1. Cooperation: on December 9, 2015, Gaojia Enterprise, a wholly-owned subsidiary indirectly held by the company, signed a subscription agreement with VMR Products. The first batch of shares subscribed for at a consideration of US $10 million is equivalent to about 22.22% of the issued share capital of VMR, and has the right to further subscribe for the rights and interests of VMRProducts at US $12.95 million after the first subscription, with a total of 51% of the cumulative actual rights and interests subscribed for VMRProducts will become a non-wholly-owned subsidiary indirectly held by Huabao International.

2. Basic situation of VMR Products: the company is the largest independent e-cigarette manufacturer in the international market, engaged in the overall design, distribution and manufacture of e-cigarettes, and the only atomized product company that adopts vertically integrated business model to manage the entire product life cycle to ensure strict quality control and customer loyalty. As of December 31, 2014, VMR Products had sales of about US $44.16 million, of which more than 50% came from online sales.

3. Ownership of business leadership after the merger: Huabao International will soon acquire a controlling stake in VMR Products51% according to the transaction arrangement, and will still adopt the management mode of the board of directors to CEO in the future. The board of directors Zhonghua Bao International will occupy the majority of seats, and the founder of the former VMR Products will continue to serve as CEO and lead his team to continue to be responsible for the normal operation of the company. The management will adopt the performance management system, and the performance evaluation target for each year will be issued by the board of directors. Next, the two sides will make further integration in the aspects of supply chain, channel, internal management and so on.

4. The reason for purchasing VMR Products: VMR Products is produced in Shenzhen, China, and adopts the OEM model, and the market is mainly in the United States. At present, VMR Products has three different levels of brands in the United States, divided into popular, professional (high-end) and female brands, and has a high popularity in the United States. 50% of its sales are done online, and it has its own online sales platform, which is very different from the traditional sales channels adopted by competitors; and online consumption is also an emerging trend in the United States, with good development prospects. VMR Products has a strong technical advantage, through 6 years of accumulation in the United States, especially in the high-end groups have a good reputation and customer loyalty. In the high-end field, it has not officially entered the Chinese market, and the products are still mainly low-end, which is mainly related to the development stage of the Chinese market and the structure of consumers. However, I believe that in the future, with the gradual maturity of consumers, high-end products will be accepted by more and more experienced users. Huabao International's e-cigarette SPV pays more attention to the Chinese market. After in-depth integration with VMR Products's supply chain, technology, channels and marketing, it will provide customized products for Chinese consumers.

5. The profit situation of VMR Products: although there is a loss on net profit in the financial report, the gross profit margin of VMR Products is very high, which is related to the development concept of the company and takes the development path of "technology leading". Therefore, the company has a relatively large investment in technology, and it takes a certain amount of time to produce considerable benefits. Next year, in the field of high-end products, the company will launch major products every quarter, which is the first in the industry; in addition, in terms of middle and low-end products, there will also be breakthroughs in the design of smoke bombs and the replacement of heaters for smoke oil. will be significantly lower than competitors in terms of cost. Although the performance of VMR Products is poor in recent years, the company is optimistic about its future development prospects.

6. Future merger and acquisition plan: e-cigarette is the strategic plate of the company, and absolute holding of VMR Products is the first strategic merger made by the company. The management is optimistic about the e-cigarette market and does not rule out the possibility of further acquisitions and mergers.

7. VMR Products growth: VMR Products sales revenue was US $44.16 million in fiscal year 2014 and US $32.06 million as of October 31 this year. VMR Products management is confident that the revenue will exceed US $6000-70 million in 2016, achieving more than 50% growth, and further achieving more than 30% growth in 2017. At the same time, we are confident that we can turn losses into profits in 2016 and make a better profit contribution to Huabao International's e-cigarette sector in 2017.

Summary and suggestions: the business composition and development direction of VMR Products are highly complementary to Huabao International, and it is expected to play a synergistic effect in product technology, marketing, R & D, sales channels and supply chain management in the future, which is in line with the company's long-term development strategy. However, as the tobacco industry is still facing greater downward pressure, the company's main business will continue to be seriously affected, and its performance will also face a negative impact. It is recommended that we continue to pay attention.