explicit price level or guided-price in relation to the cord blood banking services which we provide. Wecannot rule out the possibility that PRC government may establish guided-price or introduce other specific price control standards for the cord blood bankingservices in the future. If this happens, it will adversely affect our business operation and financial condition. If the government controlled pricing or guided-price set by relevant department of PRC government is lower than our current pricing, our business operation or financial condition will be materiallyadversely affected. At the same time, we cannot assure you that our new subscriber number will increase as we reduce our pricing in accordance with suchpolicy, also, we cannot guarantee that such governmental prices will be higher than the costs of our operation. 59 Ownership of Cord Blood Units Under the PRC Property Law, property owners have the right to occupy, use and dispose of their personal properties. Due to the lack of a cleardefinition, it is uncertain whether cord blood may be considered as property under the PRC Property Law. Assuming cord blood is considered as propertyunder the PRC Property Law, the rights of owners of cord blood units to dispose of their cord blood units include but are not limited to entrusting the cordblood units to cord blood banking service providers for storage or otherwise forgoing the ownership of their cord blood units for donation under PRC BloodDonation Law. Further, under PRC Contract Law, gift contracts for the benefit of the public are not revocable provided that the gift contract is entered into withdue authority and the contents of which is in compliance with PRC law. Therefore, owners who forgo the ownership of their cord blood units for the benefit ofthe public are unable to revoke the gift. In addition to subscription services, we accept and preserve cord blood units donated by the general public and delivermatching cord blood units to patients in need of transplants for a fee. For subscribers who cease subscription for our services at the end of 18 years or whofail to pay subscription fees, the subscription contracts we enter into with our subscriber expressly give us the right to treat the cord blood units stored by themas donated property and release such units to our cord blood inventory such that they become available for patients in need of transplants. In the event of a dispute relating to the ownership of the cord blood units abandoned by our former subscribers, it is possible that a court may rule infavor of our former subscribers based on considerations of fairness and equity regardless of the fact that we have contractual rights under the subscriptioncontracts to treat cord blood units abandoned by our former subscribers as donated property and release such units to our cord blood inventory available forpatients in need of transplants. If this occurs, we may be forced to return the cord blood units or continue to store the cord blood units for the benefit of thesubscribers who do not fulfill their payment obligations. If the cord blood units are donated to patients in need of transplants and are no longer available to thenewborns or their family members who are in need of transplants, we may be required to compensate them and incur substantial monetary damages. See “KeyInformation — Risk Factors — Risks Relating to Our Business — We treat cord blood units abandoned by our former subscribers as donated property andrelease such units to our cord blood inventory available for patients in need of transplants. This practice may subject us to criticism that could damage ourreputation”. PRC Tort Liability Law The PRC Tort Liability Law was adopted at the 12th Session of the Standing Committee of the 11th National People’s Congress on December 26,2009 and effective as of July 1, 2010, which deals with tort liability relating to products, motor vehicle traffic accidents, medical treatment, environmentalpollution, high risk operations, kept animals and things. Under the Tort Liability Law, for acts of torts that infringe on personal rights and interests andresulting in serious mental damage, the infringee may seek compensation for mental damage. The Tort Liability Law also regulates that in the case that thepersonal rights and interests of an individual are infringed, loss compensation shall be made according to the loss suffered by the infringee arising from suchinfringement. If such loss is hard to quantify and the tortfeasor obtains any gains from the tort, then the compensation shall be weighed against such gains;but if the gains generated from the tort are also hard to be calculated and the infringee and tortfeasor fail to reach an agreement on the amount of thecompensation, either of them could submit the disputes relating to the compensation to the People’s Court. Since the cord blood units are taken from human’s body, and in the case of our business operation, are entrusted to be stored by us principally forpotential clinical use, which concerns personal right of enjoying his or her physical or medical well-being, the loss or damage to the cord blood units may beidentified as an infringement to personal rights and interests for which the subscribers may claim for the compensation for mental damage. See “KeyInformation — Risk Factors — Risks Relating to Our Business — Our insurance coverage may not be sufficient to cover the risks related to our business,and our insurance costs may increase significantly”. 60 PRC Regulation on Foreign Investment in the Cord Blood Banking Industry Foreign investment in China was previously subject to regulation by the Catalogue promulgated in November 2004 by the National Development andReform Commission, or NDRC, and the Ministry of Commerce, or the MOC. On October 31, 2007, the NDRC and the MOC revised the Catalogue and therevised Catalogue became effective on December 1, 2007. The Catalogue was last amended on December 24, 2011, which then became effective on January 30,2012. Under the Catalogue promulgated in 2004, there were no prohibitions against investment by foreign enterprises in the cord blood banking industry inChina. Under the Catalogue revised in 2007 and 2011, however, foreign enterprises are prohibited from engaging in stem cell and gene diagnosis and treatmenttechnology development and application. Since the latest revised Catalogue still does not clearly define the scope of such prohibited business, it is uncertainwhether cord blood banking services may be construed as a prohibited industry and is therefore prohibited against investment by foreign enterprises.Moreover, the Catalogue revised in 2011 has no retroactive force and foreign enterprises approved to operate in China before their business becomes prohibitedunder the Catalogue revised in 2011 should be able to continue with their current business in accordance with their existing approvals. For risks associatedwith the Catalogue revised in 2011, see “Key Information — Risk Factors — Risks Relating to Our Business — Our business may be materially adverselyaffected if we are to be prohibited from providing collection, testing, storage and matching services in connection with cord blood under the IndustrialCatalogue Guiding Foreign Investment, or the “Catalogue””. On October 27, 2005, the Standing Committee of the National People’s Congress adopted amendments to the PRC Company Law whichsubstantially overhauled the PRC company law system and removed a number of legal restrictions and hurdles on the management and operations of limitedliabilities companies and companies limited by shares. It is expected that the PRC Law of Wholly Foreign Owned Enterprises, or the WFOE Law, and itsimplementing regulations will be amended accordingly in order to align the WFOE Law with the amendments to the PRC Company Law. Jiachenhong, Nuoyaand Lukou, our subsidiaries in the PRC, are governed and will be affected by the PRC Company Law and the WFOE Law and their implementing rules. Oursubsidiary, Lukou, of which 90% equity interest is held by our subsidiary, Jiachenhong, is not a foreign invested enterprise under PRC Law. Other National and Provincial Level Laws and Regulations in China We are subject to evolving laws and regulations administered by governmental authorities at the national, provincial and city levels, some of whichare, or may be, applicable to our business. Our collaborating hospital(s) are also subject to a wide variety of laws and regulations that could affect the natureand scope of their relationships with us. Our operation of cord blood banks requires us to comply with regulations covering a broad array of subjects. We must comply with numerousadditional state and local laws relating to matters such as safe working conditions, labor and employment, cord blood storage practices, environmentalprotection and fire hazard control. We believe we are currently in compliance with these laws and regulations in all material respects. We may be required toincur significant costs to comply with these laws and regulations in the future. Unanticipated changes in existing regulatory requirements or adoption of newrequirements could have a material adverse effect on our business, financial condition and results of operations. PRC Antitrust Law The PRC Antitrust Law was promulgated on August 30, 2007 and became effective on August 1, 2008. The government authorities in charge ofantitrust matters in China are the Antitrust Commission and other antitrust authorities under the State Council. The PRC Antitrust Law regulates (i) monopolyagreements, including decisions or actions in concert that preclude or impede competition, entered into by business operators; (ii) abuse of dominant marketposition by business operators; and (iii) concentration of business operators that may have the effect of precluding or impeding competition. Except for the exemptions set forth under Article 15 of the PRC Antitrust Law, competing business operators are prohibited from entering intomonopoly agreements that fix or change commodity prices, restrict the production volume or sales volume of commodities, divide markets for sales orprocurement of raw materials, restrict procurement of new technologies or new equipment or development of new technologies or new equipment, result in jointboycott of transactions or constitute monopoly agreements as determined by the antitrust authority. 61 In addition, business operators with the ability to control the price or quantity of commodities or other trading conditions or those with the ability toblock or affect other business operators entering into the relevant markets are prohibited from engaging in certain business conducts that would result in abuseof their dominant market position. Moreover, concentration of business operators refers to (i) merger with other business operators; (ii) gaining control over other business operatorsthrough acquisition of equity interest or assets of other business operators; and (iii) gaining control over other business operators through exerting influence onother business operators through contracts or other means. In the event of occurrence of any concentration of business operators and to the extent required bythe Antitrust Law, the relevant business operators must file with the antitrust authority under the State Council prior to conducting the contemplated businessconcentration. If the antitrust authority decides not to further investigate whether the contemplated business concentration has the effect of precluding orimpeding competition or fails to make a decision within 30 days from receipt of relevant materials, the relevant business operators may proceed to consummatethe contemplated business concentration. It is widely expected that a set of detailed implementing rules of the PRC Antitrust Law will be issued by the PRC government. However, before thepromulgation of any detailed implementing rules, we are unable to determine whether we might be in violation of any aspects of the PRC Antitrust Law. Foreign Exchange Control and Administration Foreign exchange in China is primarily regulated by: ·The Foreign Currency Administration Rules (1996), as amended; and ·The Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. Under the Foreign Currency Administration Rules, the Renminbi is convertible for current account items, including the distribution of dividends,interest payments, and trade and service-related foreign exchange transactions. Conversion of Renminbi into foreign currency for capital account items, suchas direct investment, loans, investment in securities and repatriation of funds, however, is still subject to the approval of SAFE. Under the AdministrationRules, foreign-invested enterprises may only buy, sell and remit foreign currencies at banks authorized to conduct foreign exchange transactions afterproviding valid commercial documents and, in the case of capital account item transactions, only after obtaining approval from SAFE. Under the Foreign Currency Administration Rules, foreign invested enterprises are required to complete the foreign exchange registration and obtainthe registration certificate. Jiachenhong and Nuoya have complied with these requirements. The profit repatriated to us from Jiachenhong and Nuoya, however,is not subject to the approval of the foreign exchange authority, because it is a current account item transaction. The value of the Renminbi against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in China’spolitical and economic conditions. Historically, the conversion of Renminbi into foreign currencies, including US dollars, has been based on rates set by thePeople’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the US dollar. Under the newpolicy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. On June 19, 2010, the People’s Bank of Chinareleased a statement indicating that they would “proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility”.There remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in afurther fluctuation in the value of the Renminbi against the US dollar. 62 Regulation on Special Purpose Vehicle Incorporated or Controlled by PRC Residents SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of DomesticResidents Conducted via Offshore Special Purpose Companies, or “Notice 75”, on October 21, 2005, which became effective as of November 1, 2005, andthe operating procedures in May 2007, collectively the SAFE rules. According to the SAFE rules, prior registration with the local SAFE branch is required forPRC residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in an onshoreenterprise located in the PRC. In addition, amended registrations are required upon (i) any change in the net assets of such offshore entity as a result of anyacquisition of onshore assets or equity interests by such offshore entity or subsequent overseas equity financing, and (ii) any material change in theshareholding or capital of such offshore entity, such as changes in share capital, share transfers and long-term equity investments. PRC residents who havealready incorporated or gained control of offshore entities that have acquired onshore assets or equity interests before the regulation was promulgated wererequired to register their shareholding in the offshore entities with the State Administration of Foreign Exchange on or before March 31, 2006. Under this regulation, the SAFE registration and amendment procedures described above are prerequisites for other approval and registrationprocedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity,such as the payment of profits or dividends, liquidation distribution, equity sales proceeds, or return of funds upon a capital reduction. Further, thisregulation requires repatriation into China by PRC residents of all dividend profits or capital gains that they obtain from their shareholdings in the offshoreentity within 180 days upon their receipt of such profits or gain. Failure to comply with this regulation will subject relevant PRC residents to penalties underPRC foreign exchange administration regulations. On May 20, 2011, the SAFE issued the Fund-raising and Reverse Investment Activities of DomesticResidents Conducted via Offshore Special Purpose Companies Operating Instruction, or “the Operating Instruction”, which provides explicit rules andsimplifies procedures under Notice 75. The Operating Instruction concentrates on filing materials and procedures of foreign exchange registration, alterationregistration, supplementary registration and cancellation registration of offshore special purpose vehicles, or “SPVs”, owned or controlled by domesticresidents. According to the Operating Instruction, domestic resident individuals shall register with the local SAFE branch where the assets or equities of theirdomestic enterprises are located. Domestic resident individuals may establish SPVs overseas prior to the registration, however, such SPVs are not allowed toraise funds outbound, change equity interests or engage in reverse investment activity or make other substantial changes in capital or equity interests prior tothe completion of the registration. When assets or equity interests of domestic enterprises are located in different areas, such domestic residents shall select aSAFE branch office in the area where one of the primary domestic enterprises is located, to comprehensively register with. Whenever SPVs change infinancing matters, an alteration registration shall be made within 30 working days upon the receipt of the first batch of raised funds. The raised funds withoutalteration registration shall not be called back and utilized in the form of investment or foreign loan. See “Key Information — Risk Factors — Risks Relatingto Operations in China”. Regulation on Mergers and Acquisitions On August 8, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, or CSRC, promulgated the Regulation onMergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006 and then was further amended on June22, 2009. This regulation, among other things, has certain provisions that purport to require offshore special purpose vehicles, or SPVs, formed for thepurpose of listing and controlled by PRC individuals or companies, to obtain the approval of the CSRC prior to listing their securities on an overseas stockexchange. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to besubmitted for obtaining CSRC approval. According to our PRC counsel, although the CSRC generally has jurisdiction over overseas listing of SPVs, it is notnecessary for us to obtain CSRC approval because, the beneficiary owner of Golden Meditech, is not a PRC individual defined by this new regulation.Therefore, our PRC counsel, JunZeJun Law Offices, is of the opinion that we are not controlled by Chinese legal or natural persons and therefore do notconstitute an SPV that is required to obtain approval from the CSRC for overseas listing under the new regulation. 63 In addition, under this regulation, mergers and acquisitions of equity or assets involving PRC enterprises by foreign investors are subject to approvalby the Ministry of Commerce or other competent government authorities. If we continue our expansion through acquiring PRC domestic companies by ouroffshore affiliates, we will be subject to such approval requirement. Failure to comply with this regulation may lead to sanctions by the Ministry of Commerce or other PRC regulatory authorities that are provided for inother relevant regulations governing foreign investment, foreign exchange, taxation, business registration, securities, and administration of state-owned assets.See “Key Information — Risk Factors — Risks Relating to Operations in China”. Regulation on Tax On March 16, 2007, the National People’s Congress of China enacted the EIT Law, under which both foreign-invested enterprises, or FIEs, anddomestic companies would be subject to enterprise income tax at a uniform rate of 25%. Preferential tax treatments will continue to be granted to entities thatconduct business in especially encouraged sectors, whether FIEs or domestic companies. The new tax law became effective on January 1, 2008. Under the newtax law, enterprises that were established and already enjoyed preferential tax treatments before March 16, 2007 may (i) continue to enjoy the preferential taxrate for a period of five years after the promulgation of the new tax law; or (ii) continue to enjoy preferential tax exemption or reduction for a specified term,until the expiration of such term, except that for cases whereby, due to losses, the tax holiday has not yet started, such tax holiday shall be deemed tocommence in 2008. On December 6, 2007, the State Council approved and promulgated the Implementing Regulations for the PRC Enterprise Income Tax Law, or theimplementing regulations, which took effect simultaneously with the new tax law. The implementing regulations provide clarity on a number of issues,including definitions, the scope of taxable income, the method of calculating the taxable income and amount of tax payable, income tax concessions, taxation atsource and special adjustments to tax payments. On December 26, 2007, the State Council issued the Notice of the State Council Concerning Implementationof Transitional Rules for Enterprise Income Tax Incentives, or Circular 39. Based on Circular 39, enterprises that enjoyed a preferential tax rate of 15% inaccordance with previous laws, regulations and other documents with the same effect as administrative regulations are eligible for a graduated rate increase to25% over the 5-year period beginning January 1, 2008. For those enterprises which currently enjoy tax holidays, such tax holidays will continue until theirexpiration in accordance with previous tax laws, regulations and relevant regulatory documents, but where the tax holiday has not yet started because of losses,such tax holiday shall be deemed to commence from 2008, the first effective year of the new tax law. In addition, under the new EIT Law, enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies”located within China may be considered as PRC resident enterprises and subject to PRC enterprise income tax at the rate of 25% on their worldwide income.We do not expect to be characterized as a resident enterprise because our managerial body as well as our office are located in Hong Kong rather than within thePRC. However, we cannot assure you that we will not be treated as a resident enterprise for PRC tax purposes. If we are treated as a resident enterprise for PRCtax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate. For these purposes, the dividends distributed from PRCsubsidiaries to us may be exempt income if we and our non-PRC subsidiaries are each treated as a qualified resident enterprise under the new tax law and theimplementing regulations. If we were considered as a PRC resident enterprise, it is also possible that the new tax law and its implementation rules would causedividends paid by us to our non-PRC shareholders to be subject to a withholding tax. In addition, under the new tax law, in the event that we are considered asa resident enterprise for PRC tax purposes, foreign shareholders and holders of our ordinary shares could become subject to a 10% income tax on any gainsthey realize from the transfer of their shares, if such income is regarded as income from sources within the PRC. See “Key Information — Risk Factors —Risks Relating to Operations in China — Under the PRC EIT Law, we and/or our non-PRC subsidiaries may be classified as a “resident enterprise” of thePRC. Such classification could result in PRC tax consequences to us, our non-PRC resident enterprise investors and/or our non-PRC subsidiaries”. If we aredeemed to be PRC-based but refuse to file tax returns or pay tax, or underpay our taxes, the tax authority has the power to impose upon us a penalty up to fivetimes the tax unpaid or underpaid. 64 Regulation on PRC Domestic Individual’s Participation of Equity Incentive Plan Offered by an Offshore Company The regulations governing foreign exchange matters of PRC residents promulgated by the People’s Bank of China require an employee share optionplan or restricted share unit scheme offered by an offshore listed company to be registered with SAFE. A special bank account will be opened in the PRC forthe purpose of receiving, and subsequent allocation to the participating PRC residents, the proceeds or dividends derived from such share option plan. Dividend Distributions Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and amended in 1997 and 2008, respectively, and various regulationsissued by SAFE, and other relevant PRC government authorities, the PRC government imposes controls on the convertibility of the Renminbi into foreigncurrencies and, in certain cases, the remittance of currency out of China. Jiachenhong and Nuoya are regulated by the specific laws governing foreign-invested enterprises in the PRC and Lukou was regulated by the PRCcompany law. Accordingly, they are required to allocate 10% of their after-tax profits based on PRC accounting standards each year to their general reservesuntil the accumulated amount of such reserves has exceeded 50% of their registered capital, after which no further allocation is required to be made. Thesereserve funds, however, may not be distributed to equity owners except in accordance with PRC laws and regulations. In addition, due to the failure of theMeasures to define or interpret the terms “non-profit”, “for-profit” or “for the purpose of making a profit” as they relate to our business, we cannot assure youthat the PRC government authorities will not request our subsidiaries to use their after-tax profits for their own development and restrict our subsidiaries’ability to distribute their after-tax profits to us as dividends. C.Organizational Structure We are a Cayman Islands company registered by way of continuation in the Cayman Islands on June 30, 2009. CCBC was formed through the Business Combination, which involved the Merger of Pantheon with and into Pantheon Arizona, then a whollyowned, non-operating subsidiary of Pantheon formed for the purpose of effecting the Merger, with Pantheon Arizona surviving the Merger, and the conversionand continuation of Pantheon Arizona’s corporate existence from Arizona to the Cayman Islands. Immediately following the Redomestication, the participatingshareholders of approximately 93.94% of the issued and outstanding shares of CCBS completed the Share Exchange with Pantheon Arizona, and PantheonArizona changed its name to CCBC, resulting in CCBS becoming a subsidiary of CCBC and the participating shareholders becoming holders of CCBC’sordinary shares. In August 2009, CCBC entered into agreements with holders of the remaining 6.06% issued and outstanding shares of CCBS to exchangesuch shares for 3,506,136 newly issued shares of CCBC with the result that CCBS is now our wholly owned subsidiary. CCBS entered into thesearrangements pursuant to its decision to seek alternative ways to achieve a U.S. public market presence for its shares other than through our initial publicoffering. Pursuant to our public offering on November 19, 2009, we were listed on the New York Stock Exchange with a ticker symbol “CO”. CCBS was incorporated on January 17, 2008 under the Companies Law (2012 Revision) of the Cayman Islands to become the direct holdingcompany of CSC Holdings. CCBS has three operating subsidiaries in China: Jiachenhong, Nuoya and Lukou. CCBS holds an indirect 100.0% interest inJiachenhong, an indirect 100.0% interest (as of March 31, 2013) in Nuoya and an indirect 90.0% interest in Lukou. In addition, CCBS holds an indirect14.1% interest (as of March 31, 2013) in CBB and 10.5% interest in Cordlife Singapore (as of March 31, 2013), providers of cord blood banking serviceswith operations in Singapore, Hong Kong, India, Indonesia and the Philippines. 65 Following the Business Combination and the share exchange with the remaining CCBS’ shareholders, Golden Meditech owned 46.3% of CCBC’sissued shares through its wholly-owned subsidiary, GM Stem Cells. Golden Meditech is a publicly traded company on the Hong Kong Stock Exchange and isa China-based healthcare company with investment in the cord blood banking business via equity interests in CCBC. Golden Meditech is not engaged in anyactivities or businesses that compete or are likely to compete with CCBS’s business. The participating shareholders of CCBS (excluding Golden Meditech)owned 45.8% of CCBC’s issued shares, the public shareholders owned approximately 0.2% of CCBC’s issued shares, Pantheon management prior to theBusiness Combination owned 2.0% of CCBC’s issued shares and CCBC management team who received CCBC shares via exercising CSC options owned5.7% of CCBC’s issued shares. The Business Combination was accounted for in accordance with U.S. GAAP as a capital transaction in substance. Pantheon was treated as the“acquired” company for financial reporting purposes. This determination was primarily based on CCBS comprising the ongoing operations of the combinedentity, the senior management of CCBS continued as the senior management of the combined company and CCBS shareholders retaining the majority ofvoting interests in the combined company. For accounting purposes, the Business Combination was treated as the equivalent of CCBS issuing stock andwarrants for the net assets of Pantheon, accompanied by a recapitalization. Operations of the combined entity prior to the Business Combination are those ofCCBS. The remaining 6.06% issued and outstanding shares of CCBS not exchanged in the Business Combination were recorded as non-controlling interest.Upon the completion of the share exchange with the remaining 6.06% CCBS shares in August 2009, the carrying amount of such non-controlling interest wasadjusted to reflect the change in CCBC’s ownership interest in CCBS. Any difference between the fair value of the CCBC shares issued and the amount bywhich the non-controlling interest is adjusted, together with any transaction costs incurred, was recognized in equity attributable to CCBC. We conduct our current operations through Jiachenhong, Nuoya and Lukou, our PRC subsidiaries. Jiachenhong is the operator of the sole licensedcord blood bank in Beijing, Nuoya is the operator of the sole cord blood banking licensee in Guangdong; and Lukou is the exclusive operator in Zhejiang. Wealso indirectly owned 24.0% effective interest in Qilu, the sole cord blood banking licensee in Shandong. The cord blood bank in Beijing operated by Jiachenhong received its cord blood banking license in September 2002. In September 2003, GM StemCells, a wholly owned subsidiary of Golden Meditech, and an affiliate acquired a 51.0% equity interest in Jiachenhong. The remaining 49.0% equity interestin Jiachenhong was held by other founding members through a company incorporated in the British Virgin Islands. CSC Holdings was formed in January2005 to become the holding company of Jiachenhong. Under a corporate restructuring in March 2005, CSC Holdings issued ordinary shares to GM StemCells and other founding members in exchange for all of their equity interests in Jiachenhong. CSC Holdings subsequently completed two private placementsand four share transfers, as a result of which GM Stem Cells equity interest in CSC Holdings was reduced to 50.2%. Immediately after the BusinessCombination described above, GM Stem Cells owned 46.3% equity interest in CCBC. The cord blood bank in Guangdong operated by Nuoya received its cord blood banking license in June 2006. In May 2007, CSC South, oursubsidiary, completed the acquisition of Nuoya. At that time, CSC South, being 90% owned by us, is the sole shareholder of Nuoya. In September 2010, we entered into a framework agreement to form an indirect non-wholly owned subsidiary with the Zhejiang Provincial BloodCenter. Pursuant to the framework agreement, we then established a non-wholly owned subsidiary, Lukou, acquired the right to operate the cord blood bank inthe Zhejiang province for a cash consideration of $12.5 million all during the year ended March 31, 2011. Lukou is 90% owned by Jiachenhong, our whollyowned PRC subsidiary, and is the exclusive cord blood banking operator in the Zhejiang province. On November 5, 2010, we completed a follow-on public offering of 7,000,000 shares at $4.50 per share. Total gross proceeds of $31.5 millionraised are being used in building out our Zhejiang operation and for general working capital purposes. On December 10, 2010, we completed a warrant exchange offer to simplify our capital structure, which allowed warrant holders to receive oneordinary share for every eight warrants outstanding. We issued an aggregate of 1,627,518 ordinary shares upon closing of the warrant exchange offer, equalto approximately 2.2% of shares outstanding as of December 10, 2010, in exchange for 13,020,236 warrants. Any remaining warrants outstanding that werenot exercised expired on December 13, 2010. 66 The cord blood bank in Shandong operated by Qilu received its permission to commence operation from Shandong DOH in February 2008. In May2010, we completed the investment in an effective 19.9% equity interest in Qilu via our wholly owned Hong Kong incorporated subsidiary, China Stem Cells(East) Company Limited. Cordlife was a company whose shares were listed on the Australian Securities Exchange and provided cord blood banking services with operationsin Singapore, Hong Kong, India, Indonesia and the Philippines. We acquired 11,730,000 shares of Cordlife for a cash consideration of AUD8.0 million inJuly 2007 and an additional 5,795,000 shares for a cash consideration of AUD2.4 million for the year ended March 31, 2009. In June 2010, we entered intoan agreement to underwrite a rights issue for Cordlife. On July 4, 2010, we terminated the underwriting agreement and were released from such obligation butcontinued to participate in the rights issue and took up our share entitlements on a pro-rata basis. The rights issue was completed on July 26, 2010 and wesubscribed for 6,841,666 shares of Cordlife at a total cost of AUD2.0 million. As of March 31, 2011, we had acquired an aggregate of 24,366,666 ordinaryshares of Cordlife with total cost of AUD12.4 million. On June 16, 2011, shareholders of Cordlife approved a capital reduction scheme by way of distribution in specie. The scheme involves a spin off ofCordlife’s more mature cord blood banking business. The restructuring and distribution in specie were subsequently completed and effective on June 30,2011. Right after the restructuring, we owned 24,366,666 shares in both CBB and Cordlife Singapore. As of March 31, 2013, such shares represented a14.1% equity interest in CBB and a 10.5% equity interest in Cordlife Singapore. Cordlife Singapore was listed on the Singapore Exchange on March 29,2012. On April 27, 2012, we completed the sale of $65 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share to KKRCHL. The notes are senior unsecured obligations, mature on April 27, 2017and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any time or times on or after the issuance date, inwhole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significant corporate events. Interest accrues onunconverted portion of the notes at the rate of 7% per annum. On the maturity date, we are obligated to pay a redemption amount calculated to provide a 12%internal rate of return (inclusive of interest) on the unconverted portion of the notes. From and after the thirtieth day following the occurrence, and during thecontinuance, of an event of default under the notes, the interest rate will be increased to twenty-two and one-half percent (22.5%) per annum. The notes containcustomary ongoing covenants, including negative covenants, and events of default and any amendment or waiver thereof requires the affirmative consent of amajority in interest of the holders of all outstanding notes, provided that no such amendment or waiver may affect the principal or interest payable under thenotes or change the maturity thereof or any conversion or redemption rights to which the notes are entitled without the affirmative vote or written consent ofeach holder of the notes affected thereby. On October 3, 2012, we completed the sale of $50 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share to Golden Meditech. The notes are senior unsecured obligations, mature on October3, 2017 and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any time or times on or after theissuance date, in whole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significant corporate events.Interest accrues on unconverted portion of the notes at the rate of 7% per annum. On the maturity date, we are obligated to pay a redemption amount calculatedto provide a 12% internal rate of return (inclusive of interest) on the unconverted portion of the notes. From and after the thirtieth day following the occurrence,and during the continuance, of an event of default under the notes, the interest rate will be increased to twenty-two and one-half percent (22.5%) per annum.The notes contain customary ongoing covenants, including negative covenants, and events of default and any amendment or waiver thereof requires theaffirmative consent of a majority in interest of the holders of all outstanding notes, provided that no such amendment or waiver may affect the principal orinterest payable under the notes or change the maturity thereof or any conversion or redemption rights to which the notes are entitled without the affirmativevote or written consent of each holder of the notes affected thereby. 67 On November 12, 2012, we completed a share purchase agreement with Cordlife Singapore, pursuant to which the Company sold to CordlifeSingapore, and Cordlife Singapore purchased, 7,314,015 of our ordinary shares for a total purchase price of approximately $20.8 million.Contemporaneously, CSC South completed a shares repurchase agreement with Cordlife HK, pursuant to which CSC South repurchased the 10% of itsshares previously held by Cordlife HK for approximately $16.8 million. Upon the completion of the transactions, Nuoya became our indirect wholly ownedsubsidiary and Cordlife Singapore acquired 7,314,015 of our ordinary shares, representing approximately 10% of our issued ordinary shares as ofcompletion date. On February 7, 2013, Favorable Fort completed a shares purchase agreement with Cordlife Services, pursuant to which Favorable Fort repurchasedthe 17% of its outstanding ordinary shares not already indirectly owned by the Company from Cordlife Services for a total purchase price of approximately$8.7 million. Upon completion of the transaction, Favorable Fort became an indirect wholly owned subsidiary of CCBC and CCBC’s effective equity interestin Qilu increased from 19.9% to 24.0%. Our holding company structure allows our management and shareholders to take significant corporate actions without having to submit these actionsfor approval or consent of the administrative agencies in every jurisdiction where we have significant operations. D.Property, Plant and Equipment As of March 31, 2013, we maintain facilities in Beijing, Guangdong and Zhejiang. The following table sets forth certain information relating to thepremises we occupy: Premises Nature of use Terms of use Area occupied (in square meters) Beijing Laboratories, storage facilities for cord bloodunits and office space Acquired in November 2006 for a consideration ofRMB28.6 million for a term of 40 years. 9,600 Leased at a monthly rent of RMB120,000. The lease willexpire in December 2014. 1,920 Subtotal 11,520 Guangdong Laboratories, storage facilities for cord bloodunits and office space Acquired in June 2012 for a consideration of RMB100.0million ($16.1 million) for a term of 44 years. 14,608 Zhejiang Laboratories, storage facilities for cord bloodunits and office space Entered into agreement in January 2013 to acquire aproperty for a consideration of RMB87.3 million ($14.1million). The Company is in the process of obtaining theownership certificate. 5,562 Total 31,690 Our facilities in Beijing and Guangdong are equipped with a customer relationship management system. The system has been customized to monitorour sales performance, monitor testing processes and results on a case-by-case basis, keep real-time record of storage movement in cord blood banks, handlebilling matters, and track customer hotline interactions. ITEM 4A.UNRESOLVED STAFF COMMENTS None. ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section titled “KeyInformation — Selected Financial Data” and the consolidated financial statements included elsewhere in this report. This discussion and analysis may containforward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from thoseanticipated in these forward-looking statements as a result of various factors, including those set forth in “Key Information — Risk Factors” of this report. 68 Overview We are the leading provider of cord blood banking services in China. We provide cord blood services for expectant parents interested in capturing theopportunities made available by evolving medical treatments and technologies such as cord blood transplants. We also preserve cord blood units donated bythe public, provide matching services on such donated units and deliver matching units to patients in need of transplants. Our Beijing-based subsidiary,Jiachenhong, was the operator of the first licensed cord blood bank in China. The PRC government only grants one cord blood banking license per province ormunicipality. According to the Notice on Extension of Time Limit on Planning and Establishment of the Cord Blood Bank published by the MOH inFebruary 2011, the PRC government intends to authorize up to ten cord blood banks. To date, it has authorized seven such licenses. Our operations currentlybenefit from multiple exclusive cord blood banking licenses issued in China, including our licenses for Beijing, Guangdong, and Zhejiang. We also have aninvestment in a 24.0% equity interest in Qilu, the operator of the exclusive licensed cord blood bank in the Shandong province. Our cord blood banking network is the largest in China. The aggregate number of births in our operating regions, including Beijing, Guangdongand Zhejiang was estimated to be 1.8 million in 2011, accounting for approximately 45% of the total newborn population in the seven provinces andmunicipalities that have been authorized or issued cord blood banking licenses to date, according to the National Bureau of Statistics of China. We believe ourleading market position and track record of growing our subscriber base position us well to continue to expand our presence in China. According to theNational Bureau of Statistics of China, the nation has a newborn population of approximately 16.1 million in 2011; and according to the CIA WorldFactbook, China had the second largest newborn population in the world. Cord blood banking as a precautionary healthcare measure is still a relatively newconcept in China, with penetration rates that we estimate to be less than 1% of China’s overall newborn population. The estimated penetration rate in ouroperating regions is approximately 3% in both 2011 and 2010 (based on the number of new subscriber sign-ups for the fiscal year ended March 31 divided bythe estimated number of newborns of the corresponding calendar year according to the China Statistical Yearbook). The following table that indicates the estimated number of births and penetration rate in the Company’s operating regions based on new subscribersign-ups for the fiscal year ended March 31 following each reported calendar year. Estimated no. of births in theCompany’s operating regions(1) New subscribersign-ups (net)(2) Estimated penetration rate in the Company’s operating regions 2010 1,873,406 56,518 3%2011 1,782,445 53,924 3% (1) Source: China Statistical Year Book 2011 and 2012. Calendar year information.(2) Based on the fiscal year ended March 31 following the calendar year reported. We expect the demand for cord blood banking services will grow significantly due to factors such as rapidly rising disposable income in the PRC,China’s one-child policy, and increasing public awareness of the benefits of cord blood and hematopoietic stem cell related therapies. Furthermore, our positionas a significant shareholder with 14.1% equity interest (as of March 31, 2013) in CBB and 10.5% equity interest (as of March 31, 2013) in CordlifeSingapore, which are the leading cord blood banking operators in Southeast Asia, provides the foundation for further expansion into attractive markets suchas India, Indonesia and the Philippines, and mature markets such as Singapore and Hong Kong respectively. We have developed a highly effective sales and marketing platform that has enabled us to consistently grow our cord blood subscriber base in themarkets we serve. Our 525-person sales team has direct access to expectant parents through collaboration with 290 hospitals in Beijing, Guangdong andZhejiang. We also cooperate with local government family planning agencies and utilize a variety of marketing programs, including media advertising,seminars and pre-natal classes, to further educate expectant parents on the benefits of cord blood banking. Our accumulated subscriber base has grown from23,322 in March 2007 to 311,982 in March 2013. 69 We generate substantially all of our revenues from subscription fees. The standard payment arrangement for our services consists of processing feespayable at the time of subscription and storage fees payable by our subscribers on an annual basis for as long as the contracts remain effective, whichtypically have a contract period of 18 years. The contracts can be terminated early by the parents at each anniversary of the contract or further extended, at theoption of the children, after reaching adulthood. This payment structure provides us with a steady stream of recurring revenue and cash flow. For the yearended March 31, 2013, storage revenue represented 24.6% of our total revenues. We recorded revenues and net income of RMB526.1 million ($84.7 million) and RMB119.6 million ($19.3 million), respectively, during our fiscalyear ended March 31, 2013. Substantially all of our revenues consist of fees generated from our subscription services, which consist of the collection of the newborn’s cord bloodunit at one of our collaborating hospitals and the transportation of the cord blood unit to one of our facilities for testing and processing, referred to in this reportas “processing services”, and the long-term storage of the cord blood unit at the facility, referred to in this report as “storage services”. Our contracts with oursubscribers, referred to in this report as “subscription contracts”, are renewed automatically each year for a period of 18 years, with subscribers having theoption to terminate their contracts at the time of contract renewal. Fees payable under the subscription contracts, referred to in this report as “subscription fees”, consist of two components: a one-time “processingfee”, which reflects consideration for the processing services, and an annual “storage fee”, which reflects consideration for the storage services in theforthcoming year. This payment structure enables us to enjoy a steady stream of long-term cash inflow. We expect such long-term cash flow to continue toincrease as our subscriber base continues to grow. In addition, we generate a portion of revenues from fees generated from our matching services, referred to inthis report as “matching fees”, which reflect consideration for providing matching cord blood units collected from public donors to patients in need oftransplants. Because a portion of our operating costs, such as costs of maintaining storage cylinders and automated monitoring systems, are fixed, we arelikely to benefit from economies of scale as the number of units stored at our cord blood facilities increases. Our new subscriber sign-ups for the years ended March 31, 2011, 2012 and 2013 were 56,518, 53,924 and 72,228, respectively. We intend togrow revenues by continuing to enlarge our subscriber base. One major strategy is by increasing our penetration rates into existing markets through expandingour hospital networks and enhancing our sales and marketing initiatives. Hence, we expect to incur more sales and marketing expense in the future. Anothermajor strategy is by expanding our geographical coverage by acquiring or collaborating with one or more license holder or successful license applicants in otherregions. To service the various regions, we have storage facilities established across different regions. Our Beijing storage facility commenced operation in April2009. We are in the process of expanding our storage capability in Guangdong as well as establishing a new storage facility to service the Zhejiang market. See“— Our Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Expenditures”. In evaluating our financial conditionand results of operations, attention should be drawn to the following areas: ·Acquisition of Nuoya. Prior to our acquisition of the right to operate in Guangdong through our acquisition of Nuoya, Nuoya did not engage incommercial operation and had no substantial liabilities, and its former management did not maintain complete, accurate and reliable financialinformation. We nonetheless proceeded with the investment because the cord blood bank operated by Nuoya had the exclusive right to operate inGuangdong, one of our target markets. Shortly after the acquisition, we remedied the situation by making the necessary corporate actions. ·Investment in Lukou. In September 2010, we entered into a framework agreement to form an indirect non-wholly owned subsidiary with the ZhejiangProvincial Blood Center. Pursuant to the framework agreement, we then established a non-wholly owned subsidiary, Lukou, acquired the right to operatethe cord blood bank in the Zhejiang province for a cash consideration of $12.5 million all during the year ended March 31, 2011. Lukou is 90% ownedby Jiachenhong, our wholly owned PRC subsidiary, and is the exclusive cord blood banking operator in the Zhejiang province to provide cord blood stemcell banking service for expectant parents and to preserve cord blood units donated by the public but it had no commercial operation prior to ourinvolvement. 70 ·Investment in Qilu. Qilu is the sole licensee in the Shandong province. It obtained permission from Shandong DOH to commence operation in February2008. In May 2010, we invested in a 19.9% equity interest in Qilu and in February 2013, we further increased our equity interest in Qilu to 24.0%. Inlight of our minority equity interest and that we do not have any representation in the Board of Directors of Qilu, we do not have any control or significantinfluence in Qilu either before or after February 2013. Therefore, we do not consolidate or account for under the equity method our share of Qilu’soperating results and net assets, and state the investment at cost less impairment losses (if any). ·Limited operating history. Our future prospects are subject to risks and uncertainties beyond our control. Part of our growth strategy involvesacquiring business of other licensed cord blood banks or partnering with license applicants. Acquisition or partnership may introduce uncertainty andrisk beyond our control. Nuoya was acquired by us in May 2007. While it has been in operation for years, its operating history is still considered limitedcomparing to our Beijing subsidiary. Hence, there may be unexpected events that will materially affect our operation in Guangdong, in turn affecting ourgroup as a whole. In addition, Lukou has a very limited operating history and no commercial operation prior to our involvement, hence, there maybeunforeseeable event which can materially affect Lukou’s operation. Factors Affecting Our Financial Condition and Results of Operations We have benefited significantly from favorable demographic trends, overall economic growth and increased demand for innovative healthcareservices in China. The overall economic growth and the increase in the GDP per capita in China in recent years have led to a significant increase in healthcarespending in China. At the same time, China’s “one-child” policy has resulted in parents’ increasing willingness and ability to devote more resources to theirchildren. We anticipate that demand for cord blood banking services will continue to increase as the economy in China continues to grow and as disposableincome of urban households continues to rise. Any adverse changes in the economic conditions or regulatory environment in China, however, may have amaterial adverse effect on the cord blood banking industry in China, which in turn may harm our business and results of operations. Demand for Cord Blood Banking Services As of the date of this report, seven cord blood banking licenses had been granted in seven regions in China, and the PRC government plans to issuecord blood banking licenses in up to three additional regions by 2015. Future demand for the cord blood banking industry in China is expected to be drivenmainly by (i) increased penetration rates along with a large number of newborns in China arising from its sizeable population, (ii) increased healthcareexpenditure as a result of the growth in GDP and disposable income in urban areas, (iii) China’s one-child policy, (iv) increased sales and marketing efforts toincrease the public awareness of the benefits associated with cord blood banking and (v) additional diseases that stem cells could be used for treatment. Weintend to generate additional demand for our services by enhancing our sales and marketing initiatives and expanding hospital networks to increase the publicawareness of benefits associated with cord blood banking. Average Revenue per Subscriber Substantially all of our revenues are derived from the fees payable by subscribers in connection with the handling of the cord blood units of theirnewborns. Our standard package requires our subscribers to pay a one-time processing fee and an annual storage fee for a period up to 18 years. All fees areinclusive of a 5% business tax. Since September 1, 2012 in Beijing, November 1, 2012 in Guangdong and December 1, 2012 in Zhejiang, all fees areinclusive of a 6% value-added tax instead of the 5% business tax. If the examination results indicate that the cord blood stem cells are not viable for storage, inmost situations we will refund approximately 70% - 74% of the processing fee and terminate the contract. Prior to April 1, 2011, we charged a one-time processing fee of RMB5,000. Effective from April 1, 2011, we raised the one-time processing fee fromRMB5,000 to RMB5,800. Effective from April 1, 2013 in Guangdong and Zhejiang, and from May 1, 2013 in Beijing, we increased the one-time processingfee from RMB5,800 to RMB6,800. 71 Aside from the processing fee, the subscriber is obligated to make an annual payment of RMB980 (RMB620 prior to April 1, 2013 in Guangdongand Zhejiang, and May 1, 2013 in Beijing). This annual payment consists of a storage fee of approximately RMB860 (approximately RMB500 prior to April1, 2013 in Guangdong and Zhejiang, and May 1, 2013 in Beijing) and an insurance premium of approximately RMB120. The entire amount of the insurancepremium is subsequently forwarded to an independent third party health insurance provider for and on behalf of such subscriber to cover potentialhospitalization costs of the newborn. The subscriber cannot elect not to pay the annual insurance premium. We do not assume any credit risk in respect of thecollection of such insurance premium and have no obligations to our subscribers under the insurance policies. See Note 12 to our consolidated financialstatements included elsewhere in this report. Since we are not the primary obligor for the provision of insurance services, the insurance premium received andpaid to the insurance provider are not included in our consolidated statements of comprehensive income. Because there is no written policy from the Bureau of Price in relation to the pricing of cord blood banking services, currently, we have the flexibilityto set and adjust the subscription packages in response to changing market dynamics and have been targeting our subscription services at all expectant parentsin our existing markets. For example, we offer medical practitioners, including doctors, nurses or other medical professionals, cord blood banking services atcertain discounts from time to time. If subscription services become subject to price control in China, our financial condition and results of operations wouldbe adversely affected. See “Key Information — Risk Factors — Risks Relating to Our Business — Our business and financial results may be materiallyadversely affected as a result of regulatory changes in the cord blood banking industry in China.”. Payment Methods for Subscribers We offered our subscribers three payment options: ·Option One: payment of a one-time processing fee of RMB6,800 (RMB5,800 prior to April 1, 2013 in Guangdong and Zhejiang, and May 1, 2013in Beijing; and RMB5,000 prior to April 1, 2011) upon delivery of the cord blood unit to our premises for testing and processing, which we referredgenerally as “the time of subscription”, and an annual storage fee of approximately RMB860 (RMB500 prior to April 1, 2013 in Guangdong andZhejiang, and May 1, 2013 in Beijing) payable each year for a period of 18 years. ·Option Two: payment of a one-time processing fee of RMB5,000 and an upfront payment for 18 years of storage fees at a discount of 20% to thetotal amount of storage fees payable under the contract at the time of subscription. This payment option has been suspended since January 1, 2008.Nevertheless, an amended version of this option, which provides for the payment of a one-time processing fee of RMB5,000 and an upfront paymentfor 18 years of storage fees (with no discount) at the time of subscription, had become available to new subscribers since February 1, 2009. Effectivefrom April 1, 2011, subscribers in Beijing who choose this option will pay a one-time processing fee of RMB5,800 and an upfront payment for 18years of storage fees (approximately RMB500 x 18) with no discount. Effective from April 1, 2011, subscribers in Guangdong who choose thisoption will pay an upfront payment for 18 years of storage fees (approximately RMB500 x 18) and a one-time processing fee of RMB4,640,representing a 20% discount of the one-time processing fee. Effective from April 1, 2013 in Guangdong and Zhejiang, and from May 1, 2013 inBeijing, subscribers who choose this option will pay an upfront payment for 18 years of storage fees (approximately RMB602 x 18) and a one-timeprocessing fee of RMB6,800, representing a discount of RMB4,640 of the total storage fees payable over the contract period. ·Option Three: payment of the processing fee by installment, including an initial payment of RMB1,100 at the signing of the contract and an annualpayment of RMB300 each year for a period of 18 years, representing a surcharge of RMB1,200 to the total amount of processing fees payable underthe contract, and an annual storage fee of approximately RMB500 payable each year for a period of 18 years. Effective from April 1, 2011,subscribers in Beijing who choose this option will pay an initial payment of RMB1,250 at the signing of the contract and an annual payment ofRMB350 each year starting from the second year until the end of the eighteenth year, resulting in a surcharge of RMB1,400 to the amount ofprocessing fees payable under the contract. Subscribers in Guangdong who choose this option between April 1, 2011 and June 30, 2011, will pay theprocessing fee by four annual installments. The first, second, third and fourth installment payments are RMB1,800, RMB1,700, RMB1,600 andRMB1,200 respectively. This resulted in a surcharge of RMB500 to the amount of processing fees payable under the contract. From July 1, 2011onward, subscribers in Guangdong who choose to pay processing fee by installments will make an initial payment RMB1,460, follow by fourannual payments of RMB1,210 each, representing a surcharge of RMB500 to the amount of processing fees payable under the contract. Subscribersin Beijing and Guangdong choosing this option will also need to pay the storage fee which is approximately RMB500 per annum for a period of 18years. Effective from May 1, 2013, subscribers in Beijing who choose this option will pay a one-time processing fee of RMB6,800 in two equalinstallments, with one payment at the time of subscription and the other at the second anniversary of the subscription. The storage fee will be paidcommencing on the third anniversary of subscription in subsequent four yearly installments of RMB3,380 each year, representing a discount ofRMB1,960 of the total storage fees payable over the contract period. Payment option (3) is not offered to subscribers in Guangdong and Zhejiang. 72 For the year ended March 31, 2013, approximately 55.9% of new subscribers chose Option One, compared to 47.4% in the year ended March 31,2012. Option Two represented approximately 40.9% and 34.9% of new subscribers signed up during the year ended March 31, 2013 and 2012 respectively.3.2% of new subscribers chose Option Three for the year ended March 31, 2013, compared to 17.7% in the prior year. Under Option One, our subscribers arecontractually obligated to pay the processing fee at the time of subscription. Some subscribers, however, settle the processing fee after the completion of theprocessing services. Under Option Three, our subscribers pay the processing fee by installments. Because we recognize the processing fee as revenue uponcompletion of the processing services, there is an outstanding accounts receivable if the subscriber has not yet paid the processing fees upon such completion.The amounts due within one year are recorded in current accounts receivable for Option Three. Accordingly, a decrease in new subscribers choosing OptionThree resulted in a decrease in current accounts receivable. As of March 31, 2013, current accounts receivable amounted to RMB73.1 million ($11.8 million),compared to RMB79.0 million last year. For subscribers choosing Option Three, the portion of the revenue which is not yet collectible within one year will be recorded in the non-currentreceivables. As the new subscribers choosing Option Three decreased, the non-current accounts receivable as well as the total accounts receivable decreased.Non-current accounts receivable as of March 31, 2013 amounted to RMB249.4 million ($40.2 million) as compared to RMB254.2 million last year. Turnover periods for current accounts receivable for the years ended March 31, 2011, 2012 and 2013 determined based on average current accountsreceivable and revenues in the respective periods, were 75 days, 75 days and 53 days, respectively. The fluctuations on turnover days reflected the shift innew subscribers payment option. Duration of Subscription Services Our business requires delivery of services to our subscribers on a long-term basis. Our subscription contracts typically are automatically renewedeach year for a period of 18 years. The contract may be extended beyond the initial 18 years at the election of the child when he or she reaches adulthood. Thecontract may be shorter than 18 years if the cord blood unit is needed for transplants by the child or a family member or if the subscriber terminates thecontract by notice prior to the end of 18 years. As illustrated below, our practice of entering into long-term contracts with subscribers imposes constraints anduncertainties on our operations: ·Our subscribers are not subject to any penalties if they terminate subscription contracts prior to the end of the initial 18-year term. A subscriber mayelect to terminate the subscription service by providing a termination request. The subscriber will then be released from the contractual obligationupon settling all outstanding amounts payable to us in respect of any overdue storage fees and the remaining element of the processing fee to the extentnot yet invoiced (for those customers electing to use Payment Option Three). Although we have not experienced significant early termination requestsfrom our subscribers in the past, there is no guarantee that all subscribers will fulfill their contractual obligations by continuing to pay storage fees onan annual basis for the full period of 18 years. As of March 31, 2011, there were 3,604 subscribers who had been delinquent for over 18 months inpaying their storage fees and we have ceased to recognize storage revenue from such delinquent subscribers. During the year ended March 31, 2012,we performed a retrospective review of delinquent receivable collections for the period from fiscal year 2011 to fiscal year 2012. The results of thisreview indicated there was a high percentage of successful collections of receivables that were delinquent over 18 months but less than 24 months. Asa result, we changed our estimate of not recognizing storage revenue from subscriber who was delinquent for more than 18 months to 24 months inthe year ended March 31, 2012. There were 9,752 subscribers who had been delinquent for more than 24 months as of March 31, 2012. The changewas not significant as the impact of the change representing approximately 1% of total net revenues for the year ended March 31, 2012. As ofMarch 31, 2013, there were 9,397 subscribers who had been delinquent for over 24 months in paying their storage fees and we have ceasedrecognizing storage revenue from such delinquent subscribers. The references to our number of subscribers as of a particular date in this AnnualReport are inclusive of delinquent subscribers and therefore do not represent the total number of paying subscribers. See “ Key Information — RiskFactors — Risks Relating to Our Business — Our financial condition and results of operations may be materially adversely affected if a significantnumber of our subscribers terminate their contracts with us prior to the end of a typical contract period of 18 years”. 73 ·For subscription contracts signed before January 1, 2008, we do not have the right to amend or terminate such subscription contracts as long as oursubscribers continue to renew the contract over the 18-year period. Inflation in China may adversely impact our profit margins through increasedcosts of compensation and expenses. Although we believe that we could offset some of the effects of inflation through technological advances,economies of scale and operational efficiencies, our financial condition and results of operations may be materially adversely affected by increasedoperating costs. Starting from January 1, 2008, under the new subscription contract, we reserved the right to review and adjust the annual storage feein accordance with the local inflation index. Sales and Marketing Activities Undertaken through Our Hospital Networks We provide our services through collaboration with selected hospitals in our operation regions. All cord blood collection services are performed and asignificant portion of our sales and marketing activities are undertaken through our network of collaborating hospitals, for which hospitals are reimbursed forthe costs of materials and resources utilized in the cord blood collection process. Accordingly, our success is dependent upon our ability to utilize our hospitalnetworks to undertake sales and marketing activities to increase penetration in our existing markets. As of March 31, 2013, we collaborate with 290 hospitalsacross Beijing, Guangdong and Zhejiang. Our ability to generate revenue growth and the terms for service delivery depend, to a large extent, on our ability to develop and maintain collaborativerelationships with prominent hospitals as we expand to a new market and strengthens our collaboration with hospitals in our existing markets. This isparticularly the case for highly reputable hospitals or hospitals where we have derived a significant portion of revenues in the past and expect to continue to doso in the future. Termination or alteration of any contracts with any major collaborating hospitals could have a material adverse effect on our business. Application for Cord Blood Banking Licenses One of our major strategies is to expand our geographical coverage by applying for licenses in other regions, which is closely related to our ability tocapture growth opportunities in other markets in China. While we have no immediate plan to apply for licenses, if opportunities available in the future, we willnot exclude the possibility to apply for licenses. An application for a cord blood banking license in a region starts with submission of a written notice to therelevant DOH concerning the applicant’s intention to construct and operate a cord blood bank. As the offering of cord blood banking services concerns publichealth, the DOH scrutinizes the application and exercises its discretion by taking into account relevant laws and regulations and other considerations such aspublic health to ensure that applicant is committed to the industry and is capable of providing quality services. Upon its satisfaction of a series of complexand stringent requirements, including those applicable to storage facilities, the applicant may submit its formal application for a license. Following the receiptof the formal application, the DOH will consider granting the license to the applicant upon its satisfactory inspection of its facilities. Our likelihood of success in our application should be evaluated in light of following: ·It generally takes several years to receive a cord blood banking license in China. Following the submission of a written notice to the DOH, theapplicant usually would be required to incur significant initial investments, including costs associated with the construction of facilities, todemonstrate to the DOH that it is capable of meeting the stringent application requirements for a license prior to the receipt of such a license. Forexample, the cord blood bank in Beijing operated by Jiachenhong took six years to obtain its license, during which time it incurred substantial coststo construct facilities meeting the stringent application requirements prior to obtaining a license. 74 ·As the first operator of the licensed cord blood bank in China with multiple cord blood banking licenses issued by the PRC government authorities todate, we believe that our operational knowledge, experience and expertise provide a strong platform to obtain additional licenses. Currently, we havenot formally submitted any written notice to any DOH concerning our intention to construct and operate a cord blood bank in any region. We will notcommence the construction of a cord blood bank prior to formal submission of a written notice to the DOH in any region in which we intend toconstruct and operate a cord blood bank. However, if we decide to submit such a written notice, we will be required to commence construction of cordblood bank facilities to demonstrate the capability of meeting stringent application requirements for a license prior to receiving the license. It ispossible that applications in the future will be rejected after we have incurred a significant initial investment in the process. In such circumstances,our financial condition and results of operations may be materially adversely affected. See “ Key Information — Risk Factors — Risks Relating toOur Business — We may incur significant initial investments to apply for cord blood banking licenses in other regions, and if we are unsuccessful,our operating results could be materially adversely affected”. ·There exist substantial uncertainties in the regulatory framework for the cord blood banking industry in China. We may be required to revise ourbusiness plan from time to time to respond to a changing regulatory environment, which could materially adversely affect our financial condition andresults of operations. For example, prior to March 2005, there were construction of two cord blood banks in the regions outside Beijing as part of thestrategy to further expand business in regions where the PRC government is likely to issue additional cord blood banking licenses. The businessjudgment on the locations of these two cord blood banks was made based on the information available at the time. As we continued to monitor thegovernment’s policy on regions where additional cord blood banking licenses were likely to be issued but basing on available information, we wereunable to ascertain whether the locations of the two cord blood banks were regions where additional cord blood banking licenses in China were likelyto be issued. As such, we abandoned construction of the two cord blood banks and incurred an impairment loss of RMB13.5 million for the yearended March 31, 2006. Currently, we have neither identified any specific locations nor expressed any written interest in constructing a cord bloodbank. Acquisition of or Investment in Other Cord blood banking operators We seek to expand our geographical coverage by acquiring or investing in cord blood banking operators or applicants in other regions. Period-to-period comparisons of our operation results must therefore be evaluated in light of the impact of such acquisitions. In May 2007, CSC South, our subsidiary,acquired Nuoya for a total consideration, including direct expenses, of RMB30.9 million in cash. In November 2012, Nuoya became an indirect whollyowned subsidiary upon the completion of transactions with Cordlife Singapore and Cordlife HK. Nuoya is our cord blood banking operator in Guangdong,one of the most populous regions in China. According to the National Bureau of Statistics of China, the number of newborns in Guangdong wasapproximately 1.1 million in 2011. Since May 2007, our operation in Guangdong has grown significantly. In May 2010, we completed the investment in a 19.9% effective interest in Qilu, the exclusive cord blood banking operator in the Shandong provincefor a cash consideration of approximately $20.5 million. In February 2013, we further increased our equity interest in Qilu from 19.9% to 24.0%. Based onChina Statistical Yearbook 2012, over 1.1 million babies were born within the Shandong province during 2011. It represented a very sizable marketopportunity. In February 2011, we obtained the operating right to operate the Zhejiang Cord Blood Bank for consideration of $12.5 million to operate the ZhejiangCord Blood Bank. Through these transactions, we further expanded our addressable market size by accessing the Zhejiang province as the exclusive cordblood banking operator. Based on China Statistical Yearbook 2012, over 0.5 million babies were born within the Zhejiang province during 2011. It alsorepresented a very sizable market opportunity. 75 We acquired 11,730,000 shares of Cordlife for a cash consideration of AUD8.0 million in July 2007 and an additional 5,795,000 shares for a cashconsideration of AUD2.4 million for the year ended March 31, 2009. Cordlife was then a company whose shares are listed on the Australian SecuritiesExchange and provides cord blood banking services with operations in Singapore, Hong Kong, India, Indonesia and the Philippines. Our investments inCordlife have been accounted for as an available-for-sale investment and were stated at fair value in our consolidated balance sheets as of March 31, 2011,2012 and 2013, with remeasurements of fair value recognized as other comprehensive income or loss, as the case may be, or in the consolidated statements ofcomprehensive income for the corresponding periods to the extent of impairment losses considered to be other-than-temporary. In June 2010, we entered into anagreement to underwrite an AUD11.6 million rights issue for Cordlife. On July 4, 2010, we terminated the underwriting agreement and were released fromsuch obligation but continued to participate in the rights issue and took up our share entitlements on a pro-rata basis. The rights issue was completed on July26, 2010 and we subscribed for 6,841,666 shares of Cordlife at a total cost of AUD2.0 million, satisfied in cash. As of March 31, 2011, we paid anaggregate of AUD12.4 million and own 24,366,666 ordinary shares of Cordlife. In June, 2011, shareholders of Cordlife approved a capital reduction scheme by way of distribution in specie. The scheme involves a spin off ofCordlife’s more mature cord blood banking business. The restructuring and distribution in specie were subsequently completed and effective on June 30,2011. Right after the restructuring, we owned 24,366,666 shares in both CBB and Cordlife Singapore. Cordlife Singapore was subsequently listed on theSingapore Exchange on March 29, 2012. As of March 31, 2013, such shares represented a 14.1% equity interest in CBB and a 10.5% equity interest inCordlife Singapore. Our investments in CBB and Cordlife Singapore have been accounted for as available-for-sale investments and were stated at fair value inour consolidated balance sheets as of March 31, 2013, with remeasurements of fair value recognized as other comprehensive income or loss, as the case maybe, or in the consolidated statements of comprehensive income for the corresponding periods to the extent of impairment losses considered to be other-than-temporary. We may acquire operators with little experience in offering subscription services. It takes time for a new cord blood bank to achieve operatingefficiencies and planned subscriber levels due to challenges typically associated with a new operation, including the need to establish strategic alliances withlocal hospitals, to train and certify medical professionals affiliated with these hospitals, and to hire and train sufficient sales and marketing personnel.Further, such acquisitions require significant capital expenditures as well as substantial investments of management time and other resources. As a result, weexpect profitability will be under pressure shortly after expansion into a new geographical region, but we expect this trend to reverse after having completedmuch of the expansion required in the new market. Preferential Tax Treatment All of our operations are based in China, and our PRC subsidiaries, Jiachenhong, Nuoya and Lukou, are subject to PRC taxes, including enterpriseincome tax. Prior to January 1, 2008, as a foreign-invested production-oriented enterprise registered in the Beijing Economic and Technology DevelopmentZone, Jiachenhong was entitled to pay enterprise income tax at a reduced rate of 15%, compared to the standard rate of 33%, and enjoyed the benefits of a taxholiday, which provided for an exemption from enterprise income tax for two years commencing from its first profit-making year of operation and a 50%reduction of enterprise income tax for the following three years. Jiachenhong started making profit for the year ended December 31, 2004. Therefore,Jiachenhong was exempt from enterprise income tax for the years ended December 31, 2004 and 2005 and was subject to enterprise income tax at a reduced rateof 7.5% for the years ended December 31, 2006 and 2007. The 50% reduction of enterprise income tax remained applicable for the year ended December 31,2008. Prior to January 1, 2008, Nuoya was subject to enterprise income tax at the standard rate of 33%. 76 On March 16, 2007, the National People’s Congress approved and promulgated a new tax law, the PRC Enterprise Income Tax Law, or “EIT Law”,which took effect on January 1, 2008. On December 6, 2007, the State Council approved and promulgated the Implementing Regulations for the EIT Law,which took effect simultaneously with the new tax law. Under the new tax law, foreign-invested enterprises and domestic companies are subject to a uniformtax rate of 25%. The new tax law provides a five-year transition period starting from its effective date for enterprises that were established before thepromulgation date of the new tax law and entitled to a preferential lower tax rate under the then effective tax laws or regulations. On December 26, 2007, theState Council issued the Notice of the State Council Concerning Implementation of Transitional Rules for Enterprise Income Tax Incentives, or “Circular 39”.Based on Circular 39, enterprises that enjoyed a preferential tax rate of 15% in accordance with previous laws, regulations and other documents with the sameeffect as administrative regulations are eligible for a graduated rate increase to 25% over the 5-year period beginning January 1, 2008. For those enterprises thatcurrently enjoy tax holidays, such tax holidays will continue until their expiration in accordance with previous tax laws, regulations and relevant regulatorydocuments. While the new tax law equalizes the tax rates for foreign-invested enterprises and domestic companies, preferential tax treatment may be given tocompanies in certain encouraged sectors and to those classified as high technology companies enjoying special support from the state. Entities that qualify asHigh and New Technology Enterprises (“HNTE”) under the new tax law are entitled to a preferential income tax rate of 15%. However, the new recognitioncriteria and procedures for HNTE under the new tax law were not issued until April 14, 2008. Circular 39 also provides that a company which may beconcurrently eligible for both preferential treatment to be granted during the transition period and the tax incentives as provided in EIT Law and itsimplementing rules shall elect the most preferential but only one tax treatment which shall not be changed since making the election. Jiachenhong was granted the HNTE certificate, which was dated December 24, 2008. The certificate was valid for a period of three years effectiveretroactively from January 1, 2008. As a result of the above, Jiachenhong was subject to tax at 9% from April 1 to December 31, 2008, and was subject to taxat 15% for calendar years 2009 and 2010. The impact of the change in tax rate of Jiachenhong due to its status as an HNTE on current and deferred taxes wasnot accounted for until the year ended March 31, 2009 as the enactment date of the preferential rate was in January 2009. Jiachenhong has subsequently beenredetermined as an HNTE in February 2012. Jiachenhong’s renewed HNTE certificate was dated October 28, 2011, and was approved by relevant PRC taxauthority on February 15, 2012. Such status is valid retroactively as of January 1, 2011 and will expire on December 31, 2013. As a result, Jiachenhong issubject to a reduced tax rate of 15% during such period. The impact of the change in tax rate of Jiachenhong due to its renewed status as an HNTE in relationto the current and deferred taxes for the year ended March 31, 2011 was not accounted for until the year ended March 31, 2012 as Jiachenhong obtained theapproval of enjoying the preferential rate in February 2012. Since January 1, 2008, Nuoya was subject to a tax rate of 25% under the EIT Law. Nuoya was certified as an HNTE in June 2011. Nuoya’sHNTE certificate was dated December 28, 2010 with validity of 3 years, and was approved by the relevant PRC tax authority on June 2, 2011. Such statuswas valid retroactively as of January 1, 2010 and expired on December 31, 2012. As a result, Nuoya was subject to a reduced tax rate of 15% during suchperiod. The impact of the change in tax rate of Nuoya due to its status as an HNTE in relation to the current and deferred taxes in prior periods was notaccounted for until the year ended March 31, 2012 as Nuoya obtained the approval of enjoying the preferential rate in June 2011. As of the date of this report,Nuoya is still in the application process for renewal of the HNTE certificate. We believe that Nuoya meets all the criteria for the renewal of HNTE status andaccordingly, applied 15% tax rate to measure taxable temporary differences that are expected to reverse by the calendar year ending December 31, 2015. In accordance with the Notice of Promulgation of the Guidelines for Determination and Administration of High and New Technology Enterprises,which was jointly promulgated by the Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation on July 8, 2008,enterprises that were registered both within and outside national high and new technology industries development zone (including Beijing new technologyindustries development experimental zone) and were classified as high-tech enterprises prior to the end of 2007 in accordance with previous laws will have theirqualifications remain valid if such qualifications have not expired, but such enterprises cannot continue to enjoy the corresponding preferential tax treatmentunless they can be redetermined as HNTE pursuant to the Measures for Determination and the Guidelines. The redetermination procedures under the Measuresfor Determination and the Guidelines may be handled either prior to or after the expiration of the validity period of their qualification. Additionally, for high-tech enterprises that were granted tax exemption and reduction treatment for a certain period under previous laws and whose tax holiday has not expired,Circular 39 shall continue to apply. See “Key Information — Risk Factors — Risks Relating to Operations in China — The discontinuation of anypreferential tax treatment currently available to us and the increase in the enterprise income tax in the PRC could in each case result in a decrease in our profitsand materially and adversely affect our results of operations”, and Note 17 to our annual consolidated financial statements included elsewhere in this report. 77 The new tax law and the implementation rules also impose a withholding tax at 10%, unless reduced by a tax treaty or agreement, for dividendsdistributed by a PRC-resident enterprise to its immediate holding company outside the PRC for earnings accumulated beginning on January 1, 2008.Undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax under Notice on Certain Preferential Corporate Income TaxPolicies, Caishui (2008) No. 1, issued jointly by the MOF and the SAT on February 22, 2008. We have not provided for income taxes on accumulatedearnings of Jiachenhong and Nuoya as of March 31, 2013 since these earnings are planned to be reinvested indefinitely in the PRC. As of March 31, 2013, theunrecognized deferred tax liability related to the undistributed earnings subject to withholding tax was RMB63.4 million ($10.2 million). Our Financial Condition and Results of Operations Critical Accounting Policies In preparing the financial statements, we are required to make judgments in the form of estimates and assumptions concerning future events. Theyaffect reported amounts of our assets, liabilities, revenues, income and expenses. We continually evaluate these judgments based on our experience, knowledgeand assessment of current business and other factors. After having considered available information and assumptions believed to be reasonable, ourexpectations regarding the future form the basis for judgments about matters not readily apparent from other sources. Since use of estimates and assumptionsis an integral component of financial reporting, the actual results could differ if a different set of estimates and assumptions was used for making judgments. Critical accounting policies are policies that require the application of the most challenging, subjective, or complex judgments, often as a result of theneed to make estimates and assumptions about the effect of matters that are inherently uncertain, thereby creating a significant risk that a material adjustmentmay need to be made in subsequent periods to the carrying amounts of assets and liabilities involved. We believe the following accounting policies involve critical judgments of our management: Revenue Recognition We generate substantially all of our revenues in form of processing fees and storage fees from our subscribers. The processing fee consists ofpayment for the services of transporting, testing and processing cord blood units collected from the newborns of our subscribers at collaborating hospitalsupon childbirth. The storage fees represent consideration for preservation of cord blood units at our facilities, typically for a period of 18 years absent earlytermination by our subscribers for any reason. We also arrange an insurance policy for subscribers. Aside from the processing fee, the subscriber is obligatedto make an annual payment which consists of a storage fee and an insurance premium; and such insurance premium is collected on behalf of a third-partyinsurance company. The amount attributable to the insurance premiums is included in current and non-current other payables and is not recognized asrevenue. We have no performance obligation to the subscriber with respect of the insurance policy. See “Operating and Financial Review and Prospects —Factors Affecting Our Financial Condition and Results of Operations — Average Revenue per Subscriber”. The Agreement is a multiple-element arrangement,which includes (i) the processing of cord blood unit and (ii) the storage of cord blood unit. The Group accounts for the arrangement under the AccountingStandards Codification (“ASC”) 605-25, Revenue Recognition — Multiple-Element Arrangements, as amended by Accounting Standards Update No. 2009-13, Multiple-Deliverable Arrangements (“ASU 2009-13”), which was adopted by the Group in the fiscal year beginning April 1, 2011 on a prospective basis.The adoption of ASU 2009-13 did not have an impact on the consolidated financial statements, as the units of accounting, the allocation of the arrangementconsideration to various units of accounting, and pattern and timing of revenue recognition did not change. In accordance with ASC 605-25, revenuearrangements that include multiple elements are analyzed to determine whether the deliverables can be divided into separate units of accounting or treated as asingle unit of accounting. The consideration received is allocated among the separate units of accounting based on their relative selling prices determined basedon prices of these elements as sold on a stand-alone basis, and the applicable revenue recognition criteria are applied to each of the separate units. Revenues areallocated to a delivered product or service when the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis;and (2) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item or items is consideredprobable and substantially in the control of the Group. Based on evaluation of the criteria, the Group has determined that the cord blood processing servicesand storage services are to be accounted for as separate units. 78 Pursuant to the Agreement, no penalty is charged to customers for early termination of the storage service. The Group considers all reasonably available information to allocate the overall arrangement fee to processing and storage services based on theirrelative selling prices. The Group recognizes processing fee revenue upon successful completion of processing services and when the cord blood unit meets all the requiredattributes for storage, and recognizes the storage fee revenues ratably over the annual storage period. Subscribers may elect to pay the processing fee in full at the time of subscription, or a portion of that in installments, subject to a surcharge. Thesurcharge is recognized as interest income using the effective interest method. Under the subscription contract, the Group is contractually entitled to receive theprocessing fee from the subscriber once the testing and processing of the cord blood unit are completed. We will have the contractual right to collect, and thesubscriber will have the contractual obligation to pay, the processing fee in full immediately in the case of early termination. The ability of the subscriber toearly terminate the subscription service without penalty will not impair our contractual right to collect the said processing fee or any remaining unpaidprocessing fee once the processing service is completed. In addition, Payment Option Three has been in place for several years and has a satisfactory collectionhistory. We believe collectability is reasonably assured, however, we continue to assess our ability to collect processing fees under Payment Option Three. Inthe event that there is a deterioration in our collection of processing fees under Payment Option Three, we may conclude that collectability of processing feesunder this payment option is no longer reasonably assured, in which case we will cease the recognition of processing fees revenue upon the completion ofprocessing services. Revenue generated from processing services will instead be recognized upon the actual cash collection or when collectability of such fees isotherwise determined to be reasonably assured. With respect to matching units donated by the public and delivered to patients in need of transplants or for research purposes, we recognize revenueswhen the cord blood unit is delivered and the risk of loss is transferred to the recipient. For further details regarding our revenue recognition, see Note 2(k) toour annual consolidated financial statements included elsewhere in this report. Depreciation Charges We depreciate the cost of fixed assets less their estimate of residual value on a straight-line basis over their estimated useful life. We estimate the usefullives of our buildings to be the shorter of the lease term or estimated useful lives of 37.5 years for buildings in Jiachenhong and 44 years for buildings inNuoya, leasehold improvements to be the shorter of the lease term or estimated useful life of 10 years, machineries to be 5 to 10 years and our motor vehiclesand other office equipment to be 3 to 5 years. We determine the estimated useful life of our assets based on the historical usage experience with similar assetsand anticipated technology changes. Changes in the expected usage level, technological developments and the operation environment in the industry couldimpact the economic useful lives and the residual values of our assets. If the operation environment is to change more rapidly or in a different way thananticipated, the useful life assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. Wereview the estimated useful life and estimated residual values of the assets no less frequently than annually. During the quarter ended March 31, 2013, weupdated the estimated useful lives of certain machinery and office equipment in order to better match our depreciation expense with the periods these assets areexpected to generate revenue based on planned and historical service periods. The new estimated useful lives were established based on historical serviceperiods and external benchmark data of these assets. We accounted for the change of useful lives of property, plant and equipment in accordance with ASC250, Accounting Changes and Error Corrections. The effect of the change in useful lives impacted the depreciation expense in the quarter in which thechange occurred and will impact depreciation expense in future periods. The effect of this change on net income and net income per share was a decrease ofRMB1.6 million ($0.3 million) and RMB0.02 ($0.003), respectively, for the year ended March 31, 2013. See Note 2(h) to our annual consolidated financialstatements included elsewhere in this report. Valuation of Inventories A significant portion of our inventories consists of the handling costs attributable to the testing, processing and preservation of donated cord bloodunits. The handling costs include direct material costs and direct labor costs incurred in its handling of donated cord blood units. We do not capitalize therelated overheads of our facilities used to store these units. Donated cord blood units are valued at the lower of cost or market using the weighted average costmethod. Since we do not expect to recognize revenue from such inventories within 12 months from the balance sheet date, we classify donated cord blood unitsas non-current assets on our consolidated balance sheets. The carrying value of our donated cord blood units was RMB39.7 million ($6.4 million) as ofMarch 31, 2013. Management periodically reviews our portfolio of donated cord blood units to determine if a write-down on inventories is necessary based onestimated demand for our matching services and other industry knowledge. We did not record any write-downs on our inventories for the years endedMarch 31, 2011, 2012 or 2013. If demand for our matching services is significantly different from the management’s expectations, the valuation of donatedcord blood units could be materially impacted. 79 With respect to the cost of matching units donated by the public and delivered to patients in need of transplants or for research purposes, werecognize the revenue for one matched cord blood unit upon shipment of the unit and recognize the direct costs equal to the carrying amount of the inventorydivided by the estimated future number of successful matches which would become realized through sales during the estimated weighted average remaininguseful life of the inventory. As of March 31, 2013, the weighted average remaining useful life of the donated cord blood units was estimated tobe approximately 20 years. Based on the historical increase in the number of cord blood matching inquiries and the number of successful matches of donatedunits, we estimated the number of successful matches of donated units will increase by 7% per annum. There were no material changes to our estimates andassumptions underlying our methodology for the three-year period ended March 31, 2013. The reported gross profit (gross margin) from our matching revenuewere RMB1,464,000 (67%), RMB1,624,000 (68%) and RMB1,639,000 (65%) for the years ended March 31, 2011, 2012 and 2013 respectively. However,any of the above estimates which differ from our expectations may result in material adjustments to direct costs. Assuming all other variables remainedconstant, a 1% increase/(decrease) in annual growth rate as of March 31, 2013 would have increased/(deceased) gross profit by RMB99,000 and(RMB110,000) respectively. Assuming all other variable remained constant, an increase/(decrease) in estimated weighted average remaining useful life of cordblood units by one year as of March 31, 2013 would have increased/(deceased) gross profit by RMB85,000 and (RMB76,000) respectively. Although we will continue to provide donated cord blood units to patients in need of transplants as part of our business to satisfy regulatoryrequirements for the cord blood banking industry in China and to demonstrate our commitment to community healthcare, we do not believe revenues generatedfrom provision of donated cord blood units to patients in need of transplants will become our main revenue driver in the long run. For further details regardingour inventories, see Note 4 to our consolidated financial statements included elsewhere in this report. Allowance for Doubtful Receivables Most of our subscribers choose to pay their storage fees annually rather than in one lump sum. In addition, some subscribers elect to pay their initialprocessing fee in annual installments. We analyze the adequacy of allowance for doubtful receivables quarterly by taking into account historical collection dataand the aging of the outstanding amounts. A reserve is then established by applying the appropriate percentage (based on historical collection experience) to thebalances of each aging category. We review the reserve percentages on a regular basis and compare them against the updated actual collection experience toensure that an adequate allowance has been made. In addition to the reserves established based on the aging of the outstanding amounts, we take into account available specific information ofindividual subscribers, including the specific credit risk for specific subscribers and other information available to us concerning the subscribers’creditworthiness, to determine if additional provision has to be made on specific receivable balances. Allowance for doubtful receivables was RMB50.5 million ($8.1 million) as of March 31, 2013, compared to RMB52.5 million as of March 31,2012. We believe that the allowance is adequate. It is possible, however, that the accuracy of the management’s estimation process could be impacted byunforeseen circumstances. See Note 2(f) to our annual consolidated financial statements included elsewhere in this report. Impairment of Long-lived Assets Long-lived assets such as property, plant and equipment and finite lived intangible assets are reviewed for impairment when events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by acomparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount ofthe long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying amount exceeds its fairvalue. We have not recognized any impairment of long-lived assets during the years ended March 31, 2011, 2012 or 2013. The net carrying value of ourproperty, plant and equipment was RMB468.3 million ($75.4 million) as of March 31, 2013 compared to RMB267.9 million as of March 31, 2012. The netvalue of intangible assets was RMB125.2 million ($20.2 million) as of March 31, 2013 compared to RMB129.8 million as of March 31, 2012. See“Operating and Financial Review and Prospects — Factors Affecting Our Financial Condition and Results of Operations — Application for Cord BloodBanking Licenses” and Notes 6 and 8 to our annual consolidated financial statements included elsewhere in this report. 80 Impairment of Available-for-sale Securities Our investment in Cordlife was classified as available-for-sale equity securities and stated at fair value, with unrealized gains and losses normallyrecognized in other comprehensive income or loss. However, when the fair value of our available-for-sale securities falls below cost, we determine whether thedecline in value is other than temporary, in which case the unrealized loss has to be charged to income. In assessing whether the impairment is other thantemporary, we consider the length of time and the extent to which the market value has been below cost, our intent and ability to retain the investment for aperiod of time sufficient to allow for any anticipated recovery in market value, and the investee’s financial conditions, operational performance, futureearnings potential, prospects, market conditions and near term development. As of December 31, 2008, the market value of the Cordlife investment was belowour investment cost. Having considered the significance of the accumulated decline in the fair value of the ordinary shares of Cordlife, the period of timeduring which market value of the shares had been below cost, and the current market conditions, management considered that the impairment loss on theinvestment was no longer temporary as of December 31, 2008. As a result, accumulated impairment loss amounting to RMB37.4 million was recognized inearnings during the nine months ended December 31, 2008 and the market value as of December 31, 2008 formed a new cost basis of the our investment inCordlife. Pursuant to the restructuring of Cordlife Singapore from Cordlife in June 2011, and the listing of Cordlife Singapore in March 2012, bothinvestments in CBB and Cordlife Singapore were classified as available-for-sale equity securities and are stated at fair value, with unrealized gains and lossesnormally recognized in other comprehensive income or loss. There was an increase in the market value of the ordinary shares of Cordlife Singapore andaccordingly, total unrealized holding gain recognized in accumulated other comprehensive income as of March 31, 2013 amounted to RMB59.8 million ($9.6million). See Note 9 to our annual consolidated financial statements included elsewhere in this report. Valuation and Amortization of Intangible Assets We acquired the right to operate a cord blood bank in Guangdong in May 2007 through our acquisition of Nuoya. We allocate the cost of theacquisition to the assets acquired and liabilities assumed based on their estimated fair value on the date of acquisition. As part of the purchase price allocation,we are required to determine the fair value of the operating right acquired. We estimated the fair value of the operating right based on an income approach.Under this approach, fair value of an asset is determined based on the present value of projected future net cash flows associated with the use of the asset. Thedetermination of the fair value of the intangible asset acquired using an income approach involves certain judgments and estimates. The major estimates andassumptions include, but are not limited to, the cash flows that an asset is expected to generate in the future, which in turn is based on assumptions on thegrowth rate of revenues from the cord blood bank and margins derived from such revenues, and the discount rate selected to measure the risks inherent insuch cash flows. In September 2010, we entered into agreements to obtain the right to operate a cord blood bank in Zhejiang. Such rights are stated at the estimated fairvalue on the date of acquisition less accumulated amortization. Where payment for an operating right is non-deductible for tax purpose, the simultaneousacquisition method is used to record the assigned value of the asset and the related deferred tax liability, such that the carrying amount of the asset upon initialrecognition less deferred tax liability recognized equals the amount paid for the asset. 81 The amortization expenses are recognized on a straight line basis over an estimated economic useful life of 30 years. We determined that a thirty-yearperiod to amortize the cord blood bank operating rights was appropriate, following the pattern in which the expected benefits of the acquired asset will beconsumed or otherwise used up. The Company’s renewal period with the provincial governmental authorities generally is for a period of three years. TheCompany believes that it has historical experience in renewing or extending similar cord blood bank operating rights. There are no other legal or regulatoryprovisions that limit the useful life of the cord blood bank operating rights or that cause the cash flows and useful life of such cord blood bank operatingrights to be constrained. In addition, the Company expects the effect of obsolescence, demand, competition, and other economic factors to be minimal. Weengaged an independent third party valuation firm in determining the fair value of the cord blood bank operating rights. The fair value of the cord blood bankoperating rights was determined using an income approach and considered assumptions (including turnover rate) that a market participant would makeconsistent with the highest and best use of the asset by market participants. The period of expected cash flows used to measure the fair value of the cord bloodbank operating rights was thirty years. Without evidence to the contrary, we expect that the cord blood bank operating rights will be renewed or extended at thesame rate as a market participant would expect, and no other factors would indicate a different useful life is more appropriate. Accordingly, in light of theabsence any other of the entity-specific factors, the useful life of the cord blood bank operating rights was determined to be thirty years. For the years endedMarch 31, 2011, 2012 and 2013, the amortization expense relating to the right to operate in Guangdong amounted to RMB1.0 million, RMB1.0 million, andRMB1.0 million ($0.2 million), respectively. For the years ended March 31, 2011, 2012 and 2013, the amortization expense relating to the right to operate inZhejiang amounted to RMB0.4 million, RMB3.7 million and RMB3.7 million ($0.6 million) respectively. Due to the uncertainties associated with operating in the cord blood banking industry in China, the economic useful life may be subject to change. Ifwe are required to shorten our estimated economic useful life of the rights to operate in Guangdong and Zhejiang, our cost will increase. Profitability may beadversely affected. Further, there is no assurance that we will be able to recover the carrying amount of the rights to operate in Guangdong and Zhejiang fromits operating activities in the future. Despite the uncertainties resulting from the Catalogue revised in 2011, our assessment of the estimated economic useful lifeof the cord blood bank operating rights as of and for the year ended March 31, 2013 did not result in a change for the following reasons: ·Under the Scientific Research, Technology Service and Geological Exploration section of the Catalogue revised in 2011, foreign enterprises areprohibited from engaging in stem cell and gene diagnosis and treatment technology development and application. Since the Catalogue revised in 2011did not clearly define the scope of such prohibited business, it is uncertain whether it prohibits “diagnosis and treatment technology development andapplication” of stem cells only (a narrower interpretation and one not implicating our operations) or all stem-cell-related technology development andapplication. Although there is an uncertainty, we, after consultation with our PRC counsel, have no immediate evidence which leads to the conclusionthat the services provided by our cord blood banks violate the Catalogue revised in 2011. ·We have communicated and consulted with the MOH and DOH regarding the legality of cord blood banking services provided by our cord bloodbanks subsequent to the effectiveness of the Catalogue revised in 2011. So far, neither the Company nor our cord blood banks has received anynegative comment, query, notice of prohibition, notice of termination of the service, administration sanction or penalty due to the cord blood bankingservice deemed as noncompliance with the relevant PRC laws and regulations or violation of the terms set forth in the blood station licenses.Moreover, all the annual inspections, payments of the paid-in capital and change of the legal representative of the our PRC subsidiaries, after theCatalogue revised in 2011 became effective, have been legally approved, registered and filed with authorized Industry and Commerce AdministrationBureau. Also, our Guangdong Cord Blood Bank obtained a renewed cord blood banking license in May 2012 from the DOH of the Guangdongprovince after the Catalogue revised in 2011 was already effective. Neither Nuoya nor the Guangdong Cord Blood Bank operated by it encounteredany major obstacle, hurdle or query during the renewal process of the cord blood banking license or business license. In addition, our Beijing CordBlood Bank also renewed its cord blood banking license in April 2013 without any major obstacle, hurdle or query. Accordingly, based on the foregoing, we believe that the useful life of the intangible assets associated with our cord blood bank operating rightscontinues to be thirty years as of March 31, 2013. See Note 8 to our annual consolidated financial statements included elsewhere in this report. 82 Principal Components of Our Income Statement Revenues Revenues reflect the portion of the invoiced value of services to third-party customers earned, net of value-added tax (net of business tax prior toSeptember 1, 2012 in Beijing, November 1, 2012 in Guangdong and December 1, 2012 in Zhejiang) payable to government authorities. We have two types ofcustomers: subscribers, who pay processing and storage fees pursuant to the terms of their subscription contracts as consideration for our subscriptionservices, and transplant patients, who pay matching fees as consideration for our delivery of donated cord blood units for their operations. The sources of our revenues consist of the following: ·Processing fee. Gross processing fee, charged at the rate of RMB5,000 prior to April 1, 2011 and RMB5,800 effective from April 1, 2011. SinceApril 1, 2013 in Guangdong and Zhejiang and May 1, 2013 in Beijing, gross processing fee of RMB6,800 is charged. Gross processing fee includesa 5% business tax and since September 1, 2012 in Beijing, November 1, 2012 in Guangdong and December 1, 2012 in Zhejiang, all fees areinclusive of a 6% value-added tax instead of the 5% business tax. Processing fee represents the allocated consideration for the transportation, testingand processing of subscribers’ cord blood units. We recognize the processing fees as our revenue on a net of business tax or value-added tax basis.Some of our subscribers elect to pay the processing fee in full at the time of subscription. Some subscribers elect to pay, subject to a surcharge(inclusive of a 5% business tax or 6% value-added tax), a portion of the processing fee in installments. ·Storage fee. Gross storage fee, charged at the rate of approximately RMB500 per year prior to April 1, 2013 in Guangdong and Zhejiang and May1, 2013 in Beijing and is currently charged at RMB860 per year (inclusive of a 5% business tax or 6% value-added tax), represents the allocatedconsideration for the storage of cord blood units at our facilities pursuant to subscription contracts. We recognize the storage fees as our revenue on anet of business tax or value-added tax basis. Prior to January 1, 2008, some subscribers elected to prepay the storage fees for the entire contract periodupfront at the time of subscription and receive a discount of 20% on the total storage fees payable under the contract. Should the subscribersubsequently terminate the contract prior to the expiration of 18 years, the amount of storage fees prepaid, less storage fees of approximately RMB500per year for the actual storage period, were refunded to the subscriber. For each such subscription, the storage fee of approximately RMB500 for thefirst year’s storage services was recognized as revenue on a straight-line basis over the one year period, which is committed and paid by thesubscriber at the inception of the contract, and the remaining prepaid storage fees were recognized as deferred income in the consolidated balancesheets, which would be recognized as revenues on a straight-line basis over the remaining storage period. Most of our subscribers elect to pay thestorage fee on an annual basis at the beginning of each anniversary of the subscription contract. ·Matching fee. Gross matching fee, currently charged generally at the rate of RMB15,000 (inclusive of a 5% business tax or 6% value-added tax),represents consideration for the successful identification and retrieval of a matching cord blood unit suitable for transplant. We record the matchingfee as our revenue on a net of business tax or value-added tax basis. We recognize the matching fee when the cord blood unit is delivered and the riskof loss is transferred to the recipient. Direct Costs After a cord blood unit is collected at a collaborating hospital and transported to our facilities, we test and process the cord blood to extract stem cellscontained in the unit and cryopreserves the stem cells at our cord blood banks. Direct costs reflect the costs incurred for these procedures as well as paymentsmade to the hospitals to reimburse the costs they incur in performing the collection procedure for our subscribers. Direct costs also include an annual technical consulting fee of RMB2.0 million ($0.3 million) payable by us to Peking University People’s Hospitalpursuant to a 20-year contract dated June 2006 for the hospital’s technology and procedural guidance to support our delivery of cord blood services. Nuoyaalso entered into a co-operation agreement with the Guangdong Women and Children’s Hospital and Health Institute. Pursuant to the agreement, GuangdongWomen and Children’s Hospital and Health Institute provides us with technical consultancy services in return for an annual advisory fee of an aggregateamount of RMB2.0 million ($0.3 million). The agreement has a term of no less than 20 years commencing in November 2009. In December 2010, Lukouentered into a co-operation agreement with Zhejiang Provincial Blood Center with a 3 years term in relation to the operation of cord blood bank in Zhejiang withan annual service fee of RMB2.0 million ($0.3 million). 83 Direct costs also include the costs of storing cord blood units under our subscription contracts and cord blood units donated by the public fortransplants or for research purposes. A significant portion of our direct costs are attributable to depreciation of property, plant and equipment and, to a lesserextent, amortization of intangible assets, consultancy fees, rent and utilities and the cost of liquid nitrogen. The remaining portion of our direct costs,including costs of collection materials, direct labor, processing and storage supplies, and collection fee, generally vary depending on the number of unitsprocessed at facilities. We record cord blood units donated by the public as our inventories and capitalize our related collection, testing and processing costs. Thesecapitalized costs are recognized as direct costs of a unit only upon the shipment of the unit for use by the transplant patient or for research purposes. Operating Expenses Operating expenses consist of selling and marketing expenses, general and administrative expenses, and research and development expenses. ·Research and development expenses. Research and development expenses consist primarily of expenses incurred in research activities that areconducted to enhance operating efficiencies, collection and storage technologies, and measures to improve the results in umbilical cord blood stemcells extraction and separation. Research and development expense are expensed immediately as they are incurred. ·Selling and marketing expenses. Selling and marketing expenses consist primarily of compensation for sales and marketing personnel; promotionaland advertising expenses; travel expenses for sales and marketing activities and depreciation of equipment used for sales and marketing activities. ·General and administrative expenses. General and administrative expenses consist primarily of compensation for the management team and thefinance and administrative personnel; travel, lease and other expenses for general corporate purposes; and professional advisor fees. After completionof the share exchange on June 30, 2009, CCBC incurs a significantly higher level of legal, accounting and other expenses in order to comply with therequirements under the U.S. securities laws. Such additional expenses associated may have a negative impact on profitability. Results of Operations The following table summarizes our results of operations for the years indicated: For the year ended March 31, 2013 2012 2011 $ RMB % RMB % RMB % (in thousands except for percentage) Revenues 84,711 526,123 100.0 380,490 100.0 339,532 100.0 Direct costs (17,167) (106,621) (20.3) (86,658) (22.8) (77,376) (22.8)Gross profit 67,544 419,502 79.7 293,832 77.2 262,156 77.2 Operating expenses Research and development (1,362) (8,459) (1.6) (7,615) (2.0) (6,960) (2.0)Selling and marketing (15,084) (93,684) (17.8) (61,678) (16.2) (47,583) (14.0)General and administrative (17,396) (108,045) (20.5) (89,696) (23.6) (83,794) (24.7)Total operating expenses (33,842) (210,188) (39.9) (158,989) (41.8) (138,337) (40.7)Operating income 33,702 209,314 39.8 134,843 35.4 123,819 36.5 Other (expense)/income, net Interest income 2,425 15,064 2.9 13,432 3.5 9,065 2.7 Interest expense (11,286) (70,097) (13.3) (3,287) (0.9) (2,606) (0.8)Exchange (loss)/gain (158) (984) (0.2) (1,343) (0.4) 486 0.1 Dividend income 754 4,685 0.9 7,217 1.9 — — Others 33 203 0.0 737 0.3 1,378 0.4 Total other (expense)/income, net (8,232) (51,129) (9.7) 16,756 4.4 8,323 2.4 Income before income tax 25,470 158,185 30.1 151,599 39.8 132,142 38.9 Income tax expense (6,206) (38,543) (7.3) (9,634) (2.5) (33,929) (10.0)Net income 19,264 119,642 22.8 141,965 37.3 98,213 28.9 84 Year Ended March 31, 2013 Compared to Year Ended March 31, 2012 Revenues Revenues increased by 38.3% to RMB526.1 million ($84.7 million) from RMB380.5 million in the year ended March 31, 2013. The increase waslargely attributable to the increase in new subscribers and growing accumulated subscriber base. Benefiting from our effective marketing and promotioninitiatives to deepen penetration in our operating regions and the “Dragon Year” baby boom, new subscribers for the current year increased to 72,228 duringthe year ended March 31, 2013, compared to 53,924 in the prior year. As of March 31, 2013, total units stored for our subscribers increased to 311,982,compared to 239,754 as of March 31, 2012. There was no material early termination recorded for the two years ended March 31, 2013 and 2012. The growth in revenues was driven by the Company’s growing subscriber base, as well as effective strategies to improve the revenue structure. Forthe year ended March 31, 2013, processing fees and storage fees accounted for approximately 75.4% and 24.6% of total revenues respectively, compared to therevenue structure in the year ended March 31, 2012 in which processing fees and storage fees accounted for 74.0% and 26.0% of total revenues, respectively.During the current year, processing fees and storage fees grew 40.9% and 30.8% to RMB396.6 million ($63.9 million) and RMB129.5 million ($20.8million) respectively. Direct Costs Direct costs increased to RMB106.6 million ($17.2 million) for the year ended March 31, 2013, from RMB86.7 million in the prior year, whichwas largely attributable to the rising sales activities and the increase in depreciation expense for part of the newly acquired premises in Guangdong. For the yearended March 31, 2013, variable costs and fixed costs accounted for approximately 65.1% and 34.9% of total direct costs respectively. Expenses likedepreciation and amortization expenses, rental expenses and consultation related expenses are classified as fixed costs. Direct Labor, direct materials,processing and other collection related expenses are classified as variable costs. Since fixed costs do not vary significantly against the increase in newsubscribers, fixed costs as a percentage of total direct costs is expected to drop as the total subscriber base continue to expand. Gross Profit For the year ended March 31, 2013, gross profit amounted to RMB419.5 million ($67.5 million), up 42.8% from RMB293.8 million for the yearended March, 31, 2012. The increase was in line with the increase in total revenues. Benefiting from economies of scale, gross margins for the year endedMarch 31, 2013 increased to 79.7%, compared to 77.2% in the prior year. Operating Expenses Operating expenses increased to RMB210.2 million ($33.8 million) for the year ended March 31, 2013, compared to RMB159.0 million for the yearended March 31, 2012. ·Research and development expenses. For the year ended March 31, 2013, we incurred approximately RMB8.5 million ($1.4 million) research anddevelopment expenses, compared to RMB7.6 million in the prior year. Research and development expenses maintained at approximately 2% ofrevenues for both years ended March 31, 2013 and 2012, reflecting the Company’s continued focus on technology advancement in relation to cordblood stem cell preservation. Research and development expenses are expensed immediately as they are incurred. 85 ·Sales and marketing expenses. Sales and marketing expenses amounted to RMB93.7 million ($15.1 million) for the year ended March 31, 2013,increased by 51.9% as compared to RMB61.7 million in the prior year. Sales and marketing expenses rose as a result of our ongoing market andpromotion campaigns. The increase was also attributable to the increase in sales force to better penetrate into Beijing, Guangdong and Zhejiang. Asour hospital coverage network continued to enlarge, we have been able to extend our market coverage to penetrate further into the local markets withinBeijing, Guangdong and Zhejiang. ·General and administrative expenses. For the year ended March 31, 2013, general and administrative expenses rose to RMB108.0 million ($17.4million) as compared to RMB89.7 million in the year ended March 31, 2012. The increase in general and administrative expenses was generally inline with the growth in revenues, and was largely attributable to the higher staff count to cope with the rapidly growing business operations andexpanding subscriber base and to a lesser extent higher staff costs to cope with local inflation. The increase was also resulted from higher transactioncosts related to the corporate restructuring during the current year. Operating Income As a result of the foregoing, operating income increased by 55.2% to RMB209.3 million ($33.7 million) for the year ended March 31, 2013, fromRMB134.8 million for the year ended March 31, 2012. Other Expense, Net For the year ended March 31, 2013, we had net other expense amounted to RMB51.1 million ($8.2 million) while for the year ended March 31,2012, we had net other income amounted to RMB16.8 million. The increase in net other expense was largely attributable to interest expenses related to theconvertible notes issued to KKRCHL and Golden Meditech during the current year. ·Interest Income. Interest income increased from RMB13.4 million in the year ended March 31, 2012 to RMB15.1 million ($2.4 million) in thecurrent year, as a result of the increase in cash and cash equivalents from RMB794.3 million as of March 31, 2012 to RMB1,494.1 million ($240.6million) as of March 31, 2013, which was largely attributable to rising sales activities, high adoption of upfront payment, and proceeds raised fromthe issuance of convertible notes during the current year. ·Interest Expense. Interest expense increased to RMB70.1 million ($11.3 million) for the year ended March 31, 2013, compared with RMB3.3million for the year ended March 31, 2012. The increase was largely attributable to the convertible notes issued to KKRCHL and Golden Meditechduring the current year. Interest expense related to the convertible notes amounted to RMB66.6 million ($10.7 million). In June 2011, we entered into aloan agreement with a commercial bank in the PRC. The loan amounted to RMB45.0 million and bears a floating interest rate at 110% of the baselending rate quoted by the People’s Bank of China, which is re-priced monthly. We repaid this loan in full in June 2012. Pursuant to this loanagreement, we incurred approximately RMB3.3 million interest expense for the year ended March 31, 2012. In July 2012, we entered into a loanagreement with another commercial bank in the PRC. The loan amounted to RMB50.0 million ($8.1 million) and bears a floating interest rate at120% of the base lending rate quoted by the People’s Bank of China, which is re-priced quarterly. Pursuant to this loan agreements, we incurredapproximately RMB3.5 million ($0.6 million) interest expense for the year ended March 31, 2013. ·Dividend Income. For the year ended March 31, 2013, we recorded a dividend income received from Cordlife Singapore amounted to RMB4.7million ($0.8 million) while for the year ended March 31, 2012, we recorded a dividend income received from Qilu, the sole operator of the ShandongCord Blood Bank, amounted to RMB7.2 million. Income Before Income Tax As a result of the foregoing, income before income tax for the year ended March 31, 2013 amounted to RMB158.2 million ($25.5 million), up fromRMB151.6 million for the year ended March 31, 2012. 86 Income Tax Expense For the year ended March 31, 2013, we recorded an income tax expense of RMB38.5 million ($6.2 million), up 300.1% from RMB9.6 million forthe year ended March 31, 2012. It represented an effective tax rate of 24.4% compared with 6.4% for the prior year. Higher effective tax rate for the year endedMarch 31, 2013 was mainly due to the following: Jiachenhong has been certified as an HNTE in February 2012. Jiachenhong’s HNTE certificate was dated October 28, 2011 and was approved byrelevant PRC tax authority on February 15, 2012. Such status is valid retroactively as of January 1, 2011 and will expire on December 31, 2013. As a result,Jiachenhong is subject to a reduced tax rate of 15% during such period. RMB1.7 million tax benefit was recorded in last year’s consolidated statements ofcomprehensive income in relation to the change in tax rate due to Jiachenhong’s renewed HNTE status. No such tax benefit was recorded for the year endedMarch 31, 2013. Nuoya has been certified as an HNTE in June 2011. The HNTE certificate was dated December 28, 2010 and was approved by relevant PRC taxauthority on June 2, 2011. Such status is valid retroactively as of January 1, 2010 and is valid for three years, which expired on December 31, 2012. As aresult, Nuoya was subject to a reduced tax rate of 15% during the valid period. RMB13.0 million tax benefit was recorded in last year’s consolidatedstatements of comprehensive income in relation to the change in tax rate due to Nuoya’s HNTE status. No such tax benefit was recorded for the year endedMarch 31, 2013. Net Income Due to the reasons discussed above, our net income for the year ended March 31, 2013 amounted to RMB119.6 million ($19.3 million), comparedto RMB142.0 million for the year ended March 31, 2012. Year Ended March 31, 2012 Compared to Year Ended March 31, 2011 Revenues Revenues increased by 12.1% to RMB380.5 million from RMB339.5 million in the year ended March 31, 2012. The increase was largelyattributable to the 29.0% increase in accumulated subscriber base. As a result of the Company’s strategy to push for higher adoption of upfront payments,new subscribers were down to 53,924 during the year ended March 31, 2012, compared to 56,518 in the prior year, the impact was, however, offset by thehigher processing fee per subscriber which was revised to RMB5,800 since April 1, 2011. As of March 31, 2012, total units stored for our subscribersincreased to 239,754, compared to 185,830 as of March 31, 2011. There was no material early termination recorded for the two years ended March 31, 2012. Our effective marketing and promotion initiatives have led to deepening penetration in our operating regions and continued growth in our totalsubscriber number. The growth in revenues was driven by the Company’s growing subscriber base, as well as effective strategies to improve the revenuestructure. For the year ended March 31, 2012, processing fees and storage fees accounted for approximately 74.0% and 26.0% of total revenues respectively.Compared to the revenue structure in the year ended March 31, 2011, processing fees and storage fees accounted for 79.1% and 20.9% of total revenuesrespectively. During the year, processing fees and storage fees grew 4.8% and 39.6% to RMB281.5 million and RMB99.0 million respectively. Direct Costs Direct costs increased to RMB86.7 million for the year ended March 31, 2012, from RMB77.4 million in the prior year, which was largelyattributable to the increase in amortization expenses for intangible assets and cooperation fee paid to Zhejiang Provincial Blood Center for the operation inZhejiang. For the year ended March 31, 2012, variable costs and fixed costs accounted for approximately 61.8% and 38.2% of total direct costs respectively.Expenses like depreciation and amortization expenses, rental expenses and consultation related expenses are classified as fixed costs. Direct Labor, directmaterials, processing and other collection related expenses are classified as variable costs. Since fixed costs do not vary significantly against the increase innew subscribers, fixed costs as a percentage of total direct costs is expected to drop as the total subscriber base continue to expand. 87 In the current year, the portion of fixed costs increased to 38.2% as compared to 30.3% in the prior year. The increase was largely attributable to theRMB2.0 million co-operation fee paid by Lukou to Zhejiang Provincial Blood Center for its consultancy services in relation to the operation of cord bloodbank in Zhejiang (no such co-operation fee paid in the year ended March 31, 2011); and the amortization charges of the intangible asset related to ZhejiangCord Blood Bank license, which was amounted to RMB3.7 million and RMB0.4 million in the year ended March 31, 2012 and March 31, 2011, respectively. Gross Profit For the year ended March 31, 2012, gross profit amounted to RMB293.8 million, up 12.1% from RMB262.2 million for the year ended March, 31,2011. The increase was in line with the increase in total revenues. Gross margins for the year ended March 31, 2012 and March 31, 2011 were maintained at77.2%. Operating Expenses Operating expenses increased to RMB159.0 million for the year ended March 31, 2012, compared to RMB138.3 million for the year ended March31, 2011. ·Research and development expenses. For the year ended March 31, 2012, we incurred approximately RMB7.6 million research and developmentexpenses, compared to RMB7.0 million in the prior year. Research and development expenses maintained at approximately 2.0% of revenues for bothyears ended March 31, 2012 and 2011, reflecting the Company’s continued focus on technology advancement in relation to cord blood stem cellpreservation. Research and development expenses are expensed immediately as they are incurred. ·Sales and marketing expenses. Sales and marketing expenses amounted to RMB61.7 million for the year ended March 31, 2012, increased by29.6% as compared to RMB47.6 million in the prior year. Sales and marketing expenses rose as a result of our ongoing market and promotioncampaigns. The increase was also attributable to a 32.2% increase in sales force to better penetrate into Beijing, Guangdong and Zhejiang. As ourhospital coverage network continued to enlarge, we have been able to extend our market coverage to penetrate further into the local markets, includingBeijing, Guangdong and Zhejiang. ·General and administrative expenses. For the year ended March 31, 2012, general and administrative expenses rose to RMB89.7 million ascompared to RMB83.8 million in the year ended March 31, 2011. The increase in general and administrative expenses was generally in line with thegrowth in revenues, and was largely attributable to the higher staff count to cope with the rapidly growing business operations and expandingsubscriber base. Operating Income As a result of the foregoing, operating income increased by 8.9% to RMB134.8 million for the year ended March 31, 2012, from RMB123.8 millionfor the year ended March 31, 2011. Other Income, Net For the year ended March 31, 2012, net other income amounted to RMB16.8 million, increased by RMB8.4 million as compared to the net otherincome in prior year. The increase in net other income was largely attributable to the RMB7.2 million dividend income received from Qilu, the sole operator ofthe Shandong Cord Blood Bank, while no such income was distributed in the prior year. ·Interest Income. Interest income increased from RMB9.1 million in the year ended March 31, 2011 to RMB13.4 million in the current year, as aresult of: (i) the increase in cash and cash equivalents from RMB611.4 million as of March 31, 2011 to RMB794.3 million as of March 31, 2012,which was largely attributable to the expanding subscriber base and in line with the Company’s strategy to push for higher adoption of upfrontpayment; and (ii) the increase in the subscriber base who chose the installment payment plan. 88 ·Interest Expense. In June 2011, we entered into a loan agreement with a commercial bank in the PRC. The loan amounted to RMB45.0 million. Theloan agreement bears a floating interest rate at 110% of the base lending rate quoted by the People’s Bank of China, which is re-priced monthly.Pursuant to this loan agreement, we incurred approximately RMB3.3 million interest expense for the year ended March 31, 2012. In the year endedMarch 31, 2011, we also had a RMB45.0 million loan with the same commercial bank in the PRC with the same contract terms, and incurredapproximately RMB2.6 million interest expense. The increase in interest expense was solely due to the increase in the base lending rate quote by thePeople’s Bank of China. ·Dividend Income. We recorded a dividend income received from Qilu, the sole operator of the Shandong Cord Blood Bank, amounting to RMB7.2million during the year. Income Before Income Tax As a result of the foregoing, income before income tax for the year ended March 31, 2012 amounted to RMB151.6 million, up from RMB132.1million for the year ended March 31, 2011. Income Tax Expense For the year ended March 31, 2012, we recorded an income tax expense of RMB9.6 million, down 71.6% from RMB33.9 million for the year endedMarch 31, 2011. It represented an effective tax rate of 6.4%. The low effective tax rate was mainly due to the following: Jiachenhong has been certified as an HNTE in February 2012. Jiachenhong’s HNTE certificate was dated October 28, 2011 and was approved byrelevant PRC tax authority on February 15, 2012. Such status is valid retroactively as of January 1, 2011 and will expire on December 31, 2013. As a result,Jiachenhong was subject to a reduced tax rate of 15% during such period. RMB1.7 million tax benefit was recorded in the consolidated statements ofcomprehensive income for the year ended March 31, 2012 in relation to the change in tax rate due to Jiachenhong’s renewed HNTE status. Nuoya has been certified as an HNTE in June 2011. The HNTE certificate was dated December 28, 2010 and was approved by relevant PRC taxauthority on June 2, 2011. Such status is valid retroactively as of January 1, 2010 and is valid for three years, which will expire on December 31, 2012. As aresult, Nuoya is subject to a reduced tax rate of 15% during the valid period. RMB13.0 million tax benefit was recorded in the consolidated statements ofcomprehensive income for the year ended March 31, 2012 in relation to the change in tax rate due to Nuoya’s HNTE status. Net Income Due to the reasons discussed above, our net income for the year ended March 31, 2012 amounted to RMB142.0 million, compared to RMB98.2million for the year ended March 31, 2011. Liquidity and Capital Resources As of March 31, 2013, we had cash and cash equivalents of RMB1,494.1 million ($240.6 million). We use a variety of sources, both external andinternal, to finance our operations. We use equity and debt financing to fund capital expenditures and strategic investments. Our short and long-term fundingsources may vary from period to period, but they have generally included a mix of equity financing from institutional investors and debt financing frombanks. On July 11, 2012, we entered into a loan agreement with Hangzhou Bank in the PRC providing a one year bank loan facility to finance the purchase ofraw materials. Such borrowings, which amounted to RMB50.0 million ($8.1 million) as of March 31, 2013, are denominated in RMB and are secured by ourbuilding in the PRC. Amounts outstanding bear a floating interest rate at 120% of the base lending rate quoted by the People’s Bank of China, which is re-priced quarterly. As of March 31, 2013, such rate was 7.2% per annum. Aside from the RMB50.0 million bank loan, we do not maintain any credit facilities.The bank loan has been repaid in full upon maturity on July 10, 2013. 89 Our short-term liquidity requirements include funding of our need for working capital. We have relied principally on cash flow from operations,equity financing and debt financing for our short-term liquidity requirements. We generate our cash flow from operations primarily from payment ofprocessing fees at the time of subscription and storage fees each year as long as our subscribers continue to renew their subscription contract over the 18-yearperiod. Therefore, we enjoy a steady stream of long-term cash inflow. We expect such long-term cash flow to continue to increase as our subscriber basecontinues to grow. Although we have not experienced early termination by a significant number of our subscribers in the past, there is no guarantee that all ofour subscribers will fulfill their contractual obligations by continuing to pay storage fees on an annual basis for a period of 18 years. If we are unable tocontinue to increase our new subscriber sign-ups to compensate for the loss of payment of storage fees arising from early termination by our existingsubscribers, our operating cash inflows may be adversely affected. Our long-term liquidity requirements primarily include the funding of our capital expenditure programs. We have relied principally on capital raisingactivities for our long-term liquidity requirements. On April 27, 2012, we completed the sale of $65 million in aggregate principal amount of 7% seniorunsecured convertible notes, which notes are convertible into ordinary shares at a conversion price of $2.838 per share to KKRCHL. The notes are seniorunsecured obligations, mature on April 27, 2017 and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible atany time on or after the issuance date, in whole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments forsignificant corporate events. On October 3, 2012, we completed the sale of $50 million in aggregate principal amount of 7% senior unsecured convertiblenotes, which notes are convertible into ordinary shares at a conversion price of $2.838 per share to Golden Meditech. The notes are senior unsecuredobligations, mature on October 3, 2017 and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any timeon or after the issuance date, in whole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significantcorporate events. We expect that we will finance our capex requirements with a combination of future offerings of equity or debt securities, bank borrowings atdifferent subsidiary levels, and operating cash flows. Our need for, and the availability of, external financing is influenced by many factors, includingprofitability, operating cash flows, debt levels, contractual restrictions and market conditions. Other sources of cash will include dividend distributions andother payments from our subsidiaries. Given that consumer discretionary spending or consumer behavior may change in light of the current Chinese or global economies, it may bechallenging for us to sustain a high growth momentum going forward. Our operations have not experienced any material deterioration in terms of number ofnew cord blood intake during the year ended March 31, 2013 in light of the current economic and capital market condition. However, in order to mitigate thepotential impact or consequences, we will continue to explore new alternatives or more attractive payment schemes in order to strengthen our financial positionin the event of any unforeseeable economic turmoil. Cash Flows The following table summarizes our cash flows for the years indicated: For the year ended March 31, 2013 2012 2011 $ RMB RMB RMB (in thousands) Net cash provided by operating activities 93,166 578,632 353,858 176,585 Net cash used in investing activities (79,494) (493,717) (122,945) (33,914)Net cash provided by/(used in) financing activities 99,620 618,718 (44,664) 193,141 Effect of foreign exchange rate change on cash and cash equivalents (619) (3,845) (3,325) (5,260) 90 Net Cash Provided by Operating Activities As a result of the increase in the scale of our operations arising from the increase in new subscriber sign-ups, we had net operating cash inflow frompayments received from subscribers for each of the three years ended March 31, 2011, 2012 and 2013. Net cash provided by operating activities increased by 63.5% to RMB578.6 million ($93.2 million) during the year ended March 31, 2013, ascompared to RMB353.9 million during the year ended March 31, 2012. The significant increase was attributable to the followings: (i) increase in operatingincome from RMB134.8 million in the year ended March 31, 2012 to RMB209.3 million ($33.7 million) in the current year; (ii) 40.9% of the new subscriberschose payment option two during the current year, as compared to 34.9% in the prior year; and (iii) expansion in accumulated subscriber base from 239,754as of March 31, 2012 to 311,982 as of March 31, 2013. Net cash provided by operating activities increased to RMB353.9 million during the year ended March 31, 2012, increased by 100.4% as comparedto that during the year ended March 31, 2011. The significant increase was attributable to the followings: (i) increase in net income from RMB98.2 million inthe year ended March 31, 2011 to RMB142.0 million in the year ended March 31, 2012; (ii) Company’s push for higher adoption of upfront payment,resulting in a 34.9% of the new subscribers in the year ended March 31, 2012 who chose payment option two, compared to 16.2% in the year ended March31, 2011; (iii) increase in processing fee from RMB5,000 to RMB5,800 since April 1, 2011; and (iv) expansion in accumulated subscriber base from185,830 as of March 31, 2011 to 239,754 as of March 31, 2012. Net Cash Used in Investing Activities Net cash used in investment activities amounted to RMB493.7 million ($79.5 million) for the year ended March 31, 2013. Capital was mainly usedfor the acquisition of properties for the expansion of Guangdong storage facility and the establishment of new storage facility in Zhejiang. In addition, anearnest money of RMB213.2 million ($34.3 million) was made for a potential corporate development project and additional investment in Qilu of RMB54.8million ($8.8 million). Net cash used in investment activities amounted to RMB122.9 million for the year ended March 31, 2012. The cash was mainly used for thepayment of RMB80.2 million for the cord blood bank license in the Zhejiang province, and an aggregate of RMB43.1 million for the purchase of property,plant and equipment. Net cash used in investing activities was RMB33.9 million for the year ended March 31, 2011. We made payments of RMB20.3 million to purchaseproperty, plant and equipment and RMB13.2 million to Cordlife as consideration for the 6,841,666 shares acquired during the year ended March 31, 2011. Net Cash Provided by/(Used in) Financing Activities Net cash provided by financing activities was RMB618.7 million ($99.6 million) for the year ended March 31, 2013. The cash was provided bythe followings: (i) proceeds from the issuance of convertible notes (net of debt issuance costs) of RMB715.2 million ($115.2 million); (ii) proceeds from bankloan (net of repayment) of RMB5.0 million ($0.8 million); and (iii) net proceeds from the sale of treasury shares to Cordlife Singapore and acquisition of non-controlling interests of RMB25.3 million ($4.1 million). The overall increase was partially offset by the payments made for shares repurchase in the openmarket of RMB126.8 million ($20.4 million). Net cash used in financing activities was RMB44.7 million for the year ended March 31, 2012. The cash was solely used for shares repurchase inthe open market. Net cash provided by financing activities was RMB193.1 million for the year ended March 31, 2011. We received proceeds from issuance of sharesupon the public offering of RMB211.0 million and upon exercise of warrants of RMB11.8 million, offset by payments of offering costs and share repurchaseof RMB19.0 million and RMB10.7 million, respectively. 91 Capital Expenditures For the years ended March 31, 2011, 2012 and 2013, our capital expenditures consisted primarily of expenditures for the expansion of our cordblood banks in Beijing, Guangdong and Zhejiang, regions in which we are operating the licensed cord blood banks. In connection therewith, we have acquiredproperty, plant and equipment and incurred construction costs. We are also in discussion with several existing licensees and license applicants in certain other regions for potential acquisitions or collaboration.Some of these discussions are at a preliminary stage, and we have not reached an agreement or executed any binding or non-binding written agreements withrespect to the terms and conditions of any potential acquisition with any of its potential targets. As cash requirements relating to potential acquisitions mayvary significantly depending on the targets we may acquire, our future capital expenditures may differ significantly from our current plans. Contractual Obligations and Commercial Commitments The table below presents annual payments due by year for our contractual obligations and commercial commitments as of March 31, 2013. Amount Due Less than1 year 1 – 3 Years 3 – 5 Years More than5 years Total (RMB in thousands) Short-term borrowings 50,000 — — — 50,000 Interest payments 996 — — — 996 Commercial commitments 5,770 8,000 8,000 40,167 61,937 Research and development 2,000 — — — 2,000 Convertible notes - principal — — 724,990 — 724,990 Convertible notes - interests 50,747 101,494 331,954 — 484,195 Operating lease obligations 3,039 1,498 11 — 4,548 112,552 110,992 1,064,955 40,167 1,328,666 ·Short-term borrowing. The Group entered into a loan agreement with a commercial bank in the PRC for a term of one year and will be due in July 2013.The loan bears a floating interest rate at 120% of the base lending rate quoted by the People’s Bank of China, which is re-priced quarterly. As ofMarch 31, 2013, the bank loan bears interest at 7.2% per annum. ·Commercial commitments. The commercial commitments primarily relate to the fees payable to Peking University People’s Hospital, GuangdongWomen and Children’s Hospital and Health Institute and Zhejiang Provincial Blood Center pursuant to co-operation agreements for their consultancyservices in relation to the operation of cord blood banks at a fixed annual amount of RMB2.0 million ($0.3 million) for a term of twenty years, a fixedannual amount of RMB2.0 million ($0.3 million) for a term of twenty years and a fixed annual amount of RMB2.0 million ($0.3 million) for a term ofthree years, respectively. ·Research and development. We entered into an agreement with a research institution for the research and development of medical treatments that makeuse of cord blood stem cells. We are obligated to pay RMB2.0 million ($0.3 million), upon the issue of a new medicine certificate for the new medicinecurrently under research and development. ·Operating leases. The operating lease obligations relate to the lease agreements for leasing certain premises in Guangdong and Zhejiang provinces andalso between us and a subsidiary of Golden Meditech regarding the leasing of certain premises in Beijing. ·Convertible notes. On April 27, 2012 and October 3, 2012, we completed the sale of $65 million and $50 million in aggregate principal amount of 7%senior unsecured convertible notes to KKRCHL and Golden Meditech, respectively. The 5 years convertible notes carry an interest rate of 7% onunconverted portion of the notes and payable annually. On the maturity date, we are obligated to pay a redemption amount calculated to provide a 12%internal rate of return (inclusive of interest) on the unconverted portion of the notes. 92 Off-balance Sheet Arrangements We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not enteredinto any derivative contracts that are indexed to our shares and classified as shareholders’ equity, or that are not reflected in our consolidated financialstatements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity ormarket risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or creditsupport to us or engages in leasing, hedging or research and development services with us. Inflation Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of China, theconsumer price indexes in China were, 103.3, 105.4 and 102.7 in 2010, 2011 and 2012, respectively. Recently Issued Accounting Pronouncements In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments toAchieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which amended accountingguidance related to fair value measurements and disclosures with the purpose of converging the fair value measurement and disclosure guidance issued by theFASB and the International Accounting Standards Board. The guidance is effective for reporting periods beginning after December 15, 2011. The guidanceincludes amendments that clarify the intent of the application of existing fair value measurement requirements along with amendments that change a particularprinciple or requirement for fair value measurements and disclosures. The Company adopted the new guidance on April 1, 2012. The adoption did not have amaterial impact on the Company’s consolidated financial statements or related disclosures. In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU2013-02”). The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significantamounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by thereclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference to the related footnote foradditional information. ASU 2013-02 is effective for interim and annual reporting periods beginning after December 15, 2012. The Company will adopt theprovisions of the new guidance on April 1, 2013. The adoption will not have a material impact on the Company’s consolidated financial statements or relateddisclosures. 93 ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A.Directors and Senior Management Our current directors and executive officers are: Name Age PositionYuen Kam (3) 51 Chairman of the BoardTing Zheng (3) 41 Chief Executive Officer and DirectorAlbert Chen 37 Chief Financial Officer and DirectorMark D. Chen (1)(2) 45 Independent Non-executive DirectorDr. Ken Lu (1)(2)(3) 49 Independent Non-executive DirectorJennifer J. Weng (1)(2) 45 Independent Non-executive DirectorJulian J. Wolhardt (2)(3) 40 Independent Non-executive DirectorJeremy Yee (2) 43 Independent Non-executive DirectorYue Deng 43 Chief Executive Officer — Beijing DivisionRui Arashiyama 54 Chief Executive Officer — Guangdong and Zhejiang DivisionsXin Xu 59 Chief Technology Officer (1)Members of audit committee (2)Member of compensation committee (3)Member of nominating and corporate governance committee Yuen Kam, serves as our chairman and also chairman of the Nominating and Corporate Governance Committee. He is responsible for the strategicdirection of CCBC. He is also the founder, chairman and chief executive officer of Golden Meditech with over 20 years of experiences in the healthcareindustry. Mr. Kam also serves as the chairman of CBB. He received his Bachelor of Arts degree in Japanese from the Beijing Second Foreign LanguagesInstitute, the PRC. Ting Zheng, serves as our chief executive officer and director. She has been in charge of our cord blood bank operations since 2003 and isresponsible for the strategic direction, development and overall management of CCBC. Aside from overseeing the overall operation of CCBC, she is alsoresponsible for strategic developments, acquisition planning and negotiations, and formulating overall business strategy and various business initiatives ofCCBC. She has more than ten years of experience in the fields of accounting, internal control, and corporate strategies and development in China’s healthcareindustry. Ms. Zheng had served as an executive director of Golden Meditech and had been in charge of its and its subsidiaries’ financial and internal controlsystems since September 2001. She assumed a critical role in the initial public offering by Golden Meditech on the Growth Enterprise Market of the HongKong Stock Exchange in December 2001. Ms. Zheng became a non-executive director of Golden Meditech starting from August 2012. She played an importantrole in our acquisition of Nuoya and investments in Cordlife. Prior to joining us, Ms. Zheng worked for Sino-reality Certified Public Accountants, anaccounting firm in China, from 1997 to 2001. She received an Executive MBA degree from Renmin University of China. Albert Chen, serves as our chief financial officer and a director. He is in charge of CCBC’s finance-related matters, including accounting andbudget planning. He is also involved in CCBC’s corporate structuring and development, including mergers and acquisitions, and investment in foreignhealthcare companies. For example, he played an important role in our acquisition of Nuoya and investments in Cordlife. He had served as the corporatefinance vice president of Golden Meditech since March 2005. Prior to joining Golden Meditech, Mr. Chen worked in a number of financial institutions,including SalomonSmithBarney, DBS Vickers Securities and UOB Kay Hian in Hong Kong. During his employment as an analyst in UOB Kay Hian from2003 to March 2005, he was a senior analyst specializing in the pharmaceutical and healthcare industries and was ranked as one of the best analysts for smallcap companies in the region in a poll conducted by Asia Money among brokers in 2003. Mr. Chen is a CFA charterholder. He received his bachelor’s degree incommerce from Queen’s University, Canada, School of Business in 1999 with a major in finance and accounting. 94 Mark D. Chen, serves as one of our independent non-executive directors and also chairman of the Compensation Committee. Prior to the BusinessCombination on June 30, 2009, Mr. Chen was Pantheon’s chairman of the board, chief executive officer and president since its inception. Since 1998, Mr.Chen has been a founding general partner of Easton Capital Investment Group and its various affiliated funds, a New York based private equity investmentfirm, and has served in various positions, including managing director and, and currently a venture partner, a position he has held since 2005. He iscurrently a director and chairman of the audit committee of Skystar Bio-Pharmaceutical Company (NASDAQ:SKBI). Mr. Chen received a B.S. from theShanghai Jiao Tong University in Shanghai, China, an M.S. from Pennsylvania State University and an M.B.A. from the Columbia Business School atColumbia University. Mr. Chen is the spouse of Jennifer J. Weng. Dr. Ken Lu, has served as one of our independent non-executive directors since the Business Combination on June 30, 2009. Dr. Ken Lu is the chiefexecutive officer of Seres Asset Management Limited, an investment management company focusing on the Asian equity markets. Prior to Seres, Dr. Lufounded and managed APAC Capital Advisors Limited, a Greater China investment specialist, from 2004 to early 2010. Dr. Lu’s extensive capital marketexperience also includes research analyst roles at a number of leading investment banks, including JP Morgan and Credit Suisse (formerly Credit Suisse FirstBoston, or CSFB). He served as the Head of China Research at CSFB from October 2001 to May 2004. Dr. Lu also serves on the boards and audit committeesof AsiaInfo-Linkage Inc., China Techfaith Wireless Communication Technology Limited, and China Biologic Products Inc., all listed on the NASDAQ. Dr.Lu holds a Bachelor of Science degree from the Beijing University, a Master of Science from the Brigham Young University, and a Ph. D. degree in financefrom the University of California, Los Angeles. Jennifer J. Weng, serves as one of our independent non-executive directors and also chairman of Audit Committee. Prior to the BusinessCombination on June 30, 2009, Ms. Weng was Pantheon’s chief financial officer and secretary since its inception. She is currently a Managing Director ofPantheon Pacific Capital Management Ltd., an investment management and advisory company. Previously, she had held a variety of research and financialmanagement positions with companies including Mizuho, Morgan Stanley in New York. Ms. Weng received a B.A. from Tongji University, China and anM.B.A. from Indiana University of Pennsylvania. Ms. Weng is the spouse of Mark D. Chen. Julian J. Wolhardt, serves as one of our independent non-executive directors. He is a partner of KKR Asia Limited focusing on private equitytransactions in the Greater China region. Prior to joining KKR Asia Limited, Mr. Wolhardt was with Morgan Stanley Private Equity Asia and was responsiblefor its private equity business in China. Mr. Wolhardt has been actively involved in advising on investments in Yageo Corporation, China Modern Dairy, FarEast Horizon, and China Outfitters. Mr. Wolhardt currently serves as a non-executive director of China Modern Dairy Holdings Limited, and an independentnon-executive director of China Mengniu Dairy Company Limited. Mr. Wolhardt is a Certified Public Accountant and Certified Management Accountant. Hereceived a bachelor’s degree in accounting from the University of Illinois (Urbana-Champaign). Jeremy Yee, serves as one of our independent non-executive directors. He is the executive director and chief executive officer of Cordlife Singapore.Mr. Yee is responsible for identifying and implementing company-wide business growth strategies and organizational structures of Cordlife Singapore. He waspreviously the chief financial officer of Cordlife from 2004 to 2011. Prior to being the chief financial officer of Cordlife, Mr. Yee was a director of CorporateDevelopment and the chief operating officer of Cordlife. Mr. Yee has worked at KPMG LLP, United Overseas Bank, Amex and other financial institutions invarious audit, financial & management positions. He holds a BA (Econ) (Hons) from the University of Manchester and a BCom (Prof Acct) from MurdochUniversity. In addition, he also holds a MCom from the University of Sydney, MBA from NTU and The University of Chicago Booth School of Business. Yue Deng, serves as our chief executive officer in the Beijing division. She is responsible for the daily operations and management of Jiachenhong.She joined Jiachenhong in November 2004. From 1998 to 2004, Ms. Deng managed sales and marketing, product registration, government relations andcustomer services in Guidant’s Beijing representative office. During her employment with Guidant, she successfully developed a new market in the Liaoningprovince and won several awards in sales and marketing in recognition of her communication, leadership and strategic planning skills. From 1995 to 1998,Ms. Deng served as the office manager and sales coordinator in Guidant’s Beijing representative office. From 1993 to 1995, she served as the secretary to thegeneral manager at NOX international (Tianjin) Co., Ltd. She graduated from Nankai University in China in 1991 with a bachelor’s degree in economics. 95 Rui Arashiyama, serves as our chief executive officer in the Guangdong and Zhejiang divisions. She oversees the daily operations and managementof Nuoya and Lukou and is responsible for the formulation and implementation of marketing strategy for two markets. She joined Nuoya in March 2009 andhas over 10 years of sales and marketing experiences in China and in-depth knowledge about China’s consumer market and regulatory environment. From1999 to 2009, she worked for Jatco Company Limited and was responsible for new business and new market development, execution and cost management.Between 1989 and 1999, she was with Nissan Motor Company Limited with main responsibilities of overseas market development including China, HongKong and Singapore. She graduated from Beijing International Studies University (Beijing Second Foreign Languages Institute) in 1981 with a bachelor’sdegree of Japanese culture. In 1988, she completed a postgraduate mass media program in Japan Sophia University. Xin Xu, serves as our chief technology officer. She is in charge of the daily operations and logistic control of the cord blood bank laboratories, andoversees the laboratories procedures in relation to the processing, separation and preservation of cord blood stems cells to ensure the laboratories environmentstrictly comply with national standards. Prior to joining us in November 2004, Ms. Xu has over 20 years of solid experience in Cryobiology research and hadlectured in Cryobiology at Beijing Medical University. Under our amended and restated articles of association, directors are divided into three classes. Each class consists of as nearly equal numbers ofdirectors as possible and designated Class A, Class B, and Class C. The term of office of Class A expires at the first annual meeting of shareholdersfollowing the effectiveness of the amended and restated articles of association, and each third annual meeting of shareholders thereafter; the term of office ofClass B expires at the second annual meeting of shareholders following the effectiveness of the amended and restated articles of association, and each thirdannual meeting of shareholders thereafter; and the term of office of Class C expires at the third annual meeting of shareholders following the effectiveness of theamended and restated articles of association, and each third annual meeting of shareholders thereafter. Currently Mr. Mark D. Chen, Mr. Albert Chen and Mr.Jeremy Yee are Class A directors, Ms. Ting Zheng and Dr. Ken Lu will be Class B directors, and Mr. Yuen Kam, Ms. Jennifer J. Weng and Mr. Julian J.Wolhardt will be Class C directors. Except as described under the heading “Compensation”, none of our directors has a services contract with us or any of our subsidiaries providingfor benefits upon termination of employment. B.Compensation This section discusses the compensation we paid in previous fiscal years to certain executive officers, which we refer to as the “named executiveofficers”. These named executive officers include: ·Ms. Yuen Kam, who is our chairman and director. ·Ms. Ting Zheng, who is our chief executive officer and director. ·Mr. Albert Chen, who is our chief financial officer and director. ·Ms. Yue Deng, who is our chief executive officer of the Beijing division. ·Ms. Rui Arashiyama, who is our chief executive officer of the Guangdong and Zhejiang divisions. ·Ms. Xin Xu, who is our chief technology officer. Compensation Discussion and Analysis The primary objectives of our compensation policies with respect to executive compensation are to attract and retain the best possible executives tolead us and to properly motivate these executives to perform at the highest levels of which they are capable. Compensation levels established for our executivesare designed to promote loyalty, long-term commitment and the achievement of its goals, to motivate the best possible performance and to award achievement ofbudgetary goals to the extent such responsibility is within the executive’s job description. Compensation decisions with respect to our named executive officershave historically focused on attracting and retaining individuals who could help us to meet and exceed our financial and operational goals. Our board ofdirectors considered the growth of the company, individual performance and market trends when setting individual compensation levels. 96 For the fiscal years ended March 31, 2011, 2012 and 2013, the compensation of the above executive officers substantially consisted of a base salary,and an annual bonus and other benefits, each of which is described in more detail below: ·Base salary. We believe that the base salary element is required in order to provide these executive officers with a stable income stream that iscommensurate with their responsibilities and competitive market conditions. Our board of directors established base salaries payable to the namedexecutive officers with the goal of providing a fixed component of compensation, reflecting the executive officer’s skill set, experience, role andresponsibilities. The determination of our board of directors and compensation committee of whether any of the named executive officers merited anincrease in base salary during any particular year depended on the individual’s performance during the prior fiscal year, our performance during the priorfiscal year and competitive market practices. In establishing the current base salary levels, our board of directors and compensation committee did notengage in any particular benchmarking activities or engage any outside compensation advisors. ·Annual bonus. Bonus for any of the above executive officers are discretionary and is generally linked to his or her individual performances for theyear, including contribution to our strategic and corporate operating plans and providing executive officers performance incentives for attaining specificgoals. ·Severance benefits. Prior to June 30, 2009, there were no written employment contracts between us and any of the named executive officers. Name and Principal Position Year endedMarch 31, Salary (1)($) Bonus (1)($) Total (1)($) Yuen Kam 2013 — — — Chairman Ting Zheng 2013 252,161 257,636 509,797 Chief Executive Officer 2012 201,208 257,546 458,754 2011 180,386 257,235 437,621 Albert Chen 2013 252,161 257,636 509,797 Chief Financial Officer 2012 201,208 257,546 458,754 2011 180,386 257,235 437,621 Yue Deng 2013 132,731 64,409 197,140 Chief Executive Officer – Beijing Division 2012 125,665 51,509 177,174 2011 105,137 42,444 147,581 Rui Arashiyama 2013 213,770 64,409 278,179 Chief Executive Officer 2012 147,685 42,495 190,180 – Guangdong and Zhejiang Divisions 2011 131,043 29,582 160,625 Xin Xu 2013 114,548 51,300 165,848 Chief Technology Officer 2012 109,796 38,632 148,428 2011 68,286 179,990 248,276 (1)Ms. Ting Zheng and Mr. Albert Chen were paid by CSC Holdings in Hong Kong dollars for the years ended March 31, 2011, 2012 and 2013. Thecurrency exchange rate used to convert the payment amounts into US dollars was the noon buying rate as of March 29, 2013, which wasHK$7.7629 to $1.00. Ms. Yue Deng, Ms Rui Arashiyama and Ms Xin Xu were partly paid by CSC Holdings in Hong Kong dollars and partlypaid by our PRC subsidiaries in Beijing and Guangdong for the years ended March 31, 2011, 2012, 2013. Ms Rui Arashiyama was partly paid byour PRC subsidiary in Zhejiang for the year ended March 31, 2013. The currency exchange rate used to convert the Hong Kong dollars andRenminbi payment amounts into US dollars was the noon buying rate as of March 29, 2013, which was HK$7.7629 to $1.00 and RMB6.2108 to$1.00, respectively. The translations of Hong Kong dollars and Renminbi amount into U.S. dollars in this table at the specified rate is solely for theconvenience of the reader. 97 Post-Acquisition Employment Agreements On June 30, 2009, CCBC entered into service contracts with named executive officers, including Ms. Ting Zheng, Mr. Albert Chen, Ms. Yue Deng,Ms. Rui Arashiyama and Ms. Xin Xu. These officers are entitled to severance payments under certain circumstances, including a change of control of CCBC.See “Key Information — Risk Factors — Risks Relating to Our Business — We may have anti-takeover provisions in our organizational documents thatdiscourage a change of control”. Except for these new service contracts, CCBC does not have other service contracts with its directors or executive officers anddoes not set aside any amounts for pension, retirement or other benefits for our directors and officers other than to participate in statutory employee benefitplans mandated by the applicable laws. The five senior executive officers who are currently parties to the service contracts are Ms. Ting Zheng, Mr. Albert Chen, Ms. Yue Deng, Ms. RuiArashiyama and Ms. Xin Xu. The service contracts have substantially identical terms, except with respect of the duties of the executive and his or hercompensation package. The material terms under the employment agreements are as follows: ·The contract will be automatically renewed every three years until the death or incapacitation of the executive unless terminated by either party withnotice. ·If the service contract is terminated by the executive within 30 days following a change of control of CCBC, the executive will be entitled to (i) all thesalary and guaranteed bonuses actually accrued and payable to him/her as the case may be; (ii) immediate vesting of all of his/her unvested options;and (iii) a severance payment in the amount of $5 million. ·CCBC may terminate a service contract without cause with at least 30 days’ written notice, in which case the executive will be entitled to (i) all theguaranteed bonuses actually accrued and payable to him/her as the case may be, (ii) the immediate vesting of all of his or her unvested options and(iii) if the termination is made within two years of a change of control of our company, a severance payment in the amount of $5 million. ·In all other cases, CCBC may terminate a service contract with cause at any time without notice, or the executive may terminate his or her servicecontract with at least 90 days’ written notice, and in either case the executive will be entitled to all the guaranteed bonuses actually accrued andpayable to him/her but will not be entitled to the immediate vesting of all of his or her unvested options nor any severance payment. In the service contracts, each executive is required to hold, both during and after his or her service contract expires or is terminated, in strictconfidence and not to use, except for CCBC’s benefit (including our affiliated entities and our subsidiaries), any proprietary or confidential information,including technical data and trade secrets of CCBC or the confidential information of any third party, including CCBC’s affiliated entities and itssubsidiaries, that CCBC receives. Each executive is also required to disclose to CCBC and hold in trust for CCBC all of the inventions, ideas, designs andtrade secrets conceived of by him or her during the period that he or she is employed by CCBC, and to assign all of his or her interests in them to CCBC, andagreed that, while employed by CCBC and for a period of three years after termination of his or her employment, he or she will not serve, invest or assist inany business that competes with any significant aspect of CCBC business or solicit, induce, recruit or encourage any person to terminate his or heremployment or consulting relationship with CCBC. Finally, the contracts contain non-competition clauses, pursuant to which the executive may not engage in activities that compete with CCBC duringthe term of their employment with CCBC and for a period of one year after any termination of their employment with CCBC. Each executive is also requirednot to disclose to any third party any confidential information regarding CCBC or any of its subsidiaries or to accept or invest in any opportunity that is inline with its business operations, comes to them as a result of their employment with CCBC or involves any of its assets, unless approved by the board. 98 C.Board Practices Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee. Audit Committee. The audit committee consists of Mr. Mark D. Chen, Dr. Ken Lu and Ms. Jennifer J. Weng. Ms. Weng is the chairman of ouraudit committee, and we have taken reasonable actions to ensure that Ms. Weng qualifies as an “audit committee financial expert”, as such term is defined inthe rules of the Securities and Exchange Commission. Mr. Chen, Dr. Lu and Ms. Weng do not have any direct or indirect material relationship with CCBCother than as a director and meet the criteria for independence set forth in Rule 10A-3 under the Exchange Act. Our board of directors has adopted an audit committee charter, providing for the following responsibilities of the audit committee: ·retaining and terminating our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by theindependent auditors; ·discussing the annual audited financial statements with management and the independent auditors; ·annually reviewing and reassessing the adequacy of our audit committee charter; ·review and approve any related party transactions; ·such other matters that are specifically delegated to the audit committee by our board of directors after the Business Combination from time to time; ·meeting separately, periodically, with management, the internal auditors and the independent auditors; and ·reporting regularly to the board of directors. Compensation Committee. The compensation committee consists of Mr. Mark D. Chen, Dr. Ken Lu, Ms. Jennifer J. Weng, Mr. Julian J. Wolhardtand Mr. Jeremy Yee. Mr. Chen is the chairman of our compensation committee. Mr. Chen, Dr. Lu, Ms. Weng, Mr. Wolhardt and Mr. Yee do not have anydirect or indirect material relationship with CCBC other than as a director. Our board of directors has adopted a compensation committee charter, providing for the following responsibilities of the compensation committee: ·reviewing and making recommendations to the board regarding our compensation policies and forms of compensation provided to our directors andofficers; ·reviewing and making recommendations to the board regarding bonuses for our officers and other employees; ·reviewing and making recommendations to the board regarding share-based compensation for our directors and officers; ·annually reviewing and reassessing the adequacy of the charter; ·administering our share option plans and restricted share unit scheme in accordance with the terms thereof; and ·such other matters that are specifically delegated to the compensation committee by our board of directors after the Business Combination from timeto time. Nominating and Corporate Governance Committee. The nominating and corporate governance committee consists of Mr. Yuen Kam, Ms. TingZheng, Dr. Ken Lu and Mr. Julian J. Wolhardt. Mr. Kam is the chairman of our nominating and corporate governance committee. Dr. Lu and Mr. Wolhardt donot have any direct or indirect material relationship with CCBC other than as a director. 99 Our board of directors has adopted a nominating and corporate governance committee charter, providing for the following responsibilities of thenominating and corporate governance committee: ·overseeing the process by which individuals may be nominated to our board of directors; ·identifying potential directors and making recommendations as to the size, functions and composition of our board of directors; ·considering nominees proposed by our shareholders; ·annually reviewing and reassessing the adequacy of the charter; ·establishing and periodically assessing the criteria for the selection of potential directors; ·making recommendations to the board of directors on new candidates for board membership; and ·such other matters that are specifically delegated to the nominating and corporate governance committee by our board of directors after the BusinessCombination from time to time. In making nominations, the nominating and corporate governance committee is required to submit candidates who have the highest personal andprofessional integrity, who have demonstrated exceptional ability and judgment and who shall be most effective, in conjunction with the other nominees to theboard, in collectively serving the long-term interests of the shareholders. In evaluating nominees, the nominating and corporate governance committee isrequired to take into consideration the following attributes, which are desirable for a member of the board: leadership; independence; interpersonal skills;financial acumen; business experiences; industry knowledge; and diversity of viewpoints. Corporate Governance Our board of directors has adopted a code of business conduct and ethics applicable to our directors, officers and employees. In addition, it hasadopted a set of corporate governance guidelines. The guidelines reflect certain guiding principles with respect to our board structure, procedures andcommittees. These guidelines are not intended to change or interpret any law, or our amended and restated memorandum and articles of association. Insider Trading Policy Directors, executive officers and employees may acquire confidential information from time to time through their employments by or fiduciaryrelationships with CCBC. Golden Meditech is a publicly traded company on the Main Board of the Hong Kong Stock Exchange. The laws of Hong Kongstrictly prohibit any director, officer or employee of a publicly traded company, whenever and in whatever capacity employed, from trading companysecurities while aware of material non-public information about the company. We have established an insider trading policy reinforcing the principles behind the insider trading prohibition under U.S. and Hong Kong laws.Among other things, directors, executive officers and employees are prohibited from executing any trade in securities of our company and any other companyabout which they acquire material non-public information in the course of their duties for our company. D.Employees As of March 31, 2011, 2012, 2013, we had 610, 795 and 890 full-time employees, respectively. The following table sets forth the number of employees based in Beijing, Guangdong and Zhejiang respectively and categorized by function as ofMarch 31, 2013: Beijing Guangdong Zhejiang Sales and marketing and after-sales support and services 196 278 51 Laboratory function 69 99 14 Management and administration 85 69 29 Total 350 446 94 100 As a committed and socially responsible healthcare company, we believe that people are the most important asset of our business. As a result, we aimto remunerate our employees based on their experience, job requirements and performances. Our compensation package typically consists of the basic salary,discretionary bonuses and share options. Our employees are not represented by any collective bargaining agreement, and we have never experienced a strike.We believe we have been successful in maintaining a harmonious relationship with our employees. E.Share Ownership See Item 7, below. ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A.Major Shareholders The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of ourordinary shares, as of the date of this report: ·each person known to us to own beneficially more than 5% of our ordinary shares; and ·each of our directors and executive officers who beneficially own our ordinary shares. Beneficial ownership includes voting or investment power with respect to the securities and takes into consideration options exercisable by a personwithin 60 days after the date of this report. Except as indicated below, and subject to applicable community property laws, the persons named in the table havesole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. Name and Address (1) Number ofSharesBeneficiallyOwned PercentageofOwnership (2) Directors and executive officers: Yuen Kam (3) 9,775,696 10.8%Ting Zheng 1,071,994 1.5%Albert Chen (4) 393,064 * Mark D. Chen (5) 398,144 * Dr. Ken Lu (6) 314,049 * Jennifer J. Weng (5) 398,144 * Yue Deng 142,934 * Xin Xu 71,466 * All directors and executive officers as a group 12,167,347 13.4%Principal shareholders: Golden Meditech Holdings Limited (7) 48,299,307 53.3%Kent C. McCarthy (8) 8,268,506 11.3%Atlantis Capital Holdings Limited (9) 4,292,268 5.9%KKR China Healthcare Investment Limited (10) 22,903,454 23.9%Cordlife Group Limited 7,314,015 10.0% *Beneficially owns less than 1% of our ordinary shares. (1)Unless otherwise indicated, the business address of each beneficial owner is 48th Floor, Bank of China Tower, 1 Garden Road, Central, HongKong, S.A.R. (2)Percentages based on 73,003,248 shares outstanding as of July 31, 2013, excluding shares owned by us. 101 (3)Includes (i) 357,331 ordinary shares held by Yuen Kam; and (ii) 9,418,365 ordinary shares (see note (7) below) beneficially owned by GoldenMeditech in which Yuen Kam owns 19.5% of its issued ordinary shares. (4)Includes (i) 321,598 ordinary shares held by Albert Chen, and (ii) 71,466 ordinary shares held by his spouse. (5)Includes (i) 53,488 ordinary shares held by Jennifer J. Weng, (ii) 183,198 ordinary shares held by Super Castle Investments Limited, a companyowned by Mark D. Chen, and (iii) 161,458 ordinary shares held by Pantheon China Acquisition Limited, an entity controlled by Mark D. Chen.Mark D. Chen and Jennifer J. Weng are married. (6)Represents ordinary shares held by Time Galaxy Limited, a company incorporated under the laws of the British Virgin Islands of which Dr. Ken Luis a director. (7)Includes (i) 30,681,266 ordinary shares held by GM Stem Cells, a wholly-owned subsidiary of Golden Meditech; and (ii) 17,618,041 ordinaryshares issuable upon conversion of senior convertible notes, with principal amount of $50 million at a conversion price of $2.838 per share, held byGolden Meditech. Golden Meditech has the right to convert the senior convertible notes into the Company’s ordinary shares at any time within fiveyears subsequent to the issuance date. Should the senior convertible notes be fully converted into the Company’s ordinary shares, the shares thusconverted would represent approximately 19.4% of the Company’s enlarged share capital. The senior convertible notes were issued on October 3,2012. As of the date of this report, Golden Meditech has not converted any portion of its convertible notes into the Company’s ordinary shares. (8)Includes (i) 1,928,211 ordinary shares held by JCF CO LF, L.P., and (ii) 6,340,295 ordinary shares held by Jayhawk Private Equity Fund II, L.P.Mr. McCarthy is the manager of Jayhawk Private Equity, LLC. Jayhawk Private Equity, LLC is the general partner of Jayhawk Private Equity GPII, L.P. Jayhawk Private Equity GP II, L.P. is the general partner of Jayhawk Private Equity Fund II, L.P. Therefore, Mr. McCarthy, JayhawkPrivate Equity, LLC, and Jayhawk Private Equity GP II, L.P. are deemed to be beneficial owners of the securities owned of record by JayhawkPrivate Equity Fund II, L.P. and have reported that they share voting power and dispositive power over such securities. Mr. McCarthy is also themanager of Jayhawk Capital Management, L.L.C., which is the general partner of JCF CO LF, L.P. Therefore, Mr. McCarthy and Jayhawk CapitalManagement, L.L.C. are deemed to be beneficial of the securities owned of record by JCF CO LF, L.P., and have reported that they share votingpower and dispositive power over such securities. (9)Includes 4,292,268 ordinary shares held by Atlantis Investment Management (Hong Kong) Limited, a wholly owned subsidiary of Atlantis CapitalHoldings Limited. (10)Represents 22,903,454 ordinary shares issuable upon conversion of senior convertible notes, with a principal amount of $65 million at aconversion price of $2.838 per share, held by KKRCHL. KKRCHL has the right to convert the senior convertible notes into the Company’sordinary shares at any time within five years subsequent to the issuance date. Should the senior convertible notes be fully converted into theCompany’s ordinary shares, the shares thus converted would represent approximately 23.9% of the Company’s enlarged share capital. The seniorconvertible notes were issued on April 27, 2012. As of the date of this report, KKRCHL has not converted any portion of its convertible notes intothe Company’s ordinary shares. As of June 30, 2013, 38.8% of our outstanding ordinary shares are held by 8 record holders in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. 102 B.Related Party Transactions General Principles on Related Party Transactions Our audit committee has adopted an internal policy regarding the identification, review, consideration and oversight of any transaction, arrangementor relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related party” are participants. Transactionsinvolving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person are not covered. A related partyis any executive officer, director or a holder of more than five percent of our ordinary shares, including any of their immediate family members and any entityowned or controlled by such persons. Under our policy, where a transaction has been identified as a related party transaction, management must present information regarding theproposed related party transaction to the audit committee of our board of directors for review. The presentation must include a description of, among otherthings, the material facts, the direct and indirect interests of the related parties, the benefits of the transaction to us and whether any alternative transactions areavailable. To identify related party transactions in advance, we rely on information supplied by our executive officers, directors and certain significantshareholders. In considering related party transactions, the audit committee of our board of directors takes into account the relevant available facts andcircumstances including, but not limited to the risks, costs and benefits to us; the impact on a director’s independence in the event the related person is adirector, immediate family member of a director or an entity with which a director is affiliated; the terms of the transaction; the availability of other sources forcomparable services or products; and the terms available to or from, as the case may be, unrelated third parties or to or from our employees generally. In theevent a director has an interest in the proposed transaction, the director must excuse himself or herself from the deliberations and approval. Prior to the establishment of our audit committee in connection with the closing of the Business Combination, CCBS’s board of directors performedsimilar functions in approving related party transactions. CCBC’s board of directors reviewed each of the following related party transactions and hasconcluded that, in light of known circumstances, each transaction is in, and is consistent with, its best interests and its shareholders. Lease Agreement On March 16, 2005, Jiachenhong entered into a property lease agreement with Beijing Jingjing Medical Equipment Co., Ltd. (“Beijing Jingjing”),pursuant to which Beijing Jingjing leased its real property in Beijing to Jiachenhong. Beijing Jingjing is a non-wholly owned subsidiary of Golden Meditechand is engaged in the medical equipment manufacturing business. The property is approximately 2,400 square meters in size and may be used by Jiachenhongfor its business operations or scientific research or as office premises at an effective monthly rental of RMB174,000. The lease was renewed in July 2009 at amonthly rental of RMB120,000, for a period of 5.5 years expiring in December 2014. The new lease covers premises of 1,920 square meters. Convertible notes On October 3, 2012 we completed the sale of $50 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share, to Golden Meditech. The notes are senior unsecured obligations, mature on October3, 2017 and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any time or times on or after theissuance date, in whole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significant corporate events.Interest accrues on unconverted portion of the notes at the rate of 7% per annum. On the maturity date, we are obligated to pay a redemption amount calculatedto provide a 12% internal rate of return (inclusive of interest) on the unconverted portion of the notes. C.Interests of Experts and Counsel Not required. 103 ITEM 8.FINANCIAL INFORMATION A.Consolidated Statements and Other Financial Information See Item 18. B.Significant Changes On April 27, 2012 we completed the sale of $65 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share, to KKRCHL. The notes are senior unsecured obligations, mature on April 27, 2017and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any time or times on or after the issuance date, inwhole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significant corporate events. Interest accrues onunconverted portion of the notes at the rate of 7% per annum. On the maturity date, we are obligated to pay a redemption amount calculated to provide a 12%internal rate of return (inclusive of interest) on the unconverted portion of the notes. From and after the thirtieth day following the occurrence, and during thecontinuance, of an event of default under the notes, the interest rate will be increased to twenty-two and one-half percent (22.5%) per annum. The notes containcustomary ongoing covenants, including negative covenants, and events of default and any amendment or waiver thereof requires the affirmative consent of amajority in interest of the holders of all outstanding notes, provided that no such amendment or waiver may affect the principal or interest payable under thenotes or change the maturity thereof or any conversion or redemption rights to which the notes are entitled without the affirmative vote or written consent ofeach holder of the notes affected thereby. On October 3, 2012 we completed the sale of $50 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share, to Golden Meditech. The notes are senior unsecured obligations, mature on October3, 2017 and are not redeemable prior to maturity at our option. The outstanding principal of the notes is convertible at any time or times on or after theissuance date, in whole or part, into ordinary shares at the conversion price, subject to customary anti-dilution adjustments for significant corporate events.Interest accrues on unconverted portion of the notes at the rate of 7% per annum. On the maturity date, we are obligated to pay a redemption amount calculatedto provide a 12% internal rate of return (inclusive of interest) on the unconverted portion of the notes. From and after the thirtieth day following the occurrence,and during the continuance, of an event of default under the notes, the interest rate will be increased to twenty-two and one-half percent (22.5%) per annum.The notes contain customary ongoing covenants, including negative covenants, and events of default and any amendment or waiver thereof requires theaffirmative consent of a majority in interest of the holders of all outstanding notes, provided that no such amendment or waiver may affect the principal orinterest payable under the notes or change the maturity thereof or any conversion or redemption rights to which the notes are entitled without the affirmativevote or written consent of each holder of the notes affected thereby. ITEM 9.THE OFFER AND LISTING A.Offer and Listing Details The following tables set forth, for the periods indicated and through June 30, 2013, the high and low sale prices for CCBC’s shares and warrants,respectively, as reported on the NYSE or the Over-the-Counter Bulletin Board, as applicable (See Item 9C for the dates that the securities were traded on eachmarket). 104 Shares Warrants High Low High Low Fiscal Annual Highs and Lows 2011 $6.11 $2.92 $0.98 $0.17 2012 3.38 2.16 NA NA 2013 3.20 2.41 NA NA Fiscal Quarterly Highs and Lows 2012 First Quarter 3.70 2.90 N/A N/A Second Quarter 3.62 2.77 N/A N/A Third Quarter 3.15 1.85 N/A N/A Fourth Quarter 3.38 2.16 N/A N/A 2013 First Quarter 3.20 2.59 N/A N/A Second Quarter 2.79 2.41 N/A N/A Third Quarter 2.95 2.60 N/A N/A Fourth Quarter 2.95 2.59 N/A N/A 2014 First Quarter 3.02 2.76 N/A N/A Monthly Highs and Lows January 2013 2.75 2.60 N/A N/A February 2013 2.95 2.59 N/A N/A March 2013 2.93 2.73 N/A N/A April 2013 2.94 2.76 N/A N/A May 2013 3.02 2.76 N/A N/A June 2013 2.94 2.76 N/A N/A B.Plan of Distribution Not Applicable. C.Markets Our shares are listed on the NYSE under the symbol CO since November 19, 2009. From June 30, 2009 through November 19, 2009, our shareswere quoted on the Over-The-Counter Bulletin Board, under the symbol “CNDZF”. CCBC’s warrants were quoted on the Over-The-Counter Bulletin Board,under the symbol “CNDWF” from June 30, 2009 through December 13, 2010 the date the warrants expired. D.Selling Shareholders Not Applicable. E.Dilution Not Applicable. F.Expenses of the Issue Not Applicable. ITEM 10.ADDITIONAL INFORMATION A.Share Capital Not Applicable. 105 B.Memorandum and Articles of Association Registered Office. Under the Company’s amended and restated memorandum of association, the Registered Office of the Company is located at theoffices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands, or atsuch other place as the directors or shareholders may by resolution from time to time decide. Objects and Purposes. There are no limitations on the business that the Company may carry on provided that it must be duly licensed to carry ona business for which a license is required in the Cayman Islands. Directors. We are managed by our board of directors. Our amended and restated articles of association provide that the maximum number of ourdirectors will be fixed from time to time exclusively pursuant to a resolution of Directors, and unless determined by the Company in general meeting, mustconsist of not less than three directors. Any director on our board may be removed by way of a special resolution of shareholders. Any vacancies on our boardof directors or additions to the existing board of directors can be filled by way of a special resolution of shareholders or by the affirmative vote of a simplemajority of the remaining directors. The directors have the power to appoint any person as a director to fill a casual vacancy on the board or as an addition tothe existing board. Any director appointed by the board of directors to fill a casual vacancy shall serve for the remainder of the term of the Director whosedeath, resignation or removal created such vacancy. At each annual general meeting, one-third of our directors for the time being (or if their number is not amultiple of three, then the number nearest to but not less than one-third) will retire from office by rotation provided that every director shall be subject toretirement at an annual general meeting at least once every three years. The directors to retire in every year will be those who have been longest in office sincetheir last re-election or appointment but as between persons who became or were last re-elected directors on the same day those to retire will (unless theyotherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of directors upon reaching any age limit. Meetings of our board of directors may be convened at any time deemed necessary by our secretary on request of the Chairman or a majority of theBoard. Advance notice of a meeting is not required if each director entitled to attend consents to the holding of such meeting. A meeting of our board of directors shall be competent to make lawful and binding decisions if at least two of the members of our board of directorsare present or represented unless the board has fixed any other number. At any meeting of our directors, each director is entitled to one vote. Questions arising at a meeting of our board of directors are required to be decided by simple majority votes of the members of our board of directorspresent or represented at the meeting. In the case of any equality of votes, the chairman of the meeting shall have an additional or casting vote. Our board ofdirectors may also pass resolutions without a meeting by unanimous written consent. Pursuant to our amended and restated articles of association, our board of directors has established an audit committee, a compensation committeeand a nominating and corporate governance committee. Cayman Islands laws do not restrict transactions with directors, requiring only that directors exercise a duty of care and owe a fiduciary duty to thecompanies for which they serve. Under our amended and restated memorandum and articles of association, subject to any separate requirement for auditcommittee approval under the applicable rules of the exchange on which we are listed at the time or unless disqualified by the chairman of the relevant boardmeeting, so long as a director discloses the nature of his interest in any contract or arrangement which he is interested in, such a director may vote in respect ofany contract or proposed contract or arrangement in which such director is interested and may be counted in the quorum at such meeting. Rights, Preferences and Restrictions Attaching to the Company’s Shares. As of March 31, 2013, our authorized share capital is $25,100,consisting of 250,000,000 ordinary shares, par value $0.0001 per share, and 1,000,000 preferred shares, par value $0.0001 per share, and the issued sharecapital consists of 73,140,147 ordinary shares fully paid or credited as fully paid. 106 Subject to any special rights or restrictions as to voting for the time being attached to any shares, at any general meeting every shareholder who ispresent in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) shall have one vote, and on a pollevery shareholder present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly appointed representative) shall have one votefor each fully paid share of which such shareholder is the holder. No shareholder shall be entitled to vote or be counted in a quorum, in respect of any share, unless such shareholder is registered as our shareholder atthe applicable record date for that meeting and all calls or installments due by such shareholder to us have been paid. If a clearing house or depositary (or its nominee(s)) is our shareholder, it may authorize such person or persons as it thinks fit to act as itsrepresentative(s) at any meeting or at any meeting of any class of shareholders, provided that, if more than one person is so authorized, the authorization shallspecify the number and class of shares in respect of which each such person is so authorized. A person authorized pursuant to this provision is entitled toexercise the same powers on behalf of the recognized clearing house or depositary (or its nominee(s)) as if such person was the registered holder of our sharesheld by that clearing house or depositary (or its nominee(s)) including the right to vote individually on a show of hands. While there is nothing under the laws of the Cayman Islands which specifically prohibits or restricts the creation of cumulative voting rights for theelection of our directors, unlike the requirement under Delaware law that cumulative voting for the election of directors is permitted only if expressly authorizedin the certificate of incorporation, it is not a concept that is accepted as a common practice in the Cayman Islands, and we have made no provisions in ouramended and restated memorandum and articles of association to allow cumulative voting for such elections. Alteration of Rights. Except with respect to share capital (as described below), alterations to our amended and restated memorandum and articles ofassociation may only be made by special resolution of no less than two-thirds (66 and 2/3%) of votes cast at a meeting of the shareholders. Subject to the Companies Law of the Cayman Islands, all or any of the special rights attached to shares of any class (unless otherwise provided forby the terms of issue of the shares of that class) may be varied, modified or abrogated with the sanction of a special resolution passed at a separate generalmeeting of the holders of the shares of that class. The provisions of our amended and restated memorandum and articles of association relating to generalmeetings shall apply similarly to every such separate general meeting, but so that the quorum for the purposes of any such separate general meeting or at itsadjourned meeting shall be two or more persons together holding (or represented by proxy) not less than one-third in nominal value of the issued shares of thatclass. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by such holder and any holder of shares of that classpresent in person or by proxy may demand a poll. The special rights conferred upon the holders of any class of shares shall not, unless otherwise expressly provided in the rights attaching to or theterms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. We may from time to time by ordinary resolution: ·increase our capital by such sum, to be divided into shares of such amounts, as the resolution shall prescribe; ·consolidate and divide all or any of our share capital into shares of larger amount than our existing shares; ·cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amountof our share capital by the amount of the shares so cancelled; ·sub-divide our shares or any of them into shares of smaller amount than is fixed by our amended and restated memorandum and articles ofassociation, subject nevertheless to the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as betweenthe holders of the share resulting from such subdivision, one or more of the shares may have any such preference or other special rights, over, ormay have such deferred rights or be subject to any such restrictions as compared with the others as we have power to attach to unissued or newshares; and 107 ·divide shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares, attach to theshares respectively as preferential, deferred, qualified or special rights, privileges, conditions or such restrictions which in the absence of any suchdetermination in general meeting may be determined by our directors. We may, by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or any capitalredemption reserve in any manner authorized by law. Meetings. Subject to our regulatory requirements, an annual general meeting and any extraordinary general meeting shall be called by not less than10 clear days’ notice in writing. Notice of every general meeting will be given to all of our shareholders other than those that, under the provisions of ouramended and restated memorandum and articles of association or the terms of issue of the shares they hold, are not entitled to receive such notices from us,and also to our directors and principal external auditors. Extraordinary general meetings may be called only by the chairman of our board of directors, amajority of our Board of Directors or any shareholders together holding not less than 75% of our issued share capital, and may not be called by any otherperson. All business shall be deemed special that is transacted at an extraordinary general meeting, and also all business that is transacted at an annual generalmeeting other than with respect to (1) declarations of dividends, (2) the adoption of our financial statements and reports of directors and auditors thereon, (3)the granting of any mandate or authority to directors to offer, allot, grant options or otherwise dispose of unissued shares in the capital of our companyrepresenting not more than 20% of the nominal value of our existing issued share capital, (4) the granting of any mandate or authority to directors to repurchaseour securities, (5) the election of directors, (6) the appointment of auditors and other officers, and (7) the fixing of the remuneration of the auditors and thevoting of remuneration or extra remuneration to the directors. Notwithstanding that a meeting is called by shorter notice than that mentioned above, but, subject to applicable regulatory requirements, it will bedeemed to have been duly called, if it is so agreed (1) in the case of a meeting called as an annual general meeting by all of our shareholders entitled to attendand vote at the meeting; or (2) in the case of any other meeting, by a majority in number of our shareholders having a right to attend and vote at the meeting,being a majority together holding not less than 95% in nominal value of the issued ordinary shares giving that right. At any general meeting, two shareholders entitled to vote and present in person or by proxy or, in the case of a shareholder being a corporation, by itsduly authorized representative that represent not less than one-third of our issued and outstanding voting shares will constitute a quorum. No business otherthan the appointment of a chairman may be transacted at any general meeting unless a quorum is present at the commencement of business. However, theabsence of a quorum will not preclude the appointment of a chairman. If present, the chairman of our company shall be the chairman presiding at anyshareholders meetings. A corporation being a shareholder shall be deemed for the purpose of our amended and restated memorandum and articles of association to be presentin person if represented by its duly authorized representative being the person appointed by resolution of the directors or other governing body of suchcorporation to act as its representative at the relevant general meeting or at any relevant general meeting of any class of our shareholders. Such duly authorizedrepresentative shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were ourindividual shareholder. Limitations on the Right to Own Securities. There are no limitations on the rights to own securities of the Company, or limitations on the rights ofnon-resident or foreign shareholders to hold or exercise voting rights on the Company’s securities, contained in the Company’s amended and restatedmemorandum and articles of association or under Cayman Islands law. Issuance of Additional Ordinary Shares or Preference Shares. Our amended and restated memorandum and articles of association authorizesour board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized butunissued ordinary shares. 108 Our amended and restated memorandum and articles of association authorizes our board of directors to establish from time to time one or more seriesof preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including: ·the designation of the series; ·the number of shares of the series; ·the dividend rights, dividend rates, conversion rights, voting rights; and ·the rights and terms of redemption and liquidation preferences. Our board of directors may issue series of preference shares without action by our shareholders to the extent of available authorized but unissuedpreference shares. Accordingly, the issuance of preference shares may adversely affect the rights of the holders of the ordinary shares. In addition, the issuanceof preference shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of preference shares may dilute thevoting power of holders of ordinary shares. Subject to applicable regulatory requirements, our board of directors may issue additional ordinary shares without action by our shareholders to theextent of available authorized but unissued shares. The issuance of additional ordinary shares may be used as an anti-takeover device without further actionon the part of the shareholders. Such issuance may dilute the voting power of existing holders of ordinary shares. Mergers and Similar Arrangements. A merger of two or more constituent companies under Cayman Islands law requires a plan of merger orconsolidation to be approved by the directors of each constituent company and a special resolution of the members of each constituent company. A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution ofshareholders. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parentcompany. The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a courtin the Cayman Islands. Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upondissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on thegrounds that the merger or consolidation is void or unlawful. In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement isapproved by a majority in number of each class of shareholders and creditors (representing 75% by value) with whom the arrangement is to be made, andwho must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either inperson or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctionedby the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to beapproved, the court can be expected to approve the arrangement if it determines that: ·the statutory provisions as to the required majority vote have been met; ·the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minorityto promote interests adverse to those of the class; ·arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and ·the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law. 109 When a take over offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two-month periodcommencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. Anobjection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unlessthere is evidence of fraud, bad faith or collusion. If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which wouldotherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judiciallydetermined value of the shares. C.Material Contracts All material contracts governing the business of the Company are described elsewhere in this Annual Report on Form 20-F or in the informationincorporated by reference herein. D.Exchange Controls Under Cayman Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictionsthat affect the remittance of dividends, interest or other payments to non-resident holders of our shares. E.Taxation United States Federal Income Taxation General The following is a summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinaryshares. The discussion below of the U.S. federal income tax consequences under the heading “U.S. Holders” will apply to a beneficial owner of our ordinaryshares that is for U.S. federal income tax purposes: ·an individual citizen or resident of the United States; ·a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the UnitedStates, any state thereof or the District of Columbia; ·an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or ·a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control allsubstantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. A beneficial owner of our ordinary shares that is described above is referred to herein as a “U.S. Holder”. If a beneficial owner of our ordinary sharesis not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, such ownerwill be considered a “Non-U.S. Holder”. The material U.S. federal income tax consequences applicable specifically to Non-U.S. Holders are described belowunder the heading “Non-U.S. Holders”. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, Treasury regulations promulgatedthereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations, possibly on aretroactive basis. 110 This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular holder based on such holder’sindividual circumstances. In particular, this discussion considers only holders that own and hold our ordinary shares as capital assets within the meaning ofSection 1221 of the Code and does not address the alternative minimum tax. In addition, this discussion does not address the U.S. federal income taxconsequences to holders that are subject to special rules, including: ·financial institutions or financial services entities; ·broker-dealers; ·persons that are subject to the mark-to-market accounting rules under Section 475 of the Code; ·tax-exempt entities; ·governments or agencies or instrumentalities thereof; ·insurance companies; ·regulated investment companies; ·real estate investment trusts; ·certain expatriates or former long-term residents of the United States; ·persons that actually or constructively own 5% or more of our voting shares; ·persons that acquired our ordinary shares pursuant to an exercise of employee options, in connection with employee incentive plans or otherwise ascompensation; ·persons that hold our ordinary shares as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; ·persons whose functional currency is not the U.S. dollar; ·controlled foreign corporations; or ·passive foreign investment companies. This discussion does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. taxlaws, or except as discussed herein, any tax reporting obligations applicable to a holder of our ordinary shares. Additionally, this discussion does not considerthe tax treatment of partnerships or other pass-through entities or persons who hold our ordinary shares through such entities. If a partnership (or other entityclassified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our ordinary shares, the U.S. federal income tax treatment of apartner in the partnership generally will depend on the status of the partner and the activities of the partnership. This discussion also assumes that anydistribution made (or deemed made) to a holder in respect of our ordinary shares and any consideration received (or deemed received) by a holder in connectionwith the sale or other disposition of our ordinary shares will be in U.S. dollars. We have not sought, and will not seek, a ruling from the Internal Revenue Service (“IRS”) or an opinion of counsel, as to any U.S. federal income taxconsequence described herein. The IRS may disagree with the description herein, and its determination may be upheld by a court. Moreover, there can be noassurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in thisdiscussion. THIS DISCUSSION IS ONLY A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THEACQUISITION, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES. IT IS NOT TAX ADVICE. EACH HOLDER OF OUR ORDINARYSHARES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCHHOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING THE APPLICABILITY ANDEFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAXTREATIES. 111 Tax Treatment of CCBC After the Redomestication and the Share Exchange Section 7874(b) of the Code generally provides that a corporation organized outside the United States that acquires, directly or indirectly, pursuant toa plan or series of related transactions, substantially all of the assets of a corporation organized in the United States will be treated as a domestic corporationfor U.S. federal income tax purposes if shareholders of the acquired corporation, by reason of owning shares of the acquired corporation, own at least 80% ofeither the voting power or the value of the stock of the acquiring corporation after the acquisition. Under regulations promulgated under Section 7874, awarrant holder of either the acquired corporation or the acquiring corporation generally is treated for this purpose as owning stock of the acquired corporationor the acquiring corporation, as the case may be, with a value equal to the excess of the value of the shares underlying the warrant over the exercise price of thewarrant. If Section 7874(b) were to apply to the Redomestication, then, among other things, CCBC, as the surviving entity, would be subject to U.S. federalincome tax on its worldwide taxable income following the Redomestication and the Share Exchange, as if it were a domestic corporation. After the completion of the Share Exchange, which occurred immediately after and as part of the same plan as the Redomestication, the formerstockholders of Pantheon Arizona (including warrant holders treated as owning stock of Pantheon Arizona pursuant to the regulations under Section 7874)should be considered as owning, by reason of owning (or being treated as owning) stock of Pantheon Arizona, less than 80% of the voting power and the valueof the shares of CCBC (including any warrants treated as shares of CCBC pursuant to the regulations promulgated under Section 7874). Accordingly, Section7874(b) should not apply to treat CCBC as a domestic corporation for U.S. federal income tax purposes. However, due to the absence of comprehensiveguidance on how the rules of Section 7874(b) apply to the transactions completed pursuant to the Redomestication and Share Exchange, this result is notentirely free from doubt. If, for example, the Redomestication were ultimately determined for purposes of Section 7874(b) as having occurred prior to, andseparate from, the Share Exchange for U.S. federal income tax purposes, the share ownership threshold for applicability of Section 7874(b) generally would besatisfied (and CCBC would be treated as a domestic corporation for U.S. federal income tax purposes) because the former stockholders of Pantheon Arizona(including warrant holders treated as owning stock of Pantheon Arizona), by reason of owning (or being treated as owning) stock of Pantheon Arizona, wouldown all of the shares (including any warrants treated as shares) of CCBC immediately after the Redomestication. Although normal “step transaction” taxprinciples support the view that the Redomestication and the Share Exchange should be viewed together for purposes of determining whether Section 7874(b) isapplicable, because of the absence of guidance under Section 7874(b) directly on point, this result is not entirely free from doubt. The balance of thisdiscussion assumes that CCBC will be treated as a foreign corporation for U.S. federal income tax purposes. U.S. Holders Taxation of Cash Distributions Paid on Ordinary Shares Subject to the passive foreign investment company, or “PFIC”, rules discussed below, a U.S. Holder generally will be required to include in grossincome as ordinary income the amount of any cash dividend paid on our ordinary shares. A cash distribution on such ordinary shares generally will be treatedas a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and profits (as determinedfor U.S. federal income tax purposes). Such dividend generally will not be eligible for the dividends-received deduction generally allowed to U.S. corporationsin respect of dividends received from other U.S. corporations. The portion of such cash distribution, if any, in excess of such earnings and profits will beapplied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in our ordinary shares. Any remaining excess generally will be treated asgain from the sale or other taxable disposition of such ordinary shares. With respect to non-corporate U.S. Holders, any such dividends may be subject to U.S. federal income tax at the lower applicable regular long termcapital gains tax rate (see “— Taxation on the Disposition of Ordinary Shares” below) provided that (1) our ordinary shares are readily tradable on anestablished securities market in the United States or, in the event we are deemed to be a PRC “resident enterprise” under the EIT law, we are eligible for thebenefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance ofDouble Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the “U.S.-PRC Tax Treaty”), (2) we are not a PFIC, as discussed below,for either the taxable year in which such dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. Under publishedIRS authority, ordinary shares are considered for purposes of clause (1) above to be readily tradable on an established securities market in the United Statesonly if they are listed on certain exchanges, which presently include the NYSE. While our ordinary shares are currently listed and traded on the NYSE, U.S.Holders nevertheless should consult their own tax advisors regarding the availability of the lower rate for any dividends paid with respect to our ordinaryshares. 112 If a PRC income tax applies to any cash dividends paid to a U.S. Holder on our ordinary shares, such tax may be treated as a foreign tax eligible fora deduction from such holder’s U.S. federal taxable income or a foreign tax credit against such holder’s U.S. federal income tax liability (subject to applicableconditions and limitations). In addition, if such PRC tax applies to any such dividends, such U.S. Holder may be entitled to certain benefits under the U.S.-PRC Tax Treaty, if such holder is considered a resident of the United States for purposes of, and otherwise meets the requirements of, the U.S.-PRC TaxTreaty. U.S. Holders should consult their own tax advisors regarding the deduction or credit for any such PRC tax and their eligibility for the benefits of theU.S.-PRC Tax Treaty. Taxation on the Disposition of Ordinary Shares Upon a sale or other taxable disposition of our ordinary shares, and subject to the PFIC rules discussed below, a U.S. Holder generally will recognizecapital gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the ordinary shares. The regular U.S. federal income tax rate on capital gains recognized by U.S. Holders generally is the same as the regular U.S. federal income tax rateon ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders generally are subject to U.S. federal income tax at amaximum regular rate of 20%. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the ordinary sharesexceeds one year. The deductibility of capital losses is subject to various limitations. If a PRC income tax applies to any gain from the disposition of our ordinary shares by a U.S. Holder, such tax may be treated as a foreign taxeligible for a deduction from such holder’s U.S. federal taxable income or a foreign tax credit against such holder’s U.S. federal income tax liability (subject toapplicable conditions and limitations). In addition, if such PRC tax applies to any such gain, such U.S. Holder may be entitled to certain benefits under theU.S.-PRC Tax Treaty, if such holder is considered a resident of the United States for purposes of, and otherwise meets the requirements of, the U.S.-PRC TaxTreaty. U.S. Holders should consult their own tax advisors regarding the deduction or credit for any such PRC tax and their eligibility for the benefits of theU.S.-PRC Tax Treaty. Additional Taxes U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8% Medicarecontribution tax on unearned income, including, without limitation, cash dividends on, and gains from the sale or other taxable disposition of, our ordinaryshares, subject to certain limitations and exceptions. Under recently issued proposed regulations, in the absence of a special election, such unearned incomegenerally would not include income inclusions under the qualified electing fund, or QEF, rules discussed below under “— Passive Foreign InvestmentCompany Rules”, but would include distributions of earnings and profits from a QEF. U.S. Holders should consult their own tax advisors regarding theeffect, if any, of such tax on their ownership and disposition of our ordinary shares. Passive Foreign Investment Company Rules A foreign (i.e., non-U.S.) corporation will be a PFIC if either (a) at least 75% of its gross income in a taxable year of the foreign corporation,including its pro rata share of the gross income of any corporation in which it is considered to own (directly or indirectly) at least 25% of the shares by value,is passive income, or (b) at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averagedquarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own (directly or indirectly) at least 25% of theshares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (otherthan certain rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets. 113 Based on the composition (and estimated values) of the assets and the nature of the income of us and our subsidiaries for our taxable year endedMarch 31, 2013, we do not believe that we will be treated as a PFIC for such year. However, because we have not performed a definitive analysis as to ourPFIC status for such year, there can be no assurance with respect to our PFIC status for such year. There also can be no assurance in respect to our status as aPFIC for our current taxable year or any subsequent taxable year. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our ordinaryshares and such U.S. Holder did not make either a timely qualified electing fund (“QEF”) election for our first taxable year as a PFIC in which the U.S.Holder held (or was deemed to hold) our ordinary shares, a QEF election along with a purging election or a mark-to-market election, each as described below,such holder generally will be subject to special rules for regular U.S. federal income tax purposes with respect to: ·any gain recognized by the U.S. Holder on the sale or other disposition of its ordinary shares; and ·any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that aregreater than 125% of the average annual distributions received by such U.S. Holder in respect of our ordinary shares during the three precedingtaxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the ordinary shares). Under these rules, ·the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares; ·the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the periodin the U.S. Holder’s holding period before the first day of our first taxable year in which we qualified as a PFIC, will be taxed as ordinary income; ·the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest taxrate in effect for that year and applicable to the U.S. Holder; and ·the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year of theU.S. Holder. In general, if we are determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our ordinary sharesby making a timely QEF election (or a QEF election along with a purging election). Pursuant to the QEF election, a U.S. Holder will be required to include inincome its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in eachcase whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. A U.S. Holder may make a separateelection to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interestcharge. The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holdergenerally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company orQualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for thetaxable year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certainother conditions are met or with the consent of the IRS. In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S.Holder, we will endeavor to provide to the U.S. Holder no later than 90 days after the request such information as the IRS may require, including a PFICannual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will have timelyknowledge of our status as a PFIC in the future or of the required information to be provided. 114 If a U.S. Holder has made a QEF election with respect to our ordinary shares, and the special tax and interest charge rules do not apply to suchordinary shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such ordinaryshares or a QEF election along with a purge of the PFIC taint pursuant to a purging election, as described below), any gain recognized on the sale or othertaxable disposition of such ordinary shares generally will be taxable as capital gain and no interest charge will be imposed. As discussed above, for regularU.S. federal income tax purposes, U.S. Holders of a QEF are currently taxed on their pro rata shares of the QEF’s earnings and profits, whether or notdistributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable as adividend to such U.S. Holders. The adjusted tax basis of a U.S. Holder’s ordinary shares in a QEF will be increased by amounts that are included in income,and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holdingsuch property the U.S. Holder is treated under the applicable attribution rules as owning ordinary shares in a QEF. Although a determination as to our PFIC status will be made annually, an initial determination that we are a PFIC generally will apply for subsequentyears to a U.S. Holder who held our ordinary shares while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent years. A U.S.Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our ordinaryshares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such ordinary shares. In addition, such U.S.Holder will not be subject to the QEF inclusion regime with respect to such ordinary shares for any of our taxable years that end within or with a taxable yearof the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFICand during which the U.S. Holder holds (or is deemed to hold) our ordinary shares, the PFIC rules discussed above will continue to apply to such sharesunless the holder files on a timely filed U.S. income tax return (including extensions) a QEF election and a purging election to recognize under the rules ofSection 1291 of the Code any gain that it would otherwise recognize if the U.S. Holder sold such shares for their fair market value on the “qualification date” .The qualification date is the first day of our tax year in which we qualify as a QEF with respect to such U.S. Holder. The purging election can only be made ifsuch U.S. Holder held our ordinary shares on the qualification date. The gain recognized by the purging election generally will be subject to the special tax andinterest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, the U.S. Holder generally will increasethe adjusted tax basis in its ordinary shares by the amount of the gain recognized and also will have a new holding period in its ordinary shares for purposesof the PFIC rules. Alternatively, if a U.S. Holder, at the close of its taxable year, owns ordinary shares in a PFIC that are treated as marketable stock, the U.S. Holdermay make a mark-to-market election with respect to such ordinary shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election forthe first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) our ordinary shares and for which we are determined to be aPFIC, such holder generally will not be subject to the PFIC rules described above in respect to its ordinary shares. Instead, in general, the U.S. Holder willinclude as ordinary income each year the excess, if any, of the fair market value of its ordinary shares at the end of its taxable year over the adjusted tax basisin its ordinary shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted tax basis of its ordinaryshares over the fair market value of its ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as aresult of the mark-to-market election). The U.S. Holder’s adjusted tax basis in its ordinary shares will be adjusted to reflect any such income or loss amounts,and any further gain recognized on a sale or other taxable disposition of the ordinary shares will be treated as ordinary income. The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securitiesand Exchange Commission (including the NYSE) or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the marketprice represents a legitimate and sound fair market value. While our ordinary shares are currently listed and traded on the NYSE, U.S. Holders neverthelessshould consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our ordinary shares under theirparticular circumstances. 115 If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, a U.S. Holder of our ordinary shares generally should bedeemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if wereceive a distribution from, or dispose of all or part of our interest in, or the U.S. Holder otherwise were deemed to have disposed of an interest in, the lower-tierPFIC. Upon request, we will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no later than 90 days after the request the information that maybe required to make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of thestatus of any such lower-tier PFIC or will be able to cause the lower-tier PFIC to provide the required information. A mark-to-market election generally wouldnot be available with respect to such a lower-tier PFIC. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tierPFICs. A U.S. Holder that owns (or is deemed to own) ordinary shares in a PFIC during any taxable year of the U.S. Holder may have to file an IRS Form8621 (whether or not a QEF election or mark-to-market election is or has been made with such U.S. Holder’s U.S. federal income tax return and provide suchother information as may be required by the U.S. Treasury Department. The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition tothose described above. Accordingly, U.S. Holders of our ordinary shares should consult their own tax advisors concerning the application of the PFIC rules toour ordinary shares under their particular circumstances. Non-U.S. Holders Cash dividends paid (or deemed paid) to a Non-U.S. Holder in respect to our ordinary shares generally will not be subject to U.S. federal income tax,unless such dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by anapplicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains or maintained in the United States). In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other taxable dispositionof our ordinary shares unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicableincome tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains or maintained in the United States) or the Non-U.S.Holder is an individual who is present in the United States for 183 days or more in the taxable year of such sale or other disposition and certain otherconditions are met (in which case, such gain from U.S. sources generally is subject to U.S. federal income tax at a 30% rate or a lower applicable tax treatyrate). Cash dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, ifrequired by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains or maintained in the UnitedStates) generally will be subject to regular U.S. federal income tax at the same regular U.S. federal income tax rates applicable to a comparable U.S. Holderand, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, also may be subject to an additional branch profits tax at a30% rate or a lower applicable tax treaty rate. Backup Withholding and Information Reporting In general, information reporting for U.S. federal income tax purposes should apply to distributions made on our ordinary shares within the UnitedStates to a U.S. Holder (other than an exempt recipient) and to the proceeds from sales and other dispositions of our ordinary shares by a U.S. Holder (otherthan an exempt recipient) to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the UnitedStates will be subject to information reporting in limited circumstances. In addition, certain information concerning a U.S. Holder’s adjusted tax basis in itsordinary shares and adjustments to that tax basis and whether any gain or loss with respect to such ordinary shares is long-term or short-term also may berequired to be reported to the IRS, and certain holders may be required to file an IRS Form 8938 (Statement of Specified Foreign Financial Assets) to reporttheir interests in our ordinary shares. 116 Moreover, backup withholding of U.S. federal income tax at a rate of 28% generally will apply to cash dividends paid on our ordinary shares to aU.S. Holder (other than an exempt recipient) and the proceeds from sales and other dispositions of our ordinary shares by a U.S. Holder (other than an exemptrecipient), in each case who: ·fails to provide an accurate taxpayer identification number; ·is notified by the IRS that backup withholding is required; or ·in certain circumstances, fails to comply with applicable certification requirements. A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of itsforeign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or aNon-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished tothe IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedures forobtaining an exemption from backup withholding in their particular circumstances. F.Dividends and Paying Agents Not required. G.Statement by Experts Not required. H.Documents on Display Documents concerning us that are referred to in this document may be inspected at our principal executive offices at 48th Floor, Bank of ChinaTower, 1 Garden Road, Central, Hong Kong S.A.R. In addition, we will file annual reports and other information with the Securities and Exchange Commission. We will file annual reports on Form 20-F and submit other information under cover of Form 6-K. As a foreign issuer, we are exempt from the proxy requirements of Section 14 of the Exchange Actand our officers, directors and principal shareholders will be exempt from the insider short-swing disclosure and profit recovery rules of Section 16 of theExchange Act. Annual reports and other information we file with the Commission may be inspected at the public reference facilities maintained by theCommission at Room 1580, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such offices uponpayment of the prescribed fees. You may call the Commission at 1-202-551-8090 for further information on the operation of the public reference rooms andyou can request copies of the documents upon payment of a duplicating fee, by writing to the Commission. In addition, the Commission maintains a web sitethat contains reports and other information regarding registrants (including us) that file electronically with the Commission which can be accessed athttp://www.sec.gov. I.Subsidiary Information Not required. ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risks in the ordinary course of business, including risk from changes in foreign currency exchange rates and interest rates. 117 Foreign Currency Risk Our reporting currency is the Renminbi. Renminbi is the functional currency for our operating subsidiaries in China and U.S. dollar is ourfunctional currency. All transactions in currencies other than the functional currency during the year are recorded at the exchange rates prevailing on therespective relevant dates of such transactions. Monetary assets and liabilities existing at the balance sheet date denominated in currencies other than thefunctional currency are re-measured at the exchange rates prevailing on such date. Exchange differences are recorded in our consolidated statements ofcomprehensive income. Fluctuations in exchange rates may also affect our consolidated balance sheets. As we rely on dividends paid to us by our PRC operating subsidiaries, any significant revaluation of the Renminbi may have a material adverseeffect on our results of operations and financial condition, and the value of, and any dividends payable on, our ordinary shares in foreign currency terms. Adecline in the value of Renminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, our market value and thedividends we may pay in the future, if any, all of which may have a material adverse effect on the prices of our ordinary shares. On July 21, 2005, People’s Bank of China adjusted the exchange rate of U.S. dollar to Renminbi from $1 = RMB8.27 to $1 = RMB8.11, andceased to peg the Renminbi to the U.S. dollar. Instead, the Renminbi is pegged to a basket of currencies, which components are subject to adjustment based onchanges in market supply and demand under a set of systematic principles. On September 23, 2005, the PRC government widened the daily trading band forRenminbi against non-U.S. dollar currencies from 1.5% to 3.0% to improve the flexibility of the new foreign exchange system. On June 19, 2010, the People’sBank of China released a statement indicating that they would “proceed further with reform of RMB exchange rate regime and increase the RMB exchange rateflexibility”. Since the adoption of these measures, the value of Renminbi against the U.S. dollar has fluctuated on a daily basis within narrow ranges, butoverall the Renminbi has further strengthened against the U.S. dollar. There remains significant international pressure on the PRC government to furtherliberalize its currency policy, which could result in a further and more significant fluctuation in the value of the Renminbi against the U.S. dollar. TheRenminbi may be revalued further against the U.S. dollar or other currencies, or may be permitted to enter into a full or limited free float, which may result inan appreciation or depreciation in the value of the Renminbi against the U.S. dollar or other currencies. We had cash and cash equivalents denominated in U.S. dollars of approximately $1.5 million as of March 31, 2013. As a portion of U.S. dollarswere held by our subsidiary whose functional currency is Hong Kong dollars, any exchange differences on retranslation of such balances into Hong Kongdollars are recognized in the consolidated statements of comprehensive income. However, the related currency risk is not considered significant as the HongKong dollar is pegged to the U.S. dollar. Further, as we adopt Renminbi as our reporting currency, the reported amount of cash and cash equivalents will beaffected by fluctuations in the exchange rate of U.S. dollar to Renminbi. Interest Rate Risk As of March 31, 2013, we had cash and cash equivalents of RMB1,494.1 million ($240.6 million). Aside from the RMB50.0 million ($8.1 million)bank loan and RMB751.8 million ($121.0 million) convertible notes, we do not maintain any credit facilities as of March 31, 2013. Our cash equivalentsprimarily represent short-term deposits. Interest-bearing instruments carry a degree of interest rate risk. Our future interest income may be lower than expecteddue to changes in market interest rates. With respect to the cash and cash equivalents outstanding as of March 31, 2013, a 10% decrease in interest rateswould have decreased our interest income from bank deposits for the year ended March 31, 2013 from RMB5.8 million ($0.9 million) to RMB5.2 million($0.8 million). Equity Price Risk As of March 31, 2013, we had available-for-sale equity securities of RMB88.4 million ($14.2 million). The available-for-sale equity securitiesrepresent our equity investment in CBB and Cordlife Singapore, which are publicly traded company on the Australian Securities Exchange and SingaporeExchange, respectively. As of March 31, 2013, we owned 14.1% of CBB shares and 10.5% of Cordlife Singapore shares. Both investments in CBB andCordlife Singapore are exposed to price fluctuations. As of March 31, 2013, there were total unrealized net holding losses of RMB3.0 million ($0.5 million)recorded in CBB and total unrealized net holding gains of RMB59.8 million ($9.6 million) recorded in Cordlife Singapore, respectively. 118 In May 2010, we completed the investment in approximately 19.9% equity interest in Qilu, the exclusive cord blood banking operator in theShandong province. We further increased our equity interest in Qilu to 24.0% in February 2013. We do not have any representation in the Board of Directors ofQilu and do not have control or significant influence in Qilu both before and after February 2013. Therefore, we accounted for our equity ownership in Qilu atcost less impairment losses and the investment is subject to impairment assessments depending on Qilu’s operational performance, local demographic trendand the economic environment of the Shandong province. ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not required. PART II ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES There has been no default of any indebtedness nor is there any arrearage in the payment of dividends. ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS E.Use of Proceeds In November 2009, we completed an offering of 3,305,786 ordinary shares at a public offering price of $6.05 per ordinary share. In January 2010the underwriters in the offering exercised their over allotment option in full for an additional 495,867 shares at the offering price resulting in an aggregate of3,801,653 shares issued in the offering. We received net proceeds from this offering of approximately $20.5 million, after deducting underwriting discounts.The principal purposes of this offering were to increase the liquidity of the public market for our ordinary shares for the benefit of all shareholders, retaintalented employees by providing them equity incentives, fund proposed capital expenditures and raise capital for general corporate purposes and potentialacquisitions. As of the date of this report, we have allocated a portion of the net proceeds of the offering for acquisition and investment purposes and theremaining proceeds on acquisitions. On November 5, 2010, we completed a follow-on public offering of 7,000,000 shares at $4.50 per share. Total gross proceeds of $31.5 millionraised are being used in building out our Zhejiang operation and for general working capital purposes. On December 10, 2010, we completed a warrant exchange offer to simplify our capital structure, which allowed warrant holders to receive oneordinary share for every eight warrants outstanding. We issued an aggregate of 1,627,518 ordinary shares upon closing of the exchange offer, equal toapproximately 2.2% of shares outstanding as of December 10, 2010, in exchange for 13,020,236 warrants. Any remaining warrants outstanding that were notexercised expired on December 13, 2010. On April 27, 2012, we completed the sale of $65 million in aggregate principal amount of 7% senior unsecured convertible notes, which notes areconvertible into ordinary shares at a conversion price of $2.838 per share, to KKRCHL. Also, on October 3, 2012, we completed the sale of $50 million inaggregate principal amount of 7% senior unsecured convertible notes, which notes are convertible into ordinary shares at a conversion price of $2.838 pershare, to Golden Meditech. Total proceeds from both convertible notes of $115 million raised will be used for capacity expansion, potential acquisition andgeneral corporate purpose. 119 ITEM 15.CONTROLS AND PROCEDURES Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under theSecurities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules andforms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed under theExchange Act is accumulated and communicated to management, including principal executive and financial officers, as appropriate, to allow timely decisionsregarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibilityof human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can onlyprovide reasonable assurance of achieving their control objectives. Our management carried out an evaluation, under the supervision of our chief executive officer and chief financial officer, of the effectiveness of ourdisclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act as of March 31, 2013. Based on thatevaluation, our management, including our chief executive officer and chief financial officer concluded that our disclosure controls and procedures wereeffective as of the end of the period covered by this annual report. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule13a-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP and includesthose policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidatedfinancial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only inaccordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect toconsolidated financial statements preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, ourmanagement assessed the effectiveness of the our internal control over the financial reporting as of March 31, 2013, using criteria established in InternalControl — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment using thosecriteria, our management concluded that our internal control over financial reporting was effective as of March 31, 2013. Attestation Report of Independent Registered Public Accounting Firm Our independent registered public accounting firm, KPMG, has audited the effectiveness of our Company’s internal control over financial reportingas of March 31, 2013. 120 Changes in Internal Controls over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the yearended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. It should be noted that while our management believes that our disclosure controls and procedures provide a reasonable level of assurance, ourmanagement does not expect that our disclosure controls and procedures or internal financial controls will prevent all errors or fraud. A control system, nomatter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Report of Independent Registered Public Accounting Firm The Board of Directors and ShareholdersChina Cord Blood Corporation We have audited China Cord Blood Corporation’s internal control over financial reporting as of March 31, 2013, based on criteria established in InternalControl - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). China Cord BloodCorporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on China Cord Blood Corporation’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. In our opinion, China Cord Blood Corporation maintained, in all material respects, effective internal control over financial reporting as of March 31, 2013,based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof China Cord Blood Corporation and subsidiaries as of March 31, 2012 and 2013, and the related consolidated statements of comprehensive income,changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2013, and our report dated July 31, 2013 expressed anunqualified opinion on those consolidated financial statements. /s/ KPMG Hong Kong, ChinaJuly 31, 2013 121 ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT The Company’s Board of Directors has determined that Ms. Jennifer J. Weng is an audit committee financial expert, and “independent” as that termis defined in the NYSE listing standards. ITEM 16B.CODE OF ETHICS Our board of directors has adopted a code of business conduct and ethics applicable to our directors, officers and employees. In addition, it hasadopted a set of corporate governance guidelines. The guidelines reflect certain guiding principles with respect to our board structure, procedures andcommittees. These guidelines are not intended to change or interpret any law, or our amended and restated memorandum and articles of association. ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMG, ourprincipal external independent registered public accountant firm, for the periods indicated. 2013 2012 2011 RMB RMB RMB (in thousands) Audit fees (1) 5,969 5,837 5,312 Audit related fees — — — Tax fees — — — Total fees 5,969 5,837 5,312 (1)“Audit fees” means the aggregate fees billed for an audit of our consolidated financial statements and our internal control over financial reporting. The audit committee or our board of directors is to pre-approve all auditing services and permitted non- audit services to be performed for us by ourindependent auditor, including the fees and terms thereof (subject to the de minimums exceptions for non-audit services described in section 10A(i)(1)(B) of theExchange Act which are approved by the audit committee or our board of directors prior to the completion of the audit). ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS On September 13, 2010, the Company announced its intention to conduct a share exchange with all then existing warrant holders, in which theCompany would offer to exchange one ordinary share for every eight warrants. On December 10, 2010, the Company announced the completion of the shareexchange. The Company issued 1,627,518 ordinary shares, equivalent to 2.2% of shares outstanding as of December 10, 2010, in exchange for 13,020,236warrants. Investors that participated in the warrant exchange offer were subject to a 45-day lock up period with regard to ordinary shares acquired in theexchange offer. 122 On September 15, 2010, the Company announced that its Board of Directors had approved a share repurchase program in the aggregate amount of$15 million for the period commencing with the announcement and continuing until September 14, 2011. On August 3, 2011, the Company has sought theBoard of Director’s approval to refresh the share repurchase program in the aggregate amount of $15 million for 12 months and would continue until August2, 2012. On July 31, 2012, the Board of Directors approved a new share repurchase program in the aggregate amount of $20 million for 12 months until July31, 2013. On July 24, 2013, the Board of Directors approved a new share repurchase program in the aggregate amount of $20 million for 12 months, tocontinue until July 24, 2014. The share repurchases can be made in the open market at prevailing market prices or in block trades and will be subject torestrictions relating to volume, price and timing. The timing of purchases is determined by the Company, which bases its decisions on stock price, corporateand regulatory requirements, capital availability and other market conditions. The program does not obligate the Company to acquire any particular amount ofordinary shares and may be commenced, suspended or discontinued at any time or from time to time in the Company’s discretion without prior notice. The following table sets forth certain information regarding the shares that the Company has repurchased during the year ended March 31, 2013: Period Total Numberof SharesPurchased AveragePrice PaidPer Share Total Number ofShares Purchased AsPart of PubliclyAnnounced Plans orPrograms OutstandingMandatein Dollar Value May 2012 96,350 $2.76 96,350 $13,422,171 June 2012 1,571,595 $2.92 1,667,945 $8,836,173 July 2012 1,523,099 $2.54 3,191,044 $4,965,012 July 2012 — $— — $20,000,000 August 2012 542,973 $2.57 3,734,017 $18,604,195 September 2012 342,038 $2.77 4,076,055 $17,657,877 October 2012 2,408,381 $2.73 6,484,436 $11,073,310 November 2012 966,478 $2.76 7,450,914 $8,404,437 ITEM 16F.CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable ITEM 16G.CORPORATE GOVERNANCE We are incorporated under the laws of the Cayman Islands, our home country, with securities publicly traded in the United States on the NYSE. The NYSE Rules permit foreign private issuers to follow applicable home country corporate governance practices in lieu of the NYSE corporategovernance standards, subject to certain exceptions. Foreign private issuers electing to follow home country corporate governance rules are required to disclosethe principal differences in their corporate governance practices from those required under the NYSE Rules. Except as set forth below, there are no materialdifferences in the Company’s corporate governance practices from those of U.S. domestic companies under the listing standards of the NYSE. Under the NYSE Listed Company Manual, shareholder approval is required prior to the issuance of common stock (or securities convertible intocommon stock) amounting to more than (i) 20% of the listed company’s currently outstanding common stock in an offering that does not constitute a “publicoffering” as defined under the NYSE rules, and (ii) one percent to a director, officer or 5% securityholder of the company, or a related party, or certaincompanies, entities or persons with relationships with the related party. The NYSE Listed Company Manual also provides that if the related party involved inthe transaction is classified as such solely because such person is a 5% securityholder, and if the issuance relates to a sale of stock for cash at a price at leastas great as each of the book and market value of the issuer’s common stock, then shareholder approval will not be required unless the number of sharesexceeds either five percent of the number of shares or voting power of the company. We currently expect to use this exception to enable us to raise capital fromtime to time, on market terms approved by our board and audit committee, consistent with our past practice. In accordance with applicable current NYSErequirements, we have provided to the NYSE letters from outside counsel certifying that the Company’s practices in these areas are not prohibited by our homecountry law. 123 The NYSE Listed Company Manual provides that each member of a listed company’s Nominating and Corporate Governance Committee must be“independent” as set forth in Section 303A.02 of the NYSE Listed Company Manual. We currently expect to use this exception to enable us to appoint non-independent director(s) to our Nominating and Corporate Governance Committee. In accordance with applicable current NYSE requirements, we haveprovided to the NYSE letters from outside counsel certifying that the Company’s practices in these areas are not prohibited by our home country law. ITEM 16H.MINE SAFETY DISCLOSURE None. PART III ITEM 17.FINANCIAL STATEMENTS We have elected to provide financial statements pursuant to Item 18. ITEM 18.FINANCIAL STATEMENTS The financial statements are filed as part of this annual report beginning on page F-1. ITEM 19.EXHIBITS Exhibit No. Description1.1 Amended and Restated Memorandum and Articles of Association (1)2.1 Specimen Certificate for Ordinary Shares (1)2.2 Form of Senior Debt Securities Indenture (2)2.3 Form of Subordinated Debt Securities Indenture (2)4.1 2009 Share Option Scheme (1)4.2 Form of Employment Agreement between the Registrant and senior executive officers of the Registrant (1)4.3 Subscription Agreement between China Cord Blood Services Corporation and Cordlife (1)4.4 The Agreement and Plan of Merger, Conversion and Share Exchange by and among Pantheon China Acquisition Corp, PantheonArizona Corp., China Cord Blood Services Corporation, Golden Meditech Company Limited and the selling shareholders ofChina Cord Blood Services Corporation (1)4.5 Summary Translation of Working Capital Loan Agreement, dated as of June 27, 2011, by and between Beijing JiachenhongBiological Technologies, Co., Ltd. and Hua Xia Bank (3)4.6 Promissory Note, as of June 30, 2009 (1)4.7 Acquisition Agreement, dated February 24, 2010, between China Stem Cells (East) Company Limited, a subsidiary of theRegistrant and Glorysun Holdings Group Limited (2)4.8 English translation of Framework Agreement, dated September 15, 2010 between Zhejiang Provincial Blood Center and BeijingCord Blood Hematopoietic Stem Cells Bank, a subsidiary of the Registrant (4)4.9 2011 China Cord Blood Corporation Restricted Share Unit Scheme (5)4.10 Marketing Collaboration Agreement, dated as of May 18, 2011, by and between Cordlife (Hong Kong) Ltd. and China CordBlood Corporation (3)4.11 Convertible Note Purchase Agreement between China Cord Blood Corporation and KKR China Healthcare Investment Limiteddated April 12, 2012 (6)4.12 7% Senior Convertible Note issued to KKR China Healthcare Investment Limited due 2017 (6)4.13 Registration Rights Agreement between China Cord Blood Corporation and KKR China Healthcare Investment Limited datedApril 27, 2012 (6) 124 4.14 Director Indemnification Agreement between China Cord Blood Corporation and Julian J. Wolhardt dated April 27, 2012 (6)4.15 Indemnification Priority and Information Sharing Agreement between China Cord Blood Corporation and KKR China HealthcareInvestment Limited dated as of April 27, 2012 (6)4.16 Convertible Note Purchase Agreement between China Cord Blood Corporation and Golden Meditech Holdings Limited datedOctober 3, 2012 (7)4.17 7% Senior Convertible Note issued to Golden Meditech Holdings Limited due 2017 (7)4.18 Registration Rights Agreement between China Cord Blood Corporation and Golden Meditech Holdings Limited dated October 3,2012 (7)4.19 Share Purchase Agreement, dated August 15, 2012, between China Cord Blood Corporation and Cordlife Group Limited (8)4.20 Shares Repurchase Agreement, dated August 15, 2012, between China Stem Cells (South) Company Limited and Cordlife (HongKong) Limited (8)4.21 Registration Rights Agreement between China Cord Blood Corporation and Cordlife Group Limited dated November 12, 2012 (8)4.22 Director Indemnification Agreement between China Cord Blood Corporation and Jeremy Pinh Yee dated November 12, 2012 (8)4.23 Shares Purchase Agreement, dated December 6, 2012, between Favorable Fort Limited and Cordlife Services (S) Pte. Ltd. (9)4.24 Summary Translation of Guangzhou City Real Estate Purchase Agreement, dated June 28, 2012, between Guangzhou CDManufacturing Co., Ltd and Guangzhou Municipality Tianhe Nuoya Bio-engineering Co., Ltd.4.25 Summary Translation of Hundsun (Hangzhou) Science & Technology Park Property Transfer Agreement, dated January 25,2013, between Hangzhou Hundsun Baichuan Technology Co., Ltd. and Beijing Jiachenhong Biological Technologies Co., Ltd.8.1 List of subsidiaries11.1 Code of Business Conduct and Ethics of the Registrant (1)12.1 Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities ExchangeAct, as amended12.2 Certification of the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Rule 13a-14(a) of theSecurities Exchange Act, as amended13.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 200215.1 Consent of KPMG to incorporation by reference in the registration statement on Form F-3 of the Registrant (File No. 333-168873) (1)Incorporated by reference to the registration statement on Form F-1 of the Registrant (File No. 333-161602). (2)Incorporated by reference to the registration statement on Form F-3 of the Registrant (File No. 333-168873). (3)Incorporated by reference to the annual report on Form 20-F, filed by the Registrant on September 28, 2011. (4)Incorporated by reference to exhibit 99.2 to the report of foreign private issuer on Form 6-K, filed by the Registrant on September 15, 2010. (5)Incorporated by reference to Appendix A of exhibit 99.1 to the report of foreign private issuer on Form 6-K, filed by the Registrant on January 18,2011. (6)Incorporated by reference to the report of foreign private issuer on Form 6-K filed by the Registrant on April 30, 2012. 125 (7)Incorporated by reference to the report of foreign private issuer on Form 6-K filed by the Registrant on September 28, 2012 and October 3, 2012. (8)Incorporated by reference to the report of foreign private issuer on Form 6-K filed by the Registrant on August 15, 2012 and November 13, 2012. (9)Incorporated by reference to the report of foreign private issuer on Form 6-K filed by the Registrant on December 6, 2012. 126 SIGNATURES The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf. CHINA CORD BLOOD CORPORATION July 31, 2013By:/s/ Ting Zheng Name: Ting Zheng Title:Chief Executive Officer 127 Report of Independent Registered Public Accounting Firm The Board of Directors and ShareholdersChina Cord Blood Corporation We have audited the accompanying consolidated balance sheets of China Cord Blood Corporation (the “Company”) and subsidiaries as of March 31, 2012and 2013, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year periodended March 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Cord BloodCorporation and subsidiaries as of March 31, 2012 and 2013, and the results of their operations and their cash flows for each of the years in the three-yearperiod ended March 31, 2013, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), China Cord BloodCorporation’s internal control over financial reporting as of March 31, 2013, based on criteria established in Internal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 31, 2013 expressed an unqualifiedopinion on the effectiveness of the Company’s internal control over financial reporting. /s/KPMG Hong Kong, China July 31, 2013 F-1 China Cord Blood Corporation and SubsidiariesConsolidated Balance Sheets(Amounts expressed in thousands, except share data) March 31, Note 2012 2013 2013 RMB RMB US$ ASSETS Current assets Cash and cash equivalents 794,311 1,494,099 240,565 Accounts receivable, less allowance for doubtful accounts (March 31, 2012: RMB13,916; March 31, 2013: RMB14,112 (US$2,272)) 3 79,012 73,076 11,766 Inventories 4 6,666 10,265 1,652 Prepaid expenses and other receivables 5 11,561 11,602 1,868 Trading securities 354 - - Debt issuance costs 14 - 3,678 592 Deferred tax assets 17(c) 5,268 5,454 878 Total current assets 897,172 1,598,174 257,321 Property, plant and equipment, net 6 267,862 468,272 75,397 Non-current prepayments 7 2,863 212,633 34,236 Non-current accounts receivable, less allowance for doubtful accounts (March 31, 2012: RMB38,628; March 31, 2013: RMB36,361 (US$5,855)) 3 254,236 249,370 40,152 Inventories 4 34,651 39,730 6,396 Intangible assets, net 8 129,791 125,170 20,154 Available-for-sale equity securities 9 98,199 88,404 14,234 Other investment 10 134,363 189,129 30,452 Debt issuance costs 14 - 11,667 1,879 Deferred tax assets 17(c) 5,013 3,727 600 Total assets 1,824,150 2,986,276 480,821 LIABILITIES Current liabilities Bank loan 11 45,000 50,000 8,050 Accounts payable 6,343 9,890 1,592 Accrued expenses and other payables 12 33,351 84,006 13,527 Deferred revenue 13 106,110 172,328 27,747 Amounts due to related parties 20 360 11,241 1,810 Income tax payable 5,943 4,983 802 Total current liabilities 197,107 332,448 53,528 Convertible notes 14 - 751,781 121,044 Non-current deferred revenue 13 306,534 530,258 85,377 Other non-current liabilities 12(i) 60,420 107,158 17,254 Deferred tax liabilities 17(c) 24,462 23,168 3,730 Total liabilities 588,523 1,744,813 280,933 EQUITY Shareholders’ equity of China Cord Blood Corporation Ordinary shares - US$0.0001 par value, 250,000,000 shares authorized, 73,140,147 sharesissued and outstanding as of March 31, 2012 and 73,140,147 shares issuedand 73,003,248 shares outstanding as of March 31, 2013 15(a) 50 50 8 Additional paid-in capital 865,654 798,221 128,522 Treasury stock, at cost (March 31, 2012: nil; March 31, 2013: 136,899 shares) 15(d) - (2,815) (453)Accumulated other comprehensive income 26,057 18,256 2,939 Retained earnings 310,973 423,420 68,175 Total equity attributable to China Cord Blood Corporation 1,202,734 1,237,132 199,191 Non-controlling interests 32,893 4,331 697 Total equity 1,235,627 1,241,463 199,888 Commitments and contingencies 24 - - - Total liabilities and equity 1,824,150 2,986,276 480,821 See accompanying notes to the consolidated financial statements. F-2 China Cord Blood Corporation and SubsidiariesConsolidated Statements of Comprehensive Income(Amounts expressed in thousands, except share data) Year ended March 31, Note 2011 2012 2013 2013 RMB RMB RMB US$ Revenues 16 339,532 380,490 526,123 84,711 Direct costs (77,376) (86,658) (106,621) (17,167)Gross profit 262,156 293,832 419,502 67,544 Operating expenses Research and development (6,960) (7,615) (8,459) (1,362)Sales and marketing (47,583) (61,678) (93,684) (15,084)General and administrative (83,794) (89,696) (108,045) (17,396)Total operating expenses (138,337) (158,989) (210,188) (33,842) Operating income 123,819 134,843 209,314 33,702 Other income/(expense), net Interest income 9,065 13,432 15,064 2,425 Interest expense 6 (2,606) (3,287) (70,097) (11,286)Exchange gain/(loss) 486 (1,343) (984) (158)Dividend income 9&10 - 7,217 4,685 754 Others 1,378 737 203 33 Total other income/(expense), net 8,323 16,756 (51,129) (8,232) Income before income tax 132,142 151,599 158,185 25,470 Income tax expense 17(a) (33,929) (9,634) (38,543) (6,206)Net income 98,213 141,965 119,642 19,264 Net income attributable to non-controlling interests (6,510) (9,985) (7,195) (1,158)Net income attributable to China Cord BloodCorporation shareholders 91,703 131,980 112,447 18,106 Net income per share: 19 Attributable to ordinary shares - Basic 1.31 1.79 1.49 0.24 - Diluted 1.31 1.79 1.49 0.24 Other comprehensive income - Net effect of foreign currency translation, net of nil tax (12,674) (1,653) 1,296 209 - Net unrealized (loss)/gain in available-for-sale equitysecurities, net of nil tax (7,748) 46,587 (9,120) (1,468)Comprehensive income 77,791 186,899 111,818 18,005 Comprehensive income attributable to non-controllinginterests (6,889) (10,282) (7,172) (1,155)Comprehensive income attributable to China CordBlood Corporation shareholders 70,902 176,617 104,646 16,850 See accompanying notes to the consolidated financial statements. F-3 China Cord Blood Corporation and SubsidiariesConsolidated Statements of Changes in Equity(Amounts expressed in thousands, except share data) China Cord Blood Corporation shareholders Accumulated Share Capital Additional other Non- No. of paid-in comprehensive Retained controlling Total Note shares Amount capital (loss)/income earnings interests equity RMB RMB RMB RMB RMB RMB Balance as of April 1, 2010 66,743,693 46 719,329 2,221 87,290 10,722 819,608 Net income - - - - 91,703 6,510 98,213 Other comprehensive income - - - (20,801) - 379 (20,422)Issuance of shares upon exercise of warrants 15(a) 345,010 - 11,785 - - - 11,785 Repurchase and cancellation of shares 15(d) (309,346) - (10,653) - - - (10,653)Issuance of shares upon public offering 15(a) 7,000,000 5 189,856 - - - 189,861 Issuance of shares upon warrant exchange 15(a) 1,627,518 1 (1) - - - - Contribution from non-controlling interests 1(b) - - - - - 5,000 5,000 Balance as of March 31, 2011 75,406,875 52 910,316 (18,580) 178,993 22,611 1,093,392 See accompanying notes to the consolidated financial statements. F-4 China Cord Blood Corporation and SubsidiariesConsolidated Statements of Changes in Equity (continued)(Amounts expressed in thousands, except share data) China Cord Blood Corporation shareholders Accumulated Share Capital Additional Treasury stock other Non- No. of paid-in No. of comprehensive Retained controlling Total Note shares Amount capital shares Amount (loss)/income earnings interests equity RMB RMB RMB RMB RMB RMB RMB Balance as of April 1, 2011 75,406,875 52 910,316 - - (18,580) 178,993 22,611 1,093,392 Net income - - - - - - 131,980 9,985 141,965 Other comprehensive income - - - - - 44,637 - 297 44,934 Repurchase and cancellation of shares 15(d) (2,266,728) (2) (44,662) - - - - - (44,664)Balance as of March 31, 2012 73,140,147 50 865,654 - - 26,057 310,973 32,893 1,235,627 Net income - - - - - - 112,447 7,195 119,642 Other comprehensive income - - - - - (7,801) - (23) (7,824)Repurchase of shares 15(d) - - - (7,450,914) (131,302) - - - (131,302)Sale of treasury shares 1(b) - - 3,341 7,314,015 128,487 - - - 131,828 Acquisition of non-controlling interests 1(b) - - (70,774) - - - - (35,734) (106,508)Balance as of March 31, 2013 73,140,147 50 798,221 (136,899) (2,815) 18,256 423,420 4,331 1,241,463 Balance as of March 31, 2013 - US$ $8 $128,522 $(453) $2,939 $68,175 $697 $199,888 See accompanying notes to the consolidated financial statements. F-5 China Cord Blood Corporation and SubsidiariesConsolidated Statements of Cash Flows(Amounts expressed in thousands) Year ended March 31, Note 2011 2012 2013 2013 RMB RMB RMB US$ Operating activities: Net income 98,213 141,965 119,642 19,264 Adjustments to reconcile net income to net cash provided byoperating activities: (Gain)/loss on disposal of property, plant and equipment (12) (112) 1,066 172 Depreciation of property, plant and equipment 6 22,091 24,736 31,253 5,032 Amortization of intangible assets 8 1,384 4,621 4,621 744 Deferred income taxes 17(a) (6,951) (4,771) (194) (31)Provision for doubtful accounts 3(b) 25,018 12,588 7,468 1,202 Cumulative interests on convertible notes 14 - - 26,791 4,314 Amortization of debt issuance costs 14 - - 3,062 493 Changes in operating assets and liabilities: Non-current prepayments 3,474 3,408 1,513 244 Accounts receivable (105,149) (27,482) 3,334 537 Inventories (3,622) (2,988) (8,678) (1,398)Prepaid expenses and other receivables 2,960 (1,673) (3,470) (559)Accounts payable (364) 1,297 3,547 571 Accrued expenses and other payables 5,286 9,441 42,080 6,775 Deferred revenue 115,758 167,657 289,942 46,684 Other non-current liabilities 14,058 30,384 46,380 7,468 Amounts due to related parties (2,617) - 10,881 1,752 Income tax payable 7,058 (5,213) (960) (155)Trading securities - - 354 57 Net cash provided by operating activities 176,585 353,858 578,632 93,166 Investing activities: Purchase of property, plant and equipment (20,337) (43,114) (226,241) (36,427)Purchase of intangible assets - (80,188) - - Deposit for acquisition of property, plant and equipment (420) - - - Investment deposit 7 - - (213,160) (34,321)Proceeds from disposal of property, plant and equipment 88 357 450 72 Acquisition of other investment 10 - - (54,766) (8,818)Investment in available-for-sale equity securities (13,245) - - - Net cash used in investing activities (33,914) (122,945) (493,717) (79,494) Financing activities: Repayment of bank loan (45,000) (45,000) (45,000) (7,245)Proceeds from bank loan 45,000 45,000 50,000 8,050 Proceeds from issuance of shares upon public offering 15(a) 211,007 - - - Proceeds from issuance of shares upon exercise of warrants 15(a) 11,785 - - - Payment of offering and reverse recapitalization costs (19,053) - - Payment for repurchase of shares 15(d) (10,653) (44,664) (126,819) (20,419)Net proceeds from sale of treasury stock and acquisition of non-controlling interests 1(b) - - 25,320 4,077 Contribution from non-controlling interests 55 - - - Proceeds from issuance of convertible notes 14 - - 730,493 117,617 Payment of debt issuance costs 14 - - (15,276) (2,460)Net cash provided by/(used in) financing activities 193,141 (44,664) 618,718 99,620 See accompanying notes to the consolidated financial statements. F-6 China Cord Blood Corporation and SubsidiariesConsolidated Statements of Cash Flows (continued)(Amounts expressed in thousands) Year ended March 31, Note 2011 2012 2013 2013 RMB RMB RMB US$ Effect of foreign currency exchange rate change on cash and cashequivalents (5,260) (3,325) (3,845) (619) Net increase in cash and cash equivalents 330,552 182,924 699,788 112,673 Cash and cash equivalents at beginning of year 280,835 611,387 794,311 127,892 Cash and cash equivalents at end of year 611,387 794,311 1,494,099 240,565 Non-cash investing and financing activities: Payable for acquisition of cord blood bank operating right 82,124 - - - Payable for share repurchases - - 4,483 722 Payable for debt issuance costs 12 - - 3,242 522 Supplemental disclosures of cash flow information: Cash paid during the year for income taxes 33,822 30,051 40,105 6,457 Cash refund during the year for income taxes - 10,433 408 66 Cash paid for interest, net of capitalized interest 2,643 3,287 3,512 565 See accompanying notes to the consolidated financial statements. F-7 Notes to the consolidated financial statements(Amounts expressed in thousands, except share data) 1Principal activities, reorganization and reverse recapitalization, and basis of presentation (a)Principal activities China Cord Blood Corporation (the “Company”) and its subsidiaries (collectively the “Group”) are principally engaged in the provision of umbilicalcord blood storage and ancillary services in the People’s Republic of China (the “PRC”). As of March 31, 2013, the Group has three operating cordblood banks in the Beijing municipality, the Guangdong province and the Zhejiang province, the PRC. The Company’s shares are listed on the NewYork Stock Exchange. The Group provides cord blood testing, processing and storage services under the direction of subscribers for a cord blood processing fee and astorage fee. The Group also tests, processes and stores donated cord blood, and provides matching services to the public for a fee. The operation of cord blood banks in the PRC is regulated by certain laws and regulations. Cord blood banks in the PRC are required to possess aBlood Station Operation License. The licensing process for a cord blood bank is stringent and lengthy. The Ministry of Health of the PRC and thelocal Departments of Health have granted Blood Station Operation Licenses to cord blood banks that provide cord blood banking services. Cordblood banks collecting cord blood units from donors and providing matching cord blood units to the public without a duly obtained Blood StationOperation License face the risk of being shut down by the government. Seven cord blood banking licenses have been issued by the authorities as ofMarch 31, 2013, of which the Company holds three. Due to the lack of a consistent and well-developed regulatory framework, operation in the cordblood banking industry in the PRC involves significant ambiguities, uncertainties and risks. The industry is highly regulated and any unilateralchanges in regulations by the authorities may have a significant adverse impact on the Group’s results of operations. (b)Reorganization and reverse recapitalization The Company was previously named Pantheon China Acquisition Corp. (“Pantheon”), a blank check company whose objective was to acquire,through a stock exchange, asset acquisition or other similar business combination, an operating business that has its principal operations located inthe PRC, or control such operating business through contractual arrangements. F-8 On November 3, 2008, China Cord Blood Services Corporation (“CCBS”) and its shareholders executed a Share Exchange Agreement with theCompany. Pursuant to the Share Exchange Agreement, shareholders of CCBS were entitled to exchange their shares in CCBS for up to 57,851,240shares of common stock of the Company. Shareholders holding 100% and 76% of CCBS’s ordinary shares and redeemable ordinary shares(collectively the “Participating Shareholders”), respectively, executed the Share Exchange Agreement and agreed to sell their 93.94% equity interests inCCBS to the Company for a consideration of US$328,790 in exchange for 54,345,104 shares of common stock of the Company (valued atUS$6.05 per share of common stock) (the “Share Exchange”). The Share Exchange was approved at the Company’s special meeting of shareholders held on June 29, 2009 and was completed on June 30, 2009.Upon completion of the Share Exchange, the Company was renamed China Cord Blood Corporation and the Company was redomiciled to theCayman Islands. The 54,345,104 shares of common stock of the Company held by the Participating Shareholders represent 91.7% of the then outstanding shares ofthe Company upon completion of the Share Exchange. Further, management of CCBS continued as the majority of the senior management of theCompany upon completion of the Share Exchange. CCBS was therefore treated as the accounting acquirer in the Share Exchange. Prior to the ShareExchange, the Company did not operate a business. The Share Exchange was thus accounted for as the issuance of securities by CCBS in exchangefor the assets and liabilities of Pantheon, accompanied by a recapitalization to utilize the share structure of Pantheon as the legal acquirer.Accordingly, the accompanying consolidated financial statements reflect CCBS’s assets and liabilities at their historical carrying amounts and theresults, assets and liabilities of the Company presented for periods prior to the Share Exchange are those of CCBS. In August 2009, the Company entered into agreements to exchange 3,506,136 of its newly issued ordinary shares for the remaining 24% ofredeemable shares of CCBS held by shareholders who previously elected not to participate in the Share Exchange (“Non-ParticipatingShareholders”), on terms substantially similar to those of the Share Exchange. Upon the completion of such exchange, all the remaining redeemableordinary shares of CCBS converted into ordinary shares of the Company, which carry no redemption rights, and CCBS became a wholly ownedsubsidiary of the Company. CCBS was incorporated in the Cayman Islands in January 2008 under the Cayman Islands Companies Law as an exempted company with limitedliability. CCBS was incorporated as part of the reorganization of China Stem Cells Holdings Limited (“CSC Holdings”), which had two mainoperating subsidiaries in the PRC, Beijing Jiachenhong Biological Technologies Co., Ltd. (“Beijing Jiachenhong”) and Guangzhou MunicipalityTianhe Nuoya Bio-engineering Co., Ltd. (“Guangzhou Nuoya”) at the time of the reorganization. Beijing Jiachenhong was established under the laws of the PRC in June 2001 as a domestic limited liability company. It became a Sino-ForeignInvestment Enterprise in September 2003 and became a Wholly Foreign Owned Enterprise (“WFOE”) in March 2005. Beijing Jiachenhong is engagedin the provision of umbilical cord blood storage and ancillary services in the Beijing municipality, the PRC. F-9 In May 2007, China Stem Cells (South) Company Limited (“CSC South”), a 90% subsidiary of the Group, acquired the entire equity interest ofGuangzhou Nuoya for consideration of RMB30,949. Guangzhou Nuoya was established under the laws of the PRC in June 1997 as a domesticlimited liability company. It became a WFOE in May 2007. Guangzhou Nuoya has been granted the right to operate cord blood banks in theGuangdong province, the PRC. In November 2012, CSC South repurchased 10% of its shares from Cordlife (Hong Kong) Limited, a subsidiary ofCordlife Group Limited (“CGL”), at a consideration of US$16.8 million. The shares repurchased were subsequently cancelled. The differencebetween the consideration paid and the carrying amount of non-controlling interests equal to RMB70,774 ($11,395) at the repurchase date wascharged to additional paid-in capital. Concurrently, CGL acquired 7,314,015 shares, which were held by the Company as treasury stock(representing 10% of the Company’s ordinary shares) at a consideration of US$20.8 million. The difference between the consideration received fromsale of the shares over the cost of the treasury shares equal to RMB3,341 ($538) was credited to additional paid-in capital. As a result, the Companyreceived a net proceed of US$4 million (RMB25,320) from the above two transactions and CSC South and its subsidiary became wholly ownedsubsidiaries of the Group. In December 2010, a non-wholly owned subsidiary, Zhejiang Lukou Biotechnology Co., Ltd. (“Zhejiang Lukou”), was established. The Groupholds a 90% equity interest in Zhejiang Lukou through capital injection of RMB45,000, while the non-controlling shareholders contributed plant andequipment with fair value of RMB5,000 in return for the remaining 10% equity interests. In February, 2011, the Group acquired the right to operatethe cord blood bank in the Zhejiang province, the PRC, from a third party at a consideration of US$12,500 (equivalent to RMB82,124 (Note 8)). (c)Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S.GAAP”). This basis of accounting differs in certain material respects from that used for the preparation of the statutory books of the Company’sconsolidated subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable in theplace of domicile of the respective entities in the Group. The accompanying consolidated financial statements reflect necessary adjustments notrecorded in the statutory books of account of the Company’s consolidated subsidiaries to present them in conformity with U.S. GAAP. 2Summary of significant accounting policies (a)Principles of consolidation The accompanying consolidated financial statements include the financial statements of the Company and its majority-owned subsidiaries. Forconsolidated subsidiaries where the Company’s ownership is less than 100%, the outside shareholders’ interests are shown as non-controllinginterests. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has no involvement withvariable interest entities. F-10 (b)Use of estimates The preparation of the consolidated financial statements, in accordance with U.S. GAAP, requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Significant items subject to such estimates and assumptions include the establishment of the selling prices of multiple deliverables in revenuearrangements, the estimation of direct costs for the provision of donated cord blood for transplantation and research, the useful lives of property,plant and equipment and intangible assets, the valuation of property, plant and equipment, intangible assets and investment securities, the valuationallowances for receivables and deferred tax assets and the realizability of inventories. During the quarter ended March 31, 2013, the Group updated its estimated useful lives of certain machineries and office equipment in order to bettermatch the Group’s depreciation expense with the periods these assets are expected to generate revenue based on planned and historical service periods.The new estimated useful lives were established based on historical service periods and external benchmark data of these assets. The Groupaccounted for the change of useful lives of property, plant and equipment in accordance with Accounting Standards Codification (“ASC”) 250,Accounting Changes and Error Corrections. The effect of the change in useful lives impacted the depreciation expense in the quarter in which thechange occurred and will impact the depreciation expense in future periods. The effect of this change on net income and net income per share was adecrease of RMB1,600 (US$258) and RMB0.02 (US$0.003), respectively, for the year ended March 31, 2013. (c)Foreign currency transactions and translation The reporting currency of the Company is Renminbi (“RMB”). The functional currency of Beijing Jiachenhong, Guangzhou Nuoya and Zhejiang Lukou is Renminbi (“RMB”) and the functional currency of theCompany is United States dollars (“US$”). The functional currencies of subsidiaries of the Group outside the PRC are either US$ or Hong Kongdollars. Transactions of Beijing Jiachenhong, Guangzhou Nuoya and Zhejiang Lukou denominated in currencies other than RMB are translated into RMB atthe exchange rates quoted by the People’s Bank of China (the “PBOC”) prevailing at the dates of the transactions. Monetary assets and liabilitiesdenominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet date. Theresulting exchange differences are recorded in the consolidated statements of comprehensive income. Transactions of the Company and subsidiaries outside the PRC denominated in currencies other than their functional currencies are translated intotheir functional currencies at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreigncurrencies are translated into their functional currencies using the applicable exchange rates at the balance sheet date. The resulting exchangedifferences are recorded in the consolidated statements of comprehensive income. F-11 Assets and liabilities of the Company and subsidiaries outside the PRC are translated into RMB using the exchange rate at the balance sheet date.Revenues and expenses are translated at the average exchange rates prevailing during the year. The adjustments resulting from translation of financialstatements of the Company and subsidiaries outside the PRC are recorded as a separate component of accumulated other comprehensive incomewithin shareholders’ equity. RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the PBOC or otherinstitutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchangequoted by the PBOC, which are determined largely by supply and demand. For the convenience of the readers, certain amounts as of and for the year ended March 31, 2013 included in the accompanying consolidatedfinancial statements have been translated into U.S. dollars at the rate of US$1.00 = RMB6.2108, being the spot exchange rate of U.S. dollars ineffect on March 29, 2013 for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve, the central bank ofthe United States of America. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at that rateor at any other rate on March 31, 2013 or at any other date. (d)Cash and cash equivalents Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less. Cash and cash equivalentsof the Group are mainly maintained in the PRC and are denominated in several currencies. As of March 31, 2012 and 2013, cash and cashequivalents maintained in the PRC amounted to RMB765,689 and RMB1,470,844 (US$236,820), respectively. A majority of the Group’s cashand cash equivalents are denominated in U.S. dollars, Australian dollars, Renminbi and Hong Kong dollars as follows: March 31, 2012 2013 U.S. dollars 82 1,451 Australian dollars 53 137 Renminbi 764,077 1,469,512 Hong Kong dollars 36,073 17,820 Cash and cash equivalents held at financial institutions located in the PRC are uninsured whereas cash held at financial institutions in Hong Kongare insured up to certain amount. Management believes that these major financial institutions have high credit ratings. (e)Investment securities Management determines the appropriate classification of its investment securities at the time of purchase and reevaluates such designations at eachreporting date. F-12 Trading and available-for-sale equity securities are recorded at fair value. Unrealized holding gains and losses on trading securities are included inearnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale equity securities are excluded from earnings and arereported as a separate component of accumulated other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale equity securities are determined on a specific-identification basis. Where the fair value of an investment in equity securities is not readilydeterminable, the investment is stated at cost. A decline in the market value of investment securities that is deemed to be other-than-temporary results in an impairment to reduce the carryingamount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. In determining whether animpairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recoveryand considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in thisassessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end, forecastedperformance of the investee, and the general market condition in the geographic area or industry the investee operates in. Dividend income is recognized in other income when earned. (f)Accounts receivable Accounts receivable represent amounts due from subscribers for cord blood processing and storage services, which are recognized in accordancewith the Company’s revenue recognition policies (Note 2(k)). Installments receivable from subscribers which are due for repayment in over one yearunder deferred payment options are classified as non-current accounts receivable. Accounts receivable are stated net of allowance for doubtfulaccounts. The allowance for doubtful accounts is the Group’s best estimate of the amount of estimated losses in the Group’s existing accounts receivable. TheGroup determines the allowance based on historical write-off experience, customer specific facts and economic conditions. The Group reviews its allowances for doubtful accounts quarterly. Outstanding account balances are reviewed on a pooled basis by ageing of suchbalances. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery isconsidered remote. The Group’s PRC subsidiaries are required to comply with local tax requirements on the write-offs of doubtful accounts, whichallow for such write-offs only when the related account balances are aged over three years and sufficient evidence is available to prove the debtor’sinability to make payments. For financial reporting purposes, the Group’s PRC subsidiaries generally record write-offs of doubtful accounts at thesame time the local tax requirements for the write-offs are met. As a result, there are generally time lags between the time when a provision for doubtfulaccounts is recorded and the time the doubtful accounts are written off against the related allowance. The Group does not have any off-balance-sheetcredit exposure related to its customers. F-13 (g)Inventories The Group collects, tests, freezes and stores donated umbilical cord blood for future transplantation or research purposes in return for a fee.Collection, testing and processing costs attributable to the processing of donated umbilical cord blood are capitalized as inventories, stated at thelower of cost or market on a weighted-average basis, and recognized as direct costs when revenue is recognized upon shipment of the donated cordblood units. Cost comprises direct materials, direct labor and an allocation of production overheads. Inventories that are not expected to be realizedwithin 12 months from the balance sheet date are classified as non-current assets. (h)Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation on property, plant and equipment is calculated based on the straight-line method (after taking into account their respective estimatedresidual values) over the estimated useful lives of the assets as follows: Shorter of the lease term or estimated useful lives of 37.5 years for buildings inBuildingsBeijing Jiachenhong and 44 years for buildings in Guangzhou Nuoya Shorter of the lease term orLeasehold improvementsestimated useful lives of 10 yearsMachineries5 – 10 yearsMotor vehicles5 yearsFurniture, fixtures and office equipment3 – 5 years No depreciation expense is provided in respect of construction-in-progress. Interest expense incurred related to the construction of property, plant and equipment is capitalized. The capitalization of interest expense as part ofthe cost of a qualifying asset commences when expenditures for the asset have been made, activities that are necessary to get the asset ready for itsintended use are in progress and interest cost is being incurred. The capitalization period ends when the asset is substantially complete and ready forits intended use. Depreciation of property, plant and equipment attributable to the processing of donated umbilical cord blood for future transplantation is capitalizedas part of inventories, and is expensed to direct costs upon shipment of the donated cord blood units. (i)Intangible assets Intangible assets represent the operating rights to operate cord blood bank and are stated at the estimated fair value on the date of acquisition lessaccumulated amortization. Where payment for an operating right is non-deductible for tax purpose, the simultaneous equations method is used torecord the assigned value of the asset and the related deferred tax liability, such that the carrying amount of the asset upon initial recognition lessdeferred tax liability recognized equals the amount paid for the asset. Amortization expenses are recognized on a straight-line basis over the estimateduseful life of the operating rights of 30 years. Given the environment in which the Group currently operates, it is reasonably possible that the estimated economic useful life of the assets or theGroup’s estimate that it will recover its carrying amount from future operations could change in the future. F-14 (j)Impairment of long-lived assets Long-lived assets, including property, plant and equipment and intangible assets with finite useful lives, are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be heldand used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected tobe generated by the asset or asset group. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flowbasis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuationtechniques including discounted cash flows models, quoted market values and third-party independent appraisals, as considered necessary. Noimpairment of long-lived assets was recognized for the years ended March 31, 2011, 2012 and 2013. (k)Revenue recognition The Group receives fees for collecting, testing, freezing and storing of cord blood units. Once the cord blood units are collected, tested, screened andsuccessfully meet all of the required attributes, the Group freezes the units and stores them in a cryogenic freezer. Under the cord blood processingand storage agreement (“Agreement”) signed with the customer, the Group charges separate processing fee and storage fees to the customer and suchagreement typically provides for a storage period of eighteen years represented by successive one-year renewal periods. The Group also arranges aninsurance policy for customers. The amount of storage fees include insurance premiums collected on behalf of a third-party insurance company. Theamount attributable to the insurance premiums is included in current and non-current other payables and is not recognized as revenue. The Grouphas no performance obligation to the customer with respect to the insurance policy. The Agreement is a multiple-element arrangement, which includes (i) the processing of cord blood unit and (ii) the storage of cord blood unit. TheGroup accounts for the arrangement under the ASC 605-25, Revenue Recognition — Multiple-Element Arrangements, as amended by AccountingStandards Update No. 2009-13, Multiple-Deliverable Arrangements (“ASU 2009-13”), which was adopted by the Group in the fiscal yearbeginning April 1, 2011 on a prospective basis. The adoption of ASU 2009-13 did not have an impact on the consolidated financial statements, asthe units of accounting, the allocation of the arrangement consideration to various units of accounting, and pattern and timing of revenue recognitiondid not change. In accordance with ASC 605-25, revenue arrangements that include multiple elements are analyzed to determine whether thedeliverables can be divided into separate units of accounting or treated as a single unit of accounting. The consideration received is allocated amongthe separate units of accounting based on their relative selling prices determined based on prices of these elements as sold on a stand-alone basis, andthe applicable revenue recognition criteria are applied to each of the separate units. Revenues are allocated to a delivered product or service when thefollowing criteria are met: (1) the delivered item or items have value to the customer on a standalone basis; and (2) if the arrangement includes ageneral right of return relative to the delivered item, delivery or performance of the undelivered item or items is considered probable and substantiallyin the control of the Group. Based on evaluation of the criteria, the Group has determined that the cord blood processing services and storage servicesare to be accounted for as separate units. F-15 Pursuant to the Agreement, no penalty is charged to customers for early termination of the storage service. The Group considers all reasonably available information to allocate the overall arrangement fee to processing and storage services based on theirrelative selling prices. The Group recognizes processing fee revenue upon successful completion of processing services and when the cord blood unit meets all the requiredattributes for storage, and recognizes the storage fee revenues ratably over the annual storage period. During the three years ended March 31, 2011, 2012 and 2013, the Group offered its customers three payment options: (i)Payment of the processing fee upon delivery of the cord blood unit to the Group’s premises for processing and the annual storage fee inadvance at the beginning of each one-year renewal period; (ii)Payment of the processing fee upon delivery of the cord blood unit to the Group’s premises for processing and prepayment of storage fees formultiple periods; and (iii)Payment of the processing fee by installment over multiple periods and the annual storage fee in advance at the beginning of each one-yearrenewal period. The installment option includes an initial processing fee payment upon delivery of the cord blood unit to the Group’s premisesfor processing and an incremental annual payment for the consecutive periods, representing a surcharge to the total amount of processing feespayable under payment options (i) and (ii). Under payment option (iii), installments due for payment beyond one year are classified as non-current accounts receivable. The incrementalprocessing fee payable by customers under the installment plan is recognized as interest income using the effective interest method. The recognition of storage revenue is ceased when the collectability of the storage fees from the customers is not reasonably assured due todelinquency of payment by the customers. During the years ended March 31, 2012 and 2013, the Group ceased recognizing storage revenue from subscribers who were delinquent for morethan 24 months. This was a change compared to the Group’s previous estimate of not recognizing storage revenue if the subscriber was delinquentfor more than 18 months. The reason for the change in estimate was due to more historical experience of receivables collections from delinquentcustomers. During the year ended March 31, 2012, the Group performed a retrospective review of delinquent receivable collections for the two yearsended March 31, 2011 and 2012. The results of this review indicated there was a high percentage of successful collections of receivables that weredelinquent over 18 months but less than 24 months. As a result, the Group changed its estimate of not recognizing storage revenue from customerwho was delinquent for more than 18 months to 24 months in the year ended March 31, 2012. The change was not significant as the impact of thechange representing approximately 1% of total net revenues for the year ended March 31, 2012. F-16 According to the notice jointly issued by the Ministry of Finance and the State Administration of Taxation in November 2011, the taxable servicesrevenue provided by the Group’s three main PRC subsidiaries is subject to Value-Added Tax (“VAT”). Beijing Jiachenhong, Guangzhou Nuoya andZhejiang Lukou are subject to VAT effective for periods starting from September 1, 2012, November 1, 2012 and December 1, 2012, respectively.VAT at a general rate of 6% on the invoice amount is collected on behalf of tax authorities in respect of the services rendered. Prior to these periods,the Group’s three main PRC subsidiaries were subject to business tax at a general rate of 5% of service revenues. Revenue is stated net of VAT orbusiness tax. (l)Research and development costs Research and development costs are incurred for research activities conducted to enhance operating efficiencies, collection and storage technologies,and measures to improve the results in umbilical cord blood stem cells extraction and separation. They also include research expenses on the use ofcord blood stem cells in different medical treatments. Research and development costs of RMB6,960, RMB7,615 and RMB8,459 (US$1,362) forthe years ended March 31, 2011, 2012 and 2013, respectively, were expensed as incurred. (m)Advertising and promotion costs Advertising and promotion costs are expensed as incurred. Advertising and promotion costs included in sales and marketing expenses in theconsolidated statements of comprehensive income amounted to RMB10,590, RMB12,460 and RMB19,215 (US$3,094) for the years ended March31, 2011, 2012 and 2013, respectively. (n)Retirement and other postretirement benefits Contributions to retirement schemes (which are defined contribution plans) are charged to the consolidated statements of comprehensive income whenthe related employee service is provided. The Group does not have any defined benefit retirement plans. (o)Debt issuance costs Costs incurred by the Company that are directly attributable to the issuance of the convertible notes are deferred and are charged to the consolidatedstatements of comprehensive income using an effective interest rate method from the date the convertible notes were issued to the earliest date theholders of the convertible notes can demand payment, which is five years. (p)Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax lossand tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the yearsin which those temporary differences are expected to be recovered or settled. A valuation allowance is provided to reduce the amount of deferred taxassets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assetsand liabilities of a change in tax rates is recognized in the consolidated statements of comprehensive income in the period that includes the enactmentdate. F-17 The Group recognizes in the consolidated financial statements the impact of a tax position if that position is more likely than not of being sustainedupon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greaterthan 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. TheGroup has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in theconsolidated statements of comprehensive income. (q)Commitments and contingencies In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims that relate to a wide range of matters,including, among others, product liability. The Group records accruals for such contingencies based upon the assessment of the probability ofoccurrence and, where determinable, an estimate of the liability. The Group may consider many factors in making these assessments including pasthistory and the specifics of each matter. Since the Group has not become aware of any product liability claim since operations commenced, theGroup has not recognized a liability for product liability claims. (r)Earnings per share Basic earnings per ordinary share is computed by dividing net income attributable to ordinary shareholders by the weighted average number ofordinary shares outstanding during the year using the two-class method. Under the two-class method, net income attributable to commonshareholders is allocated between ordinary shares and participating securities based on contractual participating rights of security to share inundistributed earnings as if all of the earnings had been distributed. For the year ended March 31, 2013, the convertible notes are participatingsecurities since the holder of these notes participate in excess cash dividends on the same basis as ordinary shareholders. Diluted earnings per share is computed by dividing net income attributable to ordinary shareholders, as adjusted to exclude any income or expensesrelated to dilutive ordinary equivalents shares by the weighted average number of ordinary shares and dilutive potential ordinary shares outstandingduring the period. Dilutive potential ordinary shares consist of the ordinary shares issuable upon the exercise of outstanding share options byapplying the treasury stock method and the ordinary shares issuable upon the conversion of the convertible notes applying the if-converted method.Dilutive potential ordinary shares in the diluted earnings per share computation are excluded to the extent that their effect is anti-dilutive. (s)Share option plan The Group recognizes share-based payments as compensation cost and measures such cost based on the grant date fair value of the award using theBlack-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the requisite service period, which is generallythe same as the vesting period. F-18 The service inception date is the date at which the requisite service period begins. The service inception date usually is the grant date; however theservice inception date precedes the grant date if (a) an award is authorized, (b) service begins before a mutual understanding of the key terms andconditions of a share-based payment award is reached, and (c) either of the following conditions applies: (1) the award’s terms do not include asubstantive future requisite service condition that exists at the grant date or (2) the award contains a market or performance condition that if notsatisfied during the service period preceding the grant date and following the inception of the arrangement results in forfeiture of the award. For thepurpose of determining the service inception date, authorization of an award is the date on which all approval requirements are completed unlessapproval is perfunctory. (t)Segment reporting The Group has one operating segment, as defined by ASC 280 Segment Reporting, which is processing and storage of cord blood units. All of theGroup’s operations and customers are located in the PRC. Consequently, no geographic information is presented. (u)Fair value measurement The Group utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extentpossible. The Group determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principalor most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchydistinguishes between observable and unobservable inputs, which are categorized in one of the following levels: ·Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurementdate. ·Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, forsubstantially the full term of the asset or liability. ·Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available,thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The Group did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of March 31, 2012 and 2013. See Note 22 to the consolidated financial statements. F-19 (v)Recently issued accounting standards In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments toAchieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which amendedaccounting guidance related to fair value measurements and disclosures with the purpose of converging the fair value measurement and disclosureguidance issued by the FASB and the International Accounting Standards Board. The guidance is effective for reporting periods beginning afterDecember 15, 2011. The guidance includes amendments that clarify the intent of the application of existing fair value measurement requirementsalong with amendments that change a particular principle or requirement for fair value measurements and disclosures. The Company adopted thenew guidance on April 1, 2012. The adoption did not have a material impact on the Company’s consolidated financial statements or relateddisclosures. In February 2013, the FASB issued ASU 2013-02, 2013-02”). The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect ofsignificant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement lineitems affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead crossreference to the related footnote for additional information. ASU 2013-02 is effective for interim and annual reporting periods beginning afterDecember 15, 2012. The Company will adopt the provisions of the new guidance on April 1, 2013. The adoption will not have a material impact onthe Company’s consolidated financial statements or related disclosures. F-20 3Accounts receivable, net (a)Accounts receivable consist of the following: March 31, 2012 2013 2013 RMB RMB US$ Accounts receivable 385,792 372,919 60,045 Less: Allowance for doubtful accounts (52,544) (50,473) (8,127)Total accounts receivable, net 333,248 322,446 51,918 Representing: Current portion: - processing fees 49,731 49,092 7,904 - storage fees 28,404 23,357 3,761 - others 877 627 101 79,012 73,076 11,766 Non-current portion: - processing fees 254,236 249,370 40,152 Total accounts receivable, net 333,248 322,446 51,918 Non-current gross accounts receivable as of March 31, 2013 are due for payment as follows: March 31, 2013 RMB US$ Fiscal years ending March 31, 2015 34,311 5,525 2016 33,999 5,474 2017 33,063 5,324 2018 25,964 4,181 2019 and thereafter 158,394 25,503 285,731 46,007 (b)An analysis of the allowance for doubtful accounts is as follows: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ Balance at beginning of year 17,197 39,956 52,544 8,461 Charged to provisions for doubtful accounts 25,018 12,588 7,468 1,202 Write-off charged against the allowance for the year (2,259) - (9,539) (1,536)Balance at end of year 39,956 52,544 50,473 8,127 F-21 The Group continuously monitors the recoverability of the accounts receivable, the credit quality of such receivables, the effectiveness and theefficiency of its collection efforts. During the year ended March 31, 2011, the Group sold RMB11,998 of its accounts receivable to a third party fora consideration of RMB10,006, satisfied in cash. Pursuant to the agreement, the receivables were transferred without recourse. The sale of thereceivables was accounted for under ASC 860, Transfers and Servicing. Under that guidance, receivables were considered sold since they werelegally isolated from the Company and its creditors even in the event of bankruptcy or other receivership, the purchaser has the unconstrained rightto pledge or exchange the receivables, and the Company has surrendered control over the transferred receivables. During the year ended March 31, 2013, the Group wrote-off accounts receivable of RMB9,539 (US$1,536), which were aged over three years sincethere was sufficient evidence available to prove the debtor’s inability to make payments. 4Inventories Inventories consist of the following: March 31, 2012 2013 2013 RMB RMB US$ Current portion: - consumables and supplies 6,666 10,265 1,652 Non-current portion: - processing costs capitalized in donated umbilical cord blood 34,651 39,730 6,396 Total current and non-current inventories 41,317 49,995 8,048 Collection, testing and processing costs attributable to the processing of donated umbilical cord blood are capitalized as inventories. Managementassesses the recoverability of such inventories with reference to future projections of matching fees, number of donated cord blood units of theGroup, demand for cord blood units for transplantation and research purposes, and the probability of finding a match in light of the number ofunits held. Based on such assessments, the management considers that the cord blood processing costs capitalized are recoverable and no provisionfor inventories was made as of March 31, 2011, 2012 and 2013. The Group recognizes the revenue for one matched donated umbilical cord blood unit upon shipment of the unit and recognizes the direct costs equalto the carrying amount of the total inventory (donated umbilical cord blood units) divided by the estimated future number of successful matcheswhich would become realized through sales during the estimated weighted average remaining useful life of the donated umbilical cord blood units. Asof March 31, 2013, the weighted average remaining useful life of the donated umbilical cord blood units was estimated to be approximately 20 years.Based on the historical increase in the number of donated umbilical cord blood matching inquiries and the number of successful matches of donatedumbilical cord blood units, the Group estimated the number of successful matches of donated umbilical cord blood units will increase by 7% perannum. There were no material changes to the estimates and assumptions underlying the methodology for the years ended March 31, 2011, 2012 and2013. F-22 5Prepaid expenses and other receivables Prepaid expenses and other receivables consist of the following: March 31, 2012 2013 2013 RMB RMB US$ Prepaid expenses 10,064 9,372 1,509 Other receivables 1,497 2,230 359 Total prepaid expenses and other receivables 11,561 11,602 1,868 Other receivables mainly include advance payments to employees and rental deposits. 6Property, plant and equipment, net Property, plant and equipment, net consist of the following: March 31, 2012 2013 2013 RMB RMB US$ Buildings 150,181 187,529 30,194 Leasehold improvements 42,783 44,264 7,127 Machineries 86,395 105,899 17,051 Motor vehicles 8,939 11,087 1,785 Furniture, fixtures and office equipment 27,500 27,588 4,442 Construction-in-progress 37,010 205,657 33,113 352,808 582,024 93,712 Less: Accumulated depreciation (84,946) (113,752) (18,315)Total property, plant and equipment, net 267,862 468,272 75,397 Pursuant to the final purchase contract dated June 28, 2012, the total purchase price of the property and land use right was RMB100,000(US$16,101), of which prepayments of RMB25,000 was made in March 2012 and included such prepayments in construction-in-progress as ofMarch 31, 2012. The Group paid the remaining amount of RMB75,000 (US$12,076) and also incurred RMB7,294 (US$1,174) for related taxesand other expenditures associated with the intended use of the assets during the year. Part of the property and land use right that was used byGuangzhou Nuoya, in the amount of RMB37,556 (US$6,047), was transferred to buildings. The remaining RMB69,738 (US$11,228) wasrecorded in construction-in-progress as of March 31, 2013. F-23 In November 2012, the Group signed a refurbishment contract with a third party for the newly purchased property in Guangzhon Nuoya. Thecontract amount was RMB110 million (US$17.7 million). As of March 31, 2013, RMB43,468 (US$6,999) has been paid in accordance to theconstruction schedule and is included in construction-in-progress. In January 2013, the Group signed a purchase contract with a third party for the purchase of buildings and associated land use right in the Zhejiangprovince. The Group fully paid the purchase contract amount and relevant taxes of RMB87,508 (US$14,090) and recorded such prepayments inconstruction-in-progress as of March 31, 2013. As of July 31, 2013, the buildings were under refurbishment for its intended use and the Group isstill in the process of obtaining the ownership certificate. Depreciation expense of property, plant and equipment is allocated to the following expense items: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ Direct costs 11,790 13,481 17,421 2,804 Research and development 2,933 3,212 2,073 334 Sales and marketing 1,679 1,803 2,805 452 General and administrative 5,689 6,240 8,954 1,442 Total depreciation expense 22,091 24,736 31,253 5,032 The Group capitalized interest cost as a component of the cost of construction-in-progress. Interest incurred consists of the following: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ Interest cost capitalized - - 1,274 205 Interest cost charged to income 2,606 3,287 70,097 11,286 Total interest cost incurred 2,606 3,287 71,371 11,491 As of March 31, 2012 and 2013, buildings with carrying value of RMB128,890 and RMB121,603 (US$19,579) were collateralized to banks forshort-term bank loans of RMB45,000 and RMB50,000 (US$8,050), respectively (Note 11). F-24 7Non-current prepayments Non-current prepayments consist of the following: March 31, Note 2012 2013 2013 RMB RMB US$ Prepaid property rental 1,647 - - Investment deposit (i) - 212,188 34,164 Deposit for machineries purchase 1,216 445 72 Total non-current prepayments 2,863 212,633 34,236 Note: (i)In October 2012, the Group signed a Letter of Intent with a third party for a proposed investment. During the month, the Group remitted arefundable earnest money of US$33,660 (RMB212,188) to this third party and commenced the relevant work with respect to the saidinvestment. As of July 31, 2013, the transaction had not been completed yet. 8Intangible assets, net March 31, 2012 2013 2013 RMB RMB US$ Cord blood bank operating rights 138,628 138,628 22,320 Less: Accumulated amortization (8,837) (13,458) (2,166)Total intangible assets, net 129,791 125,170 20,154 Intangible assets represent the cord blood bank operating rights in the Guangdong province and the Zhejiang province, the PRC. The cord blood bank operating right in the Guangdong province was acquired through the acquisition of Guangzhou Nuoya in May 2007. Theestimated useful life of the operating right is thirty years. Amortization expenses of the operating right in the Guangdong province were RMB971,RMB971 and RMB971 (US$156) for the years ended March 31, 2011, 2012 and 2013, respectively. The operating right is subject to renewal andthe next renewal is due in May 2015. In February 2011, the Group acquired the right to operate the cord blood bank in the Zhejiang province from a third party for cash consideration ofUS$12,500 (equivalent to RMB82,124) which was fully settled in August 2011. Payment for the operating right is non-deductible for tax purpose.The simultaneous equations method is used to record the assigned value of the asset of RMB109,499 and a related deferred tax liability ofRMB27,375 (Note 17(c)), in accordance with the guidance in ASC 740-10-25-51, such that the carrying amount of the asset upon initial recognitionless the related deferred tax liability equals the cash consideration paid. The estimated useful life of the Zhejiang operating right is thirty years.Amortization expenses were RMB413, RMB3,650 and RMB3,650 (US$588) for the years ended March 31, 2011, 2012 and 2013, respectively.The operating right is subject to renewal and the next renewal is due in September 2013. F-25 The Group determined that a thirty-year period to amortize the cord blood bank operating rights was appropriate, following the pattern in which theexpected benefits of the acquired asset will be consumed or otherwise used up. The Group’s renewal period with the provincial governmentalauthorities generally is for a period of three-years. The Group has historically renewed cord blood bank operating rights without incurring anysignificant costs. There are no other legal or regulatory provisions that limit the useful life of the cord blood bank operating rights or that cause thecash flows and useful life of such cord blood bank operating right to be constrained. In addition, the Group expects the effect of obsolescence,demand, competition, and other economic factors to be minimal. The Group engaged independent third party valuation firms in determining the fair values of the cord blood bank operating rights duringacquisitions. The fair values of the cord blood bank operating rights were determined using an income approach and considered assumptions(including turnover rate) that a market participant would make consistent with the highest and best use of the asset by market participants. Theperiods of expected cash flows used to measure the fair values of the cord blood bank operating rights were thirty years. Without evidence to thecontrary, the Group expects that the cord blood bank operating rights will be renewed at the same rate as a market participant would expect, and noother factors would indicate a different useful life is more appropriate. Accordingly, in light of the absence any other of the entity-specific factors, theuseful life of the cord blood bank operating rights was determined to be thirty years. A straight-line method of amortization has been adopted as the pattern in which the economic benefits of the operating rights are used up cannot bereliably determined. Estimated amortization expenses for the years afterwards are: March 31, 2013 RMB US$ Fiscal years ending March 31, 2014 4,621 744 2015 4,621 744 2016 4,621 744 2017 4,621 744 2018 and thereafter 106,686 17,178 Total amortization expenses 125,170 20,154 F-26 9Available-for-sale equity securities March 31, 2012 2013 2013 RMB RMB US$ Cordlife Limited - listed on Australian Securities Exchange 8,795 8,284 1,334 Cordlife Group Limited - listed on Singapore Exchange 89,404 80,120 12,900 Total listed equity securities, at market 98,199 88,404 14,234 During the year ended March 31, 2008, the Group acquired 11,730,000 ordinary shares of Cordlife Limited (“CBB”) at a total cost of RMB53,699.CBB is a provider of cord blood banking services with operations in Singapore, Hong Kong, India, Indonesia and the Philippines, and is listed onthe Australian Securities Exchange. During the year ended March 31, 2009, the Group acquired an additional 5,795,000 ordinary shares of CBB at a total cost of RMB11,172,satisfied in cash. The acquisition of additional ordinary shares led to an increase in the Group’s equity interest in CBB from 12.9% as of March 31,2008 to 18.9% as of March 31, 2009. The Group’s equity interest in CBB was diluted to 16.3% as of March 31, 2010 due to the issuance ofadditional shares by CBB during the year ended March 31, 2010. During the year ended March 31, 2011, the Company subscribed for 6,841,666 shares of CBB at a total cost of RMB13,245, satisfied in cash. Asa result, the Group held 24,366,666 ordinary shares of CBB, representing a 16.8% equity interest as of March 31, 2011. The Group’s equityinterest in CBB was diluted to 16.1% as a result of the exercise of employees’ share options of CBB during the period from March 31, 2011 to thetime when the capital reduction occurred on June 30, 2011. On June 16, 2011, the shareholders of CBB approved a capital reduction by way of distribution in specie. The scheme involved a spin off ofCordlife Pte Ltd from CBB, and the shares of Cordlife Pte Ltd were distributed to the then shareholders of CBB on a pro rata basis. Therestructuring and distribution in specie were completed and effective on June 30, 2011. After the restructuring of CBB as of June 30, 2011, the Groupowned a total of 24,366,666 shares, representing a 16.1% equity interest in each of CBB and Cordlife Pte Ltd, respectively. The Group’sinvestments in CBB upon the completion of restructuring were recognized as two separate investments consisting of CBB and Cordlife Pte Ltd. Thecapital reduction or the distribution in specie by CBB did not constitute a sale of available-for-sale equity securities. The cost of both investmentswas based on their respective estimated fair values as of the restructuring date and adjusted by the unrealized holding gains of CBB recorded inaccumulated other comprehensive income on pro rata basis. After the restructuring, Cordlife Pte Ltd was a private company, whose shares did nothave a readily determinable fair value. The investment in Cordlife Pte Ltd was therefore accounted for by the cost method under ASC 325-20, beforeits listing on Singapore Exchange on March 29, 2012. In connection with a proposed listing on the Singapore Exchange, Cordlife Pte Ltd changed its name to CGL. On March 29, 2012, CGL was listedon the Singapore Exchange. Upon the listing of CGL, the Group’s equity interests in both CGL and CBB were diluted to 10.5% and 14.1%respectively as a result of new shares issued in the public offering of CGL and the exercise of options issued by CBB to other third parties. UponCGL’s listing on March 29, 2012, the Group accounted for its investment in CGL at fair value. F-27 As of March 31, 2012 and 2013, the Group held 24,366,666 ordinary shares in both CBB and CGL, representing a 14.1% and 10.5% equityinterest in CBB and CGL, respectively. In May 2012 and August 2012, CGL announced dividends of SGD0.02 and SGD0.018 per ordinary share relating to CGL’s fiscal year ended June30, 2012. As a result, the Group received dividend of SGD925 (equivalent to RMB4,685) which was recognized in dividend income in theconsolidated statement of comprehensive income. As of March 31, 2013, the cost basis of the available-for-sale equity securities was RMB40,690 (US$6,551), and the total unrealized net holdinglosses and gains were recorded in accumulated other comprehensive income. Total unrealized net holding losses of CBB was RMB3,024 (US$487)and total unrealized net holding gains of CGL was RMB59,836 (US$9,634). The aggregate fair values was RMB97,502 (US$15,699) as ofMarch 31, 2013. As of March 31, 2012, the cost basis of the available-for-sale equity security was RMB40,690 and the total unrealized net holding losses and gainswere recorded in accumulated other comprehensive income. Total unrealized net holding losses of CBB was RMB2,573 and total unrealized netholding gains of CGL was RMB68,505. The aggregate fair value was RMB106,622 as of March 31, 2012. The available-for-sale equity securities are held by a subsidiary whose functional currency is Hong Kong dollars. Both securities are traded in aforeign market. The fair values are based on the current market values of the securities and the current exchange rates between Hong Kong dollarsand Australia dollars or Singapore dollar, as applicable. Both investments are translated into RMB, the Group’s reporting currency, using theexchange rate at the balance sheet dates. The Group determined that the decline in market value of CBB for the years ended March 31, 2012 and 2013 and the decline in market value ofCGL for the year ended March 31, 2013 were temporary and therefore no impairment loss was recognized. As of March 31, 2012 and 2013, totalother-than-temporary impairment of RMB37,426 had been recognized in earnings in December 2008. 10Other investment March 31, 2012 2013 2013 RMB RMB US$ Unlisted equity securities, at cost 134,363 189,129 30,452 In May 2010, the Group completed its acquisition of 19.92% equity interest of Shandong Province Qilu Stem Cells Engineering Co., Ltd. (“QiluStem Cells”), which operates a cord blood bank in the Shandong province, the PRC. The Group does not have significant influence over thefinancial and operating decisions of Qilu Stem Cells. The investment is stated at cost as the equity securities do not have a readily determinable fairvalue. Dividend declared and paid by Qilu Stem Cells during the year ended March 31, 2012 of RMB7,217 was recognized in dividend income inthe consolidated statement of comprehensive income. In February 2013, the Group completed its acquisition of 4.08% equity interest of Qilu Stem Cells from Cordlife Service (S) Pte. Ltd., a whollyowned subsidiary of CBB, satisfied in cash of US$8.65 million (RMB54,766). Upon completion of the transaction, the Group’s effective equityinterest in Qilu Stem Cells increased from 19.92% to 24.0%. Although the Group increased its effective equity interest in Qilu Stem Cells to over20%, the Group does not have any representation in the board of directors and does not have significant influence in Qilu Stem Cells. Accordingly,the investment in Qilu Stem Cells is accounted under the cost method as of March 31, 2013. F-28 11Bank loan On June 27, 2011, the Group borrowed RMB45,000 from Hua Xia Bank, a commercial bank in the PRC. The term of the loan was one year. TheGroup repaid the bank loan in full on June 27, 2012. On July 11, 2012, the Group borrowed RMB50,000 (US$8,050) from Hangzhou Bank, a commercial bank in the PRC. The term of the loan is oneyear. The loan bears a floating interest rate equaling to 120% of the base lending rate quoted by the People’s Bank of China, which is adjusted on the20th day of the third month of each quarter. As of March 31, 2013, the bank loan bears interest at 7.2% per annum. The bank loan has been repaidin full upon maturity on July 10, 2013. 12Accrued expenses and other payables Accrued expenses and other payables consist of the following: March 31, Note 2012 2013 2013 RMB RMB US$ Insurance premiums received on behalf of an insurance company (i) 4,003 12,411 1,998 Other taxes payables 2,648 1,616 260 Accrued salaries, bonus and welfare expenses 7,030 17,828 2,870 Accrued consultancy and professional fees 8,311 7,770 1,251 Payable for convertible notes interests (ii) - 26,639 4,289 Payable for debt issuance costs - 3,242 522 Other payables (iii) 11,359 14,500 2,337 Total accrued expenses and other payables 33,351 84,006 13,527 Notes:(i)The Group has an agreement with an insurance company under which the Group is granted the authority to collect insurance premiums onbehalf of the insurance company from customers who store umbilical cord blood in the Group’s cord blood bank and are enrolled in theinsurance scheme offered by the insurance company. The insurance premiums amount collected and payable over one year are recorded inother non-current liabilities in the consolidated balance sheets. (ii)The payable for convertible notes interests represents the interest accrued based on coupon interest rate of 7% of outstanding principle ofconvertible notes, which is to be settled annually on April 27 or October 3 (Note 14). (iii)Other payables mainly include fee refundable to customers whose cord blood unit does not qualify for subsequent storage and otheroperating procurement payables. F-29 13Deferred revenue (a)Deferred revenue consists of the following: March 31, 2012 2013 2013 RMB RMB US$ Prepayments by customers prior to completion of cord blood processing services 51,610 94,471 15,211 Unearned storage fees 361,034 608,115 97,913 Total current and non-current deferred revenue 412,644 702,586 113,124 Representing: Current portion 106,110 172,328 27,747 Non-current portion 306,534 530,258 85,377 Total current and non-current deferred revenue 412,644 702,586 113,124 (b)An analysis of the unearned storage fees is as follows: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ Balance at beginning of year 116,870 199,470 361,034 58,130 Deferred revenue arising from new customers 153,505 260,531 376,536 60,627 Credited to income (70,905) (98,967) (129,455) (20,844)Balance at end of year 199,470 361,034 608,115 97,913 14Convertible notes On April 27, 2012, the Company completed the sale of aggregate US$65 million senior unsecured convertible notes to KKR China HealthcareInvestment Limited (“KKRCHIL”) (the “KKR Notes”). The KKR Notes carry a 7% coupon interest rate and are convertible into the Company’sordinary shares at a conversion price of US$2.838 per share. The Company received gross proceeds of US$65 million (approximatelyRMB412,292) and incurred debt issuance costs of RMB14,260 (US$2,296) from the issuance of the KKR Notes. The KKR Notes are seniorunsecured obligations, mature on April 27, 2017 and are not redeemable prior to their maturity at the Company’s option. The KKR Notes areconvertible at any time in whole or in part, into the Company’s ordinary shares at the conversion price, subject to customary anti-dilutionadjustments for significant corporate events. On the maturity date, the Company is obligated to pay a redemption amount on the unconverted portionof the KKR Notes that is calculated to provide a 12% Internal Rate of Return (“IRR”). On October 3, 2012, the Company completed the sale of aggregate US$50 million senior unsecured convertible notes to Golden Meditech HoldingsLimited (“GMHL”), which is a major shareholder of the Company (the “GM Notes”). The GM Notes carry a 7% coupon interest rate and areconvertible into the Company’s ordinary shares at a conversion price of US$2.838 per share. The Company received gross proceeds of US$50million (approximately RMB318,201) and incurred debt issuance costs of RMB4,258 (US$686) from the issuance of the GM Notes. The GMNotes are senior unsecured obligations, mature on October 3, 2017 and are not redeemable prior to their maturity at the Company’s option. The GMNotes are convertible at any time in whole or part, into the Company’s ordinary shares at the conversion price, subject to customary anti-dilutionadjustments for significant corporate events. On the maturity date, the Company is obligated to pay a redemption amount on the unconverted portionof the GM Notes that is calculated to provide a 12% IRR. F-30 The carrying amount of the KKR Notes and GM Notes (the “Notes”) as of March 31, 2013 is summarized in the following table: March 31, 2013 2013 RMB US$ Principal amount of the KKR Notes 409,764 65,976 Principal amount of the GM Notes 315,226 50,754 Cumulative interest payables 26,791 4,314 Carrying amount 751,781 121,044 The Notes holders have the right to require the Company to redeem all or any portion of the Notes upon occurrence of events of default. Such eventsof default under the Notes include suspension from trading or failure of the Company’s ordinary shares to be listed over certain periods (subject tocertain exceptions), failure to deliver ordinary shares upon conversion, or failure to pay principal or interest to the holder within certain periods whendue and payable (including, without limitation, the Company’s failure to pay any redemption payments), bankruptcy, materially breaches of anycovenants or terms in the Notes, the incurrence of any indebtedness of the Group and any final judgment or judgment against the Group exceedingcertain amount, and any other event or events that could be expected to have material adverse effects on the Group. From and after the thirtieth dayfollowing the occurrence, and during the continuance, of an event of default under the Notes, the interest rate shall be increased to twenty-two andone-half percent (22.5%) per annum. The Notes are entitled to a special redemption payment in the event the Group breaches certain covenants. The KKR Notes are also entitled to aspecial redemption payment in the event GMHL or certain members of the Company’s senior management violate the terms of certain lock-upagreements they have entered into in favor of KKRCHIL. The Notes contain customary ongoing covenants, including affirmative covenants andnegative covenants. Covenants are set out in the convertible notes purchase agreement and the Notes, including but not limited to compliance withSecurities and Exchange Commission filings and all applicable laws and rules; maintaining Form F-3 eligibility and maintaining and keeping all thecurrent held cord blood banking licenses effective; the Company shall not, without the prior written consent of the Notes holders, change itsprincipal business; dissolve, liquidate, reorganize or restructure; merge with any other entity; commence any case, proceeding or other action underbankruptcy, insolvency or similar law; acquire or dispose of assets other than in the ordinary course of business; approve any budget or businessplan; incur any indebtedness such that the outstanding indebtedness is in excess of US$22 million for KKR Notes and US$87 million for GMNotes respectively. Any amendment or waiver thereof requires the affirmative consent of a majority of the holder of all outstanding Notes.Additionally, additional payments on the Notes shall be made in the event the Group pays any excess cash dividend (note 2 (r)) in any financial year(see Note 19). Such term provides KKRCHIL and GMHL with the ability to participate in any excess cash dividend. F-31 The Company has determined that the conversion feature embedded in the Notes should not be bifurcated and accounted for as a derivative pursuantto ASC 815, Derivatives and Hedging, since the embedded conversion feature is indexed to the Company’s own stock and would have beenclassified in shareholders’ equity if it were a free-standing derivative instrument. The Company has determined that the embedded put options thatcan accelerate the repayment of the Notes and contingent interest feature are clearly and closely related to the debt host contract and are not separatelyaccounted for as a derivative pursuant to the ASC 815. Further, since the conversion price of the Notes exceeded the market price of the Company’sordinary shares on the date of commitment, no portion of the proceed from the issuance was accounted for as attributable to the beneficial conversionfeature. The Company accrued interest on the Notes based on the guaranteed 12% IRR per annum. The difference between the accrued interest rate of 12%and the coupon rate of 7% of the Notes is recorded in convertible notes in the consolidated balance sheets. Debt issuance costs capitalized inconnection with the issuance of convertible notes are amortized from the date the Notes were issued to the earliest date the holders of the Notes candemand payment, which is five years. Interest relating to the Notes was recognized as follows: Year ended March 31, 2013 2013 RMB US$ KKR Notes interest incurred 45,959 7,400 GM Notes interest incurred 18,761 3,020 Amortization of debt issuance costs 3,062 493 Interest cost capitalized (1,207) (194)Total interest expense 66,575 10,719 15Shareholders’ equity (a)Share capital As of March 31, 2010, the Company had 66,743,693 shares outstanding. During the year ended March 31, 2011, a total of 345,010 ordinaryshares were issued by the Company upon the exercise of warrants (see Note 15(c)(i)), a total of 1,627,518 ordinary shares were issued upon thecompletion of the Warrant Exchange (see Notes 15(c)(i) and 15(c)(ii)) and 309,346 ordinary shares were repurchased and cancelled under the sharerepurchase program (see Note 15(d)). In November 2010, the Company completed a secondary offering of 7,000,000 ordinary shares at an offering price of US$4.50 per share and netproceeds of RMB189,861 were raised. As a result of the above transactions, the Company had 75,406,875 shares outstanding as of March 31,2011. F-32 During the year ended March 31, 2012, 2,266,728 ordinary shares were repurchased and cancelled under the share repurchase program (see Note15(d)) and as a result the Company had 73,140,147 shares outstanding as of March 31, 2012. During the year ended March 31, 2013, 7,450,914 ordinary shares were repurchased under the share repurchase program (see Note 15(d)), and7,314,015 of them were sold to CGL (see Note 1(b)). The remaining 136,899 ordinary share repurchased had not been cancelled and was presentedas treasury stock in the consolidated balance sheets. As a result, the Company had 73,003,248 shares outstanding as of March 31, 2013. (b)Statutory reserves According to PRC rules and regulations and their Articles of Association, Beijing Jiachenhong, Guangzhou Nuoya and Zhejiang Lukou are requiredto transfer 10% of net income, as determined in accordance with the relevant financial regulations established by the Ministry of Finance of the PRC(“PRC GAAP”), to a statutory surplus reserve until the reserve balance reaches 50% of their respective registered capital. The transfer to this reservemust be made before distribution of dividends to equity holders can be made. The statutory surplus reserve is non-distributable but can be used to make good previous years’ losses, if any, and may be converted into issuedcapital in proportion to the respective equity holding of the equity holders, provided that the balance of the reserve after such conversion is not lessthan 25% of the registered capital. Transfers of RMB12,178, RMB17,656 and RMB22,638 (US$3,645) have been made to the statutory surplus reserve by Beijing Jiachenhongand Guangzhou Nuoya for the years ended March 31, 2011, 2012 and 2013, respectively. Accumulated statutory surplus reserve as of March 31,2012 and 2013 amounted to RMB55,441 and RMB78,079 (US$12,571), respectively. As of March 31, 2013, Zhejiang Lukou has not beenprofitable since its establishment, and no surplus reserve was made accordingly. (c)Warrants and options The Company had the following warrants and options in issue during the years ended March 31, 2011, 2012 and 2013. (i)IPO Warrants Upon its Initial Public Offering in December 2006, the Company issued 5,750,000 units (“Units”) at an offering price of US$6.00 per unit. EachUnit consists of one share of the Company’s common stock and two warrants (“IPO Warrants”). Each holder of an IPO Warrant was entitled topurchase one share of the Company’s common stock at an exercise price of US$5.00 prior to its expiry on December 13, 2010. The IPO Warrantswere redeemable, at the discretion of the Company and subject to the consent of EarlyBirdCapital, Inc. (“EBC”), the representative of Pantheon’sunderwriters in its Initial Public Offering in December 2006, at a price of US$0.01 per IPO Warrant upon 30 days’ notice only in the event that thelast sale price of the Company’s common stock is at least US$8.50 per share for any 20 trading days within a 30 trading-day period ending on thethird day prior to the date of notice of redemption. If the Company redeemed the IPO Warrants, it would have the option to require any IPO Warrantholder that wished to exercise his Warrant to do so on a “cashless basis”. During the years ended March 31, 2010 and 2011, 65,100 and 345,010IPO warrants were exercised. On November 10, 2010, the Company announced a warrant exchange offer (“Warrant Exchange”), which allowedoutstanding warrant holders to receive one ordinary share for every eight outstanding warrants. Together with Insider Warrants (Note 15(c)(ii)), atotal of 13,020,236 warrants were exchanged for 1,627,518 ordinary shares upon completion of Warrant Exchange. The remaining warrants lapsedon expiry. F-33 (ii)Insider Warrants Simultaneous with the Company’s Initial Public Offering in December 2006, the Company sold 2,083,334 warrants to certain of its then officers,directors and special advisors (“Insider Warrants”). The terms of the Insider Warrants are identical to the IPO Warrants, except that if the Companycalled the IPO Warrants for redemption, the Insider Warrants were exercisable on a cashless basis as described in Note 15(c)(i). The InsiderWarrants were either exchanged for shares upon the Warrant Exchange (Note 15(c)(i)) or lapsed. (iii)Option to purchase Units of the Company In connection with its Initial Public Offering, the Company also issued an option for US$0.1 to EBC to purchase 500,000 Units at an exercise priceof US$6.60 per Unit prior to its expiry on December 13, 2011. The Units issuable upon exercise of the option were identical to the Units sold in theInitial Public Offering. The option could be exercised for cash or on a cashless basis at the holders’ option, such that the holder could use theappreciated value of the option (the difference between the exercise prices of the option and the underlying warrants and the market price of the Unitsand underlying securities) to exercise the option without paying cash. However, the Company had no obligation to net cash settle the exercise of theoption or the warrants underlying the option. The holder of the option was entitled to exercise the option or the warrants underlying the option unless aregistration statement covering the securities underlying the option is declared effective or an exemption from registration was available. If the holderwas unable to exercise the option or the underlying warrants, the option or warrants, as applicable, expired worthless. The warrants underlying theoption were exercisable at the same price and had the same expiry date as of December 13, 2010 as the IPO Warrants. As of March 31, 2013, theoption had not been exercised and therefore, the option expired. (d)Share repurchase program On September 15, 2010, the Group announced the authorization of a share repurchase program under which the Company was entitled to repurchaseup to US$15 million of its outstanding ordinary shares. Pursuant to this program, the Company was entitled to repurchase its shares for a period ofone year commencing on September 15, 2010 in the open market at prevailing market prices or in block trades. On August 3, 2011, the Board ofDirectors approved the refreshment of the program for 12 months until August 2, 2012. During the years ended March 31, 2011 and 2012, the Company repurchased and cancelled 309,346 and 2,266,728 ordinary shares at a total costof RMB10,653 and RMB44,664, respectively. The excess of the repurchase price over par value of RMB10,653 and RMB44,662 was charged toadditional paid-in capital for the years ended March 31, 2011 and 2012, respectively. F-34 On July 31, 2012, the Board of Directors approved a new US$20 million share repurchase program to replace the previous US$15 million sharerepurchase program that expired. During the year ended March 31, 2013, the Company repurchased 7,450,914 ordinary shares at a total cost ofRMB131,302 (US$21,141) of which 7,314,015 shares were subsequently sold to CGL (Note 1(b)). The remaining 136,899 repurchased ordinaryshares had not been cancelled and therefore was presented as treasury stock in the consolidated balance sheets. 16Revenues The Group’s revenues are primarily derived from the provision of umbilical cord blood storage and ancillary services. In view of the fact that the Group operates and manages its business solely in the PRC and services are predominately provided to customers locatedin the PRC, no geographical segment information is provided. The Group’s revenues by category are as follows: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ Cord blood processing fees 266,554 279,481 394,641 63,541 Cord blood storage fees 70,905 98,967 129,455 20,844 Fees derived from the provision of donated cord blood fortransplantation and research and others 2,073 2,042 2,027 326 Total revenues 339,532 380,490 526,123 84,711 17Income tax Cayman Islands and British Virgin Islands Under the current laws of the Cayman Islands and the British Virgin Islands, the Company and its subsidiaries that are incorporated in the CaymanIslands and the British Virgin Islands are not subject to tax on income or capital gains. In addition, upon payments of dividends by these companies,no Cayman Islands or British Virgin Islands withholding tax will be imposed. Hong Kong The Company’s subsidiaries that are incorporated or operate in Hong Kong are subject to Hong Kong Profits Tax on income arising in or derivedfrom Hong Kong. No provision was made for Hong Kong Profits Tax as the subsidiaries did not earn income subject to Hong Kong Profits Tax forthe years ended March 31, 2011, 2012 and 2013. The payments of dividends by Hong Kong tax residents are not subject to any Hong Kongwithholding tax. The PRC On March 16, 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC (the “newtax law”), which revised the PRC statutory income tax rate to 25% effective on January 1, 2008. The Company’s PRC subsidiaries are subject toincome tax at 25% unless otherwise specified. F-35 The new tax law and its relevant regulations provide a five-year transition period for Beijing Jiachenhong which was established before March 16,2007 and entitled to a preferential income tax rate of 15% under the then effective tax laws or regulations. The transitional tax rates are, 20%, 22%,24% and 25% for calendar years 2009, 2010, 2011 and 2012 onwards, respectively. In addition, entities that qualify as “High and New TechnologyEnterprises” (“HNTE”) under the new tax law are entitled to a preferential income tax rate of 15%. Because of its HNTE status, Beijing Jiachenhongwas entitled to the reduced tax rate of 15% from January 1, 2008 to December 31, 2010. In February 2012, Beijing Jiachenhong received approvalfrom the tax authority on the renewal of its HNTE status which entitled it to the preferential income tax rate of 15% effective retroactively fromJanuary 1, 2011 to December 31, 2013. Upon the expiry of HNTE certificate, the tax rate applied to Beijing Jiachenhong would be 25%. In June 2011, Guangzhou Nuoya received approval from the tax authority that it qualified as a HNTE which entitled it to the preferential income taxrate of 15% effective retrospectively from January 1, 2010 to December 31, 2012. As a result, Guangzhou Nuoya received a tax refund in the yearended March 31, 2012, amounting to RMB10,433 in relation to overpaid income tax for the period from January 2010 to December 2010. Upon theexpiry or failure in renewal of HNTE certificate, the tax rate applied to Guangzhou Nuoya would be 25%. Subject to renewal, Guangzhou Nuoya’sHNTE status will enable it to the preferential income tax rate of 15% from January 1, 2013 to December 31, 2015. Management believes thatGuangzhou Nuoya meets all the criteria for the renewal of HNTE status and accordingly, applied 15% tax rate to measure taxable temporarydifferences that are expected to reverse by the calendar year ending December 31, 2015. The new tax law and its implementation rules also impose a withholding tax at 10%, unless reduced by a tax treaty or agreement, for dividendsreceivable by non-PRC-resident enterprises from PRC-resident enterprises in respect of earnings accumulated beginning on January 1, 2008. TheCompany has not provided for income taxes on such accumulated earnings of its PRC subsidiaries as of March 31, 2013 since these earnings areintended to be reinvested indefinitely in the PRC. As of March 31, 2013, such unremitted earnings that may be subject to the withholding taxamounted to RMB634,333 (US$102,134) and the related unrecognized deferred tax liability was RMB63,433 (US$10,213). Income before income tax expense arose from the following tax jurisdictions: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ The PRC 155,652 179,654 260,462 41,937 Non-PRC (23,510) (28,055) (102,277) (16,467)Income before income tax expense 132,142 151,599 158,185 25,470 F-36 (a)Income taxes Income tax expense represents PRC income tax expense as follows: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ Current tax expense 40,880 14,405 38,737 6,237 Deferred tax benefit (6,951) (4,771) (194) (31)Total income tax expense 33,929 9,634 38,543 6,206 (b)Reconciliation of expected income tax to actual income tax expense The actual income tax expense reported in the consolidated statements of comprehensive income differs from the amount computed by applying thestatutory PRC income tax rate of 25% for the following reasons: Year ended March 31, 2011 2012 2013 2013 RMB RMB RMB US$ Income before income tax expense 132,142 151,599 158,185 25,470 Computed “expected” tax expense 33,036 37,900 39,546 6,368 Non-PRC entities not subject to income tax 5,878 7,014 25,569 4,117 Non-taxable income - (1,804) - - Effect of change in tax rates - (14,674) - - Tax rate differential, preferential rate (4,865) (19,779) (26,015) (4,189)Others (120) 977 (557) (90)Actual income tax expense 33,929 9,634 38,543 6,206 F-37 (c)Deferred taxes The tax effects of temporary differences that give rise to deferred tax assets/(liabilities) are presented below: March 31, 2012 2013 2013 RMB RMB US$ Deferred tax assets: Accounts receivable 4,413 4,719 760 Non-current accounts receivable 7,050 5,754 926 Property, plant and equipment 1,824 1,616 260 Inventories 2,343 2,513 405 Tax loss 1,896 2,011 324 Others 855 798 128 Net deferred tax assets 18,381 17,411 2,803 Deferred tax liabilities: Deferred revenue (115) (105) (17)Intangible assets (32,447) (31,293) (5,038)Deferred tax liabilities (32,562) (31,398) (5,055) Net deferred tax liabilities (14,181) (13,987) (2,252) Classification on consolidated balance sheets Current deferred tax assets 5,268 5,454 878 Non-current deferred tax assets 5,013 3,727 600 Non-current deferred tax liabilities (24,462) (23,168) (3,730)Net deferred tax liabilities (14,181) (13,987) (2,252) Tax loss carryforwards of the Group’s PRC subsidiary amounted to RMB8,044 (US$1,295) as of March 31, 2013, of which RMB4,823(US$777) and RMB3,221 (US$518) will expire if unused by December 31, 2016 and 2017, respectively. For the years ended March 31, 2011, 2012 and 2013, the Group did not have any material unrecognized tax benefits and thus no interest andpenalties related to unrecognized tax benefits were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefitswill change significantly within the next twelve months. According to the PRC Tax Administration and Collection Law, the statute of limitation is three years if the underpayment of taxes is due tocomputational errors made by the taxpayer or the withholding agent. The statute of limitation is extended to five years under special circumstanceswhere the underpayment of taxes is more than RMB100 (US$16). In the case of transfer pricing issues, the statute of limitation is ten years. There isno statute of limitation in the case of tax evasion. The income tax returns of the Group’s PRC subsidiaries for the calendar years from 2007 to 2012are open to examination by the PRC state and local tax authorities. 18Share-based compensation On February 18, 2011, the shareholders of the Company approved and adopted the Restricted Share Unit scheme. The scheme has a limit ofgranting rights to receive ordinary shares not exceeding 10% of the Company’s issued and outstanding share capital, to directors, officers, employeesand/or consultants of the Group. Since no awards have been granted as of March 31, 2011, 2012 and 2013, no compensation expense has beenrecognized for the years ended March 31, 2011, 2012 and 2013. F-38 19Net income per share The following table sets forth the computation of basic net income per share and diluted net income per share for the years ended March 31, 2011,2012 and 2013: Year ended March 31, Note 2011 2012 2013 2013 RMB RMB RMB US$ Numerator: Net income attributable to the Company 91,703 131,980 112,447 18,106 Earnings allocated to participating convertible notes (i) - - (6,053) (975) Net income for basic and diluted net income pershare 91,703 131,980 106,394 17,131 Denominator: Weighted average ordinary shares outstanding forbasic and diluted net income per share 70,083,876 73,897,177 71,527,698 71,527,698 Net income per share attributable to ordinaryshares: - Basic 1.31 1.79 1.49 0.24 - Diluted (ii) 1.31 1.79 1.49 0.24 Notes: (i)The KKR Notes and GM Notes provide KKRCHIL and GMHL with the ability to participate in any excess cash dividend. Excess cashdividend means any cash dividend to holders of shares that, together with all other cash dividends previously paid to holders of shares inthe same financial year, exceeds, on a per share basis, an amount equal to the interest that has accrued and shall accrue at 7% couponinterest rate in such financial year divided by the number of shares into which the notes are convertible at the conversion price then in effecton the relevant record date. Therefore, net income attributable to the Company is reduced by such allocated earnings to participatingconvertible notes for the year ended March 31, 2013 in both basic and diluted net income per share computation. (ii)During the year ended March 31, 2011 and 2012, the Company had dilutive potential ordinary shares of 500,000 representing sharesissuable upon exercise of an option to purchase the Company’s Units (see Note 15(c)(iii)). Such diluted potential ordinary shares wereexcluded from diluted net income per share computation because the exercise price of options exceeded the average price of the Company’sordinary shares during the years. The option expired on December 13, 2011. During the year ended March 31, 2013, the Company had potentially dilutive ordinary shares of 40,521,495 representing shares issuableupon conversion of the KKR Notes and GM Notes (see Note 14). Such potentially dilutive ordinary shares were excluded from diluted netincome per share computation because their effects would have been anti-dilutive. F-39 20Related party transactions For the years presented, the principal related party transactions and amounts due to related parties are summarized as follows: Year ended March 31, Note 2011 2012 2013 2013 RMB RMB RMB US$ Rental of properties (i) 1,440 1,440 1,440 232 Interest expenses 14 - - 18,761 3,020 March 31, Note 2012 2013 2013 RMB RMB US$ Current liabilities Amounts due to related parties (i)&14 360 11,241 1,810 Note: (i)During the years ended March 31, 2011, 2012 and 2013, Beijing Jingjing Medical Equipment Co., Ltd. (“Beijing Jingjing”), a subsidiaryof GMHL, leased a property to the Group under an operating lease. The monthly rental was RMB174 and renewed at a monthly rental ofRMB120 (US$19) effective from July 2009. The lease runs for a period of 5.5 years expiring in December 2014 and does not includecontingent rentals. 21Pension and other postretirement benefits Pursuant to the relevant PRC regulations, Beijing Jiachenhong, Guangzhou Nuoya and Zhejiang Lukou are required to make contributions for eachemployee at a rate of approximately 20% on a standard salary base as determined by the local Social Security Bureau, to a defined contributionretirement scheme organized by the local Social Security Bureau. The amounts of contributions of RMB7,107, RMB9,682 and RMB12,158(US$1,958) for the years ended March 31, 2011, 2012 and 2013, respectively, were charged to expense in the consolidated statements ofcomprehensive income. The Group has no other obligation to make payments in respect of retirement benefits of the employees. 22Fair value measurements The following methods and assumptions were used to estimate the fair value of each class of financial instruments: The fair value of available-for-sale equity securities is based on quoted market prices on the last trading value as of March 31 2013. Suchinvestments are classified as Level 1 in the hierarchy. F-40 Short-term financial instruments (including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, otherreceivables/payables, amounts due to related parties, and short-term bank loan) - cost approximate their respective fair values due to their short-termnature. Convertible notes - the estimated fair value was US$127,514 (RMB791,964) based on the level 3 valuation technique as compared to a carryingvalue of RMB751,781 (US$121,044) as of March 31, 2013. The estimated fair value of the convertible notes is based on a mark-to-model valuationmodel. Due to the fact that there is no active market for this instrument, the fair value of the convertible notes was estimated using a discounted cashflow analysis based on current borrowing rates for instruments with similar terms. In addition, the Company utilized other sources of informationfor the relevant market parameters in order to develop its fair value. 23Business and credit concentrations All of the Group’s customers are located in the PRC. Revenues from and gross accounts receivable due from customers are individually immaterial. The Group purchases raw materials from a few major suppliers which are located in the PRC. The following are purchases from suppliers thatindividually comprise 10% or more of gross purchases in the respective years: Year ended March 31, Supplier 2011 2012 2013 2013 RMB % RMB % RMB % US$ % Shanghai Qiangzhi Biological Technology Co., Ltd. - - 3,619 11 11,152 22 1,796 22 Hangzhou Baitong Biological Technology Co., Ltd. 6,224 18 5,490 16 7,783 15 1,253 15 Beijing Zhu You Ying Kang Technology DevelopmentCo., Ltd. 7,562 22 8,340 25 - - - - Fenwal Dahua Pharmaceutical Technology (Shanghai)Co., Ltd. 5,617 16 - - - - - - Beijing Probe Biological Technology Co., Ltd. 3,463 10 3,389 10 - - - - Total 22,866 66 20,838 62 18,935 37 3,049 37 As of March 31, 2012 and 2013, there is no individually accounts payable due to major suppliers representing more than 10% of outstandingaccounts payable balance. 24Commitments and contingencies (a)Operating lease commitments For the years ended March 31, 2011, 2012 and 2013, total rental expenses for operating leases were RMB5,594, RMB7,205 and RMB4,666(US$751), respectively. During the year ended March 31, 2013, the Group completed the purchase of the previously leased property in the Guangdong province andterminated the lease contract (Note 6). The total future minimum payments under non-cancellable operating leases as of March 31, 2013 are asfollows: F-41 March 31, 2013 RMB US$ Fiscal year ending March 31, 2014 3,039 489 2015 1,462 235 2016 36 6 2017 and thereafter 11 2 Total payments 4,548 732 (b)Contractual commitments The Group entered into an agreement with an institution for the research and development of medicines for treatments which make use of cord bloodstem cells. Commitments as of March 31, 2013 under this agreement amount to RMB2,000 (US$322) (2012: RMB2,000). In June 2006, the Group entered into a co-operation agreement with the Peking University People’s Hospital (“PUPH”). Pursuant to the agreement,PUPH provides technical consultancy services to the Group in relation to the operation of a cord blood bank, in return for a fixed annual advisory feeof RMB2,000 (US$322). The agreement has a term of twenty years commencing in October 2006. In November 2009, Guangzhou Nuoya entered into a co-operation agreement with the Guangdong Women and Children’s Hospital and HealthInstitute (“GWCH”). Pursuant to the agreement, GWCH provides technical consultancy services to the Group in return for an annual advisory fee ofRMB2,000 (US$322). The agreement has a term of twenty years commencing in November 2009. In December 2010, Zhejiang Lukou entered into a co-operation agreement with the Zhejiang Provincial Blood Center (“ZPBC”). Pursuant to theagreement, ZPBC provides technical consultancy services to the Group in return for an annual advisory fee of RMB2,000 (US$322). The agreementhas a term of three years commencing in February 2011. As of March 31, 2013, the total future minimum payments under the co-operation agreements are as follows: March 31, 2013 RMB US$ Fiscal year ending March 31, 2014 5,770 929 2015 4,000 644 2016 4,000 644 2017 4,000 644 2018 4,000 644 2019 and thereafter 40,167 6,467 Total payments 61,937 9,972 F-42 (c)Capital commitments As of March 31, 2013, the Group’s capital commitments for the refurbishment contracts was RMB137,346 (US$22,114) (Note 6). 25Subsequent events Subsequent to the year end and up to July 31, 2013, the Group has further paid RMB31,474 (US$5,068) for the refurbishment project ofGuangzhou Nuoya and Zhejiang Lukou. F-43  Guangzhou City Real Estate Property Purchase Agreement (Summary Translation for Reference Only) Seller (Party A): Guangzhou Hezhong CD Manufacturing Co., Ltd.Legal Representative: ZHU Suifeng Buyer (Party B): Guangzhou Municipality Tianhe Nuoya Bio-engineering Co., Ltd.Legal Representative: ZHENG Ting Pursuant to relevant laws, statutes and regulations of the People’s Republic of China Contract Law, Party A and Party B have, on the voluntarybasis, entered into the following agreement Article I Party A desires to transfer the real estate property it owns, including the land use right to the surrounding public green area and road(See Property Layout Plan attached for details) (hereinafter the “Property”) to Party B. See Appendix 1 for the ownership certificate for details about theProperty. (1) The Property is located at 8 Nanyun Third Road and 1 Nanyun Fourth Road, Guangzhou Development Zone; its ownership certificatenumber is: G0510004465. (2) The Property type: concrete structure of 5 stories with 14,607.98 m2 of construction areas; built in 2007; no parts or areas in violation ofzoning regulations. All the construction land use plan, project plan, project implementation and completion permit documents are complete and in goodstanding, and there is no delinquency of project construction fund or other construction capital. The Property to be purchased includes all the current auxiliary facilities, except manufacturing equipment. Party A guarantees the compliance of electricity facilities with the power regulatory rules and will provide assistance in fire-prevention inspection andenvironmental assessment, as well as in the maintenance of the Property and its facilities in their warranty period. (3) The Property has a state land use right to an area of 4,192.84 m2 and the purpose of such use is industrial. The land use right was obtainedthrough a transfer. The valid period of such use right is from May 26, 2006 to May 25, 2056, and all the transfer consideration and taxes have been paid infull. This purchase also includes the land use right to the public green area and road surrounding the Property (See Property Layout Plan attached for details). (4) There are other rights and interests (pledge) and lease relationships in connection with this Property (see Appendix 2 for details on the list ofpledged items in connection with this Property and the corresponding loan contract and pledge contract, and see Appendix 3 for details on the current existingleases and lease contracts). Please see Appendix 4 for documents evidencing the waiver of right of first refusal by all lessees except Party B and the lessees’consent to this purchase.  Party A warrants that the contents described in the above paragraphs are true, warrants the authenticity of all the ownership certificate of the Propertyand the corresponding land use right certificate; and warrants that there are no other rights, encumbrances and restrictions regarding the Property that have notbeen disclosed to Party B. Article II Purchase Price and Payment (1) The two parties agree that the total purchase price for the Property is RMB100,000,000.00. (2) Party B will pay the purchase price in installments according to the following: (a) Within 5 business days upon the execution of this agreement, Party B will pay to Party A an amount equal to 25% of the totalpurchase price, i.e., RMB25,000,000.00. This initial amount will be deposited into a designated escrow account to be set up within 3 business days upon theexecution of this agreement. Party A and Party B will jointly administer this escrow account. The amount in this account can only be used toward therepayment of the remaining RMB25,000,000.00 of the principal and interest of the outstanding loan on the Property, unless there is joint written consent fromthe two parties. (b) Upon the completion by Party A of removing all encumbrances and restrictions on the property, and upon the acceptance byregulatory authority of the transfer application documents (no later than July 9, 2012), Party B will pay to Party A an amount equal to 25% of the totalpurchase price, i.e., RMB25,000,000.00. If Party A fails to fulfill the provisions stated in the above paragraph before July 9, 2012, Party B shall have the right to stopmaking the payment of this amount and shall be considered to have become the owner of the Property on that day, and Party A must pay the rent, as a lessee,to Party B at the rate of RMB1.50 per m2 per day, starting from that date, until Party A completes the removal of all encumbrances and restrictions on theProperty and the acceptance by regulatory authority of the transfer application documents for processing. (c) Within 5 business days upon completion of the transfer registration procedures mentioned above, and upon Party B’s obtainingownership certificate (no later than July 31, 2012), Party B will pay to Party A all the remaining balance of the total purchase price, i.e., RMB50,000,000.00. IfParty A fails to fulfill this provision before July 31, 2012, Party B shall have the right to stop making the payment of this amount, and Party A must pay therent, as a lessee, to Party B at the rate of RMB1.50 per m2 per day, starting from that date, until Party B obtains the ownership certificate for the Property. Article III Party A must hand over the Property contemplated herein in good condition before July 31, 2012 to Party B for Party B to occupyand use; upon accepting the hand-over by Party A of the said Property, Party B will sign the delivery confirmation document with Party A. 2 If for any reason, Party A fails to completely hand over the Property in satisfaction of the provisions set forth in Appendix 5 hereto before July 31,2012, Party A must lease the space on all levels as a lessee at the rate of RMB35.00 per m2 per month starting from August 1, 2012 until the complete hand-over of the Property. The rent for such lease must be paid by Party A at the end of each month to Party B. Article IV Party A and Party B must jointly submit application for transaction registration to Real Estate Transaction Registration Center beforeJuly 9, 2012. Article V The risks associated with the Property will be transferred to Party B on the date of its actual hand-over and the completion of theownership transfer registration in accordance with the provisions herein. Article VI Party A and Party B will each be responsible for taxes incurred in the transaction in accordance with the relevant State andGuangzhou city regulations. Article VII If Party A fails to hand over the Property to Party B to use and occupy in accordance with the provisions herein, Party A must, inaddition to fulfilling other obligations specified herein, pay penalty for the delay of such hand-over; the calculation method for the penalty is: 0.02% of the totalpurchase price specified in Article II herein for each day of delay. If such delay is more than 10 days, Party B shall have the right to dissolve this agreement atany time and Party A must, within 10 days of the dissolution of the agreement, pay a penalty for such delay (such penalty will not exceed 5% of the totalpurchase price), return to Party B that part of the purchase price already paid and compensate Party B for all the actual resulting losses. Article VIII If, due to any reason on Party A’s part, the transaction registration procedures cannot be processed by Real Estate TransactionRegistration Center within the time period specified herein, Party A must, in addition to fulfilling other obligations specified herein, pay penalty for the delay ofsuch procedures; the calculation method for the penalty is: 0.02% of the total purchase price specified in Article II herein for each day of delay. If such delay ismore than 10 days, Party B shall have the right to dissolve this agreement at any time and Party A must pay a penalty for such delay (such penalty will notexceed 5% of the total purchase price), return to Party B that part of the purchase price already paid and compensate Party B for all the actual resulting losses. If, due to any reason on Party B’s part, the transaction registration procedures cannot be processed by Real Estate Transaction Registration Centerwithin the time period specified herein, Party B must, in addition to fulfilling other obligations specified herein, pay penalty for the delay of such procedures;the calculation method for the penalty is: 0.02% of the total purchase price specified in Article II herein for each day of delay. If such delay is more than 10days, Party A shall have the right to dissolve this agreement at any time and Party B must pay a penalty for such delay (such penalty will not exceed 5% ofthe total purchase price) and compensate Party A for all the actual resulting losses. Party A must return to Party B that part of the purchase price already paid. 3 Article IX If Party B fails to make payment in accordance with the provisions of Section (2), Article II herein, Party B must pay penalty for thedelay of such payment; the calculation method for the penalty is: 0.02% of the total purchase price specified in Article II herein for each day of delay. If suchdelay is more than 10 days, Party A shall have the right to dissolve this agreement at any time and Party B must pay a penalty for such delay (such penaltywill not exceed 5% of the total purchase price) and compensate Party A for all the actual resulting losses. Party A must return to Party B that part of thepurchase price already paid. Article X Other matters not covered herein may be provided by the two parties in other additional provisions or in supplemental agreements,which will become part of this agreement. The contents in such additional provisions or supplemental agreements shall prevail. Article XI This agreement shall be deemed established upon execution. Article XII This agreement shall become effective upon establishment. If there are other conditions set by the two parties for its effectiveness,then this agreement shall become effective upon fulfillment of such conditions. Article XIII Any dispute must be resolved through consultation; if such consultation fails, such dispute may be submitted to the people’s court atthe location of the Property for resolution. Article XIV This agreement has 6 duplicates and all have the same legal effect. Article XV Party A must provide the list of the Property’s facilities and equipment and land division map to Party B before Party B makes theinitial payment. Such document will be the component of this agreement and will have the same legal effect. Seller (Party A): Guangzhou Hezhong CD Manufacturing Co., Ltd.Legal Representative: /s/ ZHU Suifeng Buyer (Party B): Guangzhou Municipality Tianhe Nuoya Bio-engineering Co., Ltd.Legal Representative: /s/ ZHENG Ting June 28, 2012 4 Appendices (Brief description and summary for reference only) Appendix 1 Guangdong Province Property Ownership Certificate Property Owner: Guangzhou Hezhong CD Manufacturing Co., Ltd.Personal ID No.:Type of Property:Planned Use:IndustrialObtained Through:New constructionType of Ownership:Sole ownershipDate of Registration:April 8, 2010[Description of the property and the land thereunder omitted]Notes:*Taxes: Exempt*State land transfer consideration already paid; term of the land use right: 50 years starting from May 26, 2006.Certificate Issuer: /seal/ Guangzhou Municipal Land Resources and Housing Administrative BureauRegistration No.: 10R05000094[Layout of the property attached] Appendix 2Maximum Amount Pledge Contract (contract No. 12110310130/1)(Brief description and summary for reference only) This is a pledge contract under a credit facility contract (called “Master Contract” (contract No. 12110310130) executed on April 11, 2011) as aguarantee contract between the same two parties. Pledgee (Party A):Guangdong Development Bank, Guangzhou BranchPledgor (Party B):Guangzhou Hezhong CD Manufacturing Co., Ltd.Date of Execution:April 11, 2011 Maximum amount guaranteed:RMB20,000,000.00Item pledged as guarantee:Factory building with a value appraised at RMB65,010,100.00 as indicated by the “List of Pledged Property”attached. Structure of the Pledge Contract (Titles of Provision Sections)Article 1 Master Contract 5 Article 2 Maximum Amount GuaranteedArticle 3 Property PledgedArticle 4 Term of the Pledgee’s RightArticle 5 Scope of the GuaranteeArticle 6 Registration of the PledgeArticle 7 Management and Use of the Pledged PropertyArticle 8 InsuranceArticle 9 Realization of the Pledgee’s RightArticle 10 Representations and WarrantiesArticle 11 Pledgor’s LiabilityArticle 12 Disclosure of Related Party Transactions with Party B’s AffiliatesArticle 13 Party A’s Rights and ResponsibilitiesArticle 14 Party B’s Rights and ResponsibilitiesArticle 15 Each Party’s Responsibility for Other ChargesArticle 16 Event of Breach and Handling of BreachesArticle 17 NotarizationArticle 18 Effectuation, Amendment, Dissolution and Termination of the ContractArticle 19 The Survivability of the ContractArticle 20 Applicable Law and Dispute ResolutionArticle 21 Party B’s Special AcknowledgementArticle 22 Other ProvisionsArticle 23 Miscellaneous Appendix 3Business Building Lease Agreement(Brief description and summary for reference only) Lessor (Party A):Guangzhou Hezhong CD Manufacturing Co., Ltd.Lessee (Party B):Guangzhou Municipality Tianhe Nuoya Bio-engineering Co., Ltd.Date of Execution:September 15, 2008 Description of the Building: Located at 1 Nanyun Fourth Road, Guangzhou Science City, Guangzhou, this is a building under construction in HezhongIndustrial Park, with construction area of 5,168 m2. It is to be used as office space and laboratory for R&D of cord blood stem cells. Term of the Lease: 20 years starting from the date of hand-over of the building after its construction completion. Party B has the first right of refusal forrenewal upon expiration of the lease. 6 Rent:RMB25 per month per m2 (for a total rent of RMB129,200.00 per month) for the first 5-year period; to be adjusted starting from the second 5-yearperiod through negotiation based on the market rate. Structure of the Lease Agreement (Titles of Provision Sections)Article 1 General Information about the BuildingArticle 2 Ownership of the BuildingArticle 3 Use of the BuildingArticle 4 Documents of Identification (Business License, etc.)Article 5 Remodeling of the BuildingArticle 6 Term of the LeaseArticle 7 RentArticle 8 Other ChargesArticle 9 Delivery and Return of the BuildingArticle 11 Maintenance and RepairArticle 12 SubleaseArticle 13 Change of OwnershipArticle 14 Contract DissolutionArticle 15 Liability for BreachArticle 16 Dispute ResolutionArticle 17 Others Appendix 4 [N/A] Appendix 5 [N/A] 7  Hundsun (Hangzhou) Science & Technology ParkProperty Transfer AgreementContract #: H216 (Summary translation for reference only) Party A (Transferor):Hangzhou Hundsun Baichuan Technology Co., Ltd.Legal Representative:HU Weiguo Party B (Transferee):Beijing Jiachenhong Biological Technologies Co., Ltd.Legal Representative:DENG Yue Pursuant to the “People’s Republic of China Contract Law” and other relevant laws, statutes and regulations, Party A and Party B have, on thevoluntary basis, entered into the following agreement regarding the property transfer: Article I Background of the Construction Project Party A entered into an agreement “State Construction Land Use Right Transfer Contract” (contract No. 3301102009A21063) with HangzhouMunicipal Bureau of Land and Resources Yuhang District, and obtained the land use right, through a transfer, of a piece of land situated in Gexiang Village,Cangqian Township, Yuhang District (“PRC State Land Use Right Certificate” No. HY(2010)117-608). The area of the land is 28,527.5 m2 and the type of the land is “Comprehensive (Commercial/Office) Land” and the land use period ends on July20, 2060. It was approved for Party A to construct office buildings (interim name “Hundsun (Hangzhou) Science & Technology Park (Second Phase);“Construction Land Planning Permit” No. LN200901518052; “Construction Project Planning Permit” No. CN201101518027; and “Construction ProjectImplementation Permit” No. 330125201106300201). Article II Conditions for the Transfer of the Project Party B has acknowledged the facts stated above and the relevant documents, read and understood “Property Management Interim Provisions”formulated by the construction company of Hundsun (Hangzhou) Science & Technology Park (See Appendix 5 attached hereto) and “Hundsun (Hangzhou)Science & Technology Park Management Rules (Interim)) (See Appendix 6 attached hereto), gained complete understanding of the conditions of the buildingsthat Party A desires to transfer and is willing to accept the transfer.  Article III Basic Information about the Building Units Party A transfers the following buildings (hereinafter, the “Building Units”; see Appendix 1 for Floor Plan of the Units of the Buildings) to Party B,which are part of the construction project specified in Article 1: Unit 1 of Building 14, Unit 2 of Building 14, Unit 3 of Building 14 and Unit 4 of Building 14, 4 stories above ground and 1 story underground;Unit 1 of Building 24 and Unit 2 of Building 24, 4 stories above ground and 1 story underground; Building 25, 4 stories above ground. The usage of theBuilding is office space. The total construction area of the Building is 5,562.26 m2, of which 3,956.97 m2 are interior construction area and 1,605.29 m2 are apportionedpublic area (see Appendix 3 for the list of the apportioned public areas and the list of construction areas). In addition to the purchase of the Building mentioned above, the two parties have reached agreement regarding the transfer, gift or lease of parkingspaces, parking garages and other properties (see Appendix 4 attached hereto). Article IV Calculation of Price and Total Price The total price is based on the construction area. The unit price of the Building is RMB15,235.16 per m2, and the total price isRMB84,741,920.85. Article V Payment Method and Schedule Party A and Party B have agreed on the installment payment method. Party B makes the initial payment of RMB42,370,960.43 before January 25, 2013; Party B makes the second payment of RMB42,370,960.42 before February 1, 2013. Article VI Party B’s Liabilities for Delay of Payment If Party B’s delay of payment is less than 60 days, Party B must pay a penalty at 0.03% per day of the amount payable starting from the day afterthe payment due date, until such due amount is paid in full, and this agreement must continue to be performed. If Party B’s delay of payment is more than 60 days, Party A shall have the right to dissolve this agreement. If Party A so dissolves this agreement,Party B must pay a penalty at 10% of the total purchase price. If Party A is willing to continue the performance of the agreement, Party B must pay a penaltyat 0.05% per day of the amount payable starting from the day after the payment due date, until such due amount is paid in full.  Article VII Recognition of Construction Area and Handling of Discrepancies Based on the calculation method for the purchase price of the Building, the basis for area recognition and discrepancy handling is construction area. If there is any discrepancy between the area specified herein and the actual survey result from the government appointed survey agency, the lattershall prevail. If there is such discrepancy, the two parties agree that the total price will be recalculated based on unit price specified in Article IV and adjustment forpayment will be made with no interest. Article VIII Delivery Schedule Party A must, in accordance with the relevant state and local government regulations, hand over to Party B for the use of the Building that has metthe inspection conditions in different phases before February 5, 2013. Upon receiving notice from Party A, Party B must proceed with Party A to complete thedelivery procedures. Upon the occurrence of the following special circumstances, Party A may postpone the delivery, unless the parties hereto agree to dissolve or modifythis agreement: 1. Occurrence of Force Majeure and Party A has notified Party B within 30 days upon such occurrence; 2. If Party B fails to make payment in accordance with Article VI herein, the delivery shall be considered effected, but the delivery procedureswill be started within 15 days after Party B pays the total purchase price in full. 3. Construction delay due to measures taken, pursuant to the relevant laws and regulations, by a planning, cultural relics, environmentalprotection, land management or forest/water management regulatory agency at county level or above, or due to major technical issues; 4. The scope of Force Majeure includes, but not limited to, earthquake, flood and other natural disasters, war, riot, widespread contagiousdisease, large-scale power or water supply outage and other unusual social events, and change of government policies and laws. Article IX Party A’s Liability for the Delay of Delivery Except in special circumstances mentioned in Article VIII above, if Party A’s delay of delivery is less than 60 days, Party A must pay a penalty at0.03% per day of the purchase price already received starting from the day after the required delivery date (as mentioned in Article VIII above), until actualdelivery, and this agreement must continue to be performed.  If Party A’s delay of delivery is more than 60 days, Party B shall have the right to dissolve this agreement. If Party B so dissolves this agreement,Party A must pay a penalty at 10% of the total purchase price and return the entire purchase price already received. If Party B is willing to continue theperformance of the agreement, Party A must pay a penalty at 0.05% per day of the purchase price already received starting from the day after the requireddelivery date, until actual delivery. Article X Provisions Regarding Planning and Design Changes If there is any modification to the plan and design of the Building approved by the design company and by administrative agencies, resulting inchange of the structure, room type and orientation of the Building, Party A must notify Party B in writing within 15 days upon receiving approval notice forsuch modification. Party B shall have the right to decide whether to return the Building and notify Party A in writing within 15 days. If Party B fails to notify Party Ain writing within 15 days, it will be considered that Party B has accepted such modification. If Party B decides to return the Building, Party A must return the purchase price already received to Party B (together with interest calculated base onone year borrowing rate) within 30 days upon the dissolution of this agreement. If Party B decides not to return the Building, the two parties must enter intosupplemental agreement within 30 days. Article XI Delivery of the Building When the Building satisfies the conditions for delivery, Party A must notify Party B in writing to proceed for delivery procedures, and Party B mustproceed to the designated location at the time specified in the delivery notice for such procedures. Upon completion of the acceptance inspection in accordancewith Article XIII herein and the provision in Appendix 2, Party B must execute the Building delivery document. After the Building satisfies the conditions for delivery, if the delivery cannot take place at the specified time due to any reason on Party B’s part, theBuilding shall be considered to have been delivered, and Party B must be responsible for all the property taxes, land use taxes, property management fee(calculate base on 70% of the applicable management fee) and other charges associated with the Building and assume the risk of destruction, damage and fireto the Building. If Party B fails to process delivery procedures within 3 months upon receiving the delivery notice from Party A, Party A shall have the right todissolve this agreement, and Party B must pay a penalty in the amount of 10% of the total purchase price. Party A will return the purchase price, afterdeducting such penalty for Party B’s breach, within 60 days upon the dissolution of this agreement. Article XII Ownership Certificate and Handling of Debts  The land on which the Building resides has been pledged to China Industrial and Commercial Bank (Hangzhou west branch) for a loan. Party Apromises to have the pledge cancelled when it processes with the ownership certificate procedures. Party A shall assume all responsibility if, due to any reason on its part, the ownership certificate transfer cannot be registered or if there is anydispute regarding debts in accordance with the provisions of Article XIV herein. Article XIII Guarantees Regarding Infrastructure and Public Facilities Party A guarantees that the infrastructure and public facilities necessary for the normal use of the Building will meet the following criteria for use: 1. The roads inside the park area and the water, electricity supply facilities and sewage system have been put in operation at the time of thedelivery; 2. The property management system has been put in place at the time of the delivery. Otherwise, Party A must remedy the situation within 60 days upon the delivery of the Building. If Party A fails to remedy the situation within 60days, Party A must pay a penalty to Party B at 0.01% per day of the total purchase price until all criteria are met (except in circumstances due to Force Majeureprovided in Article VIII). Article XIV Transfer of Ownership Certificate Party A promises to obtain all land use and property ownership documents before July 30, 2013. After Party B or Party B’s subsidiary completesbusiness tax registration in the park and has paid taxes for 3 months, Party A and Party B will process the Building transfer registration in accordance withthe requirements from regulatory agencies of Yuhang District. If Party B establishes new entity in the park, Party A and Party B must confirm in writing suchnew entity after the completion of its registration, and the new entity must inherit all of Party B’s rights and responsibilities with Party B assuming joint andseveral liability to Party A. If Party A fails to obtain all land use and property ownership documents before July 30, 2013, Party A and Party B agree: 1. If such failure is less than 60 days, Party B will offer forgiveness and this agreement will continue to be performed; 2. If such failure is more than 60 days, Party A must: a. Pay to Party B a penalty at 1% of the purchase price already received, if Party B decides not to return the Building; or  b. Return the purchase price with interest (calculated based on one year borrowing rate) already received to Party B, if Party Bdecides to return the Building, within 30 days upon receiving notice from Party B. Article XV Responsibility for Warranty The scope and term of the warranty for the Building are as follows: Reasonable number of years of use specified in the design document for the foundation and main structure, 5 years for any leaks in the exteriorsurface wall, on the floor, in bathrooms and 2 years for power supply system and water supply system and equipment installation. Warranty periodcommenced from date the construction work is completed and endorsed by Party B. Article XVI Party B’s Promises 1. Party B will use the Building transferred by Party A as office space and will not change such purpose without authorization. 2. Party B will assume responsibility for all risks for the Building and arrange for insurance upon acceptance of its delivery. Party B willassist Party A in its centralized management of the property. 3. Party B will not alter the internal structure of the Building and will not violate security and fire prevention regulations. Party B renovationwork will need to be pre-approved by Party A or Party A engaged property management company. 4. Unless otherwise provided herein or elsewhere, Party B has the right to use the public areas and facilities of the Building and assume thecorresponding obligations. 5. Party B must not change the nature of use of any public area and facility of the Building without authorization. 6. Party A shall have the right to pursue Party B for any violation of the above. Article XVII In the event of any breach resulting from the occurrence of Force Majeure and any factors beyond the control of either Party A or PartyB, and the party in breach notifies the other party within 30 days of such occurrence, the party in breach will not bear any responsibility and the two partiesmay negotiate for extension, amendment or dissolution of this agreement. Article XVIII After this agreement has become effective, each party will be responsible for any taxes and fees required by the State, the ZhejiangProvince and Hangzhou City in connection with this agreement. Article XIX Any dispute in connection with the performance of this agreement must be resolved through negotiation; if such negotiation fails, suchdispute may be submitted to the People’s Court at the location of the Building.  Article XX All written notifications in connection with this agreement must be delivered to the contact addresses provided herein. Article XXI Any matter not covered herein may be provided in a supplemental agreement between the two parties. Article XXII This agreement, any supplemental agreement and all its appendices constitute one document and have the same legal effect. Article XXIII This agreement has one format and 4 duplicates, with 2 to Party A and 2 to Party B. Article XXIV This agreement will become effective upon execution by Party A and Party B. Party A:/seal/ Hangzhou Hundsun Baichuan Technology Co., Ltd.Legal Representative:/s/ [not legible] Party B:/seal/ Beijing Jiachenhong Biological Technologies Co., Ltd.Legal Representative:/s/ [ZHENG Ting] Date:January 25, 2013  Appendices (Very brief description and summary of appendices) Appendix 1Floor Plan of the Units of the Building Appendix 2Specification of the Remodeling and Facilities of the Building [Specifications of the paint, floor and window glass, etc. for hallways, stairways and entrance doors and of broad band internet andelevators] Appendix 3Explanation of Apportioned Public Area and Structures[About elevators, hallways, stairways, entrance doors, etc.] Appendix 4Agreement on the purchase, gift and lease of other properties[None] Appendix 5Property Management Interim Provisions(Executed and dated January 25, 2013) Major provisions (very brief summary):Article 1Property Owner’s RightsRights to receive services provided by the management company, supervise the performance of service agreement, report activitiesthat affect the interests of property owner.Article 2Property Owner’s ObligationsObligations to pay service fee to the management company, follow the rules regarding the use and maintenance of facilities andsecurity, and inform tenants of such rules (if the property is leased out).Article 3Decoration and Remodeling of the PropertyThe owner should communicate with the property management company regarding decoration and remodeling and follow relevantrules.Article 4Transfer and Lease of the PropertyThe property owner must bear all responsibility regardless whether the property is leased out or not. Potential tenant needs tocomply with all relevant requirements.Article 5Use of the PropertyThe property owner (or any tenant) is prohibited from changing the building structure and fire prevention facility and fromengaging in dangerous or unsanitary activities.  Article 6Maintenance and Repair of the Property The property owner (or any tenant)’s maintenance and repair of some special area of the property should not harm the interests ofowners of other properties and the property owner should obtain authorization if necessary.Article 7Water and Electricity Charges, Service Fees and Property Maintenance Fund The property owner must pay electricity and water charges and property maintenance fund dues at the rate and according to theschedule specified.Article 8Liabilities for Failure to Pay Fees The property management company can charge a penalty fee or pursue the property owner for failure to pay all charges, fees anddues.Article 9Effectiveness of the Provisions The provisions are binding to the property owner and all tenants/users of the property. Appendix 6Hundsun (Hangzhou) Science & Technology Park Management Rules (Interim)(Executed and dated January 25, 2013) Major provisions (very brief summary):Article 1General Provisions This document is formulated in the interest of promoting the construction and sustainable development of Hundsun (Hangzhou)Science & Technology Park (the “Park”). The Park is a major strategic investment project supported by the government; HangzhouHundsun Baichuan Technology Co., Ltd., a company jointly founded by Hangzhou Hsundsun Electronics Group Ltd. and DinghuiInvestment, will be responsible for the construction of infrastructure and for the operation and management.Article 2Occupancy Qualifications The entities to reside in the Park must meet certain qualifications (independent legal person in technology industry).Article 3Documents Required for Occupancy Business licenses and other documents required must be submitted along with an application before an entity can be admitted.Article 4Favorable Treatments for Businesses and Organizations in the Park Businesses admitted may benefit from certain favorable government policies.Article 5Planning and Construction The construction, use and development of the Park are centrally planned and managed. Any property owner and all tenants/users inthe park must meet the qualification specified in Article 2.Article 6Management of and Services for the Occupying Businesses Occupying businesses in the Park can enjoy the benefits of several service platforms (policy service platform, innovation platform,investment/finance service platform, human resources platform and basic service platform) provided by the operation and managementcompany.  Article 7Miscellaneous Hangzhou Hundsun Baichuan Technology Co., Ltd. is responsible for the interpretation of this document. Appendix 7Hundsun (Hangzhou) Science & Technology Park Parking Space Use Right Transfer Agreement(Executed and dated January 25, 2013) Brief Summary:This is an agreement between Hangzhou Hundsun Baichuan Technology Co., Ltd. as a transferor and Beijing Jiachenhong BiologicalTechnologies Co., Ltd. as transferee, covering the transfer of use right to 36 parking spaces. The price of the transfer is RMB2,600,000 to be paid in fullwithin 5 days upon the execution of this agreement.  Exhibit 8.1 List of Subsidiaries Name Jurisdiction China Cord Blood Services Corporation Cayman IslandsChina Stem Cells Holdings Limited Cayman IslandsBeijing Jiachenhong Biological Technologies Co., Ltd. People’s Republic of ChinaGuangzhou Municipality Tianhe Nuoya Bio-engineering Co., Ltd. People’s Republic of ChinaZhejiang Lukou Biotechnology Co., Ltd. People’s Republic of ChinaChina Stem Cells (East) Company Limited British Virgin IslandsChina Stem Cells (East) Company Limited Hong KongChina Stem Cells (South) Company Limited British Virgin IslandsChina Stem Cells (South) Company Limited Hong KongChina Stem Cells (West) Company Limited British Virgin IslandsChina Stem Cells (West) Company Limited Hong KongChina Stem Cells (North) Company Limited British Virgin IslandsChina Stem Cells (North) Company Limited Hong KongFavorable Fort Limited Hong KongJinan Baoman Science & Technology Development Co., Ltd. People’s Republic of China  Exhibit 12.1 Certification Pursuant to Rule 13a-14(a) of the Exchange Act I, Ting Zheng, certify that: 1.I have reviewed this annual report on Form 20-F of China Cord Blood Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the company and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internalcontrol over financial reporting. Date: July 31, 2013 By:/s/ Ting Zheng Name: Ting Zheng Title:Chief Executive Officer (Principal Executive Officer)  Exhibit 12.2 Certification Pursuant to Rule 13a-14(a) of the Exchange Act I, Albert Chen, certify that: 1.I have reviewed this annual report on Form 20-F of China Cord Blood Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the company and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internalcontrol over financial reporting. Date: July 31, 2013 By:/s/ Albert Chen Name: Albert Chen Title:Chief Financial Officer (Principal Financial and Accounting Officer)  Exhibit 13.1 Certification Pursuant to 18 U.S.C. Section 1350 Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),each of the undersigned officers of China Cord Blood Corporation (the “Company”), does hereby certify, to such officer’s knowledge, that: The Annual Report on Form 20-F for the year ended March 31, 2013 of the Company fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results ofoperations of the Company. CHINA CORD BLOOD CORPORATION July 31, 2013By:/s/ Ting Zheng Name: Ting Zheng Title:Chief Executive Officer (Principal Executive Officer) July 31, 2013By:/s/ Albert Chen Name:Albert Chen Title:Chief Financial Officer (Principal Financial and Accounting Officer)  Exhibit 15.1 CONSENT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM The Board of DirectorsChina Cord Blood Corporation: We consent to the incorporation by reference in the registration statements (Nos.333-168873 and 333-183143) on Form F-3, as amended, of China Cord BloodCorporation of our reports dated July 31, 2013, with respect to the consolidated balance sheets of China Cord Blood Corporation and subsidiaries as of March31, 2012 and 2013, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-yearperiod ended March 31, 2013, and the effectiveness of internal control over financial reporting as of March 31, 2013, which reports appear in the March 31,2013 annual report on Form 20-F of China Cord Blood Corporation. /s/KPMG Hong Kong, ChinaJuly 31, 2013 

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