Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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.

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 of 1934 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 filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

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).

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

In this annual report on Form 20-F, unless otherwise indicated or unless the context otherwise requires,

Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

This annual report contains translations of certain renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. All translations from renminbi to U.S. dollars were made at the noon buying rate in The City 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 noon buying rate. Unless otherwise stated, the translation of renminbi into U.S. dollars has been made at the noon buying rate in effect on December 31, ~~2018,~~2019, which was ~~RMB6.8755~~RMB6.9618 to $1.00. We make no representation that the renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or renminbi, as the case may be, at any particular rate or at all. On April ~~19, 2019,~~24, 2020, the noon buying rate was ~~RMB6.7032~~RMB7.0813 to $1.00.

The following selected consolidated statements of comprehensive income (loss) data for the fiscal years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, and consolidated balance sheet data as of December 31, ~~2018~~2019 and ~~2017~~2018 have been derived from our audited consolidated financial statements that are included in this annual report beginning on page F-1. The following selected consolidated statements of comprehensive income (loss) data for the fiscal years ended December 31, ~~2015~~2016 and ~~2014~~2015 and consolidated balance sheet data as of December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015 have been derived from our audited consolidated financial statements that are not included in this annual report.

Our historical results do not necessarily indicate results expected for any future periods.

Consolidated statements of	Year ended December 31,															Year ended December 31,
Comprehensive income (loss) data	2018			2017			2016			2015			2014			2019			2018			2017			2016			2015
	(in thousands except share and per share data)																		(in thousands except share and per share data)
Sales	$	229,650		$	174,346		$	72,431		$	67,414		$	62,932		$	246,053		$	229,650		$	174,346		$	72,431		$	67,414
Cost of sales⁽¹⁾		24,723			20,240			22,393			18,408			15,476			32,469			24,723			20,240			22,393			18,408
Gross profit		204,927			154,106			50,038			49,006			47,456			213,584			204,927			154,106			50,038			49,006
Operating expenses:
Selling, general and administrative expenses⁽¹⁾		137,003			87,365			41,980			37,481			34,338			121,468			137,003			87,365			41,980			37,481
Provision (recovery) for doubtful accounts		820			934			1,412			(49	)		329			(306	)		820			934			1,412			(49	)
Research and development expenses⁽¹⁾		21,910			20,489			12,648			9,490			10,934			24,254			21,910			20,489			12,648			9,490
Loss on disposal and impairment of property, plant and equipment	75			42			478			26			74				294			75			42			478			26
Government grants recognized in income		(197	)		(141	)		(6,984	)		(1,637	)		(104	)		(688	)		(197	)		(141	)		(6,984	)		(1,637	)
Total operating expenses		159,611			108,689			49,534			45,311			45,571			145,022			159,611			108,689			49,534			45,311
Operating income		45,316			45,417			504			3,695			1,885			68,562			45,316			45,417			504			3,695
Interest and financing expenses		(1,070	)		(1,569	)		(1,729	)		(1,920	)		(3,407	)		(650	)		(1,070	)		(1,569	)		(1,729	)		(1,920	)
Interest income		2,016			1,183			731			1,155			2,684			1,996			2,016			1,183			731			1,155
Other income (expenses)		321			13			100			(174	)		1,186			912			321			13			100			(174	)
Income (loss) before income taxes and non-controlling interests		46,583			45,044			(394	)		2,756			2,348			70,820			46,583			45,044			(394	)		2,756
Income tax expenses		(10,472	)		(8,339	)		(2,664	)		(2,985	)		(2,069	)		(5,605	)		(10,472	)		(8,339	)		(2,664	)		(2,985	)
Income (loss) from continuing operations		36,111			36,705			(3,058	)		(229	)		279			65,215			36,111			36,705			(3,058	)		(229	)
Net income (loss) from discontinued operations, net of tax of nil		—			—			2,338			(728	)		(1,524	)		—			—			—			2,338			(728	)
Net income (loss)		36,111			36,705			(720	)		(957	)		(1,245	)		65,215			36,111			36,705			(720	)		(957	)
Less: (income) loss attributable to non-controlling interests		(14,329	)		(10,898	)		124			(459	)		(270	)		(20,286	)		(14,329	)		(10,898	)		124			(459	)
Net income (loss) attributable to the shareholders of Sinovac		21,782			25,807			(596	)		(1,416	)		(1,515	)		44,929			21,782			25,807			(596	)		(1,416	)
Preferred stock dividends																	(5,128	)		—			—			—			—
Net income (loss) attributable to common shareholders of Sinovac																	39,801			21,782			25,807			(596	)		(1,416	)
Comprehensive income (loss)		25,115			44,803			(9,563	)		(5,342	)		(3,648	)		62,388			25,115			44,803			(9,563	)		(5,342	)
Less: comprehensive (income) loss attributable to non-controlling interests		(12,507	)		(12,089	)		953			82			35
Less: comprehensive (income) loss attributable to non- controlling interests																	(19,681	)		(12,507	)		(12,089	)		953			82
Comprehensive income (loss) attributable to shareholders of Sinovac		12,608			32,714			(8,610	)		(5,260	)		(3,613	)		42,707			12,608			32,714			(8,610	)		(5,260	)
Weighted average number of common shares outstanding
- basic		64,727,146			57,033,816			56,949,083			56,313,927			55,681,076			94,876,946			64,727,146			57,033,816			56,949,083			56,313,927
- diluted		64,977,554			57,101,191			56,949,083			56,313,927			56,114,202			109,691,959			64,977,554			57,101,191			56,949,083			56,313,927
Earnings (loss) per share

Basic
Continuing operations		0.34			0.45			(0.05	)		(0.02	)		0.00			0.42			0.34			0.45			(0.05	)		(0.02	)
Discontinued operations		—			—			0.04			(0.01	)		(0.03	)		—			—			—			0.04			(0.01	)
Basic net income (loss) per share		0.34			0.45			(0.01	)		(0.03	)		(0.03	)		0.42			0.34			0.45			(0.01	)		(0.03	)

Diluted
Continuing operations		0.34			0.45			(0.05	)		(0.02	)		0.00			0.41			0.34			0.45			(0.05	)		(0.02	)
Discontinued operations		—			—			0.04			(0.01	)		(0.03	)		—			—			—			0.04			(0.01	)
Diluted net income (loss) per share		0.34			0.45			(0.01	)		(0.03	)		(0.03	)		0.41			0.34			0.45			(0.01	)		(0.03	)

Weighted average number of common shares outstanding
- basic		64,727,146			57,033,816			56,949,083			56,313,927			55,681,076			94,876,946			64,727,146			57,033,816			56,949,083			56,313,927
- diluted		64,977,554			57,101,191			56,949,083			56,313,927			56,114,202			109,691,959			64,977,554			57,101,191			56,949,083			56,313,927
Supplemental information⁽²⁾
Non-GAAP adjusted EBITDA		54,757			51,277			8,223			11,166			10,276			76,382			54,757			51,277			8,223			11,166
Non-GAAP net income from continuing operations		39,857			36,361			293			1,588			1,283			68,524			39,857			36,361			293			1,588
Non-GAAP Diluted EPS from continuing operations	$	0.38		$	0.44		$	0.01		$	0.01		$	0.02		$	0.43		$	0.38		$	0.44		$	0.01		$	0.01

We use Non-GAAP adjusted EBITDA, non-GAAP net income from continuing operations and non-GAAP diluted EPS from continuing operations, in evaluating our operating results and for financial and operational decision-making purposes.

We believe that Non-GAAP adjusted EBITDA, non-GAAP net income from continuing operations and non-GAAP diluted EPS from continuing operations help identify underlying trends in our business that could otherwise be distorted by the effect of certain income or expenses that we include in income from operations from continuing operations, net income from continuing operations and diluted EPS from continuing operations. We believe that Non-GAAP adjusted EBITDA, non-GAAP net income from continuing operations and non-GAAP diluted EPS from continuing operations provide useful information about our core operating results, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by management in our financial and operational decision-making.

Non-GAAP adjusted EBITDA, non-GAAP net income from continuing operations and non-GAAP diluted EPS from continuing operations should not be considered in isolation or construed as an alternative to income from operations from continuing operations, net income from continuing operations, diluted EPS from continuing operations, or any other measure of performance or as an indicator of our operating performance. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data.

Non-GAAP adjusted EBITDA represents income (loss) from continuing operations, excludes interest and financing expenses, interest income, net other income (expenses) and income tax benefit (expenses), and certain non-cash expenses, consisting of share-based compensation expenses, amortization and depreciation that we do not believe are reflective of our core operating performance during the periods presented.

Non-GAAP net income from continuing operations represents net income (loss) from continuing operations before share-based compensation expenses, and foreign exchange gain or loss.

Non-GAAP diluted EPS from continuing operations represents non-GAAP net income attributable to ordinary shareholders from continuing operations divided by the weighted average number of shares outstanding during the periods on a diluted basis, including accounting for the effect of the assumed conversion of options.

The table below sets forth a reconciliation of our income (loss) from continuing operations to Non-GAAP adjusted EBITDA for the periods indicated:

The following table sets forth a reconciliation of our net income from continuing operations to non-GAAP net income from continuing operations for the periods indicated:

The following table sets forth a reconciliation of our diluted EPS from continuing operations to non-GAAP diluted EPS from continuing operations for the periods indicated:

Our business growth relies on our ability to react to infectious disease threats and to continually introduce new vaccine products into the commercial market. Our failure to effectively develop and commercialize new products could materially and adversely affect our business, financial condition, results of operations and prospects.

The biopharmaceutical market in general and the vaccine product market in particular are developing rapidly as a result of ongoing infectious disease threats and new trends in the related research and technology developments. Consequently, our success depends on our ability to react to disease and technology development trends and to identify, develop and commercialize in a timely and cost-effective manner effective vaccine products that meet evolving market needs.

Whether we are successful in developing and commercializing new products is determined by, among other things, our ability to:

Although we are profitable in 2017, 2018 and 2019, we incurred a loss ~~in 2016 as well as~~ in past years, and may incur losses again in the future.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. ~~Although we were profitable~~We recorded a profit in 2017, 2018 and 2019. However, we incurred a loss in ~~2014, 2015 and 2016. In~~the past years, ~~the loss was~~ caused primarily by research and development expenses. None of the research and development expenses incurred were capitalized in our financial statements. We intend to continue to invest in research and development to sustain our long-term growth. We expect our research and development expenses to fluctuate depending on the progress we make on each project, with relatively more spending on clinical studies than preclinical studies. We expect that our spending on research and development will have a negative impact on our future net earnings. As a result, we may incur losses in the future, which will have an adverse impact on our working capital, total assets, shareholders’ equity and cash flow.

WeAs required by the PRC laws, we sell vaccines in China through Centers for Disease Control (“CDCs”) which are PRC government agencies. This exposes us to risks relating to doing business with the government.

WeAs required by the PRC laws, we sell our vaccines to CDCs, which exposes us to various risks relating to doing business with the government. For example, demand and ability to pay for our products may be affected by government budgetary cycles, shifting availability of public funds and changes in policy. Funding reductions, delays in payment or unilateral demands for changes to the terms of our contracts by our government customers could adversely impact our results of operations and financial condition, exacerbate the existing seasonality of our revenues and make it difficult for us to allocate resources or anticipate demand for our products. More importantly, we have little or no control over government procurement decisions, and government agencies that contract to purchase our products may reduce or cancel orders, or demand price adjustments or other changes to their contracts with us without our consent. Changes in the personnel of the PRC government agencies that purchase our products may result in changes or delays to or cancellations of purchase commitments due to, among others, differing policy and budgetary agendas of the personnel involved. Similar changes could occur if CDC or other relevant government ~~agency~~agencies were to be consolidated with another ministry. Any of the above mentioned actions taken by government agencies could have a material adverse effect on our results of operations and expected earnings, or result in our failure to meet, or having to adjust downwards, our sales and gross margin guidance or estimates, which could adversely affect our stock price and result in substantial ~~losses to you.~~losses. In addition, many of the remedies that are available to us when dealing with private parties, such as making claims for breach of contract or taking other legal actions, may not be available or practicable in our dealings with government agencies.

We currently have limited revenue sources. A reduction in revenues from sales of Inlive, Healive, Bilive, Anflu or ~~Panflu~~mumps vaccines would cause our revenues to decline and could materially harm our business.

We generate all of our revenues from sales of our vaccine products. We derive a substantial percentage of our revenues from a small number of vaccine products. ~~Inlive~~Sales of our enterovirus 71 (“EV71”) vaccine, Inlive, contributed ~~70.8%~~60.6%, ~~69.6%~~70.8% and ~~48.5%~~69.6% of our ~~revenue~~total sales in 2019, 2018 and 2017, ~~and 2016,~~ respectively. ~~In 2018, 2017 and 2016, 22.8%, 15.7% and 27.7%, respectively, of our revenues were from sales~~Sales of our hepatitis A vaccine, ~~Healive; 4.8%~~Healive, contributed 23.6%, ~~6.0%~~22.8% and ~~0.8%, respectively,~~15.7% of our ~~revenues were from~~total sales in 2019, 2018 and 2017, respectively. Sales of our hepatitis A&B vaccine, ~~Bilive; 0.9%, 7.8%~~Bilive, contributed nil, 4.8% and ~~13.6%, respectively,~~6.0% of our ~~revenues were from~~total sales in 2019, 2018 and 2017, respectively. Sales of our influenza vaccine, ~~Anflu;~~Anflu, 7.8%, 0.9% and ~~nil, nil and 8.8%, respectively,~~7.8% of our ~~revenues were from~~total sales in 2019, 2018 and 2017, respectively. Sales of our ~~pandemic influenza virus~~mumps vaccine ~~Panflu (H5N1). However, revenue recognition of Panflu (H5N1) is not recurring due to its government stockpile nature, which may cause fluctuation~~contributed 8.0%, 0.7% and 1.0% of our ~~revenue.~~total sales in 2019, 2018 and 2017, respectively. As a result of this relative lack of product diversification, an investment in our company would be riskier than investments in companies that offer a wide variety of products or services.

We expect our key products, which will likely shift over time, to account for a significant portion of our net revenues for the foreseeable future. As a result, continued market acceptance and popularity of these products are critical to our success and a reduction in demand due to, among other factors, the introduction of competing products by our competitors, the entry of new competitors, or end-users’ dissatisfaction with the quality of our products, could materially and adversely affect our financial condition and results of ~~operations..~~operations.

We could be subject to costly and time-consuming product liability actions and, because our insurance coverage is limited, our exposure to such claims could cause significant financial burden.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of biopharmaceutical products. We manufacture vaccines that are injected into healthy people to protect against infectious illnesses. If our products do not function as anticipated, whether as a result of flaws in our design, unanticipated health consequences or side effects, misuse or mishandling by third parties, or faulty or contaminated supplies, they could harm the vaccines and, as a result, subject us to product liability lawsuits. Claims against us also could be based on failure to immunize as anticipated. Any product liability claim brought against us, with or without merit, could have a material adverse effect on us. Meritless and unsuccessful product liability claims can be time-consuming and expensive to defend and could result in the diversion of management’s attention from managing our core business or result in associated negative publicity.

Successful assertion of product liability claims against us could require us to pay significant monetary damages. Although we currently carry worldwide product liability insurance for Healive, Bilive, Anflu, Panflu and Inlive worldwide, we cannot assure ~~you~~ that such coverage will be sufficient to cover any liabilities resulting from successful product liability claims. In such a case, we may be required to make substantial payments to cover any losses, damages or liabilities arising from product liability claims. For any amounts covered by insurance, foreign exchange or other regulatory restrictions may prevent the use of insurance proceeds to meet the liabilities. In addition, we do not have or plan to procure clinical trial liability insurance for our clinical trials to mitigate any unsuccessful clinical trial expenses or product liability claims arising therefrom. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

We face risks related to health epidemics and other widespread outbreaks of contagious disease, which could disrupt our operations and impact our operating results.

Significant outbreaks of contagious diseases, and other adverse public health developments, could have a material impact on our business operations and operating results. In December 2019, a strain of novel coronavirus, COVID-19, causing respiratory illness emerged in the city of Wuhan in the Hubei province of China. The PRC government has taken certain emergency measures to combat the spread of the virus, including implementation of travel bans and closure of factories and businesses. Since that time, other cities in China, including Beijing where our research and development functions and production lines are located, and other countries throughout the world have been affected by the spread of the virus. We continue to monitor the spread of COVID-19 in China and globally and have put in place and will continue to put in place measures as appropriate and necessary for our business. Any ~~pandemic threat may abate,~~prolonged deviations from normal daily operations could negatively impact our business. Our domestic sales ceased due to suspension of vaccination by the CDCs in China, and our export is disrupted due to cancellations of cargo flights. While the full impact of this outbreak is unknown at this time, we are closely monitoring the rapid developments in the PRC cities that have become exposed to the virus and continually assessing the potential impact on our business. Any prolonged disruption of our clinical trials, suppliers or ~~alternative vaccines~~contract manufacturers could delay regulatory approvals or ~~technologies may be adopted, before~~the commercialization of any current or future products.

Our financial prospects depend on the success of our clinical-stage and pre-clinical stage product pipeline.

We have invested significant time and resources on the development of our existing vaccine candidates, and we expect to continue to incur substantial and increasing expenditures for the development and commercialization of our vaccine candidates. Our ability to achieve revenue and profitability is dependent on our ability to complete the clinical development of our vaccine candidates, obtain necessary regulatory approvals, and have our vaccines manufactured and successfully marketed. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials of our vaccine candidates may not be predictive of the results of later-stage clinical trials, and initial or interim results of a trial may not be predictive of the final results. If our vaccine candidates fail to achieve their expected success in a timely manner or at all, we could experience significant ~~sales.~~delays in our ability to obtain approval for and/or to successfully commercialize our vaccine candidates. We would have expended a significant amount of capital to progress the relevant vaccine candidates to that stage, and would not realize any revenue on such vaccine candidate if it then ultimately failed to receive regulatory approval due to poor clinical trial results. It would materially harm our business and we may not be able to generate sufficient revenues and cash flows to continue our operations.

We have devoted significant resources to research and develop various vaccines to address the pandemic threat of infectious diseases, including COVID-19, SARS, avian flu and swine flu, and will continue to devote resources to the development of ~~our~~ vaccines to address any new needs.

However, the threat of a pandemic outbreak may subside before we realize any return on our investment in our research and development. For example, although we believe we were the first company to complete a phase I clinical trial of an inactivated SARS vaccine in December 2004, we did not proceed with the phase II and phase III trials as the SARS epidemic subsequently subsided. Other organizations may obtain licenses for their own pandemic vaccines, or government health organizations may acquire adequate stockpiles of pandemic vaccine or adopt other technologies or strategies to prevent or limit outbreaks before our pandemic vaccines achieve significant sales. We may not achieve a return on our investment before the threat of a pandemic outbreak subsides or a competing product is adopted. We have completed comprehensive preclinical studies and are conducting phase I clinical trial of COVID-19 vaccine. We cannot assure that we can successfully complete the clinical stage and manufacture this vaccine in a timely manner. Major international and China vaccine companies, universities and other research institutions are also pursuing the development of the COVID 19- vaccine. They may succeed in developing COVID-19 vaccine and obtaining regulatory approvals before us or gain better acceptance for the same target markets as ours, which will undermine our competitive position.

Moreover, because we have limited financial and managerial resources, we focus our product pipeline on research programs and vaccine candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other vaccine candidates that later prove to have greater commercial potential.

Failure to comply with the U.S. Foreign Corrupt Practices Act (“FCPA”) and other applicable anti-corruption laws could subject us to penalties and other adverse consequences and corrupt practices by our competitors may place us at a competitive disadvantage.

Our executive officers, employees and other agents may violate applicable laws in connection with the marketing or sale of our products, including FCPA and applicable anti-corruption laws in China and other jurisdictions in which our products are sold or registered for sale. FCPA generally prohibits United States issuers from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business and requires issuers to maintain reasonable internal controls. The PRC also strictly prohibits bribery of government officials. We have adopted a policy regarding compliance with FCPA and other applicable anti-corruption laws to prevent, detect and correct such corrupt practice. However, corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in the PRC and the countries in which we seek to do business. While we have sought to enhance measures and controls to ensure compliance with FCPA and other applicable anti-corruption laws by individuals involved with our company, our existing compliance policies and procedures may be insufficient or may fail to prevent our employees or other agents from engaging in inappropriate conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material

adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or the price of our common shares could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents. As discussed under “Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Legal and Administrative Proceedings,” we have conducted an internal investigation regarding FCPA related matters and have informed NASDAQ, the SEC and the U.S. Department of Justice (the “DOJ”) regarding these matters. On August 14, 2018, the SEC notified us that the SEC had concluded its investigation and would not recommend an enforcement action against us at this time. On September 12, 2018, the DOJ notified us that it had closed its investigation, with no charges. With the closure of the DOJ’s investigation, we are not aware of any pending U.S. government investigations ofon us related to these matters.

In addition, there may be corrupt practices in the healthcare industry in China and other countries in which we conduct business. ~~For example, in order to secure agreements with CDCs or hospitals in China, our~~Our competitors may engage in corrupt practices in order to influence decision-makers in violation of the anti-corruption laws of China and FCPA. As competition persists and intensifies in our industry, we may lose potential clients, client referrals and other opportunities to the extent that our competitors engage in such practices or other illegal activities.

Failure to achieve and maintain effective internal controls could have a material adverse effect on our business, results of operations and the trading price of our common shares.

We are subject to the reporting obligations under U.S. securities laws. Section 404 of the Sarbanes-Oxley Act of 2002 and related rules require public companies to include a report of management on their internal control over financial reporting in their annual reports. This report must contain an assessment by management of the effectiveness of a public company’s internal control over financial reporting. In addition, an independent registered public accounting firm for a public company must attest to and report on the effectiveness of our internal control over financial reporting.

Our management has concluded that our internal control over financial reporting is effective as of December 31, ~~2018.~~2019. See “Item 15. Controls and Procedures.” Our independent registered public accounting firm has issued an attestation report on our internal control over financial report, which concludes that our internal control over financial reporting is effective in all material aspects. However, we cannot assure ~~you~~ that any material weakness or deficiency in our internal control over financial reporting will not be identified in the future. We may not always be able to maintain an effective internal control over financial reporting. If we fail to maintain effective internal control over financial reporting in the future, we and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our common shares, inhibiting our ability to raise sufficient capital on favorable terms. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

If we are unable to successfully compete in the highly competitive biopharmaceutical industry, our business could be harmed.

We operate in a highly competitive environment and we expect the competition to increase in the future. Our competitors include large pharmaceutical and biotechnology companies, both domestic and international. Many of these competitors have greater resources than we do. New competitors may also enter into the markets in which we compete. Accordingly, even if we are successful in launching a product, we may not be able to outperform a competing product for any number of reasons, including the possibility that the competitor may:

The technologies applied by our competitors and us are rapidly evolving and new developments frequently result in price competition and product obsolescence. In addition, we may be impacted by competition from generic forms of our products, substitute products or imports of products from lower-priced markets. For a detailed description of our competitors in EV71 vaccine, hepatitis A vaccines, hepatitis A and B vaccines and influenza vaccines, please see “Item 4. Information on the Company — B. Business Overview — Competition.”

We may not be able to maintain market share in China with our commercialized vaccines, which could adversely affect our ability to increase our revenues.

We used to estimate our market share in China based on the batch release number published by the National Institutes for Food and Drug Control (“NIFDC”) which represents the market share estimated based on published supply quantity, but not the actual number of sales in the market.

~~We started to market our EV71 vaccine in 2016.~~ We supplied ~~41.8%~~20.6%, ~~18.8%~~41.8% and ~~52.5%~~18.8% of the EV71 vaccine market in China in ~~2018，~~2019, 2018 and 2017, ~~and 2016,~~ respectively.

We supplied ~~24.3%~~26.7%, ~~18.0%,~~24.3% and ~~9.7%~~18.0% of the total hepatitis A vaccine market in China, or ~~67.8%~~71.9%, ~~75.8%,~~67.8% and ~~76.3%~~75.8% of the inactivated hepatitis A vaccine market in China in 2019, 2018 and 2017, and 2016, respectively, as measured by lot release number. We may not be able to compete with other hepatitis A suppliers for either the private-pay market or public market, which could adversely affect our ability to increase our revenues from hepatitis A vaccine.

We have been marketing and selling seasonal flu vaccines since 2006. We didn’t supply season flu vaccine in 2018 due to the production disruption caused by Mr. Aihua Pan and unknown individuals in April 2018 during an attempt to take physical control of Sinovac’s facility in Beijing. The product being produced at the time of disruption was destroyed due to quality concerns.respectively. We supplied ~~12.7%~~14.8%, ~~9.9%~~nil and ~~10.9%~~12.7% of the seasonal flu vaccine market in China in 2019, 2018 and 2017, ~~2016~~respectively. We supplied 70.6%, 21.2% and ~~2015, respectively. The flu~~8.2% of the mumps vaccine market in China ~~is highly competitive.~~in 2019, 2018 and 2017, respectively. Our revenue could be adversely impacted if we are not able to maintain our market ~~share in this highly competitive market.~~share.

We may not be able to maintain market share in the government-funded hepatitis A vaccine market, or other government-funded vaccine markets, which could adversely affect our revenues, and if we do maintain or expand market share in these markets, we may need to sell our vaccines at a lower price, which could adversely affect our gross margin.

Hepatitis A vaccines have been included in the Expanded Program on Immunization (“EPI”) in China since 2007. The PRC government purchases hepatitis A vaccines for each 18-month-old child.

Although the hepatitis A vaccines have been included in the EPI, most provincial and municipal governments are not able to afford the two shots of inactivated hepatitis A vaccines due to insufficient financial support, which constrains the purchase of inactivated hepatitis A vaccines in government-funded markets. Most provincial and municipal governments prefer to purchase lower-priced live attenuated hepatitis A vaccines; however, a few affluent provincial and municipal governments, such as Beijing, Tianjin, Shanghai and Jiangsu province, have started to purchase inactivated hepatitis A vaccines. We are supplying vaccines in these government-funded markets at a lower price than we do in the private market, which could adversely affect our gross margin. Our revenue could also be adversely impacted if we are not able to maintain our market share of the government-funded markets in these cities and provinces. As we are making efforts to breakthrough into additional provincial and municipal public markets, we may be forced to lower our prices to win tenders, which will adversely affect our gross margin.

Since 2007, we have been selected as one of the suppliers by Beijing CDC to supply seasonal influenza vaccines to Beijing citizens. We cannot assure ~~you~~ that we will continue to obtain orders in the future and maintain our market share. If the supply volume ~~continues to decrease,~~decreases, it would negatively impact our sales revenue in the future.

Since 2008, we have received three stockpiling orders for our H5N1 vaccine from China’s central government every two years in an amount of three million doses per order, and four stockpiling orders from Beijing government in an amount of 20,000 doses per order. The latest batch of stockpiled H5N1 vaccines for the central government expired in the first half of 2016 and we recognized the revenue upon the government inspection. The most recent batch ordered by Beijing government ~~is expected to~~will expire in 2020. We cannot assure ~~you~~ that we will receive additional stockpiling orders from governments in the future.

If CDCs, hospitals, physicians and patients do not accept our products, we may be unable to generate significant revenue.

Even if we have obtained regulatory approval for commercialization of our vaccines, they still may not gain market acceptance among CDCs, hospitals, physicians, patients and the medical community, which would limit our ability to generate revenue and adversely affect our results of operations. CDCs, hospitals and physicians may not recommend products developed by us or our collaborators until clinical data or other factors demonstrate superior or comparable safety and efficacy of our products as compared to other available treatments. Even if the clinical safety and efficacy of our products are established, CDCs, hospitals and physicians may elect not to recommend these products for a variety of reasons. There are other vaccines and treatment options for the conditions that many of our products and product candidates target, such as EV71, hepatitis A and B and influenza. In order to successfully launch a product, we must educate physicians and patients about the relative benefits of our products. If our products are not perceived as easy and convenient to use, perceived to present a greater risk of side effects or are not perceived to be as effective as other available ~~treatments,~~vaccines, CDCs, hospitals, physicians and patients might not adopt our products. A failure of our products to gain commercial acceptance would have a material adverse effect on our business, financial condition and results of operations.

~~The ongoing litigation regarding our shareholder rights agreement (the “Rights Agreement”)~~Our business could ~~have~~be negatively affected as a ~~material adverse effect on the results~~result of ~~our operations and our financial condition.~~

On March 5, 2018, we ~~filed a lawsuit in~~announced the ~~Court of Chancery~~re-election of the ~~State~~members of ~~Delaware seeking a determination whether~~our board of directors—Mr. Weidong Yin, Mr. Yuk Lam Lo, Mr. Simon Anderson, Mr. Kenneth Lee, and Mr. Meng Mei—at to our annual general meeting of shareholders held on February 6, 2018 (the “2017 AGM”). We also announced that we had determined, after consultation with our Antigua legal counsel, that an alternative, pre-printed ballot not made available to all our shareholders and purportedly submitted at the 2017 AGM by certain of our shareholders, including 1Globe Capital LLC (“1Globe”), The Chiang Li Family, OrbiMed Advisors LLC and OrbiMed Capital LLC (together “OrbiMed”), and certain additional shareholders (collectively, the “Shareholder Group”) was invalid. We refer to this ballot as the “Non-Public Submission.” On March 13, 2018, 1Globe filed a complaint against Sinovac Antigua in the Eastern Caribbean Supreme Court in the High Court of Justice, Antigua and Barbuda (the “Antigua Court”). The complaint sought a declaration that the five persons purportedly proposed by the Shareholder Group on the Non-Public Submission at the 2017 AGM were elected as directors of Sinovac Antigua at that meeting, an order that those directors be installed as Sinovac Antigua’s board of directors, and a declaration that any actions taken on behalf of Sinovac Antigua at the direction of the board of directors since the 2017 AGM are null and void. Following a trial in early December 2018, the Antigua Court issued a judgment on December 19, 2018 that dismissed 1Globe’s claim and declared that Sinovac Antigua’s shareholder rights agreement (the “Rights Agreement”) was validly adopted as a matter of Antigua law. 1Globe filed notice to appeal the Antigua Court’s judgment on January 29, 2019. 1Globe’s appeal of the Antigua Court’s Judgment was heard on September 18, 2019, and the appeal decision is pending as of the date of this annual report.

On October 8, 2018, Sinovac became aware that unauthorized documents in respect of Sinovac Biotech (Hong Kong) Ltd. (“Sinovac Hong Kong”) had been filed with the Hong Kong Companies Registry to change the directors of Sinovac Hong Kong from Mr. Weidong Yin and Ms. Nan Wang to Mr. Jianzeng Cao and Mr. Pengfei Li. Mr. Yin and Ms. Wang commenced legal proceedings before the High Court of the Hong Kong Special Administrative Region (“Hong Kong High Court”) (“HCMP 1731/2018”). In a hearing before the Hong Kong High Court on October 19, 2018, the judge granted an interlocutory injunction restraining Mr. Li and Mr. Cao from purporting to act or holding themselves out as directors of Sinovac Hong Kong or its subsidiaries, purporting to take any actions as directors of Sinovac Antigua or its subsidiaries, and relying on or using the forged documents in any way whatsoever. On November 28, 2018 at a further hearing in the Hong Kong High Court, the Hong Kong High Court made orders (“November 28 Order”) and held that it is beyond dispute that the documents in respect of Sinovac Hong Kong had been forged and unlawfully filed with the Hong Kong Companies Registry, based on the evidence filed by Mr. Yin and Ms. Wang as Plaintiff, and Mr. Cao and Mr. Li as the Defendants. The Hong Kong High Court therefore declared that Mr. Yin and Ms. Wang were and still are the lawful directors of Sinovac Hong Kong (“Lawful Directors”), and Mr. Li and Mr. Cao were not and are not the lawful directors of Sinovac Hong Kong. The Hong Kong High Court also granted a permanent injunction restraining Mr. Li and Mr. Cao from purporting to act or holding themselves out as directors of Sinovac Hong Kong or its subsidiaries (including but not limited to Sinovac Biotech Co., Ltd. (“Sinovac Beijing”), purporting to take any actions as directors of Sinovac Hong Kong or its subsidiaries, and relying on or using the forged documents in any way whatsoever. Furthermore, the Hong Kong High Court also ordered the Companies Registry to remove the forged documents in respect of Sinovac Hong Kong that had been unlawfully filed. The November 28 Order is effective and enforceable. The Companies Registry has removed the forged documents following the November 28 Order. On November 28, 2018, Mr. Cao and Mr. Li filed a Notice of Appeal with the Hong Kong Court of Appeal, indicating their intention to appeal the orders made by the Hong Kong High Court. .The appeal does not operate as a stay on the November 28 Order except to the extent that the Court below, or the Court of Appeal otherwise directs: O.59, r. 13 (1)(a) of the Rules of the High Court. As of the date of this annual report, neither the Court of First Instance nor the Court of Appeal directed that the execution of the November 28 Order should be stayed. So far, Mr. Cao and Mr. Li have taken no further steps in respect of the appeal after the Notice of Appeal was filed on November 28, 2018. No hearing date has yet been fixed to hear the appeal.

On October 8, 2018, Sinovac also became aware that unauthorized documents in respect of Sinovac Beijing had been filed with the Industry and Commerce Bureau of Haidian District of Beijing (“Haidian AIC”) to change the directors of Sinovac Beijing from Mr. Yin, Ms. Wang and Mr. Dawei Mao to Mr. Cao, Mr. Li and Ms. Xiaomin Yang. Mr. Yin and Ms. Wang filed objection to such unlawful change to the Haidian AIC. On 19 March 2020, Haidian AIC issued an official decision (“AIC Decision”) declaring that (i) the unauthorized documents filed are forged and fake documents; (ii) the filing of change of directors with the forged documents is null and void; (iii) the unlawful filing to change the directors will be removed and the registration of Mr. Yin, Ms. Wang and Mr. Mao as directors of Sinovac Beijing will be restored. The parties of material interest concerned in the AIC Decision may raise objection or file a lawsuit within 60 days. As of today, nobody has filed the objection or lawsuit against the AIC Decision.

We cannot predict the outcome of our ongoing litigation, including whether we will prevail. We also cannot predict how the litigation may affect our stock price, which could be volatile during the pendency of each suit and following its conclusion. Preparing for the litigation, or any related litigation or related matters, has caused us to incur significant costs and we expect these costs to continue until the litigation concludes. In addition, preparing for litigation is time-consuming and may disrupt our operations and divert the attention of management and our employees from executing our strategic plan. In addition, the uncertainties as to the composition of the board of directors of Sinovac Antigua may materially and adversely affect business in unpredictable ways, which, in turn, could cause our revenue, earnings and operating cash flows to be materially and adversely affected.

The ongoing litigation regarding the Rights Agreement could have a material adverse effect on the results of our operations and our financial condition.

On March 5, 2018, we filed a lawsuit in the Court of Chancery of the State of Delaware seeking a determination whether the Shareholder Group had triggered ~~our~~the Rights Agreement, by forming a group holding approximately 45% of outstanding shares, in excess of the Right Agreement’s threshold of 15%, and acting in concert prior to ~~our annual general meeting of shareholders held on February 6, 2018 (the “2017 AGM”). Our~~the 2017 AGM. The Rights Agreement is intended to promote the fair and equal treatment of all Sinovac shareholders and ensure that no person or group can gain control of Sinovac through undisclosed voting arrangements, open market accumulation or other tactics potentially disadvantaging the interest of all our shareholders.

On April 12, 2018, 1Globe filed an amended answer to our complaint, counterclaims, and a third-party complaint against Mr. Weidong Yin alleging, among other allegations, that ~~our~~the Rights Agreement is not valid, that Mr. Weidong Yin and the Buyer Consortium (described below) had previously triggered ~~our~~the Rights Agreement, and that 1Globe did not trigger ~~our~~the Rights Agreement. The Chiang Li Family and OrbiMed filed similar responses. We, and our board of directors, believe that the actions taken by our board of directors were appropriate under the circumstances and in the interests of our company and all our shareholders. We also believe that the allegations in the counterclaim and third-party complaint are without merit. 1Globe asks for various measures of equitable relief and also includes a claim for its costs, including attorneys’ fees. On March 6, 2019, the Delaware Court entered a status quo order preventing us from distributing Exchange Shares to any shareholders or otherwise take any action pursuant to the Rights Agreement until the conclusion of the Delaware litigation or Court order. The case is stayed pending resolution of parallel litigation in Antigua.

OnFollowing a trial on the validity of the Sinovac Antigua’s Rights Agreement, on December 19, 2018, the ~~High~~Antigua Court ~~of Justice of Antigua and Barbuda~~ held ~~following a trial,~~ that Sinovac Antigua’s Rights Agreement is valid under Antigua law, and found that “there was a secret plan to take control of the Company” at the 2017 ~~AGM.~~AGM by the Shareholder Group. On February 18, 2019, after reviewing the Court’s judgment and considering all additional facts known to the Board, the Board determined that the Shareholder Group, together with their affiliates and associates (collectively, the “Collaborating Shareholders”) became Acquiring Persons on or prior to the 2017 AGM and that their conduct resulted in a “Trigger Event” under Sinovac Antigua’s Rights Agreement. Pursuant to the Rights Agreement, our board of directors elected to exchange (the “Exchange”) each valid and outstanding preferred share purchase right held by Sinovac Antigua’s shareholders (not including the Collaborating Shareholders) for a combination of 0.655 of Sinovac Antigua’s common shares and 0.345 of Sinovac Antigua’s newly created Series B Convertible preferred shares (the “Series B Preferred Shares” and, together, each an “Exchange Share”). On February 22, 2019, the Exchange Shares were issued into the Shareholder 2019 Rights Exchange Trust in the name of Wilmington Trust, National Association, which holds the Exchange Shares for the benefit of Sinovac Antigua’s shareholders (not including the Collaborating Shareholders). 1Globe filed notice to appeal the Antigua Court’s judgment on January 29, 2019. On April 4, 2019, the Eastern Caribbean Supreme Court, Court of Appeal issued an order that restrains Sinovac Antigua from taking further action under its Rights Agreement, including the distribution of the previously issued Exchange Shares, until the conclusion of such appeal.

~~On March 6, 2019, the Delaware Court entered a~~ ~~status quo~~ order preventing us from distributing Exchange Shares to any shareholders or otherwise take any action pursuant to the Rights Agreement until the conclusion of the Delaware litigation or Court order. On April 4, 2019, the Eastern Caribbean Supreme Court, Court of Appeal issued an order that restrains Sinovac Antigua from taking further action under its Rights Agreement, including the distribution of the previously issued Exchange Shares to the holders of valid Rights, until the conclusion of 1Globe Capital, LLC’s appeal of the December 19, 2018 Judgment of the High Court of Justice of Antigua and Barbuda. On April 8, 2019, the Delaware Chancery Court stayed the Delaware litigation pending the outcome of 1Globe’s appeal of the Antigua ~~Judgment.~~Court’s Judgment was heard on September 18, 2019, and the appeal decision is pending as of the date of this annual report.

We cannot predict the outcome of the litigation. Preparing for this litigation, or any related litigation or related matters, has caused us to incur significant costs and we expect these costs to continue until the litigation concludes. In addition, preparing for this litigation is time-consuming and may disrupt our operations and divert the attention of management and our employees from executing our strategic plan.

Our ongoing litigation against 1Globe and The Chiang Li Family claiming violations of U.S. federal securities laws could have a material adverse effect on the results of our operations and our financial condition.

On March 5, 2018, Sinovac Antigua filed a lawsuit in the United States District Court for Massachusetts alleging violations of Section 13(d) and Section 13(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) by 1Globe and The Chiang Li Family. The lawsuit alleges, among other things, that the defendant shareholders failed to make required disclosures on Schedule 13D regarding their intentions to attempt to replace Sinovac Antigua’s board of directors. 1Globe counterclaimed to allege violations of securities laws; specifically, abuse of process, negligent misrepresentation, and fraudulent misrepresentation by Sinovac Antigua.

The litigation is currently stayed pending resolution of the parallel litigation in ~~the pre-trial phase~~Antigua, and we cannot predict when or how the litigation will be resolved. There can be no assurance that we will prevail in this litigation. Preparing for this litigation, or any related litigation or related matters may result in significant costs to our company or otherwise adversely affect our business.

~~Our business could be negatively affected as a result of actions of shareholders or others.~~

On March 5, 2018, we announced the re-election of the members of our board of directors—Mr. Weidong Yin, Mr. Yuk Lam Lo, Mr. Simon Anderson, Mr. Kenneth Lee, and Mr. Meng Mei—at the 2017 AGM. We also announced that we had determined, after consultation with our Antigua legal counsel, that an alternative, pre-printed ballot not made available to all our shareholders and purportedly submitted at our 2017 AGM by the Shareholder Group was invalid. We refer to this ballot as the “Non-Public Submission.” On March 13, 2018, 1Globe filed a complaint against Sinovac Antigua in the Eastern Caribbean Supreme Court in the High Court of Justice, Antigua and Barbuda (the “Antigua

Court”). The complaint sought a declaration that the five persons purportedly proposed by the Shareholder Group on the Non-Public Submission at the 2017 AGM were elected as directors of our company at that meeting, together with an order of the Antigua Court that those directors be installed as our company’s board of directors, and a declaration that any actions taken on behalf of our company at the direction of the board of directors since the 2017 AGM are null and void. Following a trial in early December 2018, the Antigua Court issued a judgment on December 19, 2018 that dismissed 1Globe’s claim and declared that Sinovac Antigua’s Rights Agreement was validly adopted as a matter of Antigua law. 1Globe filed notice to appeal the Antigua Court’s judgment on January 29, 2019.

On October 8, 2018, Sinovac became aware that unauthorized documents in respect of Sinovac Hong Kong had been filed with the Hong Kong Companies Registry and that unauthorized documents in respect of Sinovac Beijing had been filed with the Industry and Commerce Bureau of Beijing. In a hearing before the High Court of the Hong Kong Special Administrative Region (“Hong Kong High Court”) on October 19, 2018, the judge granted an interlocutory injunction restraining Mr. Pengfei Li and Mr. Jianzeng Cao from purporting to act or holding themselves out as directors of Sinovac Hong Kong or its subsidiaries, purporting to take any actions as directors of Sinovac Antigua or its subsidiaries, and relying on or using the forged documents in any way whatsoever. On November 28, 2018 at a further hearing in the Hong Kong High Court, the Hong Kong High Court made orders (the “November 28 Order”) and held that it is beyond dispute that the documents in respect of Sinovac Hong Kong had been forged and unlawfully filed with the Hong Kong Companies Registry, based on the evidence filed by Mr. Cao, Mr. Li and the Lawful Directors. The Hong Kong High Court therefore declared that Mr. Yin and Ms. Wang were and still are the lawful directors of Sinovac Hong Kong, and Mr. Li and Mr. Cao were not and are not the lawful directors of Sinovac Hong Kong. The Hong Kong High Court also granted a permanent injunction restraining Mr. Li and Mr. Cao from purporting to act or holding themselves out as directors of Sinovac Hong Kong or its subsidiaries (including but not limited to Sinovac Beijing), purporting to take any actions as directors of Sinovac Hong Kong or its subsidiaries, and relying on or using the forged documents in any way whatsoever. Furthermore, the Hong Kong High Court also ordered the Companies Registry to remove the forged documents in respect of Sinovac Hong Kong that had been unlawfully filed. On November 28, 2018, Mr. Cao and Mr. Li filed a Notice of Appeal with the Hong Kong Court of Appeal, indicating their intention to appeal the orders made by the Hong Kong High Court. No hearing date has yet been fixed to hear the appeal.

Disruptive actions taken by the minority shareholder of Sinovac ~~Biotech Co., Ltd. (“Sinovac Beijing”)~~Beijing caused suspension of production, destruction of products and disruption of our website, which may materially and adversely affect our business, financial condition and results of operations.

Sinovac Beijing, our principal operating subsidiary, is a Sino-foreign equity joint venture in which we own a 73.09% interest and Sinobioway Bio-medicine Co., Ltd., formerly named Xiamen Bioway Group Co., Ltd (“Sinobioway Medicine”), owns a 26.91% interest. Recent events suggest that Sinobioway Medicine’s interests are not aligned with our interests. We cannot assure ~~you~~ that Sinobioway Medicine will be cooperative with us in handling matters related to the operations of Sinovac Beijing.

As the minority shareholder of Sinovac Beijing, according to Sinovac Beijing’s articles of association, Sinobioway Medicine has the right to assign a director to the five-director board of Sinovac Beijing, and the director assigned by Sinobioway Medicine is the legal representative of Sinovac Beijing. Accordingly, the representative of Sinobioway Medicine has the ability to take actions that bind Sinovac Beijing or to block any action that requires unanimous board approval. In addition, if we wish to transfer our equity interest in Sinovac Beijing, in whole or in part, to a third party, Sinobioway Medicine has a right of first refusal to purchase our interest in accordance with relevant PRC regulations.

Sinobioway Medicine, the minority shareholder of Sinovac Beijing, has additional rights under the joint venture contract and articles of association of Sinovac Beijing. The joint venture contract and articles of association require the consent of each of Sinovac Beijing’s shareholders and/or unanimous board approval on matters such as a major change in the business line of the company, expansion or amendment of the business scope of the company, transfer of the registered capital by a shareholder, creation of a mortgage or pledge upon the company’s assets, a change in the organizational form of the company and designation or removal of the general manager.

In February 2018, Mr. Aihua Pan, the representative of Sinobioway Medicine, sent letters without the approval of the full board of Sinovac Beijing, to Mr. Weidong Yin, Ms. Nan Wang, and other senior managers of Sinovac Beijing purporting to terminate their employment. The board of directors of Sinovac Beijing subsequently determined, with the advice of PRC legal counsel, that this action did not conform with the joint venture contract and articles of association and was unlawful. On March 5, 2018, Sinovac Biotech announced actions taken to enhance the corporate governance and management of Sinovac Beijing, including the appointment of Mr. Dawei Mao, Chairman of Zhongke Biopharmaceutical Co., Ltd., as a director of Sinovac Beijing. He replaced Ms. Xiaomin Yang, the current President of Sinobioway Group Co., Ltd. In addition, in March 2018, Mr. Weidong Yin, Ms. Nan Wang, and other senior managers of Sinovac Beijing signed new employment agreements with Sinovac Biotech Ltd. and Sinovac Beijing.

On April 17, 2018, Mr. Aihua Pan and dozens of unidentified individuals forcibly entered Sinovac Beijing’s corporate offices and limited the physical movements of employees in Sinovac Beijing’s general manager’s office and finance department in an attempt to wrongfully take control of

Sinovac Beijing’s official seal, legal documents, accounting seal, financial documents and financial information systems. In addition, these individuals disrupted Sinovac Beijing’s hepatitis A vaccine production and seasonal flu vaccine production by cutting power, seriously impacting Sinovac Beijing’s production and manufacturing processes and possibly damaging product quality. Due to ~~the~~these disruptive actions, ~~of the representative of Sinobioway Medicine,~~ Sinovac Beijing was forced to destroy the affected products. To maintain product safety, Sinovac Beijing temporarily suspended production at the impacted facility, ~~thought~~though production has resumed at this ~~facility.~~facility months later. Sinovac Beijing was also forced to destroy the bacterial seeds intended for use in the production of its 23-valent pneumococcal polysaccharide vaccine (“PPV”) and to suspend all preparations for and ultimately postpone the ~~National Medical Products Administration (“NMPA”),~~inspection by NMPA, formerly known as the PRC State Food and Drug Administration, ~~inspection~~ of the manufacturing site necessary for 23-valent PPV production approval.

These and other actions taken by the representative of Sinobioway Medicine may materially and adversely affect our business, financial condition and results of operations. We also cannot assure you that the representative of Sinobioway Medicine will cease from interfering with our business.

We do not currently intend to hold an annual general meeting of shareholders until after the final determination of the litigation concerning ~~our~~the Rights Agreement, which will delay the ability of our shareholders to vote in an election of our directors.

~~Due to~~With the ongoing ~~litigation~~litigations concerning the Exchange and ~~our~~the Rights Agreement, we have not ~~held an annual meeting of our shareholders since February 2018, and do not intend~~been able to hold an annual meeting of ~~our~~ shareholders ~~until~~since February 2018, and will not be able to hold an annual meeting of shareholders before the final determination of such ~~litigation.~~litigations. Therefore, our shareholders will not have the opportunity to vote in an election of our directors for an indeterminate amount of time. If our shareholders want us to hold an annual meeting prior to the final determination of ~~the~~these ongoing ~~litigation referred to above,~~litigations, they may attempt to force us to hold one under Antigua law.

We may not achieve the expected return on our investment in Sinovac (Dalian) Vaccine Technology Co., Ltd. (“Sinovac Dalian”).

In November 2009, we entered into an agreement with Dalian Jin Gang Group to establish Sinovac Dalian. In January 2010, we established Sinovac Dalian to focus on the research, development, manufacturing and commercialization of vaccines, such as mumps and varicella for human use. Pursuant to the joint venture agreement, we made an initial cash contribution of RMB60.0 million ($~~9.3~~8.6 million) in exchange for a 30% equity interest in Sinovac Dalian, and Dalian Jin Gang Group made an asset contribution of RMB140.0 million ($~~21.6~~20.1 million), including the manufacturing facilities, production lines and land use rights, in exchange for the remaining 70% interest in Sinovac Dalian. In December 2010, we purchased an additional 25% equity interest in Sinovac Dalian from Dalian Jin Gang Group for consideration of RMB50.0 million ($~~7.7~~7.2 million). In October 2016, we increased our ownership in Sinovac Dalian to 67.86% by making an additional RMB80.0 million ($~~12.8~~11.5 million)

capital contribution. In 2019, 2018 ~~2017~~ and ~~2016,~~2017, we provided a loan of RMB30 million ($~~4.4~~4.3 million), RMB30 million ($4.3 million) and RMB20 million ($2.9 million) ~~and RMB30 million ($4.4 million)~~, respectively, to Sinovac ~~Dalian, respectively.~~Dalian. We cannot assure ~~you~~ that Sinovac Dalian’s business, covering the research, development, manufacturing and commercialization of vaccines, such as mumps and varicella, will be successful. As such, we could incur related impairment charges in the future. Any failure to achieve the expected return on our investment in Sinovac Dalian may materially and adversely affect our business, financial condition and results of operations.

The interests of the minority shareholder of Sinovac Beijing and Sinovac Dalian may diverge from our own, which may adversely affect our ability to manage these subsidiaries.

Under China’s joint venture regulations, the unanimous approval of members of a joint venture’s board of directors who are present at a board meeting is required for any amendment to the joint venture’s articles of association, the termination or dissolution of the joint venture company, an increase or decrease in the registered capital of the joint venture company or a merger or de-merger of the joint venture. If our interests diverge from those of our minority shareholders, they may exercise their rights under PRC laws to protect their own interests, which may be adverse to ours. As a result, our ability to manage these subsidiaries may be adversely affected, which in turn may materially and adversely affect our business, financial condition and results of operations. Recent disruptive actions taken by Sinobioway Medicine suggest that its interests are not aligned with our interests. We cannot assure ~~you~~ that Sinobioway Medicine will be cooperative with us in handling matters related to the operations of Sinovac Beijing. To date, Dalian Jin Gang Group has been cooperative with us in handling matters with respect to the business of Sinovac Dalian. We cannot assure, ~~you,~~ however, that Dalian Jin Gang Group will continue to act in a cooperative manner in the future.

Our growth may be adversely affected if market demand for our vaccine products and product candidates does not meet our expectations. We may encounter problems of inadequate supply or oversupply, which would materially and adversely affect our financial condition and results of operations and would also damage our reputation and brand.

The production of vaccine products is a lengthy and complex process. As a result, our inability to match our production to market demand may result in a failure to meet market demand, which could materially and adversely affect our financial condition and results of operations and could also damage our reputation and corporate brand. For example, many patients receive their seasonal flu vaccinations in the three-month period from September to November in anticipation of an upcoming flu season and we expect this period to be one of the most significant sales periods for this product each year. In anticipation of the flu season, we intend to build up inventory of our Anflu product in line with what we believe will be the anticipated demand for the product. If actual demand does not meet our expectations, we may be required to write off significant inventory and may otherwise experience adverse consequences in our financial condition. If we overestimate demand, we may purchase more raw materials than required. If we underestimate demand, our third-party suppliers may have inadequate raw material inventories, which could interrupt our manufacturing, delay shipments and result in lost sales.

If we are unable to enroll sufficient patients and identify clinical investigators for our clinical trials, our development programs could be delayed or terminated.

The rate of completion of our clinical trials significantly depends on the rate of enrollment of volunteers. Patients enrollment is a function of many factors, including:

We may have difficulty in obtaining sufficient volunteer subjects enrollment or finding qualified investigators to conduct ~~our~~the clinical trials as planned and we may need to expend substantial funds to obtain access to resources or delay or modify our plans significantly. These considerations may lead us to consider the termination of development of a product for a particular indication.

Clinical trials are an important part of vaccine research before any vaccine is approved for commercial use in humans. Setbacks in any phase of the clinical trials of our product candidates could have a material adverse effect on our business and ~~our~~ prospects and financial results and would likely cause a decline in the price of our common shares. We may not achieve our projected development goals in the time frames we announce and expect. If we fail to achieve one or more milestones as contemplated, the market price of our common shares could decline.

We set goals for, and make public statements regarding, our anticipated timing of the accomplishment of objectives material to our success, such as the commencement and completion of clinical trials and other milestones. The actual timing of these events can vary significantly due to factors such as delays or failures in our clinical trials, the uncertainties inherent in the regulatory approval process and delays in achieving manufacturing or marketing arrangements sufficient to commercialize our products. We may not complete our clinical trials or make regulatory submissions or receive regulatory approvals as planned. Also, we may not be able to adhere to our anticipated schedule for the launch of any of our products. If we fail to achieve one or more milestones as contemplated, the market price of our shares could decline.

We rely on third parties to conduct clinical trials, who may not perform their duties satisfactorily.

After we obtain approval to conduct clinical trials for our product candidates, we rely on qualified research organizations, medical institutions and clinical investigators to enroll qualified patients and conduct clinical trials. Our reliance on these third parties for clinical development activities reduces our control over the clinical trial process. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not fulfill their contractual obligations, including failing to meet expected deadlines, we may not succeed or may experience delays in our efforts to obtain regulatory approvals and commercialize our vaccine candidates.

If any of our third-party suppliers or manufacturers cannot adequately meet our needs, our business could be harmed.

While we use raw materials and other key material supplies that are generally available from multiple commercial sources, certain raw materials that we use to cultivate our influenza vaccines, such as embryonated eggs, are in short supply or difficult for suppliers to produce in accordance with our specifications. If third-party suppliers were to cease production or otherwise fail to supply us with quality raw materials, and if we were unable to contract on acceptable terms for these materials with alternative suppliers, our ability to deliver our products to the market would be adversely affected.

In addition, if we fail to secure long-term supply sources for some of the raw materials we use, our business could be harmed. For example, we do not have a long-term agreement for the supply of hepatitis B antigens used for Bilive production. We source hepatitis B antigens entirely from Beijing Tiantan Biological Products Co., Ltd. (“Beijing Tiantan”). Although we are developing our own hepatitis B vaccine, before it is approved to be commercialized, we have to rely on the supplier to receive hepatitis B antigen. We and Beijing Tiantan agreed to enter into annual hepatitis

B antigens supply agreements after our previous ten-year exclusive supply framework agreement expired in October 2012. Beijing Tiantan supplied hepatitis B antigens to us from July 2013 to June 2015 based on the annual supply agreement. Thereafter, Beijing Tiantan ceased its hepatitis B antigens production due to facilities renovation. We will work closely with Beijing Tiantan to resume production of Bilive. However, we do not have expected timetable to this.

From time to time, concerns are raised with respect to potential contamination of biological materials supplied to us. These concerns can tighten market conditions for materials that may be in short supply or available from limited sources. Moreover, regulatory approvals to market our products may be conditioned upon obtaining certain materials from specified sources. Any efforts to substitute material from an alternate source may be delayed by pending regulatory approval of such alternate source. Although we work to mitigate the risks associated with relying on sole suppliers, material shortages could impact product development and production.

Our business is highly seasonal. This seasonality will contribute to our operating results fluctuating considerably throughout the year.

The seasonality in our business is expected to result in significant quarterly fluctuations in our ongoing operating results. For example, the influenza season generally runs from November through March of the next year and the largest percentage of influenza vaccinations is administered between September and November of each year. As a result, we expect to realize most of our annual revenues from Anflu during this period.

We rely on a limited number of facilities for the manufacturing of our products in accordance with relevant regulatory requirements. Any disruption to our existing manufacturing facilities or in the development of new facilities could reduce or restrict our sales and harm our reputation.

According to the China GMP guidelines, each vaccine product can only be produced in a dedicated production facility. In Beijing, we conduct the primary production of each vaccine in a dedicated production plant at our Shangdi site or Changping site, and secondary filling and packaging at our Changping site. In Dalian, we manufacture mumps vaccine at one facility. We do not maintain back-up facilities for our currently available products, so we are dependent on our existing facilities for the continued operation of our business.

As described more fully above, a representative of Sinobioway Medicine, who was the Chairman of the board of directors of Sinovac Beijing, and dozens of unidentified individuals forcibly entered Sinovac Beijing’s corporate offices and disrupted Sinovac Beijing’s hepatitis A vaccine production and seasonal flu vaccine production by cutting power to our Shangdi site, seriously impacting Sinovac Beijing’s production and manufacturing processes and possibly damaging product quality. Due to the actions of the representative of Sinobioway Medicine, Sinovac Beijing was forced to destroy the affected products. To maintain product safety, Sinovac Beijing temporarily decided to stop production at the impacted facility, though production has resumed at this ~~facility.~~facility months later.

Natural disasters or other unanticipated catastrophic events, including power interruptions, water shortages, storms, fires, earthquakes and terrorist attacks, could significantly impair our ability to manufacture ~~our~~ products and operate ~~our~~ business and could also delay our research and development activities. Our facilities and certain equipment located in these facilities would be difficult to replace and could require substantial replacement lead-time. Catastrophic events may also destroy any inventory located in our facilities.

We do not maintain any business interruption insurance to cover lost income as a result of any such events. The occurrence of such events could materially and adversely affect our business. We may build additional manufacturing facilities in the future. There can be no assurance, however, that we will be able to expand our manufacturing capabilities to or realize the anticipated benefits of our new facilities. Any of these factors could reduce or restrict our sales, harm our reputation and have a material adverse effect on our business, financial condition, results of operations and prospects.

We may need additional capital to upgrade or expand our production capabilities, to continue development of our product pipeline and to market existing and future products on a large scale. We cannot guarantee that we will find adequate sources of capital in the future.

In the future, we may need to raise additional funds to finance equipment expenditures, to acquire intellectual property, to expand the production facility for our pipeline products, to continue the development and commercialization of our product candidates and to fund other corporate purposes. As of December 31, ~~2018,~~2019, we had approximately ~~$158.2~~$152.7 million in cash and cash equivalents. We expect to undertake significant future financings in order to:

We may be unable to ensure compliance with United States economic sanctions laws, especially when we sell our products to distributors over which we have limited control.

The U.S. Department of the Treasury’s Office of Foreign Assets Control administers certain laws and regulations that impose penalties upon U.S. persons and, in some instances, foreign entities owned or controlled by U.S. persons, for conducting activities or transacting business with certain countries, governments, entities or individuals subject to U.S. economic sanctions (“U.S. Economic Sanctions Laws”). We will not use any proceeds, directly or indirectly, from sales of our common shares, to fund any activities or business with any country, government, entity or individual with respect to which U.S. persons or, as appropriate, foreign entities owned or controlled by U.S. persons, are prohibited by U.S. Economic Sanctions Laws from conducting such activities or transacting such business.

However, we sell our products in international markets through independent non-U.S. distributors which are responsible for interacting with the end-users of our products. We may not be able to ensure that such non-U.S. distributors fully comply with all applicable U.S. Economic Sanctions Laws. Moreover, if a U.S. distributor conducts activities or transacts business with a country, government, entity or individual subject to U.S. economic sanctions, such actions may violate U.S. Economic Sanctions Laws. As a result of the foregoing, actions could be taken against us that could materially and adversely affect our reputation and have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our common shares.

Based on the market price of our common shares and the value of our assets ~~and~~ (subject to the discussion below) as well as the composition of our income and assets, we do not believe we were a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our taxable year ended December 31, ~~2018.~~2019. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure ~~you~~that we will not be a PFIC for any taxable year. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets ~~(based~~(generally based on a quarterly average) during such year is attributable to assets that produce passive income or are held for the production of passive income. We must make a separate determination after the close of each year as to whether we were a PFIC for that year. ~~The composition of our income and assets will be affected by how, and how quickly, we use any cash we generate from our operations or raise in any offering. Because~~In particular, under normal circumstances, the value of our assets for purposes of the PFIC test ~~will~~for a particular taxable year would generally be determined by reference to the market price of our common shares at the end of each quarter during such taxable year. As a result, fluctuations in the market price of our common shares may cause us to become a PFIC for any subsequent year. However, as a result of the suspension of trading in our shares, we are unable to reference the actual market prices of our common shares in determining our PFIC status. As a result, we have relied on the market price as of the last date of the last trading day in our determination . We cannot provide any assurances that the actual value of our shares are not materially different on actual measurement dates and as to whether the IRS will respect our approach. This uncertainty will continue so long as trading in our shares remains suspended. In addition, the composition of our income and assets will be affected by how, and how quickly, we use the cash we generate from our operations or raise in any offering. If we are a PFIC for any year during which a U.S. Holder (as defined in “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation”) holds our common shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. Please see “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.”

Negative publicity regarding vaccinations in China may lead to lower demand for vaccination, which could in turn negatively affect our business, financial condition and results of operations.

In December 2013, it was reported that several infants died shortly after receiving inoculations of hepatitis B vaccine produced by a domestic company in China. NMPA and National Health and Family Planning Commission have determined that the inoculated hepatitis B vaccines

comply with the applicable regulatory standards. In March 2016, media reported on improperly stored vaccines illegally sold in Shandong province and all across China. The illegal distribution started in 2010 and two suspects were detained by police in 2015. Although experts from the World Health Organization (“WHO”) has confidence in China’s vaccine industry and publicly clarified their position several times since news of this scandal broke, public concerns remain. In July 2018, Changchun Changsheng Life Science Co., Ltd. was found by the government to have falsified production records. Although the government has determined to levy a $1.3 billion fine ~~and started to initiate drafting of new vaccine management laws of China,~~on the company, such negative publicity ~~may lead~~has led to lower demand for vaccination in China in 2018, which ~~could~~has in turn negatively ~~affect~~affected the whole vaccine ~~industry and our business, financial condition and results of operations.~~industry.

As a foreign private issuer, we are subject to different U.S. securities laws and NASDAQ listing rules than domestic U.S. issuers.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, as an Antigua and Barbuda company listed on the NASDAQ Global Select Market, we are subject to NASDAQ’s corporate governance requirements. However, NASDAQ listing rules permit a foreign private issuer like us to elect to follow home country corporate governance practices in lieu of certain NASDAQ corporate governance standards, subject to certain conditions. Certain corporate governance practices in Antigua and Barbuda, which is our home country, may differ significantly from the NASDAQ standards. As a result of our status as a foreign private issuer, you may not be afforded the same information or protections that would be made available to you were you investing in a domestic U.S. issuer.

In connection with the Exchange and the issuance of the Exchange Shares into the Shareholder 2019 Rights Exchange Trust, NASDAQ implemented a halt in trading in Sinovac Antigua’s common shares in order to facilitate the orderly distribution of the Exchange Shares. In light of the ongoing litigation concerning ~~our~~the Rights Agreement, there can be no assurance when or if this halt will be lifted. NASDAQ has continued listing standards that we must maintain on an ongoing basis in order to continue the listing of our common shares. If NASDAQ determines that we fail to meet these continued listing requirements, our common shares may be subject to delisting.

If our common shares are delisted and we are not able to list our common shares on another national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this were to occur, our shareholders could face significant material adverse consequences, including limited availability of market quotations for our securities and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future.

We may not be able to comply with applicable GMP standards and other regulatory requirements, which could have a material adverse effect on our business, financial condition and results of operations.

We are required to comply with applicable GMP regulations, which include, among other things, requirements relating to personnel, premises and equipment, raw material and products, qualification and validation, document management, production management, quality control and assurance and product distribution and recall. Manufacturing facilities must be approved by governmental authorities before they can be used to commercially manufacture our products and are subject to inspection by regulatory agencies. We have been required to comply with the new GMP standards implemented by NMPA since March 1, 2011. All vaccine manufacturers were required to meet the new GMP standards and obtain certifications for their manufacturing facilities by December 31, 2013. Any manufacturer that failed to meet the deadline would be forced to suspend production.

We have obtained the new GMP certificates for all of our commercial production facilities. However, we cannot assure ~~you~~ that we will be able to continue to meet the applicable GMP standards and other regulatory requirements in the future. In addition, in light of the incident where vaccines were illegally sold and distributed in Shandong province and other provinces around China in 2016, the government has changed policies and regulations related to the vaccine sales and distribution in China. Before the policy was issued, human vaccine sales were halted in China for months. ~~Although the~~The vaccine purchase and delivery was resumed in second half of ~~2016, we~~2016. We are not able to estimate whether there will be any other change of policies and regulations on our business in the future, which will negatively impact on business in the future.

If we fail to comply with applicable regulatory requirements at any stage during the regulatory process, including following any product approval, we may be subject to sanctions, including:

refusal of regulatory agencies to review pending market approval applications or supplements to approval applications;

•	~~refusal of regulatory agencies to review pending market approval applications or supplements to approval applications;~~

total or partial suspension of production;

civil penalties;

withdrawals of previously approved marketing applications; and

criminal prosecution.

We can only sell products that have received regulatory approvals. Many factors affect our ability to obtain such approvals.

Pre-clinical and clinical trials of our products, and the manufacturing and marketing of our products, are subject to extensive, costly and rigorous regulation by governmental authorities in the PRC and in other countries. Even if we complete pre-clinical and clinical trials successfully, we may not be able to obtain applicable regulatory approvals. We cannot market any product candidate until we have both completed our clinical trials and obtained the necessary regulatory approvals for that product candidate.

Conducting clinical trials and obtaining regulatory approvals are uncertain, time-consuming and expensive processes. The process of obtaining required regulatory approvals from NMPA and other regulatory authorities often takes many years and can vary significantly based on the type, complexity and novelty of the product candidates. For example, it took us approximately ten years to develop and obtain regulatory approval to commercialize Healive, and it took us five and a half years and four and a half years to develop and obtain regulatory approvals to commercialize Bilive and Anflu, respectively. EV71 vaccine ~~above all,~~ took us eight years from 2008 to 2016 to develop and obtain regulatory approvals.

There can be no assurance that all of the clinical trials pertaining to our vaccines in development will be completed within the timeframes currently anticipated by us. We could encounter difficulties in enrolling patients for clinical trials or encounter setbacks while conducting clinical trials that result in delays or cancellation. Data obtained from pre-clinical and clinical studies are subject to varying interpretations that could delay, limit or prevent regulatory ~~approval,~~approvals, and failure to observe regulatory requirements or inadequate manufacturing processes are examples of other problems that could prevent ~~approval.~~approvals. In addition, we may encounter delays or rejections in the event of additional regulation from future legislation, administrative action or changes in the NMPA policy or if unforeseen health risks become an issue with the participants of clinical trials.

Clinical trials may ~~also~~ fail at any stage. Results of early trials frequently do not predict results of later trials, and acceptable results in early trials may not be repeated. For these reasons, we do not know whether regulatory authorities will grant approval for any of our product candidates in the future. In addition, production permits for our products are valid for ~~only~~ five years and we need to apply for renewal six months prior to their expiration. The process to approve our renewal applications could be lengthy and there is no assurance that we will be granted renewal in a timely manner or at all.

Delays in obtaining NMPA foreign approvals of our products could result in substantial additional costs and adversely affect our ability to compete with other companies. Even if regulatory approval is ultimately granted, we may not maintain the approval and the approval may be withdrawn. Any approval received may also restrict the intended use and marketing of the product we want to commercialize.

Outside the PRC, our ability to market some of our potential products is contingent upon receiving marketing authorizations from the appropriate foreign regulatory authorities. For example, our hepatitis A vaccine, Healive, can be supplied to certain international organizations and is eligible to participate into the tender process in some countries as it has passed the WHO prequalification assessment (“WHO PQ”). However, there are still ~~many other~~ countries that require additional marketing authorization to sell in such countries despite the WHO PQ status. These foreign regulatory approval processes include the risks associated with the NMPA approval process described above and may include additional risks.

Because the medical conditions that our vaccines are intended to prevent represent significant public health threats, we are at risk of governmental actions detrimental to our business, such as product seizure, compulsory licensing and additional regulations.

In response to a pandemic or the perceived risk of a pandemic, governments in the PRC and other countries may take actions to protect their citizens that could affect our ability to control the production and export of pandemic vaccines or otherwise impose burdensome regulations on our business. For example, an outbreak of influenza and the recent COVID-19 could subject our manufacturing ~~locations~~facilities to seizure by the PRC government. The PRC government ~~may also~~might grant compulsory licenses to allow our competitors to manufacture products that are protected by our patents or use our technology, ~~developed~~ using funds received from government agencies.

We deal with hazardous materials that may cause injury to others. These materials are regulated by environmental laws that may impose significant costs and restrictions on our business.

Our research and development programs and manufacturing operations involve the controlled use of potentially harmful biological materials and other hazardous materials. We cannot eliminate the risk of accidental contamination or injury to our employees or others from the use, manufacture, storage, handling or disposal of hazardous materials and certain waste products. In the event of contamination or injury, we could be held liable for any resulting damages, and ~~any~~the liability could exceed our resources or ~~any~~ applicable insurance coverage we may have.

We are also subject to PRC laws and regulations governing the construction and operation of production facilities that may have an impact on the environment and the use, manufacture, storage, handling or disposal of hazardous materials and waste products, such as the PRC Environmental Impact Assessment Law, the PRC Prevention and Control of Water Pollution Law and the PRC Environmental Protection Law, as well as waste-disposal standards set by relevant governmental agencies. It is likely that China will continue to adopt stricter pollution controls as the country is experiencing increasingly serious environmental pollution. Although weour facilities passed an environmental examination ~~of our facilities~~ conducted in 2004 by the Beijing Municipal Environment Protection Bureau on our hepatitis A vaccine production line and passed the same examination on our seasonal flu vaccine production line and filling and packaging line in 2005 and 2008, respectively, we cannot assure ~~you~~ that we will continue to pass similar environmental examinations on any future production facilities that we may construct. In addition, according to the PRC Environmental Impact Assessment Law, after the approval of previous environmental impact assessment report, if there is any material change in the nature, scale, location, production technology used and measures adopted to prevent damages to ecology, new environmental impact assessment reports need to be filed for approval.

We have already obtained the approval of the environmental impact assessment report from the Beijing Municipal Environment Protection Bureau for the construction plan of our facilities in Changping District, ~~Beijing.~~Beijing in 2011. We produce Bilive vaccine at our production facility for hepatitis A vaccine and produce Panflu and Panflu.1 vaccines at our production facility for seasonal flu or Anflu vaccine. According to the PRC Environmental Impact Assessment Law, after the approval of previous environmental impact assessment report, if there is any material change

in the nature, scale, location, production technology used and measures adopted to prevent damages to ecology, new environmental impact assessment reports need to be filed for approval. We have canceled the construction plan for our influenza vaccine production facility in Changping. A new environmental impact assessment report regarding the change ~~has been~~was submitted to the relevant environment protection authorities and ~~has~~ passed the government ~~inspection.~~inspection in 2011. We also added a sIPV production facility to the Changping construction ~~plan.~~plan in 2016. The relevant environmental impact assessment report was submitted to the relevant government authorities and passed the government evaluation. The approval on this report was already obtained. The construction of sIPV has ~~mostly~~ been ~~completed.~~completed, and we have commenced the clinical trial. We cannot assure that we will continue to obtain the approval on environmental impact assessment report for any future production facilities that we may construct.

In addition, we have obtained approval for the environmental impact assessment report for PPV production facility at our Shangdi ~~site.~~site in 2014. We are required to pass the government inspection to launch the commercial production of PPV. If we fail to pass the inspection, we cannot commence commercial production of the product. Moreover, we do not currently have a pollution and remediation insurance policy to mitigate any risk related to environmental pollution or violation of environmental law.

Failure to commence development of land which we have been granted right to use within the required timeframe may cause us to lose our land use rights.

Sinovac Dalian was granted land use rights to two parcels of land, with an aggregate area of 95,686 square meters (approximately 1,030,000 square feet) located in the Economic and Technical Development Zone of Dalian, Liaoning province by the local government. According to the relevant PRC regulations, a parcel of land may be treated as idle land if development of the land has not been commenced within one year after the commencement date stipulated in the land use rights grant contract or the issuance date of the construction land approval certificate. Land users can extend the deadline for commencing the construction work for one year.

All of our current facilities of Sinovac Dalian are located at one of the two parcels of the land with an aggregated area of 55,606 square meters (598,582 square feet). However, as of the date of this annual report, we have not commenced development of the other parcel of the land with 40,080 square meters (431,418 square feet), which Sinovac Dalian was granted the right to use. The PRC government may treat the land as idle land, in which case we may be required to pay idle land fees or penalties, change the intended use of the land, find another parcel of land, or even be required to forfeit the land to PRC government, any of which would adversely affect our financial condition.

Negative publicity regarding China-based companies listed in the United States may affect the trading price of our common shares and result in increased regulatory scrutiny of our business.

In the past, litigation and negative publicity surrounding companies with operations in China listed in the United States have resulted in declining stock prices for such companies. Various equity research organizations have published reports on China-based companies after examining their corporate governance practices, related party transactions, sales practices and financial statements that have led to special investigations and stock suspensions on national exchanges. Any similar scrutiny of us, regardless of merit, could result in a diversion of our management’s attention from managing our core business, negative publicity, potential costs to defend ourselves against rumors, volatility and loss in the trading price of our common shares and increased directors’ and officers’ insurance premiums, any of which could materially and adversely affect our business, financial condition and results of operations.

~~Risks Related~~Uncertainties exist with respect to how the PRC Vaccine Administration Law may impact our current operations.

The PRC Vaccine Administration Law became effective on December 1, 2019. It is China’s first legislation dedicated to the regulation of vaccine industry. According to the law, the supervision of vaccines will cover the whole lifecycle from vaccine development, production and distribution to vaccination. Specialized inspection teams of pharmaceutical professionals will be established at the central and provincial levels to conduct the supervision work. An electronic information system will also be set up to make all information on vaccines trackable during vaccine production, distribution and vaccination. The vaccine tracking system requires vaccination data, including vaccine's information, expiry date and use date, the medical workers who issue the vaccines and their recipients, should be recorded and retained for at least five years after its expiry. The law imposes tough punishments on wrongdoers, stipulating that people whose violations constitute a crime shall bear heavier criminal responsibility. The move under the PRC Vaccine Administration Law could be a milestone in vaccine safety, while bringing back market confidence in the regulatory system. The new law is believed to be able to enable the regulators to close loopholes and rein in risks in vaccine management and boost the confidence of the public in vaccine products manufactured in China. Since the Vaccine Administration Law was recently promulgated and it is unclear how this regulation will be interpreted, amended and implemented by the relevant PRC government authorities. In addition, PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms. We cannot predict how the new law will affect our business operations or future strategy.

Our Intellectual Property

If we are unable to protect our technologies from competitors with patents or other forms of intellectual property protection, our business may be harmed.

Our success depends, in part, on our ability to protect our proprietary technologies. We try to protect the technology that we consider important to our business by filing PRC patent applications and relying on trade secret and pharmaceutical regulatory protection.

We have a total of 5358 issued patents and a number of pending patent applications relating to our vaccines in China. The process of seeking patent protection in China can be lengthy and expensive and we cannot assure you that our pending patent applications, or any patent applications we

may make in the future with respect to other products, will result in issued patents, or that any patents issued in the future will be able to provide us with meaningful protection or commercial advantage. Our patent applications ~~may~~might be challenged, invalidated or ~~circumvented in the future.~~circumvented.

In addition to patents, we rely on trade secrets and proprietary know-how to protect our intellectual property. We have entered into confidentiality agreements (which include, in the case of employees, non-competition provisions) with many of our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of our employees, the agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive property. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of our proprietary information. In addition, third parties could possibly independently develop information and techniques substantially similar to ours or otherwise gain access to our trade secrets.

Our current or potential competitors, many of whom have substantial resources and have made substantial investments in competing technologies, could develop products that compete directly with our products despite our intellectual property rights.

Intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other developed countries. Policing unauthorized use of proprietary technology is difficult and expensive, and we might need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of PRC courts in handling intellectual property litigation varies, and outcomes are unpredictable. Further, such litigation may require significant expenditures of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation could materially impair our intellectual property rights and may harm our business, prospects and reputation.

We may be exposed to infringement or misappropriation claims by third parties which, if determined adversely to us, could cause substantial liabilities to us, or we may be unable to sell some of our products. Please see “Item 4. Information on the Company — B. Business Overview — Intellectual Property and Proprietary Technology.”

Third parties may bring intellectual property infringement claims against us in the future.

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Even after reasonable investigation, we may not know with certainty whether we have infringed upon a third party’s patent due to the complexity of patent claims, the inadequacy of patent clearance search procedures in the PRC and the fact that a third party may have filed a patent application without our knowledge while that product was under development by us.

Patent applications are maintained in secrecy until their publication 18 months after the filing date. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. China, similar to many other countries, adopts the first-to-file system under which the first party to file a patent application (instead of the first to invent the subject invention) may be awarded a patent. There may also be technologies licensed to us or acquired by us that are subject to infringement, misappropriation or other claims by others which could damage our ability to rely on such technologies.

If a third party claims that we infringe upon its proprietary rights, any of the following may occur:

we may become involved in time-consuming and expensive litigation, even if the claim is without merit;

we may become liable for substantial damages for past infringement if a court decides that our technology infringes upon a ~~competitor’s~~third- party’s patent;

a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially reasonable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our patents;

we may have to reformulate our product so that it does not infringe upon others’ patent rights, which may not be possible or could be very expensive and time-consuming; and

we may be subject to injunctions prohibiting the manufacture and sale of our products or the use of our ~~technologies.~~technologies which are deemed as infringing.

If any of these events occurs, our business will suffer and the market price of our common shares could decline.

The success of our business may depend on licensing vaccine components from, and entering into collaboration arrangements with, third parties. We cannot be certain that our licensing or collaboration efforts will succeed or that we will realize any revenue from them.

The success of our business strategy depends, in part, on our ability to enter into licensing and collaboration arrangements and to effectively manage the resulting relationships. Our ability to enter into agreements with commercial partners depends in part on our ability to convince them of the value of our technology and know-how. This may require substantial time and effort. While we anticipate expending substantial funds and management effort, we cannot assure ~~you~~ that strategic relationships will result or that we will be able to negotiate additional strategic agreements in the future on acceptable terms, if at all.

We may incur significant financial commitments to collaborators in connection with potential licenses and sponsored research agreements. In addition, we may not be able to control the areas of responsibility undertaken by our strategic partners and may be adversely affected should these partners prove to be unable to carry a product candidate forward to full commercialization or should they lose interest in dedicating the necessary resources toward developing any such product quickly.

Third parties may terminate our licensing and other strategic arrangements if we do not perform as required under these arrangements. Generally, we expect that agreements for rights to develop technologies will require us to exercise diligence in bringing product candidates to market and may require us to make milestone and royalty payments that, in some instances, could be substantial. Our failure to exercise the required diligence or make any required milestone or royalty payments could result in the termination of the relevant license agreement, which could have a material adverse effect on us and our operations. In addition, these third parties breach or terminate their agreements with us or otherwise fail to conduct their activities in connection with our relationships in a timely manner. If we or our partners terminate or breach any of our licenses or relationships, we may:

lose our rights to develop and market our product candidates;

lose patent and/or trade secret protection for our product candidates;

experience significant delays in the development or commercialization of our product candidates;

not be able to obtain any other licenses on acceptable terms, if at all; and

incur liability for damages.

Licensing arrangements and strategic relationships in our industry can be complex, particularly with respect to intellectual property rights. Disputes may arise in the future regarding ownership rights to technology developed by or with other parties. These and other possible disagreements between us and third parties with respect to our licenses or our strategic relationships could lead to delays in the research, development, manufacture and commercialization of our product candidates. These disputes could also result in litigation or arbitration, both of which are time-consuming and expensive. Moreover, these third parties may pursue alternative technologies or product candidates either on their own or in strategic relationships with others in direct competition with us.

Any cessation or suspension of our collaborations with scientific advisors and academic institutions may increase our costs in research and development, lengthen our new vaccines development process and lower our efficiency in new products development.

We work with scientific advisors and academic collaborators who assist us in some of our research and development efforts. Some of our pre-clinical and research programs rely heavily on such collaborators and we generally benefit considerably from the resources, technology and experience these collaborations can provide. These scientists are not, however, our employees and may have other commitments that limit their availability to us. If a conflict of interest arises between their work for us and their work for another entity, we may lose the services of these scientists and institutions. Any cessation or suspension of our collaborations with scientific advisors and academic institutions may increase our research and development costs, lengthen our new ~~vaccines~~vaccine development process and lower our efficiency in new products development. In addition, although our scientific advisors and academic collaborators generally sign agreements not to disclose our confidential information, valuable proprietary knowledge may become publicly known which would compromise our competitive advantage.

We may lose the right to use “科兴” (Kexing) on our vaccine products and/or as part of our trade name.

~~We currently use “~~科Since 2001, Sinovac Beijing has been using “科兴” (Kexing) as part of ~~Sinovac Beijing’s~~its Chinese trade ~~name in the PRC. We also~~name. Sinovac Dalian began to use “科“科兴” (Kexing) as part of ~~the~~its Chinese trade name ~~of Sinovac Dalian~~ in ~~the PRC.~~2010. Shenzhen Kexing ~~currently owns the “~~科successfully registered “科兴” trademark ~~registered~~ in China for Class 5 (Pharmaceuticals) under the International Classification of Goods and ~~Services.~~Services in 2001 To protect our interest in using “科“科兴” in our trade ~~name,~~names, we applied to register “科“科兴” in China for Class 42 (Scientific & Technological Services &Research) in 2006 and the PRC Trademark Office of the State Administration for Industry and Commerce approved our application in 2010. ~~The “~~科

As of the date of this annual report, the “科兴” trademark registered and owned by Shenzhen Kexing has not been identified as “Well-known Trademark” by the relevant PRC ~~authorities since we first started using “~~科兴~~” in the trade name of Sinovac Beijing in 2001.~~authorities. If the “科“科兴” trademark owned by Shenzhen Kexing is ever officially identified as a “Well-Known ~~Trademark,”~~Trademark” in the future, however, we may be subject to trademark infringement claim for the use of “科“科兴” in our trade ~~name. Although the trademark application and the trade name approval systems are administered separately in China, it~~names. It is possible that we ~~may~~might lose our ability to use the “科“科兴” trademark in our trade ~~name~~names due to a successful trademark infringement claim, which may adversely affect our ability to maintain and protect our brands, cause us to incur litigation costs and divert resources and management attention.

Risks Related to Doing Business in China

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

We conduct all our operations in China, and ~~generate~~generated approximately ~~94.7%~~92.0% of our sales in ~~China.~~China in 2019. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

the extent of government involvement;

the level of development;

the growth rate;

the control of foreign exchange;

the allocation of resources;

an evolving regulatory system; and

a lack of sufficient transparency in the regulatory process.

While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, the Chinese government still owns a substantial portion of the productive assets in China. ~~The continued control of these assets and other aspects of the national economy by the PRC government could materially and adversely affect our business.~~ The PRC government also exercises significant control over Chinese economic growth by allocating of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the PRC government to slow the pace of growth of the Chinese economy could result in hospitals spending less, which in turn could reduce demand for our products.

The political relationship among foreign countries and China is subject to sudden fluctuations and periodic tensions. Changes in political conditions in China and changes in the state of foreign relations are difficult to predict and could adversely affect our product export and international collaborations. This could lead to a decline in our profitability in the future.

Although the Chinese economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slowing of the growth of the Chinese economy since 2012. Any adverse change in the economic conditions or government policies in China could have a material adverse effect on overall economic growth and the level of healthcare investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.

Future changes in laws, regulations or enforcement policies in China could adversely affect our business.

Laws, regulations and enforcement policies in China, including those regulating our business, are evolving and subject to future change. Future changes in laws, regulations or administrative interpretations, or stricter enforcement policies by the PRC government, could impose more stringent requirements on us, including fines or other penalties. Changes in applicable laws and regulations may also increase our operating costs. Compliance with such requirements could impose substantial additional costs or otherwise have a material adverse effect on our business, financial condition and results of operations. These changes may relax some requirements, which could be beneficial to our competitors or could lower market entry barriers and increase competition. Further, regulatory agencies in China may, sometimes abruptly, change their enforcement practices.

Prior enforcement activity, or lack of enforcement activity, is not necessarily predictive of future actions. Any enforcement actions against us could have a material adverse effect on us and the market price of our common shares. In addition, any litigation or governmental investigation or enforcement proceedings in China may be protracted and may result in substantial costs and diversion of resources and management attention, negative publicity, damage to our reputation and decline in the price of our common shares.

We rely on dividends paid by our PRC subsidiaries for our cash needs. If they are unable to pay us sufficient dividends due to statutory or contractual restrictions on their abilities to distribute dividends to us, our various cash needs may not be met.

We are a holding company, and we rely on the dividends paid by our PRC subsidiaries, including majority-owned subsidiaries Sinovac Beijing and Sinovac Dalian and our wholly owned subsidiaries Sinovac R&D (formerly known as Sinovac Biological) and Sinovac Biomed for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. The payment of dividends in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends by our PRC subsidiaries only out of accumulated profits as determined in accordance with accounting standards and regulations in China. For instance, in accordance with the regulations in China, Sinovac Beijing, Sinovac Dalian, Sinovac R&D and Sinovac Biomed are required to set aside at least 10% of its after-tax profits each year to contribute to its reserve fund until the accumulated balance of such reserve fund reaches 50% of the registered capital of each company.

Sinovac Beijing, Sinovac Dalian, Sinovac R&D and Sinovac Biomed are also required to set aside, at the discretion of their respective board of directors, a portion of their annual income after taxes to their employee welfare and bonus funds. These funds reduce the ability of the subsidiaries to pay dividends in cash.

In addition, if Sinovac Beijing, Sinovac Dalian, Sinovac R&D or Sinovac Biomed incurs debt on its own ~~behalf~~ in the future, the instruments governing the debt may restrict either company’s ability to pay dividends or make other distributions to us.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

We receive over 95% of our revenues in renminbi, which currently is not a freely convertible currency. A portion of our revenues may be converted into other currencies to meet our foreign currency obligations, including, among others, payment of dividends declared by our subsidiaries. Under China’s existing foreign exchange regulations, Sinovac Beijing, Sinovac R&D, Sinovac Dalian and Sinovac Biomed are able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, the PRC government could ~~not~~ take future measures to restrict access to foreign currencies for current account transactions.

Our PRC subsidiaries’ ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of amounts under the capital account, requires the approval of and/or registration with PRC government authorities, including SAFE. In particular, if we finance our PRC subsidiaries by means of foreign currency from us or other foreign lenders, the amount is not allowed to exceed the difference between the amount of total investment and the amount of the registered capital as approved by the Ministry of Commerce and registered with SAFE. Such loans must also be registered with ~~SAFE.~~SAFE as foreign debts. If we finance our PRC subsidiaries by means of additional capital contributions from offshore, the amount of these capital contributions must first be approved by the relevant government approval authority. These limitations could affect the ability of our PRC subsidiaries to obtain foreign exchange through debt or equity financing.

Fluctuation in the value of the renminbi may have a material adverse effect on your investment.

The value of the renminbi against the U.S. dollar, Euro and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The PRC government allows the renminbi to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In recent years, the exchange rate between the renminbi and U.S. dollar has been relatively stable and consequently the renminbi has sometimes fluctuated sharply against other freely traded currencies, in tandem with the U.S. dollar.

Since June 2010, the Renminbi has fluctuated against the U.S. dollar. Since October 1, 2016, the RMB has joined the International Monetary Fund’s basket of currencies that make up the Special Drawing Right, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. InSince the fourth quarter of 2016, the RMB depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may announce further changes to the exchange rate system and the RMB could appreciate or depreciate significantly in value against the U.S. dollar.

It is difficult to predict how long such depreciation of the RMB against the U.S. dollar may last and when and how the relationship between the renminbi and the U.S. dollar may change again. The PRC government indicated that it will make the foreign exchange rate of the renminbi more flexible and widen the trading band of renminbi, which increases the possibility of sharp fluctuations in renminbi’s value in the future as well as the unpredictability associated with renminbi’s exchange rate. There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in further and more significant fluctuations of the renminbi against foreign currencies.

As the majority of our costs and expenses are denominated in renminbi, a resumption of the appreciation of the renminbi against the U.S. dollar would further increase our costs in U.S. dollar terms. In addition, as our operating subsidiaries in China receive revenues in renminbi, any significant depreciation of the renminbi against the U.S. dollar may have a material adverse effect on our revenues in U.S. dollar terms and financial condition, and the value of, and any dividends payable on, our common shares. For example, to the extent that we need to convert U.S. dollars into renminbi for our operations, appreciation of the renminbi against the U.S. dollar would have an adverse effect on the renminbi amount we receive from the conversion. Conversely, if we decide to convert our renminbi into U.S. dollars for the purpose of making payments for

dividends on our common shares or for other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amount available to us.

Our business benefits from certain government tax incentives. Expiration, reduction or elimination of these incentives will increase our tax expenses and in turn decrease our net income.

Pursuant to the PRC Enterprise Income Tax Law (the “EIT Law”) and its implementation rules, both domestic companies and the foreign invested enterprises (the “FIEs”) are subject to a unified income tax rate of 25%. ~~Tax exemption or reduction with fixed terms enjoyed by enterprises including us will continue until the expiration of the prescribed period.~~ Preferential tax treatments will continue to be granted to high and new technology enterprises that conduct business in encouraged sectors, whether FIEs or domestic companies.

Sinovac Beijing reconfirmed its “High and New Technology Enterprises,” or HNTE, status and obtained the corresponding certificate in 2014 for a period of three years. As a result, subject to satisfaction of applicable criteria as confirmed by the competent authorities, Sinovac Beijing was entitled to a reduced enterprise income tax (“EIT”) rate of 15% from 2014 to 2016. Sinovac Beijing reconfirmed its HNTE status in 2017 for another three-year period, which is from 2017 to 2019. Sinovac Dalian, being confirmed as a HNTE in 2017 for a period of 3 years, is subject to the preferential EIT of 15% from 2017 to 2019. The PRC government could eliminate any of these preferential tax treatments before their scheduled expiration. Expiration, reduction or elimination of such tax incentives will increase our tax expenses and in turn decrease our net income.

Under the EIT Law, dividends payable by us and gains on the disposition of our shares may be subject to PRC taxation.

If we were considered a PRC resident enterprise under the EIT Law, our shareholders who are deemed non-resident enterprises may be subject to the EIT at the rate of 10% upon the dividends payable by us or upon any gains realized from the transfer of our shares, if such income is deemed derived from China, provided that (i) such foreign enterprise investor has no establishment or premises in China or (ii) it has an establishment or premises in China but its income derived from China has no real connection with such establishment or premises. If we were required under the EIT Law to withhold PRC income tax on our dividends payable to our non-PRC enterprise shareholders, or if any gains realized from the transfer of our shares by our non-PRC enterprise shareholders were subject to the EIT, such shareholders’ investment in our shares would be materially and adversely affected.

PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles (“SAFE Circular 37”) on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with the local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.”

SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division, or other material events. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.

Failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015. ~~However, since this notice has not yet come into force, significant uncertainty exists with respect to its interpretation and implementation by governmental authorities and banks.~~

Mr. Weidong Yin has made the required SAFE registration with respect to his investments in our company. However, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not control our beneficial owners and cannot assure you that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners who are PRC residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions.

Furthermore, since ~~SAFE Circular 37 was recently promulgated and~~ it is unclear how ~~this regulation, and~~ any future regulation concerning offshore or cross-border transactions will be ~~interpreted, amended and~~ implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results of operations.

Any failure to comply with PRC regulations regarding our employee equity incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their position as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who have been granted options and restricted shares were able to follow SAFE Circular 37 to apply for the foreign exchange registration before our company became an overseas listed company.

Since our company has become an overseas listed company, we and our directors, executive officers and other employees who are PRC residents and who have been granted options are subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas publicly listed company who are PRC residents are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures.

Failure to complete SAFE registrations may subject them to fines and legal sanctions and may also limit the ability to make payments under our equity incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our ~~wholly-foreign owned enterprises~~subsidiaries in China and limit ~~our wholly-foreign owned enterprises’~~such subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional equity incentive plans for our directors and employees under PRC law.

In addition, the State Administration for Taxation has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares or restricted share units, or RSUs, vest, will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees related to their share options, restricted shares or RSUs. If the employees fail to pay, or the PRC subsidiaries fail to withhold, their income taxes according to relevant laws, rules and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries and affiliated entities.

In funding our PRC subsidiaries, we must comply with PRC legal requirements relating to foreign debt registration and to PRC foreign-investment companies’ “registered capital” and “total ~~investment.”~~investment” ratio. “Registered capital” refers to the capital contributed to or paid into a PRC foreign-investment company in cash or in kind, and “total investment” refers to the estimated amount of the total capital as required to enable and support the full scale operation of a PRC foreign-investment company when the company is initially established. The balance between the required “total investment” and the “registered capital” can be satisfied by borrowings or loans obtained by the company. In another word, such loans cannot exceed the difference between such company’s registered capital ~~plus all external borrowings by such company.~~ and total investment

The amounts of a PRC foreign-investment company’s registered capital and total investment are set forth in the company’s ~~constitutional documents~~articles of association and joint venture contract (in the case of a Sino-foreign joint venture) and approved by the competent government authority in advance and, in the case of Sinovac Beijing and Sinovac Dalian, must be approved by their minority shareholders, as well as Sinobioway Medicine (formerly named Xiamen Bioway Group Co., Ltd) or Dalian Jin Gang Group, respectively, as well.advance.

Loans by us or Sinovac Hong Kong to Sinovac Beijing, Sinovac R&D, Sinovac Dalian or Sinovac Biomed cannot exceed the difference between such company’s registered capital and total investment. The total investment ~~unless~~and registered capital can be adjusted after the ~~company has obtained~~establishment of a foreign-investment companies with the ~~approval~~approvals of all the shareholders or unanimous approvals of the ~~approval authority and, in~~board of directors. In the case of Sinovac Beijing or Sinovac Dalian, the approval of Sinobioway Medicine or Dalian Jin Gang Group, respectively, is required to increase the amount of total investment. Further, ~~such~~all the loans from the overseas lenders must be registered with SAFE ~~or its local counterpart.~~as foreign debts.

We may also decide to finance our PRC subsidiaries by making additional capital contributions. These additional contributions must be approved by the government approval authority and, in the case of Sinovac Beijing or Sinovac Dalian, by Sinobioway Medicine or Dalian Jin Gang Group, respectively. We cannot assure you that we will be able to obtain these government registrations or approvals, or the approval of Sinobioway Medicine or Dalian Jin Gang Group, on a timely basis, if at all, with respect to future loans or additional capital contributions by us to our ~~subsidiaries or affiliates.~~subsidiaries. If we fail to obtain such registrations or approvals, our ability to capitalize our PRC operations would be negatively affected, which could adversely and materially affect the liquidity of our subsidiaries and our ability to expand ~~our~~the business.

Because we are incorporated under Antigua and Barbuda law, substantially all of our operations, property and assets are located in China and all of our major shareholders, directors and officers and substantially all of their assets are located outside of the United States, you may be unable to protect your shareholder rights under U.S. law in a court in the United States.

We are incorporated in Antigua and Barbuda. Our corporate affairs are governed by our Articles of Incorporation and By-laws and by the International Business Corporations Act and common law of Antigua and Barbuda. The rights of shareholders to take legal action against our

directors, officers and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us are to a large extent governed by the International Business Corporations Act and common law of Antigua and Barbuda. The International Business Corporations Act was modelled on Canadian company law and the common law of Antigua and Barbuda is derived ~~in part~~ from comparatively limited judicial precedent in Antigua and Barbuda, as well as from English common law, which has persuasive, but not binding, authority on a court in Antigua and Barbuda.

The rights of our shareholders and the fiduciary responsibilities of our directors under Antigua and Barbuda law are not as clearly established as they would be under statutes or judicial precedents in the United States. Among other things, Antigua and Barbuda has a less developed body of securities laws as compared to the United States, and provides significantly less protection to investors. Further, Antigua and Barbuda’s body of securities law, and the experience of its courts in addressing corporate and securities law issues of a type often experienced by public companies, is likely less developed than that of some of the other jurisdictions where publicly traded China-based companies are incorporated, such as the Cayman Islands.

It may be difficult or impossible for you to bring an action against us or our directors or officers in Antigua and Barbuda courts or to enforce or protect your rights under U.S. securities laws or otherwise. Even if you are successful in bringing an action of this kind, you may be unable to enforce a judgment against our assets or the assets of our directors and officers under the laws of Antigua and Barbuda.

There is doubt as to whether Antigua and Barbuda courts would enforce judgments of United States courts obtained in actions against us or our directors or officers that are predicated upon the civil liability provisions of the Securities Act, or in original actions brought against us or such persons predicated upon the Securities Act. There is no treaty in effect between the United States and Antigua and Barbuda providing for such enforcement, and there are grounds upon which Antigua and Barbuda courts may not enforce judgments of United States courts. In addition, Antigua and Barbuda corporations may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

PRC courts may recognize and enforce foreign judgments in accordance with the PRC Civil Procedures Law based either on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. If there are no treaties or reciprocity arrangements between the PRC and a foreign jurisdiction where a judgment is rendered, matters relating to the recognition and enforcement of the foreign judgment in the PRC may be resolved through diplomatic channels. The PRC does not have any treaties or other arrangements with the United States or Antigua and Barbuda that provide for the reciprocal recognition and enforcement of foreign judgments. As a result, it is generally difficult to enforce in the PRC a judgment rendered by a U.S. or Antigua and Barbuda court.

As a result of all of the above, as well as the fact that substantially all of our property, assets and operations are located in China and all of our major shareholders, directors and officers and substantially all of their assets are located outside of the United States, you may be unable to protect your shareholder interests through actions against us or our ~~management,~~officers, directors or major shareholders.

ITEM 4.

Information on the Company

A.	History and Development of the Company

Our legal and commercial name is Sinovac Biotech Ltd. Our principal executive offices are located at No. 15, Zhi Tong Road, Zhongguancun Science & Technology Park, Changping District, Beijing 102200, PRC. Our telephone number at this address is +86-10-5693-1800. Our registered address is located at the office of APN Corporate and Management Services Limited, Unit #4 Bryson’s Complex, Friars Hill Road, St. John’s, Antigua. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 801 2nd Avenue, Suite 403, New York, NY 10017.

We are a holding company and conduct our business in China through our 73.09% majority-owned subsidiary Sinovac Beijing, our wholly owned subsidiary Sinovac R&D, our 67.86% majority-owned subsidiary Sinovac Dalian, and our wholly owned subsidiaries Sinovac Biomed and Sinovac Hong Kong. Sinovac Beijing was incorporated on April 28, 2001, Sinovac R&D was incorporated on May 7, 2009, Sinovac Dalian was established on January 19, 2010, Sinovac Biomed was incorporated on April 16, 2015 and Sinovac Hong Kong was incorporated on October 21, 2008.

We were incorporated in Antigua and Barbuda on March 1, 1999 as an Antiguan company with limited liability under the laws of Antigua and Barbuda pursuant to the International Business Corporations Act. Before we adopted our current name on October 21, 2003, we were called Net-Force System Inc. and were primarily engaged in the online gaming business. We were quoted on the OTC Bulletin Board on February 21, 2003. In September 2003, we issued ten million new shares to Lily Wang, one of our then principal shareholders to acquire a 51% equity interest in Sinovac Beijing. Ms. Wang had contracted to purchase these shares from certain of Sinovac Beijing’s then shareholders for cash immediately before the above 51% share transfer. However, this 51% equity interest in Sinovac Beijing was transferred to us directly from those shareholders and was recorded under applicable PRC law transfer documents as a cash transaction. Lily Wang was responsible for paying the cash to those shareholders. The transfer of the Sinovac Beijing equity interest to us was registered and approved by PRC government authorities in August

2004. In September 2004, we acquired an additional 20.6% equity interest in Sinovac Beijing for approximately $3.3 million in cash. In October 2011, we further acquired an additional 1.53% equity interest in Sinovac Beijing by contributing the dividends declared to Sinovac Hong Kong but unpaid in amount of RMB18.6 million ($2.9 million). We currently own 73.09% of the equity interests in Sinovac Beijing and Sinobioway Medicine owns a 26.91% interest.

In January 2004, we entered into a share purchase agreement with Heping Wang and issued him 3.5 million of our common shares and a promissory note in the amount of $2.2 million to acquire from him a 100% equity interest in Tangshan Yian. Mr. Wang had contracted to purchase these shares from Tangshan Yian’s then two shareholders immediately before the above 100% share transfer. However, this 100% equity interest in Tangshan Yian was transferred to us directly from those shareholders and was recorded under applicable PRC law transfer documents as a cash transaction. Heping Wang was responsible for paying the cash to the two shareholders. The transfer of the Tangshan Yian equity interest by Mr. Wang to us was registered and approved by PRC government authorities in November 2004.

In the first quarter of 2008, we issued and sold an aggregate of 2.5 million common shares at $3.90 per share to Sansar Capital Management. We received approximately $9.75 million in gross proceeds from this private placement of our common shares.

In October 2008, we established Sinovac Hong Kong, a wholly owned subsidiary focused primarily on registering and distributing current and newly-developed vaccine products in Hong Kong and exporting our products abroad. In addition, Sinovac Hong Kong seeks research and development collaboration opportunities with third parties in Hong Kong.

In May 2009, Sinovac R&D was incorporated with a registered capital of $5 million. In 2016, our board of directors approved an additional capital contribution of $4.6 million, ~~by us,~~ which has been fully provided.

In November 2009, we entered into ana joint venture agreement with Dalian Jin Gang Group to establish Sinovac Dalian. In January 2010, we established Sinovac Dalian which focuses on the research, development, manufacturing and commercialization of live attenuated vaccines, such as varicella and mumps vaccines for human use. Pursuant to the joint venture agreement, we made an initial cash contribution of RMB60.0 million ($~~9.3~~8.6 million) in exchange for a 30% equity interest in Sinovac Dalian and Dalian Jin Gang Group made an asset contribution of RMB140.0 million ($~~21.6~~20.1 million), including manufacturing facilities, production lines and land use rights, in exchange for the remaining 70% interest in Sinovac Dalian.

In December 2010, we purchased an additional 25% equity interest in Sinovac Dalian from Dalian Jin Gang Group for consideration of RMB50.0 million ($~~7.7~~7.2 million). In 2014, the board of directors passed a resolution to increase our capital contribution to Sinovac Dalian in the amount of RMB80.0 million ($~~12.8~~11.5 million), which aimed to increase Sinovac’s equity ownership from 55% to 67.86%. RMB50.0 million ($~~7.7~~7.2 million) was initially provided through foreign debt with the expectation of a debt to equity swap of the total amount after the remaining RMB30.0 million ($~~4.6~~4.3 million) is provided to Sinovac Dalian. In 2016, an additional RMB30.0 ($4.3 million) million was made to Sinovac Dalian through foreign debt and subsequently the debt to equity swap for a total of RMB80.0 million ($11.5 million) was completed. In October 2016, our equity ownership in Sinovac Dalian increased to 67.86%.

In February 2010, we closed a public offering of our common shares. We issued and sold 11.5 million common shares at $5.75 per share. We received net proceeds of approximately $61.8 million, after deducting underwriting discounts and commissions and offering expenses ~~payable by us.~~

payable.

In 2013, we increased the capital investment to Tangshan Yian with the total amount of $4 million, which we lent to Tangshan Yian in 2010. In the same year, we lent Tangshan Yian $1 million to be used for sales and marketing spending and other corporate purposes and operational activities. In December 2015, ~~Sinovac~~we entered into an equity interest transfer agreement with Beijing Kuai Le Xing Biotech Co., Ltd. to transfer ~~Sinovac’s~~our 100% equity interest in Tangshan Yian to Beijing Kuai Le Xing Biotech Co., Ltd. for consideration of RMB13.0 million ($1.9 million). As of the date of this annual report, we have received RMB11.0 million ($~~1.7~~1.6 million) and the remaining RMB2.0 million ($0.3 million) is receivable from Beijing Kuai Le Xing Biotech Co., Ltd. The disposal of Tangshan Yian was completed in February 2016.

In April 2015, Sinovac established Sinovac Biomed Co., Ltd., which is 100% owned by Sinovac Biotech (Hong Kong) Ltd. Sinovac Biomed Co., Ltd. focuses on the distribution of vaccine products as well as providing consulting services in the vaccination industry.

In March 2016, we adopted ~~our~~the Rights Agreement. Pursuant to ~~our~~the Rights Agreement, subject to limited exceptions, upon (i) a person or group obtaining ownership of 15% or more of our common shares or (ii) the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of our common shares, in each case, without the approval of our board of directors, each Right will entitle the holders, other than the Acquiring Person, to buy, at an exercise price of $30.00, one one-thousandth of a share of our newly created series A junior participating preferred shares (the “Series A Preferred Shares”). Holders are entitled to receive, in lieu of each one one-thousandths of a Series A Preferred Share, common shares having a market value at that time of twice the Right’s exercise price. Our board of directors is entitled to redeem the Rights at $0.001 per Right at any time before the Rights are exercisable. We refer to the person who acquired 15% or more of the outstanding common shares of Sinovac Antigua as the “Acquiring Person.” ~~In February 2019, we amended and restated our Rights Agreement to extend its term until February 2020.~~ As described above, on March 5, 2018, Sinovac Antigua filed a lawsuit in the Court of Chancery of the State of Delaware seeking a determination whether the Shareholder Group had triggered ~~our~~the Rights Agreement by forming a group holding approximately 45% of Sinovac Antigua’s outstanding shares, in excess of the plan’s threshold of 15%, and acting in concert prior to the 2017 AGM.

On June 26, 2017, we entered into an Amalgamation Agreement with Sinovac (Cayman) Limited (“Parent”) and Sinovac Amalgamation Sub Limited, a wholly owned subsidiary of Parent. Pursuant to the Amalgamation Agreement, Parent would acquire Sinovac Biotech Ltd. for cash consideration equal to $7.00 per common share. On July 2, 2018, the Amalgamation Agreement was terminated.

Pursuant to the Rights Agreement, the board of directors elected to exchange each valid and outstanding Right held by Sinovac Antigua’s shareholders (not including the Collaborating Shareholders) for an Exchange Share. The total Exchange Shares to be received by any holder will be rounded up to the nearest whole common share and rounded down to the nearest whole Series B preferred share. On February 22, 2019, in order to facilitate the Exchange, approximately 27.8 million Common Shares and approximately 14.6 million Series B Preferred Shares were issued into a trust for the benefit of the holders of the valid and outstanding Rights (not including the Collaborating Shareholders). As of the close of trading in the United States on February 22, 2019, the Rights converted into the right to receive the Exchange Shares and will no longer trade with the common shares, and will not otherwise trade on any securities market.

In February 2019, we amended and restated the Rights Agreement. Pursuant to the amended and restated Rights Agreement, subject to limited exceptions, upon (i) a person or group obtaining ownership of 15% or more of the aggregate total of our common shares and Series B Preferred Shares then issued and outstanding or (ii) the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the aggregate total of our common shares and Series B Preferred Shares then issued and outstanding, in each case, without the approval of our board of directors, each Right will entitle the holders, other than the acquiring person, to buy, at an exercise price of $20.00, one one-thousandth of a share of our newly created series C junior participating preferred shares (the “Series C Preferred Shares”). Holders are entitled to receive, in lieu of each one one-thousandths of a Series C Preferred Share, common shares and/or Series B Preferred Shares having a market value at that time of twice the Right’s exercise price. Our board of directors is entitled to redeem the Rights at $0.001 per Right at any time before the Rights are exercisable. We refer to the person who acquired 15% or more of the outstanding common shares or Series B Preferred Shares of Sinovac Antigua as the “acquiring person.” In February 2020, we further amended the amended and restated Rights Agreement to extend its term until February 2021.

On March 6, 2019, the Delaware Chancery Court entered a status quo order providing that Sinovac Antigua not distribute any of the Exchange Shares from the trust until the final disposition of the pending Delaware litigation or further order of the Court. On April 4, 2019, the Eastern Caribbean Supreme Court, Court of Appeal issued an order that restrains Sinovac Antigua from taking further action under ~~its~~the Rights Agreement, including the distribution of the previously issued Exchange Shares to the holders of valid Rights, until the conclusion of 1Globe Capital, LLC’s appeal of the December 19, 2018 Judgment of the ~~High Court of Justice of~~ Antigua ~~and Barbuda.~~Court. On April 8, 2019, the Delaware Chancery Court stayed the Delaware litigation pending the outcome of 1Globe’s appeal of the Antigua Judgment. 1Globe’s appeal of the Antigua Court’s Judgment was heard on September 18, 2019, and the appeal decision is pending as of the date of this annual report. See “Legal and Administrative Proceedings” for additional information.

For additional information regarding our principal capital expenditures, see “— D. Property, Plants and Equipment” and ~~Item 5, Section B.~~“Item 5. Operating and Financial Review and Prospects —B. Liquidity and Capital Resources ~~“Capital~~— Capital Expenditures.”

The SEC maintains an Internet site that contains our reports, proxy and information statements, and other information that we filed electronically with the SEC at http:// www.sec.gov.

Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is http://www.sinovac.com. The information contained on our website does not form part of this annual report.

B.	Business Overview

We are a fully integrated China-based biopharmaceutical company that focuses on the research, development, manufacturing and commercialization of vaccines that protect against human infectious diseases including, without limitation, hepatitis A, hepatitis B, hand foot and mouth disease caused by enterovirus 71, seasonal influenza, H5N1 and H1N1 pandemic influenza and mumps. In 2002, we launched our first product, Healive, which was the first inactivated hepatitis A vaccine developed, produced and marketed by a China-based manufacturer. In 2005, we received regulatory approvals for the production of Bilive in China, a combined hepatitis A and B vaccine, and Anflu, a split viron influenza vaccine. In April 2008, we received regulatory approval for the production in China of our whole viron H5N1 pandemic influenza (avian flu) vaccine, which is the only vaccine approved for sale to the Chinese national vaccine stockpiling program.

In September 2009, we were granted a production license for Panflu.1, which was the first approved vaccine in the world against the influenza A H1N1 virus (swine flu). In December 2011, Sinovac Dalian obtained the production license from NMPA for its mumps vaccine product and launched the mumps vaccine in late 2012. In December 2015, NMPA issued the new drug certificate and production license for Inlive, our EV71 ~~vaccine, and in~~vaccine. In January 2016, NMPA issued the GMP certificate and Inlive, our EV71 vaccine, was commercially launched in China in June 2016.

Our pipeline consists of various vaccine candidates in the pre-clinical and clinical development phases in China. We obtained the approvals to conduct clinical trials of PPV, ~~pneumococcal conjugate vaccine, rubella vaccine, varicella vaccine,~~ sIPV, and quadrivalent influenza vaccine (“QIV”) in May 2014, ~~January 2015, December 2014, October 2015,~~ November 2015 and in November 2016 , respectively. And ~~we have filed~~the new drug ~~application~~applications for PPV, ~~varicella vaccine,~~ sIPV ~~quadrivalent influenza vaccine~~and QIV are received by NMPA in June 2017, ~~November 2017,~~January 2019 and March 2019. In December ~~2018,~~2019, NMPA approved and ~~February 2019 respectively.~~issued a product license for our varicella vaccine.

Our Products

We specialize in the sales, marketing, manufacturing, and development of vaccines for infectious diseases with significant unmet medical need. Set forth below is a chart that outlines our current marketed products and those that we have developed or are developing.

(1)	Our Panflu whole viron pandemic influenza vaccine did not undergo phase III clinical trials because none were required by the relevant authorities in order to receive regulatory approval.

(2)	Our Panflu split viron pandemic influenza Vaccine did not undergo phase III clinical trials because none were required by the relevant authorities in order to receive regulatory approval.

(3)	Our mumps vaccine did not undergo clinical trials because none were required by the relevant authorities.

Healive. In May 2002, we obtained final PRC regulatory approval for the production of Healive, the first inactivated hepatitis A vaccine developed in China. The hepatitis A virus, which is endemic in China and other developing countries, primarily impacts the liver by causing it to swell and preventing it from functioning properly. The disease is highly contagious and can be spread by close personal contact, by consuming contaminated food or by drinking water that has been contaminated by hepatitis A. According to the WHO, as no specific treatment exists for hepatitis A, prevention is the most effective approach against the disease. In February 2008, the PRC government included hepatitis A vaccine into its national immunization program, and announced plans to expand vaccination to newborns nationwide by the end of 2010. According to the NIFDC lot release records, approximately ~~21.6~~31.3 million doses of hepatitis A vaccines and ~~7.7~~11.3 million doses of inactivated hepatitis A vaccine were approved and released in China for the year ended December 31, ~~2018.~~2019. Administered intramuscularly, Healive is available in different doses for use by both adults (1.0 ml per dose) and children (0.5 ml per dose). Our production line to manufacture our hepatitis vaccines, Healive and Bilive, interchangeably has an aggregate combined production capacity of approximately 10 million doses annually. In 2019, 2018 ~~2017~~ and ~~2016,~~2017, we sold approximately 7.4 million, 8.1 million and 3.8 million, ~~and 3.5 million~~respectively, doses of Healive, which generated revenues of approximately $58.0 million, $52.4 million and $27.4 million, ~~and $20.0 million in revenues,~~ respectively. Since we launched Healive in 2002, we have sold a total of approximately ~~65.0~~72.4 million doses as of December 31, ~~2018.~~2019. We are selling Healive in Asia and Latin America.

•

Bilive. In June 2005, we obtained final PRC regulatory approval for the production of Bilive, the first combined inactivated hepatitis A and B vaccine developed and marketed in China. Bilive is a combination vaccine formulated with purified inactivated hepatitis A virus antigen, which we manufacture, and recombinant (yeast) hepatitis B surface antigen, which we source from a third-party supplier. Recipients under China’s vaccination program must privately pay for Bilive vaccinations. Bilive is designed for boost immunization or for users in the private-pay market who prefer the convenience of one inoculation rather than two. Similar to hepatitis A, hepatitis B is endemic in China, a major disease worldwide and a serious global public health issue. A substantial percentage of people infected with the hepatitis B virus carry chronic or lifelong infections. The chronically infected are at a high risk of death from cirrhosis of the liver or liver cancer. We are the only supplier in China that produces a combined inactivated hepatitis A and B vaccine, and our market share in China, according to the NIFDC lot release records, was 100% in 2016. Bilive is available in different doses for use in both adults and children. The 1.0 ml dose is for non-immune adults and adolescents 16 years of age and older. The 0.5 ml dose is for pediatric use in non-immune infants, children and adolescents from one year up to and including 15 years of age. The standard Bilive vaccination schedule consists of three doses. The second dose is administered one month after the first dose and the third dose is administered six months after the first dose. Booster vaccinations are recommended five years after the initial immunization. Our production line to manufacture our hepatitis vaccines, Healive and Bilive, interchangeably has an aggregate combined production capacity of approximately 10 million doses annually. In 2019, 2018 ~~2017~~ and ~~2016,~~2017, Bilive generated ~~approximately~~revenues of nil, $11.0 million and $10.4 million, ~~and $0.6 million in revenues,~~ respectively.

Anflu. In October 2005, we received final approval from NMPA to produce ~~our~~ Anflu, a vaccine against influenza. We began marketing Anflu in September 2006. The primary influenza vaccine used worldwide is the split viron vaccine, which contains virus particles disrupted by detergent treatment. The market penetration of the seasonal flu vaccine in China is significantly below that in the developed markets. We are the first Influenza Vaccine Supply (“IVS”) taskforce member from a developing country that collaborates with world-class partners in influenza vaccine research. According to the NIFDC lot release records, 16.1 million doses of influenza vaccines were approved and released in China for the year ended December 31, 2018. Our production line to manufacture our flu vaccines, Anflu, Panflu and Panflu.1, interchangeably has an annual production capacity of approximately 8 million doses of Anflu. We sold 0.3 million, 2.7 million and 2.0 million doses of Anflu in 2018, 2017 and 2016, which generated approximately $2.0 million, $13.5 million and $9.8 million in revenues, respectively. We didn’t supply season flu vaccine in 2018 due to the production disruptions resulting from the actions of the representative of Sinobioway Medicine. Further, Sinovac Beijing was forced to destroy the affected products. To maintain product safety, Sinovac Beijing temporarily decided to stop production at the impacted ~~facility; however,~~facility. The production of Anflu has resumed at this ~~facility.~~facility in 2019. According to the NIFDC lot release records, 30.8 million doses of influenza vaccines were approved and released in China for the year ended December 31, 2019. Our production line to manufacture our flu vaccines, Anflu, Panflu and Panflu.1, interchangeably has an annual production capacity of approximately 8 million doses of Anflu. In 2019, 2018 and 2017, we sold 4.1 million, 0.3 million and 2.7 million, respectively, doses of Anflu, which generated revenues of approximately $19.1 million, $2.0 million and $13.5 million, respectively. Our Anflu products are sold to Asia and Latin America.

Panflu. In April 2008, we were granted a production license for Panflu by NMPA. Panflu is the first and only approved vaccine available in China against the H5N1 influenza virus. The vaccine is approved for supply within China to the Chinese national vaccine stockpiling program and may not be sold directly to the Chinese commercial market. Panflu is also registered for sale in Hong Kong. Our production line to manufacture our flu vaccines, Anflu, Panflu and Panflu.1, interchangeably has an annual production capacity of approximately 20 million doses of Panflu ~~or 20 million doses of Panflu.1~~ given the yield of virus strain received from the WHO. We produced Panflu for government reservation since 2008, and we started recognizing revenue in 2010. ~~Our revenue~~We did not generate any sales from ~~the sale of~~ Panflu ~~amounted to $nil, $nil~~in 2019, 2018 and ~~$6.4 million in 2018, 2017 and 2016, respectively.~~

~~Panflu.1.~~ In September 2009, we were granted a production license for Panflu.1 by the NMPA. Panflu.1 is the first approved vaccine in the world against the influenza A H1N1 virus. The outbreaks of influenza A H1N1 was caused by a new virus that had not been seen previously in either human beings or animals. According to the NIFDC lot release records, we ranked number two in market share in China in 2009 and number three in 2010. Our production line to manufacture our flu vaccines, Anflu, Panflu and Panflu.1, interchangeably has an annual production capacity of approximately 20 million doses of Panflu or 20 million doses of Panflu.1. We started to sell Panflu.1 in September 2009. Our revenue from Panflu.1 amounted to approximately $14 million in 2011, and Panflu.1 is not likely to generate revenues in the foreseeable future. Panflu.1 is also registered for sale in Mexico.

~~Mumps vaccine~~. Mumps is a viral disease of the human species caused by mumps virus, which poses a significant threat to human health in the developing countries. According to the NIFDC release records, approximately 4.3 million doses of mumps vaccines were approved and released for the year ended December 31, 2018. In September 2012, we were granted a production license for mumps vaccine. We began to sell mumps vaccine in December of 2012 and no revenues were recognized in 2012. Mumps vaccine generated approximately $1.7 million, $1.7 million, and $0.5 million in revenues in 2018, 2017, and 2016, respectively.2017.

Split viron pandemic influenza vaccine. Our split viron pandemic influenza vaccine has been developed in conjunction with our whole viron pandemic influenza vaccine. Split viron vaccines are considered to have a better safety profile than whole viron vaccines, both of which are for the governmental stockpiling program. This product has been developed to address the needs of young children, who may be more susceptible to adverse reactions to whole viron pandemic influenza vaccine than to a split viron vaccine. In November 2011, we were granted the production license of split viron pandemic influenza vaccine that is to be used among the teenagers aged from 12 to 17. We did not generate any sales from split viron pandemic influenza vaccine in 2019, 2018 and 2017.

Panflu.1. In September 2009, we were granted a production license for Panflu.1 by the NMPA. Panflu.1 is the first approved vaccine in the world against the influenza A H1N1 virus. The outbreaks of influenza A H1N1 was caused by a new virus that had not been seen previously in either human beings or animals. According to the NIFDC lot release records, we ranked number two in market share in China in 2009 and number three in 2010. Our production line to manufacture our flu vaccines, Anflu, Panflu and Panflu.1, interchangeably has an annual production capacity of approximately 20 million doses of Panflu.1. We started to sell Panflu.1 in September 2009. Our revenue from Panflu.1 amounted to approximately $14 million in 2011, and Panflu.1 is not likely to generate revenues in the foreseeable future. Panflu.1 is also registered for sale in Mexico.

Mumps vaccine. Mumps is a viral disease of the human species caused by mumps virus, which poses a significant threat to human health in the developing countries. According to the NIFDC release records, approximately 3.2 million doses of mumps vaccines were approved and released for the year ended December 31, 2019. In September 2012, we were granted a production license for mumps vaccine. We began to sell mumps vaccine in December of 2012. Our revenue from the sale of mumps vaccine amounted to approximately $19.7 million, $1.7 million and $1.7 million in 2019, 2018 and 2017, respectively.

•

Inlive. EV71 causes HFMD among children under ten years old. HFMD is a common and usually mild childhood disease; however, HFMD caused by EV71 has shown a higher incidence of neurologic involvement, and a higher acute fatal incidence. There have been a number of outbreaks of HFMD caused by EV71 in the Asia-Pacific region since 1997 including in China, Malaysia, Singapore, Australia, Vietnam and Taiwan. According to the National Health and Family Planning Commission of China, from 2008 to 2017, more than 18.3 million cases of HFMD were reported, resulting in around 3,650 reported fatalities in China. According to the guidelines for use of inactivated enterovirus type 71 vaccine, EV71 infection caused majority of severe cases and fatalities from 2008 to 2015. There is no identified treatment for enterovirus infections. We started our research and development of the EV71 vaccine in 2008. In December 2009, NMPA accepted our application to commence human clinical trials and on December 23, 2010, we obtained approval from NMPA to commence clinical trials. In 2013, we completed all three phases of clinical trials, which showed our EV71 vaccine candidate had a good safety and immunogenicity profile, and had an efficacy rate of 94.6% against HFMD among infants and young children. In February 2014, the phase III clinical trial results of our EV71 vaccine were published online on NEJM, which showed the efficacy of the vaccine against HFMD, or herpangina, was 94.8% among infants and young children. On December 30, 2015, NMPA issued the new drug certificate and production license for our EV71 vaccine. On January 25, 2016, NMPA issued the GMP certificate for Inlive. We have been granted eight ~~granted~~ patents relating to the EV71 vaccine in China. Inlive primarily targets children from six months old to three years old, with each child requiring a total of two doses one month apart from another. According to the NIFDC release records, approximately ~~27.9~~18.9 million doses of EV71 vaccine were approved and released in China for the year ended December 31, ~~2018.~~2019. Our revenue from the sale of Inlive ~~generated~~amounted to approximately $149.2 million, $162.5 million and $121.3 million in 2019, 2018 and ~~$35.1 million revenue~~2017, respectively.

•

Varicella vaccine. Varicella is a highly contagious infectious disease caused by the varicella-zoster virus (herpesvirus 3, Human). It usually affects children, is spread by direct contact or respiratory route via droplet nuclei and is characterized by the appearance on the skin and mucous membranes of successive crops of lesions that are easily broken and become scabbed. Varicella is relatively benign in children, but may be complicated by pneumonia and encephalitis in adults. We had completed the pre-clinical studies of a human vaccine against varicella. The clinical trial application was filed with NMPA in January 2013 and obtained the clinical trial license in October 2015. A phase I clinical trial was conducted and completed in 2016 and a phase III trial was completed in 2017. The production license application was filed with NMPA in November 2017. The clinical site inspection was completed in 2018. The technical review on the registration dossier was also conducted in 2018 ~~2017~~ and ~~2016, respectively.~~supplementary documents were issued and responded to during the year. In December 2019, NMPA approved and issued a product license for our varicella vaccine. According to the NIFDC lot release records, 21.1 million doses of varicella vaccines were approved and released in China for the year ended December 31, 2019. We expect the commercial launches of varicella in 2020.

Our pipeline consists of vaccine candidates in the clinical and pre-clinical development phases in China, as follows:

Pneumococcal polysaccharide ~~vaccine.~~ ~~Pneumococcal polysaccharide~~ vaccine (“PPV”),. PPV is a vaccine used to prevent streptococcus pneumoniae (pneumococcus) infections, such as pneumonia and septicemia among adults aged 65 or older, adults with serious long-term health problems, smokers, and children older than two years with serious long-term health problems. We filed an application for clinical trials to NMPA in February 2011 and obtained the approval to commence clinical trials in May 2014. The phase III clinical trial has been completed and we filed an application for a production license in June 2017. ~~The research~~After a few rounds of submission of supplementary documents, we received notification of production site inspection from NMPA on September 29th 2019 and ~~clinical trial~~the site inspection ~~have been completed and registration dossier is being reviewed by NMPA. The technical review on the registration dossier~~ was conducted in ~~2018 and supplementary documents were issued and responded~~December 2019. The application of GMP inspection was submitted to ~~during the year.~~NMPA in February 2020.

~~Pneumococcal conjugate~~Sabin Inactivated Polio vaccine (“sIPV”).~~. Pneumococcal infection~~ Poliomyelitis (polio) is a ~~leading cause of serious illness in children and adults throughout~~highly infectious viral disease, which mainly affects young children. The virus is transmitted by person-to-person spread mainly through the ~~world. The disease is caused~~fecal-oral route or, less frequently, by a common ~~bacterium,~~vehicle (e.g., contaminated water or food) and multiplies in the ~~pneumococcus, which~~intestine, from where it can ~~attack different parts~~invade the nervous system and can cause paralysis. One in 200 infections leads to irreversible paralysis (usually in the legs). Among those paralyzed, 5-10% die when their breathing muscles become immobilized. In developing countries around the globe including China, oral polio vaccine (“OPV”), is widely utilized to eradicate polio. Although OPV is considered safe and effective, in rare instances, the live attenuated vaccine virus in OPV can cause paralysis, resulting in cases of vaccine-associated paralytic polio or circulating vaccine-derived poliovirus. Therefore, to eliminate the ~~human body.~~risk of such cases, OPV will be phased out from routine immunization programs around the world. According to the Polio Eradication & Endgame Strategic Plan 2013-2018 by WHO, ~~pneumococcal disease~~governments should complete inactivated polio vaccine (“IPV”) introduction and OPV withdrawal by 2016, and include IPV and OPV in routine immunization by 2018. OPV will be phased out from routine immunization programs around the world by 2020. Sabin IPV is safer to manufacturers and potentially more affordable as compared to the ~~leading vaccine-preventable killer~~currently available Salk IPV. The global demand for IPV is increasing as the Global Polio Eradication Initiative has called for IPV to be introduced globally. On April 3, 2014, we entered into a non-exclusive license agreement with The Institute for Translational Vaccinology (“INTRAVACC”) a governmental institute working under the Dutch Ministry of children under five years old in the world. At least one million children die of pneumococcal disease every year, most of whom are young children in developing countries. Since the U.S. commenced vaccination programs against this disease, the pneumococcal disease incidence has decreased by 94% in the U.S. Currently,Public Health, Welfare and Sports, to develop and commercialize sIPV for distribution in China there is only one imported vaccine product against the diseases. No domestic producer has been licensed to supply this vaccine. Our pneumococcal conjugate vaccine will primarily target children two years old or under, who number approximately 32 million in China. We obtained the clinical trials license in January 2015.

~~Rubella vaccine. Rubella is a disease caused by the rubella virus~~ and ~~an acute infection is usually associated~~other countries. In collaboration with the symptoms of fever and systemic rash. The clinical trial license was granted in December 2014. Development of this vaccine candidate depends on the progress of developing a measles, mumps and rubella vaccine (“MMR vaccine”).

~~Varicella vaccine~~. Varicella is a highly contagious infectious disease caused by the varicella-zoster virus (herpesvirus 3, Human). It usually affects children, is spread by direct contact or respiratory route via droplet nuclei and is characterized by the appearance on the skin and mucous membranes of successive crops of lesions that are easily broken and become scabbed. Varicella is relatively benign in children, but may be complicated by pneumonia and encephalitis in adults. According to the NIFDC lot release records, 13.4 million doses of varicella vaccines were approved and released in China for the year ended December 31, 2016. We hadINTRAVACC, we completed the pre-clinical ~~studies of~~study and submitted the application for clinical trials to NMPA in October 2014. In November 2015, we obtained a ~~human vaccine against varicella. The~~ clinical trial ~~application was filed with NMPA in January 2013. We obtained the~~license. Phase I/II clinical ~~trial license in October 2015. A phase I clinical trial was conducted and~~trials were completed in ~~2016 and~~April 2017, followed by the commencement of a phase III trial, ~~was completed in 2017. The production license application was filed with NMPA in November 2017. The clinical site inspection~~which was completed in 2018. ~~The technical~~In January 2019, the NDA was submitted to the NMPA. In March 2019, given the high demand for effective polio vaccines, the application was granted fast track review. Currently, the application is under review while planning on ~~the registration dossier was also conducted~~consistency study on three consecutive lots, which is expected to start in ~~2018 and supplementary documents were issued and responded to during the year.~~2020.

•

~~Sabin Inactivated Polio vaccine.~~ Poliomyelitis (polio) is a highly infectious viral disease, which mainly affects young children. The virus is transmitted by person-to-person spread mainly through the fecal-oral route or, less frequently, by a common vehicle (e.g., contaminated water or food) and multiplies in the intestine, from where it can invade the nervous system and can cause paralysis. One in 200 infections leads to irreversible paralysis (usually in the legs). Among those paralyzed, 5-10% die when their breathing muscles become immobilized. In developing countries around the globe including China, oral polio vaccine (“OPV”), is widely utilized to eradicate polio. Although OPV is considered safe and effective, in rare instances, the live attenuated vaccine virus in OPV can cause paralysis, resulting in cases of vaccine-associated paralytic polio or circulating vaccine-derived poliovirus. Therefore, to eliminate the risk of such cases, OPV will be phased out from routine immunization programs around the world. According to the Polio Eradication & Endgame Strategic Plan 2013-2018 by WHO, governments should complete, inactivated polio vaccine (“IPV”) introduction and OPV withdrawal by 2016, and include IPV and OPV in routine immunization by 2018. OPV will be phased out from routine immunization programs around the world by 2020. Sabin IPV is safer

•

Quadrivalent influenza vaccine (“QIV”). Different from the trivalent influenza vaccine, which includes an influenza A H1N1 virus, an influenza A H3N2 virus and one B virus, QIV, is designed to ~~manufacturers~~protect against four different flu viruses; two influenza A viruses and potentially more affordable as compared to the currently available Salk IPV. The global demand for IPV is increasing as the Global Polio Eradication Initiative has called for IPV to be introduced globally. On April 3, 2014, we entered into a non-exclusive license agreement with The Institute for Translational Vaccinology (“INTRAVACC”) a governmental institute working under the Dutch Ministry of Public Health, Welfare and Sports, to develop and commercialize sIPV for distribution in China and other countries. In collaboration with INTRAVACC, we have completed the pre-clinical study and submitted the application for clinical trials to NMPA in October 2014. In November 2015, we obtained a clinical trial license. Phase I/II clinical trials were completed in April 2017, followed by the commencement of a phase III trial, which was completed in 2018. In January 2019, the NDA was submitted to the NMPA. The consistency study on three consecutive lots is expected to start in 2019.

~~Quadrivalent influenza vaccine.~~ Different from the trivalent influenza vaccine, which includes an influenza A H1N1 virus, an influenza A H3N2 virus and one B virus, the quadrivalent influenza vaccine (“QIV”), is designed to protect against four different flu viruses; two influenza A viruses and two influenza B viruses, becausetwo influenza B viruses. These two very different lineages of B viruses circulate during most seasons. Adding another B virus to the vaccine aims to give broader protection against circulating flu viruses. We initiated the development of a QIV in May 2013. Following the completion of preclinical studies, we applied for the clinical license from the NMPA. The approval to conduct human clinical trial was issued by NMPA in November 2016. Phase III clinical trial has been completed. The preliminary results of the phase III clinical trial show that the vaccine is safe and immunogenic. The NDA has been filed and the site inspection was completed in March 2020.

Sars-coVv-2 (COVID-19) vaccine. We initiated the development of a ~~QIV in May 2013. Following~~vaccine against COVID-19 at the ~~completion~~end of ~~preclinical~~January 2020. Preclinical studies ~~we applied~~were conducted from then until early April 2020, when the vaccine candidate was proved to be safe and can provide protection on animals. The application for clinical trials was submitted to the ~~clinical license from~~NMPA on March 13, 2020. Since then, 18 submissions have been made to the ~~NMPA. The approval~~NMPA to ~~conduct human~~complete the full submission for clinical trial ~~was issued by~~application. The NMPA ~~in November 2016. Phase III~~implemented a concurrent review on the full submission and granted approval for clinical trials on April 13, 2020. The phase I clinical trial ~~has been completed. The preliminary results of the trial show that the vaccine~~commenced on April 16, 2020, and is ~~safe and immunogenic. The NDA has been filed, and the application is under review by the NMPA.~~ongoing.

Research and Development

We have established a leadership position in the research and development of vaccines in China. Since our inception, we have successfully developed and marketed Healive, Bilive, Anflu, Panflu, Panflu.1, mumps vaccine and Inlive ~~and~~ have made significant advances in the prevention of SARS. Please see “— Our Products.” We believe our R&D capabilities provide us with a key competitive advantage. We intend to focus our research and development efforts on developing vaccines for infectious diseases with significant unmet medical needs, as well as the vaccine products with extensive market demand in China and other countries. COVID-19 is spreading globally, and the whole world is facing an unprecedented public health crisis. We commenced the development of the COVID-19 vaccine at the end of January 2020. Our R&D team have completed comprehensive preclinical studies and are conducting clinical trials in partnership with leading academic research institutes in China.

In 2008, we restructured our R&D team in Beijing to better utilize our scientific and personnel resources. In 2009, we built an R&D center of approximately 13,300 square feet in the campus of our Beijing headquarters to meet our R&D demand. In 2011, we built a lab of 6,778 square feet, which is focused on maintaining quality control of our pipeline products.

In order to achieve our R&D goal, part of our R&D strategy is to focus on in-house development and to establish collaborations with domestic and international partners on technology and ~~virus~~key material licensing, including but not limit to strains ~~licensing.~~and cell lines. We have entered into collaborations with a group of leading universities, colleges and research institutes that have strong vaccine research capabilities and proven track records in China. In most cases, we will own the commercial rights to the products that result from our existing R&D strategic collaborations.

The investment in R&D is one of our strategies, which, we believe, will ensure our future growth. Our research and development expenses were $24.3 million, $21.9 million and $20.5 million in 2019, 2018 and ~~$12.6 million in 2018,~~ 2017, ~~and 2016,~~ respectively. We have obtained financial support from the PRC government to conduct preclinical and clinical research of vaccines for government-sponsored programs.

Sales and Marketing

Our sales strategy is to increase our market share and enhance our competitive advantage in the private vaccine sales market in China while building on this strength to push government to expand market size in the government-paid market.

Though the serious impact of the Changchun vaccine scandal, the overall vaccine market in China was increased in 2018. And although we suspended the production of hepatitis A vaccine and seasonal flu vaccine during the year, total sales of our regular products increased by 32% year over year.

In 2018, our sales model ~~has been~~was totally transformed to a collaborative model between our sales team and ~~third party promoting companies.~~third-party marketing agents. We have formed a new marketing management team, strengthened the compliance management to third-party ~~promotion companies,~~marketing agents, and expanded market coverage, improved market competition, and improved the quality of customer ~~service~~services through professional and academic promotion ~~model.~~activities. As of December 31, ~~2018,~~2019, our internal sales and marketing team ~~consisted of 61 employees, covering 1759~~covered 2,139 district CDC customers, representing an increase of 21.6%, in 28 provinces in China. Our sales team is mainly responsible for the maintenance of customer relationship at or above the provincial level, bidding access at the provincial level, the development of the public market, as well as product after-sales ~~service~~services and the support and management of third-party ~~promotion companies.~~marketing agents. We cooperate with 4357 third-party ~~promotion companies, with more than 600~~marketing agents, engaging approximately 1,000 marketing and promotional staff. The team of the third-party ~~promotional team~~market agents carries out business with district CDC customers with our ~~academic support.~~support in all aspects. In addition, we have taken the lead in placing commercial insurance compensation mechanism for abnormal response to vaccination nationwide ~~for~~in the private vaccine market to provide more professional services for CDC customers and consumers. We believe these efforts contributed to our reputation for quality and brand awareness in the Chinese vaccine market.

In 2019, 2018 and 2017, our sales in China contributed 92.3%, 93.7% and 99.2%, respectively, of our total sales. We intend to establish our presence, increase our sales to international markets and enhance awareness of our products outside of China. As of December 31, ~~2018,~~2019, we had already exported some of our vaccine products to 1118 countries. ~~And our~~Our products are being registered in ~~another 17~~30 countries. In order to speed up the business globalization, ~~progress,~~ as well as strengthening our reputation for quality, we obtained WHO prequalification in December 2017 for ~~our~~ hepatitis A vaccine, Healive. We will continue to explore the globalization of our product portfolio and develop products targeting ~~other~~ potential international markets where we believe we can be successful.

Seasonality

Our business is highly seasonal. For example, the influenza season generally runs from November through March of the next year, and the largest percentage of influenza vaccinations is administered between September and November of each year. As a result, we expect to realize most of our annual revenues from Anflu during this period. We expect this seasonality in our business to contribute to significant quarterly fluctuations in our operating results. In the first quarter, our strong winter-season sales are usually offset by the slow-down of business during the Chinese New Year holiday season that effectively lasts more than half a month. During this holiday season, many businesses in China, including CDCs and most departments in hospitals, are either closed or substantially reduce the level of their activities. Please see “Item 3. Key Information — D. Risk Factors — Risks Related to Our Company — Our business is highly seasonal. This seasonality will contribute to our operating results fluctuating considerably throughout the year.”

Suppliers

We obtain the raw materials from local and overseas suppliers. We generally maintain at least two suppliers for each key raw material, with the exception of hepatitis B antigens we use for Bilive production. We source hepatitis B antigens entirely from Beijing Tiantan. Please see “Item 3. Key Information — D. Risk Factors — Risks Related to Our Company — If any of our third-party suppliers or manufacturers cannot adequately meet our needs, our business could be harmed.” Raw materials generally are in good supply and the prices we pay for them have remained stable. We target to maintain our gross margin in the event of rising raw materials costs by improving our production processes and technical methods.

Manufacturing, Safety and Quality Assurance

We have three manufacturing bases located in the Haidian and Changping Districts of Beijing and Dalian City of Liaoning province.

We have two upstream production facilities in Haidian District, Beijing for commercialized products. Our Healive and Bilive share the same production line, which has an aggregate annual capacity of 10 million doses. Our Anflu production line has an annual capacity of 8 million doses, which can also be used to produce 20 million doses of Panflu or Panflu.1 annually.

~~Our~~We received GMP certificates for our Healive, Bilive and Anflu production facilities ~~received their GMP certificates~~ initially in March 2002, June 2005 and October 2005, respectively, and renewed their GMP certificates for another five years in ~~2008, 2010 and 2010, respectively.~~2018. The upstream production plants for our hepatitis vaccines and flu vaccines in Haidian District ~~have~~ passed the new GMP certification and obtained the new GMP certificate on April 17, 2013, which was renewed on April 13, ~~2018.~~2018 for five years. Our hepatitis A vaccine production line in both Shangdi site and Changping site passed GMP inspection by WHO for prequalification purpose in December 2017. Our upstream production line for PPV, with annual production capacity of 55.0 million doses, was built in ~~Haidian~~Shangdi site in 2014. As described above, a representative of Sinobioway Medicine and dozens of unidentified individuals forcibly entered Sinovac Beijing’s corporate offices and cut power to our Shangdi site. Due to the actions of the representative of Sinobioway Medicine, Sinovac Beijing was forced to destroy the affected products of hepatitis A vaccine and influenza vaccine and temporarily suspended production at the impacted facility in order to maintain product safety. Since the influenza vaccine is a seasonal product, there was no supply of Anflu for the flu season of 2018-2019. However, production of the hepatitis A vaccine resumed in fourth quarter of 2018 and production of the influenza vaccine resumed in March 2019.

We have built a new production site in Changping District, Beijing, which consists of a new filling and packaging line that complies with the new PRC GMP standards, EV71 production facilities and a warehouse. The EV71 vaccine production line has a designed annual capacity of 20 million doses and was granted the GMP certificate in January ~~2016.~~2016 for five years. Our upstream production facilities of Sabin IPV were built in Changping in 2017 with expected annual production capacity of 20 million doses.

Our production site in Sinovac Dalian focuses on the research, development, manufacturing and commercialization of live-attenuated vaccines, such as varicella, mumps and combination vaccines containing measles, mumps, rubella, and/or varicella. Sinovac Dalian ~~has~~ received its GMP certificate (2010 version) from NMPA for its mumps vaccine in September 2012 and launched mumps vaccine, its first commercial product, in late 2012. The renewed GMP certificate issued by Food and Drug Administration of Liaoning Province was obtained on February 13, 2018, which will remain valid until February 12, 2023. The ~~construction of~~Second Amendment to the PRC Pharmaceutical Administration Law became effective on December 1, 2019, according to which the GMP and GSP certification system has been abolished. The application for GMP and GSP certification are no longer be accepted. The manufacturers are required to apply for and obtain a production ~~line for the~~license. Our varicella vaccine ~~is being completed.~~

production line was inspected by NMPA and a production license was granted in December 2019.

Each of our subsidiaries has its own quality assurance departments. The quality assurance department of each subsidiary plays a role to supervise the R&D, manufacturing, procurement, quality control, sales and marketing, logistics and plant construction of ~~its own~~each subsidiary under the guidance of the relating regulations and guidelines. Regular training or seminars are organized among quality assurance departments of each subsidiary to share and exchange knowledge and experiences.

Sinovac has built a pharmacovigilance system. Pharmacovigilance system includes organization structure, documentation, working procedures and SOPs. The organization structure indicates staff organization and their relevant duties and responsibilities. According to the requirements of the regulatory authorities, we regularly report the severe Adverse Event Following Immunization (“AEFI”) in time ~~and regularly.~~. We summarize and analyze safety information coming from post-marketing surveillance, phase IV clinical trials, safety studies and literatures, and to submit the Periodic Safety Update Reports to the regulatory authorities regularly. Meanwhile, we are also required to assist the regulatory authorities to investigate on the AEFIs and provide related information as required.

~~Collaborations~~

Collaborations

In September 2015, Sinovac Dalian entered into a technology transfer and supply agreement with GlaxoSmithKline Biologicals SA (“GSK”), to use GSK’s measles seeds to develop combination vaccines containing measles for the China market. Under this agreement, GSK agreed to transfer its measles seeds, and provide reasonable assistance and relevant technical materials to Sinovac Dalian for developing and producing combination vaccines containing measles. We made a payment of $nil, $nil and $87,000 for purchasing measles seeds from GSK during the year ended December 31, 2019, 2018 and 2017.

On April 3, 2014, we entered into a non-exclusive license agreement with INTRAVACC, a governmental institute working under the Dutch Ministry of Public Health, Welfare and Sports, to develop and commercialize sIPV for distribution in China and other countries. We expect to develop and commercialize the vaccine in China first, as well as seeking regulatory approval in other ~~countries.~~countries at the later stage. The agreement has a term of 50 years. Please see “— Our Products.”

We agreed to pay INTRAVACC a license fee of up to $2,406 million (€1.5 million) net of PRC withholding tax, including an entrance fee and milestone payments upon ~~achieving~~achievement of specific milestones. We also agreed to pay royalty payments in a single digit percentage of net sales generated worldwide from the product or products developed under the license agreement. We recorded an entrance fee of $0.7 million (€0.5 million) excluding PRC withholding tax for the year ended December 31, 2014 as research and development expense. We also recorded $0.1 million (€0.1 million) for payment made to INTRAVACC for use of sIPV viral seeds in research and development expense for the year ended December 31, 2014. We recorded a milestone fee of $0.6 million (€0.5 million) ~~and $0.6 million (€0.5 million)~~ for the ~~years~~year ended December 31, 2018, ~~and 2016~~ as research and development ~~expense, respectively.~~expense. There was no expense incurred or paid to INTRAVACC for the ~~year~~years ended December 31, 2019 and 2017.

We licensed from MedImmune, LLC (“MedImmune”) certain rights to use patented reverse genetics technology pertaining to a virus strain used for the production of Panflu (H5N1). We have agreed to pay an upfront license fee and to pay milestone payments of up to an aggregate of $9.9 million upon the achievement of certain amount of cumulative net sales of licensed products in China (including Hong Kong and Macau), as well as royalty payments in single digits of net sales of the licensed products in China (including Hong Kong and Macau). On August 15, 2012, we entered into amendment agreements with MedImmune in respect of four of our patent license agreements with MedImmune to, among other things, extend the effectiveness of each agreement to reflect revised termination dates between December 2015 and May 2021. We accrued ~~license fee and royalties of $3.4 million at the end of 2011 which were paid in 2012. We did not make any royalty payment in 2013 but made a $1.0 million royalty payment in May 2014. We accrued~~ a royalty payment of $9,000 ~~and $8,000 as of December 31,~~in 2018, ~~and 2016,~~ which was paid in 2019. We did not accrue any royalty payment in 2019 and ~~2017, respectively.~~2017.

In March 2009, we entered into a technology transfer agreement (with an amendment agreement entered into on December 14, 2011) with Tianjin CanSino Biotechnology Inc. (“Tianjin Cansino”). According to the agreement, Tianjing Cansino will transfer the technology related to pneumococcal vaccine to us and jointly develop the technology with us. The collaboration term under the technology transfer agreement is from March 12, 2009 to eight years after the first sale of the vaccine developed under the technology transfer agreement in the Chinese market.

Under the terms of the technology transfer agreement, we will make milestone payments of up to $3 million and royalty payments ranging from 6% to 10% of net sales in China. Both parties will work together to develop international markets for the products. On November 17, 2009 and December 14, 2011, two amendment agreements were signed for the payment of $0.3 million for the transfer of an additional six serotypes and related technology. As of December 31, 2016, we made total milestone payments of $1.2 million ($1 million under the March 12, 2009 agreement and $0.2 million under the December 14, 2011 amendment)~~. The~~.The remaining milestone payments will be paid when we achieve each specific milestone, which includes obtaining clinical trials approval, completing clinical trials and achievement of desired results, and achievement of commercial sales.

In January 2015, we entered into a third amendment to the technology transfer agreement dated March 12, 2009, ~~and the two amendment agreements dated~~as amended on November 17, 2009 and December 24, 2011. By entering into this third amendment, the technology transfer agreement was revised to be a licensing agreement. The remaining milestone and royalty payments under the technology transfer agreement have been reduced. Both we and Tianjin Cansino are free to develop pneumococcal vaccines or to collaborate with one other company for the same purpose. We ~~made a~~did not make any payment ~~and~~or recorded ~~$nil, $nil and $0.3 million in~~any research and development ~~expenses~~expense for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016, respectively.~~2017.

In August 2009, we entered into a patent license agreement with the National Institutes of Health (“NIH”), an agency of the United States Public Health Services within the Department of Health and Human Services. NIH has granted us a non-exclusive license to ~~make~~import and use certain ~~of its products.~~Rotavirus Strains and Monoclonal Antibodies (“Biological Materials”) to develop an oral rotavirus vaccine and produce the vaccine in commercial sales and launch into market. NIH has also granted us the right to use certain Documentation associated ~~information~~with the Biological Materials for this research and development project. The term of ~~its licensed products. The collaboration term~~the license under the patent license agreement is from August 18, 2009 to the later of (a) the expiration of all royalty obligations under the licensed rights where such rights exist and (b) eight years after the first commercial sale by us, unless the agreement is terminated earlier per the provisions included therein.

We agreed to pay NIH a license ~~issue~~ royalty of $80,000 upon execution of the agreement and a non-refundable minimum annual royalty of $8,000, and royalty payments on net sales ranging from 1.5% to 4% depending on the sales territory and the customers. We also agreed to pay NIH benchmark royalties of $0.3 million upon achieving each benchmark as specified in the patent license agreement, including completion of clinical trials, obtaining regulatory approval for marketing, and achievement of commercial sales. We recorded a license ~~issue~~ royalty of $1,000, $16,000 and $nil for the year ended December 31, 2019, 2018 and 2017, respectively, as research and development ~~expenses (2017 - $nil, 2016 - $nil).~~

expenses.

Competition

The pharmaceutical, biopharmaceutical and biotechnology industries both within China and globally are intensely competitive and are characterized by rapid and significant technological progress, and our operating environment is increasingly competitive. In 2010, NMPA increased the quality standard of some vaccine products by issuing a new version of Pharmacopeia. As a result, some vaccine products manufactured by multinational companies could no longer be sold in China. According to NMPA, there are approximately 40 vaccine companies in China, of which we believe approximately ~~ten~~10 are our direct competitors.

Even with the advent of private medical and healthcare insurance programs in China and the government vaccine purchase program’s expanded vaccine list, most Chinese citizens must pay for vaccines by their own ~~vaccines~~ because these insurance programs do not typically cover vaccines and the government vaccine purchase program covers only infants and young children. We believe the consumer market for conventional products is health conscious yet price sensitive and accordingly would favor our products over both the cheaper ~~but not enough high~~vaccines with lower quality ~~vaccines~~ provided by local manufacturers and ~~comparable quality but~~the more expensive vaccines with comparable quality manufactured by international competitors. Our competitors, both domestic and international, include large integrated multinational pharmaceutical, domestic state-owned entities and domestic private companies that currently engage in, have engaged in or may engage in, efforts related to the discovery and development of new biopharmaceuticals and vaccines. Many of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing and sales resources than we ~~do, as well as~~do. They are also more ~~experience~~experienced in research and development, clinical trials, regulatory matters, manufacturing, marketing and ~~sales, although these advantages are not comprehensive.~~

sales.

Multiple vaccine products have been approved for ~~sale~~sales worldwide. Many of these vaccine products are marketed by our major competitors ~~and are~~ in ~~the areas of~~particular for hepatitis A, hepatitis B, influenza and EV71. Specifically, with respect to the inactivated hepatitis A vaccine, we consider Tibet AIM Biovaccine Technology Group Co., Ltd. (the hepatitis A manufacturer spun off from Kunming Institute of Biological Products) and Merck Sharp & ~~Dohne~~Dohme Corp. as key competitors in ~~the~~ China, ~~market,~~ and GlaxoSmithKline Biologicals and Merck Sharp & Dohme Corp. for the markets outside of China.

In China, according to the batch release numbers published by NIFDC in 2019, over ~~55%~~60% of hepatitis A vaccines released in China are live attenuated vaccine, another type of hepatitis A vaccine compared to inactivated version, which is the biggest competitor for our inactivated hepatitis A vaccine. The live attenuated hepatitis A vaccine manufacturers include Kunming Institute of Biological Product, Pukang Biological Co., Ltd., and Changchun Institute of Biological Products. With respect to the hepatitis A and B vaccines, we are the only company ~~to supply hepatitis A and B vaccine~~with this product in China.

With respect to the influenza vaccines, ~~in China,~~ we consider Hualan Biological Engineering Inc., and Changchun Institute of Biological Products ~~Sanofi Pasteur S.A., Aleph Biological Co., Ltd. (Dalian Yalifeng)~~as key competitors in China, and Sanofi Pasteur S.A. as our major ~~competitors~~competitor for the market outside of China.

With respect to the EV71 vaccines, we considered Kunming Institute of Biological Product and China National Biotec Group Co., Ltd. as our key competitors in China as well as outside of China.

We believe we enjoy a number of advantages over ~~our~~the PRC domestic competitors and multinational ~~competitors.~~competitors in China. Generally, we believe that the principal competitive ~~factors~~advantage in the markets for our products and product candidates include:

safety and efficacy profile;

brand reputation;

product supply; and

after-sales ~~service.~~services.

Intellectual Property and Proprietary Technology

Protection of our intellectual property and proprietary technology is important ~~for~~to our business. We rely primarily on a combination of trademark, patent and trade secret protection laws in China and other jurisdictions, as well as employee and third-party confidentiality agreements to safeguard our intellectual property, know-how and ~~our~~ brand. Our ability to protect and use our intellectual property rights in the development and commercialization of our technologies and products, operate without infringing the proprietary rights of others and prevent others from infringing our proprietary rights is crucial to our ~~continued~~long term success. We will be able to protect our products and technologies from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade secrets, know-how or other proprietary information.

We have a total of 5358 issued patents and a number of pending patent applications relating to our vaccines in China. ~~Our hepatitis A vaccine and seasonal influenza vaccine and EV71 vaccine~~We have five, three and eight issued patents for protection for our hepatitis A vaccine, seasonal influenza vaccine and EV71 vaccine, respectively.

With respect to, among other things, proprietary know-how that is not patentable and processes for which patents are difficult to enforce, we rely on trade secret protection and confidentiality agreements to safeguard our interests. We believe that many elements of our vaccine products, clinical trial data and manufacturing processes involve proprietary know-how, technology or data that are not covered by patents or patent applications. We have taken appropriate security measures to protect ~~these elements.~~such assets . We have entered into confidentiality agreements (which include, in the case of employees, non-competition provisions) with all our employees and many of our ~~employees,~~ consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements provide that all confidential information developed or made known to the individual or an organization or company during the course of ~~the individual’s~~its relationship with us is to be kept confidential and not disclosed to third parties except in specific ~~circumstances.~~circumstances permitted by such agreements. In the case of our employees, the agreements provide that all of the technology conceived by the individual during the course of employment is our exclusive property and require our employees to assign to us all of their inventions, designs and technologies they develop ~~during their terms of employment with us~~once the technology is conceived and cooperate with us to secure patent protection for these inventions if we wish to pursue such protection.

WeIn the past, we have relied on the administrative protection afforded to new drugs through the monitoring period provided by ~~NMPA in the past.~~NMPA. During the monitoring period, third party applications for manufacturing or importing the same ~~drug~~drugs are not accepted by NMPA. The administrative protection for Healive expired in December 2007 and Bilive expired in January 2008. ~~The~~Currently, the administrative protection was no longer implemented in China. Instead, NMPA implements a new drug monitoring period starting from the issuance of production ~~license, aiming to collect safety data for further evaluation on new products of this kind commercialized in China.~~license. Our EV71 vaccine was granted a five-year new drug monitoring period and during ~~which~~the monitoring period, no other company ~~is able to~~will be approved to enter into a human clinical study of ~~this~~the same kind of ~~vaccine except the~~vaccine. Therefore, only three products from Kunming, CNBG and Sinovac have been approved in China. ~~This~~The monitoring period of our EV71 vaccine will expire in December 2020.

We maintain 20 registered trademarks in China, including (i) ~~Sinovac,~~“Sinovac”, (ii) Sinovac’s Chinese name and its logo, (iii) ~~Healive,~~“Healive”, its Chinese name and its logo, (iv) ~~Bilive~~“Bilive” and its Chinese name, (v) ~~Anflu~~“Anflu” and its Chinese name, (vi) ~~Panflu,~~“Panflu”, its Chinese name and its logo, (vii) ~~PANFLU.1~~“PANFLU.1” and its Chinese name, (viii) “Inlive” and its Chinese name, ~~of Inlive~~(ix) “EV71Vac” and ~~(ix) EV71Vac~~(x) “EntV71” and ~~EntV71.~~ its Chinese name.

We have registered and maintain “Sinovac” trademark in Canada, Malaysia, the Philippines, South Korea and ~~Philippines and the United States.~~Egypt. We have registered and maintain “Sinovac” as trademarks under the “Madrid international trademark registration system,” which can be used in the member countries of Madrid Union, including France, United Kingdom and Germany. In the Philippines, we have registered and maintain “Anflu”.

As our brand names “Sinovac” and “科兴” are becoming more recognized in the vaccine market, we are working to maintain, increase and enforce our rights in the trademark portfolio. Since ~~the “Sinovac” trademark certificates of Columbia, India, Thailand and United States have already expired, we now deal with their renewal procedures.~~

~~We currently use “~~科2001, Sinovac Beijing has been using “科兴” (Kexing) as part of ~~Sinovac Beijing’s~~its Chinese trade ~~name in the PRC. We also~~name. Sinovac Dalian began to use “科“科兴” (Kexing) as part of ~~the~~its Chinese trade name ~~of Sinovac Dalian~~ in ~~the PRC.~~2010. Shenzhen Kexing ~~currently owns the “~~科successfully registered “科兴” trademark ~~registered~~ in China for Class 5 (Pharmaceuticals) under the International Classification of Goods and ~~Services.~~Services in 2001. To protect our interest in using “科“科兴” in our trade ~~name,~~names, we applied to register “科“科兴” in China for Class 42 (Scientific & Technological Services & Research) in 2006 and the PRC Trademark Office of the State Administration for Industry and Commerce approved our application in 2010. ~~The “~~科As of the date of this annual report, the “科兴” trademark registered and owned by Shenzhen Kexing has not been identified as “Well-known Trademark” by the relevant PRC ~~authorities since we first started using “~~科兴~~” in the trade name of Sinovac Beijing in 2001.~~authorities. If the “科“科兴” trademark owned by Shenzhen Kexing is ever officially identified as a “Well-Known ~~trademark,”~~Trademark” in the future, however, we may be subject to trademark infringement claim for the use of “科“科兴” in our trade ~~name.~~

~~Although the trademark application and the trade name approval systems are administered separately in China, that we may lose our ability to use the “~~科兴” trademark in our trade name due to a successful trademark infringement claim, which may adversely affect our ability to maintain and protect our brands, cause us to incur litigation costs and divert resources and management attention. As our brand name is becoming more recognized in the vaccine market, we are working to maintain, increase and enforce our rights in our trademark portfolio, the protection of which is important to our reputation and branding.names.

We have registered our own domain names, including www.sinovac.com.cn and www.sinovac.com, with the China Internet Network Information Center.

Insurance

We maintain property insurance coverage with an annual aggregate insured amount of approximately ~~RMB744.9~~RMB802 million ($~~108.3~~115.2 million) in 2019 to cover our property and facilities from claims arising from fire, earthquake, flood and a wide range of other natural disasters. We are carrying worldwide product liability insurance for Healive, Bilive, Anflu, Panflu and Inlive (excluding the United States and Europe) from April ~~2019~~2020 to April ~~2020.~~2021. We do not carry liability insurance to cover liability claims that may arise from the incidents relating to the clinical trials of our vaccine products. Our insurance coverage may not be sufficient to cover any claim for product liability or damage to our fixed assets. We do not maintain any business interruption insurance. We are negotiating with the insurance providers for a renewal of our product liabilities insurance policies. See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Company — We could be subject to costly and time-consuming product liability actions and, because our insurance coverage is limited, our exposure to such claims could cause significant financial burden.”

Regulatory Framework of the Pharmaceutical Industry in the PRC

The testing, approval, manufacturing, labeling, advertising and marketing, delivery, post-approval safety reporting, and export of our vaccine products or product candidates are extensively regulated by governmental authorities in the PRC and other countries.

In the PRC, the NMPA regulates and supervises ~~biopharmaceutical~~vaccine products under the Pharmaceutical Administration Law, the Implementing Regulations on Pharmaceutical Administration Law, the Vaccine Administration Law, the Administration of Registration of Pharmaceuticals Procedures, and other relevant rules and regulations which are applicable to manufacturers in general. Every step of our ~~biopharmaceutical~~vaccine production is subject to the requirements on the manufacture and sale of pharmaceutical products as provided by these laws and regulations, including but not limited to, the standards of clinical trial, ~~declaration,~~ approval and transfer of new medicine registrations, applicable industry standards of manufacturing, distribution, packaging, advertising and pricing.

Pre-clinical Studies. Pre-clinical studies include in-vitro laboratory evaluation of the product candidate, as well as in-vivo animal studies to assess the potential safety and efficacy of the product candidate. Pre-clinical studies must be conducted in compliance with Good Laboratory Practice for Non-clinical Studies of Pharmaceuticals. With respect to vaccines, the pre-clinical studies should also comply with Technical Guidance for Pre-clinical Studies on Preventive Vaccines. We must submit a file package for investigational new drug application (“IND”), to the Centers for Drug Evaluation. The ~~files should include pharmaceutical research, pharmacology and toxicology research, together~~applicant shall be provided with ~~the records of manufacturing and testing and the sample of product candidate. We cannot commence~~a decision on whether a consent is granted to conduct clinical ~~trials until we obtain the approval of IND notification.~~study. If no decision is provided within 60 days, it’s regarded as permission granted. We cannot assure that submission of an IND will result in the Centers for Drug Evaluation allowing clinical trials to begin, after these trials commence, issues could arise that result in the suspension or termination of such clinical trials.

Clinical trials. Clinical trials involve the administration of the product candidate to healthy volunteers or patients under the supervision of principal investigators, who are generally physicians or an independent third party not employed by us or under our control. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. In Phase I, the initial introduction of the drug into human subjects, the drug is usually tested for safety (adverse effects), dosage tolerance, and pharmacologic action. Phase II usually involves studies in a limited patient population to evaluate preliminarily the efficacy of the drug for specific, targeted conditions and to determine dosage tolerance and appropriate dosage and to identify possible adverse effects and safety risks. Phase III trials generally further evaluate clinical efficacy and test further for safety within an expanded patient population. Clinical trials have to be conducted in compliance with the Good Clinical Trial Practice of Pharmaceuticals.

With respect to vaccines, we also have to comply with the NMPA’s Requirements on Application for Clinical Trial of New Preventive Biological Products. The sample vaccine products must be tested by the NIFDC before they may be used in the clinical trials. We or the NMPA may suspend clinical trials at any time on various grounds, including a finding that subjects are being exposed to an unacceptable health risk.

After three phases of clinical trials, we apply for New Drug Application (“NDA”). We submit to the Centers for Drug Evaluation the NDA file package, which includes a clinical trial research report, pharmaceutical research data, and records of manufacturing and testing of three batches of products, to apply for ~~a new drug certificate~~the marketing authorization and/ or production license. For vaccines, we have to comply with the NMPA’s Guidelines for Clinical Trial Report on Vaccines.

Communication Meeting. In order to improve review process of regulatory approval, NMPA has set up a communication channel between the applicant and reviewing agencies. Applicant can discuss ~~the~~ material safety ~~issue~~issues during the human clinical study or significant technical ~~issue~~issues arise during the development process with regulatory agencies. This kind of ~~meeting~~meetings can also be held at critical stages in the entire process of drug development, including before IND application, before phase II or phase III human clinical studies, or before NDA ~~application, etc.~~application.

~~New Drug Certificate~~Marketing Authorization. The ~~Centers for Drug Evaluation will conduct a preliminary examination of our~~applicant can submit an application for a ~~new drug certificate. Once it decides~~marketing authorization with submission of relevant research materials after completing the research on pharmacology, pharmacological toxicology and clinical trials to support the registration of drugs on the market, establishing quality standards, completing the verification of commercial-scale production processes, and preparing to accept ~~our application based upon such preliminary examination,~~ the ~~Centers for~~verification and inspection of drug registration. The Drug ~~Evaluation will begin technical~~Review Center shall conduct a comprehensive review of the safety, effectiveness and ~~give their technical opinion to NMPA. At the meantime, according to the requirement~~quality controllability of ~~technical review, the Centers for Drug Evaluation can ask for an on-site examination~~drugs on the ~~circumstances~~basis of ~~our clinical trials~~the drug registration declaration information, verification results and ~~pharmaceutical research.~~ ~~NMPA~~ ~~will decide whether or not to~~inspection results, etc., and, if the conclusions of the comprehensive review are adopted, approve the listing of drugs and issue a ~~new drug~~ certificate ~~to us. We consider obtaining~~of registration of drugs.Then NMPA will verify the ~~new drug certificate for our product candidates a significant milestone in our business.~~authenticity of submitted document, reliability of submitted data and conduct site inspection on research lab and production site, as well as other inspections as NMPA thinks necessary. For vaccine products, the on-site inspection on production site and the inspection of the quality management on the production of vaccine products shall be conducted. Vaccine products shall be tested before marketing authorizations are issued. The testing includes confirmation on the quality stand and sample testing.

Production Permit. Simultaneously with the application of ~~new drug certificate,~~the marketing authorization, we also apply to NMPA for a production license to manufacture the new drug to be approved by NMPA. The production license application will be examined with similar stage procedure as for the ~~new drug certificate,~~marketing authorization, first by the Center for Drug Evaluation, and NMPA the last. After the Center for Drug Evaluation accepts the application, the Center for Drug Evaluation will review the application files and give technical opinion. If the Center for Drug Evaluation is satisfied with our application materials, it will notify us to apply for the on-site production inspection within six months after being so notified.

The Center for Food and Drug Inspection will conduct an on-site inspection on our production procedures within 30 days after receipt of our application and take samples from three batches of our products, and the NIFDC will test the selected samples and later submit its testing reports to the Centers for Drug Evaluation. The Center for Food and Drug Inspection must submit the on-site production inspection report to the Center for Drug Evaluation. The Centers for Drug Evaluation will form a comprehensive opinion based upon the technical review and evaluation opinion, the on-site production inspection report and the testing results of the samples, and submit its opinion and relevant materials to NMPA. NMPA

will decide whether or not to issue the production permit to us. If the product approval and production approval both meet the criteria, NMPA will issue the production permit together with the ~~new drug certificate~~marketing authorization at the same time. The production permit is valid for a term of five years and must be renewed before its expiration. During the renewal process, our production facilities will be re-evaluated by the appropriate governmental authorities and must comply with effective standards and regulations.

~~Under certain~~During or after a public health emergency, the NMPA may decide, in accordance with the law, to apply special approval for the prevention and treatment of medicines necessary for emergency response to public health emergencies. For applications for the registration of drugs subject to special approval, the NMPA shall, organize and carry out the processing, review, verification and inspection of drug registration in a simultaneous manner, following the principles of centralized coordination, early intervention, and rapid, efficient and scientific examination and approval. The circumstances, ~~for instance, where drugs are developed to cure a disease without effective therapeutic methods, NMPA provides a~~procedures, time limits and requirements of special ~~proceeding for its review~~approval shall be implemented in accordance with the provisions of the ~~new drug certificate application and production permit application relating to such drugs.~~

~~In addition, in order to encourage innovation and shorten the time of commercialization of pharmaceutical products that are urgently needed, CDE has developed a prioritized review and~~special approval ~~mechanism. If a product is granted prioritized status, the review will be expedited.~~

~~NMPA will specify a monitoring period ranging from three to five years when approving the first production permit~~procedure for most new drugs. During this monitoring period, the manufacturers holding the new drug certificates must regularly report, among other things, the production process, efficacy, stability and side effects of the new drugs involved to the provincial level of NMPA. During the same period, NMPA will not accept any new application for approval of the same drug involved. However, if a third party has filed an application for the same drug and obtained the clinical trial permit before the monitoring period commences, the third party may still obtain a new drug certificate and production permit for the same drug.medicines.

We may also be required to conduct clinical trials prior to commencing the manufacturing of pharmaceutical products for which there are published state pharmaceutical standards.

~~GMP Certificate~~. After receiving the production permit, we should submit the GMP inspection application to the provincial level of NMPA, the provincial level of NMPA will arrange for the inspection on our facilities for purposes of GMP inspection. If we pass the GMP inspection, the provincial level of NMPA will issue the GMP Certificate. A GMP Certificate is used to approve the quality system, including quality assurance and quality control management, production management, materials and products, qualification and validation, facility and equipment. NMPA has issued GMP standards for pharmaceutical manufacturers to minimize the risks arising out of the production process of drugs that are not identified or eliminated through testing the final products. Otherwise, the application and on-site inspection of GMP can also be merged into the on-site inspection of production procedures in the NDA process.

~~A GMP Certificate is valid for five years and we should apply for a renewal of our GMP Certificate no later than six months prior to the expiration of our GMP Certificate.~~

~~We cannot commence the manufacture of a new drug unless and until we have obtained a valid new drug certificate, production permit and GMP Certificate.~~

Batch Approval. Our vaccine products cannot be distributed in the market before receiving batch approval. After we obtain the ~~GMP certificate,~~production permit, we will start commercial production, after which we need to apply for batch release approval by the NIFDC for the commercial lots. For each batch of products, we will provide samples taken from cold rooms by inspectors, together with manufacturing records, self-testing records and other quality control documents. The NIFDC will review the documents and test the samples and issue a batch approval within approximately two months if our manufacture procedures and the quality of our products meet the NMPA standards. With the batch approval, we may distribute the approved batch of vaccines to the market.

Regulatory Framework of the Vaccine Administration in the PRC

On December 1, 2019, the PRC Vaccine Administration Law, China’s first legislation dedicated to vaccine management, became effective.

The new law is expected to enable the regulators to close loopholes and rein in risks in vaccine management. In addition, the strategic position of the vaccine industry to the whole country and its welfare nature concerning the general public have been clearly recognized in the new law. The Chinese government will support the fundamental scientific research and commercialization research of vaccine products to encourage the development of innovation technologies and new vaccine products. The research and development, production and stockpiling of vaccine products preventing serious diseases will be part of the state strategy. The new law also makes it very clear that the PRC government will encourage the further consolidation of the vaccine industry so that manufacturers with large scale production capacities of more quality products, using more advanced technologies, could emerge. All of these new regulatory regimes to be established under the new law may largely boost the confidence of the public in vaccine products manufactured in China.

The new PRC Vaccine Administration Law implements more stringent supervision of the entire process of vaccine development, production, delivery, and inoculation. The legislation mandates both government oversight and the duty of manufacturers to report compliance in all substantial aspects of the whole lifecycle of vaccine products. The sanctions and penalties for the illegal activities have been significantly increased. For instance, the sanctions for production or selling of fake or substandard vaccines extend to include confiscating of all illegal gains obtained from and the materials, equipment and other facilities and resources used for production or selling of fake or substandard vaccines, suspension of business for corrections, revoking of drug registration certificate or production license. The fines can be as high as 15 times to 50 times of the market value of the fake vaccines or 10 times to 30 times of the market value of the substandard vaccines. In the case of serious circumstances, the legal representative, the person in charge or the key personnel who are directly responsible for production or selling of fake or substandard vaccines and the other persons responsible are also subject to sanctions of confiscating their income during the production period of the fake or substandard vaccines, a fine of one time to ten times of the said income. Such persons will be permanently banned from engaging in drug production activities and will be subject to 15 days of confinement in prison.

Classification of Vaccines

Vaccines refer to preventive biological products for human vaccination so as to prevent and control the occurrence and prevalence of diseases, including vaccines under immunization programs (the “Vaccines Under Program”) and vaccines not covered by immunization programs (the “Vaccines Beyond Program”).

Vaccines Under Program refer to the vaccines that must be inoculated to residents in accordance with government provisions, including vaccines determined in national immunization programs, vaccines added by provincial government in the implementation of national immunization programs, and vaccines used in emergency vaccination or group preventive vaccination organized by governments at the county level or above or their competent health departments, which is similar to the Vaccines of Class 1 under the previous classification under the Administrative Regulations on the Circulation of Vaccines and Vaccination of the PRC.

Vaccines Beyond Program refer to other vaccines voluntarily inoculated by residents, which is similar to Vaccines of Class 2 under the previous classification

Mandated Manufacturing

Market authorization holder of vaccines refers to the enterprise who obtains both a vaccine registration certificate and a drug manufacturing license. Market authorization holders of vaccines must have adequate vaccines manufacturing capacity. Where the mandated manufacturing is necessary due to inadequate vaccines manufacturing capacity, the market authorization holder of vaccines must obtain an approval of the medical products administration under the State Council for such mandated manufacturing.

Keeping of Sales Records

Market authorization holders of vaccines must keep accurate and complete sales records and keep the same for reference for at least five years after the shelf life of the relevant vaccines.

Electronic Traceability of Vaccines

The PRC government will set up national vaccines electronic traceability collaboration platform and the market authorization holders of vaccines must also establish vaccines electronic traceability system to be linked with the national vaccines electronic traceability collaboration platform, for the purpose of integrating the traceability information on the whole process of vaccine production, circulation and vaccination so as to realize the traceability of vaccines. In case of failure of complying with such obligation, the market authorization holder of vaccines will be imposed a fine up to RMB2 million.

Compulsory Vaccines Liability Insurance

The PRC government will implement the rules for compulsory vaccines liability insurance. The market authorization holders of vaccines must underwrite the compulsory vaccine liability insurance. Specific implementing measures for the compulsory vaccine liability insurance system will be formulated by the medical products administration under the State Council in collaboration with the health administration and insurance regulatory authority under the State Council. In case of failure of complying with such obligation, the market authorization holder of vaccines will be imposed a fine up to RMB2 million.

Post-Market Management of Vaccines

(a) Post-market investigation

The market authorization holders of vaccines must establish the whole-lifecycle quality management system of vaccines, and carry out post-market investigation to further confirm the safety, efficacy and quality controllability of the vaccines put into the market. In case of failure of complying with such obligation, the market authorization holder of vaccines will be imposed a fine up to RMB2 million.

(b) Quality retrospection analysis and risk reporting

The market authorization holders of vaccines must set up a vaccines quality retrospection analysis and risk reporting system, and faithfully report relevant information on vaccine manufacturing, distribution, post-market investigation and risk management to the medical products administration under the State Council on a yearly basis. In case of failure of complying with such obligation, the market authorization holder of vaccines will be imposed a fine up to RMB2 million.

The medical products administration under the State Council has the right to request a market authorization holder of vaccines to conduct post-market evaluation or directly organize post-market evaluation. The medical products administration under the State Council will cancel

the drug registration certificate for vaccines with serious adverse event to vaccination or endangering human health due to other causes.

Information Disclosure

The market authorization holders of vaccines must establish an information disclosure system and promptly disclose vaccine product information, package insert and labels, situations concerning the implementation of quality control, lot release, recall, inspection and punishment imposed and compulsory vaccine liability insurance effected, etc. on its website as required. In case of failure of complying with such obligation the market authorization holder of vaccines will be imposed a fine up to RMB2 million.

Following the promulgation of the PRC Vaccine Administration Law in June 2019, the Ministry of Industry and Information Technology of the People’s Republic of China (“MIIT”) announced that the thresholds to entry in the Chinese vaccine industry will be raised and they will more strictly control the number of new vaccine manufacturers to be established. MIIT will encourage the centralization and consolidation of the vaccine industry.

C.	Organizational Structure

The following diagram illustrates our company’s organizational structure, and the place of incorporation, ownership interest and affiliation of each of our subsidiaries as of the date of this report.

As of December 31, 2019, we held 100% equity interest in Sinovac Biotech (Hong Kong) Limited, our subsidiary incorporated in Hong Kong, Sinovac Research & Development Co., Ltd., our subsidiary established in the PRC and Sinovac Biomed Co., Ltd., our subsidiary established in the PRC; and we held 73.09% of the equity interests in Sinovac Biotech Co., Ltd., our subsidiary established in the PRC and 67.86% of the equity interests in Sinovac (Dalian) Vaccine Technology Co., Ltd., our subsidiary established in the PRC.

*	Dalian Jin Gang Group Co., Ltd. owns the remaining 32.14% equity interest in Sinovac ~~Dalian.~~(Dalian) Vaccine Technology Co., Ltd.

**	Sinobioway Bio-medicine Co., Ltd., formerly named Xiamen Bioway Group Co., Ltd, owns the remaining 26.91% equity interest in Sinovac ~~Beijing.~~Biotech Co., Ltd.

***	The former name is Beijing Sinovac Biological Technology Co., Ltd.

****	The former name is Sinovac Zhong Yi Bio-pharmaceutical Co., Ltd.

D.	Property, Plants and Equipment

We are headquartered in the Peking University Biological Industry Park ~~(Haidian)~~in Haidian District in Beijing in a 48,900-square-foot facility, of which approximately 16,700 square feet are used as office space and approximately 32,200 square feet are used for the production plant for Healive and ~~Bilive, where the production equipment for hepatitis vaccines is located. We own~~Bilive. Sinovac Beijing owns the above-described 48,900-square-foot facility in ~~Beijing.~~Peking University Biological Industry Park.

In August 2004, we signed two 20-year leases with SinoBioway Biotech Group Co. Ltd. (“SinoBioway”), pursuant to which we leased two buildings of approximately 28,000 and 13,300 square feet, respectively, located at the Peking University Biological Park in Beijing. We house our Anflu manufacturing and R&D center in these two buildings. One of the lease agreements was amended on August 12, 2010 to reflect an increase in the lease ~~payment.~~rental. In June 2007, we signed another 20-year lease with SinoBioway, in order to expand Sinovac Beijing’s production facilities in ~~Beijing,~~our Shangdi site, pursuant to which we ~~leased~~lease one building of approximately 37,000 square feet, located at Peking University Biological Park. Part of our administrative offices and filling facilities are located in this building until 2013. The filling facilities ~~were~~have been moved to Changping site insince 2013, ~~where we are setting~~and the original filling facilities space is set up as the commercial production facility for our pneumococcal vaccines.

In September 2010, we entered into an agreement with SinoBioway, under which we lease a space of 6,778 square feet. The lease term is five years and we ~~used~~use it for our research and development function. On April 8, 2013, we entered into three supplemental agreements with SinoBioway, under which the expiration date of each of the four operating lease agreements was extended to April 7, 2033.

All these offices and production facilities in the Peking University Biological Industry Park are known as our Shangdi site. We have three production lines located inat the ~~Peking University Biological Park (Haidian). Our~~Shangdi site. The production line to manufacture ~~our~~ hepatitis vaccines, Healive and Bilive, interchangeably has an aggregate combined production capacity of approximately 10 million doses annually. ~~Our~~The production line to manufacture ~~our~~ flu vaccines, Anflu, Panflu and Panflu.1, interchangeably has an annual production capacity of approximately ~~eight~~8 million doses of Anflu (northern hemisphere), or the equivalent of 20 million doses of Panflu or 20 million doses of Panflu.1.

We have ~~also~~ built a PPV production line at the ~~Haidian~~Shangdi site with designed annual capacity of five million doses per year. ~~In May 2013, our filling~~As described above, a representative of Sinobioway Medicine and ~~packaging line~~dozens of unidentified individuals forcibly entered Sinovac Beijing’s corporate offices and cut power at the Shangdi site. Due to the actions of the representative of Sinobioway Medicine, Sinovac Beijing was forced to destroy the affected products and temporarily decided to stop the production at the impacted facility in ~~Changping~~order to maintain product safety. The production resumed at the Shangdi site ~~was granted~~in the GMP certificate for the first time, after which we moved the filling and packaging activities to our Changping site. In July 2016, we started to build our sIPV plant for bulk production on our Changping site. The expected capacity is approximately 20 million doses. The five-year GMP renewal on Changping site was successfully completed in April 13,second half of 2018.

In February 2010, we acquired a right to use approximately 312,400 square feet of land located in Changping District, Beijing (“Changping Site”) with five buildings with a total built-out area of 32,322 square meters (approximately 347,900 square feet) ~~on 29,021 square meters (for~~for a total consideration of approximately RMB123.6 million ($~~19.1~~17.8 million)). We have made all required payments by December 31, 2012. We ~~have~~ built a new filling and packaging line, EV71 production facilities and a warehouse onat the Changping site. ~~The~~In May 2013, the new filling and packaging line at the Changping site was granted the GMP certificate, following which, we moved all the filling and packaging activities to the Changping site. The

five-year GMP renewal at the Changping site for the filling and package line was successfully completed on April 13, 2018. The new warehouse ~~commenced~~was put into operation in ~~May 2013 and~~ December ~~2010, respectively.~~2010. The EV71 vaccine production line at the Changping site has a designed annual capacity of 20 million doses and was granted the new GMP certificate in January 2016. ~~As described above, a representative of Sinobioway Medicine and dozens of unidentified individuals forcibly entered Sinovac Beijing’s corporate offices and cut power~~In July 2016, we started to build our ~~Shangdi site. Due to the actions of the representative of Sinobioway Medicine, Sinovac Beijing was forced to destroy the affected products and temporarily decided to stop~~sIPV plant for bulk production at the ~~impacted facility in order to maintain product safety, though production has resumed at this facility.~~Changping site. The expected capacity is approximately 20 million doses.

In November 2009, we entered into an agreement with Dalian Jin Gang Group to establish Sinovac Dalian. In January 2010, we established Sinovac Dalian which focuses on the research, development, manufacturing and commercialization of live-attenuated vaccines, such as varicella, mumps and rubella vaccines for human use. Sinovac Dalian has seven existing buildings with a total built-out area of 20,000 square meters (approximately 215,280 square feet) on a parcel of land of 95,685 square meters (approximately 1,030,000 square feet) ~~of land,~~, located at DD Port, Economic and Technical Development Zone, Dalian City, Liaoning province. The construction of a varicella vaccine production plant within the existing building in Sinovac Dalian with total area of 4,458 square meters is underway. The expected annual capacity is five million doses. Sinovac Dalian received its GMP certificate (2010 version) from the NMPA for its mumps vaccine in September ~~2012.~~2012 for five years. The renewed GMP certificate issued by Food and Drug Administration of Liaoning Province was obtained on February 13, 2018, which will remain valid until February 12, 2023. The construction of a varicella vaccine production plant was completed in 2019. The production permit was granted in December 2019 after NMPA’s inspection of our varicella vaccine production line. The expected annual capacity of the varicella production line is five million doses.

ITEM 4A.

Unresolved Staff Comments

Not applicable.

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 our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” or in other parts of this annual report on Form 20-F.

A.	Operating Results

Overview

We are a fully integrated, China-based biopharmaceutical company that focuses on the research, development, manufacturing and commercialization of vaccines against infectious diseases. We have successfully developed a portfolio of products, consisting of vaccines against hepatitis A, hepatitis B, enterovirus type 71, influenza viruses and mumps. The following table sets forth certain information on our commercialized products.

Number of Doses Sold

Products

Date of Approval

2018

2017

2016

Date of Approval

2019

2018

2017

Healive

May 2002

8.1 million

3.8 million

3.5 million

May 2002

7.4 million

8.1 million

3.8 million

Bilive

June 2005

0.6 million

0.4 million

June 2005

nil

0.6 million

Anflu

October 2005

0.3 million

2.7 million

2.0 million

October 2005

4.1 million

0.3 million

2.7 million

Inlive

January 2016

6.1 million

4.7 million

1.5 million

January 2016

5.8 million

6.1 million

4.7 million

Panflu⁽¹⁾

April 2008

nil

1.9 million

April 2008

nil

Panflu.1⁽¹⁾

September 2009

nil

September 2009

nil

Mumps

September 2012

0.2 million

0.3 million

September 2012

2.8 million

0.2 million

0.3 million

(1)

We sold all of our Panflu and Panflu.1 products to the PRC government. Our sales of Panflu and Panflu.1 depend on the completion of government audit on our fulfillment to the stockpiling order. In 2016, 1.9 million doses of Panflu products manufactured for the government stockpiling order were not used and expired, allowing us to recognize sales revenue. Sales of Panflu generated revenues of $6.4 million in 2016.

Our pipeline consists of various vaccine candidates in the pre-clinical and clinical ~~trial~~ development phases ~~and production application phase~~ in China. We obtained the approvals to conduct clinical trials of PPV, ~~pneumococcal conjugate vaccine,~~ sIPV ~~varicella vaccine~~ and ~~quadrivalent flu vaccine~~QIV in May 2014, ~~January 2015 and~~ November ~~2015, October~~ 2015 and November 2016 , respectively. And ~~we have filed application of production license~~the new drug applications for PPV, ~~varicella vaccine,~~ sIPV ~~quadrivalent influenza vaccine~~and QIV are received by NMPA in June 2017, ~~November 2017,~~January 2019 and March 2019. In December ~~2018,~~2019, NMPA approved and ~~February 2019 respectively.~~issued a product license for our varicella vaccine.

Our Proprietary Rights

Healive was co-developed by Tangshan Yian and the NIFDC. In April 2001, Tangshan Yian contributed its proprietary rights to Healive to Sinovac Beijing as its capital ~~contribution to Sinovac Beijing.~~contribution. In 2002, the NIFDC, Tangshan Yian and Sinovac Beijing agreed that Sinovac Beijing owned the right to market and sell Healive, and that Sinovac Beijing was required to pay the NIFDC approximately $1 million for the Healive technology consulting fee that Tangshan had not paid by that time. We obtained Healive’s new drug certificate from the NMPA in December 1999, the production license in May 2002, and final PRC regulatory approval for production of Healive in May 2002. Production of Healive commenced in July 2002.

Bilive was initially developed by Tangshan Yian. In March 2002, Tangshan Yian and Beijing Keding entered into an agreement under which Tangshan Yian transferred to Beijing Keding its proprietary rights to Bilive at no cost. In August 2002, Sinovac Beijing acquired the proprietary rights to Bilive from Beijing Keding in consideration of a 10.7% equity interest in Sinovac Beijing and a cash payment of $18,000. Beijing Keding is owned by Mr. Weidong Yin and three other senior officers of Sinovac Beijing. We received the production license for Bilive from the NMPA in January 2005. In June 2005, we obtained the final PRC regulatory approval for production of Bilive. The cost of the proprietary rights to Bilive was expensed as purchased in-process research and development. Production of Bilive commenced in June 2005.

In March 2003, Sinovac Beijing acquired the proprietary rights to Anflu from Tangshan Yian at the vendor’s cost. In November 2004, we completed the acquisition of 100% of the shares of Tangshan Yian. We received final PRC regulatory approval for the production of Anflu in October 2005. The cost of the proprietary rights to Anflu was expensed as purchased in-process research and development.

Sinovac Beijing started to research and develop the H5N1 vaccine in 2004. In 2004, Sinovac Beijing entered into an agreement with the National Institute for Biological Standards and Controls (“NIBSC”), an England based laboratory under the WHO, on transferring the H5N1 virus strain. According to the agreement, Sinovac Beijing as the recipient would receive the materials and information from NIBSC. The agreement indicated that Sinovac Beijing can only use received materials and information for academic in-house research purposes and Sinovac Beijing shall negotiate with the owner of reverse genetics technology pertaining to virus strain for any commercial purpose. In April 2008, Sinovac Beijing received a production license for H5N1 from the PRC government and started to produce H5N1 vaccines for the government-stockpiling program in June 2008.

In 2011, we licensed from MedImmune certain rights to use patented reverse genetics technology pertaining to virus strain production for H5N1 influenza vaccine. We have agreed to pay an upfront license fee, milestone payments up to an aggregate of $9.9 million based upon the achievement of cumulative net sales of licensed products in China (including Hong Kong and Macau), as well as royalty payments in single digit of net sales of the licensed products in China (including Hong Kong and Macau). On August 15, 2012, we entered into amended agreements with MedImmune to, among other things, extend the effectiveness of each agreement to reflect revised termination dates between December 2015 and May 2021. License fee and royalties of $3.4 million accrued at the end of 2011 was paid in 2012. We accrued a royalty of $9,000 at the end of 2018, which was paid in 2019. No ~~payments~~royalties were ~~made in 2013~~incurred for the year ended December 31 2019 and ~~2015. We made a $0.9 million royalty payment to MedImmune in 2014.~~2017.

No amortization expenses were recorded in 2019, 2018 ~~2017,~~ and ~~2016~~2017 for proprietary rights as they were fully amortized.

Research and Development Programs

The research and development strategy is developed by management and reviewed and approved by the board of directors of our company. Utilizing the resources and platform of each subsidiary, the R&D team of each subsidiary selects a R&D project and develops a feasibility analysis for review and ~~approval.~~approval by the board of directors. Once the project is approved, ~~we will track~~ the R&D progress as well as the spending of each ~~project.~~project will be tracked. Each year all the ongoing R&D projects will be reviewed along with the budgeting for the following year.

We also use our research and development resources, including employees and our technology, across multiple product development programs.

The process of developing, obtaining and maintaining regulatory approvals for new products is lengthy, expensive and uncertain. While the development may take years to complete, the market environment may change from the time when the project is selected, which will have an impact to the expected return of the investment. We anticipate that we will frequently monitor the progress of each key project and determine which of our early stage product candidates is best suited for further development, as well as how much funding to direct to each program, on an on-going basis in response to the scientific and clinical success and commercial potential of each product candidate.

We have obtained the new drug certification, production license and GMP certification for our new core product, the EV71 vaccine. We started the commercial production and sales activities of EV71 vaccine in 2016.

We have completed phase III clinical trials for the ~~pneumococcal polysaccharides vaccine~~PPV and filed an application of ~~production license~~GMP inspection in ~~2017. We completed Phase III clinical trials on our varicella in 2017.~~February 2020. We also completed ~~Phase~~phase III clinical trials of ~~Sabin-IPV~~sIPV in 2018 and file the new drug application in September. We have completed phase III clinical trial on our QIV in 2019 and filed the new drug application in March 2020. We commenced phase I clinical trial on our COVID-19 vaccine in ~~2018. In addition, we have obtained clinical trial license for the pneumococcal conjugate vaccine.~~April 2020.

Government Grants

Deferred government grants represent funding received from the government for research and development, or investment in building or improving production facilities. The amount of deferred government grants as of year-end is net of research and development expenditures or depreciation incurred or those recognized as government grants income. We received government grant that were deferred in the amount of RMB6.7 million ($1.0 million), RMB23.4 million ($3.5 million), and RMB15.6 million ($2.3 million) in 2019, 2018 and ~~RMB5.0 million ($0.7 million) in 2018,~~ 2017, ~~and 2016,~~ respectively. In addition, we received RMB3.5 million ($0.5 million), RMB1.7 million ($0.3 million) and RMB2.0 million ($0.3 million) in other government grants and subsidies that were recognized in the statements of comprehensive income ~~(loss)~~ in ~~2018.~~2019, 2018 and 2017, respectively.

Deferred government grants included ~~RMB1.9 million ($0.3 million) being~~ the ~~unamortized portion~~following:

Construction of a Pandemic Influenza Vaccine Plant and Buildings

As of December 31, 2019, We have fulfilled the conditions attached to a government grant we received in 2007 for construction of a pandemic influenza vaccine plant and ~~buildings (RMB3.7~~buildings. RMB1.9 million ($~~0.6~~0.3 million) as of ~~December 31, 2017), which will be amortized in 2019 and was included in the current portion of deferred~~ government ~~grants. We have fulfilled the conditions attached to the government grant. The production facility~~ grant ~~requires us to have the entire facility available to manufacture pandemic influenza vaccines at any given moment upon request by the Chinese government. Government grants~~ relating to these production facilities ~~of $0.3 million, $0.3 million and $0.3 million for the years ended December 31, 2018, 2017 and 2016, respectively, were~~was recorded as a reduction to depreciation expense for ~~those respective years.~~the year ended December 31, 2019 (2018 - $0.3 million, 2017 - $0.3 million).

~~Deferred~~Purchasing Equipment for H1N1 Vaccine Production

As of December 31, 2019, we have fulfilled the conditions attached to a government ~~grants included RMB0.4 million ($0.1 million) being the unamortized portion of a~~ grant we received in 2009 for purchasing equipment for H1N1 vaccine ~~production, which will be amortized in 2019 and was included in the current portion of deferred government grants (RMB1.3~~production. RMB0.4 million ($~~0.2~~54,000) of government grant relating to these production facilities was recorded as a reduction to depreciation expense for the year ended December 31, 2019 (2018 - $0.1 million, 2017 - $0.1 million) as.

Purchasing Equipment for H5N1 Vaccine Production

As of December 31, ~~2017). We~~2019, hawse have fulfilled the conditions attached to ~~the~~a government ~~grant. Government~~ grant relating to this production facility of $0.1 million, $0.1 million and $0.1 million for the years ended December 31, 2018, 2017 and 2016, respectively, were recorded as a reduction to the related depreciation expense.

~~Deferred government grants included RMB0.1 million ($15,000) being the unamortized portion of a grant we~~ received in 2013 for purchasing equipment for H5N1 vaccine ~~production, which will be amortized in 2019 and was included in the current portion~~production. RMB0.1 million ($15,000) of ~~deferred~~ government ~~grants. We have fulfilled the conditions attached to the government grant. Government~~ grant relating to ~~this~~these production ~~facility of $15,000, $15,000 and $15,000~~facilities was recorded as a reduction to depreciation expense for the year ended December 31, ~~2018,~~2019 (2018 - $15,000, 2017 ~~and 2016, respectively, were recorded as a reduction to the related depreciation expense.~~ - $15,000)

EV71 Commercialization Project

Deferred government grants included ~~RMB11.3~~RMB8.0 million ($~~1.6~~1.2 million) being the unamortized portion of a grant we received in 2015 for equipment purchase and construction of the enterovirus 71 ~~(“EV71”)~~ vaccine production facility. We have fulfilled the conditions attached to the government grant in ~~2016 (RMB14.5 million ($2.2 million) as of December 31, 2017). RMB3.3~~2016. RMB3.2 million ($0.5 million) which will be amortized in ~~2019~~2020 was included in the current portion of deferred government grants and ~~RMB8.0 million~~RMB4.8 ($~~1.1~~0.7 million) which will be amortized after ~~2019~~2020 was included in the non-current portion of deferred government grants. RMB2.7 million ($0.4 million) of government grant relating to these production facilities was recorded as a reduction to depreciation expense for the year ended December 31, ~~2018,~~2019 (2018 - $0.4 million, 2017 - $0.4 million), and ~~RMB0.6~~RMB0.5 million ($~~82,000)~~79,000) was recorded as government recognized in income for the year ended December 31, ~~2018.~~2019 (2018 - $82,000, 2017 - $80,000).

EV71 Phase IV Clinical Research

As of December 31, 2019, we have fulfilled the conditions attached to a government grant received in 2017, 2018 and 2019 for phase IV clinical research for EV71 vaccine. RMB7.3 million ($1.1 million) was recognized as a deduction of research and development expense for the year ended December 31, 2019 (2018 - $nil, 2017 - $nil).

Purchasing Equipment for sIPV Vaccine Production

Deferred government grants included ~~RMB6.7~~RMB10 million ($~~1.0~~1.4 million) being the unamortized portion of a grant we received in 2017 ~~and~~for purchasing equipment for sIPV vaccine production. As of December 31, 2019, We have not fulfilled the conditions attached to the government grant. As we do not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

EV71 International Registration

Deferred government grants included RMB4.2 million ($0.6 million) being the unamortized portion of a grant we received in 2018 for ~~phase IV clinical research~~international registration for EV71 vaccine. As of December 31, ~~2018,~~2019, we have not fulfilled the conditions attached to the government grant. As we do not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

Deferred government grants also included RMB10.0 million ($1.5 million) being the unamortized portion of a grant we received in 2017 for purchasing equipment for sIPV vaccine production. As of December 31, 2018, we have not fulfilled the conditions attached to the government grant. As we do not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

Deferred government grants included RMB4.2 million ($0.6 million) being the unamortized portion of a grant we received in 2018 for international registration for EV71 vaccine. As of December 31, 2018, we have not fulfilled the conditions attached to the government grant. As we do not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.Qudravalent & Pentavalent Research

Deferred government grants included RMB4.8 million ($0.7 million) being the unamortized portion of a grant we received in 2018 for research for Qudravalent & Pentavalent vaccine. As of December 31, ~~2018,~~2019, we have not fulfilled the conditions attached to a government grant. As we do not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

Other Grants

As of December 31, ~~2018,~~2019, conditions attached to a government ~~grant~~grants received in 2017 for certain production facilities were fulfilled in 2017, of which RMB0.1 million ($18,000) will be amortized in ~~2019~~2020 and ~~RMB0.2~~RMB0.1 million ($~~34,000)~~16,000) will be amortized after ~~2019,~~2020, and RMB0.1 million ($~~19,000)~~18,000) of government grant relating to these production facilities was recorded as a reduction to depreciation expense. Conditions attached to a government grants received in 2014 and 2015 was fulfilled in 2019, of which RMB0.8 million ($0.1 million) was recognized as a reduction of research and development expense for the year ended December 31, ~~2018.~~2019 (2018 - $nil, 2017 - $nil). As of December 31, ~~2018,~~2019, conditions of ~~seven~~six government grants totaling ~~RMB15.0~~RMB19.6 million ($~~2.2~~2.8 million) have not been fulfilled by us, of which conditions attached to four grants totaling ~~RMB7.9~~RMB15.7 million ($~~1.1~~2.3 million) were expected to be fulfilled within one year, and were included in the current portion of the deferred government grants.

Critical Accounting Policies and Estimates

Our consolidated financial information has been prepared in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (3) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

When reviewing our financial statements, you should consider (1) our selection of critical accounting policies, (2) the judgment and other uncertainties affecting the application of those policies and (3) the sensitivity of reported results to changes in conditions and assumptions. We believe the following accounting policies involve the most significant judgment and estimates used in the preparation of our financial statements.

Revenue from Contracts with Customers

We adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”), on January 1, 2018, using the modified retrospective method. Revenues for the year ended December 31, 2019 and 2018 were presented under ASC 606, and revenues for the years ended December 31, 2017 ~~and 2016 were~~was not adjusted and continue to be presented under ASC Topic 605, Revenue Recognition. The cumulative effect of adopting ASC 606 resulted in $nil to the opening balance of retained earnings at January 1, 2018.

Revenue is recognized when control of promised goods is transferred to our customers in an amount of consideration of which we expect to be entitled to in exchange for the goods, and we can reasonably estimates return provision for the goods.

The product return provisions are estimated based on historical return and exchange data as well as the inventory levels and the remaining shelf lives of the products in the distribution channels.

As of December 31, ~~2018,~~2019, sales return provision for inactivated hepatitis A vaccine, combined inactivated hepatitis A&B vaccine, EV71 vaccine and ~~enterovirus 71 vaccine~~Mumps was ~~$2.9~~$3.4 million, compared with ~~$4.7~~$2.9 million as of December 31, ~~2017. Private pay sales~~2018. Sales return provision of inactivated hepatitis A vaccine, combined inactivated hepatitis A&B vaccine, EV71 vaccine and ~~enterovirus 71 vaccine~~Mumps as a percentage of sales was 1.5% and 1.4% in 2019 and ~~3.1% in~~ 2018, ~~and 2017,~~ respectively. As of December 31, ~~2018,~~2019, sales return provision for seasonal influenza vaccine returns was ~~$nil,~~$0.4 million, compared with ~~$0.3 million~~$nil as of December 31, ~~2017.~~2018.

Deferred revenue is generally related to government stockpiling programs and advances received from customers. For government stockpiling programs of H5N1 vaccines, we generally obtains purchase authorizations from the government for a specified amount of products at a specified price and no rights of return are provided. Revenue is recognized when the government takes delivery of the products. If the products expire prior to delivery, these expired products are recognized as revenue once cash is received and the products have expired and passed government inspection.

For the year ended December 31, ~~2018, the Company~~2019, we did not have any significant incremental costs of obtaining contracts with customers incurred or costs incurred in fulfilling contracts with customers within the scope of ASC Topic 606, that shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.

~~The Company does~~We do not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities consist of advance payments from customers. The contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting period. All contract liabilities are included in deferred revenue in the Consolidated Balance Sheets.

For the year ended December 31, ~~2018, the Company~~2019, we recognized sales of ~~$3.9~~$2.3 million related to contract liabilities at January 1, ~~2018.~~2019.

Allowance for Doubtful Accounts

We extend unsecured credit to our customers in the ordinary course of business but mitigate the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management’s assessment of the credit history with the customer and current relationships with them.

We also maintain an allowance for doubtful accounts for estimated losses based on our assessment of the collectability of specific customer accounts and the aging of the accounts receivable. We analyze accounts receivable and historical bad debts, customer concentrations, customer solvency, current economic and geographic trends, and changes in customer payment terms and practices when evaluating the adequacy of our current and future allowance. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, a specific allowance for bad debt is estimated and recorded, which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. We monitor and analyze the accuracy of the allowance for doubtful accounts estimate by reviewing past collectability and adjust it for future expectations to determine the adequacy of our current and future allowance. Our reserve levels have generally been sufficient to cover credit losses. As of December 31, ~~2018,~~2019, we provided ~~100%~~99.6% (December 31, ~~2017~~2018 - 100%) allowance for accounts receivable aged more than four years, approximately ~~96.9%~~82.8% (December 31, ~~2017~~2018 - ~~94.6%~~96.9%) allowance for accounts receivable aged between three years and four years, approximately ~~90.6%~~44.4% (December 31, ~~2017~~2018 - ~~68.5%~~90.6%) allowance for accounts receivable aged between two years and three years, approximately ~~42.1%~~14.6% (December 31, ~~2017~~2018 - ~~15.3%~~42.1%) allowance for accounts receivable aged between one year and two years, and approximately 1.4% (December 31, ~~2017~~2018 - ~~1.2%~~1.4%) allowance for accounts receivable aged less than one year.

Our allowance for doubtful accounts as of December 31, ~~2018~~2019 was ~~$4.6~~$4.2 million, compared to ~~$4.8~~$4.6 million as of December 31, ~~2017.~~2018. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Bad debt recovery was $0.3 million for the year ended December 31, 2019 as compared with a provision ~~was~~of $0.8 million for the year ended December 31, ~~2018 as compared with a provision of $0.9 million for the year ended December 31, 2017.~~2018.

Inventory Provision

We write off all the unsold seasonal influenza vaccines before the end of the flu season at the end of the fiscal year, except for those distributed after the end of the fiscal year. In addition, we estimate an inventory provision for existing Healive, Bilive, Inlive and Mumps products in inventory after considering the sales forecasts, the conditions of the raw material inventory, as well as the expiration dates of these products. The inventory provision in 2019, 2018 and 2017 ~~and 2016~~ was $0.6 million, $2.5 million ~~$1.2 million~~ and ~~$6.4~~$1.2 million, respectively.

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable from the future undiscounted net cash flows expected to be generated by the asset group. An asset group is identified as assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

If the asset group is not fully recoverable, an impairment loss would be recognized for the difference between the carrying value of the asset group and its estimated fair value, based on the discounted net future cash flows or other appropriate methods, such as comparable market values. We use estimates and judgments in the impairment tests and the timing and amount of impairment charges could be materially different if different estimates or judgments are utilized. We did not record any impairment charges on long-lived assets in 2019, 2018 ~~2017~~ and ~~2016.~~2017.

Income Tax Valuation Allowance

In ~~2018,~~2019, we recorded ~~$5.8~~$11.4 million of deferred income tax assets based on the difference in timing of certain deductions for income tax and accounting purposes. We evaluate our valuation allowance requirements at each reporting period by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed. When a change in circumstances causes a change in management’s judgment about the reliability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within the carry forward period available under applicable tax law.

Recently Issued Accounting Standards

In ~~February~~June 2016, the FASB issued ASU No. ~~2016-02, Leases~~2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU ~~2016-02”~~2016-13”). which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU ~~2016-02 specifies~~2016-13 replaces the ~~accounting for leases. For operating leases,~~existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease2016-13 is ~~allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is~~ effective ~~for public business entities~~ for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. We will adopt ASU 2016-02 on January 1, 2019 using the modified retrospective method and will not restate comparable periods. We will elect the package of practical expedients permitted under the transition guidance, which allow us to carry forward the historical lease classification, the assessment whether a contract is or contains a lease and initial direct costs for any leases that exist prior to adoption of the new standard. We will also elect the practical expedient not to separate lease and non-lease components for certain classes of underlying assets and the short-term lease exemption for contracts with lease terms of 12 months or less. We currently believes the most significant change will be related to the recognition of right-of-use assets and lease liabilities on our balance sheet for certain in-scope operating leases. We2019.We do not expect any material impact on net assets and the consolidated statement of comprehensive income as a result of adopting the new standard.

RESULTS OF OPERATIONS

	Year ended December 31,									Year ended December 31,
Consolidated statements of comprehensive income (loss) data	2018			2017			2016
Consolidated statements of comprehensive income data										2019			2018			2017
	(in thousands except share and per share data)									(in thousands except share and per share data)
Sales	$	229,650		$	174,346		$	72,431		$	246,053		$	229,650		$	174,346
Cost of sales⁽¹⁾		24,723			20,240			22,393			32,469			24,723			20,240
Gross profit		204,927			154,106			50,038			213,584			204,927			154,106
Operating expenses:
Selling, general and administrative expenses⁽¹⁾		137,003			87,365			41,980			121,468			137,003			87,365
Provision for doubtful accounts		820			934			1,412
Provision (recovery) for doubtful accounts											(306	)		820			934
Research and development expenses⁽¹⁾		21,910			20,489			12,648			24,254			21,910			20,489
Loss on disposal and impairment of property, plant and equipment	75			42			478				294			75			42
Government grants recognized in income		(197	)		(141	)		(6,984	)		(688	)		(197	)		(141	)
Total operating expenses		159,611			108,689			49,534			145,022			159,611			108,689
Operating income		45,316			45,417			504			68,562			45,316			45,417
Interest and financing expenses		(1,070	)		(1,569	)		(1,729	)		(650	)		(1,070	)		(1,569	)
Interest income		2,016			1,183			731			1,996			2,016			1,183
Other income		321			13			100			912			321			13
Income (loss) before income taxes and non-controlling interests		46,583			45,044			(394	)
Income before income taxes and non-controlling interests											70,820			46,583			45,044
Income tax expenses		(10,472	)		(8,339	)		(2,664	)		(5,605	)		(10,472	)		(8,339	)
Income (loss) from continuing operations		36,111			36,705			(3,058	)
Income from discontinued operations, net of tax of nil		—			—			2,338
Net income (loss)		36,111			36,705			(720	)
Less: (income) loss attributable to non-controlling interests		(14,329	)		(10,898	)		124
Net income (loss) attributable to the shareholders of Sinovac		21,782			25,807			(596	)
Comprehensive income (loss)		25,115			44,803			(9,563	)
Less: comprehensive (income) loss attributable to non-controlling interests		(12,507	)		(12,089	)		953
Comprehensive income (loss) attributable to shareholders of Sinovac	$	12,608		$	32,714		$	(8,610	)
Net income											65,215			36,111			36,705
Less: income attributable to non-controlling interests											(20,286	)		(14,329	)		(10,898	)
Net income attributable to the shareholders of Sinovac											44,929			21,782			25,807
Preferred stock dividends											(5,128	)		—			—
Net income attributable to common shareholders of Sinovac											39,801			21,782			25,807
Comprehensive income											62,388			25,115			44,803
Less: comprehensive income attributable to non-controlling interests											(19,681	)		(12,507	)		(12,089	)
Comprehensive income attributable to shareholders of Sinovac										$	42,707		$	12,608		$	32,714

Revenues from sales represent: (1) the invoiced value of goods, net of value added taxes, and sales returns. See “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Taxes and incentives.” We recognize revenues when control of promised goods is transferred to our customers in an amount of consideration of which we expect to be entitled to in exchange for the goods, and we can reasonably estimates return provision for the goods.; and (2) the value of goods produced for government stockpiling program. We recognize revenues from the sales of products to the government stockpiling program when cash has been received and the products have expired and passed government inspection or are delivered per government instruction.

Our revenues, growth and results of operations depend on several factors, including the level of acceptance of our products among doctors, hospitals and patients, and our ability to maintain or increase prices for our products at levels that provide favorable margins. The level of acceptance among doctors, hospitals and patients is influenced by the performance, promotion and academic research, and pricing of our products.

We market and sell our vaccine products primarily through provincial and municipal CDCs. We enter into sales agreements with CDCs each time a CDC places a purchase order. Pursuant to these sales agreements, CDCs typically agree not to re-sell our products to regions outside the territory the pertinent CDC covers administratively. Since hepatitis A vaccines were included into government sponsored expended immunization program in 2007, we have actively participated in the tender and bidding organized by various provincial CDCs. We enter into sales agreements with CDCs when we win a bid.

In the private market, we set our price based on our production cost, the price of competitive products and acceptance level of CDC and vaccines. We also adjust our product price according to changes in the external environment to balance sales volume and gross profit, and ultimately to maximize sales profit margins.

In the public market, the government purchases vaccines for EPI market by issuing government tenders. During the evaluation process, price is a key factor which impacts the result of the tender. Therefore, we need to price our products competitively to win the tenders. We believe that our emphasis on product quality is an advantage and increases our competitiveness.

Our cost of sales primarily consists of material, direct labor and production overheads. Depreciation of property, plant and equipment attributable to manufacturing activities and license amortization are capitalized as part of inventory, and expensed as cost of sales when product is sold. Cost of goods sold in 2019, 2018 ~~2017~~ and ~~2016~~2017 amounted to $32.5 million, $24.7 million ~~$20.2 million~~ and ~~$22.4~~$20.2 million, respectively, of which idle capacity amounted to $3.8 million, $2.7 million ~~$2.8 million~~ and ~~$3.2~~$2.8 million, respectively. We produce our products and conduct the final product packaging in-house.

Our production capacity has not been fully utilized. If we successfully commercialized new products and increase sales of existing products, we expect the unit production cost to decrease.

Selling and marketing expenses consist primarily of salaries and related expenses for personnel engaged in sales, marketing and customer support functions and costs associated with marketing activities and shipping. Selling expense in ~~2018~~2019 was ~~$95.2~~$91.5 million, representing ~~41.4%~~37.2% of total sales revenue of ~~2018,~~2019, which is a ~~1.7% increase~~3.9% decrease compared to ~~2017.~~2018.

General and administrative expense consists primarily of compensation for employees in executive and operational functions, including finance and accounting, business development and human resources. Other significant costs include facilities costs, share-based compensation and professional fees for accounting and legal services.

We expense both internal and external research and development costs as incurred, other than capital expenditures that have alternative future uses, such as the build-out of our plant, or license fees and milestone payments made to third parties after regulatory approval is received. We expect our research and development costs will continue to be substantial and that they will increase as we advance our current portfolio of product candidates through clinical trials and move other product candidates into pre-clinical and clinical trials.

Sinovac Beijing, Sinovac R&D, Sinovac Dalian and Sinovac Biomed are subject to income taxes in China on their taxable income calculated at a tax rate in accordance with the relevant income tax laws and regulations. Income tax returns filed by our PRC subsidiaries for tax years beginning in ~~2006~~2007 have been subject to examination by tax authorities.

Effective from January 1, 2008, the PRC’s statutory income tax rate is 25%. Our PRC subsidiaries, except for Sinovac Beijing and Sinovac Dalian, are subject to income tax at the statutory rate of 25%. Sinovac Beijing, being reconfirmed as a “High and New Technology Enterprise,” or HNTE in 2017 for a period of three years, Sinovac Dalian, being confirmed as a HNTE in 2017 for a period of 3 years, and accordingly each is subject to a preferential income tax rate of 15% from 2017 to 2019. We determine deferred taxes for each tax-paying entity in each tax jurisdiction. The potential tax benefits arising from the losses incurred by the subsidiaries have been recorded in our financial statements.

We evaluate our valuation allowances requirements at each reporting period by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed. When a change in circumstances causes a change in management’s judgment about the ability to realize deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within the carry forward period available under applicable tax law.

The valuation allowances relating to the deductible temporary differences and the unused tax losses of Sinovac R&D ~~Sinovac Dalian~~ and Sinovac Biomed are still required as realization of these elements of the potential tax benefits is still uncertain. Taking the valuation allowances into account, the potential tax benefits arising from the deductible temporary differences and the unused tax losses of Sinovac R&D ~~Sinovac Dalian~~ and Sinovac Biomed effectively have not been recorded in the financial statements. Tax losses of our PRC subsidiaries in the amount of ~~$27.5~~$23.4 million ~~(RMB189~~(RMB163 million) as of December 31, ~~2018~~2019 will expire from ~~2019~~2020 to ~~2023,~~2029, if not utilized.

Sales. Total sales in 2019 increased by 7.1% to $246.1 million from $229.7 million in 2018. Revenue recognition of Panflu under the government stockpiling program in 2019 and 2018 were nil. The growth was mainly contributed by sales of Mumps and Anflu.

Gross Profit. Gross profit in 2019 increased by 4.2% to $213.6 million from $204.9 million in 2018. Gross margin percentage decreased to 86.8% in 2019 from 89.2% in 2018. The decrease of gross margin was mainly due to lower gross profit on Anflu in 2019.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in 2019 decreased by 11.3% to $121.5 million from $137.0 million in 2018. The decrease was mainly due to lower professional and consulting fees associated with ongoing litigations.

We recorded total share-based compensation of $3.0 million in 2019, compared to $4.3 million in 2018. As of December 31, 2019 and 2018, we had unrecognized compensation costs of $9.6 million and $12.6 million, respectively. This unearned component will be recognized over a period of 38 months.

Research and Development Expenses. Research and development expenses in 2019, primarily represented expenditures on the advancement of pipeline vaccines, including pneumococcal vaccines, sIPV and varicella vaccine, increased to $24.3 million from $21.9 million in 2018.

Interest and Financing Expenses. Interest and financing expense decreased by 39.3% to $0.7 million from $1.1 million in 2018. There were $nil, $nil and $0.3 million of interest subsidies received in 2019, 2018 and 2017, respectively.

Income Tax Expenses. Income tax expense was $5.6 million in 2019, compared to an income tax expense of $10.5 million in 2018.

Net Income. Net income was $65.2 million in 2019, compared to $36.1 million in 2018. Net income attributable to shareholders of Sinovac was $44.9 million in 2019, compared to $21.8 million in 2018. Net income attributable to common shareholders of Sinovac was $39.8 million in 2019, compared to $ 21.8 million in 2018.

Sales. Total sales from continuing operations in 2018 increased by 31.7% to $229.7 million from $174.3 million in 2017. Revenue recognition of Panflu under the government stockpiling program in 2018 and 2017 were nil. The growth was mainly contributed by sales of Inlive.

Gross Profit. Gross profit ~~from continuing operations~~ in 2018 increased by 33.0% to $204.9 million from $154.1 million in 2017. Gross margin percentage increased to 89.2% in 2018 from 88.4% in 2017. The increase of gross margin was mainly due to higher gross profit on Inlive in 2018.

Selling, general and administrative expenses in 2018 increased by 56.8% to $137.0 million from $87.4 million in 2017. The increase was mainly due to higher selling expenses incurred on increased sales and higher professional and consulting fees associated with ongoing litigations.

We recorded total share-based compensation of $4.3 million in 2018, compared to $1.0 million in 2017. As of December 31, 2018, we had unrecognized compensation costs of $12.6 million. This unearned component will be recognized over a period of 50 months.

Research and Development Expenses. Research and development expenses in 2018, primarily represented expenditures on the advancement of pipeline vaccines, including pneumococcal vaccines, sIPV and varicella vaccine, increased to $21.9 million in 2018 from $20.5 million in 2017.

Interest and Financing Expenses. Interest and financing expense decreased by 31.8% to $1.1 million in 2018 from $1.6 million in 2017. There were $nil and $0.3 million of interest subsidies received in 2018 and 2017, respectively.

Income Tax Expenses. Income tax expense was $10.5 million in 2018, compared to an income tax expense of $8.3 million in 2017.

~~Income from Continuing Operations.~~Net Income. ~~Income from continuing operations~~Net income was $36.1 million in 2018, compared to $36.7 million in 2017.

~~Net Income.~~ Net income attributable to shareholders of Sinovac and net income attributable to common shareholders of Sinovac was $21.8 million in 2018, compared to $25.8 million in 2017.

~~Sales~~. Total sales from continuing operations in 2017 increased by 140.7% to $174.3 million from $72.4 million in 2016. Excluding revenue recognition of Panflu under the government stockpiling program in 2016 and 2015, regular sales of Healive, Bilive, Anflu, Inlive and mumps vaccine increased by 163.9% to $174.3 million in 2017 from $66.0 million in 2016. The growth was mainly contributed by sales of Inlive.

~~Gross Profit.~~ Gross profit from continuing operations in 2017 increased by 208.0% to $154.1 million from $50.0 million in 2016. Gross margin percentage increased to 88.4% in 2017 from 69.1% in 2016. Excluding the impact of Panflu sales under the government-stockpiling program in 2017 and 2016, gross margin increased to 88.4% in 2017 from 70.0% in 2016. The increase of gross margin was mainly due to higher gross profit on Inlive and lower inventory provision charged to Bilive vaccines in 2017.

Selling, general and administrative expenses in 2017 increased by 108.1% to $87.4 million from $42.0 million in 2016. The increase was mainly due to higher selling expenses incurred on promotion of Inlive and higher professional and consulting fees related to the proposed privatization.

We recorded total share-based compensation of $1.0 million in 2017, compared to $2.4 million in 2016. As of December 31, 2017, we had unrecognized compensation costs of $2.3 million. This unearned component will be recognized over a period of 28 months.

~~Research and Development Expenses~~. Research and development expenses in 2017, primarily represented expenditures on the advancement of pipeline vaccines, including pneumococcal vaccines, sIPV and varicella vaccine, increased to $20.5 million in 2017 from $12.6 million in 2016.

~~Interest and Financing Expenses.~~ ~~Interest and financing expense decreased by 9.3% to $1.6 million in 2017 from $1.7 million in 2016. There were $0.3 million and $37,000 of interest subsidies received in 2017 and 2016, respectively.~~

~~Income Tax Expenses.~~ ~~Income tax expense was $8.3 million in 2017, compared to an income tax expense of $2.7 million in 2016.~~

~~Income (loss) from Continuing Operations.~~ ~~Income from continuing operations was $36.7 million in 2017, compared to a loss of $3.1 million in 2016.~~

~~Income (loss) from Discontinued Operations.~~ Income from discontinued operations was nil in 2017, compared to an income of $2.3 million in 2016. The income from discontinued operations in 2016 was a result of completion of the disposal transaction of Tangshan Yian.

~~Net Income (loss).~~ ~~Net income attributable to shareholders of Sinovac was $25.8 million in 2017, compared to a net loss of $0.6 million in 2016.~~

We finance our operations primarily through short-term and long-term borrowings, proceeds from public offerings, capital raised in private placements, cash generated from operations and, to a lesser extent, cash from government research grants. We believe that our current cash and cash equivalents, and anticipated cash flow will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditure, for the next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from banks.

The following table sets forth a summary of our net cash flows for the periods indicated:

Net cash provided by operating activities was $39.1 million in 2019, compared to net cash provided by operating activities of $7.9 million in 2018. Net cash provided by our operating activities in 2019 resulted primarily from our net income of $65.2 million, and an increase in accounts payable and accrued liabilities of $6.8 million, partially offset by an increase of accounts receivable of $40.2 million.

Net cash provided by operating activities was $7.9 million in 2018, compared to net cash provided by operating activities of $59.8 million in 2017. Net cash ~~used in~~provided by our operating activities in 2018 resulted primarily from (1) our net income ~~from continuing operations~~ of $36.1 million, (2) ~~an increase of short-term investment of $19.7 million, (3)~~ an increase of accounts receivable of $13.1 million and a decrease in income tax payable of $11.8 million.

Net ~~cash provided by operating activities was $59.8 million in 2017, compared to net~~ cash used in ~~operating~~investing activities ~~of $13.9~~was $42.5 million in ~~2016. Net cash provided by our operating activities~~2019, compared to $25.3 million in ~~2017 resulted~~2018. We invested primarily from (1) our net income from continuing operations of $36.7 million, (2) deferred income taxes of $4.9 million, (3) depreciation of property, plant and equipment and amortization of prepaid land lease payments of $4.9 million, (4) a decrease of accounts receivable of $13.5 million and an increase in ~~accounts payables and accrued liabilities of $33.4 million.~~

Net cash used in investing activities was $25.3 million in 2018, compared to $11.9 million in 2017. We invested primarily in the construction of our sIPV production facilities in 2018.

Net cash ~~used in investing~~provided by financing activities was ~~$11.9~~$1.7 million in ~~2017,~~2019 compared to ~~$11.8~~$64.2 in 2018. In 2019, we received loan proceeds of $2.1 million ~~in 2016. We invested primarily in the construction~~and made loan repayments of ~~our sIPV production facilities in 2017.~~

Net cash provided by financing activities was $64.2 million in 2018 compared to net cash used in financing activities was $1.3 million in 2017. In 2018, net cash provided by our financing activities mainly included net proceeds of $85.3 million from issuance of common shares. We also received loan proceeds of $18.9 million and made loan repayments of $43.9 million in 2018.

Net cash used in financing activities was $1.3 million in 2017 compared to net cash provided by financing activities was $27.8 million in 2016. In 2017, net cash provided by our financing activities included net proceeds of $1.3 million from issuance of common shares and government funding of $2.6 million. We also received loan proceeds of $28.6 million and made loan repayments of $38.7 million in 2017.

Our total accounts receivable, including other receivables, increased by ~~$8.3~~$39.3 million or 52.7% from ~~$66.2 million as of December 31, 2017 to~~ $74.5 million as of December 31, ~~2018.~~2018 to $113.7 million as of December 31, 2019. Our average accounts receivable turnover time in ~~2018~~2019 was 144 days, compared to 117 days ~~as compared to 127 days~~ in ~~2017.~~2018.

Our maximum exposure to credit risk at the balance sheet dates relating to accounts receivables is summarized as follows:

As of December 31, ~~2018,~~2019, we had ~~$3.3~~$5.9 million in short-term bank loans, offset by ~~$158.2~~$152.7 million in cash and cash equivalents, resulting in a liquid assets balance of ~~$154.9~~$146.8 million, compared with ~~$96.3~~$154.9 million at the end of December 31, ~~2017.~~2018. The following tables summarize our short-term and long-term bank borrowings as of December 31, ~~2018:~~2019:

On May 20, 2015, Sinovac Beijing entered into a bank loan with Bank of Beijing in the aggregate principal amount of RMB 48 million ($~~7.0~~6.9 million) with a term from July 2015 to May 2020 for construction of the PPV facilities. The loan’s interest rate is based on the prime rate of a five-year term loan published by the People’s Bank of China at the time withdraws are made. Interest is payable quarterly and the loan is repayable based on the payment schedule and shall be fully repaid before May 20, 2020. RMB ~~4.9~~2.9 million ($~~0.7~~0.4 million) was drawn in 2015 with an annual interest rate of 5.25%, and RMB ~~39.7 million（$5.8~~23.8 million ($3.4 million) was drawn in 2016 with an annual interest rate of 4.75%. Prepaid land lease payments and buildings of Sinovac Beijing with a net book value of RMB ~~13.9~~12.3 million ($~~2.0~~1.8 million) were pledged as collateral as of December 31, ~~2018.~~2019.

On August 14, 2018, Sinovac Dalian entered into a bank loan with Bank of China in the aggregate principal amount of RMB 5 million ($0.7 million) to finance its working capital requirements. The loan bears interest at 157 basis points above the prime rate of a one-year term loan published by the People’s Bank of China, at 5.88%. ~~Interest is payable monthly and the loan is payable on August 16, 2019.~~ Buildings of Sinovac Dalian with a net book value of RMB ~~3.5~~3.3 million ($0.5 million) were pledged as collateral. Interest is payable monthly and the loan was paid on August 16, 2019.

On November 20, 2019, Sinovac Dalian entered into entered into a maximum credit facility of RMB 20 million ($2.9 million) with Bank of China to finance its working capital requirements. RMB 7 million ($1.0 million) was drawn on December 24, 2019. The loan bears interest at 158 basis points above the prime rate of a one-year term loan published by the People’s Bank of China, at 5.83%. Interest is payable monthly and the loan is payable on December 23, 2020. Buildings of Sinovac Dalian with a net book value of RMB16.8 million ($2.4 million) were pledged as collateral.

On November 25, 2019, Sinovac Dalian entered into a revolving bank loan with SPD Silicon Valley Bank with the aggregate principal of RMB 50 million ($7.2 million) to finance its working capital requirements. The revolving loan bears interest at 125 basis points above the prime rate of a one-year term loan published by the People’s Bank of China, with a weighted average rate at 5.40% and interest is payable quarterly. Each withdraw from the revolving loan has a maximum term of 12 months. The outstanding balance of RMB 7.6 million ($1.1 million) were drawn during December 2019 and are payable in December 2020.

Our weighted average effective interest rate on outstanding borrowings was ~~4.91%~~5.09%, ~~4.61%~~4.91% and ~~4.73%~~4.61% for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. We have not historically used, and do not expect to use in the future, any derivative financial instruments to manage our exposure to interest risk.

We are a holding company, and we rely in part on dividends paid by our subsidiaries, Sinovac Beijing, Sinovac Dalian, Sinovac R&D and Sinovac Biomed for our cash needs, mainly our operating expenses. The payment of dividends in China is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Our subsidiary is also required to set aside at least a portion of its after-tax profit based on PRC accounting standards each year to fund the statutory surplus reserves.

The reserves can be used to recoup previous years’ losses, if any, and, subject to the approval of the relevant PRC government authority, may be converted into share capital in proportion to their existing shareholdings, or by increasing the par value of the shares currently held by them. Such reserves, however, are not distributable as cash dividends. In addition, at discretion of their board of directors, our subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to the employee welfare and bonus funds, which shall be utilized for collective staff benefits. In addition, if Sinovac Beijing, Sinovac Dalian, Sinovac R&D or Sinovac Biomed incurs debt on its own behalf in the future, the instruments governing the debt may restrict the ability of one or more of our PRC subsidiaries, as the case may be, to pay dividends or make other distributions to us.

The ability of our subsidiary to convert renminbi into U.S. dollars and make payments to us is subject to PRC foreign exchange regulations. Under these regulations, the renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of SAFE. See “Item 10. Additional Information — D. Exchange Controls.”

We made capital expenditures of $10.6 million, $5.6 million and $11.9 million in 2019, 2018 and ~~$12.7 million in 2018,~~ 2017, ~~and 2016,~~ respectively. ~~In 2018, we made $5.4 million of payments towards property, plant and equipment for construction of sIPV and varicella production facilities, in each case located in China.~~ As of December 31, ~~2018,~~2019, our commitments related to capital expenditures of approximately ~~$0.6~~$0.4 million were primarily for the construction of our ~~storage~~power facilities. We will finance such commitments through ~~long-term borrowings, proceeds from our public offerings and~~ cash generated from operations.

See discussions under “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Research and Development Programs.”

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, ~~2018~~2019 to December 31, ~~2018~~2019 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

We do not, and did not, have any interest in variable interest entities or any other off-balance sheet arrangements that require disclosure.

The following table summarizes our estimated contractual obligations and commitments as of December 31, ~~2018~~2019 for the periods indicated:

This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results and conditions, our prospects and our future financial performance and condition, all of which are largely based on our current expectations and projections. The forward-looking statements are contained principally in the sections entitled “Item 3. Key Information — D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” or other and similar expressions. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following:

The forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date on which the statements are made in this annual report on Form 20-F. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report on Form 20-F completely and with the understanding that our actual future results may be materially different from what we expect.

The following table sets forth information regarding our directors and executive officers as of the date of this annual report:

Mr. Weidong Yin has served as our chairman, president, chief executive officer and secretary since September 2003. He previously worked as a medical doctor in infectious disease at the China Center for Disease Control and Prevention, Tangshan City, Hebei province. Mr. Yin has been dedicated to hepatitis research for over 20 years and was instrumental in the development of Healive. In addition, Mr. Yin has been appointed as the principal investigator by the Chinese Ministry of Science and Technology for many key governmental R&D programs such as Inactivated Hepatitis A Vaccine R&D, Inactivated SARS Vaccine R&D and New Human Influenza Vaccine (H5N1) R&D. He is also the president of Zhongguancun Listed Companies Association. He obtained his MBA from the National University of Singapore.

Mr. Simon Anderson has served as an independent director of our company since July 2004. He is a member of our audit, compensation, and corporate governance and nominating committees. Mr. Anderson advises companies listed on North American stock exchanges and private businesses in the areas of regulatory compliance, exchange listings and financial operations. He is a member of the Chartered Professional Accountants of British Columbia, having qualified as a Chartered Accountant in 1986. Mr. Anderson serves as a director of IBC Advanced Alloys Corp., which manufactures and processes alloys at its U.S. plants.

Mr. Yuk Lam Lo has served as an independent director of our company since March 2006. Mr. Lo is a member of the audit, compensation and corporate governance and nominating committees. Currently Mr. Lo is serving as the Chairman of the Advisory Council for Food Safety of the Food and Health Bureau HKSAR, ~~an Executive~~the Founding President of HK Bio-Med Innotech Association, the Honorary Founding Chairman of Hong Kong Bio-Organization and a Committee Member of the Chinese Manufacturers’ Association of Hong Kong (CMA) ~~and Chairman of the Education Committee of CMA.~~. Mr. Lo is also the Honorary Founding Chairman of Hong Kong Bio-Organization. In the educational area, Mr. Lo has been elected an Honorary Fellow of the Hong Kong University of Science and Technology. He is an Honorary Chairman of Hong Kong Food Safety Association, Adjunct Professor of the Chinese University of Hong Kong and Honorary Professor of several universities in China. Mr. Lo was heavily involved in several committees of the

HKSAR Government. He had been appointed as Director of the Hong Kong Applied R&D Fund Co. Ltd., Chairman of the Biotechnology Committee of the Hong Kong Industry & Technology Development Council, and Chairman of Biotechnology Projects Vetting Committee of the Innovation and Technology Fund, HKSAR. In China, Mr. Lo is a Member of Chinese People’s Political Consultative Conference in Jilin province, and a Consultant of the Centre for Disease Control and Prevention of China. In the business sector, he is an Independent Director of Luye Pharma Group Limited (2186.HK) ~~and~~, CSPC Pharmaceutical Group Limited (1093.HK).

, Chairman of GT Healthcare Capital Partners, and Partner & Investment Committee Member of Hangsen Investment Management Limited.

Mr. Kenneth Leeis an independent director of Sinovac. He has served on our board of directors since May 2011. In July 2012, the board appointed him as a member of the compensation committee and corporate governance and nominating committee. Mr. Lee iswas a partner at SAIF Partners. ~~SAIF Partners IV L.P. is currently the largest shareholder of Sinovac.~~ Mr. Lee has more than 20 years of experience across private equity investments, corporate finance, and business development in China. He is a non-executive director on the ~~boards~~board of ~~three~~another Chinese portfolio ~~companies~~company publicly listed on the ~~stock exchanges in the United States and~~Stock Exchange of Hong Kong and a board director for ~~four~~three other private Chinese companies backed by SAIF Partners. Mr. Lee is a graduate of Amherst College.

Mr. Meng Mei has served as an independent director of our company since March 2012. Mr. Mei is the chairman of compensation committee, and member of the audit and corporate governance and nominating committees. Mr. Mei founded TusPark, a science park established by Tsinghua University in 1994, to incubate high growth companies. He has been the director of TusPark’s development center since its inception. Mr. Mei is also the Chairman of TusHoldings Co., Ltd., which is engaged in the development, construction, and management of TusPark and is providing services to enterprises based in TusPark. TusHoldings Co., Ltd. is also involved in venture capital investments in China. Mr. Mei sits on the judging expert panel of China’s National Science & Technology Award. He has developed courses on entrepreneurship and new venture formation as a Tsinghua University professor and an entrepreneur. Mr. Mei holds a bachelor’s degree in automation from Tsinghua University, PRC.

Mr. Shan Fu has served as an independent director since July 2018, when he was appointed as a director by the PIPE Investors in connection with the PIPE transaction described above. Mr. Fu is a Managing Partner at Vivo Capital. Vivo Capital is a healthcare focused investment firm formed in 1996 with over $3 billion under management. Prior to joining Vivo in 2013, Mr. Fu was Senior Managing Director in the Private Equity group and the Chief Representative of Blackstone’s Beijing Office. Additionally, Mr. Fu’s qualifications include experience in the Department of Foreign Investment in China’s National Development and Reform Commission, the State Economic and Trade Commission, the Office of Economic and Trade in State Council, and the Office of Production in State Council. Mr. Fu is currently a director on the boards of 4 biopharma companies, 1 medical consumable company, and 1 healthcare service company.

Ms. Nan Wang has served as our chief financial officer since June 2013. Ms. Wang served as the vice president of Sinovac Beijing from 2001 ~~to 2013 where she~~and the board director since 2009. Ms. Wang oversaw business development, investment and clinical research. ~~From 1988 to 1993,~~Ms. Wang also served as the first general manager of Sinovac Dalian since establishment of this company. During her 19 years of service, Ms. Wang was responsible for our business development, investment and clinical research. She has been actively promoted our foreign cooperation, leading domestic and international cooperation negotiations on a ~~researcher in biology at~~number of projects including equity, technology and market, and successfully achieving a number of foreign cooperation. Ms. Wang has led clinical research on many important projects including SARS vaccine (phase I), inactivated H5N1 influenza (avian flu) vaccine, influenza, H1N1 influenza vaccine and Enterovirus Type 71 Vaccine (Vero Cell), inactivated, and has actively promoted the ~~Life Science College~~listing of ~~Peking University, PRC. From 1993 to 2001, she worked as a manager at SinoBioway.~~new products. Ms. Wang received her bachelor’s degree in biology from Peking University and her master’s degree from University of International Business and Economics, PRC. Ms. Wang also received a diploma in financial management from Beijing College for Entrepreneurs, PRC in 2003.

Ms. Xiaomei Yin has served as our vice president since December 29, 2017. She is responsible for ~~our oversee~~overseeing sales and marketing. Ms. Yin joined our company in May 2006 and served as manager of business development department, ~~of Sinovac Beijing in May 2006. She was appointed as~~ director of government ~~relations~~affairs and director of public market. Since December 2017, she has been the deputy general manager of sales and marketing of Sinovac Biotech Ltd. During her 14 years of service in ~~February 2010.~~our company, Ms. Yin has helped our company to successfully obtain various government supports, including financial aid, product reserves and government purchase orders. After Ms. Yin serves as general manager of marketing, she led the successful transformation of the sales model, greatly increased the sales revenue of our products, and led the team to establish a stricter compliance management system. Before joined us, Ms. Yin worked with Industrial and Commercial Bank of China, one of the major commercial banks in China. She received a bachelor degree in finance from Central University of Finance and Economics, PRC.

Mr. Qiang Gao has served as our vice president since April 2016. Mr. Gao joined Sinovac Beijing in 2002 and has served as quality control manager, quality assurance manager, R&D manager and R&D director at Sinovac Beijing in the past years, and the general manager of Sinovac R&D since 2010. HeMr. Gao has participated in the development of several vaccine varieties, including influenza vaccine, SARS vaccine, inactivated H5N1 influenza (avian flu) vaccine, EV71 vaccine, ongoing sIPV vaccine and declared 23-valent pneumonia vaccine. Under his leadership, we successfully passed the WHO assessment and were selected to be eligible to import inactivated polio vaccine technology from the Netherlands and participate in the global polio eradication project. This project makes China become one of only six developing countries eligible for the technology transfer. Mr. Gao is ~~responsible for developing our new vaccine products, including EV71 vaccine.~~currently a member of the Beijing Virus Society, Master of Engineering Supervisor of Institute of Microbiology (Chinese Academy of Sciences), and a subject review expert of the Beijing Municipal Science and Technology Commission. Mr. Gao received a master’s degree and a bachelor’s degree in microbiology from the University of Agriculture, PRC.

Ms. Jing Li has served as our vice president since April 2016. Ms. Li was named as quality person of Sinovac Beijing in March 2015. Since she joined Sinovac Beijing in 2003, she has worked in different roles in production and quality function, including quality assurance vice manager, department manager of hepatitis A vaccine production and director of vaccine production at Sinovac Beijing. Ms. Li ~~is also in charge of~~has successively organized and completed the production and site inspection of ~~our~~ EV71 vaccine, the commercial production and application of 23-valent pneumococcal polysaccharide vaccine. As the project leader, she organized and led the effort to pass WHO pre-certification assessment of hepatitis A vaccine, which significantly promoted the export sales of hepatitis A vaccine. Ms. Li received a master’s degree in physiology from the University of Agriculture, PRC.

No family relationship exists among any of our directors or members of our executive officers named above and no arrangement or understanding exists between any of our major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or executive officers.

In ~~2018,~~2019, the aggregate cash compensation paid to our directors and executive officers was approximately ~~$4.20~~$1.7 million.

We have not set aside or accrued any amount of cash to provide pension, retirement or other similar benefits to our officers and directors. Our PRC subsidiaries and consolidated affiliated entities as well as their subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her retirement benefits, medical insurance benefits, housing funds, unemployment and other statutory benefits.

We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we may agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

EMPLOYMENT AGREEMENTS; NON-DISCLOSURE, NON-COMPETITION AND PROPRIETARY INFORMATION AGREEMENT

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate the employment of any ~~director and~~ officers for cause, at any time, without notice or remuneration, for certain acts of such ~~director and~~ officer, such as conviction of or plea of guilty to a felony or to an act of fraud, misappropriation or embezzlement, gross negligence or dishonest acts to our detriment, gross misconduct or a failure to perform agreed duties, death or disability (physical or mental impairment). ~~Our company~~We may also terminate his or her employment without cause, at any time, upon a one month’s written notice. Our ~~directors and~~ officers may terminate their employment, at any time, with a one-month prior written notice to our company for good reason, including material diminution in their authority, duties, responsibilities or cash compensation as detailed in their employment agreements, or in event of any action or inaction that constitutes a material breach by our company under the employment agreement, in the manner set forth in their employment agreements. Upon termination of his or her employment with ~~our company~~us by our company without cause or by him or her for good reason, such ~~director and~~ executive officer is entitled to receive severance benefits including cash payment equal to the amount set forth in his or her employment agreement. In addition, all the share options and restricted share award granted to him or her under our stock/share incentive plans will become fully vested on the employment termination date and such share options will remain exercisable for eighteen months following the employment termination date.

In addition, each of our executive officer has entered into a non-disclosure, non-competition and proprietary information agreement and agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year and four years, respectively, following the last date of employment.

The bonus plan of the executive officers is made based on our annual performance in different functions and the respective key result areas of these functional teams. Each vice president’s bonus is determined based on the key corporate development objectives and key performance index set by the compensation committee and approved by the board at the beginning of the year. The bonus payoff plan is approved by the board.

Our shareholders have authorized the board of directors to administer two share incentive plans which in aggregate provide for the issuance of up to 9,000,000 shares of common stock, including 5,000,000 shares reserved under the 2003 Stock Option Plan and 4,000,000 shares reserved under 2012 Share Incentive Plan. As of December 31, 2019, an aggregate of 42,800 shares, consisting 42,800 shares under the 2003 Stock Option Plan and nil shares under the 2012 Share Incentive Plans, are still available for any future grant of incentive awards under the two share incentive plans. The following tables summarize, as of December 31, ~~2018,~~2019, the outstanding options and regular shares that we granted to several of our directors, executive officers, principal shareholders and to other individuals as a group, all of which were made under our 2012 Share Incentive Plan.

Our board of directors adopted the 2003 Stock Option Plan (the “2003 Plan”) on November 1, 2003. The purpose of the plan is to attract and retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees, directors and consultants and promote the success of our business. Our board of directors believes that our company’s long-term success depends on our ability to attract and retain superior individuals who, by virtue of their ability, experience and qualifications, make important contributions to our business.

In August 2012, our shareholders adopted a 2012 Share Incentive Plan, or the 2012 Plan. The maximum aggregate number of common shares which may be issued pursuant to all awards under the 2012 Plan is 4,000,000 shares. As of December 31, ~~2018,~~2019, 3,073,700 common shares were issued under the 2012 Plan. The following paragraphs describe the principal terms of the 2012 Plan.

The types of awards we may grant under the plan include the options to purchase our common shares at a specified price and in a specified period determined by our board. Under the 2012 Plan, we may also grant awards of our (1) restricted shares, (2) restricted share units, (3) dividend equivalents, (4) deferred shares, (5) share payments and (6) share appreciation rights under the terms and conditions determined by our board of directors.

We may grant awards to the directors, officers, advisors and employees of us and our wholly owned subsidiaries and any entity which may thereafter be established.

Our board of directors will administer the 2012 Plan. The board will determine the terms and conditions of each grant, including but not limited to, the exercise, grant or purchase prices, any reload provision, any restrictions or limitations on the awards, vesting schedules, restrictions on the exercisability of the awards, any accelerations or waivers, and any provision related to non-competition and recapture of gain on the awards.

Awards granted under the plan will be evidenced by an award agreement that will set forth the terms, conditions and limitations for each award. The award agreement should be signed by the employee and a director or an officer of us. Share awards may be evidenced by way of an issuance of certificates or book entries with appropriate legends. The certificates and book entry procedures may be subject to counsels’ advice, stop-transfer orders or other conditions or restrictions where the plan administrator deems necessary to comply with the required laws and regulations.

The 2012 Plan provides that the administrator may set the period during which an option or a share appreciation right can be exercised and may determine that an option or a share appreciation right may not be exercised for a specified period after it is granted. Such vesting can be based on criteria selected by the administrator. At any time after the grant of an option or a share appreciation right, the administrator may, in its sole discretion and subject to the terms and conditions it determines, accelerate the period during which an option or a share appreciation right vests. No portion of an option or a share appreciation right exercisable at the termination of service of an option or a share appreciation right holder with our company or subsidiaries can become exercisable afterwards, unless otherwise provided by the administrator.

The exercise price per share of options granted under the 2012 Plan is determined by the plan administrator in the award agreement. The price may be fixed or variable related to the fair market value of our ordinary shares. The term of any option granted should not exceed ten years. However, in the case where our incentive option is granted to an individual who, at the date of grant, owns more than ten percent of the total voting power of all classes of our shares, the price granted shall not be less than 110% of the fair market value on the date of grant and the option is exercisable for no more than five years from the date of grant.

For common share awards granted under the 2012 Plan, namely (1) restricted shares, (2) restricted share units, (3) dividend equivalents, (4) deferred shares, and (5) share payments, the consideration shall not be less than the par value of the shares purchased. The terms of the share awards are set by the plan administrator in its sole discretion.

The exercise price of share appreciation right under the 2012 Plan is determined by the plan administrator and set forth in the award agreement which may be a fixed or variable price related to the fair market value of the shares. The term of the share appreciation right will not exceed ten years.

The approval of shareholders is required for downward adjustment of the exercise prices of options or share appreciation rights. A downward adjustment of the exercise prices of options or share appreciation rights means (i) lowering the exercise price of outstanding options or share appreciation rights, or (ii) cancelling outstanding options or share appreciation rights in exchange for cash, other awards, or options or share appreciation rights with an exercise price that is less than the exercise price of the original options or share appreciation rights.

The awards granted under the 2012 Plan may not be sold, pledged, assigned or transferred other than by will or the laws of descent and distribution or, subject to the consent of the plan administrator, as required under the applicable laws.

The 2012 Plan provides that in the event of any changes affecting our common shares or our share price, the plan administrator can make proportional and equitable adjustments to reflect such changes. Upon or in anticipation of a corporate transaction, including acquisition, disposal of substantially all or all assets, reverse takeover, dissolution, the plan administrator should in its discretion provide for replacement or assumption of such award. In the event of other changes, the board of directors should in its discretion make adjustments in the number and class of shares subject to awards outstanding on the date of such change to prevent dilution or enlargement of rights. The 2012 Plan will expire and no further awards may be granted after the tenth anniversary of the date the plan was adopted.

Our Articles of Incorporation prescribe that we should have a minimum of one and a maximum of 15 directors. Currently, our board of directors comprises six board members, five of whom are independent. A director is not required to hold any shares in the company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement in which he is materially interested provided that such director must disclose his interest in the contract or arrangement. There is no age limit requirement for directors. Under Antigua law, our directors have a duty of loyalty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our Articles of Incorporation and By-laws, as amended and re-stated from time to time. A shareholder has the right to seek damages if a duty owed by our directors is breached.

As described above, on March 5, 2018, we announced the re-election of the members of our board of directors—Mr. Weidong Yin, Mr. Yuk Lam Lo, Mr. Simon Anderson, Mr. Kenneth Lee, and Mr. Meng Mei—at the 2017 AGM. We also announced that we had determined, after consultation with our Antigua legal counsel, that an alternative, pre-printed ballot not made available to all our shareholders and purportedly submitted at our 2017 AGM by the Shareholder Group was invalid. On March 13, 2018, 1Globe filed a complaint against our company in the ~~Eastern Caribbean Supreme~~Antigua Court ~~in the High Court of Justice, Antigua and Barbuda,~~ to dispute the results of the election. See “Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Legal and Administrative Proceedings” for additional information. In July 2018, Mr. Shan Fu was appointed to our board of directors in connection with the PIPE transaction. ~~In 2018, our board of directors held meetings or passed resolutions by unanimous written consent 26 times.~~

Our officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office and hold office until a successor is elected at the next annual shareholders’ meeting. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors or (ii) dies or is found by our company to be or becomes of unsound mind. None of our directors has a service contract with us or any of our subsidiaries providing for benefits upon termination of employment.

Our board of directors has established an audit committee, a compensation committee and a corporate governance and nominating committee.

Our audit committee consists of Messrs. Simon Anderson, Yuk Lam Lo and Meng Mei, and is chaired by Simon Anderson, all of whom satisfy the “independence” requirements of Rule 5605 of the NASDAQ Listing Rules and Rule 10A-3 under the Securities Exchange Act of 1934. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

In ~~2018,~~2019, our audit committee held meetings or passed resolutions by unanimous written consent ~~four~~six times.

Our compensation committee consists of Messrs. Meng Mei, Simon Anderson, Yuk Lam Lo, and Kenneth Lee, and is chaired by Mr. Meng Mei, all of whom satisfy the “independence” requirements of Rule 5605 of the NASDAQ Listing Rules and Rule 10C-1 under the Securities Exchange Act of 1934. Our compensation committee assists the board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

In ~~2018,~~2019, our compensation committee held meetings or passed resolutions by unanimous written consent ~~three times.~~twice.

Our corporate governance and nominating committee consists of Messrs. Yuk Lam Lo, Simon Anderson, Kenneth Lee and Meng Mei, and is chaired by Mr. Yuk Lam Lo, all of whom satisfy the “independence” requirements of Rule 5605 of the NASDAQ Listing Rules. The corporate governance and nominating committee assists the board of directors in identifying individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

In ~~2018,~~2019, our corporate governance and nominating committee ~~did not hold~~held meetings or passed resolutions ~~instead, the matters for discussion were combined to the meetings or resolutions~~ by ~~the board of directors.~~unanimous written consent twice.

A director may vote in respect of any contract or transaction in which he or she is interested, provided that the nature of the interest of any directors in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.

The directors may determine remuneration to be paid to the directors. The compensation committee assists the directors in reviewing and approving the compensation structure for the directors. The directors may exercise all our powers to borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of our company or of any third party.

As of December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, we had 910, 735 ~~644,~~ and ~~724~~644 full-time employees, respectively. Of our workforce as of December 31, ~~2018,~~2019, about ~~108~~154 employees are primarily engaged in research and development, 7182 employees are engaged in sales and marketing, ~~463~~557 employees in production related and 93117 employees in administration. As of December 31, ~~2018,~~2019, we have a total of ~~135~~133 temporary employees. We consider our relationship with our employees to be good.

The following table sets forth information with respect to the beneficial ownership of our common shares, as of ~~April 19, 2019,~~March 31, 2020, by:

The calculations in the table below are based on ~~71,135,902~~71,125,902 common shares outstanding as of ~~April 19, 2019 (before~~March 31, 2020 before taking into account the issuance of the Exchange Shares in the ~~Exchange).~~Exchange and 113,534,056 shares, including 98,903,243 common shares and 14,630,813 Series B Preferred Shares, after taking into account the issuance of the Exchange Shares in the Exchange. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person. Additionally, for purposes of this item, share counts and calculations in the table below do not reflect the issuance of the Exchange Shares into the Shareholder 2019 Rights Exchange Trust in connection with the Exchange.

None of our existing shareholders has different voting rights from other shareholders. Holders of our Series B Preferred Shares vote together with the common shares on an as-converted basis on all matters presented to the shareholders for a vote, subject to applicable law. Except for the complaint against filed by 1Globe against Sinovac Antigua in the Antigua Court, as disclosed in “Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Legal and Administrative Proceedings” or elsewhere in this annual report, we are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

As of December 31, 2018, 71,139,402 of our common shares were issued and outstanding. ~~Approximately 80% of the issued and outstanding shares were held by the record shareholders in the United States.~~ On February 22, 2019, 27,777,341 of Sinovac Antigua’s common shares and 14,630,813 of Sinovac Antigua’s Series B preferred shares were issued into the Shareholder 2019 Rights Exchange Trust in connection with the Exchange. As described below under “Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Legal and Administrative Proceedings”, courts in Antigua and Delaware have enjoined the Company from issuing Exchange Shares from the Trust until final resolution of such matters. Taking into account issuance of the Exchange Shares, immediately following such issuance, ~~Sinovac Antigua had~~ 98,918,243 of common shares and 14,630,813 of Series B Preferred Shares were issued and outstanding. As of December 31, 2019, 98,903,243 of common shares and 14,630,813 of Series B Preferred Shares were issued and outstanding. Approximately 87% of the aggregate total of common shares and Series B Preferred Shares issued and outstanding were held by the record shareholders in the United States.

To our knowledge, except as disclosed elsewhere in this annual report, we are not directly or indirectly owned or controlled by another corporation, any foreign government or any other natural or legal person, severally or jointly.

For the options granted to our directors, officers and employees, please refer to “— B. Compensation.”

Please refer to “Item 6. Directors, Senior Management and Employees — E. Share Ownership.”

On June 26, 2017, we entered into the Amalgamation Agreement with Parent and Sinovac Amalgamation Sub Limited, a wholly owned subsidiary of Parent. Pursuant to the Amalgamation Agreement, Parent would acquire Sinovac Biotech Ltd. for cash consideration equal to $7.00 per common share. On July 2, 2018, the Amalgamation Agreement was terminated.

Sinovac Hong Kong is using part of the office of Mr. Yuk Lam Lo, one of our independent directors, as its office. We do not pay any rent to ~~Mr.Lo~~Mr. Lo and only pay our share of the utilities and property management fees, which totaled ~~$7,000,~~$10,267, nil and nil in ~~2016,~~2019, 2018 and 2017, ~~and 2018~~ respectively.

We entered into two operating lease agreements with SinoBioway, the non-controlling shareholder of Sinovac Beijing, with respect to Sinovac Beijing’s production plant and laboratory in Beijing, China with annual lease payments totaling RMB 1.4 million ($0.2 million). The leases commenced on August 12, 2004 and have a term of 20 years. One of the lease agreements was amended on August 12, 2010 with the rent increasing from RMB 0.5 million ($75,000) to RMB 1.4 million ($0.2 million) per year.

In June 2007, we entered into another operating lease agreement with SinoBioway, with respect to the expansion of Sinovac Beijing’s production plant in Beijing, China, for an annual lease payment of RMB2.0 million ($0.3 million). The lease commenced in June 2007 and has a term of 20 years.

In September 2010, we entered into another operating lease agreement with SinoBioway with respect to expansion of Sinovac R&D’s business in research and development activities for an annual lease payment of RMB 1.0 million ($0.1 million). The lease commenced on September 30, 2010 and has an ~~inital~~initial term of five years.

On April 8, 2013, we entered into three supplemental agreements with SinoBioway, under which the expiration date of three of the four operating lease agreements was extended to April 7, 2033.

In 2019, we entered into an operating lease agreement with Dalian Jin Gang Group, the non-controlling shareholder of Sinovac Dalian, to rent refrigeration storage with the space of 2,000 sq.m. with an annual rent amounted RMB0.3 million ($49,000). The lease commenced on January 1, 2019 and had a term of five years. On June 30, 2019, the lease agreement was amended. The term of the lease was changed to from July 1, 2019 to December 31, 2024, and the annual rent was changed to RMB0.2 million ($22,000) as the space of the leased refrigeration storage was reduced to 1,000 sq.m. In 2019, we also entered into a management service agreement with Dalian Jin Gang Group, pursuant to which it provided us with management service related to the operating lease agreement with an annual management service fee of RMB100,000 ($14,000). The management service agreement was amended on June 30, 2019, and the annual management service fee was changed to RMB44,000 ($6,000).

In 2011, Sinovac Dalian entered into an agreement to borrow ~~RMB20.0~~a RMB20 million ~~($2.9 million)~~ loan from its non-controlling shareholder, Dalian Jin Gang Group. The loan was unsecured, bearing interest at 7.2% per year. ~~RMB4.0~~RMB 4 million ~~($0.6 million)~~ was repaid on September 25, ~~2014.~~2014, and the remaining RMB 16 million is payable on November 9, 2020. No repayments were made in 2019, 2018 and ~~2017, respectively.~~ 2017.

In 2017, Sinovac Dalian entered into an agreement to borrow ~~RMB30.0~~a RMB30 million ($~~4.4~~4.3 million) loan from its non-controlling shareholder, Dalian Jin Gang Group. The loan was unsecured, bearing interest at 6.0% per ~~year.~~year, which is payable on August 22, 2020. No repayments were made in 2019, 2018 and 2017.

In 2019, Sinovac Dalian entered into an agreement to borrow a RMB10 million ($1.4 million) loan from its non-controlling shareholder, Dalian Jin Gnag Group. The loan was unsecured, bearing interest at 6.5% per year, which is payable on September 19, 2022.

See “Item 6. Directors, Senior Management and Employees — B. Compensation — 2003 Stock Option Plan” and “Item 6. Directors, Senior Management and Employees — B. Compensation — 2012 Share Incentive Plan.”

“Item 6. Directors, Senior Management and Employees — B. Compensation — Indemnification Agreements.”

Employment Agreements; Non-Disclosure, Non-Competition and Proprietary Information Agreement

“Item 6. Directors, Senior Management and Employees — B. Compensation — Employment Agreements; Non-Disclosure, Non-Competition and Proprietary Information Agreement.”

We have appended consolidated financial statements filed as part of this annual report.

We may be subject to legal proceedings, investigations and claims relating to the conduct of our business from time to time.

The Beijing People’s Court issued five judgments in 2016 and 2017. These judgments were related to corrupt conduct allegedly engaged in by a former official of the Center for Drug Evaluation in NMPA, his wife and his son. These judgments found that the official and his wife had engaged in a practice of improperly soliciting and accepting payments from various individuals involved in the vaccine products industry. According to the judgments, one of the individuals solicited by the official was Mr. Weidong Yin, our chairman, president and chief executive officer. It was asserted in the judgments that Mr. Weidong Yin made three payments, and arranged for a loan, to the official and his wife, in the total amount of RMB550,000 ($77,000) between 2002 and 2011. Mr. Weidong Yin was not charged with any offense or improper conduct and he cooperated as a witness with the procuratorate. To our knowledge, the Chinese authorities have not commenced any legal proceedings or government inquiries against Mr. Yin. In December 2016, our audit committee authorized the commencement of an internal investigation into the allegations made in the judgments. The audit committee engaged Latham & Watkins LLP as independent counsel to assist with the investigation.

In 2017 and 2018, we became aware of certain judgments based on bribery charges issued by Chinese courts in four provinces against various officials of the CDC. While these judgments appear to reflect an industry-wide investigation focused on CDC officials, they also referenced nine of our former salespersons, together with sales personnel from several other Chinese vaccine companies and distributors. These judgments did not name, and no charges were brought against, our company or any of our directors or officers as defendants. To the best of our knowledge, the nine referenced employees cooperated with the procuratorate. The procuratorate did not contact us for cooperation. Upon becoming aware of these judgments, our Audit Committee expanded its internal investigation to review matters related to these judgments and our sales practices and policies, and further engaged Latham & Watkins LLP to continue the independent investigation with the expanded scope. One of the nine former sales employees has been convicted for giving bribes. The judgment states that this former sales employee took these actions without knowledge of our company. His criminal penalty was waived by the court.

After we publicly announced the internal investigation arising from the allegations in a research report in December 2016, we were notified by the SEC in February 2017 of an enforcement inquiry related to the matters discussed in the report, and in April 2017 we received a subpoena from the SEC requesting documents. In September 2017, we received an inquiry from the DOJ and we have been cooperating with the DOJ. The SEC and DOJ requested information regarding the judgments discussed above, and we cooperated with these requests.

Also in February 2017, we received an inquiry from NASDAQ related to the same matter. Further, in May 2018, we received an inquiry from NASDAQ requesting information related to the actions by Sinobioway Medicine and their impact on our operations and financial reporting. We cooperated with both of these NASDAQ inquiries.

On August 14, 2018, the SEC notified us that the SEC had concluded its investigation and would not recommend an enforcement action against us at this time. On September 12, 2018, the DOJ notified us that it had closed its investigation, with no charges. With the closure of the DOJ’s investigation, we are not aware of any pending U.S. government investigations of us related to these matters.

On July 3, 2017, a securities class action complaint was filed in the U.S. District Court for the District of New Jersey against Sinovac Biotech Ltd. and three of its current and former officers: Mr. Weidong Yin, our chief executive officer, Ms. Nan Wang, our chief financial officer, and Mr. Danny Chung, our former chief financial officer. The complaint asserts that statements in our annual filings for fiscal years 2012 through 2015 were false and misleading because they failed to disclose matters relating to the alleged bribery incidents, among other allegations. On September 6, 2017, the plaintiff has filed the notice of voluntary dismissal. The Court granted the dismissal without prejudice.

On July 12, 2017, an alleged shareholder of Sinovac Biotech Ltd. filed a putative class action complaint in the Supreme Court of the State of New York against Sinovac Biotech Ltd., our directors, and certain entities related to the Amalgamation Agreement, in a matter captioned ~~Wu v. Yin, et al~~. The complaint alleges that our directors breached their fiduciary duties by, among other things, entering into a self-dealing transaction at a price below fair value and failing to take steps to maximize our value. The complaint also alleges that our company aided and abetted those alleged breaches of fiduciary duty. The complaint sought, among other things, an injunction preventing completion of the transactions contemplated by the Amalgamation Agreement, rescission of the Amalgamation Agreement to the extent it is implemented, damages, and attorneys’ fees. None of the defendants, including our company and certain directors, were served with the complaint, and the time for doing so now has expired. On July 3, 2018, the Amalgamation Agreement was terminated.

On March 5, 2018, we filed a lawsuit in the Court of Chancery of the State of Delaware seeking a determination whether 1Globe, The Chiang Li Family, OrbiMed and other shareholders of Sinovac Biotech Ltd. had triggered ~~our~~the Rights Agreement by forming a group holding approximately 45% of outstanding shares of Sinovac Biotech Ltd., in excess of the plan’s threshold of 15%, and acting in concert prior to the 2017 AGM. ~~Our~~The Rights Agreement is intended to promote the fair and equal treatment of all Sinovac shareholders and ensure that no person or group can gain

control of Sinovac through undisclosed voting arrangements, open market accumulation or other tactics potentially disadvantaging the interest of all shareholders.

On April 12, 2018, 1Globe filed an amended answer to Sinovac Antigua’s complaint, counterclaims, and a third-party complaint against Mr. Weidong Yin alleging, among other allegations, that ~~our~~the Rights Agreement is not valid, that Mr. Weidong Yin and the Buyer Consortium had previously triggered ~~our~~the Rights Agreement, and that 1Globe did not trigger ~~our~~the Rights Agreement. Sinovac Antigua and its board of directors believes that the actions taken by the board of directors were appropriate under the circumstances and that the allegations of the ~~counterclaim~~counterclaims and third-party complaint are without merit. 1Globe asks for various measures of equitable relief and also includes a claim for its costs, including attorneys’ fees.

On July 31, 2018, following Sinovac Antigua motions for partial summary judgment and an expedited trial date, the Delaware Chancery Court effectively stayed the action pending receipt of a post-trial decision from the Antigua Court in the matter captioned 1Globe Capital, LLC and Sinovac Biotech Ltd., Claim No. ANUHCV 2018/0120. On December 19, 2018, the Antigua Court issued a judgment affirming the validity of Sinovac Antigua’s Rights Agreement under Antigua law, and finding that “there was a secret plan to take control” of Sinovac Antigua at the 2017 AGM.

Based upon the Antigua Court’s judgment and other facts known to the board of directors, our board of directors determined that the Collaborating Shareholders became Acquiring Persons on or prior to the 2017 AGM and their conduct resulted in a Trigger Event under Sinovac Antigua’s Rights Agreement. As a result of becoming Acquiring Persons, the approximately 28.7 million Rights held by the Collaborating Shareholders automatically became void under the terms of the Rights Agreement. Pursuant to the Rights Agreement, our board of directors elected to exchange the approximately 42.4 million valid and outstanding Rights held by Sinovac Antigua’s shareholders (not including the Collaborating Shareholders) for a combination of approximately 27.8 million common shares and approximately 14.6 million Series B preferred shares, all of which Sinovac Antigua issued into a trust on February 22, 2019 for the benefit of the holders of the valid and outstanding Rights. See “History and Development of the Company” for additional information.

On March 6, 2019, the Delaware Chancery Court entered a status quo order providing that Sinovac Antigua not distribute any of the Exchange Shares to rights holders until the final disposition of the pending Delaware litigation or further order of the Court. On April 4, 2019, the Eastern Caribbean Supreme Court, Court of Appeal issued an order that restrains Sinovac Antigua from taking further action under its Rights Agreement, including the distribution of the previously issued Exchange Shares to the holders of valid Rights, until the conclusion of 1Globe Capital, LLC’s appeal of the December 19, 2018 Judgment of the ~~High Court of Justice of~~ Antigua ~~and Barbuda.~~Court. On April 8, 2019, the Delaware Chancery Court stayed the Delaware litigation pending the outcome of 1Globe’s appeal of the Antigua Judgment. We cannot predict whether an ultimate outcome will be favorable or unfavorable, nor estimate the amount or range of potential loss (if any) at this time.

On March 5, 2018, Sinovac Antigua also filed a lawsuit in the United States District Court for Massachusetts alleging violations of Section 13(d) of the Securities Exchange Act of 1934 by 1Globe and The Chiang Li Family. The lawsuit alleges, among other things, that the defendant shareholders failed to make required disclosures on Schedule 13D regarding their intentions to attempt to replace Sinovac Antigua’s board of directors.

On April 9, 2018, we received a document request from the SEC requesting all of our documents concerning 1Globe, the Chiang Li Family, OrbiMed, certain other shareholders, and their affiliates. We have been cooperating with the SEC. We understand the SEC is investigating whether 1Globe, and possibly other shareholders, violated the U.S. securities laws. We do not have any information to suggest the SEC is investigating the actions of Sinovac Antigua or its officers and directors.

On May 21, 2018, 1Globe answered and filed counterclaims against Sinovac Antigua and certain of its executives, alleging violations of Section 10(b) of the Exchange Act and various state law claims. In response to Sinovac Antigua motion to dismiss 1Globe’s counterclaims, on August 1, 2018, 1Globe filed amended counterclaims against Sinovac Antigua and certain of its executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5, as well as state law claims of abuse of process, fraudulent misrepresentation, negligent misrepresentation, and aiding and abetting such violations, primarily arising out of allegedly false and/or misleading statements made by us regarding our business, operational, and financial results.

On August 17, 2018, the Massachusetts Court granted a consent motion to extend the deadline for Sinovac Antigua’s response to 1Globe’s counterclaims (and for any subsequent opposition by 1Globe) until after the Antigua Court issued a ruling in the matter captioned 1Globe Capital, LLC and Sinovac Biotech Ltd., Claim No. ANUHCV 2018/0120. On December 19, 2018, the Antigua Court issued a judgment, which 1Globe appealed on January 29, 2019. Per the Massachusetts Court’s order, the parties have filed periodic status reports regarding the pending court proceedings in Antigua. No date for Sinovac Antigua’s response to 1Globe’s counterclaims has been set. We are vigorously pursuing this lawsuit; however, we cannot predict whether an ultimate outcome will be favorable or unfavorable, nor estimate the amount or range of potential loss (if any) at this time.

Also on August 1, 2018, 1Globe filed a motion for preliminary injunction seeking to enjoin Sinovac Antigua from, inter alia, altering its capital structure. On October 15, 2018, the Massachusetts Court denied 1Globe’s motion. On November 14, 2018, 1Globe filed an appeal of the denial

of its motion for preliminary injunction to the United States Court of Appeals for the First Circuit. On January 10, 2019, 1Globe filed a motion to hold its appeal in abeyance pending the outcome of its separate appeal of the Antigua Court’s judgment, which Sinovac Antigua opposed. In October 2019, 1Globe voluntarily dismissed the appeal.

Separately, Heng Ren Investments LP (“Heng Ren”) filed suit against Sinovac Antigua and Weidong Yin for alleged breach of fiduciary duties and wrongful equity dilution on May 31, 2019, in Massachusetts state court. Sinovac Antigua removed the matter from state court to the United States District Court for the District of Massachusetts. Heng Ren alleged that Mr. Yin breached fiduciary duties owed to minority shareholders, that Sinovac Antigua aided and abetted breaches of fiduciary duties, and that both Sinovac Antigua and Mr. Yin engaged in wrongful equity dilution. Heng Ren requested damages, attorneys’ fees, and prejudgment interest. Presently, the case is effectively stayed until June 1, 2020, when an answer or response is due.

On March 13, 2018, 1Globe filed a complaint against Sinovac Antigua in the Antigua Court. The complaint seeks a declaration that the five persons purportedly proposed on the Non-Public Submission at the 2017 AGM were elected as directors of Sinovac Antigua at that meeting, an order of the Antigua Court that those directors be installed as Sinovac Antigua’s board of directors, and a declaration that any actions taken on behalf of Sinovac Antigua at the direction of the board of directors since the 2017 AGM are null and void. On April 10, 2018, 1Globe filed a notice of application in the Antigua Court seeking an order declaring the result of the disputed election, an urgent order restraining Sinovac Antigua’s board of directors from acting, pending determination of the dispute, including acting to initiate or continue litigation against the Shareholder Group, and other related relief. We attended the first hearing on May 9, 2018. In July 2018, the Antigua court heard an application by 1Globe for interim injunctive relief preventing Sinovac Antigua from exercising its rights under the Rights Agreement. This application was unsuccessful, but the judge set an expedited timetable to trial. The trial of the matter took place from December 3 to 5, 2018. On December 19, 2018, the judge handed down his judgment, finding in Sinovac Antigua’s favor in full, dismissing 1Globe’s claim and declaring that the Rights Agreement was validly adopted as a matter of Antigua law. On January 29, 2019, 1Globe filed a Notice of Appeal. On March 4, 2019, 1Globe filed an application for urgent interim relief, seeking an injunction to prevent Sinovac Antigua from continuing to implement its Rights Agreement until the resolution of the appeal. This urgent interim relief application was heard on April 4, 2019, at which the Court of Appeal made an order restraining Sinovac Antigua in similar terms to the Delaware Court order of March 6, 2019, together with restraint from operating the Rights Agreement in any way that affects 1Globe’s rights or shareholding until determination of the appeal. ~~There will be further hearings~~1Globe’s appeal of the Antigua Court’s Judgment was heard on September 18, 2019, and anthe appeal ~~at which we will continue to vigorously defend~~decision is pending as of the ~~litigation; however, we~~date of this annual report. We cannot predict or estimate an outcome or economic burden for this case at this time.

On October 8, 2018, Sinovac became aware that unauthorized documents in respect of Sinovac Hong Kong had been unlawfully filed with the Hong Kong Companies Registry ~~and that unauthorized documents in respect~~to change the directors of Sinovac ~~Beijing had been unlawfully filed with the Industry~~Hong Kong from Mr. Weidong Yin and ~~Commerce Bureau of Beijing.~~Ms. Nan Wang to Mr. Jianzeng Cao and Mr. Pengfei Li. On October 15, 2018, Mr. Yin and Ms. Nan Wang commenced proceedings HCMP 1731/2018 before the Hong Kong High Court.

In a hearing before the Hong Kong High Court on October 19 2018, the ~~lawful directors of Sinovac Hong Kong (“~~Lawful ~~Directors”)~~Directors asked the court to grant an urgent interim injunction order to restrain Mr. Li and Mr. Cao from taking further unlawful actions against Sinovac HK and its subsidiaries. At the hearing, the judge granted an interlocutory injunction in the same terms sought by the Lawful Directors restraining Mr. Pengfei Li and Mr. Jianzeng Cao from purporting to act or holding themselves out as directors of Sinovac Hong Kong or its subsidiaries, purporting to take any actions as directors of Sinovac Hong Kong or its subsidiaries, and relying on or using the forged documents in any way whatsoever.

On November 28, 2018 at a further hearing in the Hong Kong High Court, the Hong Kong High Court made the November 28 Order and held that it is beyond dispute that the documents in respect of Sinovac Hong Kong had been forged and unlawfully filed with the Hong Kong Companies Registry, based on the evidence filed by Mr. Cao, Mr. Li and the Lawful Directors. The Hong Kong High Court therefore declared that Mr. Yin and Ms. Wang were and still are the lawful directors of Sinovac Hong Kong, and Mr. Li and Mr. Cao were not and are not the lawful directors of Sinovac Hong Kong. The Hong Kong High Court also granted a permanent injunction restraining Mr. Li and Mr. Cao from purporting to act or holding themselves out as directors of Sinovac Hong Kong or its subsidiaries (including but not limited to Sinovac Beijing), purporting to take any actions as directors of Sinovac Hong Kong or its subsidiaries, and relying on or using the forged documents in any way whatsoever. Furthermore, the Hong Kong High Court also ordered the Companies Registry to remove the forged documents in respect of Sinovac Hong Kong that had been unlawfully filed.

On November 28, 2018, Mr. Cao and Mr. Li filed a Notice of Appeal with the Hong Kong Court of Appeal, indicating their intention to appeal the orders made by the Hong Kong High Court. No hearing date has yet been fixed to hear the appeal. Mr. Yin and Ms. Wang intends to vigorously contest the appeal filed by Mr. Cao and Mr. Li. Pending the determination of the appeal, the November 28 Order remains effective and enforceable. Pursuant to the November 28 Order, the Hong Kong Companies Registry has removed the purported Sinovac Hong Kong documents from the Companies Register and updated Sinovac Hong Kong’s register of director such that the directors on record are Mr. Yin, Ms. Wang and Mr. Yuk Lam Lo.

~~On April 4, 2018, Sinovac Hong Kong filed a complaint against Sinovac Beijing in~~As of the ~~Haidian District~~date of this annual report, neither the Court of ~~Beijing. The complaint seeks a declaration~~First Instance nor the Court of Appeal directed that the ~~board resolutions dated February 6, 2018 purporting to appoint~~execution of the November 28 Order should be stayed. So far, Mr. ~~Aihua Pan as~~Cao and Mr. Li have taken no further steps in respect of the ~~general manager~~appeal after the Notice of ~~Sinovac Beijing are invalid. On August 24, 2018, the court made a judgment in favor of Sinovac Hong Kong, which ruled that the board resolutions dated February 6, 2018 are invalid. No appeal~~Appeal was filed ~~and the judgment has already become effective and enforceable.~~ on November 28, 2018.

On May 9, 2018, Sinobioway Medicine filed a complaint against Sinovac Beijing in the Haidian District Court of Beijing. The complaint seeks a declaration that the board resolutions passed on February 28, 2018 to appoint Mr. Weidong Yin and other senior management members are invalid. Sinobioway Medicine withdrew the lawsuit after two hearings.PRC Litigation

On May 16, 2018, Sinovac Hong Kong filed a complaint against Sinobioway Medicine, Mr. Aihua Pan, and Shandong Sinobioway Biomedicine Co., Ltd. in the Fourth Intermediate People’s Court of ~~Beijing.~~Beijing (“Beijing Fourth Court”). The complaint sought to hold the defendants jointly and severally liable for the torts they ~~committed.~~committed during an attempt of the defendants to take physical control of our facility in Shangdi site in Beijing on April 17, 2018. Later, Sinova Hong Kong made an application to the court to add Sinovac Beijing as a third party to participate in the proceedings. The court has granted an order, permitting Sinovac Beijing to participate in the proceedings as a third party. At the hearing held on July 2, 2019, Sinovac Hong Kong, the defendants and Sinovac Beijing cross-examined the evidences submitted by each party. Based on the result of the cross-examination, the court declared that an independent evaluation firm shall be engaged by both the defendants and Sinovac Hong Kong to evaluate the losses and damages sustained by Sinovac Beijing as the result of the actions taken by the defendants on April 17, 2019. An independent evaluation firm has been selected by the court and the evaluation is being conducted. As of the date of this annual report, ~~this lawsuit~~the evaluation report is ~~pending~~yet to be issued. It is unclear whether the court will hold more hearings after the completion of the evaluation or the court will render a judgement based on the first hearing and ~~no hearing has been held.~~

On September 13, 2018, Sinovac Beijing filed a complaint against Mr. Aihua Pan in the Haidian District ~~People’s~~ Court of ~~Beijing.~~Beijing (the “Haidian Court”). The complaint sought to request ~~Aihua~~Mr. Pan return a business license of Sinovac Beijing which was reissued by the Haidian Branch of Beijing Administration for Industry and Commerce on May 10, 2018 based on the false reporting made by Mr. Pan and the seals of Sinovac Beijing which are forged by Mr. ~~Aihua~~ Pan. Sinovac Beijing filed a preservation application to the court. The court supported Sinovac Beijing’s preservation application and prohibited Mr. ~~Aihua~~ Pan from using or authorizing others to use the above-mentioned license and seals during the case hearing. The court held a preliminary and brief hearing on November 18, 2019. At the hearing, the court has decided and declared to suspend the proceedings until the final verdict of the September 5 Board Resolution Case (as described below) is given by the Beijing Fourth Court.

On October 8, 2018, Sinovac also became aware that unauthorized documents in respect of Sinovac Beijing had been filed with the Industry and Commerce Bureau of Haidian District of Beijing (“Haidian AIC”) to change the directors of Sinovac Beijing from Mr. Weidong Yin, Ms. Nan Wang and Mr. Dawei Mao to Mr. Jianzeng Cao, Mr. Pengfei Li and Ms. Xiaomin Yang. Mr. Yin and Ms. Wang filed an objection to such unlawful change with the Haidian AIC. On March 19, 2020, Haidian AIC issued an official decision (“AIC Decision”) declaring that (i) the unauthorized documents are forged and fake documents; (ii) the filing of change of directors made based on the forged documents is null and void; (iii) the unlawful filing to change the said directors will be removed and (iv) the registration of directors of Sinovac Beijing will be restored. The parties of material interest in the AIC Decision may raise objection or file a lawsuit within 60 days. As of today, nobody has filed the ~~date of this annual report, this~~objection or lawsuit ~~is pending and no hearing has been held.~~

On December 24, 2018, Sinobioway Medicine filed a complaint against Sinovac Beijing in the Haidian ~~District Court of Beijing.~~Court. The complaint sought a declaration that all the board resolutions dated September 5, 2018, including the composition of the board, the appointment of the senior managers and the management of the corporate seals, are ~~invalid.~~invalid (“September 5 Board Resolution Case”). Sinovac Hong Kong has filed an application for adding itself as the third party in this lawsuit. The court decided to accept its application. As a result of Sinovac Hong Kong, which is deemed as a foreign entity under the PRC Civil Procedural Law, participating in the litigation, the Haidian Court does not have the jurisdiction over the case and has transferred the case to the Beijing Fourth Court. In January 2020, the Beijing Fourth Court requested all the participants in the litigation to submit evidence. Both Sinovac Beijing and Sinovac Hong Kong submitted all the valid evidence to the court in February and March 2020. The court will decide when to hold the first hearing and cross-examination. However, due to the outbreak of COVID-19 in China, the activities of the Beijing Fourth Court have been significantly impacted. The Beijing Fourth Court has not yet notified the parties of the date of first hearing.

On July 25, 2019, Sinobioway Medicine filed a complaint against Sinovac Beijing in the Haidian Court. The complaint sought to request Sinovac Beijing to provide (i) all the corporate documents of Sinovac Beijing, including the Articles of Association and board resolutions (ii) all the books and the related accounting vouchers and records of Sinovac Beijing, created from the date of January 1, 2017, and (iii) the monthly financial reports of Sinovac Beijing for the lawyers and auditors of Sinobioway Medicine to review and/or copy. The complaint also sought to request Sinovac Beijing to agree the auditors of Sinobioway to audit its annual and quarterly financial reports. On October 28, 2019, one judge of the Haidian Court held a preliminary and brief hearing and declared that the simplified procedures shall not apply to this case, which shall be heard by a panel of three judges. As of the date of this annual report, the ~~court~~formation of the penal has not ~~decided whether to accept its application and the lawsuit is pending.~~yet been notified.

We cannot predict whether an ultimate outcome of the pending lawsuits will be favorable or unfavorable, nor estimate the amount or range of potential loss (if any) at this time.

We have never declared or paid any dividends, nor do we have any present plan to pay any cash dividends on our common shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. Cash dividends on our common shares, if any, will be paid in U.S. dollars.

We are a holding company, and we rely on the dividends paid by our majority-owned subsidiaries, Sinovac Beijing and Sinovac Dalian, wholly owned subsidiaries Sinovac R&D and Sinovac Biomed through Sinovac Hong Kong, for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. The payment of dividends in China is subject to limitations. Regulations in the PRC currently permit payment of dividends by our PRC subsidiaries only out of accumulated profits as determined in accordance with accounting standards and regulations in China. In accordance with the regulations in China, Sinovac Beijing, Sinovac Dalian, Sinovac R&D and Sinovac Biomed are required to set aside at least 10% of its after-tax profits each year to contribute to its reserve fund until the accumulated balance of such reserve fund reaches 50% of the registered capital of each company. Sinovac Beijing, Sinovac Dalian, Sinovac R&D and Sinovac Biomed are required to set aside, at the discretion of their respective board of directors, a portion of its after-tax profits to their employee welfare and bonus funds.

Furthermore, pursuant to the double tax arrangement between Hong Kong and PRC, dividends paid by a foreign-invested enterprise in China to its direct holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the foreign-invested enterprise for a period greater than 12 months), or otherwise 10%. ~~Whether~~Prior to May 2012, whether the favorable rate will be applicable to dividends received by Sinovac Hong Kong from our PRC subsidiaries is subject to the approval of the PRC tax ~~authorities because it is unclear whether Sinovac Hong Kong is considered as the beneficial owner of the dividends in substance.~~authorities. The PRC tax authorities have discretion to assess whether a recipient of the PRC-sourced income is only an agent or a conduit, or lacks the requisite amount of business substance, in which case the application of the tax arrangement may be denied. This withholding tax imposed on dividends paid to us by our PRC subsidiaries would reduce our net income attributable to the shareholders. In May 2012, Sinovac Hong Kong was granted by the local tax bureau the preferential dividend withholding tax rate of 5% on dividends declared by Sinovac Beijing for three years from 2012 to 2014. The ~~State Administration of Taxation has the authority to re-assess the approval of the preferential dividend withholding tax rate granted by the local tax bureau. The~~ preferential dividend withholding tax rate expired in ~~2014. The dividends received by Sinovac Hong Kong from its PRC subsidiaries are subject~~2014 Subsequent to aMay 2012, the preferential dividend withholding tax rate no longer needed to be approved by the PRC tax authorities, instead companies can apply the 5% rate if a self-assessment determined the recipient of ~~10%.~~the PRC-sourced income qualify for the preferential rate. However, such self-assessment could be overturned upon an inspection by the PRC tax authorities. We will make such self-assessment when necessary and use the appropriate withholding tax rate based on the result of the assessment.

Except with respect to the Exchange and the related issuance of common shares and Series B Preferred Shares pursuant to Sinovac Antigua’s Rights Agreement, as well as the related ongoing litigation, in each case disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

Our common shares have been listed on the NASDAQ Global Select Market since January 3, 2011 under the symbol “SVA.” In connection with the Exchange and the issuance of the Exchange Shares into the Shareholder 2019 Rights Exchange Trust, trading of our common shares on Nasdaq has been halted since February 22, 2019.

We are an Antiguan company (Company No.11949) with limited liability and our affairs are governed by our Articles of Incorporation, By-laws and the International Business ~~Corporation~~Corporations Act. The following are summaries of material provisions of our Articles of Incorporation, By-laws and the International Business Corporations Act.

All of our outstanding common shares are fully paid and non-assessable. The common shares are issued in registered form. Holders of common shares are entitled to receive share certificates. Our shareholders who are non-residents of Antigua may freely hold and vote their common shares.

~~The holders of our common shares are entitled to such dividends as may be declared by our board of directors subject to the International Business Corporations Act.~~

The objects for which the Company is established are set forth in the Company’s Articles of Incorporation, as follows:

Sinovac Antigua shall not engage in International banking, Trust, Insurance, Betting and Bookmaking or any other activity which requires a License under the International Business ~~Corporation~~Corporations Act.

Sinovac Antigua shall be primarily engaged in research, development and commercialization of human vaccines for infectious diseases.

The holders of our common shares are entitled to such dividends as may be declared by our board of directors subject to the International Business Corporations Act. For example, under the International Business Corporations Act, a company shall not declare or pay a dividend if this would results in the company’s inability to pay its liabilities as they become due or the realizable value of the company’s assets less than the aggregate of its liabilities and stated capital of all class. In addition, a company shall not pay a dividend out of unrealized profits.

Each common share is entitled to one vote on all matters upon which the common shares are entitled to vote.

A quorum required for a meeting of shareholders consists of shareholders who hold at least a majority of our shares at the meeting present in person or by proxy. Shareholders’ meetings are held annually and may be convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding in aggregate at least five percent of our issued share capital. Advance notice of at least 21 days is required for the convening of our annual general meeting and other shareholders meetings.

Unless the International Business Corporations Act otherwise requires, resolutions to be passed by the shareholders ~~requires~~require a simple majority vote. Important matters such as changes to our By-laws require a resolution passed by a vote of shareholders holding a majority of all the outstanding and issued shares.

Our shareholders may transfer common shares by endorsing the relevant share certificates, completing a share transfer form or by other proper evidence of succession, assignment or authority to transfer.

On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of common shares), assets available for distribution among the holders of common shares shall be distributed among the holders of the common shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.

Subject to the provisions of the International Business Corporations Act, as amended, we may by special resolution reduce any capital redemption reserve fund or any share premium account.

Subject to the provisions of the International Business Corporations Act, as amended, we may by special resolution reduce our share capital, any capital redemption on reserve fund or any share premium account. However, in accordance with the International Business Corporations Act, we must not make any payment to purchase or redeem any redeemable issued by it if there are reasonable grounds for us believing that

There are no provisions in our Articles of Incorporation and By-laws, as amended, governing the calls on shares and forfeiture of shares.

There are no provisions in our Articles of Incorporation and By-laws, as amended, governing the limitations on the rights to own shares in the Corporation.

There are no provisions in our Articles of Incorporation and By-laws, as amended, governing the ownership threshold above which shareholder ownership must be disclosed. Shareholders will, however, be required to disclose shareholder ownership in accordance with applicable laws and regulations.

Holders of our common shares will have no general right under Antigua law to inspect or obtain copies of our list of shareholders or our corporate records. They may, however, access such corporate information as is publicly available in the Companies Registry in St. John’s, Antigua. We will also provide our shareholders with annual audited consolidated financial statements.

We may from time to time by a resolution passed by a majority of the shares entitled to vote:

We may by special resolution reduce our share capital and any capital redemption reserve in any manner authorized by law.

Pursuant to the International Business Corporation Act, a director or officer of the corporation, (a) who is a party to a material contract or proposed material contract with the corporation; or (b) who is a director or an officer of any body, or has material interest in any body, that is a party to a material contract or proposed material contract with the corporation, must disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of his interest. The disclosure must be made, in the case of a director of a corporation, (a) at the meeting at which a proposed contract is first considered; (b) if the director was not then interested in the proposed contract, at the first meeting after he becomes so interested; (c) if the director becomes interested after a contract is made at the first meeting after he becomes so interested; or (d) if a person who is interested in a contract later becomes a director of the corporation, at the first meeting after he becomes a director. A director of the corporation may vote on any resolution to approve a contract that he has an interest in, if the contract (a) is an arrangement by way of a security for money loaned to or obligation undertaken by him for the benefit of the corporation or an affiliate of the corporation; (b) is a contract that relates primarily to his remuneration as a director, officer, employee or agent of the corporation or affiliate of the corporation; (c) is a contract for indemnity or insurance under section 99 to 101 of the International Business Corporation Act; (d) is a contract with an affiliate of the corporation; or (e) is a contract other than one referred to in (a) to (d) above. But, in the case of a contract described in paragraph (e), no resolution is valid unless it is approved by not less than two-thirds of the votes of the shareholders of corporation to whom notice of the nature and extent of the director’s interest in the contract is declared and disclosed in reasonable details. A general notice to the directors of the corporation by a director or an officer of the corporation declaring that he is a director or officer of or has a material interest in another body and is to be regarded as interested in any contract with that body is a sufficient declaration of interest in relation to any such contract.

There are no provisions in our Articles of Incorporation and By-laws , as amended, governing the directors’ powers to vote compensation to themselves or any members of their body.

Pursuant to the International Business Corporation Act, unless the articles or by-laws, or any unanimous shareholder agreement relating to, the corporation otherwise provide, the articles of a corporation are presume to provide that the directors of the corporation may, without authorization of the shareholders, (i) borrow money upon the credit of the corporation; (ii) issue, re-issue, sell or pledge debenture of the corporation; (iii) give guarantee on behalf of the corporation to secure performance of an obligation of any person; and (iv) mortgage, charge, pledge, or otherwise create to secure any obligation of the corporation a security interest in all or any property of the corporation that is owned or subsequently acquired by the corporation. “Security interest” means any interest in or charge upon any property of a corporation, by way of mortgage, bond, lien , pledge or other mean, that is created or taken to secure the payment of an obligation of the corporation. Notwithstanding, when circumstances prejudicial to the corporation exist, the corporation shall not directly or directly, give financial assistance by means of a loan, guarantee or otherwise to a shareholder, director, officer or employee of the corporation or affiliated corporation; or to any person for the purpose of or in connection with a purchase of a share issued or to be issued by the corporation or a corporation with which it is affiliated. Unless the articles or by-laws, or any unanimous shareholder agreement relating to, the corporation otherwise provide, the directors of the corporation may by resolution delegate the powers mentioned above to a director, a committee of directors or an officer of the corporation.

There are no provisions in our Articles of Incorporation and By-laws, as amended, governing the directors’ powers as it relates to retirement or non-retirement of directors under the age limit requirement.

There are no provisions in our Articles of Incorporation and By-laws, as amended, that make provisions for number of shares required for director’s qualification.

We must hold an annual shareholders’ meeting every year. The meeting must take place within Antigua and Barbuda at a place and time prescribed by our board of directors. As it relates to a special shareholders’ meeting, the board of directors may, whenever it thinks fit, convene a special shareholders’ meeting. Our board of directors shall also on the requisition of the holders of not less than one-twentieth of our issued share capital proceed to convene a special shareholders’ meeting. No business shall be transacted at any shareholders’ meeting unless a quorum of shareholders is present at the time when the meeting proceeds to business. Shareholders present in person or by proxy representing a majority of the our shares shall constitute a quorum. All meetings shall be chaired by a director appointed by our board of directors to act as the chairman. Minutes of the proceedings of every annual shareholders’ meeting shall be kept , and shall be signed by the chairman of the same meeting , or by the chairman of the next succeeding meeting, and the same , when so signed , shall be conclusive evidence of all such proceedings and of the proper election of the chairman.

Subject to any rights or restrictions for the time being attached to any class or classes of shares, every shareholder shall have one vote for each share of which he is the holder. All elections for director shall be decided by majority vote; all other questions shall be decided by majority vote except as otherwise required by the International Business Corporations Act, as amended. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing , setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Votes may be given either personally or by proxy. The instrument appointing a proxy shall be in writing under the hand of the appointer of his attorney duly authorized in writing , or if the appointer is a corporation, either under seal or under the hand of an officer or attorney duly authorized. A proxy need not be our shareholder.

Written or printed notice stating the place, day and hour of the meeting and , in case of a special meeting, the purpose or purpose for which the meeting is called, shall be delivered not less than 21 days before the date of the meeting, either personally by mail or facsimile, to each shareholder on record entitled to vote at such meeting. If mailed such notice is deemed to be delivered when deposited in the mail, addressed to the shareholder at his address as it appears on our share transfer books, with postage thereon prepaid.

Ranking. The Series B Preferred Shares rank senior to Sinovac Antigua’s common shares, Series A Junior Participating Preferred Shares, par value $0.001 per share, and Series C Junior Participating Preferred Shares, par value $0.001 per share, and junior to all series or any other class of Sinovac Antigua’s Preferred Shares, except to the extent that any such other series or class specifically provides that it will rank on a parity with or junior to the Series B Preferred Shares.

Dividends. Holders of Series B Preferred Shares are entitled to receive (i) the same aggregate amount per share (on an as-converted basis) of all dividends (cash or in-kind) declared on the common shares and (ii) cumulative preferential dividends, payable quarterly in arrears, at an annual rate of $0.41 per annum in cash until the earlier of (a) the conversion of the Series B Preferred Shares into the common shares or (b) the listing of the Series B Preferred Shares on a nationally recognized securities exchange.

Voting Rights. Holders of Series B Preferred Shares are entitled to vote with the holders of common shares, voting together as a single class, on all matters submitted for a vote of the shareholders of Sinovac Antigua, subject to applicable law. Each Series B Preferred Share entitles the holder to a number of votes equal to the number of common shares issuable upon the conversion of such Series B Preferred Share to which such share is entitled as of the applicable record date.

Conversion. Either (i) at our option or (ii) within 90 days of approval by the shareholders of Sinovac Antigua of an increase in the number of Sinovac Antigua’s authorized but unissued common shares to such number as would be sufficient to effect the conversion of all or any portion of the outstanding Series B Preferred Shares (a “Common Share Increase”), all or such portion of the Series B Preferred Shares will be convertible into common shares on a one-for-one basis, subject to customary anti-dilution adjustments.

Listing. In the event the shareholders of Sinovac Antigua do not vote to approve a Common Share Increase at the next annual general meeting following the initial issuance of any Series B Preferred Shares, Sinovac Antigua will use its best efforts to list the Series B Preferred Shares for trading on a nationally recognized securities exchange within 180 days of such annual general meeting.

Consolidation, Merger, etc. In case Sinovac Antigua shall enter into any consolidation, amalgamation, merger, combination or other transaction in which the common shares are exchanged for or changed into other shares or securities, cash and/or any other property, then in any such case each Series B Preferred Share shall at the same time be similarly exchanged or changed into an amount per share (on an as-converted basis) equal to the aggregate amount of shares, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each common share is changed or exchanged.

Liquidation. Upon any liquidation, dissolution or winding up of Sinovac Antigua, voluntary or otherwise, the holders of Series B Preferred Shares shall be entitled to receive a preferential payment of $0.01 per share, plus an aggregate amount per share (on an as-converted basis) equal to the aggregate amount to be distributed per share to holders of common shares.

The International Business Corporations Act is modeled after ~~English~~Canadian corporate law ~~but does not follow many recent English law statutory enactments. In addition, the International Business Corporations Act~~and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the International Business Corporations ~~Law~~Act applicable to us and the laws applicable to companies incorporated in the State of Delaware and their stockholders.

Antigua and Barbuda law does not provide for mergers as that expression is understood under United States corporate law. However, there are statutory provisions for amalgamation that facilitate the consolidation of companies, provided that the arrangement is approved by a majority number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent two-thirds in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement may be, but is not required to be, sanctioned by the High Court of Antigua and Barbuda. While a dissenting shareholder has the right to express to the court his view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

When a take-over offer is made and accepted (within four months) by holders of 90% of the shares affected, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the High Court of Antigua and Barbuda but this is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

We are not aware of any reported class action or derivative action having been brought in a court in Antigua and Barbuda. In principle, the company itself will normally be the proper claimant in actions against directors, and derivative actions may not generally be brought by a minority shareholder. However, ~~English~~Canadian authorities provide exceptions to the foregoing principle, including when:

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally.

In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation. As a matter of Antigua and Barbuda law, a director of an Antigua and Barbuda company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company — a duty to act bona fide in the best interests of the company, a duty not to make a profit out of his position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third-party.

A director of an Antigua and Barbuda company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, ~~English~~Canadian and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in Antigua and Barbuda.

Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Antigua and Barbuda law and our By-laws provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. Antigua and Barbuda law and our By-laws allow our shareholders holding not less than five per cent of the paid up voting share capital of the company to requisition a shareholder’s meeting. We are obligated under our By-laws and the International Business Corporations Act to call shareholders’ annual general meetings. See “Risk Factors — We do not currently intend to hold an annual general meeting of shareholders until after the final determination of the litigation concerning ~~our~~the Rights Agreement, which will delay the ability of our shareholders to vote in an election of our directors.”

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Antigua and Barbuda law, our By-laws will not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our By-laws, directors can be removed by a majority vote of the shareholders.

The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

Antigua and Barbuda law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Antigua and Barbuda law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the International Business Corporations ~~Law,~~Act, our company may be dissolved, liquidated or wound up only by the vote of holders of two-thirds of our shares voting at a meeting or the unanimous written resolution of all shareholders.

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Antigua and Barbuda law and our By-laws, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class only with the vote at a class meeting of holders of two-thirds of the shares of such class or unanimous written resolution.

Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Antigua and Barbuda law, our By-laws may only be amended with the vote of holders representing a majority of all our shares voting issued and outstanding or the unanimous written resolution of all shareholders. By-laws can be amended by a vote or unanimous written resolution of the directors.

Antigua and Barbuda law does not limit the extent to which a company’s by-laws may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Antigua and Barbuda courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our By-laws permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from negligence or illegal action of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law to a Delaware corporation. In addition, we have entered into indemnification agreements with our directors and senior executive officers that provide such persons with additional indemnification beyond that provided in our By-laws.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable as a matter of United States law.

We have obtained directors and officers insurance providing indemnification for our directors for certain liabilities.

Some provisions of our By-laws may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.

However, under Antigua and Barbuda law, our directors may only exercise the rights and powers granted to them under our By-laws for what they believe in good faith to be in the best interests of our company.

There are no limitations imposed by our By-laws on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our By-laws governing the ownership threshold above which shareholder ownership must be disclosed.

In March 2016, we adopted ~~our~~the Rights Agreement that provides for the issuance of one ~~right (a “Right”),~~Right, for each of our outstanding common shares. WeIn February 2019, we amended and restated ~~our~~the Rights Agreement that provides for ~~an additional 12-month period in~~the issuance of one Right for each of our outstanding common shares or Series B Preferred Shares. In February ~~2019.~~2020, we further amended the amended and restated Rights Agreement to extend its term until February 2021. The Rights are designed to assure that all of our shareholders receive fair and equal treatment in the event of any proposed takeover and to guard against partial tender offers, open market accumulations, undisclosed voting arrangements and other abusive or coercive tactics to gain control of our company or our board of directors without paying all shareholders a control premium. The Rights will cause substantial dilution to a person or group that acquires 15% or more of the aggregate total of our common shares and Series B Preferred Shares on terms not approved by our board of directors.

Rights agreements are allowable under Delaware law. Additionally, as discussed above, on December 19, 2018, the ~~High~~Antigua Court ~~of Justice of Antigua and Barbuda~~ held ~~following a trial,~~ that Sinovac Antigua’s Rights Agreement is valid under Antigua law. 1Globe filed notice to appeal the Antigua Court’s judgment on January 29, 2019. ~~The results~~1Globe’s appeal of ~~that~~the Antigua Court’s Judgment was heard on September 18, 2019, and the appeal ~~are currently pending.~~decision is pending as of the date of this annual report.

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report on Form 20-F.

Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and amended in 1997 and various regulations issued by SAFE and other relevant PRC government authorities, renminbi is freely convertible only to the extent of current account items, such as trade related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, require the prior approval from SAFE or its local counterpart for conversion of renminbi into a foreign currency, such as U.S. dollars, and remittance of the foreign currency outside the PRC.

Payments for transactions that take place within PRC must be made in renminbi. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local counterpart. Unless otherwise approved, domestic enterprises must convert all of their foreign currency receipts into renminbi.

We and our securities holders, other than those resident in Antigua and Barbuda, are exempt from Antigua and Barbuda income, corporation or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax. We are not subject to stamp or other similar duty on the issuance, transfer or redemption of our common shares. Under Section 276 of the International Business Corporations Act of Antigua and Barbuda, the tax exemption we and our securities holders currently enjoy will continue in effect for a period of 50 years from our date of incorporation, which is March 1, 1999. No reciprocal income tax treaty affecting us exists between Antigua and Barbuda and the United States.

The following discussion describes the material U.S. federal income tax consequences to U.S. Holders (as defined below) under current law of an investment in our common shares. The effects of any applicable state or local laws and other U.S. federal tax laws such as estate and gift tax laws, and the impact of the alternative minimum tax and the Medicare contribution tax on net investment income, are not discussed. This discussion applies only to U.S. Holders that hold our common shares as capital assets (generally, property held for investment) and have the U.S. dollar as their functional currency. This discussion is based on the tax laws of the United States as in effect on the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below. The following discussion does not address all U.S. federal income tax consequences relevant to a U.S. Holder’s particular circumstances or to holders subject to particular rules, including:

INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE ESTATE AND GIFT, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES.

The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of our common shares and you are, for U.S. federal income tax purposes:

If a partnership (or other entity taxable as a partnership for U.S. federal income tax purposes) is a beneficial owner of our common shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in such partnership, you should consult your tax advisor.

Subject to the PFIC rules discussed below, the gross amount of any distributions we make to you with respect to our common shares generally will be includible in your gross income in the year received as dividend income to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent the amount of the distribution exceeds our current and accumulated earnings and profits, such excess amount will be treated first as a tax-free return of your tax basis in your common shares, and then, to the extent such excess amount exceeds your tax basis, as capital gain. We currently do not, and we do not intend to, calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. Any dividends we pay will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from U.S. corporations.

With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, dividends may constitute “qualified dividend income” eligible to be taxed at the preferential rate applicable to capital gains, provided that (1) our common shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are neither a PFIC nor treated as such with respect to you (as discussed below) for the taxable year in which the dividend is paid or the preceding taxable year and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, common shares are considered for the purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the NASDAQ Global Select Market, as are our common shares. There can be no assurance our common shares will continue to be readily tradable on an established securities market in later years. Consequently, there can be no assurance dividends paid on our common shares will continue to qualify for the reduced tax rates. If we are treated as a “resident enterprise” for PRC tax purposes under the EIT Law (see “Item 10. Additional Information — E. Taxation — PRC Taxation”), we may be eligible for the benefits of the income tax treaty between the United States and the PRC. You should consult your tax advisors regarding the availability of the lower capital gains rate applicable to qualified dividend income for dividends paid with respect to our common shares.

Dividends generally will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the U.S. foreign tax credit limitation generally will be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate that would be applicable to dividends if not for the reduced tax rate applicable to qualified dividend income. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our common shares generally will constitute “passive category income.”

If PRC withholding taxes apply to dividends paid to you with respect to the common shares (see “Item 10. Additional Information — E. Taxation — PRC Taxation”), subject to certain conditions and limitations, such PRC withholding taxes may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances.

Subject to the PFIC rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a common share equal to the difference between the amount realized for the common share and your tax basis in the common share. ~~Your tax basis in our common shares will generally equal the cost of such shares.~~ The gain or loss generally will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the common share for more than one year, you will be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations.

Any gain or loss you recognize on a disposition of our common shares generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes. However, if we are treated as a resident enterprise for PRC tax purposes and PRC tax may be imposed on any gain from the disposition of the common shares in accordance with the income tax treaty between the United States and the PRC (see “Item 10. Additional Information — E. Taxation — PRC Taxation”), a U.S. Holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may elect to treat the gain as PRC source income. You should consult your tax advisors regarding the proper treatment of gain or loss in your particular circumstances.

Based on our estimates of the fair market ~~price of our common shares, the~~ value of our assets, and the composition of our income and assets, we do not believe we were a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, ~~2018.~~2019. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure ~~you~~that we will not be a PFIC for any taxable year.

For purposes of the PFIC rules, passive income includes, among other things, dividends, interest, royalties, rents, annuities, and net gains from certain commodity and foreign currency transactions, subject to certain exceptions. Passive income generally does not include rents and royalties derived from the active conduct of a trade or business (other than from a related person). We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.

We must make a separate determination after the close of each year as to whether we were a PFIC for that year. ~~The~~In particular, under normal circumstances, the value of our assets for purposes of the PFIC test for a particular taxable year would generally be determined by reference to the market price of our common shares at the end of each quarter during such taxable year. As a result, fluctuations in the market price of our common shares may cause us to become a PFIC for any subsequent year. However, as a result of the suspension of trading in our shares, we are unable to reference the actual market prices of our common shares in determining our PFIC status. As a result, we have relied on the market price as of the last date of the last trading day in our determination . We cannot provide any assurances that the actual value of our shares are not materially different on actual measurement dates and as to whether the IRS will respect our approach. This uncertainty will continue so long as trading in our shares remains suspended. In addition, the composition of our income and assets will be affected by how, and how quickly, we use any cash we generate from our operations or raise in any offering. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our common shares, fluctuations in the market price of our common shares may cause us to become a PFIC for any subsequent year. If we are a PFIC for any year during which you hold our common shares, we generally will continue to be treated as a PFIC with respect to you for that year and for all succeeding years during which you hold our common shares, regardless of whether we continue to meet the income or asset tests described above, unless we cease to be a PFIC and you make a “deemed sale” election with respect to our common shares. If such election is made, you will be deemed to have sold common shares you hold at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the rules described in the following two paragraphs. After the deemed sale election, your common shares with respect to which such election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC. You are urged to consult your tax advisor about this election.

For each taxable year we are treated as a PFIC with respect to you, you will be subject to special tax rules with respect to any “excess distribution” you receive and any gain you recognize from a sale or other disposition (including a pledge) of the common shares, unless (i) you make a “mark-to-market” election as discussed ~~below.~~below or (ii) we have ceased to be a PFIC and you have previously made the deemed sale election described above. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the common shares before the current year will be treated as an excess distribution. Under these special tax rules:

Gains (but not losses) from a sale or other disposition of the common shares are not taxed at reduced tax rates, even if you hold the common shares as capital assets.

If we are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs or we make direct or indirect equity investments in other entities that are PFICs, you will be deemed to own shares in such lower-tier PFICs directly or indirectly owned by us in the proportion that the value of the common shares you own bears to the value of all of our common shares, and you may be subject to the rules described in the preceding two paragraphs with respect to the shares of such lower-tier PFICs that you would be deemed to own. You should consult your tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the PFIC rules described above regarding excess distributions and recognized gains. If you make a mark-to-market election for the common shares, you will include in income for each year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the common shares as of the close of your taxable year over your adjusted basis in such common shares. You will be allowed a deduction for the excess, if any, of the adjusted basis of the common shares over their fair market value as of the close of the taxable year. However, deductions will be allowable only to the extent of any net mark-to-market gains on the common shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain from the actual sale or other disposition of the common shares will be treated as ordinary income. Ordinary loss treatment will apply to the deductible portion of any mark-to-market loss on the common shares, as well as to any loss from the actual sale or other disposition of the common shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such common shares. Your basis in the common shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, any distributions we make would generally be subject to the tax rules discussed above under “— Taxation of Dividends and Other Distributions on Our Common Shares,” and the lower capital gains rate applicable to qualified dividend income would not apply.

The mark-to-market election is available only for “marketable stock,” which generally is defined as stock that is traded in greater than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a “qualified exchange or other market,” as defined in applicable U.S. Treasury regulations. Any trades that have as their principal purpose satisfying this requirement will be disregarded. Our common shares are listed on the NASDAQ Global Select Market, which is a qualified exchange or other market for these purposes. Consequently, if the common shares remain listed on the NASDAQ Global Select Market and are regularly traded, and you are a holder of common shares, we expect the mark-to-market election would be available to you if we become a PFIC. There can be no assurance the common shares will be “regularly traded” for purposes of the mark-to-market election. Once made, the election cannot be revoked without the consent of the U.S. Internal Revenue Service unless the common shares cease to be marketable stock. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs that we own, a U.S. Holder may continue to be subject to the PFIC rules described above regarding excess distributions and recognized gains with respect to its indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. You should consult your tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.

Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such corporation to elect out of the PFIC rules described above regarding excess distributions and recognized gains. A U.S. Holder that makes a qualified electing fund election with respect to a PFIC will generally include in income such holder’s pro rata share of the corporation’s income on a current basis. However, you may make a qualified electing fund election with respect to your common shares only if we furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information.

Each U.S. shareholder of a PFIC is required to file an annual report containing such information as the U.S. Treasury requires. If we become a PFIC, you should consult your tax advisors regarding any reporting requirements that may apply to you.

You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our common shares.

Dividend payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or that is otherwise exempt from backup withholding. U.S. Holders that are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. We do not assume responsibility for backup withholding. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information in a timely manner.

Certain U.S. Holders who are individuals are required to report information relating to an interest in our common shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain financial institutions). U.S. Holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership and disposition of our common shares.

Under the EIT Law, enterprises established under the laws of non-PRC jurisdictions but whose “de facto management body” is located in China are considered “resident enterprises” for PRC tax purposes. Under the implementation regulations issued by the State Council relating to the EIT Law, “de facto management bodies” are defined as the bodies that have material and overall management control over the business, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders minutes, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. Substantially all of our management are currently based in China, and may remain in China in the future. If we were treated as a “resident enterprise” for PRC tax purposes, we would be subject to PRC income tax on our worldwide income at a uniform tax rate of 25%. Dividends received by us from our PRC subsidiaries may be exempt from PRC withholding tax.

Under the EIT Law and its implementation regulations, dividends paid to a non-PRC investor are generally subject to a 10% PRC withholding tax, if such dividends are derived from sources within China and the non-PRC investor is considered to be a non-resident enterprise without any establishment or place of business within China or if the dividends paid have no connection with the non-PRC investor’s establishment or place of business within China, unless such tax is eliminated or reduced under an applicable tax treaty. Similarly, any gain realized on the transfer of common shares by such investor is also subject to a 10% PRC withholding tax if such gain is regarded as income derived from sources within China, unless such tax is eliminated or reduced under an applicable tax treaty.

If we were considered a PRC “resident enterprise,” it is possible that the dividends we pay with respect to our common shares, or the gain you may realize from the transfer of our common shares, would be treated as income derived from sources within China and be subject to income tax at 10%.

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. You can access the reports that we file with the SEC at the SEC’s web site at www.sec.gov, which contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish the transfer agent of our common shares, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The transfer agent will make such notices, reports and communications available to holders of our common shares and, upon our request, will mail to all record holders of our common shares the information contained in any notice of a shareholders’ meeting received by the transfer agent from us.

In accordance with the NASDAQ Rules, we will post this annual report on Form 20-F on our website www.sinovac.com. In addition, we will provide hardcopies of our annual report free of charge to shareholders upon request.

For a listing of our subsidiaries, see “Item 4. Information on the Company — C. Organizational Structure.”

Substantially all of our revenues and most of our costs and our expenses are denominated in renminbi. Our exposure to foreign exchange risk primarily relates to cash and cash equivalents denominated in U.S. dollars as a result of our past issuances of common shares through a private placement and proceeds from our public offering of common shares. Furthermore, the renminbi prices of some of the materials and supplies for reagent kits that are imported from companies in the United States, Sweden and United Kingdom may be affected by fluctuations in the value of renminbi against the currencies of those countries. We also incur professional, investor relations, director compensation and miscellaneous fees related to our operations as a public company that are denominated in U.S. dollars.

The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. In July 2005, the PRC government changed its decades-old policy of pegging the value of renminbi to U.S. dollars, and renminbi appreciated more than 20% against U.S. dollars over the following three years. Between July 2008 and June 2010, this appreciation subsided and the exchange rate between renminbi and U.S. dollars remained within a narrow band. Since June 2010, renminbi has fluctuated against U.S. dollars, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between renminbi and U.S. dollar in the future. The PRC government has indicated that it will make effort to widen the trading band of the renminbi exchange rate, which increases the possibility of sharp fluctuations in renminbi’s value in the future as well as the unpredictability associated with renminbi’s exchange rate. By way of example, assuming we had converted a U.S. dollar denominated cash balance of $1.0 million as of December 31, ~~2018~~2019 into renminbi at the ~~exchange~~noon buying rate of $1.00 for ~~RMB6.8755~~RMB6.9618 as of December 31, ~~2018,~~2019, such a cash balance would have been ~~RMB6.88~~RMB6.96 million. Assuming a 1% appreciation/depreciation of the renminbi against the U.S. dollar, such a cash balance would have decreased/increased by ~~RMB68,755~~RMB69,618 as of December 31, ~~2018.~~2019.

Our financial statements are expressed in U.S. dollars but our subsidiaries’ functional currency is renminbi. The value of our shares will be affected by the foreign exchange rate between U.S. dollars and renminbi. To the extent we hold assets denominated in U.S. dollars, any appreciation of the renminbi against the U.S. dollar could result in a change to our statements of comprehensive income and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of renminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the prices of our shares.

Our exposure to interest rate risk relates primarily to the interest expense associated with our short-term and/or long-term bank borrowings as well as interest income provided by excess cash invested in demand and term deposits. Such borrowing and interest-earning instruments carry a degree of interest rate risk. We have not historically used, and do not expect to use in the future, any derivative financial instruments to manage our exposure to interest risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. The weighted effective interest rate on our outstanding loans was ~~4.91%~~5.09%, ~~4.61%~~4.91% and ~~4.73%~~4.61% for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016.~~2017. A hypothetical increase or decrease in interest rates of 1% would increase or decrease our annual interest and financing expenses by ~~$72,000~~$59 based on our outstanding indebtedness as of December 31, ~~2018.~~2019.

~~Not applicable.~~With respect to the preferred share purchase right, see Form 8-A (file no. 001-32371) and Amendment No. 1 to Form 8-A (file no. 001-32371) which we filed with the Securities and Exchange Commission on February 22, 2019 and February 21, 2020, respectively)

In March 2016, we adopted ~~our~~the Rights Agreement. In February 2019, we amended and restated the Rights Agreement. Pursuant to ~~our~~ the amended and restated Rights Agreement, subject to limited exceptions, upon (i) a person or group obtaining ownership of 15% or more of aggregate total of our common shares and Series B Preferred Shares (on an as converted basis) then issued and outstanding or (ii) the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of our common shares and Series B Preferred Shares (on an as converted basis) then issued and outstanding, in each case, without the approval of our board of directors, each Right will entitle the holders, other than the ~~Acquiring Person,~~acquiring person, to buy, at an exercise price of ~~$30.00,~~$20.00, one one-thousandth of a Series AC Preferred Share. Holders are entitled to receive, in lieu of each one one-thousandths of a Series AC Preferred Share, common shares or Series B Preferred Shares having a market value at that time of twice the Right’s exercise price. Our board of directors is entitled to redeem the Rights at $0.001 per Right at any time before the Rights are exercisable. We refer to the person who acquired 15% or more of the outstanding common shares or Series B Preferred Shares of Sinovac Antigua as the “acquiring person.” In February ~~2019,~~2020, we further amended ~~our~~the amended and restated Rights Agreement to extend its term until February ~~2020.~~

On February 18, 2019, after reviewing the judgment of the ~~High~~Antigua Court ~~of Justice of Antigua and Barbuda~~ of December 19, 2018 and considering all additional facts known to the board of directors, our board of directors determined that the Collaborating Shareholders became Acquiring Persons as defined under Sinovac Antigua’s Rights Agreement, and that their conduct resulted in a Trigger Event under the Rights Agreement. As a result, the Rights held by the Collaborating Shareholders were deemed void. Pursuant to the Rights Agreement, the board of directors elected to exchange each valid and outstanding Right held by Sinovac Antigua’s shareholders (not including the Collaborating Shareholders) for an Exchange Share. On March 6, 2019, the Delaware Chancery Court entered a status quo order providing that Sinovac Antigua not distribute any of the Exchange Shares from the trust until the final disposition of the pending Delaware litigation or further order of the Court. On April 4, 2019, the Eastern Caribbean Supreme Court, Court of Appeal issued an order that restrains Sinovac Antigua from taking further action under its Rights Agreement, including the distribution of the previously issued Exchange Shares to the holders of valid Rights, until the conclusion of 1Globe Capital, LLC’s appeal of the December 19, 2018 Judgment of the ~~High Court of Justice of~~ Antigua ~~and Barbuda.~~Court. On April 8, 2019, the Delaware Chancery Court stayed the Delaware litigation pending the outcome of 1Globe’s appeal of the Antigua Judgment. 1Globe’s appeal of the Antigua Court’s Judgment was heard on September 18, 2019, and the appeal decision is pending as of the date of this annual report.

On February 22, 2019, in connection with the Exchange, we issued approximately 27.8 million common shares and 14.6 million Series B Preferred Shares for the benefit of the holders of valid and outstanding Rights as of that date. This issuance had the effect of significantly diluting the holdings of the shareholders that are not entitled to participate in the Exchange. The Series B Preferred Shares share equally in all dividends and distributions made on our common shares and vote together with the common shares on all matters brought before the shareholders, in each case on an as-converted basis and subject to applicable law. The Series B Preferred Shares are convertible into common shares at our option, or automatically upon a successful shareholder vote to increase the authorized number of common shares of Sinovac Antigua. Until the Series B Preferred Shares are converted into common shares (or until the Series B Preferred Shares are listed on a nationally recognized securities exchange), they will earn a preferred dividend equal to $0.41 per annum, payable quarterly in arrears.

In connection with the preparation of this annual report on Form 20-F, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of the period covered by this annual report.

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, ~~2018,~~2019, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, which is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control ~~system was~~over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are made only in accordance with

authorization of a company’s management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the consolidated financial statements.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, ~~2018.~~2019. In making this assessment, we used the criteria established within the Internal Control —Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included a review of the documentation of controls, an evaluation of the design effectiveness of controls, the testing of the operating effectiveness of controls and a conclusion on this evaluation. All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement to our annual or interim financial statements will not be prevented or detected on a timely basis.

Based on our evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, ~~2018.~~2019.

Marcum Bernstein & Pinchuk LLP, an independent registered public accounting firm that audited ~~the~~our financial statements included in this annual report, has issued an attestation report on the effectiveness of our internal control over financial ~~reporting.~~reporting as of December 31, 2019.

The attestation report issued by Marcum Bernstein & Pinchuk LLP, our independent registered public accounting firm, on the effectiveness of internal control over financial reporting can be found on page F-4 of this annual report.

As required by Rule 13a-15(d), under the Exchange Act, our management, including our chief executive officer and chief financial officer, has conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the period covered since last report have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, it has been determined that there has been no change during the period covered by this annual report.

Our board of directors has determined that we have at least one audit committee financial expert serving on our audit committee. Our audit committee financial expert is Mr. Simon Anderson. Each member of our audit committee, including Mr. Anderson, satisfies the “independence” requirements of the NASDAQ Marketplace rule and Rule 10A-3 under the Exchange Act.

Our board of directors has adopted a code of business conduct and ethics that applies to our directors, officers, employees and agents, including certain provisions that specifically apply to our chief executive officer, chief financial officer, vice presidents and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics as an exhibit our annual report on Form 20-F (file no. 001-32371) filed with the SEC on July 14, 2006, and posted the code on our website at www.sinovac.com. We hereby undertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request.

As disclosed in our 2018 annual report, Ernst & Young Hua Ming LLP ~~audited our financial statements~~notified us in December 2018 that they would not stand for ~~the year ended December 31, 2017. We changed~~reappointment as our independent ~~auditor for the year ended December 31, 2018 from Ernst & Young Hua Ming LLP to~~registered public accounting firm and we appointed Marcum Bernstein & Pinchuk ~~LLP.~~LLP as our auditor in February 2019. The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young Hua Ming LLP and Marcum Bernstein & Pinchuk LLP, for the periods indicated below.

Before our independent auditors are engaged to render any services, the terms and fees of the engagement are reviewed by the audit committee before our audit committee grants approval. All services as described above have been approved by our audit committee.

~~On December 10, 2018, Ernst & Young Hua Ming LLP (“EYHM”) notified us that they would not stand for reappointment as our independent registered public accounting firm.~~

On February 2, 2019, we appointed Marcum Bernstein & Pinchuk LLP (“Marcum”) to perform an integrated audit of our consolidated balance sheet as of December 31, 2018 and the related consolidated statement of comprehensive income (loss), shareholders’ equity and cash flow for the year then ended, which includes an audit of effectiveness of our internal control over financial report as of December 31, 2018. The decision to appoint a new auditor was unanimously approved by our audit committee.

The change was not made due to any disagreements with EYHM. EYHM’s audit reports on our consolidated financial statements for the fiscal years ended December 31, 2016 and 2017 did not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope, or accounting principles.

During the fiscal years ended December 31, 2016 and 2017 and the subsequent interim period through December 10, 2018, there have been no (i) disagreements between us and EYHM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of EYHM would have caused them to make reference thereto in their reports on the consolidated financial statements for such years, or (ii) reportable events pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F other than the material weaknesses reported in our 2016 annual report on Form 20-F filed with the U.S. Securities and Exchange of Commission on November 22, 2017. Specifically, the material weaknesses identified as of December 31, 2016 were as follows:

~~(i) Lack of design of effective controls to identify, assess and review provision of non-routine benefits for employees and the related individual income tax withholding obligations.~~

(ii) Ineffective design of controls over the expense authorization and reimbursement process to obtain adequate supporting documentation to facilitate review and approval of expenses and to evaluate the nature of such expenses in order to (i) assess corresponding corporate income tax impacts, if any, and (ii) prevent or detect possible non-compliance with anti-bribery and bookkeeping provisions of the Foreign Corrupt Practices Act.

~~The Audit Committee of the Board of Directors discussed the material weaknesses with EYHM and authorized EYHM to fully respond to the inquiries of Marcum on the material weaknesses.~~

We provided a copy of the above statements to EYHM and requested that EYHM furnish a letter addressed to the SEC stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from EYHM addressed to the SEC, dated April 29, 2019, is filed as Exhibit 15.3.

During each of the fiscal years ended December 31, 2016 and 2017 and the subsequent period prior to our engagement of Marcum, neither we nor anyone on our behalf consulted Marcum regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a disagreement with Marcum or a reportable event.

During each of the fiscal years ended December 31, 2016 and 2017 and the subsequent period prior to our engagement of Marcum, we have not obtained any written report or oral advice that Marcum concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue.None.

NASDAQ Stock Market Rule 5620 requires each issuer to hold an annual meeting of shareholders no later than one year after the end of the issuer’s fiscal year-end. However, NASDAQ Stock Market Rule 5615(a)(3) permits foreign private issuers like us to follow “home country practice” in certain corporate governance matters. We did not have an annual meeting of shareholders in 2017 and 2019 and held an annual meeting of shareholders on February 6, 2018. Delany Law, our Antigua and Barbuda counsel, has provided a letter to the NASDAQ Stock Market certifying that our current practice relating to the annual meeting of shareholders will not breach our Articles of Incorporation and By-laws nor any applicable law in Antigua and Barbuda.

Other than the annual meeting practice described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under NASDAQ Stock Market Rules.

The consolidated financial statements of our company are included at the end of this annual report.

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 undersigned to sign this annual report on its behalf.

We have audited the accompanying consolidated balance ~~sheet~~sheets of Sinovac Biotech Ltd. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, ~~(loss),~~ shareholders’ equity and cash flows for each of the ~~year~~two years in the period ended December 31, ~~2018,~~2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the ~~year~~two years in the period ended December 31, ~~2018,~~2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, ~~2018,~~2019, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated April ~~29, 2019,~~30, 2020, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases (“Topic 842”).

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our ~~audit.~~audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our ~~audit~~audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the ~~audit~~audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our ~~audit~~audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our ~~audit~~audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our ~~audit provides~~audits provide a reasonable basis for our opinion.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We have audited Sinovac Biotech ~~Ltd.’s~~Ltd's (the “Company”) internal control over financial reporting as of December 31, ~~2018,~~2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2018,~~2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance ~~sheet~~sheets as of December 31, 2019 and 2018 and the related consolidated statements of comprehensive income, ~~(loss),~~ shareholders’ equity, and cash flows and the related notes for each of the ~~year~~two years in the period ended December 31, ~~2018~~2019 of the Company, and our report dated April ~~29, 2019~~30, 2020 expressed an unqualified opinion on those financial statements.

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures 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 and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

We have audited the accompanying consolidated ~~balance sheets~~statements of comprehensive income, shareholders' equity and cash flows of Sinovac Biotech Ltd. (the “Company”) ~~as of December 31, 2017,~~for the ~~related consolidated statements of comprehensive income (loss), shareholders' equity and cash flows for each of the two years in the period~~year ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the ~~financial position~~results of the ~~Company at December 31, 2017, and the results of its~~Company’s operations and its cash flows for ~~each of~~ the ~~two years in the period~~year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2(c) to the consolidated financial statements, the accompanying consolidated ~~statements~~statement of cash flows for ~~each of~~ the ~~two years in the period~~year ended December 31, 2017 ~~have~~has been adjusted for the retrospective application of the authoritative guidance on the presentation and classification of restricted cash which was adopted by the Company on January 1, 2018.

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

except for Note 2(c), as to which the date is April 29, 2019, as to the effect of the retrospective application of the authoritative guidance on the presentation and classification of restricted cash in the consolidated statements of cash flows.

(Expressed in thousands of U.S. dollars, except for number of shares and per share data)

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

(Expressed in thousands of U.S. Dollars, except for number of shares and per share data)

For the year ended December 31

2018

2017

2016

Sales (note 21)

$
229,650

$
174,346

$
72,431

Cost of sales

24,723

20,240

22,393

Gross profit

204,927

154,106

50,038

Selling, general and administrative expenses (including rent expenses incurred
to a related party of 2018 - $810, 2017 - $793, 2016 - $807) (note 11(b))

137,003

87,365

41,980

Provision for doubtful accounts

820

934

1,412

Research and development expenses

21,910

20,489

12,648

Loss on disposal of property, plant and equipment (note 8)

75

42

478

Government grants recognized in income

(197
)

(141
)

(6,984
)
Total operating expenses

159,611

108,689

49,534

Operating income

45,316

45,417

504

Interest and financing expenses – (including interest expenses incurred
to a related party, 2018 - $453, 2017 - $262, 2016 - $176) (note 11(a))

(1,070
)

(1,569
)

(1,729
)
Interest income

2,016

1,183

731

Other income, net

321

13

100

Income (loss) from continuing operations before income taxes

46,583

45,044

(394
)
Income tax expense (note 13)

(10,472
)

(8,339
)

(2,664
)
Income (loss) from continuing operations

36,111

36,705

(3,058
)
Income from discontinued operations, net of tax of nil (note 3)

—

—

2,338

Net income (loss)

36,111

36,705

(720
)
Less: (Income) loss attributable to non-controlling interests

(14,329
)

(10,898
)

124

Net income (loss) attributable to shareholders of Sinovac

$
21,782

$
25,807

$
(596
)
Income (loss) from continuing operations

36,111

36,705

(3,058
)
Other comprehensive income (loss) from continuing operations, net of tax of nil

Foreign currency translation adjustments

(10,996
)

8,098

(8,843
)
Comprehensive income (loss) from continuing operations

25,115

44,803

(11,901
)
Income from discontinued operations

—

—

2,338

Other comprehensive loss from discontinued operations, net of tax of nil

Foreign currency translation adjustments

—

—

—

Comprehensive income from discontinued operations

$
—

$
—

$
2,338

Comprehensive income (loss)

25,115

44,803

(9,563
)
Less: comprehensive (income) loss attributable to non-controlling interests

(12,507
)

(12,089
)

953

Comprehensive income (loss) attributable to shareholders of Sinovac

12,608

32,714

(8,610
)
Earnings (loss) per share (note 20)

Basic net income (loss) per share:

Continuing operations

0.34

0.45

(0.05
)
Discontinued operations

—

—

0.04

Basic net income (loss) per share

0.34

0.45

(0.01
)
Diluted net income (loss) per share:

Continuing operations

0.34

0.45

(0.05
)
Discontinued operations

—

—

0.04

Diluted net income (loss) per share

0.34

0.45

(0.01
)
Weighted average number of shares of common stock outstanding

– Basic

64,727,146

57,033,816

56,949,083

– Diluted

64,977,554

57,101,191

56,949,083

	For the year ended December 31
	2019			2018			2017
Sales (note 21)	$	246,053		$	229,650		$	174,346
Cost of sales		32,469			24,723			20,240
Gross profit		213,584			204,927			154,106
Selling, general and administrative expenses (including rent expenses incurred to a related party of 2019 - $811, 2018 - $810, 2017 - $793) (note 11(b))		121,468			137,003			87,365
Provision (recovery) for doubtful accounts		(306	)		820			934
Research and development expenses		24,254			21,910			20,489
Loss on disposal of property, plant and equipment (note 7)		294			75			42
Government grants recognized in income		(688	)		(197	)		(141	)
Total operating expenses		145,022			159,611			108,689
Operating income		68,562			45,316			45,417
Interest and financing expenses – (including interest expenses incurred to a related party, 2019 - $455, 2018 - $453, 2017 - $262) (note 11(a))		(650	)		(1,070	)		(1,569	)
Interest income		1,996			2,016			1,183
Other income, net		912			321			13
Income before income taxes		70,820			46,583			45,044
Income tax expense (note 13)		(5,605	)		(10,472	)		(8,339	)
Net income		65,215			36,111			36,705
Less: Income attributable to non-controlling interests		(20,286	)		(14,329	)		(10,898	)
Net income attributable to shareholders of Sinovac		44,929			21,782			25,807
Preferred stock dividends		(5,128	)		—			—
Net income attributable to common shareholders of Sinovac	$	39,801		$	21,782		$	25,807
Net income		65,215			36,111			36,705
Other comprehensive income, net of tax of nil
Foreign currency translation adjustments		(2,827	)		(10,996	)		8,098
Comprehensive income		62,388			25,115			44,803
Less: comprehensive income attributable to non-controlling interests		(19,681	)		(12,507	)		(12,089	)
Comprehensive income attributable to shareholders of Sinovac		42,707			12,608			32,714
Earnings per share (note 20)
Basic net income per share		0.42			0.34			0.45
Diluted net income per share		0.41			0.34			0.45
Weighted average number of shares of common stock outstanding
– Basic		94,876,946			64,727,146			57,033,816
– Diluted		109,691,959			64,977,554			57,101,191

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

Additional

Accumulated
other
comprehensive
income
(foreign
currency

Statutory

Total

Non-

Common stock

paid-in

translation

surplus

Accumulated

shareholders’

controlling

Total

Shares

Amount

capital

adjustment)

reserves

deficit

equity

interests

equity

Balance, December 31, 2015

56,906,561

$
57

$
109,944

$
8,182

$
13,450

$
(9,980
)

$
121,653

$
14,852

$
136,505

Share-based compensation (note 18)

—

—

2,409

—

—

—

2,409

—

2,409

Exercise of stock options (note 17)

120,000

—

315

—

—

—

315

—

315

Cancellation of outstanding shares (note 17)

(14,800
)

—

—

—

—

—

—

—

—

Other comprehensive loss

- Other comprehensive loss attributable to
non-controlling interests

—

—

—

—

—

—

—

(829
)

(829
)
- Other comprehensive loss attributable
to shareholders of Sinovac

—

—

—

(8,014
)

—

—

(8,014
)

—

(8,014
)
Net loss for the year

-Net loss attributable to non-controlling interests

—

—

—

—

—

—

—

(124
)

(124
)
- Net loss attributable to shareholders of Sinovac

—

—

—

—

—

(596
)

(596
)

—

(596
)
- Transfer to statutory surplus reserves (note 19)

—

—

—

—

1,338

(1,338
)

—

—

—

Balance, December 31, 2016

57,011,761

$
57

$
112,668

$
168

$
14,788

$
(11,914
)

$
115,767

$
13,899

$
129,666

					Additional		Accumulated other comprehensive income (foreign currency		Statutory		Accumulated			Total		Non-
	Common stock				paid-in		translation		surplus		(deficit)			shareholders’		controlling		Total
	Shares		Amount		capital		adjustment)		reserves		earnings			equity		interests		equity
Balance, December 31, 2016		57,011,761	$	57	$	112,668	$	168	$	14,788	$	(11,914	)	$	115,767	$	13,899	$	129,666
Share-based compensation (note 18)		—		—		979		—		—		—			979		—		979
Exercise of stock options (note 17)		270,100		—		1,264		—		—		—			1,264		—		1,264
Subscriptions received (note 17)		—		—		428		—		—		—			428		—		428
Other comprehensive income
- Other comprehensive income attributable to non-controlling interests		—		—		—		—		—		—			—		1,191		1,191
- Other comprehensive income attributable to shareholders of Sinovac		—		—		—		6,907		—		—			6,907		—		6,907
Net income for the year
-Net income attributable to non-controlling interests		—		—		—		—		—		—			—		10,898		10,898
- Net income attributable to shareholders of Sinovac		—		—		—		—		—		25,807			25,807		—		25,807
- Transfer to statutory surplus reserves (note 19)		—		—		—		—		4,761		(4,761	)		—		—		—
Balance, December 31, 2017		57,281,861	$	57	$	115,339	$	7,075	$	19,549	$	9,132		$	151,152	$	25,988	$	177,140

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

							Accumulated other comprehensive income (foreign																				Accumulated other comprehensive income (loss) (foreign
	Common stock				Additional paid-in		currency translation		Statutory surplus		Accumulated deficit)			Total shareholders’		Non- controlling		Total		Common stock					Additional paid-in		currency translation			Statutory surplus		Accumulated			Total shareholders’			Non- controlling			Total
	Shares		Amount		capital		adjustment)		reserves		earnings			equity		interests		equity		Shares			Amount		capital		adjustment)			reserves		earnings			equity			interests			equity
Balance, December 31, 2016		57,011,761	$	57	$	112,668	$	168	$	14,788	$	(11,914	)	$	115,767	$	13,899	$	129,666
Balance, December 31, 2017																					57,281,861		$	57	$	115,339	$	7,075		$	19,549	$	9,132		$	151,152		$	25,988		$	177,140
Share-based compensation (note 18)		—		—		979		—		—		—			979		—		979		—			—		4,305		—			—		—			4,305			—			4,305
Exercise of stock options (note 17)		270,100		—		1,264		—		—		—			1,264		—		1,264		109,041			—		3		—			—		—			3			—			3
Subscriptions received (note 17)		—		—		428		—		—		—			428		—		428		—			—		64		—			—		—			64			—			64
Cancellation of outstanding shares (note 17)																					(51,500	)		—		—		—			—		—			—			—			—
Issuance of new and restricted shares (note 17)																					13,800,000			14		85,287		—			—		—			85,301			—			85,301
Other comprehensive income
- Other comprehensive income attributable to non-controlling interests		—		—		—		—		—		—			—		1,191		1,191
- Other comprehensive income attributable to shareholders of Sinovac		—		—		—		6,907		—		—			6,907		—		6,907
- Other comprehensive loss attributable to non-controlling interests																					—			—		—		—			—		—			—			(1,822	)		(1,822	)
- Other comprehensive loss attributable to shareholders of Sinovac																					—			—		—		(9,174	)		—		—			(9,174	)		—			(9,174	)
Net income for the year
-Net income attributable to non-controlling interests		—		—		—		—		—		—			—		10,898		10,898		—			—		—		—			—		—			—			14,329			14,329
- Net income attributable to shareholders of Sinovac		—		—		—		—		—		25,807			25,807		—		25,807		—			—		—		—			—		21,782			21,782			—			21,782
- Transfer to statutory surplus reserves (note 19)		—		—		—		—		4,761		(4,761	)		—		—		—		—			—		—		—			7,094		(7,094	)		—			—			—
Balance, December 31, 2017		57,281,861	$	57	$	115,339	$	7,075	$	19,549	$	9,132		$	151,152	$	25,988	$	177,140
Balance, December 31, 2018																					71,139,402		$	71	$	204,998	$	(2,099	)	$	26,643	$	23,820		$	253,433		$	38,495		$	291,928

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

								Accumulated other comprehensive income (loss) (foreign																													Accumulated other comprehensive loss (foreign
	Common stock					Additional paid-in		currency translation			Statutory surplus		Accumulated deficit)			Total shareholders’			Non- controlling			Total			Common stock					Preferred stock				Additional paid-in			currency translation			Statutory surplus		Accumulated			Total shareholders’			Non- controlling			Total
	Shares			Amount		capital		adjustment)			reserves		earnings			equity			interests			equity			Shares			Amount		Shares		Amount		capital			adjustment)			reserves		earnings			equity			interests			equity
Balance, December 31, 2017		57,281,861		$	57	$	115,339	$	7,075		$	19,549	$	9,132		$	151,152		$	25,988		$	177,140
Balance, December 31, 2018																										71,139,402		$	71		—	$	—	$	204,998		$	(2,099	)	$	26,643	$	23,820		$	253,433		$	38,495		$	291,928
Share-based compensation (note 18)		—			—		4,305		—			—		—			4,305			—			4,305			—			—		—		—		3,003			—			—		—			3,003			—			3,003
Exercise of stock options (note 17)		109,041			—		3		—			—		—			3			—			3			13,500			—		—		—		4			—			—		—			4			—			4
Subscriptions received (note 17)		—			—		64		—			—		—			64			—			64
Cancellation of outstanding shares (note 17)		(51,500	)		—		—		—			—		—			—			—			—			(27,000	)		—		—		—		—			—			—		—			—			—			—
Issuance of new and restricted shares (note 17 and 18)		13,800,000			14		85,287		—			—		—			85,301			—			85,301
Other comprehensive income		—			—		—		—			—		—			—			—			—
Issuance of new shares (note 17)																										27,777,341			28		14,630,813		15		(43	)		—			—		—			—			—			—
Dividend accrued (note 17)																										—			—		—		—		—			—			—		(5,128	)		(5,128	)		—			(5,128	)
Other comprehensive loss																										—			—		—		—		—			—			—		—			—			—			—
- Other comprehensive loss attributable to non-controlling interests		—			—		—		—			—		—			—			(1,822	)		(1,822	)		—			—		—		—		—			—			—		—			—			(605	)		(605	)
- Other comprehensive loss attributable to shareholders of Sinovac		—			—		—		(9,174	)		—		—			(9,174	)		—			(9,174	)		—			—		—		—		—			(2,222	)		—		—			(2,222	)		—			(2,222	)
Net income for the year		—			—		—		—			—		—			—			—			—			—			—		—		—		—			—			—		—			—			—			—
-Net income attributable to non-controlling interests		—			—		—		—			—		—			—			14,329			14,329			—			—		—		—		—			—			—		—			—			20,286			20,286
- Net income attributable to shareholders of Sinovac		—			—		—		—			—		21,782			21,782			—			21,782			—			—		—		—		—			—			—		44,929			44,929			—			44,929
- Transfer to statutory surplus reserves (note 19)		—			—		—		—			7,094		(7,094	)		—			—			—			—			—		—		—		—			—			6,890		(6,890	)		—			—			—
Balance, December 31, 2018		71,139,402			71		204,998		(2,099	)		26,643		23,820			253,433			38,495			291,928
Balance, December 31, 2019																										98,903,243			99		14,630,813		15		207,962			(4,321	)		33,533		56,731			294,019			58,176			352,195

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

	For the year ended December 31									For the year ended December 31
	2018			2017			2016			2019			2018			2017
Cash flows provided by (used in) operating activities
Income (loss) from continuing operations	$	36,111		$	36,705		$	(3,058	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Cash flows provided by operating activities
Net Income										$	65,215		$	36,111		$	36,705
Adjustments to reconcile net income to net cash provided by operating activities:
- Deferred income taxes (note 13)		3,146			(4,921	)		(1,007	)		(5,685	)		3,146			(4,921	)
- Share-based compensation (note 18)		4,305			979			2,409			3,003			4,305			979
- Inventory provision (note 6)		2,529			1,231			6,377			651			2,529			1,231
- Provision (recovery) for doubtful accounts		820			934			1,412			(306	)		820			934
- Loss on disposal of property, plant and equipment (note 8)		75			42			478
- Depreciation of property, plant and equipment and amortization of licenses (note 8)		4,887			4,638			5,063
- Amortization of prepaid land lease payments (note 9)		249			243			247
- Loss on disposal of property, plant and equipment (note 7)											294			75			42
- Depreciation of property, plant and equipment and amortization of licenses (note 7)											4,579			4,887			4,638
- Amortization of prepaid land lease payments (note 8)											238			249			243
- Government grants recognized in income		(197	)		(141	)		(6,984	)		(688	)		(197	)		(141	)
Changes in:
- Accounts receivable		(13,082	)		(13,482	)		(15,122	)		(40,191	)		(13,082	)		(13,482	)
- Inventories		(9,412	)		(5,531	)		(3,025	)		(3,651	)		(9,412	)		(5,531	)
- Income tax payable		(11,844	)		4,948			1,720			4,904			(11,844	)		4,948
- Prepaid expenses and deposits		(2,613	)		(622	)		(436	)		2,645			(2,613	)		(622	)
- Deferred revenue		(892	)		987			(4,959	)		2,521			(892	)		987
- Accounts payable and accrued liabilities		(6,167	)		33,416			2,739			6,793			(6,167	)		33,416
- Other non-current liabilities		28			330			339			(1,248	)		28			330
Net cash provided by (used in) operating activities from continuing operations		7,943			59,756			(13,807	)
Net cash used in operating activities from discontinued operations		—			—			(95	)
Net cash provided by (used in) operating activities		7,943			59,756			(13,902	)
Net cash provided by operating activities											39,074			7,943			59,756
Cash flows provided by (used in) financing activities
- Proceeds from bank loans		18,898			28,636			45,462			2,109			18,898			28,636
- Repayments of bank loans		(43,886	)		(38,708	)		(24,850	)		(3,305	)		(43,886	)		(38,708	)
- Proceeds from issuance of common stock, net of share issuance costs		85,304			1,264			315			—			85,304			1,264
- Proceeds from shares subscribed		64			428			—			—			64			428
- Government grants received (note 15)		3,800			2,598			6,857			1,476			3,800			2,598
- Loan from a non-controlling shareholder (note 11(a))		—			4,440			—			1,457			—			4,440
Net cash provided by (used in) financing activities		64,180			(1,342	)		27,784			1,737			64,180			(1,342	)
Cash flows used in investing activities
- Purchase of short-term investments		(19,670	)		—			—			(50,665	)		(19,670	)		—
- Proceeds from redemption of short-term investments											18,818			—			—
- Proceeds from disposal of equipment		22			19			26			21			22			19
- Acquisition of property, plant and equipment		(5,613	)		(11,915	)		(12,654	)		(10,628	)		(5,613	)		(11,915	)
- Net proceeds from disposal of subsidiary		—			—			861
Net cash used in investing activities from continuing operations		(25,261	)		(11,896	)		(11,767	)
Net cash used in investing activities from discontinued operations		—			—			(9	)
Net cash used in investing activities		(25,261	)		(11,896	)		(11,776	)		(42,454	)		(25,261	)		(11,896	)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(4,656	)		4,005			(2,268	)		(649	)		(4,656	)		4,005
Increase (decrease) in cash and cash equivalents and restricted cash, including cash from discontinued operation		42,206			50,523			(162	)
Less: Net decrease in cash from discontinued operation		—			—			(143	)
Increase (decrease) in cash and cash equivalents and restricted cash		42,206			50,523			(19	)		(2,292	)		42,206			50,523
Cash and cash equivalents and restricted cash, beginning of year		115,964			65,441			65,460			158,170			115,964			65,441
Cash and cash equivalents and restricted cash, end of year	$	158,170		$	115,964		$	65,441		$	155,878		$	158,170		$	115,964
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,494		$	1,325		$	1,662		$	717		$	1,494		$	1,325
Cash paid for income taxes	$	19,151		$	7,909		$	1,885		$	7,307		$	19,151		$	7,909

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

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). They include the accounts of Sinovac Biotech Ltd., which is incorporated under the laws of Antigua and Barbuda, and its wholly owned or controlled subsidiaries (collectively, the “Company”). All significant intercompany transactions have been eliminated. Details of the Company’s subsidiaries are as follows:

In preparation of the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates made by management include: provision for product returns, allowance for doubtful accounts, inventory provisions, impairment of long-lived assets, fair value of options granted and related forfeiture rates, and realizability of deferred tax assets. On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the Company’s business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s consolidated financial statements could be materially impacted.

Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with maturities of three months or less when purchased.

Restricted cash is cash held as collateral for transactions ~~and a loan~~ the Company has entered into.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts presented in the statement of cash flows. The Company adopted the new standard effective January 1, 2018, using the retrospective transition method.

The ending balance of cash and cash equivalents and restricted cash presented on the face of the consolidated statements of cash flows in ~~2018~~2019 is $155,878 (2018 - $158,170, ~~(2017~~2017 - ~~$115,964, 2016 - $65,441)~~$115,964). It includes $ ~~158,170~~152,718 cash and cash equivalents ~~(2017~~(2018 - ~~$114,415, 2016~~$ 158,170, 2017 - ~~$62,434)~~$114,415) and ~~$nil~~$3,160 restricted cash ~~(2017~~(2018 - ~~$1,549, 2016 -$3,007)~~$nil, 2017 - $1,549) as presented in consolidated balance sheets.

All highly liquid investments with original maturities greater than three months, but less than twelve months, are classified as short-term investments. Investments that are expected to be realized in cash during the next twelve months are also included in short-term investments.

The Company accounts for short-term debt investments in accordance with ASC Topic 320, Investments—Debt Securities (“ASC 320”). The Company classifies the short-term investments in debt as “held-to-maturity,” “trading” or “available-for-sale,” whose classification determines the respective accounting methods stipulated by ASC 320. Dividend and interest income, including amortization of the premium and discount arising at acquisition, for all categories of investments in securities are included in earnings. Any realized gains or losses on the sale of the short-term investments are determined on a specific identification method, and such gains and losses are reflected in earnings during the period in which gains or losses are realized.

The Company extends unsecured credit to its customers in the ordinary course of business and actively pursues past due accounts. The Company estimates an allowance for doubtful accounts based on historical experience, the age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that may affect its customers’ ability to pay.

Inventories are stated at the lower of cost or net realizable value. The cost of work in progress and finished goods is determined on a weighted-average cost basis and includes direct material, direct labor and overhead costs. Net realizable value represents the anticipated selling price, net of distribution cost, less estimated costs to completion for work in progress.

Property, plant and equipment are recorded at cost. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expenses as incurred. Equipment purchased for specific research and development projects with no alternative uses are expensed. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses from the disposal of property, plant and equipment are recorded in gain or loss on disposal and impairment of property, plant and equipment included in the consolidated statements of comprehensive income (loss).

Depreciation of property, plant and equipment is computed using the straight-line method based on the estimated useful lives of the assets as follows:

Prepaid land lease payments represent amounts paid for the rights to use land in the PRC and is recorded at purchased cost less accumulated amortization. Amortization is provided on a straight-line basis over the term of the lease agreement, which ranges from 28 to 49 years.

The Company capitalizes the patent payment and the purchased cost of vaccines if the vaccine has received a new drug certificate from the ~~China Food and Drug~~National Medical Products Administration (“~~CFDA”)~~NMPA) of China. If the vaccine has not received a new drug certificate, the purchase cost is expensed as in-process research and development.

Licenses in relation to the production and sales of pharmaceutical products are amortized on a straight-line basis over their respective useful lives. Costs incurred to renew or extend the term of licenses are capitalized and amortized over the license’s useful life on a straight-line basis.

Long-lived assets including intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable from the future undiscounted net cash flows expected to be generated by the asset group. An asset group is identified as assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. If the asset group is not fully recoverable, an impairment loss would be recognized for the difference between the carrying value of the asset group and its estimated fair value, based on the discounted net future cash flows or other appropriate methods, such as comparable market values. The Company uses estimates and judgments in its impairment tests and if different estimates or judgment had been utilized, the timing or the amount of any impairment charges could be materially different.

The Company follows the liability method of accounting for income taxes. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the carrying values and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is provided if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates and laws.

The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The tax benefits recognized from such a position are measured based on the amount that is greater than 50% likely of being realized upon settlement. The Company recognizes a change in available facts after the reporting date but before issuance of the financial statements in the period when the change in facts occur, even if that new information provides a better estimate of the ultimate outcome of an uncertainty. Liabilities associated with uncertain tax positions are classified as long−term unless expected to be settled within one year. Interest and penalties related to uncertain tax positions, if any, are recorded in the provision for income taxes and classified with the related liability on the consolidated balance sheets.

Value-added taxes (“VAT”) collected from customers relating to product sales and remitted to governmental authorities are presented on a net basis. VAT collected from customers is excluded from revenue.

The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”), on January 1, 2018, using the modified retrospective method. Revenues for the ~~year~~years ended December 31, 2019 and 2018 were presented under ASC 606, and revenues for the ~~years~~year ended December 31, 2017 ~~and 2016 were~~was not adjusted and continue to be presented under ASC Topic 605, Revenue Recognition. ~~The cumulative effect of adopting ASC 606 resulted in $nil to the opening balance of retained earnings at January 1, 2018.~~

Revenue is recognized when control of promised goods is transferred to the Company’s customers in an amount of consideration of which the Company expect to be entitled to in exchange for the goods, and the Company can reasonably estimates return provision for the goods.

The product return provisions are estimated based on historical return and exchange data as well as the inventory levels and the remaining shelf lives of the products in the distribution channels.

As of December 31, ~~2018,~~2019, sales return provision for inactivated hepatitis A vaccine, combined inactivated hepatitis A&B vaccine, ~~and~~ enterovirus 71 vaccine and mumps vaccine was ~~$2,880~~$3,368 (December 31, ~~2017~~2018 - ~~$4,672)~~$2,880). ~~Private pay sales~~Sales return provision of inactivated hepatitis A vaccine, combined inactivated hepatitis A&B vaccine, ~~and~~ enterovirus 71 vaccine and mumps vaccine as a percentage of sales was 1.5% and 1.4% in 2019 and ~~3.1% in~~ 2018, ~~and 2017,~~ respectively. As of December 31, ~~2018,~~2019, sales return provision for seasonal influenza vaccine returns was ~~$nil~~$358 (December 31, ~~2017~~2018 - ~~$263)~~$nil).

Deferred revenue is generally related to government stockpiling programs and advances received from customers. For government stockpiling programs of H5N1 vaccines, the Company generally obtains purchase authorizations from the government for a specified amount of products at a specified price and no rights of return are provided. Revenue is recognized when the government takes delivery of the products. If the products expire prior to delivery, these expired products are recognized as revenue once cash is received and the products have expired and passed government inspection.

For the year ended December 31, ~~2018,~~2019, the Company did not have any significant incremental costs of obtaining contracts with customers incurred or costs incurred in fulfilling contracts with customers within the scope of ASC Topic 606, that shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.

The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities consist of advance payments from customers. The contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting period. All contract liabilities are included in deferred revenue in the Consolidated Balance Sheets.

For the year ended December 31, ~~2018,~~2019, the Company recognized sales of ~~$3,888~~$2,347 related to contract liabilities at January 1, ~~2018.~~2019.

Shipping and handling fees billed to customers are included in sales. Costs related to shipping and handling are recognized in selling, general and administrative expenses in the consolidated statements of comprehensive ~~income (loss).~~income. For the year ended December 31, ~~2018, $6,261~~2019, $7,253 of shipping and handling costs was included in selling, general and administrative expenses ~~(2017~~(2018 - ~~$5,759, 2016~~$ 6,261, 2017 - ~~$1,654)~~$5,759).

Advertising costs are expensed as incurred and included in selling, general and administrative expenses. Advertising costs were ~~$3,901~~$1,398 for the year ended December 31, ~~2018 (2017~~2019 (2018 - ~~$4,007, 2016~~$3,901, 2017 - ~~$3,336)~~$4,007).

Research and development ("R&D") costs are expensed as incurred and are disclosed as a separate line item in the Company’s consolidated statements of comprehensive ~~income (loss).~~income. R&D costs consist primarily of the remuneration of R&D staff, depreciation, material, clinical trial costs as well as amortization of acquired technology and know-how used in R&D with alternative future uses. R&D costs also include costs associated with collaborative R&D and in-licensing arrangements, including upfront fees paid to collaboration partners in connection with technologies which have not reached technological feasibility and did not have an alternative future use. Reimbursement of R&D costs for arrangements with collaboration partners is recognized when the obligations are incurred.

Under certain R&D arrangements with third parties, the Company may be required to make payments that are contingent on the achievement of specific development, regulatory and/or commercial milestones. Before a product receives regulatory approval, license fees and milestone payments made to third parties are expensed as incurred. License fees and milestone payments made to third parties after regulatory approval is received are capitalized and amortized over the remaining life of the agreement with third parties.

Government grants received from the PRC government by the PRC operating subsidiaries of the Company are recognized when there is reasonable assurance that the amount is receivable and all the conditions specified in the grant have been met. Government grants for R&D are recognized as a reduction to R&D expenses when the expenses are incurred in the same period when the conditions attached to the grants are met, or recognized as government grants recognized in income in the period when the conditions are met after the expenses are incurred. Government grants for property, plant and equipment are deferred and recognized as a reduction to the related depreciation and amortization expenses in the same manner as the property, plant and equipment are depreciated. Interest subsidies are recorded as a reduction to interest and financing expenses in the consolidated statements of comprehensive income, ~~(loss),~~ or recorded as a reduction to interest capitalized if the subsidies granted are related to a specific borrowing associated with building a qualifying asset. For government loans received at below market interest rate, the difference between the face value of the loan and fair value using the effective interest rate method is recorded as deferred government grants.

Full-time employees of the Company in the PRC participate in a government mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Company makes contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Company has no legal obligation for the benefits beyond the contributions. Total amounts for such employee benefits incurred was ~~$7,438~~$9,884 for the year ended December 31, ~~2018 (2017~~2019 (2018 - $7,438, 2017 - $6,197 ~~2016 - $5,473).~~).

The Company maintains their accounting records in their functional currencies, U.S. dollars (“US$”) for the Company and Sinovac Hong Kong and Renminbi Yuan (“RMB”) for the PRC subsidiaries. The Company uses the US$ as its reporting currency.

At the transaction date, each asset, liability, revenue and expense is re-measured into the functional currency by the use of the exchange rate in effect at that date. At each period end, foreign currency monetary assets, and liabilities are re-measured into the functional currency by using the exchange rate in effect at the balance sheet date. The resulting foreign exchange gains and losses are included in selling, general and administrative expenses. The Company recognized foreign exchange gain of ~~$559~~$306 for the year ended December 31, ~~2018 (2017~~2019 (2018 - $559, 2017 - $1,323 ~~2016 - $942).~~).

Assets and liabilities of the PRC subsidiaries, Sinovac Beijing, Sinovac R&D, Sinovac Dalian and Sinovac Biomed are translated into US$ at the exchange rates in effect at the balance sheet date. Revenue and expenses are translated at average exchange rates. Gains and losses from such translations are recorded in accumulated other comprehensive income, a component of shareholders’ equity.

Gain on intra-entity foreign currency transactions that are of a long-term-investment nature was ~~$268~~$62 for the year ended December 31, ~~2018 (2017~~2019 (2018 - $268, 2017 - $336 ~~in gain, 2016 - $335 in losses)~~) which was recorded in accumulated other comprehensive income, a component of shareholders’ equity.

Compensation expense for costs related to all share-based payments, including grants of stock options, is recognized through a fair-value based method. The Company uses the Black-Scholes option-pricing model to determine the grant date fair value for stock options. The Company uses the grant date stock price to determine the grant date fair value of restricted shares. The Company has elected to recognize share-based compensation costs using the straight-line method over the requisite service period with a graded vesting schedule, provided that the amount of compensation costs recognized at any date is at least equal to the portion of the grant date value of the awards that are vested at that date. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share based compensation costs are recorded net of estimated forfeitures such that expense is recorded only for those awards that are expected to vest.

The Company’s comprehensive income ~~(loss)~~ consists of net income ~~(loss)~~ and foreign currency translation adjustments.

Earnings ~~(loss)~~ per share is calculated in accordance with Accounting Standards Codification (“ASC”) 260 Earnings per Share. Basic earnings ~~(loss)~~ per share is computed by dividing the net income ~~(loss)~~ attributable to shareholders of Sinovac by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed in accordance with the treasury stock method and based on the weighted average number of common shares and dilutive common share equivalents. Dilutive common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.

The Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) on January 1, 2019 by using the modified retrospective method and did not restate the comparable periods. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are ~~classified~~or contain a lease, (2) lease classification for any expired or existing leases as ~~capital~~of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. Lastly, the Company elected the short-term lease exemption for all contracts with lease terms of 12 months or less.

The Company determines if an arrangement is a lease or contains a lease at lease inception. For operating ~~depending~~leases, the Company recognizes a right-of-use asset and a lease liability based on the ~~terms and conditions~~present value of the lease ~~agreement. Leases that transfer substantially all~~payments over the ~~benefits and risks incidental to ownership~~lease term on the consolidated balance sheets at commencement date. As most of ~~assets are accounted for as if there was~~the Company’s leases do not provide an ~~acquisition of an asset and incurrence of an obligation~~implicit rate, the Company estimates its incremental borrowing rate based on the information available at the ~~inception~~commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated to approximate the ~~lease. All other leases are accounted~~interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.

Upon adoption, the Company recognized right-of-use asset of $7,306 and total lease liabilities (including current and non-current) $6,959 for as operating leases ~~where rental payments are expensed~~ as ~~incurred. There are no capital leases~~of January 1, 2019. As of December 31, 2019, the Company had right-of-use assets of $6,636 and total lease liabilities (including current and non-current) $6,294 for ~~the periods presented.~~operating leases.

Assets and liabilities subject to fair value measurements are required to be disclosed within a specified fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories based on the lowest level input used that is significant to a particular fair value measurement:

As of December 31, ~~2018~~2019 and ~~2017,~~2018, the Company did not have any financial assets or liabilities measured at fair value on a recurring basis.

The carrying values of cash equivalents, restricted cash, short-term investment, accounts receivable, accounts payable and accrued liabilities and short-term bank loans and the current portion of long-term debt approximate their fair value because of their short-term nature. Fair value of the long-term bank loans are determined based on level 2 inputs, and the carrying amounts of long-term bank loans approximate fair value as the related interest rates approximate rates currently offered by financial institution for similar debt instruments.

The Company measures property, plant and equipment at fair value on a non-recurring basis only if an impairment charge were to be recognized. There were no non-recurring fair value measurements for the years ended December 31, ~~2018~~2019 and ~~2017.~~2018.

The Company operates in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the US$ and the RMB. In ~~2018,~~2019, foreign exchange gain of ~~$559~~$306 is included in selling, general and administrative expenses ~~(2017~~(2018 - ~~$1,323, 2016~~$559, 2017 - ~~$942)~~$1,323). As of December 31, ~~2018,~~2019, cash and cash equivalents of ~~$70,448~~$57,079 (RMB ~~484~~397 million) is denominated in RMB and are held in PRC and Hong Kong (December 31, ~~2017~~2018 - ~~$103,370~~$70,448 (RMB ~~673~~484 million)).

Substantially all of the Company’s operating activities are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency

payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with other information such as suppliers’ invoices, shipping documents and signed contracts.

Financial instruments that potentially subject the Company to concentration of credit risks consist primarily of cash and cash equivalents, restricted cash, short-term investment and accounts receivable, the balances of which are stated on the consolidated balance sheets which represent the Company’s maximum exposure. The Company places its cash and cash equivalents, restricted cash, and short-term investment in good credit quality financial institutions in Hong Kong and China. Concentration of credit risks with respect to accounts receivables is linked to the concentration of revenue. The Company’s customers are mainly various government agencies in China. For the year ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, no single customer of the Company accounted for more than 10% of total sales. To manage credit risk, the Company performs ongoing credit evaluations of customers’ financial condition.

The Company is subject to interest rate risk. Other than loans from a non-controlling shareholder of ~~$6,705~~$8,043 with fixed interest rates as of December 31, ~~2018~~2019 (note 11(a)), interests of other interest-bearing loans are charged at variable rates based on the People’s Bank of China (note 10).

In ~~February~~June 2016, the FASB issued ASU No. ~~2016-02, Leases~~2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU ~~2016-02”~~2016-13”). which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU ~~2016-02 specifies~~2016-13 replaces the ~~accounting for leases. For operating leases,~~existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease2016-13 is ~~allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is~~ effective ~~for public business entities~~ for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company will adopt ASU 2016-02 on January 1, 2019 using modified retrospective method and will not restate comparable periods. The Company will elect the package of practical expedients permitted under the transition guidance, which allow the Company to carry forward the historical lease classification, the assessment whether a contract is or contains a lease and initial direct costs for any leases that exist prior to adoption of the new standard. The Company will also elect the practical expedient not to separate lease and non-lease components for certain classes of underlying assets and the short-term lease exemption for contracts with lease terms of 12 months or less. The Company currently believes the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Company’s balance sheet for certain in-scope operating leases.2019. The Company does not expect any material impact on net assets and the consolidated statement of comprehensive income as a result of adopting the new standard.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The update eliminates, modifies, and adds certain disclosure requirements for fair value measurements. This update is effective in fiscal years, including interim periods, beginning after December ~~2015,~~15, 2019, and early adoption is permitted. The added disclosure requirements and the Company committed to a plan to sell 100% of its equity stake in Tangshan Yian to an unrelated third-party biological technology company, for a total consideration of $1,872 (RMB 13 million). The transaction represents a strategic shift that the Company was exiting the animal vaccine market and will focusmodified disclosure on the ~~human use vaccine market, which will~~narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented. The Company does not expect the impact of this guidance to have a ~~major effect~~material impact on the Company’s ~~operations and financial results going forward. As such, the financial results of Tangshan Yian and the gain on disposition are reported within discontinued operations in the~~ consolidated financial statements. ~~The consolidated financial statements and amounts previously reported have been reclassified, as necessary, to conform to this presentation in accordance with~~ ~~ASC 205, Presentation of Financial Statements~~ to allow for meaningful comparison of continuing operations. The Company received $926 (RMB 5.97 million) in January 2016 and the disposition transaction was completed in February 2016 as all other conditions have been fulfilled. The Company recognized gain on the disposition of $2,461 (net of tax of nil), which represents the excess of (a) the sum of (i) $2,016 (RMB 13 million) in consideration, consisting of $1,706 (RMB 11 million) in cash received and $310 (RMB 2 million) of cash receivable, and (ii) Tangshan Yian’s $1,880 cumulative translation gain, which was reclassified to earnings, over (b) $1,435 net book value of Tangshan Yian upon the closing of the transaction.

~~Income from discontinued operations, net~~As of ~~income tax, for the year ended~~ December 31, ~~2016 included~~2019, the ~~results~~balance of ~~Tangshan Yian through the disposition date of February 28, 2016.~~$3,160 (December 31, 2018 –$nil) represents cash collateral held as a guarantee relating to an EPI (Expanded Program on Immunization) sales contract, which is restricted until December 2020.

As of December 31, ~~2018,~~2019, the Company’s short-term investments comprised of only debt securities. All of the short-term held-to-maturity investments were deposits in commercial banks with maturities of less than one year and the Company has the positive intent and ability to hold those securities to maturity.

During the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, the Company recorded interest income from its short-term investments of ~~$ 47, $nil~~$797, $47 and $nil in the consolidated statements of comprehensive income, respectively.

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company estimates the allowance based on historical experience, the age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions, and other factors that may affect customers’ ability to pay. As of December 31, ~~2018,~~2019, the Company provided ~~100%~~99.6% (December 31, ~~2017~~2018 - 100%) allowance for accounts receivable aged more than four years, approximately ~~96.9%~~82.8% (December 31, ~~2017~~2018 - ~~94.6%~~96.9%) allowance for accounts receivable aged between three years and four years, approximately ~~90.6%~~44.4% (December 31, ~~2017~~2018 - ~~68.5%~~90.6%) allowance for accounts receivable aged between two years and three years, approximately ~~42.1%~~14.6% (December 31, ~~2017~~2018 - ~~15.3%~~42.1%) allowance for accounts receivable aged between one year and two years, and approximately 1.4% (December 31, ~~2017~~2018 - ~~1.2%~~1.4%) allowance for accounts receivable aged less than one year.

The Company’s maximum exposure to credit risk at the balance sheets date relating to trade receivables is summarized as follows:

For the year ended December 31, ~~2018,~~2019, the Company charged ~~$2,735~~$3,794 of excessive fixed production overhead to cost of sales ~~(2017~~(2018 - $2,735, 2017 - $2,757 ~~2016 - $3,232).~~).

For the year ended December 31, ~~2018,~~2019, cost of sales includes ~~$2,529~~$651 of inventory provision for products that are ~~changed or are~~ likely to expire before being sold ~~(2017~~(2018 - $ 2,529, 2017 - $1,231 ~~2016 - $6,377).~~).

~~Long-term inventories represent H5N1 vaccines~~The buildings of Sinovac Beijing with ~~remaining shelf lives over one~~a net book value of $1,491 (RMB 10.4 million) were pledged as collateral for a bank loan from Bank of Beijing (note 10 (a)).

The buildings of Sinovac Dalian with a net book value of $2,418 (RMB 16.8 million) were pledged as collateral for a bank loan from Bank of China (note 10 (b) and 10 (c)).

Net depreciation expense for the year ended December 31, 2019 was $4,579 (2018 - $4,887, 2017 - $4,638 ), after deduction of amortized government grant specifically related to qualified property, plant and ~~not expected to be sold within one year. These vaccines are~~equipment.

Loss on disposal of equipment for ~~government stockpiling purposes.~~the year ended December 31, 2019 was $294 (2018 - $75, 2017 - $42).

~~The buildings of Sinovac Beijing with a net book value of $1,738 (RMB 11.9 million) were pledged as collateral for a bank loan from Bank of Beijing (note 10 (c)).~~

The buildings of the Changping facilities of Sinovac Beijing with a net book value of $10,620 (RMB 73.0 million) were pledged as collateral for bank loans from China Construction Bank (note 10(f), 10 (i)).

~~The buildings of Sinovac Dalian with a net book value of $514 (RMB 3.5 million) were pledged as collateral for a bank loan from Bank of China (note 10 (d)).~~

Net depreciation expense for the year ended December 31, 2018 was $4,887 (2017 - $4,638, 2016 - $5,063), after deduction of amortized government grant specifically related to qualified property, plant and equipment.

~~Loss on disposal of equipment for the year ended December 31, 2018 was $75 (2017 - $42, 2016 - $478).~~

Prepaid land lease payments of the Shangdi facilities of Sinovac Beijing with a net book value of ~~$281~~$269 (RMB 1.9 million) were pledged as collateral (note 10 ~~(c)~~(a)) for a bank loan from Bank of Beijing.

Prepaid land lease payments of the Changping facilities of Sinovac Beijing with a net book value of $2,359 (RMB 16.2 million) were pledged as collateral (note 10 (f), 10(i)) for a bank loan from China Construction Bank.

Amortization expense for prepaid land lease payments for the year ended December 31, ~~2018~~2019 was $238 (2018 - $249, ~~(2017~~2017 - ~~$243, 2016~~$243).

The Company’s operating leases mainly related to office facilities and vehicles, some of which include options to extend the leases that have not been included in the calculation of the Company’s lease liabilities and right-of-use assets. For leases with terms greater than 12 months, the Company records the related asset and lease liability at the present value of lease payments over the term.

As of December 31, 2019, there was no finance leases entered into by the Company.

As of December 31, 2019, the weighted average remaining lease term was 12.1 years and weighted average discount rate was 4.88% for the Group’s operating leases. Operating lease cost excluding cost of short-term lease for the year ended December 31, 2019 was $921. Short-term lease cost for the year ended December 31, 2019 was $487. (2018 - ~~$247)~~$948, 2017 - $793). Supplemental cash flow information related to operating leases was as follows:

Future lease payments under operating leases as of December 31, 2019 were as follows:

Minimum future rental payments under short-term lease for the year ending December 31, 2019 was $10.

As of December 31, 2019, additional operating leases that have not yet commenced were immaterial.

Summarized below are bank loans as of December 31, ~~2018~~2019 and ~~2017:~~2018:

(a) On February 27, 2017, Sinovac Beijing entered into a bank loan with Industrial and Commercial Bank of China in the aggregate principal amount of $3,074 (RMB 20 million) to finance its working capital requirements. The loan bears interest at the prime rate of a one year term loan published by the People’s Bank of China, at 4.35%. Interest is payable quarterly and the loan was repaid on February 27, 2018.

(b) On September 18, 2015, Sinovac Beijing entered into a maximum credit facility of $7,202 (RMB 50 million) with Bank of Beijing to finance its working capital requirements. $753 (RMB 4.9 million) was drawn on August 29, 2017 and was repaid on August 29, 2018. $784 (RMB 5.1 million) was drawn on September 6, 2017 and was repaid on August 29, 2018. These two tranches bore interest at 4.57% and was payable quarterly. $1,537 (RMB 10 million) was drawn on October 13, 2017, and was repaid on October 12, 2018. $615 (RMB 4 million) was drawn on November 9, 2017 and was repaid on October 12, 2018. These two tranches bear interest at 5.00% and was payable quarterly.

~~(c)~~ On May 20, 2015, Sinovac Beijing entered into a bank loan with Bank of Beijing in the aggregate principal amount of ~~$6,981~~$6,895 (RMB 48 million) with a term from July 2015 to May 2020 for construction of the pneumococcal polysaccharide vaccine facilities. The loan’s interest rate is based on the prime rate of a five-year term loan published by the People’s Bank of China at the time withdraws are made. Interest is payable quarterly and the loan is repayable based on the payment schedule and shall be fully repaid before May 20, 2020. ~~$713~~$423 (RMB ~~4.9~~2.9 million) was drawn in 2015 with an annual interest rate of 5.25%, and ~~$5,771~~$3,419 (RMB ~~39.7~~23.8 million) was drawn in 2016 with an annual interest rate of 4.75%. Prepaid land lease payments and buildings of Sinovac Beijing with a net book value of ~~$2,019~~$1,760 (RMB ~~13.9~~12.3 million) were pledged as collateral as of December 31, ~~2018.~~2019.

~~(d)~~(b) On August 14, 2018, Sinovac Dalian entered into a bank loan with Bank of China in the aggregate principal amount of $727 (RMB 5 million) to finance its working capital requirements. The loan bears interest at 157 basis points above the prime rate of a one-year term loan published by the People’s Bank of China, at 5.88%. Buildings of Sinovac Dalian with a net book value of $478 (RMB 3.3 million) were pledged as collateral. Interest is payable monthly and the loan was repaid on August 16, 2019.

(c) On November 20, 2019, Sinovac Dalian entered into entered into a maximum credit facility of $2,873 (RMB 20 million) with Bank of China to finance its working capital requirements. $1,005 (RMB 7 million) was drawn on December 24, 2019. The loan bears interest at 158 basis points above the prime rate of a one-year term loan published by the People’s Bank of China, at 5.83%. Interest is payable monthly and the loan is payable on ~~August 16, 2019.~~December 23, 2020. Buildings of Sinovac Dalian with a net book value of ~~$514~~$2,418 (RMB ~~3.5~~16.8 million) were pledged as collateral.

~~(e)~~(d) On ~~February 23, 2017,~~November 25, 2019, Sinovac ~~Beijing~~Dalian entered into a ~~one-year term~~revolving bank loan with ~~China Merchants~~SPD Silicon Valley Bank inwith the aggregate principal ~~amount~~ of ~~$3,074~~$7,182 (RMB 2050 million) to finance its working capital ~~requirements, bearing~~requirements. The revolving loan bears interest at ~~4.57% per year. Interest was~~125 basis points above the prime rate of a one-year term loan published by the People’s Bank of China, with a weighted average rate at 5.40% and interest is payable ~~quarterly and~~quarterly. Each withdraw from the revolving loan ~~was repaid on February 22, 2018.~~

~~(f) On May 6, 2015, Sinovac Beijing entered into~~has a maximum ~~credit facility~~term of ~~$17,284~~12 months. The outstanding balance of $1,087 (RMB ~~120~~7.6 million)~~, which was increased to $30,739 (RMB 200 million)~~ were drawn during December 2019 and are payable in ~~2017, with China Construction Bank to finance its working capital requirements.~~December 2020.

Aggregate maturities of loans for each of the next 5 years following December 31, 2019 are as follows:

On September 5, 2017, Sinovac Beijing entered into a bank loan with China Construction Bank in the aggregate principal amount of $2,982 (RMB 19.4 million) to finance its working capital requirements, bearing interest at 4.57%. Interest was payable monthly and the loan was repaid~~on May 23, 2018.~~

Prepaid land lease payment and buildings of the Changping facilities of Sinovac Beijing with a net book value of $12,978 (RMB 89.2 million) were pledged as collateral against the loan as of December 31, 2018.

(g) On March 27, 2017, Sinovac R&D entered into a bank loan with China Construction Bank in the aggregate principal amount of $722 (RMB 4.7 million) to finance its working capital requirements, bearing an interest at 4.43%. Interest was payable monthly and the loan was repaid on March 26, 2018.

(h) On May 9, 2016, Sinovac Beijing entered into a revolving bank loan with Citi Bank with the aggregate principal limit of $4,611 (RMB 30 million), which was increased to $5,090 (RMB 35 million) in 2018, to finance its working capital requirements. The revolving loan bears interest at the prime rate of a one-year term loan published by the People’s Bank of China, with a weighted average rate at 4.64% and interest is payable quarterly. Each withdraw from the revolving loan has a maximum term of 12 months. The outstanding balance of $4,611 (RMB 30.0 million) as of December 31, 2017 was fully repaid in 2018.

(i) On May 6, 2015, Sinovac Beijing entered into a maximum credit facility of $10,758 (RMB 70 million) with China Construction Bank to finance construction of the Sabin inactivated polio vaccine facilities. On October 14, 2016, Sinovac Beijing entered into a bank loan with China Construction Bank in the aggregate principal amount of $7,684 (RMB 50 million) with a term from October 2016 to October 2021. The loan bore interest at 5% below the prime rate of a five-year term loan published by the People’s Bank of China, adjusted every 12 months, currently at 4.51%. Interest was payable quarterly and the loan was repayable based on the payment schedule and shall be fully repaid before October 13, 2021. $3,230 (RMB 21.0 million) was drawn in 2016 and $4,454 (RMB 29.0 million) was drawn in 2017. On August 17, 2017, Sinovac Beijing entered into a bank loan with China Construction Bank in the aggregate principal amount of $3,074 (RMB 20 million) with a term from August 2017 to October 2021. The loan bore interest at prime rate of a five-year term loan published by the People’s Bank of China, adjusted every 12 months, currently at 4.75%. Interest is payable quarterly and the loan was repayable based on the payment schedule and shall be fully repaid before October 21, 2021. $314 (RMB 2.0 million) was drawn in 2017. On April 27, 2018 and November 9, 2018, Sinovac Beijing repaid $297 (RMB 2.0 million) and $7,272 (RMB 50 million), respectively, where all outstanding balance as of December 31, 2017 was fully repaid by then. Prepaid land lease payment and buildings of the Changping facilities of Sinovac Beijing with a net book value of $12,978 (RMB 89.2 million) were pledged as collateral against the loan as of December 31, 2018.

~~Aggregate maturities of loans for each of the next 5 years following December 31, 2018 are as follows:~~

The weighted average interest rate for all short-term and long-term bank loans was ~~4.91%~~5.09% in ~~2018 (2017~~2019 (2018 - ~~4.61%~~4.91%, ~~2016 – 4.73%~~2017 - 4.61%). The weighted average interest rate for short-term loans was ~~5.04%~~5.09% in ~~2018 (2017~~2019 (2018 – ~~4.51%~~5.04%, ~~2016~~2017 – ~~4.73%~~4.51%). The Company incurred ~~$1,470~~$715 in interest and financing expenses for the year ended December 31, ~~2018 (2017~~2019 (2018 - ~~$2,171, 2016~~$1,470, 2017 - ~~$1,841)~~$2,171), of which ~~$400~~$65 was capitalized in property, plant and equipment for the year ended December 31, ~~2018 (2017~~2019 (2018 - ~~$302, 2016~~$400, 2017 - ~~$75)~~$302).

The Company has ~~two~~three loans due to Dalian Jin Gang Group, the non-controlling shareholder of Sinovac Dalian, with a total amount of ~~$6,705,~~$8,043, of which ~~$4,378~~$4,309 (RMB 30 million) was borrowed on August 23, 2017 and is repayable on August 22, 2020. ~~$2,327~~$2,298 (RMB 16 million) was borrowed in 2012, ~~and amended from current to long term loan,~~ which is repayable on November 9, 2020. $1,436 (RMB 10 million) was borrowed on September 20, 2019 and is repayable on September 19, 2022. These ~~two~~three loans are unsecured, bearing interest at 6.0%, 7.2% and ~~7.2%~~6.5% per year, respectively. Interest expense was $455 in 2019 (2018 - $453, ~~in 2018 (2017~~2017 - $262 ~~2016 - $176).~~). Interest is payable monthly. As of December 31, ~~2018, $15~~2019, nil interest is owed on the loan from the non-controlling shareholder (December 31, ~~2017~~2018 - ~~$nil)~~$15). Interests of $470, $438 ~~$262~~ and ~~$176~~$262 were paid to the non-controlling shareholder for the years ended December 31, 2019, 2018 and 2017, ~~and 2016,~~ respectively.

In 2004, the Company entered into two operating lease agreements with SinoBioway, the non-controlling shareholder of Sinovac Beijing, with respect to Sinovac Beijing’s production plant and laboratory in Beijing, China with annual lease payments totaling $197 (RMB 1.4 million). The leases commenced on August 12, 2004 and have a term of 20 years. One of the lease agreements was amended on August 12, 2010 with the rent increasing from $75 (RMB 0.5 million) to $197 ~~(RMB 1.4~~(RMB1.4 million) per year.

In June 2007, the Company entered into another operating lease agreement with SinoBioway, with respect to the expansion of Sinovac Beijing’s production plant in Beijing, China, for an annual lease payment of ~~$297 (RMB 2.0~~$296 (RMB2.0 million). The lease commenced in June 2007 and has a term of 20 years.

In September 2010, the Company entered into another operating lease agreement with SinoBioway with respect to expansion of Sinovac R&D’s business in research and development activities for an annual lease payment of ~~$147 (RMB 1.0~~$146 (RMB1.0 million). The lease commenced on September 30, 2010 and has a term of ~~five~~5 years.

On April 8, 2013, the Company entered into three supplemental agreements with SinoBioway, under which the expiration date of three of the four operating lease agreements was extended to April 7, 2033.

In 2019, the Company entered into an operating lease agreement with Jin Gang, the non-controlling shareholder of Sinovac Dalian, to rent refrigeration storage with the space of 2,000 sq.m. with an annual rent amounted $49 (RMB0.3 million). The lease commenced on January 1, 2019 and has a term of 5 years. On June 30, 2019, the lease agreement was amended for a remaining 5.5 years, and the annual rent was changed to $22(RMB0.2 million) as the space of the leased refrigeration storage was reduced to 1,000 sq.m. In 2019, the Company also entered into a management service agreement with Jin Gang, pursuant to which it provided the Company with management service related to the operating lease agreement with an annual management service fee of $14 (RMB0.1 million). The management service agreement was amended on June 30, 2019, and the annual management service fee was changed to $6 (RMB 44,000).

As of December 31, ~~2018, $370 (December 31, 2017 - $391)~~2019, $6,553 in ~~prepaid lease payments made to SinoBioway is included~~right-of use asset and $6,210 in current and ~~long-term prepaid expenses~~non-current lease liability are related to the lease with SinoBioway and ~~deposits.~~Jin Gang.

Under the current laws of Antigua and Barbuda, the Company is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no Antigua and Barbuda withholding tax will be imposed.

Under the Hong Kong tax laws, Sinovac Hong Kong is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

Effective from January 1, 2008, the PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax at the statutory rate of 25% except for Sinovac Beijing and Sinovac Dalian. Sinovac Beijing, being reconfirmed as a “High and New Technology Enterprise” (“HNTE”) in 2017 for a period of 3 years, is subject to a preferential income tax rate of 15% from 2017 to 2019. Sinovac Dalian, being confirmed as a “High and New Technology Enterprise” (“HNTE”) in 2017 for a period of 3 years, is subject to a preferential income tax rate of 15% from 2017 to 2019.

The Company’s income ~~(loss)~~ before income tax ~~from continuing operations~~ consists of:

~~The Company’s income (loss) before income tax from discontinued operations consists of:~~

~~Income taxes that are attributed to discontinued operations in China were $nil for all the periods presented.~~

The following is a reconciliation of the Company’s total income tax expenses to the amount computed by applying the PRC statutory income tax rate of 25% to its income ~~from continuing operations~~ before income taxes for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016:~~2017:

The tax effects of temporary differences ~~from continuing operations~~ that give rise to the Company’s deferred tax assets are as follows:

In assessing the realizbility of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible or utilized. The Company considers projected future taxable income and tax planning strategies in making this assessment. Based upon an assessment of the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible or can be utilized, the Company provided valuation allowance of ~~$7,711~~$2,775 as of December 31, ~~2018~~2019 ( December 31, ~~2017~~2018 - ~~$9,981)~~$7,711).

The Company evaluates its valuation allowance requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed. When circumstances cause a change in management’s judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within the carry forward period available under applicable tax law. The Company’s valuation allowance decreased by ~~$2,270~~$4,936 from ~~$9,981 as of December 31, 2017 to~~ $7,711 as of December 31, ~~2018.~~2018 to $2,775 as of December 31, 2019.

Tax losses of the Company’s PRC subsidiaries in the amount of $23,378 (RMB 163 million) as of December 31, 2019 will expire from 2020 to 2029, if not utilized.

~~Tax losses of the Company’s PRC subsidiaries in the amount of $27,517 (RMB 189 million) as of December 31, 2018 will expire from 2019 to 2023, if not utilized.~~

As of December 31, ~~2018,~~2019, the Company has not recognized any deferred tax liability on Sinovac Beijing’s undistributed earnings of approximately ~~$99,601,~~$143,061, in view of the Company's permanent reinvestment plan. The Company would be subject to PRC withholding income taxes at 5% or 10%, depending on the availability of treaty benefit between China and Hong Kong, upon the distribution of such profits outside of China. As of December 31, ~~2018,~~2019, the Company’s portion on the amount of unrecognized deferred tax liability was ranging from ~~$4,980~~$7,153 to ~~$9,960.~~$14,306.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits, ~~as part~~and such interest and penalties are reversed when statute of ~~its income tax expenses.~~limitations lapse. For the year ended December 31, ~~2018,~~2019, the Company ~~recognized $203~~reversed $458 in interest (December 31, ~~2017~~2018 - ~~$291)~~$203 interest recorded) and nil in penalties (December 31, ~~2017~~2018 - nil). The Company had ~~$859~~$412 accrued interest as of December 31, ~~2018~~2019 (December 31, ~~2017~~2018 - ~~$667)~~$859). The PRC tax law provides statute of limitations ranging from 3 to 5 years and for transfer pricing related matters, it could be extended to 10 years. The PRC tax returns for the Company’s PRC subsidiaries are open to examination by tax authorities for the tax years beginning in 2008.

As of December 31, ~~2018,~~2019, the Company had unrecognized tax benefits of approximately ~~$1,681~~$904 (December 31, 2018 - 1,681, December 31, 2017 - ~~$1,873, December 31, 2016 - $1,842)~~$1,873) and such balance was included in “other non-current liabilities”. As of December 31, ~~2018,~~2019, unrecognized tax benefits amounting to ~~$1,681~~$904 would affect the effective tax rate if recognized (December 31, 2018 - $1,681, December 31, 2017 - ~~$1,873, December 31, 2016 - $1,842)~~$1,873). The Company does not expect the amount of unrecognized tax benefits would change significantly in the next 12 months.

Current deferred revenue included ~~$ 2,791~~$5,258 of advances from customers (December 31, ~~2017~~2018 - ~~$3,950)~~$ 2,791) and ~~$116~~$204 from Chinese government for stockpiling of H5N1 and hepatitis A vaccines (December 31, ~~2017~~2018 - ~~$123).~~

~~Long-term deferred revenue included $90 received from the Chinese government for stockpiling of H5N1 vaccines (December 31, 2017 - $nil)~~$116).

Deferred government grants represent funding received from the government for research and development (“R&D”) or investment in building or improving production facility. The amount of deferred government grants as of year end is net of research and development expenditures, deduction of depreciation expenses, and the amount recognized as government grant income. The Company received ~~$3,546~~$975 of government grant in ~~2018 (2017~~2019 (2018 - $3,546, 2017 - $2,306 ~~2016 - $753)~~) that were deferred. In addition, the Company received ~~$254~~$501 in other government grants and subsidies for the year ended December 31, ~~2018~~2019 and recognized as income in the statements of comprehensive income ~~(loss) (2017~~(2018 - $254, 2017 - $292 ~~2016 - $6,104).~~).

Summarized below are deferred government grants as of December 31, ~~2018~~2019 and ~~2017:~~2018:

(a) ~~Deferred~~As of December 31, 2019, the Company has fulfilled the conditions attached to a government ~~grants included $276 being the unamortized portion of a~~ grant ~~the Company~~ received in 2007 for construction of a pandemic influenza vaccine plant and buildings (December 31, 2017 - $568), which will be fully amortized in 2019 and was included in the current portion of deferred government grants. The Company has fulfilled the conditions attached to the government grant. The production facility grant requires the Company to have the entire facility available to manufacture pandemic influenza vaccines at any given moment upon request by the Chinese government. $272buildings. $276 of government grant relating to these production facilities was recorded as a reduction to depreciation expense for the year ended December 31, ~~2018 (2017~~2019 (2018 - $272, 2017 - $266 ~~2016 - $271).~~).

(b) ~~Deferred~~As of December 31, 2019, the Company has fulfilled the conditions attached to a government ~~grants included $54 being the unamortized portion of a~~ grant ~~the Company~~ received in 2009 for purchasing equipment for H1N1 vaccine ~~production, which will be fully amortized in 2019 and was included in the current portion of deferred government grants. The Company has fulfilled the conditions attached to the government grant. $134~~production. $54 of government grant relating to these production facilities was recorded as a reduction to depreciation expense for the year ended December 31, ~~2018 (2017~~2019 (2018 - ~~$131, 2016~~$134, 2017 - ~~$133)~~$131).

(c) ~~Deferred~~As of December 31, 2019, the Company has fulfilled the conditions attached to a government ~~grants included $15 being the unamortized portion of a~~ grant ~~the Company~~ received in 2013 for purchasing equipment for H5N1 vaccine ~~production, which will be fully amortized in 2019 and was included in the current portion of deferred government grants. The Company has fulfilled the conditions attached to the government grant.~~production. $15 of government grant relating to these production facilities was recorded as a reduction to depreciation expense for the year ended December 31, ~~2018 (2017~~2019 (2018 - $15, ~~2016~~2017 - $15).

(d) Deferred government grants included ~~$1,642~~$1,153 being the unamortized portion of a grant the Company received in 2015 for equipment purchase and construction of the enterovirus 71 (“EV71”) vaccine production facility. The Company has fulfilled the conditions attached to the government grant in 2016. ~~$474~~$468 which will be amortized in ~~2019~~2020 was included in the current portion of deferred government grants and ~~$1,168~~$685 which will be amortized after ~~2019~~2020 was included in the non-current portion of deferred government grants. ~~$412~~$394 of government grant relating to these production facilities was recorded as a reduction to depreciation expense for the year ended December 31, ~~2018 (2017~~2019 (2018 - ~~$403, 2016~~$412, 2017 - ~~$274)~~$403), and ~~$82~~$79 was recorded as government recognized in income for the year ended December 31, ~~2018 (2017~~2019 (2018 - ~~$80, 2016~~$82, 2017 - ~~$55)~~$80).

(e) As of December 31, 2019, the Company has fulfilled the conditions attached to a government grant received in 2017, 2018 and 2019 for phase IV clinical research for EV71 vaccine. $1,050 was recognized as a deduction of research and development expense for the year ended December 31, 2019.

(f) Deferred government grants included ~~$977~~$1,436 being the unamortized portion of a grant the Company received in 2017 ~~and 2018~~ for ~~phase IV clinical research~~purchasing equipment for ~~EV71 vaccine.~~sIPV vaccine production. As of December 31, ~~2018,~~2019, the Company has not fulfilled the conditions attached to the government grant. As the Company does not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

(f) Deferred government grants included $1,454 being the unamortized portion of a grant the Company received in 2017 for purchasing equipment for sIPV vaccine production. As of December 31, 2018, the Company has not fulfilled the conditions attached to the government grant. As the Company does not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

(g) Deferred government grants included ~~$607~~$600 being the unamortized portion of a grant the Company received in 2018 for international registration for EV71 vaccine. As of December 31, ~~2018,~~2019, the Company has not fulfilled the conditions attached to the government grant. As the Company does not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

(h) Deferred government grants included ~~$693~~$684 being the unamortized portion of a grant the Company received in 2018 for research for Qudravalent & Pentavalent vaccine. As of December 31, ~~2018,~~2019, the Company has not fulfilled the conditions attached to a government grant. As the Company does not expect to fulfill the conditions within one year, the grant is recorded as a non-current deferred government grant.

(i) As of December 31, ~~2018,~~2019, conditions attached to a government ~~grant~~grants received in 2017 for certain production facilities were fulfilled in 2017, of which $18 will be amortized in ~~2019~~2020 and ~~$34~~$16 will be amortized after ~~2019,~~2020, and ~~$19~~$18 of government grant relating to these production facilities was recorded as a reduction to depreciation ~~expense for the year ended December 31, 2018.~~expense. Conditions attached to a government grants received in 2014 and 2015 was fulfilled in 2019, of which $116 was recognized as a reduction of research and development expense. As of December 31, ~~2018,~~2019, conditions of ~~seven~~six government grants totaling ~~$2,176~~$2,817 have not been fulfilled by the Company, of which conditions attached to four grants totaling ~~$1,149~~$2,252 were expected to be fulfilled within one year, and were included in the current portion of the deferred government grants.

The Company leases production plant and laboratory under operating leases from its related parties (note 11(b)). Rental expense amounted to $948 for the year ended December 31, 2018 (2017 - $793, 2016 - $807).

~~Minimum future rental payments under operating leases for the years ending December 31 are as follows:~~

In addition to commitments disclosed in note 22, commitments related to R&D expenditures are ~~$2,053~~$1,911 as of December 31, ~~2018.~~2019.

Commitments related to capital expenditures for the Company are approximately ~~$581~~$1,719 as of December 31, ~~2018.~~2019.

The Company may be subject to legal proceedings, investigations and claims relating to the conduct of the Company’s business from time to time.

The Beijing People’s Court issued five judgments in 2016 and 2017. These judgments were related to corrupt conduct allegedly engaged in by a former official of the Center for Drug Evaluation in NMPA, his wife and his son. These judgments found that the official and his wife had engaged in a practice of improperly soliciting and accepting payments from various individuals involved in the vaccine products industry. According to the judgments, one of the individuals solicited by the official was Mr. Weidong Yin, the Company’s chairman, president and chief executive officer. It was asserted in the judgments that Mr. Weidong Yin made three payments, and arranged for a loan, to the official and his wife, in the total amount of $77 (RMB 0.6 million) between 2002 and 2011. Mr. Weidong Yin was not charged with any offense or improper conduct and he cooperated as a witness with the procuratorate. To the Company’s knowledge, the Chinese authorities have not commenced any legal proceedings or government inquiries against Mr. Yin. In December 2016, the Company’s audit committee authorized the commencement of an internal investigation into the allegations made in the judgments. The audit committee engaged Latham & Watkins as independent counsel to assist with the investigation.

In ~~addition,~~2017 and 2018, the Company became aware of certain judgments based on bribery charges issued by Chinese courts in four provinces against various officials of the ~~Chinese Center for Disease Control (the “CDC”).~~CDC. While these judgments appear to reflect an industry-wide investigation focused on CDC officials, they also referenced nine of ~~the Company’s~~our former ~~sales persons,~~salespersons, together with sales personnel from several other Chinese vaccine companies and distributors. These judgments did not name, and no charges were brought against, ~~the Company~~our company or any of ~~its~~our directors or officers as defendants. To the best of the Company’s knowledge, the nine referenced employees cooperated with the procuratorate. The procuratorate did not contact the Company for cooperation. Upon becoming aware of these judgments, the ~~audit committee~~Company’s Audit Committee expanded its internal investigation to review matters related to these judgments and ~~the Company’s~~our sales practices and policies, and further engaged Latham & Watkins LLP to continue the independent investigation with the expanded scope. One of the nine former sales employees has been convicted for giving bribes. The judgment states that this former sales employee took these actions without knowledge of the Company. His criminal penalty was waived by the court.

After the Company publicly announced the internal investigation arising from the allegations in a research report in December 2016, the Company was notified by the SEC in February 2017 of an enforcement inquiry related to the matters discussed in the report, and in April 2017 the Company received a subpoena from the SEC requesting documents. In September 2017, the Company received an inquiry from the Department of Justice (the “DOJ”) and the Company has been cooperating with the DOJ. The SEC and DOJ have requested information regarding the judgments discussed above, and the Company is cooperating with these requests.

Also in February 2017, the Company received an inquiry from NASDAQ related to the same matter. Further, in May 2018, the Company received an inquiry from NASDAQ requesting information related to the actions by Sinobioway and their impact on the Company’s operations and financial reporting. The Company has cooperated with both of these NASDAQ inquiries.

On August 14, 2018, the SEC notified the Company that the SEC had concluded its investigation and would not recommend an enforcement action against the Company at this time. On September 12, 2018, the DOJ notified the Company that it had closed its investigation, with no charges.

With the closure of the DOJ’s investigation, the Company is not aware of any pending U.S. government investigations of the Company related to these matters.

On July 3, 2017, a securities class action complaint was filed in the U.S. District Court for the District of New Jersey against the Company and three of its current and former officers: Mr. Weidong Yin, the Company’s current chief executive officer, Ms. Nan Wang, the Company’s current chief financial officer, and Mr. Danny Chung, the Company’s former chief financial officer. The complaint asserts that statements in the Company’s annual filings for fiscal years 2012 through 2015 were false and misleading because they failed to disclose matters relating to the alleged bribery incidents, among other allegations. On September 6, 2017, the plaintiff has filed the notice of voluntary dismissal. The Court granted the dismissal without prejudice.

On July 12, 2017, an alleged shareholder of the Company filed a putative class action complaint in the Supreme Court of the State of New York against the Company, its directors, and certain entities related to the Amalgamation Agreement, in a matter captioned Wu v. Yin, et al. The complaint alleges that the Company’s directors breached their fiduciary duties by, among other things, entering into a self-dealing transaction at a price below fair value and failing to take steps to maximize the value of the Company. The complaint also alleges that the Company aided and abetted those alleged breaches of fiduciary duty. The complaint sought, among other things, an injunction preventing completion of the transactions contemplated by the Amalgamation Agreement, rescission of the Amalgamation Agreement to the extent it is implemented, damages, and attorneys’ fees. None of the defendants, including the Company and certain directors, were served with the complaint, and the time for doing so now has expired. On July 2, 2018, the Amalgamation Agreement was terminated.

On March 5, 2018, the Company filed a lawsuit in the Court of Chancery of the State of Delaware seeking a determination whether 1Globe, The Chiang Li Family, OrbiMed and other shareholders of Sinovac Biotech Ltd. had triggered the Rights Agreement by forming a group holding approximately 45% of outstanding shares of Sinovac Biotech Ltd., in excess of the plan’s threshold of 15%, and acting in concert prior to the 2017 AGM. The ~~Company’s~~ Rights Agreement is intended to promote the fair and equal treatment of all ~~the Company’s~~Sinovac shareholders and ensure that no person or group can gain control of ~~the Company~~Sinovac through undisclosed voting arrangements, open market accumulation or other tactics potentially disadvantaging the interest of all shareholders.

On April 12, 2018, 1Globe filed an amended answer to the Company’s complaint, counterclaims, and a third-party complaint against Mr. Weidong Yin alleging, among other allegations, that the ~~Company’s~~ Rights Agreement is not valid, that Mr. Weidong Yin and the Buyer Consortium had previously triggered the ~~Company’s~~ Rights Agreement, and that 1Globe did not trigger the ~~Company’s~~ Rights Agreement. The Company and its board of directors believes that the actions taken by the board of directors were appropriate under the circumstances and that the allegations of the ~~counterclaim~~counterclaims and third-party complaint are without merit. 1Globe asks for various measures of equitable relief and also includes a claim for its costs, including attorneys’ fees.

On July 31, 2018, following the ~~Company’s~~Company motions for partial summary judgment and an expedited trial date, the Delaware Chancery Court effectively stayed the action pending receipt of a post-trial decision from the ~~High~~Antigua Court ~~of Justice, Antigua and Barbuda (“Antigua Court”)~~ in the matter captioned 1Globe Capital, LLC and Sinovac Biotech Ltd., Claim No. ANUHCV 2018/0120. On December 19, 2018, the Antigua Court issued a judgment affirming the validity of ~~the Company’s~~Sinovac Antigua’s Rights Agreement under Antigua law, and finding that “there was a secret plan to take ~~control~~control” of the ~~Company”~~Company at the 2017 AGM.

Based upon the Antigua Court’s judgment and other facts known to the board of directors, the Company’s board of directors determined that the Collaborating Shareholders became Acquiring Persons on or prior to the 2017 AGM and their conduct resulted in a ~~Trigger Event~~“Trigger Event” under the Company’s Rights Agreement. As a result of becoming Acquiring Persons, the approximately 28.7 million Rights held by the Collaborating Shareholders automatically became void under the terms of the Rights Agreement. Pursuant to the Rights Agreement, the board of directors elected to exchange the approximately 42.4 million valid and outstanding Rights held by the Company’s shareholders (not including the Collaborating Shareholders) for a combination of approximately 27.8 million Common Shares and approximately 14.6 million Series B Preferred Shares, all of which the Company issued into a trust on February 22, 2019 for the benefit of the holders of the valid and outstanding Rights.

On March 6, 2019, the Delaware Chancery Court entered a status quo order providing that the Company not distribute any of the Exchange Shares to rights holders until the final disposition of the pending Delaware litigation or further order of the Court. On April 4, 2019, the Eastern Caribbean Supreme Court, Court of Appeal issued an order that restrains the Company from taking further action under its Rights Agreement, including the distribution of the previously issued Exchange Shares to the holders of valid Rights, until the conclusion of 1Globe Capital, LLC’s appeal of the December 19, 2018 Judgment of the High Court of Justice of Antigua and Barbuda. On April 8, 2019, the Delaware Chancery Court stayed the Delaware litigation pending the outcome of 1Globe’s appeal of the Antigua Judgment. The Company cannot predict whether an ultimate outcome will be favorable or unfavorable, nor estimate the amount or range of potential loss (if any) at this time.

On March 5, 2018, the Company also filed a lawsuit in the United States District Court for Massachusetts alleging violations of Section 13(d) of the Securities Exchange Act of 1934 by 1Globe and The Chiang Li Family. The lawsuit alleges, among other things, that the defendant shareholders failed to make required disclosures on Schedule 13D regarding their intentions to attempt to replace the Company's board of directors.

On April 9, 2018, the Company received a document request from SEC requesting all of the Company’s documents concerning 1Globe, the Chiang Li Family, OrbiMed, certain other shareholders, and their affiliates. The Company has been cooperating with the SEC. The Company understands the SEC is investigating whether 1Globe, and possibly other shareholders, violated the U.S. securities laws. The Company does not have any information to suggest the SEC is investigating the actions of the Company or its officers and directors.

On May 21, 2018, 1Globe answered and filed counterclaims against the Company and certain of its executives, alleging violations of Section 10(b) of the Exchange Act and various state law claims. In response to the Company’s motion to dismiss 1Globe’s counterclaims, on August 1, 2018, 1Globe filed amended counterclaims against the Company and certain of its executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5, as well as state law claims of abuse of process, fraudulent misrepresentation, negligent misrepresentation, and aiding and abetting such violations, primarily arising out of allegedly false and/or misleading statements made by the Company regarding its business, operational, and financial results.

On August 17, 2018, the Massachusetts Court granted a consent motion to extend the deadline for the Company’s response to 1Globe’s counterclaims (and for any subsequent opposition by 1Globe) until after the Antigua Court issued a ruling in the matter captioned 1Globe Capital, LLC and Sinovac Biotech Ltd., Claim No. ANUHCV 2018/0120. On December 19, 2018, the Antigua Court issued a judgment, which 1Globe appealed on January 29, 2019. Per the Massachusetts Court’s order, the parties have filed periodic status reports regarding the pending court proceedings in Antigua. No date for the Company’s response to 1Globe’s counterclaims has been set. The Company is vigorously pursuing this lawsuit; however, the Company cannot predict whether an ultimate outcome will be favorable or unfavorable, nor estimate the amount or range of potential loss (if any) at this time.

Also on August 1, 2018, 1Globe filed a motion for preliminary injunction seeking to enjoin the Company from, inter alia, altering the capital structure of the Company. On October 15, 2018, the Massachusetts Court denied 1Globe’s motion. On November 14, 2018, 1Globe filed an appeal of the denial of its motion for preliminary injunction to the United States Court of Appeals for the First Circuit. On January 10, 2019, 1Globe filed a motion to hold its appeal in abeyance pending the outcome of its separate appeal of the Antigua Court’s judgment, which the Company opposed.In October 2019, 1Globe voluntarily dismissed the appeal.

Separately, Heng Ren Investments LP (“Heng Ren”) filed suit against the Company and Weidong Yin for alleged breach of fiduciary duties and wrongful equity dilution on May 31, 2019, in Massachusetts state court. The Company removed the matter from state court to the United States District Court for the District of Massachusetts. Heng Ren alleged that Mr. Yin breached fiduciary duties owed to minority shareholders, that the Company aided and abetted breaches of fiduciary duties, and that both the Company and Mr. Yin engaged in wrongful equity dilution. Heng Ren requested damages, attorneys’ fees, and prejudgment interest. Presently, the case is effectively stayed until June 1, 2020, when an answer or response is due.

On March 13, 2018, 1Globe filed a complaint against the Company in the Antigua Court. The complaint seeks a declaration that the five persons purportedly proposed on the Non-Public Submission at the 2017 AGM were elected as directors of the Company at that meeting, an order of the Antigua Court that those directors be installed as the Company’s board of directors, and a declaration that any actions taken on behalf of the Company at the direction of the board of directors since the 2017 AGM are null and void. On April 10, 2018, 1Globe filed a notice of application in the Antigua Court seeking an order declaring the result of the disputed election, an urgent order restraining the Company’s board of directors from acting, pending determination of the dispute, including acting to initiate or continue litigation against the Shareholder Group, and other related relief. The Company attended the first hearing on May 9, 2018. In July 2018, the Antigua court heard an application by 1Globe for interim injunctive relief preventing the Company from exercising its rights under the Rights Agreement. This application was unsuccessful, but the judge set an expedited timetable to trial. The trial of the matter took place from December 3 to 5, 2018. On December 19, 2018, the judge handed down his judgment, finding in Sinovac’s favor in full, dismissing 1Globe’s claim and declaring that the Rights Agreement was validly adopted as a matter of Antigua law. On January 29, 2019, 1Globe filed a Notice of Appeal. On March 4, 2019, 1Globe filed an application for urgent interim relief, seeking an injunction to prevent Sinovac from continuing to implement its Rights Agreement until the resolution of the appeal. This urgent interim relief application was heard on April 4, 2019, at which the Court of Appeal made an order restraining the Company in similar terms to the Delaware Court order of March 6, 2019, together with restraint from operating the Rights Agreement in any way that affects 1Globe’s rights or shareholding until determination of the appeal. ~~There will be further hearings~~1Globe’s appeal of the Antigua Court’s Judgment was heard on September 18, 2019, and anthe appeal ~~at which~~decision is pending as of the ~~Company will continue to vigorously defend the litigation; however, the~~date of this annual report. The Company cannot predict or estimate an outcome or economic burden for this case at this time.

On February 22, 2019, pursuant to the Rights Agreement, the Company’s board of directors elected to exchange the approximately 42.4 million valid and outstanding Rights held by the Company’s shareholders (not including the Collaborating Shareholders) for a combination of 27,777,341 common shares and 14,630,813 Series B Convertible Preferred Shares (the “Preferred Shares”), all of which the Company issued into a trust on February 22, 2019 for the benefit of the holders of the valid and outstanding Rights under the Company’s Rights Agreement. The Preferred Shares issued share equally in all dividends and distributions made on the common shares and vote together with the common shares on all matters brought before the shareholders, in each case on an as-converted basis and subject to applicable law. Each preferred share is convertible into one common share at the option of the Company, or automatically upon a successful shareholder vote to increase the authorized number of common shares of the Company. Until the Preferred Shares are converted into common shares (or until the Preferred Shares are listed on a nationally recognized securities exchange), they will earn a preferred dividend equal to $0.41 per share per annum, payable quarterly in arrears. As of December 31, 2019, there were 14,630,813 preferred stock issued and outstanding, and the Company accrued $5,128 in preferred stock dividend for the year ended December 31, 2019.

Each share of common stock is entitled to one vote per share and is entitled to dividends when declared by the Company’s board of directors. As of December 31, ~~2018~~2019 and ~~2017,~~2018, there were 98,903,243 and 71,139,402 ~~and 57,281,861shares~~shares of common stock outstanding, respectively. ~~As of December 31, 2018 and 2017, there was no preferred stock issued and outstanding.~~

In 2016, the Company issued 101,600 shares of common stock on the exercise of employee stock options with exercise price of $2.37 per share and 18,400 shares of common stock on the exercise of employee stock options with exercise price of $4.98 per share, for total proceeds of $315. In 2016, the Company cancelled 14,800 restricted shares previously issued to employees of the Company due to employee termination.

In 2017, the Company issued 31,000 shares of common stock on the exercise of employee stock options with exercise price of $2.37 per share and 239,100 shares of common stock on the exercise of employee stock options with exercise price of $4.98 per share, for total proceeds of $1,264. The Company received further cash proceeds of $428 on the exercise of stock option in 2017 with the shares issued subsequent to December 31, 2017.

In 2018, the Company issued 1,219 shares of common stock on the exercise of employee stock options with exercise price of $2.37 per share and 107,822 shares of common stock on the exercise of employee stock options with exercise price of $4.98 per share, for 156,300 shares of stock options exercised under cashless excise with total proceeds of $3. In 2018, the Company cancelled 51,500 restricted shares previously issued to employees of the Company due to employee termination. On July 2, 2018, in connection with a private placement transaction, the Company issued 11,800,000 shares of common stock at $7.35 per share with a nine months restricted period. The Company received net proceeds of $85,299 after deducting offering expenses of approximately $1,431.

In 2019, the Company issued 13,500 shares of common stock on the exercise of employee stock options with exercise price of $4.98 per share. In 2019, the Company cancelled 27,000 restricted shares previously issued to employees of the Company due to employee termination.

The board of directors approved a stock option plan (the “2003 Plan”) effective on November 1, 2003, pursuant to which directors, officers, employees and consultants of the Company are eligible to receive grants of options for the Company’s common stock. The 2003 Plan expires on November 1, 2023. Up to 10% of the Company’s then outstanding common stocks were reserved for issuance under the 2003 Plan. As of December 31, ~~2016,~~2019, 42,800 shares of common stock under the 2003 Plan remain available for issuance. Each stock option entitles its holder to purchase one share of common stock of the Company. Options may be granted for a term not exceeding 10 years from the date of grant. The 2003 Plan is administered by the board of directors.

In December 2011, the Company granted 767,000 options to employees with an exercise price of $2.37, being the quoted market price of the Company’s shares at the time of grant. 10% of the options vest every three months from December 26, 2012 to March 26, 2015 and expired on December 25, 2017. This grant was fully vested on March 26, 2015.

On August 22, 2012, the board of directors approved a new stock option plan (the “2012 Plan”), which allowed the Company to issue up to 4,000,000 options for common shares and restricted shares of the Company to directors, officers, employees and consultants of the Company. Each stock option entitles its holder to purchase one share of common stock of the Company. Options and restricted shares may be granted for a term not exceeding 10 years from the date of grant. The 2012 Plan is administered by the board of directors. The 2012 Plan will expire on August 22, 2022. Any awards that are outstanding on August 22, 2022 will remain in force according to the terms of the 2012 Plan and the applicable award agreement.

On May 1, 2015, the Company granted 729,000 restricted shares (the “Restricted Shares”) at par value of $0.001 and 1,341,000 options (the “Options”) under the 2012 Plan with an exercise price of $4.98, being the quoted market price of the Company’s shares at the time of grant. The options will expire on April 30, 2023. One-fifth of the Restricted Shares and Options shall vest on the first, second, third, fourth and fifth anniversaries of date of grant, respectively. The Restricted Shares are not subject to any restriction on transfer and repurchase after they are vested. 20% of the Options and Restricted Shares were vested on May 1, 2016. On December 16, 2016, the board of directors approved that an additional 30% of the Options to be vested on December 16, 2016, and restrictions of an additional 30% of the Restricted Shares were removed on December 16, 2016. On April 25, 2018, the board of directors approved that all remaining unvested Options and Restricted Shares that were granted on May 1, 2015 were fully vested on April 25, 2018.

~~On January 30, 2018, the Company granted 2,800 options to employees with an exercise price of $2.37, vesting immediately. The grant expired on December 31, 2018.~~

On March 7, 2018, the Company granted 2,000,000 restricted shares (the “2018 Restricted Shares”) at par value of $0.001 under the 2012 Plan, to certain officers and employees of the Company. 60% of the 2018 Restricted Shares will vest on the third anniversary of the date of grant, the remaining 40% 2018 Restricted Shares will vest on the fourth and the fifth anniversary evenly.

A summary of the Company’s stock options activity for the 2003 and 2012 Plan is presented below:

A summary of the Company’s non-vested restricted share activity for the 2012 plan is presented below:

~~A summary of the Company’s stock options activity for the 2003 and 2012 Plan is presented below:~~

~~A summary of the Company’s non-vested restricted share activity for the 2012 plan is presented below:~~

Share-based compensation expense, included in cost of sales, selling, general and administrative expenses and R&D expenses is charged to operations over the vesting period of the options using the straight-line amortization method. The share-based compensation expense was $3,003 in 2019 (2018 - $4,305, ~~in 2018 (2017~~2017 - $979 ~~2016 - $2,409)~~). As of December 31, ~~2018,~~2019, there was $nil and ~~$12,561~~$9,557 of unrecognized compensation cost related to non-vested stock options and non-vested restricted shares, respectively, granted under the 2012 ~~Plan, which~~Plan. The unrecognized compensation cost related to the non-vested restrict shares will be recognized over a weighted average period of ~~50 months, respectively.~~38 months.

The aggregate intrinsic value of the Company’s stock options is calculated as the difference between the exercise price of the options and the quoted price of the common shares that were in the money. The aggregate intrinsic value of the Company’s stock options exercised under the 2003 Plan and the 2012 Plan was ~~$13~~$nil and ~~$413~~$27 for year ended December 31, ~~2018,~~2019, respectively, determined as of the date of option exercise ~~(2017~~(2018 - $426, 2017 - $861 ~~2016 - $386).~~).

The estimated fair value of stock options vested during the year ended December 31, ~~2018~~2019 was nil (2018 - $1,135, ~~(2017~~2017 – ~~384, 2016 - $1,567)~~$384).

Pursuant to Chinese company law applicable to foreign investment companies, the Company’s PRC subsidiaries are required to maintain statutory surplus reserves. The statutory surplus reserves are to be appropriated from net income after taxes, and should be at least 10% of the after tax net income determined in accordance with accounting principles and relevant financial regulations applicable to PRC enterprises (“PRC GAAP”). The Company has an option of not appropriating the statutory surplus reserve after the statutory surplus reserve is equal to 50% of the subsidiary’s registered capital. Statutory surplus reserves are recorded as a component of shareholders’ equity. The statutory surplus reserve as of December 31, ~~2018~~2019 is ~~$26,643 (2017~~$33,533 (2018 - ~~$19,549)~~$26,643).

Sinovac R&D, Sinovac Dalian and Sinovac Biomed have not ~~made~~accumulated any profit since inception. No appropriation to the statutory surplus reserves and staff welfare and bonus were made.

Dividends declared by the Company’s PRC subsidiaries are based on the distributable profits as reported in their statutory financial statements reported in accordance with PRC GAAP, which differ from the results of operations reflected in the consolidated financial statements prepared in accordance with US GAAP. The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its PRC subsidiaries. The Company has not declared any dividends to the shareholder of Sinovac Beijing in 2019, 2018 ~~2017~~ and ~~2016.~~2017. As of December 31, ~~2018,~~2019, the Company has $nil dividend payable to the common shareholders (December 31, ~~2017~~2018 - $nil), and has $5,128 dividend payable to preferred shareholders (December 31, 2018 - $nil).

Under PRC laws and regulations, statutory surplus reserves are restricted to set-off against losses, expansion of production and operation and increasing registered capital of the respective company, and are not distributable other than upon liquidation. Staff welfare and bonus funds are restricted to expenditures for the collective welfare of employees. The reserves are not allowed to be transferred to the Company in terms of cash dividends, loans or advances, nor are they allowed for distribution except under liquidation. Amounts restricted include the PRC subsidiaries’ paid-in capital, additional paid-in capital and statutory surplus reserves of the Company’s PRC subsidiaries totaling ~~$75,447~~$85,446 (RMB ~~519~~588 million) as of December 31, ~~2018~~2019 (December 31, ~~2017, $68,353~~2018, $75,447 (RMB ~~473~~519 million)). Further, foreign exchange and other regulations in the PRC further restrict the Company’s PRC subsidiaries from transferring funds to the Company in the form of loans, advances or cash dividends. As of December 31, ~~2018,~~2019, amounts restricted include the net assets of the Company’s PRC subsidiaries, which amounted to ~~$154,437~~$225,014 (December 31, ~~2017~~2018 - ~~$116,365)~~$154,437).

~~The following table sets forth the computation of basic and diluted income (loss) attributable to shareholders of Sinovac per share (in thousands, except for number of shares and per share data):~~

~~Anti-dilutive options~~The following table sets forth the computation of basic and ~~non-vested restricted~~diluted income attributable to common shareholders of Sinovac per share (in thousands, except for number of shares and per share data):

As the Company announced on February 22, 2019, the Company’s Board of Directors determined that certain shareholders became Acquiring Persons, and a Trigger Event occurred under the Rights Agreement. As a result, 27,777,341 new common and 14,630,813 preferred shares of the Company were ~~not included in the diluted EPS calculation~~issued into a trust for the ~~year ended December 31, 2016.~~benefit of the holders of the valid and outstanding Rights. Releasing these shares from the trust is contingent on an outcome from the Company's legal proceeding in Antigua. Without the effect of the implementation of the Rights Agreement and the newly issued common and preferred shares, basic weighted average number of common shares outstanding and diluted weighted average number of common shares outstanding would be 71,133,027 and 71,317,227, respectively. And the basic and diluted earnings per share for 2019 would be $0.63.

The Company operates exclusively in the biotechnology sector. The Company’s business is considered as operating in one segment. The Company’s Chief Executive Officer is the chief operating decision maker and reviews the consolidated results of operations when making decisions about resources allocation and assessing performance of the Company as a whole. All revenues are generated from the subsidiaries located in China. Total long-lived assets of ~~$79,224~~$82,275 including prepaid land lease payments, property, plant and equipment are all located in mainland China (December 31, ~~2017~~2018 - ~~$85,458)~~$79,224). The Company’s total assets by geographic location are as follows:

~~The H5N1 vaccines were all sold to the Chinese government. The Company’s sales of H5N1 vaccines are dependent on government stockpiling purchases.~~

Under the terms of the technology transfer agreement, the Company will make milestone payments of up to $3,000 and royalty payments ranging from 6% to 10% of net sales in China. Both parties will work together to develop international markets for the products. On November 17, 2009 and December 14, 2011, two amendment agreements were signed for the payment of $300 for the transfer of an additional six serotypes and related technology. As of December 31, 2016, the Company made total milestone payments of $1,200 ($1,000 under the March 12, 2009 agreement and $200 under the December 14, 2011 amendment). The remaining milestone payments will be paid when the Company achieves each specific milestone, which includes obtaining clinical trials approval, completing clinical trials and achievement of desired results, and achievement of commercial sales.

On January 29, 2015, the Company entered into a third amendment to the technology transfer agreement dated March 12, 2009 and the two amendment agreements dated November 17, 2009 and December 24, 2011. By entering into this third amendment, the technology transfer agreement was revised to be a licensing agreement. The remaining milestone and royalty payments under the technology transfer agreement have been reduced. Both the Company and Tianjin Cansino are free to develop pneumococcal vaccines or to collaborate with one other company for the same purpose. The Company ~~made a~~did not make any payment ~~and~~or recorded ~~$nil, $nil and $300 in~~any research and development expenses for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively.

The Company has agreed to pay NIH a license issue royalty of $80 upon execution of the agreement and a non-refundable minimum annual royalty of $8, and royalty payments on net sales ranging from 1.5% to 4% depending on the sales territory and the customers. The Company has also agreed to pay NIH benchmark royalties of $330 upon achieving each benchmark as specified in the patent license agreement, including completion of clinical trials, obtaining regulatory approval for marketing, and achievement of commercial sales. The Company recorded a license ~~issue~~ royalty of ~~$16~~$1 for the year ended December 31, ~~2018~~2019 as R&D expenses ~~(2017~~(2018 - ~~$nil, 2016~~$16, 2017 - $nil).

The Company has agreed to pay INTRAVACC up to $2,406 (€1.5 million), net of PRC tax, including an entrance fee and milestone payments upon achieving specific milestones. The Company has also agreed to pay royalty payments in a single digit percentage of net sales generated worldwide from the product or products developed under the Agreement. The Company recorded an entrance fee of $665 (€0.5 million) for the year ended December 31, 2014 as research and development expense. The Company also recorded $125 (€94) for payment made to INTRAVACC for use of sIPV viral seeds in R&D expenses for the year ended December 31, 2014. The Company recorded a milestone fee of $611 (€0.5 million) and $568 (€0.5 million) for the year ended December 31, 2018 and 2016 as research and development expense. There was no expense incurred or paid to INTRAVACC for the ~~year~~years ended December 31, 2019 and 2017.

Subsequent to December ~~19, 2018, the High Court~~31, 2019, COVID-19 has spread rapidly to many parts of ~~Justice of Antigua~~China and ~~Barbuda held that the Company’s Rights Agreement is valid under Antigua law, and found that “there was a secret plan to take control~~other parts of the ~~Company”~~world. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China and elsewhere. The Company’s domestic sales ceased in February 2020 due to suspension of vaccination by CDCs in China as CDC attentions were diverted to COVID-19 prevention, and the Company's export was disrupted due to cancellations of cargo flights. In March 2020, certain provinces and cities in China started to lift some of the restrictive measures, and delivery of vaccines in China slowly started to resume. The Company commenced research and development on an inactivated COVID-19 vaccine at the ~~AGM. On February 18, 2019, after reviewing~~end of January 2020, and on April 13, 2020, the ~~Court’s judgment and considering all additional facts known~~Company obtained approval to ~~the Board, the Board determined that the Collaborating Shareholders became Acquiring Persons~~conduct a human clinical trial on or prior to the AGM and that their conduct resulted in a Trigger Event. Pursuant to the Rights Agreement, the board of directors elected to exchange each valid and outstanding preferred share purchase right held by the Company’s shareholders (other than the Collaborating Shareholders) for a combination of 0.655its vaccine candidate. Because of the ~~Company’s Common Shares and 0.345~~significant uncertainties surrounding the COVID-19 outbreak, the extent of the ~~Company’s newly created Series B Convertible Preferred Shares (the “Series B Preferred Shares”~~business disruption and ~~together, each an “Exchange Share”). On February 22, 2019,~~ the Exchange Shares were issued into the Shareholder 2019 Rights Exchange Trust in the name of Wilmington Trust, National Association, which holds the Exchange Shares for the benefit of the Company’s shareholders.

On March 6, 2019, the Delaware Court entered a Status Quo order preventing the Company from distributing Exchange Shares to any shareholders or otherwise take any action pursuant to the Rights Agreement until the conclusion of the litigation or Court order. The litigation is currently stayed pending the outcome of litigation in Antigua.

On April 4, 2019, the Antigua Appellate Court granted 1Globe’s application for injunctive relief to stay the operation of the Company’s Rights Agreement pending a ruling by the Antigua Appellate Court on 1Globe’s appeal as to the validity of the Rights Agreement. Based onrelated financial impact cannot be reasonably estimated at this ruling of the Antigua Appellate Court, defendants 1Globe and OrbiMed in the Delaware Action requested that the Delaware Court stay the Delaware Action pending final resolution of the Antigua Action. On April 8, 2019, the Delaware Court stayed further proceedings in the Delaware Action pending the resolution of 1Globe’s appeal before the Antigua Appellate Court

The condensed financial information has been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except that the Company used the equity method to account for investment in its subsidiaries.

The Company records its investment in its subsidiaries under the equity method of accounting. Such investment is presented on the balance sheets as “Investment in subsidiaries” and share of their income (loss) as “Equity earnings (losses) of subsidiaries” in the statements of comprehensive income (loss).

Each of the Company’s PRC subsidiaries has restrictions on its ability to pay dividends to the Company under PRC laws and regulations (Note 19). The subsidiaries did not pay any dividends to the Company for the years presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted by reference to the consolidated financial statements.

The Company does not have any significant commitments or long-term obligations as of any of the periods presented, except for those disclosed in the consolidated financial statements (notes 16 and 22).

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐
		Emerging growth company ☐

INTRODUCTION			1

PART I			12

	ITEM 1.	Identity of Directors, Senior Management and Advisers	12
	ITEM 2.	Offer Statistics and Expected Timetable	12
	ITEM 3.	Key Information	12
	ITEM 4.	Information on the Company	2830
	ITEM 4A.	Unresolved Staff Comments	4245
	ITEM 5.	Operating and Financial Review and Prospects	4245
	ITEM 6.	Directors, Senior Management and Employees	5457
	ITEM 7.	Major Shareholders and Related Party Transactions	6266
	ITEM 8.	Financial Information	6367
	ITEM 9.	The Offer and Listing	6771
	ITEM 10.	Additional Information	6772
	ITEM 11.	Quantitative and Qualitative Disclosures about Market Risk	7884
	ITEM 12.	Description of Securities other than Equity Securities	7884

PART II			7884

	ITEM 13.	Defaults, Dividend Arrearages and Delinquencies	7884
	ITEM 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	7884
	ITEM 15.	Controls and Procedures	7985
	ITEM 16A.	Audit Committee Financial Expert	8086
	ITEM 16B.	Code of Ethics	8086
	ITEM 16C.	Principal Accountant Fees and Services	8086
	ITEM 16D.	Exemptions from the Listing Standards for Audit Committees	8087
	ITEM 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	8187
	ITEM 16F.	Change in Registrant’s Certifying Accountant	8187
	ITEM 16G.	Corporate Governance	8187
	ITEM 16H.	Mine Safety Disclosure	8287

PART III			8287

	ITEM 17.	Financial Statements	8287
	ITEM 18.	Financial Statements	8287
	ITEM 19.	Exhibits	8287

	Year ended December 31,
Sales	2018		2017
	(in thousands)
Hepatitis A vaccines	$	52,420	$	27,421
Hepatitis A&B vaccines		11,006		10,430
Influenza vaccines		2,028		13,544
EV71 vaccines		162,537		121,284
Mumps vaccines		1,659		1,667
Regular sales subtotal		229,650		174,346
H5N1 vaccines		—		—
Total sales	$	229,650	$	174,346

	Year ended December 31,
Sales	2017		2016
	(in thousands)
Hepatitis A vaccines	$	27,421	$	20,044
Hepatitis A&B vaccines		10,430		552
Influenza vaccines		13,544		9,829
EV71 vaccines		121,284		35,140
Mumps vaccines		1,667		477
Regular sales subtotal		174,346		66,042
H5N1 vaccines		—		6,389
Total sales	$	174,346	$	72,431

	Year ended December 31,				Year ended December 31,
	2018		2017		2019		2018
	(in thousands)				(in thousands)
Aging within one year, net of allowance for doubtful accounts	$	71,728	$	58,157	$	108,635	$	71,728
Aging greater than one year, net of allowance for doubtful accounts		1,239		6,512		3,462		1,239
Total trade receivable	$	72,967	$	64,669	$	112,097	$	72,967

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, ~~2018~~2019
OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	As of December 31,										As of December 31,
Balance sheet data	2018		2017		2016		2015		2014		2019		2018		2017		2016		2015
	(in thousands)										(in thousands)
Cash and cash equivalents	$	158,170	$	114,415	$	62,434	$	63,834	$	89,793	$	152,718	$	158,170	$	114,415	$	62,434	$	63,834
Total assets		369,780		299,219		211,355		202,927		238,663		452,299		369,780		299,219		211,355		202,927
Short-term bank loans and current portion of long-term debt		3,321		18,152		31,279		21,775		47,375		5,934		3,321		18,152		31,279		21,775
Total current liabilities		58,205		92,543		66,264		58,138		79,870		87,199		58,205		92,543		66,264		58,138
Long term debt (include due to related party)		10,595		21,919		9,448		756		1,803		1,436		10,595		21,919		9,448		756
Net assets		291,928		177,140		129,666		136,505		140,145		352,195		291,928		177,140		129,666		136,505
Non-controlling interests		38,495		25,988		13,899		14,852		14,934		58,176		38,495		25,988		13,899		14,852
Common stock		71		57		57	57		56			99		71		57		57		57
Total shareholders’ equity	$	253,433	$	151,152	$	115,767	$	121,653	$	125,211	$	294,019	$	253,433	$	151,152	$	115,767	$	121,653

	Total		Less than 1 year		2-3 years		4-5 years		More than 5 years		Total		Less than 1 year		2-3 years		4-5 years		More than 5 years
		(in thousands)									(in thousands)
Debt obligations including amount owing to related party (including interest)	$	15,790	$	4,232	$	11,558	$	—	$	—	$	14,537	$	13,007	$	1,530	$	—	$	—
R&D expenses, liabilities and commitment		2,053		2,053		—	��	—		—		1,911		1,911		—		—		—
Operating lease obligations		10,795		1,037		2,780		1,620		5,358		8,279		832		1,583		1,454		4,410
Purchase of facilities commitments		581		581		—		—		—		360		360		—		—		—
Accounts payable and accrued liabilities		49,991		49,991		—		—		—		58,890		58,890		—		—		—
Total	$	79,210	$	57,894	$	14,338	$	1,620	$	5,358	$	83,977	$	75,000	$	3,113	$	1,454	$	4,410

Directors and Executive Officers	Age	Position/Title

Weidong Yin	5557	Chairman, President, Chief Executive Officer
Simon Anderson^{(1) (2) (3)}	5859	Independent Director
Yuk Lam Lo^{(1) (2) (3)}	6971	Independent Director
Kenneth Lee^{(2) (3)}	5052	Independent Director
Meng Mei^{(1) (2) (3)}	6365	Independent Director
Shan Fu	5153	Independent Director
Nan Wang	5354	Chief Financial Officer, Vice President
Xiaomei Yin	5557	Vice President, Sales and Marketing
Qiang Gao	4243	Vice President, Research and Development
Jing Li	4546	Vice President, Quality and Production

Name	Number of Options		Exercise Price($/Share)		Grant Date	Expiration Date	Number of Options		Exercise Price($/Share)		Grant Date	Expiration Date
Weidong Yin		150,000		4.98	May 1, 2015	April 30, 2023		150,000		4.98	May 1, 2015	April 30, 2023
Simon Anderson		40,000		4.98	May 1, 2015	April 30, 2023		40,000		4.98	May 1, 2015	April 30, 2023
Yuk Lam Lo		40,000		4.98	May 1, 2015	April 30, 2023		40,000		4.98	May 1, 2015	April 30, 2023
Meng Mei		40,000		4.98	May 1, 2015	April 30, 2023		40,000		4.98	May 1, 2015	April 30, 2023
Kenneth Lee		40,000		4.98	May 1, 2015	April 30, 2023		40,000		4.98	May 1, 2015	April 30, 2023
Nan Wang		90,000		4.98	May 1, 2015	April 30, 2023		90,000		4.98	May 1, 2015	April 30, 2023
Xiaomei Yin		10,000		4.98	May 1, 2015	April 30, 2023		10,000		4.98	May 1, 2015	April 30, 2023
Qiang Gao		40,000		4.98	May 1, 2015	April 30, 2023		40,000		4.98	May 1, 2015	April 30, 2023
Jing Li		52,000		4.98	May 1, 2015	April 30, 2023		52,000		4.98	May 1, 2015	April 30, 2023
Others as a group		302,000		4.98	May 1, 2015	April 30, 2023		283,500		4.98	May 1, 2015	April 30, 2023
Subtotal		804,000		4.98	May 1, 2015	April 30, 2023		785,500		4.98	May 1, 2015	April 30, 2023

Name	Restricted Shares		Grant Date
Weidong Yin		160,000	March 7, 2018
Nan Wang		160,000	March 7, 2018
Xiaomei Yin		120,000	March 7, 2018
Qiang Gao		120,000	March 7, 2018
Jing Li		120,000	March 7, 2018
Others as a group		~~1,320,000~~1,293,000	March 7, 2018
Subtotal		~~2,000,000~~1,973,000	March 7, 2018

	Shares Beneficially Owned			before issuance of the Exchange Shares		after issuance of the Exchange Shares
	Number	%		Number	%	Number	%
Directors and Executive Officers:
Weidong Yin	6,359,500	8.94	%	6,359,500	8.94	12,569,000	11.07
Simon Anderson	*	*		*	*	*	*
Yuk Lam Lo	*	*		*	*	*	*
Meng Mei	*	*		*	*	*	*
Kenneth Lee	*	*		*	*	*	*
Shan Fu	—	—		—	—	—	—
Nan Wang	*	*		*	*	*	*
Ming Xia	*	*		*	*	*	*
Xiaomei Yin	*	*		*	*	*	*
Qiang Gao	*	*		*	*	*	*
Jing Li	*	*		*	*	*	*
All directors and executive officers as a group	7,536,847	10.59	%	7,536,847	10.60	14,599,714	12.86
Principal Shareholders
SAIF Partners IV⁽¹⁾	10,780,820	15.16	%	10,780,820	15.16	21,561,640	18.99
1Globe Capital LLC⁽²⁾	9,353,092	13.15	%	9,353,092	13.15	9,353,092	8.24
Prime Success, L.P.⁽³⁾	5,900,000	8.29	%	5,900,000	8.30	11,800,000	10.39
Vivo Capital⁽⁴⁾	5,900,000	8.29	%	5,900,000	8.30	11,800,000	10.39
Total share outstanding				71,125,902	100.00	113,534,056	100.00

Exhibit Number		Description of Document

1.1		Articles of Incorporation and By-laws, as amended on March 21, 2006 and July 14, 2011 (incorporated by reference to Exhibit 1.1 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on April 12, 2012)
1.2		Certificate of Designations of Series A Junior Participating Preferred Shares (incorporated by reference to Exhibit A to Exhibit 4.1 from our Current Report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on March 29, 2016)
1.3		Certificate of Designations of Series B Convertible Preferred Shares (incorporated by reference to Exhibit 3.2 from our Registration Statement on Form 8-A (file no. 000-29031) filed with the Securities and Exchange Commission on February 22, 2019)
1.4		Certificate of Designations of Series C Junior Participating Preferred Shares (incorporated by reference to Exhibit 99.7 from our Current Report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on February 22, 2019)
2.1*		Specimen of Common Share Certificate

2.2*		Specimen of Series B Convertible Preferred Shares
2.3*		Description of Rights of Each Class of Securities Registered under Section 12 of the Securities Exchange Act of 1934
4.1		Translation of a Lease between Sinovac Beijing and SinoBioway related to a building of approximately 28,000 square feet, dated August 12, 2004 (incorporated by reference to Exhibit 4.1 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on July 14, 2006)
4.2		Translation of a Lease between Sinovac Beijing and SinoBioway related to a building of approximately 13,300 square feet, dated August 12, 2004 (incorporated by reference to Exhibit 4.2 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on July 14, 2006)
4.3		Translation of a Supplement Agreement to the Leases between Sinovac Beijing and SinoBioway (incorporated by reference to Exhibit 4.3 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on July 14, 2006)
4.4		Translation of a Supplemental Agreement, dated August 12, 2010, to a Lease Contract between Sinovac Beijing and SinoBioway, dated August 12, 2004 (incorporated by reference to Exhibit 4.18 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on April 30, 2013)
4.5		Translation of a Supplemental Agreement, dated April 8, 2013, to a Lease Contract between Sinovac Beijing and SinoBioway, dated August 12, 2004 (incorporated by reference to Exhibit 4.16 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on April 30, 2013)
4.6		Translation of a Lease between Sinovac Beijing and SinoBioway related to buildings of approximately 37,000 square feet, dated June 4, 2007 (incorporated by reference to Exhibit 4.8 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on March 31, 2008)
4.7		Translation of a Supplemental Agreement, dated April 8, 2013, to a Lease Contract between Sinovac Beijing and SinoBioway, dated June 4, 2007 (incorporated by reference to Exhibit 4.17 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on April 30, 2013)
4.8		Stock Option Plan adopted on November 1, 2003 (incorporated by reference to Exhibit 4.4 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on July 14, 2006)
4.9		2012 Share Incentive Plan adopted on August 22, 2012 (incorporated by reference to Exhibit 4.15 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on April 30, 2013)
4.10		Form of Employment Agreement between the Registrant and Officers (incorporated by reference to Exhibit 4.5 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on May 11, 2018)
4.11*4.11		Translation of Form of Employment Agreement between the Registrant or its subsidiary and any other senior executive officers of the Registrant or its subsidiary (incorporated by reference to Exhibit 4.11 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on April 29, 2019)

4.12		Form of Non-disclosure, Non-competition and Proprietary Information Agreement between the Registrant or its subsidiary and any other senior executive officers of the Registrant or its subsidiary (incorporated by reference to Exhibit 4.7 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on July 14, 2006)
4.13*4.13		Form of Director Indemnification Agreements (incorporated by reference to Exhibit 4.13 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on April 29, 2019)
4.14		Securities Purchase Agreement dated as of July 2, 2018, between Sinovac Biotech Ltd., Vivo Capital, LLC and Prime Success, L.P. (incorporated by reference to Exhibit ~~99.3~~99.2 from our current report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on July 3, 2018)
4.15		Registration Rights Agreement dated as of July 2, 2018, between Sinovac Biotech Ltd., and Vivo Capital, LLC and Prime Success, L.P. (incorporated by reference to Exhibit 99.3 from our current report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on July 3, 2018)
4.16		Shareholders Agreement dated as of July 2, 2018, between Sinovac Biotech Ltd., and Vivo Capital, LLC and Prime Success, L.P. (incorporated by reference to Exhibit 99.4 from our current report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on July 3, 2018)
4.17		Form of Director Confidentiality Agreement (incorporated by reference to Exhibit ~~99.9~~99.8 from our current report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on July 3, 2018)
4.18		Trust Agreement dated as of February 20, 2019 between Sinovac Biotech Ltd. and Wilmington Trust, National Association (incorporated by reference to Exhibit 99.2 from our current report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on February 22, 2019)
4.19		Amended and Restated Rights Agreement, dated as of February 22, 2019, between Sinovac Biotech Ltd. and Pacific Stock Transfer Company, as Rights Agent (incorporated by reference to Exhibit 99.6 from our current report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on February 22, 2019)
4.20		Amendment to Amended and Restated Rights Agreement, dated as of February 19, 2020, between Sinovac Biotech Ltd. and Pacific Stock Transfer Company, as Rights Agent (incorporated herein by reference to Exhibit 4.1 from our current report on Form 6-K (file no. 001-32371) filed with the Securities and Exchange Commission on February 21, 2020)
8.1*		List of Subsidiaries
11.1		Code of Business Conduct and Ethics (incorporated by reference to Exhibit 11.1 from our annual report on Form 20-F (file no. 001-32371) filed with the Securities and Exchange Commission on July 14, 2006)

12.1*		CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*		CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*		Consent of Marcum Bernstein & Pinchuk LLP
15.2*		Consent of ~~Ernst & Young Hua Ming LLP~~
15.3*		~~Letter dated as of April 29, 2019 from~~ Ernst & Young Hua Ming LLP
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Scheme Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*		Filed with this annual report on Form 20-F
**		Furnished with this annual report on Form 20-F

	Sinovac Biotech Ltd.

	By:	/s/ Weidong Yin
		Name: Weidong Yin
		Title: Chairman and Chief Executive Officer

Date: April ~~29, 2019~~30, 2020

Reports of Independent Registered Public Accounting Firm –Marcum Bernstein & Pinchuk LLP	F-3

Reports of Independent Registered Public Accounting Firm – Ernst & Young Hua Ming LLP	F-5

Consolidated Balance Sheets	F-6

Consolidated Statements of Comprehensive Income ~~(Loss)~~	F-7

Consolidated Statements of Shareholders’ Equity	F-8

Consolidated Statements of Cash Flows	F-11

Notes to Consolidated Financial Statements	F-12

	December 31, 2018			December 31, 2017		December 31, 2019			December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	158,170		$	114,415	$	152,718		$	158,170
Restricted cash (note 3)							3,160			—
Short-term investment (note 4)		18,908			—		50,274			18,908
Restricted cash		—			1,549
Accounts receivable – net (note 5)		74,464			66,205		113,736			74,464
Income tax receivable		2,999			—		—			2,999
Inventories (note 6)		25,091			19,618		27,846			25,091
Prepaid expenses and deposits (including prepaid expenses to a related party of 2018 - $354, 2017 - $366) (note 11 (b))		4,543			2,101
Prepaid expenses and deposits (including prepaid expenses to a related party of 2019 - $nil, 2018 - $354)							1,873			4,543
Total current assets		284,175			203,888		349,607			284,175
Property, plant and equipment – net (note 8)		70,920			76,430
Prepaid land lease payments (note 9)		8,304			9,028
Long–term inventories (note 7)		90			—
Long–term prepaid expenses to a related party (note 11(b))		23			25
Property, plant and equipment – net (note 7)							74,310			70,920
Prepaid land lease payments (note 8)							7,965			8,304
Right-of-use assets (note 9 and 11(b))							6,636			—
Long–term inventories							—			90
Long–term prepaid expenses to a related party							23			23
Prepayments for acquisition of equipment		470			528		2,390			470
Deferred tax assets (note 13)		5,798			9,320		11,368			5,798
Total assets	$	369,780		$	299,219	$	452,299		$	369,780
LIABILITIES AND EQUITY
Current liabilities
Short-term bank loans (note 10)	$	3,321		$	18,152	$	5,934		$	3,321
Loan from a non-controlling shareholder (note 11 (a))							6,607			—
Accounts payable and accrued liabilities (note 12)		49,991			59,418		58,890			49,991
Income tax payable		—			8,862		1,904			—
Deferred revenue (note 14)		2,907			4,073		5,462			2,907
Deferred government grants (note 15)		1,986			2,038		2,738			1,986
Dividend payable (note 17)							5,128			—
Lease liability (note 9 and 11(b))							536			—
Total current liabilities		58,205			92,543		87,199			58,205
Deferred government grants (note 15)		5,961			4,474		3,986			5,961
Long-term bank loans (note 10)		3,890			14,849		—			3,890
Deferred revenue (note 14)		90			—		—			90
Loan from a non-controlling shareholder (note 11 (a))		6,705			7,070		1,436			6,705
Lease liability (note 9 and 11(b))							5,758			—
Other non-current liabilities (note 13)		3,001			3,143		1,725			3,001
Total long-term liabilities		19,647			29,536		12,905			19,647
Total liabilities		77,852			122,079		100,104			77,852
Commitments and contingencies (notes 16 and 22)
EQUITY
Preferred stock		—			—
Preferred stock (note 17)							15			—
Authorized 50,000,000 shares at par value of $0.001 each
Issued and outstanding: nil
Issued and outstanding: 14,630,813, including 14,630,813 held in trust (2018 – nil, nil)
Common stock (note 17)		71			57		99			71
Authorized: 100,000,000 shares at par value of $0.001 each
Issued and outstanding: 71,139,402 (2017 –57,281,861)
Issued and outstanding: 98,903,243, including 27,777,341 held in trust (2018 – 71,139,402, nil)
Additional paid-in capital		204,998			115,339		207,962			204,998
Accumulated other comprehensive income (loss)		(2,099	)		7,075
Accumulated other comprehensive loss							(4,321	)		(2,099	)
Statutory surplus reserves (note 19)		26,643			19,549		33,533			26,643
Accumulated earnings		23,820			9,132		56,731			23,820
Total shareholders' equity		253,433			151,152		294,019			253,433
Non-controlling interests		38,495			25,988		58,176			38,495
Total equity		291,928			177,140		352,195			291,928
Total liabilities and equity	$	369,780		$	299,219	$	452,299		$	369,780

Name	Date of incorporation or establishment	Place of incorporation (or establishment) /operation	Percentage of ownership as of December 31, 2018			Percentage of ownership as of December 31, 2017			Principal activities	Date of incorporation or establishment	Place of incorporation (or establishment) /operation	Percentage of ownership as of December 31, 2019			Percentage of ownership as of December 31, 2018			Principal activities
Sinovac Biotech (Hong Kong) Ltd. (“Sinovac Hong Kong”)	October 2008	Hong Kong		100	%		100	%	Investment holding company
Sinovac Biotech (Hong Kong) Limited (“Sinovac Hong Kong”)										October 2008	Hong Kong		100	%		100	%	Internatioanl sales and marketing
Sinovac Biotech Co., Ltd. (“Sinovac Beijing”)	April 2001	People’s Republic of China (“PRC”)		73.09	%		73.09	%	Research and development, production and sales of vaccine products	April 2001	People’s Republic of China (“PRC”)		73.09	%		73.09	%	Research and development, production and sales of vaccine products
Sinovac Research & Development Co., Ltd. (“Sinovac R&D”)	May 2009	PRC		100	%		100	%	Research and development of vaccine products	May 2009	PRC		100	%		100	%	Research and development of vaccine products
Sinovac (Dalian) Vaccine Technology Co., Ltd.(“Sinovac Dalian”)	January 2010	PRC		67.86	%		67.86	%	Research and development, production and sales of vaccine products	January 2010	PRC		67.86	%		67.86	%	Research and development, production and sales of vaccine products
Sinovac Biomed Co., Ltd.	April 2015	PRC		100	%		100	%	Distribution of vaccine products	April 2015	PRC		100	%		100	%	Distribution of vaccine products


Plant and buildings	10 to 24 years
Machinery and equipment	8 to 10 years
Motor vehicles	4 to 5 years
Office equipment and furniture	3 to 5 years
Leasehold improvements	Lesser of useful lives and term of lease

	For the year ended December 31,
	2018		2017		2016
Sales	$	—	$	—	$	—
Cost of sales		—		—		—
Gross profit		—		—		—
Selling, general and administrative expenses		—		—		129
Research and development expenses		—		—		—
Total operating expenses		—		—		129
Operating loss		—		—		(129	)
Other income		—		—		6
Loss from discontinued operations before gain on disposition and provision for income taxes		—		—		(123	)
Gain on disposal of Tangshan Yian		—		—		2,461
Provision for income taxes		—		—		—
Income from discontinued operations, net of income tax	$	—	$	—	$	2,338

	December 31,						December 31,
	2018			2017			2019			2018
Trade receivables	$	77,537		$	69,448		$	116,278		$	77,537
Allowance for doubtful accounts		(4,570	)		(4,779	)		(4,181	)		(4,570	)
		72,967			64,669			112,097			72,967
Other receivables		1,497			1,536			1,639			1,497
Total accounts receivable	$	74,464		$	66,205		$	113,736		$	74,464

	For the year ended December 31,
	2019		2018
Cash payments for operating leases	$	807	$	—
Right-of-use asset obtained in exchange for operating lease liabilities		135		—

2020	$	832
2021		806
2022		777
2023		774
2024		680
Thereafter		4,410
Total future lease payments		8,279
Less: Imputed interest		1,985
Total lease liability balance	$	6,294

Within 1 year	$	5,934
In 2021		—
In 2022		—
In 2023		—
In 2024		—
Total	$	5,934

Within 1 year	$	3,321
In 2020		3,890
In 2021		—
In 2022		—
In 2023		—
Total	$	7,211

	Number of Options			Weighted Average Exercise Price ($/option)		Aggregate Intrinsic Value ($)
Outstanding as of January 1, 2019		804,000		$	4.98	$	1,575,840
Granted		—			—		—
Exercised		(13,500	)		4.98		—
Forfeited / Expired		(5,000	)		—		—
Outstanding as of December 31, 2019		785,500		$	4.98	$	1,170,395
Vested and expected to vest at December 31, 2019		785,500		$	4.98		1,170,395
Exercisable as of December 31, 2019		785,500		$	4.98	$	1,170,395

	Number of Non-Vested Restricted Shares			Weighted Average Grant Date Fair Value ($)
Non-vested as of January 1, 2019		2,000,000		$	8.25
Granted		—			—
Vested		—			—
Forfeited		(27,000	)		8.25
Non-vested as of December 31, 2019		1,973,000		$	8.25

	Number of Non-Vested Restricted Shares			Weighted Average Grant Date Fair Value ($)
Non-vested as of January 1, 2018		272,000		$	4.98
Granted		2,000,000			8.25
Vested		(220,500	)		4.98
Forfeited		(51,500	)		4.98
Non-vested as of December 31, 2018		2,000,000		$	8.25