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Special explanation of the impact of the matters involved in the reservations of the 2013 audit report by the board of directors

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Special explanation of the impact of the matters involved in the reservations of the 2013 audit report by the board of directors of Jilin Zixin Pharmaceutical Co., Ltd.

Jilin Zixin Pharmaceutical Co., Ltd. (hereinafter referred to as "Company" or "Zixin Pharmaceutical") 2013 financial report audited by Zhongzhun Certified Public Accountants (special general partnership), issued an audit report with reserved opinions [Zhongzhan Word (2014) No. 1087 (hereinafter referred to as “2013 Annual Audit Report”), the impact of the matters involved in the reservations in the 2013 annual audit report has been eliminated:

I. Matters leading to reservations

Zixin Pharmaceutical's inventory contains 1,803 roots of wild ginseng purchased in 2011, 8,172.38 grams, and the book value includes 129,298,206.98 yuan, although the wild ginseng identification certificate issued by Yanbian Mountain Ginseng Research Institute has been obtained, and the Beijing Institute of Genomics of Chinese Academy of Sciences Single product sampling test inspection report, but some of them still have not obtained the purchase accounting invoices such as purchase invoices. Although Zixin Pharmaceutical has a small amount of market sales behavior in this period, due to the particularity of wild ginseng goods, there is no publicly convincing market trading quotation system, nor is it worthy of accreditation authority or department. The audit evidence is used to determine the appropriateness of Zixin Pharmaceutical's determination of such inventory.

2. Explanations on matters that have been removed from the reservations in the audit report

1. Description of wild ginseng transaction

The company considers that the wild ginseng goods are rare and valuable, the unit value is high, it is difficult to form a foreign sales to realize the fund repayment in a short time, and it is difficult to find a convincing market trading quotation system. To solve the above difficulties, the company's largest shareholder Dunhua Kangping Investment Co., Ltd. (hereinafter referred to as “Kangping Company”) agreed to undertake the wild ginseng in the company's book inventory. The transaction was reviewed and approved by the 11th meeting of the fifth board of directors on February 24, 2014. It was reviewed and approved by the resolution of the 2013 Annual General Meeting of Shareholders. For details, please refer to the Announcement of Resolutions of the Eleventh Meeting of the Fifth Board of Directors, Announcement of Related Party Transactions and Announcement of Resolutions of the 2013 Annual General Meeting of Shares disclosed by the Company on the designated media and Juchao Information Network (www.cninfo.com.cn). 》

2. Wild ginseng trading parties and transaction progress

Supplier: Jilin Zixin Pharmaceutical Co., Ltd.

Entrusted purchaser: Dunhua Kangping Investment Co., Ltd.

Trustee Purchasing Party: Dunhua Huayun Industry and Trade Co., Ltd. (hereinafter referred to as “Huayun Industry and Trade”)

Due to the business scope, Kangping Company entrusted its wholly-owned subsidiary Huayun Industry and Trade to conduct wild ginseng transactions. On March 18, 2014, the company signed a transaction contract with Kangping Company and Huayun Industry and Trade. The company purchased wild ginseng. Cost plus the holding cost of the period, the cost of holding is calculated based on the benchmark interest rate of the bank's 1-year loan during the same period of the holding period, and the transaction contract with the total price of tax is 156,198,796.42.

As of the date of this announcement, the company and Huayun Industry and Trade have completed the delivery of wild mountain ginseng, receiving a down payment of 45,000,000.00 yuan, a follow-up transaction amount of 70,000,000.00 yuan, a total of 115,000,000.00 yuan, and a remaining balance of 41,198,796.42 yuan. The remaining amount will be settled within 6 months from the date of signing the contract.

Hereby explain.

Jilin Zixin Pharmaceutical Co., Ltd. Board of Directors

July 22, 2014